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



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[HenryTo]

U.S. Energy Department to stop shipments into the SPR starting July:

http://money.cnn.com/2008/05/16/markets/oil/index.htm?cnn=yes

[HenryTo]

Indonesia (finally) decides to cut fuel subsidies:

http://www.theage.com.au/news/world/jakarta-faces-backlash-over-big-fuel-rise/2008/05/15/1210765056652.html

[HenryTo]

Measure also passes the House with a vote of 385-25:

http://online.wsj.com/article/SB121069489043288599.html?mod=googlenews_wsj

[HenryTo]

The Senate makes a direct challange to the Administration re: the Strategic Petroleum Reserve:

http://money.cnn.com/2008/05/13/markets/congress_strategic_oil_reserve.ap/index.htm?cnn=yes

[Rubedo]

Mexico's Cantarell Production Down 5.7% in One Month (Exports Down 12.5% Y/Y)
Oil production drop
Mexico's premier Cantarell field produced 1.15 million b/d of oil in March, down 5.7% from February and—according to the energy ministry—the seventh straight month of waning production at the field.

During the first quarter, production from Cantarell averaged 1.2 million b/d, which was less than the 1.3 million b/d Pemex had targeted for the year.

Due to the reduced output, Mexico's exports of oil fell by 12.5% to 1.5 million b/d in the quarter, compared with the year-ago period.

Despite its falling crude production, Pemex witnessed a 13.2% growth in its natural gas production in the first quarter to 6.59 bcfd.

In March alone, gas production hit a record 6.68 bcfd, coming largely from fields at Cantarell, Samaria-Luna, Burgos, Lankahuasa, and Veracruz.

Contact Eric Watkins at hippalus

[Rubedo]

http://money.ninemsn.com.au/article.aspx?id=451684

Saudis warn on oil capacity
By Carola Hoyos in Rome, Financial Times, 22 Apr 2008

The biggest threat to the future security of oil supplies is the lack of spare production capacity worldwide, Saudi Arabia warned on Tuesday.

In unusually frank remarks, Ali Naimi, the kingdom's oil minister, said: "Limited capacity along the entire supply chain is the real source of current global supply tightness and represents the greatest threat to ensuring adequate energy to fuel future economic growth."

His comments came as oil prices rose to a fresh all-time high of $119.86 a barrel on worries that supply outages in Nigeria and the UK could cause shortages in the market.

Shokri Ghanem, head of Libya's national oil corporation, yesterday admitted there was little more oil the Organisation of the Petroleum Exporting Countries could pump in case of a shortfall. "Very little can be done by anyone, there is not enough spare capacity to help," he said.

William Ramsay, deputy director of the International Energy Agency, which represents the world's biggest oil consuming countries, agreed, warning: "Potential to expand production within Opec: there is none, except in Saudi Arabia. So we put on Saudi Arabia the sole responsibility."

He said many other countries could contribute to growth in oil supplies if they did more to encourage investment in their industries and gave oil companies greater access to their reserves. "The burden doesn't have to be on the Saudis. There is plenty of oil in so many places if those places will allow it to be developed."

Together with the IEA, Mr Naimi and other Opec ministers have long argued that the need is for more investment in refineries, most of which are located within oil consuming countries. But in Tuesday's speech Mr Naimi included the need for more investment in oilfields.

He said to overcome the current bottleneck "we must create an environment that encourages investment in energy infrastructure along the entire value chain''.

Saudi Arabia has been aggressively investing in its oilfields, with the help of international service companies, although the country has kept the exploitation of its oilfields in the hands of Saudi Aramco, the national oil company.

Mr Ramsay said: "National oil companies are a varied lot. There are some that are national piggy banks and cannot invest. Others, Saudi Aramco in particular, are very competent and can respond in a very short period of time to capacity requirements."

But even Saudi Aramco has struggled with delays and some analysts have warned the country may not have enough easily accessible oil to meet demand, especially as it is called upon to make up the shortfalls caused by oil rich producers such as Nigeria, Kuwait, Venezuela, Iran and Iraq, where politics has stymied production growth.

Mr Naimi said producers were "working hard" to add capacity, while Abdalla Salem el-Badri, Opec's secretary general, reiterated that the group planned to spend $160bn over the next four years to increase oil production capacity by 5m b/d.

But the fact that Mr Naimi had to emphasise there was no need to panic about high oil prices was a clear sign to many just how uncertain the future looked.

