Peak oil notes - Oct 14
Developments this week
After falling on Monday and Tuesday, NY crude jumped $1.37 on Wednesday to close at $83.04 a barrel after China announced that its September crude imports had increased by 11 percent over August to a record 5.52 million b/d. This was up from 4.19 million b/d in August 2009 and up 15 percent from last month. Coupled with a new IEA estimate that increases global consumption by 300,000 b/d for 2010 and 2011 over previous estimates and a weaker dollar, crude prices had a good day. Brent crude in London, which may be more indicative of actual market conditions, closed at $84.65.
The IEA is now estimating that global consumption will average 86.9 million b/d in 2010 and 88.2 million b/d in 2011. Washington’s EIA joined the optimism by releasing a new forecast increasing its average global consumption estimates to 85.95 million b/d in 2010 and 87.44 million b/d in 2011.
The IEA’s monthly Oil Market Report for October reports that global oil supply in September fell by 150,000 b/d to 86.9 million b/d on lower non-OPEC output, but was up 1.5 million b/d year-on-year. Non-OPEC production is expected to increase by only 150,000 b/d in 2011 leaving it up to OPEC to increase production by over 1 million b/d.
As the projected demand for oil pushes to ever higher levels in the coming months, the issue of another economy-killing price spike arises. Washington tries to look at the bright side with EIA administrator Richard Newell telling a press conference that OPEC production will “increase over the next year or two” which “should keep prices from rising dramatically. Some OPEC ministers however are already talking of $90 to $100 oil which is not that far away. OPEC has decided to hold its production steady while urging members to adhere to quotas already in place.
While the Saudis and their Gulf brethren say they have spare capacity, many OPEC members are pumping close to flat out. So long as China keeps booming, the coming year may be the test of just how far up global production can go.
The general strike in France has left 10 of the country’s 12 refineries without workers. If the strike is not settled soon, fuel shortages should start next week.
The deep-water drilling ban
Political pressure forced the administration to lift the drilling ban seven weeks ahead of its expiration. The catch is that drillers must meet tough new rules before permits will be issued. Industry spokesmen are saying that the move is only a token gesture made in advance of the November elections. Drillers are concerned about how long it will take the administration to vet new drilling permits and the costs of complying with the new regulations. Many fear that the smaller drillers will be driven out of the Gulf.