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Crude Oil Rises a Second Day on Nigeria Attack, Mexico Output
Christian Schmollinger and Gavin Evans, Bloomberg
Crude oil rose for a second day in New York, after reaching a record last week, as militant attacks in Nigeria and declining output in Mexico increased the potential for supply disruptions.
The Movement for the Emancipation of the Niger Delta, Nigeria’s main militant group, said it attacked a crude-oil pumping station operated by Royal Dutch Shell Plc. Oil output in Mexico, the third-largest supplier to the U.S., for April fell the most in more than 12 years as flows from its largest field declined, state-owned Petroleos Mexicanos said on May 23.
“People are really responding to longer-term supply issues,” said John Vautrain, vice president at consultants Purvin & Gertz Inc. in Singapore, in an interview with Bloomberg Television.
… Output at Cantarell, Pemex’s biggest field, fell 33 percent to 1.07 million barrels a day, according to the Energy Ministry. That was the lowest output since March 1996 at the field, which peaked at 2.192 million barrels a day in December 2003 and once accounted for about 60 percent of the company’s output.
(26 May 2008)
Contributor Jeffrey J. Brown (“westexas”) writes:
The comment by Pemex about cutting oil exports is the crux of our Export Land Model argument, to wit, that net oil exporters tend to take care of domestic consumption before exporting oil. When production starts declining, and as consumption generally increases, it tends to result in an accelerating rate of decline in net oil exports. See A quantitative assessment of future net oil exports by the top five net oil exporters (EB)
Commodity Prices Soar,
But Are They in a Bubble?
Justin Lahart, Wall Street Journal
After being buffeted by the dot-com, housing and credit bubbles — not to mention the Chinese stock-market bubble — there is a readiness by people on Wall Street and elsewhere to ascribe the term “bubble” to all sorts of things. But when it comes to commodities like crude oil and corn, that may be off the mark.
A bubble, says “The New Palgrave Dictionary of Economics,” “refers to asset prices that exceed an asset’s fundamental value because current owners believe they can resell the asset at an even higher price.”
But figuring out whether a commodity exceeds its fundamental value is difficult: Because there is no income stream, there is no equivalent to the price-to-earnings ratios that people use to value stocks.
Prices, to be sure, are soaring — crude oil fetched $132.19 a barrel in New York on Friday, up 103% from $64.97 a year earlier. Yet crude has posted similarly massive increases a number of times in the past three decades
(26 May 2008)
One of the best background articles on the subject so far. -BA
George Soros: rocketing oil price is a bubble
Edmund Conway, UK Telegraph
Speculators are largely responsible for driving crude prices to their peaks in recent weeks and the record oil price now looks like a bubble, George Soros has warned.
The billionaire investor’s comments came only days after the oil price soared to a record high of $135 a barrel amid speculation that crude could soon be catapulted towards the $200 mark.
In an interview with The Daily Telegraph, Mr Soros said that although the weak dollar, ebbing Middle Eastern supply and record Chinese demand could explain some of the increase in energy prices, the crude oil market had been significantly affected by speculation.
(26 May 2008)
Saudi Khursaniyah oilfield not pumping yet-Aramco
Simon Webb, Reuters
Saudi Arabia’s Khursaniyah oilfield expansion project is not yet pumping, but large parts of its 500,000 barrels per day capacity are ready, an official at state oil giant Saudi Aramco said on Sunday.
… Saudi Arabia is on track to boost output capacity to 12.5 million bpd by the end of 2009, but sees no need to go any further for now, Falih reiterated.
The kingdom will have spare oil capacity of more than 2 million bpd next year, he said. Saudi Arabia is the holder of most of the world’s spare crude capacity and has a long-held policy of keeping that cushion at 1.5 million bpd to 2.0 million bpd to meet any surprise disruption in global supplies.
… Concern that long-term oil supply will struggle to keep up with demand has added momentum to the price rise. Saudi reluctance to announce any more expansion plans has played into fears that global oil output may be at or near its peak.
“They (peak oil theorists) can say what they want to say,” said Falih. “But nobody else is putting money in at these costs to have 2 million barrels of spare capacity. We don’t talk. We let our actions do the talking for us. If demand for our oil eats up into our 1.5-2.0 million bpd capacity, we will again answer with our actions.”
(25 May 2008)
