Ouch!!

July 16 (Bloomberg) -- Brent crude-oil futures traded above $78 a barrel in London for the first time since Aug. 9 as maintenance shutdowns limited North Sea supplies and violence in Nigeria curbed its oil exports.

The August Brent contract rose as high as $78.02 a barrel and was trading at $78 a barrel, up 43 cents, at 8:38 a.m. on London's ICE Futures exchange. Brent has averaged $64.56 so far this year for contracts closest to delivery, after averaging $66.11 last year, $55.25 in 2005 and $38.04 in 2004.

Brent set a record on Aug. 7, when crude futures closest to delivery reached an intra-day high of $78.64 a barrel.

Oil Fundamentals - Update

The fundamentals of oil have returned to the news this week. The IEA has predicted a coming supply crunch:

Crude-oil supplies will be tighter in coming years, with a "supply crunch" after 2010 as OPEC's spare production capacity evaporates, the International Energy Agency predicted Monday.

Supplies will tighten because economic growth will drive up demand and offset significant increases in oil-refining capacity, the IEA said, according to media reports citing the agency's annual medium-term forecast.

The IEA, which monitors energy markets for the world's 26 most-advanced economies, doesn't forecast oil prices, but its conclusions imply consumers should expect continued upward pressure on energy costs, The Wall Street Journal reported in its online edition.

"Oil and gas price pressures look set to remain in the coming years," the IEA reported, according to the Journal. "Slower-than-expected (gross-domestic-product) growth may provide a breathing space, but it is abundantly clear that if the path of demand doesn't change on its own, it may well be driven to change by higher prices.".

Clearly, the problems here are more of a refinery nature than Peak Oil related. Nonetheless, they are related to the unbelievable explosion in demand of the last few years emanating from non-OECD countries, which has lead to the pressure on refinery capacity.

And when you add stagnating reserves, refinery problems and massive demand together it shows that we are headed one way: directly towards what Peter Terzakian calls an 'energy breakpoint'.

The Earth's Plentiful (?) Bounty

I'm not a fan of the crass headline, but I am pleased to see that the Daily Mail is interested in tackling the subject of oil reserve depletion:

According to David Strahan, a respected business journalist and author of the new book, the early warnings of an oil crisis were correct in every respect, save their timing.

In the next couple of decades or so, he argues, our civilisation will have crossed a point where the peak of oil discovery and production has been reached.

From then on, the story will be of dwindling supplies and rising prices.

Is he right? Well, he marshals some impressive arguments. The rate at which we discover oil has indeed been falling for 40 years.

In the Sixties, geologists found some 55 billion barrels a year. Today, the figure is down to just 9 billion barrels.

Most worryingly, we now consume three barrels for every new one discovered, and out of the 98 oilproducing nations, 60 (including the UK) are now in terminal decline.

Tax revenues here are dropping as North Sea oil production declines.

Indeed, Britain will become a permanent net importer of oil next year - according to The Oil Depletion Analysis Centre - and then our balance of payments and energy security will begin to deteriorate.

Strahan says: "It's the end of a gravy train for Britain."

Indeed. Our trade deficit is already dire and we haven't begun to the feel the pinch of being a net oil importer.

Let's remember that although it is difficult to fix a peak in the production of oil, - Strahan has predicited 2020 by the way - it doesn't change the basic fact that easy oil just isn't being discovered anymore. Tar sands may be numerous, but are far more difficult and expensive to extract than sweet light crude. And then there is demand, which shows no sign of abating. This all points towards oil trending higher and higher, at the very moment Britain is becoming a net oil importer.

So, all in all, I'm thinking Tony got his timing just right. As for you Gordon...oh dear.