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News - December 2009

Oil up near $80 after US crude stockpiles fall

by Chris Kahn | AP Energy Writer
Dec 31st, 2009

Oil prices rose to near $80 a barrel on the final day of the year Thursday after U.S. crude stockpiles fell for the fourth week in a row.

By early afternoon in Europe, benchmark crude for February delivery was up 47 cents at $79.75 a barrel in electronic trading on the New York Mercantile Exchange, its seventh straight session of gains. On Wednesday, the contract added 41 cents to settle at $79.28.

The Energy Information Administration said U.S. crude supplies shrank by 1.5 million barrels last week, less than the expected drop of 2.2 million barrels. Gasoline supplies also fell.

The drop in inventories isn't necessarily a sign of fundamental improvement in demand for crude though.

It is typical to see crude draws at this time of year because many companies empty out storage facilities for tax purposes. While supplies have fallen nearly 14 million barrels over the past four weeks, they remain relatively high compared with past years.

Oil prices have more than doubled from their crisis lows of a year ago, and most analysts are forecasting crude will average between $75 and $85 in 2010.

Experts said the Organization of Petroleum Exporting Countries, OPEC, would be "well advised" to ensure that its members _ many of whom have exceeded their agreed-to output levels to capitalize on higher oil prices _ stick more closely to their production quotas next year.

"Otherwise, if hopes of a quick recovery are not fulfilled, market participants should focus more again on fundamentals (high stock levels) and with this, prices could come under considerable pressure," said Vienna's JBC Energy.

OPEC's 12 members, including Saudi Arabia, Venezuela and Nigeria, supply about 55 percent of the world's oil exports.

In other Nymex trading in January contracts, heating oil rose 1.25 cents to $2.1218 a gallon and gasoline advanced 0.94 cent to $2.05 a gallon. The February contract for natural gas gained 7.1 cents to $5.78 per 1,000 cubic feet.

In London, Brent crude for February delivery rose 35 cents to $78.38 a barrel on the ICE Futures exchange.

Cheap Oil Is Gone, and That's Good News

by Michelle Burgess | Casey Research
Dec 15nd, 2009

Over the next year or two, you will likely find yourself paying a lot more at the gas pump. Big changes are taking place in the oil industry. With increased global demand and declining supply, easy oil is not so easy anymore.

Everything is about to get more expensive. From gasoline to anti-freeze, life jackets to golf balls, and eyeglasses to fertilizer. There are very few things in the modern world that aren't made from oil, made by machines dependent on oil, or shipped by vehicles powered by oil.

The implications, at first glance, appear to be the opposite of good news. In fact, it's enough to strike panic in the hearts and wallets of the average consumer.

And that's exactly why the International Energy Agency just released its annual World Energy Outlook, clearly rejecting the possibility that crude output is now in terminal decline. Their attitude seems to be, what you don't know won't hurt you. For now, that is.

The truth however, is beginning to surface, and from an investor's perspective, the truth can mean money in the bank. Right now, the IEA's claim that oil production will be ramped up from its current level of 85 million barrels per day to 105 million barrel per day by 2030 is receiving harsh criticism.

The Guardian reports, "The world is much closer to running out of oil than official estimates admit." This comes from a whistleblower inside the International Energy Agency who states the fear triggering panic buying has caused them to intentionally underplay the inevitable shortage.

Kjell Aleklett, professor of physics at the Uppsala University in Sweden, and co-author of a new report, The Peak of the Oil Age, states "oil production is more likely to be 75m barrels a day by 2030 than the 'unrealistic' 105m used by the IEA."

According to Professor Aleklett's research, they are making a dangerous and unjustified assumption. One that is dependent upon the oil industry's ability to ramp up production to levels never before achieved.

Are you beginning to see the opportunity here?

Whistleblowers and scientists are not the only ones disputing the IEA's report. The folks who pump oil aren't buying its rosy scenario either.

Total SA, the French oil giant, that is making its move into the Alberta oil sands, doesn't accept the IEA's optimistic claims. The company runs on the belief that oil production won't surpass 95 million barrels.

Former chief executive officer of Canada's Talisman Energy, Jim Buckee, agrees the IEA prediction is nonsense.

Sadad al Husseini, energy consultant and the former exploration and production chief of the world's largest oil company, Saudi Aramco, recently said, "Oil supplies have reached a capacity plateau and will not meet a growth in demand over the next decade."

The Globe and Mail recently joined the debate stating, "New [oil] fields, generally smaller, are less productive than old ones – note the virtual freefall in production rates from the North Sea fields, which reached peak output in 2000. Another reason [for the decline] is development pace, or lack thereof. The yet-to-be-developed reserves in the WEO report cover 1,874 fields of various sizes that would have to come into production in the next 20 years."

That works out to almost eight new fields being brought to production each month. A realistic target? Only time will tell. Even if the oil exists, the next question becomes one of money, and where it will come from in order to keep this pace of development on target.

When you add in Professor Aleklett's conclusion that production will shrink to 75 million barrels per day by 2030 – almost one-third less than the IEA's figure and 10 million barrels less than current production, it's easy to see why investors need to take notice.

Shrinking supply and ever-growing global demand are creating the perfect storm for oil prices.

The current price of crude could be the bargain of the century. Understand this, and every increase at the pump will give you reason to smile.

2010 Energy Outlook Survey

by Jane Van Ryan
Dec 21th, 2009

Wondering when the recession will end? A survey of 100 Chief Financial Officers (CFOs) at U.S. oil and natural gas exploration and production companies shows that 31 percent believe the business climate will improve in the second half of 2010, and 33 percent say the climate will be better between 2011 and 2012.

The 2010 Energy Outlook Survey conducted by BDO Seidman LLP, an accounting and consulting firm, also found that legislative changes were among the CFOs' top financial concerns. More than three-quarters (76 percent) felt the federal economic stimulus was not helpful to the energy industry, and only about 20 percent said the stimulus was "only slightly" or "somewhat" beneficial.

On the topic of energy demand, more than one-third (34 percent) of oil executives said they expect world demand for liquid hydrocarbons to peak in 5-10 years, according to one report. And about 41 percent expect renewable energy to comprise less than 5 percent of the U.S. energy sector in five years. This finding is consistent with the federal government's projection that renewable energy will contribute about 10.7 percent of America's energy supplies by the year 2030.

The report from the Environmental Leader also noted that the CFOs believe wind power is likely to progress faster than other renewables. About 48 percent of the respondents said wind energy will best contribute to the world's future energy needs. Twenty-three percent thought biofuels would contribute the most to world energy supplies, 16 percent favored solar power, and 10 percent chose hydroelectric power.

The oil and natural gas industry is making substantial investments in renewables and alternatives as well as technologies aimed at reducing greenhouse gases. In fact, between 2000 and 2008, the industry spent $58.4 billion on greenhouse gas mitigation technologies, which is more than all other industries and the federal government combined.