Run for the Hills! Oil Paradigm Shift Ahead!

Sell the SUV, or fill it up? Buy a Prius, or wait and see?

What if you're a Russian or Saudi official -- should you pare the state budget to the bone, or keep the project queue ready for when the cash flow returns?

With gasoline back down to as little as $1.26 a gallon in the U.S. (at the Loaf 'N Jug over on Salt Creek Highway in Caspar, Wyo.), one can be forgiven for complaining of whiplash.

Just five months ago, U.S. prices averaged $4.11 a gallon, and the consensus was that they were headed to European-style levels of $5 a gallon and more.

It was explained as a fundamental change in global energy, a paradigm shift in which supply was in trouble because the cheaper, easy-to-get oil and natural gas were already mostly tapped; and demand was soaring because of growing Chinese and Indian needs.

Citing these realities just a month ago, the Paris-based International Energy Agency warned of a worsening supply crunch, and counseled urgent action to avert a global crisis. Some mainstream analysts warned that the crunch could get nasty.

Now, though, with prices down by more than $100 a barrel from the July 11 peak of $147 a barrel, we are hearing the opposite -- oil demand is falling so rapidly, even while new supply is coming on stream, that the new reality is low oil and gasoline prices.

Here's how Phil Flynn, the very good analyst at Alaron Energies, puts it: "The wild bull era is over. It was a thing of the past. We are now entering a new era of lower and more stable oil prices for years to come."

After last summer's global panic that the world was running out of oil, now we're in a panic that there's too much of it. In a piece last Friday, my former Wall Street Journal colleagues Ann Davis, Ben Casselman and Carolyn Chi detailed the case for lower-priced oil.

So which is it? What type of paradigm shift are we in?

Those who seem steadiest at the helm see the current price collapse as an aberration. We probably are in the midst of a couple or more years of low-priced oil, these observers say, but then crude will rise back above $100 a barrel.

The reason is that, after the current deep recession, demand will go back up, especially in China; but meanwhile, oil companies have been cutting back the development of new supply, so there isn't going to be new oil to meet that demand. At some point, those two lines in a graph -- a fresh rise in demand, and the cut in supply -- are going to cross, and the visible result will be a new price spike.

Last night on 60 Minutes, there was a long interview with Saudi oil minister Ali Naimi. (Here is Part 1. And Part 2.) Among other things, Naimi said the Saudis are adding another 2 million barrels a day of production capacity next year. Thus, he said, if need be the Kingdom can produce 12 million barrels of oil.

Naimi meant to communicate that the Saudis are reliable, and that the world isn't in fact running out of oil. But he also supported the case that low prices result in low company investment. The result of that? "Price will skyrocket," Naimi said.

In short, keep your name on the Prius list.

Ripple From Russia: R.I.P. BP?

The stewards of Big Oil have to be watching the latest brawl in Russia with a sense of dread. For their brother, BP, is fighting not merely to save its assets in Russia; it's fighting for its life.

BP itself is rapidly becoming vulnerable as an acquisition target. And for the handful of companies of Big Oil, that's a picture of their own possible future.

For months now, we've been treated to a spectacle of three or four Russian oligarchs making BP miserable. These fellows -- the billionaire oligarchs and BP -- are 50-50 partners in a highly lucrative oil concern that they call TNK-BP. The company accounts for a full quarter of BP's entire global production, and a fifth of its reserves.

The oligarchs want something from the Brits, and the result has been the usual Russian treatment: visits from countless inspectors, summonses to the prosecutor's office, visa trouble.

Yet the TNK-BP dustup no longer has the ring of expropriation as usual.

In the latest development, the concern's BP-appointed CEO, Robert Dudley, fled Russia in secret and is now hiding out in some undisclosed place, prepared, according to BP, to continue running TNK-BP from a distance. I asked a BP adviser why Dudley is behaving so mysteriously. Couldn't he have set up shop like a normal CEO in London? Perhaps this is part of the antagonists' PR war? "I do not know anything about the location except that he is operating as CEO for both [the Russians and BP], and London might not be the most appropriate location," he emailed me in response.

After some three decades of petro-nationalism in the Middle East and elsewhere, Big Oil is accustomed to the puffed-out chest, the boot, and picking up the pieces. It has found a modus vivendi in most cases.

