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150 : "Peak Oil" shortly due to be reached - unique insights for a property investor


08-11-2007

PropertyInvesting.net team

We’ve supplied some insights into aspects of the oil and energy business that can be used to give property investors the best insights into:

·         How to hedge in case of a big hike in oil prices

·         What areas to avoid and which areas to gravitate to in case oil prices rise

·         Boom town areas

We’ve now gone one step further. We have done an analysis of the hystorical production of all oil producing countries. We then went through every country and have predicted the actual maximum reasonable production rate they can achieve from mid 2007 until 2012 - using our expert knowledge. We then overlay the EIA official global oil demand forecast issued in July 2007. What we came up with was a surprising and one could describe as disturbing imbalance - starting this year. The gap between supply and demand widens from early 2007 onwards. Global oil production peaks at 83 million bbls/day in 2010 to 2012 and stays more of less flat for a 3-5 year period. Meanwhile, demand is forecast to rise by the EIA by an additional 1.37 million bbls/day from 2006 up until 2010, and then an additional 1.32 million bbls/day after 2010 up until 2015 - using current GDP projections and economic forecasts. China and India will drive the oil demand growth. Demand in the Middle East, other Asian countries and Africa also grow fast.

Obviously this imbalance implies oil prices will shoot up – probably to $100/bbl and then $125/bbl – which would then start to constrain demand - but we believe it will require oil prices well over $100/bbl to have a material impact on demand. Transport fuels (diesel) is a key driver - and there is no reasonable alternative to the combustion engine at present. 

Those "Doubting Thomases" will say that the oil price has dropped from $78/bbl end July to $71/bbl on 10th August 2007 – what we say is this is a temporary speculative selling by hedge funds reducing there positions before the biggest oil price hike you will ever see starts in September 2007 lasting years.

The "Doubting Thomases" will also say – Saudi Arabia will bail us all out by hiking their oil production. What we say is – our oil production prediction assumes Saudi Arabia increases production from its current rate of 8.8 million bbls/day to 9.5 mllion bbls/day by end 2007 then up to 11 million barrels steady for the next 5 years – some people think this is a tall order – we do as well, but even assuming Saudi Arabia dramatically ramps up its production, the overall global production rate does not increase significantly! We have essentially almost reached Peak Oil – our prediction is that in any year from 2008 and 2012 is Peak Oil year - because production is so flat, it is difficult to say which year production will actually peak in - it's on an unstable plateau with all countries pumping hard - at maximum capacity. It's also possible production could drop off rapidly if one or more countries have major problems with their infra-structure or oil fields - there are upsides as well, but we believe we have balanced them by the downsides to supply. 

These higher oil prices will lead to:

·         Increase food prices – for transportation. Also, land shortages cause by the transfer of crops from food to corn & sugar for ethanol production (e.g. US mid-west and Brazil)

·         Lower global GDP growth rates of ca. 0.5 to 1.0% (high oil prices act like a tax – a drag on economic activity)

·         Booming oil towns around the world where huge wealth will be created (see our special reports)

·         Higher stock market valuation for oil companies and oil services companies - lower stock market valuations for energy intensive businesses (e.g. heavy manufacturing)

·         Increases in interest rates – and therefore reduction in asset prices of property

 

As previously advised, the best way for a property investor to hedge against high oil prices – or take advantage of this - is to invest in the booming oil towns and cities - areas exposed to the oil and energy businesses - examples include:

·         London - England

·         Aberdeen – Scotland

·         Stavanger – Bergen – Oslo - Norway

·         Houston – Galveston – Dallas - USA

·         Dubai – Abu Dhabi - UAE

·         St Petersburg - Russia

·         Moscow - Russia

·         Muscat - Oman

·         Bakersfield - USA

·         Fort McMurray - Canada

Our chart above and analysis is truly unique – we have the back-up data for every country to support our predictions - we intend to update this annually, or if other important new data comes in. Some of the key countries production forecasts we have are outlined in the table below, for your review:

 

Oil Production Forecast  - some key countries
Thousand barrels daily 2005 2006 2007 2008 2009 2010 2011 2012
USA 6895 6871 6734 6599 6467 6338 6211 6087
Canada 3041 3147 3272 3403 3539 3681 3791 3867
Mexico 3760 3683 3609 3537 3466 3397 3329 3263
Venezuela 2937 2824 2782 2740 2699 2658 2618 2579
Norway 2969 2778 2639 2507 2382 2263 2150 2042
Russian Federation 9552 9769 9818 9867 9917 9966 10016 10066
United Kingdom 1809 1636 1538 1446 1359 1277 1201 1129
Iran 4268 4343 4343 4343 4343 4343 4343 4343
Iraq 1833 1999 2000 2000 2000 2000 2000 2000
Kuwait 2643 2704 2758 2813 2870 2927 2956 2956
Saudi Arabia 11114 10859 9200 11000 11000 11000 11000 11000
United Arab Emirates 2751 2969 3177 3399 3637 3819 3876 3876
Nigeria 2580 2460 2460 2460 2460 2460 2460 2460
China 3627 3684 3684 3684 3684 3684 3684 3684
India 784 807 807 807 807 960 1000 1000
60562 60532 58820 60605 60629 60773 60635 60352

 

Now you should have a better insight into how to hedge against the next "oil price shock" - and do not be surprized to see it develop in the next months or year. And if you expect to find the above chart or data anywhere else - we think you'll be disappointed. It's taken years of analysis to get this in the correct state to present to you. We do not have a crystal ball - but we have a good track record for economic predictions, socio-economics and house prices - do not be surprized if oil prices are well over $100/bbl next year and beyond. The only thing likely to stop this rise is a recession in Europe and the USA - something possible, but we consider unlikely despite the stock market turbulence of 10th August and sub-prime problems in the USA.

We hope you have found these insights, guidance and supporting analysis and predictions helpful for your property investing strategy.

If you have any comments on the analysis, predictions or insights, please contact us on enquiries@propertyinvesting.net, or write something our Weblog.

 

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