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November 15, 2004
The debate over oil prices
No one really knows how much oil is in the ground, or how much of that oil is usable. New and improved technology makes it possible to pump and refine oil that was beyond reach just a few years ago. Therefore, we don't really know what the price of oil will be even just a few years from now. But given the furious pace of technological development, I think fears over supply and price are probably overblown. The argument, based on an interview with oil analyst Tim Evans, is at BusinessWeek Online.
A reader responds:
While I would probably agree with Tim Evans' view that oil is unlikely to reach to $100 per barrel, or at least not stay there for very long if it does, I might dispute some of his reasoning.
As for oil companies finding more oil than they use each year to maintain stock prices, they appear to be doing so if you look at increases in their proven reserves. However, many of those increases are the result of buying production from other companies, or even acquiring the company outright. The increase in proven reserves resulting from new drilling has decreased annually for some time now.
As for oil companies making money in the 1980s at $12.00 a barrel, I think you will find that that price, when adjusted for inflation, would have to be much higher today.
The real reason oil prices may not increase much further is the improvement in oil field technology, both in finding potential production through new seismic techniques and producing more and more hydrocarbons from existing reservoirs.
Just wanted to throw in my two cents worth.
Curtis D. Horne, CPL
Curtis D. Horne & Associates, LLC
Petroleum Land Consultants
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