The oil market seems to have panicked over the possibility that the end of oil availability has come into view.
Market analysts have begun tingeing their comments with allusions to depletion, and industry celebrity T. Boone Pickens Jr. has declared supply can’t meet demand (OGJ Online, May 21, 2008).
Fatih Birol, chief economist of the International Energy Agency, watered peak-oil weeds in the garden of comfort recently by telling the Wall Street Journal that his agency’s annual outlook, due in November, will include sharply reduced forecasts of supply.
Prices of marker crudes increased as though the world had just now begun running out of oil, which it has been doing for a long time. The problem is wide variation in interpretation of the phrase “running out of oil.”
Serious and learned observers believe global oil production soon will peak and quickly begin a steep decline.
Others, equally serious and learned except to those holding opposing views, see a peak and decline of less-alarming imminence and rate.
There’s enough uncertainty here to suggest that peak oil, whatever that means, should not move markets on any given day.
What’s certain, by virtue of price trends, is that supply can’t rise as fast as demand seems inclined to expand. Less certain is whether the constraint is mostly geologic or mostly logistical.
Geologic constraint is evident in shrinking average sizes of oil discoveries and growth in production from high-cost realms such as very deep water and unconventional resources.
Migration to increasingly troublesome geology and operating environments is not the same as resource exhaustion, which is the legitimately alarming though hardly imminent interpretation some observers give peak oil. Global reserves are, by most estimates, increasing.
Logistical constraint is manifest in industry operating rates near capacity levels and project starts delayed by shortages of workers and materials. Both types of constraint raise finding and production costs. Inevitably, the higher costs raise prices of oil products in a process that can make politics an impediment to supply.
Assertive supply limits deserve concern, not panic. The end of oil production isn’t near—just nearer than it was yesterday.
(Online May 23, 2008; author’s e-mail: [email protected])
