The Wells Are Running Dry

Wednesday, October 26, 2005

Following a blogo-trail starting at Past Peak that led me to The Oil Drum and on to Chris Vernon's Vital Trivia (hat tips to all) I landed at this article in the October issue of the Petroleum Review that gives us the reasons why oil prices will continue their northward path, a move predicted by OPEC already in this post from August when crude had passed the $70-mark. As oil demand has been surging close to 3.5% this year the world's major producers are reporting significant declines in exploration.

Major Oil Producers report production decline

TABLE: The major oil producers report significant declines in their production. Figure are in million barrels per day. Courtesy of Vital Trivia
Oil share prices will remain a focus of speculation as they are entangled in a web of higher oil prices and lower production and a continuing series of restatements of their reserves. From the Petroleum Review:
Quite remarkably, in the first half of 2005 the top five, the top ten and the top 22 publicly quoted oil companies all produced less crude and NGLs than they did in 2004 and only slightly more than they did in 2003 and 2002. Given the global increase in production and demand over the last three years it is clear that, in aggregate, the largest private oil companies are losing market share. For ten of the top 22 companies, and for four out of the five largest private companies, the first half of 2005 saw lower crude and NGLs production than in 2004. Ten companies also produced less in first half 2005 than they did in 2003, while nine companies produced less than in 2002. Clearly, it is no exaggeration to say that the world's largest publicly quoted oil companies are now really struggling to hold production levels, with only a few managing to maintain their market share of global production.

top oil companies

GRAPH: Past Peak has done this graphic comparison of oil production of the 10 biggest companies, showing that nine of them produced less than in 2002.
Optimists have been factoring in a $10 premium for geopolitical uncertainties into the oil price. But as these figures show there is a fundamental reason why crude will not fall back to levels wished by US president Bush who showed optimism in June.
Oil prices have reversed their correction from the nominal all-time highs reached a few weeks ago. As the heating season is only beginning in the northern hemisphere I expect prices to top the record levels soon again. For "the bigger picture" - hey Barry, I fear your lawyers just lost a case but with a blog worth that much you certainly can afford the next fill-up - read this earlier post and have a look at this table:

Petroleum Review projections

SPOTTED GLOBLOGALLY: Michael Shedlock had a refreshing piece on how Congress plans to borrow its way out of its budget problems, pointedly headlined "Totally Out of Touch with Reality."
Kash at Angry Bear makes a convincing case that overall inflation figures are a good leading indicator for "core" inflation in his post titled "More on the 'Missing Inflation'."
MacroMouse points to this BIS report (pdf) on growth in international derivative markets.
UPDATE: A car that makes its own fuel!? The Israeli Weizmann Institute has developed such a prototype. Follow this link to Isracast.
UPDATE: I just finished reading Jim Puplava's "There Is No Plan B" at Financial Sense, one of, if not the, best articles on the oil outlook I have come across. Highly recommended!

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