Oil Bulls and Perpetual Surpluses Don't Mix
OPEC and its allies are looking at a lot more competition, and not just from U.S. frackers, that should keep the supply of crude abundant for many years to come.
Oil will always be gushing.
Photographer: Getty Images/Hulton ArchiveCrude oil prices, both Brent and West Texas Intermediate, are at four-year highs. Traders are talking about a return to $100 per barrel, and even higher. But if you’re a long-term investor, look for oil demand to peak and more subdued prices in the years ahead -- not the supply shortages and soaring petroleum costs as some observers fear. Royal Dutch Shell Plc and Norway’s Statoil ASA expect the peak in demand as soon as the mid-2020s, while BP Plc sees it happening between 2035 and 2040 and the International Energy Agency is forecasting 2040.
What a switch from the days of M. King Hubbert, the geophysicist at Shell Oil in the late 1940s who believed that oil field production followed the classical bell curve or normal distribution. He predicted that production in the lower 48 U.S. states would top out in the early 1970s with dire economic consequences. Few agreed at the time, but Hubbert proved largely correct, and his adherents subsequently extended his concepts globally and believed that worldwide production would top out in 2010 or 2012 at the latest.