by Keith Fitz-Gerald 10/01/08
Five Points to Bank On
What's likely to happen longer term? Simple. In fact, here are five points you can take to the bank.
- First, global oil demand is still accelerating and, according to the United States Energy Information Administration (EIA), will reach more than 115 million barrels per day by 2030 -- even with conservation efforts and high prices stunting demand.
- Second, daily production has probably peaked right now at nearly 90 million barrels a day, or will peak in a few years at the very latest. While experts once debated the reality of the "Peak Oil" concept, they now accept it and only question when it will take hold.
- Third, the world's fastest growing economies, China and India, are still increasing consumption at double-digit rates, and that more than offsets any conservation efforts that are under way elsewhere around the world. And their governments want to buy oil at any cost - even if that means there's none left for us.
- Fourth, the world will learn one day -- probably sooner rather than later -- that Saudi Arabia's vaunted reserves are nowhere near what it claims them to be, and those reserves are certainly not at the levels long held as "gospel" in the oil business.
- Fifth, Bailout Ben has dropped trillions into the system to stabilize the Wall Street while Paulson has broken out his bazooka which suggests that as much of 95% or more of oil's price drop can be attributed to nothing more than the dollar's rise since July. Nothing else has changed.
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Matthew Simmons, chairman of the Houston-based investment bank Simmons & Co. International and author of the seminal 2005 book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," has been most vocal about this alleged shortfall, and I respect his work, especially since I've spoken behind closed doors with several OPEC figures who privately acknowledged that this may be their worst nightmare. Simmons recently predicted that oil prices would rally to $500 a barrel.
Should traders see through the smoke and mirrors or simply decide to run for the exits, we can expect to see the dollar shrink to new lows and oil to rise to new highs in a perverse flight to quality.
Only this time, this "quality" is literally quite crude …
Keith Fitz-Gerald is the Investment Director for Money Morning/The Money Map Report. For more information on Keith, read his bio here.
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