Peak Oil News: Is Oil Heading For $100?

Tuesday, October 19, 2004

Is Oil Heading For $100?

Stephen Leeb, president of Leeb Capital Management, a New York investment manager and author of The Oil Factor (Warner Business 2004). estimates that if China and India continue to grow, the demand for oil will rise by 6.1% per year. To meet such demand, the world would have to raise output by 43% by 2010 and to triple it in 20 years.

Is such an increase plausible? Matthew Simmons, chairman of Simmons & Company International, an energy banking firm in Houston, points out that, while new discoveries are certainly possible, even likely, 70% of the world's daily supply comes from fields that have been drilled for 30 years or more. Leeb adds that even Saudi Arabia, despite a stagnant economy, consumes 24% of the oil it drills. In order for it to boost production, it will have to consume a higher percentage
of what it makes. As for the world's second largest oil exporter, Russia, if its economy weren't a basket case, it might be using its entire output internally.

Leeb says that during the last oil crisis, the world was producing at 70% capacity. Now it's at 99%. Because there is no slack in the system, every time there is a trial in Russia, a strike in Venezuela, a hurricane off Louisiana or a surge in violence in the Middle East, the oil markets react dramatically. The good news is that we are more efficient than in the 1980s, and we spend a much smaller share of gross domestic product on energy. But while demand may slack off short term due to slower growth, the longer term is troubling regardless of new production technology or far better conservation.

Where have we heard this before? In the 1970s and 1980s, some prognosticators spoke about the world "running out of oil." That prospect is not what drives the current fears. It is the apparently inevitable supply-and-demand driven market movements that may force the price of oil to $100. And that's a lot scarier.


At 8:12 AM, October 20, 2004, Anonymous Anonymous said...

Oil at $100 will cause a lot of problems, but it will spur us all to figure something out. We shrunk our cars, installed a woodstove, bought a woodlot and are putting in solar hot water. We're just ahead of the curve. If you're smart you'll get going too. The dollar has already been devalued by 20% and they're talking about doing it again. Best to do something now while you still have any cash left. You'll spend it all to run your SUV later unless you dump the thing now. Sell the McMansion and buy a house in a walkable neighborhood. Now's the time, before everyone else wakes up from the petrochemical stupor we've been in. Necessity is the mother!

At 3:00 PM, October 20, 2004, Anonymous Anonymous said...

No need to move. With cars gone every neighborhood will be walkable.

At 3:53 PM, October 20, 2004, Blogger MK said...

Wood is not a very good energy source. It is terribly polluting. Even with high tech stoves it returns a huge amount of carbon dioxide to the atmosphere - a greenhouse gas that contributes to global warming. Also, it would not last long. Many places in the world where wood is (was) an energy source the forests are diminished or even completely gone. We are going to need new technologies, not a return to old ones. This is a really tough situation!


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