The International Energy Agency (IEA) estimates the oil depletion rate is at 4%. Right now, the world is producing roughly 86 million barrels of oil per day.
That means the world needs to add over three million barrels per day to new production capacity.
If we follow the EIA's report that world oil demand will rise by 2.4% next year, that's another two million barrels per day we'll have to tack on to our production.
$100 Oil on the Horizon
Who do we listen to?
For the last month, we've seen oil prices remain unusually high. You see, this is the time we should expect them to fall. With the summer driving season behind us, oil prices typically drop due to lower demand. I've even read reports calling for oil to fall to $60 this winter.
This year, however, things haven't been exactly normal.
As you can see, crude oil prices rose sharply at a time when they normally decline. But should we be surprised to see oil trading for over $83 a barrel today?
The simple answer is no.
The push today came when the EIA reported an unexpected drop of about 1.7 million barrels in crude oil stocks. Even with the drop in inventory, the report shouldn't have been too painful for oil prices. The 1.5% growth in gasoline demand is still 0.4% less than a year ago. In other words, the report should not have been enough move oil prices up almost two dollars a barrel.
Will Crude Oil Prices Rise or Fall?
When we ask the big oil companies whether or not oil is heading up, they tell us it's going to move back down. Let's hope for their sake that it does go lower, considering the position they were in last July, when prices broke over $83 a barrel. If you remember back then, people were up in arms over the record profits the big oil companies were hauling in, to the point that Congress took notice.
I don't blame them for saying oil is overvalued right now, however, because they should be concerned whenever oil prices approach new record highs since they're the first ones to be blamed.
But here's the thing: We don't see an uproar of protest over oil prices right now. And unless gasoline prices shoot through the roof like they did over the summer, oil could probably hit $100 without the average driver realizing it.
The truth is that the oil market is getting extremely tight right now. And we shouldn't expect to get rescued by OPEC, who supplies approximately 40% of the world's oil. After announcing that OPEC production would increase by 500,000 barrels a day (starting on November 1, 2007), oil prices were expected to fall. They have to at least appear to care about their oil addicted customers, right?
Unfortunately, that announcement barely affected oil prices. Recently, Qatar's energy minister stated that oil prices should be around $100 a barrel, which completely contradicted the OPEC chief, Abdalla Salem El Badri, who said that fundamentals did not justify $80 oil and prices would soon drop.
Personally, I think oil prices aren't done climbing. And one specific reason is the fact that there's going to be less oil available for export.
I don't mean that we'll be pumping less, or that we won't be able to find enough oil in the ground. I know we have a tremendous amount of oil left.
The problem, however, is that growing consumption levels from exporting countries will make less available for them to sell.
Let's take some of the world's biggest oil exporters, for example. In 2006, Saudi Arabia's domestic consumption grew by 6.2% to 2 million barrels a day.
Iran is also experiencing similar problems. A former oil minister, Kazem Vaziri Hamaneh was fired by President Ahmadinejad after speaking about Iran's energy consumption were becoming dangerous to the country.
The question of whether oil will hit $100 a barrel not 'if' but rather 'when'.
Until next time,
Keith Kohl
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