Friday, March 27, 2009

Oil shock risks

In today's NY Times:

Sharp reductions in investments and low oil prices could curb future supplies by almost eight million barrels a day within the next five years, according to a study scheduled for release Friday, the latest warning that the world could face a new energy shock when the economy picks up.

The report by Cambridge Energy Research Associates, an oil consulting firm, said that the potential drop in production capacity is a “powerful and long-lasting aftershock following the oil price collapse.”

The global slowdown has forced oil companies to slash their investments, postpone or cancel expansion plans, or delay drilling in many corners of the world.

In today's WSJ:

LONDON -- The slowdown in investment in oil and gas production could lop off nearly eight million barrels a day of future oil supply growth, setting the stage for another big crude price surge in years to come, according to a new study.

The slowdown is troubling the International Energy Agency, the Paris-based adviser to oil-consuming countries, which also has trimmed its forecast for supply growth. The agency's deputy executive director, Richard Jones, told a conference in London this week that more than two million barrels a day of expected new oil production capacity looks likely to have been deferred for now.

"Unless sufficient companies have the will and financial ability to invest through the down cycle, there is a real risk that supply growth may lag the eventual rebound of demand, leading to substantial price increases -- possibly as early as this year," he said.

The report says about 7.6 million barrels a day of future supplies are “at risk” of being deferred or canceled, like heavy oil or deepwater projects...

So much for Wall Street's $30 oil targets.

When will Morgan Stanley's fantasy price of an average of $35 for 2009 be put on the chopping block? Oil would have to be miraculously under $30 for the rest of the year for that to happen.

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