tight supply of oil

From: Glenn Morton (glenn.morton@btinternet.com)
Date: Fri Mar 07 2003 - 01:21:38 EST

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    The recent crises in Venezuela, Nigeria and the potential crisis in Iraq has
    finally illuminated exactly what the excess oil production capacity is for
    the world. Lots of people who disbeleive that the world is about to peak
    oil production contend that there is lots of excess capacity in OPEC and
    that as other areas go down, they will go up. All future predictions of oil
    supply include this OPEC increase as part of their supply forecast.

    The strikes in Venezuela have had the effect of removing 1 million bbl/day
    from the world market which may never come back on stream. There is a threat
    of losing the Iraqi 2 million. For a while OPEC said that they would up
    production to cover the loss but it is obvious now that they can't. The Wall
    Street Journal notes:

    "OPEC has been producing increasing volumes of oil in recent weeks, but
    prices continue to rise. Mr. Drollas said that in the short term, OPEC can
    increase its output by only 1.3 million barrels a day, or some 700,000
    barrels less than Iraq's exports, assuming Saudi Arabia is producing at nine
    million barrels a day. "OPEC Officials Can't Suppress Rising Oil Prices,"
    Wall Street Journal Fri. Feb. 28, 2003, p. A5

    The Saudis say they can raise output to 10.5 million in 90 days. From
    rumors in the industry, the problem is that this claim is based upon the
    fact that 20 years ago certain wells, which are now shut in, produced 20,000
    per day or something like that. Reservoir pressure is lower today than then
    and those wells may not be able to perform.

    Now, having only a 1.3 million/day excess capacity means the price will now
    be uncontrolable. Over the long term the demand for oil rises at 2-3% per
    year. IN 2001 the world used 74 million barrels per day. We will exceed
    current excess capacity in a couple of years. Now, there will be some
    attempt to fill the gap and some partial successes. But we are in recession
    now so the world's economy is not drinking as much oil as it normally would.

    Added to that the past fluctuations in demand are more than the current
    excess capacity. In thousands of barrels per day, here are the figures for
    world consumption from 1997-2001:

    1997 1998 1999 2000 2001
    71848 73280 71832 74482 74493

    One sees yearly swings of 3 million per day. That kind of demand volatility
    will eventually and suddenly overtake supply with consequent high rise of

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