Meltdown

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Oil surge continues, price hits $117 US

Last Updated: Friday, April 18, 2008 | 2:07 PM MT CommentsRecommendCBC News
Oil prices reached another new high on Friday as crude hit $117 US a barrel.

The price of oil for May touched its new peak in electronic after-hours trading on the New York Mercantile Exchange. During the regular trading, oil closed at $116.69 US, which was up $1.83 from Thursday's close.

Analysts put the latest record price down to instability in Nigeria. A rebel group said Friday it had sabotaged a pipeline run by a Royal Dutch Shell PLC joint venture. A Shell spokeswoman confirmed that the pipeline appeared to have been damaged by explosive and was leaking.

The rebel group — the Movement for the Emancipation of the Niger Delta — has been attacking oil installations since early 2006, and vowed to stage more attacks.

The attacks on the oil facilities of Nigeria have cut the OPEC member's output by almost one-quarter.

[BachQ]

Nine reasons the peak now looks more imminent (2004)
By Prof. Richard Heinberg

When Richard Heinberg wrote The Party's Over: Oil, War, and the Fate of Industrial Societies he expected that global oil production peak would most likely to fall within the window of 2006 to 2015. These days (18 months after the book was finished) he's more likely to say 2006 to 2010. Here's nine events which explain that, extracted from an e-group discussion:

Since the publication of THE PARTY'S OVER we've seen:

1. Sharply declining discovery figures for 2002 and 2003.

2. Increasingly pessimistic assessments from ASPO (Colin Campbell) pulling projections of the peak for all liquids back from about 2015 to 2007.

3. Evaporation of spare capacity throughout the entire global production/distribution system, leading to the recent run-up in oil prices.

4. Matthew Simmons's dire assessments of the state of Saudi Arabia's reserves.

5. Statements by Roger Blanchard and others about the major projects coming on line in the next couple of years (mostly in deep water off the coasts of West Africa, Brazil, and in the Gulf of Mexico) that are likely to boost total global production temporarily--but that will play out rather quickly. There seem to be few big projects further out in the 2008-2012 frame to replace or supplement these.

6. The peaking of production in ever more nations--now including Norway, Great Britain, and Oman; Richard Duncan reckons that, of 44 significant producing nations, 24 are past their individual all-time peaks.

7. Statements by industry representatives (e.g., Jon Thompson of ExxonMobil) that, given current depletion rates, huge new replacement projects will be needed as soon as 2010 in order to keep up with rising demand.

8. Soaring demand from China, Japan, Korea, and the US.

9. Increasing instability in the Middle East, fomented in large part by the unwise and spectacularly bungled US-British invasion and occupation of Iraq, but threatening now to spill over into Saudi Arabia and other nations.

[T]o me, all of this suggests that the peak will come sooner rather than later.  Increasingly the arguments of the optimists seem to be mere hand-waving, with nothing solid to back them up. Where are the countervailing trends?

--Professor Richard Heinberg Santa Rosa CA

[BachQ]

Billionaire Texas oil man makes big bets on wind
Fri Apr 18, 2008 9:00am

By Chris Baltimore

WASHINGTON (Reuters) - Legendary Texas oil man T. Boone Pickens has gone green with a plan to spend $10 billion to build the world's biggest wind farm. But he's not doing it out of generosity - he expects to turn a buck.  Next month, Pickens' company, Mesa Power, will begin buying land and ordering 2,700 wind turbines that will eventually generate 4,000 megawatts of electricity - the equivalent of building two commercial scale nuclear power plants - enough power for about 1 million homes.

"These are substantial," said Pickens, speaking to students at Georgetown University on Thursday. "They're big."

Pickens knows a thing or two about big. He heads the BP Capital hedge fund with over $4 billion under management, and earned about $1 billion in 2006 making big bets on commodity and equity markets.

America is facing a looming power crunch, with electricity demand expected to grow 15 percent in a decade. And while many states have rejected big coal-fired power projects on environmental concerns, they are offering a bounty of incentives to build renewable sources.

U.S. crude futures at new records above $115 a barrel means a bright future for renewable sources like wind and solar.

Pickens' wind farm is part of his wider vision for replacing natural gas with wind and solar for power generation, and using the natural gas instead to power vehicles.

To picture Pickens' energy strategy, imagine a compass.

Stretching from north to south from Saskatchewan to Texas would be thousands of wind turbines, which could take advantage of some of the best U.S. wind production conditions.

On the east-west axis from Texas to California would be large arrays of solar generation, which could send electricity into growing Southern California cities like Los Angeles.

[BachQ]

The Demise of Oil - Energy Security Concerns, Global Antagonism and Dilemmas
17/04/2008

Since the first industrial extraction of oil in the modern era, more than 1.1 trillion barrels have been consumed. The interesting part is the acceleration of consumption during the past generation. In 1984, China required 1.7 million barrels per day; nowadays the figure has increased to 7.5 million. India consumed 0.8 million barrels and today it needs 2.6 million.

[BachQ]

To get a better picture of where we were two generations ago vs. where we will be in less than a generation, consider this: in the 1950s the ratio of energy returned in coal-burning power plants to energy spent in coal mining, transporting and processing was 30 to 1. This same ratio is now down to about 3 to 1. In the next 10 to 15 years, for the United States and much of the world, this ratio will be 1 to 1 and coal will no longer be a viable source of power.

[BachQ]

*** When combined, the figures for oil depletion and population, using simple arithmetic, what we end up with is a decline in population, over the years, that is not "hill-shaped," so to speak, but "valley-shaped." The curve, in other words, does not begin as a plateau and then gradually steepen, but rather the reverse: there is a sudden plunge, which then smooths out at the end. (In a larger time-frame, some of these figures have been discussed in "Peak Oil and Famine: Four Billion Deaths.")

*** An even more serious, though seemingly trivial, "pessimistic" factor will be largely sociological: To what extent can the oil industry maintain the advanced technology required for drilling ever-deeper wells in ever-more-remote places, when that industry will be struggling to survive in a milieu of social chaos, an anarchistic world in which intricate division of labor, large-scale government, and high-level education no longer exist?

