Short-Term Oil Supply

Current dogma suggests Oil will remain high, around the $40/barrel range. Some suggest it could not drop below $30/barrel. They ignore fundamental factors in these estimates. The North (Worldwide) has basically made it through the Winter; if Fuel is not already in the pipeline, People are going to get cold. The second element consists of full employment of Drilling rigs Worldwide, still too few, but realistically bringing in 2500 new wells per year. Geology has improved to the point almost all new wells are high-end producing wells. Most of these new wellheads are being drilled in politically-secure areas, as well financiers become smarter. No number of Terrorist attacks on wellheads or Pipeline will cancel the added Quotas of the new wells plus old fields; capital replacement of destroyed equipment in old fields requiring an average time of Sixty days.

China cannot sustain the level of economic growth undergone of late years. Transportation and Tranmission systems dictate static growth rates until infrastructure completes construction. Chinese production will lose profitability through Above-average Transport Costs, alongside intermittent and higher-cost production materials. Japan will rise to the occasion to replace Chinese clog, but only with much higher cost to Consumers. Other cheap labor Countries face the same Transportation clogs as China. The World economy is going to slow until infrastructure is built. The Author's wild guess is Oil demand from Asian nations will decrease by 9-12% over the coming Year.

Construction on residental housing slowed in the U.S. in November by 0.3 overall. Most Economists think this is a momentary blip on current trends, but the Author disagrees. Seventy percent of American Households currently own their own homes (counting the mortgages). This level prohibits maintenance of the current Construction levels, with an Author-estimated reduction of New Starts construction of 7% over the new Year. Public construction appears maximized, due to rising Public debt with an already high level of construction. Private Business construction Starts were down in November, and will stay down approximately 15%, until domestic production replaces cheap Imports--which will get more expensive rapidly, if the Federal Government does not balance the Budget. Loss of Oil demand from Construction, back to the original argument, will be about 10% over the current Year.

Propane and Heating stocks actually are beginning to improve, as the United States requires less importation of such fuels. The Worldwide demand for Oil will decrease by some 8% overall over the current Year, and by almost 9% in the United States as estimated by the Author. OPEC's planned reduction of Oil production will only eliminate 3% of the reduced Oil demand Worldwide, if the Author is correct. Here comes the Author's wildest prediction: Sweet Crude will be $25/barrel by June. lgl