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The Economist: Oil prices have plunged. Another spike may be on its way
The Economist
WITH the price of crude mired at half the peak of $147 it reached in July, this may seem like an odd time to invest in oil wells. Despite trimming its output along with other members of the Organisation of the Petroleum Exporting Countries (OPEC) in an effort to prop up prices, that is just what the United Arab Emirates plans to do. Short-term price movements, its oil minister insists, should not distract from the world’s enduring thirst for oil. Indeed the collapse of oil prices, one of the few reasons around for economic cheer, may be setting the stage for another spike.
Just now oilmen are focused on the rapidly slowing demand for their product. Since early October, reckons the boss of BP, a big oil firm, America’s consumption of crude has fallen by perhaps 2m barrels a day, or about a tenth. Sales of cars in America fell even more steeply last month—by 32%. There is also gloomy news from emerging markets, which have been the driving force in the oil markets of late.
… The cost of production is no more static than the price of oil. Falling prices for important raw materials, such as steel and natural gas, should help to bring down development costs. By the same token, the cost of hiring some kinds of drilling rigs is falling.
… But according to Francisco Blanch of Merrill Lynch, the rising cost of capital is likely to outweigh all these benefits. Tar-sands schemes, like most oil projects, are very capital-intensive and so very sensitive to changes in financing costs.
(6 November 2008)
Oil Prices Down…for Now
Byron W. King, Whiskey & Gunpowder
Along with the market decline, the price of oil has fallen. It’s down 50% within three months. Back when oil hit $147 per barrel in July, I said that the price “ought” to be in the range of $100-110, with the possibility of a drop into the $90s. That’s what the fundamentals told me back then.
Most of the decline in oil price from $147 down to about $100 was directly related to the strengthening of the dollar. So the oil price slide in July, August and the first part of September was mostly a monetary phenomenon.
Then we had the mid-September credit crunch and market meltdown. That dragged the price of oil from $100 or so per barrel down into the $70s (with price excursions down into the $60s).
… The thing about the oil service companies, though, is that a lot of their business is all but recession proof. And much of the oil service business is immune even to wide swings in oil prices.
… Speaking of how the larger economy unfolds, some of the most surprised people on the planet are the folks who run oil-exporting countries. Hey, they believed their own press releases. They thought that oil prices would continue to rise upward, ever upward. All they had to do was figure out what to do with all the money that was going to pile up in their bank accounts. No waiting at the rope line for these worthies. But right now, demand destruction trumps even market manipulation by OPEC, not to mention the inexorable effects of depletion.
… Most OPEC nations have already reached their own version of “Peak Oil.” Traditional oil-export powerhouses like Iran and Kuwait have admitted as much. Aside from Saudi Arabia, most OPEC exporters see a window of less than 20 years for significant international oil exports. By then, internal rising demand and falling output (due to depletion) will severely constrain the world oil markets. So all OPEC nations are interested in selling oil now for as much as they can get.
(6 November 2008)
Byron has been a long-time contributor to Energy Bulletin. -BA
The day the oil runs dry
Jamie Stewart, Arabian Business
For centuries civilisations have been built on trade. Athens on silver, Rome on wine and olive oil. The UAE, however, is built on a different kind of oil. But its reserves cannot last forever, which has seen two cities embark along very different paths, as Jamie Stewart reports.
… Oil, as we know, cannot last forever. Both Abu Dhabi and Dubai have begun to demonstrate that it’s time to begin laying the groundwork within which their societies can operate without the financial benefits and guarantees that oil brings to the respective populations.
Abu Dhabi, through such developments as the Louvre and the Guggenheim, has begun to signal its intentions through a gradual shift towards cultural tourism, pursuing its responsibilities to provide its people with cultural amenities worthy of a capital city.
One hundred and twenty kms down the road lies Dubai. The city of man-made islands, super-tall skyscrapers and indoor ski slopes. The city in which you can bob through a shark tank on an inflatable ring is planning to diversify along a very different path.
But there is a fine line to tread between the opening up of a society to a world of globalised traditions, and remaining sensitive to regional traditions. Treading this line becomes even more perilous when the source of income that has been relied upon for generations threatens to run dry.
The peak oil question
In 1956 Marion Hubbert published his theory on the capacity of oil fields and natural gas reserves, correctly predicting that US oil production would peak between the late 1960s and early 1970s.
(8 November 2008)
Long article.
