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World Will Face Oil Crunch ‘in Five Years’


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I don't understand why oil shares are not rocketing on these news stories. The PE ratio of the majors is about 10-12, it should be way higher as they're sitting on an asset that is going to greatly increase in value. What are people doing with the proceeds of their sales of Barrats shares?

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I don't understand why oil shares are not rocketing on these news stories. The PE ratio of the majors is about 10-12, it should be way higher as they're sitting on an asset that is going to greatly increase in value. What are people doing with the proceeds of their sales of Barrats shares?

there is a limit to how high oil price will go

the limit might be the price of nuclear energy or solar energy or ....

plus the oil exporting nations would rather keep oil cheap, high oil prices = large solar concentrators to generator energy for cheap!

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I would love it if we ran out of oil. Back to basics. Nice clean green energy only. Worldwide economic armagedon but it would be worth it.

i don’t think you are fully comprehending the words that come out of your moth.

let me translate what you just said

"i would love it if we all had our pay checks cut in half and the price of everything else stays put!"

think about it, if you don’t understand why that sentence and the one you said are the same, ill explain

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there is a limit to how high oil price will go

the limit might be the price of nuclear energy or solar energy or ....

plus the oil exporting nations would rather keep oil cheap, high oil prices = large solar concentrators to generator energy for cheap!

I read some stuff about Iraq's oil recently.

As many said at the time the Invasion was planned by the neo-cons to smash OPEC ( See gregpalast.com ) and pump more oil out of Iraq.

It seems to have backfired. Palast interviewed execs of big oil companies who were delighted at the high oil price caused by the Iraq war as they had made tens of billions of dollars worth of profit from it.

http://news.bbc.co.uk/1/hi/programmes/newsnight/4354269.stm

I think the exporting countries would be quite happy of the price stayed where it is as they also make more profit from a higher price.

ps

Iraq's oil wealth is being divvied up amongst western oil companies right now

http://www.alternet.org/waroniraq/56301/

The proposed oil law facing the Iraqi cabinet would allow Western oil companies to take about 50% of all production as their share, an "obvious robbery of the Iraqi oil," says oil workers union heavy.

IRAQS NEW OIL LAW

According to Article 111 of the Iraqi Constitution, which states that the oil and gas of Iraq are owned by the Iraqi people and they have the right to control it. But when you look into the details of the law, many of the articles of the law actually conflict with this preamble of the law, the most important point of which is the issue of the production-sharing agreements, which allows the international oil companies, especially the American ones, to exploit the oil fields without our knowledge of what they are actually doing with it. And they take about 50% of the production as their share, which we think it's an obvious robbery of the Iraqi oil.

Edited by jimmyjazz
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there is a limit to how high oil price will go

the limit might be the price of nuclear energy or solar energy or ....

plus the oil exporting nations would rather keep oil cheap, high oil prices = large solar concentrators to generator energy for cheap!

...or the price of using coal for power generation, and possible coal derived products for transport. This is the possibility that seems to be often neglected. Environmentally it could be catastrophic, because it would mean a even higher use of carbon (at least some of oil derived energy comes from the hydrogen in the oil), and the other pollutants (heavy metals, sulphur etc.) would be much worse too. But, if the transition to energy utopia of nuclear and solar is too expensive, I think we can all guarantee what will happen - the dash back to coal.

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Yes please. For all the doom mongering about how things like a rise in energy prices will cause property prices to collapse, I suspect you'll be surprised just how stubborn it turns out to be. Apart from anything else, there may be some areas that skyrocket in value, because they offer better access to employment without large transport requirments, or alternatively better access to other amenities, such as open country, locally sourced food etc.

It is very hard to predict what the effect of rocketing energy prices will have on property values; many have tried and there are many different opinions. Personally, I could absorb huge leaps in domestic gas prices, petrol prices etc. So could a lot of people I suspect. Sure, it would have a dramatic effect on the some parts of the economy, as spare cash gets diverted into necessities like heating. But from the point of view of providing physical comfort, I'd rather live in my own house, paying more on heating, than be shunted around as a tennant when the chaos breaks out.

