1. Production and Prices
2. Economic Gloom
3. Peak Oil and the Media
4. IEA's World Energy Outlook 2007
5. Energy Briefs
The struggle between the possibility of oil shortages this winter and fear of a demand-cutting recession continued last week. New York oil futures hit a new intraday high of $98.62. Prices are now up 57 percent over a year ago. The major news of the week was a storm in the North Sea which temporarily shut down oil production and the continued decline of US crude and gasoline stockpiles.
The US Energy Information Administration issued a forecast saying commercial oil inventories held by the world's major industrialized countries will fall below their five-year average at the end of 2007 and President Bush told at a news conference that oil prices are nearing $100 because of demand.
The week ahead promises to be a volatile one. Leading brokerage houses are predicting that oil will break $100 due to technical factors surrounding futures contracts and crude options that expire on Tuesday. Others see a collapse in prices immediately after the $100 level is reached.
The Thursday stocks report may reflect a drop in US imports and stockpiles due to the storms that shut-in a significant share of Mexico’s oil production two weeks ago.
The outlook for the world economy came into sharper focus last week as stock markets on both sides of the Atlantic concluded their worst week in months and Federal Reserve Chairman Bernanke told Congress that the economy was going to get worse before it gets better. Although Bernanke gave no hint that interest rates would be lowered for a third time at the December 11th meeting, many on Wall Street are convinced that the economy will slow so much that Bernanke will be forced to make further cuts. Another rate cut would likely drive down the dollar still further and drive up gold and oil prices.
Despite assertions from Bernanke and other senior officials that the “overall economy remains resilient,” more are expressing concern that the economy, which has done well so far, cannot hold up indefinitely if oil prices remain in the vicinity of $100. The IMF, however, continues to say that record oil prices will push up inflation only marginally and will have little impact on economic growth.
Thus the heart of the matter is still the divide between those who see recent price increases as mostly speculation and those who perceive a fundamental change in the oil markets due to the industry’s inability to increase production to keep up with demand. The situation is moving rapidly however and is likely to be clarified in the next few months.
As oil approaches a hard-to-ignore $100 a barrel threshold, many of our major newspapers and news networks are starting to devote more time and front pages to the issue. Rapid increases in gasoline prices, which were lagging behind oil, have added to the interest.
While not yet ready to acknowledge that peak world oil production is imminent, last week the New York Times said “today’s surge is fundamentally different from the previous oil crises, with broad and longer-lasting global implications.” The Times goes on to say “unlike past oil shocks, which were caused by sudden interruptions in exports from the Middle East, this time prices have been rising steadily as demand for gasoline grows in developed countries, as hundreds of millions of Chinese and Indians climb out of poverty and as other developing economies grow at a sizzling pace.”
Meanwhile down in Washington, the Post sticks to its “no shortage” guns with an 1800-word, front page story that starts out “unlike earlier spikes in oil prices, which came on the heels of war in the Middle East, this latest ascent does not appear to be linked to any one conflict or to any physical shortage.” The Post concludes that “traders who treat oil like any other commodity are widely thought to be driving prices upward, bolstered by a weak dollar and money flowing out of stock markets and other investment vehicles.” No supply problems here!
Although it is impossible to characterize the positions of hundreds of newspapers and TV commentators around the globe, progress in recognizing that the world has a systemic, incurable energy problem is being made, especially in Europe where more stories and TV programs clearly present the arguments for the imminent peaking of oil production.
Further understanding of peak oil by the media probably rests with the course of oil prices over the next year. If the current surge proves to be a “spike” with oil settling back down to $70 or $80 then it will take other developments before the message of peak oil gets through. Should however, oil remain in three figures and continue to climb, it should not take long before there is general recognition that the “speculation” argument is specious and the search for the real causes of the economic troubles will begin.
Last Wednesday, the International Energy Agency released its annual World Energy Outlook that forecasts global energy demand, supply and investment until 2030. On its face, this year’s edition seems to continue the IEA’s tradition of detachment from reality. Demand for energy especially from China and India is projected to double by 2030 and the world is to come up with $22 trillion to invest in new sources of energy. China will have 270 million vehicles in 2030 and world petroleum exports will have to increase from 41 million b/d to 65 million b/d.
The IEA is still saying that “world oil resources are judged to be sufficient to meet the projected growth in demand to 2030, with output becoming more concentrated in OPEC countries – on the assumption that the necessary investment is forthcoming.” At least they are throwing in the caveat that those trillions of dollars, which currently are nowhere in sight, will be a necessary ingredient to sufficient oil.
The good news in the report is that it is abundantly clear that the IEA’s “reference case” is becoming a straw man that will not happen. In fact, the IEA uses these absurdly large, “business as usual” projections to make the case that the world must change its ways or face disaster from pollution and competition for energy security.
The key judgment in this year’s report is that the next ten years will be “critical for governments globally to address these challenges as energy demand surges in the booming economies of China and India.” Finally, reality really sets in when the report opines that “a supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out.”
It is hard to say if this is really a useful document, for it takes too much time projecting and discussing virtual impossibilities. At the press conference that released the report the IEA’s Executive Director Tanaka said he shared concerns with the US that commercial oil inventories held by the world's major industrialized countries were set to fall below five-year averages this winter. He added that "stocks need to be higher, something that is in the power of producer countries to address."
"Every year non-OPEC production falls short of expectations.”
— Bob Tippee, editor, Oil & Gas Journal