Peak oil.......hmmmmm.
usnews.com
Major oil find could send prices lower
By James M. Pethokoukis
Posted 9/5/06
Preliminary drilling tests of a deep-water well in the Gulf of Mexico indicate that the site could boost U.S. oil and natural gas reserves by 50 percent. The Jack 2 well was drilled by San Ramon, Calif.-based Chevron, along with Devon Energy of Oklahoma City and Norway's Statoil.
"The results of the Jack test are very encouraging," said Stephen Hadden, senior vice president of exploration and production. "They further support our positive view of the lower Tertiary trend and demonstrate the growth potential of our high-impact exploration strategy on long-term production, reserves, and value."
According to published reports, the Gulf of Mexico's lower-Tertiary formations could hold up to 15 billion barrels' worth of oil and gas reserves. By comparison, Alaska's Prudhoe Bay, the largest U.S. oil field, has produced 13 billion barrels of oil since 1977, with an estimated 3 billion recoverable barrels remaining. Alaska's Arctic National Wildlife Refuge--not yet in production due to opposition from environmental activists--has an estimated 10 billion barrels of recoverable oil. Statistics from the Energy Information Administration peg current U.S. oil and gas reserves at around 30 billion barrels. Currently, the United States consumes about 20 million barrels a day.
The news should be supportive of the recent decline in oil prices. The New York Mercantile Exchange's October futures contract for light sweet crude was trading today at around $68, down around $10 since early August. In addition, gasoline prices have dropped more than 30 cents a gallon, pushing prices to their lowest levels since April.
In a note to clients, Edward Yardeni, chief investment strategist at Oak Associates, says the recent decline is hinting that "crude oil speculators have started to realize that there is plenty of oil around and that the known geopolitical risks aren't likely to escalate any time soon to threaten the supply of oil. ... It also seems that there has been a significant hurricane risk premium in the price of crude oil as evidenced by the price plunge when Ernesto traveled up the East Coast rather than moving toward the Gulf of Mexico at the end of last week."
Falling oil prices will also surely be seen as good news at the Federal Reserve. Its decision to stop raising interest rates was partially based on a belief that the run-up in oil prices was about over.
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