Peak Oil?

[HenryTo]

Dear all,

I would like to start a discussion/argument on the validity of the Peak Oil theorists on this board. One of my subscribers had asked me to do this - and I believe it will be a very well worthwhile discussion!

I know there has been a lot of literature written about this - including recent books - but one thing that I find lacking is the fact that many of the commentators talk about the industry in VERY BROAD terms. That is, economists who are working with questionable data - questionable because of the lack of transparency in the oil markets, not because it is their fault.

I feel that Matt Simmons had done a great job in his efforts to focus on the Saudi oil machine. He spent an entire book just writing about the Saudi oil industry, and makes a very good argument which discredits the Saudis' claims that they can ramp up to 15 mm barrels a day in a few years. In all likelihood, he argues, Saudi oil output has peaked or is near peaking. We need similar analyses for the Russian oil industry, the North Sea, Iranian, and Venezuelan oil production.

Going forward, this author is bullish on the price of oil in the long-run, as I believe oil demand growth in both China and India will surpass the ability of the world to pump more oil - given current constraints and the lack of new, impressive discoveries.

I would definitely like everyone to chime in.

Best,

Henry

[rffrydr]

Going into an unprecented sub-10 July crack, the "meat" of the refiners' year. Valero doesn't see longterm prospects here. Get ready for foreign refiners making the trade:

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080311&id=8324183
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

NYMEX just raised margin requirements for the near-term crude oil contracts at the close of business:
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NYMEX to Change Margins for Crude Oil, Related Futures Contracts

NEW YORK, N.Y., March 11, 2008 -- The New York Mercantile Exchange, Inc. today announced margin changes for its crude oil and related futures contracts, beginning at the close of business tomorrow.

Margins for the April and May 2008 crude oil, crude oil calendar swap, and crude oil financial futures contracts will increase to $5,750 from $5,250 for clearing members, to $6,325 from $5,775 for members, and to $7,763 from $7,088 for customers. Margins for all other months will remain unchanged.

Margins for the NYMEX miNYTM crude oil futures contract will increase to $2,875 from $2,625 for clearing members, to $3,163 from $2,888 for members, and to $3,881 from $3,544 for customers. Margins for all other months will remain unchanged.

Margins for the NYMEX MACI index futures contract will increase to $1,264 from $1,050 for clearing members, to $1,390 from $1,155 for members, and to $1,706 from $1,418 for customers.

[BlueDaze]

A Global Need for Grain That Farms Can’t Fill

http://www.nytimes.com/2008/03/09/business/worldbusiness/09crop.html?_r=1&oref=slogin&ref=business&pagewanted=all

LAWTON, N.D. — Whatever Dennis Miller decides to plant this year on his 2,760-acre farm, the world needs. Wheat prices have doubled in the last six months. Corn is on a tear. Barley, sunflower seeds, canola and soybeans are all up sharply.

“For once, there’s great reason to be optimistic,” Mr. Miller said.

But the prices that have renewed Mr. Miller’s faith in farming are causing pain far and wide. A tailor in Lagos, Nigeria, named Abel Ojuku said recently that he had been forced to cut back on the bread he and his family love.

“If you wanted to buy three loaves, now you buy one,” Mr. Ojuku said.

Everywhere, the cost of food is rising sharply. Whether the world is in for a long period of continued increases has become one of the most urgent issues in economics.

Many factors are contributing to the rise, but the biggest is runaway demand. In recent years, the world’s developing countries have been growing about 7 percent a year, an unusually rapid rate by historical standards.

The high growth rate means hundreds of millions of people are, for the first time, getting access to the basics of life, including a better diet. That jump in demand is helping to drive up the prices of agricultural commodities.

Farmers the world over are producing flat-out. American agricultural exports are expected to increase 23 percent this year to $101 billion, a record. The world’s grain stockpiles have fallen to the lowest levels in decades.

“Everyone wants to eat like an American on this globe,” said Daniel W. Basse of the AgResource Company, a Chicago consultancy. “But if they do, we’re going to need another two or three globes to grow it all.”

