The early reports out of Vienna today are that OPEC will maintain its production output. That’s cheered the bears, who’ve continued to sell crude oil contracts in New York today. As we write this morning, the October contract was trading around $65.50, down about $11 from mid-August.
The prospect of maintaining oil production at current levels with a forecast of slowing global demand inspires selling, of course. Adding to the bearish outlook is the recent news of a major oil and gas find in the Gulf of Mexico. Cambridge Energy Research Associates reports that as much as 800,000 barrels of oil a day could begin flowing from the Gulf’s latest discovery starting as early as 2012.
Surveying the current scene in crude, The Wall Street Journal opines, “For the first time in a long while, it doesn’t seem like the world is conspiring to push energy prices higher.”
We’re not about to argue with Mr. Market’s latest pricing, but we’re the first to recognize that oil is a commodity and therefore subject to the bias of the moment. As a short-term proposition, that means volatility, providing opportunity to those inclined to wade into the speculative waters. The long-term, however, is something else.
We’ve heard a lot lately about the promise of new technologies to supply the world with oil that would otherwise remain lost. The latest discovery in the Gulf of Mexico is testament to the power of that technology. Indeed, the oil found in the Gulf is more than five miles below the water’s surface. That kind of discovery, experts say, would have been technically impossible even a decade ago.
Time marches on and oil discovery and production technology improves. But while the outlook for production on a relative basis looks better, demand isn’t standing still either. In fact, when one puts the latest Gulf discovery in perspective, it’s something less than extraordinary for Americans. Once again, the numbers tell the story.
The United States consumed, as of September 1, 2006, oil at the rate of more than 21 million barrels a day, according to the Energy Information Administration. The new discovery in the Gulf, in other words, represents less than 4% of daily consumption–and the new supply is still at least five years away.
A lot can happen in five years, and we’re confident that the next five years in oil will look like the previous five when it comes to supply and demand trends in the United States. Using EIA data, here’s a quick recap of how September 1, 2006 compares with 2001 data:
* U.S. average daily oil production (including Alaska): down 12%
* U.S. average daily oil consumption: up 5.1%

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Five years ago this morning, two planes slammed into the World Trade Center, killing nearly 3,000 innocent people and forever changing the course of history. Your editor had been at WTC the day before, attending the first of a two-day economics conference. On September 11, 2001, thanks to an early morning dentist appointment, I was running late. Standing on a railroad platform, awaiting the next train into the city, I heard the news of the first plane. The train never came, I never made it to New York and I’ll never forget what happened next.
Today, as we look back and mourn, we can only wonder what the next five years will bring. Much has changed over the past 60 months, and no doubt much will change in the next 60. But this much, at least, is clear: the United States survived, even thrived.
To be sure, America faces more than a few economic challenges. So what else is new? And while we’re cautious and increasingly prudent in deploying capital, we’re still optimistic that enlightened investors can turn a tidy profit in the long run.
That optimism springs largely from the belief that the United States will prevail. For all the debate about the wisdom of the country’s current policies, CS harbors an unshakable belief that a triumphant America will ultimately benefit all rational-thinking people who cherish liberty. Alas, getting from here to there will be neither easy nor swift. Nothing worth achieving ever is.