This article comes to you via the British "Money Week" this morning. There's all kinds of scuttlebutt out there in Europe that we don't see here in good old NA. A few tabloids are mumbling about a U.S. Attack on Iran's nuclear facilities next week and the Saudis have warned their people to get out of Iran. Could this all be true? Who knows.... but a prediction as follows, if it comes about, will certainly have dramatic influence on small, domestic, U.S. sweet light crude and natural gas.

"The oil price could hit $160 a barrel as soon as next week.

At least, that’s what ‘Zapata’ George Blake, the Texan oil analyst, reckons.

‘Zapata’ George has a habit of making bold calls that often seem to be proved right. I interviewed him on my radio show last week (you can hear the interview in full here http://commoditywatch.podbean.com/). He thinks there’s an imminent supply squeeze ahead, which will cause the oil price to spike. Daily consumption is exceeding daily production, he says. There are oil shortages now.

But, first, let me first dispel a couple of common myths about oil…

Oil Myth #1: Demand for oil will go down in a recession

Cobblers.

In the last 58 years, according to Worldwatch estimates (based on sources such as BP and the International Energy Agency), year-on-year demand for oil has grown every year, except for two brief periods. Between 1973 and 1975, amidst a global energy crisis, global demand decreased annually by a whopping 0.01%. And between 1979 and 1984 consumption growth levelled, the biggest annual decrease being in 79-80 - down a devastating 0.04%.

If you factor natural gas into the equation, these ‘declines’ were even smaller. I’m going to write it in bold letters. Demand for oil will not fall by any significant amount, even if the US goes into recession.

Oil Myth #2: Increased production will meet demand

Really? And where are these discoveries that will lead to new production?

The last major oil frontiers were discovered as long ago as the late 1960s – the North Sea, the North Slopes of Alaska and Western Siberia. Since then there has been some reduction in the number of discoveries, but, more significantly, a huge reduction in their size. In the 1960s over 500 fields were discovered; in the 1970s, over 700; in the 1980s, 856; the 1990s, 510. But in this decade just 65 oil fields have been discovered!

The chart says it all.

(If you cannot see this chart, click here: http://www.moneyweek.com/uploaded/im... )

Of the 65 largest oil producing countries in the world, up to 54 have passed their peak of production and are now in decline, including the USA in 1970/1, Indonesia in 1997, Australia in 2000, the North Sea in 2001, and Mexico in 2004.

We are not finding enough oil to replace the oil we consume. It is that simple. Only politicians and statisticians complicate it.

So what’s this imminent supply squeeze?

‘Zapata’ George points out that the extreme cold spell in February in Alberta in Canada meant that the tar sands couldn’t be mined. One refinery in Edmonton had no oil to refine, while the larger Strathcona Refinery was running at significantly reduced rates due to ‘operational problems’.

He then mentions Australia, where there are currently gasoline shortages. BP and Shell have apologised, citing ‘constraints on imports’ – ie they’re not getting the oil - leading to ‘unprecedented level of fuel shortages’. At the moment, the four biggest oil refineries in Australia are not operational.

Meanwhile, says George, the Chinese have done deals worldwide where they will agree to pay market rates, but have the right of first call on oil production. Chinese oil demand went up by 6.5% in February, and their oil imports have risen by 18.1%.

In brief, the Chinese are getting the oil, while Canada and Australia are going short.