DrumBeat: October 21, 2006
Posted by threadbot on October 21, 2006 - 9:18am
Topic: Miscellaneous
Oil falls to new 2006 lows on doubts about OPEC cut
NEW YORK (Reuters) - Oil on Friday fell more than 2 percent to a 2006 low below $57 a barrel on speculation that OPEC members would not follow through on plans to make deep production cuts to stem a three-month price slide.U.S. crude for November delivery settled $1.68 lower at $56.82 a barrel, the lowest this year after trading as low as $56.55 in intraday activity. U.S. oil prices have dropped from July records of $78.40 a barrel on healthy inventories.
London Brent crude fell $1.19 to $59.68 a barrel.
Iraq`s oil minister stunned experts this week when he said production had reached 2.86 million barrels per day -- higher than pre-war levels and above what was known as Iraq`s capacity of about 2.5 million barrels per day.
Peak Oil Passnotes: Oil Market Fractures
The basic gist of the market right now is bearish, but it does not make sense. That does not matter, the sentiment is there. We have a worsening geo-political situation that we have gone over before in some detail, non-OPEC supply is wobbly at best, OPEC are threatening to cut supplies – and already have in fact - whilst demand from the United States for the first 12 days of October is up 4.8% year on year. The fall does not make sense.
US warns of potential threat to Saudi oil facilities
WASHINGTON: The US government warned Thursday that it had received information of a potential threat against oil facilities in Saudi Arabia's Eastern Province."The US Government has received new information of a potential threat to oil facilities in the Eastern Province, including those operated by Saudi Aramco," according to a "warden message" issued to alert US citizens.
As gas prices continue to decline, it’s only natural to wonder about the apparent coincidence between this trend and Republican interests in the election. Indeed, a recent poll found that 42 percent of Americans believe that gas prices have been “deliberately manipulated” in advance of the election. Countless articles have been written on blogs and in the mainstream press speculating on the possibility of a gas price conspiracy, either supporting the supposition or shooting it down.
Putin warned over energy access
LAHTI, Finland - European leaders agreed on Friday to deliver a blunt message to President Vladimir Putin that Russia must give European firms more chance to exploit its huge energy resources or risk an investor exodus.
China Finds 2nd Biggest Gas Field
China National Petroleum Corp has discovered the country's second largest natural gas reserve of 150 billion cubic meters, China News Services said yesterday.The discovery, made by its Tarim Petroleum unit, is in the Tarim Basin in the country's northwest Xinjiang Uygur Autonomous Region, the report said, citing a Hong Kong-based newspaper.
Shell: Country still rich in oil
John Hofmeister, president of Shell Oil Co. in Houston, is on a two-year, 50-city tour promoting the benefits of offshore drilling and other forms of oil exploration that now are banned in this country.
Global warming study predicts wild ride
The world — especially the Western United States, the Mediterranean region and Brazil — will likely suffer more extended droughts, heavy rainfalls and longer heat waves over the next century because of global warming, a new study forecasts.But the prediction of a future of nasty extreme weather also includes fewer freezes and a longer growing season.
Climate water threat to millions
Climate change threatens supplies of water for millions of people in poorer countries, warns a new report from the Christian development agency Tearfund.Recent research suggests that by 2050, five times as much land is likely to be under "extreme" drought as now.
Clean fusion energy: HiPER is on the roadmap
New Era of bioenergy has begun
"The one common denominator among renewable fuel technologies is biomass," Robert Lane, Chairman and CEO of Deere and Company said"In reality, the cellulose in biomass has the potential to create a great deal more energy than corn," U.S. Secretary of Agriculture Mike Johanns said.
"Wind is where people ain't," Pat Wood said.
From foe to fuel? Mesquite trees tested. Texas researchers, and farmers, eye them for cellulosic ethanol.
Alternative-energy elevators shoot for the stars
If it seems as though power outages in Seattle are keeping you in the dark twice as long as they used to, you're right.The amount of time the average Seattle City Light customer goes without electricity has about doubled in recent years, and is nearly twice that of Tacoma, according to Seattle's public utility.
‘Zero-energy’ house is one family’s dream home come true
The home’s architect is calling it “the greenest house in the Midwest, possibly in the country.”
Let F be the fraction of worldwide oil output that the country produces. Let D be the price elasticity of demand for oil. And let the country reduce its output by the fraction X.
