I'll be deleting this blog in the morning and moving to Montana.
CERA(Cambridge Energy Research Associates) published a paper this week showing definitively that oil production capacity will increase by 2 mbpd per year for the next decade. When I started this blog I was under the impression that oil was at or near a peak. I was worried. I thought I might try to partially document the issue. I was wrong. I'm relieved.
CERA has an excellent record forecasting oil production, particularly in the last 3 years. I can't see how demand can possibly catch up to this flood of oil we are about to see. Net Oil Exports are going to shoot through the roof. I called this one wrong.
The blogspot address is there for the first person that requests it. But I'm done.
Monthy Oil Supply Numbers
Record production is noted in bolded red.
| 2007 | EIA C+C | %change | EIA All | %change | Diff | % | IEA All | %change |
| Jan | 73,133 | -0.12% | 84,113 | -0.11% | 10,980 | 13.1% | 85,270 | +0.19% |
| Feb | 73,315 | +0.25% | 84,338 | +0.27% | 11,022 | 13.1% | 85,500 | +0.27% |
| Mar | 73,240 | -0.10% | 84,083 | -0.30% | 10,843 | 12.9% | 85,320 | -0.21% |
| Apr | 73,525 | +0.39% | 84,570 | +0.58% | 11,045 | 13.1% | 85,580 | +0.30% |
| May | 73,987 | -0.73% | 84,250 | -0.38% | 11,263 | 13.4% | 84,860 | -0.84% |
| Jun | 72,710 | -0.38% | 84,379 | +0.15% | 11,669 | 13.8% | 84,500 | -0.42% |
| Jul | 73,152 | +0.61% | 84,816 | +0.52% | 11,664 | 13.8% | 85,470 | +1.15% |
| Aug | 72,471 | -0.93% | 83,838 | -1.15% | 11,368 | 13.6% | 84,560 | -1.06% |
| Sep | 73,410 | +1.30% | 84,753 | +1.09% | 11,343 | 13.4% | 85,030 | +0.56% |
| Oct | 74,124 | +0.97% | 85,605 | +1.00% | 11,481 | 13.4% | 86,500 | +1.73% |
| Nov | Feb | Feb | Feb | Feb | Feb | Feb | 86,130 | --- |
| Dec | Mar | Mar | Mar | Mar | Mar | Mar | 87,000 | --- |
OPEC's Total Crude Oil Output Rose to 32 Million Barrels Per Day in December, a Platts Survey Shows
Jan. 15
The members of the Organization of Petroleum Exporting Countries (OPEC) produced an average 32.03 million barrels per day (b/d) of crude oil in December, according to a Platts survey of OPEC and oil industry officials January 14. This is up from November's rate of 31.65 million b/d.
Production from OPEC's ten members bound by crude output agreements averaged 27.43 million b/d in December, the survey showed. This is 460,000 b/d more than in November and 177,000 b/d higher than the group's 27.253 million b/d target which came into effect at the beginning of November.
"The increase in supply is certainly welcome to this market," said John Kingston, Platts Global Director of Oil. "It appears the group's on track to meet its January target, which is nearly 29.7 million barrels per day for 11 of the members, excluding Iraq."
The bulk of the December output increase was due to higher production from the United Arab Emirates (UAE) as key maintenance programs were brought to a close. UAE production was estimated at 2.5 million b/d, 350,000 b/d higher than November's 2.15 million b/d. Smaller increases of between 10,000 b/d and 40,000 b/d came from Indonesia, Iran, Kuwait, Libya and Saudi Arabia. The OPEC 10 excludes Iraq and new members Angola and Ecuador.
Iraqi production was estimated at 2.3 million b/d, some 100,000 b/d lower than in November. (Earlier this month, Iraqi oil ministry data obtained by Platts showed total Iraqi output at 2.475 million b/d in December, despite a sharp fall in exports from November levels. But Platts' methodology for calculating output differs from that of the Iraqi government). Angolan production edged up from 1.78 million b/d to 1.8 million b/d. Ecuador, which left OPEC in the early 1990s but resumed its membership in mid-November, produced an estimated 500,000 b/d.
When OPEC met in Abu Dhabi in December it left the OPEC-10 target of 27.253 million b/d unchanged but allocated targets of 1.9 million b/d and 520,000 b/d to Angola and Ecuador from the beginning of January. OPEC's production target rose to 29.673 million b/d on January 1, 2008. Iraq does not participate in OPEC output agreements because it is in process of rebuilding its oil industry after years of United Nations sanctions followed by a US-led war.