*** [As a preview,] let us repeat the well-known formula that we live in a world in which "oil is everything." That is to say, everything in the modern world is dependent on oil. >From oil and other hydrocarbons we get fuel, lubricants, plastic, paint, synthetic fabrics, asphalt, pharmaceuticals, and many other things. On a more abstract level, we are dependent on oil and other hydrocarbons for manufacturing, for transportation, for agriculture, for mining, and for electricity. ("Alternative energy" is just science fiction.) When oil goes, our entire industrial society will go with it. There will be no means of supporting the billions of people who now live on this planet. Above all, there will be insufficient food.

[BachQ]

Chris Nelder, an investment researcher on energy, cites the Association for the Study of Peak Oil and others to assert "The peak oil debate is essentially over: we're staring down the peak in the next two to three years."

[BachQ]

"The end of the world as we know it," is how Michael T. Klare, an American professor of peace and world security studies at Hampshire College in Massachusetts, describes our presently crisis-hobbled home planet. His new book, Rising Powers, Shrinking Planet: The New Geopolitics of Energy, is disturbing but highly recommended reading for realists.

[BachQ]

Published on 19 Apr 2008 by Energy Bulletin. Archived on 19 Apr 2008.

Review: Reinventing Collapse by Dmitry Orlov
by Amanda Kovattana

*** Orlov's main goal is to get Americans to understand what it will mean to live without an economy, when cash is virtually useless and most people won't be getting any income anyway because they'll be out of a job. Peak oil gurus already talk about how economic growth will be curtailed by decreasing supplies of energy, but Orlov takes it one step further by adding currency collapse and the collapse of the known economic system into an unknown bartering system. The reader cannot escape his picture of inevitable collapse as he takes pains to explain that the usual channels of activism, politics and private enterprise, if we use them to attempt to mitigate the collapse, will only make things worse because these systems are ideologically driven and incapable of putting into practice what is needed to happen to ensure survival.

*** In the end the picture that emerges is that of a simplified America based on complex interrelationships between people one can trust, hand skills to make things work, an ability to relate up and down the social classes and left and right to different social groups, being able to grow food, being able to downgrade living standards dramatically and manage expectations, being self-sufficient, flexible and adaptable sounds like a big improvement to the hollow, consumer driven, meaningless, success culture we do live in.

In his conclusion, Orlov neither tries to sell cheerful optimism, Al Gore style, or grind you to a pulp Kunstler, Long Emergency style. For that I am grateful, as well as for the experience of having my mind opened to the view while drifting silently to earth wondering what crocodiles will be lurking in the swamps of post-collapse America

[BachQ]

An Age of Transition
The United States, China, Peak OIl, and the Demise of Neoliberalism
by Minqi Li

Until recently, the global capitalist economy has enjoyed a period of comparative tranquility and grown at a relatively rapid pace since the global economic crisis of 2001–02. During this period of global economic expansion there have been several important economic and political developments. First, the United States—the declining hegemonic power but still the leading driving force of the global capitalist economy—has been characterized by growing internal and external financial imbalances. The U.S. economy has experienced a period of debt-financed, consumption-led "expansion" with stagnant wages and employment, and has been running large and rising current account deficits (the current account deficit is a broad measure of the trade deficit). Second, China has become a major player in the global capitalist economy and has been playing an increasingly important role in sustaining global economic growth. Third, global capitalist accumulation is imposing growing pressure on the world's natural resources and environment. There is increasingly convincing evidence that the global oil production will reach its peak and start to decline in a few years. Fourth, the U.S. imperialist adventure in the Middle East has suffered devastating setbacks and there has been growing resistance to neoliberalism and U.S. imperialism throughout the world.

As the U.S. housing bubble bursts and the dollar's dominance over the global financial system becomes increasingly precarious, the U.S. economy is now going into recession and the global capitalist economy is entering into a new period of instability and stagnation. The coming years are likely to see a major realignment of the various global political and economic forces and will set the stage for a new upsurge of the global class struggle.

***

Peak Oil and the Limits to Accumulation

Suppose the Chinese capitalist class has the necessary wisdom and will to pursue a Keynesian, social-democratic-style restructuring. Will such a restructuring take Chinese capitalism onto a path of sustained stable and rapid growth, and will the expansion of the Chinese economy in turn lead the global capitalist economy into another "golden age"?

...Since 2000, the growth of China's energy consumption ... has greatly accelerated. It now accounts for 15 percent of the world total and amounts to 70 percent of U.S. energy consumption. At the current growth rate, China's energy consumption will double in seven years and China will soon overtake the United States to become the world's largest energy consumer. China depends on coal for about 70 percent of its total energy consumption and China's coal consumption is also growing at a rate indicating a doubling in seven years. China's oil consumption (already accounting for one-third of the world's incremental demand for oil) is growing at a rate that implies a doubling in nine years. In other words, in about a decade if the current trend holds up, China will consume one and a half times as much energy as the United States consumes today. Will the world energy supply keep pace with China's rapidly growing demand  while meeting the demand from the rest of the world?

The global capitalist economy depends on fossil fuels (oil, natural gas, and coal) for 80 percent of the world's energy supply. Oil accounts for one-third of the total energy supply and 90 percent of the energy used in the transportation sector. Oil is also an essential input for the production of fertilizers, plastics, modern medicine, and other chemicals.

Oil is a nonrenewable resource. In a recent study, the German Energy Watch Group points out that world oil discoveries peaked in the 1960s and world crude oil production has probably already peaked and will start to decline in the coming years. Outside OPEC, oil production in twenty-five major oil producing countries or regions has already peaked, and only nine countries or regions still have growth potential. All the major international oil companies are struggling to prevent their oil production from declining.3

Colin Campbell of the Association for the Study of Peak Oil and Gas estimates that the world production of all liquids (including crude oil, tar sands, oil shales, natural gas liquids, gas-to-liquids, coal-to-liquids, and biofuels) is likely to peak around 2010. After the peak, the world oil production will fall by about 25 percent by 2020 and by about two-thirds by 2050. Campbell also estimates that the world natural gas production will peak by 2045. In an earlier study, the German Energy Watch Group expects the world coal production to peak by 2025.4

Nuclear energy and many renewable energy sources (such as solar and wind), in addition to their many other limitations, cannot be used to make liquid and gaseous fuels or serve as inputs in chemical industries. Biomass is the only renewable energy source that can be used as a substitute for fossil fuel in the making of liquid or gaseous fuels. But large-scale production of biomass could lead to many serious environmental problems, and the potential of biomass is limited by the available quantity of productive land and fresh water. Ted Trainer, an Australian eco-socialist, estimates that meeting the current U.S. demand for oil and gas would require that the equivalent of nine times all U.S. crop land or eight times all currently forested U.S. land be fully devoted to production of biomass. Trainer concludes that "there is no possibility that more than a quite small fraction of liquid fuel and gas demand could be met by biomass sources."5

If world oil production and the production of other fossil fuels reach their peak and start to decline in the coming years, then the global capitalist economy will face an unprecedented crisis that it will find difficult to overcome.

