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How Egypt spells oil spike

Colin Barr, Fortune
Egypt may not cause an oil shock this week. But trends that have been playing out there for decades show why another bruising bout with sky-high prices may be unavoidable.

Let’s assume that unrest in the world’s No. 27 exporter will be contained, keeping the current U.S. price of a barrel of crude nearer $90 than $100. For now, that’s good news for a global economic expansion that’s addicted to the stuff.

But a look at Egypt’s oil profile (see chart, right) is hardly an uplifting experience. Production has been sliding for two decades, while domestic use has been rising at a higher rate. As a result, a country that in 1990 was able to export something on the order of 400,000 barrels a day is now a small net importer.

You surely don’t care that Egypt is addicted to foreign oil. But the upshot of its switch to net petroleum consumption is that other, bigger oil addicts – such as the United States, which you may well care about – will inevitably find themselves fighting over a smaller supply of global oil exports. The terms of this battle will surely involve higher prices.

This is one reality of so-called peak oil — a school of thought that contends, over the loud objections of Exxon (XOM) et al., that global crude production has likely gone as high as it will.

A diminishing supply of oil exports is bad enough news for big consumers like the United States. But what really stands to tighten the screws on oil fiends is the rising demand for that shrinking supply, driven by the head over heels growth of everyone’s two favorite emerging market economies, China and India.

Squaring the shrinking oil export market with the surging global demand for fuel, we have something called peak export theory.

… “Egypt is a perfect case history for peak export theory,” said Jeffrey J. Brown, a Dallas area petroleum geologist who has been making this case on the oil drum and other oil publications. “We’re only going to see prices rise as more and more exporters slide down the curve toward being importers.”

Brown contends Saudi Arabia, the biggest oil exporter in the world and the third-biggest supplier to the United States, after Canada and Mexico, is already sliding down this curve.
(31 January 2011)
Jeffrey J. Brown, quoted in the article, is an Energy Bulletin contributor. Post Carbon Institute writes: “Peak Oil in the news, mentioned as PCI Fellow Warren Karlenzig points out, ‘without derision’. We’re getting somewhere, folks ” -BA

Oil Drops From Two-Year High as Investors Sell After Prices Soar

Ann Koh, Bloomberg
Oil dropped from a two-year high in New York as signs of slowing economic growth in China prompted traders to sell contracts after the biggest two-day rally since May. Brent crude traded above $100 a barrel for a second day.

Oil rose 7.7 percent in the two days through yesterday as civil unrest in Egypt raised concern supplies through the Suez Canal may be disrupted. Futures pared some of those gains today after manufacturing growth in China, the world’s biggest energy user, slowed in January.
(31 January 2011)

Egypt unrest rattles oil markets

Kathy Chu, USA TODAY
Oil prices soared past a key threshold of $100 a barrel Monday amid fears that violence in Egypt could disrupt the flow of oil or infect other parts of the Middle East.

… While Egypt is not a major oil producer, its proximity to other oil-producing countries is rattling the market.

“The fear is that the unrest could spread to other countries, and that could potentially impact oil production,” says Gregory Daco, a senior economist at IHS Global Insight, a Lexington, Mass., market forecasting firm.

Just as important, Egypt controls the Suez Canal and the Suez-Mediterranean Pipeline, which are “two of the major chokepoints for oil transportation,” notes James Williams, founder of WTRG Economics in London, Ark.
(31 January 2011)

OPEC quotas and crude oil production

Jean Laherrère, The Oil Drum
It is hard to obtain reliable graphs and quotas on OPEC oil production and to know how these quotas are ascertained. The few graphs that I found are incomplete and inaccurate. OPEC’s website reports the oil production allocations (quotas or ceilings) from April 82 to Nov 2007. OPEC’s 2009 annual report extends the data up to December 2009 but only with the total (24.845 Mb/d); there’s no detail since January 2009. Energy Intelligence provided this missing breakdown by country as targeted since 2009. Quotas are agreed upon by each member during OPEC’s meetings, but the detail of the compromise is not given, only the results.

Thus I decided to plot OPEC’s quotas, comparing them with production. The outcome is interesting.

… Conclusion

Quotas are still the rule in OPEC and haven’t changed since January 2009. It is difficult to find out how these ceilings are ascertained.

It is well known now that OPEC increased their so-called proven reserves by 300 Gb from 1986 to 1989 (which Sadad al-Husseini called speculative resources in 2007) because of a fight for quotas in a low price environment. Despite that, quotas are now agreed upon in OPEC meetings without any reference to reserves; the recent October increase of Iraq’s reserves followed by Iran’s reserves increase indicates that OPEC members are still keen to stay at the same rank. It is not surprising to find that the technical remaining reserves are quite different. In its last estimate of proven reserves (on 6 December 2010), the OGJ did not accept Iran’s and Iraq’s updated values, waiting for further discussions!

As long as quotas prevail, OPEC’s members will cheat on reporting reserves and even on reporting oil production.
(31 January 2011)