Prices and production

Thus far it has been a quiet week with oil bouncing around $70 a barrel. On Monday and Tuesday prices rose a bit as oil followed optimism in the equity markets that the economy would improve soon. On Wednesday prices fell to close at $69.57 as the equity markets faltered and the EIA reported increased gasoline and distillate inventories.

On Tuesday, the EIA announced a small increase in its global oil consumption forecasts for 2009 and 2010 based on expectations of better demand from China. Boone Pickens is forecasting that oil prices will touch $90 a barrel next year as the global economy recovers and China steps up imports. Pickens also opined that oil will someday reach $170 a barrel, but without giving a date.

So far there has been little reaction in the oil markets to the discovery of an undeclared Iranian nuclear enrichment facility and the accompanying threats of economic sanctions from the US and EU. This week there was a report that Iran’s imports of foreign gasoline in October will fall 20 percent from last year. The next day Tehran announced it was out of money to buy gasoline and was seeking an additional $6.5 billion appropriation from the parliament.

Exxon has agreed to pay $4 billion for a 23 percent stake in the Jubilee oil field off the coast of Ghana, apparently beating out a Chinese offer.

Replace the dollar

The British newspaper, The Independent, created a stir earlier this week when it reported on secret meetings among the Gulf Arabs, China, Russia, France, and Japan to replace the dollar with a basket of currencies for oil sales. The report was immediately denied by the Saudi finance minister. Discussions about replacing the dollar for pricing oil have been going on among participants in the oil market for years and as yet nobody has found a satisfactory alternative. The current plan, which includes a yet-to-be-created Gulf currency, does not sound particularly plausible either.

The Peak Oil Market

Another stir was created by a Deutsche Bank report entitled “The Peak Oil Market.” This report says that global oil supplies will indeed peak within a few years due to under-investment in new production and that this will mean the end of the oil age. According to the report, oil prices will rise to $175 a barrel by 2016 and then fall back to $70 a barrel by 2030 as demand for oil withers.