“Yes, but how was the play, Mrs. Lincoln?” - Bradley Fallon

The monthly production numbers for world oil production May 2007 were released yesterday by the U.S. Department of Energy. There is no need for hyperbole. The data are terrible. So without further ado:

Worldwide Crude & Condensate production averaged 73,063,000 bpd for May 2007. This is down from the peak month of May 2005 when production averaged 74,272,000

Worldwide “All Liquids” production averaged 84,175,000 for May 2007. This is down from the peak month of July 2006 (said month was an anomaly within 2006) when production averaged 85,392,000

To summarize:

Crude & Condensate

2005 average crude and condensate production = 73,791,000

2006 average crude and condensate production = 73,546,000

2007 average crude and condensate production = 73,282,000, January - May data

All Liquids

2005 All liquids = 84,542,000

2006 All liquids = 84,481,000

2007 All liquids = 84,171,000, January - May data

The trend remains – and it is ominous. We now have 2 full years of data. During this time prices have increased by 50% or more, depending upon the contract one uses as the measurement. Producers have been given great incentive, and yet have been unable to deliver increased production. Although we cannot know with certainty that OPEC has peaked until at least 1 more full year’s worth of data is available, the non-OPEC production certainly appears to have peaked indeed. Further, if the OPEC meetings of September 11, 2007 and December 5, 2007 do not result in an actual increase in production, for investment purposes at least one would have to assume, without certainty, that OPEC has in fact peaked. On the other hand, if 2.5 million additional barrels per day comes pouring out of Saudi Arabia in the coming months, as the EIA and the IEA are calling for but that many of us are saying is impossible... well, we would have a lot of egg on our faces - the truth will out in the next few months.

The decline in worldwide production of oil also seems to be showing up in various inventory reports. U.S. commercial stocks declined over 6,000,000 barrels last week and over 4,000,000 barrels in this morning’s weekly report. A few more weeks like that and there won't be much for me to talk about on this blog anymore. Remember all those guys on CNBC claiming we’ve got too much inventory sloshing around? Where are they now? I guess their 15 minutes of fame is up.

What does it all mean? No matter how you, or the EIA, or OPEC, or CERA or I spin this, there are 371,000 fewer barrels per day available to the import market, or roughly 1%, than 2 years ago. Considering that the importing nations expect supplies to increase 2% per year, this is a significant event. If this continues, this is going to make some people quite wealthy, but will be an unmitigated financial disaster for most folks. To my mind, in the absence of a worldwide recession the U.S. import crisis could come at any moment, and if you aren’t worried about supplies next winter, you should be. Either that or it is an egg facial for me.


Yours for a better world,


Mentatt (at) yahoo (dot) com