OPEC ministers will meet in Vienna on February 1. The beginning of this year saw US light crude prices climb above $100/barrel, but several top OPEC officials have said the high prices have less to do with any shortage of crude than to do with non-fundamental factors such as geopolitics and speculative activity in futures markets.
Country Dec Nov Oct Sep August Nov 1 target
Algeria 1.390 1.390 1.380 1.360 1.360 1.357
Indonesia 0.840 0.830 0.830 0.830 0.830 0.865
Iran 3.970 3.950 3.900 3.880 3.880 3.817
Kuwait 2.540 2.500 2.450 2.420 2.420 2.531
Libya 1.740 1.720 1.710 1.700 1.690 1.712
Nigeria 2.200 2.200 2.190 2.180 2.150 2.163
Qatar 0.830 0.830 0.820 0.810 0.810 0.828
Saudi Arabia 9.020 9.000 8.800 8.700 8.660 8.943
UAE 2.500 2.150 2.600 2.590 2.590 2.567
Venezuela 2.400 2.400 2.400 2.400 2.400 2.470
OPEC-10 27.430 26.970 27.080 26.870 26.790 2.470
Angola* 1.800 1.780 1.750 1.720 1.680 N/A
Iraq 2.300 2.400 2.280 2.170 1.990 N/A
OPEC-10+ Angola, Iraq 31.530 31.150 31.110 30.760 N/A
Equador** .500 .500 N/A N/A N/A
Total 32.03 31.650 N/A N/A N/A
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Oil $200 Options Rise 10-Fold in Bet on Higher Crude
By Grant Smith
Jan. 7 (Bloomberg) -- The fastest-growing bet in the oil market these days is that the price of crude will double to $200 a barrel by the end of the year.
Options to buy oil for $200 on the New York Mercantile Exchange rose 10-fold in the past two months to 5,533 contracts, a record increase for any similar period. The contracts, the cheapest way to speculate in energy markets, appreciated 36 percent since early December as crude futures reached a record $100.09 on Jan. 3.
While analysts at Merrill Lynch & Co. and UBS AG say the slowing U.S. economy will lead to the biggest drop in prices since 2001, the options show some traders expect oil to rise for a seventh straight year. Demand will increase 2.5 percent in 2008, according to the International Energy Agency. U.S. inventories fell to a three-year low on Dec. 28. Production from Mexico is declining and Saudi Arabia is behind schedule in opening its newest field.
``One hundred dollars a barrel is actually 14.9 cents a cup, so we're still talking about oil being remarkably cheap,'' said Matthew R. Simmons, chairman of Simmons & Co. International, a Houston-based investment bank that focuses on energy. Inventories ``are tight as a drum and I don't see how we get out of this box,'' he said in a Bloomberg television interview last week. ``Demand clearly isn't starting to slow down.''
Global Consumption
World consumption will rise to 87.8 million barrels a day this year, 2.1 million more than in 2007, or about the same amount that Nigeria supplies, according to the Paris-based IEA, an adviser to oil-consuming nations. Demand from China alone will increase 5.7 percent to 8 million barrels a day as imports expand to support an economy that's likely to grow 11 percent, the IEA said.
Oil suppliers are straining to increase production. Saudi Arabia, the world's largest exporter, said last week that the 500,000 barrel-a-day Khursaniyah oilfield missed a December start date. Brazil's Tupi field, the second-largest find of the past two decades, lies more than eight kilometers (five miles) below the ocean surface and will take at least five years to develop.
Petroleos Mexicanos, Mexico's state oil monopoly, suffered a three-year, 40 percent decline at its Cantarell field, the world's third-largest. Fighting in Nigeria reduced production 11 percent since December 2005 to 2.18 million barrels a day, according to data compiled by Bloomberg.
U.S. Inventories
Speculators don't require prices to rise all the way to $200 to make money from options since they can sell the contracts on to others as their value rises. Nymex oil futures for February delivery were worth $97.41 a barrel in electronic trading at 11:11 a.m. London time, down 50 cents. December futures were at $93.59.
Crude futures rose 2 percent in the first three trading days of the new year. U.S. crude inventories fell to a three-year low of 289.6 million barrels on Dec. 28, according to a Jan. 3 Energy Department report.
``We haven't got to $100 on just a whim,'' said Paul Horsnell, head of commodities research at Barclays Capital in London. ``This is at heart also about longer-term concerns that supply capacity investment needs higher prices to keep up with demand growth.''