In contrast to a run-up in the 1990s, investors this time are betting — as they buy and sell contracts for future delivery of food commodities — that scarcity and high prices will last for years.

If that comes to pass, it is likely to present big problems in managing the American economy. Rising food prices in the United States are already helping to fuel inflation reminiscent of the 1970s.

And the increases could become an even bigger problem overseas. The increases that have already occurred are depriving poor people of food, setting off social unrest and even spurring riots in some countries.

In the long run, the food supply could grow. More land may be pulled into production, and outdated farming methods in some countries may be upgraded. Moreover, rising prices could force more people to cut back. The big question is whether such changes will be enough to bring supply and demand into better balance.

“People are trying to figure out, is this a new era?” said Joseph Glauber, chief economist for the United States Department of Agriculture. “Are prices going to be high forever?”

Competition for Acres

At a moment when much of the country is contemplating recession, farmers are flourishing. The Agriculture Department forecasts that farm income this year will be 50 percent greater than the average of the last 10 years. The flood of money into American agriculture is leading to rising land values and a renewed sense of optimism in rural America.

“All of a sudden farmers are more in control, which is a weird position for them,” said Brian Sorenson of the Northern Crops Institute in Fargo, N.D. “Everyone’s knocking at their door, saying, ‘Grow this, grow that.’ ”

Mr. Miller’s family has worked the Great Plains for more than a century. One afternoon early last month, he turned on the computer in his combination office and laundry room to see what commodity prices were up to.

“Oh, my goodness, look at that,” Mr. Miller said. Barley was $6.40 a bushel, approaching a price that would tempt him to plant more. Soybeans were $12.79 a bushel, up from $8.50 in August.

The frozen earth outside was only a few weeks from coming to life, but Mr. Miller was happily uncertain about what to plant. Last year, the decision was easy for Mr. Miller and everyone else: prices of corn were high because of new government mandates for production of ethanol, a motor fuel. This year, so many crops look like good bets, and there is so little land on which to plant them.

“I’m debating between spring wheat, durum wheat, canola, malting barley, confection sunflowers, oil sunflowers, soybeans, flax and corn,” Mr. Miller said.

The biggest blemish on this winter of joy is that farmers’ own costs are rising rapidly. Expenses for the diesel fuel used to run tractors and combines and for the fertilizer essential to modern agriculture have soared. Mr. Miller does not just want high prices; he needs them to pay his bills.

Until recently, he could expect around $3 a bushel for his wheat — far less than his parents and grandparents received, when inflation is taken into account. Consumption in the United States was dropping as Americans shunned carbohydrates. The export market, while healthy, faced competition.

Now prices have more than tripled, partly because of a drought in Australia and bad harvests elsewhere and also because of unslaked global demand for crackers, bread and noodles. In seven of the last eight years, world wheat consumption has outpaced production. Stockpiles are at their lowest point in decades.

Around the world, wheat is becoming a precious commodity. In Pakistan, thousands of paramilitary troops have been deployed since January to guard trucks carrying wheat and flour. Malaysia, trying to keep its commodities at home, has made it a crime to export flour and other products without a license. Consumer groups in Italy staged a widely publicized (if also widely disregarded) one-day pasta strike last fall.

In the United States, the price of dry pasta has risen 20 percent since October, according to government data. Flour is up 19 percent since last summer. Over all, food and beverage prices are rising 4 percent a year, the fastest pace in nearly two decades.

The American Bakers Association last month took the radical step of suggesting that American exports be curtailed to keep wheat at home, though the group later backed off.

If all this suggests a golden age for American growers, it could well be brief, said Bruce xxx, an economist at Iowa State University. He predicted that farmers would do their best to ramp up production, possibly to the point of pulling land out of conservation programs so they could plant more. “Give farmers a price incentive, and they’ll produce,” he said.

The Agriculture Department forecasts that world wheat production will increase 8 percent this year. In the United States, spring and durum wheat plantings are expected to rise by two million acres, helping to drive prices down to $7 a bushel, the government said.

