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POST-PEAK
PRICES
$1,000 a Barrel Oil / $20,000 a Pound Uranium
by Saif
Lalani
October 28, 2007
Almost a year ago I
predicted that oil was bottoming and was going to make new highs by year
end.
http://www.financialsense.com/fsu/editorials/lalani/2007/0124.html
At the time is was hard
to get anyone to listen. What a difference 9 months can make. Oil is
racing ahead and destroying all in its path who are trying to short this
“overbought” commodity. So where does oil go next? Lets look at the
supply and demand picture that got us here.
Supply:
The recent OPEC meeting turned out to be a
non-event for markets with crude oil closing higher the same day in
spite of OPEC promising an additional 500,000 barrels per day. With EIA
and IEA both screaming for a 1,000,000 plus and their own statistics
showing a required increase of more than 2,000,000 barrels per day from
OPEC, the jump in prices was purely on fundamentals. The 500,000 barrels
per day increase was the equivalent of OPEC wishing us “Good Night and
Good Luck”. And oh yes, wishes for an extremely warm winter were
issued as well. However in spite of this wake up call, the dream lives
on for both the IEA and EIA. The dream that is for low oil prices. Their
long term outlooks remain unchanged. CERA continues to blame geopolitics
for high oil prices to the extent one would think that Israel and
Palestine were hurling oil barrels at each other.
Outside of OPEC the
treadmill looks to be accelerating. Staying Flat is no longer possible.
The cornuco pians only need to look at the production reports of Exxon,
Chevron, and ConocoPhillips. Not one of those was able to keep oil
production flat year on year. The positive news about Norway, UK and
Mexico is that things cannot get any worse as far as year on year
declines are concerned. 2008 promises to be a good year as far as news
projects coming online. However the optimists said the same about 2007
but the declines in the existing oil wells wiped out all new project
increases. Apparently being wrong for so long does not interfere with
their ability to make even more stupid predictions for the future.
Michael Lynch and Steve Forbes, please continue to humor us with your
sub $40 a barrel predictions.
Demand:
The simplest thing that can be said
about demand is that it cannot continue to grow. That's it. Demand now
equals supply. Drawing down inventory can work for a few months maybe
even a year but ultimately demand equals supply. This is a concept that,
even those retarded economists who were predicting that standing with a
large enough check in front of an oil well will magically refill it, can
understand. Now here I would like to address those numb skulls who keep
talking about the “global growth story”. There isn't one. Without
energy to fuel it, global growth is going to come to a screeching halt
just like a dog chasing the mailman suddenly snapping back when its
chain is fully stretched.
Price:
As I had predicted in my earlier article,
OPEC is now blaming speculators for high prices. Regardless what OPEC is
saying now or will in the future, it will not derail in the oil bull
market. Oil will eventually reach over a $1000 a barrel. No that is not
a typo. In the next 10-15 years the export market will contract by over
70%. Assuming essential services required to keep society functioning at
whatever level feasible are still around, that would mean that the
average person in the US would have to cut his consumption by 90%. I
think it will take prices at least 4 fold higher from here to achieve
that. That multiplied with the Fed's aim to use the US dollar to put
“Charmin” out of business will result in at least $1000 a barrel.
But the road will a long and jagged one. Prices will spike and dip at
every turn. Rumors of alternate energies being developed will cause
“limit down” down days and threats on oil infrastructure will have
the opposite effect. Through it all Joe Kernen and his his band of
illiterate merry men on CNBC will keep trying to tell you that
speculators are destroying your life. Sharron Epperson will keep telling
you that oil is going down on a particular day because 2 and half weeks
of world oil consumption were discovered somewhere. Although production
should start after 5-8 years will make little difference to her astute
explanations. (Those who saw her reaction after Devon's Jack discovery
know exactly what I am talking about).
Finally I would like to
add that in spite of the long term outlook for oil prices being
incredibly bullish it is possible that a pullback to $70 -$80 could
happen at anytime. This does not negate the long term fundamentals. I
have stated my case above for why oil could go up 10 fold or more over
the next 10 years. The fundamentals for uranium are even better than
that for oil. Although uranium is used exclusively for electricity
whereas oil is hardly used for that purpose, in an energy starved,
global warming aware world it is also highly likely that Uranium will
eventually trade at about BTU parity with oil. That means uranium at
over $20,000 a pound. Seems a bargain at $80 a pound.
© 2007 Saif Lalani
Editorial Archive
CONTACT
INFORMATION
Saif Lalani
Nashville, TN USA
Email
The
opinions of FSU contributors do not necessarily reflect those of
Financial Sense.
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