$200 Oil Is Coming While We Waste a Perfectly Good Crisis
Source: Seeking Alpha, James Quinn (4/8/09)
"We are three, six, maybe nine months away from a price shock. . ."
The energy infrastructure continues to rust away, decades old wells are closer to depletion, and alternative energy projects have been scrapped by the thousands. Peak oil likely occurred between 2005 and 2009. The production of oil will now embark on a long slow decline. The world is not prepared.
Matt Simmons, the brilliant energy analyst and author of Twilight in the Desert, recently told Reuters, "We are three, six, maybe nine months away from a price shock. We are not talking about three to five years away - it will be much sooner. These prices now are dangerously low. The lower prices fall, the less oil will be produced and the greater the chance of an oil spike."
In this scenario, low oil prices will continue to take oil fields out of production and reduce exploration. Once prices recover, companies will have trouble gearing back up due to the credit crunch, resulting in production increase delays.
Simmons describes what will happen. "Unless oil demand falls by 10% or 15% per annum, which it is not going to do, then we don't need to wait for oil demand to come back before we have a supply crunch."
The worldwide global recession is the only reason you are not paying $5.00 a gallon for gasoline today. Supply did not increase, demand leveled off. World demand "plummeted" from 87 million barrels per in early 2008 to 84 million barrels per day in early 2009, a full 3.5% decline. If the world economy levels off and resumes growth, demand will immediately surpass previous levels. When demand is rising and supply is declining, only one thing can happen - higher prices.