Category Archives: Oil

Re: Mike Masters on oil on CBS

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>   
>   On Mon, Jan 12, 2009 at 11:49 AM, Russell
>   wrote:
>   
>   Very compelling argument. Still believe it is the
>   Saudis controlling price?
>   

Has to be, within a range of net demand.

Notice their ‘production increase’ right before the big sell off in July?

>   
>   Makes sense: I remember the Kuwait oil
>   minister saying that he could not explain $140
>   oil. He was not seeing any new demand to
>   drive up price. Everyone said he was lying.
>   
>   A friend was telling me that there was no
>   shortage. In March he was trying to find
>   storage along the Mississippi River. There was
>   no. All tanks full.
>   

Right, never has been a shortage. Just price setting. And the price setters were happy to accommodate the run up until it cut demand, as they were running out of capacity as well.

>   
>   So today we have global demand declining 1
>   million barrels per day.
>   

Right, no big deal. Nothing OPEC hasn’t already adjusted for.

The problem has been the inventory liquidation as prices fell. No telling when that has run it’s course. Futures markets are saying not yet, but getting closer to the end.

The Masters Inventory Liquidation is probably the largest inventory liquidation of all time.

Hopefully it leads to pension funds not being allowed to use passive commodity strategies as investments, but not sure it won’t all come back. There’s still a lot of it going on. I’d vote to have it outlawed.

>   
>   Supply is being cut back. We have the Chinese
>   economy tanking. So are we looking at $25 oil?
>   

Not impossible until the inventory liquidation has run its course. It took about this long in 2006. I didn’t think it would last that long this time, but the liquidation has been a lot larger than back then.

>   
>   If so, we are going to see a violent world at a
>   time of global economic weakness. Russian is
>   struggling, so is Venezuela and Iran. Potential
>   uprisings there.
>   

Yes.

>   
>   Here is the USA it is a true blessing. Without
>   lower oil prices, we would be a serious
>   economic quandary.
>   

It’s already pretty serious! While consumers are being helped, the energy related companies have gotten hurt and helped bring stocks down. Lower crude also makes stronger/USD harder to get overseas, so they stop buying our stuff like they were before. Domestics should pick up that slack as their oil bills go down, but there’s a big lag due to rising unemployment general economic disruption.

>   
>   Who said markets were understandable let
>   alone logical.
>   

Can’t remember. Probably me!


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More Saudi cuts

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The consumption numbers I’ve seen show the US now about flat year over year, but markets have been telling us there’s been an inventory liquidation in progress. The contango in crude has recently come in some, but remains at what is probably ‘full carry’, and last I checked WTI was below Brent.

The gasoline contango has also narrowed, and the RBOB crack is moving out to near zero from trading quite a bit negative for a while.

Saudis to Cut Oil Output Below OPEC Target

Jan 12 (Reuters) &#8212 Top exporter Saudi Arabia plans to cut oil output by up to 300,000 barrels per day below its agreed OPEC target — a proactive step to prop up a collapsing market, industry sources said on Sunday.

OPEC’s most influential member has lowered supply this month to 8 million bpd, meeting its target under OPEC’s pact to reduce overall production by a record amount from Jan. 1.

But strict Saudi discipline has failed to boost oil prices–which at close to $40 are far from the $75 a barrel named by Saudi King Abdullah as a fair price. So Riyadh is prepared, from February, to go beyond what is required by OPEC, the sources said.

“We’ve been told Saudi Arabia will cut to about 7.7 million in February,” said a senior oil executive. “They want to prevent a huge stock build up and a further decline in the oil price.”

The kingdom had increased production unilaterally to about 9.7 million bpd in August last year to calm an oil market that had shot to a record of nearly $150 in July.

But by February, it will have reduced its supply to world markets by a fifth as recession steadily erodes demand for fuel.


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Saudi production falls

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Saudi’s production falls as they work to regain control of price after the Great Masters Inventory Liquidation runs its course.

OPEC Oil Output Fell 1.5% in December, Survey Shows

by Diane Munro and Margot Habiby

Jan. 6 (Bloomberg) &#8212 Crude-oil production from the 13 OPEC members in December declined 475,000 barrels a day from November, the latest Bloomberg survey of producers, oil companies and industry analysts shows. Figures are in the thousands of barrels a day.

