May 2008 Archives

This story in The New York Times today was entertaining, and shows that even crooks react to price signals sent out by the market.

Red alert to all you farmers and truckers out there -- Shipping PLC is thinking hard about making a raid on the global village and siphoning off all your diesel.

It is almost unimaginable -- in fact it is almost certainly impossible -- but delegates at the Sustainable Shipping Forum in Singapore Friday were talking about a long-term strategy for coping with emissions that involves switching all world shipping away from fuel oil-based bunker fuel to gasoil-based bunker fuel.

Cameraman Kurt Kuykendall is grinning as I pull up to the Kinko's parking lot south of downtown Houston. The morning sun is only a third of the way to its apex in a hazy, blue sky, but its already 90 degrees. I'm late, but Kuykendall, a freelancer for Clean Skies, the Web-TV news channel, is more than happy with me.

"You scored big time," he said, admiring the brushed aluminum grille with the famous running horse emblem.

America might have an addiction to oil, but it's still a pretty good high when you get behind the leather-wrapped wheel of a black Carroll Shelby Ford Mustang GT, complete with LeMans dual overbody rocker stripes in gold, sitting nicely on Pirelli 255/75R17s.

Billionaire oilman T. Boone Pickens predicted in early 2007 that oil would rise over $80/b by the time he reached 80 years of age. Today, May 22, 2008, is Pickens's 80th birthday and, along with wishing him many happy returns, The Barrel wonders what use predictions are in the unprecedented price environment we find ourselves in today.

Pickens, who has repeatedly revised his predictions upward since the $80/b claim, fulfilled his prediction with 253 days to spare. In fact, the NYMEX July WTI contract rose to a new high of $135.09/b Thursday, but July Brent on ICE overtook it to peak at $135.14/b in early London trading.

The New York Times, in an editorial published today characterized President Bush's request for more oil from Saudi Arabia as unseemly special pleading.

"The next president is going to have to do a lot more to reduce America's consumption of fossil fuels and its dependence on the Saudis" the Times said.

The Barrel likes attending both the fall and spring meetings of the Society of Independent Gasoline Marketers of America. Many of the attendees are self-made men -- and they're virtually all men, at least the company owners -- or are second-generation owners of gasoline retailers or wholesalers.

And while much of the oil trade is focused on prices on the New York Mercantile Exchange, and whether the market is in backwardation or contango, or whether the long dated curve is going up or down, or what Goldman Sachs is saying in its latest prediction, the people at SIGMA are on the streets, every day, posting higher prices on their street-level sign even as their own invoices from suppliers continue to rise. (There are also plenty of tales of relatively low-paid cashiers facing the full wrath of customers objecting to paying $4 per gallon, as if it was the clerk who set the prices). Here are a few of the things they're saying now at their spring meeting in Hilton Head Island, South Carolina.

As expected, the Saudis were gracious hosts when President George W. Bush visited King Abdullah's horse farm May 16. Also as expected, they politely declined to give Bush what he wanted: more oil to help lower US gasoline prices.

The Saudis want to be responsive to their customers, US National Security Advisor Stephen Hadley told reporters. But they were not prepared to respond to the president's entreaties.

Several speakers at this week's Platts conference in Vienna were questioning whether gasoline and diesel subsidies -- primarily in Asia and the Mideast -- are distorting the industry's notion of global oil demand.

Leo Drollas, Chief Economist for the Center for Global Energy Studies, argued that oil demand is being artificially lifted by price subsidies, helping to drive prices higher, the implication being that lifting subsidies would raise pump prices to the point at which consumers in those countries will change their driving patterns, pulling demand lower. Drollas said that during the 1985-2006 period, global oil demand grew by 1.6% per year, while economic growth climbed by an average 3.6% a year.

The meteoric rise of crude prices past $120/barrel has hogged the limelight, but some parts of the oil complex have seen even more dramatic movements, causing heartache to consumers both large and small.

Take jet fuel for example. While Dated Brent crude has risen by 85% in the last 12 months to sail past $120, jet prices have soared even higher, nearly doubling to current levels of around $165/barrel in Europe.

It's simply a matter of the US presidential election and United Nations climate change talks being on different timetables, but when the Bush administration officials take their places at the December UN climate negotiations in Poznan, Poland, it will be three weeks after a new president is elected.

Moreover, whoever is elected will support climate change policies whose key elements represent a dramatic reversal of Bush administration policy.

Some of the latest statistics from the International Energy Agency give a very clear indication of the current state of the world oil market, but some leave a lot more room for interpretation.

Oliver Twist, desperate with hunger, rose from the table and advancing to the master, basin and spoon in hand, said, "Please, sir, I want some more."

Next week, President Bush, an unseen 42 gallon oil barrel in hand, will say to Saudi King Abdullah and other Saudi leaders, "Please, sirs, I want some more."

Two in...one out.

Based on comments made in Jakarta earlier this week, it seems obvious that Indonesia's days as a member of OPEC are probably coming to an end. The only question is what took so long.

There is little doubt that the price forecasts of the Goldman Sachs energy team have taken on an almost mythic aura. Maybe that's because their strongly bullish projectoins have been so on-the-money now for more than a year.

So it's no surprise that the latest forecast by the team, led by Arjun Murti, was cited as a factor today as crude prices raced through $122/b for West Texas Intermediate, and NYMEX RBOB gasoline and heating oil both set new records, their first since late April.

The federal gasoline tax "holiday" plan backed by presidential candidates Clinton and McCain have raised eyebrows, to say the least, in that the benefit to ordinary Americans would be scant.

But politics is politics, you might say.

With all the noise coming from Congress these days about high gasoline prices and "profiteering" by "Big Oil," you'd think refiners were rolling in cash. But that's not necessarily the case.

What exactly does "Big Oil" mean? Is Sunoco part of "Big Oil?" They lost money in the first quarter. Is Valero Energy? They almost did.

A little less than a year ago, The Barrel did an unscientific, utterly antecdotal survey of whether high gasoline prices had cut demand. We wrote about it here.