Yet the competition among crops for acreage has become so intense that some farmers think the government and analysts like Mr. xxx are being overly optimistic.

Read Smith, a farmer in St. John, Wash., thinks a new era is at hand for all sorts of crops. “Price spikes have usually been short-lived,” he said. “I think this one is different.”

His example is plain old mustard. Two years ago, Mr. Smith would have been paid less than 15 cents a pound for mustard seeds. As more lucrative crops began supplanting mustard, dealers raised their offering price to 20 cents, then 30 cents, then 48 cents early this year. Mr. Smith gave in, agreeing to convert up to 100 acres of wheat fields to mustard.

Mr. Smith said it was inevitable that supermarket mustard, just like flour, bread and pasta, would become more expensive.

“We’ve lulled the public with cheap food,” he said. “It’s not going to be a steal anymore.”

Bread to Be Had, for a Price

As the newly urbanized and newly affluent seek more protein and more calories, a phenomenon called “diet globalization” is playing out around the world. Demand is growing for pork in Russia, beef in Indonesia and dairy products in Mexico. Rice is giving way to noodles, home-cooked food to fast food.

Though wracked with upheaval for years and with many millions still rooted in poverty, Nigeria has a growing middle class. Median income per person doubled in the first half of this decade, to $560 in 2005. Much of this increase is being spent on food.

Nigeria grows little wheat, but its people have developed a taste for bread, in part because of marketing by American exporters. Between 1995 and 2005, per capita wheat consumption in Nigeria more than tripled, to 44 pounds a year. Bread has been displacing traditional foods like eba, dumplings made from cassava root.

Nigeria’s wheat imports in 2007 were forecast to rise 10 percent more. But demand was also rising in many other places, from Tunisia to Venezuela to India. At the same time, drought and competition from other crops limited supply.

So wheat prices soared, and over the last year, bread prices in Nigeria have jumped about 50 percent.

Amid a public outcry, bakers started making smaller loaves, hoping customers who could not afford to pay more would pay about the same to eat less. Sales have dropped for street hawkers selling loaves. With imports shrinking, mills are running at half capacity.

At Honeywell Flour Mills, one of the largest in Nigeria, executives were glued one recent day to commodity screens. The price of wheat ticked ever upward. “Even when you see a little downturn, you wait for some few hours or a day, and before you know it, it’s gone way up again,” said the production director, Nino Albert Ozara.

Despite the crisis, there is little sense of a permanent retreat from wheat in Nigeria. The mills are increasing their capacity, hoping for a day when supply is sufficient to stabilize prices. “The moment you develop a taste, you are hooked,” said a confident Muyiwa Talabi, director of an American wheat-marketing office in Lagos.

Mr. Ojuku, the man who buys fewer loaves, and one of his fellow tailors in Lagos, Mukala Sule, 39, are trying to adjust to the new era.

“I must eat bread and tea in the morning. Otherwise, I can’t be happy,” Mr. Sule said as he sat on a bench at a roadside cafe a few weeks ago. For a breakfast that includes a small loaf, he pays about $1 a day, twice what the traditional eba would have cost him.

To save a few pennies, he decided to skip butter. The bread was the important thing.

“Even if the price goes up,” Mr. Sule said, “if I have the money, I’ll still buy it.”

[BlueDaze]

Biofuels 'risk global starvation'

http://www.theaustralian.news.com.au/story/0,25197,23334652-5005200,00.html

THE rush towards biofuels is theatening world food production and the lives of billions of people, the British Government's chief scientific adviser said yesterday.

John Beddington put himself at odds with ministers who have committed Britain to large increases in the use of biofuels over the coming decades.

In his first important public speech since he was appointed, Professor Beddington described the potential impacts of food shortages as the “elephant in the room” and a problem which rivalled that of climate change.

“It’s very hard to imagine how we can see the world growing enough crops to produce renewable energy and at the same time meet the enormous demand for food,” he told a conference on sustainability in London yesterday.

