I think Matthew Simmons called this one
Of course he did, he called it many many years ago,
I think the oil goes not merely higher, but substantially high in the five-year term. What people are missing in particular in the oil market is that most of the world's export crude isn't controlled by oil companies. It's controlled by national oil companies.
And it's extremely important for people to understand this. These national oil companies, at least to a substantial degree, are not reinvesting enough money in the oil company to maintain their current production, never mind to grow their current production. That's very, very, very important. National oil companies in places like Iran, Venezuela, Mexico, and Indonesia are diverting cash flow from their domestic oil and gas industry to social expenditure. In fact, some of the diversion is used to lower energy prices. So they're encouraging domestic demand at the same time that they're reducing future supply.
What's important about the four countries I have named is in the three- to five-year timeframe, those countries will not be exporters. And currently, they supply about 25% of the world's export energy. If you take 25% of the world's export energy off export markets, with export demand growing at a reduced rate of 1.5% compounded per annum for five years, it's absolutely stupid what can happen to the price of oil.
I won't even venture a guess, but I don't believe that if all four of those countries started spending money now to increase production that they could undo the harm that they've done by the spending constraints that they've imposed on their domestic industry in the last three years.
