[Peleg]

May 01, 2008

http://talkingpoint.brighttalk.com/node/384

Key Points

World energy supplies will be insufficient to meet soaring world demand in the years ahead.
We are entering an era of tough oil. The concentration of the world’s remaining oil and natural gas supplies are found in inherently unstable and unreliable producing areas.
The geopolitics of energy will increasingly occupy centre stage in world affairs. Oil will increasingly be seen not just as a traded commodity but as a strategic resource. There will be a growing tendency on the part of the major powers to rely on military means to secure their national objectives.
Our conclusions

Professor Klare’s tough oil thesis has been echoed by the oil majors, who are struggling to grow their reserves. Investors need to be aware of the growing evidence that peak oil production is a real possibility within the next five years. This helps explain the five-fold increase in oil prices over the last five years and implies that there will be an upward trend in prices over the long term. However, oil prices have doubled in the last year alone. Oil prices could halve from here without undermining any of the arguments proposed.
Russia is in a uniquely strong position among the G8 countries due to its significant oil and gas reserves. Resource wealth put Melbourne and Buenos Aires amongst the richest cities in the world at the end of the nineteenth century. The same is likely to be true of Moscow as this century unfolds. The ability of foreign companies to profit from this wealth remains a question mark.
The strategic importance of oil could lead to long-dated oil futures contracts trading at a premium to shorter dated contracts. This would create a negative carry cost for investors in futures, and reduce expected returns.

I thought you all might appreciate this one.