[rffrydr]

Next week's inventory numbers will include mexican imports shut in 'til now. Meanwhile calls are being made for $7 gas based on IEA inventories "wrongly" reflecting liquified gases in their inventory estimates.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Calls getting louder to stop putting crude into the SPR:
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House speaker asks Bush to stop stockpiling oil By Richard Cowan
2 hours, 59 minutes ago

WASHINGTON (Reuters) - The Speaker of the House of Representatives on Thursday called on the White House to temporarily stop sending crude oil into the nation's emergency stockpile.

House Speaker Nancy Pelosi told reporters she was calling on President George W. Bush to work with Democrats to find a way to "temporarily suspend" oil deliveries to the Strategic Petroleum Reserve.

The White House immediately rejected the plea. "We don't believe the fill rates have a meaningful impact on oil supplies," White House spokesman Scott Stanzel said.

"We continue to fill the reserve to provide an added layer of protection to the American people in cases of severe supply disruption."

Pelosi said suspending deliveries would save drivers 5 cents to 24 cents per gallon at the pump.

As U.S. benchmark crude oil prices hit a record near $120 a barrel this week, the Bush administration insists that filling the reserve accounts for less than one-tenth of 1 percent of daily supply, and has no meaningful effect on prices.

The nearly 701 million barrels of crude oil stored in underground salt caverns in Louisiana and Texas are meant as a supply buffer in case of major supply disruptions like the 2005 hurricanes that hit the Gulf Coast oil patch. It was created by Congress in 1975 after the Arab oil embargo.

Current shipments come to about 70,000 barrels per day, while the United States uses about 21 million bpd.

Democrats in the Senate are also pursuing legislation that would require the Energy Department to suspend shipments to the reserve if prices are too high.

Democratic Senator Byron Dorgan of North Dakota said he would seek to attach an amendment to an upcoming supplemental appropriations bill that would forbid the government from sending oil to the SPR if oil prices are above $75 a barrel.

"I believe I have the votes," Dorgan told reporters. "I think I'm going to be able to get this dome."

[HenryTo]

Suomodo, I agree. With crude at $119 yesterday, it was selling at about two standard deviations above its 200-day moving average. This is pretty stretched but that did not mean it couldn't go higher given that it was already forming a short-term bubble. At its peak during January to March 2000, the NASDAQ Composite was selling at about four standard deviations above its 200 DMA. A similar price for oil would be over $150 a barrel.

[Suomodo]

120+ USD/barrel WTI seems to me a good price to sell (maybe scale), maybe not to go short, but sell if I was long.

1) Psychologically its sort of 120 or 130 - no difference if you hold it from 60 (a lot of buying in 10/2006-04/2007) you made your 100%. Why to risk another couple of USD if you can boast you made a 100% profit.

2) sentiment is extremely bullish
http://www.sentimentrader.com/subscriber/charts/cot/CRUDE_OIL.htm

3) there can hardly be a surprise good news that are not priced in and a lot of bad that are not priced at all (recession, some little US pressure at Saudis to increase their supply etc ....)

However, selling mania short seems risky to me

[HenryTo]

From Briefing.com:

[HenryTo]

Lehman on oil and other commodities. The below emphasis is mine:
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Wed, 23 Apr, 14:58 GMT

Oil price to weaken as supply bottlenecks ease - Lehman Bros

'Double-exposed' Sovereign Wealth Funds could speed pace of decline once tide turns.


LONDON (Thomson IM) - Easing supply bottlenecks by the end of 2008 point to an oil price decline, according to Michael Waldron, commodities research analyst at Lehman Bros, who attributed recent high prices to speculative inflows from investors, including sovereign wealth funds (SWFs).

Lehman estimated that commodity index flows into energy have totalled about $40 billion in the year to date, almost equal to the flows for all of 2007. A large proportion of this is thought to come from SWFs, but Lehman questioned whether SWFs of countries with physical long exposure in oil will remain 'double exposed' if prices start to come off.

The crude oil price in the United States has been testing $120 a barrel this week, while London Brent crude has touched $116.75 (see chart), before falling back slightly. Waldron said financial flows, rather than supply and demand fundamentals, are driving oil price movements to a greater degree than in other commodities markets, such as bulk metals. But he sees a weakening in the price in the coming quarters as oil begins to look less of an effective hedge against inflation, and inventory builds start to grow.

'In Q2 we see inventory builds of one million barrels a day, and falling demand in the U.S. of about 300,000 barrels a day,' he said. 'We have revised down our 2008 demand growth forecast for the U.S. by a third, and we are already seeing demand moderation due to high retail fuel prices.'

