Thursday, January 22, 2009


Cheap Oil Is Killing Oil

This AP article, Peru oil ambitions get a reality check, is a fine illustration of how cheap crude prices are killing investment in oil infrastructure. Peru had planned to become a net oil exporter, but at these prices the investment in new pipelines and a refinery upgrade cannot be justified. Peru’s not becoming a net exporter means that much less capacity to supply the world crude oil market.

So many oil development projects are now cancelled, downsized, or on hold that oil production capacity might well have entered a death spiral. Even if an economic recovery is realized (precious little chance of that IMHO), reduced investment in infrastructure and production capacity will certainly mean another spike in crude prices as producers scramble to fill any surge in demand.

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