Where the crude will come from to satisfy these new wants is a puzzle. Most of the cheap and easy oil has been extracted. For much of this decade, when demand already was pushing the supply envelope, drillers ventured into fields and waters that required high expense and high technology to yield their riches. Now, many of those projects have shut down.
At the same time, OPEC has taken oil off the market, and some analysts believe worldwide drilling has dwindled more than 30% from a year ago. On the face of it, that seems out of whack with the modest scale of the current oversupply, and could worsen a squeeze in the years ahead.
Even a glut doesn’t change the nature of a finite resource -- just how fast it’s depleted. One reason oil companies journeyed to second-tier sources is that formerly prolific fields are drying up. The most spectacular example: Mexico’s relatively young Cantarell field. Only a few years ago, it provided more than 2 million barrels a day, but 2009 estimates have tumbled into the 600,000 range.
If the realities of geology are disturbing, geopolitics present another kind of risk. In Nigeria, a guerrilla war poses a chronic threat to exports, and saber rattling in the direction of Iran still dependably hikes the price of crude.
Thinking about the future puts oil's price swings in better perspective. Few commodities are as vital, and none are as problematic. (Does that make it priceless, or worthless?) To investors seeking a natural or "fair" value for the stuff, wake up and smell the exhaust: As a practical matter, there is none, largely because of all the uncertainties in the outlook. And if there were, the momentum players who rule this murky market would pay it no mind.
But this much seems clear: The move from $33 to $68 a barrel -- during a time of surplus -- offers just a whiff of what will happen when supply tightens up again. If the recession passes and scarcity sets in, the return of energy angst, here and around the globe, will make for giddy prices in the oil market.
http://latimesblogs.latimes.com/money_co/2009/06/oils-surge-to-near-70-a-barrel-has-stoked-fresh-debate-about-whats-driving-the-market----and-where-prices-may-be-headed-if.html
Wow, I didn't know Cantarell had declined that much.
