Start the conversation
In fact, it is right on track.
But we need to remember that the constriction in oil availability will not hit all oil sector shares the same way.
There are four overriding elements in what is coming.
1) Crude Oil and Gas Prices on the Rise
The markets have witnessed a rise in both crude oil and gasoline prices - West Texas Intermediate (WTI) prices are up 37% since Oct. 4, while RBOB (the gasoline futures contract traded on NYMEX) is up 29% since Nov. 25.
The constriction, however, is not simply reflected in the price.
We have a very different dynamic underway than the one experienced in 2008. Three years ago, it was a speculatively driven rise in oil prices that came crashing down when an outside crisis hit (the subprime mortgage mess and the corresponding credit freeze).
This time around, the constriction results from the rapid decline in prices from the third quarter of 2008 through a sluggish leveling-off through the fourth quarter in 2009. This period produced a significant cutback in new drilling.
Consider this: The top 15 oil producers in the world have replaced barely 70% of the extractable reserves they extracted over the past three years.
With conventional production, therefore, the constriction is already in place.
However, we have moved quickly into accelerating unconventional oil production.
That is element number two.