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by Joseph Dancy, LSGI Advisors, Inc.

Adjunct Professor, SMU School of Law
February 2, 2006

Several developments worth noting have occurred in the energy sector over the last few months:

Sprout Asset Management had an excellent summary of the energy sector in a report they issued last month:

. . . The fundamentals for oil continue to be highly favorable. In fact, the issues the oil markets face are staggering. As we've already mentioned, Chinese and Indian demand for oil threatens to grow exponentially as they continue to build the wealth to become consumerist societies like the West. Furthermore, the supply side of the equation continues to face daunting issues. North Sea production, at one time representing 8% of world oil supply, has peaked and is declining precipitously. Norway recently dropped its forecast for 2007 oil production by 15%. Britain�s crude oil production, which peaked before Norway�s, fell 15% last year. Mexico�s Cantarell oilfield, the second largest in the world, fell 10% or 200,000 barrels per day in a six month period.

British Petroleum, one of the largest oil companies in the world, recently reported the sixth straight quarterly decline in oil production, losing 400,000 barrels per day in the past year. A mechanical problem on the Hibernian platform resulted in 80,000 barrels per day being temporarily taken out of production. Venezuela is threatening to nationalize its oil industry and kick foreign companies out. The Middle East (Iran, Iraq) remains a powder keg of instability and threatens to become only more so in 2007. A dispute between Russia and Belarus almost took 1 million barrels per day of oil off the market. These factors are rarely incorporated by analysts in supply models.

© 2007 Joseph Dancy

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