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i don’t think you are fully comprehending the words that come out of your moth.

let me translate what you just said

"i would love it if we all had our pay checks cut in half and the price of everything else stays put!"

think about it, if you don’t understand why that sentence and the one you said are the same, ill explain

Maybe. But then again there's huge reserves of carbon based energy under the ground; coal. It's not pretty, but that's what WILL be used. When oil prices rocket, you can organise all the global warming conferences you want, but people will demand that coal is dug out of the ground and ignited.

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I don't understand why oil shares are not rocketing on these news stories. The PE ratio of the majors is about 10-12, it should be way higher as they're sitting on an asset that is going to greatly increase in value. What are people doing with the proceeds of their sales of Barrats shares?

Oil Cos are huge so share prices don't rocket upwards. Don't wait until they are higher to confirm that they should be.

Buy them and then benefit from profits whilst watching inflation go up. Luvvly jubbly.

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We will, we will!

See, I'm not sure if you are joking. But in all seriousness, we will to begin with. Eventually, the crunch will come, and it will either be a breakthrough into clean nuclear technologies and solar power, or it will be an era of coal burning. If the latter, pollution will rocket, and the problem will merely be delayed by a few decades, or maybe a century. But we're not descending back into preindustrial status just yet.

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I don't understand why oil shares are not rocketing on these news stories. The PE ratio of the majors is about 10-12, it should be way higher as they're sitting on an asset that is going to greatly increase in value. What are people doing with the proceeds of their sales of Barrats shares?

Contrary to popular belief the vast bulk of global oil reserves are in the hands of the NOC's (state oil companies). 'Big Oil' was estimated to own only around 12% of reserves from one estimate I saw recently. Several of the oil majors have recently reported that they were unable to replace their reserves last year i.e. they produced more than they discovered or could include by reserve additions. ExxonMobil did manage full reserve replacement...but only by acquisition, not with the drill bit.

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From OP's referenced IEA report:

The widening gap between rising consumption and lagging non-Opec supply will force Opec to sharply increase its production in the next five years.

What if they can't? Depletion Levels in Ghawar (Updated). If KSA's biggest field has peaked then so has OPEC.

The full IEA 82 page report is currently available to view online (foc): IEA July 2007 Report (PDF warning).

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Contrary to popular belief the vast bulk of global oil reserves are in the hands of the NOC's (state oil companies). 'Big Oil' was estimated to own only around 12% of reserves from one estimate I saw recently. Several of the oil majors have recently reported that they were unable to replace their reserves last year i.e. they produced more than they discovered or could include by reserve additions. ExxonMobil did manage full reserve replacement...but only by acquisition, not with the drill bit.

BP got 100 % too. And before any one accusses me of ramping, you cannot ramp a £100Bn company.

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i don’t think you are fully comprehending the words that come out of your moth.

let me translate what you just said

"i would love it if we all had our pay checks cut in half and the price of everything else stays put!"

think about it, if you don’t understand why that sentence and the one you said are the same, ill explain

Let me translate what you've written;

moth = mouth

check = cheque

ill = I'll

Reading between the lines I'd say you were pretty numb, especially when you imply that widespread wages can get cut in half and that asset prices would remain high and stable??? What law of economics would that follow then?

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The question is why are we not using the alternatives e.g. LPG, Bio Diesel etc

LPG is include by the majors in reserve calc. This is know as BOE (barrel oil equivalent) which is calculated on joules not cost.

Bio Diesel. Love it. Nice and inflationary and destabalising. Look at tortilla inflation in mexico (no thats not a joke) and pasta prices in italy about to go up 40% as the idiots use corn to make fuel.

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LPG is include by the majors in reserve calc. This is know as BOE (barrel oil equivalent) which is calculated on joules not cost.

Bio Diesel. Love it. Nice and inflationary and destabalising. Look at tortilla inflation in mexico (no thats not a joke) and pasta prices in italy about to go up 40% as the idiots use corn to make fuel.

