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Will it be enough?

 

The Saudis are shooting for a production increment, by my calculations, of 3.15m barrels per day by the end of the decade.

QUOTE
EXPANDING CAPACITY

Both Saudi and U.S. officials focused on a previously announced long-term plan, in which Saudi Arabia pledged to invest $50 billion to expand its crude oil production capacity to about 12.5 million barrels a day by the end of the decade, and even more in the next decade. But officials said it was unclear whether it would lower oil prices in the near-term.
QUOTE
The Republican-controlled House of Representatives has approved an $8 billion energy bill with incentives to increase domestic production of crude oil, natural gas and other energy sources. It would also allow oil drilling in Alaska's Arctic National Wildlife Refuge. The Senate was expected to complete its version of the bill in May.

 

Jerry

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In reply to: jerry on Tuesday 26/04/05 09:54am

As far as I can make out the main cause of the current oil spike is :-

 

(a) Falling production of light sweet crude.

 

(b) China requires emmission levels to drop from 2000 to 500 from July 1st 2005, this will make for a bigger demand of light sweet crude

 

© Lack of refining capacity for the sour oils

 

This means that if OPEC increases their production (of mostly sour oil) the refining capacity is not there at the present time to refine the extra oil. The lead time for new refinery's is long.

 

I am just amazed that at this stage in the oil cycle we have seen no takeover or merger activity in the Australian oil sector. Notice there was yet another big merger in the USA over the weekend.

 

It just has to happen soon here only NVS has gone so far.

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In reply to: albion on Tuesday 26/04/05 10:14am

I guess the way to verify that argument is to check the pricing differentials between the different crude grades. But, in any case, the OPEC basket price would indicate that demand for sour grades is also strong while supplies are tight.

 

Jerry

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Whichever way you twist it, supply growth will be very hard pressed to accomodate any acceleration in demand growth going forward.

 

My view is that aggregate oil demand growth must accelerate if we continue to see differential economic growth in emerging markets - and this differential growth in emerging markets is an inescapable function of both free international trade and the globalisation of industries and markets. Again, the subsistence threshold effect.

 

QUOTE
Spare Capacity

``The Saudis for their part have reiterated their willingness to raise production to satisfy current demand,'' said Kevin Norrish, an oil analyst at Barclays Capital in London, in an e-mailed report. Still, ``the promise has done little to reduce market concern that the current, very thin cushion of spare crude oil production capacity can be raised substantially.''

The combined capacity of OPEC and non-OPEC producers is expected to rise at an annual rate of about 1.75 million barrels a day until 2010, according to the International Energy Agency on April 12, which is ``only slightly higher'' than historical long- term demand growth of 1.7 percent per year, or 1.5 million barrels a day.
http://www.bloomberg.com/news/markets/energy.html

 

Ex-Saudi Arabia, it sounds like OPEC is just about fully stretched and, in any case, already over quota.

QUOTE
Excluding Iraq, which is not restricted by the quota, output from OPEC's 10 other members was 28.55 million barrels a day in April, according to PetroLogistics, about 1 million barrels a day higher than the combined official ceiling of 27.5 million barrels a day.

 

Jerry

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This article amused me for its simple uncomplicated Warren Buffet logic; from the regarded Mises Institute

 

Late in 2001 and early in 2002, America's economic mercantilists (who tend to ascribe domestic economic difficulties to all things foreign) were complaining about cheap foreign steel in the U.S. economy. No sooner had the Bush administration slapped higher tariffs on foreign steel than the mercantilists started spinning sky-is-falling tales about Asians selling computer software and medical technology to Americans at bargain basement prices. The latter spawned a media cottage industry around the term, "outsourcing."

