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January 4th, 2011 at 12:38pm Under OPEC
Russia is attending next week’s summit of the oil cartel OPEC in Algeria along with three other non-member countries – Azerbaijan, Oman and Syria. Faced with a budget deficit at home, President Dmitry Medvedev says he is considering joining OPEC and cutting oil exports to boost oil price.
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January 4th, 2011 at 10:37am Under OPEC
Alberta Oilsands Enough to Move Oil Prices? Part 2 of 3
Article by Barry Econ
To continue from where we left off in part 1:
With a viable world market within striking distance, this article will argue that the only method for inducing a change in OPEC behaviour is to ’steal’ import supply from the United States. It is unlikely that oilsands products will make it to any other world market due to logistic costs. Shipping oil to the nearest transport hub, British Columbia or refiners in Ontario, would be the only alternative for the crude. It is more efficient to create and build upon the existing transportation system directly to the United States. As a result, there is potential for oilsands exports to replace OPEC exports to the US. However, the only method of achieving this is by increasing current output and reducing lifting costs. The question of whether US importers will increase their Alberta consumption for oil is dependent on the cost. Is it cheaper to construct a pipeline directly from oilsands projects in Alberta, or is it cheaper to import from the Middle East? Regardless of location, the consumer, or in this case the nation, will import from the lowest cost producer. This suggests Saudi Arabia will continue to export crude to the United States so long as they can maintain lower costs. The higher transportation costs are compensated by the lower marginal lifting costs. Thus, one of the major factors in determining the success of the oilsands export market will hinge upon the producer’s ability to maintain an affordable product under market conditions. Presently this is the case, high market prices support the market for expensive bitumen exports.
Potential Size of United States Export Market
Currently, Alberta accounts for over 10% of total American imports of crude oil. It is feasible this value will increase when oilsands production expands so long as it remains cost effective to the importing market. Using data primarily from the BP Statistical Review of World Energy for 2004, with some data components from the Alberta Energy Department, one can extrapolate future US crude import volumes and percentage share amongst importers. In the period between 1993 and 2003, the United States experienced declining production while supporting an increasing consumption trend. Imports therefore steadily increased throughout this period. The result of an expanding import market share is good news to the oilsands producer, especially with declining world reserves. Examining 2002 import market share states Alberta alone contributed 11.3% of total US imports for crude oil, or about 1,018 thousands of barrels per day. This value is expected to increase to approximately 2.7million barrels per day in the year 2012. Saudi Arabia accounted for 16.8% of total crude imports and Venezuela was responsible for 13.2%. Only two OPEC producing nations will be considered in this example since expected future output from bitumen reserves in year 2012 cannot displace all OPEC exports to the US. I chose to include the largest two exporters and will account for their potential losses from an expanding oilsands industry. (These figures do not reflect recent 2006 market trends of increasing and increasing crude prices and the impact on consumer consumption.)
Assuming market conditions remain favourable for oilsands production, and the target volume in 2012 is achieved, how could the US import market appear? Using regression analysis on US imports, and OPEC production, one can extrapolate future market shares and make assumptions regarding possible OPEC losses. Excluding any future market shocks from either supply or demand, US imports in the year 2012 will amount to approximately 16.045 million barrels per day. This is an increase of about 32.2% from the year 2002. Increasing the import percentage share of the three producers mentioned above by 32.2% will provide 2012 daily export values. Using the 2.7million bbl/d oilsands value, and subtracting the future export volume of Alberta crude, will provide a residual value which can be applied to an increase in export volumes. Assume for a moment this entire quantity is exported and none is consumed domestically. 10.77% of OPEC’s entire production in 2012 may be attributed to the US import market, if the oilsands surplus is applied solely against OPEC’s share, it will be reduced to 6.71%, or a loss of about 494 million barrels per year. The absolute maximum Alberta oilsands could displace total OPEC production in year 2012 is just over 4%. Is this value large enough to attract the attention of OPEC? Will OPEC prefer to hold oil reserves for future production while watching the oilsands deplete, or will they attempt to recapture the lost market share?
Part 3 and the conclusion is now available for your world oil reading pleasure….
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January 3rd, 2011 at 10:39am Under OPEC
Oil prices set to threaten the US0 mark
Article by Fat Prophets
Oil has been the recurring theme in our Resource Headframe over the past few weeks and why not? Oil is threatening to crack the US0 per barrel mark, with prices currently hovering around US a barrel.
And the ramifications of this are growing. OPEC countries believe they have lost control of oil prices, risking a consumer switch to other sources of energy.
Bloomberg reports that exporters have benefited from this year’s price rally, including a 20% increase since the group’s last decision in September to boost output.
OPEC oil ministers, including Venezuela’s Rafael Ramirez, say there’s no reason to raise supply further at a Dec. 5 OPEC meeting, because inventories are adequate.
“OPEC can’t do anything about the price,” Ramirez said earlier this week in Riyadh, Saudi Arabia, where OPEC is holding a heads of state summit this weekend. Oil prices could reach US0 a barrel “soon” and OPEC can do “very little” about it, he said.
Crude oil in New York rose to a record US.62 a barrel last week because of concern supplies may fall short during the Northern Hemisphere winter.
Prices have also risen on concern supply disruptions in producers such as Iran and Nigeria, and as investors turned to commodities as a haven from other financial markets and a falling US dollar.
“OPEC is finding itself a victim to movements on equity markets,” Daniel Yergin, chairman of Cambridge Energy Research Associates, said in Riyadh. “It is perplexing to have the oil price change several dollars a day, when one is thinking about 15-20 year investments.”
Algerian Oil Minister Chakib Khelil, who will be OPEC’s president next year, told Bloomberg reporters in Riyadh that he expects prices to stay near current levels, over US a barrel, through the winter season until at least the end of the first quarter.
Motorists and other consumers in some industrialized nations are already feeling the pinch of higher prices, according to the Paris-based International Energy Agency, which last week cut its forecasts for fourth-quarter world consumption for a third time since August.
“High prices so far have limited impact on demand; however we can’t remain complacent. This high price is potentially dangerous,” OPEC President Mohamed al-Hamli said. He cited the example of the 1970s “when the electricity industry switched away from oil.”
At the summit, OPEC plans to reject US calls to increase production, according to a draft of the organization’s statement to be released, three OPEC officials told Bloomberg on the condition of anonymity.
The group will instead reiterate its commitment to stable supply and invest in technology to cut carbon dioxide emissions from oil and gas in a bid to remain a primary energy provider in a world more aware of climate change.
OPEC was burnt by volatile prices a decade ago. Oil fell to US a barrel at the end of 1998, forcing OPEC to quit squabbling and cooperate on supply cuts. Prices had recovered to US by the time Venezuelan President Hugo Chavez hosted OPEC’s second heads of state summit in September 2000 in Caracas.
“OPEC has become much stronger since then because it re- established the quota system and discipline,” Ramirez said.
IMPORTANT: This message, together with the Fat Prophets website and all its contents have been prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the Fat Prophets website. Past performance is not a reliable guide to future performance, and investors should be aware that returns can be negative.
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January 3rd, 2011 at 02:38am Under OPEC
Grim oil sector outlook – skinny inventories, rising prices and more spending needed
Article by Fat Prophets
The Centre for Global Energy Studies (CGES) says oil prices are likely to keep rising during the northern hemisphere summer unless the Organization of Petroleum Exporting Countries (OPEC) increases production.
The CGES believes OPEC is incorrect in assuming the world is adequately supplied with oil and should look at global oil inventories, not just US crude supplies.
The London-based consulting group was founded by former Saudi Arabian oil minister Sheikh Ahmad Zaki Yamani.
“Oil prices will continue to rise over the summer unless OPEC relaxes its production restraint,” CGES said in its monthly report. Lingering refinery problems will leave the US relying on increased product imports this summer.”
OPEC members are partway through a planned 1.7 million barrel-a-day supply cut, which the group agreed to late last year to avoid the risk of falling prices as US and European demand fades after the winter months. The price of Brent crude oil fell to around US a barrel in mid-January but has since rebounded to about US.
OPEC officials, including the group’s secretary-general, Abdalla El-Badri, have repeatedly said that bottlenecks in oil refining and political tensions in oil-producing nations, such as Nigeria, are to blame for high oil prices, so increasing crude production won’t help.
The International Energy Agency (IEA), which advises 26 industrialized nations on energy policy, says OPEC should pump more now to avoid stockpiles becoming too low later this year.
IEA Executive Director, Claude Mandil, reiterated that message by telling reporters in Paris that “even if stocks are good now there is a huge probability of a sharp drop in the third and fourth quarter.”
“Rising geopolitical tensions should also act as a signal for increasing production, not an excuse for inaction, if producers are sincere in their claims to seek a stable, well-supplied market,” the CGES said in its report.
Crude oil production from the 10 OPEC members subject to quota limits fell to 26.37 million barrels a day in May from 26.46 million barrels a day in April, according to a monthly Bloomberg survey of analysts and producers. That was down from 27.85 million barrels a day last July.
Rising oil prices “would seem to suggest that the world is short of oil and ought to be providing a clear signal to OPEC that its members need to put more oil into the market,” the CGES said.
Meanwhile, OPEC is warning that governments and energy companies will need to spend US.4 trillion on oil exploration and production by 2030 and more than US0 billion on refineries to meet the world’s growing thirst for oil.
