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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerWhat's one energy word investors -- and oil/gasoline users -- should monitor?
Ghawar? That's right Ghawar -- a term you don't hear bantered about in the popular press or by major media outlets, but one that is pivotal to the health of the U.S. and global economies.
Located in Saudi Arabia, Ghawar is the world's largest conventional oil field. Oil's price has recently retreated from its latest climb to the stratosphere on slowing economic global growth concerns, but that pull-back, barring a financial calamity, is expected to be temporary -- at best lasting a year or two. Oil closed Friday up $6.67 to $104.55 per barrel. Oil hit a record high of $147.27 per barrel in July.
Oil's price is expected to resume its ascent when both developed and developing world growth return to normal GDP growth rates. Ghawar's significance? There has been chatter that the Ghawar oil field was beyond optimum; i.e., that its production had peaked.
Saudi Arabia has categorically and repeatedly rejected any contention that Ghawar's production has peaked. However, Saudi Arabia does not release field-specific production data.
Who provides the best analysis of Saudi oil production? Dozens of research firms abound, but the view from here argues that data provided by Cambridge Energy Research Associates and the International Energy Agency get high grades for accuracy.
Globalization, basically the spread of capitalism around the world, requires an increase in oil production, i.e. it assumes that Ghawar's oil outpout will increase. Ghawar is a key component of Saudi Arabia's spare production capacity, the nation with the largest, quickly-marketable spare production capacity in the world. Hence, a Ghawar field in decline would create a decidedly different global oil supply, near-term, with (obviously) bullish implications for oil's price.
And a more-bullish oil price is something the world doesn't need at this stage of the 21st century.
Oil Analysis: Given Saudi Arabia's reluctance to disclose oil stats on individual field production, about the best investors/readers can do is monitor the Saudi's ability to increase production from spare capacity. (Current Saudi spare capacity is estimated to be 1.5 to 5 million barrels of oil per day, depending on the analysis.) In other words, if there's a point in the decade ahead in which the Saudis cannot increase production despite market conditions requiring it, that should serve as a warning sign -- a red flag regarding the Ghawar oil field.
And it goes without saying that the Ghawar issue, among other factors, should motivate the United States to a full-speed-ahead public policy regarding alternative energy source development.
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