Click on the headline (link) for the full text.
Many more articles are available through the Energy Bulletin homepage
What Happened to the Oil Boom?
Robert Aronen, The Motley Fool via MSNBC
…For now, it appears that the Peak Oil folks will have to wait. Companies like ExxonMobil (NYSE: XOM) have been claiming there is no supply shortage, and that high prices would lead to increased production.
…Beyond the historical averages, it is important to note how insignificant these inventory levels are — they represent about 15 days of supply. In other words, any disruption to crude supplies or refinery capacity will send inventories down in a hurry.
…Geopolitical uncertainty in several key oil-producing regions has added a “fear premium” to the price of oil in the past few years. There is little reason to be optimistic that this situation will change in the near future. Iran has increased its power and influence within the Middle East region, and agitations over its nuclear program, its support for insurgents in Iraq, and its support of Hezbollah could impact oil markets at any time. Iraq continues to produce oil at less than prewar levels, and its oil infrastructure remains a soft target for those parties who wish to disrupt the reconstruction effort. Russia has begun imposing its will on foreign oil investment partners and trying to control the former member states of the old Soviet Union. These strong-arm tactics will likely cause foreign oil executives to think twice about increasing investment in the region. Ongoing problems in Venezuela and Nigeria have kept production levels down in those countries.
Of all the problems out there, Iran and Iraq appear as though they will remain lingering issues for the next several years. However, were either country to become stable, allow foreign investment in its oil industry, and achieve full production capacity, the world would again be swimming in oil, and we could all go back to driving SUVs.
…For the time being, the oil boom has cooled significantly. Inventories, spare capacity, and production are up, and demand growth is slowing. This, logically, has caused prices to fall. Will oil prices fall all the way to their historical averages near $20 a barrel? I doubt it. Supply and demand remain tight, and world demand continues to grow. Spare capacity remains a very small percentage of overall supply, and it is held almost entirely by one country. Inventories will likely fall right back to their recent averages with continued cold weather and the approaching maintenance period for U.S. refineries. The aforementioned geopolitical issues could flare up at any moment, meaning oil prices would head higher again.
(19 Jan 2007)
Contributor SP writes:
“Think about this statement…
Saudi Arabia recently announced that when it implements production cuts on Feb. 1, its spare capacity will have risen to 3 mb/d.
Isn’t this classic chutzpah? That is: “When we meet our lowered expectation of what we promised to not deliver, that’s proof of our ability to deliver more than we promised sometime in the future?”! Isn’t that the logic… or did I swallow the red pill?
And then there’s this…
However, were either country to become stable, allow foreign investment in its oil industry, and achieve full production capacity, the world would again be swimming in oil, and we could all go back to driving SUVs.
The author obviously swallowed the blue pill. Essentially, this article is not anaylsis but expectation.”
Reality check in a tumbling oil market
Francis Osborne, Gulfnews
What’s going on? Hedge funds were meant to go on a buying spree again in the New Year. Instead they have sold fast and aggressively. So instead of staring new highs in the face we are buckling our seatbelts as the pricing rollercoaster heads south.
Oddly, not much has changed. Sure, sunbathing in the northeast US in January isn’t exactly normal and the very mild weather has clearly ripped out support from the market. But otherwise fundamentals are as weak as they have been in the last year.
What has changed is perception. Prices are set in the futures markets, which do exactly what it says on the label – look at the future and price accordingly in anticipation. Now the feeling is that demand growth is weaker (at least temporarily), the Organisation of Petroleum Exporting Countries (Opec) is incompetent and growth in non-Opec supply is strong (on paper at least). Cue short position taking all around.
Barring the unforeseen in the short term, it’s a stand-off between Opec and the funds. … Can Opec do enough to convince the funds against shorting the market? It means actually delivering the cuts agreed at the last two Opec meetings. Unfortunately Nigeria’s liftings programme for February at the moment suggests quite the opposite. Anything less than a meaningful level of compliance (probably about half at the moment) will be tested mercilessly by the market. Without effective action by Opec, the market will use the perception of weakening fundamentals to continue to short the market. And we have seen where that can take us on the upside.
(13 Jan 2007)
Trying to Make Sense of the New GSCI
Tim Iacono, Seeking Alpha
An update on how the Goldman Sachs Commodity Index [GSCI] has changed over the last six months is shown in the table below.
These changes relate to various theories about how energy prices have been affected during that time, as discussed yestereday and last summer. The net result of all the changes is that gasoline is now weighted at two percent instead of eight percent last July.
…What this means is that there really is nothing new since last summer’s announcement that the weighting of gasoline would be reduced by six percentage points by the end of 2006 as reported in the New York Times. The New York Post story from from Tuesday seems to be much ado about nothing.
(11 Jan 2007)