Recall previous bouts of trouble in Russia: In December 2006, Shell responded to a similar onslaught at Sakhalin II -- at the time the world's largest combined oil and natural gas project -- by going to the Kremlin and crying uncle. The response was some advice -- sell half your shares at below-market rates to Gazprom. The result is that Shell, now with 27% of Sakhalin II instead of 55%, is still in business in Russia. And just six months later, BP was forced to sell out entirely from Kovytka, a supergiant natural gas field. BP sold its expulsion publicly as a fair deal, considering that in exchange it was embarking on a worldwide partnership with Gazprom. This partnership was crucial, because BP and the rest of Big Oil is finding it almost impossible to acquire new reserves to replenish what they pump each year; combinations with national energy companies like Gazprom are one way of maintaining one's bulk.

But not so fast. That BP-Gazprom partnership has yet to materialize. Indeed, BP's hopes for this partnership seem not just wishful, but hubristic. Because part of its calculus appeared to be ceding control of TNK-BP to Gazprom, which ostensibly would buy out the oligarchs while leaving BP with a sizeable remaining chunk.

TNK-BP was never a stable grouping, and seems always to have been bound for divorce court. But BP's talks with Gazprom appear to have accelerated the estrangement. The oligarchs seem to have believed that BP planned to sell them out in exchange for a global lifeline from Gazprom.

And, as Yulia Latynina, the respected Russian commentator puts it, the oligarchs responded "in the most brutal manner. They effectively said ..., 'We're the big guys around here.' [What followed] was a shoot-out. The other side shot better."

Here is where the gunfight appears to diverge from Big Oil's prior confrontations in Russia. Previously, the Kremlin has halted the hostilities once a targeted Big Oil company surrenders. But not in this case: BP has made clear that it's prepared to surrender control to one of the state-owned Russian companies, yet that's not been enough.

One is led to the conclusion that control in fact isn't good enough. It looks like Russia may want all of TNK-BP. And it also may not mind Big Oil understanding that, even if the state stands aside in a turf battle, the BPs of the world aren't tough enough to hold their own in Russia's brutal business environment. It may be a warning to all foreigners doing business there.

Richard Gordon, an experienced observer of Russian oil, sees it slightly differently. He told me last week that the Russians want BP to reduce its share considerably -- to 25% or less. At that point, Gordon said, it's up to BP to decide whether it has faith that TNK-BP would be run well enough, and, "if they don't have faith in the company, why remain a partner?"

In The Guardian today, Oppenheimer's Fadel Gheit, one of Wall Street's most seasoned oil analysts, advised BP to get out. "It's a bit like Manchester United losing Ronaldo," Gheit said. "It would take time to recover -- a blow but not fatal."

What happens next? Wall Street would pummel BP's share price were it to lose or leave TNK-BP, which would make the company a highly attractive target for acquisition. In that case, Gheit thinks that ExxonMobil is the only Big Oil company with deep enough pockets to buy BP.

But both Gordon and Gheit think that BP might act first and seek out its own merger partner because, as Gordon put it, it's better to "do a deal than be done to." Gheit told The Guardian that a logical BP partner would be Shell, "with [BP CEO] Tony Hayward running both companies."

Yet why are the Big Oil companies the only perceived merger partners? As Big Oil seeks access to China and the Middle East, wouldn't their national companies and sovereign wealth funds seek equal treatment?

Harvard Business School will no doubt chronicle the brawl as a case for how the game of energy is changing. But Big Oil is observing more closely, because this is its own future.

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Prediction: Sub-$100 Oil

Is the drop in oil prices this week a trend? Will motorists get to stop spending the grocery money to fill their tanks?

One thing is sure and that is that oil prices are in a bubble. I wrote a story on this topic for the issue of Business Week that came out today.

It's a profile on Ed Morse, chief energy economist for Lehman Brothers, who has spent much of the last several months explaining why the year-long runup in oil prices is temporary, and will ease starting in the fall. Next year, he says, the average will be $93 a barrel, which would drop prices at the pump considerably. The on-line version includes a fascinating video of Morse.

Morse's basic argument is that there is no shortage of oil. The market is going to notice a buildup of stored oil around the world starting in the fall. And a plummet in prices will follow.

He makes a convincing case. I myself think that any plunge could end up being a dip, with prices rising again as Chinese and Indian demand go back up. As written previously on O and G, Christophe de Margerie, the chairman of France's Total, seems the most sensible voice on the state of Big Oil.

Gasoline Prices: To Trust or Not To Trust

One of the vexing parts of the runup in oil prices is Saudi Arabia. No, not that it has so much oil and the world is sending so much money over there to buy it. Instead, it's that almost the sum total of our knowledge that the Saudis can keep supplying the oil is that they say they can.

