Wednesday, March 10, 2010

Cutting back on gasoline production

If there was ever strong evidence for peak oil, this is it. Even oil company insiders are realizing they have too many refineries for the amount of oil they will be producing in the near future.

Of course they typically blame demand. This is silly though. Five years ago many smart people were predicting $30 a barrel oil for decades. After all oil had stayed that price for decades, why would it change?

 Had a drop in demand been to blame economics 101 says oil prices today would be even lower than they were in 2000. Instead we find prices around three times as high. I see no evidence whatsoever that the world wouldn't consume as much $30 dollar a barrel oil as these refineries could produce. If demand is the problem why don't refineries lower the price of their product?

The answer is of course the raw material is too expensive. Refineries are  converting crude into gasoline at about the same cost they were a decade ago, but oil fields can, or will, no longer produce crude at this price.

The only two reasonable explanations for this are OPEC is finally restricting supply, or we are hitting(or more likely already hit) peak world oil production. As the biggest declines in production have come from the United States, the North Sea, and other mature fields peak oil is far more likely.   

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