Oil price discussion and analysis

[Uncle Festivus]

Re: OIL AGAIN!

Time for a quick revisit.
Anyone else think it's run out of steam and headed back to the low 60's?

After 12 months of global recovery and one of the most severe Northern Hemisphere winters - and the best it could do was pop it's head above 80 for a while?? Net US import of petroleum is down 9% YOY - that's the demand side of the equation. Let's see if 73 support holds, although there could be one more upside test of 83 before short? (Light Crude Futs)

 

[Smurf1976]

Re: OIL AGAIN!

After 12 months of global recovery and one of the most severe Northern Hemisphere winters - and the best it could do was pop it's head above 80 for a while?? Net US import of petroleum is down 9% YOY - that's the demand side of the equation. Let's see if 73 support holds, although there could be one more upside test of 83 before short? (Light Crude Futs)

I don't have a link handy, but the production charts I've seen show that production is back up to the pre-GFC plateau levels. So either stockpiles are building up somewhere (?) or demand must also be at those levels. Time will tell...

 

[Uncle Festivus]

Re: OIL AGAIN!

I think the next few weeks heading into April will be crunch time for a lot of indexs as the 'recovery' momentum has been tapering off a bit? Oil has to break 83 or be channel bound again? The FTSE is way overbought again so oil may get dragged back down when it corrects too?

 

[leedskalnin]

Re: OIL AGAIN!

is this a joke , the boys down at CME will be loving this provided it is actual live footage and not 15 different camera's pre recorded. Thanks rep Markey , Im gonna get my popcorn and fried chicken out.
http://www.bp.com/liveassets/bp_int...local_assets/bp_homepage/html/rov_stream.html

 

[Smurf1976]

Re: OIL AGAIN!

After 12 months of global recovery and one of the most severe Northern Hemisphere winters - and the best it could do was pop it's head above 80 for a while??

A price at half that level would have been considered outrageously expensive just a few years ago. If the end result of a worldwide economic slowdown is that we still have oil at incredibly high prices by historic standards, then that sounds awfully like there's a fundamental supply problem ahead to me...

 

[Aussiejeff]

Re: OIL AGAIN!

A price at half that level would have been considered outrageously expensive just a few years ago. If the end result of a worldwide economic slowdown is that we still have oil at incredibly high prices by historic standards, then that sounds awfully like there's a fundamental supply problem ahead to me...

Indeed.

For sure, the POO will rise again.

Just like BP's mud / oil mix.....
http://www.bp.com/liveassets/bp_int...local_assets/bp_homepage/html/rov_stream.html

 

[jonojpsg]

Re: OIL AGAIN!

A price at half that level would have been considered outrageously expensive just a few years ago. If the end result of a worldwide economic slowdown is that we still have oil at incredibly high prices by historic standards, then that sounds awfully like there's a fundamental supply problem ahead to me...

I'm with you smurf! The graph attached shows pretty damn clearly where we're at now and IMHO there is only one way from here. My BIG concern continues to be Australia's response to the threat of limited oil supply from our current importers:

Production (bpd) Consumption (bpd)
Vietnam 314k 288k
Malaysia 727k 547k
Indonesia 1051k 1159k
UAE 3046k 463k
PNG 38k 33k

Looking at these 2008 figures, and given that our net imports are at about 500kbpd, methinks we are in the .... to say the least. While UAE has truckloads of excess, I'm sure there are plenty of other countries knocking on their door asking for a few k barrels a day more!! I have yet to see any concrete actions from the Feds on this issue and expect that they are probably sticking their heads in the sand

My prediction is that POO will go above $100 within six months and stay there

 

[Wysiwyg]

Re: OIL AGAIN!

Yes the (more) machines still need oil.

My BIG concern continues to be Australia's response to the threat of limited oil supply from our current importers:

Wondering where this threat exists exactly? Was it a news article or something?

 

[jonojpsg]

Re: OIL AGAIN!

Yes the (more) machines still need oil.




