"On an oil-equivalent basis, production decreased by 2% from the third quarter of 2006." Exxon Q3 earnings press release.
That about says it all -- at a time when the price of oil is over $90 a barrel, Exxon, the largest oil company in the world, is unable to increase production. Many analysts are arguing that the price of oil is unsustainably high due to speculation by hedge funds, geopolitical issues, temporary supply disruptions (nigeria, iran/iraq/turkey, etc. Truth is demand is up and supply can't keep up because production growth is too difficult. Too many old fields that are no longer able to produce at historical rates. Too many new fields that are smaller and unable to produce at the rates of previous finds for very long.
Will oil drop if the US has a recession? YES! - (a hilarious suggestion given that Q3 growth was almost 4% but many are absolutely convinced we are headed for recession. no way to know for sure in 2008 but as of now -- no way we are headed for recession in the next 6 months).
I remain quite comfortable with a large weighting in energy because I am optimistic on the economic front and pessimisstic on the oil supply front.
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