The rapid depletion of fossil fuels is only one among many serious environmental problems the world is confronting today. The capitalist economic system is based on production for profit and capital accumulation. In a global capitalist economy, the competition between individual capitalists, corporations, and capitalist states forces each of them constantly to pursue accumulation of capital on increasingly larger scales.

Therefore, under capitalism, there is a tendency for material production and consumption to expand incessantly. After centuries of relentless accumulation, the world's nonrenewable resources are being rapidly depleted and the earth's ecological system is now on the verge of collapse. The survival of the human civilization is at stake.6

Some argue that because of technological progress, the advanced capitalist countries have become "dematerialized" (decreasing the throughput of materials and energy per unit of output) as economic growth relies more upon services than traditional industrial sectors, thus making economic growth less detrimental to the environment. In fact, many of the modern services sectors (such as transportation and telecommunication) are highly energy and resource intensive.

Despite such claims regarding dematerialization, the advanced capitalist countries are ecologically much more wasteful than the periphery, with per capita consumption of energy and resources and a per capita ecological footprint far higher than the world average. According to the Living Planet Report, North America has a per capita ecological footprint of 9.4 global hectares, more than four times the world average (2.2 global hectares). The supposedly environmentally friendly European Union has a per capita ecological footprint of 4.8 global hectares, or more than twice the world average. Cuba, the only country that remains committed to socialist goals among the historical socialist states, is the only country that has accomplished a high level of human development (with a human development index greater than 0. while having a per capita ecological footprint smaller than the world average.7 

Claims of the advanced capitalist economies to dematerialization in the wider, more meaningful sense of declining overall environmental impact are in fact refuted by the Jevons Paradox, which says that increased efficiency in the throughput of energy and materials normally leads to an increase in the scale of operations, thereby enlarging the overall ecological footprint. This has been a normal pattern throughout the history of capitalism.8

Moreover, part of what is referred to as dematerialization arises from the relocation of industrial capital from the advanced capitalist countries to the periphery in pursuit of cheap labor and low environmental standards. The dramatic rise of Chinese capitalism partly results from this global capital relocation. Although the advanced capitalist countries may have become slightly "dematerialized" in this sense, the capitalists and the so-called middle classes in China, India, Russia, and much of the periphery are emulating and reproducing the very wasteful capitalist "consumerist" life style on a massively enlarged scale. Global capitalism as a whole continues to move relentlessly toward global environmental catastrophe.

[BachQ]

Author offers bleak outlook for Eau Claire
Change of lifestyle needed, speaker cautions
Timothy Langton
Issue date: 4/21/08 Section: News

James Howard Kunstler paid a compliment to the city of Eau Claire, although one it probably didn't want to hear.

"This town has done an amazing job of committing suicide," Kunstler said.

Such was the theme for Kunstler's presentation "The Long Emergency: The Converging Catastrophes of the 21st Century" Thursday in Zorn Arena. Those looking for a message of inspiration and hope for the future found no such things in his biting and often fiery speech.

Kunstler has written extensively on what he believes to be the fall of the American lifestyle. He authored "The Geography of Nowhere," "The Long Emergency" and his new novel, "World Made by Hand," an imagined account of life following the end of oil.

He outlined what he believes is going to happen to the United States after the world's oil production reaches its peak, meaning the process of extracting oil from the ground will cost more than it can be sold for. After this point, Kunstler said there will be a drastic change in how the country's economy, infrastructure and communication are run.

With a lack of oil imports and production, the United States is going to have to move toward a rural, agrarian society, he said. The sprawling cities and suburbs that dot the country will not be feasible, Kunstler argued, requiring more centralized communities and economies.

"We have to make these changes," he said. "It's not a matter of if we like it or don't like it."

Eau Claire is as guilty as any other city across the country of not planning for the end of the high-energy use era, he said. Strip malls, car dealerships and other buildings on the outstretches of town won't survive long after passing the peak oil point.

People should not hope for alternative fuels to take the place of oil, Kunstler said. He said the current American lifestyle of high-energy usage will not be feasible in the near future.

"No combination of alternative fuels are going to permit us to run stuff were running the way we're running it," he said.

Senior Cecilia Artola said she found Kunstler's speech to be overly pessimistic and lacking hope.

"He wants to send us back to the 19th Century instead of forward," Artola said. "I don't think things are going to turn out that way."

But Kunstler warned of hoping solutions will come that will allow the industrialized world to continue its way of life.

"It's not healthy for people to believe they can get something for nothing," he said, referring to what he called a "delusional" culture of wishful thinking.

Kunstler said he could offer no solutions for those who wanted to take something hopeful away from his speech.

"You have to generate the hope yourself."

[BachQ]

Oil supply response to high prices to stay sluggish
Mon Apr 21, 2008

By Alex Lawler - Analysis

ROME (Reuters) - Oil at over $117 a barrel should give producers every incentive to pump more, but the supply response to record prices has been limited and few predict that will change any time soon.

Supply from outside the Organization of the Petroleum Exporting Countries has missed forecasts in recent years, despite a surge in oil prices from $20 in early 2002.

While oil firms are investing more, much of the boost is being eroded by rising costs. Access to big sources of reserves is getting harder and projects are becoming more complex, increasing the risk of delays.

"The international oil companies don't have as much access to the oil as they had in the past," said Adam Sieminski, chief energy economist at Deutsche Bank. "That and other hindrances are slowing down the supply response."

"The supply response might get better, but not right away."

An International Monetary Fund study published earlier this month found that the responsiveness of supply to high prices is likely to remain limited for a while yet.