Then worldwide output reduces by FX. And this output reduction will cause worldwide oil price to rise by FX/D. For this to be profitable, the rise in price must be greater than the drop in output: FX/D > X. Therefore F/D > 1 and F > D is the condition that must be met. That is, the country's fraction of worldwide oil output must be greater than the price elasticity of demand.
D is hard to estimate, it varies depending on the time scale and absolute price of oil. In the short term elasticity is small but over the longer term people can adjust and find substitutes. Likewise, at low prices nobody cares, they don't cut demand if prices rise, but at some threshold it really hurts and we see a noticeable demand effect. In some periods D has been very small, maybe 0.01 or even less. Other estimates have it as high as 0.1 or 0.2.
Many countries produce more than 1% of worldwide output, but if D is as high as 0.1 then there are only three such countries: Saudi Arabia, Russia, and the U.S. At D=0.2 there are no countries in the world producing 20% of oil.
Therefore, unilaterally cutting oil production could be a profitable strategy for a country if we are in a regime where demand response is inelastic. Even a small cut by a small country could produce a significant price rise which would bring in as much money as before. However if we get into a situation where demand is more elastic and production cuts don't lead to price rises, the strategy will not be profitable for most countries.
As some of the articles above note, futures prices continue to be weak (at least for near-term dated contracts). What is the supply/demand situation in the physical market? Is there a excess of supply?
Is it because Iraq is producing more than expected? Other countries? Or has there been a reduction in demand?
There is an excess of supply (crude and gasoline) at the moment. Refining margins are sliding, and upstream producers are getting less for their product as inventories remain very high. Production is starting to ease off in response (also in refining), but prices are still historically high.
I think we are getting closer to getting supply and demand back in balance. Refinery utilization has been down the past few weeks, and there was a very big draw in gasoline inventories last week. If that trend continues for a couple more weeks, prices will start to come back up. I believe they may have overcorrected at the moment.
I quickly scanned week-end prices for Canadian 40 (~WTI). Price drops at this time of year are as follows:
2000 71.6%
2001 63.7%
2002 82.0%
2003 83.5%
2004 77.0%
2005 82.5%
2006 72.0% (thus far)
2005's shallow drop probably reflects extra market tightness created by last year's hurricanes. If it does, one can see greater volatility emerging from 2003 onward, when oil prices truly began rising.
As to your questions, I think the answer to each, aside from imprecise generalizations, is "nobody knows."
The s/d balance is tight in summer but fairly sloppy this time of year. So the fear premium should wane. Not to mention those speculating on Katrina II have had their asses handed to them and had to sell (Hence the $2+ contango as Nov WTI expired). Longs are suffering. Looking like Dec will roll down to converge (Still excess supply). Won't be too long before the GSCI has to roll thousands of wti contracts forward. that should put a heavy feel on this market in the front.
If we have a mild December, OPEC is gonna have to cut seriously or accept much lower prices.
2000 82.4%
2001 59.1%
2002 82.2%
2003 89.6%
2004 72.2%
2005 80.8%
2006 73.7%
www.bom.gov.au/fwo/IDO60102/IDO60102.2005_1.pdf
today.reuters.com/news/...ENVIRONMENT-GREENLAND.xml
Note though that even this small rise will increase shoreline erosion. Depending upon soil/sand types, anything steeper than a 50:1 rise is unstable#, so one would expect the shorelines to be pushed back by a half foot or so. More next decade.
Best Hopes,
Alan
#Vague memory on slope. Anyone have better #s ?
Odd that no-one seems to be talking about the concept of an "optimism discount" in oil prices. Optimism due to happy talk on the part of incumbents prior to an election.
Rack it up to mass delusion.
I too think it is retarded for us to make such a big push on ethanol. When I drive to work each morning, I sit at probably the worlds longest stop light. It disgusts me to see all the gigantic gas guzzling SUVs, Hummers, and jacked up trucks here in East Texas. Something has to give!
Personally, I think EVs and PEHV's are the way to go. More and more town cars will switch over to be entirely EV's, while I see most SUV's becoming PEHV's running on biodiesel 'or ethanol in the near term'. I try my best to look at things from a perspective of decades and watch for trends, and try to concentrate less on the here and now in terms of energy and conservation.
