Wednesday 31st August 2005 AD
RETRACING HUBBERT'S PEAK

Yesterday as Hurricane Katrina roared through the Gulf of Mexico on its path toward Louisiana, and with Oil at $70.00, we gently commented, "the oil market is increasingly exhibiting all the signs of extreme supply/demand stress, irresolvable structural problems and a pricing mechanism that will continue to OVERREACT to BAD NEWS and UNDER-REACT to GOOD NEWS." 

"Phil, aren't you being a little extreme on this issue?" wrote a friend, "weren't we told that we were running out of oil all the way back in the 70's and that was proved wrong?" 

The oil price shocks and crisis of the 70's were primarily political, but sure, this chapter of time came complete with its share of dire "end of the world" predictions centered on the end of oil. In fact the term "Peak Oil" was first used in the 1970's.

Dr. Marion King Hubbert was a gifted geophysicist working for Shell Petroleum. In 1956, he predicted US domestic oil production would peak around 1970, which it did, not surprisingly bringing his work, "Hubbert's Peak", some attention over those "oil crisis" years. 

But Hubbert's work also went on to predict a peak in global oil reserve discovery in the mid 1990's (correct again), with a peak in world oil production sometime 1 - 3 decades after that. 

The final jury is still out on "Hubbert's Peak" theory, and will be for another 20 years (give or take a few), but this we know, he was right twice before. And while the evidence seems to be stacking up in Hubbert's defense, where DO we really stand today in relation to his final prediction? 

A cursory examination paints a sobering picture . . . . 99% of the world's daily oil requirements come from 44 oil-producing nations of which 24 (over half) are now in permanent production decline. For example; a) Australia has seen its production drop more than 14% per year recently, 

b) Gabon, whose production peaked in 1996 has seen production drops 
as much as 18% 
c) UK production declines from the North Sea up to 9% 
d) Indonesia production declines over 8% 
e) Numerous experts are claiming the world largest producer, Saudi Arabia, is now in permanent decline; yes/no? time will tell. 

We have been saying that this is no longer a speculators market, but rather a market being primarily influenced and driven by the fundamentals of "limited supply" and "insatiable demand". It is a market that will continue to overreact to bad news and under-react to good news.

As Individuals - our job is to equip ourselves with the knowledge that will help us survive and prosper in our changing world. At Daily Dig - our job is to dig up the relevant information that will provide you, our valued readers, with this knowledge.

Best Regards - Philip Judge pjudge@anglofareast.com