He conceded that supply fundamentals could tighten in the third quarter due to hurricanes in the Gulf of Mexico, and a decline in exports from the Middle East over the summer as internal demand increases. But he argued that a lot of the price movement of the last three to six months is related to financial flows on the back of a weak dollar and oil being used as an inflation hedge.

'Macro-economic data is pushing prices - $120 a barrel is not justifiable on the fundamentals. We think it should be about $20 to $30 a barrel less than that,' Waldron said.

To reverse this rush into oil, Waldron said the dollar will have to rally against the euro or inflation expectations will have to decline. 'The timing is tricky but by the end of the year fundamentals rather than financial flows should be the main driver of the oil price again.'

In this respect, Waldron is predicting a fall in the oil price as refinery additions and production increases relieve some of the bottlenecks in supply. 'The story in the last few years has been strong demand from China bumping up against tight supply. But by the end of 2008 we see a structural turning point, which should bring the oil price down to about $83 in 2009, and $70 to $80 by 2010.'

Waldron pointed to new refineries coming on stream in China, the Middle East and India, where Reliance's new refinery is hoping to produce 600,000 barrels a day. This will help supply outpace demand growth. He also sees some relief from production, where costs have started to level off, even in the expensive deepwater drilling. 'OPEC will be able to build spare capacity towards the end of the decade, which will provide cushioning and lead to a fall in prices,' he argued.

In bulk metals, Michael Widmer, metals research analyst, said that financial flows were less important as a driver of price, pointing out that non-exchange traded metals had actually outperformed exchange traded metals in the last 12 months. One would assume the reverse if speculative interest is significant in driving price. 'It suggests that investors have added something to prices, but it still starts with demand and supply fundamentals, and whether there are surpluses or shortages,' he said.

Lehman also looked at how much of the total open interest in base metals that commodity index funds held, and calculated this at between 10 and 20 percent. 'This is substantial, and may drive prices up a little further, but prices would have risen anyway on the metrics,' Widmer stated.

Lehman remains bullish on copper and aluminium prices this year, despite the slowdown in the West, as China continues to drive demand for these metals. 'Most of the price increases in copper in January and February were driven by China,' Widmer said (see chart).

Even though demand from emerging markets as a whole may ease this year, China accounts for a third of the total copper demand, so if this increases by 10 percent in 2008 as Lehman forecasts, this is still healthy growth.

Widmer also sees continued tightness in supply due to power interruptions in South Africa, and Chile due to the choking off of natural gas exports from Argentina. 'Aluminium smelters in South Africa will have power problems in the next two years and the February snowstorms have affected the power supply to China's smelters,' he said.

[rffrydr]

Cheney's name gets censored by our board

We've bought a break with distillates not reflecting the "true price" of crude which most assume will be resolved to the upside.

http://www.latimes.com/news/la-fi-gas22apr22,1,4349214.story

And on cue many refiners have gone into "maintenance" periods thus fuelling the fires. This however will decrease crude demand and, in a recessionary environment where conservation is at hand, is as likely to resolve itself downward.

April contract went out at target high last night: 118.21. These are the potential turning points you have to look to.






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Today is the Tomorrow you worried about Yesterday!

[Rubedo]

Saudi king ‘keeping some oil for future’
By Upstream staff

Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations, local media reported.

"I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'," King Abdullah said in remarks made late on Saturday, the official Saudi Press Agency (SPA) reported.

The US President George W. Bush in January urged the Saudi king to help tame soaring prices by encouraging Opec to pump more oil. On separate trips to Saudi Arabia this year, US Energy Secretary Sam Bodman also asked for more oil, while the US Vice President xxx Cheney discussed high prices with the king.

The kingdom has spent billions on building over 2 million billion barrels per day of spare crude capacity and is the only country in the world able to bring online large volumes of crude supply quickly to deal with unexpected supply shortages, Reuters reported.

Opec held production steady at meetings in February and March despite calls for more oil from the US and other consumers. Opec officials blame the high price on factors beyond the group's control such as the weak dollar, investment flows into commodities and speculation. Saudi Oil Minister Ali al-Naimi said last week that global oil markets were well supplied and there was no need to put more oil on the market, despite prices hitting a record of over $112 a barrel last week.

Saudi Arabia has trimmed its output to around 9 million bpd to reflect lower customer demand, a Saudi oil source said on Friday. The kingdom had in previous months pumped around 9.2 million bpd. Crude demand traditionally dips at this time of year after the end of winter as refiners carry out maintenance and prepare to meet summer demand,.

Saudi production capacity stands at around 11.3 million bpd, and is scheduled to rise to 12. 5 million bpd next year.

[rffrydr]

From the broker: