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Crude Oil Rises as Israeli Attacks on Gaza Roil Middle East
Margot Habiby, Bloomberg
Crude oil rose above $40 a barrel after Israeli air strikes in the Gaza Strip raised concern that supply from the Middle East, the world’s largest producing region, may be disrupted.
Futures climbed as Defense Minister Ehud Barak said Israel is fighting a “war to the death” with Hamas, the Islamist group that controls Gaza. Israel massed tanks near the Gaza Strip and started calling up thousands of army reservists. Hamas’s backer, Iran, holds the world’s second-largest oil reserves.
(29 December 2008)
My Top 10 Energy Stories of 2008
Robert Rapier, The Oil Drum
Tis the season for Top 10 stories, and here are what I think were the Top 10 energy stories of the year.
1. Unprecedented volatility in the energy markets
Oil prices raced to nearly $150 a barrel, and then fell to the $30’s by year end. This marks the highest ever prices for oil, followed by the lowest prices in four years. Gasoline, diesel, and natural gas prices demonstrated the same kind of volatility. There are multiple factors behind the volatility. The role of speculation was hotly debated, and the economic collapse – fueled by cash-strapped consumers who had overextended themselves – resulted in a sharp drop in demand. Some even argued that the real reason behind the plunge in prices was closure of the so-called “Enron loophole.”
2. Oil price volatility fallout
A consequence of the incredibly volatility was the economic damage done at both ends of the price spectrum. At the upper end, airlines were going bankrupt and car companies were in deep financial trouble as consumers stopped buying the higher profit margin SUVs. After oil prices plunged, some non-integrated oil companies found themselves in financial trouble, including Flying J who declared bankruptcy.
3. Barack Obama elected
In a normal year, this would have been my #1 story, considering that the new administration has put such a major focus on energy and is likely to attempt a major shift away from fossil fuels. My prediction is that reality is going to collide with enthusiasm, and while gains are likely to be made along several fronts, aggressive renewable energy targets will not be met.
… 7. Peak oil becomes fashionable, then unfashionable again
High oil prices demanded an explanation, and peak oil was ready to provide that explanation. 2008 was probably the year that the mainstream began to seriously discuss and debate peak oil. However, when prices began to plunge, the peak oil skeptics began to say “I told you so.” Others suggested that this was just a continuation of the normal cycles.
(29 December 2008)
Gwynne Dyer on peak oil and the transition from oil
Gwynne Dyer, New Zealand Herald
Worried about “peak oil”? The International Energy Agency’s annual report, The World Energy Outlook 2008, admits for the first time that “although global oil production in total is not expected to peak before 2030, production of conventional oil … is projected to level off towards the end of the projection period”.
When the Guardian’s environmental columnist, George Monbiot, pressed IEA director Fatih Birol on that opaque phrase, the actual date turned out to be 2020.
The IEA’s previous reports, which assured everyone that there was plenty of oil until 2030, were based on what Birol called “a global assumption about the world’s oilfields”: that the rate of decline in the output of existing oilfields was 3.7 per cent a year.
It turns out that production in the older fields is really falling at 6.7 per cent a year.
… The same fate [as befell horse-drawn vehicles] is likely to overtake oil-fuelled vehicles in the next 35 years.
The shift will be driven by concerns about foreign exchange costs and energy independence, and increasingly by the need to curb greenhouse gas emissions.
It is starting with ever-tightening standards for fuel efficiency.
That will be followed by the first mass-market generation of electric vehicles, due in the next two or three years.
The coup de grace will be delivered by third-generation biofuels, probably produced from algae that do not use valuable agricultural land, that are fully competitive with oil in price and energy content.
… So American oil consumption is going to start falling quite fast, quite soon.
The same is true elsewhere. Indeed, it is a safe bet that the demand for oil is going to fall faster than the supply over the next 10 or 15 years, even if we are already at or near “peak oil”, for the annual decline in oil production just after the peak is actually quite shallow – around 2 per cent – in the classic Hubbert curve.
And if demand falls faster than supply, the price will also collapse.
(29 December 2008)
The NZ Heald gave this column the headline “‘Peak oil’ gloom probably just a load of horse manure,” which does not accurately summarize Gwynne Dyer’s point of view.
Whither the Oil Markets
Byron King, Whiskey & Gunpowder
“Global Demand for Oil to Plummet,” screams a recent Financial Times headline. Huh? No it won’t. Who are they trying to kid?
Global oil demand is not going to “plummet.” And for the FT to say so is just plain silly, if not irresponsible.
… The Financial Times article explains that the World Bank has just issued a new study. The World Bank believes that the world is entering into the toughest economic times “since the Great Depression.” Thus overall world oil demand may fall by about half a million barrels per day in 2009. That’s what the World Bank states in its report.
Only half a million barrels? Heck, the total world demand for oil in the past year was about 87 million barrels per day (a fact that the FT article fails to note). By comparison, the Saudi oil tanker that was hijacked off the coast of Somalia held two million barrels of crude oil. And despite this act of piracy oil prices still fell over the next couple of weeks, even without that tanker plying its route across the deep blue seas.
So if the world experiences the next “Great Depression” (Release 2.0, I guess), a reduction in overall oil demand of half a million barrels per day is down in the statistical noise. And what the World Bank is saying about the grim future of the world economy is not the equivalent of “plummeting” demand. At least, not half a million barrels of lower usage.
… In both the developed and developing worlds, there’s a lot of oil demand built into the economic and social energy system. That’s what modern development is all about. That’s how the system was built over the past 100 years or so. Yes, you can wish that the system were different. You can even try to change the system – and risk collapsing it in the process.
Whatever you do, you can’t change the system very fast. To paraphrase a former Secretary of Defense, “You live in the world with the energy system you have. Not the energy system you might wish you had.”
… One way or another, can OPEC cut production significantly? Does OPEC have the discipline to manage its own affairs to cut 2 million barrels, or 4 million, let alone 7 million barrels per day? The issue is that numerous OPEC nations cheat on their production quotas. Hey, they need the money. Thus they lift the oil and sell it. Really, cheating on OPEC quotas is not a problem. It’s a tradition.
What of the Future?
Looking ahead by more than about two years, world oil demand is certainly going to grow. It almost does not matter what we do in the U.S. or Europe. When you look at the numbers of young people who are already born and living and growing up in the developing world, the demand will be there. Many of these young people already have a cell phone and a laptop computer. When they finish school, they will want an apartment and a car.
And at the rate things are going, the energy industry is still under-investing in the necessary systems of the future. Depletion is still ongoing.
(29 December 2008)
Available earlier for paid W&G subscribers.
President-elect Obama brings a new energy to search for alternate fuel sources for planet
Tyler Hamilton, The Star
It’s safe to say that 2008 was an unsettling year, perhaps best described with one word: volatility.
… It’s generally accepted that 2009 will also be a rough year, but there’s also hope it will end on a more positive note. And what about the world of cleantech?
Here’s what will likely to make headlines in 2009:
1- Obama’s “green stimulus” plan. …
2- Will greentech buck VC trend?
3- Talk of peak oil goes mainstream.
Earlier this month Fatih Birol, chief economist of the International Energy Agency, told British journalist George Monbiot that conventional oil production will plateau – that is, peak – in 2020 and that it’s “not good news from a global oil-supply point of view.” It was an unprecedented statement coming from a conservative organization that has traditionally sugar coated the long-term oil outlook.
It seems odd, when you consider that members of the Organization for Petroleum Exporting Countries are making unprecedented curtailments of supply.
But that’s a reaction to a short-term fall in demand. More dangerous is that unconventional oil projects that represent future supply, such as those in the oil sands, have been put on hold because of tight credit markets and low oil prices. When demand picks back up, and it will happen fast, supply just won’t be able to keep up. Given this scenario, expect more talk of “peak oil” next year, and not just from fringe groups shouting from the sidelines.
(29 December 2008)
Tumult in the life of a Calgary oil trader
Carrie Tait, Financial Post
… Like oil traders around the globe, Mr. Gigiel spent 2008 being excited, then scared, being right, then wrong. He spent plenty of time sitting in awe. Traders are often adrenaline junkies, and in 2008, oil traders were at risk of overdosing just about every day. It was an emotional year to be buying and selling barrels of crude.
… After all, markets take a lot of energy to stay up. A bull market is like pushing water uphill, Mr. Gigiel said, referencing an analogy that often gets kicked around the Street.
The consumption calculations many in the market traded on still made sense after oil passed US$100, especially the global consumption of gasoline — the fuel of the people. Think about it: What would happen to oil if every single person living in China used an extra litre of gasoline this year compared with last? Heck, you could do that calculation with any commodity, Mr. Gigiel said, and you’d always run out of the product.
And so the ongoing proliferation of cars and scooters in China, India, Brazil and elsewhere continued to be the talk of the market. There was also talk of peak oil — the theory that the world is at 100% production and that it is, therefore, all downhill supply-wise.
… On days when the market would swing — down US$4 in the morning, up US$9 by the end of the day, for example — even the professionals had to sit back and watch the fireworks. Analysis became futile.
On these volatile days, Mr. Gigiel and his ilk were on a high, and left their desks at the end of each day totally spent. “This is the type of market we live for,” he said.
“It’s like flying a fighter jet. If I wanted to watch paint dry, I would have become a painter.”
… From its peak, oil has dropped more than 70% in about six months. That plunge was another ‘I never thought I’d see the day’ moment for Mr. Gigiel.
Forget demand destruction. Demand extinction is driving the drop, the trader said. People are no longer ruminating about leaving the Subaru in the driveway and walking to work — they are actually doing it. It is no longer unusual to see a Smart Car zipping around Calgary, land of gas-guzzling 4x4s. Idle water cooler complaining has morphed into action. Consumption habits are changing across North America, and it shows up in the price of oil.
(29 December 2008)
