Sober Realist

Is the Bull Run in Commodities Over?

XOM is down because they are not investing much in oil exploration, spending their money on share buy-backs instead. In the last quarter, all of the Western oil majors, including Exxon Mobil, said their oil output had declined by a total of 614,000 barrels a day, even as they posted $44 billion in profits. It was the steepest of five consecutive quarters of declines. The Western oil majors have been and are being squeezed out of areas like Russia and Venezuela by the NOC's. The Western majors now only account for something like 7% of the world's oil reserves. It's a fact that fifty-four of the 65 oil-producing nations have entered irreversible production declines. The oil industry, too, is suffering from shortages of equipment and engineers. Even worse, all of the countries best equipped to pump more of the stuff are members of the Organisation of the Petroleum Exporting Countries (OPEC). And we know they are keenly aware of the price drop and don't want another price collapse like in years past. We have been on a plateau in oil production since mid 2004. The easy, high-yield oil has been expended. These are all cold, hard facts. Obviously a slow down in the world economy will lower price temporarily, but unless you expect the entire world oil consumption to continue shrinking indefinitely, prices will rebound at some point. The market will find the fair price for oil. Is world population shrinking? Some 80,000,000 more people are added to the world population every year. In North America alone, each individual consumes food annually that takes an average of 400 gallons of petroleum to produce. Is the 3,000 mile cesar salad still here? Yes it is. Are we all starting to live like the Amish with horse-drawn buggies? No. The best way to try and preserve our car society is to improve gas efficiency like the Europeans have done. Are the fundamentals behind commodities still firmly rooted? Yes.