August 2008 Archives

We're going to liveblog some of the highlights of Platts' Gustav coverage here at The Barrel over the next few days. (All times are eastern daylight). The system shows that they were written by John Kingston, but many Platts' staff members have actually written for the blog, and dozens have gathered the information on the state of the industry leading up to Gustav's arrival, and its coming aftermath.

It is the middle of a long weekend indeed for US oil futures traders -- and reporters -- as the first major hurricane to threaten US oilfields in three years moves slowly and menacingly towards the coast of Louisiana. Traders were cursing the weather as Hurricane Gustav edged past Jamaica and Cuba as the weekend began -- but the storm is creating more volatility for their holiday planning than oil prices.

The underwhelming price response shows what a different world the markets are reflecting in 2008, compared to 2005 when Hurricanes Katrina and Rita wreaked absolute havoc on global oil markets, sending prices soaring by 10% or more as they tore through the Gulf of Mexico.

Recently the days of $147/b oil have seemed like a long-distant memory, even though they were only few weeks ago. Back in early July, Brent and WTI futures were riding high and traders spoke of an insatiable desire to buy as institutional investors piled in on crude. But some warned that fundamentals were disconnected from prices to an extent not witnessed before.

It now looks like those cautious few might have been right.

An interesting thing happened while oil climbed past $100 barrel.

Suddenly oil, like most commodities, became the new red hot business to chase. People who previously would have joined investment banks, chased dot.com startups or traded bonds are now trying to tack their Harvard and University of Chicago MBA sheepskins to the world's trading benches.

But will these well pedigreed traders be able to push the old school traders aside?

Airlines around the world posted a miserable set of financial results this week, and most inserted carefully-worded, creative language to explain to their shareholders why they are spending so much on jet fuel, and to prepare them for more fuel misery to come.

Nancy Pelosi, the Speaker of the US House of Representatives, seems to have mixed up her description of certain types of energy in a television interview Sunday.

The strongest advocates of renewable energy do seem to have one common, unstated theme in their arguments. Their tendency is to assume that the cost of extracting hydrocarbons, and the efficiency of using them, are stationary targets. By contrast, efficiency gains in wind, solar and other forms of renewables have been impressive, and are likely to continue to gain.

There's a problem with that analysis. There continues to be improvements in the old reliables of oil, natural gas and coal.

No one can accuse the oil industry of a failure to recycle.

The proof emerged in Wednesday's Western Gulf of Mexico lease sale where nine of the 10 highest priced leases came on blocks recycled from 10 years ago, when they were leased by companies who could not develop them.

It seemed to be only a matter of time before the issue of US exports of oil was raised.

Sure enough, in a letter sent this week, the head of the House Select Committee on Energy Independence and Global Warming, Edward J. Markey, Democrat of Massachussets, asked President Bush to ban all US oil exports. "Sending America's vital energy resources overseas during our time of need should stop," Markey wrote in his letter.

An ill-advised military incursion into South Ossetia by Georgia’s President Mikheil Saakashvili set off a massive Russian response which threatens to cut Georgia in half. The geopolitical implications are substantial. Europe and the U.S. have condemned the magnitude of the Russian response but are powerless to affect the outcome.

We're a day removed from a very bullish session on the crude markets -- one of the most bullish sessions in the last five weeks. Data reported by the Energy Information Administration showed US gasoline inventories taking a huge draw, showing a 6.4 million barrel decrease from last week, supported by a 0.4 million barrel decrease in US crude inventories.

Crude futures saw one of its biggest rallies in five weeks following the several-week decline of more than $30/b. But despite the ongoing Russia-Georgia crisis and the BTC pipeline explosion in Turkey, crude markets have remained significantly bearish. Front month crude futures settled today 99 cents lower at $115.01, shrugging off some of yesterday's big gains.

Even as the bill for subsidizing oil prices in various countries ebbs, a few nations continue to either raise local prices by reducing subsidies, or may be looking to move away from them altogether.

Subsidies create distortions in demand, and prevent the normal process of price-induced "demand destruction" to be slowed or halted. Nations that provide those subsidies can cite a litany of reasons why they believe it's good policy for the country itself, but there is no doubt that it holds up demand that might otherwise disappear.

The failure of world oil stocks to rebuild after the peak winter demand season would normally be a cause for alarm for the International Energy Agency.

And if this happened amid a backdrop of oil prices of well over $100/barrel, you might not be surprised if the IEA, the West's energy watchdog, was sounding the alarm.

OPEC member Nigeria's oil production has risen above 2 million b/d for the first time in several months but total outages remain at a staggering 1.5 million b/d.

The market today appears to have grasped the seriousness of what happened in Turkey yesterday. NYMEX light sweet crude prrices, as this is written, are up more than $2 from Wednesday's settlement and have moved back above $120.

It's probably the most talked about topic in the past month about the Olympics. No... it's not the bird nest we are talking about, nor the athletes being suspended for allegedly taking performance enhancing drugs, nor the International Olympic Committee's decision to reverse its decision to suspend Iraq for alleged government interference in the country's national committee.

We are talking about Beijing's air quality and how everyone seems to have a view and making a statement about it.

As we head into the middle of financial reporting season, it is once again "open season" on the world's airlines for equity analysts who are getting ready to take pot shots at flight operators for how they hedge their jet fuel.

Barack Obama's suggestion to swap existing oil in the Strategic Petroleum Reserve for a different grade of crude has its roots in the recommendations of energy economist Philip K. Verleger.

Verleger, in his speeches and in his widely-read weekly and monthly reports, has placed a significant amount of the blame for high oil prices on the once-soaring (but now sagging) price of diesel fuel.

Most of the jokes and web links flying around the Internet about high gasoline prices are pretty predictable. As a result, they are not particularly funny.

But the embedded picture in this one, I must admit, made me laugh.

A few quotes:

"The world has changed. The easy things are behind us. The easy oil has been found. (The sale of this company) does not mean we could not survive on our own: It is not desperation, it is an opportunity."

Despite all the screaming about speculators driving the prices up, oh, take your pick, $50, $100, $300, it always comes down to fundamentals. Here are a few observations from the physical side of things.

"Dire Predictions - Understanding Global Warming," a guide to the findings of the Intergovernmental Panel on Climate Change, is likely to infuriate climate skeptics because it is so user friendly that it could become a popular default source for information on what has been called the gravest environmental challenge of the 21st century (among a host of envirnmental challnges).

The book distills the more than 2,000 pages of the three latest IPCC reports, released last year, into 200 lavishly illustrated pages. It offers in broad strokes what the IPCC provides in so much greater detail. But while few casual readers are likely to plow through the densely written, heavily foot-noted IPCC reports, "Dire Predictions" is an easy read.