The Oil Drum: New York City

Helping New Yorkers understand, prepare and adapt to the implications of Peak Oil

Tuesday, August 09, 2005

Interview With Matthew Simmons

I'm almost finished with Matthew Simmons' Twilight in the Desert. Then I see this interview with him by Jim Puplava on Financial Sense that basically provides a nice background to the issues he raises in the book.

Simmons makes some of the strongest statements about the timing of the coming crunch in supply:

In 1990 the United States was still producing 7.3 million bpd of crude oil, today it’s 5.1; the 7.3 was after a drop over the previous 5 years of 1.6 million bpd; our refineries only needed to run at 13 ½ million bpd; and we only needed to import 5.8 million bpd of crude oil imports to balance our system. Today we have to run our refineries at 100% or we have major product shocks; today, we have to import 10-11 million bpd, or we lose crude oil stocks; we have to basically create almost 3 million bpd of finished product imports; we have to run the system on a 24-7, all Summer long. And we still liquidate stocks.

So we have actually now created a pending domestic embargo, and we’re going to be lucky to get through the Summer without some periodic shortages. We probably will, but the odds are probably as high we will have some shortages, and then if we get through the Summer we have a fabulous respite from Labor Day to Thanksgiving, until we hunker to try to figure out how the world gets through the Winter of 2005 and 2006 because oil demand globally could easily go to 86-88 million bpd during the Winter, and that could easily exceed supply by 2-5 million bpd.

And this is just discussing the refinery issue, but still you can't just put crude oil into the gas tank, can you? My feeling is that this will mostly affect extremely isolated areas that are far from refineries. Maybe skip Hawaii in your winter vacation plans...and get some warm sweaters now while they're cheap.

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At 8:49 AM, Anonymous Anonymous said...

Right after the section that you quote, the interviewer responds by saying- "If that was to happen we would almost be looking at $75-80 oil, I suspect." Simmons then says-"No, no, no. Oil prices could easily go up 5-10 times." To me that was the most interesting exchange in the interview. I'm old enough to remember the Iran oil shock and how prices seemed to triple overnight. People started hoarding gas. We would get a call from our friend who owned the local service station and go down late at night when it was closed and the lights were out and fill up our cars and every cannister or can that we could pack into the back of Dad's station wagon. I've read recently that world supplies were only reduced by 5% back then. Price is set by the marginal buyer in the spot market, so Simmons could be right about how prices would react if such a shortfall were to occur and people started to panic.

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