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How U.S. policy made oil go up. Then down

Brian Milner, Globe and Mail
Anyone who still makes the claim that October holds nothing on September when it comes to the cruel treatment of investors obviously doesn’t go anywhere near the commodities game.

Nothing escaped devastation this October, triggered by forced selling, fading economies and the global flight to safety. Not metals, not grains, not gold, not sugar and definitely not oil. Copper posted its largest monthly decline in more than two decades. Wheat tumbled more than in any previous month for the past 22 years. For gold, you’d have to wander back to 1983 to find a similar nosedive.

… Oil, though, stood in a dismal class of its own. By the time exhausted traders packed it in for the month, the price had plunged more than 32 per cent. It was the biggest-ever monthly drop. Since peaking just above $147 (U.S.) a barrel in July, light sweet crude has fallen down a drill hole, closing yesterday at $67.81.

… Mr. Pickens and plenty of other like-minded investors became convinced that oil had nowhere to go but up, even after it passed the $100 threshold. They trotted out all kinds of charts to make their case that demand was so strong, we would never see cheap energy prices again. Peak oil and overwhelming Chinese demand became their twin mantras. Some analysts, ever eager to get in front of a trend, even started talking up $200 oil.

Too bad they weren’t paying attention to a veteran energy economist named Philip Verleger Jr., who insists oil never should have gone much above $70 a barrel; that it did so only because of “a perfect storm” of U.S. policy mistakes, European economic developments and currency shifts; and that it could well end up back in the low $20s before the global economy gets back on its feet.
(1 November 2008)

Chevron Project Offers Glimpse Of Future: More Work, Less Oil

Russell Gold, Wall Street Journal
Chevron Corp. executive Ali Moshiri spent the past seven years scouring the globe for hard-to-get equipment, schmoozing foreign officials and taking billion-dollar risks to fast-track a new oil prospect off the coast of Brazil.

Despite the full-out effort, Mr. Moshiri concedes Chevron’s $3 billion Frade (pronounced Frah-jay) project is a mediocre prospect compared with the huge pools of easy-to-get oil the company has tapped in the past. Even if it fulfills its greatest promise, the deep-water oil field will contribute only a trickle to the global river of petroleum. And Frade, whose first well is now being drilled, could still fail to deliver enough oil to make all the effort worthwhile.

But Mr. Moshiri remained dedicated to the project for a simple reason: It’s about as good as it gets these days. For oil companies seeking to reverse years of falling production, the consuming and expensive birthing of Frade has become the norm.
(30 October 2008)

Exxon’s Production Falls as Profits Soar

Steve LeVine, Business Week
ExxonMobil’s third-quarter earnings demonstrate the mixed universe occupied by Big Oil as a whole today—the company reported record profits but its lowest production volume in almost a decade. The Irving (Tex.)-based corporation says it earned $14.8 billion in the third quarter, an increase of 58% from the same period last year. Exxon is on track for a third straight year of record earnings—in both 2006 and 2007, the company earned some $40 billion. In each year, that was the most ever for any company on the planet.

Despite the breathtaking profit, however, the report weighed on Exxon’s share price on Oct. 30. Exxon closed up 0.5%, at 75.05, after falling as low as 71.44 during the trading session. One of the main reasons was its reported production volume. The company produced just 3.6 million barrels of oil per day, an 8% drop from the same period last year. It’s the lowest production since Exxon bought Mobil in 1999. Since then, Exxon’s production has mostly fluctuated between 3.8 million and about 4.2 million barrels a day…
(30 October 2008)

Russia, China sign landmark oil pipeline deal

Russia and China on Tuesday signed a long-awaited deal to build an oil pipeline from Siberia to China after talks between Prime Minister Wen Jiabao and Russian counterpart Vladimir Putin.

The leaders watched as Chinese state energy major CNPC and Russian state pipeline monopoly Transneft signed the deal to build the pipeline from the Siberian town of Skovorodino to the Chinese border.

The pipeline agreed on Tuesday would have a capacity of 15 million tons of oil per year and would be a branch of the main East Siberia-Pacific Ocean trunk pipeline, which is still under construction, officials said.

… Amid lower energy prices, analysts say China is now seizing its chance.

… “We need to build oil and gas pipelines, increase downstream and upstream cooperation and increase cooperation in the nuclear sphere,” said Zhang, head of China’s State Energy Bureau, speaking through a Russian interpreter.
(29 October 2008)