What $100 Oil Means
Yesterday's runup in oil prices was a mere blip -- two publicity-seeking traders appear simply to have sought barroom talk as the guys who made history's first buy over $100, then quickly sold at a small loss. But, coming the first business day of the new year, it's dramatized the new energy world in which we live.I recommend an excellent piece today by my former colleagues at The Wall Street Journal -- Neil King, Chip Cummins and Russell Gold -- that sums up the themes we've been discussing on this blog, and takes them further.
In the hundred-dollar carbon fuel world, Big Oil is no longer in charge. Exxon, Shell and Chevron have been overtaken by Gazprom, Aramco and Qatar Petroleum. If you're an investor, the best long-term bets are some of these majority state-owned energy companies, and the technology-rich oil services companies being hired to work for them.
One takeaway point from the Journal piece is that Exxon -- the most successful of any of the Big Oil giants -- has only the 13th-largest oil reserves among the world's oil companies. The twelve biggest are all state-owned. This is a hugely important factoid -- Wall Street bases its valuations of oil companies on the reserves they own. So, logically speaking, they are headed for lower valuations. "Western oil companies now control only about one in ten barrels of the world's proven reserves," the piece says.
Another point is the enormous shift of wealth to these petro-states from consuming nations such as the U.S. At current prices, the Middle Eastern and Central Asian producers will earn around $750 billion this year.
For motorists, all of this means that, short of a recession, gasoline prices aren't likely to go down this year, but only up. If there's a hard hurricane season, they're likely to go extremely high.
The causes are an enormous increase in demand from China and India, along with only slowly rising production from the petro-states. There's actually a lot of oil sloshing around the world, but much of it is the wrong kind. It's heavy and sulfur-laden crude, which most refineries can't process. New refineries that can are on the way, but it'll be three or four years before they come on line.
Photo: gjofili
Rights: Creative Commons
Labels: $100 oil, aramco, Caspian, china, Exxon, gasoline prices, india, saudi arabia
2 Comments:
Hi Steve, and Happy New Year!
If there is a silver lining to this, it may be found in the sort of consciousness-raising article that appeared in yesterday's NYT. Jared Diamond wrote an op-ed on the perils of human population growth and the world's seemingly limited resources. Diamond uses the number or factor of 32 to show that American citizens on average use 32 X the amount of resources than a given individual in a developing country, say the Philippines or Paraguay. His article is anchored by the thesis that it is largely impossible and nonsensical for the first world to preach to the third world about adopting policies so that they can get up to our standard of living because the wasteful resources use could never enable all of us to maintain the American level.
My point is that the rising oil prices probably will begin to force Americans to re-think their use/abuse of energy sources such as gasoline. Getting creative and experimental will have to start now, especially as China and India, which you point out, more than likely will keep demand for light crude very high along with these now $100.00 prices/barrel.
Absolutely right Russell. Although it's perilous to project forward, that seems to be the direction of events. And there are unusually motivated partners who themselves are threatened with extinction unless they do something -- Big Oil and Detroit. Thanks for the comment, Steve
Post a Comment
Links to this post:
Create a Link
<< Home