Bill Totten's Weblog

Sunday, September 25, 2005

$380 Oil?

Banks Talk Oil Depletion

by Michael Kane

From The Wilderness (June 07 2005)

Banks across the world are now talking about oil in terms of "price spikes" and "depletion". This includes Goldman Sachs, the Bank of Montreal, and the French Investment bank Ixis-CIB.

The Goldman Sachs' report raised their price range for oil from $55 to $80 a barrel, to $55 to $105 per barrel. Goldman sees a high probability that a "super-spike" in oil prices will occur that would eventually drop back down. They took the time to address Peak Oil by stating they are not subscribers to the theory that global oil supply will hit some "magical inflection point" that would result in permanent declines.

Just days later the Bank of Montreal released a report on the largest oil field in the world, Ghawar, stating that the Saudi Arabian field is now in decline. Following this trend, the French investment bank Ixis-CIB has reported that oil prices will reach $380 by the year 2015. {1}

The CIB report estimates that by 2015 the world will be facing an eight percent deficit in supply verses demand. They see demand being 107.9 million barrels per day, but production only pumping 100 million barrels per day. As a result, adding 2.5% inflation annually from the United States, this would mean the price of oil would have to rise 6.86 times for supply to equal demand. {2} Barring any miraculous supply increase, nothing short of that staggering level of price-induced "demand destruction" can bring the two numbers back together.

Ixis-CIB is a respected investment bank. According to Adam Porter, all the bank did was take the numbers that the oil industry and governments have published in terms of supply and depletion, then plugged them into a basic equation to project supply and demand ten years from now. {3}

Is $380 oil possible?

The term "demand destruction" is used repeatedly in the Goldman Sachs report; as Adam Porter points out at his web-cast (Oilcast #2), this is effectively a code phrase for massive recession. Before $380 oil could become reality, it is likely (if not inevitable) that a massive economic collapse would occur.

What's important now is not whether it is possible for oil to hit $380 per barrel in 2015, but rather the fact that banks are making such predictions at all. Six months ago such reports would have never been published by these respected investment banks. {4}

Peak Oil awareness advocates have gained such a strong voice that it appears the major economic players may be ready to ride oil up for short-term profits.

Once these players decide it is time to ride up the "super-spike", they may attempt to manipulate the inevitable to occur at a time of their choosing in order to maximize their profits. If geo-political events render such manipulation impossible, it is highly likely that the super-rich have already positioned their finances for when a major catastrophe, such as the collapse of Ghawar {5}, causes the markets to panic - fulfilling Goldman's prediction.

Either way, the outcome is effectively identical.

Whether they use the term "Peak Oil", avoid it all together, or choose to ridicule this geologically sound scientific principle as a "magic inflection point", it is abundantly clear that Peak Oil is now the barometer by which the pressure in the economic atmosphere will be forecast.

The "super-spike" will be just the beginning.


Special thanks to Adam Porter for his outstanding reporting at

1 "Will oil strike $380 a barrel by 2015?" by Adam Porter,, 4/21/05,

2, Oilcast #6.

3 Phone interview with Adam Porter on May 8 2005.

4 Ibid.

5 Aging oil wells often use a process called water injection in order to sustain or increase the production rate. The water pressure forces oil upward and out. This process is quite volatile and can lead to the destabilization or total collapse of an aging well, leaving the remaining oil reserves behind and effectively unrecoverable. Production at Ghawar is utilizing this technique along with horizontal drilling. Matt Simmons has warned that when used in combination these two techniques will accelerate the decline of Ghawar. If that happens, Saudi Arabian production will almost certainly have peaked. And Simmons' position is that Saudi Arabia may already have peaked.

Copyright 2005, From The Wilderness Publications, All Rights Reserved. May be reprinted, distributed or posted on an Internet web site for non-profit purposes only.

Bill Totten


Post a Comment

<< Home