 

So what's the mercantilists' 2005 cause celÃÆâ€â„¢ÃƒÆ’ƒâ€Â ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒ¢Ã¢â‚¬Å¾Ã‚¢ÃƒÆ’ƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚©brÃÆâ€â„¢ÃƒÆ’ƒâ€Â ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒ¢Ã¢â‚¬Å¾Ã‚¢ÃƒÆ’ƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¨? Believe it or not, it's high-priced imports! Oil imports to be specific. Not low-priced imported oil, mind you, but high-priced oil. Apparently, low import prices and high import prices both pack a damaging economic punch, at least for the mercantilists. An economic contradiction? Yes. One of the scenarios has to be wrong. Two plus two always equals four, not just sometimes.

 

When I've posed the contradiction to mercantilist acquaintances, their responses usually go something like "... oil is economically different than steel, software and medical technology; there's no comparison." My asking for specifics about the economic differences invariably evokes a "...er...er...um...um, they're just different; everyone knows that."

 

Yeah, right. What about the fact that oil, steel, computer software, and medical technology services are all produced in the United States. I guess we have to ignore that. Likewise, what about the fact that Americans who produce oil domestically are highly skilled and well-paid, just like their counterparts who produce steel, software, and medical technology? Ignore that too. And never mind the fact that all the products figure importantly in Americans' high living standards. Ditto for the fact that none of the products can be distinguished from the others based on some national defense shibboleth.

 

What we have, rather, is a clear contradiction......

 

Read the rest here

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  • 2 months later...

Now even some Saudis appear to be coming around to the idea. All these guys are talking about a supply disruption which may, or may not, occur. The real price driver is, in my view, on the demand side of the equation.

 

QUOTE
Traders Increase Bets on $80 Oil on Supply Concerns (Update1)
July 4 (Bloomberg) -- Record oil prices may increase to $80 a barrel this year, options contracts on the New York Mercantile Exchange show. Investors are speculating OPEC won't produce enough oil to compensate for any disruption to supplies.

New York Mercantile Exchange data show 6,900 options contracts outstanding that allow the buyer to purchase crude oil for December delivery at $80 a barrel, compared with an average of $77 in January. The probability that oil will top $75 a barrel when the December crude contract expires is 21 percent, according to Adam Sieminski and Michael Lewis, strategists at Deutsche Bank AG, up from 5 percent at the start of the year.

``The perception is that the risk of higher prices now is higher than at the beginning of this year,'' Deutsche Bank's Sieminski said in an interview. ``The market is so tightly balanced that issues like a nuclear confrontation with Iran could add a great deal of worry'' about supplies.

The Organization of Petroleum Exporting Countries, the producer of about 40 percent of the world's oil, is pumping almost as much crude as it can to increase inventories before an expected fourth-quarter peak in consumption. Crude oil reached a record $60.95 on June 27, deepening concern that the cost of energy would slow economic growth.

Growth Concern

Oil prices have surged 53 percent in the past year on concern that producers and refiners will strain to meet demand for products ranging from gasoline to diesel and heating oil.

U.S. Treasury Secretary John Snow on June 28 said high prices are hurting the world economy. German Chancellor Gerhard Schroeder on June 27 called for more transparency in global oil markets to stem speculation and lower prices from levels that are threatening to crimp expansion. The Organization for Economic Cooperation and Development in May cut its global growth estimate for this year and next, partly because of rising energy costs.

The Paris-based OECD now expects economic growth of 2.6 percent this year for its 30 member nations, down from its previous semi-annual forecast in November of 2.9 percent, the group said in May. In 2006, growth will reach 2.8 percent instead of 3.1 percent.

Oil companies are profiting from the price surge. Exxon Mobil Corp., BP Plc, Royal Dutch/Shell Group, Chevron Corp. and Total SA, the five largest publicly traded oil companies, reported combined net income of about $85 billion last year, when prices averaged more than $41 a barrel.

Shares of energy companies are rising. The Morgan Stanley Capital International World Energy Index, one of 10 industry groups making up the global equity benchmark, is leading gains with a 17 percent surge this year. The broader MSCI World measure has lost 1.8 percent in the period.

$100 `Disastrous'

Saudi Arabia's oil minister Ali al-Naimi on June 14 said his country, OPEC's largest exporter, can increase oil production by 1.5 million barrels a day from the 9.5 million a day the kingdom plans to pump in July, for a total of 11 million barrels a day.