Barclays forecasts oil will average $87.40 a barrel this year, a 21 percent increase from the 2007 average.
The Nymex options, which give speculators the right to buy 1,000 barrels of oil in December, are becoming a favorite for traders even if they don't expect crude to reach $200 because they are a cheaper way to speculate than using futures contracts. Options expire worthless if crude fails to reach the ``strike'' price. There were 500 of the options on Nov. 7.
The price of the options rose as high as $550 last week before closing at $300 on Jan. 4. That amounts to 30 cents a barrel. The December futures to purchase 1,000 barrels in December rose 3.5 percent to $94,010, or $94 a barrel.
`Insurance' Bet
``The most common analogy used to describe options is that it represents insurance'' against ``low probability'' events, said Tim Evans, a Citigroup Global Markets Inc. energy analyst in New York.
Oil forecasters say there's no chance of $200 crude, as the U.S., which consumes a quarter of the world's oil, slows. Prices will average $78 a barrel this year, 20 percent below the current level, and $75 in the fourth quarter, according to the median forecast of 27 analysts surveyed by Bloomberg. The last time prices fell that much was in 2001, when they dropped 26 percent.
Jobless Rate
Merrill Lynch and Morgan Stanley in New York expect the U.S. economy, the world's largest, will slip into recession this year. The jobless rate rose to 5 percent in December, the highest in two years. The Institute for Supply Management's factory index fell to the lowest level in almost five years in December.
The U.S. probably expanded 1 percent last quarter, and gross domestic product will grow 2.3 percent in 2008, according to the median estimate of 63 economists surveyed by Bloomberg.
Oil is overpriced, given the outlook for the economy, said Jan Stuart, an analyst at UBS AG in New York. He forecasts an average price of $74 a barrel this year, little changed from 2007. Merrill Lynch's Francisco Blanch predicts $78 in the fourth quarter.
``I am afraid that we are going to see an economic slowdown that we have not seen the beginning of yet that will take some significant amount of oil demand off the table,'' Stuart said in a Bloomberg television interview Jan. 2.
Most strategists didn't foresee last year's 57 percent gain. Crude traded at an average of $72.36 in 2007. A Bloomberg survey of 29 analysts in September 2006 forecast a median price of $64.
Higher Numbers
``Going through $100 means that people are seeking more protection against a higher number,'' said Michael Lewis, a strategist at Deutsche Bank AG in London. Deutsche Bank expects oil to fall to about $80 a barrel.
Options trading indicates that the likelihood of crude reaching $125 a barrel in December has almost doubled since Dec. 25, to 18 percent, Lewis said.
While $200 may remain an outside chance, Simmons at Simmons & Co. showed he's willing to make that bet. He wagered $5,000 with New York Times columnist John Tierney in August 2005 that oil would average at least $200 a barrel in 2010.
The latest assessment from OPEC, which produces 40 percent of the world's oil, suggests prices will rise.
``There is enough oil in the market,'' Chakib Khelil, the current president of the Organization of Petroleum Exporting Countries, told reporters in Algiers two days ago. Khelil, who is also Algeria's energy minister, said rising prices aren't OPEC's fault. The group is scheduled to meets on Feb. 1 in Vienna.
``You will see even $200 oil in the next five years,'' said Jean-Francois Tardif, senior portfolio manager at Sprott Asset Management Inc. in Toronto.
The following table shows the median, mean, high and low estimates for the average price of Nymex crude oil futures during the four quarters of this year and the yearly averages for 2008 and 2009. The estimates from 27 analysts were compiled by Bloomberg.
Nymex WTI Crude Oil Futures Forecasts
To contact the reporter on this story:
Grant Smith in London at
gsmith52@bloomberg.net
http://www.bloomberg.com/apps/news?pid=20601087&sid=aERkSvnAUV_U&refer=home
Last Updated: January 7, 2008 06:12 EST
I'm posting this article not because I necessarily agree with anything in it, in fact some of the numbers are clearly wrong or irrelevant - but I think it touches on a number of topics important to the study of supply and demand numbers and their relationship.
Why We Can’t Stop $100 Oil
It's becoming evident that the rising price of oil has little relationship to anything Americans do, or don't do.
By Daniel Gross
NEWSWEEK
Updated: 11:40 AM ET Jan 5, 2008
When the price of a barrel of oil briefly hit $100 in trading last Wednesday morning, it was basically a nonevent. After adjusting for inflation, $100 per barrel in 2008 still isn't a record. And really, what's the difference between $99 and $100? (If you answered $1, come to the front of the class.)
