Sunday, April 12, 2009
Executive Summary
- Explaining Oil Pricing – oil prices are "set at the margin"
- Oil Storage – When it’s pumped out of the ground it has to go somewhere
- Oil Price Behavior – slight supply and demand imbalances drive prices
- The Total Shortfall – too little oil to support a robust recovery
- Nothing Fails Like Success – the worst thing would be a rapid economic recovery
- Timing – when will Oil Shock III arrive?
- What should you do?
- Investments, food, selecting a community, and an abbreviated buy list
These prices now are dangerously low. The lower prices fall, the less oil will be produced and the greater the chance of an oil spike.
We are three, six, maybe nine months away from a price shock. We are not talking about three to five years away — it will be much sooner.
Within a few months, we are going to realize our visible inventories are really tight — squeaky tight — and what would really be inconvenient is to see a recovery in the economy."
Matt Simmons, Chairman of energy investment-banking firm Simmons & Co, March 26, 2009
In Part I of this report, I laid out the case that the combination of declines in the production output of existing oilfields and a lack of investment in new oil fields would lay the foundation for Oil Shock III.
This report will examine Oil Shock III by painting a number of possible scenarios, and then discuss steps you might take to weather the storm, when it arrives. I will help you translate current news and future projections into actionable information. My goal is to help you better understand what is going on and what you can personally do about it.
In the last report, I made the case that over the next five years, the global economy will face a shortfall of anywhere between 10 and 15 million barrels per day of production, assuming it wants to return to baseline growth of around 5% per year.
This presents a number of serious difficulties, which will ultimately resolve into much, much higher oil prices, possibly even shortages, along with all the attendant difficulties that could result from that scenario.
