Resilience

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Peak oil review - Feb 10

Published by ASPO-USA on 2014-02-10
Original article: http://aspousa.org/ by Tom Whipple

1.  Oil and the Global Economy
 
Oil traded in a narrow range around $97.50 in NY and $106.50 in London until Friday when concerns that distillate shortages may be developing sent prices up about $2 a barrel to close at $99.88 in New York and $109.57 in London. The move came after some bad economic news on Thursday which reported that US jobs had only climbed by 113,000 in January as opposed to the 189,000 the market had been expecting. Production of North Sea Brent crude is expected to slip to 890,000 b/d in March as opposed to 1.0 million in February. Libyan production is down to 500,000 b/d or less due to new problems in the western oil fields.
 
The polar vortex continued to push frigid air into much of the US last week pushing the demand for heating to new highs.  The cold air likely curtailed economic activity and slowed oil production. Although the government reported that US domestic oil production remained the same the week before last as compared to the previous week, the railroad association reported that crude movements mostly from the Bakken Shale were down by 13 percent. The count of active drilling rigs fell, propane shortages developed in some sections of the country and heating fuel supplies in the Midwest fell to the lowest level in 20 years for this time of year.
 
Natural gas prices peaked at a recent high of circa $5.70 per million BTUs on Wednesday but then fell for the rest of week after the EIA reported that natural gas stockpiles had fallen less than expected last week. Traders are still uncertain as to how long the unusually cold weather which has curtailed production as well as drawn down stocks will last. At week’s end natural gas futures were trading at $4.77 per million. On Thursday a rare mid-winter conservation alert was issued for southern California asking residents to curtail their use of electricity and heating gas as supplies were running low.
 
2.  The Middle East & North Africa
 
Iran:  Iran held talks with the IAEA over the details of charges that in the past it has taken concrete steps towards building nuclear weapons. Tehran denies these charges but agreed to seven “practical steps” to increase transparency. The agreement however, did not including giving the IAEA access to the Parchin military site where the Iranians allegedly conducted experiments related to nuclear weapons.
 
Talks between Tehran and the six powers on the next stage of a comprehensive agreement will begin February 18th.  The atmospherics between Washington and Tehran seem to have gotten worse in recent weeks with Tehran threatening to break off the talks unless Washington stopped its threats. At this juncture it is tough to tell if there will be an agreement this year, or whether the wrangling and sanctions will continue indefinitely.
 
Washington showed it is still taking the sanction seriously by penalizing nearly three dozen companies and individuals in eight countries for evading the sanctions and trading with Iran.  Tehran says it will show its resolve by sending a three-ship fleet to sail up and down off the US’s Atlantic Coast.
 
Tehran has started handing out free food packages to citizens earning less than $170 a month. The food has come from barter arrangements in return for its oil.
 
Iraq: The bombings continue apace with hundreds being killed or wounded. One of the numerous bombings killed a candidate for Parliament and close friend of Shiite leader and cleric Moqtada al-Sadr. Another bombing took place close to the famous “green zone” where the government and embassies are located. This situation is getting about as close to a civil war as you can get without a formal declaration.  Not much news on the situation in Anbar, given the problems the US Marines had in driving al Qaeda fanatics from the province ten years ago, it is doubtful that Iraqi security forces can do much. The current plan is to have local anti-al Qaeda tribesmen drive the insurgents out with support from the government and advice from the US Army. This plan reflects the fears that having a Shiite army attack Sunni insurgents would simply increase the troubles.
 
The dispute over the oil which the Kurds are exporting to Turkey continues with the US taking sides with Baghdad. Conflicting reporting has the Kurds cutting back on exports while talks are underway or continuing to export oil as fast as they can.
 
Talk is increasing that the Kurds will soon declare independence while the government is too distracted by bombings and Anbar to do anything about it.  There is also talk of southern Iraq where all the oil is located gaining some form of independence. Hopes for major increases in Iraq’s oil production in the next few years are seen to be more problematic every day despite the presence of numerous international oil companies working to increase production.
 
Syria: The general situation continues to deteriorate. The peace talks are at a standstill. Efforts to provide humanitarian relief to the thousands who are surrounded and cut-off from food are not going well. The Islamic State of Iraq and Syria which controls much of Syria is turning out to be so bad that even al Qaeda has broken ties with the group as being too radical. Efforts to remove Assad’s chemical weapons are not going as planned. While all this has little to do with oil exports at the minute, the chances that the hatreds and turmoil will spread across the region increases daily.
 
Libya:  The country is turning into a roller coaster with production flying up and down with the political winds. You will recall that a couple of weeks ago oil production resumed, albeit temporarily, in the western part of the country, while Cyrenaica in the east which has most of the oil refused to allow shipments unless they got the money. This left Libyan production at around 600,000 b/d down from 1.6 million b/d in the Gadhafi era. About 250,000 b/d go for domestic use and the rest is exported.
 
Last week, however, the government announced that “bandits” (shorthand for people who think you are stealing their oil) had shut valves blocking some 40 percent of the western Sharara oil fields production from reaching the coast. This should have cut the country’s production down to circa 450,000 b/d leaving little for export.  
 
The more bizarre development of the week came when Libya’s Prime Minister announced that he had ordered the army to move on Benghazi and reopen the oil terminals. The army quickly replied that it had received no such orders and if received, “they would be studied.”
 
In the meantime, there seem to be no political settlements in sight and assassinations of prominent personages continue. The prospect of much oil being exported from Libya in the immediate future does not seem good.
 
3.  Quote of the Week

            -- Katie Camden, owner of restaurant chains in Pacific Northwest 
  
4.  The Briefs


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