Bullish Oil Inventory, Big Energy Problems
6/11/2008 2:00 PM EDT
After another week of surprising large oil inventory drawdowns, the story is finally coming into focus regarding supply and demand. And it ain't so pretty. Saudi can't increase supply much more than they have, up to around 9.5 million barrels per day. Or they would. And the demand reduction that's occurring in the developed world is being sucked up by emerging markets, including the oil producers themselves.
Now, I don't know what the fair price of oil should be. There are a lot of issues involved. No doubt there is upward pressure from commodity investing. And, certainly, demand reduction is happening here, and in most of the developed world, right in front of our eyes. So things will balance out eventually.
But I do know that big, unexpected inventory draws, in a season which usually supports inventory builds, is not a good thing. And I know that the Saudis won't come clean with their real production data so we can prepare for plateau oil if it's happening. That's not good either.
Some of the biggest oil fields in the world are in accelerating decline phase, and non-OPEC production growth is disappointing once again. If Saudi, Russia, Exxon, and Royal Dutch can't raise production, prices will stay high enough to ration oil and gasoline. And the middle classes in India, China, Russia, Brazil, and the Middle East are not returning to mopeds or bicycles. Get used to it.
I don't want to sound alarmist, but it almost feels as if a geographical bidding war for energy resources is just starting to develop. I hope this observation is incorrect. But we need to prepare a "plan b" if it's right, and that entails something other than blaming big oil and threatening windfall profits taxes.
In fact, the moron politicians who focus on the wrong issues are exacerbating the problem. Because of their ineptitude, we have no viable energy policy and unfortuntely, no hope of one either. The nu-cu-lar knucklehead who thinks more oil refineries and Anwar are the solution is as bad as the socialist bozo who thinks taxing Exxon's mostly foreign profits and buying hybrids will solve our energy problems.
We really do need a politically insulated, long tenured energy Fed position that can coordinate all of the steps we need to take to secure our future energy supply. In this multiple choice essay, all of the above is the correct answer. We need more drilling yesterday and a Marshall plan for solar. We need more energy conservation, tax incentives to rapidly and aggressively develop alternatives. We need everything that's been put forth and then some. And we need it soon.
Until we get this done, expect to pay high prices for gasoline and natural gas. Stop whining about it and stop blaming the oil companies. Do any and everything you can to save on energy consumption. We are in this position because we are energy pigs, and we have chosen politicians ignorant enough to lead us to slaughter. We get what we deserve.