$70 Per Barrel Could Be Just The Start

[FTBagain]

Found this interesting artical via TOD.

http://www.resourceinvestor.com/pebble.asp?relid=33010

It seems that consumer countries are piling the pressure on to OPEC to increase production. However, OPEC are saying NO! The excuse is that investment in bio-fuels could ultimately drive demand for their product away. This seems like an excuse to me. Higer oil prices will encourage more investment in alternative energy sources, so why not increase crude production to reduce prices and disrupt the development of the competition. Unless, of course they cannot increase production! Can you imagine the impact on the global markets is OPEC said,"Sorry we cannot increase our production because we are running out! "

Saudi Aramco's current state of upstream developments is still not fully understood. Based on growing research figures provided by independent analysts, it has been shown that current depletion of Saudi oil fields are increasingly above the normal 8% to be expected. Several authors have already shown that since beginning of 2006, current depletion is more likely between 10%-14%, which is very worrying.

Overall production is under threat, as the Saudis have been forced to push forward several of their major upstream projects, planned to come on-stream in 2008-2010.

Even with the additional production capacity, overall status is worse than before. It seems that OPEC's kingpin is no longer able to play its historical role of swing producer. At present, nominal production cannot be maintained, shown by Riyadh's willingness to keep to the quota and decrease its crude exports to Asia.

In other words Saudi is close to or has peaked! If this is the case and other big producerss, such as Mexico and the North Sea continue to decline before new production can be developed then oil prices are heading higher. It could be as soon as this year! Witness the low gasoline inventories in the US and this....

The IEA, as spokesman of the OECD countries, has urged OPEC to consider increased production levels in the coming months, as most analysts expect a supply crunch at the end of 2007. Markets have already shown increased worries about supply levels, pushing Brent crude oil price levels above the US$70 per barrel.

Inflation may fall in the short term but I think this last quote suggests that it may make a strong come back pretty soon..

At the same time, investors should be warned that if real facts should emerge about the huge problem Saudi reserves are facing, price spikes of above US$120 per barrel will not be the dream come true for bankers only, it will be a normal fact of life.

[D'artagnan]

Shouldn't happen. By the end of '07, the US should be in recession which must surely bring down the price of oil.

[Frank Hovis]

Shouldn't happen. By the end of '07, the US should be in recession which must surely bring down the price of oil.

Can't see it having that much effect even if they do (and last set of figures suggets otherwise). Oil consumption is increasing everywhere and production is not moving. I see oil as a one way bet.

I certainly agree that OPEC aren't increasing production because they can't; much as they may pretend otherwise.

[House of Lords]

Can't see it having that much effect even if they do (and last set of figures suggets otherwise). Oil consumption is increasing everywhere and production is not moving. I see oil as a one way bet.

I certainly agree that OPEC aren't increasing production because they can't; much as they may pretend otherwise.

Nah, don't believe it - they're holding off as the yanks have high stocks.

They will release more later in the year.

[zceb90]

Found this interesting artical via TOD.

http://www.resourceinvestor.com/pebble.asp?relid=33010

It seems that consumer countries are piling the pressure on to OPEC to increase production. However, OPEC are saying NO! The excuse is that investment in bio-fuels could ultimately drive demand for their product away. This seems like an excuse to me. Higer oil prices will encourage more investment in alternative energy sources, so why not increase crude production to reduce prices and disrupt the development of the competition. Unless, of course they cannot increase production! Can you imagine the impact on the global markets is OPEC said,"Sorry we cannot increase our production because we are running out! "

In other words Saudi is close to or has peaked! If this is the case and other big producerss, such as Mexico and the North Sea continue to decline before new production can be developed then oil prices are heading higher. It could be as soon as this year! Witness the low gasoline inventories in the US and this....

Inflation may fall in the short term but I think this last quote suggests that it may make a strong come back pretty soon..

Saudi's largest oilfield (Ghawar) has been extensively analysed by Stuart Staniford assisted by petroleum geologists and they firmly concluded that Ghawar has peaked. As energy investment banker, Matt Simmons, has said 'if Ghawar has peaked then so has Saudi....and the world'. Stuart's highly detailed research is the best I've ever seen on the web: Depletion Levels in Ghawar (updated)

If indeed we are now facing steep output declines in Ghawar the markets will soon tell us by their pricing signals - in such an event oil won't remain at double digit prices per bbl for much longer.

Edited June 16, 2007 by zceb90

[clv101]

Oil consumption is increasing everywhere and production is not moving.

Not quite! From the 2007 BP Statistical Review of world Energy:

US consumption declined again (-1.3%), joined by the UK (-1.0%), France(-0.4%), Japan (-3.6%), Kuwait (-10.0%), Indonesia (-11.9%), Italy -(1.0%) and Canada(-1.5%).

