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]

Failed talks with Iran and a potential hurricane in the Gulf; crude up 3.00...the first good news we've had in a long, long time.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

An update on Congress' stand on off-shore drilling:

http://www.nytimes.com/2008/07/17/washington/17pelosi.html?_r=1&oref=slogin

[rffrydr]

Speculative longs have cut back severely. Yesterday natgas weakness was the culprit. Now that's a reversal of sentiment.

http://www.ft.com/cms/s/0/ed53d32a-5460-11dd-aa78-000077b07658.html

I still maintain a quick shot to DOW 13000 nips this benign trend in the bud.
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Today is the Tomorrow you worried about Yesterday!

[probtrader]

[Suomodo]

Asia still buying, US selling ... who has more power? US.

[HenryTo]

Rubedo,

The relationship of "inventories" (as defined by the EIA) to prices and physical supply/demand is a complex relationship. See following link for some comments from someone that works within the industry:

http://energyoutlook.blogspot.com/2008/07/oil-prices-and-inventory.html

Perversely, as prices decrease, refineries etc may increase their inventories (this is what shows up in the EIA stats) as carrying costs of crude oil comes down. Moreover, as I mentioned before, I would say that around $20 of the current price in crude comes from the following two factors:

1) Many producers simply don’t have enough credit or “the guts” to hedge their production going forward. Crude oil in the ground isn’t going to help you much if oil spikes to $200 a barrel in the next six months and the CEO/CFO has to take a huge accounting loss at the end of the year. This could actually be a potentially debilitating event, as many grain elevators found out (many of them went bankrupt because of their hedging practices) when grain prices shot up earlier this year.

2) Many investment banks that have traditionally “taken the other side” of the long speculators and long commodity funds have been taken out of the markets, not only because of the volatility, but more importantly because of hugely impaired balance sheets. For all we know, the prop desks at the major investment banks are long commodities simply because they need as many “quick bucks” as they can to make up for the write-downs and the loss of revenues from their other businesses.

Many traders devote their whole lives to watching crude oil and its accompanying statistics and they still don't have it figured out. It is just not that easy as impled in that investorvillage post.

Best regards,

Henry

[Rubedo]

From another board.

http://investorvillage.com/smbd.asp?mb=2234&mn=119808&pt=msg&mid=5155462

This conclusion should strengthen in the months ahead as the bullish fundamentals become even more alarmingly clear. The market has in past weeks attempted to re-manufacture the most dire of supply reports into reasons for rejoicing -- no matter how ludicrous the reasoning may be. A couple of months ago, oil inventory showed a massive drop of well over 8mmb, but the market shook this off as being due to fog induced loading problems in Houston harbor. That there was no fog in Houston harbor and that the next week inventories dropped by a similar amount was never mentioned. During this traditional rebuilding season of inventory supply, supply is not rebuilding but disappearing at alarming rates, now down 59.3 mmb y/y. Presumably, if oil inventory were to rise next week by 2mmb, the market would rejoice, concluding that the oil bubble has burst, overlooking that inventory would still be in a 57.3 mmb deficit and that time is quickly running out for replenishment. Also overlooked is that the EIA stated this week that the inventory problem is not confined to the US -- stockpiles in major industrialized nations are 26 million barrels below the five-year average, just 53 days of forward demand. The answer is clear: Production cannot keep up with w/w demand, so inventory is being drained to make up the difference. But this cannot go on indefinitely -- in a world consuming more than 1000 barrels of oil a second.

[HenryTo]

Just got a significant build for both crude oil and gasoline inventories. As oil prices continue to decline, the ongoing cost to hold inventories for refineries will go down - so any further decline in the oil prices should feed on itself as crude inventories will most likely go up going forward. This should also allow the crack spread to rise again - which will hurt oil-producing countries such as Mexico and Iran as they both import a significant portion of refined oil products due to their lack of refining capacity.
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Oil prices tumble again on US surprise supply jump
Wednesday July 16, 10:44 am ET
By Adam Schreck, AP Business Writer
Oil prices resume slide, falling sharply after US reports unexpected jump in crude supplies

NEW YORK (AP) -- Oil prices are tumbling, extending a massive sell-off the previous day, after of the government reported that U.S. crude supplies unexpectedly jumped last week.
Light, sweet crude for August delivery is down $6.44 at $132.30 a barrel in morning trading on the New York Mercantile Exchange.

The Energy Information Administration reported U.S. crude oil supplies jumped by 3 million barrels last week. That is the opposite of the 3 million barrel decline analysts surveyed by energy research firm Platts expected.

Gasoline supplies also jumped unexpectedly.

