zondag 4 mei 2014

Depletion Curves: What oil depletion teaches us in predicting the silver price

Crude oil depletion can be a good indicator of what can happen to the price of something that gets depleted.

The following is a extraction/depletion curve for U.S. crude oil. The blue area represents the U.S. crude oil reserve. As you can see, the U.S. has already peaked in oil extraction in 1970 as their reserves are diminishing.

Now let's look at the world crude oil depletion curve. Almost the same, but the peak is delayed from 1970 to 2000. It's this curve that we need to monitor to guess what will happen to the crude oil price.
When we look at the crude oil price, we can see that the 1970 U.S. crude oil extraction peak had spurred the OPEC crisis and a spike in the crude oil price occurred from $2/bbl to $30/bbl.
Then, when world crude oil extraction peaked in 2000, we got a second spike in crude oil price from $33/bbl to $110/bbl.
That's what I call the "price effect" of extraction peaks. Namely, that when the peak occurs, the price will move significantly higher the next few years. This is one very useful correlation.

Now, what I find interesting is that we can easily use this little "theory" on other things and most particular on silver, because I believe we are nearing a depletion stage now on silver in a few years.

So this is the current world silver extraction curve. We see that the peak will occur in 2020.

The extraction curve can be seen below. You can see that silver extraction will rise the fastest in 2020. After that, we will only have lower and lower production going forward. And that's the time when the silver price will start to surge.

Learning from the oil depletion curve is a good way to predict what will happen for silver a few years from now. And it will be rosy.

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