Wondering where this threat exists exactly? Was it a news article or something?

The threat exists in the numbers Wys, not in any news article...well except this one If the countries we import oil from have decreasing net balances of oil available to export then the logical conclusion is that there will be decreasing amounts of oil for us to import. On the figures in my last post, it's only UAE that's keeping us above water, although I don't have exact or official data to back that up.

Regardless, there is little doubt that peak oil supply has occurred and that from here there will be an increasing gap between demand and supply. The fact that we are in the transition phase where supply appears to be matching demand is just maintaining the false sense of security that the world has held on to for the last few years IMO.

 

[Smurf1976]

Re: OIL AGAIN!

The threat exists in the numbers Wys, not in any news article...well except this one If the countries we import oil from have decreasing net balances of oil available to export then the logical conclusion is that there will be decreasing amounts of oil for us to import. On the figures in my last post, it's only UAE that's keeping us above water, although I don't have exact or official data to back that up.

Agreed with what you're saying.

An example of how this works for those not familiar with the concept.

Country x produces 3 million barrels per day in 2010 and uses 1 million bpd itself, leaving 2 million bpd for export. However, this country has a rapidly growing economy...

In 2020 country x's production has dropped to 2.5 million bpd due to natural field decline. Internal consumption meanwhile has increased to 2.0 million bpd, a 7% annual growth rate.

The end result of this example is that exports from country x drop from 2.0 million bpd in 2010 to just 0.5 million bpd in 2020. Now, for those countries (such as Australia) that need to import oil... well let's just say they've got a problem!

The figures are hypothetical, but there are plenty of countries in essentially that situation. Falling production and rising consumption thus rapidly cutting exports. Mexico and the UK are classic examples - production dropped and exports didn't just drop, they came to an outright halt as internal demand soaked up domestic production. Even Saudi Arabia has the same situation of surging demand whilst production is stagnant.

I don't have the exact details of the plant in question, but there's a power station under construction in the Middle East that will consume fully 300,000 barrels per day when in operation. That alone is a scary thought and it's going to happen - every drop it burns is a drop less available to the rest of the world. (In case you're wondering why they're burning oil to generate power, it's because they can't produce enough gas without causing pressure problems in the oilfields and they have no significant coal or hydro).

Some will argue that markets will allocate resources to the highest bidder and that we will always be able to obtain oil at a price. Sounds good in theory but it hasn't historically worked in practice - just ask Americans trying to buy gasoline or Germans trying to buy heating oil in the 1970's when adequate supply wasn't physically available at any price.

Closer to home, BHP had a lot of trouble getting heavy fuel oil back then (they ended up burning some tar / pitch muck to keep running...). The electricity industry (and don't forget that at that time this was part of government) also had problems. Now, if BHP (which is itself an oil producer, though not of sufficiently heavy oil to meet their requirements at the time) and state governments can't get supplies, then there's not much hope for anyone else if we find ourselves in that situation again.

Or to put it another way, suppose that someone goes to the Victorian (for example) government and offers to buy up all of Melbourne's water supply at market prices. Do you honestly think they will be able to buy it? Or do you think that Melbourne will keep the water for it's own use first, only selling any that is surplus to requirements? My bet is firmly with the latter.

Free trade works nicely until there's a shortage, at which point "look after your own" becomes the order of the day. That's the lesson of history where critical resources are concerned.

Bottom line is the Arabs etc won't be walking or sitting in the dark just because someone offered a good price for the oil. Nope, they'll only sell what is surplus to their own (rapidly increasing) needs. And that means they'll be selling quite a bit less than they do now, a problem for those hoping to import the stuff.

 

[Wysiwyg]

Re: OIL AGAIN!

The threat exists in the numbers Wys, not in any news article...well except this one

Okay thanks. I couldn't find more recent figures on the net but in the short term ...

