Peak oil notes – May 2

Oil prices bounced around early this week, settling Wednesday down from Monday’s opening price. On the New York exchange, crude opened the week at $92.70, climbed to $95, dropped to $90 and closed yesterday at $91.03. In London, Brent futures closed down $2.43 at $99.95 Wednesday, leaving the spread between the two crudes at its low for the year.

Triggering the decline on the NYMEX was a 6.7 million barrel surge in US commercial crude oil stocks, bringing them to their highest level (395.3 million barrels) since record keeping began in 1982. Analysts say other factors weighing on the price were the record high in US oil production (up 15.3% year-over-year in February); a year-over-year 3.8% decline in gasoline demand; fewer new US jobs than expected; a weaker-than-expected number for China’s manufacturing sector; and a 300,000 barrel/day production increase during April by OPEC members.

As another late-season cold spell makes its way across the country, U.S. natural gas prices essentially marked time, closing Wednesday at $4.33 on the NYMEX, up 10 cents since Monday’s open. Analysts expect a third consecutive below-average addition to storage will be announced Thursday. Prices are up 29% so far this year; a slow refill of storage should support high prices.

One of the more interesting and bizarre news events so far this week revolves around the coverage given Saudi Arabia’s oil minister Ali al-Naimi who spoke Tuesday at the Center for Strategic and International Studies in Washington. Spinning off al-Naimi’s lauding of the role shale oil has played in transforming the US’s current energy position, at least one headline blared, “Oil Minister says Saudis welcome US production growth”—a bland kudo. Other stories keyed off the minister’s sharper note; it was unrealistic to believe that shale oil plays would eliminate imports of oil as some boosters claim. One headline read, “Saudi Oil Minister calls US energy independence idea ‘Naïve.’” But perhaps the most significant point of his presentation was al-Naimi’s statement that “We don’t really see a need to build a capacity beyond what we have today”—12.5 million barrels a day out to 2030 and beyond. He made that point despite the acknowledgement by other Saudi officials during the last two years that Saudi consumption is growing; paired with flat production, that means exports could stagnate or drift downwards in the face of growing international demand. Further, he made this point after a former top Saudi official, Prince Turki al-Faisal, took the opposite position during a presentation on Monday at Harvard University: that the Kingdom “would increase production capacity to 15 million barrels a day by 2020.” Stay tuned…

In other news this week, the USGS’s 2013 assessment of undiscovered, technically recoverable crude oil from the Bakken and Three Forks formations in North Dakota doubles their 2008 estimate, up from 3.65 to 7.38 billion barrels (estimated mean figure). While production has been dramatically ramping up in North Dakota for several years, news out of China indicates that after their first 60 exploration wells within their shale formations, which hold plentiful gas resources, their industry has no production to date. One analyst with IHS CERA claims shale won’t be a significant domestic producer until the 2020s, though a Shell executive working in China says he expects commercial production within a three- to five-year window.