Global oil demand will reach 118 million barrels a day by 2030, when some 1.6 billion cars will be on the road, up from about 86 million barrels a day now, assuming oil prices stay between US and US a barrel, according to OPEC in 2007 World Oil Outlook.
“Energy security is a two-way street,” OPEC Secretary General Abdalla El-Badri said in a foreword to the report. “It is important to the economic growth and prosperity of consuming, importing countries, but also crucial to the development and social progress of producing, exporting countries.”
Supplies of crude oil from non-OPEC nations are likely to reach a plateau of 48 million barrels a day in 2020 and decline thereafter to about 45 million barrels a day by 2030, the report said.
The overall supply of non-OPEC oil, including crude, natural-gas liquids, refinery processing gains and non-conventional sources such as Canadian oil sands, will reach 59 million barrels a day in 2030, OPEC projected.
Rising non-conventional oil supplies in places such as Canada will offset declines in conventional crude from mature regions such as the North Sea, it said.
OPEC itself will supply 49 million barrels a day of crude oil and 10 million barrels a day of natural-gas liquids and non-conventional oil in 2030, bringing the global supply tally to 118 million barrels a day, the report showed.
The refining industry will require some US5 billion worth of investment through 2020, OPEC said. That comprises US8 billion for known projects, US2 billion for additional units for existing refineries and US5 billion to cover maintenance and replacements.
Europe and the Asia-Pacific region will increasingly rely on imports from other regions, such as the Middle East, Russia, the Caspian Sea and Africa.
The capacity of the world oil-tanker fleet will need to expand to 460 million deadweight tons to accommodate the 2020 oil flows, a 27% gain from 360 million deadweight tons at the end of 2006, OPEC said. Large range and very large crude carrier tankers will see the greatest expansion in use as Asian buyers use long-haul routes from the Middle East.
IMPORTANT: This message, together with the Fat Prophets website and all its contents have been prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the Fat Prophets website. Performance is hypothetical and based on recommendations made in the Fat Prophets report. The table is updated monthly. Transaction costs have not been taken into account. Past performance is not a reliable guide to future performance, and investors should be aware that returns can be negative. For a full explanation of the performance calculation methodology, please visit the Fat Prophets website.
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January 2nd, 2011 at 02:39pm Under OPEC
OPEC will never have me over a barrel
Article by David John Martin
This decision may have been the result of learning to drive in a clunky old Volvo with exhaustingly heavy steering; on the other hand, perhaps it was because the only places I could think of to drive to were pubs, and I was damned if I was going to become the designated driver now that I’d finally stopped being ID-ed.
Yep, I quit learning to drive, in favour of laziness, inebriation, and apathy. For some reason, namely being a teenager, this didn’t at all seem an irrational and blinkered course of action; and despite my father’s best efforts, there was no persuading me otherwise – “You might regret this in future,” he told me, along with plenty of reasons why.
And he was quite right, of course, I might regret this in the future. As yet, though: nope, not at all. Quite the reverse, in fact: as I approach thirty, a carefree car-free attitude to personal mobility seems to me, instead, eminently sensible; even life-enhancing.
Granted, anyone who has ever used British public transport may find this statement, at best, barely credible, and at worst grounds for being sectioned, but so what? Haven’t they got something more important to be doing than reading this? Like changing some oil, for instance? Or renewing their car insurance? Puzzling over some strange rattling noise? Or fiddling with a gasket?
Yep, I thought so. Now be off with you.
And that’s my point, not once have I ever had to think about any of those things. Can you imagine how much easier you’d sleep at night if you never again had to think about MOTs, beaded seat covers, or AA membership? Wouldn’t life be so much nicer without sat-navs luring you onto railway tracks, overcharging mechanics secretly laughing at you, or Jeremy Clarkson? Oh, and the price of oil hit another record high today (5 per barrel), by the way. Most worrying. Slightly less so if you don’t have a car, of course.
Sorry, did that sound smug?
Well, imagine how much smugger it would have sounded if I’d had Jeremy Clarkson as a role model – I’m a mere amateur next to him. The insufferable, tight-jeaned, climate bothering, fluffy-headed perma-smirk…
Anyway, besides never having to knowingly watch Top Gear again, there remains one final deeply compelling reason for going car-less: directions bores. Your quickest journey between Catthorpe and Carlisle? So what. The fine details of avoiding that bottleneck by Tesco’s? Go lick a sparkplug. Every train delay I’ve ever experienced will have been worth it, if I never again have to listen to one of you tedious little men (never women, for some reason). And at least with a train delay, you can get a book out.
Still not convinced of the joys of non-driving? Well, fair enough. But perhaps it might be worth reconsidering – a 0 barrel of oil by the end of the year, anyone?
About the Author
David John Martin. To save money as car costs raise you could start with your car insurance, try http://www.confused.com for insurance and finance.
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