OilDaddy

Russian Oil Production Appears to Have Peaked

King Hubbert's bell curve analysis predicting the extent of future U.S. oil field discoveries had nothing to do with predicting U.S. oil productive capacity and did not accurately predict the 1970 drop in U.S. oil production. The drop in U.S. oil production in 1970 was caused by the U.S. Congress holding domestic oil prices well under $3/B starting in early 1958 by importing increasingly higher annual volumes of cheaper foreign oil and setting area natural gas prices at such low levels in 1960 eliminating all economic justification for expanding domestic oil and gas production during the 1960's from development drilling, well workover and large scale, secondary recovery (waterflood) operations in Texas and Oklahoma and forcing domestic integrated and large independent oil companies who were at the early stage of exploiting the potential of the Offshore Gulf Coast Region overseas in search of economically viable exploratory/developmen... prospects. By holding domestic oil and gas at prices far below that needed to justify investments to expand domestic oil and gas production, Congress not only caused the decline in domestic oil production in 1970, it also destroyed the domestic oilfield drilling and service industries' infra-structure that provided the research facilities and served as the breeding and training grounds for domestic and the world's oilfield technicians prior to 1960. Not to mention that the Congessional stupidity promoted by inane academia based economists' dreams of unlimited supplies of cheap energy to build and grow the nation's economy without considering the ramifications would have the effect of causing formation of and nationalization of OPEC and its oil resources!

The Good, The Bad, And the Inaccurate Oil Forecasts

Anyone with knowledge of historical oil prices would remember the $3/B fifteen year, average oil price between 1958 and 1973 that created 1970's world oil supply shortages climbed to $30B in 1981 before falling to $10/B in 1986 as world oil demand dropped from a high of 64MMBPD in 1979 to 54MMBPD in 1985 and that the $15/B average oil price between 1988 and 2003 that created the 2000 world oil shortages which climbed to $150/B in 2008 would, if history is to repeat itself as it often does, result in an oil price of $50/B in 2011 and $75/B in 2018 using modern day, illogic economics!

IEA Report Predicts Oil Supply Crunch

How many times do the "lacking in common sense" with "no knowledge of the oil industry" PHD's with economic degrees that staff the IEA have to make illogical world oil supply/demand and price predictions before the organization is deemed incompetent and shut down? Its funding could more wisely be used to educate a new generation of oilfield technicians needed to rebuild the oil industry's infrastructure that was destroyed by illogical, academia generated, economic growth policies based falsely upon the ready availability of cheap, non-inflation adjusted, oil prices.

Why "Drill, Baby, Drill!" Does Not Translate Into Effective National Energy Policy

Given the opportunity, individuals who walk around with their heads in a fog and, therefore, cannot see the forest for the trees will always come up with assinine conclusions based upon illogical reasoning rather than upon actual work experience in the subject business or industry they're trying to convince readers they know something about! What's missing from the graphical presentations to explain the declines in drilling activity between 1958-1973 and 1986-2003 is the non-inflation adjusted prices of oil which in the 1960's, seriously dismantled the domestic oil industry's infrastructure and in the late 1980's and 1990's completely destroyed the domestic and seriously dismantled the international oil industries' infrastructure leaving the world in today's oil supply shortage situation with the necessary manpower and equipment needed to bring about an early reversal.

Had the U.S. Congress not gotten the Supreme Court in 1955 to give it the right to control natural gas prices at the wellhead and then use imports rising from 1MMBPD to 6MMBPD of cheap foreign oil to hold domestic oil prices under $3/B from 1958 to 1973, U.S. oil production would not have peaked in 1970, OPEC would not have been formed and steady expansion of U.S. and Middle East oil production would have taken place to prevent the world oil supply shortages that occured in 1973 and 2003 as a result of the industrialization of Japan and the Rest of SE Asia during the 1960's and the industrialization of China and India during the 1990's.

Illogical government policies derived by brain-dead, socialism breathing, college professors with grudges against the industrial world which refused to hire them due to their lack of competence and common sense is what resulted in destroying the Country's once healthy energy mineral producing industry. How do I know? Because for forty years I was involved in positions having to work with such imbeciles who would accuse me of being too logical when I objected to their manner of reasoning. I've even had them respond when I accused them of wanting to destroy the domestic oil industry with their "low oil price to stimulate economic policies" with "Japan built its economy without an oil industry, so the U.S. doesn't need one either"!

Maxwell's Oil Analysis

As an oil field production engineer, oil banker, investment banker, venture capitalist and petroleum engineering consultant to major and independent oil and gas companies, insurance companies, banks and private investors over the past fifty years who left the oil fields in 1962 because of poor economics and a questionable future and as one who in 1969 accurately predicted the 1973 world oil supply shortages and in 1999 accurately predicted the 2003 world oil supply shortages with their accompanying two and three fold oil and natural gas price increases, I find it hilarious reading predictions by today's so-called energy experts calling for ridiculous future oil prices based upon a dying oil era.

These are the same "experts" who failed to see the forest for the trees when low, i.e., fifteen years' of $3/B average U.S. oil prices between 1958 and 1973 orchestrated by Congress using steadily rising imports (1.0 to 6.0MMBPD) of cheap foreign oil to stimulate U.S. and Japanese and SE Asia economic growth discouraged development of new U.S. oil supplies, destroyed the U.S. oil industry's oilfield infrastructure and froze OPEC oil supplies causing world oil demand and supply to come to balance, and failed again in 2001 to see that $15/B average oil prices between 1986-2001 orchestrated by the Group of Seven Industrial Nations using strategic oil reserves and false oil reserve and supply estimates by their public mouthpiece, the International Energy Agency, to spur industrialization of China and India so as to ease inflationary pressures in the industrial nations was utterly destroying the U.S. oil producing industry and decimating the International oil producing industry's infrastructures causing world oil supply and demand to come to balance setting off two and three fold price increases. So why anyone takes whatever they say seriously is a puzzle to me.

