Monday, July 9, 2007

No Wars, No Hurricanes… but West Texas Intermediate is still over $72 per barrel. With oil inventories in the U.S. at multi year highs one might find this surprising – I do. Then it came to me; there are hundreds of grades of crude oil, and our inventory reporting system treats them all the same – they are all just crude oil. Perhaps there is plenty of heavy, sour oil and not so much WTI. No way to know for sure, of course. It’s just a thought…

The API, CERA, ASPO, TOD, etc… continue to argue over the date of arrival for Peak Oil, and whether it even exists, etc… I have no idea why they waste so much breath at this point. The EIA production data for April 2007 is due out any day. I would be willing to bet that gross production will not eclipse May 2005 (the current peak oil production month). If this trend should continue for 3 full years (10 months from now) it will be the first time since the 1970’s oil shocks that production fell 3 years in a row. Considering that the demand side is giving tremendous price incentive to the producers to increase supply (not to mention that at the end of said 3 year period the earth will have 93 billion barrels less oil left under the bell curve then it had at the beginning), what other conclusions can one draw other than that the energy complex cannot increase production?

On the other hand, if supply should begin to steadily increase there will not be a single ear left that would be willing to listen to Peaknik assertions, though eventually they will most certainly be proved correct.

I belong to the camp that says that the market will tell you more through price action than any of the aforementioned groups, as the market is bigger, deeper, and has far more resources. Both sides have dug in hard. One of them is likely to look quite silly in a little over a year, 2 years at the most. So far the data supports the Peakniks, but we must wait for more data before drawing any conclusions, or we will sound more like CERA rather than a group of intelligent geeks enjoying a co-examination of the facts.

I will post on this again as soon as we have the EIA April 2007 data.


Food prices continue to rise, but corn has been falling. What’s up? If I knew for sure I would not need my day job. Prior to harvest, corn inventories are expected to be the lowest ever recorded. Certainly the market is expecting a bumper crop of corn. Is it enough corn to supply all of the ethanol plants scheduled for completion this year with enough corn to meet their ethanol production schedule? Not unless a great deal of corn is diverted from feed to fuel – with the effect of steeply higher corn prices.

Yours for a better world,

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