According to the IMF, rising costs for rigs and shortages of skilled engineers has largely cancelled out the increase in industry spending. But there are other factors that are less likely to ease.

"A significant component of these costs is the result of geological constraints -- a more permanent rigidity -- implying that the responsiveness of supply to high prices is likely to remain low for some time," the IMF said.

The IMF suggests measures to curb demand, such as the ending of domestic fuel subsidies and the adoption of more fuel efficient cars, would lead to faster relief from high prices -- topics in the air at the World Energy Forum in Rome running until Tuesday.

CONSTRAINTS

Such constraints include the peaking of supply at conventional fields in many countries and faster decline rates at fields once they have hit peak output, the IMF said.

The surging price of oil for future delivery reflects growing concern that supply will not meet demand. Crude for delivery in December 2015 is trading at over $100 a barrel, up from $86 at the end of 2007.

In addition to geology, growing risks above the ground such as in the political environment or legal framework have also prevented supply from coming on stream.

"Operating risk is seen to be on the rise," said Harry Tchilinguirian, oil analyst at BNP Paribas.

"Risk in the operating environment can be due to civil unrest or more simply unilateral, forced changes in the contractual agreements."

Emboldened by high prices, many producers have been grabbing more cash and control from companies that work their oil and gas fields.

OPEC's members, whose oil industries are run by national oil companies, sit on three-quarters of the world's proven reserves. Some, including top reserves holder Saudi Arabia, ban foreign investment in their oilfields.

Another factor that may be holding back supply is competing claims on capital at oil companies.

Firms such as Exxon Mobil(XOM.N: Quote, Profile, Research), Royal Dutch Shell (RDSa.L: Quote, Profile, Research) and BP Plc (BP.L: Quote, Profile, Research) are handing back billions of dollars to investors though share buybacks and dividends, potentially limiting increases in investment.

According to the IMF, the rise in costs has largely cancelled out the increase in spending.

An IMF study of 53 national and international oil firms found they spent more than $240 billion in nominal terms in 2006, although the real level of investment was less than half that.

The supply response will improve in future, Tchilinguirian said, as more non-conventional oil is developed and high prices spur developments beneath deep water, such as the recent Carioca find offshore Brazil.

Others, such as the IMF, see the pace remaining slow.

"Although investment eventually does respond to prices, it does so with a greater lag and more slowly than in the past."

[BachQ]

Emerging Market Oil Use Exceeds U.S. as Prices Rise (Update1)

By Mark Shenk

April 21 (Bloomberg) -- Traffic jams in Beijing and humming air conditioners in Dubai are replacing U.S. highways and suburbs as the driver of global oil prices.

China, India, Russia and the Middle East for the first time will consume more crude oil than the U.S., burning 20.67 million barrels a day this year, an increase of 4.4 percent, according to the International Energy Agency in Paris. U.S. demand will contract 2 percent to 20.38 million barrels daily, the IEA says.

Economic growth of more than 8 percent in China and India, coupled with increasing car ownership among the countries' combined populations of 2.45 billion people, will more than compensate for falling U.S. demand. Oil use worldwide will increase 2 percent this year because of growth in emerging markets, the Paris-based IEA says.

[BachQ]

Oil running out as prime energy source: world poll
Sun Apr 20, 2008 5:06pm EDT
By Deborah Zabarenko, Environment Correspondent

WASHINGTON (Reuters) - Most people believe oil is running out and governments need to find another fuel, but Americans are alone in thinking their leaders are out of touch with reality on this issue, an international poll said on Sunday.

On average, 70 percent of respondents in 15 countries and the Palestinian territories said they thought oil supplies had peaked. Only 22 percent of the nearly 15,000 respondents in nations ranging from China to Mexico believed enough new oil would be found to keep it a primary fuel source.

"What's most striking is there's such a widespread consensus around the world that oil is running out and governments need to make a real effort to find new sources of energy," said Steven Kull, director of WorldPublicOpinion.org, a global research organization that conducted the poll.

Concerns over climate change, which is spurred by emissions from fossil fuels including oil, also were a factor among respondents, Kull said.

The current tightening of the oil market is not temporary but will continue and the price of oil will rise substantially, most respondents said.

"They think it's just going to keep going higher and a fundamental adaptation is necessary," Kull said in a telephone interview.

In the United States, the world's biggest oil consumer and among the biggest emitters of climate-warming pollution from fossil fuel use, 76 percent of respondents said oil is running out, but most believed the U.S. government mistakenly assumes there would be enough to keep oil a main source of fuel.

U.S. GOVERNMENT "NOT FACING REALITY"

"Americans perceive that the government is not facing reality," Kull said.

The United States is alone among major industrialized nations in rejecting the Kyoto Protocol, which aims to limit greenhouse gas emissions that exacerbate global warming.

Last week, President George W. Bush said U.S. greenhouse emissions, especially carbon dioxide spewed by the burning of fossil fuels like oil, would stop growing by 2025 but gave no details on how this would come about.

The announcement drew sharp criticism from environmental groups. Others pointed out this means emissions will continue to grow for the next 17 years.

Only in Nigeria did a majority -- 53 percent -- believe enough new oil would be found to keep it a primary energy source, a reflection of its status as a major oil exporter and member of OPEC.

The poll was conducted in China, India, the United States, Indonesia, Nigeria, Russia, Mexico, Britain, France, Iran, Azerbaijan, Ukraine, Egypt, Turkey, South Korea and the Palestinian territories.

The margin of error varied from country to country, ranging from plus or minus 3 percentage points to plus or minus 4.5 percentage points, Kull said.

WorldPublicOpinion.org involves research centers around the world, and the locations of these centers determined which countries were included in the poll. Kull noted that the poll included countries that make up 58 percent of the global population.

The project is managed by the Program on International Policy Attitudes at the University of Maryland.

[BachQ]

Gas prices push higher
The nationwide average for a gallon of gas touches $3.47.
Last Updated: April 20, 2008: 4:29 PM EDT
CAMARILLO, Calif. (AP) -- A survey says the national average price for regular gasoline rose nearly 16 cents in the past two weeks.  The average price of self-serve regular gasoline on Friday was $3.47 a gallon, mid-grade was at $3.59 and premium was $3.70. That's all according to the Lundberg Survey of 7,000 stations nationwide released Sunday.  Regular is up 60 cents from a year ago.  The national average price for a gallon of diesel is $4.21. That's $1.24 more than a year ago.

