Excerpts from latest peak oil review

During their meeting in Nigeria last week, OPEC oil ministers compromised on a second production cut of 500,000 b/d that will not become effective until February 1st. Preceding the meeting, there were many warnings that a second production cut was not needed. The November 1st production cut was indeed taking hold; oil prices were back above $60 per barrel; and the IEA reported that stockpiles held by OECD countries had dropped by 40 million barrels in October. The EIA is projecting that the US stockpiles alone will drop by 82 million barrels during the fourth quarter.

Unless the cuts are totally ignored, a case can be made that significantly higher oil prices are coming in 2007. A recent analysis by the EIA projects that world demand will grow by 1.5 million b/d during the year and that non-OPEC supply will grow by only 1.3 million b/d. If these numbers prove out, the EIA concludes that OPEC needs to be increasing not decreasing its production.

There is still no definitive word on why the Saudi's pushed through a second production cut in the face of considerable evidence it was not needed. The Saudis maintain that high inventory levels are a threat to market stability and suggest that a coming general slowdown in world economic growth make a production cut necessary. Some observers, of course, remain suspicious about the Saudi's ability to continue producing above 9 million b/d.