A couple of articles bring this to my attention (HT: SAR):
1. Matt Simmons argues that
"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," Simmons told Reuters in London.
He bases that on the fact that aging oil fields are seeing declining output, and the low price of oil discourages firms from necessary investment. The credit crunch is also hindering investment to keep production up and systems running.
The IEA (Int'l Energy Agency) is also worried recent cuts in oil production by the Organization of the Petroleum Exporting Countries in an attempt to bolster prices have left oil inventories dangerously low, leaving little room for maneuver when oil demand recovers.
2. The Wall Street Journal reports that Russian oil producers have also cut back production in light of credit problems and high taxes.
But little attention is being given to Russia, where crude-oil output fell last year after a decade of increases. Russian producers pay high taxes, which leave them with limited cash to spend on maintaining fields and bringing new production online. Meanwhile, tight credit markets are slowing the flow of loans to the sector.
"We believe [Russia] will add to the growing global supply curtailment by the end of 2009, a factor which isn't fully appreciated by the market," said Oswald Clint, an analyst at Sanford C. Bernstein in London.
If economic recovery (ie: positive GDP growth) is to begin in the 4th quarter as projected, then growth will begin occurring just as oil output is bottoming out. This should lead to a big jump in the price of fuel, possibly hindering economic growth (and leading to higher inflation in general both from the supply and demand side).Yikes.
I'm thinking about taking a long position on InTrade.