Oil power industrial civilisation. Oil make possible the transportability of goods & mobility of mankind, land, sea & air. Oil are essential for food production & petrochemicals.

Oil transform society. Without oil, there wouldn’t be many foods, no offices, no factories, no medicine, no plastics & no travel, because the making of plants & trucking of supplies require oil. Worst of all, no trucking of coal, gas, uranium & machineries means no power plants, let alone producing electricity. We all know, without electricity, which power everything, is catastrophic. We are back to square one, i.e. living in mud, spending hours picking sticks to cook foods; no heating or cooling, plus no reading at night.

Demand & Supply

The world consumed 87.382 million barrels per day(mbpd) in 2010, but only produced 82.095 mbpd. The rest were unconventional being converted to liquid oil. Under normal economic circumstances, worldwide demand growth is estimated around 3.1% per annum, outstripping supply growth of 2.2%.

The gap is widening due to surging economic activities in the emerging markets. China’s demand growth was 10.4% in 2010. In the same year, USA & China consumed 19.148 mbpd & 9.057 mbpd respectively. In terms of consumption per capita, USA is 10 times more than China.

On the supply side, Non Middle-East production peaked in 1997 at 46.8 mbpd. North Sea peaked in 2001 at 3.42 mbpd. Despite claiming of 12.5 mbpd capacity, Saudi Arabia was unable to crank up production over 9.6 mbpd since 2004 (Saudi Oil Production.png). In fact, liquid oil had peaked in Aug 2006 at 85.1 mbpd. We are more than ever relying on unconventional (oil sands, shale etc) to meet the shortfall.

Oil Reserves

Reserves are being depleted at 6.7% p.a., which is much faster than new ones. The first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked. The rate of decline in oil production is accelerating.

There has been no new major discoveries since 1966. We are today still consuming oil producing from Ghawar (5% of total world production), the world's largest oil field in Saudi Arabia, discovered in 1948.

Global Outlook

Since 2000, the NYMEX crude future keeps on rising, surging to the highest at US$147.27 on 11 July 2008. The oil future is pricing in the robust demand growth from the emerging markets & supply restraint, with recession fear keeping a lid.

World consumption exceeds discoveries every year since 1984. Now there is a large gap between discoveries and production (Oil Growing Gap.jpg). The overall picture is not encouraging.

One thing is certain, the cheap oil era has gone. New technology could pull more oil from the wells, thus forming a production plateau, and after that, rapid declining is expected. Be prepared.

With Saudi’s spare capacity down to 3.5 mbpd today, the oil price is biased to the upside, which is the right side by now.

The  Right  Side | Oil - Supply tight, Price up | therightside.com.au

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