• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

This week we held our monthly strategy call with a detailed discussion on energy.  Setting aside the price fluctuations that might occur in the short term, I wanted to highlight two charts from that call that are very critical for any supply analysis of oil.

The first is the long term production chart (which is posted below), which highlights the flat lining of production globally over the past five years.  From 2001 – 2004, global oil production CAGRed at 1.8%, while from 2004 – 2008 it CAGRed at only 0.4%.  The long term average, over 30 years, is for 0.9% annual growth in oil production.  We are clearly seeing a slowdown in the rate of production growth globally.

The second chart that is critical is that of global rig count, which has been ramping dramatically for the last 10-years.  Global rig count CAGRed at 5.8% from 2001 – 2004 and then 8.6% from 2004 – 2008.  So investment in finding and producing oil ramped in a period in which production flat lined.

Combined, while these two charts and data sets don’t necessarily validate peak oil, but they most certainly validate the fact that oil has become much more difficult to find and will require much more substantial investment than we have seen historically to grow production rates.  These are two facts, and charts, to keep front and center as you position your portfolios for the tail duration on oil (three years or less).

Daryl G. Jones

Managing Director

The Tail Charts for Energy - oildj