Why You Should Worry About Big Oil

So the majors may be making billions, but they are struggling to put them safely and soundly to work. Overall production at the oil majors is struggling to keep up with demand, and the reserve replacement ratio, the measurement of how well they are replenishing their supplies, is slipping. A healthy ratio should always be over 100%. But ratios for most of the six oil majors will slip below that level over the next five years, according to Sanford C. Bernstein & Co. “That’s nowhere near the rate of reserves needed to satisfy world demand,” says Robert E. Gillon, an analyst at oil research firm John S. Herold Inc. While most analysts think oil will hover at its current price, some think that if prices mimic the last big runup between 1970 and 1980, oil could hit almost $200 a barrel by decade’s end, or about $6 for a gallon of gas. Some options traders are already betting that oil, now around $72 a barrel, could rise to $100 by December. Washington consultants PFC Energy figures the world is consuming oil at more than two times the rate of discovery of new supply. Conservation and efficiency gains have already saved billions, but they have not been enough to offset sharply rising demand from China and India.

businessweek