International Energy Agency Wakes Up and Smells the Peak Oil

That Polyanna of energy price prediction, the International Energy Agency [IEA], issued a new report today which, while it still does not acknowledge peak oil, predicts a supply crunch in the 2010-12 time range.

Despite four years of high oil prices, this report sees increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2012,'' the IEA said in its Medium-Term Oil Market Report, which is published every six months. "Low OPEC spare capacity and slow non-OPEC production growth are of significant concern."

I was blown away . . . as were most energy stocks today. Big movers among stocks I've mentioned recently:

Beacon Power (BCON) up 24%

Lighting Science (LSGP) up 28%

M~Wave (Blue Sun Biodiesel) (MWAV) up 13%

Satcon (SATC) up 18%

As usual, moves in Renewable Energy companies are driven by changes in oil price sentiment, even if they are involved in electricity, which is not (yet) a substitute for oil. If investors were truly rational (they're far from it), only M~Wave would have seen a big move today. Although true rationality would have seen none of these moves, because most of us know that the IEA won't see peak oil coming until it's about five years in the rear view mirror.

Disclosure: Tom Konrad and/or his clients have positions in these companies mentioned here: BCON, LSGP, MWAV, SATC.

Comments

[Sol Rosenberg:]

Maybe one of you peak oil hysterics can explain why light sweet crude for Dec. 2015 delivery (72.17) is cheaper than oil for Aug. 2007 delivery (72.19). If you really believe peak oil, why aren't you loading up on oil in 2015 at that price?

2007 Jul 10 01:32 PM

[justin mcca...:]

Sol,
I don't think one has to be a peak oil hysteric to explain the backwardation in the oil market.

If you simply look at the forward curve of an asset to look for future market price, you have some studying to do.

Take a look at any stock index futures contract. They are always in contango (ie further out months are always more expensive than present months). Why ? .. because financial assets (as opposed to hard commodities such as oil) are basicaly free to store and also pay dividends. Commodities, such as oil, on the other hand cast money every month to store and do not pay dividends. This partialy explains why some are lead to affirm that the "natural" state of the oil forward curve is backwardation and not contango.

By the way, even in the worst bear equity markets the stock index futures were always in contango ... did that say anything about speculation on future moves ? ... Absolutely nothing.

Your example of 2015 crude oil being less expensive than present front month (ie backwardation between the two contracts) is completely irrelevant in regards to "peak oil" or future price expectancy.

2007 Jul 15 03:42 PM

[erniem:]

I assume anyone who does not believe in peak oil has an explanation for why US oil producton is a small fraction of what it was thirty five years ago, and how oil miraculously reproduces itself.

Crude prices will have sharp swings for years to come, due to speculation and short term supply. As the long term prognosis for consumption continues to grow, so will supply diminish.

2007 Jul 11 09:13 AM