From a friend of mine. Thanks TimM!

http://www.buyandhold.com/bh/en/education/history/2004/crude_2.html

Predictions relating to the demand for oil are notoriously wrong; however, with oil at $44/barrel you have to make a bet on whether prices will increase or decrease.

The link is to a ‘teenage scribblers’ [1] (an equity analyst) view on the direction of oil price and he thinks it is either stable to increasing because demand is very close to exceeding supply. The estimates of supply are probably as good an estimate that can be made but his “modeling” is probably a simple excel based spreadsheet (not real sophisticated). It contains some information I have been hearing from Saudi Arabia (that their main field is taking a decline as evidence by water production) from other sources and that the pipeline of new production is limited. In fact, the article suggests the Saudi’s production is in better shape than I have been hearing. It will probably take another 6-12 months to see where the Saudi production ends up (if they are blowing their fields down as a short term fix to short term problem) which will determine the direction of world oil price. [2]

[1] A brit euphemism for an analyst as they are typically young, inexperienced and full of crap. This guy seems to have a fairly steady grasp of reality.

[2] As a field declines it puts out more and more water and less oil. Water drives the oil into the wellbore and it is indicating that the overall oil saturation in the reservoir is decreasing. Other issues such as water coning occur and these are typically managed through time, however, when you blow down a reservoir you increase the pressure difference between the formation and the surface. Production increases (fluids flow in response to the pressure difference) but you can destroy the reservoir in the process. In short, you need to manage the reservoirs for the long run, but you can do some short term things to increase production with the risk of messing up the overall reservoir performance.