Karnack, the Magnificent
The US Geological Service (USGS) did a perfect imitation of Johnny Carson's Karnack the Magnificent today. For those of us old enough to remember Johnny, wearing a fortuneteller costume used to hold a sealed envelope up to his forehead and answer the question in the envelope without seeing it. He would then open the envelope and read the question, which was always nothing like the answer he previously gave. The USGS held their report to their forehead today and answered "90 billion barrels of oil."
The question they were trying to answer was "how much oil is undiscovered in the Artic?" Obviously since it is undiscovered there is no right answer. It could be 2 billion barrels or 200 billion barrels but until somebody actually goes and looks for it nobody will ever know for sure. They also said there could also be 1,670 trillion cubic feet of gas. Personally I believe the gas was coming from the pile of crap in the USGS report.
According to the USGS the Artic accounts for 13% of the world's undiscovered oil and 30% of the undiscovered natural gas. If it is "undiscovered" how do they know it is there? The USGS also said they did not take into consideration environmental factors like permanent sea ice that constantly shifts and is impossible to drill through, water depths, lack of available technology or even if the reserves could be developed and brought to market if they were found.
They might as well have placed a sealed envelope to their forehead and pulled a Karnack answer out of thin air for all the good this report will do. All it does is stir up hostility in Washington and not a single oil company is going to order a box of parkas and head north. The USGS probably had a good laugh, patted each other on the back for such creative guessing and then went out for drinks.
And another thing, they said endangered species could disappear if oil companies were allowed to explore there. Why not predict we will find a flying saucer buried in the ice while you're at it?
Oil traders must have been shocked into a dazed stupor by the report and quickly dumped all their longs because oil prices fell sharply once again to close under $125. To blame the USGS report for falling oil prices is as ridiculous as blaming last week's drop on President Bush dropping the executive order on offshore drilling. Neither will produce a single drop of oil within the next ten years and by that time oil will be $300 a barrel.
Crude oil inventories fell -1.6 million barrels last week but gasoline inventories rose +2.8 mb as demand fell for the 13th straight week as reported by the MasterCard Spending Pulse survey. Evidently traders were so in awe of the 90 billion barrels in the Artic that they ignored the drop in crude inventories.