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ExxonMobil vs Total - who's right?

by Jerome a Paris Sat Sep 8th, 2007 at 12:55:25 PM EST


Price of oil will continue to rise, says Total chief

High oil prices are here to stay, according to Total, the French oil multinational, which has raised its forecast value of a barrel of crude from $40 to $60 as it predicts continuing strong demand for oil, rising costs and political constraints on production.

Total's decision to bet on a higher oil price is based on fundamentals, said Christophe de Margerie, the chief executive, who said the recent turmoil in the debt markets had shaken most of the speculative money out of oil futures. Despite the loss of the hot money, the price of Brent crude was about $77 per barrel yesterday, close to its peak of $78.

"Demand is still strong in Asia, there is strong demand in the Middle East for electricity generation and water purification. The price will remain high," he said.

The Total chief said that biofuels would not provide an answer for the world's energy needs, insisting that hydrocarbons and, increasingly, nuclear power, would supply 80 per cent of the world's energy for the next 50 years.


Fundamentals don't justify $70 oil price: Exxon CEO

CALGARY (Reuters) - Oil market fundamentals do not justify a crude oil price as high as $70 a barrel, which is below today's level, Exxon Mobil Corp's top executive said on Friday.

"I cannot explain why we have $70 oil. The fundamentals behind supply and demand do not support $70 oil. The fundamentals support something much less," Exxon Mobil CEO Rex Tillerson told a business roundtable at the Spruce Meadows equestrian facility on the outskirts of Calgary.

(...)

"There's something else going on there that I don't get," Tillerson said, speaking to an audience of business and political leaders about energy security.

He said he believes Saudi Arabia has the oil resources and technological ability to boost its daily output capacity to 12.5 million barrels. However, he did not give a timeframe for such an increase.


Display:
The Exxon guy doesn't exactly exude confidence in his own opinion: "I just don't get it".

Oye, vatos, dees English sink todos mi ships, chinga sus madres, so escuche: el fleet es ahora refloated, OK? — The War Nerd
by Migeru (migeru at eurotrib dot com) on Sat Sep 8th, 2007 at 01:27:53 PM EST
He said he believes Saudi Arabia has the oil resources and technological ability to boost its daily output capacity to 12.5 million barrels. However, he did not give a timeframe for such an increase.

Maybe this is why he just doesn't get it.

Saudi produces 10.5 million barrels daily now, so boosting production to 12.5 million barrels would be 19% increase.  

And as I understand it the amount of reserve capacity the OPEC has is on the wane.  

Ghawar in particular seems to be on the wane, as an upcoming Atlantic Monthly suggests.

No country is more important to oil markets than Saudi Arabia. The kingdom produced roughly 9.2 million barrels of crude a day in 2006, and accounted for 19 percent of world oil exports. Many analysts expect it to supply a quarter of the world's added production over the next few years. And as the only producer with significant excess capacity, it has played a crucial role in alleviating temporary supply disruptions, increasing daily production by 3.1 million barrels during the first Gulf War, for example, when oil production in Iraq and Kuwait dropped by 5.3 million barrels.

The Ghawar oil field is the kingdom's crown jewel. Stretching for more than 150 miles beneath the desert, it is the largest known deposit in the world. It produces perhaps twice as much oil as any other field, and has doubtless accounted for more than half of Saudi Arabia's oil production. Yet the Saudis have been removing oil from this reservoir for half a century. Sooner or later, its production must fall.


James Hamilton the author of the article has a blog, and posted an open thread on the piece.

I'm not an oil person, but that doesn't seem to be the fundamental problem.

The fundamental problem (which has nothing to do with oil) is market fundamentalism, the belief that the "creative destruction" of the market will allow the market to continue to growth without exogenous constraint.  The autistic character of economic thinking is the problem, that being the inability to confront the truth that as much as we have the power through agency to influence the course of events, we are in the end bound by structure.  

We can not through technology provide the means by which we can overcome natural structures (including social structures), in the end ingenuity is not the answer, living within our means is.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sat Sep 8th, 2007 at 02:02:54 PM EST
[ Parent ]
What Tillerson doesn't get is that it's as much about the  $  going down the pan, as it is about oil getting hugely more valuable.

