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Re: SC52

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October 31, 2007 12:48PM
http://energybulletin.net/36510.html

The perfect storm

In a revealing interview with journalist David Strahan at this year's Oil & Money Conference, former head of Saudi Arabian exploration & production Sadad Al-Husseini told the world that he now believes that the current level of world oil production will likely never be exceeded. Al-Husseini's view coincides with that of T. Boone Pickens, who stated at ASPO-USA's Houston conference that the world oil production peaked in 2006. The 85 million barrels per day of liquids available to the markets now is all we're ever going to get if these oil industry veterans are correct.

With demand rising and supply flat, prices must rise. Accordingly, Al-Husseini believes that oil prices will rise by $12 per barrel per year from here on out, assuming a "base" price level of about $70 in 2007. The nominal price is now just above $92/barrel, so the difference must be due to the usual suspects cited by the mainstream media, including speculators, the weak dollar, rising Asian demand, resource nationalism, geopolitics in the Middle East, disruptions in Nigeria, and Iraq. As always, we must add in the reason du jour, which last week was a possible Turkish incursion into northern Iraq to combat the PKK and other Kurdish separatists, a move that prompted an Iraqi threat to close down the Ceyhan pipeline. This week, stormy weather in the Gulf of Mexico has shut-in 600,000 barrels per day of Mexico's production. PROBLEMS WITH THE LONG-TERM OIL SUPPLY ARE RARELY MENTIONED.

As noted in last week's peak oil Progress Report, the Nymex light sweet crude nominal prices have been rising for 8 years now, and especially since 2003 (graph above left). Each new price surge is seen as a fresh event, disconnected from the clear trend. Most news stories about the oil price make sure to note that the new nominal highs still fall short of the April, 1980 inflation-adjust price of $101.70. The real price is a moving target, so no matter how high the prices goes, the new highs never seem to match the 1980 record. But someday they will, and the comfort afforded to some by that observation will evaporate.......

......... Although it is impossible to predict the future, extrapolating present trends (strong demand, flat supply, ever rising prices) leads to "The Perfect Storm" sometime in the next decade. At the tipping point, oil prices exceed the pain tolerance of a sufficient number of global consumers, causing economies to roll over into severe recession. Complacency during the run-up has discouraged the development of substitutes for oil, so ALTERNATIVES DO NOT EXIST when crude becomes prohibitively expensive. Crippled economies and inflationary pressures will make it very difficult, if not impossible, to provide the capital expenditures necessary to create a new transportation system. Unlike the period following the crises of the 1970's and early 80's, the Phoenix does not rise from the ashes ever again. This scenario, which is based on al-Husseini's views, describes the end of the road we're traveling.

Sadad Al-Husseini has added a strong voice to those concerned about the peak oil issues. His analysis should not be taken lightly. Human nature is not on our side because there is no perceived crisis yet............

Oil closed at a new record of $94.53 today
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Wizard 920October 16, 2007 12:08PM

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