People are increasingly appreciating the fact that food prices are linked to oil on the cost side.  As you know, a lot of oil and natural gas inputs are required to put food on the table.  Higher oil and gas prices are therefore pushing food prices higher. But another link is emerging - the role of China’s growth in creating demand.   China was formerly an oil exporting country but they became a major oil importing country.  That turnaround roughly corresponded with the recent period of steeply rising oil prices.  …

Churchill’s assessment applies to the current oil situation: this is the beginning of the end of OPEC.  That much is obvious; the more interesting question is “why?”

OPEC was founded in 1960 to protect the interest of its members, major oil exporting nations.  That interest is to stabilize world oil prices at levels that balance their competing objectives to maximize both long term oil demand and the short term oil price.   The idea was to keep enough oil off the market during glut periods to elevate the price and insert enough …

There is much information about megaprojects at Wikipedia including a summary of their own volunteers’ compilation of megaprojects by year out to 2015.  It is interesting that the peak of megaproject oil production is scheduled for 2008, a year they think will feature a long list of non-OPEC projects in a wide variety of countries.  Maybe many of these projects have encountered delays or perhaps they are scheduled for later in the year.  Whatever, there seems to be a disconnect between the vast amount of oil scheduled to come on stream this …

There’s a new green box on the EIS home page that says, “Rx for U.S. Energy Policy.” It brings you to a summary of my policy prescription for dealing with the coming energy catastrophe.

Catastrophe?

Yes. Only a few months of $100+ oil is already starting to cause working class pain in the U.S. This pain in nothing compared with what will be felt during Crunch Time when oil and gas prices will reach extremely high level – perhaps five times what they are now. When? Perhaps as soon …

With the Israel’s 60th birthday giving the little country a big stage for world attention Shimon Peres took the opportunity to showcase what he considers their secret weapon for fighting Arab terrorism: the electric car.  I previously noted this project, called “A Better Place” and have used it as a model of one part of my recommended energy policy.  Denmark became the second country, after Israel, to adopt this model as a national policy.  Now Peres says it is also part of Israel’s defense policy because it will …

The game plan was that the Fed was done and the economy seemed suddenly not so weak so the dollar would continue to strengthen.  Plus the Saudi’s are bringing on their last big new fields this year and next.  Plus oil demand growth is slowing all over except among the oil exporting countries.  Plus oil tried to bust $120 for a while and failed after a long and strong rise.  So clearly the fundamentals and the technicals are aligned to say that oil is headed for a correction.  Right? 

And right …

  Crunch Time     Time for Natural Gas         Current Oil Outlook             It IS the dollar! First the April numbers. The EIS portfolio was up 11% for the month, about the same amount as the oil and services indexes, a bit better than the S&P. Year to date being up 8% is good relative performance. About 3% of it was due to the options on futures strategy. I added an option on some late 2011 natural gas futures contracts. I also disposed of most …

One beauty of British mystery writers like Conan Doyle and early Le Carre is their use of deductive reasoning to relate odd facts and explain reality.  Matt Simmons used the same powers to help us understand why major oil companies deny Peak Oil and why they finance groups like Cambridge Energy Research Associates that go around sowing doubt in the public’s mind about Peak Oil (although, as recently reported, their scheme has failed). 

The reason, as Matt told us in Twilight in the Desert, is that the production sharing agreements …

A report in The Financial Times today casts doubt on the ability of Mexico to develop new oil supplies to offset the declining Cantarell field that is scheduled to result in substantially lower Mexican oil production starting in 2010.  The left wing opposition party brought Congress to a standstill by physically occupying the building and not allowing business to proceed while there was consideration of a modest proposal by the Calderon government to provide incentives for foreign companies to help find and develop Mexican oil.  “Denise Dresser, a political …

My previous report relating to Nova Biosource Fuels, Inc (NBF) indicated doubts about 1.the renewal of the biodiesel tax credit and 2.management’s ability to bring the complex start up issues of their new plant to a successful conclusion.  Both matters have become more questionable since then. A report by AgWeb.com reads in part as follows: “Note: The farm bill will not include a one-year extension of the biodiesel tax incentive program, which is due to expire at the end of 2008. One …

According to this report by China View, China consumed a record quantity of oil products in Q1.  It is not surprising that the amount would be a record, but the percentage increase is immense.  Diesel imports were up 600%, incidentally. Some analysts believe Chinese oil use will slow down after the Olympics.  That may happen, but I suspect any slowdown would not be substantial in percentage terms.  After all, in a country of 1.3 billion people with thousands of huge construction projects under way at any given time, …

