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Countdown to 100$ oil (8) - just raw data

by Jerome a Paris Mon Aug 8th, 2005 at 06:34:15 PM EST

With oil prices reaching new record highs (the WTI touched 63.99$/bl and closed at 63.94$/bl), today is a good time for a new "countdown" diary.

With my previous countdown diary a month ago, and the oil then already at 62$/bl, it seems that we won't make it to my suggested 100$/bl threshhold before the end of the year at such a leisurely pace of increase. Or will we?

(click on the picture to see the source, from wtrg economics)

Don't jump below the fold if you don't like scaremongering. It's only selective data.


Earlier "Countdown Diaries":
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1)

First, just a word on today's highs: the immediate cause was the combination of new terrorist threats against Saudi Arabia (with the US closing down the Embassy there) and production glitches in US refineries


Crude hits new highs amid security fears (FT)

Crude oil prices hit fresh record highs on Monday as speculative interest more than doubled in the wake of recent refinery outages and renewed geopolitical tensions.

Speculators on the New York Mercantile Exchange in the week to August 2 increased their net long positions to 26,070 contracts from 11,929 contracts, the Commodity Futures Trading Commission said last Friday.

(...)

The main impetus on Monday came from renewed security concerns in the Middle East, as US embassy and consulate buildings were shut in Saudi Arabian cities.


Terror worries push oil price towards $64 (FT)

Meanwhile, a sequence of accidents and lack of spare capacity mean refineries could face difficulties meeting global oil demand this winter. The International Energy Agency, the industrial countries' energy watchdog, has forecast that oil consumption will reach 85.9m barrels a day in the fourth quarter, up from 83.7m b/d today.

"The profusion of recent snags in the US refining system suggests that the system is being pushed beyond its sustainable limits and that interruptions are more likely," said Kevin Norrish, of Barclays Capital in London.

What this underlines once more is how tight the supply is - both on the production front, and on the refining side. There is barely enough oil produced, and barely enough capacity to crank out the gasoline we burn with such abandon.

Any disruption anywhere now has an impact on prices, whether it is unscheduled maintenance on a refinery, a hurricane hitting the Gulf of Mexico, a strike in Nigeria or in Norway, a terrorist threat in Saudi Arabia. So far, the disruptions in recent months have been relatively minor, which explains why oil prices have only jumbed by a few percentage points each time, but bigger disruptions have happened with regularity in the past, with an impact on overall production that the current market would be unable to cope with. Any of the Venzeuela conflict, the Nigeria strife or the Norway strike in 2002-03 (not to mention the drop linked to the Iraq war) would take out of the market more than the current spare capacity, optimistically estimated at 1.5 mb/d - the same 1.5 mb/d that Saudi Arabia has been promising us for the past two years and which have never appeared.

Look at the following OPEC production tables (from Middle East Economic Survey, a respected newsletter on the region, click on the pictures for the links):

In the first half of this year, OPEC has barely produced 1mb/d more than in the first half of last year, and it is still producing less than last autumn. Saudi Arabia contributed less than half the increase, and has never gone above the 9.5 mb/d level which is widely estimated to be its effective production capacity of light oil. As stated above, demand is expected to increase by 2.2mb/d by the end of this year. Will any of it come from Saudi Arabia or the rest of OPEC?

Meanwhile,


Oil Prices Hit New High, Near $64 a Barrel (AP via Yahoo)

The average nationwide price for regular unleaded gasoline is $2.34 a gallon, or 46 cents above last year, according to the Oil Price Information Service of Wall, N.J. Still, government data show that gasoline consumption is up almost 1 percent at 9.1 million barrels a day through July, compared with last year.

Gasoline prices increased by 25% in one year, and demand ... increased. When I wrote that demand was not very reactive to prices, I was not joking. What kind of price increase will be required to actually see demand reduction? Something somewhat bigger than 25%, it appears.

And WE WILL REQUIRE DEMAND REDUCTION for demand and supply to match.

A reminder, from the National Commission on Energy Policy, published a few weeks ago:


In a scenario confronted by the bipartisan panel of intelligence, military, and energy experts, a series of events over several months - unrest in Nigeria, an attack on an Alaskan oil facility, and the emergency evacuation of foreign nationals from Saudi Arabia - drives the price of oil to over $150 per barrel. These events lower expected employment levels by more than 2 million jobs, embolden countries that are major oil producers and consumers to pressure the U.S. on key foreign policy concerns, and cause a variety of other significant economic and security challenges.

