Oil price discussion and analysis

[brty]

Re: OIL AGAIN!

Hi,

One factor that makes me suspicious of this move up is what is happening in the sugar market.

Sugar that is made into ethanol for fuel is languishing at 10-11 c lb, and has fallen over the last couple of months. When oil was $65-75 a barrel a couple of years ago, sugar rose to 17-19 c as an energy play. Seeing as oil is now double, then why is sugar so low.
Something is amiss and I expect oil to be very near it's peak and would think the correction will be bigger than most expect. This will be especially so if tied into a general recession around the world.

brty

 

[rederob]

Re: OIL AGAIN!

Hi,

One factor that makes me suspicious of this move up is what is happening in the sugar market.

Sugar that is made into ethanol for fuel is languishing at 10-11 c lb, and has fallen over the last couple of months. When oil was $65-75 a barrel a couple of years ago, sugar rose to 17-19 c as an energy play. Seeing as oil is now double, then why is sugar so low.
Something is amiss and I expect oil to be very near it's peak and would think the correction will be bigger than most expect. This will be especially so if tied into a general recession around the world.

brty

When you can grow a million barrels of oil in a few months, as you can with sugar in a paddock, you might have a point.

 

[pilbara]

Re: OIL AGAIN!

Seeing as oil is now double, then why is sugar so low.

Because in most places except Brasil, corn is twice as cheap to make ethanol compared to sugar ... see table on page (iv) of this report:

http://www.usda.gov/oce/EthanolSugarFeasibilityReport3.pdf

 

[Tysonboss1]

Re: OIL AGAIN!

Tysonboss, you are a chicken playing with a $95 downside bet.... surely there's room to wind it higher!

lol,... I am not sure.

I think the $95.00 mark is as safe. But I am really not sure where oil will go over the next 1/4,... there is scope for it to drop towards the $100 - $110 area if these "speculaters or conspiritors" change mood.

I believe 100% oil will be trending up longterm, but there is always the chance that the short markets will come off these highs or that we are not quite at the peak and production will lift causing a sell off.

saying that though I thinka safe move would be to start investing in the energy sector using the dollar cost averaging method to build a postion, thats what I have been doing anyway.

 

[rederob]

Re: OIL AGAIN!

Because in most places except Brasil, corn is twice as cheap to make ethanol compared to sugar ... see table on page (iv) of this report:

http://www.usda.gov/oce/EthanolSugarFeasibilityReport3.pdf

You point escapes me.
Neither corn nor sugar are grown mostly for ethanol: They are food crops.
It does not take long to open up new lands or rotate crops to grow corn or sugar to satisfy the ethanol market.
Furthermore, I'm not convinced that US data on production costs is reliable as the quoted report forgot to mention that billions of dollars are paid in subsidies - about $5b in 2006 and an estimated $10b this year,
An unintended consequence of US crop rotation from soy to corn has been an escalation in prices for soy as a result of less land globally being available (for the near term).
The other reality we are now faced with is that growing crops for fuel is a better economic alternative than growing it for food - all the while as countless millions are starving.
My suspicion is that a social conscience will cut in at some point, curbing the volume of agricultural feedstocks diverted to global fuel production.

 

[Adam A]

Re: OIL AGAIN!

My suspicion is that a social conscience will cut in at some point, curbing the volume of agricultural feedstocks diverted to global fuel production.

You would assume that this would be the case, however,social conscience,is great untill it directly effects your hip pocket and way of life.

Could you imagine the reaction if say the un or some other type organization said o by the way with oil being at $200 a barrel and inflicting pain world wide,we have now going to reduce or ban food from fuel

It will be interesting to see how it all plays out,i believe,bio fuels will be an important part of the short term future ie next 10 years untill allternatives can be planned and brought on stream

 

[Tysonboss1]

Re: OIL AGAIN!

My suspicion is that a social conscience will cut in at some point, curbing the volume of agricultural feedstocks diverted to global fuel production.

You would assume that this would be the case, however,social conscience,is great untill it directly effects your hip pocket and way of life.

