It’s no surprise that the oil buying price runs we’ve seen recently are driven by the political turmoil in Libya – Africa’s third-largest oil exporter. The clashes seen in the country are taking about 850,000 barrels out of production each day.
We’ve also noted the recent political protests in Egypt, Oman, Tunisia and others. Algeria, a key producer itself, declared a state of emergency at one point.
Libya and the other OPEC gang-bangers produce 34 million barrels of oil per day. That’s 3/4 of the world’s reserves. So any time something happens over there, from a dust storm to a civil war, it rattles the markets.
And brace yourself – I doubt if we’ve seen the end of these uprisings. There is a cultural schism going on across the region. The hearts and minds of the inhabitants are at stake.
But, even before the current Mid-East throw-downs, oil was climbing. It only takes a tiny leak in the Trans-Alaska Pipeline, or some rock fungus being endangered. A tropical storm somewhere in Indonesia will do it. The simple fact is this – any disruption… or perceived disruption… sends the oil markets into a lather.
This is because of another fact: there isn’t enough oil to spare.
The Unites States sucks up 20 million barrels of oil EVERY DAY. China is practically drunk on the stuff, too – they slog down nearly 10 million barrels daily. India, same story. South America, Russia and a dozen other areas are following suit.
Aside from a brief downturn during the recession, global oil consumption is moving higher. It’s like a juggernaut. Worldwide oil consumption rose 2.4 million barrels per day in 2010 — the second steepest growth rate in 30 years. Most experts expect it will hit 88.2 million barrels per day this year.
But wait – the world’s oil refineries can only manage 87.7 million barrels per day. They simply tap out at that point.
In other words, demand will outstrip supply by 500,000 barrels per day. And I doubt Obama is gonna make a difference. He’s not likely to orchestrate a price reduction like George Bush did on his way out. Hell, he *hopes* the Brazilians will sell the oil they plan to pump from OUR offshore fields back to us. This administration certainly does not get it, so don’t hold your breath.
Production grounds have been declining for years, too… you know, the physical places where oil comes from. There is little new exploratory development, either, since everyone is focused on offshore supplies. But those are expensive places to extract oil from. Prices will have to stay high if these are to be profitable. The same can be said for the fabled “lake of oil” said to exist in this country and Canada. We just aren’t equipped to get these reserves out.
SO, I think prices are headed higher. Oh, they will stabilize here or there, or even dip now and then. But we will see ever increasing price plateaus as an outcome. And we are going to see continued skyrocket profits for the oil companies.
Which is good. Yes, I said it – this is good.
Oil drillers benefit. Service and equipment providers benefit. STOCKHOLDERS benefit. The families of these people benefit. The communities they live in benefit – -etc., etc.
Even the Green Movement benefits when oil prices go high, since it kick-starts real investment in genuine alternatives to oil. But the oil companies engaged in sucking the stuff from the ground will benefit the most.
Sorry, but we gotta keep it real.
So, am I suggesting you invest in oil? YES – and hurry up. Other experts are rubbing their crystal balls and arriving at the same conclusion. These same ‘guru’s’ also suggest you look to the smaller companies that don’t have large exploratory/extraction budgets – or the distractions of the big guys. Canadian oil companies strike me as likely candidates, for example. These smaller exporters and producers have the most to gain from $150 oil, fewer stockholders to divide it up among and fewer people keeping the watchdogs’ eye upon them.
Something to think about.