There has not been much talk of crude production hitting its peak during this recession. The evidence now is real. Investors will need to examine the proof carefully.
According to Marshall Adkins with Raymond James, global oil production peaked in the first quarter of 2008. What is the evidence? OPEC oil production reached a high point in the first quarter of last year, while non-OPEC production peaked even earlier in 2007. Worldwide, total oil production rose to its highest level to date in 1Q2008 (approx. 79.3mmbpd).
Mr. Adkins explains, "It is entirely intuitive to conclude that if both OPEC and non-OPEC production posted declines against the backdrop of $100 plus oil, when the obvious economic incentive was to pump full blast, those declines had to have come for involuntary reasons, such as the inherent geological limits of oil fields."
Marshall Adkins is right on with his reasoning. Why would countries or companies curb production when they could make so much money by producing more oil?
Energy demands have declined, but the reality is they will eventually come back. The supply of oil will then be inadequate to sustain the increased demand.
The fundamental reality is that oil is scarce . Oil producers will be hard pressed to keep up with future demand. E&P companies will be drilling everywhere possible. However, because most drillers cut exploration and production during the recession, they will be behind the demand supply curve. Investors will continue to see the price of crude going higher for years to come.
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