Beurscafé.net

1. Peak Oil is inevitable, since oil was created millions of years ago and there is a finite quantity. Whatever amount of oil exists is all we have, since making new oil would take millions of years.

2. World oil production is declining by about 4% per year, since many existing oil fields have reached their peak. If conventional oil production is roughly 85 million barrels per day, then the first 3.4 million barrels of new daily production every year only serves to offset declines in existing fields.

3. New discoveries are increasingly rare and small. In the 1960s it was not uncommon to find 40 to 50 billion barrels per year of new oil reserves. Now, 10 to 15 billion barrels is considered a more typical exploration year.

4. New discoveries are from sources that are more much costly or environmentally unpopular, such as the tar sands and off-shore. Barrack Obama has said he may ban oil from the tar sands for environmental reasons and environmentalists claim that off-shore drilling would threaten ocean species.

5. Oil-producing countries seem unable to increase production. They claim they are trying to increase production, but so far they have been unable to do it.

6. Emerging markets demand growth is very strong, especially in China. In the last five years, yearly oil consumption in China has grown from 1.88 billion barrels to 2.80 billion, an increase of 920 million barrels a year, or about 37% of the total increase in world consumption over that time frame. (..)

7. Oil price subsidies in many countries can help maintain this demand. (..) Morgan Stanley estimates that half the world’s population enjoys fuel subsidies, as almost a quarter of the world’s gasoline is sold at less than market prices. The cheapest gasoline is in Venezuela, at five cents per liter. Until very recently, Chinese motorists paid $0.79 per liter.

8. Governments have not responded either because they are “leaving it to the market” or are unable to do anything. The theory is that market prices will increase oil prices, which will result in alternative energies becoming profitable. However, the development of mass alternative energy sources will likely take years. Oil is a globally traded commodity, so individual country governments may not be able to do anything.

9. Oil industry analysts are just being conservative about long term prices when they assume $80-90/barrel when valuing oil companies. They have historically been slow to change their underlying assumptions.

10. Many investment experts believe in Peak Oil. Proponents of Peak Oil include Jeff Rubin (economist from CIBC who is predicting $200/barrel oil by 2012, possibly by 2009) and Eric Sprott (hedge fund manager that believes we are going back to 90% of our population being farmers with horses and plows by 2200).

1. Index futures for oil and resources have been created in the last couple of years and have resulted in massive speculation that has driven much of the oil price rise. (..) Probability Analytics Research estimated the equilibrium oil price without investment demand is $60-75 per barrel, with investment demand adding roughly $60 to the price of oil.

2. Demand is not out-pacing supply. In the last 12 months, world oil demand is up only 2%, while supply is up 2.5%. Meanwhile, the price has nearly doubled. How can this be anything other than pure speculation?

3. Most oil experts assume the proper oil price should be between $60-90/barrel. Almost all oil analysts assume a price of $80-90/barrel when valuing oil company shares. The $60-70 range is often quoted by Saudi Arabian oil minister Ali Al-Naimi as being a realistic price for oil, since that is the marginal cost of production for alternative energy sources. In fact, OPEC, which controls 40% of the world’s oil, states that there is “no justification for oil above $80/barrel” and that “fundamentals do not support a price above $80/barrel”.

4. Anecdotal evidence is that the long-awaited demand reductions resulting from high oil prices may have begun. The widely-used quote is: “The cure for $145 oil is $145 oil.” Airlines—choking on $4 per gallon jet fuel prices—are slashing capacity. Sales of gas-guzzling SUVs and light trucks are collapsing in the U.S., while small cars and hybrids are flying off the lot. Public transportation use is increasing. Many are changing jobs to be closer to home, or moving closer to their job. Oil demand is starting to drop off throughout the OECD. Demand responses take time, but we may have reached a tipping point. Gary Becker, an economist at the University of Chicago, has calculated that in the past, over periods of less than 5 years, oil consumption in the OECD dropped by only 2% to 9% when oil prices doubled. But over longer periods, consumption dropped by 60%.

5. Oil supply increases may be on the way. Six years is not a long time in the context of the time it takes to develop an oil field. The last doubling of oil prices has occurred in the last year or so. No supply response over that time frame could have been reasonably expected. The largest new field for years was just discovered in Brazil and is estimated to contain 5-8 billion barrels.

6. Huge amounts of oil are thought to exist off-shore. George Bush just lifted an executive ban that has existed since 1990 on off-shore oil drilling. If the legislative ban is also lifted, then off-shore drilling can finally start. Drilling is banned in many other regions rich with oil or gas resources due to long-term energy strategies and environmental concerns.

7. Oil-producing countries do not necessarily have the incentive to increase production as rapidly as oil-consuming nations may want. They may believe that they will maximize the long-term value of their oil reserves by developing them more slowly.

8. Oil price subsidies in many countries will become increasingly difficult to maintain. Higher gas prices in these countries would result in lower demand. The latest jump in oil prices is making subsidies much more costly, and strains on governmental budgets are forcing some nations to lift subsidies. On May 24, Indonesia raised fuel prices by +30%, followed shortly by Taiwan (+13%) and Sri Lanka (+24%). China has just recently increased its gas prices, since the subsidies that amounted to about 1% of GDP.

9. Many European geologists, especially in Russia, still believe in the abiogenic theory. (..) The abiogenic theory states that oil is created by carbon released by microbes that migrates upward from the earth’s mantle. It has been popularized in the West recently by Thomas Gold, professor at Cornell University. If it is correct, then not only can oil be continuously created, but there may be far more oil in the earth than most believe. Oil companies have not drilled in areas most likely to contain abiogenic oil. Most geologists consider oil to be a fossil fuel, but the abiogenic theory has not been proven false.

10. Governments have not responded with official policies and have not officially expressed concern. Peak Oil has been discussed endlessly in the press and in the financial industry. Governments must know what is going on and are not concerned.

11. Alternative fuel sources will reduce our need for oil. Humans are adaptive. There are many fuel sources available now and high oil prices will make alternative sources much more viable.

12. Peak Oil is being a marketed. Most of the strongest proponents of Peak Oil are in the investment industry working for companies that have made huge amounts of money from rising oil prices.

13. Many oil industry insiders believe this is a bubble. Those that believe this is a bubble include OPEC, Saudi Arabian oil minister Ali Al-Naimi, Richard Rainwater (Texas oil billionaire), and George Soros (legendary hedge fund manager).