A von Altendorf

Thursday Outlook: Commodities, Emerging Markets

David's commentary is a favorite, highly informative.

Is Oil a Bubble? Part One

Odd remark upthread: "If oil hits $150 maybe drilling through ice in Russia becomes worth it economically."

Uh, no. Price is not important. Recoverable reserves are what matter, and after that political, legal, and regulatory hurdles. Most of the world's recoverable reserves are in the hands of dictators and bureaucrats, in a word: morons who do not understand where oil and gas come from or what it takes to find it, produce it, refine it and transport it. The integrated majors (Exxon, BP, Shell) are in worse trouble than you realize. They added reserves by M&A, not new recoverable discoveries.

OPEC can't increase production. They're having a hard time hiring skilled people, and there are petrophysical limits to production in mature, declining fields including Ghawar. I wouldn't be surprised if Pedevesa went offline in an explosion, since Chavez fired the entire professional staff and replaced them with morons.

I think it's a chumps game to speculate in oil, despite the fact that world supply is declining and demand is elastic. It is especially dumb to invest in PBR.