The scenario removed only 3.5 million barrels of oil from a global market of more than 83 million barrels [per day, sic], resulting in the following consequences:

  • Gasoline prices of $5.74 per gallon;
  • Global oil price of $161 per barrel;
  • Heating oil prices of $5.14 per gallon;
  • Fall of gross domestic product for two consecutive quarters;
  • Drop in consumer confidence by 30 percent;
  • Spike in the consumer price index to 12.6 percent;
  • Ballooning of the current accounts deficit to $1.087 trillion;
  • Decline of 28 percent in the S&P 500;
  • Aggressive pressure on the U.S. from China to end arm sales to Taiwan, and;
  • Demands from Saudi Arabia for changes to U.S. policy regarding the Mid-East peace process.

So, to cope with a 4% drop in supply, a tripling of the oil price is necessary, in what was by necessity an optimistic scenario.

Do you still want to bet against 100$ oil before year end?

Display:
Are you tell us to buy some call on Brent price ? ;-)

my car uses at least 16L/100km lol :-))

by fredouil (fredouil@gmailgmailgmail.com) on Mon Aug 8th, 2005 at 10:01:27 PM EST
on the graph, or use one that has a zero. Those fixed ones undermine what is said.
Agree about $100 oil, though.
by observer393 on Mon Aug 8th, 2005 at 11:44:02 PM EST
wouldn't you be more likely to see demand reduction among the poorest consumers? For a typical American household earning fifty or sixty thousand a year spending a couple dozen extra dollars a month is unpleasant, but something that they can adjust to. On the other hand those 1000 a month earning middle class drivers in Latin America or Eastern Europe or other 'emerging' markets would be a lot more sensitive to price increases. Though of course E. Europeans at least already have much higher gas prices than in the US, albeit with much more efficient cars.

In any case I think that the US with its still quite low prices and high income levels is not the first place to look for the impact of higher prices on demand.

by MarekNYC on Tue Aug 9th, 2005 at 12:55:40 AM EST
Distillate stocks are building well.  Diesel/heating oil stocks have risen from 103 MMB to 127 MMB since May.  That's a higher stock level than last Dec with 4-5 months left to build stock.

August is the last month of driving season and of low RVP season.  Starting in Sept, they can begin adding more and more light ends into mogas effectively increasing production just as demand starts to wane.

Barring some major political upheaval or real damage to oil facilities, oil up move is just about done.

The original estimate for mogas demand growth was 2-3%.  The price move has held that back to 1%.  It takes 2-5 years before the fleet has a significant change in MPG.  Meanwhile, people whine and pay up.

by HiD on Tue Aug 9th, 2005 at 01:49:22 AM EST
I add one thing I noted in the tables Jérôme linked: Venezuela! While others could exceed their quotas (especially Algeria), Venezuela consistently fails to meet its own, production is roughly level with a slight downward trend.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Aug 9th, 2005 at 08:59:08 AM EST
About $100/barrel oil by year's end - I'm not sure, the current rise could have a similar speculation element like the Euro's rise in the previous year; but over the next few years, certainly. It's not long before demand reaches maximum supply level (or the other way), not 1.5 million barrels/day below.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Aug 9th, 2005 at 09:01:25 AM EST
[ Parent ]
I add one thing I noted in the tables Jérôme linked: Venezuela! While others could exceed their quotas (especially Algeria), Venezuela consistently fails to meet its own, production is roughly level with a slight downward trend.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Aug 9th, 2005 at 09:00:12 AM EST
I don't completely understand this.  With $100/bbl oil on the near-term event horizon, why would any producer increase production to sell their oil at $60/bbl?  Doesn't it make sense that the producers are reducing their production, waiting for the future much higher prices?

I suppose the usual answer is that the producers depend on the rest of the world's economy.  If the US and European economy suffers, the Venezuelan and Saudi economy suffers as well.  But how true is this, really?   Something like this seemed to have happened during the 70s Arab oil embargo.  At least the conventional wisdom is that the Saudis had a revelation that they can't just raise prices without consequences.  But now, with multiple sources, and with multiple markets, maybe this kind of market discipline is not possible.  Or, more likely, the producers believe it's not likely, and they are willing to take the risk that higher oil prices will lead to lower consumption and lower net profits.

by guleblanc on Tue Aug 9th, 2005 at 09:31:15 AM EST
Maybe they are already limiting their production to benefit from higher prices, and thus fro higher oveall revenues from the same resoirce or even less ofit. They have certainly been either unable or unwilling to invest to boost production in recent years.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Aug 9th, 2005 at 01:17:37 PM EST
[ Parent ]


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