Oil prices are ascending in concert with a rising stock market and an expanding sense of non-pessimism about the global economy, yet the supply of cheap oil remains far greater than demand.   Huge amounts of $5 cost oil is being moth-balled by OPEC and there is no shortage of oil inventory above ground, much of it floating at sea.   So the fundamentals of near term oil supply and demand imply lower prices but they are being overpowered by speculators who want to own oil as an investment category.  There …

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Are stocks and oil bottoming?

Was last Tuesday’s 350-point rally the beginning of the end of the bear market or just a false “bear trap?”  And a related question: “Did oil bottom at $33 and will it get re-tested?”  Let’s see what we know.

Some things we know

Sometimes the objective observable facts can yield fairly clear conclusions.  Usually that’s not the case.  Usually you can use the available facts to make a decent argument in either direction.  But sometimes the facts seem fairly clear.

For example, there should have been clarity about being …

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Recent reports highlight the enormous reserves of oil in Iraq and the potential for them to be exploited in the relatively near term, potentially impacting the onset of Peak Oil.  From an investment viewpoint, I focus on the period ending in 2015, largely discounting whatever might come thereafter.  In that time frame, Iraqi production increases are more limited and political risks are still hard to assess.  That said, one must tentatively conclude from recent events that foreign contracts are likely to be let and production is likely to increase …

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Production dropped 9.2% but since domestic demand grew, exports dropped much more.  The cause of reduced production was an astounding 31% decline in the giant Cantarell field that is now producing at only half the rate of a few years ago.   Increased production at the KMZ field mitigated the total decline, but KMZ production is expected to peak in 2010.  While the Mexican government continues to claim they will develop “new fields” that will bring production back up by 2015, there is no assurance of that nor much hard evidence …

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Iraqi oil production was about 2.5 mb/d before the U.S. invaded.  It dropped to about 1.4 mb/d and is now back up to just under the starting point.  Iraq’s claimed reserves of some 115 billion barrels (second only to those of Saudi Arabia) are sufficient for it to achieve their new goal of producing 6 mb/d (2.2 billion barrels per year), even if actual reserves are a good deal less than what they claim.  It’s not clear that Iraq can achieve this new production objective in 4 - 5 …

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Much lower oil prices seem to have concentrated the minds of Mexican leaders on their country’s fast approaching fiscal crisis.   As I’ve written many times, roughly 40% the Mexican federal budget is financed by oil exports from the state-owned PEMEX oil company.   But production is falling rapidly, has been doing so for a couple of years, and promises to continue falling even faster after 2010.  Mexico was clever enough to hedge its oil at $70 a barrel through 2009, but leaders are quickly calculating how large the 2010 budget deficits …

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As the global economy heads into terra incognita and the stock market tries to prove it has seen the worst my thoughts, for whatever they are worth, are: 1. Some economic observers such as John Thane, the CEO of Merrill Lynch, and JC Penney’s CEO Mike Ullman are saying the current economy is comparable with the Great Depression.   We need fiscal stimulus (since we’re nearly out of gas in terms of monitory stimulation potential).  How much?  If we’re going into a depression the quantity of fiscal stimulus needed …

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  IEA Warns of Energy Supply Crunch 11/12/08 - 07:42 AM EST , The Associated Press By Jane Wardell   LONDON (AP) — The International Energy Agency on Wednesday predicted world energy demand will rise 1.6% a year on average between 2006 and 2030 and called for massive investment in energy infrastructure to prevent a supply squeeze. The IEA’s base scenario for energy demand has …

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Just as we see Russia combining military and energy deals in Venezuela and Cuba, China is doing the same thing with both Venezuela and Brazil, as the following report details.  China has increased its importation of oil from Brazil, is cementing agreements to further that trend, and is doing military and oil deals with Venezuela as well.    With both Russia and China combining military and energy policy for national security purposes,  Americans must ask what its government is doing to secure its energy future in the face of …

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As the following report by Platt’s describes in more detail, Russia is moving to control oil assets in Venezuela and Cuba. This move coincides with Russian military alliances with Venezuela and with Russia’s new sense of wealth and entitlement that seems to be pushing Russian diplomacy toward aggressive confrontations with the west.  Russia’s swift military reaction to Georgian aggression in the vicinity of an important oil pipeline that feeds Europe is part of the same picture.  Russia, already the world’s largest oil exporter, seems clearly determined to aggregate increasing …

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There’s been an official denial by Finance Minister Alexei Kudrin at the global economic conference in Brazil that Russia is playing a role in restricting global oil output.  But the fact is that Russian oil firms are only shipping 75% of normal exports in November.  It seems more than coincidental that Russia would cut oil exports just as OPEC is also cutting exports to support or raise the price of oil, particularly since the Russian government determines the export tax which in turn determines the amount of oil that …

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The following article published in The Guardian and based on the work of Chris Skrebowski (Peak Oil Consulting) - indicates a crunch in oil supply vs. demand coming in 2012.   It seems clear that the assumption of demand growing at 1.6% per year is now invalidated by the current global recession.  Moreover, supply growth in 2008 and 2009 will be reduced by demand restrictions and will therefore be moved into later years.  But if global growth does resume in 2010 and if geological constraints act more or less …

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Here is a report on the peak oil presentations at 2008 ASPO in San Francisco.  Jim Buckee of Talisman gave the luncheon address, talking on the production company viewpoint. He differentiated between the volume available in a field, and the production rates that can be achieved at it. He said that Peak Oil is real, and illustrated this conclusion by discussing the decline in production rate from virtually all the major oilfields of the world. 90% of production comes from 10% of the fields and we know …

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Khebab on December 10, 2007 - 11:25am I’ve just created this chart showing the repartition of project sizes: We have more small project entries for 2008 and 2009 but also more projects in the 250-500 kbpd range. There are also some uncertainties about the exact timing of some large projects …

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The discovery of enormous oil supplies in the Santos basin offshore Brazil that lie deep under a salt layer is the most optimistic development for future oil supplies perhaps in decades, eclipsing the GOM Thunderhorse or Jack discoveries or the African offshore discoveries.  But since the price of oil has slipped below $70 these Brazilian prospects, and the outlook for Petrobras (PBR), the state-controlled oil company slated to benefit from them, is much more questionable as discussed in the essay below published at Seeking Alpha.   Brazil has published …

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