Fear is the fuel driving oil prices along the Peak theory road
HE might be quietly rejoicing but you won't hear a prediction on the oil price from Woodside boss Don Voelte. He just doesn't give them.
Neither do his oil company rivals. As oil prices shoot through the roof, those in the know talk 10-year moving averages, always conservative.
Nary a word about "Peak Oil", the theory that the world has, or will soon have, exhausted half of its oil reserves.
Amid the demand to fuel an insatiable Chinese economy, not to mention India, crude oil prices are not so much driven by OPEC these days, or by mere cyclical phenomena such as the uptick from demand for "driving season" in the US, or impending demand for heating in the northern hemisphere winter. Cyclones in the Gulf of Mexico, inventories in the US and turbulence in the Middle East all have their impact.
But fear is the driving factor.
Fear, or the "demand risk premium", accounts for perhaps $US30 a barrel of the raging $US66 a barrel crude price. Supply and demand is the rest.
More than any other commodity, or economic variable, crude oil infects every market in the world: manufacturing, services, bonds, resources and stock markets from Warsaw to Wall Street.
Oil delivered a peaking US stock market a rude shock on Tuesday night, the Dow dropping 121 points on concern that higher gas prices were a drag on consumer spending.
Indeed the CPI numbers, up 0.5 per cent for July, showed their biggest increase for three months. But it was a warning from the world's largest retailer, Wal-Mart, which really hit hard. Second-quarter sales, conceded Wal-Mart, had suffered from lower consumer spending thanks to higher petrol prices.
"I worry about the effect of higher oil prices," said Wal-Mart chief executive H. Lee Scott Jr, who went on to provide a somewhat bleak earnings outlook. The stock dropped 3 per cent. The bad news out of Bentonville, Arkansas, sparked a rout in other US retail stocks and reverberated around the world.
If one thing could spoil the benign environment of record Wall Street profits, Chinese growth, low inflation and interest rates, it was oil.
It's not easy to say it. It's ugly to hear it. But without discovering huge new oilfields, the world is slowly but inexorably running out of oil. Low-cost oil especially.
Though Woodside and the giant oil majors such as Exxon, BP, Chevron and Shell, consistently report their depletion rates are more than matched by their rising reserves. In this way, Peak Oil can be dismissed.
Reserves are rising. The problem is that incremental reserve increases are dwarfed by the spectre of exploding demand.
Once regarded as the domain of crackpots and scaremongers, Peak Oil Theory is now fashionable.
The world is burning 84.5 million barrels of oil a day. China alone will increase its demand from 5 million to 7 million barrels a day in the next two years. And it's not likely consumption will decline in the US and Europe.
To lend this some local perspective, Woodside's Chinguietti oilfield off the coast of West Africa has 120 million barrels of oil. That's a day and a half of global production, and it's expensive to suck out of the seabed.
As one observer noted yesterday: "If you didn't have to be in offshore Mauritania, you wouldn't be."
Deep-sea production costs are twice that of say Libya, where the black stuff rests shallow beneath the sand, or Iraq too, where concessions are yet to be awarded.
Against the case for Peak Oil - that a giant oilfield has not been discovered for years and the supply side is simply not up to satisfying demand - is the assumption that higher prices will inevitably promote higher cost exploration in presently inaccessible places. Deep sea for one. That means one thing, higher prices.
Indonesia, an OPEC member and big producer, cast doubt on its capacity to keep subsidising local demand this week. China too, subsidises.
The era of high oil prices, which now seems upon us, is great news for oil and gas producers but it is dreadful for just about everyone else, especially the likes of transporters and airlines. In the medium term, crude oil is far more likely to rise in price, than fall.
And a few years from now ... well, no less than another 12 uranium explorers have materialised on the ASX in the past 30 trading days.