A new assessment of the supply and demand position for oil suggests that the outlook for high prices may be much stronger than previously thought.
United Arab Emirates — Talk to traders about oil prices and they only look a few months ahead. But a new book from George Soros’ former colleague Jim Rogers, ‘Hot Commodities’ points to a much more long-term outlook, and the news for oil is very good.
Roger’s thesis is that oil supply has peaked and is now in decline around the world. He cites the evidence for and against, noting the Saudi Government’s strong objections to this claim. But even his critics would have to admit that he makes a compelling argument.
He recalls how Shell’s scientist King Hubbert correctly predicted the peak of US oil production in the early 1970s which every one thought was crazy but proved to be spot on. And he finds a number of eminent experts, with no axe to grind, who have come to a similar conclusion about the situation today, only worldwide.
The most outspoken expert is Matthew Simmons who has written several hundred reports on Saudi oil of the past few decades. His conclusion is that the Saudi fields are past their prime and that the Kingdom’s five elephant wells are peaking and the biggest Ghawar is 90 per cent depleted.
So is Simmons the modern answer to Shell’s Hubbert as the Cassandra predicting decline? Rogers marshals others in support such as the legendary oilman T. Boone Pickens. And there is a certain irony in the Shell oil company’s recent reductions in its own reserves which may point to the future.
Rogers argument is that the oil price has not been rising in recent years due to a ‘terrorist premium’ but because we are starting to run out of oil. This, he believes, will guarantee high oil prices in the years ahead, indeed for the next decade if his long-term projection of a bull market for commodities is proved correct.
Some Middle East observers reading this article will be determined to dismiss Rogers as a crank. But this just is not true. He is very highly respected in US investment circles, and retired at 37 – he is now 62 – after making a fortune working with George Soros.
He also founded his own commodities index fund in 1998 which since then has been the single-best performing index fund in the word in any asset class. So is he wrong or are the vested interests of the oil industry wrong?
Rogers highlights the instability and problems in other areas of the world which might be developed to provide alternative oil supplies to the Middle East, vis-à-vis Russia, West Africa, Venezuela and of course Iraq. Meanwhile, alternative energy technologies are inadequate to replace oil, and demand for the black stuff is surging in China and India.
Overall, this book makes a strong case for higher oil prices for at least the next decade, and the possibility of a considerable further upward spike in prices. The consequences for the world and the Middle East are clearly enormous.
