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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: benwood who wrote (12165)	9/23/2004 2:11:56 PM
From: mishedlo	Respond to of 116555

from the latest issue of World Oil: (http://www.worldoil.com/) An amazing transition has taken place over the last 12 months, seemingly sneaking up on politicians and economists in various countries, who now profess to be surprised by the turn of events. What I refer to is the sudden consensus that the world has moved from a fairly significant cushion of surplus production capacity to virtually none at all. This represents a turnaround equivalent to the better part of 5 million bopd, throwing the oil trading markets into chaos. It also has forced government officials in many industrialized countries to run for cover and scramble for explanations. How did so many national officials miscalculate? Well, it seems to be an unfortunate combination of unreliable data and information, misguided assumptions and wishful thinking. First, no one anticipated that global oil demand would grow as fast as it has since mid-2003. Within that category, the emergence of the Chinese demand factor was not adequately gauged until it had already complicated the market far beyond an easy fix. Second, few people seem to have worried about the slow but steady slippage in some, non-OPEC producers' production rates. For instance, British oil output averaged 2.8 million bpd just five years ago, but now it struggles to remain at 2.1 million bpd. Similarly, Colombia was up over 800,000 bopd five years ago, but now the country produces only 530,000 bopd. Oman, which just two years ago was at 900,000 bopd, is already down to 750,000 bopd. Even Norway over the last two years has slipped from 3.33 million to 3.17 million bopd. If one adds up the losses from these four countries, the figure is 1.28 million bopd. Granted, there have been a few gains in other non-OPEC countries, but these merely keep the group total even. So, that leads up to the third faulty bit of logic, that we could always depend on OPEC to make up any shortfall, no matter the amount. Well, guess what - even OPEC has its limits, if demand suddenly balloons. Last but not least, a significant factor was the declaration by US and UK officials that, having defeated Saddam Hussein's forces, they would quickly restore Iraqi oil output to 2.5 million bpd by the end of 2003 and push it to 3.0 million bpd by late 2004. Neither of these goals has been achieved. Instead, thanks to pipeline sabotage and facility attacks, output was only 1.73 million bopd in June 2004. Naturally, if Bush administration officials had done their cultural homework, they would not have been surprised by the difficulties in restoring order to Iraq, and they would not have made such an unattainable prediction. So what can we do about the situation? Basically two things - First, oil companies can begin investing more of the dollars that they have been hoarding and develop more production. Second, the OECD countries, particularly the US, can do a far better job of formulating energy policies, planning for contingencies and following through with sound execution of strategies.