[BorisG]

THE WALL STREET JOURNAL: Bears Baffled by Oil Highs

By GREGORY MEYER
April 21, 2008; Page C10

As crude-oil prices edge further into uncharted territory, life as a bear has become lonelier than ever.

Benchmark crude futures have registered an electric performance so far this year and now — near $117 a barrel — hover well above some of the highest near-term forecasts. The speed of the ascent has caught many market participants off guard and forced banks and brokerages to repeatedly revise their oil-price outlook upward.

Yet some analysts continue to warn that oil prices are teetering close to a steep fall — at least back near $80 a barrel. For these observers who see the world's oil supply-and-demand balance loosening and weighing on prices, the red-hot rally is nothing short of astonishing.

"I personally think this is the mother of all bubbles," said Michael Lynch, president of Strategic Energy & Economic Research Inc., a consulting firm in Amherst, Mass. He expects prices to pull back to $80 a barrel by late June, and in the long run step down to $50 as pent-up supply in Iraq, Nigeria, Venezuela and other underproducing exporters starts to flow.

For Tim Evans, an energy analyst and inveterate bear at Citigroup in New York, that bubble is "still expanding," filled with sentiment that seems to ignore signs of what he views as a supply surplus through the end of this year.

"There's no supply-demand deficit," Mr. Evans said.

The case for lower oil prices is straightforward: The prospect of a deep U.S. recession or even a marked period of slower economic growth in the world's top energy consumer making a dent in energy consumption. Year to date, oil demand in the U.S. is down 1.9% compared with the same period in 2007, and high prices and a weak economy should knock down U.S. oil consumption by 90,000 barrels a day this year, according to the federal Energy Information Administration.

The benchmark crude futures contract on the New York Mercantile Exchange first touched $100 a barrel on Jan. 2 and has marched higher since then. Nymex crude has risen 22% this year and 91% since the start of 2007, settling at $116.69 a barrel Friday after touching a record intraday high of $117.

The International Energy Agency, the Paris-based energy watchdog of the world's richest nations, earlier this month lowered its forecast for world oil demand growth by 460,000 barrels a day and now envisions demand will total 87.2 million barrels a day this year, nearly 1.3 million barrels a day more than last year. The IEA also sees supply from outside the Organization of Petroleum Exporting Countries growing by 815,000 barrels a day, the strongest growth since 2004, leading bears to contend the world is amply supplied.

The bulk of the oil market doesn't seem bothered by this argument. Buyers have been emboldened by what they see as faltering supply, with OPEC members holding oil production steady and supply from outside the cartel growing but not as quickly as originally expected.

While the Federal Reserve's aggressive interest-rate easing cycle is aimed at stimulating the economy at a dangerous impasse, the oil market has taken its monetary policy cues squarely from the weak dollar. As fears gather that the rate cuts are leaving the U.S. economy extremely vulnerable to inflation, the rise in the price of oil is also seen by some as an early harbinger of those gathering price pressures, reminiscent of the commodity price spike in the early 1970s.

Mr. Lynch at Strategic Energy argues the dynamics of supply and demand justify a price of $30-$40 a barrel, while jitters in unstable exporting regions might reasonably double that price.

"But $114? I mean, the run-up in price we're seeing in the last six weeks or so has happened while the fundamentals have, generally speaking, gotten bearish," he said.

Even with red flags on the horizon and oil prices shattering predictions, the rally has generated a sort of self-fulfilling momentum.

"We're stuck in this rut of an upward market until something major changes in the macro picture," said Adam Robinson, an energy research analyst at Lehman Brothers. After revising up, Lehman sees the Nymex benchmark crude averaging $89 a barrel this quarter and $93 in 2008.

To Mr. Evans of Citigroup, those factors are already here. Higher prices are sowing the seeds of their own collapse, he says, as consumers start cutting back and producers search for oil that once was too costly to extract. By his reckoning, oil should be trading between $70 and $80 a barrel.

"We don't need any further evidence for this market to turn lower," he said.

[BachQ]

Oil soars to record above $117
Mon Apr 21, 2008 9:26am EDT
By Ikuko Kao

LONDON (Reuters) - Crude oil prices surged above $117, setting a new record high on Monday because of worries of supply disruptions from major producers and comments by OPEC reiterating there is no need to raise output.

U.S. light crude struck a record high of $117.40 a barrel. It was trading 27 cents higher at $116.96 by 1155 GMT (7:55 a.m. EDT).

London Brent crude also struck its all time peak of $114.65. It was trading at $114.20, up by 28 cents.

The Organisation of the Petroleum Exporting Countries (OPEC) sees no need to raise oil production to counter high oil prices, the group's president Chakib Khelil said on Sunday.

His remark was followed by Iranian oil minister Gholamhossein Nozari, who said on Monday oil prices were not too high in real terms.

"OPEC's assertion that an increase in its oil production will not help to bring down prices should be put to the test," the Centre for Global Energy Studies said in a research note.

SCOTTISH REFINERY

These remarks come amid concerns over North Sea production due to an impending strike by workers at a refinery in Scotland and supplies from Nigeria, Africa's largest oil exporter.

Scottish oil refinery Grangemouth has started to shut down ahead of a two-day strike later in April.

If the union goes ahead with the strike, it will effectively close down a part of the North Sea oil production and some gas output, refinery operator Ineos said in a statement on Saturday.

Refined oil product prices also soared as such a refinery hiccup could further tighten fuel supplies.

Supplies of distillates products, including gas oil for heating and diesel, have been tight in many areas in the world and gasoline demand is expected to rise toward the summer driving season.

London's gas oil futures showed the biggest percentage gain in the oil complex. New York's heating oil and gasoline futures set their record highs.

A rebel group in Nigeria said on Monday it attacked two major oil pipelines there.

Royal Dutch Shell confirmed on Friday that a small amount of production had been shut in due to apparent attacks to its pipeline.

A fall in the dollar also contributed to oil's rally. A weak dollar has devalued assets in the U.S. currency, pushing investors to shift part of their money to commodities and oil.

