Re: Matthew Simmons on Oil

From: Al Koop <>
Date: Wed Aug 24 2005 - 12:25:48 EDT

But I don't understand what the incentive is for Russia or Saudi Arabia to raise output to bring the price down. If the oil people are even close to right, including Chevron and Exxon, there is not much excess supply to be had by anyone else. You don't even need a high school econ course to realize that selling 8 billion barrels a year at $60 per barrel beats selling 10 billion barrels a year at $40 per barrel. I doubt if there is any way the world could trim its use by 12 percent a year and make up for depletion as well so this cutting back should work. Russia and Saudi Arabia would be doing themselves a favor by resting their fields and having mor oil for the future plus they would force the world to start preparations for a future with less oil--a very good thing that might stave off some military solutions if the decline happens too quickly. It seems the Putin administration and Abdullah should see this and make sure the price does not fall below $60 per barrel.


>>> "Don Winterstein" <> 08/24/05 7:24 AM >>>
Glenn Morton wrote: "The world is short on oil now and the $67/bbl is evidence of that shortage."

Oil prices have not gone in a single direction for the 30 years or so I've been aware of them, so there probably will be notable declines again in the future. I recall industry leaders in the mid to late '70s talking about prices going through the roof, and all the major oil companies suddenly got serious about research into alternative sources of energy such as solar and shale oil. Then the bottom dropped out, massive layoffs followed, and one company after another eventually dropped its research into alternate energy. Two things happened: The country got serious about conservation (remember the enforced 55 mph speed limits?), and the hundreds of oil companies worked desperately to increase their output while the prices were high. All those little bits added up. Of course, the shortages in the '70s were artificial or temporary, caused first by the Arab embargo and later by the Iran-Iraq war.

Then in the late '90s prices again dropped to a low of $8-10 per barrel when OPEC increased its quotas and Asia was in economic doldrums.

I agree with Glenn that this time--especially on account of economic vitality in China and India--we're much closer to the point where no amount of industry effort is going to make a decisive difference--although I've heard Russia may have realistic potential for boosting output significantly. And how about Iraq in a dream world where the bombing stops? But we're also seeing American drivers put on more miles than ever, apparently oblivious to higher prices. Demand has not yet dropped, so for the short term this can only drive prices higher still.

But if China or India or the USA were to stumble, and Americans were to curb their wasteful habits, ... there could be reprieve. Economies aren't monotonic, either.

Received on Wed Aug 24 12:28:31 2005

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