Could you imagine the reaction if say the un or some other type organization said o by the way with oil being at $200 a barrel and inflicting pain world wide,we have now going to reduce or ban food from fuel

It will be interesting to see how it all plays out,i believe,bio fuels will be an important part of the short term future ie next 10 years untill allternatives can be planned and brought on stream

Lack of food is not why people are staving,... It's local political instability in there region that is the cause,... you can Half the price of grain and they will still be starving.

It's a myth that biofuels take food away from people, Making food is much more profitable than making fuel,... Biodiesel production almost stop last year due to the high price of soy how ever the food compainies were still producing food profitably,.... Adding to that, what is the point of having a surplus of global grain stocks if we can't afford to transport it due to high fuel costs,...

Biofuels will never be a dominent part of the energy mix but they will be a part that helps offset the shortfall of other energy sources, especially the biofuels made from waste products.

Alot of the biofuel production comes from waste from sawmills, flourmills and sugar mills,.... and the grain fed plants often produce a waste product called distillers grain which is then feed to cattle in feed lots, so biofuels do not take food from mouths.

 

[GREENS]

Re: OIL AGAIN!

In my view biodiesel and ethanol are definitely not long term or even short term solutions (substitute) for oil as a source of energy. Using food sources as a supply of energy will only lead to even greater price rises in food prices which in turn would lead to massive famine across the globe 10x worse than it is now. Food is more important than energy. The world is struggling to produce enough food to eat yet alone use it as a source of energy.

Therefore I could not see why there would be a relationship between the price of sugar and oil. The only reason such sources of energy are economical at the moment, is largely the result of huge government subsidies. It’s definitely not an environmentally friendly source of energy either with the amount of land clearly that is occurring so that crops can be grown purely for biodiesel and ethanol production. I think you will eventually see such sources of energy fade out over time as they are clearly not an alternative that solves the current issues faced from conventional sources.

Tysonboss1. How can you say biodiesel does not take away food from mouths? While you say it can come from other sources, this would only make up a very small fraction of total inputs used for biodiesel and ethanol production at this point in time. Countries such as Austria, Switzerland, Germany which have voted as some of the most environmentally conservative countries in the world have raised brave concern in terms of these alternative fuels because of its impact on food prices in the long term and its effect on land clearing as farmers start pulling out crops for basic foods in exchange for planting crops that can be used as an input for biodiesel to take advantage of the higher current and forecasted prices for such agricultural commodities. Doing so indirectly causes rises in all other agricultural commodities which in turn flows through to end food prices and means less food for human consumption.

I was having a very in depth discussion about these issues with an Austrian economist in January, and a few weeks later I found this excellent article which further sums up the points I’m trying to get across. (refer to next post for article).

 

[GREENS]

Re: OIL AGAIN!

Studies conclude that biofuels are not so green

http://www.iht.com/articles/2008/02/07/healthscience/biofuel.php?page=1

Thursday, February 7, 2008

Almost all biofuels used today cause more greenhouse gas emissions than conventional fuels if the pollution caused by producing these "green" fuels is taken into account, two studies published Thursday have concluded.

The benefits of biofuels have come under increasing attack in recent months as scientists have evaluated the global environmental cost of their production. The new studies, published by the journal Science, are likely to add to the controversy.

These studies for the first time take a comprehensive look at the emissions effects of the huge amount of land that is being converted to cropland globally to support biofuels development. The destruction of natural ecosystems - whether rain forest in the tropics or grasslands in South America - increases the release of greenhouse gases into the atmosphere because the ecosystems are the planet's natural sponge for carbon emissions.

"When you take this into account, most of the biofuel that people are using or planning to use would probably increase greenhouse gasses substantially," said Timothy Searchinger, the lead author of one of the studies and a researcher on the environment and economics at Princeton University. "Previously, there's been an accounting error: Land use change has been left out of prior analysis."

Plant-based fuels were originally billed as better than fossil fuels because the carbon released when they are burned is balanced by the carbon absorbed when the plants grow. But even that equation proved overly simplistic because the process of turning plants into fuel causes it own emissions - through refining and transport, for example.

The land-use issue makes the balance sheet far more problematic: The clearance of grassland releases 93 times the amount of greenhouse gas that would be saved by the fuel made annually on that land, said Joseph Fargione, the lead author of the other study and a scientist at the Nature Conservancy. "So for the next 93 years, you're making climate change worse, just at the time when we need to be bringing down carbon emissions."

