ASPO-USA 2010 Peak Oil Conference

Washington, DC, Oct 7-9 2010 Register Now

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1. Oil and the Global Economy

Oil prices moved up from circa $74 a barrel last week, helped by the shutdown of a leaking 460,000 b/d crude pipeline west of Chicago that sent prices up $2.22 to close at $76.47 on Friday. For most of the week, the usual factors, of employment, economic growth, and European bank debt moved the oil markets. Oil futures are shifting further into contango, with next spring’s futures contracts selling for nearly $4 a barrel more than the October contract. This suggests that oil markets are expecting higher prices next year.

For the week ahead, price movements are likely to depend on how fast Enbridge can repair its leaking pipeline in Illinois. This pipe carries about 20 percent of 2.2 million b/d that the US imports from Canada and is the main source of supply for several refineries in the Chicago area.

With US oil consumption and domestic production basically flat, US petroleum and product stockpiles are now largely a function of how much oil refiners are importing each week. While analysts were forecasting an increase of 1 million barrels, or a drop in crude inventories of 730,000 barrels depending on which survey one likes, the American Petroleum Institute’s weekly survey put the decrease at 7.3 million. The EIA survey which came out on Thursday showed crude stocks dropping by 2 million barrels but left total petroleum inventories essentially unchanged.

China’s net crude imports increased to 20.65 million metric tons in August, or 5 million barrels a day, from 18.8 million in July. Net imports of oil products doubled to 490,000 tons. Beijing’s imports had been rising rapidly earlier this year, reaching a high of 22.1 million tons in June before falling in July as the government tightened the screws on economic growth. The IEA, which reported that China’s oil imports were increasing at nearly 10 percent year over year in the spring, now estimates that Beijing’s demand will increase by only 4.6 percent year over year for the next six months or so.

Beijing continues its efforts to buy overseas oil assets. Last week Chinese companies offered $7 billion for Brazil’s OGX which is reported to have 3.7 billion barrels in seven blocks off Brazil’s coast. Beijing also made a bid for oil blocs off Gabon.

In its monthly Oil Market Report the IEA joined Platts and Bloomberg in reporting a fall in global oil production for August. The Agency says that production fell by 250,000 b/d last month to 86.6 million b/d. After recovering from the 2008 production cuts last year, global production has been flat at around 86-87 million b/d. Shutdowns for maintenance and the occasional terrorist attack in Iraq and Nigeria have been responsible for monthly drops.

A -tanker-tracker‖ which attempts to monitor future OPEC oil shipments says that OPEC exports are likely to drop by another 130,000 b/d in September. The IEA is still forecasting that global demand will increase to an average of 87.9 million b/d in 2010. The Agency warns, however, that this number could fall if the global economic situation continues to deteriorate.

OPEC, which foresees global demand as only reaching 86.5 million b/d next year, has trimmed its forecast due to the deteriorating global economy.

2. The Macondo report

BP’s release of a 193-page internal investigation of the Macondo explosion was met by a storm of protests from the subcontractors with whom BP seeks to share the blame — and of course the liabilities. The report, which was prepared by a team of about 50 BP employees and approved by company lawyers prior to release, concluded that numerous small failures accumulated to cause the blowout. The report ignores underlying issues such as whether the well was designed properly or whether cost-saving shortcuts were taken; it focuses on decisions and actions taken on the rig just prior to the explosion – mostly by Transocean employees.

Among the ironies to emerge from the report was that Transocean workers on the rig had the time and opportunity to divert gas escaping from well over the side of the rig and possibly avert an explosion.

While admitting mistakes, the BP report seeks to deflect charges of gross negligence which can expose the company to heavier fines and criminal prosecutions.

Briefs (clips from recent Peak Oil News dailies are indicated by date and item #)

  • Iran‘s state television reported its oil minister as saying Tehran has raised its gasoline output to attain self-sufficiency, contradicting previous remarks by other energy officials who had said major refinery capacity increases were required before self-sufficiency could be achieved. Meanwhile, Iran has been storing some 600,000 tons of fuel oil on supertankers due to China’s poor feedstock demand and to financing difficulties caused by Western sanctions. (9/8, #4,6)
  • The US Treasury added Iranian-owned, German-based European-Iranian Trade Bank AG to its blacklist, saying the bank has provided a financial lifeline to Iranian companies involved in weapons proliferation. Similarly, South Korea said it will ban any new investment for Iranian oil, gas and construction projects, including a key Iranian banking operation, Bank Mellat, which handles 70 percent of South Korean exports to Iran. (9/8, 7,8,9)
  • China will increase coal imports from Russia by two-thirds in return for a $6 billion loan. Russia will use the loan to finance investments in domestic coal. China’s trade surplus also narrowed last month, with imports growing much faster than expected though not enough to defuse political pressure on Beijing over the level of its currency. (9/8, #12 and 9/10, #14)
  • Government scientists studying the BP disaster are reporting that microbes are consuming the oil in the Gulf without depleting the oxygen in the water and creating “dead zones”. Outside scientists said that so far this vindicates the decision by BP and the government to use massive amounts of chemical dispersants deep underwater to break up the oil before it reached the surface. (9/8, #15)
  • Rising sea levels have led Indian scientists to conclude that the Indian Ocean is rising faster than other oceans. Sea surface measurements and satellite observations confirm that an anthropogenic climate warming is amplifying regional sea rise changes. This would have far-reaching impacts on the climate of vulnerable nations. (9/6, #6)
  • The USDA said U.S. corn supply will shrink to its tightest in 15 years next year due to strong global demand and a smaller-than-expected crop. However, wheat supply forecasts were cut by less than expected, allaying fears that the world was headed for a repeat of the 2008 food crisis. (9/11, #8)
  • Libya’s top oil official said crude oil should be priced around $100 a barrel to counteract the recent surge in global wheat prices which is having an adverse financial impact on OPEC members. (9/8, #3)
  • An aging population and the need for more workers have prompted China’s Communist Party to consider relaxing the ban that restricts most couples to one child. A dramatic decline in birth rates and improved longevity over the past two decades has caused China’s population to age at one of the fastest rates ever recorded. (9/10, #15)
  • Under pressure from shareholders, some of London’s biggest banks–HSBC, Barclays and Standard Chartered–have been ramping up private contingency plans to move their headquarters overseas if the regulatory onslaught on the UK financial industry intensifies. (9/11, #7)
  • Energy experts warn that a shortage of uranium is going to hit the nuclear energy industry. Current nuclear plants consume around 67,000 tons of high-grade uranium per year. With known uranium deposits estimated at 4-5 million tones, this means the present resources would last 42 years. With the planned increase in nuclear power plants, this time span is going to be considerably reduced. (9/8, #23)
  • Monthly car sales in India surged to an all-time high in August as lower borrowing costs, introduction of new models and forthcoming festivals in an expanding economy lifted demand for cars. (9/9, #9)
  • Mexico will continue raising domestic fuel prices to eliminate costly subsidies. Mexican drivers enjoy subsidies that in July had them paying roughly 10 percent less to fuel their cars than US consumers do. (9/11, #11)
  • Brazil expanded the offshore area where drilling for crude or prospecting for minerals requires government authorization as it seeks to increase control over natural resources. Prospecting anywhere on the undersea continental shelf that extends from Brazil’s coast will now require government approval, even in areas that are beyond current sea borders. (9/7, #6)