One of his predecessors, Sheikh Ahmad Zaki Yamani, who was the Saudi oil minister when Arab countries declared an embargo on exports to the West in 1973, said that $100 a barrel oil ``isn't far-fetched.''

For that to happen, he said, ``it needs the help of a political event or a military adventure, like attacking Iraq. It would be disastrous,'' he said on June 28 at a conference near London.

A supply disruption of ``a couple of million'' barrels a day could send prices to $105, William Dudley, the chief U.S. economist at Goldman, Sachs & Co. in New York, said June 14. Global oil demand will rise to a record 86.4 million barrels a day in the fourth quarter, the Paris-based International Energy Agency forecasts.

Output Cut

``We've certainly seen people asking for prices on $100'' contracts, said Orrin Middleton, who markets options and other securities for Barclays Capital in London. ``This was way off people's radars 12 months ago. They now believe there's a possibility, but it's going to take a supply disruption to take us there.''

Oil shipments from Iraq, which in May pumped an average 1.78 million barrels a day, were cut by about 50 percent on two occasions last year following attacks on pipelines. When the U.S. invaded the country in March 2003, production plummeted from 2.48 million a day in February of that year to 140,000 a day in April, according to Bloomberg data.

`Forget $60'

The daily average volumes of crude oil options trading on Nymex in the five months through May was 55,036, more than the 46,237 that traded on average in 2004, data on the exchange's Web site shows. The record was a daily average 80,710 in 2002.

``What they're playing is the possibility of a supply interruption,'' said Garrett Smith, who managed Boone Pickens's BP Capital Energy Equity Fund until he left earlier this year to start his own hedge fund. ``If you look at the history of supply disruptions, while they're not predictable as to when they will occur, they are predictable in that they will occur.''

Oil may also stay high amid concern about Iran. Mahmoud Ahmadinejad, who was elected president of Iran June 24, said he plans to pursue a nuclear energy program to generate electricity. The U.S. says Iran wants to build weapons from that program and calls Iran a sponsor of terrorism. Iran has rejected the charges.

``A surprise in the oil market would be if the U.S. attacks Iran,'' Sheikh Zaki Yamani said at the conference of the Centre for Global Energy Studies, which he founded and chairs. ``Prices would shoot up, and then forget about $60'' a barrel, he said.

Iran, OPEC's second-biggest oil producer after Saudi Arabia, pumped about 3.9 million barrels of crude oil a day in May, according to Bloomberg estimates. Saudi Arabia's output was 9.5 million barrels a day in the period.

Russian Oil

Oil production from Russia, which pumps the most oil outside OPEC, had its smallest gain this year in May, according to the Energy Ministry, as investments slowed after the dismantlement of OAO Yukos Oil Co., once the biggest oil exporter. Slowing growth this year will lead to a decline in output in 2006, Paul Horsnell and Kevin Norrish, analysts at Barclays Capital, said last month.

Increasing volatility in the oil markets is boosting trading in options. On June 13, a total of 2,602 options to buy crude for December delivery at $80 a barrel traded on Nymex.

Two years ago, the options market attracted little interest in contracts that anticipated a surge in prices. In September 2003, when prices averaged about $28 a barrel, options to buy December crude at $50 traded on just two days.

Crude oil traded in Tokyo rose as much as 2.8 percent today. Oil for November delivery on the Tokyo Commodity Exchange, Asia's biggest energy futures market, rose by its exchange-imposed limit of 1,000 yen to 36,990 yen a kiloliter ($52.67 a barrel) as of 9:25 a.m. local time.



To contact the reporter on this story:
Alejandro Barbajosa in London at  abarbajosa@bloomberg.net

 

Jerry

 

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In reply to: jerry on Monday 04/07/05 12:14pm

Peak Oil Theory shafted (at least I gave it capitals)

 

QUOTE

JULY 11, 2005
NEWS: ANALYSIS & COMMENTARY

Is There Plenty Of Oil?

