I find it remarkable that people still do not get it. In past energy cycles, whenever OPEC allowed the price of oil to rise beyond their price band, it stimulated new investment in conventional oil and challenged their market control. That is why we saw the boom-bust cycles in the 70s-80s-90s. Higher oil prices brought on new supplies which created a market glut, and then a collapse.

This time around, there are no new supplies coming online. World demand continues to rise, and OPEC nations are pretty much running flat out. They are raking in the money for every barrel of oil they can pump out, and do not fear a glut because the world is not even replacing the oil that its pulling out of the ground these days, despite billions invested in nonconventional oil production and new exploration funding.

It is too easy to blame specs for the rising pricing, or a conflict premium. The simple answer is not the correct one in this case.

Analysts point to new technology and the development of new basins on the energy frontiers to bail us out this time around. Okay. Where are they? If there is so much undeveloped oil around to fill the gap, why have we not had any significant new 'elephant' discoveries in the last 10 years, despite the dramatic increase in exploration, including the frontier areas. If Saudi Arabia is sitting on huge reserves, why have they not increased production to maintain their control as a swing producer?

Sooner or later investors will have to price in the new reality that the world is NOT awash in oil. High prices are here to stay and they are going much higher. We would need to have many new discoveries on the scale of the North Sea, Prudhome Bay, Hibernia, etc just to meet the increasing demand from countries like China. And they are not coming. So the declines in the current production centers means that countries like the US will just have to deal with less oil to buy, and higher prices.

I dont think Canada should rush to try and increase production. If the world is going to insist on carbon taxes and other such nonsense, then let the stupid bastards freeze in the dark. Why ship irreplacable oil reserves now at just $125 a barrel when the same oil can be produced and sold for $200 a barrel in a few years? Why put up with silly nonsense about 'energy hogs' that is a result of producing from higher input cost areas like the tarsands, just to supply a world with more energy now when it will not matter anyway.

Until people accept that the peak oil is real and a serious threat, and make changes to lower consumption, no amount of new production is going to meet world demand. The same idiots that are screaming to limit fossil fuels production, and want to tax everything, and demonize 'big oil' - those are the ones that will be blaming government and complaining about higher prices later. People have been conned and think that they can get to heaven without dying first. They think there are easy answers and they want to see others pay, but they want to go on driving their SUVs, and sit in drive through line-ups, and eat cheap food shipped thousands of miles from somewhere else. They do not see the contradictions, but they will scream for change and point fingers nonetheless.

Its really easy to blame specs for all of the problems that underpin the commodity sector these days though.

cheers!

mike