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Peak oil notes - April 26

New York oil prices, continuing a modest recovery after their mid-month 10% decline, advanced another 3% this week. NYMEX prices rose Monday, were flat Tuesday, then on Wednesday closed up $2—the largest advance this year—at $91.43. The move up was sparked by a weekly government report showing that oil stockpiles rose less than anticipated while gasoline demand unexpectedly jumped by over 4% to a six-month high. Still, US crude oil in storage isn’t far off its recent 23-year high, thanks to rising domestic production and sluggish economic signals.

In London, Brent crude on the ICE futures exchange closed at $101.27, up roughly $2 from this week’s open. Goldman Sachs dropped their three-month outlook for Brent oil from $110 to $100, citing flagging demand in China and Europe, though its call for the entire year remains at $105.

Natural gas prices dipped all three days this week, down 5% from last Friday’s nine-month high to settle yesterday at $4.17. But late cold snaps kept furnaces running longer than normal in the country’s midsection, so the refilling of underground gas storage started roughly three weeks late.

This week the media touted positive reports about US energy prices. During 2012, the Energy Information Administration said that in-home energy costs dropped by $12 billion vs. 2011. Most of the decline was due to warmer than normal winter weather plus lower natural gas prices. According to AAA, the national average for gasoline prices averaged $3.52 on Wednesday, down 15 cents from one month ago; that’s also 27 cents lower than the peak at the end of February and 33 cents cheaper than last year at this time. If today’s prices hold or continue a modest decline, the billions put back in consumers’ pockets could help offset tightening budgets post-sequester.

In the Middle East, Iran’s exports dropped in March to 1.1 million b/day from 1.26 mbd in February. Iran is working on a plan to export oil to North Korea, a very small oil consumer with no known internal oil production. The UAE, declaring that “the days of cheap oil are over,” expects to obtain up to 25% of their electric power from nuclear energy by 2021. Syria’s rebels already control most of the oil-producing region which once earned the nation $4 billion a year in exports, but the backstory is that whoever runs Syria after President Assad may well have significant offshore natural gas resources to develop, paralleling recent finds offshore Israel and Cyprus.

Abu Dhabi, the largest oil producing emirate of the UAE, announced plans to raise output from 2.8 mbd to 3.5 mbd by 2017. Two speakers at Abu Dhabi’s Middle East Petroleum and Gas Conference scored starkly contrasting points. First, a VP for Total SA said oil needs to cost roughly $100 to cover industry costs of developing unconventional oil as well as to sustain the broader budgets of OPEC and other large producing nations. Second, Citi bank’s Edward Morse stated that $90 would be the high end, not the floor, for oil prices going forward. Morse anticipates up to one-fourth of the world’s current oil supply can be displaced by more affordable natural gas, including 12 million b/d in the transportation sector alone. Which perspective is more likely to prove out?

Elsewhere, Ghana expects oil production to increase to 250,000 by 2021, double its current rate. Shell warns of shale oil delays outside the USA; they state that the timelines for development in other nations will be much longer and probably won’t start during this decade. India will be spending billions on large oil, gas and power projects to foster economic growth. Norway proposed to open southern waters of the Barents Sea to development for the first time in two decades.

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