India rebounded from the previous years -3% drop in 2005 consumption to +0.6% in 2006.

[Frank Hovis]

Not quite! From the 2007 BP Statistical Review of world Energy:

US consumption declined again (-1.3%), joined by the UK (-1.0%), France(-0.4%), Japan (-3.6%), Kuwait (-10.0%), Indonesia (-11.9%), Italy -(1.0%) and Canada(-1.5%).

India rebounded from the previous years -3% drop in 2005 consumption to +0.6% in 2006.

I'm always ready to be corrected. Be interested in the figures for China and India.

Can you post the link for my interest; I'm not doubting your figures.

[clv101]

Report is here:

http://www.bp.com/productlanding.do?catego...ntentId=7033471

China: +6.7% (9% of global oil consumption)

India: +0.6%

Edited June 16, 2007 by clv101

[OnlyMe]

Lots of extra revenue to be gained in 2006, with potenitally a short term spike in oil prices.

Taking a very simplistic look at that data, 25 countries had increased output over the year 28 had falling output.

[Frank Hovis]

Report is here:

http://www.bp.com/productlanding.do?catego...ntentId=7033471

China: +6.7% (9% of global oil consumption)

India: +0.6%

Thanks.

[Bearfacts]

Anyone any thoughts on how the evolving conflict in Palestine will impact oil prices ? Looks to me like Iran is spoiling for a fight with Israel and in the not too distant future too. Interesting if a little frightening times we are living through.

[The Ayatollah Buggeri]

Not much, unless Iran or another oil-producing country gets involved. Neither Israel, the occupied territories, Lebanon or Syria produces any significant amount of oil or is involved in its transportation, and so if they start wars with each other, it isn't going to affect the oil price significantly. However, if Iran weighs in with overt support for Israel's opponents, and/or tries to block supplies of oil to Israel, thereby dragging the US in, expect prices to head in the same direction as HisBollard's (or however you spell it) missiles.

[Bearfacts]

Not much, unless However, if Iran weighs in with overt support for Israel's opponents, and/or tries to block supplies of oil to Israel, thereby dragging the US in, expect prices to head in the same direction as HisBollard's (or however you spell it) missiles.

From what I read Iran is heavily involved in this conflict albeit covertly for now. I believe Israel has told the US that they will not allow Iran to develop nuclear capability too. Looks like we are in for a bit of a 'bust up'.

[sikejsudjek]

Makes Merv's comments about falling energy prices controlling inflation seem away with the faires. Add in Putin's strong arm tactics of turning off supply when it suits him, and energy costs are far more likely to be going up.

[Sebastian]

Found this interesting artical via TOD.

http://www.resourceinvestor.com/pebble.asp?relid=33010

It seems that consumer countries are piling the pressure on to OPEC to increase production. However, OPEC are saying NO! The excuse is that investment in bio-fuels could ultimately drive demand for their product away. This seems like an excuse to me. Higer oil prices will encourage more investment in alternative energy sources, so why not increase crude production to reduce prices and disrupt the development of the competition. Unless, of course they cannot increase production! Can you imagine the impact on the global markets is OPEC said,"Sorry we cannot increase our production because we are running out! "

In other words Saudi is close to or has peaked! If this is the case and other big producerss, such as Mexico and the North Sea continue to decline before new production can be developed then oil prices are heading higher. It could be as soon as this year! Witness the low gasoline inventories in the US and this....

Inflation may fall in the short term but I think this last quote suggests that it may make a strong come back pretty soon..

The current wave of rises has more to do with poor levels of refinery output from the US than anything else. These levels were expected to have picked up in recent weeks and thus far it has not happened and this has allowed oil prices to rise even further. Many investors that are long on oil at the moment don't expect the up-tick to continue in the medium term, though in the long run prices could easily go much higher. Any evidence in consecutive weeks of the expected improvement in US refinery output will force the price of oil down - for the moment. Markets are itching to sell, if the news is right, and light crude could easily fall to under $60 a barrel very quickly in coming weeks.

It is not in OPEC's long-term interest to have oil prices rise too high, too quickly, because of a number of factors: The most immediate being the impact on global inflation, leading to higher interest rates and economic slowdown - resulting in dampening demand and a potential sharp retreat in oil prices. Of course they may also be concerned about major capital investment programs in substitute products, although my inkling is that oil producing countries probably snigger and take these with a pinch of salt at present. Were George Bush to spin a Reagan-like star wars plan - announcing a £2 trillion dollar research project into alternative fuels, then the oil barons of the world might be forced to sit up and take notice and to temporarily suspend their vacation trips to space.

Edited June 18, 2007 by Sebastian

[Goldfinger]

Shouldn't happen. By the end of '07, the US should be in recession which must surely bring down the price of oil.

