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Bill Palone

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Thu, 21 May 2009

´╗┐World Oil Production Peak?


Have we reached that point? Well, Kenneth Deffeyes says that we hit it in 2005 and analysts with Raymond James & Associates Inc. seem to believe that we hit the peak in the first quarter of 2008. So, it would appear that we have in fact reached the point where demand will outstrip supply, once the world economy starts to improve.

With this in mind, it would seem that we as a nation should be doing things to encourage production of oil, not devising hair brained tax schemes that penalize those that produce the oil that we need. Yes, we are going to be forced to make changes in the way we consume fossil fuels. But, we need to let the market place be the driving force behind those changes.

The worlds thirst for oil will not decline overnight. Even if someone comes forward with a solution to our energy needs, tomorrow. As such, we need every drop of oil we can produce. The current administration and its followers, seem to think they can legislate and tax the United States into a position of energy independence. It just isn't going to happen. In fact, what they are proposing will bring great harm to our already ailing economy and greatly diminish our ability to produce domestic oil.

Intangible Drilling Costs (IDC) deductions are very important to the independent producers. The IDC deduction allows them to bring in outside money that wouldn't even consider taking the risks without it. If that deduction is taken away (as they propose to do) there will be fewer wells drilled and as a result less oil available.

With the economic downturn and resulting decline in exploration activity that we are seeing at this time, I project that the previous crude oil price highs won't seem all that high in the future. This will happen because of projects being put on the back burner or just outright canceled. Add to this, the punitive measures being proposed and we have the right mixture to create unbelievably high crude oil prices in the not to distant future.

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