A rising price of oil has fostered many theories as to why. Earlier this week, I was privileged to have a conversation with Mike Rothman of Cornerstone Analytics. Mike is the number one oil analyst. Period. Many of you know and love Martin Armstrong as I do. Mike is the lesser known equivalent of Armstrong. He is just as brilliant, insightful, experienced, and connected in his field of research. He just does not talk about it. Much of it he cannot talk about it.
Mike has been very consistent that the world is facing a supply crunch in oil. At the same time, the global demand for oil continues apace at 2-3% per year. There is no price elasticity when it comes to oil. If you want to maintain, let alone improve your economy and the quality of life, there is no substitute. You need oil as well as other fossil fuels.
In a recent interview, Rick Rule said that humanity had spent $5 trillion toward the goal of moving away from fossil fuels with the use of renewables. He quipped that we dramatically succeeded in reducing the percentage usage of fossil fuels from 83% to 82%. 😀 While a noble goal, it did not work for many reasons, physics and financial to name two.
Returning to Mike, I had pinged him about an article suggesting that Putin was the cause of the recent rise in the price of oil. He suggested that such arguments are political. With elections looming, the politicians are both desperate to come up with a reason for the increase as well as the culprit.
The real reason is supply vs. demand. Demand keeps rising while supply becomes problematic. For example, Mike pointed out that Russian capacity is heading for problems. When the major oil companies pulled out of Russia, Russia had been relying upon their expertise to keep things running. There will come a time in the near future when that production will significantly fall off without that expertise and maintenance.
Another problem is that major incremental suppliers such as Venezuela and Iran do not possess the “sweet light crude” that comes out of the Saudi fields. There are viscosity issues as well as the need to remove contaminants. That is expensive. It is no accident that Venezuela wants to annex much of Guyana. They want their oil production.
Another issue is shale oil in the U.S. The dramatic increase in U.S. production has come from the revolutionary technology used in shale oil recovery. Those wells are notorious for being depleted much more rapidly than non-shale deposits. There will no doubt be further improvements in technology and productivity, but this is not a “forever” situation.
The next issue is the falloff in exploration and investment in infrastructure. Needless to say, there is plenty of oil left to be discovered and recovered. However, the world has been led down a destructive path of despising fossil fuels. Energy companies have had no incentive to devote large amounts of capital to new sources. Even if they wanted to, permits are generally not being granted. Major banks have also been quietly boycotting such projects.
Mike also talked about the 4 million barrels of capacity that went offline when Kuwait was invaded. At the time, the spare capacity elsewhere was enough to make up the shortfall within a couple of weeks. Mike estimates that spare capacity now is only 1 million. Compare that against global demand north of 100 million barrels per day. There is no room for error for any disruption in supply regardless of the reason.
Humanity is facing a looming energy brick wall, mostly self-inflicted. The good news is that the anti-fossil fuel mentalities and restrictions are rapidly disappearing as well as the realization that we will need all forms of energy going forward. Nuclear in particular.
This is one of the biggest moments in the history of Mankind. Focus on the real reason. The price of oil is going much higher. Load up on nuclear related companies as well.
Peak oil is a bi1ch! Growing population. Growing demand for better lifestyle (think owning a car, roads, new houses.) combined with an finite amount of oil in the ground. It is the story of the 21st and 22nd century for mankind and we are at the beginning of that story today (about 10 years ago.)
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