This situation demands our close attention because what we're seeing is the setup for a major bull market in energy in the not too distant future.

Right now energy companies are scaling back, and only those projects that are fully funded are going ahead. Overleveraged players are coming up short due to a lack of available credit. This makes them easy targets for consolidation. Large operators having difficulty replacing reserves will be looking for acquisitions as opposed to investing in new discoveries. This makes mid-tier producers and explorers with proven reserves attractive buyout candidates.

All of this points to a major supply squeeze in the years ahead as the global economy recovers, and energy companies struggle to meet increased demand. You don't need a huge spike in demand either, since the replacement rate of reserves is already falling behind projected consumption, and it seems unlikely that new discoveries will be brought online soon enough, or in large enough size, to prevent a squeeze.

ebear