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Peak Oil Review - Mar 24

Published by ASPO-USA on 2014-03-24
Original article: by Tom Whipple

1.  Oil and the Global Economy
Oil traded in a narrow range around $99 in NY and $106 in London until Friday when fears that the heightened rhetoric over the Ukrainian situation could eventually impact oil supplies sent prices higher.  NY closed at $99.46 and Brent which at one point had been as high as $107.77 closed at $106.92. The US economic news was a little better last week; crude stockpiles climbed by 5.8 million barrels; and domestic production grew to 8.21 million barrels – the highest since 1988.
Natural gas prices fell steadily last week and are now around $4.31 per million after having traded around $4.60 earlier in the month. Another blast of arctic cold is expected to engulf the northern sections of the country this week but spring is now here so withdrawals from natural gas stockpiles are expected to end soon.
The API said that the cold weather hampered demand for petroleum products in February pushing demand down to 18.5 million b/d, the lowest for the month since 1998.
2.  The Middle East & North Africa
Despite the deterioration of relations between Russia and the West, the nuclear talks with Iran seem to be continuing well with both sides expressing optimism. The talks which will continue until July 20th were described as “intense” and are now getting to the heart of the various issues which divide Iran from the West. In the meantime the UN’s IAEA announced that Tehran is complying with the restrictions applied to its nuclear program under the interim agreement.
Iran’s economy remains stagnant despite the best efforts of the new administration; is running out of cash; and inflation is still running at an annual rate of 32 percent. Although there has been some easing of the economic sanctions, most are still in effect forcing the government to institute a new round of painful austerity measures. Energy subsidies will be removed likely doubling the cost of gasoline and utilities. The $12 monthly payments that are being made to nearly 60 million of the poorest Iranians are starting to be phased out.  Iran’s stock market and currency are down and the outlook for the coming year is bleak.
This deterioration suggests that there is more pressure on Tehran than is generally realized to settle the nuclear question with the West and get oil exports and investment flowing again. Most observers say that it will take years to improve the situation even after the sanctions are lifted.
Iran announced that Beijing could lose its $4.7 billion contract to develop the giant South Pars gas field if it continues delaying work on the project.  The project was awarded to China’s CNPC in 2009 after France SA was forced to pull out under international pressure. Tehran says state-owned CNPC will be given one more warning before the contract is terminated. The South Pars field is shared between Iran and Qatar which is already extracting gas from the field. The longer this situation drags on, the more South Pars’ gas will go to Qatar and not Iran.
Iraq: It appears that US mediators have brokered a temporary export deal between Baghdad and the Kurds. Erbil has agreed to let 100,000 b/d of their crude production be sold by Baghdad, while presumably keeping the rest for itself.  This is only a temporary arrangement, and no permanent solution to Iraq’s oil policy is anywhere in sight.
Waves of deadly suicide bombings continued across central and northern Iraq last week. Some are saying that the increased bombings are the work of the Islamic State of Iraq (ISIS) which was once affiliated with Al Qaeda. The ISIS, which is much stronger than when in battle with the US Marines in Anbar province seven years ago, seems to be expanding its operations into other provinces.  The US is stepping up shipments of arms and munitions to Baghdad to counter the new push by ISIS. So far there has been remarkably little impact from all this turmoil on oil production in the southern provinces.
Libya:  The US Navy returned the rogue tanker, which had made off with a shipload of crude from eastern Libya, to control of the Libyan government. The incident has established a precedent that the US will track down and return any tanker taking on crude without permission from Tripoli and should put an end to such attempts. The UN Security Council also voted for a resolution authorizing force against vessels making off with Libyan oil. The three eastern Libyan ports under separatist control have a combined capacity of about 700,000 b/d.
Fighting broke out in Eastern Libya last week when rebels occupying the oil ports attacked a government military installation at Ajdabiya, south of Benghazi, in an effort to forestall a government attempt to regain control of the oil ports by force. After 16 were wounded, local tribal leaders halted the fighting. Most analysts believe the government does not have the military strength to take back the ports from the more numerous and better-armed rebels. Western governments continue to support the government in Tripoli in its stance against the separatists to who want to break up the country and are providing training to what is left of the Libyan army.