Ah. You mean people in the US just stop drining to work, and to the supermarket, and to school, and to ...

Understand.

[The Ayatollah Buggeri]

No, but they'll scale down non-essential driving.

[MarkG]

Ah. You mean people in the US just stop drining to work, and to the supermarket, and to school, and to ...

Unemployed people won't be driving to work for long... and a recession will certainly cut back on discretionary travel. Nor will unemployed people be funneling money to China to buy tat which the Chinese then use to buy oil.

Whether it will be enough to compensate for production declines is another matter.

[Te Mata]

The current wave of rises has more to do with poor levels of refinery output from the US than anything else. These levels were expected to have picked up in recent weeks and thus far it has not happened and this has allowed oil prices to rise even further. Many investors that are long on oil at the moment don't expect the up-tick to continue in the medium term, though in the long run prices could easily go much higher. Any evidence in consecutive weeks of the expected improvement in US refinery output will force the price of oil down - for the moment. Markets are itching to sell, if the news is right, and light crude could easily fall to under $60 a barrel very quickly in coming weeks.

Hang on a minute. Poor refinery output might have upward pressure on refined gasoline prices, (and it has, view chart http://new.quote.com/futures/adv_chart.act...overlay=CL+%23F blue bars gasoline, green bars oil) but it should have a downward pressure on crude prices as it impinges on crude demand.

No, this is nuttin' to do with refinery capacity.

[Goldfinger]

Unemployed people won't be driving to work for long... and a recession will certainly cut back on discretionary travel. Nor will unemployed people be funneling money to China to buy tat which the Chinese then use to buy oil.

Whether it will be enough to compensate for production declines is another matter.

I see the argument, but the last sentence is exactly where I have my doubts. On the long run,

even a sharp recession might not help to bring the price down.

[Sebastian]

Hang on a minute. Poor refinery output might have upward pressure on refined gasoline prices, (and it has, view chart http://new.quote.com/futures/adv_chart.act...overlay=CL+%23F blue bars gasoline, green bars oil) but it should have a downward pressure on crude prices as it impinges on crude demand.

No, this is nuttin' to do with refinery capacity.

I'm not sure I understand your argument. If refinery output is down, gasoline stocks are either depleted or the import of refined gasoline increases, if the same demand is to be met. So what does this mean for crude? Well, the domestic demand for crude may decrease temporarily but this is directly offset by the rise in gasoline imports, or in gasoline stock depletion. It is obviously cheaper for the US to produce its own gasoline using crude oil inputs, rather than importing it. The knock-on impact of their failure to produce their own gasoline in a scenario of depleted US gasoline stocks, means some other country will need to increase their crude inputs into gasoline production and this is will help push the price of world oil up. The actual total number of crude barrels used in a global context might be the same but markets like to take a perspective on these things. The market interpretation at present is that the US may struggle to meet its domestic demand for gasoline over the peak summer vacation period and therefore market players are justified in going long on the price of crude for as long as this perspective remains valid.

[kagiso]

The current wave of rises has more to do with poor levels of refinery output from the US than anything else. These levels were expected to have picked up in recent weeks and thus far it has not happened and this has allowed oil prices to rise even further. Many investors that are long on oil at the moment don't expect the up-tick to continue in the medium term, though in the long run prices could easily go much higher. Any evidence in consecutive weeks of the expected improvement in US refinery output will force the price of oil down - for the moment. Markets are itching to sell, if the news is right, and light crude could easily fall to under $60 a barrel very quickly in coming weeks.

It is not in OPEC's long-term interest to have oil prices rise too high, too quickly, because of a number of factors: The most immediate being the impact on global inflation, leading to higher interest rates and economic slowdown - resulting in dampening demand and a potential sharp retreat in oil prices. Of course they may also be concerned about major capital investment programs in substitute products, although my inkling is that oil producing countries probably snigger and take these with a pinch of salt at present. Were George Bush to spin a Reagan-like star wars plan - announcing a £2 trillion dollar research project into alternative fuels, then the oil barons of the world might be forced to sit up and take notice and to temporarily suspend their vacation trips to space.

It appears to be a refinery problem because we have already peaked light sweet oil, and the refineries can't cope with the high sulphur stuff that is left, which also seems to have plateaued.

Despite all the guff from OPEC, they clearly have peaked or they wouldn't have let the price rise so high. The easiest way to stop all the researsh and investment would be to open the taps and bring the price down. They haven't done it because they can't, so they are resorting to empty threats.

But no worries. Cellulosic ethanol is already undercutting oil, and prices are going to go down:

http://thefraserdomain.typepad.com/energy/..._etha.html#more

Cellulosic Ethanol from Bagasse for $1.00 per Gallon

Brazil's Dedini SA, a leading manufacturer of sugar and biofuel equipment, has announced that it has demonstrated a cellulosic ethanol process on an industrial scale, a development that could revolutionize the industry by boosting the competitiveness and energy balance of biofuels.

