Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):
Producers Move to Debunk Gloomy 'Peak Oil' Forecasts and COMMODITIES: Will Recent Decline in Crude Oil's Price Turn Into a Bear Market?
Summary: Executives from Exxon Mobil (NYSE:XOM) and Saudi state-owned Aramco have argued in recent speeches that the world's supply of oil is adequate for decades, thereby attacking the "peak oil" theory that oil supply has reached a plateau while demand continues to rise. Aramco CEO Abdallah S. Jum'ah claimed at an OPEC seminar yesterday that the earth's potential oil supply is 5.7 trillion barrels, of which only a trillion, or 18%, has so far been produced. That leaves over 140 years' supply at current output rates. In a separate speech, Exxon's Australia chief, Mark Nolan, cited a US Geological Survey estimate that the earth's capacity is over three trillion barrels of oil, of which one trillion have been produced. He argued that heavy and shale oil could add another trillion barrels to the supply, and a 10% increase in recoverability another 800 million barrels. The WSJ article notes, however, that both calculations are based on optimistic assumptions. 3.5 trillion of the 4.7 trillion available barrels that Mr. Jum'ah cited, for example, will depend on new technologies, and global demand is forecast to rise from today's 84.8 million barrels per day to to about 100 million in 2015.
Comment on related stocks/ETFs: The peak oil theory plus forecasts of rising demand from China and India have provided the intellectual justification for the sharp rise in oil prices over the last few years. But sentiment, rather than current supply and demand, arguably added a speculative boost to the oil price which is now unwinding. The most prominent investor to question the run-up in oil and other commodity prices earlier this year was Bill Miller (see his detailed argument). His views now look precient, though his timing resulted in short-term under-performance for his fund. The easiest way to play a pull-back in oil prices is with the US Oil ETF (NYSEARCA:USO), though David Fry says it's hard to borrow. For more discussion of peak oil and its implications, see views from UtiliPoint, Houston Geological Society Bulletin editor Arthur Berman, Prudent Investor and Paul Kedrosky. Separately, Morgan Stanley economist Steve Roach declared earlier this week that the "mega-run for commodities has run its course." The price of oil is down 18% since its August highs after BP said it would shut down the Prudhoe Bay oil field in Alaska. More from Steve Roach here.