Wednesday, October 19, 2005

A Peek Into Peak Oil

Jerome a Paris over at the European Tribune parses the careful language of Allen Greenspan and notes that, in his speech two days ago, the idea of peak oil happening now crept into his conversation:
The key paragraph of his speech is the following:

In early August, prices for delivery in 2011 of light sweet crude breached $60 per barrel, in line with recent increases in spot prices. This surge arguably reflects the growing presumption that increases in crude oil capacity outside OPEC will no longer be adequate to serve rising world demand going forward, especially from emerging Asia.

To parse the Greenspeak, that means that non-OPEC oil supply increases will be unsufficient in view of demand growth. It's not exactly peak oil for all oil production; it's not even peak oil for non-OPEC producers (as he talks about inadequate "increases"); but it is still an important acknowledgement: supply from the non-OPEC world cannot keep up with demand. Call it the weak version of peak oil, maybe, but it's there.

The other interesting point to note is that Greenspan flags a very important price indicator, which is usually ignored by the press.

As the numbers provided on this page make clear, markets are expecting prices to remain in the 60$/bl range for the next 5-6 years. This is VERY different to what you had in the past when, irrespective of what the short term price (driven by events and volatile) was, the long term prices would gently come back to what was then the long term expectation for oil prices, around 18-20$/bl. No longer. The market does not believe that we will "go back to normal" any time soon ("normal" being what happened since the mid-80s, which is the experience span of most traders at best).

The fact that Greenspan flags this price means that he understands pretty well what's going on, it's simply, as usually, well dissimulated in obtuse language behind a few easier to digest soundbites for the general public.

There's more parsing, if you can handle the Greenspan-ese.


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