Deep Impact: Oil Meets Its Event Horizon

A stronger oil price over the next 12 to 24 months was already looking probable, but now the time fame is likely going to come forward as markets perceive costlier and scarcer supply sources.

Aside from oil sands, offshore drilling is where most of the world’s incremental oil barrels now come from, and it’s those higher-cost marginal barrels that set price. Indeed, a large fraction of the world’s growing oil needs since the early 1990s has come from the discovery of new, deep offshore reservoirs. The trend, which is global, is best illustrated with data from the US Gulf of Mexico. Figure 1 shows the components of US monthly oil production between January 1981, and the end of 2009.

SHOOT: This should disturb you down to your bones.

clipped from www.vancouversun.com Maybe I was the only one on the flight from Florida to Texas last week feeling the irony of the situation. Hugging the Gulf of Mexico coastline for most of my otherwise routine business trip, I thought of the contradiction below: The jet fuel that was being consumed to coincidentally fly me over the disastrous BP oil spill probably originated from an offshore oil well in the nearby region. To be sure, such events remind us, implicitly, that we live in a conflicted society that goes to the ‘ends of the earth’ to drill for the oil that promotes the way we “live, work and play,” under a long shadow of environmental, geopolitical and economic consequence. No doubt, the widening BP oil slick, reportedly spewing uncontrollably at a rate of 5,000 barrels per day from the ocean floor, will heighten our sense of this inner societal conflict. The markets will feel the conflict too, likely pushing oil prices higher over the near term, and triggering bigger changes longer term.