Debt crisis will cut global oil demand

By Francisco Blanch , Financial Times, 25 May 2010

Europe's sovereign debt crisis is likely to translate into a slowdown in global demand for oil this year – and lower prices, says Francisco Blanch, head of commodities research at Bank of America-Merrill Lynch.

While America picks up demand maybe?

================

Producing countries open up new fields while old fields deplete but this obviously can't continue eternally; feeding a global expansion to accommodate the human psyches desire for more. Hard to see what the powers are working toward in the longer term. Still a strong push toward greater fossil fuel consumption along with the reawakening of renewable energies. Certainly no hurry according to the powers that be.

With such vast supposed human intelligence, there is a distinct lack of forward thinking. The government says, "more bridges, more tunnels, more roads, more buildings, more dams, more electricity, more industry". You see, they are human beings just like you and I.

 

[Smurf1976]

Re: OIL AGAIN!

Producing countries open up new fields while old fields deplete but this obviously can't continue eternally; feeding a global expansion to accommodate the human psyches desire for more. Hard to see what the powers are working toward in the longer term. Still a strong push toward greater fossil fuel consumption along with the reawakening of renewable energies. Certainly no hurry according to the powers that be.

With such vast supposed human intelligence, there is a distinct lack of forward thinking. The government says, "more bridges, more tunnels, more roads, more buildings, more dams, more electricity, more industry". You see, they are human beings just like you and I.

Let's look at a few fundamentals...

1. Assuming that you don't believe OPEC's "political" reserve figures that just happened to all double in the 1980's and have remained exactly constant ever since, oil discovery (globally) peaked in the 1960's and has been running below the rate of consumption for about the past 25 years.

2. Tar sands (Canada), natural bitumen (Venezuela), coal liquefaction (eg Linc Energy's proposed operations in Australia), ethanol, GTL (Gas To Liquids - totally different to LNG, GTL produces diesel, petrol etc), the various attempts at oil shale and so on all fundamentally have one thing in common - they are an attempt to effectively manufacture light sweet crude oil from some more abundant resource.

3. If there was plenty of oil available, anywhere, then nobody would bother with any of the things listed in point 2 above beyond perhaps proving technologies and patenting them for possible future use. You don't set up an ice making plant in Antarctica, you don't try and make sand in the desert and you don't spend $ billions on highly risky ventures to make oil if you have the alternative of simply drilling a hole and watching it come out of the ground.

4. As light sweet crude oil runs short, refineries have been forced to accept heavy, sour oil which is far more costly to process into products such as petrol (and which many refineries can't process at all).

5. Oil has priced itself out of virtually every discretionary market. At one point it was widely used for power generation, industrial boilers, space heating in houses etc but not anymore. As prices have risen, we've switched practically every possible use to something else (gas etc) - and once that was finished prices rose once more.

On the basis of the above and other anecdotal evidence I see all around, I conclude that oil is a relatively scarce resource in relation to present and likely future consumption. Prices are sitting at around 4 times historic levels, production from conventional sources has declined and the growth in unconventional sources has been barely sufficient to maintain any growth at all in total production. That sounds awfully like we're somewhere in the ballpark of peak oil.

The fundamental problem however really comes down to the finanical system and its' requirement for constant growth regardless of the consequences.

I've made this point before but I still think it's a very valid one. We've already faced this constant growth dilemma in a few areas, most notable in the Australian context being energy production in Tasmania and water in the the Murray.

All those big resource use debates come down to one fundamental point - anyone, on either side, who has done the math realises that a point is reached, generally when about half the total resource has been developed, then a fundamental dilemma arises. Either we develop all that remains virtually overnight so as to prolong growth by another 10 years, at which point an abrupt end to growth must occur since no undeveloped resources remain, or we pull the plug on constant growth now and try to effect some sort of orderly transition.

That is what happened with the controversial woodchip industry. That is absolutely what the Franklin River debate was about. That is what's happened with water in the Murray. That is what is very fast approaching in many other areas.

