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Enjoy the cheap petrol, while it lasts
Michael Trifunovic , Sydney Morning Herald
With demand on the rise, existing wells drying up and a dearth of big discoveries, the oil price is only headed in one direction.
IN July 2008, the oil price hit a record high of $US147 a barrel. In its journey from the lows of 1998 to the highs of last year, many reasons were put forward for its ascent. Explanations included a so-called “war premium” , “a terrorist premium”, hurricanes and evil speculators – the list of things and people to blame for the rise in oil prices was long.
As the price rose, calls were made by political leaders and interest groups for oil producers to lift production and for a cut in taxes on oil and petroleum. Accusations of price gouging and profiteering by oil companies and producers soon emerged.
Under the glare of TV cameras, OPEC promised to lift oil production and bring prices down. Yet the price continued its march upward and production rose only marginally.
The key point that appears to have been missed was that in the decade from 1998, demand grew about 16 million barrels a day while supply struggled to keep pace, particularly during the later years.
Now that the oil price has collapsed from $US147 to the $US40-$US50 region and it’s off the front pages, it is yesterday’s story. But is it really an old story. Have we been told the true state of play?
… With the collapse of the oil price since last July, several major oil-producing countries are also sabre rattling and threatening to cut production to force prices to what they believe is a more “economic” level. That may create an interesting scenario where a particular price is set in the paper market but one cannot get it in the physical. Some of these nations are arguing that oil should not be priced solely in US dollars but in a range of currencies. Some are trying to lock up supplies and take them off the market.
So, has the oil price bubble burst – as so loudly broadcast by various investment pundits – or are we really sitting in the calm before the storm?
What will happen once economic activity picks up? Maybe we should enjoy the relatively low oil and petrol prices while we can.
Michael Trifunovic is an investment banker and fund manager.
(10 April 2009)
Peak Oil: China vs. USA
Michael Fitzsimmons, Seeking Alpha
Anyone catch Steven Kopits’ article in Barron’s this weekend titled “A Global Portrait of Peak Oil”? In it, Kopits echoes thoughts I have written recently on how badly the US is being outmaneuvered by China with respect to energy policy. While US politicians and policymakers continue to hold meetings in Washington, DC in an attempt to solve a commodity problem (oil) with financial tom-foolery (it simply will not work), let’s look at what China has been up to:
- China lent Petrobras (PBR) $10 billion to fund the company’s offshore exploration in Brazil’s pre-salt oil fields. In return, China locks up long term oil deliveries from Petrobras amounting to 160,000 barrels per day.
- China lent money to Russian oil companies Rosneft ($15 billion) and Transneft ($10 billion) in return for oil supplies and a new pipeline spur to China. For China, the agreement locks up 15 million tons of oil (300,000 bpd) every year for the next 20 years.
- China and Venezuela have signed agreements and invested in a $12 billion fund to finance and develop oil projects, infrastructure and agriculture with a goal to boost Venezuelan oil exports to China from 330,000 bpd to 1 million bpd by 2015.
In each case, Chinese President Jintao met in person with the leaders of Russia, Brazil, and Venezuela to underscore the strategic significance of these deals.
What a contrast to the United States’ “strategy”.
(9 April 2009)
The Barron’s article is online: “A Global Portrait of Peak Oil” (see end of page).
“Die nächste Ölkrise kommt”
Michael Kläsgen, Sueddeutsche Zeitung
Die Knappheit des Rohstoffs Öl beschwört die nächste Weltrezession um 2013 herauf – sagt die Internationale Energieagentur. Im Jahr 2010 wird der Preis auf ein Rekordhoch steigen.
Die Internationale Energieagentur (IEA) in Paris warnt vor einer neuen, noch schlimmeren Weltwirtschaftkrise um das Jahr 2013. Grund dafür sei das Stornieren von Investitionen großer Ölkonzerne in neue Förderprojekte. Ziehe die Nachfrage 2010 wieder an, könnte der Ölpreis explodieren, die Inflation befeuern und das Weltwirtschaftswachstum gefährden.
“Uns besorgt, dass die Ölfirmen ihre Investitionen zurückfahren. Denn wenn die Nachfrage wieder anzieht, könnte es zu einem Versorgungsengpass kommen. Wir prophezeien sogar, dass dieser Engpass 2013 eintreten könnte”, sagte Nobuo Tanaka, Chef der Internationalen Energieagentur, der Süddeutschen Zeitung.
(27 February, 2009)
Translated into English by EB contributor TC: The IEA warns of shortages – “The next oil crisis is coming”.
Why Cuba’s Dreams of Major Oil Discoveries Might Come True
Thomas Omestad, US News & World Report
Recent estimates suggest that the island could move into the petroleum big leagues
HAVANA—There is a place tantalizingly close to American shores that—but for reasons of politics and foreign policy—could emerge as a welcome new source of oil for U.S. consumers. That surprising potential entrant onto the world energy stage is Cuba. The island nation, says Jorge Piñon, a leading expert on Cuba’s energy at the University of Miami, “can certainly become a major producer of oil.”
(3 April 2009)
Energy prospects brightest when the news is bleakest
Fabrice Taylor, Globe & Mail
The short version of the energy investment thesis is “buy it.” The long version is “buy lots of it.”
The world burns about 85 million barrels of oil a day. We spill almost as much ink breathlessly debating the price of it and where it’s going. But the story is pretty simple: Depletion is relentless, “high-grading” is at a fever pitch, investment is bare bones and demand is only going up over time. Prices will follow faithfully, until we run out, by which time we’ll either be dragging our knuckles on the ground again or we’ll have found another way to fuel modern life and SUVs.
In the meantime, the mantra is that low prices cure themselves. It’s not a coincidence that oil hit a long-time low of about $11 a barrel in 1998 and then roared for a decade. No one wants to look for oil when the cost of selling a barrel doesn’t cover the cost of finding and producing one, so they don’t. Reserves don’t keep up and prices go back to where the economics make sense.
History doesn’t repeat, but it rhymes. Production from big existing fields around the world is falling by almost 7 per cent a year, says the International Energy Agency…
(8 April 2009)
EB contributor Dr. Larry Hughes writes:
A well-written piece that puts depletion into focus. An example of the growing awareness of oil depletion and the challenges it presents amongst the MSM.