Oil Prices and Supply
James Hamilton has a contrarian view on the reason why oil prices are so high. There are two factors contributing to the problem.
“By and large those production platforms that are out are not going to be put back because it’s not economically desirable to reinvest to put those facilities back in place,” Bodman told the House Energy and Commerce Committee during a hearing on the Energy Department’s proposed 2007 budget.
Bodman said the shut-in production platforms are mostly in old oil and gas fields close to shore.
“They tend to be depleted and it would not economically be viable to reinvest in to rebuild them and the companies haven’t done that,” he said.
On top of this there are about 470,000 barrels/day that are shut in due to unrest in Nigeria.
In short, current world production is below the peak attained last year and demand shows little signs of easing up. Despite the various conspiracy theories out there about how oil companies are manipulating the price, one significant component seems to be the decrease in supply.
Update: I decided the picture of world oil supply at Econbrowser (and from the Oil Drum) would show this problem quite nicely.
Some related posts below the fold.