[rffrydr]

A couple of the Houses called a commodity top today.

http://www.bloomberg.com/apps/news?pid=20601086&sid=aEX9wSGyQ8R8&refer=latin_america
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Today is the Tomorrow you worried about Yesterday!

[Suomodo]

[LaBelleInvestor]

Too bad it couldn't stay down. However, lifting these bans does nothing in reality, except make people thing oil will fall because of the ban is off. It takes 8-10 years for those off-shore drills to really hit pay dirt and drilling on land still takes a long time as well. Why put off what we know we are going to have to deal with? I think alternatives are our solution, not off-shoring.

- La Belle Investor

http://labelleinvestor.blogspot.com/
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-La Belle Investor

http://labelleinvestor.blogspot.com/

[Suomodo]

Oil 10 USD down as I am writing this.. if this was not prepared then I will stop speculating about conspiracies behind the scenes

[Suomodo]

Bush lifts ban on off-shore drilling , challenging the Congress ...


I suppose they wont play with .... High Oil is a ticket to White House for Democrats ...

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a362RHmsy71s

[rffrydr]

Be careful: inflation might be the story on Oil Sector, not deflation. But either case traders are now taking on the downside:

http://seekingalpha.com/article/84802-still-diggin-8217-dug-oil-sector-fundamentals-are-faltering?source=feed

Good consumption charts.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

The border arbitrage is now getting very serious:
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Entrepreneurs lug cheap Mexican fuel across border
Thu Jul 10, 2008 6:59pm EDT

By Lizbeth Diaz

TIJUANA, Mexico (Reuters) - U.S. and Mexican entrepreneurs with an eye for a quick buck are buying subsidized fuel in bulk in Mexico and hauling it across the U.S. border to make big profits, officials say.

With a yawning gap between the cost of Mexico's state-subsidized fuel and record U.S. pump prices, tanker truck owners and people doing business on the border are filling up tanks or plastic barrels with Mexican fuel and selling it in the United States.

Gasoline in Mexico is around a third cheaper than in the United States. For diesel, prices are more than double -- well over $4 a gallon in U.S. border states compared to just over $2 in Mexican border cities.

"It is true tanker trucks are coming from the United States to fill up with supplies in Mexico," Mario Osuna, the head of Mexico's consumer watchdog agency Profeco in Baja California state where Tijuana is the capital, said on Thursday.

"There is no way of sanctioning foreigners who come to Tijuana and buy gasoline to sell in their country," Osuna told Reuters. "Mexico does not have regulations relating to that."

Border residents who have spotted the price anomaly are jumping on the export bandwagon, taking containers of fuel over the border in pickup trucks to sell.

"We cannot deny that this type of small-scale contraband is going on," said Joaquin Avina, president of the Association of Gas Stations of Tijuana, Tecate and Rosarito.

"The obligation of the (gasoline) companies is to sell its product -- whether it's being used to burn down a house or take it and sell it in the United States," he added.

Low Mexican prices had already attracted U.S. motorists who are driving over the border to fill up their tanks. The extra demand has caused shortages at hundreds of Mexico's border gas stations, some of which are rationing fuel.

President Felipe Calderon has promised to maintain fuel subsidies that are expected to cost the government close to $20 billion this year as world oil prices soar.

GUATEMALANS LUG BARRELS BY RIVER

The cheap prices have also sparked fuel hawking at Mexico's southern border with Guatemala, people living in the area say.

Hundreds of people have been lugging fuel across a border river in plastic barrels placed on inflated inner tubes as makeshift boats. Some swim, dragging the barrels behind them.

Once across the border, the fuel is sold at roadside stalls, with the importers charging around $1.50 per gallon more than the price in Mexico, still lower than gas stations on the Guatemalan side of the border, which have mostly closed.

Carmela Mejia, a single mother in the town of Malacatan just over the border from Mexico, now sells gasoline at her fruit stall after seeing her sales would rise.

"I got a loan to buy gasoline from Mexico and this is how I earn a few cents to maintain my three children," she said.

A lack of domestic refining capacity means Mexico has to import 40 percent of its gasoline despite being a major oil producer, but the cost of fuel imports has soared.

Deputy Energy Minister Jordy Herrera said this week the government was working on a plan to stop the Mexican subsidies going to benefit U.S. consumers.

"We are working hard with the border states and Pemex to come up with some scheme in which only Mexican consumers see the benefit of this administered price," Herrera told the daily Milenio, noting fuel demand has jumped in Baja California.

El Semanario online newspaper said Mexican fuel can be sold legally in the United States with government permits.

Energy ministry officials were not available for comment, and the economy ministry did not return calls.