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Crude crunch coming

Editorial, Houston Chronicle
Industry wisdom now recognizes there are practical limits to the world’s oil supply

…On Nov. 14, the Chronicle stated in an editorial that $100 oil and an energy crunch were inevitable because the supply of crude was vulnerable to weather, shortages of skilled workers, production bottlenecks, political instability and terrorism.

Monday, in a front-page article, The Wall Street Journal reported that many Western oil industry executives have come round to that view. After years of discounting predictions of peak oil production, these industry leaders and some officials of oil producing nations now say oil production will plateau during or before 2012.
(20 November 2007)

This Week in Petroleum 11-21-07

Robert Rapier, The Oil Drum
Updated: Well, we got that big surprise, primarily because crude imports were sharply down from last week. Some excerpts:

U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending November 16, down 151,000 barrels per day from the previous week’s average. Refineries operated at 87.0 percent of their operable capacity last week.

U.S. crude oil imports averaged over 9.8 million barrels per day last week, down 667,000 barrels per day from the previous week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 1.1 million barrels compared to the previous week. At 313.6 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year.

Total motor gasoline inventories increased by 0.2 million barrels last week, and are below the lower end of the average range. Distillate fuel inventories decreased by 2.4 million barrels, but are in the middle of the average range for this time of year. Total commercial petroleum inventories decreased by 6.9 million barrels last week, and are in the upper half of the average range for this time of year.

Even if we don’t pop $100 today, at this level it won’t take much volatility to take it above $100. At this point, I wish we would get it over with, so I will stop waking up at night and checking prices.
(21 November 2007)

Motley Fool’s new blog: Opening Your Energy Mailbag

David Lee Smith, The Motley Fool (investment site)
…We at the Fool are just starting a feature that we’ve termed the Energy Mailbag. We ask that you send us your energy-related comments or questions, either those dealing with big picture issues or others concerned with specific companies. We’ll attempt to deal with as many as we can, and hopefully in the process we’ll all have a little fun.

… I agree with Donald’s contention that, “as we reach peak oil [the point at which global demand outstrips supply] other [energy] sources have to be valued higher.” Donald specifically likes coal producer Peabody Energy (NYSE: BTU), which has interests in about 40 U.S. and Australian coal operations. He appears to have a point in that, at today’s crude prices, coal becomes a progressively more attractive oil substitute, and coal liquefaction also becomes more economically justifiable.

Lou is writing a book on “The Oil Crunch,” and was kind enough to send me a couple dozen slides he used during a talk on the subject recently. His contention — if I might attempt to paraphrase him — is that we’re at or near the worldwide peak oil point. As he noted regarding his presentation on the issue, “I had both deep greenies and a retired ExxonMobil (NYSE: XOM) exec in the audience, and no one threw anything at me, so either I walked a very fine line or totally lost them all. I’m still trying to figure out which.”

Bennett believes that, “The largest immediate danger to oil supplies lies in the actions of Russian and Venezuela. If either, or both, decide to play their energy card against the U.S. and Europe, the price of oil and gas will soar up, up, and away.” That’s a contention that’s difficult to contest, especially if you also include Iran and perhaps Kazakhstan in the mix. Think about it: Crude’s up big just this year, despite reasonably good behavior on the parts of the usual list of miscreants.
(20 November 2007)

Mid-Month Oil Reality Check

Jim Kingsdale, Seeking Alpha
he media is focused on oil as never before. Will it breach $100? Will it decouple from the dollar? Will it cause a recession? What does the giant Brazilian discovery mean? And of primary interest, how much oil could the world really produce if it tried its hardest? Oil is becoming the media’s new Paris Hilton and it’s getting a little hard to decipher the noise from the news. But let’s try.

The most interesting thing to me is how oil moved in the past week against a negative news background. The IEA reduced its forecast for oil demand last week, a U.S., if not global, recession was looking increasingly likely, and the weekly oil numbers failed to deliver the expected inventory decline. What happened? Oil dropped from the mid-90’s all the way down to…nearly $91. And then it bounced right back up.

A second interesting move was a noticeable reduction in the degree of backwardization in the “strip,” the series of oil futures prices going out five years. Backwardization means the prices are lower in later periods. It suggests that traders believe high prices are a more near term phenomenon than one that will persist. The opposite is called “contango” and the market seems to switch between the two for reasons that are not clear to me, or, as far as I’ve been able to discern so far, to anyone else either. If anyone knows of a good analysis of this, I’d love to get a reference to it. Anyway, over the past week or so, the out months of oil contracts have gotten stronger than the front months.

What these two actions say to me is that oil is damn strong and looking to get stronger in the more distant future. Why? The real answer: nobody knows. But for what it’s worth, I think it’s not because we might bomb Iran (we won’t), or because Pakistan may fall apart (it might), or because speculators are speculating (they are). It is simple because the reality of Peak Oil is becoming understood by more and more people.
(21 November 2007)

The Energy and Environment Round-Up: November 21st 2007

Stoneleigh, The Oil Drum: Canada
With climate change and conflict linked over the long term, the acceleration of the current warming trend is alarming. Glaciers in Canada have retreated to the point where they are revealing material encased in ice for thousands of years, while the acidification of the oceans due to CO2 absorption is described as the most profound shift in ocean chemistry for “hundreds of millennia”. New estimates suggest that the Arctic Ocean could be ice-free by 2010, and the IPCC has removed the upper boundary it had previously placed on the expected sea level rise.

Climate refugees are becoming more common around the world, particularly due to the droughts that result when a decrease in rainfall combines with higher temperatures, and therefore a higher rate of evaporation, to greatly reduce the available water. As this problem grows, the potential for conflict grows with it.
(21 November 2007)
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