The United Nations Intergovernmental Panel on Climate Change has said that the world has to reverse the increase of greenhouse gas emissions by 2020 to avert disastrous environmental consequences.

Together, the two studies offer sweeping conclusions: It doesn't matter if it is rain forest or scrub land that is cleared, although the former releases more emissions than the latter. Taken globally, the production of almost all biofuels resulted in such clearing, directly or indirectly, intentionally or not.

The European Union and a number of national governments have recently tried to address the land-use issue with proposals for regulations stipulating that imported biofuels cannot come from land that was previously rain forest, for example.

But even with such restrictions, Searchinger's study said, the purchase of biofuels in Europe and the United States leads indirectly to the destruction of natural habitats. If vegetable oil prices go up globally, as they have because of increased demand for biofuel crops, new land is inevitably cleared as farmers in developing countries switch production. Crops from old plantations and fields go to Europe for biofuels, but new fields and plantations are created to feed people at home.

Fargione said that the dedication of so much cropland in the United States to growing corn for bioethanol had caused indirect land-use changes far away. Previously, U.S. farmers rotated corn with soybeans in their fields, alternating years. Now many grow only corn, meaning that soybeans must be grown elsewhere. That elsewhere, Fargione said, is increasingly Brazil, on land that was previously forest or savanna.
"Brazilian farmers are planting more of the world's soybeans - and they're deforesting the Amazon to do it," he said.

International environmental groups and the United Nations responded cautiously to the studies, saying that biofuels could still be useful. "We don't want a total public backlash that would prevent us from getting the potential benefits," said Nicholas Nuttall, spokesman for the UN Environment Program.

"There was an unfortunate effort to dress up biofuels as the silver bullet of climate change," he said. "We fully believe that if biofuels are to be part of the solution rather than part of the problem, there urgently needs to be better sustainability criterion." He added that the United Nations had recently created a panel to study the evidence.

The EU has mandated that countries use 5.75 percent biofuel for transport by the end of 2008. In the United States, a proposed energy package would require that 15 percent of all transport fuels be made from biofuel by 2022. To reach these goals, biofuels production is heavily subsidized at many levels on both continents. On Thursday, Syngenta, a major global agricultural conglomerate in Switzerland that is involved in biofuel crops reported that its annual profit rose by 75 percent in the past year.

Bob Dineen, president of the Renewable Fuels Association in Washington, said the studies had "failed to put the issue in context."

"While it is important to analyze the climate-change consequences of differing energy strategies, we must all remember where we are today, how world demand for liquid fuels is growing, and what the realistic alternatives are to meet those growing demands," he said. "Biofuels like ethanol are the only tool readily available that can begin to address the challenges of energy security and environmental protection."

Most of the biofuel sold in Europe is biodiesel made from vegetable oils. Most of the biofuel in the United States is ethanol made from corn. "EU decision makers cannot ignore that the EU fuel market" is experiencing "an enduring diesel deficit - the EU is more and more dependent on Russia for conventional diesel imports," the European Biodiesel Board, a major industry group, said. The group has pushed for a sustainability certification program for biofuels, as well as criteria for assessing the greenhouse gas performance of such fuels, with input from industry.

But the new studies suggested that when land use is taken into account few, if any biofuels, will be acceptable.

"This land-use problem is not just a secondary effect," Searchinger said. "It is major. The comparison with fossil fuels is going to be adverse for virtually all biofuels on cropland."

The only possible exception he could see for now, he said, was sugar cane grown in Brazil, which takes relatively little energy to grow and is readily refined into fuel. He added that governments should quickly turn their attention to developing biofuels that did not require raising crops, such as those made from agricultural waste products.

The land-use debate started in the Netherlands in 2006, when researchers from Wetlands International and elsewhere found that imported palm oil used to generate "clean" electricity was often grown on palm plantations in Southeast Asia created from cleared peat land. The Dutch government has since canceled the palm oil subsidy and banned imports of the fuel, while hoping to develop better criteria to support sustainable biofuels. Even Wetlands does not support a total ban on biofuels, noting that some may be helpful.

Alex Kaat, a spokesman for the group, said: "If the whole point of biofuels directives was to reduce greenhouse gas emissions, we've found out that most biofuels are not really better than conventional fuels at that."

