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Hubbert’s Peak or Shell Oil’s Fantasy?

By Stansberry Research Interview Series
Wednesday, November 8, 2006

Peak oil is a crock.
 
I’m sure that got a few of you flustered. But it’s true... at least the version of peak oil that most people talk about.
 
Peak oil – or Hubbert’s Peak, as it’s often called – was a theory put forth by a guy named Marion King Hubbert in a research paper published on March 7, 1956. In its simplest form, Hubbert claimed that there was a finite amount of oil in the ground (true) and that we’d run out of oil by 2006 (false.)
 
Hubbert was a really smart guy. He got his B.S., M.S., and Ph.D from the University of Chicago. He then went to work for the petroleum industry, most notably Shell Oil from 1943 to 1964. While there, he published his paper on peak oil.
 
Now I ask you, does anyone else find it strange that the guy who predicted the end of oil production, a prediction that would cause oil prices to skyrocket, worked for BIG OIL?
 
This is like asking Budweiser to tell you whether beer is safe to drink, or cigarette companies to tell you whether smoking has any harmful side effects.
 
Since the publication of Hubbert’s paper, an amended version of Hubbert’s Peak has appeared. This latest incarnation focuses more on Hubbert’s theory that production would peak in 2000. In this regard, Hubbert may be on to something, oil production has stalled somewhat in the past couple of years.
 
Maybe it’s because the oil industry isn’t plunking too much money into finding new reserves. The International Energy Agency just announced that investment in the oil and gas industry rose 70% to $340 billion in 2005 from $200 billion in 2000. However, when you account for cost inflation, the rise in new investment was a paltry 5%.
 
Look at the issue from an economic standpoint. It’s really quite simple. As the price of oil jumps, more expensive means of extracting oil become reasonable. Oil sands could add between 1.7 trillion and 2.5 trillion barrels of oil to reserves. And oil shale in the U.S. alone could more than double this.
 
 
All it will take for a flood of new oil to hit the market is high prices...
 
You don’t need to be Shell man to see that.
 
Good investing,
 
Graham




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%