Bruce Pile

Peak Oil for Dummies

If you think that big new oilfield finds or the steady advance of technology will keep moving the Hubbert method peak far into the future, consider the U.S. lower 48 as a proxy for the world. This production curve peaked in 1971 just as Hubbert predicted. At the top of this peak what happened? We found a massive new discovery in Alaska and piped it right down into the lower 48 - Hubbert did not know about Alaska. We embarked on a technology boom unlike the world had ever known or Hubbert could have imagined. What was the effect of all this massive messing up of Hubbert's method on the peak? How many years did it move the peak? None. The Alaskan oil put a bump in the profile on the down slope, and despite nearly 40 years of a tech revolution, the U.S. production curve looks very nearly identical to the one Hubbert drew in 1956 ! We are too near the global peak to expect any massive new finds to make much difference in the peak time frame. That's just a geological and mathematical fact.

Keep in mind that all the figures quoted in the article are just barrel counting. It does not take into account the whole net energy thing, which comes heavily into play as we go past peak. See my post at goodstockinvesting.blo... where you can see how dramatically unequal barrels are going to become.

Can Oil Go Even Higher?

You can find several oil stocks where the oil price debacle has not even dented a rapidly climbing cash flow curve, making them much more attractive than USO or any pure play on oil price. Endeavor International (END) has ramped their per share revenue up 2400% since 2004 and their cash flow up over 600%! Maybe they want more oil debacles like this. The insiders were grabbing up shares with both hands during last year's panic. The stock, of course, is way down from its high, but now it is absurdly cheap with a current PE of about 4 and a phenomenal growth rate.

Barron's Banks on $100 Oil

On one of Cramer's shows, he presented a table that listed all the times and dates that Saudi Arabia promised to increase production by a certain time and the result. All of these proclamations proved to be false. Cramer called them "serial liars". Even if they would put 500,000 bpd on the market, it likely would be heavy sour crude and would have limited bidding on it from the importers, most of whom have limited refining ability for it. The Saudis are planning to build some new refineries to handle their heavy crude, then sell refined product, which would help with oil prices. But those are not on line yet.

As for what the dollar does, the price of oil has been charted in the other major currencies, and the big climb happens there too (just a little more moderate).

What is really behind the price climb is not total oil production versus demand. It's total exported conventional crude - and this is severely lagging total production and has been falling since '05. As global peak production is approached, a much higher portion of total liquids is unconventional and consumed by the enriched producing nation (see the Export Land Model ELM). This presents two big problems few consider. The unconventional oil (oil sand, shale, deep water) all must be ground up, heated up, or manufactured with massive amounts of fossil fuel as opposed to conventional oil, which traditionally comes spewing out of the ground already made up for us and ready to put into a pipeline! This produces a net energy math problem such that you net only about 1 out of every 3 barrels added from all these sources that have EROI around 3-5. This means it takes 3 barrels of deep water or tar sands oil to replace each barrel of declining conventional crude production! Compound this with the math of ELM, and you have a much sharper decline in net energy supplied than just the total "oil" production numbers indicate. And net exported net energy is what is setting oil prices. This is becoming more and more detached from what has always been considered "oil production", but nobody seems to understand this.

The Iranian 'War Premium' Vanishes from Crude Oil

I think the war premium is coming back into oil as of early April. You can see a technical change in behavior in the oil chart coinciding with Admiral Fallon's leaving and a banking war on Iran declared by the U.S. on March 20 effectively blacklisting any global bank doing business with Iran.