Saildog

The Reasoning Behind Oil's Irrationality

From an investment perspective I cannot fault this article's conclusions. But his reasoning did prompt a recall of that syndrome of not seeing the wood for the trees.

The fundamentals are why oil is $90+ and will carry on trending up.

Whinging about oil locked up in ANWR, Venezuela etc misses the point that we have passed the point when oil becomes more valuable in the ground than as dollars in the bank.

It doesn't matter why production has remained flat at 85m barrels a day since 2004. The fact is that it has. Meanwhile China, India, Russia and most of the OPEC countries are using much more oil. As production is flat, that must mean more and more people in other countries are using less oil. That is why the price is trending up. It doesn't seem so difficult to me, but nobody else had said as much that I have read. Jeffrey Brown's Export Land Model is very alarming. Is suggests that net oil available for export is in an accelerating downtrend.

The final point is field decline. The North Sea is declining at around 8%, while Canterell crashed 20% in 2006. Global field decline could be anything between 4% and 10%, though nobody knows the exacty number. Platts report field declines of 8% in certain Saudi fields, but we don't know which fields, or what the overall picture is.

If we take the low end and round it down, global field decline from existing production is 3m barrels per day every year. In other words, with flat production since 2004, new production additions in the 3 years have totalled 9m barrels per day. That is more than total Saudi production. How many more Saudi Arabias are there?