“The supply of food really isn’t keeping up.”

By 2030, he said, the world population would have increased to such an extent that a 50 per cent increase in food production would be needed. By 2080 it would need to double. But the rush to biofuels – allegedly environmentally friendly – meant that increasing amount of arable land had been given over to fuel rather than food.

The world’s population is forecast to increase from the six billion at the start of the millennium to nine billion by 2050. Already biofuels have contributed to the rapid rise in international wheat prices and Professor Beddington cautioned that it was likely to be only a matter of time before shoppers in Britain faced big price rises because of the soaring cost of feeding livestock.

His comments come just a month after the Government welcomed a European Commission target requiring 10 per cent of all fuel sold in British service stations to be derived from plants within 12 years. Already biofuels attract a 20p per litre reduction in duty to encourage their uptake.

Hilary Benn, the Environment Secretary, recently announced additional funding for biofuel research and farmers can claim subsidies to grow crops for energy.

Last year US President George W. Bush called for a massive increase in the use of ethanol in the US over the next decade. The US now devotes more acreage to growing corn than at any time since 1944. Farmers planted 90.5 million acres in 2007, 15 per cent more than a year before.

If White House efforts to double ethanol production this year are achieved, and in due course 40 per cent of that corn ends up in petrol tanks, the world will face a harder and costlier time feeding itself.

A spokesman for Ruth Kelly, the Transport Secretary, insisted that the Government was well aware of the possible negative effects of biofuels. “We take this issue very seriously and we are not prepared to go beyond current target levels for biofuels until we are satisfied it can be done sustainably.”

Professor Beddington said that the prospect of food shortages over the next 20 years was so acute that politicians, scientists and farmers must begin to tackle it immediately.

“Climate change is a real issue and is rightly being dealt with by major global investment,” he said afterwards. “However, I am concerned there is another major issue along a similar time scale, an elephant in the room – that of food and energy security. This is giving me and many of my scientific colleagues much concern.”

Population levels are growing so fast already that an extra six million people are born every month. Growing enough food for everyone was further challenged, he said, because of climate change, which was likely to lead to a shortage of water.

Scientists say that intense dry spells will become more frequent over the next century. The supply of water will be put under further pressure because of the increased number of people who need it, not only to drink but to keep their crops alive. The production of a tonne of wheat, for example, requires 50 tonnes of water.

Because it was almost impossible to control the population increase in the short term, Professor Beddington told the conference, other measures would need to be taken. “Agriculture has been doing pretty well against the population size but things are changing now and they are changing quite dramatically,” he said.

“Don’t we need to do something about food? Demand has grown enormously, particularly in China and India, where much of the driving force is increased demand. By 2030 energy demand is going to be up by 50 per cent and demand for food is going to be up by 50 per cent.”

The increase in demand has been reflected by the rapid rise in the prices of basic commodities, including wheat, over the past two years.

Biofuels have been put forward as a means of reducing the greenhouse gas emissions pumped out by fossil fuels but recent studies have questioned their impact when all factors, such as the use of fertilisers on the crops, are taken into account. Critics have been angered by the loss of tropical rainforests, which have been cleared to allow farmers to grow biofuel crops.

Deforestation has been calculated to account for about 18 per cent of world greenhouse gas emissions and Professor Beddington said that to destroy rainforests in order to grow biofuel crops was “insane”.

He added: “Some of the biofuels are hopeless, in the sense that the idea that you cut down rainforest to actually grow biofuels seems profoundly stupid.”

He said that human ingenuity was extraordinary and he was confident that food production could be boosted, including by growing genetically modified crops.

Josette Sheeran, executive director of the World Food Program, told the European Parliament in Brussels yesterday: “The shift to biofuels production has diverted lands out of the food chain. Food prices such as palm oil in Africa are now set at fuel prices. It may be a bonanza for farmers – I hope it is true – but in the short term, the world’s poorest are hit hard.”

[HenryTo]

Responding to a post regarding Goldman's call earlier on oil. They have now taken profits and are looking for crude oil to pull back to around $90 a barrel sometime this spring.

