ANTIESTABLISHMENTARIAN

Finance, Fuel Prices, Economics, Markets

Can’t Catch a Break

The beleaguered boating industry just can’t catch a break. Just when oil prices appear ready to start falling, they reverse and start heading higher. And yet despite falling from a recent high of $80 down to below $73, gasoline prices have not abated. Just in the last two days wholesale gas has risen 15 cents while oil has remained flat.

Year over year, gas is up over 33% on average. That’s not going to do anything good for the so-called recovery. Word is that all those tankers sitting idle storing oil is being rapidly sold off, bringing down inventories. Chances are that the oil price will soon start rising as well.

Lower oil prices got some help from the recent dollar rally which now appears to be stalling. And with the summer driving season coming up, it looks like we’ll be facing $3.00 gasoline again.

Meanwhile, in Venezuela Hugo Chavez is working diligently to destroy that nation and turn it into a socialist wasteland, having recently devalued its currency by 50% and throwing merchants in jail who try to raise prices. Destroying business seems to be his goal, and along with that goes his oil industry, the production of which is down 33% from last year. Chavez is quite simply a madman, and it would not be at all suprising to see that nation explode or implode, bringing its current 2.4 mbd production off line. Now wouldn’t that do wonders for the price of fuel?

Advertisements

February 3, 2010 Posted by | Oil Updates | , , , | Leave a comment

Oil Again

Oil closed at 83 cents short of $80.00 today setting the highest price of the year. So what’s going on, are the speculators driving it up again, are there looming shortages, shrinking supply?

No, none of the above. The rising oil price is simply a function of the falling dollar, although I’ve seen quite a few “analysts” provide all sorts of reasons from peak oil to that grand bogyman, Goldman Sachs. Oil is priced in dollars, so when the dollar falls, the price of oil rises proportionately.

I am expecting both to level off soon. The fate of the dollar charted below.usdx

October 16, 2009 Posted by | Oil Updates | Leave a comment

Ill Tidings for the Economy

Oil and Economic Reality 101

Despite all the hoopla and propaganda coming out of New York and DC, here is a shot of reality. Basic economic indices:

* Producer Prices : 14.9 v 10.0 prior, up 50%
* New Orders: 3.3 v 4.2 prior, down 21%
* Employment: -14.3 v -12.9 prior, down 11%
* Inventories: -18.1 v 0.3 prior, up 6000%
* 6-month business conditions outlook: 47.8 v 56.8 prior

* Consumer credit, down 21% m/o/m

Numbers like this do not paint a picture of recovery. And now onto the effect of continuing high oil prices.

The US has experienced six recessions since 1972. At least five of these were associated with oil prices. In every case, when oil consumption in the US reached 4% percent of GDP, the U.S. went into recession. Right now, 4% of GDP is US$80 a barrel oil. What is the price of oil today? $72.48. Nuff said.

We do not hear much, if anything, about peak oil these days. Not because the problem has gone away, but because world demand has fallen, thereby reducing pressure on supply. Yet even if the economy does not rebound, or at the least not reach the peaks in consumption of 2007, should we not expect the price to fall?

Steven Kopits, oil guru on Peak Oil. “Consumption will tend to grow faster in developing economies for two reasons. First, by their nature, developing economies should grow faster than mature ones….So faster economic growth means faster growth in demand for oil. Further, oil consumption growth follows an “S”-curve. At low levels of GDP, oil demand growth is quite slow. Once a country has reached middle class income levels, per capita oil consumption stabilizes. However, in the middle, as a country becomes middle class, oil demand growth can be explosive. Take South Korea, for example. South Korean per capita oil consumption peaked in 1996; however, in the previous 12 years, the country’s consumption increased nearly fourfold. China is now firmly on the S-curve. Based on South Korean experience, we would expect Chinese oil demand to stabilize at around 50 mbpd around 2032-2035.”

(China currently 8 million per day, US 20 million, Japan 5 million).

Kopits on price: “If you have a flat—or heaven help us, declining—supply of oil, then the emerging and fast-growing economies will have no choice but to start bidding away the oil from the advanced or slow-growing economies. That is consistent with what we’ve seen in the data starting in about 2006. For China to grow, it will have to take away the oil of Japan, the US and Europe, just as it has in the last three years.”

