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Peak Oil Review - Feb 24

Published by ASPO-USA on 2014-02-24
Original article: by Tom Whipple

1.  Oil and the Global Economy
Last week the oil futures markets were driven by the prospects for more cold weather in the US and mixed reports concerning the outlook for the US and Chinese economies.  NY oil prices jumped $3 a barrel on Tuesday and Wednesday to $103, but then slipped to close on Friday at $102.48. Wednesday’s close of $103.31 marked a 10 percent increase in the last six weeks and was the highest close since last October.

The London oil market participated in the Tuesday price jump, sending Brent crude up to $110.50 where it stayed until Friday when in slipped back to close at $110.32.
Traders are watching the size of US crude stocks which has been growing for over a month.  The US is entering the winter/spring maintenance and changeover-to-summer-blends season when many refineries are closed, reducing the demand for crude. Many traders believe that after six consecutive weekly gains, oil prices are as high as they will be going for a while. The winter heating season will soon be ending; the demand for heating oil was not as much as analysts had been expecting the week before last; and the demand for gasoline remains weak.
London futures prices have been more sensitive to supply disruptions particularly in Libya which is exporting very little crude again as the various tribes and militias jockey for influence.
Continuing cold weather in the US sent natural gas prices soaring last week to a five-year high of $6.40 per million BTUs on Thursday – gas was trading around $4.60 two weeks ago. Last week’s natural gas stockpile report came in slightly higher than analysts had been expecting sending prices down on Friday. The stocks however are at their lowest level for any week in February since 2004 and many are worried that additional cold weather will draw them down to the level where they cannot be replenished in time for next winter’s heating season.
There was much discussion last week about how the major international oil companies are making cuts in their spending for exploration due to increasing costs and the inability to find enough new oil. Most of the cutbacks are being directed towards arctic and very deepwater exploration where the costs are very high. With many believing that oil prices will soon be falling, lower prices would bring additional pressures on oil companies to cut back on new exploration and drilling projects. In a few five years these cuts could have a major impact on the industry’s ability to maintain, much less increase, current rates of oil production.
2.  The Middle East & North Africa
Iran:  On Thursday, the six world powers and Iran announced that they have agreed on a schedule to reach a comprehensive agreement on Tehran’s nuclear program before the current agreement expires in July.  Both sides are expressing general optimism that an agreement will be reached, but Washington continues to warn that there are many serious issues to be overcome. In the meantime Tehran continues on its offensive to attract foreign investment in its stagnant oil and gas industry.
Over the weekend, the Iranians announced a “new model oil contract” that will be more attractive to international oil companies than the tight-fisted deals Baghdad has been offering. Given the political stability of Iran as compared to the rest of the Middle East and a fair return on investment, doing business with Iran could be very attractive to oil companies starved for access to new sources of oil and gas. This in turn could bring more pressure on Western governments to settle with the Iranians. The next round of talks is scheduled to resume on March 17th.
Iraq: The turmoil is beginning to affect Iraq’s oil exports which slipped by 4.8 percent from December to January. Most of the loss was due to attacks on the northern export pipeline which is out of service nearly half the time. There has been no progress in the dispute with the Kurds who maintain they will not export oil in conjunction with Baghdad’s State Marketing Organization.
The sectarian bombings, which have killed 1,500 in the last two months, continue at about the normal pace and there has been little progress in driving the al Qaeda insurgents from towns in Anbar province. Over the weekend, a 72 hour cease fire was announced for the province, raising the possibility that a deal is in the offing. The UN says that 370,000 people have now been displaced by the fighting in Anbar.  The fighting has slowed plans to develop the Hamrin and other oilfields in northern Iraq as it simply is not safe to drill for oil with open warfare going on in the region.
Libya: Oil production is now back down to 230,000 b/d after the El Sharara oilfield was shut down due to protests and clashes in the area. Nearly all of this production is going for domestic consumption leaving little for export. In the meantime, two powerful militias told the Parliament to step down or face arrest. Parliamentary leaders are trying to arrange for a constitutional convention which could lead to a new government. The bottom line is not to expect much oil will be coming from the country until major changes in what passes for government occur.  Partition into three or more states looks like a better bet all the time.
3. Venezuela 
Hundreds of thousands of Venezuelans took to the streets in several cities over the weekend to protest the deteriorating economic situation and the shortages of food and other vital commodities. The country is badly split so that a much smaller group who directly benefited Chavez presidency also took to the streets to support the government. Most of the oil production and exporting infrastructure is located far from the urban areas where the protests are taking place and as yet not been affected by the disturbances.
The government is under stress with President Maduro simultaneously blaming the protests on Washington, while at the same time asking President Obama to send negotiators to help settle the crisis. Given the state of Venezuela’s economy, there is little the government can do to satisfy the underlying complaints of shortages in the short term.
4.  Quote of the Week


            -- Emilio Lozoya, the CEO of Petroleos Mexicanos, or Pemex
5.  The Briefs

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