Re: Why oil prices are up

An interesting point IMO is that the emerging markets will become a much
bigger player in crude usage as each day passes. For example, China used
25% more in Q1 than the same Q last year. IMO once oil companies realize
that the price will remain above 60, much more will be obtained from
unconventional sources, like the Canadian oil sands or even the US oil
shales. IMO, the only thing that would signifiently reduce overall demand
for the stuff in the next several years would be a global recession.

--
Jerry


"Don Tiberone" <DonTiberoneNOSPAM@xxxxxxx> wrote in message
news:e2fb81$6r@xxxxxxxxxxxxxxxxxxxxxxxxxx
Why Are Oil Prices up ? 1
by: beatrix283 04/22/06 09:22 am
Msg: 179159 of 179242

Oil prices are up substantially since mid-February. Most of the Mainstream
Media (MSM) attribute this run up in oil prices to geopolitical tensions.
However, a careful examination of recent supply data provided by the US
Energy Information Agency (EIA) suggest a different reason--oil importers
are bidding against each other for available total petroleum (crude oil +
product) imports.

Since the week ending 2/10/06, average daily US net petroleum imports have
fallen about 15%, down about two mbpd. Since the week ending 2/24/06, on a
smoothed, four week running average basis, average daily US net petroleum
imports have fallen about 8%, down about one mbpd. (A comparable time
period
last year showed about a 2% decline.)

This sharp decline in net US petroleum imports corresponded to the
beginning
of the recent run up in oil prices.

It is true that we have relatively high crude oil inventories, but note
that
we don't know what percentage of crude oil inventories consists of heavy,
sour crude, which cannot be used in light, sweet crude oil refineries.
Also,
total product inventories are up only slightly year over year. It is quite
possible that building inventories of heavy, sour crude oil have been
obscuring falling inventories of light, sweet crude oil inventories.

Why is This Decline in Imports Important?

Producing regions tend to peak and then decline when they have used about
50% of their total recoverable conventional oil reserves (Qt).

Kenneth Deffeyes, using a method called Hubbert Linearization (HL),
estimated that the world crossed the 50% of (conventional crude +
condensate) Qt mark in December, 2005. According to the EIA, December 2005
was the all time record high for world crude + condensate production. The
latest data, for January, 2006, show a decline of about 500,000 bpd.

In an article that "Khebab" and I coauthored, "M. King Hubbert's Lower 48
Prediction Revisited," we evaluated the accuracy of the HL technique as a
predictive tool, once a region has hit the 50% of Qt mark.

As most people know, Dr. Hubbert, in 1956, accurately predicted that US
Lower 48 oil production would peak around its actual peak in 1970. Using
only production data through 1970, we found that actual post-1970
cumulative
Lower 48 oil production was 99% of what the HL method predicted. We
concluded that Dr. Deffeyes' prediction that the world peaked in 2005
should
be given a lot of credibility.

In our article, we also analyzed the top four net oil exporters worldwide,
and we found that they are collectively farther down the depletion curve
than the world is overall. In the article, we had the following
statements:

A critical point to keep in mind is that an exporter can only export what
is
left after domestic consumption is satisfied.

Consider a simple example, a country producing 2.0 mbpd, consuming 1.0
mbpd
and therefore exporting 1.0 mbpd. Let's assume a 25% drop in production
over
a six year period (which we have seen in the North Sea, which by the way
peaked at 52% of Qt) and let's assume a 10% increase in domestic
consumption. Production would be 1.5 mbpd. Consumption would be 1.1 mbpd.
Net exports would be production (1.5 mbpd) less consumption (1.1 mbpd) =
0.4
mbpd. Therefore, because of a 25% drop in production and because of a 10%
increase in domestic consumption, net oil exports from our hypothetical
net
exporter dropped by 60%, from 1.0 mbpd to 0.4 mbpd, over a six year
period.

We are deeply concerned that the world is probably facing an imminent and
catastrophic collapse in net oil export capacity because of declining
production and increasing domestic consumption in the top exporting
countries.

Consider the simple math. If Deffeyes is correct that the world oil
production peaked in December, 2005, then we will use--at our current rate
of consumption--more than 10% of all remaining conventional crude +
condensate reserves in the next four years.

Why Aren't the MSM Discussing the Import Situation?

I think that we are seeing an "Iron Triangle" of sorts defending the
status
quo concept of ever expanding energy supplies: (1) most housing, auto,
financing and related companies; (2) Most MSM companies that are selling
advertising to Group #1 and (3) some major oil companies, major oil
exporters and energy analysts that are working for the major oil companies
and exporters.

The housing/auto group wants to keep selling and financing large homes and
SUV's.

The MSM wants to keep selling advertising to the housing/auto group.

In my opinion, some major oil companies are afraid of punitive taxation,
and
some exporters are afraid of military takeovers. This group of oil
companies, exporters and their analysts provide the intellectual
ammunition
for the other two groups, i.e., promising trillions and trillions of
barrels
of conventional and nonconventional oil reserves.


Jeffrey J. Brown is a petroleum geologist in the Dallas, Texas area.
westexas@xxxxxxx

--
"Diversification is a protection against ignorance. It makes very little
sense for those who know what they are doing"

-- Warren Buffett

"We make money the old fashioned way. We print it."

-- Art Rolnick, Chief Economist for the Minneapolis Federal Reserve Bank




.

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