Thursday, June 29, 2006

Oil News

Oil news that doesn't get a feature spot. Go figure.

First off, it's reported yesterday that Iraq's oil production has reached a high not seen since pre-invasion 2003:

Iraq's new oil minister offered an optimistic forecast for the country's oil industry on Sunday, saying daily production has reached 2.5 million barrels a day and that Iraq hoped to rival top oil exporter Saudi Arabia within a decade.

Iraq expects its daily oil production to reach 2.6 million to 2.7 million barrels per day (bpd) by the end of the year, rising to about 4 million bpd by 2010, and 6 million bpd by 2012, Hussain al-Shahristani said in an interview on CNN's "Late Edition."

Meanwhile, Larry Kudlow wonders if market fundamentals are about to catch up with the oil markets:

The economic principles at work here are very simple: Markets work. Supply and demand works. Higher prices are gradually slowing consumption. At the same time, those high prices continue to stimulate outsized profits and investment returns. So capital is pouring into all the energy sectors, providing a strong foundation for new energy production. Chevron, for example, is reinvesting virtually all its profits in new oil-and-gas exploration and drilling. The drilling industry, meanwhile, has recovered from last year’s Hurricane Katrina shock and is once again producing near peak capacity.

There’s even good news from Washington on the energy front. The House Resources Committee, chaired by California Republican Richard Pombo, has just delivered the Deep Ocean Energy Resources Act, which will give coastal states the authority to drill 100 miles or more offshore. This will allow for exploration and production in the deep seas and on the Outer Continental Shelf (OCS), where kajillions in oil-and-gas reserves are waiting to be siphoned. It also will provide the coastal states with significant oil and gas royalties. Democratic House Minority Leader Nancy Pelosi opposes this, but the bill has strong bipartisan support.

Finally, the Nuclear Regulatory Commission has issued its first license for a major commercial nuclear facility in thirty years. Construction of the $1.5 billion National Enrichment Facility in New Mexico could begin in August, and according to Louisiana Energy Services CEO Jim Ferland, it could be ready to sell enriched uranium (for electricity) by early 2009. Senate Energy chair Pete Domenici calls this a “renaissance of nuclear energy in this country.”

A combination of market forces and government deregulation could be setting us up for a big crack in energy prices, including gas at the pump. And it may happen sooner rather than later. Many years ago, during the 1970s oil crisis, Milton Friedman argued that free markets are more powerful than OPEC, and Ronald Reagan proved the point when prices plunged after he deregulated energy in the early 1980s. Twenty years later, energy-market forces may be poised to assert themselves once more.

Is he right? I don't know, I'm not an economist. An interesting thought though and one that, if true, would be a welcome development.

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