A remarkable poll shows that citizens are way ahead of politicians in understanding peak oil.  A huge majority in the U.S. and everywhere else (except Nigeria) say government action is needed to guide us toward a different source of energy because we are running short of oil.  If the U.S. presidential campaigns’ own polls find the same results, it may give the candidates courage to actually discuss energy policy realisticly.  It is clear that the public debate must become honest and realistic before there can be any likelihood of Congress …

  The following report from Reuters suggests Iraqi reserves could be larger than Saudi reserves and three times as large as currently estimated.  I continue to believe that if there is any chance to mitigate the onset of Peak Oil it is the possibility that Iraq will resolve its politics and pass an oil law this year, issue deals to IOC’s next year and begin substantial increases in production by 2011.  Developing land sites can be accomplished with far greater speed than exploiting the off shore fields of …

ND Study: 167 Billion Barrels of Oil in Bakken From Rigzone.comAFX News Limited      Monday, April 28, 2008 The Bakken shale formation in North Dakota holds up to 167 billion barrels of oil but only about 1 percent of it can be recovered using current technology, a new study says. The …

Canadian Oil Sand Trust (COS.WF) report of Q1 results demonstrates the power of higher oil prices to leverage its cash flow.  Based on an average WTI price of $97.82, up from $58.23 in 1Q07 (+68%), operating cash flow rocketed ahead 119%, to C$0.98 vs. C$0.42 per share despite plant outages that caused unit sales to fall by 9%.  

The company’s decision to boost its quarterly dividend by 33% to C$1.00 per share demonstrates its confidence in the continuation of strong cash flow.  Since the company cannot control the price of …

The March/April edition of Harvard Magazine contains an article by Michael B. McElroy, Professor of Environmental Studies titled, “Saving Money, Oil, and the Climate: Using non-fossil energy sources to power our vehicles.”  It’s a survey course on the future of cars and trucks packed with good data and argumentation on why future considerations of cost and environmental safety will required a move away from petroleum.

Prof. McElroy comes out in pretty much the same place I have.  To whit: eventually cars and trucks will be all-electric and electricity will be supplied …

Barry Ritholtz recently pulled back the curtain to reveal one of the mechanisms behind the credit crisis.  No surprise: the problem was good old short term personal greed and lack of concern for customers or long term reputation on the part of everyone from the Chairman to the floor clerk.  Here is his fascinating little post:

UBS $37B Write Down, Part II

Posted: 26 Apr 2008 10:26 AM CDT

Buried at the end of the report discussed earlier is the specific criticism of the financial compensation system in place at UBS for traders and …

They threw the kitchen sink at oil today.  Nearly everything that could push up oil prices happened.  There were three - count ‘em three - significant oil crises.
1. the Bournemouth strike that could take 700 kbpd of North Sea oil off the market for a week or longer is set to start Sunday,

2. Nigerian rebels destroyed pipelines causing Exxon to take 200 kbpd off the market for an indefinite time, and

3. There was some sort of armed conflict rumored to have occurred between an Iranian vessel and a U.S. military …

Since natural gas is more of a regional market than oil, which is more global, we Norte Americanos tend to estimate future gas prices with reference to factors such as likely Canadian supply and local inventory levels.  But imports of LNG are increasingly important to our continent’s gas price.  To obtain LNG deliveries, our terminals bid against those in Europe, Asia, and elsewhere.  Recently our gas prices have been lower than some abroad thus diverting some LNG shipments away from the the U.S.   In Europe and Asia these days …

The largest Russian natural gas producer, Gazprom, apparently has heard the concerns of its European customers.  While they have been worrying that there will not be sufficient gas supplies, and while Gazprom’s production has been falling, the company has been spending it’s funds on investments that do not increase gas production.  All that is about to change, according to the following report:

International
Gazprom’s New Focus On Production
Oxford Analytica 04.24.08, 6:00 AM ET

Russian gas export monopoly Gazprom plans to increase investment in gas production and …

Lehman warns that oil boom will deflate
By Ambrose Evans-Pritchard
Last Updated: 12:33am BST 24/04/2008

The roaring oil boom of the last few months may be on its last legs as economic growth slows hard across the world and a clutch new refineries come into operation, Lehman Brothers has warned in a hard-hitting report.