The whole world is staring down the barrel of essentially the same dilemma, albeit involving a different resource. We've maxed out conventional crude oil, we've maxed out condensates, we've gone perhaps a bit too far offshore, we're turning human food into fuel for cars and now we've started messing about with all sorts of heavy hydrocarbons as well.

So either we really are going to drill Antarctica etc, or this is it, the game is essentially over. The turning point is basically now. Either we're going to trash everything that is left, in order to prolong the inevitable perhaps another decade, or we're going to end constant growth.

 

[Wysiwyg]

Re: OIL AGAIN!

Let's look at a few fundamentals...


4. As light sweet crude oil runs short, refineries have been forced to accept heavy, sour oil which is far more costly to process into products such as petrol (and which many refineries can't process at all).

5. Oil has priced itself out of virtually every discretionary market. At one point it was widely used for power generation, industrial boilers, space heating in houses etc but not anymore. As prices have risen, we've switched practically every possible use to something else (gas etc) - and once that was finished prices rose once more.

As always your posts show you think for yourself. I thought the cost of drilling a well to be inhibitive so looked up some present time figures. These offshore figures would price out all but the major oil companies which only target large pools. Meanwhile the small capitalised oilers siphon what they can regardless.

Quote Begin.

With deepwater drilling rig rates in 2010 of around $420,000/day, and similar additional spread costs, a deep water well of duration of 100 days can cost around US$100 million.

With high performance jack up rig rates in 2010 of around $150,000, and similar service costs, a high pressure, high temperature well of duration 100 days can cost about US$30 million.

Onshore wells can be considerably cheaper, particularly if the field is at a shallow depth, where costs range from less than $1 million to $15 million for deep and difficult wells.

Quote End.

Those rates are hefty and could only be justified with a substantial resource target. Leaving only the Majors, whom I assume would have their own rigs, to take the larger pools.

The fundamental problem however really comes down to the finanical system and its' requirement for constant growth regardless of the consequences.

So either we really are going to drill Antarctica etc, or this is it, the game is essentially over. The turning point is basically now. Either we're going to trash everything that is left, in order to prolong the inevitable perhaps another decade, or we're going to end constant growth.

So there can't be world economic growth without increasing oil consumption rates. China and to a lesser extent India are creating a huge dependence on oil for themselves. Motor vehicle sales figures are breaking records. The industries to employ these people that have entered the high consumer cycle (like America) have been created and will need to be maintained. They have built huge underground holding tanks for oil. Where is their wisdom and foresight if oil supply can't be maintained? Such a paradox.

 

[Knobby22]

Re: OIL AGAIN!

The only way is up but the Aussie companies produce gas mainly.

I know a few of them are doing wildcat wells overseas hoping for better but it is really hard to pick a way to get on board.

I hold Woodside Nexus Amadeaus and AWe.

 

[jonojpsg]

Re: OIL AGAIN!

The only way is up but the Aussie companies produce gas mainly.

I know a few of them are doing wildcat wells overseas hoping for better but it is really hard to pick a way to get on board.

I hold Woodside Nexus Amadeaus and AWe.

That's why I'm trying to get my hands on a list of ASX listed oil companies and their production/reserve figures...anyone got one or know where I can get one?

For mine, I'm holding Nido and hoping they can hit a billion with Gindara in the next year or two

 

[Smurf1976]

Re: OIL AGAIN!

So there can't be world economic growth without increasing oil consumption rates. China and to a lesser extent India are creating a huge dependence on oil for themselves. Motor vehicle sales figures are breaking records. The industries to employ these people that have entered the high consumer cycle (like America) have been created and will need to be maintained. They have built huge underground holding tanks for oil. Where is their wisdom and foresight if oil supply can't be maintained? Such a paradox.

The link between energy and real economic growth (as distinct from speculation etc which doesn't actually produce real wealth and which would appear to consume little energy) is fairly solid. There will be efficiency improvements over time, but if we make more things then ultimately we'll be using more materials to do it.

