“There are 3 kinds of lies, mine, yours, and statistics”

Oil prices are up $9 per barrel in just 2 weeks. We went from a melt down to a melt up. What’s going on here? Who knows?! If you want to get the price direction wrong, just get your direction from the financial press. They could screw up a free lunch. But here is a thought:

The U.S. Department of Energy’s Energy Information Agency reported on 1.31.07 that liquid fuel consumption totaled 20.9 million barrels per day during the previous week. Trouble is, the U.S. has averaged total oil supply from domestic production and imports of only 20.6 million barrels per day. So how was it possible for the EIA to report a “build” in inventory levels? Good question. Ask the EIA. However, the market knows how to count, even if the EIA doesn’t.

Further, the import supply situation is nothing short of scary. Mexico, the U.S.’ second largest supplier of imported oil is experiencing significant production declines in their prodigious Cantarell oil field – 500,000 bpd less in December of 2006 than January of 2006. The U.K. and Norway’s North Sea’s production is, not to put too fine a point on it, crashing. Between Cantarell and the North Sea, 1 million bpd of oil that would normally find its way to the export market will not be there, and it does not appear that anything significant enough will come on line in time to make up for the shortfall.

Worse, it is quite possible, but by no means certain, that the decline in Saudi production this year is not voluntary, but a result of the beginning of terminal decline in their super giant oil field, Ghawar. Should that prove to be the case, look out!



Greg Jeffers

Mentatt (at) yahoo (dot) com