 

[Trembling Hand]

Re: OIL AGAIN!

Therefore I could not see why there would be a relationship between the price of sugar and oil.

You are kidding?

Its very simple. Traders see Governments throwing money at farmers to "help" the POO so as OIL runs up they throw their money on anything remotely related. Corn ,Sugar, solar panels whatever. SIMPLE.

 

[GREENS]

Re: OIL AGAIN!

You are kidding?

Its very simple. Traders see Governments throwing money at farmers to "help" the POO so as OIL runs up they throw their money on anything remotely related. Corn ,Sugar, solar panels whatever. SIMPLE.

No Jokes TH!

You may be right in terms of some traders such as hedge funds looking to have a short term bet. But quite frankly I could not see how investors with any fundamental knowledge on the area would sink their money into it. As I have stated biodiesel and ethanol just don’t stake up economically, socially and environmentally as an alternative to conventional sources and I think the majority of smart money investors realise this and why the money is pouring into more conventional sources and not into agricultural commodities which are inputs for alternative fuels. However I do see long term rises in agricultural commodities but not as a direct result of rising biodiesel and ethanol demand due to higher oil and gas prices, there are stronger forces that will potentially drive these markets.

 

[brty]

Re: OIL AGAIN!

Fuel ethanol has gone up in price by 50% in the last 6 months, it has followed crude.

One of the materials you make fuel ethanol out of is sugar. The Brazilians are good at it, they also produce a fair bit of sugar at a low price. It doesn't take Einstein to work out that making ethanol has become more profitable for them, and you would expect less sugar would be made available for foodstuffs.

Cost of production in Brazil is estimated at 81 cents a gallon according to the USDA article by Pilbara. If you can sell it for $2.40 a gallon, you would think they are pinning the ears back.

Like I said, something is amiss in current pricing of sugar and oil, either sugar will rise in price or oil will fall because of these fundamentals. Because sugar was following oil up last year, but has been falling for the last couple of months, I'm leaning towards sugar being a leading indicator for the price of oil at present.

brty

 

[Tysonboss1]

Re: OIL AGAIN!

While you say it can come from other sources, this would only make up a very small fraction of total inputs used for biodiesel and ethanol production at this point in time. ).

nearly 100% of Australias enthanol production comes from waste.

The malandra group who are Australias largest producer of enthanol use waste from there flour mills,... CSR are also a producer and use the by product from there sugar mill as a feed stock for the ethanol plant.

 

[Trembling Hand]

Re: OIL AGAIN!

As I have stated biodiesel and ethanol just don’t stake up economically, socially and environmentally

LOL

since when have the last two ever mattered to a trader??

If they did coal & oil would be worthless. But last time I checked they were going alright.

 

[rederob]

Re: OIL AGAIN!

Fuel ethanol has gone up in price by 50% in the last 6 months, it has followed crude.

One of the materials you make fuel ethanol out of is sugar. The Brazilians are good at it, they also produce a fair bit of sugar at a low price. It doesn't take Einstein to work out that making ethanol has become more profitable for them, and you would expect less sugar would be made available for foodstuffs.

Cost of production in Brazil is estimated at 81 cents a gallon according to the USDA article by Pilbara. If you can sell it for $2.40 a gallon, you would think they are pinning the ears back.

Like I said, something is amiss in current pricing of sugar and oil, either sugar will rise in price or oil will fall because of these fundamentals. Because sugar was following oil up last year, but has been falling for the last couple of months, I'm leaning towards sugar being a leading indicator for the price of oil at present.

brty

I think your understanding of "fundamentals" in this area is poor.
Short term correlations may not be causal.
If there is a glut of sugar the price will go down.
The same would occur for oil, except that at the moment there is not enough to meet demand, and biofuels are just a small part of the equation to supplement crude inventories.
If sugar was the "silver bullet" that prevented peak oil from exacerbating oil prices, you would not find sugar cane farmers leaving the industry, and Australian data shows that they are. I don't think you will find any oil producers leaving their industry!
Apart from the above, the fact is that ethanol can be produced from many feedstock sources, and simply concluding that sugar and oil prices must be linked because there may have been some previous positive correlation is unlikely to be the smartest way to make investment\trading decisions. You could equally apply that type of conclusion to sugar beet, soy or corn.

