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Peak oil notes - May 27

Prices and production
After falling on Monday and Tuesday, oil prices rebounded by $2.76 to settle on Wednesday at $71.51after the US stocks report showed an increase in US gasoline consumption, even as crude stocks continued to rise. In afterhours trading however, crude gave up much of Wednesday’s gain. Stockpiles at Cushing, OK declined a bit, the first such drop in ten weeks. The US consumed an average of 19.5 million b/d over the last month, an increase of nearly 7 percent over 2009.

Concerns about the future of the EU and a falling Euro continue to balance Asian demand. For now, demand from China seems to have placed a floor of around $70 a barrel on oil prices. Beijing announced that it plans to increase its refining capacity by 50 percent over the next five years – a harbinger of what is to come. China’s GDP grew by 11.9 percent in the first quarter.

The situation in Korea continues to deteriorate, with the North threatening to cut all ties to the South. The US is offering its full support to the South and is pressuring Beijing to rein in its client which seems to be out of control. So far there has been little impact from the animosities on oil consumption and most observers agree that hostilities are unlikely.

Deepwater Horizon
The attempt to plug the leaking well using the “Top Kill” procedure of pumping drilling mud into the well began Wednesday afternoon and as of early Thursday morning clouds of what is thought to be drilling mud was coming from the Blow Out Preventer – possibly a good sign. BP said it may be another day or so before it can be determined whether the effort will be successful. President Obama has received an Interior report on the Deepwater Horizon explosion and will announce new offshore drilling regulations during a noon press conference today. The President is expected to announce a continued hold on deepwater drilling permits but to permit a resumption of new shallow water drilling. New drilling off Alaska will be delayed until next year.

If the current effort is not successful, the next attempt to plug the well or at least reduce the flow will involve cutting away the kink in the bent riser pipe and attaching another riser to the remaining stem that would bring the oil to the surface. After that would come the “Top Hat” containment dome and finally the drilling of two relief wells which could not be completed until August. There is some danger that the “Top Kill” procedure currently under way will erode bigger openings in the BlowOutPreventer and permit still more oil to leak into the Gulf.

The last few days have been dominated by discussion of whether the US government has been negligent in not taking over efforts to stop the leaking well from BP. Washington contends that it has neither the equipment nor the expertise to stop an oil leak 5,000 feet under the sea and that oil industry players are the only ones in a position to stop the leak.

A major bottom-line issue in all this is what the new offshore drilling regulations will look like, how the industry will react and how much delay and cost will be added to future deepwater oil production by the new controls.

What do you think? Leave a comment below.

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