Fifty million barrels per day, 250% of what the US uses! With this reality in mind, the problem becomes painfully obvious. We are already at or very near peak production capacity while depletion rates are accelerating; no significant major new discoveries have been forthcoming. There is no relief from high oil prices in sight. Quite the opposite.

September 17, 2009 Posted by | Oil Updates | Leave a comment

Oil Update

Is  oil bought from Canada the equivalent of “foreign oil”? Canada may be a foreign nation, but we share a common culture with very few differences. One way or the other, it sure is a lot less worrisome than oil from Venezuela and the Middle East.

HOUSTON (Reuters) – Growing volumes of crude oil from Canada and the Gulf of Mexico should assure U.S. Gulf Coast refiners adequate supplies for years to come despite fast-declining imports from Mexico and Venezuela.

Imports from the two major Latin American suppliers have dwindled by 24 percent in the past four years, but the huge refining region they serve is unlikely to run short due to billions of dollars planned for new pipelines from Canada and exploration in the deepwater Gulf, analysts said.

Canadian oil sands production alone could make up for both losses, said analyst Martin King of Calgary-based FirstEnergy Capital Corp. “You’re essentially switching to Canadian crude from Mexican and Venezuelan,” King said.

In its June forecast, the Canadian Association of Petroleum Producers said it expects output from northern Alberta’s vast oil sands to nearly double to 2.2 million barrels a day by 2015. Weak oil prices and the credit crunch led numerous companies to delay development projects, forcing CAPP to cut expectations from its previous forecast.

Still, pipeliners have zeroed in on the Gulf Coast — site of 40 percent of U.S. refining capacity — as the next big market for Canadian oil. There, Mexican and Venezuelan imports have fallen by 700,000 bpd since 2004, according to the U.S. Energy Information Administration.

TransCanada Corp’s (TRP.TO) proposed $7 billion Keystone XL pipeline expansion would ship as much as 500,000 bpd to Gulf Coast refineries by 2012.

Enbridge Inc (ENB.TO) and BP Plc (BP.L) are working to develop a 250,000 bpd system to the Gulf Coast by that same year at a cost of up to $2 billion.

Frankly, I think that bit about “assurance for years to come” is more than a bit optimistic. How many years we must ask, two, three or ten? But it may put to rest the notion that Canada can’t produce unconventional oil for less than $100/bl, which was the common notion of late. And notice that there is no substantiation about increased production from the Gulf. I know not any. Last I heard, Gulf oil production was falling as it has been for years.

Wither Oil Prices?

While I’ve been keeping up to date on the oil industry, I’ve not posted much for the reason that everything remains in flux and a high state of volatility. Thanks to an economy that is being propped up by borrowed money, there is no way to make reasonable predictions.

The supply side is problematic and loaded with worrisome events and possibilities, none of them good. Regardless of how much oil remains in the ground, the amounts being extracted are shrinking along with exploration and development to replace what is being pulled out. Yet there is one thing I can predict with certainty:

Improvement in economic activity will serve to drive prices up very substantially. Substitute “stock markets” for “economic activity.”

Continued deterioration in economic activity (stock markets) will serve to hold prices down.

With government showering money on bankers, who are the top speculators in oil, the more they shower, the more they drive the price up. The CFTC says it wants to “protect the consumer” from the speculators, and it will do so by preventing the consumer from investing in oil ETFs such as USO which it (the CFTC) labels as ” a big speculator,” not Goldman Sucks or JP Morgan and the other members of the financial mafia known as banks, cum hedge funds and casinos.

My hunch is that oil will continue trending up as long as the stock markets do.

August 25, 2009 Posted by | Oil Updates | 2 Comments

$100 Oil on the Near Horizon

The stock markets rise and everything else goes to hell. That is the present pattern. By going to hell, I mean the value of the dollar crashing, and oil lifting off for the stratosphere once again as it pushes its way through $70 on up to $73 and change at midday while the dollar falls by 0.75%. The futures market already has a barrel of oil in the $90 range for early next year.

So what is the linkage here? Well, with greatly decreased volume and liquidity, a rising market means somebody is pumping money into it at a highly speculative rate. Its also a signal of just where all this new money the Fed has created is ending up. They wanted a new asset bubble, they worked hard to recreate it, and now they’re getting one. Only is not the one they wanted, which was for  housing. When you push on a rope, it buckles and where it goes you know not, yet the odds of predicting in this case were pretty good since we’ve been down this road before.