 

[Tysonboss1]

Re: OIL AGAIN!

It doesn't take Einstein to work out that making ethanol has become more profitable for them, and you would expect less sugar would be made available for foodstuffs.

at present.

brty

Firstly there is no shortage of sugar,

secondly with the same amount of sugar that it would take to make $1 worth od ethanol could be used to make $5 of food, so even if there was a shortage then food companies would win.

 

[pilbara]

Re: OIL AGAIN!

You point escapes me.
Neither corn nor sugar are grown mostly for ethanol: They are food crops.

yep rich feedstocks are still too "valuable" (high efficiency) ... we need to be able to break down cellulose ... some animals that can break down cellulose (cows, horses, kangaroos etc) and it's great if you can live by eating grass ... wowee free food, but the problem with this "free" food is you have to eat all day and have no time for anything else (low efficiency)!!

 

[rederob]

Re: OIL AGAIN!

It might be true that "speculation" is driving oil prices to regular higher highs, but US data on inventories continue to underpin these same fools.
Below is taken from the latest EIA report:

Highlights
U.S. crude oil refinery inputs averaged nearly 15.3 million
barrels per day during the week ending May 23, up 214 thousand
barrels per day from the previous week’s average. Refineries
operated at 87.9 percent of their operable capacity last week.
Gasoline production moved higher compared to the previous
week, averaging about 9.1 million barrels per day. Distillate fuel
production decreased last week, averaging 4.3 million barrels
per day.
U.S. crude oil imports averaged 9.0 million barrels per day last
week, down 278 thousand barrels per day from the previous
week. Over the last four weeks, crude oil imports have averaged
nearly 9.7 million barrels per day, 579 thousand barrels per day
below the same four- week period last year. Total motor gasoline
imports (including both finished gasoline and gasoline blending
components) last week averaged 1.0 million barrels per day.
Distillate fuel imports averaged 250 thousand barrels per day
last week.
U.S. commercial crude oil inventories (excluding those in the
Strategic Petroleum Reserve) decreased by 8.8 million barrels from
the previous week. At 311.6 million barrels, U.S. crude oil
inventories are in the lower half of the average range for this time of
year. The drop was due to temporary delays in crude oil tanker
off-loadings on the Gulf Coast. Total motor gasoline inventories
decreased by 3.2 million barrels last week, and are near the lower
limit of the average range. Finished gasoline inventories remained
unchanged last week while gasoline blending components
inventories decreased during this same time. Distillate fuel
inventories increased by 1.6 million barrels, and are in the lower
half of the average range for this time of year.

 

[Smurf1976]

Re: OIL AGAIN!

It might be true that "speculation" is driving oil prices to regular higher highs, but US data on inventories continue to underpin these same fools.
Below is taken from the latest EIA report:

So the US alone is drawing down combined crude and refined product stocks at the rate of 1 million barrels per day. And that's only oil companies etc, it doesn't include what consumers might also be doing - running down stocks of heating oil, petrol etc either hoping for a price drop or because they simply can not pay the current price.

It's not conclusive proof, the US is only 25% of the oil market, but added to outright shortages in China, India etc of refined product it does suggest that global inventories are more likely falling than rising.

And with not even OPEC now saying we're about to see a production rise that leaves only one option in the long term regardless of price. Lower consumption.

 

[rederob]

Re: OIL AGAIN!

And with not even OPEC now saying we're about to see a production rise that leaves only one option in the long term regardless of price. Lower consumption.

Ummm
I am confused.
Consumption remains high as inventories are dwindling.
The option to me is "higher prices".
Note that although the US is a major consumer, the emerging economies of China, India, Russia and the Middle East combined now have a bigger consumption footprint.
It means the US can consume less all the while as global consumption rises.
More simply put, it means we need to pay less attention to the US and more to emerging economies as their role has become pivotal in the oil equation.
It might also mean that as the US slides deeper into the statistically invalid recession it has to have, the oil market will continue to run its own race.

As a sidebar point, you might not have noticed that "Iran" is not the big talking point it was for many months previous. Isn't that a coincidence!