Posts tagged “Crude Oil”

In last week’s note: 2013 Crude Oil Outlook: Supply & Demand, we looked at the more immediate trend in global supply and demand. But this week, I want to examine the long-term oil production challenge facing the industry.

Current global oil consumption is running just under 90 MM b/d, with wellhead production at about a little over 85 Mm b/d, or a deficit or about 4.7 Mm b/d. As we pointed out last week, overall global oil consumption since 2000 to 2012 has been running at a per annum rate of 1.2%; should global consumption continue to grow at this rate, we will hit roughly 100 MM b/d by 2022, or in ten years. If global oil consumption should slow to a per annum rate of 1.0%, we will hit 100 MM b/d only two years later by 2024.

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Energy issues ranked among the top international headlines in 2012 – As we look ahead, what are the major energy trends that are likely to take shape and play out in international headlines in 2013?

Let’s Play ‘Blame the Speculators’

Most people would probably agree that speculation in the oil and gas markets is hurting American consumers. Consider the case of Aubrey McClendon. Mr. McClendon is the CEO of Chesapeake Energy, where he sells natural gas for a living. Natural gas prices have now been pushed down — by speculators — to below $2 per million BTU. This is a drop of more than 80% from 2008 prices. With these depressed prices, Mr. McClendon will have a hard time ever matching his $112 million of earnings in 2008. Mr. McClendon’s livelihood has been hurt by speculators.

Of course Aubrey McClendon is not your average person, and he isn’t likely to garner much sympathy over the decline in natural gas prices — especially since it has benefited consumers. But I use that example to illustrate the point that speculation is not a one-way street where the average consumer always loses. One of the frequently cited causes of high oil prices is from speculation. In fact, I agree that speculation is helping drive up oil prices. However, there are underlying fundamentals at work as well; otherwise the same speculators who are helping drive up oil prices would be doing the same with natural gas prices. Yet those underlying fundamentals are often overlooked in the rush to blame the speculators for spiking oil prices. CONTINUE»

Foreign Oil Imports at Lowest Level Since Before Y2K

U.S. crude oil imports have fallen to their lowest level since 1999, according to data provided by the U.S. Energy Information Administration (EIA), an arm of the U.S. Department Of Energy (DOE).

Crude oil imports for 2011 averaged 8.9 million barrels per day (bbl/d), falling below the 9 million bbl/d mark for the first time since 1999, and down 12 percent since hitting a peak of 10.1 million bbl/d in 2005.

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Gas Price Breakdown: It’s All About the Cost of Crude Oil

“What am I paying for in a gallon of gas?” is a question on people’s minds and often posed by regular visitors to Consumer Energy Report. With the assistance of the Energy Information Administration, who provided the data (see the methodology they used for calculating the component percentages at the end of this column), I was able to break it down into a series of charts from 2000-2012.

For a more detailed look into the recent spike in gas prices, see: Charting the Dramatic Gas Price Rise of the Last Decade

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The United States and Britain have apparently been discussing a joint release of strategic petroleum stockpiles.

The U.S. Strategic Petroleum Reserve was intended to be used in the event of a “severe energy supply interruption” whose legal definition is as follows:

A severe energy supply interruption shall be deemed to exist if the President determines that–

1. an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration;
2. a severe increase in the price of petroleum products has resulted from such emergency situation; and
3. such price increase is likely to cause a major adverse impact on the national economy.

Historical experience has shown that seemingly temporary supply disruptions can have very long-lasting consequences. Libyan oil production in November was still only about a third of what the country had been producing in January 2011 prior to last year’s disruptions. Iraqi production still has not returned to the average value seen in 1989 prior to the First Persian Gulf War. Iranian production has never returned to the average values achieved in 1977 prior to its revolution.

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It is clear that many people have a very simplistic — but wrong — view of the energy markets. This extends to politicians who believe they can usher in a return to $2 gasoline, as well as those who underestimate the difficulty of replacing oil with renewable energy.

For the average person, gasoline prices go up because oil companies are pulling strings, meeting in secret to set prices, or withholding product from the market. To top it off, we are sending them our tax dollars as subsidies while they are wallowing in cash! That’s the view from the man on the street. Somehow, I would have expected a USC business school professor to have a more sophisticated understanding of the situation — especially if he decided to write an article about it. But I would have been wrong.

Normally, when I read something like the following, I am more prone to just shake my head over the sad state of the person’s energy IQ. But I am making an exception here in the case of Professor Ira Kalb, a marketing professor at USC’s Marshall School of Business. The professor recently wrote the following article for Business Insider:

The Only Reason Gas Is $5-A-Gallon Is Oil Companies Have Convinced Us Prices Are Out Of Their Control
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A Changing U.S. Energy Picture

This weekend, Thomas Friedman posed a question in his Sunday New York Times column: “Should the US join OPEC?” I generally don’t like to get into Friedman’s columns, as his name-dropping and taxicab reporting will drive you crazy. However, he probably has the widest readership of anyone in this field, and he does a good job of simplifying complicated issues.

Friedman says the “debate we’re again having over who is responsible for higher oil prices fundamentally misses huge changes that have taken place in America’s energy output, making us again a major oil and gas producer — and potential exporter — with an interest in reasonably high but stable oil prices.”

I hate to say it, but he’s right – although we’re nowhere near being a petroleum exporter today (a clear requirement for membership in the Organization of Petroleum Exporting Countries), I believe that fundamental changes in America’s supply and demand over the next 20-30 years mean that we’re moving towards a world where the U.S. has a real interest in exports – probably not of unrefined crude oil, but of all energy products.

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In this week’s episode of R-Squared Energy TV, I answer questions about natural gas liquids and algal fuel. Some of the topics discussed are:

• The difference between natural gas liquids (NGLs) and crude oil
• How NGLs and “all-liquids” contribute to oil supplies
• How “double-counting” and net energy impact the reported oil supply numbers
• The challenge of water in making algal fuel economical
• Whether algal fuels have long-term process

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Rising Gas Prices Prompt Calls For Release of Oil From SPR

Rising gas prices are back in the news again. Oil has gone back above $100 a barrel, and gasoline prices are about to push through the $4 a gallon price. This has led to President Obama sparring with Republican Congressional leaders and his potential opponents. It has also led to Congressional Democrats asking for a release of oil from the Strategic Petroleum Reserve (SPR) in an effort to dodge this issue any way they can. Fellow columnist, Robert Rapier, has often criticized the usage of the SPR as a political tool in an effort to lower gas prices.

Don’t count me as one who thinks that, if only we allowed drilling anywhere, we would suddenly have $2.00/gallon gas. I sat through Newt’s 30 minute speech on energy policy, and it drives me crazy that people actually expect that simply pushing more domestic drilling will fix the problem. I went on the record as supporting Jon Huntsman’s energy policy because it lived in the real world and acknowledged that there were no quick fixes.

Oil prices are a factor of global supply and demand, both currently, and in the future. Prices are being pushed up by increased demand for oil from developing countries, combined with prospects of renewed conflict in the Persian Gulf. I would suggest reading Dr. James Hamilton’s Econbrowser “Crude Oil and Gasoline Prices: Betting on Iranian Tensions” post about what’s driving prices.

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