Um, I think he's missing something. I've had to watch this market as energy prices are such a significant input cost in agriculture production.

There is indeed some 'speculation' going on, but the futures markets are named appropriately. They bet forward. As it happens, production is dropping. Russia has already announced a decline. Saudi Arabia has done something I find striking. It's gone back in to its 2nd largest field to see if it can get any production out of it. The problem is that the geology is treacherous - if they mishandle the extraction, they will ruin the field. That is quite a risk to take if you're not looking at future shortages. Mexico is declining, same with North Sea, etc. I know the EIA (Dept Energy) is planning to look at supply issues, as is a private Paris-based group - a first for both apparently, as they've only looked at demand previously. Both studies will have to be 'guesstimates' as some countries, e.g., Saudi Arabia, consider oil reserve numbers as state secrets.

"does that lead you to think there may be a slight bubble effect?"

I think there is a bit, but not as much as I see in ag commodities. Here's the article on the Khurais oil field in Saudi Arabia.

http://www.energyinvestmentstrategies.com/2008/04/22/new-saudi-capacity-the-worlds-most-difficult-plumbing-problem/

Note that they have to build 120 miles of pipe to get the filtered sea water to the oil fields to be used to pump out the oil. (And given this is Saudi Arabia, every mile is going to be guarded - a huge cost).


Have you watched the rise in steel prices and their projections?

So, I would add that in addition to projected declines in production (due to depleted fields or aging infrastructure), the projected COSTS of getting that oil are also increasing.

Went back thru my bookmarks to give you an example of what I've been tracking:

From May 22 Wall Street Journal

"that the Paris-based IEA will slash its forecasts of global oil supplies, after years of rosy predictions that oil output would rise in lockstep with developed countries’ appetites. The IEA’s latest project? A close look at 400 of the world’s biggest oil fields to figure out how much oil is really left, and how much production is declining. Nobuo Tanaka, head of the IEA, said Thursday the plan is to provide a “more realistic supply potential” estimate of what’s really out there.

That marks a fundamental shift for the IEA, founded in the wake of the 1973 oil embargo and subsequent supply shocks. Ever since, the IEA spilled a lot more ink studying oil demand in rich countries than oil output in the developing world.

Two developments appear to underly the shift: Rich country demand no longer calls the tune, given China’s implacable thirst for petroleum, and global oil reserves no longer seem a bottomless well. IEA chief economist Fatih Birol told the WSJ that oil production at big fields will continue to decline at an accelerating rate, leaving the world with a big shortfall of crude even as demand growth marches on."

http://blogs.wsj.com/environmentalcapital/2008/05/22/peak-oil-in-paris-international-energy-agency-now-skittish-too/?mod=WSJBlog
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And this from a year ago

"60 percent of oil and gas execs believe trend of declining reserves is irreversible

In the KPMG survey, which polled 553 financial executives from oil and gas companies in April 2007, twenty-five percent of the respondents said that at least 75 percent of government funding into energy should be directed at the renewable sources sector and a further 44 percent said that at least 50 percent of funding should be allocated in the same way. These feelings stem from the overwhelming majority, or 82 percent, citing declining oil reserves as a concern.

http://www.energybulletin.net/30106.html