January 2008 Archives

One of the most intense standoffs within the oil industry today might be described as Cambridge Energy Research Associates vs. the Peak Oil school. Having attended the annual meeting of the US branch of the Association for the Study of Peak Oil (ASPO), I can attest that CERA's far more upbeat findings about world oil supply are largely greeted with barely-concealed contempt by believers in the Peak Oil model.

So it was no surprise that a study issued by CERA a few weeks ago on oil field decline rates has drawn a fiercely negative reaction.

The media is filled with reports on the Societe Generale trader who lost more than $7 billion in equity derivatives, and hid the losses for up to a year.

While other traders have lost vast sums of money making authorized, planned trades in which they grossly misjudged the market (see Amaranth), previous instances of so-called "rogue" traders hiding losses through fake offsetting trades or some other device were limited to only a measly billion or so dollars (see Leeson, Nick).

One of the biggest clouds over the oil market at the moment is the possibility of an economic recession in the US and what impact this could have on demand in the world's biggest consumer (and elsewhere).

When it comes to demand, the International Energy Agency's estimates of what the future may hold are as widely watched as anybody's, yet its latest monthly report released Wednesday offered little insight.

Just a couple days ago the Barrel raised the question of whether it was time for refiners to start cutting runs, in light of shrinking refining margins and rising product inventories.

Then just Monday, Tesoro announced that their first-quarter crude throughput would be lower, partly due to bringing a new coker at one of their refineries, but also because of run cuts in January on the back of weak margins.

Crack spreads have collapsed in early 2008, especially for gasoline, shrinking US and European refining margins. The February 3-2-1 crack spread on NYMEX fell to $5.41/barrel Thursday, from $8.27/b on January 2. According to Platts data, the US Gulf Coast sour refining margin shrank from $8.435/b to $6.29/b over the same period, the lowest in nearly two years, while on the West Coast the ANS refining margin fell to from $9.375/b to minus $3.415/b.

So with refining margins weak and gasoline inventories rising fast, what's a refiner to do? The normal answer would be to cut runs.

Platts' chief African correspondent, Cape Town-based Jacinta Moran, has produced her latest estimate on just how much oil is offline in Nigeria as a result of various civil strife. It's an important number -- and rarely defined by others -- because it's constantly cited as a reason why oil sits firmly above $90 for WTI.

Among her most recent findings:

It's a month-by-month bit of good news, albeit in small increments. But Iraqi production continues to move upward at a steady pace.

As Platts reported January 7, Iraqi oil production hit a nearly four-year high in December as average output reached 2.475 million b/d, up 73,000 b/d over November. Supply from both northern and southern fields rose. The figures came from the country's oil ministry.

There must be lots of ways to become big in China these days, at least if you want to be "big" in the way of celebrity and reputation. Though I wouldn't recommend the path chosen by America's latest anointed "maverick trader", Richard Arens.

Now I have to qualify this blog by saying that I don't know any better than anyone else, besides presumably a handful of folks at the New York Mercantile Exchange and Mr Arens himself, if he was in fact the person who executed the first -- and for while the only -- ever trade of a WTI crude oil futures contract at $100/barrel.

Two times in the last week, I've been on some sort of broadcast interview where another person was touting the repeal in the US of the so-called Enron Loophole, and implying strongly that its existence was a reason why oil prices are high.

The Enron Loophole is a very clever title given to a waiver that Enron sought, and received, from Commodity Futures Trading Commission regulation of its online trading platform, Enron Online. Enron Online, like its parent, has gone the way of the dodo bird, but the exemption for trading platforms very much lives on for the Intercontinental Exchange. Not surprisingly, its highly-regulated competitor, the New York Mercantile Exchange, has aggressively pushed for the exemption to be repealed, and online exchanges to be regulated like those with a physical floor, such as NYMEX.

Welcome to 2008, from the staff at the Barrel! Time to make new resolutions; a clean start; take a fresh look at the world (or the market)...

However, once you've changed your wall calendar to a new edition, a quick check of the wires shows that so far 2008 is looking like a continuation of dearly-departed 2007: