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An Echo from a Prior Peak

10 May 2005

Up until 1974, the US was the world’s largest oil producer and the Texas Railroad Commission (TRC) was its OPEC.

The Texas Railroad Commission had a mandate from the government to match oil supply to demand (while maintaining a security reserve for times of crisis) by regulating Texas oil wells to a percentage of their capacity. Texas oil production so dominated the industry that this worked to manage oil prices—TRC was the predecessor of OPEC, in other words.

As Ken Deffeyes (Princeton geology professor and formerly a geologist with Shell who had worked with Hubbert) writes in his book, Hubbert’s Peak:

Hubbert’s prediction was fully confirmed in the spring of 1971. The announcement was made publicly, but it was almost an encoded message. The San Francisco Chronicle contained this one-sentence item: “The Texas Railroad Commission announced a 100 percent allowable [i.e., produce full out] for next month.” I went home and said, “Old Hubbert was right.”

With Texas, and every other state, producing at full capacity from 1971 onward, the United States had no way to increase production in an emergency. During the first Middle East oil crisis in 1967, it was possible to open up the valves in Ward and Winkler Counties in west Texas and partially make up for lost imports. Since 1971, we have been dependent on OPEC.

In an echo of that San Francisco Chronicle report 34 years ago, OPEC president and Kuwaiti oil minister Sheikh Ahmad al-Fahd al-Sabah said Monday that OPEC’s oil quota system is irrelevant and the cartel’s 10 members bound by output limits will continue pumping 29.7 million barrels per day (bpd)—virtually flat out—through June.

He said the producer group’s official supply limits were obsolete for now. “I think now we are dealing with the production without the quotas,” he said. (Reuters)

May 10, 2005 in Oil | Permalink | Comments (5) | TrackBack (0)

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Comments

Incredibly, this news isn't causing major ripples in the oil futures market. I just checked the NYMEX prices, and the near-term contracts are trading above the current price, but only as far out as June, 2006, and they're below $50/barrel beginning in December, 2007.

If ever we needed a sign of just how mind-numbingly short sighted the markets are, this is it.

Perhaps the market predicts that by December 2007 a recession will reduce oil demand and thereby price?

I tend to agree with Ron, don't start going long on oil futures in the hope of it increasing beyond $60-65. The market is cyclical, I feel that we will see oil going back to late 30's before climbing back.

Maybe I am way wrong in my predictions.

I tend to agree with Ron, don't start going long on oil futures in the hope of it increasing beyond $60-65. The market is cyclical, I feel that we will see oil going back to late 30's before climbing back.

Maybe I am way wrong in my predictions.

Loudgizmo,

It sounds like all Peak Oilers should go ahead and prove "how mind-numbingly short sighted the market are" by buying up as much oil futures as they possibly can...

They will make a huge return on their investment and can invest all of their profits in alternative sources of energy. Wow! why hasn't anyone thought of this before?

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