[rffrydr]

This should about do it for asia, currency push or no. Maylaysia looks most vulnerable to me right now: tech, oil, politics, relatively weak currency.
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Today is the Tomorrow you worried about Yesterday!

[Rubedo]

An excerpt from Matthew Simmons.

The clash between optimists and pessimists: Oil markets in 2008 (Simmons)
(Published in World Oil)

The most troubling piece of historic oil supply data available in the public domain comes from the US Department of Energy’s Energy Information Administration (EIA). Every month, the EIA publishes its best estimate, on a country-by-country basis, of the world’s crude oil and condensate supply. This supply ignores natural gas liquids, biofuels and refinery processing gains, even though all three now plug a critical gap between crude oil supply and how the world satisfies total petroleum demand.

This seldom-scrutinized set of EIA crude oil production data is not perfect, but it is as accurate as any other estimate in the world. What the EIA data interestingly shows is a steady growth in crude oil output until world crude output finally blew through 70 million barrels a day, setting a new annual record of 72.5 million barrels a day in 2004. Soon this all-time high crude output sputtered. For 9 out of 12 months of 2005, it remained in the 73 million-per-day range, only exceeding 74 million barrels a day in April, May and finally December. The all-time crude oil output record, as best we now know, was realized in May 2005, when the world produced an average of 74.3 million bpd of crude. This peak quickly slipped under the 74 million-bpd level. Ironically, this record was set in the same month that Cantarell, Mexico’s giant oil field, peaked and then went into decline.

Average world crude production in 2005 was 73.8 million bpd. In 2006, it fell to 73.5. Preliminary data through August 2007 indicates the seven-month average was 73.1 million barrels per day. Reported 2007 crude production slid to 72.8 million in June 2007, and then 72.5 million in August 2007. Is this slide over? If it is not, it becomes hard to envision getting back to the May 2005 record, let alone sustaining the production growth needed for global petroleum use to cross 90, let alone 100 million barrels per day.

Could this May 2005 record be the point at which global crude oil production peaked? The answer to this should become obvious within a year or two at the most. Oil supply analysts at the EIA shrug off this peaking as simply being typical of how crude oil output climbs in spurts, only to retreat and then be followed by yet another spurt.

A careful analysis of the underlying country-by-country production estimates indicates too many key producers in what now appear to be irreversible declines. At the least, these declines raise the bar for oil companies to quickly find enough new supplies to grow production back to 2005 record, which is almost 2 million bpd more than what is now produced (see figure (shows 1.78 mmbod decrease).

[rffrydr]

What a "marginal" refinement to the rate and pace does to the idea in world that has consumned thus far 1 in 12trillion barrels of supply:

http://online.wsj.com/article/SB120459389654809159.html
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Might as well mark it: highest crude prices on record--and this is "inflation-adjusted" which has never been done in post war commodities at any rate.


http://www.latimes.com/business/la-fi-oil4mar04,0,1448522.story
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Gasoline inventories continue to build--largely on poor european margins/demand boosting imports--and in face of fogged in Houston chanel.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

"Extinction" flows far easier than its product. How much does peak oil owe to the dinosaurs?

Gasoline inventories were +1.1 MB vs. +0.6 MB expected. Stocks highest since Feb ’94. What was amazing about the gasoline number was that it still managed a build despite relatively weak imports and amid the reduced run rates that have become a fact of the refining industry in the past few weeks. Imports were 827 kb/d vs. 841 kb/d the previous week and after imports above 1 mb/d for most of 2007
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Today is the Tomorrow you worried about Yesterday!

[texfly101]

I sense a company being formed to seek investors in a new pipeline project...dj
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dj

[nodoodahs]

Saturn’s moon Titan has oil on it!
http://blog.wired.com/wiredscience/2008/02/titans-organic.html

[rffrydr]

Triple top? There are no triple tops.

March expiration today will run into heavy inventories tomorrow should give us a break.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

File under "Nothing is Obvious"