1. Oil and the Global Economy
Oil prices moved up from circa $74 a barrel last week, helped by the shutdown of a leaking 460,000 b/d crude pipeline west of Chicago that sent prices up $2.22 to close at $76.47 on Friday. For most of the week, the usual factors, of employment, economic growth, and European bank debt moved the oil markets. Oil futures are shifting further into contango, with next spring’s futures contracts selling for nearly $4 a barrel more than the October contract. This suggests that oil markets are expecting higher prices next year.
For the week ahead, price movements are likely to depend on how fast Enbridge can repair its leaking pipeline in Illinois. This pipe carries about 20 percent of 2.2 million b/d that the US imports from Canada and is the main source of supply for several refineries in the Chicago area.
With US oil consumption and domestic production basically flat, US petroleum and product stockpiles are now largely a function of how much oil refiners are importing each week. While analysts were forecasting an increase of 1 million barrels, or a drop in crude inventories of 730,000 barrels depending on which survey one likes, the American Petroleum Institute’s weekly survey put the decrease at 7.3 million. The EIA survey which came out on Thursday showed crude stocks dropping by 2 million barrels but left total petroleum inventories essentially unchanged.
China's net crude imports increased to 20.65 million metric tons in August, or 5 million barrels a day, from 18.8 million in July. Net imports of oil products doubled to 490,000 tons. Beijing’s imports had been rising rapidly earlier this year, reaching a high of 22.1 million tons in June before falling in July as the government tightened the screws on economic growth. The IEA, which reported that China’s oil imports were increasing at nearly 10 percent year over year in the spring, now estimates that Beijing’s demand will increase by only 4.6 percent year over year for the next six months or so.
Beijing continues its efforts to buy overseas oil assets. Last week Chinese companies offered $7 billion for Brazil’s OGX which is reported to have 3.7 billion barrels in seven blocks off Brazil’s coast. Beijing also made a bid for oil blocs off Gabon.
In its monthly Oil Market Report the IEA joined Platts and Bloomberg in reporting a fall in global oil production for August. The Agency says that production fell by 250,000 b/d last month to 86.6 million b/d. After recovering from the 2008 production cuts last year, global production has been flat at around 86-87 million b/d. Shutdowns for maintenance and the occasional terrorist attack in Iraq and Nigeria have been responsible for monthly drops.
A "tanker-tracker" which attempts to monitor future OPEC oil shipments says that OPEC exports are likely to drop by another 130,000 b/d in September. The IEA is still forecasting that global demand will increase to an average of 87.9 million b/d in 2010. The Agency warns, however, that this number could fall if the global economic situation continues to deteriorate.
OPEC, which foresees global demand as only reaching 86.5 million b/d next year, has trimmed its forecast due to the deteriorating global economy.
2. The Macondo report
BP’s release of a 193-page internal investigation of the Macondo explosion was met by a storm of protests from the subcontractors with whom BP seeks to share the blame --- and of course the liabilities. The report, which was prepared by a team of about 50 BP employees and approved by company lawyers prior to release, concluded that numerous small failures accumulated to cause the blowout. The report ignores underlying issues such as whether the well was designed properly or whether cost-saving shortcuts were taken; it focuses on decisions and actions taken on the rig just prior to the explosion – mostly by Transocean employees.
Among the ironies to emerge from the report was that Transocean workers on the rig had the time and opportunity to divert gas escaping from well over the side of the rig and possibly avert an explosion.
While admitting mistakes, the BP report seeks to deflect charges of gross negligence which can expose the company to heavier fines and criminal prosecutions.
Briefs (clips from recent Peak Oil News dailies are indicated by date and item #)