Iraq Production, Conservation Could Keep Oil Price in Check for Years

I’ve always said that the apparent peaking of the global oil supply at about 86 mb/d that was seen during 2006 – 2008 in the face of rising demand was only partly due to the Peak Oil concept of rapid decline rates in old fields and the eventual inability of new fields coming on stream to overcome that. The other important constraint to growing the oil supply was above-ground issues of war and violence, primarily in Iraq and Nigeria. I’ve always maintained that if either or both of these countries manages to turn on their oil spigots as rapidly as nature would allow, the global oil supply could grow substantially from here and Peak Oil would be pushed off for some years.

Therefore, I think the recent movement toward full exploitation of Iraqi oil is significant
. Iraq could mitigate some of the constraints on oil production that will come about from the recent cancellation of many production projects due to the great price decline of late 2008. Adding to the Iraqi impact on oil supply is the fact that major Saudi production projects scheduled for 2009 – 2011 may well be delayed and could be re-activated fairly quickly when more demand emerges. Obviously the voluntary restraints of various OPEC members can also be quickly turned around.

All of this suggests to me that when global growth resumes the price of oil will have some immediate rise but it is not likely to be a robust and rapid increase to and beyond $100 for some time. The exact time will depend on when global growth resumes. If we are lucky and that happens in 2010, then perhaps we will see the oil price reach and exceed 2008 heights around 2014 – 2016.

Seeking Alpha