Brent Crude price Aug 08 – Jan 09
Chart generated by thisismoney.co.uk
Posts on The Oil Drum and iStockAnalyst in the last couple of days point out something interesting.
From The Oil Drum’s post:
Nobuo Tanaka, the head of the International Energy Agency (IEA) said today…
Oil at near $40 a barrel has slowed investment in oil projects, he told Reuters, raising the possibility of a supply shortfall once demand resumes.
“The current price level has a negative impact on investment in new oilfields,” Tanaka said on the sidelines of the World Economic Forum in Davos.
“We are concerned about slowdown, slippage, cancellation of projects. When demand comes back, we may have a supply crunch,” He added.
And from a post on iStockAnalyst a few days earlier:
A massive slump in oil exploration spending pummeled Schlumberger Ltd. (SLB), the world’s largest oilfield services corporation, as profit fell 17% in the fourth quarter. But the company said curtailed spending could be setting the stage for a rebound in oil and gas prices as supplies dwindle.
Schlumberger is pulling back as a collapse in petroleum prices led to a sharp drop in exploration spending by its customers.
So the current low oil prices mean oil exploration and investment in new oilfields is being cut back. Because of the inelasticity of the demand and supply curves for oil, this means when the world economy (and demand for energy) starts to ramp up again we are in for another price shock, like the one we saw in 2008.
With the next shock though we will have depleted that much more of the world’s finite supply, and the lack of investment in exploration means that the next oil shock will require an even bigger global recession for the price to fall back down once more. How likely is that?
With respect to time frames, this recession has at least another year to run, I suspect, before demand starts back up again. So another oil shock in 2010?
Perfect! Just in time for the launch of many of the new battery electric, and plug-in hybrids by the mainstream motor manufacturers!
sebastian goeres says
Also, guess who will cut supply to regain profits? As soon as the economy recovers, we will see a surge in oil prices. Frankly, I would like to see that rather sooner than later. Cheap oil is nice, but as a renewable energy professional I need to see people seriously considering sustainable alternatives. All green talk aside, they don’t do that without the right price signals.
Oil prices will definitely returm to prior levels and go well beyond them. Nothing has changes. Alternatives are mainly niche markets and more and more nations and peoples will use oil. With all the cutbacks in new oil exploration and development the oil prices will surge quickly and unexpectantly.
Oil demand/prices over the next decade will to a large degree be driven by emerging economy demand at the margin. Here is another thought experiment using Chinese demand to generate some rough back of the envelope? forecasts:
– China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year over the next 30 years
– No peak in global production
Result: In next 10 years we must find 44 million BOPD – 26 million BOPD to maintain supply and 18 million BOPD to keep up with demand increases.
If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years – most likely something would give far before that price level:
– Oil demand elasticity of -0.3
– Current production 84 million BOPD
– Current price US$ 80
– Peak production 100 million BOPD
– Post peak decline rate of 3-4%
If you want to try the china oil demand or the peak oil models for yourself using your own assumptions they can be found at Enquirica in the “Research” section: http://www.enquirica.com/index.php?option=com_content&view=article&id=11&Itemid=13