First came Holstein, then Mad Dog, and soon, Thunder Horse. Atlantis will join them next year. The four giant oil fields, operated by BP PLC (BP ) and located under thousands of feet of water off the coast of Louisiana, are just beginning to pump their first barrels. At their peak rates later in the decade, they'll produce some 500,000 bbl. per day, an amount akin to floating a small Middle Eastern country such as Syria or Yemen into the Gulf of Mexico. "Add them together, and it's a massive step change," says David Eyton, BP's vice-president for deepwater in the Gulf. "The investment we're making will more than offset declines we're seeing in Alaska and the Continental Shelf."

It may seem today as if the world is running out of oil. The price of crude has hovered around $57 a barrel, in part on fears of a supply crunch in the fourth quarter. Chevron (CVX ) and China National Offshore Oil are battling for control of Unocal (UCL ). The Senate on June 28 passed the latest version of an energy bill stuffed with $18 billion in tax incentives to encourage energy production. Even legendary oilman T. Boone Pickens is predicting $3-a-gallon gasoline within a year. The national average now: a pricey $2.22.

No doubt, the energy industry is in a precarious position. Two decades of falling prices in the 1980s and '90s discouraged investment. With many of the easy-to-find fields already on the map, big oil producers have been forced to look for new sources in ever-more-hostile environments: not just under thousands of feet of water but also across frozen tundra and in countries rocked by political unrest. As a result, production has risen sluggishly in recent years, while energy demand, particularly from the booming China and India, has exploded. Last year global oil consumption rose 3.4%, to 80.7 million barrels per day, the largest volume increase since 1976.

From that snapshot the oil situation doesn't look good. But there's little reason to assume that the next five years will simply see a continuation of current trends. Thanks to a combination of higher prices, increased exploration and production spending, and improved technology (page 32), oil supplies are poised to grow much faster than they have in recent years. Cambridge Energy Research Associates (CERA), a respected energy consultant, sees 20 or more major new fields coming on line each year through 2010. Altogether those fields could boost worldwide production capacity 15%, from 87.9 million barrels per day to 101.5 million by the end of the decade, CERA estimates. As a result, supply should exceed demand by 7 million bbl. per day, a huge leap from the current cushion of 1 million bbl. That should take pressure off prices. "OPEC countries have the potential, and [most] are increasing production," says Peter Jackson, a CERA researcher. "Non-OPEC production has increased at quite a lick compared to the 1990s."


ALL OVER THE MAP

Where is the new supply coming from? Pretty much across the globe. After hiking its exploration-and-production expenditures by 50% since 2000, to $12 billion a year, Exxon Mobil Corp. (XOM ) expects to add more than 1.2 million bbl. per day of new supply by 2007 from 27 projects, including ones off the coast of Angola and Russia's Sakhalin Island. Chevron Corp. expects its Big Five fields in West Africa, Australia, the Gulf of Mexico, and Kazakhstan to generate 800,000 more bbl. per day by 2009 -- a third of its current production. "We've got that pretty well mapped out," says Chevron Vice-Chairman Peter J. Robertson. "Projects are more complex now. They take a little longer. There's still plenty of oil in the world."

Not everyone agrees, of course. For starters, CERA's projections don't take into account the possibility of political instability, natural disasters, or other unforeseeable events that are facts of life in the oil business. What's more, despite all the new fields coming on stream, some experts argue that they won't be enough to compensate for the declining output of existing fields, which are being depleted at a rate of 5% per year. Since 1960 only four super-giant oilfields have been found outside the Middle East -- in China, Russia, Mexico, and Alaska -- and all except China's Daqing field are in steep decline. "Discovery size is going down," says J. Robinson West, chairman of consultant PFC Energy. "Decline rates are a problem."

Even mighty Saudi Arabia's ability to increase output substantially has come into question. The world's biggest oilfield, Saudi Arabia's Ghawar, has been producing for more than 50 years and is showing signs of age, with increasing amounts of water leaking into the oil, according to technical papers by Saudi Aramco engineers cited in a new book, Twilight in the Desert.