That's right -- the Saudis, unlike almost every other top-tier petro-state on the planet, won't let any outsider look over their detailed oilfield data. You can get the name of the field, and an estimate of reserves. But experts like to examine more arcane data on an oilfield to get a feel for how long a particular reservoir can keep flowing, and at what rate.

The oil markets like such transparency too. Then they know precisely how much oil to expect from where if there's a crisis, like an oilfield seized by Nigerian rebels, or the threat of war with Iran.

But with the Saudis -- the world's largest oil suppliers -- the world has little more than the Saudis' word for it. As Roger Diwan, a Saudi expert at PFC Energy in Washington told me, "We need to trust or not to trust. And nobody trusts."

Part of the outcome of this failure of trust is that oil prices have doubled over the last year. And you know what has happened as a result with gasoline prices.

I've got a story on this topic on the Business Week web site today. It turns out that some of the Saudi promises are doubtful.

As my colleague Stanley Reed wrote in Business Week recently, just two weeks ago King Abdullah gathered together the leaders of OPEC, the CEOs of Big Oil, and several world leaders in an effort to show that the kingdom would and continue to supply a safety margin of oil supply for years to come. Saudi officials said the kingdom would raise its current production of about 9.5 million barrels a day to 12.5 million barrels a day, and that, if need be, they could manage to increase to 15 million barrels a day.

But consider some field-by-field data for the Saudi fields that I was leaked yesterday. They cover the next five years -- through 2013. According to this data, the maximum production is somewhat less -- 12 million barrels a day. And that's the maximum.

It's equivalent to your car's maximum speed -- true, you can get it up to 120 miles per hour, but you can't keep driving that fast for a long time; setting aside the police, your car won't tolerate it. The sustainable speed, if you want to keep your car, is more like 70 or 80 miles an hour.

Well, in the Saudi fields, the sustainable level of production is going to be about 10.4 million barrels of oil a day, according to the person who leaked the data.

What does this mean? That the world needs to keep focusing elsewhere to reduce prices, mainly for the moment on lowering consumption.

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More on the Baku Bluff

A friend has passed along a fascinating speech I'd missed early this month by Bill Schrader, who runs BP's operations in Azerbaijan. In it, Schrader says that BP and its Big Oil partners in Baku can pump almost 70% more oil from their offshore Caspian fields there than they previously thought, or an increase of 3.6 billion barrels. The total now will be close to 9 billion barrels.

At a time of scarce positive news from the world's oilfields, Schrader doesn't imply the onset of a flood of new oil to the market. But he does mean that Baku's 1 million-barrel-a-day production will last longer -- it was thought that this peak would terminate in five years; now it can be extended for another six years, through 2019. With North Sea and Alaskan oil on the decline, that's a bit of a cushion. I don't have a link to the June 4 speech itself, but here is Platt's coverage if it.

Yet, for the O and G audience, I couldn't help shaking my head. You will recall that, back in the 1990s, when recalcitrant BP was under pressure from Washington and Azerbaijan to build a non-Russian pipeline from Baku to the Mediterranean, the company replied that it would love to, but that there simply wasn't enough oil.

Why, then-BP representative Terry Adams said again and again, there are just 4 billion barrels of oil offshore, and at least 6 billion would be necessary to economically warrant the proposed Baku-Ceyhan pipeline. That naturally was before BP discovered that it needed Washington's approval to buy Arco. Then BP said: Did we say we needed 6 billion barrels? We meant 5 billion! And what do you know? We have found another billion barrels offshore! How do you like that? So let's go ahead and build that pipeline! The 1,000-mile line went live two years ago, and ships a million barrels of oil a day to the world market.

There are multiple interpretations of that timely shift. My own is that both sides exaggerated -- Washington elevated the volume of oil in order to promote the region; the oil companies under-estimated, partly to get a better transit fee deal from Georgia and Turkey.

As for the current energy environment, the Shepherd speech I think informs the current panic-stricken atmosphere. All the information isn't necessarily out there.

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The New World of Tumult

Here's the news today: Russian security officers have again raided BP's offices in Moscow. Nigeria has ordered Exxon and Shell to pay up $1.9 billion of their oil revenues. Exxon's Rex Tillerson is under mounting pressure to give up one of his titles, that of company chairman. And oil futures brushed up against $140 a barrel.

Welcome to the new world of energy tumult.

