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Trapped! Non-OPEC Oil Production Ceiling

Written by Gary North on March 2, 2012

If the economy recovers, oil demand will soar. The price will rise. It is already over $100 a barrel.

The USA is dependent on non-OPEC suppliers. So is almost half the world.

To see whether the free market will respond, ask yourself: Has output increased since the decline in price to under $40 in 2008? Answer: no.

Here is the assessment of Gregor Macdonald, an expert in oil production, who supplied this graph.

OPEC currently supplies the world with 43% of its oil. The rest is supplied by Non-OPEC producers. One of the most important distinctions between the two is that OPEC oil largely comes from state-run oil companies. Saudi Aramco in Saudi Arabia, PDVSA in Venezuela, and the National Oil Company of Iran, for example. Meanwhile, in Non-OPEC, production flows from countries mostly through private enterprise: United States, Canada, UK, for example. What has surprised the global oil market over the past 7 years is that this majority segment of world oil production has also remained trapped below a ceiling, despite the price revolution which took oil from under $40 to above $100 a barrel. Free markets are supposed to create more supply, when price rises. New supply has indeed come online in Non-OPEC over the past decade. However, geology has trumped investment. It is geology that determines flow rates.

Where is new oil output coming from? Russia. It is not in OPEC, but it is surely not Western.

The USA has abundant natural gas. But it will cost trillions of dollars to convert all of our filling stations to natural gas. It will take 20 years, minimum, if we start now. No oil company is starting. Call it 30 years.

Time. We are running out of time. The longer we wait, the higher the price of oil will go.Oil is supply-sensitive. When oil is in short supply in relation to demand, its price gets high, fast.

The price of oil is going to go very high.

Think: $10 a gallon gasoline. What would that do to Americans’ budgets?

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6 thoughts on “Trapped! Non-OPEC Oil Production Ceiling

  1. Lets see! We ship food FREE to them or sell what is excess from US needs(which I suspect isn’t really excess just diverted)to make the “Balance of Payments” look better while people in this country go hungry. UH, I think we will be plowing less ground with less feul at the high prices as the farm budget is nearly fixed for each cost element, which translates into less food grown which means still higher prices (not necessary just a greed scam) blamed on high feul prices, there will be less FREE food available and less for exports which means the OPEC countries which most cannot grow enough of their own food will pay a lot more and get a lot less which will spawn unrest which the Islamists will redirect against the western countries but eventually the populus of the Arab world will see that it was their own fault (greed) which spawned the crisis. Their answer is to killl the westerners and take their property and countries. See the cascading set of events that is coming. So why not just kick their butts now walk away and develop our own resouces. Leave them to wonder about their hate and greed along with the stupidity and ignorance? Do you know the difference of the last two? Stupid is you know better but do it wrong anyway. Ignorance is one wont learn thus doesn’t know any better and will do it wrong with violent emotions anyway. Sound familar???

  2. MontanaMEL says:

    One factor is NOT covered in here at all.. OPEC suppliers have NOT INCREASED THEIR PRODUCTION CAPACITY eather! Which of course is their strangle hold on the market price to a great degree… and, YES, oil is truely a GLOBAL COMMODITY, so looking at "THE MARKET" this worldwide way is correct — TO A POINT…

    In the "western world" – other than OPEC, much of our "daily" production has been coming from very mature oil fields…just look at Prudhoe Bay, AK for an example…The TAPS pipeline started out flowing "right up near" it's design capacity..2.2 MBOPD… It flowed there, produced from the North Slope alone, for almost 30 years…then, until now, it has DECLINED every month of every year…just like their studies said it would… With "they/their" being the major oil companies involved up there: BP ALASKA, ARCO (now gone), Conoco/Phillips, Exxon/Mobil, etc…NOTICE: NO GOVT COMPANY OR PLAYER AT THE TABLE… This is the normal course of events…this is the OilPatch personafied… Does anyone really think that EVERY OIL WELL ever drilled…Spindle Top, et al, just keep flowing forever??… (Continued below)

  3. MontanaMEL says:

    What takes place is that on a near daily basis, around the world, someone/company "shuts-in" an old played-out well for the last time and ABONDONS it…plugs it…etc…AND, another company, on that same day, finishes hooking up a "new well" and turns ON it's valve for the first – actual – production for/to sales and usage!.. So is Life in the oil patch!..
    (Continued below)

  4. MontanaMEL says:

    When there is a GLUT of supply OR a REDUCTION IN DEMAND (same effect from different sources)…the price falls "on the market"… This causes "drilling programs" and/or "exploration programs" to be SHUT DOWN by the companies paying for them! THEN…over some period of time, a few years usually, the "inbalance" of supply and demand even out and the market price RE-adjusts upward. AND, those suspended "programs" get dusted off and RE-started…because they have the "demand" of the market to feed with NEW PRODUCTION and the ECONOMICS are once again supporting these actions. (remember, exploration is NEVER a sure thing/bet…figure 1 in 10 is successful overall, with some "areas" running 3 in 10 for particular reasons that slew the odds in their favor…i.e, the ANWR area, etc.).. AND…THEN…STICK SOME GOVT agency(s) and/or RULE/TAX CHANGES into this calculation; then you have a roller coaster ride for the consummer and stock holders… We have the "reserves" to kick OPEC out of America's marketplace/economy…only POLITICS can be blamed for this NOT being a done deal right now!..

  5. ad astra per aspera says:

    You were going good until the ending which is WRONG. Ignorance is cureable stupidity is a permanent condition.

  6. ad astra per aspera says:

    Actually with oil this high they are opening the taps on old “played out” wells & getting more oil. Who said God stopped creating (producing) oil? Given that oil is an organic product why couldn’t it be continually created? The idea that there is scarcity in anything is an anti-God idea. God created the earth for mankind to steward not worship. Worshiping the creature instead of the creator is predicted in the Bible. Open one & discover what’s next.