Opec Production
December 2008

Opec Country Dec Est. Nov. Output Monthly Change Nov. 1 Target Est. vs. Target Est. Cap. (@)
Algeria 1,330 1,360r -30 1,286 44 1,450
Angola 1,820 1,850 -30 1,801 19 2,000
Ecuador 500 500 0 493 7 500
Indonesia* 840 850 -10 — — 900
Iran 3,850 3,820 30 3,618 232 4,100
Iraq* 2,345 2,320 25 — — 2,500
Kuwait# 2,500 2,550 -50 2,399 101 2,650
Libya 1,690 1,710 -20 1,623 67 1,800
Nigeria 1,900 1,880 20 2,050 -150 2,500
Qatar 790 790 0 785 5 900
Saudi Arabia# 8,400 8,800r -400 8,477 -77 10,800
U.A.E 2,350 2,350 0 2,433 -83 2,800
Venezuela 2,320 2,330 -10 2,341 -21 2,500
Total OPEC-13 30,635 31,110r -475 — — 35,400
Total OPEC-11* 27,450 27,940r -490 27,308 142 32,000

*Quotas effective Nov. 1, 2008. OPEC agreed at its Dec. 17 meeting in Algeria to cut its quota target by 2.463 million barrels a day from the previous level, to 24.845 million barrels daily from Jan. 1. The quota target excludes Iraq, which has no formal quota, and Indonesia which left OPEC at end-2008.

>   
>   On Thu, Jan 8, 2009 at 9:56 AM, David wrote:
>   
>   I honestly don’t like or trust a lot of the “World
>   Oil Demand” stats that many people look at.
>   I think perhaps the EIA/DOE figures compiled
>   below are most realistic, if not a bit lagged.
>   Seems to show steady decline in US/OECD,
>   rising China and flat/rising ME and rest. Wish
>   they had an India bucket to be frank, have
>   requested a few times already.
>   

Thanks, still looks like the world is reasonably close to the edge, and any pickup in world economic activity could be problematic.

Saudi Production (Dec)


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Re: US DOE Text: To Resume Filling SPR ‘To Capacity

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Right, just as prices are moving up anyway?

Gasoline demand is barely down now, and seems to have gone up over the last month or so?

Funds are buying/rebalancing to keep their allocation at a given % as crude underperformed last year?

OPEC cuts are real as Saudis move to regain control of price as the Masters Inventory Liquidation (finally!) winds down?

The contango in crude is moderating some indicating undesired inventory is fading?

Lower prices have also reduced prospects of new, high cost, supply coming online?

>   
>   On Fri, Jan 2, 2009 at 11:24 PM, Russell wrote:
>   
>   Saw that today. Sure took their time. I think it
>   will take oil prices higher.
>   

Thanks, was wondering when they’d get around to it.

It only has room for another 25 million barrels, however,

>   
>   On Fri, Jan 2, 2009 at 3:32 PM, EDWARD
>   wrote:
>   

Congressional Prohibition on Filling Strategic Reserve Ran Out

WASHINGTON (MMNI) – The following is an announcement by the U.S. Department of Energy published Friday:

Oil Acquisition Slated for 2009

WASHINGTON, DC — The U.S. Department of Energy today announced
that it plans to take advantage of the recent large decline in crude oil
prices, and has issued a solicitation to purchase approximately 12 million barrels of crude oil for the nation’s Strategic Petroleum Reserve (SPR) to replenish SPR supplies sold following hurricanes Katrina and Rita in 2005.

In addition, DOE is also moving forward with three other SPR
acquisition and/or fill activities in order to fill the SPR as Congress
directed in the 2005 Energy Policy Act (EPAct): refiner repayments of
SPR emergency oil releases following Hurricanes Gustav and Ike; the
delivery of deferred royalty-in-kind (RIK) oil; and the solicitation of
new RIK deliveries in the spring of 2009.

About the SPR:

Currently, the SPR has a storage capacity of 727 million barrels and an
inventory of 702 million barrels (97%) stored in the SPR’s underground
salt caverns located along the Gulf Coast of Louisiana and Texas.
Activities to resume SPR fill are taken in accordance with the
provisions of the Energy Policy Act (EPAct) of 2005, which directs that
DOE fill the SPR to its authorized capacity of one billion barrels, and
advances the President’s agenda to increase the Nation’s energy
security.


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Gasoline consumption up again

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We are still very close to the edge of available supply.

And the OPEC cuts are supporting Saudi efforts to bring price up without losing too much production.

Oil Surges 14 Percent on Lower-Than-Forecast Fuel Supply Gain

By Mark Shank

Dec. 31 (Bloomberg) — Crude oil rose, trimming a record annual decline, after a government report showed a smaller-than- expected gain in U.S. fuel stockpiles.

OPEC Production Cuts

Oil may rebound next year to average $60 a barrel as the Organization of Petroleum Exporting Countries makes record production cuts to counter the deepest economic slump since World War II, according to the median of estimates by 33 analysts surveyed by Bloomberg. That would be a 45 percent gain from today’s price.

Refineries operated at 82.5 percent of capacity last week, down 2.2 percentage points from the week before and the lowest since the period ended Oct. 10 when the Gulf Coast was recovering from hurricanes Gustav and Ike. Analysts forecast a 0.5 percentage-point increase.

Refiners often shut units for maintenance, also known as turnarounds, in late January and February as heating-oil demand falls and before gasoline use rises.

