Tuesday, November 6, 2012

Oil and the medium term




A thought provoking presentation for analyst John Kemp of Reuters called "Medium-term trends in the oil market: Putting uncertainty at the heart of the analysis" focuses on the value of technology in determining the future of oil. Most of the technology currently being used on the cutting edge of production had been developed decades prior. There is a long lead time before technology is effectively employed. The important point is that you need higher prices to allow technology to be cost effective. The graph shows the prices necessary to bring reserves on-line. If prices fall, the supply will decrease as the economics become ineffective.

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