Hubbert's Peak In Saudi Arabia ?  

Bank of Montreal has an interesting review of commodities markets (pdf), including a section that syas that in their view, Saudi Arabia has reached the peak (echoing Matthew Simmons' recent speculation).

Perhaps the biggest oil story of 2004 came when Saudi Arabia announced that it was“ releasing an extra 500,000 barrels/day last summer when oil (as measured by West Texas Intermediate) first reached $50 a barrel. They also announced plans to bring on 5 million b/d by 2012. This was a Page One story that produced many calls and emails from nervous clients wondering whether I would recommend profit-taking in oil stocks "now that the Street's view of vast oil oversupply has been confirmed."

I demurred. It was obvious that we were now at or near OPEC's peak production level, with global demand still rising, so I thought it best to await developments. When they came, they were in a Page 16 story with the actual details of the Saudis' petrogift to an oilshocked world.

Page One readers surely assumed this first flow would be a halfmillion barrels daily of the benchmark Saudi Light, the high-end product that any oil refinery can process.
Instead of the light we got the dark: the new oil was (and is) heavy, sulphurous oil that only a few refineries had the spare capacity to use.

What about those 5 million b/d of new production by 2012? It turned out that only 2.5 million barrels would be net additions to Saudi output: declines from existing fields will slash production by 2.5 million b/d.

As if that weren't bad enough news for consumers, the Saudis claim they need at least $32 a barrel to justify this new production, because it requires waterflooding. Desalinating water from the Gulf and pumping it out to the desert, and then pumping it down into oilfields, is expensive.

Waterflooding on newborn Saudi wells? Isn't waterflooding petroleum Viagra for aging wells?

The combination of the news that there's no new Saudi Light coming on stream for the next seven years plus the 27% projected decline from existing fields means Hubbert's Peak has arrived in Saudi Arabia. The Kingdom's decline rate will be among the world's fastest as this decade wanes. Most importantly, Hubbert's Peak must have arrived for Ghawar, the world's biggest oilfield, and Wall Street's most-cited reason for assuring us month after month that oil prices would plunge because there were so many billions of barrels of readily-available crude overhanging the market.

The author also notes that the rising of both metal prices and energy prices can't keep happening forever - at some point energy costs will kill off the boom that has pushed metals prices up. He also has a grab bag of other financial horrors waiting in the wings (what is the average time period between major financial crises ?):

What could produce a sudden rebirth of Fear?

Let me count the ways:
1. A major terrorist attack.
2. A spreading fear that General Motors will be forced into Chapter
11 to deal with its pension and health care liabilities.
3. A selloff in the US mortgage market, triggered by rising rates and fears for Fannie and Freddie.
4. A sudden breakdown in the dollar, triggered by a new runup in the trade deficit, leading to a cardiac event in the eurodollar market (a la 1987).
5. A runup in oil to $75.
6. A military crisis in the Taiwan Strait.
7. A bursting of the housing bubbles in the major coastal cities.
8. An overzealous Fed that tries a couple of fifty basis point tightenings at a time of negative money supply growth.

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