Oil Price -- Major 2008 Issue

The global oil industry is lacking in data transparency
and timeliness, and, with the re-emergence of the issue of
"peak" oil production, has become highly politicized among
geologists, petroleum economists and consultants. So, with
oil, I spend more time on the price charts over shorter periods
of time than I do chasing down oil supply / demand stories.

As we head into the new year, I am struck by how overbought
this market is. I'll provide a link in a moment, but suffice it
to say, the oil price is moving toward a moment when a price
correction would be overdue. Consider the weekly chart with
some six month measures.

If the price does correct in the next month or two, it will
reflect not only a global economic slowdown, but prospects for
substantial new production from a variety of fields to come this
year and next and to total 3-4 mill. b/d net of declines from
existing producing fields (You might want to check in at www.
econbrowser.com for an attempt to look at the industry objectively.)

When the price of oil is rising sharply in real terms, it is
difficult for large net consuming economies to adjust readily to
the price trend, even when supply is adequate. So, a break in the
oil price and a down period would help consumers and businesses
greatly in efforts to adjust to the preceding price shock.

For 2008, I think it will be important to catch a break in the
oil price for the global ecoonomy and the capital markets. The
trend of oil over the past 12 months would be increasingly ominous
if it were to continue.