I just recently purchased my first home, and after 5 years of careful management of my credit in college, I managed to get a 30 year fixed interest 100% financing loan to pay for it to boot! The town home is great: 2 bed, 2 bath, 2 story, but all electric. I have a west-southwest facing roof that I was contemplating adding a solar system too, but tbh I really dont know if it would be ideal to set one up. I'll be looking for advise in the next couple of weeks when I close this thursday :P
I'm looking for practical sollutions to reduce my own consumption, and encouraging my family and friends to do so. I just wish the rest of the world would get its act together.
The first half of the Tyson's Corner-Dulles expansion (Silver Line) has been delayed by at least one year due to delays in appropriating funds from the FTA. Local funding is in place, property taxes have been increased and tolls raised on the Dulles Toll Road. All FTA paperwork is approved but the "check is NOT in the mail !"
Hard to have "Best Hopes"
Alan
I have been curious about the effects that peak oil will have on major infrastructure projucts. How will engineers react to non-existant growth? Will there be especially high unemployment? I haven't really given it enough thought to posit all of the feelings in nice concise queries, but I will continue mulling.
Thanks for the really great blog/forum.
Change the tax laws !
Interest on any mortgage issued after 1/1/8 cannot be deducted from the taxpayer's federal income taxes. Interest on existing mortgages in force as of 12/31/7 can still be deducted until paid off. Any refinancing of a qualifying mortgage will remove the qualification unless the refinancing reduces the principal by at least 3% or shortens the term by at least 2 years.
i) Interest on mortgages issued on primary residences after 1/1/8 can still be deducted if the tax payer can show that the front door or 3/4 of the property mortgaged is within 1 mile of an electrified Urban Rail stop or station (measured from the closest loading platform along a walkable path).
Change the date to 1/1/10 or even 1/1/15. The effect will be the same :-)
Alan
There is no doubt that taxation laws induce lop-sided developemnt of urban areas. While I'm no expert, and I may well miss something here, I'm not sure that mortgage taxation would be the first thing to look at.
Changes in property taxes, away from buildings and onto land, which promotes density, and towards banning the use of property tax for roadbuilding, would seem to me to be at least as potentially substantial and effective.
If this is combined with a true system of land-value capture, it would inevitably lead to large-scale development of public transit, since property values near transit stations (and other public investments) are much higher.
It's been a while seen I read about these issues, but people like Clifford Cobb and William Batt stick in my memory as making a lot of sense on the subject.
Which in the final analysis is no more than making a driver pay the full cost of driving, And that is an issue that a change in mortgage taxes would seem to fail to address.
In the present system, sprawl is the only logical outcome: the developer builds where land is cheapest, namely far away, and the community pays for the infrastructure (roads, electricity lines etc.) to connect this 'far away' with the existing developments.
This infrastructure makes the new properties more valuable, and the developer rakes in the profit, which has been financed out of the public coffers.
Now is the time for all the sane and rational people to PANIC. If the government is the enemy then we have to prepare for very hard times. The next 50 years could be hell on earth. The current price of oil tells us nothing about the future. I now have to retreat back into my shielded cubicle and continue my brainstorming.
US warns of potential threat to Saudi oil facilities
All I can say, I'm glad we have have the following 3 Strike Groups cruising the Persian Gulf simultaneously:
- the Iwo Jima Expeditionary Strike Group
- the USS Eisenhower Carrier Strike Group
- the USS Enterprise Strike Group
You know...just in case they are needed for something nasty.Dirty Harry.
http://www.tompaine.com/articles/2006/10/20/separation_of_oil_and_state.php
As gas prices continue to decline, it's only natural to wonder about the apparent coincidence between this trend and Republican interests in the election. Indeed, a recent poll found that 42 percent of Americans believe that gas prices have been "deliberately manipulated" in advance of the election. Countless articles have been written on blogs and in the mainstream press speculating on the possibility of a gas price conspiracy, either supporting the supposition or shooting it down.
The trouble with conspiracies is that they're wickedly difficult to prove, particularly without a smoking gun. There may be a conspiracy, or there may not be. However, there doesn't have to be a specific conspiracy on gas prices in the run-up to the election--there just has to be a collective recognition of self-interest among the Bush administration, oil industry executives, investment fund managers and oil traders. (my emphasis in bold).
I'm not sure what the difference is between a "conspiracy" and a "collective recognition of self-interest". Probably whether there were records of phone calls and/or meetings between the administration and others or not. If there were such calls/meetings, what would be the chances of ever recovering something like that.