Certainly, global energy producers are struggling to clear all sorts of hurdles as they respond to rising demand. The number of rigs drilling for oil and gas worldwide is up 35% since the start of the decade, to 2,500. That's putting pressure on the prices of oil-field services. Operating costs at major oil companies now average $13.75 a barrel, a 33% increase since 1999, according to brokerage firm A.G. Edwards Inc. (AGE ). Even CERA believes that oil production could hit a plateau around 2020. If that happens, the world economy could face a major setback. Fuel prices would soar and energy-dependent sectors would be seriously crimped. Opening new reserves can be painstakingly complex and slow. BP's operations in the Caspian Sea illustrate the challenges. The company and its partners first signed a production-sharing agreement for the 5-billion-bbl.

Azeri-Chirag-Gunashli field there in 1994. Discovered by the Soviet Union in the 1970s, the Baku crude is relatively easy to tap. The hard part: agreements to build, and then building, a $3.2 billion pipeline to carry the oil to tankers in the Mediterranean Sea. That took years of negotiations with the governments of Azerbaijan, Georgia, Turkey, and neighboring states. The first crude began flowing through the pipeline last month. By 2008 the project should reach its peak capacity of 1 million bbl. per day.

Moreover, much of the new supply expected in the next few years will come from what the industry calls "unconventional sources" -- fields that require additional technologies to harvest their hydrocarbons. These include heavy- sulfur oil that must undergo additional refining before it can be turned into fuels, as well as coal-bed methane fields, where oil and natural gas is drilled within coal deposits. Two other potential energy strikes are tight sands and shale oil, where rock must be fractured using high-pressure water or chemicals to loosen up the reserves. Another major source: offshore deepwater fields.


CANADA COUP?

Unconventional fields cost more to develop than traditional ones do, but their potential is huge. Estimates of the reserves trapped in Canada's oil sands, where oil is mined like coal from big deposits, top 175 billion bbl. -- larger than those of Iran or Iraq. Producers such as Suncor Energy Inc. (SU ) and Imperial Oil Ltd. (IMO ) are expected to spend $38 billion over the next 10 years there, taking already fast-growing production in the country from 1 million barrels per day to 2.6 million.

Such sources will account for 30% of all supplies in 2010, up from just 10% in 1990, according to CERA. ExxonMobil figures the world contains some 7 trillion bbl. of heavy oil, oil sands, and shale-oil reserves alone, an amount roughly equal to those of all conventional reserves. If just 20% of those were recovered, ExxonMobil figures that would top the 1 trillion bbl. of conventional oil produced on the planet to date. If numbers like that prove to be accurate, today's worries over oil supplies could seem like a distant memory in just a few short years. Let's hope the optimists are right.

By Christopher Palmeri, with Peter Coy in New York

Copyright 2000-2004, by The McGraw-Hill Companies Inc. All rights reserved.

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  • 4 weeks later...

Gold shining

 

 

 

THE price of gold shot sharply higher in overnight trade on the London and New York markets as investors returned with a vengeance to hard physical assets.

 

On the Commodities Exchange in New York, gold futures for the December contract closed at $US446.80 an ounce, their highest for six weeks.

 

Dealers said weakness in the value of the U.S. dollar, plus high oil price helped spark a return to gold. Trade was also boosted by technical buying after the metal passed the $US445/oz mark.

 

At one stage during Thursday trade in New York the December futures price climbed above $US450/oz.

 

Technical analysts told Reuters that the next key price targets for gold are $US451-and-$US456/oz.

 

Australian 'golds' enjoyed a good start to trade Friday, with Croesus Mining up 5.3%, Dominion Mining up 9.1%, Equigold up 2.2%, St Barbara Mines up 7.4%, Resolute up 2.4%, the un-hedged Oxiana up 4.8%, and Newcrest Mining up 1.1%.

 

 

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