It functioned more as a Rorschach test. For presidential candidate John Edwards, it was "just another example of how corporate greed is squeezing the middle class." American Petroleum Institute spokesperson Karen Matusic noted that oil's hitting the century mark should spur efforts to "explore for more oil and natural gas. After all, 80 percent of our potential domestic resources are cut off from drilling." For Renewable Fuels Association president Bob Dinneen, the event highlighted (wait for it!) the importance of recently passed legislation that subsidizes ethanol production. And for Treasury Secretary Henry Paulson, it was an occasion to marvel at just how well the U.S. economy has held up in the face of such challenges. "When you look at the structural changes in our economy, we're using oil more efficiently and it has a smaller overall impact on our growth," he told NEWSWEEK.
A hundred factors—production disruptions in Nigeria, speculators in Singapore, the pathetic dollar—helped push the price of a barrel of oil to $100 (or roughly what lunch at McDonald's in London costs, thanks to said pathetic dollar). But it's safe to say that oil's breaching three figures last week was explicitly not due to the venality of ExxonMobil's bosses, or to our inexplicable hesitancy to drill for methane in the Grand Canyon, or to the lack of subsidies for schemes to process bacon fat into diesel. In fact, it's becoming evident that it's not about anything Americans do, or don't do.
As we are endlessly reminded, Americans, about 4.5 percent of humanity, account for about 25 percent of the world's oil consumption. Historically, the consumption habits of these power users have had a huge effect on the commodity's global price. But we matter less and less each year, macroeconomically speaking. Oil nicked $100 the same day the Institute for Supply Management reported that the manufacturing sector—you know, that energy-intensive sector that burns up lots of oil—contracted in December. In theory, it should be hard for the price of oil to rise at a time when the world's economic engine is idling and plotting a shift into reverse. But that's exactly what happened in 2007.
Prices in the market are determined by supply and demand. Even with demand in the United States stagnating, global demand for oil is booming. "A big part of the oil story has to do with demand globally," says Henry Paulson. "There is strong growth in many countries around the world." Indeed, according to the World Bank, 104 countries grew at more than 5 percent in 2006—a modern record—and most of them powered through 2007 at a similar pace. Americans may have reacted to higher oil prices by buying smaller cars, but businesses and consumers in Asia, South America and Africa haven't been deterred in gobbling up oil. In 2007, according to OPEC, world demand for crude oil rose by 1.4 percent, or 1.2 million barrels per day. But the United States and its fellow industrialized firms in Asia and Europe—the 30 nations that make up the Organization for Economic Cooperation and Development (OECD)—actually reduced consumption. According to OPEC, non-OECD countries accounted for all of 2007's oil-demand growth.
Obviously, China has a lot do with it. Its consumption of crude oil rose from 5.6 million barrels per day in 2003 to 7.6 million in 2007. Thanks in part to China's growth, Asia in 2004 surpassed the United States as the largest consumer of oil in the world, according to Daniel Yergin, chairman of energy analyst Cambridge Energy Research Associates.
But demand is booming elsewhere, especially in the Middle East. The nations that have grown rich on petrodollars aren't just spending money on champagne and lavish hotels on the French Riviera. They're plowing cash into diversifying economies, building things that use lots of energy—condominium towers in Dubai, an indoor ski resort in Bahrain and petrochemical plants in Kuwait and Saudi Arabia. In the past, OPEC could calm oil markets by increasing supply. But OPEC members are now eating a lot more of what they grow. Between 1997 and 2007, notes Yergin, six Mideast OPEC members—Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates—boosted production by 2.5 million barrels per day. But they increased consumption by 1.9 million barrels per day. In effect, three quarters of the production increase stayed in the region.
The trends that boosted demand in 2007 are still intact. OPEC projects that in 2008, world oil demand for crude will rise by 1.3 million barrels per day, but that non-OECD countries will account for 1.1 million barrels per day, or 80 percent of the total. China alone is expected to boost consumption by 400,000 barrels per day. Lehman Brothers analysts project that this year OPEC countries will increase their use of oil by 350,000 barrels per day, or 4 percent.
It's beyond our control. Using less gas, running factories at fewer shifts and redoubling efforts to conserve and find alternatives may save us some money. But it won't result in lower prices at the pump.
Part I
Anonymous suggested that I superimpose a Top 20 Importers graph on the Exporters to show who were the losers in what is becoming a bidding war for exported oil. This is an approach I’m considering, but feel at this time that it is beyond the scope of what I’m trying to do here. I appreciate the feedback and will probably at some point post some stuff on imports.