All this reckless new money and credit creation will fuel asset prices at the top, just as it always does. And with oil in the ground becoming increasingly scarce and costly to produce, oil becomes the #1 destination for the captains of greed. Of course the CFTC is making all sorts of noises about controlling speculation in futures, but I can guarantee you that if they try to cap the futures market, they will only succeed in moving it offshore, beyond the grasp of grasping, gasping Washington. The USG is no longer in a position to dictate to the oil producing nations what the price will be. CFTC will only play right into the hands of OPEC which is just itching to get the market out of New York.

In all probability the price of oil will remain directly linked to the amount of credit flowing out of the Fed and into the stock markets, as well as the fortunes of the dollar. NY & DC want to see robust markets, and they may well get them. But in the process they will have sown the seeds that will once again destroy those markets. Oil at $100 will bring their phony recovery to a grinding halt as it sucks even more money out of consumer’s pockets. The 70% consumer economy is now a relic of the past. The new economy is called the “government finance” economy. It will fare even worse than the Wall Street finance economy.

The head of the IEA, Dr. Fatih Birol, this weekend issued a warning that is roundly being ignored, much as all past warnings were:

“The market power of the very few oil-producing countries, mainly in the Middle East, will increase very quickly. They already have about 40 per cent share of the oil market and this will increase much more strongly in the future,” he said.

There is now a real risk of a crunch in the oil supply after next year when demand picks up because not enough is being done to build up new supplies of oil to compensate for the rapid decline in existing fields.”

Demand is already picking up; China is now the #1 auto sales nation. Can’t anyone connect the dots, or will they continue to watch inventories and say all is well until the tanks run dry?

And just as I predicted, there is just no way the power boat industry is going to catch a break. Brent crude rose over $3 today, WTI $2.02 and gasoline 5.4 ¢.

August 3, 2009 Posted by | Oil Updates | , , , | Leave a comment

Blame Your Parents

Oil rose $1.60 to just over $73.00 by mid day while gasoline rose nearly 6 cents. I must admit, even I’m surprised at how rapidly it is rising without any major news events to fuel its rise. This is looking like a repeat of the 2008 mania.

If you don’t like it, blame mom and pop, for its their retirement funds that are buying the heck out of crude. Its kind of ironic that while they piss and moan about the price of energy, they are also profiting on the backside, many without even knowing it. For them, its in one pocket and out the other. For the rest of us its just a hole in the pocket.

BP announced today in its annual report that by their math oil consumption fell by 0.6% for all of 2008 and production fell by only 0.4%. Okay, so what happened to the much ballyhooed demand destruction? With margins that slim, should anyone be surprised that the price is rising?

FACT:  All we have to do is just get close to supply/demand equilibrum (as happened last year) and buyers will start hoarding and another mania begins.

FACT: All the talk about cutting back on energy consumption is just that, talk.  People continue to buy bigger vehicles and consume more. There is only two things that can stop increasing consumption:  Price increases either by taxation or by excess demand over supply. Either way, you  had best plan for the day when energy consumes 20% of your budget, or you vastly alter your life style.

FACT:  GDP is inversely proportional to energy costs. Price goes up, productivity and revenue goes down and the US trade deficit  and the dollar both suffer as a result. The point is, it makes us doubly poor.

June 11, 2009 Posted by | Oil Updates | Leave a comment

Watch the Birdie!

The birdie is oil which closed out at 70.02 today, up $1.92 or 2.8%. Is this deja vu all over again, or what? So, what’s going on, why did it happen after oil seemed to have peaked and claimed by experts the price to be unsustainable?

Well, they forgot to consider the ole dufus dollar which fell 1.31% today. Devaluation, inflation, it means the same thing . . . your money is worth less, so oil is going to cost more.  Many called for the rapidly collapsing dollar in recent weeks to rally. It did, for about three days or about as long as central banks had the dough to prop it up. I suspect the rise was Bernake unwinding those $600 billion in currency swaps made last fall as that amount will definitely put dent in the dollar’s decline.

The problem is, you see, that the world is hot to divest itself of dollars because they are not stupid and they see the USG trying to reinflate its never-ending string of bursting bubbles. They see the hot money flowing into equities and commodities which are up hugely this year despite few supply problems. This is all about hard assets, folks. People, or at least many people have had enough of paper. They see the falling Treasury yields like neon writing on the wall.

Where I live I’ve watched gasoline rise 12 cents in 12 days. And then today it rose 3.6 cents IN ONE DAY. Deja vu all over again. Watch the birdie, the proverbial canary in the coal mine. It has a song to sing and its name is trouble.