‘Ample Crude’

“We have ample crude-oil supplies and a minor surplus in supplies of the products,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “If we have a heavy turnaround period, the surplus in products could soon turn into a deficit.”

U.S. fuel consumption during the four weeks ended Dec. 26 averaged 19.9 million barrels a day, down 3.7 percent from a year earlier, the report showed.

3.7% is tiny, and the year over year drop has been declining.

Demand has to be surprisingly high given the extreme weakness of the US economy.

And while the lower prices are helping sustain demand, demand never did fall off that much.


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Weakest crude demand report to date

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Still looks to me the call on OPEC crude will be about the same:

CGES: Global oil demand to contract in 2009

CGES,The Centre for Global Energy Studies a leading energy forecasting organization said on Tuesday on its monthly oil report that Global oil demand
is likely to contract in 2009 for the first time in 25 years.

CGES said demand growth in Asia, Latin America and the Middle East can no longer offset the continuing decline in the Organization of Economic Cooperation and Development countries.

In a report, the consultancy said consumers are still responding to recent high pump prices, and a loss of confidence in employment and income prospects means even a lower price won’t halt the decline in demand.

CGES also said the recent slide in oil prices won’t end until the Organization of Petroleum Exporting Countries implements its recent 1.5 million barrels a day cut in output, or higher cost non-OPEC production is shut-in.

CGES said its demand pessimism is “offset to a degree” by its view of non-OPEC supply, which is “unlikely to show any real growth in either 2008 or 2009.”


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Opec output

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Not much demand destruction showing up here. Saudis set price and let quantity adjust to world demand. Can take a few months to show up due to the ‘supply chain’ that can expand and contract.

OPEC’s Oil Output fell 0.2% in October, Survey Shows

New York, Nov. 3 (Bloomberg) — Crude-oil production from the 13 OPEC
members in October declined 70,000 barrels a day from September, the latest
Bloomberg survey of producers, oil companies and industry analysts shows.
Figures are in the thousands of barrels a day.

Opec Production
October 2008

Opec Country October Est. Sept. Monthly Output Nov. 1 Change Est. vs. Target Est. Target Est. Cap. (@)
Algeria 1,400 1,400 0 1,286 114 1,450
Angola 1,875 1,800 75 1,801 74 2,000r
Ecuador 500 500 0 493 7 500
Indonesia* 850 865 -15 a’ a’ 900
Iran 3,900 3,950 -50 3,618 282 4,100
Iraq* 2,235 2,165r 70 — — 2,500
Kuwait# 2,600 2,580r 20 2,399 201 2,650
Libya 1,750 1,720 30 1,623 127 1,800r
Nigeria 1,920 1,940r -20 2,050 -130 2,500r
Qatar 870 870r 0 785 85 900
Saudi Arabia# 9,350 9,450 -100 8,477 873 10,800
U.A.E 2,580 2,650 -70 2,433 147 2,800
Venezuela 2,350 2,360 -10 2,341 9 2,500
Total OPEC-13 32,180 32,250r -70 — — 35,400r
Total OPEC-11* 29,095 29,220r -125 27,308 1,787 32,000r

*Quotas effective Nov. 1, 2008. OPEC agreed at its Oct. 24 meeting to cut
its quota target by 1.5 million barrels a day, to 27.308 million barrels
daily from Nov. 1. The new target excludes Iraq, which has no formal quota,
and Indonesia who leaves OPEC at year-end.


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Energy issues have not gone away yet

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It’s too early to say for sure the Mike Master’s sell off has run its course.

I looked at the announced OPEC supply cut as evidence they think it has.

Net supply issues remain and at least so far demand destruction has only meant a slowing growth of consumption.

Crude Oil Rises on Surge in Global Equities, Possible Fed Cut

By Alexander Kwiatkowski

Supply Declines

Global crude-oil output is falling faster than expected, leaving producers struggling to meet demand without extra investment, the Financial Times said, citing a draft of an International Energy Agency report.

Annual production is set to drop by 9.1 percent in the absence of additional investment, according to the draft of the agency’s World Energy Outlook obtained by the newspaper, the FT reported. Even with investment, output will slide by 6.4 percent a year, it said.

The shortfall will become more acute as prices fall and investment decisions are delayed, the newspaper said. The IEA forecasts that the rising consumption of China, India and other developing nations requires investments of $360 billion a year until 2030, it said.

OPEC Considers Meeting

The Organization of Petroleum Exporting Countries’ decision last week to trim production for the first time in almost two years failed to stop prices falling yesterday.

“If circumstances dictate we have another meeting, of course we will meet,” OPEC Secretary-General Abdalla el-Badri said at the Oil & Money conference in London. He said he expects a market response to last week’s output cut after about a week.

Shokri Ghanem, chairman of Libya’s National Oil Corp., echoed el-Badri’s comments, saying he’s watching the market to see whether it’s deteriorating or stabilizing.


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