There is no recent news on Libya’s current oil production which has been fluctuating from 200,000 to 500,000 b/d as the valves from western Libyan oil fields are opened and closed by disgruntled tribesmen. Crude production in February was down to 350,000 b/d from 1.6 million in 2010.
Saudi Arabia: With some 10 million b/d of crude production, political developments in Saudi Arabia are always of interest. Recently the IEA called for the Saudis to maintain their production at current levels in order to resupply world stocks that were drawn down during the recent winter and to avoid a price spike.  This will be difficult for the Saudis as they plan to shut-in some 750,000 b/d of crude production next month in order to upgrade facilities at the Shaybah oil field.
Saudi Arabia’s political position in the Middle East has shifted radically in the last few years. Relations with Washington have deteriorated due to the US’s failure to intervene in the Syrian situation on behalf of the Sunni insurgents and for negotiating with Tehran on the nuclear issue. Riyadh believes a nuclear treaty would leave Tehran in a much stronger position to incite trouble among the Shiites living in eastern Saudi Arabia and in Bahrain.
Recent developments in Egypt, where Riyadh and its Gulf associates are supplying the funds to keep the military government from economic collapse, have brought the Saudis in conflict with Qatar which supports the Muslim Brotherhood. The Saudis are going after the Qatar-based Al Jazeera television network for what it perceives as being its anti-monarchy stance and has begun to prosecute the networks journalists in Saudi Arabia as terrorists.  This Saudis also are nearing a succession crisis in which the 89-year old king and his generation pass from the scene and power devolves on much younger men.  Whether this generation will be able to maintain the monarchy in the face of changes which are engulfing the region much longer will likely determine how much oil will be coming out of the Gulf in the decades ahead.
Israel: Tel Aviv launched airstrikes against Syrian army sites last week in retaliation for an attack on an Israeli patrol on the Golan Heights. The attack was the first on Syrian territory that Israel has openly acknowledged since the Syrian uprising began three years ago.  Previous Israeli airstrikes on targets in Syria were aimed at destroying advanced military equipment on its way to Hezbollah in Lebanon. The incident is raising questions about increased Israeli involvement in the Syrian Civil war. The Israelis say than only a third of Israel’s frontier with Syria is controlled by the Syrian Army, with the rest in the hands of radical Sunni groups and even Hezbollah. The dangers of Israel being dragged into Syrian civil war seem to be increasing.  More Israeli involvement would like trigger increased passions in the region.
On another subject, Israel seems to be injecting itself into the Iranian nuclear negotiations which it clearly disfavors. Moreover, Tel Aviv does not like US pressure to negotiate a settlement with the Palestinians and dislikes Washington’s hands-off approach to the Syrian uprising. Last week the Israeli establishment began beating the war drums again by reviving threats to unilaterally bomb Iranian nuclear establishments. The Israeli position is that Iran must not have the capability to produce nuclear weapons and the west must not be satisfied with any agreement that leaves even a heavily-inspected Tehran with such a capability.  Needless to say an Israeli attack on Iran would set the world off on an entirely new course with oil shortages and much higher prices virtually certain.
3. The  Ukrainian Situation
Rhetoric and threats continue to be exchanged in the wake of Russia’s takeover of the Crimean peninsula last week. Western governments have begun warning of a buildup of Russian forces along Ukraine’s eastern border raising fears that Moscow may have designs on the Russian-speaking provinces in Eastern Ukraine. Moscow, however, continues to insist that it has no such designs and insists that its military presence in the area is in accordance with international agreements.
The long term impact of the sanctions, which Russia and the West have been laying on each other, is unclear. Travel restrictions on senior officials are meaningless, banking and economic sanctions could have an impact on Russia when imposed by most of the developed countries. The big issue remains Russia’s large exports of oil and natural gas which powers a large share of Europe’s economy and provides Moscow with much of its foreign exchange earnings.
4.  Quote of the Week


--- Nafeez Ahmed, Earth Insight Blog, The Guardian
5.  The Briefs

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