Is the rise in crude oil price a mere speculation?

Question

the recent rise(last few months) in the oil price a mere speculation or is there any reason for it ,if there is any reason then what is it?

Answer 1

oil IS running out the largest oil consumer (America) i predict America won't last much longer 3 billion dollars in debt and bush still thinks he can buy oil soon he will have to cause wars to steal it, what do you think it will be like the world against america i don't like the thought...

Answer 2

It is a mix.

There are speculation, obviously as the price of the oil you see is the price of the oil bought ONE month in advance.

But there is also a simple fact, we are reaching the peak oil, it means we cannot increase indefinetly our production.

There is what I will call 'cushion oil' (I have to be honest, I forgot the name in english). The cushion oil is the additional capacity of production available in the world. All fields are not producing at full capacity. It is possible to open more the valves and the choke and produce a bit more. That additional capacity was before around 7-8 millions barrels/day. It is now of 2-3 millions barrels per day. It means that if there are a bunch of excited guys blowing pipeline in Africa, a nationalist leader in South America  or a cyclon expected in the gulf of Mexico, the 300,000 or 500,000 barrels shut down will put additional stress on the cushion oil.

And prices will increase.

Finally, one has to ask : why are we not able to produce more ? For a very simple reason :

- Each oil field follows a decline curve called depletion. There is less and less oil inside and the pressure is declining. At the end it becomes too costly to extract the oil and remove the water/sand/gas of it. So this field stops production.

- When there is an successful exploration or appraisal well, additional reserves are added (extension of an existing field) or created (new discovery)

- If the rate of discovery is less than the rate of depletion, globally, the production will start to decline. This is the phenomena stated in the peak oil. USA reached peak oil in 1970, Canada in 76, Indonesia in 1977, Gabon in 1995and Norway in 2001. The world seems to have reached near peak oil.

- Some optimism however. To develop one field once there is a discovery, it takes usually a minimum of 5-10 years. 10 years ago, there was a very low number of exploration well because the barrel of oil was under the 15$ (in 2007 $). So there was less discovery. So less renewal of production 10 years later. This has been a very big mistake of oil companies who should have taken the opportunity of low barrels so low cost of drilling rigs, services etc... to drill exploration wells which are very costly.

But oil companies are very often taken over by accountants and finance people who think on short terms speculation rather than long term planning. And here we are, the loop is closed...