Just heard government will not chase duty on chip fat oil if used on a small scale and not bought from a major supplier

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http://www.moneyandmarkets.com/press.asp?r...18&cat_id=6

Three Triggers for Higher Oil Prices (by Sean Brodrick)

6/13/2007 8:00:00 AM

After hitting a nine-month high last week, oil took a shellacking. I guess that means we can all breathe easier and go out and buy HUMMER H3s, right? Not so fast!

Gasoline prices are already 27 cents per gallon higher than they were a year ago, and there is plenty of evidence that they're smoking on the launch pad.

What could be the driving force behind oil's next surge? I can't be sure. That's the challenge — we never know exactly what the oil market will throw at us.

But I do see at least three potential catalysts. I'll tell you about them in a moment. And I'll also tell you how you can protect your portfolio — even profit — from the next surge in oil prices.

First, here's one major reason why it won't take much of an event to send prices soaring …

The Supply Chain from the Oil Well To Your Gas Tank Has Never Been Tighter

For 2007, the International Energy Agency sees global oil demand totaling 86.1 million barrels per day (bpd). That implies year-over-year growth in oil demand of 2%. And the world's suppliers (OPEC supplies 40% of the world's oil) are currently producing 85 million barrels per day. They can just about keep up with new demand.

More importantly, how much spare capacity is there, just in case things go wrong? (And something ALWAYS goes wrong!)

Spare petroleum capacity, according to the IEA, is capacity that can be turned on for 30 days and sustained for 90 days.

A "comfortable" level of spare global capacity would be five or six million bpd. But recently that number has been less than three million bpd. And one to two million bpd of that spare capacity is in Saudi Arabia. Talk about putting all your eggs in one basket!

Before 1970, the U.S. had spare capacity of its own … but no longer. The once-rich West Texas oil fields are now populated by thousands of stripper wells, which eke out oil by the tablespoon.

And there is always the possibility that countries which say they have spare capacity — particularly Saudi Arabia and Kuwait — may be bluffing. Why would they bluff? If your entire society depended on one commodity, would you want the world to know you were running out of that commodity?

The Dwindling Giants

Kuwait's giant Burgan oil field already peaked.

Reserves in Saudi Arabia's humongous Ghawar field, which pumps roughly five million barrels of oil every day (meeting 6% of the world's demand) are declining at 8% a year. In fact, Saudi oil production has been dropping since 2004. They say they're cutting by choice. If the product you sold was going for record prices, would you cut production?

Closer to home, Mexico's big oil field, Cantarell, peaked in 2004 at slightly over two million barrels per day. Since then, its production is down to just 1.6 million barrels per day. And in the next three years, Cantarell will produce less than half a million barrels per day, according to experts. Soon after that, Mexico will have to start importing oil.

So we're already in trouble. In fact, if you really want to start sweating, here are some things to think about:

* The world consumes 173 billion barrels of oil — about 14 Prudhoe Bays — every 2.4 years.

* Just to keep prices stable, we're going to have to find a couple more Ghawar-sized fields in less than 10 years.

* The world will consume 10% of the remaining conventional crude oil reserves before George Bush is out of office.

Now, new oil fields are being discovered. But they're often deep under the ocean … they're never really big … and they always seem to belong to somebody that is not America's best friend.

By the way, China's oil imports are rip-roaring. The country now imports 3.5 million barrels a day. However, we shouldn't point fingers. The U.S. imports 12.2 million barrels per day for a population that's less than a fourth the size of China's!

Making matters worse, the Energy Information Administration estimates that global demand for oil will reach 98 million barrels per day by 2015. Thus, even IF China and these other countries are able to develop these difficult fields, they'll probably just put that gasoline into their own tanks.

So that's the big-picture longer-term supply/demand squeeze. But you know what?

We're Also Facing A Shorter-Term Squeeze

While growth in gasoline demand has slowed somewhat, it is still rising (up 1.5% year over year). And every time gasoline prices flatten, demand surges. This should send pressure up the chain all the way back to light sweet crude, which is the easiest source of oil to use for gasoline production.

