From: Glenn Morton (glenn.morton@btinternet.com)
Date: Fri Mar 07 2003 - 01:21:38 EST
The recent crises in Venezuela, Nigeria and the potential crisis in Iraq has
finally illuminated exactly what the excess oil production capacity is for
the world. Lots of people who disbeleive that the world is about to peak
oil production contend that there is lots of excess capacity in OPEC and
that as other areas go down, they will go up. All future predictions of oil
supply include this OPEC increase as part of their supply forecast.
The strikes in Venezuela have had the effect of removing 1 million bbl/day
from the world market which may never come back on stream. There is a threat
of losing the Iraqi 2 million. For a while OPEC said that they would up
production to cover the loss but it is obvious now that they can't. The Wall
Street Journal notes:
"OPEC has been producing increasing volumes of oil in recent weeks, but
prices continue to rise. Mr. Drollas said that in the short term, OPEC can
increase its output by only 1.3 million barrels a day, or some 700,000
barrels less than Iraq's exports, assuming Saudi Arabia is producing at nine
million barrels a day. "OPEC Officials Can't Suppress Rising Oil Prices,"
Wall Street Journal Fri. Feb. 28, 2003, p. A5
The Saudis say they can raise output to 10.5 million in 90 days. From
rumors in the industry, the problem is that this claim is based upon the
fact that 20 years ago certain wells, which are now shut in, produced 20,000
per day or something like that. Reservoir pressure is lower today than then
and those wells may not be able to perform.
Now, having only a 1.3 million/day excess capacity means the price will now
be uncontrolable. Over the long term the demand for oil rises at 2-3% per
year. IN 2001 the world used 74 million barrels per day. We will exceed
current excess capacity in a couple of years. Now, there will be some
attempt to fill the gap and some partial successes. But we are in recession
now so the world's economy is not drinking as much oil as it normally would.
Added to that the past fluctuations in demand are more than the current
excess capacity. In thousands of barrels per day, here are the figures for
world consumption from 1997-2001:
1997 1998 1999 2000 2001
71848 73280 71832 74482 74493
One sees yearly swings of 3 million per day. That kind of demand volatility
will eventually and suddenly overtake supply with consequent high rise of
price.
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