IT'S NOT WHETHER THERE'S OIL BUT WHERE THE OIL IS (via Robert Duquette):

Dearth of new wells drilled could keep oil prices high (Carola Hoyos, August 24 2004, Financial Times)

The Organisation of Petroleum Exporting Countries this week revealed that its members drilled 6.5 per cent fewer wells in 2003, suggesting that the global supply crunch and high oil prices could last longer than expected, analysts said. The numbers appear to contradict statements by Opec members that they are actively building extra capacity. [...]

Part of the explanation, in particular for Nigeria and Qatar, lies in the fact that companies are drilling fewer but more sophisticated wells. In Iran, Kuwait and Venezuela, investment has been stifled by political disagreements and leaders' eagerness to spend the additional petrodollars on other investments or the enrichment of a powerful minority. But as big consumers such as the US become more desperate for oil, the pressure is growing for countries such as Saudi Arabia and Kuwait to open their doors to international oil companies.

Mohammad Hadi Nejad Hosseinian, Iran's deputy oil minister, blamed Opec's lack of investment on weak oil prices. “Most Opec countries have been unable to supply extra oil as a result of inadequate investment during the period when oil prices were weak,” he said, adding: “Iran expects to rely heavily on foreign investments to implement its ambitious plans [to increase oil production by nearly 2m b/d].”

Opec's capacity has remained at about 31.5m b/d since autumn 2000, though demand increased by 6m b/d and prices recovered from the Asian crisis of the late 1990s during that time, the CGES said. During that time almost three-quarters of the increased capacity needed to satisfy the extra demand came from outside Opec.

But ageing fields, a difficult investment climate in Russia and a dearth of discoveries in other parts of the world mean that consumers will not be able to rely on countries outside Opec for additional oil.

Oil Prices Sink Below $44 on Profit - Taking (THE ASSOCIATED PRESS, 8/25/04)

Oil prices plummeted below $44 a barrel Wednesday, sinking for the fourth consecutive day, as supply fears receded, gasoline futures plunged and profit-taking took over.

``This is overdue, this is so overdue,'' said Fadel Gheit, an oil industry analyst at Oppenheimer & Co. in New York. ``Oil prices have been extremely inflated.''

Light crude for October delivery settled at $43.47, down $1.74. The price of Nymex-traded oil futures has fallen by 11 percent since last Thursday, when they settled at $48.70 -- the highest Nymex settlement on record.

When adjusted for inflation, oil is more than $13 cheaper than it was leading up to the first Gulf War.

Posted by Orrin Judd at August 25, 2004 11:41 PM