What am I trying to do here?
Clearly there is something going on in the world of energy and oil. It’s hard to say when it began. 2003, maybe, when oil prices started their climb to what is now $100 – a one hundred year record (at least, I’ll have to look that up) both nominally and in inflation-adjusted real terms. Although at $100, oil in the United States is still well below it’s peak in the early 1980’s when measured as a percentage of GDP. It will probably take $150 to pass that mark.
When I first started tracking the numbers, the focus was strictly on supply and whether we had reached or were near a definitive peak in global production. Talk of demand has always been tempered by a fact that the vast majority of analysts and commentators seem to completely miss. This is that you can’t measure demand. At least not in any realistic, timely manner. Measuring production/supply on such a vast scale is hard enough.
Once oil is extracted from the ground (produced) it enters a global supply chain that moves it through pipelines, onto tankers, to refineries, through pipelines, maybe onto more tankers, then into tanker trucks for the final delivery as gasoline to the station. This entire process is interspersed with storage of various lengths of time at different point along the route.
The consumer doesn’t demand oil. The consumer demands gasoline, or jet fuel, or one of several other refined, finished products.
Part II
My personal belief is that we cannot consume more oil than we produce. Some might say this is rather obvious, however the ramifications of this problem aren’t entirely appreciated until you start trying to track the numbers and make sense of what is being said about rising demand and stagnant supply. Invariably those concerned with future oil supply will invoke the 200-year chart plotting supply and demand. The timeline usually starts around 1860 when oil was discovered in Pennsylvania, or maybe 1900, and goes out to 2050 or 2100. At first there is one line which plots yearly oil production (supply) until the present and which was also consequently the demand (also known as consumption or “amount supplied”). We cannot consume more oil than we produce.
There is usually a vertical line drawn at the present or at some year in the recent past when the chart was produced. Maybe the areas to the left and the right of this line are shaded differently to emphasize the point and there is a label saying that everything to the right of the line is “projected” or “forecast.” But then something happens that makes me cringe every time I see it and makes me call into question the sanity of whoever was responsible. The line tracking supply and demand splits. From about that point a line representing supply begins to curve downward in a smoothed mirror version of the jagged line to the left of the present and tapers off somewhere around 2100. This would complete what is usually Hubbert’s curve or some variation representing the dying days of a finite resource. Now, in addition, and always starting the day after the chart was drawn, there is a second line, usually fairly straight, which shoots up into the heavens at about the rate of 2 or 3 percent per year. This is forecast demand.
It's hard to see the split here, because they don't project a peak
until 2010 and the "actual"production line is smoothed. It looks
like this one was made in mid-2006.
I have never understood this line and the conclusions that some draw from it because I don’t see how it could possibly ever exist. If we were to take two versions of the chart I describe, one produced in 1997 and one in 2007, the upper “demand” line from the former would have magically disappeared in the latter. Why? Because the “projected demand” for those ten years would have turned out to be exactly the same as the amount actually produced and supplied, overlapping, and thus becoming the single line that always exists in the past.
There may be good reason to produce charts like this. The creator is usually trying to warn of stark realities in our energy future. But they are using a sleight of hand to do this and ultimately I don’t think that is a good tactic. Usually the area between the upper demand curve and the lower supply curve is highlighted the way one would an Economics 101 supply and demand chart to note a shortage or surplus. The further into the future we move the worse the discrepancy becomes. Of course, as I demonstrated above with the example of the two version’s of this chart, real life doesn’t work this way. Just as in an Economics 101 chart, supply and demand always meet at one point which represents a single amount corresponding to a price (which I will get to soon).
I don’t mean to suggest that shortages and surpluses don’t exist. They certainly do. Whether it was gas lines in the Seventies or stories presently about China:
A shortage of gasoline and diesel fuel has led to long queues and rationing in some Chinese cities, and even civil unrest, causing some service stations to request police protection. The shortages began in October, and now Premier Wen Jiabao has called for increased refinery production. In mid-November, Wen said that the country needs “comprehensive measures to increase crude oil production and refining, to realistically ensure supplies of refined oil products."
The shortage can be blamed on one thing: excessive government intervention in the market. By setting prices artificially low, the Chinese government prevented refiners from making a profit on much of their production. That led many independent refiners to reduce production or else shut down completely, rather than suffer ever-increasing losses on their output.
http://www.energytribune.com/articles.cfm?aid=739