The build-up in supply is taking place at a time of cooling demand

“Supply is outpacing demand growth,” said Michael Waldron, the US bank’s oil strategist.

“Inventories have been …

Iraq is looking like the world’s brightest near term hope for stemming high oil prices. It is seems to have raised production about 100 kbpd in March to about 2.4 mbpd, looks to increase it to 3 mbpd by the end of 2008 and hopes to hit 4.5 mbpd by 2013.  Here is a report from Newsweek.
Iraq boosts oil exports — and pressure to pay for rebuilding
By SINAN SALAHEDDIN

BAGHDAD

Iraq boosted its crude oil exports by 3.3 million barrels in March over the previous month, bringing in nearly $15.5 billion, …

Here’s a happy thought about higher oil prices: maybe if the price goes high enough the military forces of the world will not be able to afford to go out and fight each other.  Of course this won’t happen at $120 a barrel or even $200.  But in five years the price could be $500 - and that could be enough to give some generals second thoughts about going to war.  Conventional thinking is that oil shortages will cause military conflicts.  But I wonder if just the opposite might …

The report below points to a possible rationale for higher oil prices in the short term.
Peak oil in Russia?
 The ever-increasing oil price is not likely to result in increased output, with most suppliers experiencing flat output and Russian production in steep decline.

Having reached yet another record high of over USD 117 a barrel this morning, experts believe the price has not yet hit its peak and will continue rising. BP Capital founder T. Boone Pickens has reportedly said he did not expect supply to exceed 85 …

Here is a detailed analysis and discussion of the significance of the Bakken formation from The Oil Drum.  

Uncertainty has not been banished, but a few inevitabilities are now clear. Here are the certainties: 1.  Oil exporters led by Russia, Saudi Arabia, and Mexico will not expand production much further. 2.  Oil exporters’ internal oil demand will soon cause supplies of oil on the export market to begin falling. 3.  Food based ethanol production will not expand much further. 4.  Oil sands production growth will be limited by environmental concerns. 5.  Costs to produce new off shore discoveries will continue to escalate.  5.  …

A few months ago, as the oil price was butting up against $100 and then finally going through it and then dropping back down below it, most respected oil analysts whom I read believed that the near term would see lower oil prices.  Most thought early 2008 would see a retracement into the low $80’s. That expectation is one reason the recent strong and consistent rally to just under $120 as of now is so dramatic.  But what comes next?  How much of the last $20  is speculation and …

Here is a discussion of current oil prices from Platt’s.  A key part of the argument deals with backwardization vs. contango.  Brent crude is looking toward contango, suggesting optimism about longer term oil prices.  My own view is that reality justifies a substantial contango.  There seems to be little shortage currently, but there are growing reasons to believe supply will have increasing difficulty keeping up with demand as the future unfolds.  I’d much rather own oil in 2010 at $108 than oil today at $118.    Below is …

Khurais, with an estimated maximum flow of 1.2 mbpd is the Saudi’s best hope for adding capacity and/or blunting the eventual decline of Ghawar, their giant field that has been pumping 5 mbpd for decades. The Saudi’s have been circling around the Khurais field for 40 years, picking at it and then backing away at various times as they found difficulties.  Finally they decided to go all in, tacking one of the world’s most challenging and expensive oil production problems.  The cake will be baked in short order and we’ll …

Saudi King’s Quiet Bombshell
By Steven Andrews & Randy Udall [Email address: editor #AT# evworld.com - replace #AT# with @ ]
Eight oil industry experts give their views on King Abdullah’s ‘keep ‘em capped’ announcement
Open Access Article Originally Published: April 21, 2008
Reprinted from the April 21, 2008 edition of Peak Oil Review, the weekly newsletter of the Association for the Study of Peak Oil, USA. Given the historic record price of oil last week touching near $117 and the admission by Russia that its own oil fields have peaked, the decision by the Saudi’s and other Middle East producers to essentially …

Below is a report from Reuters published in Arab News detailing costs and plans for new Saudi oil capacity and stating that they will not add to capacity beyond the plans in place that will be completed by 2009.   The rationale given is that demand forecasts are coming down (for 2030).  That seems like a fairly lame excuse.  Reality, I suspect, is that either it is no longer possible for the Saudis to add spare capacity or that thet simply prefer keeping the oil in the ground.   Either way, the …