Posts tagged “iran”
More Supply, Competition and Friction Possible
News of Iran’s potential slow ramp up of oil supply resounded with a downward small ping in prices in late November, later to bounce back based on supply realities and economic growth. Iraqi oil supply keeps increasing, averaging about 3 million barrels per day, a new high in the last 20 years. Iraq plans to keep pumping — growing production 500,000 – 750,000 barrels more per day in 2014. Iraq’s output relative to OPEC production hovers near 10%, from around 7.5% in 2008. Iran’s contribution to OPEC production was around 12% in 2008, dropping in 2013 to 8.6%, according to a recent Wall Street Journal article.
“Al Arab Yantafiq lam yantafique,” said Mr. Charles Kestenbaum, a top Middle East expert and former U.S. Trade Specialist, in a November 25th interview, immediately following the news of Iran’s nuclear deal. This Arabic expression is translated as: ”Arabs can only agree to disagree.” In late November, the Dallas Committee on Foreign Relations hosted Charles Kestenbaum, a veteran of Middle East affairs since the mid-1970s. In his quote, a common expression, lies the challenges ahead in the Middle East.
Red Herrings: Speculation & Regulation
As I noted last week, I have been working on a short paper for ASP on gas prices. It was published earlier today with a title of “Cause & Effect: U.S. Gasoline Prices.” I also published an Op-Ed in The Hill “Running on empty: Failing to address high gas prices“ and was quoted in Reuters saying “The truth is, neither party is offering policies that will effectively address high gas prices.”
The report seeks to get beyond both party’s preferred narratives on gas prices and looks more deeply at the root causes of today’s high gasoline prices. Hopefully, it will puncture some of the assertions and rhetoric that both political parties use about gas prices, whether it’s shouting “speculation!” by those on the left or “too much regulation!” by those on the right.
If an embargo is successful in preventing Iran from selling a significant amount of oil on the world market, what would replace it?
On Friday the White House released the following statement:
there currently appears to be sufficient supply of non-Iranian oil to permit foreign countries to significantly reduce their import of Iranian oil, taking into account current estimates of demand, increased production by some countries, private inventories of crude oil and petroleum products, and available strategic petroleum reserves and in fact, many purchasers of Iranian crude oil have already reduced their purchases or announced they are in productive discussions with alternative suppliers.
That the President or anybody else is counting on the world demand for petroleum curve to shift left in 2012 seems doubtful. And which are the countries from which increased production is anticipated? Libyan production averaged only 500,000 barrels/day in 2011, and if things go well could soon be producing a million barrels more than that daily. In the mean time, disruptions in Sudan, Syria, and Yemen have taken out a separate 640,000 barrels/day. The best hope is perhaps Saudi Arabia, which presumably has been making private statements to U.S. officials similar to this public statement from Saudi Oil Minister Ali Naimi last Wednesday:
Saudi Arabia’s current capacity is 12.5m barrels per day, way beyond current levels demanded, and a reliable buffer against any temporary loss of production. Saudi Arabia has invested a great deal to sustain its capacity, and it will use spare production capacity to supply the oil market with any additional required volumes.
“There is no rational reason for high oil prices,” writes Ali Naimi, Saudi Arabian Minister of Petroleum and Mineral Resources, in today’s Financial Times. Well, I can think of one– if oil prices were lower, the world would want to consume more than is currently being produced.
The graph below plots total world oil production over the last decade. After growing rapidly in earlier years, production hit a bumpy plateau. In November 2007, just before the U.S. recession began, the world was producing 84.9 million barrels each day, a little less than was produced in the spring of 2005. Although production stagnated, the demand curve continued to shift out, with world GDP growing 5.3% in 2006 and another 5.4% in 2007.
Here’s why I believe that the current high price of oil is not enough to derail the U.S. economic recovery.
Although the prices of oil and gasoline have risen significantly from their values in October, they are still not back to the levels we saw last spring or in the summer of 2008. There is a good deal of statistical evidence (for example, ,) that an oil price increase that does no more than reverse an earlier decline has a much more limited effect on the economy than if the price of oil surges to a new all-time high.
Crude oil prices surged last spring following disruptions in oil production from Libya, and had been drifting down during the summer and fall. But since the beginning of October, the price of West Texas Intermediate and Brent crude oil have both risen by over 30%, putting them back up near where they had been last spring. What’s changed in the world since the beginning of October?
Happy New Year everyone! I should be back on a regular posting schedule in about two weeks, and should have a new episode of R-Squared Energy TV up next week. For now, I offer the following timely guest post from OilPrice.com. ————————— War Imminent in Straits of Hormuz? $200 a Barrel Oil? The pieces and policies for potential conflict in the Persian Gulf are seemingly drawing inexorably together. Since 24 December the Iranian Navy has been holding its ten-day Velayat 90 naval exercises, covering an area in the Arabian Sea stretching from east of the Strait of Hormuz entrance to the Persian Gulf to the Gulf of Aden. The day the maneuvers opened Iranian Navy Commander Rear Admiral Habibollah Sayyari… Continue»
The 4 percent spike was the largest percentage gain since late September.
Just going through some files on my hard drive, and I ran across the following story. Unfortunately, I don’t have the source. But it’s an interesting look at where projected future oil reserves are expected to come from. It also reinforces the difficulty that the international oil companies are going to have replacing their reserves – as most of the remaining reserves are in the hands of national oil companies. Who Will Supply the World? Africa The continent has about 10 per cent of proven global oil reserves and 8 per cent of the world’s gas. The biggest oil producers are Nigeria, Algeria, Libya and Angola, which account for roughly three- quarters of Africa’s oil production. West Africa has become… Continue»