The world is suffering fifty years of blatantly illogical, academia generated, economic policies relying upon dirt-cheap energy with no allowance for the steadily rising inflationary costs of ensuring continued development of the cheap energy supplies. One such academia based economic genius defended destroying the U.S. oil industry to me with the statement that "Japan built its economy without having an oil industry, so the U.S. doesn't need one and, in addition, there's enough oil in the Middle East and the Caspian Sea Regions to supply the U.S. needs for the foreseeable future"! An excellent depiction of this type of reasoning that I have had for years is a cartoon panel starting with a very healthy cow with four utters and four milkers in panel one, a much less healthy cow with eight utters and eight milkers in panel two, an obviously emaciated cow with twelve utters and twelve milkers in panel three and a dead cow with the twelve milkers standing around scratching their heads and muttering to each other, "do you think we should have fed her?"

Now that the Russian, Chinese and Indian middle class societies are discovering the advantages of a petroleum driven economy, it won't be too much longer before they will produce the technicians needed to restore the once vibrant international oil industry's infrastructure back to health.

As for the U.S. oil industry's infrastructure, there exist many sizeable oil producing development opportunities available, as for example, the 30 billion barrels of oil in the ground in the Permian Basin of West Texas and the 20 billion barrels in the Los Angeles Basin of California that operators abandoned back in the mid-to late 1960's due to poor economics and the onslaught of environmental regulations, that could serve to help reconstruct a healthy oilfield infrastructure. However, the U.S. Congress is going to have to, first, get rid of their brain dead, college based, energy policy advisors, secondly, restore the economic incentives Congresses in the 1930's enacted to encourage private investments in energy and hard rock mineral development and thirdly, recognize that the oil and mineral industries are very capital intensive, long term committments requiring price stability. If the Congressional morons can guarantee major oil companies against losses to encourage the majors to enter and develop Russian oil fields, they ought to be able to do the same for the U.S.

U.S. Oil Production Today Same as in 1948

As one petroleum engineer who left the West Texas oil fields in 1962 because I saw no future in the domestic oil business and learned upon joining the New York financial community that the lack of economics in the domestic oil industry was due to self-proclaimed petroleum economists at Harvard and MIT convincing the NE liberal establishment led Congress the country could get all the oil it ever would need from the Middle East at $1.50/B instead of paying domestic producers $3/B. Despite President Eisenhower's efforts to limit the oil importation program because he knew it was the domestic oil industry that enabled the Allies to win WWII and believed the nation needed to preserve a strong oil industry, the liberal establishment hell bent upon destroying the Country's strong industrial complex held forth and what resulted is a story of the destruction of the U.S and International oil industries.

The comparison between domestic oil production in 1950 and today is a good one because it depicts the effect the illogical, brain dead, socialistic, anti-industry, academic styled economic theories and Congress' involvement manipulating domestic oil prices by importing steadily rising amounts of cheap foreign oil from 1.0 MMBPD in 1958 to 6.0MMBPD in 1973.

Not to be undone by disastrous results of their 1958-1973 cheap oil price policy which created OPEC in 1960, resulted in nationalization of Middle East oil fields, almost destroyed the domestic oil industry's infrastructure and saw the oil price controlled by Saudi Arabia grow to $34/B in 1981, petroleum economists of U.S. and British based academia determined in 1985 the oil price needed to support the Group of Seven's "One World Economy" plan conceived to control rising inflation rates in the industrial nations to be $15/B. And so, between 1986 and 2001 by building "strategic oil supplies" and distorting oil supply figures, the Group of Seven were able to hold world oil prices at an average $15/B.

What the 1958-1973 $3/B average oil price didn't do to completely destroy the domestic oil industry's infrastructure, the 1986-2001$15/B average oil price not only destroyed the domestic oil industry infrastructure, it practically destroyed the international oil industry's infrastructure to the extent the major problem to restoring domestic oil production and increasing international oil production is a shortage of skilled men, materials and modern equipment. A problem Russia, China and India are rushing to solve by educating the large numbers of engineers and geologists who should be in position within the next five to ten years to restore the international oil industry to normalcy, hopefully, without further interference from brain-dead academics who for the past fifty years haven't yet figured out that building and maintaining a strong economic environment requires a steady supply of energy rather than a university full of tenured professors with a grudge against the private sector that won't hire them who resort to consulting with politicians in ways designed to undermine the capitalistic spirit.

Understanding Crude Oil Prices

The 1973 and 2003 world oil shortages, both of which were predictable in the face of flat $3/B and $15/B oil prices between 1958-1973 and 1986-2003, respectfully, were created by illogical government policies based upon academia generated U.S. and then, international economic growth stimulus packages. The direct results of these ill-conceived "cut off the hands that feed you" stimulus packages was the destruction of first, the U.S. oil industry's infrastructure and, secondly, the international oil industry's infrastructure to the extent there is not the technical personnel nor the equipment manufacturing and operating expertise available to restore both the U.S. and international oil industries to the efficient and highly productive operating status they achieved during the 1950's before the clowns in government started fooling around with oil prices. Any effort to make sense of the current state of the domestic and international oil industries without taking into consideration the fifteen years of $3/B and $15/B average oil prices between 1958-1973 and 1986-2001, is foolhardy.

Take it from one who lived through the past fifty years' destruction of the world's oil producing capability and knows it will take another ten years to train the technicians and rebuild the equipment manufacturing facilities required to restore the oil industry to some resemblance of its former self!