[BachQ]

Peak Oil Review -- April 21st, 2008

By Tom Whipple
Posted 21 April 2008 @ 03:24 pm EST

1. Production and Prices
2. China
3. Food vs. Fuel
4. Brazil's Giant Field
5. Energy Briefs
1. Production and Prices

It was another week of steadily rising oil prices with crude moving from a low of $109.74 a barrel on Monday to new high of over $117 a barrel by Friday. By now the reasons for the continued climb are familiar – stagnant production, shrinking exports, inceasing demand, a falling dollar, the flight to safety in commodites, declining US stockpiles, and, of all things, the perception of an improving US economy.

This week several new factors contributed to the increase. Reports that Russian oil production slipped during the first quarter for the first time in a decade, coupled with assertions by senior Russian oilmen that Moscow's production is not going higher, was troublesome. Saudi King Abdullah's statement that he had ordered some new oil discoveries left untapped to preserve oil wealth for future generations also has serious long term implications for oil importers. During the week the Saudis said that they had trimmed output to 9 million b/d from 9.2 million.

Once again the week's US stocks report showed low refinery utilization, unexpectedly large drops in crude and gasoline inventories, and distillate stocks up only slightly. The rapid drop in gasoline stockpiles, although still about normal, already is starting to raise concerns about sufficient supplies for the summer driving season which starts in five weeks.

Electricity shortages which are spreading to numerous countries across the underdeveloped world continue to increase demand for diesel as the only readily available way to generate electricty.

Finally, natural gas prices climbed seven percent last week and are now up 41 percent so far this year. US stockpiles, which last November were a record 3.5 trillion cubic feet, are now down to a post-heating season 1.2 trillion. To match last November's supply, inventories will have to increase by 77 billion cubic feet a week which is well above the usual 68 billion a week addition to stocks during the summer months. US natural gas prices are still too low to compete with world prices for attracting LNG cargos. Qatar said it is now sending LNG cargoes to China rather than the US and Europe because Beijing was willing to pay more. During the last two months, US LNG imports were less than a third of what they were last year. The temporary closure of the Independence Hub in the Gulf of Mexico to repair a leak may reduce the amount of natural gas available for storage by 30 billion cubic feet.
2. China

Beijing announced last week that, despite weakening exports and bad winter weather, GDP grew by a surprisingly strong 10.6 percent in the first quarter and industrial production was up 16.4 percent. An all-out but probably unsustainable effort to increase crude and natural gas production resulted in a 2.7 percent increase in crude and a 16 percent increase in natural gas during March. Coal output rose 18 percent to 211.3 million tons last month and electricity output increased 17 percent to 289.8 million megawatt-hours. The IEA now estimates that China's oil consumption will rise 4.7 percent to 7.9 million barrels a day during 2008.

The pace of China's diesel imports is bound to keep pressure on the world market. In March diesel imports rebounded to 3.6 million barrels, after dropping to 2.4 million during the February snows and holiday season. In January imports were a record 6.1 million barrels. Preliminary information for May suggests that China will import at least 4.4 million barrels during the month, in part to offset production losses due to a refinery fire in Guangdong province. Reports of diesel shortages at retail stations across China continue.

Prior to last fall, China imported relatively small quantities of diesel. This rapid increase in their demand for diesel, together with efforts to mitigate power shortages around the world with diesel generators, suggest that diesel prices will continue to climb for the foreseeable future.
3. Food vs. Fuel

Rapid price increases, the suspension of food exports and the onset of food riots across the world is moving the issue of converting food grains into fuel to the world's center stage. Food shortages that are now engulfing the world are unlike any seen in recent decades in that they are not completely weather-related. World population is increasing by 78 million people each year; some 4 billion people are now so well off they can eat more grain-intensive meat; climate change is causing droughts and reducing irrigation water; and the movement to divert food into biofuels for motor vehicles continues. More stories about "how the rich are starving the world by making biofuels—dubbed "a crime against humanity"—are appearing in the world's press.

Currently, the U.S., the EU, India, China, and Brazil all have programs underway to substantially increase their use of biofuels. Since 2000, the amount of corn used to make ethanol has increased nearly six-fold. By next year, according to the National Corn Growers Association, some 4 billion bushels of corn--about one-third of the expected U.S. crop -- will be used to make motor fuel. The problem is being compounded by the increasing cost of oil and natural gas, which is pushing up fertilizer, irrigation, and shipping costs.

Thus far, the reaction to this situation has been minimal. In Europe and China, government leaders are beginning to question whether biofuels make sense, and have asked for studies on the issue. In the U.S., there is as yet little discernable movement. Concerned groups continue to publish tracts calling for the elimination of biofuels production while the ethanol industry continues to deny vehemently that there is link between corn-based ethanol production and global food shortages. Last week the U.S. administration, whose energy policy is largely based on increasing ethanol production, also denied there is a link.

If history is any guide, Europe is likely to change biofuels policies before it happens in the U.S., where the notion of energy independence through growing food has become deeply entrenched. As the situation worsens, and U.S. food prices continue to rise, a consensus will develop that food-based ethanol was a bad idea. After serious political struggles, ethanol mandates and subsidies should gradually be eliminated. The only question is how much irreversible damage will be done before this happens.
4. Brazil's Giant Field

Last week started on an optimistic note when the head of Brazil's National Petroleum Agency announced that the country's off-shore Carioca oil prospect may hold 33 billion barrels – enough to supply every refinery in the U.S. for six years. Carioca was immediately touted as the biggest discovery in 30 years and the third biggest oil field ever discovered.

The next day a statement from Brazil's national oil company Petrobras pointed out that there was really no new information about the size of the field other than what was released last September. While fifteen wells have been drilled into the formation that is called "pre-salt", it will be some time before any definitive estimate concerning the size of the formation, which lies beneath 10,000 meters of ocean and seabed, can be made.

