$500 Oil Coming Part 1 - 11/19/08

Matt Simmons spent his career in the oil business.  He was such an oil insider he helped the Bush campaign’s comprehensive energy plan in the 2000 election.  For over 35 years his investment bank, Simmons & Co., has financed much of the United States oil services industry.

Simmons changed from an industry expert to an A-list pundit by his book in 2005 “Twilight in the Desert: The Coming Oil Shock and the World Economy,” The book points out that Saudi Arabia’s oil supplies are much more limited than they claim.

Since the book Simmons has moved to the forefront of the “Peak Oil” movement.  Experts who believe in the “Peak Oil” theory believe we are near the point where oil production will not meet world demand.  Simmons believes we have already passed that peak.  While we are not going to run out of oil in the next number of years, easy to find oil is over.

Oil has risen from $20 a barrel in 2002 to $147 in July of 2008.  This has helped Simmons move into the spotlight.  His book has now sold over 100,000 copies.  In 2005 oil was $58 a barrel and Simmons predicted it would be above $100 within a few years.  He now predicts it climbing to $200, $300 or higher.  He believes there is no roof on the price of oil.

Billionaire oil and gas investors Richard Rainwater and T. Boone Pickens both praise Simmons’ analytical abilities. 

While oil has fallen back to $100 a barrel Simmons has seen complacency returning where leaders believe the problem has went away.  Simmons believes nothing has changed.  "I do think there are a growing number of people who are getting it," he says. "But I guess it just reminds me that as a society, we don't have the ability to actually come to grips with a crisis until its hit us in the face. I am discouraged enough now to think that we're going to have to have a really nasty shock before we wake people up."

Simmons has hard facts why he believes oil has peaked.  During a trip to Saudi Arabia in February 2003, Simmons became suspicious of Saudis’ claims about the super size of their oil reserves.  In his forty years in the oil industry everyone believed the Saudis were telling the truth about how much oil they had and it would be enough to bail out the whole world if needed.  Demand for oil was on the rise worldwide while supplies were getting tighter.   

Simmons decided to find the truth by hunting for data while in Saudi.  What he found was hundreds of technical papers submitted to the Society of Petroleum Engineers by Saudi oil geologist.  This data went back 50 years.  When Simmons got back in the States he spent a month grinding through the technical papers showing reservoir pressure and water-cut percentages, piecing together what the Saudi geologist had encountered.  His conclusion was clear.   "I finished reading the last paper on a Sunday afternoon," says Simmons, "and I sat back and I thought, Holy crap, this is unbelievable. I've just discovered the biggest energy illusion ever in the world. We're in big trouble. I'm going to write a book."

Today he is more convinced that we have reached peak oil.  Current oil production is 86 million barrels a day and that is about as high as it’s going to go.  With demand of oil going up and production staying at par or going down that only means much higher prices. 

Part 2

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