And then there is Rodan. Remember that old horror movie about the dinsaur bird of prey. Rodan is reincarnated as the bond market. Like James Carvill said, that is where the real power over the political rats lie. The bond market will ultimately bring Obama to his knees (and out the door). His only remaining option to retain power is to seize all power. Roosevelt did, so don’t be surprised if this raging ego does also.

Then you can start thinking about what country  you’d like to immigrate to — or which one will have you.

June 9, 2009 Posted by | Oil Updates | Leave a comment

Oil Rises 46% Since February

Today oil hit $63 a barrel, a six month high and 46% above its February low of $43. No one is really surprised by this since over the last six months oil has been selling below the average cost of production generally estimated in the $60-70 range. And while its hard to be specific about the cost due to constantly changing conditions, the fact is that for hard to get oil, such as deep offshore and high tech extraction methods such as horizontal drilling and gas injection wells, the cost is much higher.

Because of this, large numbers of costly new development projects have been cancelled. This puts us in the position of drawing down existing fields without replacing ANY of them with new discoveries. The world — and that includes the markets — continue to behave as if we have an oil tank that never empties, no matter how much is drawn from it. They seem to think that just because inventories are high now, this will continue indefinitely.

It will not, of course, since as I’ve claimed all along, oil supply is falling faster than demand fell, a demand decline that seems now to have reversed itself and is rising again. But note this and note it well: oil futures are in very steep contango, rising to $117 in 4/10 and then $129 in 6/10. So  you see it is with no great prescience that I predict the oil price doubling by next year; it is already a foregone conclusion. But while I’m not ready to predict it yet, I see numerous factors that could send the price even higher and we could well get another spike heading up to $200/bl.

But I do not see that lasting for very long for it will hit the economy like a baseball bat to the side of the head. Since I don’t believe in a recovery anyway, this will meld in with my second leg down prediction ( we have multiple reasons why this will happen) and result in an even larger demand decline than the last go-round. Naturally, that will be followed by  even larger production declines, thereby producing a continuing cycle of supply/demand spikes and declines.

Should the price of oil rise above $150 and stay there, the reason will not be a supply issue but an inflation issue. When oil hits these levels it will be because of the dollar’s increasing worthlessness.  And that is already a good part of the reason why the price is now rising.

Either way you look at it, the future doesn’t look very bright, and the reason is that these problems are all of our own making. Stupidity, greed and sloth produced it all. As always.

Our economy now reminds me of the Rodney King video with Rodney King as the economy with a dozen cops with billy clubs wailing on him. The cops, of course, are the government and its cheerleaders. Rodney doesn’t have much of a chance.

May 27, 2009 Posted by | Oil Updates | Leave a comment

Next Oil Crisis Brewing

I generally try to avoid writing articles like this owing to the fact that so few people care to look beyond the present quarter – if that far. But what is going on in the energy arena of late is just plain stupifyingly stupid. It hardly need be stated that the Obama government hates hydrocarbons and is setting about doing everything it can to ensure that we have as little of it as possible. Meanwhile, he professes to initiate a great effort to replace it with “alternatives” that is all talk and no action.

Cap and Trade is an euphemism for oil tax, to the tune of an estimated $400 billion annually. If you can be sure of anything, it is that those taxes will be passed on to the consumer as higher prices. And as if that isn’t enough, the Man wants to put coal fired power plants out of business. Never mind that accounts for 50% of US power generation. In the past we had energy crises as a result of negligence; now we’re about to have one by design.

To summarize the latest developments in oil production, to put it succinctly oil supply is falling faster than demand. In fact, demand has apparently bottomed and is starting to rise once again. Investment in oil exploration and production is down 18% from a level that was already grossly inadequate. Peak oil is getting ready to attack with a vengence.

World oil production peaked in July 2008 at 74.82 million barrels/day (mbd) and now has fallen to about 71 mbd. It is expected that oil production will decline slowly to about December 2010 as OPEC production increases while non-OPEC production decreases. After 2010 the resulting annual production decline rate increases to 3.4% as OPEC production is unable to offset cumulative non-OPEC declines.