In the meantime, Brazil's stock market regulators are investigating the man who released what he said was "informal information" from sources in Petrobras. Most observers believe there is considerable oil off the coast of Brazil, but that it will be many months if not years before the full extent of the discovery is determined. At any rate, extracting the first commercial flows of oil will be very expensive, won't arrive for five or six years at the earliest, and will span many years.
5. Energy Briefs

(clips from recent Peak Oil News dailies are indicated by date and item #)

*

A new worldwide poll shows that most people believe oil is running out and that governments need to find another fuel. Americans are alone in thinking their leaders are out of touch with reality on this issue. On average, 70 percent of respondents in 15 countries and the Palestinian territories said they thought o peaked. (4/21, #4)
*

Reports of actual or potential electricity shortages continue to pour in from around the world. In addition to the ongoing rolling blackouts in South Africa and South Asia, we now have reports of problems in New Zealand, Panama, Nicaragua, Costa Rica, Viet Nam, the Marianas, Chile, Argentina, and Poland. In Pakistan this week many were injured during riots protesting the electricity shortage. There is increasing discussion of the economic damage these blackouts are causing and of diesel generators being installed to keep facilities operating. (4/15, #6)
*

The government of Ecuador is seeking to increase state control of oil under its new constitution. The government will seek temporary, six-month contracts with foreign oil companies with which it is currently renegotiating agreements. Following that, the current participation contracts would be changed into service contracts. Last year Ecuador increased its share of windfall profits to 99% from 50% under a presidential decree. (4/15, #15)
*

UK Chancellor Darling has demanded an urgent review of international biofuels programs as part of a plan to tackle the world's mounting food crisis. The Chancellor said he had asked the World Bank to produce an analysis - for June's G7 meeting of global leaders - of the impact of green policies, including American and European biofuel programs, on global food shortages. (4/14, #20)
*

Rice prices hit the $1,000-a-ton level for the first time last week as importers scrambled to secure supplies, exacerbating the tightness provoked by export restrictions by Vietnam, India, Egypt, China and Cambodia. The jump came as the Philippines, the largest rice importer, failed for the fourth time to secure as much rice as it wanted. Kazakhstan, one of the world's biggest wheat exporters, halted foreign sales. A big food company in Japan said high corn prices had forced it to buy cheaper genetically-modified corn for the first time, breaking a social, though not legal, taboo and signaling that opposition to GM foods could weaken. (4/18, #18; 4/16, #2)
*

Kazakhstan will have Chinese help in developing oil and gas resources on the continental shelf of the Caspian Sea, according to a joint communiqué issued last week. The two governments also agreed that they would build a natural gas pipeline to be completed by the end of 2009 to eventually pump some 30 billion cubic meters a year to China from Central Asia. (4/15, #4)
*

Turkmenistan, Central Asia's top natural gas exporter, cut its gas production in the first quarter of 2008. Russia's Gazprom, currently the only buyer of Turkmen gas, agreed last year to pay $130 per thousand cubic meters (tcm) in the first half of 2008 and $160 per tcm in the second. In 2007 Gazprom bought Turkmen gas at $100 per tcm. (4/15, #5)
*

The US, the world's biggest nuclear power producer, will start between four and eight new reactors in 2016 to 2017. The exact number will depend on manufacturers' capacity, electricity prices and capital costs. (4/15, #14)
*

US crude oil imports from Venezuela fell 18.3 percent in February from January. The steep drop corresponds with Venezuela's Feb.12 decision to cut off oil sales to ExxonMobil Corp. March crude imports from Venezuela averaged 927,000 barrels a day, down 208,000 barrels a day from February, and 16.9 percent, or 188,000 barrels a day from a year earlier, according to the EIA data. (4/16, #6)
*

Venezuelan lawmakers gave final approval to a new tax on oil companies meant to grab a bigger share of the windfall oil revenue in times of high prices. Oil Minister Rafael Ramirez said the new tax should generate roughly $760 million a month, or more than $9 billion a year. The funds will go directly into the Fonden development fund, President Chavez's favorite spending fund.(4/16, # Unlike the previous oil tax boosts, this latest move to tap more money from the oil sector will increase the tax burden on its own state oil company, hitting PDVSa harder than it will the private oil producers. (4/20, #7)
*

Poland and Ukraine stepped up plans to extend an oil pipeline that bypasses Russia, a move that could help diversify supplies and reduce Moscow's energy clout in the region. Last October, Poland, Ukraine, Azerbaijan, Georgia and Lithuania set up the "Sarmatia" consortium to build a new pipeline by 2011. (4/16, #16)
*

Baghdad and the Kurdish region government have reached a deal on an oil law, including a method for weighing the validity of the oil deals the Kurds have signed with foreign firms. US imports from Iraq averaged 780,000 b/d in February up 44 percent or 237,000 b/d over January. (4/17, #5, #6)
*

Kazakhstan is attempting to fine a Chevron-led oil project $307 million for environmental violations. The government is accusing the consortium of storing sulphur extracted from the crude in big outdoor piles. (4/18, #3)
*

BP said it will start up the giant Thunder Horse platform in the Gulf of Mexico by the end of 2008. Between 2007 and 2009, BP expects to bring on-stream more than 25 projects adding 650,000 barrels a day of new production. (4/18, #11)
*

Mexico's state oil firm hopes to turn a long-ignored oil basin into a major producer as the country's traditional fields run dry. This month Pemex is collecting drilling bids for the Chicontepec basin, according to Compranet, the government's procurement Web site. Experts say it will be a difficult task for Pemex to reach its production target of 100,000 barrels a day by the end of this year at the geologically challenging area. (4/20, #8)

Quote of the Week
'It would be a profound mistake if we get into a situation where we are growing corn that is essential for feeding people and converting it into fuel. That is not sustainable.'
—UK Chancellor Alistair Darling speaking to a G-7 meeting in Washington

[BachQ]

Top News April 22, 2008, 12:01AM EST text size: TT
Oil: How High from Here?
Prices could reach new record highs as traders bid up oil in reaction to a weak U.S. dollar brought on by low interest rates
by Moira Herbst

The news from the trading pits is, well, no news at all: Oil prices are again breaking records. On Apr. 21, the price of a barrel of the benchmark West Texas Intermediate crude for May delivery hit $117.76 on the New York Mercantile Exchange—an all-time high—before settling at $117.46. Oil prices are up 23% so far this year, and 16% in April alone.

Those prices in the futures market are hitting consumers in the here and now, rippling through everything from gasoline to food to home heating fuel. The average price of a gallon of regular unleaded gasoline hit a high of $3.50 on Apr. 21. Diesel prices also set a record, at $4.20 a gallon, according to AAA and the Oil Price Information Service.