Meanwhile, refinery utilization, which normally hovers in the 95% range this time of year, is currently under 90%. Not only are refiners working at lower rates than they were before Katrina … their utilization is lower than when the refiners were still trying to recover from Hurricane Katrina.

Bottom line: Refinery utilization is now at a 15-year low.

There are plenty of reasons why refineries aren't going at full-blast, but those aren't as important as this simple equation:

Lower refinery utilization …

Plus higher gasoline demand …

Equals less gasoline in storage, and less of a cushion in the event of a shock to the system.

The Three Biggest Threats That Could Drive Oil and Gasoline Higher

Threat #1: Hurricane season is here, and it should be a whopper!

We already had two named storms by the official start of hurricane season on June 1. Experts at Colorado State University are looking for a whopping 17 named storms in the Atlantic this season, which runs from June 1 to November 30.

Plus, scientists say nine of the storms should become hurricanes, and a stunning five of those will hit major hurricane status (with sustained winds greater than 111 miles an hour)!

There's also a 74% chance that at least one major hurricane will make landfall on the U.S. coastline. The long-term average is just 52%!

Like everyone, I hope we are spared an active hurricane season. But the fact remains that even the hint of potential hurricane-related supply disruptions can send energy prices soaring.

Threat #2: Trouble in Iraq Could Ignite the Persian Gulf.

You probably know that Iraq is bordered by two of the biggest oil producing countries in the world, Saudi Arabia and Iran. Here's what you may not know:

The small-but-committed cadre of foreign al Qaeda fighters in Iraq hate the Saudi Arabian government as much as they hate Uncle Sam. They consider the Saudi royals to be enablers of the American war machine, our willing dupes in the region and defilers of sacred ground (Mecca).

Unfortunately, these terrorists are getting the best on-the-job training bin Laden could ask for by battling our troops. The question the Saudis worry about is what if those al Qaeda fighters turn their attention to Saudi soil?

There have been a few failed attempts by Islamic terrorists at blowing up Saudi oil facilities. If al Qaeda puts energy and commitment into toppling the Saudi monarchy, we could see a real impact on the world's "Central Bank of Oil." A lucky missile strike on Saudi oil facilities could send energy prices soaring.

Threat #3: A potential al Qaeda attack on U.S. oil facilities.

At least the oil facilities in Saudi Arabia are protected by guards, tanks, even anti-aircraft weapons! On my recent trip to Corpus Christi, Texas, I drove right past giant refinery complexes, so close I could have thrown a football and hit them.

I'm sure that U.S. refineries and oil terminals have ratcheted up security since 9/11. But if you've ever seen these big complexes in Texas and Louisiana — not far out in the desert as in Saudi Arabia, but close to U.S. population centers — you know that all it takes is one kook with a rocket launcher or some stolen explosives to do some serious damage. And 350 tons of super-high explosives went missing after we invaded Iraq!

And for Pete's sake, the southern U.S. border is so porous you can smuggle in anything any terrorist could want. We can only hope that Homeland Security keeps up with the crazies!

How to Protect Yourself,

And Potentially Profit,

From Rising Gas Prices

Naturally, energy stocks that are leveraged to the price of oil should do well the next time oil prices surge. That's why I love finding smaller, underloved oil and gas stocks that are packed with potential.

Interestingly enough, the best ones tend to be overseas. I'm looking at some of those stocks right now for my Red-Hot Global Small-Caps service. You can find them on your own, too — just make sure you do your due diligence.

If you don't like the potential volatility of small-caps (or even individual stocks), you can also consider a good ETF like the Energy Select SPDR (XLE).

Of course, 33% of the XLE is in two stocks, ExxonMobil and Chevron. For more diversity, you might want to check out a mutual fund like U.S. Global Investors Global Resources Fund (PSPFX). This no-load fund's holdings are more spread out through the energy complex, with top holdings Schlumberger, Noble Corp. and White Nile each taking up less than 3% of the total.

But whatever you do, get ready for a wild ride in energy prices this summer!

Yours for trading profits,

Sean

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