Peak Oil News: The return of Peak Oil

Thursday, May 07, 2009

The return of Peak Oil

Investors Chronicle

By Daniel O'Sullivan

If you thought that the slump in crude prices from their $147 per barrel zenith last July spelled the end of 'peak oil' theories, think again. One US brokerage thinks that, far from approaching the mythical peak, we are in fact already past it.

Peak oil is the notion that the rate of global oil extraction is nearing the absolute limit of what its geology can support, and that declining production is inevitable thereafter. The inference is that new demand from the likes of China and India spells rationing through permanently sky-high prices.

But Marshall Adkins, analyst at Raymond James, thinks the peak was last summer. He cites the behaviour of Saudi Arabia as evidence. The kingdom, which dominates Opec, can usually be relied upon to open the spigots in response to soaring oil prices, as it did in 2005, when oil hit $70 per barrel.

Yet last summer, Saudi Arabian output never exceeded 9.6m barrels per day, the same ceiling it reached in 2005. With massive economic and political incentive to pump as much as it could, the implication is this is actually the limit of what Saudi Arabia can supply to the world market.

There isn't much slack elsewhere. The US, Russia and North Sea producers already pump as much as they can, yet non-Opec production has still declined since 2007. Other Opec members were also pumping as much as possible last summer.

So, if everyone, including the Saudis, was flat out last summer, we have unwittingly already seen the current industry configuration operating at full capacity. And, as Mr Adkins agrees that fresh discoveries will not come onstream fast enough to offset decline rates at existing fields, we are therefore past the historical peak of daily oil supply.

If true, the realisation is too late for many speculators who went long of oil above $100 but have subsequently unwound those positions. Andy Awad of Greenwich Associates says a major contributor to surprisingly strong first-quarter profits from some large US and European banks was financial investors 'restructuring' commodity derivative positions - stumping up losses to date plus 'break fees' to buy themselves out of bets on sky-high prices for commodities, particularly oil.


At 12:15 AM, May 14, 2009, Blogger Robin Datta said...

Anyone listening to Matt Simmons and / or The Oil Drum / Energy Bulletin crowd first heard of the peak was in May 2005. Since then the variations have been fluctuations within a narrow (?4%) range, pending the start in 2009 of the 6% to 9% annual decline if we are to believe the IRA 2008 World Energy Outlook.


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