If you think low energy prices are here to stay, think again..
We have already discussed this several times here, but even before the present crisis, supply of energy was already struggling. Yes, there is a temporary significant reduction in the growth of demand (in fact, that might even turn out into a temporary fall in demand), but supply is hurt even more, and longer lasting, by the crisis, as credit is cut back and lower prices form a disincentive to invest for many projects with a relatively short-term horizon.
If you didn’t believe us, believe the International Energy Agency, in it’s latest report..
IEA: Crude Price Will Soon Soar
Thursday, November 6, 2008 10:32 AM By: Julie Crawshaw
- The price of crude oil will quickly pass $100 a barrel on its way back up, in part because output from the world’s oil fields is declining at a rate of 9 percent, the International Energy Agency says.
- The new figures are more than double the IEA’s former long-term price targets.
- “While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over,” the agency says.
- “Oil is the world’s most vital source of energy and will remain so for many years to come,” the report declares.
- “The immediate risk to supply is not one of a lack of global resources, but rather a lack of investment where it is needed.”
- The IEA estimates that oil majors need to invest $350 billion a year to replace older wells and to meet demand from fast growing economies like China.
- IEA estimates that remaining proven reserves of oil and natural gas “range from about 1.2 to 1.3 trillion barrels,” enough to supply the world for over 40 years at current rates of consumption.
- Ian Taylor at energy trader Vitol believes the oil industry itself stands at the edge of a wave of consolidation.
- “This is the best opportunity for 15 to 20 years,” Taylor told the Financial Times. “Many companies are trading at below the value of their assets.”
We couldn’t agree more.
Agreed