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This here should give pause for thought on exactly how low oil might go and for how much oil prices might snap back wickedly higher. I have talked Ad nauseum about how Oil companies might start to under-invest.

My reasoning was that oil companies might under-invest due to the oil price going too low. But there is another reason oil companies might under-invest that I totally missed and I see no one here is talking about...The credit crunch!!!!

Counting on all that new Brazilian oil keeping oil prices down??? Think again!!! To think I was wondering why Rig and PBR did not do as well as the market today. Take a look at this:

"Petrobras president sees funding risk from crisis
Thu Sep 18, 2008 7:23pm EDT

By Stuart Grudgings

RIO DE JANEIRO, Sept 18 (Reuters) - The crisis hitting global markets could make it more difficult for Brazil oil giant Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz)(PBR.N: Quote, Profile, Research, Stock Buzz) to fund its ambitious plans to tap vast deep-water oil reserves, the company's president said on Thursday.

"Imagine the volume of finances we need. It will be difficult to raise resources if this little country in the north keeps falling," Jose Sergio Gabrielli said, in an apparent reference to the United States.

"You can imagine the problems."

Gabrielli made the remarks in a speech at the end of the four-day Rio Oil and Gas conference, dominated by the state-owned firm's massive new offshore oil discoveries that could catapult Brazil into the world's top 10 producers.

The firm needs to spend hundreds of billions of dollars in the coming years to tap the oil, which lies up to 7 km (4.3 miles) below a thick layer of salt.

The financial crisis could squeeze funding sources for Petrobras and its suppliers of crucial equipment, such as the deep-sea oil rigs that can cost more than $500 million each to build.

Petrobras has leased about 80 percent of the world's deepest-drilling offshore rigs and plans to double its rigs in deep and ultra-deep water to 63 by 2017. Twenty-eight of the new rigs are to be built in Brazil.

The crisis has "consequences that are not yet fully realized in financing this market," Gabrielli added." Continued...

Ok...forget the Brazilian Oil we can count on all that coming oil production from the Canadian oil Sands then, right? Some serious concerns on that front also:

"Costs skyrocket 50% in Fort Hills oil sands project

Carrie Tait, Financial Post Published: Wednesday, September 17, 2008

CALGARY -- Partners in Alberta's Fort Hills oil sands unveiled a major stumbling block Wednesday, revealing that costs had jumped at least 50% in slightly more than a year, raising questions about viability of the proposed development.

The announcement pounded the shares of one the project's minority partners, UTS Energy Corp., which were down more than 40% to $1.42 in mid-afternoon trading.

Fort Hills is now expected to cost about $23.8-billion to build, up from a June, 2007 estimate of $14.1-billion.

"I agree it is almost unfathomable," William Roach, CEO of UTS, which holds 20% of the project, said in an interview about the sharp jump in costs. Petro-Canada has a 60% stake in Fort Hills, and Teck Cominco Ltd. holds the remaining 20% interest.

In a conference call, UTS detailed its financing troubles, and introduced steps it could take to rejig the project, including delaying the planned upgrade.

To go ahead with the project as currently planned, UTS needs about $3.56-billion in financing. Mr. Roach said the company spoke with12 banks on Friday, and is waiting for their proposals.

The global credit crunch, exacerbated this week by Wall Street's spectacular troubles, means even Canada's oil sands projects will face difficulties accessing capital. Those closest to production or with the best prospects or other streams of revenue will receive funding first, and the rest will have to wait in line, experts say" continued.....

I believe that those wanting to drill offshore of the USA and those for drilling ANWR will find similar funding concerns. Maybe all those new alternative energy projects...many which are very expensive will have similar funding concerns as well.

I believe oil prices pretty much follow where the traders attention happens to be. Many stories were pumped out in the past about supply constraints and those stories brought oil to a price of $147. All that time the traders were ignoring the demand destruction taking place.

The situation has now reversed. The traders are now saying those previous claims of supply constraints were fairy tales and the demand destruction story is now all the rage. I believe now people are ignoring the real supply destruction that is taking place.

Those that ignore the supply destruction taking place are going to be surprised when oil prices snap unexpectedly back to new highs after the traders change what the story is again. That is why I stopped following those bozos on TV as much and combined doing a lot of reading on my own and compared that to what the real money makers in the industry are doing. People like Warren Buffett. Boone Pickens, Jimmy Rogers and that obscure fellow that runs GG pick BAM.

From what I have put together...Yes...Demand destruction has taken place but the demand destruction that has already taken place is not enough to overcome the lack of new production in the long term.

Some have stated that the only way significant demand destruction can occur that is enough to really lower oil prices is due to a very severe worldwide recession. If that severe worldwide recession takes place then it is not going to matter too much where you put your money....whether it be oil related stocks, consumer discretionary, dividend paying stocks, financials or even "recession resistant" stocks...You are going to take the hit.

I believe oil prices are going much higher especially as you begin to see real estate prices fall in both China and India. I believe both are now ready to stimulate their economies again in spite of inflation.

We shall soon see....

Rob S
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