The "Half Century"
I want to get back to writing about alternative energy, but there's so much going on in the world of oil and gas that I don't want to ignore, either. And who can ignore $50 oil? A milestone, certainly, but is it a herald, too?
I'm hard-pressed to respond much differently than I did in my posting of March 5 of this year, concerning the apparent end of cheap oil. We need to keep asking if we are seeing a true structural change in the market, or simply an unlikely convergence of bullish factors. Thus far, I believe the evidence still favors the latter view, at least on the supply side of the equation. But that doesn't mean I think oil will be cheap anytime soon. Earlier this year, it looked plausible that oil would be back close to $30 by the time the election rolled around. Sustaining that view now would require the perspective of the White Queen from Alice in Wonderland, who could "believe as many as six impossible things before breakfast."
Just to recap the list of important producing countries and regions currently experiencing problems, we now have Iraq, Nigeria, the Gulf of Mexico, Russia and Venezuela (though they would claim they don't belong on this list.) And then there's Indonesia, which has become a net oil importer. I'm sure I'm forgetting someone. In any case, the aggregate effect of a number of individually manageable problems has consumed the global capacity cushion and created a market in which the fundamentals seem as scary as the news.
I'm pleased to see that the DOE is loaning out some oil from the Strategic Petroleum Reserve. Given the storm-related disruptions in the Gulf of Mexico, this is highly appropriate, as would be suspending additions to the reserve until all of that production is back on line. This matters less for the volumes involved than the signal it would send.