Peak Oil with Matt Simmons

You may recall us speculating about a correction in oil. Our back-of-the-envelope calculation is that there may be as much as US$30 of geopolitical and fear premium in the price. But the market price is what is. It reflects what investors know at any given moment. And we are certainly open to the possibility that on the supply side, news from the oil market is grim.

Matt Simmons, one of the leading proponents of Peak Oil (the idea that global oil production has peaked at about 85 million barrels per day), says don’t count on off-shore exploration to make up for the exhaustion of the big elephant fields that make up the bulk of today’s production.

    “If we were lucky enough to open up the entire outer continental shelf and then we were lucky enough to invent quickly enough seismic equipment to start doing some sort of a high-grading of where we should drill, and then we were lucky enough to have a growing fleet of newer offshore rigs that could drill wells and we just discovered two new North Seas, then there’s grounds that we could basically spend four or five hundred billion dollars and maybe end up ten years from now with six million barrels a day of fresh supply,” Simmons told our friend Doug Casey.

    “But the problem is that each one of those things that I said, ‘If we were lucky enough,’ we don’t have. And to create each one of those is going to take ten to fifteen years to do. And ten to fifteen years from now, our 73 million barrels a day of current crude production could easily be down to 50 or 45. So you say even if you had another 6 million barrels per day, you can’t climb back out of the hole”.

Dan Denning
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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Lord Kelvin

How can Dan Denning, (or anyone), do a calculation of fear premium? I call your bluff. Show us your working!

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