Lymac believes that we may be entering a long term bullish trend for oil and gas prices due to fundamental economics of supply and demand.
Supply
(The Crash of 1982)
Oil was $34 per bbl ($66 in 2006 dollars) in 1981. OPEC producers saw huge increases in production coming from Non-OPEC sources caused by massive investment largely by the US industry and decided to flood the world oil markets with oil. By 1986 oil prices had collapsed to less than $20 per bbl. The oil and gas industry has suffered a major depression as rarely witnessed in the US economy. If it were any other industry the government would have stepped in to bail it out. There has been 75% unemployment in the US exploration industry from1982 to 2003. The 21 year down cycle has devastated the industry. Massive loss of people and equipment from the industry has made it very difficult to respond to the current up cycle in prices. The industry is running at 100% right now and not able to keep up with demand.
Peak Oil
Many experts believe that the world will soon peak in oil production. Most conventional oil and gas basins have been heavily explored. Even if we had the geologists, engineers and equipment to ramp up exploration we may not be able to keep up with demand. Global Oil production onshore peaked in 1970. All of the production growth since then has come from non-conventional and offshore sources.
Demand
The big story for oil demand has been India and China where demand is going through the roof. Many other third world countries are also rapidly developing. From South America to Russia the global economy is growing. Global demand is currently about 80 million barrels of oil per day and projected to reach 120 million barrels per day by 2020.
