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Article posted by Barrons's magazine concerning Charley Maxwell (specialist oil sector), senior analyst
at Weeden & Co. -- October, 2007
We often say there are not a lot of advantages to getting old except that we have seen it all before !
After a big move upward, there is always some counterreaction. We saw it during the 1973-74 crisis, in the '79 to '86 crisis
and then in the two wars with Iraq. These crises were manipulations of the oil market by human beings. War, economic
problems, but particularly military considerations, were creating, as they say, facts on the ground that worked into shortages
that were real, but they were shortages created by the actions of man not nature. It is terribly important to differentiate
between past periods and now.
What came out of the 1986-1987 collapse in prices was a huge overcapacity of about 20% in the world's oil production
system. The international oil companies began to adjust their capital spending quickly to adapt to that and they more or less
serviced a 1% increase in demand each year. The capacity surplus began to come down naturally. We have now had 20
years and taken that surplus down to about 2% to 3%. For efficiency in the energy industry, given the weather factors and
political factors and so on, we need something in the 7% to 8% range of excess capacity in order to cover the mountains and
the plains of demand and weather and political events. But when the surplus got down to those levels between 1997 and
2000, the companies didn't add to capacity at a fast enough rate.
We are now getting a reaction to the higher oil prices. It is translating into slower economic growth and, of course, it is allied
with a rise in interest rates. Don't think that it is just that rising oil prices equal lower economic growth. It is a
question of rising oil prices and less liquidity and higher rates that's a triple threat. The bottom could be in the high 40s,
though that wouldn't be sustainable. On a yearly average, we will stay in the 60s, but we'll spend a lot of time in the 50s. Then
they'll start up again in 2008-2009 and go up for some time. When we get to 130 or 150 there will be another pullback.
In 1930 we found 10 billion new barrels of oil in the world and we used 1.5 billion. We reached a peak in 1964
when we found 48 billion barrels and used approximately 12 billion. In 1988, we found 23 billion barrels and used
23 billion barrels. That was the crossover when we started finding less than we were using. In 2005, we found
about 5 billion to 6 billion and we used 30 billion. These numbers are just overwhelming.
An interview with Charley Maxwell : Click here
at Weeden & Co. -- October, 2007
We often say there are not a lot of advantages to getting old except that we have seen it all before !
After a big move upward, there is always some counterreaction. We saw it during the 1973-74 crisis, in the '79 to '86 crisis
and then in the two wars with Iraq. These crises were manipulations of the oil market by human beings. War, economic
problems, but particularly military considerations, were creating, as they say, facts on the ground that worked into shortages
that were real, but they were shortages created by the actions of man not nature. It is terribly important to differentiate
between past periods and now.
What came out of the 1986-1987 collapse in prices was a huge overcapacity of about 20% in the world's oil production
system. The international oil companies began to adjust their capital spending quickly to adapt to that and they more or less
serviced a 1% increase in demand each year. The capacity surplus began to come down naturally. We have now had 20
years and taken that surplus down to about 2% to 3%. For efficiency in the energy industry, given the weather factors and
political factors and so on, we need something in the 7% to 8% range of excess capacity in order to cover the mountains and
the plains of demand and weather and political events. But when the surplus got down to those levels between 1997 and
2000, the companies didn't add to capacity at a fast enough rate.
We are now getting a reaction to the higher oil prices. It is translating into slower economic growth and, of course, it is allied
with a rise in interest rates. Don't think that it is just that rising oil prices equal lower economic growth. It is a
question of rising oil prices and less liquidity and higher rates that's a triple threat. The bottom could be in the high 40s,
though that wouldn't be sustainable. On a yearly average, we will stay in the 60s, but we'll spend a lot of time in the 50s. Then
they'll start up again in 2008-2009 and go up for some time. When we get to 130 or 150 there will be another pullback.
In 1930 we found 10 billion new barrels of oil in the world and we used 1.5 billion. We reached a peak in 1964
when we found 48 billion barrels and used approximately 12 billion. In 1988, we found 23 billion barrels and used
23 billion barrels. That was the crossover when we started finding less than we were using. In 2005, we found
about 5 billion to 6 billion and we used 30 billion. These numbers are just overwhelming.
An interview with Charley Maxwell : Click here
Trader : Herman Bogaerts -- Tradersname : Freedom -- Portable : 0033.(0).683.13.99.99
E-Mail : Herman.Bogaerts@Wanadoo.fr OR http://www.daytrader-generation.com/
E-Mail : Herman.Bogaerts@Wanadoo.fr OR http://www.daytrader-generation.com/
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