The future sources of liquids production is highly unlikely that the 2008 peak will be exceeded because there are not enough countries with increasing oil production able to offset those countries with decreasing oil production. IEA oil supply warnings have been made in late 2008 when chief economist Birol said that the world needs the equivalent of four new Saudi Arabias just to maintain existing production to 2030. In April 2009, IEA’s executive director Tanaka said that the world may face a crude oil shortage by 2013.

price20090515

Care to place any bets on whether four Saudi Arbia’s worth of new oil will be found when no others as large have been found since 1926? Not one in 83 years of searching diligently.

Structural under-supply has been estimated by private analysts derived from IEA data, and accounting for any gains in alternatives, to result in an annual net decline in annual supply of over 2.5 million barrels/day, or about the total of Japan’s consumption.

But, as we witnessed last year, an actual shortage is not needed to send prices through the roof, just the hint that a shortage is possible, combined with shrinking above ground inventories. Even worse is the fact that US refinery capacity took a big hit and has seriously declined as many went bankrupt or simply closed down due to accumulated losses. So, overall we are in a much worse situation today than we were in fall of ’07. Note that the sales of SUV’s only briefly took a hit, but have since resumed and consumption is on the way back up, as are prices. You may recall that gasoline prices greatly lagged the huge oil price increases. You may have also noted that is no longer the case; when oil price rises, liquid fuels will follow immediately.

But there is yet another factor to consider, and that is the massive amounts of money pumped into the world economy by central banks, thereby creating an over-supply of money. Little explanation is needed to describe what happens when too much money collides with too little oil. Therefore, it is inevitable that yet another oil crisis will occur within the next two years, and probably sooner rather than later. My best guess is that oil will close out 2009 at above $80 and rise to $120 by April 2010. that means we will be looking at gasoline prices of $2.80 to $3.50 in those time frames.

Be advised that I could be wrong: things could get even worse than that. Easily.

May 20, 2009 Posted by | Oil Updates | , , | Leave a comment

2009 Oil in the News

2009 will be a year in which oil is again making headline news.

After a long holiday hiatus, not only from posting, but from even thinking about the terrible economic mess we’re in, I’m back at it again. I definitely needed the rest from so much bad news.

Oil is back in the news again, if only because the price is rising again during a recession. Is it the Palestinian crap again, or is it something else? No way of knowing, really, at least not yet.

The proverbial story of the pendulum is that when it swings too far one way, it will go too far in the opposite direction, and boy, it sure has done that, though many prognosticators insist that things are just getting back to normal, the way things should be with $10 oil and 25 cent gas. Don’t think so, folks. It’s still too early yet to have any good data on the supply/demand situation, though its clear that the big drop in US demand is reversing due to the price of gasoline falling 66%.

Its my contention that people will turn down their thermostats long before they will curtail their driving. In fact, driving may well increase as a cheaper form of recreation, so I’m not convinced that the economy will stifle demand all that much. Meanwhile, I’m much more concerned about declining production and exploration that is bad news for the future.

“The world faces a crude supply shock if oil prices remain below $70 per barrel, Qatar’s Energy Minister Abdullah Bin Hamad Al Attiyah said on Wednesday arguing that lower prices would discourage investment in new capacity.”

“A price of $70 per barrel is needed ‘to avoid any (supply) shock in the future,’ he said, explaining that this price level should be sufficient to encourage companies and oil producers to continue investing in capacity expansion projects. ‘Below $70, it will be non-economical to invest in the hydrocarbon sector,’

Al Attiyah told the Gulf Petrochemical and Chemical Association (GPCA) forum. ‘Today there is no cheap oil’ he added.”

Meanwhile, rapidly falling exports poses more of a threat than production as producing nations continue to consume more of their own production rather than export it. Russion exports were down 5% for 2008 and 2009 is likely to be the last year that Mexico exports any oil, once our second largest supplier.

The World Energy Outlook 2008 (WEO2008) was released last week and it contains updated studies and forecast from the International Energy Agency (IEA). One of their conclusions is that six new Saudi-Arabias is required until 2030, corresponding to 64 million barrels per day, in order to meet demand and counter decline. Also they see increasing average decline rates of world oil production, mostly due to a switch to smaller fields as the old giants mature.

Does anyone believe that six new Saudis will be found in the next twenty years, when nothing like it has been found since (1920’s). Not even close. The next big oil shock will be declining exports, not production, and the sad thing is that no one is taking this reality into account other than a few voices crying in the wilderness.

As always, we do nothing until a problem develops into a disaster.

January 5, 2009 Posted by | Oil Updates | Leave a comment