Taken separately, these events don't necessarily seem new -- the petro-powers have been flexing their muscles for some time; Exxon has put down previous attempts to appoint an independent chairman; and the surge in oil prices has seemed inexorable.

Yet the last two items merit attention.

The pressure on Exxon -- renown for going its own way regardless of attempts to influence it -- can no longer be put down to fringe dissidents. The more serious situation began with a push by the Rockefellers for an independent chairman and more attention to research on renewable fuels. And now, a growing number of investors are supporting the Rockefellers publicly ahead of next week's annual shareholder meeting in Dallas. Here is a piece about British investors posted by my colleagues at Business Week.

But today's $9.50 rise in oil futures, to $139.50 a barrel, resembles a panic. It looks like a tipping point in market sentiment about so-called peak oil -- traders seem convinced that indeed the tightness in world supply is a chronic problem, and not something to be overcome by added exploration and drilling.

Among the men of Big Oil, one of the most reasonable assessments is delivered by Christophe de Margerie, the chairman of France's Total. De Margerie says that the world has plenty of oil, but not the financial and technical means to deliver much more than it currently does to the market.

So the tightness in world supplies -- the fundamental reason behind this year's incredible runup in prices, and by extension the emboldened behavior of petro-powers like Russia and Nigeria -- is not going to lift any time soon, short of some economic debacle, or a dramatic public shift to the bicycle.

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Annals of the Rising Lilliputians

The center of gravity of power is shifting relentlessly from the West. The most successful cars are made in Japan. The power of the purse is shifting to less profligate countries like Singapore, and petro-powers like Kuwait. Manufacturing has gone to China. Energy is in the hands of Saudi Arabia, Russia and others.

Much of this shift affects the legendary Big Oil companies, which are being pummeled from all sides.

Now comes another hit. Until now, even if they couldn't control the resources, at least they could buy the oil and natural gas and earn the markup from lucrative finished products. But the world's petro-powers are no longer satisfied earning hundreds of billions of dollars from the mere sale of $100 oil. They want the entire profit chain from their oil and natural gas -- from power generation, retail sales at the pump, refining and chemical-making.

To the degree this happens, it takes away the daily bread of the oil companies, and shifts more power into the hands of the petro-powers. They have even more money to influence global finance, buy up pieces of the Western economies, and if they so desire -- as Russia does -- to sway political events.

Two pieces in today's New York Times go into this topic. One, by Peter Goodman and Louise Story, talks about the purchase of pieces of the economy. The story is decent as a survey, but makes a common mistake by evaluating these purchases in the context of the entire economy, and thus diminishing their importance.

The more relevant context is within industries and slices of industries, for instance in banking and specifically investment banking. As we've discussed on this blog previously, some investment bankers predict that so-called sovereign wealth funds -- the investment arms of these cash-rich states -- will eventually outright control the global finance sector.

In the second piece, Jad Mouawad talks about the aspirations of Saudi Arabia. The article describes a giant new petro-chemical complex under construction in the Saudi city of Rabigh, and the king's idea to build six new industrial cities. This is all reliant on $100 oil, which makes one suppose that the kingdom will do all it can to keep prices right about there.

Finding An Honest Man in Big Oil

Those who follow oil seem forever doomed to be in a way like Diogenes, strolling with a lantern, looking for an honest man. There's always the nagging suspicion that one isn't getting the whole story about the state of global energy, and prices at the pump.

Christophe de Margerie, the walrus-mustached CEO of France's Total, champions himself as that singular candid man. A member of a select club that's traditionally delighted in its mysteriousness, De Margerie is the much-deplored, indiscreet fellow who spills the group's secret handshake to the world.

In this case, the whiskey-swilling Frenchman has been telling the world that the oil industry has or is about to reach a peak in the volume of oil it can produce. Furthermore, he's quoted in a piece posted today by the Economist, all his brother oil bosses “think the same. It's just a question of whether we say it.” The article is worth reading.

Where the fierce debate on peak oil gets mucked up is on the geology -- has the world used up half its available oil resources or not? De Margerie neatly ducks that labyrinth by saying it's irrelevant.

What matters isn't how much oil is there, but how much can be produced. He says there simply isn't sufficient skilled manpower, technical equipment and willingness in the petro-states to produce much more than current levels of about 85 million barrels per day.

De Margerie makes a lot of sense. If one extrapolates, there will be much more motivation for fuel economy technologies, the development of non-carbon fuels, and general demand reduction. That's because, even if the West's fuel appetite is more or less stagnant, the economies of India and China are becoming hungrier and hungrier for energy. So there's going to be more competition for that somewhat limited volume of oil.