Also there's a huge paradox with efficiency. Install a heat pump for heating and then people leave it running 24/7 (very common in practice). Switch to energy saving lights, then they get left on a lot more than the old lights were. Double the efficiency of an engine, then consumers and car manufacturers will decide to (a) have engines twice as big (b) have more cars and (c) drive their cars further. That's pretty much the lesson of history - resource consumption goes up despite improvements in efficiency. Look what happened when TV's became more efficient. Use 30% less energy for the same size screen maybe, but when you end up with a screen that's 3 times as big that's still a doubling of energy consumption and that's exactly what has to a large extent happened.

The link between oil and economic activity isn't absolute, but since oil fuels most transport it's pretty strong. Make more things and they'll need to be transported which will use oil.

As for what happens with China, that's going to be interesting to say the least. But I do note that even the more extreme optimists aren't predicting a doubling of oil production as would be necessary if China were to attain US per capita oil consumption levels.

I do note however that China has a key advantage in that whilst they are urbanising and developing, they are doing so in a world where oil isn't overly cheap and (presumably) in the knowledge that problems likely lie ahead. They're building an economy that works with $80+ oil whereas the USA (as the largest but not only example) has an economy based upon $20 oil. That pattern of development, plus China's very heavy reliance on coal and to some extent hydro for their non-transport energy, is very much in China's favour. The US is in economic trouble with oil at $80 whereas it would need to be somewhat higher to meaningfully hurt China.

In terms of physical supply, with China doing deals with Saudi Arabia, Venezuela etc they are certainly taking steps to secure supplies. Such action, effectively taking oil off freely traded spot markets and locking it up under long term deals, pushes the rest of the world further down the "no oil at any price" track that has already been mentioned. That's the scary bit, and that's what seems to be actually happening.

 

[Agentm]

Re: OIL AGAIN!

US oil reserves in crude and petroleum products are at a 27 year high

1.13 billion is a pretty high number

a while back, the US had 1.12 billion barrels in July 2009, and then the price per-barrel was $10 lower than today

eventually oil must follow fundamentals imho.. currently it is not.

any attack by israel in the near term will be a save for the price imho

 

[Mr Z]

Re: OIL AGAIN!

Its an odd situation really, the US cannot export oil from its system so when they slow inventory builds. Then their markets tends to go short oil and pressure the price, in the mean time Asia is trucking along fine with consumption. Its a weird tension in the oil market, when the US was the totally undisputed king pin it worked just fine. Now they are going soft and Asia is rising its a bit deceiving having US traders dominate commodities trading so much. They often make very myopic calls IMO but might has right so at least in the short term they are a self fulfilling prophecy. I get the feeling that something has to change in the way these things are traded. LOL... quotes in Chinese...oi vey!

 

[Smurf1976]

Re: OIL AGAIN!

Its an odd situation really, the US cannot export oil from its system so when they slow inventory builds.

They can export at least small amounts that I'm sure of. Australia, specifically Tasmania, used to import heavy fuel oil from the US (albeit in fairly small 33,000 tonne tanker loads). No doubt others were doing the same thing (presumably).

But they certainly could achieve the same effect by simply reducing imports given that imports are a major source of supply into the US oil distribution system.

 

[Mr Z]

Re: OIL AGAIN!

The WTIC contracts delivery point is Cushing so they look at inventory there. When Cushing backs up due to domestic slow down there is no means of getting the oil (at least with any degree of ease) to export markets where there may be an arbitrage opportunity. Once the build up occurs it tends to drive WTIC lower, which unduly influences many other parts of the industry. It is a recognized problem and was a part of the dynamic that crashed oil to the 30's. The WTIC contract is not as representative of world demand as it once was and it would seem it needs to change. Its become an odd situation, anyway US inventory builds talked about are Cushing and may or may not be that representative of the global state of play. Once it was gospel...

Anyway... thats what I was referring too, mostly they have a one way system... in. I guess when you use 25% of world supply you don't spend alot on export facilities, although I am sure they could move some oil if required, its just not the norm for most of these guys.

2c