What's oil doing in other currencies eg € ?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Sep 8th, 2007 at 01:42:00 PM EST
There was a pair of charts in yesterday's FT. The Euro and the NYMEX crude are doing similarly with respect to the dollar, except that the range of variation in the price of oil is 6 times the range of variation in the value of the Euro.

So the dollar's weakness explains maybe 15% of the variation in the price of oil.

Oye, vatos, dees English sink todos mi ships, chinga sus madres, so escuche: el fleet es ahora refloated, OK? — The War Nerd

by Migeru (migeru at eurotrib dot com) on Sat Sep 8th, 2007 at 02:01:41 PM EST
[ Parent ]
If you take 2000 as your starting point, you can have oil at, say $35/bl and the dollar at 0.85c/euro - thus oil at close to 40 eur/bl

Now, we have oil at $65/bbl (last years' average) and 1.35c/euro, thus oil at around 50 eur/bl.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Sep 8th, 2007 at 02:26:16 PM EST
[ Parent ]
So oil has risen maybe 25% in euro terms and doubled in dollar terms...

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sat Sep 8th, 2007 at 03:37:55 PM EST
[ Parent ]
...and in the 7 years from 2000 on the basis of a Euro price index @ 100 in 2000, what is the index now? ie Euro price inflation in that period?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sat Sep 8th, 2007 at 03:42:44 PM EST
[ Parent ]
From the ECB annual rate of change of the CPI:


2006    2.1775
2005    2.1911
2004    2.1397
2003    2.0758
2002    2.2469
2001    2.3432
2000    2.1021
1999    1.1204
1998    1.0919
1997    1.5740
1996    2.1821
1995    2.4415
1994    2.6969
1993    3.2548
1992    3.6243
1991    4.1327

So 100 at the beginning of 2000 went to 116.31 at the end of 2006.

by Laurent GUERBY on Sat Sep 8th, 2007 at 04:34:33 PM EST
[ Parent ]

The charts look very similar until one realises that the range of the right-hand (oil) chart is much larger percentage-wise than the range of the left-hand (Euro) chart.

Oye, vatos, dees English sink todos mi ships, chinga sus madres, so escuche: el fleet es ahora refloated, OK? — The War Nerd
by Migeru (migeru at eurotrib dot com) on Sat Sep 8th, 2007 at 07:10:35 PM EST
[ Parent ]
There's something else going on there that I don't get

exactly.

you are the media you consume.

by MillMan (millguy at gmail) on Sat Sep 8th, 2007 at 11:20:31 PM EST
Why don't hedge by owning both? ;)

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Sep 9th, 2007 at 05:37:34 AM EST
Even if production were bumped by 19%, we'd still simply be prolonging the inevitable by a short amount of time.  The fundamentals are these:  Demand is rising at a faster pace than supply is capable of meeting, and so prices are going to rise.  It's pretty simple.  The Exxon guy can talk all he likes, but listening to him would be like listening to these idiots at CountryWide and the National Association of Realtors talking about the housing market in America.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 9th, 2007 at 08:47:14 AM EST
Some interesting data above illustrates that the increase of the price of Oil in dollar terms has much to do with the supply and demand for dollars.

ie the price of Dollars in Oil.

The thread on Bubbles and Balances is relevant.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Sep 9th, 2007 at 09:03:31 AM EST
[ Parent ]
That probably plays a role, but the underlying trends on the real variables are undeniable.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 9th, 2007 at 09:24:58 AM EST
[ Parent ]
True. Peak Oil is a reality.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Sep 9th, 2007 at 10:57:06 AM EST
[ Parent ]
Is it really plausible that these two companies can arrive at such divergent conclusions based on the same data? Unless someone is suffering from cognitive distance of massively clinical proportions, it would seem to me at least equally plausible that they have drawn the similar conclusions from the same data but adopted divergent approaches as to how to spin it.

Will Exxon be hurt that much worse by Peak Oil?

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Sun Sep 9th, 2007 at 09:08:41 AM EST
Those companies will not say anything on their real conclusion, they will say anything to influence as much as they can.

ExxonMobil might have a bigger relative refining business than Total...

For Peak Oil:

http://www.econbrowser.com/archives/2007/09/open_thread_on.html

EIA reported peak production (of the subset they monitor) happened in april 2005, and for for 28 monthes EIA reported production has gone downward.

Peak oil might be behind us.

by Laurent GUERBY on Sun Sep 9th, 2007 at 04:02:34 PM EST
[ Parent ]


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