Note to Presidential Candidates II: Plateau Oil

Dick Cheney famously called conservation a lifestyle issue, but the pragmatist’s case for sharply reduced demand for gasoline keeps getting stronger.

Quite apart from security and environmental issues, the folks who have the oil have made it plain that they’re not able or willing to produce more simply because China and India are growing gangbusters, and Americans wish to drive SUVs.

That is, Russia, Saudi Arabia, Venezuela, Kazakhstan and so on – the nations whose state-owned companies control more than 80% of the world’s known reserves – are placing a deliberate restraint on supply, as Ed Crooks blogged yesterday at the FT.

It's partly why some oil company chairman are predicting an "oil plateau" -- a production level of 100 million barrels of oil or so a day that simply won't be regularly exceeded. That's just 20% above the 87 million barrels a day produced now.

I raise this in part because of an article posted yesterday by The Economist, titled “Peak Nationalism.” The piece identifies the above-noted countries as part of the supply problem. For some reason, they don’t want to suck their fields dry. But, the magazine says, “politicians might console themselves with the thought that even the most recalcitrant petro-regime is more malleable than the brute realities of geology.”

The ordinarily sensible Economist has somehow missed the last 35 years of history, in which what it calls “politics” have played an integral role in the world’s oil supply. The policies of nations – in the West and the Middle East – influence both demand and supply. And petro-states see it in their own best interests to stretch out the income stream into the next generations.

That’s not recalcitrant. That’s rational.

It's a central issue for the U.S. presidential candidates. A previously election-oriented post urged more attention to Russia and its oil pipeline policy in Europe. This is a corollary issue. Even higher mileage requirements for vehicles, accelerated retooling of Detroit, more encouragement of non-carbon energy technology all are needed.

At some point, someone will inform Washington that ethanol, while it does satisfy the lobbies of the corn-growing states and their companies, isn't the future. But there could be an answer in the laboratories of Big Oil and the Silicon Valley.

Here's a brief rundown from CNN on the main candidates' positions on energy.

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Big Oil's Salvation in the Video Arcade?

The accounting firm Deloitte & Touche has devised a fascinating way to predict how events will transpire in the Alberta oil industry. It's a video game called Producers Dilemma. Gordon Jaremko, a reporter at CamWest News Service, wrote a piece about it last week.

The game, which seems so far to correctly anticipate moves both by the industry and the government, was built by a Deloitte team along with a Canadian game theory firm called Priiva Consulting. On its web site, Priiva says that it uses game theory "to help clients assess and solve their strategic business decisions."

The story piqued my interest a couple of ways. I've thought for some time that there will be a paradoxical resolution of global warming and plateauing oil supply. I've thought that Big Oil will play a big, early role in solving them because these lumbering giants have much to lose by there being a runaway train.

Big Oil has lost its global primacy to state-owned oil and natural gas companies in Russia, Venezuela, Saudi Arabia and elsewhere. Chuck Marvin at Thestreet.com wrote an excellent year-ender on this last week. So, unlike in previous decades, it's actually important to Big Oil's survival to develop alternatives to carbon-based fuels.

One has to think that these or other theorists have bigger challenges in mind. Have they already produced a video game that simulates Big Oil's current dilemma, and shows the way out? If they haven't started, here is an existing platform.

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Book discussion note

I'm delighted that The Issue is featuring The Oil and the Glory this week in a discussion of the last hurrah of Big Oil, and what comes next in the industry. The blog has placed it beside one of my favorite current books, Zoom: The Global Race to Fuel the Car of the Future, by my colleagues at the Economist, Vijay Vaitheeswaran and Iain Carson. By agreement with Alex Welles over at The Issue, comments can be left at this blog. Just press the comments link below.

Big Oil's Last Heyday and What Comes Next

This blog tracks Big Oil’s last heyday – on the Caspian Sea – alongside its visible sunset as the major oil companies die off. As those who also follow these events know, the ‘Stans and Vladimir Putin already impact prices at the pump, and seem likely to have greater influence in the coming years. Meanwhile, what is coming a few decades ahead – the darkness and despair suggested by the self-proclaimed “doomers” of peak oil, or the relatively smooth transition to hydrogen cars and cellulosic fuel predicted by other futurists?

