Oil Supply Cannot Meet Global Demand

Sean Brodrick discusses oil demand and supply overseas. Mr. Brodrick takes a closer look at global oil demand and the slowing U.S. economy.

There are 10 million new cars and trucks hitting the road this year alone in China, and millions more in India, and other emerging markets. Asia is why global oil demand is growing stronger even though the U.S. economy is slowing down. But the International Monetary Fund just projected that even with higher oil prices the global economy will grow at 3.7% in 2008 and 3.8% in 2009. Oil supply is growing at 1% annually at best.

The Export Land Model or ELM is a theory proposed by Jeffrey Brown and others associated with TheOilDrum.com an excellent site for information on the oil crisis. Unfortunately for American consumers, more and more evidence is showing the ELM oil prophecies to be painfully true. The ELM says that, after a country's oil production peaks, it will decline at a 5% annual rate at the same time that local consumption increases by 2.5%. This model held true in the U.S., China, Great Britain and Indonesia. The real problem is that many of the world's exporters are now at their peaks. Recently, the U.S. Department of Energy said the amount of petroleum products shipped by the world's top oil exporters fell 2.5% last year, despite a 57% increase in prices. And that means much higher prices are on the horizon.

Also, in April, Mexico's oil output fell to a nine-year low of 2.8 million barrels a day, mostly because of a decline in its giant Cantarell field. At current rates of decline, Mexico will become a net oil importer by 2016 according to Mexico's Energy Ministry. And just recently, Pemex, Mexico's state-run oil company said its oil exports would drop to an average of 1.40 million to 1.45 million barrels per day (bpd) this year. Mexico is America's #3 supplier of imported oil. This is not only a crisis for Mexico; it's a crisis for the U.S.

Americans sometimes act like other countries are sitting on their oil and they have a duty to provide it to as fast and cheaply as possible. But more and more countries are realizing their oil is a national treasure, and they're starting to sell as little of it as possible at the highest prices they can. It's called Resource Nationalism and it is bad news for American consumers.

That's why, the elected president of Venezuela Hugo Chvez has been the subject of adulation and loathing both at home and abroad ever since.

- In Venezuela, President Hugo Chavez's nationalization crusade has forced out two of the world's largest energy companies and the OPEC nation is preparing a decline in oil tax to boost its share of profits from its fields.

- In Russia, Vladimir Putin has used hook and crook to bring more than half of that country's oil industry under state control, grabbing properties and projects from large foreign oil companies.

- Even in the Middle East, Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar curbed their output by 544,000 barrels a day last year. At the same time, their domestic demand increased by 318,000 barrels a day, so, their next exports dropped by 862,000 barrels. In fact, net exports from Saudi Arabia, the world's biggest oil producer; have actually dropped by a total of nearly 1.2 million barrels since 2006.

"The reality is national oil companies' control 94% of the world's conventional oil and gas reserves. And they'll want more control in the years to come," Brodrick states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspxHow-the-New-Oil-Crisis-Affects-You-1877

About SEAN BRODRICK & MONEY AND MARKETS

Sean Brodrick joined Weiss Research in 2000 as an analyst, bringing more than 25 years experience as a journalist and financial analyst to the position. He is Weiss Research's small-caps specialist, especially in natural resources, and is the editor of the company's Red-Hot Canadian Small-Caps, as well as a regular contributor to its daily e-letter, Money and Markets.

Previously, Mr. Brodrick was the investment director of The Sovereign Society, the world's leading publisher of offshore asset protection strategies and global investment opportunities.

Recognized for his expertise on Canadian and Australian investment opportunities, Mr. Brodrick has been featured on many financial talk shows, including CNBC Squawk Box and Bloomberg Market Line. He is a weekly guest on Market Matters Radio, a contributing columnist to MarketWatch.com and a frequent commentator on one of Canada's premiere financial websites, HoweStreet.com. His report, "70 Days to Empty," has garnered acclaim for its analysis of the forces pushing America toward its next oil crisis and was described by

The Daily Reckoning as "the most important report you're likely to read this year," while his knowledge of uranium has helped investors earn solid gains on the commodity.

Mr. Brodrick holds a B.A. degree from the University of Maine.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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