Oil prices jumps 4.8% on supply concerns
Well here we go again, Oil prices are on their way up on more violence in Nigeria and fire at Sunoco (U.S. NE Refinery). On NPR this morning, they reported that an estimate came out that gas prices would rise 15% in 2010 alone.
With the economy still in recession or depression, depending on who you ask. Many projects where pulled offline as the oil prices dropped because they are operating at a loss at those low prices. It takes time to get those project back online so the time between getting them running and getting that product to the refiner. That can be a formula for getting increases on prices as there is more demand on the supply side of this energy equation.
News (CNN Money):
Oil prices rose almost 5% Monday after a fire at a major American refinery and violence in Nigeria renewed supply concerns going into the summer driving season.
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Exxon Mobil increases oil reserves by 1.5 billion barrels
If these numbers are correct, this is an impressive addition to reserves and this should be reflected positively on their stock. The only statement that was troubling, was that as the release reads, 1.1 billion barrels was from an oil sands project. What that tells me, is that the oil price will need to increase to make mining and processes oil sands a profitable activity.
News:
Exxon Mobil Corp said on Monday that it added 1.5 billion barrels of oil equivalent in 2008, or 103 percent of its production for the year.
The largest U.S. oil company said that excluding the impact of asset sales, reserves additions replaced 110 percent of production in the year. It said these additions assume a long-term pricing basis, rather than single-day, year-end pricing.
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SEC adopts new oil and gas reserve reporting standards
I am not sure the benefit on probable and possible reserves, hopefully it will spur more investment in the sector but with that said, some investors might get duped by investing on numbers that are not the reality of what the energy company will really produce. The average price rule will give an improved outlook on revenue. If someone has a strong opinion for or against this, I would love to read what you have to say.
News:
U.S. securities regulators adopted rules giving investors a more complete picture of the oil and natural gas reserves that a company holds, the Securities and Exchange Commission said on Monday.
Under the new SEC rules that are supported by the energy industry, oil and gas companies will be allowed to disclose their probable and possible reserves to investors. Current rules require disclosure of only proved reserves, but many companies provide all three.
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OPEC cuts oil production by another 2.2 million barrels per day
This will catch up with us at some point, these short term prices drops that people are so happy about will have long-term repercussions on the U.S. oil market. The problem we face is that when oil drips this low, oil production is now being brought offline because they will not produce it as a loss. Also we are seeing investment in renewable energy being reduced at the same time.
This will all create a hairy situation once demand picks up. In oil production you can not just “flick a switch” and bring it online. This lag effect is going to create a major price swing in the price in oil. In other words, these oil prices are just a short term phenomena.
News:
The Organization of Petroleum Exporting Countries, in a bid to prop up falling oil prices, said Wednesday that it would cut production by 2.2 million barrels a day starting next month.
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OPEC may cut more production if the oil prices fall further
This is good news for the long-term scope of our energy transition. If we let prices crash as they did in the early 90s, then we will see investment in the alternatives decline right when we need it for the future. The problem lies when we do hit a hard production peak with demand increasing and the price skyrockets, if we do not have a new infrastructure in place or being built, it will make for a tough transition period.
News:
OPEC may cut oil supplies again, possibly by the end of this month, if prices continue to fall and the world economy weakens further, OPEC President Chakib Khelil told Reuters on Wednesday.
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Saudi Aramco says a further fall in oil prices could hurt oil investments
No doubt that this is the double-edge of low oil prices. Yes, it is nice that the price has fallen and consumption can rise. The negative effect is the low price will reduce production and investments in exploration and investments in alternatives. The market works great to respond to high prices by making other investments more attractive because they start to make economic sense.
News:
Oil supplies are “more than comfortable” given a global economic environment which is hitting demand, but low prices threaten investment to secure longer-term supplies, Saudi Aramco’s chief executive was quoted as saying.
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Russia interested in forming gas troika alliance with Iran
This is to be expecting going forward in the resource-centric era we have entered. As important resources such as crude oil and natural gas dwindle, more we will see countries that have reserves of these resources consolidate their interests with other like minded countries. This alliance alone, will unite 40% of the world’s proven natural gas reserves. Next we should see actions that are consistent with maintaining an price that is elevated or near current levels. We will just see production drop off significantly if the prices dip too low. Countries that rely on petro-dollars have a vested interest to maintain a price level that does not collapse as we did in the early 90’s. The Financial Times even had a front page story last week that announced that the global annual decline rate was 9.1%. That is no small amount of loss, we would need to double our fossil fuel production in around 10 years just to keep steady. We need to start a massive spending program on renewables (focusing on wind & solar) right now so we can reduce our demand nationally. We want to avoid friction between major powers at all possible during our transition periods.
Reuters:
Russia is interested in gas swaps with Iran, Iran’s Oil Ministry news website reported on Saturday, in a fresh sign of efforts to deepen ties between two states who together account for 40 percent of world reserves.
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