Dedini's São Luiz Mill in São Paulo state began producing cellulose ethanol from bagasse - the leftover cane stalk after the sucrose is pressed out - at about US$ 40 cents a liter in 2002. Production costs have now fallen, due to improvements in processing technologies, to below €20/US$ 27 cents a liter (US$ 1.02 per gallon).

"This means the fuel is cost-competitive with oil at US$42 a barrel," said Dedini Operations Vice President José Luiz Olivério at the seminar.

Further commenting, Oliverio said "this will be able to boost a mill's ethanol output by 30 percent without planting one more cane stalk". In short, a hectare of sugar cane will deliver a third more ethanol and now yield up to 9000 liters, three to four times more than corn.

The technology uses two pretreatment steps to convert bagasse, the lignocellulose-rich byproduct from cane processing, into ethanol: (1) pretreatment of the biomass with organic solvents, and (2) dilute acid hydrolysis. The innovation consists of adding a first stage pretreatment step which allows the diluted acids to do their work much faster and more efficiently.The liquid hydrolyzates are then easily fermented and distilled into ethanol. Because of the speed of the process, the proprietary technique has been dubbed 'Dedini Rapid Hydrolysis' (DHR).

By pretreating the biomass with organic solvents, the lignocellulose is decomposed, which allows for a much faster attack of the acids. The hydrolyzed fraction that is then to be turned into ethanol is easily fermentable because it consists of hexoses - a monosaccharide consisting of 6 carbon atoms.

Dedini's first large scale demonstration facility produced 5000 liters per day. The objective is now to optimize the technique by means of process integration, automation and by increasing the stability and safety of the sensitive conversion process. Olivério thinks it must be possible to go beyond the current 30% increase in sugar cane ethanol production per hectare, and achieve a doubling within a few years.

On a very rough back of a fag packet calc, I reckon you would need to plant approximately one eighth of Brazil's land area with sugar cane to replace all oil - which of course you wouldn't need to, you would only need to replace the shortfall.

Given that you can also grow sugar cane in other countries in S America, N America, Africa, Asia and Australasia, and also that you have plenty of waste cellulose produced in corn fields, wheat fields, pine forests, etc, all over the world, and also that biotechnology could drive down costs a lot further, any problems are going to be strictly short term.

Meanwhile photo-voltaics are already competitive with existing electricity generation at peak day time loads, and PV costs are going down consistently at 4% per year.

No long term energy crisis in sight.

[Sebastian]

It appears to be a refinery problem because we have already peaked light sweet oil, and the refineries can't cope with the high sulphur stuff that is left, which also seems to have plateaued.

Despite all the guff from OPEC, they clearly have peaked or they wouldn't have let the price rise so high. The easiest way to stop all the researsh and investment would be to open the taps and bring the price down. They haven't done it because they can't, so they are resorting to empty threats.

But no worries. Cellulosic ethanol is already undercutting oil, and prices are going to go down:

http://thefraserdomain.typepad.com/energy/..._etha.html#more

On a very rough back of a fag packet calc, I reckon you would need to plant approximately one eighth of Brazil's land area with sugar cane to replace all oil - which of course you wouldn't need to, you would only need to replace the shortfall.

Given that you can also grow sugar cane in other countries in S America, N America, Africa, Asia and Australasia, and also that you have plenty of waste cellulose produced in corn fields, wheat fields, pine forests, etc, all over the world, and also that biotechnology could drive down costs a lot further, any problems are going to be strictly short term.

Meanwhile photo-voltaics are already competitive with existing electricity generation at peak day time loads, and PV costs are going down consistently at 4% per year.

No long term energy crisis in sight.

The problem with OPEC is that if they are to change tact, then they must agree it first. Even after agreeing it, it usually takes them 3 months to implement any change. They are not as influential as they used to be either, as the their global market share is not what it used to be.

Let's start rolling out those cars fuelled by candyfloss.

[kagiso]

Let's start rolling out those cars fuelled by candyfloss.

I was running my Yamaha Enduro 175 on 'candyfloss' in Malawi 20 years ago, no problems other than me regularly falling off it.

Indycars are now running on 'candyfloss', publicity stunt certainly, but doesn't seem to affect the performance:

http://www.indycar.com/news/story.php?story_id=4102

[Guest casaloco]

If you want to know where Peak Oil will hit first consider this fact:

Cars can run on vegetable oil or alcohol.

and

Electricity can be renerated by nuclear power stations

but

Planes only run on Jet-A.

Still think branson was being green by investion all of virgin airways profits in alternate fuels...???

Ed Note: If you fancy holiday somewhere warm, now would be a good time...