1. Oil rebounds a little
On Monday oil fell to $61.30, the lowest price since May 2007, on fears that the global economy was sinking. On Tuesday, prices rebounded along with equity markets in Asia, Europe, and New York. On Wednesday the rebound continued with oil closing up $4.77 to close at $67.50 a barrel. In after-hours trading, oil climbed to over $69 a barrel. As has become normal in recent weeks, there was no particular news about the oil supply and demand fundamentals so the oil price jump was once again tied to the financial situation. The US Federal Reserve rate cut of 0.5 percent, coupled with rate cuts in China and anticipated in Europe next week, was cited as the cause of the price jump. The US dollar falling the most against the currencies of six major US trading partners since 1998 also helped oil prices.
The US oil stockpile report that came out on Wednesday was neutral. Crude inventories rose by 500,000 barrels and gasoline inventories dropped 1.5 million. However, the report showed US gasoline consumption continues to increase slowly and is now only 3.4 percent below the same four weeks last year. Jet fuel demand, however, is down by 13.1 percent as US airlines continue to ground aircraft and reduce scheduled flights.
Monday’s low of $61 was enough to elicit threats of more production cuts by OPEC. Secretary-General el-Bafdri said the group may call a meeting earlier than the one scheduled for December if prices do not react to the 1.5 million b/d cut announced last week. Venezuelan Oil Minister Ramirez said OPEC will probably cut output a second time in December and a senior Russian oil executive said Moscow should consider joining OPEC.
2. The World Energy Outlook
For many months now, the peak oil community has awaited the publication of the IEA’s World Energy Outlook which is due out on November 12th. Earlier this year, IEA spokesmen had said this year’s edition would incorporate a thorough bottom-up evaluation of the world’s oil supply and would not simply base future projections of oil production as being whatever was needed to meet demand.
On Wednesday, the London Financial Times published excerpts from a leaked draft of the report. According to the Times, the report will say that without extra investment to raise production, the natural annual rate of output decline will be 9.1 percent. The report says that investments of $360 billion per year for the next 22 years will be necessary to keep production up with the demand from developing nations and that even with these large investments the annual rate of output decline will be 6.4 percent.
The Financial Times notes that the draft EIA report was written a month ago and may be modified due to the deteriorating world financial situation and the decline in demand and oil prices in recent weeks. If the IEA’s final version of the report continues to hold that world oil production will soon be declining at 6 to 9 percent a year it should have a major impact on governmental thinking about the future of energy. On Wednesday, the IEA released a statement saying that the Financial Time’s article was indeed based on a dated draft that has since been revised and that the Agency would have no comments until the publication is formally released in November.