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Willing blindness about oil: Continued

In response to my previous post, my verbal adversary said this in regards to the new oil reserve estimates:

Alternative sources are nowhere near prime time, delaying the inevitable for as long as possible is prudent.

Basically, his theory boils down to this: We’re speeding towards a brick wall. We can see the brick wall even though there are people in the back seat telling us there is no brick wall. He proposes that we continue at current course and speed to maximize fuel efficiency and then when we reach the brick wall, if it’s there, we’ll magically wish it away and speed right on through.

We KNOW the Saudis are lying. Their own numbers PROVE it. Once Mexico’s Cantarell and the large Saudi fields deplete, we’ve lost the two largest sources oil we know of. Iraq’s recent “update” still brings their reserves to about 5/8ths of what Saudi Arabia’s max number ever was. But the current economy depends on believing these lies so we can maintain lower oil prices. The Saudis are willing to lie to us and we’re all too willing to believe it.

But if these lies are so transparent that a random I.T. guy in Pittsburgh can see it, why hasn’t the market priced oil accordingly? To be honest, I have no idea what’s going on. my only guess is that the depletion for the Saudi fields is still far enough off that it isn’t priced into the market. As long as the Saudis can maintain shipment on current orders, the alarm hasn’t been sounded yet.

But maybe, just maybe, there is some awareness of the lies recently.

The Saudis were the first to say that their reserves had gone up sometime back in August I believe, magically, it happened without any new finds.
Iraq followed a few weeks later with a 25% increase in it’s reserve estimates.
Iran, cheating off it’s neighbors, declared that it’s reserves were higher than previously thought.
And Kuwait, not to be left out, increase their reserves by 12 billion barrels.

All in the span of about 60 days.

Yet the price of crude has risen fairly steadily over that same time period. With all these increased reserves (nearly 150 billion barrel increase) in existing fields (save for Iraq), you’d think “The Market” would have started to price oil lower. Perhaps they didn’t buy the lie this time? This article really drives that last point home.

Money Quote:

“I don’t think it’s possible accurately and confidently to look at the reserves for many Middle Eastern countries with a great deal of confidence,” said Paul Harris, a natural resource analyst at Bank of Ireland, referring to numerous previous substantial revisions to reserves by OPEC members.

Some countries, including some OPEC members, are in fact reporting total oil reserves discovered instead of oil still to be extracted, several analysts have said.

And then comes the *facepalm* from my adversary:

How do you know they weren’t under-reporting before?

The problem with that theory is that OPEC’s actions have been inconsistent. Back in the 80’s and 90’s there was a race to show “proven” oil reserves in order to get lots of investment dollars from oil companies to come build up the infrastructure. So back then, if there was false reporting, it was because they were over reporting their reserves. The problem for Saudi Arabia is getting caught in the lie. They’ve been pumping 8-9 billion barrels of oil a year from the 260 billion reserve, yet their official reserve hasn’t decreased in 2 decades.

Today the problem is reversed. If they admit their reserves are a lot smaller than declared, the price of oil will skyrocket, suddenly the entire world will be on the alternative fuel bandwagon, and their influence will be greatly diminished once a solution is found. They have nothing once their oil is gone, they will shift from being an exporter of oil to being an importer of whatever the new fuel is that gets adopted. Instead of being a massively wealthy mid-east state, they will fall into poverty, and they will do anything they have to do to maintain their current position.

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