GOM Discovery Model

I have waited for data corresponding to something like the recent deepwater Gulf of Mexico (GOM) find for a while. This discovery has the right elements of right-wing business hyperventilation and media overkill to make a significant point -- namely that in the greater scheme of things, contributions such as Jack 2 and its siblings remain insignificant for our future global oil production outlook.

Industry analysts estimate that the GOM discovery could add 5 to 15 gigabarrels of oil to our reserve. In terms of the oil shock model, the discovery provides an additional stimulus to that model's world estimate. Putting the two together and using the optimistic value of 15 GB, the new out-year estimate appears below. (Recall that the oil shock model uses a stochastic estimator, so the new curve provides a probability view of expected production and ultimate depletion).

Note the inset which provides a magnification of the two curves around the year 2030.

That basically explains why mental midgets like Larry Kudlow haven't a clue and no one should trust advice emanating from these investment charlatans. In other words, they don't know Jack!