Oil Prices Move As Reserves Decline

Oil Prices Move As Reserves Decline

The Price Moves #1: “Oil price leaps to year’s high” says the post on the guardian.co.uk site this 6/11/09.  Terry Macalister’s piece speaks to several possible price point futures and raises some serious questions concerning declines in oil reserves.

Here are some highlights:

• “The price of oil burst through the $71 a barrel mark today amid revelations that proven reserves had fallen for the first time in 10 years and predictions that the price could eventually hit $250.”
• “Kuwait’s oil minister, Sheikh Ahmad al-Abdullah al- Sabah, put some of the rise down to signs of recovery in Asia but warned that overall demand was still weaker than last year. OPEC would not raise supply at current oil prices but did not rule it out “if it reached $100”, he said.
• “… BP’s Statistical Review of World Energy, which showed that the world’s proven reserves had fallen by 3bn barrels to 1.258tn by 2008 from a revised 1.261tnin 2007.”
• “The drop is partly attributed to a drop in exploration drilling due to the precipitous fall in oil prices last year BUT ALSO TO THE END OF “EASY” OIL (caps/PH).”
• “The latest surge (in price) has also raised fears that higher energy costs could snuff out the nascent economic recovery.”

The Price Moves #2: The Los Angeles Times …Business (latimesblogs.latimes.com/money) article of 6/11/09 brings several different perspectives to the table regarding these aspects of oil: prices, uses and reserves as well as the future of all three. Some of  “Oil, The rise and fall … and rise “  key points:

• “The world consumes 30 billion barrels of oil a year. Without it, our food doesn’t make it to the supermarket and our flights to Hawaii are grounded.”
• “An $85-a -barrel year end forecast  from Goldman Sachs …”
• “Prices have more than doubled since crude visited the low-$30’s in February. The falling dollar has helped, as some investors have turned to raw materials as a hedge against the greenback’s slide.”
• “ … the action (oil demand) is in the developing world. Masses continue to leave the land for the cities, where they become bona fide fossil fuel consumers.”
• “Where the crude will come from to satisfy these new wants is a puzzle. Most of the cheap and easy sources have been mined.For much of this decade, when demand already was pushing the supply envelope, drillers ventured into fields and waters that required high expense and high technology to yield their riches. Now, many of those projects have shut down.”
• “But this much seems clear: the move from $33 to $68 a barrel -during a time of surplus – offers just a whiff of what will happen when supply tightens again. If the recession passes and scarcity sets in, the return of energy angst will make for giddy prices in the oil market.”

‘As Reserves Decline’: “World Oil Reserves Fell for The First Time in 10 Years BP Says” is the Rachel Grahan and Alexander Kwiatkowski article posted on Bloomberg.com this 6/11/09. Here is perhaps the article’s most important point:

“None of the biggest international oil companies have replaced output through new discoveries or extending fields IN THE PAST SIX YEARS (caps/PH), Sanford C. Bernstein & Co. said in an April 2 report. Companies such as Royal Dutch Shell Plc, Europe’s largest oil company by market capitalization, are looking at acquisition to boost reserves, Bernstein said.”

PrudentHome.com Comment: In practical terms, with 90% of the world’s food produced via high fossil fuel inputs, oil = food.

Oil also effects and affects civilization as we have come to know it, especially in the Western World. It is not just a lubricant but THE lubricant of and for the modern world’s standard of living.

With this in mind, perhaps it would be a good idea to keep an eye on its availability and search for substitutes as soon as possible at the international, national and personal levels. Just a thought.

Until next time, keep your eyes on the horizon as the weathers changing fast.