Election surprise

The oil futures market was down in 2006 dropping from $75 at the beginning of summer to $60 at year end. Was this due to increase supply or diminished demand? No. The word on the street was that the Republicans were going to lower oil prices to improve their chances of relection. I sold all of my contracts and waited. Sure enough the price dropped continuously through the summer driving season and into fall up to election day. So much for market forces. Since then prices have been flat with some wild fluctuations but never moving far from $60.

Declining fields

The latest news has been a series of announcements that major fields are declining in production. First it was Burgan in Kuwait, then Canterel in Mexico and Ghawar in Saudi Arabia. I believe they each account for at least 60% of the total national output! Since they are the biggest oil fields in the world, many smaller fields will need to come on stream to replace them. If you look at Petroleum Review's list of every oil project the numbers are just not there (unless if you drink the CERA kool-aid). Maybe Saudi Arabia is cutting production to save for the future but the www.theoildrum.com lastest entry from Start Staniford has showed that they added production last year as well as expanding to 55 drilling rigs.