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The Return of High Oil
Steve LeVine, The Oil and the Glory (blog), Business Week
… if in the next two or three years we come out of recession in fair economic shape, look for another steep rise in oil and gasoline prices.
Fatih Birol, chief economist at the International Energy Agency, has been arguing the same point while making the rounds last week and this week in Washington and elsewhere. He’s been explaining the IEA’s latest World Energy Outlook, which is just as bleak as Jesse’s paper. Jesse wrote the paper with Coby van der Linde.
In short, demand in China, India and elsewhere in the developing world is probably going to roar back and outstrip supply in 2011 or beyond.
That alone will push prices back up. But oil companies also are now responding to $50 oil by shelving oilfield development projects. So, as Jesse told me, “In 2010 or 2011, we will be in the same situation as [the high prices of] last year. Then we will start all over again [in an energy crisis], but it will be much more difficult.”
One interesting observation of Jesse’s is that price no longer works as a stimulant in the other direction – high prices don’t necessarily motivate oil producers to flood the market with supply, and thus tamp down the upward motion of prices. That’s because almost all the available new oilfields are controlled by national oil companies like Saudi Aramco, Russia’s Gazprom and Venezuela’s PDVSA. Unlike oil companies such as Exxon and BP, which if they can are driven to maximize profit by producing more oil when prices are high, these national companies earn what they need from the higher prices, and let the rest of the oil sit in the ground.
(27 November 2008)
Steve LeVine has been a contributor to Energy Bulletin.
Roubini Sees Oil Falling Further 20%, Hurting Russia (Video)
Ellen Pinchuk, Bloomberg
Nouriel Roubini, the New York University professor who predicted the current financial crisis in 2006, talks with Bloomberg’s Ellen Pinchuk about the outlook for oil prices and emerging market economies.
Crude oil fell on speculation OPEC won’t be able to halt the slide in prices as the global recession cuts fuel demand. Roubini speaks in Moscow
(28 November 2008)
Crude mathematics
Michael Meacher, Guardian
A plunging oil price means cheaper petrol now – and no fuel later as industry investment shrivels
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A snip at $48.50. Now that the price of a barrel of benchmark Brent crude continues to fall like a stone in the global recession, a drop of no less than two-thirds since the high point of $147.50 just four months ago, the relief is huge among motorists and hard-pressed consumers.
Conversely, for the oil-producing countries (especially Russia, Iran, Saudi Arabia, the UAE and Venezuela) it is potentially cataclysmic, though some, such as the US, may rejoice at that. But there is another dimension to this oil-price slide which has been little noticed, but which long-term is extremely serious.
If oil prices remain well below a certain critical level for any significant period of time, large amounts of investment in expected oil production capacity will simply be written off, and the consequence could then be a recovery-stopping supply-side crunch within little more than two years.
That critical level is widely reckoned within the oil industry to be $90 a barrel. A current price as low as half that critical level is already forcing many companies to drop oil projects, and the banking crisis is also squeezing project financing for foreign oil companies operating in OPEC and outside.
(28 November 2008)
The Truth Behind Low Oil Prices
Chris Nelder, Energy & Capital
Watching for the Buying Opportunity of a Lifetime
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… With the price of gasoline so low, drivers will be more inclined to take those extra trips, or maybe bring the Hummer out of retirement. The recent surge in mass transit ridership may fade away to be replaced again by gridlock. A resurgence in demand now cannot be met by an increase in supply.
There is a not-so-obvious risk as well: retreating investment. Two key factors are slowing the pace at which the industry is developing the new oil and gas projects that are so critical to our future supply.
The first is simply price. As oil prices crashed from $147 this summer to around $50 today, developers withdrew their commitment to drilling new wells and building new distribution and refining projects. Under a rule-of-thumb production cost for a new, marginal barrel at around $65 today, it simply doesn’t make sense to throw millions of dollars at drilling new wells when oil futures are selling for $50.
French oil company Total’s CEO recently warned that at $60 oil, “a lot of new projects would be delayed.”
(26 November 2008)
