Oil prices inch upward though long-term demand forecast remains weak

Oil prices are back on the rise, moving close to $50 a barrel, leading to small increases at the pump in the past couple of days. But this may only be a blip, given the deepening worldwide economic recession.
Oil markets appear to be responding to the short-term regional instability created by Israel's controversial assault on Gaza, which has created uncertainty over Mid East oil supplies, experts tell the BBC. A dispute between Russia and Ukraine may also be having an impact. The Energy Department has also announced it will begin buying 12-million barrels of oil to replenish the Strategic Petroleum Reserve depleted after Hurricanes Katrina and Rita.

But bleak long-term economic growth forecasts mean oil prices will stay low for the time being due to weak oil demand, most analysts say. They predict a 3 percent to 4 percent shrinking of domestic production in 2009 in the United States. Europe is headed for a recession of 1 percent to 2 percent this year, while China's growth will slow to only 2 percent. "The demand for commodities is evaporating across the board, as producers slash output," writes economist Walter Molano. "The fall in the demand for oil during October and November was the worst since World War II."

Forbes also reports that geopolitical supply worries are overtaking fears about weak demand. OPEC's recent decision to cut output seems unlikely to push prices higher.

David Adams, Times Staff Writer

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Comments

[cjwirth]

The top story of the year is that global crude oil production peaked in 2008.

The media, governments, world leaders, and public should focus on this issue.

Global crude oil production had been rising briskly until 2004, then plateaued for four years. Because oil producers were extracting at maximum effort to profit from high oil prices, this plateau is a clear indication of Peak Oil.

Then in July and August of 2008 while oil prices were still very high, global crude oil production fell nearly one million barrels per day, clear evidence of Peak Oil (See Rembrandt Koppelaar, Editor of "Oil Watch Monthly," December 2008, page 1) http://www.peakoil.nl/wp-content/uploads/2008/12/2008_december_oilwatch_monthly.pdf.

Peak Oil is now.

Credit for accurate Peak Oil predictions (within a few years) goes to the following (projected year for peak given in parentheses):

* Association for the Study of Peak Oil (2007)

* Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008)

* Tony Eriksen, Oil stock analyst and Samuel Foucher, oil analyst (2008)

* Matthew Simmons, Energy investment banker, (2007)

* T. Boone Pickens, Oil and gas investor (2007)

* U.S. Army Corps of Engineers (2005)

* Kenneth S. Deffeyes, Princeton professor and retired shell geologist (2005)

* Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)

* Chris Skrebowski, Editor of “Petroleum Review” (2010)

* Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)

* Energy Watch Group in Germany (2006)

* Fredrik Robelius, Oil analyst and author of "Giant Oil Fields" (2008 to 2018)

Oil production will now begin to decline terminally.

Within a year or two, it is likely that oil prices will skyrocket as supply falls below demand. OPEC cuts could exacerbate the gap between supply and demand and drive prices even higher.

Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.

Alternatives will not even begin to fill the gap. There is no plan nor capital for a so-called electric economy. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”

"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."

With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.

It is time to focus on Peak Oil preparation and surviving Peak Oil.
http://survivingpeakoil.blogspot.com/
http://www.peakoilassociates.com/POAnalysis.html

[Bill]

What's up with the double "Peak Oil" post? Think that might be a little long?

I agree that prices are going to move back up this year but that they will most likely be tempered by poor equity performance which will be view as a proxy for demand in the short term.

That said, I think a base has been established so I went hedged my personal gas for the next year. You can "lock-in" today's price a few ways. I used this site, http://www.petrofix.com. There are some others that do it as well, but I this one I thought had the best payout structure.

[Tino]

My personal view is that all of those "gasoline hedging" websites will be gone/bankrupt within a year, and you won't hear about them again.

Unless the gas is being offered by a large oil+refining company or a company with storage capability, there is no way that a small company can lock in prices at a reasonable margin in the face of the current steep contango of the crude/gasoline price curve. Remember, earlier this year, the curve was backwardated, and you could offer this hedging service on the cheap with futures/options.

Look at the oil curve.

http://www.nymex.com/lsco_fut_csf.aspx

If you have a way to store it, you can buy a barrel of crude today for under $50 (it was $33 last week) and sell it a year from now for $65. How is any tiny, dot-com company going to be able to sell you future gasoline based on today's oil price ($50) and then buy it back on the open market at $65 a year from now to serve it to you?

Answer: they can't. They will have to charge you the full $65 today (plus their profit), or quickly run out of cash.

Anyone who gambles on one of these tiny, undercapitalized firms should expect a surprise one day at the pump when their gas card doesn't work.

[Alvaro Gomez]

Here we go again. Is it the speculators? I doubt it. I doubt speculators would be able to manipulate the price of gas given the risks involved. What I believe is that the oil companies have made a deal among itselves to manipulate the oil prices. Noooo, really? The oil companies manipulating the oil prices? I predict we will begin to hear the old stories all over again. The instability in Pakistan, the Somali pirates, Venezuela and Colombia are mad at each other, the swine flu caused the workers at the mexican refineries to take days off so that they would not catch the virus, the hurricanes are coming, my neighbor is hoarding petroleum, my grandma is using too much oil to warm her kettle.
I predict that this year Exxon-Mobil will set another earnings record -thanks to the FCC for allowing their merger. Our newly elected President promised to reign in the oil companies. I am waiting.