A couple of articles in today’s New York Times have interesting angles on the futurist questions. In one, Clifford Krauss describes how some of today’s big petro-exporters are themselves developing big carbon appetites, and will be competing with their customers for the world’s oil. In the second, Norman Mayersohn takes a spin in Honda’s FSX Clarity, the Japanese company's attempt to make a hydrogen car commercial. He likes it.

Both are worth Sunday reads.

Peak Oiler's Anxiety: "Are We All Wasting Our Time?"

The rub about doomsday predictions is that one can't tell until it's too late whether he or she was shrewd to take heed, or foolish to be drawn in.

So it is with one of today's most active doomsday movements -- that known as Peak Oil.

Peak Oil adherents, as readers of this blog know, believe that at least half the world's fossil fuel has already been found (or soon will be), that production is declining, and that we're going to be forced to adjust to a stark new future.

There's plenty of smart analysis to buttress the theory, and the result has been panic in many countries. But last week an England resident calling himself Chris25 penetrated the nub of one of the movement's problems in a compelling remark on one of its key websites, called Peak Oil. (Another great peak oil site is The Oil Drum.) He headlined his post, "What If We Are All Wasting Our Time?"

In it, Chris identified himself as a doomsday believer, said his life had changed completely, but lamented that he didn't know how long in the future his worst fears would materialize. "Man, I wish I'd never heard about peak oil," he wrote.

The result has been a flurry of responses by fellow adherents. The string is worth reading.

Here is Chris25's post in its entirety:

"Oil prices shoot up .... I start to buy bags of grain and run for the hills .... now they've gone down again.

Now I'm not denying peak oil at all, and btw chaps i'm a doomer, but what i'm saying is, what if what we are waiting for is 25 years away?

Peak oil has already changed my life completely. It has now got to the point where everyplace I go, I look at buildings and I look at people and imagine what would be there without cheap oil.

I know that the luxuries I enjoy today will have to come to an end. But I don't know when and how they will go.

Man, I wish i'd never heard about peak oil.

The worse bit is the wait and having no idea how things will pan out. Eats you up inside. Knowing the collapse of modern civilisation could be round the corner, 25 years away or many more years away."

Chris's soul-searching struck a nerve. Here's just one example, from a blogger called Korosten:

"I feel the same way!

We are seriously thinking of completely relocating to a rural area (we have started to look for a job, selling the house etc!), a place where we might not necessarily go w/o peak oil, and starting a big garden etc - that probably means I have to give up my career...

So I keep thinking, will I feel very, very stupid in a few years when PO has not happened yet? Or if it happens, but nothing drastic happens and it was all unnecessary?

But then again, what if I do *nothing* and it does get as bad as I am afraid it will?

I think doing something (for nothing) is not as bad as doing nothing and be totally screwed...

But PO has totally change our life, view of live, values etc - you name it. It's scary in a way.. I feel like "wakinig up" in a matrix..."

The most reasonable analyses, I think, are that we are going to be living almost precisely as we are now for at least another two decades, probably three and perhaps longer. That said, we have found the easy oil, and prices hence are going to stay relatively high. The search for a locomotion version of the Holy Grail -- a non-carbon way to fuel the world -- is wholly reasonable, and necessary. Until then, so is conservation and the push for cleaner fuels.

Perhaps I'll regret my own conclusion. But at least for now I come down on the side of those who think we'll work our way out of the carbon world. For another such view, see Common Sense Forecaster.

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Saudis: Back from the Precipice

The Saudis are acting to keep oil from crossing the $100-a-barrel line. They are clearly apprehensive about the political hullabaloo in the U.S., Europe and even China over the steep price increase for crude oil this year.

Why are the Saudis worried? The stink over the 30% rise in crude prices since September -- not to mention increasing concern over short- and medium-term oil supplies -- could mean conservation, higher efficiency and hence less demand for OPEC's oil. And that could put a damper on the Saudis' bankroll.

Hence, according to a story in tomorrow's Wall Street Journal, OPEC -- led by the Saudis -- are in the middle of adding some 720,000 barrels a day to world exports. The story, by my former colleagues Spencer Swartz and Lananh Ngyuyen, reports that the fresh supplies appear to be headed West.

I've exchange a couple of messages this evening with Michael, who points out that according to U.S. government figures there's no supply problem right now. In my own opinion, we are in an intensely erratic time, when at one moment we are in crisis because of the supply impact of a hurricane or a war, and a little while later we are swimming in oil because of other factors.

There's no doubt that conservation would be the prudent thing; but we also don't quite need to move to the forest quite yet.

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