[Frank]

http://money.excite.com/jsp/nw/nwdt_rt_ ... d8lki55g0&


"The analysis, based on data from the U.S. Energy Information Administration, indicates that the industry slacked off supplying oil and gasoline during the prolonged price boom between early 1999 and last summer, when prices began to fall."

"Yet the AP analysis found evidence of at least an underwhelming industry performance in supplying the domestic market, when profits should have made investment capital plentiful:

—During the 1999-2006 price boom, the industry drilled an average of 7 percent fewer new wells monthly than in the seven preceding years of low, stable prices.

—The national supply of unrefined oil, including imports, grew an average of only 6 percent during the high-priced years, down from 14 percent during the previous span.

—The gasoline supply expanded by only 10 percent from 1999 to 2006, down from 15 percent in the earlier period."

So, is this a result of inaccurate EIA data, poor AP analysis or a symptom of PO?

Comments?

[pup55]

symptom of PO

This is my vote. The article is really not too good because it does not give too much detail on how these numbers are arrived at, or even the definitions of some of the terms (what is"supply" for example).

But having said that, the reduction in drilling (in the US) anyway is a symptom of PO in that north america is the most heavily explored region on earth for oil, and at some point, you have to invest your drilling money in places like Nigeria or Kazakhstan where you have a better chance of success.

As to the comment on low level of growth of refinery capacity, we have had the conversation before about the whole economic issue: Do you invest in new refinery capacity if the predicted long term rate of return does not justify it, or if you cannot get your permits past the EPA?

The oil business is just like any other: These people are not obligated to make huge, risky investments if they don't think they can get a comparable return to what they can get on the capital markets. Unlike Google and Yahoo, who need not drill holes in the ground and transport 10 million barrels per day of highly flammable material around the USA, they have to take a lot more risk to justify the three years per decade that they make all of that money, like they are now.

[DantesPeak]

The story is somewhat misleading by saying the price boomed from 1999.

Keep in mind that in 1999 oil hit $10/barrel and again after 9/11/2001, oil prices were low and refinery margins were very low.

Who in 1999 was predicting $80 a barrel and high gasoline margins in 2006? Maybe no one.

Considering the lead time in bringing new refinery capacity on line, as well as updating existing capacity, the oil industry has handled this better than may have been expected.