Not surprisingly, consumers are looking for a culprit. In a comment posted to a BusinessWeek.com opinion piece arguing that there is no actual shortage of gasoline (BusinessWeek.com, 4/1/08), "Ward" wrote on Apr. 17: "Impeach the oil cos. Then impeach their main apologist, GWB [George W. Bush]." Indeed, some oil-company stocks rose along with crude on Apr. 21, with Hess (HES) closing up 7% at 112.56; ExxonMobil (XOM) up 0.3% to 94.26; and Marathon Oil (MRO) up 0.9% to 49.21.

But analysts say a complex mix of factors—from low interest rates to the sagging dollar to the faltering economy—is behind the oil price hike. And they don't expect a letup any time soon.

"This [price spike] isn't an issue of supply and demand," says Joel Fingerman, principal of Chicago-based Oil Analytics, an energy consulting firm. "This is about money flow. It could stop here or at $150."

An Effect of the Declining Dollar
In other words, traders are bidding up the price of oil. It's the downside, in one sense, of the scramble by the Federal Reserve Board to rescue the financial markets in the wake of the subprime mortgage meltdown. Since October, the Fed has been consistently cutting interest rates—most recently on Mar. 18, and it's expected to do so again on Apr. 28. Each time it does so, the value of the dollar falls against other currencies. Traders react by investing in other commodities as a hedge against the falling dollar, and dollar-denominated commodities (such as oil) become more expensive.

"As long as the Fed continues to cut rates, traders will keep selling the dollar, buying the euro, and buying commodities like oil," says Peter Beutel, president of the New Canaan (Conn.)-based energy risk management firm Cameron Hanover. It also doesn't help that investors are still skittish about putting more money into stocks. "Traders are relentlessly long [on oil] because there's nowhere else to go," says Phil Flynn, an analyst and vice-president at brokerage firm Alaron Futures & Options in Chicago. "They're heading to oil and other commodities for safety."

It's unclear how much lower the dollar can go. The euro has been gaining ground against the dollar since 2003, and has risen 24% against the dollar since January, 2007. The euro increased 0.4% to $1.59 on Apr. 21—within 1¢ of a record—as European Central Bank officials reiterated concern that inflation has accelerated.

The Mother of All Corrections?
Some analysts say oil's sharp climb will only lead to a sharp and painful correction. As inflation causes consumer spending to slow, and endangers industries from airlines to trucking—at a time when the economy is weak anyway—it's logical demand for oil-based products will fall.

It wouldn't be the first time: Crude prices more than doubled in four months during 1990, after Iraq invaded Kuwait, to more than $32 a barrel. But prices had plummeted by about a third the following January. And by 1998 oil was trading below $11 a barrel. "I don't think the path we're on is sustainable," says Flynn. "Even if this is a long-term bull market [in oil futures], we're getting close to what could be the mother of all corrections."

But some traders are betting that low interest rates, a feeble dollar, and robust demand from China and India will keep demand for energy stoked and prices high. Fadel Gheit, senior energy analyst for Oppenheimer (OPY), says unless the U.S. government steps in to rein in speculators' power in the market, prices will just keep going up. He says the U.S. has been "unable or unwilling" to regulate oil markets, which proves a convenient way to contain the growth of China and spur energy conservation in the U.S.

"We're tolerating high prices for a reason," says Gheit. "No one has the courage to give us the bitter medicine of high taxes, so speculators have control of this market. There is no conductor on this train."

[BachQ]

Oil hits new record above $118 a barrel
Tue Apr 22, 2008 7:20am EDT
By Jane Merriman

LONDON (Reuters) - Oil rose to a record high above $118 on Tuesday, boosted by a jump in oil demand last month from China, the world's second biggest energy consumer, and worries about supply from key producers Russia and Nigeria.

U.S. light crude for May delivery was up 25 cents at $117.73 a barrel by 1108 GMT (7:08 a.m. EDT), easing from an all-time peak of $118.05 hit earlier in the day.

London Brent crude was up 40 cents at $114.83 a barrel, after rising to a record peak of $115.03.

Oil has hit a string of record highs this month, driven by booming demand from emerging markets such as China that has coincided with long-term supply constraints.

A weak U.S. dollar has also played a part in boosting the price of dollar-denominated commodities like oil and also attracted speculative inflows from hedge funds.

"Every time the market does make new highs, it suggests that the upward trend is still intact and that provides a catalyst for the funds to keep buying it," said Tony Machacek of Bache Commodities Ltd.

China's oil demand leapt 8 percent in March from a year ago, the fastest rate in 19 months as refiners boosted imports ahead of the Olympics.

But the high cost of producing more oil plus political constraints on new supplies mean the market looks set to struggle to keep pace with growing emerging market demand.

"The news that Russia, the largest non-OPEC producer, will produce less this year than the year before and Nigeria's output may be set to fall because of lack of investment makes people realize high prices are justified," said Bob Greer, executive vice president at commodity fund manager PIMCO.

"The 5 year forward contract has gone above $100," he said, referring to a surge in long-dated oil prices.

From 2010 to 2016, for example, oil prices currently range from around $106 to nearly $108 a barrel.

The long-term drivers for investment in the oil market include tight spare capacity, slow output growth from non-OPEC producers and robust demand from emerging economies. This is more than compensating for declining demand from industrial countries.

SUPPLY DISRUPTIONS

Against this backdrop, the market is sensitive to any events that could threaten supply.

Pipeline attacks in OPEC member Nigeria last week shut 169,000 barrels per day (bpd) of Bonny Light production, forcing Royal Dutch Shell Plc (RDSa.L: Quote) to declare force majeure on crude oil exports.

Nigerian rebels also attacked two Shell oil pipelines in the Niger Delta on Monday.

An oil refinery at Grangemouth in Scotland has begun shutting down ahead of a two-day strike due to start on Sunday. Some North Sea oil and natural gas output will have to be shut in if the strike halts the refinery.

The Organization of the Petroleum Exporting Countries has insisted the market has enough oil and refused to pump more crude despite calls for more oil from consumer nations.

A lack of spare global output capacity means very little can be done to tame record high oil prices, Shokri Ghanem, head of Libya's National Oil Corporation said.

"Prices will have to stay high in the long term to encourage exploration and production," he said, speaking on the sidelines of the International Energy Forum in Rome.