How Much Is Enough?
Today is another travel day, so this will be short. A week ago the Financial Times carried an article suggesting that the global oil industry--both publicly traded and state owned--has not been investing enough in new oil and gas production projects to maintain and grow current production. In fact, I see this as a much likelier and more plausible near-term threat to the ability of oil supplies to keep pace with demand than the speculative geology of the adherents of King Hubbert.

I am a big fan of markets, but I lay much of the blame for this phenomenon on a widespread misunderstanding of the market. If you look at the oil futures more than a year out, they are telling you that prices will revert to "normal", and well they may. If they do, big investments in new production will not enjoy the benefit of today's high prices. But the futures markets do not predict future prices; they merely reflect what buyers and sellers can agree on today, and that is not the same thing at all. Another day I'll talk about "market backwardation" and the role it plays in amplifying these false signals.