February 2011 Archives

With violence raging in the streets of Libya and turmoil across the Arab world from Tunisia to Oman rattling oil markets, and with Brent crude at its highest price in two years, renewable energy companies would seem poised to cash in on fears about security of energy supplies.

I got into a debate on Fox Business the other day about using the Strategic Petroleum Reserve in light of the ongoing collapse of the Libyan oil industry. My argument was mostly political, that the American public has spent money to build this reserve on the grounds that it would be used as a cushion against the loss of oil supplies from a strategically important and significant oil exporter, like Libya. If not now, when?

Seeing is believing. That was the first that thought came to my mind when I visited the onshore Khurais oil field in Saudi Arabia's vast desert this week.

Located some 150 km (100 miles) southeast of the capital Riyadh, the Khurais oil field began pumping 1.2 million b/d in 2009, the largest single increment from any single oilfield in the kingdom's history.

As an energy correspondent visiting from Japan, which imports 1.1 million b/d of crude from Saudi Arabia, seeing a production facility that can alone meet 30% of my country's total imports is mind boggling. The Khurais field's production capacity alone is higher than the output capacities of several oil producing countries in Asia and elsewhere.

Can the oil markets have packed more into the last three days, even though it was over a weekend? We've got Libyan production and exports in turmoil, and the price of natural gas acting as if nothing's going on. Here are a few thoughts.

With the Brent/WTI spread now firmly above $15/b, and oil still flowing into Cushing, eyes are turning more to the Keystone XL project. It has already faced some stiff winds, as we've written about before. Now those winds are starting to have an impact.

First, this all matters to the Brent/WTI spread because there's lots of crude going into the NYMEX delivery point of Cushing, Oklahoma. It has pushed down the value of WTI to unprecedented levels relative to Brent. The average person listening to the radio, hearing that "oil settled today at $87," may think there's a long way to go before $100 oil is reached. It's already there for much of the country, with Brent well over $100, and such US Gulf grades as LLS and Thunder Horse already there as well.

The hijacking of supertanker Irene SL and Aframax tanker Savina Caylin in a spate of two days last week will pose some questions on various navies patrolling the vital sea-routes in the Indian Ocean and Arabian Sea.

And one of them that needs to come up with some satisfying answers is the Indian Navy. There's been a series of attacks on the ships steaming in areas which are just 350 nautical miles off India's west coast since 2009, while New Delhi boasts of having the world's fifth largest navy.

One of the big mysteries in the oil world is how much crude China is sticking in its newly-developed strategic petroleum reserve. In a recent report,  Barclay's attempts to answer the question.

In short, the answer is: not much in 2010, but maybe a lot more in 2011.

Platts director of news John Kingston appeared on Fox Business today to speak about the current state of oil markets, specifically with the departure of Hosni Mubarak in mind.

You can see the video here.

They're probably not rooting under couch cushions for spare change, eating Ramen noodles for every meal nor making appointments to donate their plasma yet, but the cries of poverty coming from the US Commodity Futures Trading Commission have grown nearly deafening in recent weeks.

Republicans are responding to these cries the same way the father of a college sophomore might when he gets a phone call for more money to pay for bar tabs, frat dues and an all-inclusive trip to Cancun for spring break.

OPEC crude production climbed to its highest level in more than two years in January, the latest Platts survey of OPEC and oil industry officials and analysts showed earlier this week.

The oil producer club's 12 members boosted crude output by 300,000 b/d to 29.57 million b/d. The bulk of the increase came from Iraq, where work by international companies has pushed up production at some of the giant fields in the south of the country.

(You can see the country-by-country numbers here.)

It was a very bearish report that came out of the Energy Information Agency today (though prices didn't react that way).

Total crude stocks rose, though inventories at Cushing didn't build; and gasoline stocks climbed, with demand taking a hit partly on the back of bad weather.

You can see the Platts analysis here.

US Midwest refining margins are outpacing Gulf margins, although a steep WTI crude contango and strong product prices, notably for jet and distillates, should encourage Midwest refiners to boost already high runs.

In the Midwest, the West Texas Intermediate cracking margin hit $15.14/b Tuesday, up from $9.77/b on January 31. The West Texas Sour coking margin rose to $21.83/b from $15.85/b over the same period.

How to price world gas remains a tricky subject. Two recent developments, the second one coming with a bit of self-promotion; hope you don't mind.

Even before the crude oil futures market was seen giving up earlier price gains spurred by the battles raging in Egypt, the metaphor-rich oil analyst/media luminary Fadel Gheit pooh-poohed the upward moves as mere "knee-jerk reaction" that would fizzle out. He seemed proven right by the February 4 NYMEX March crude settle at $89.03/b, $1,51 less than the prior day as investors seemed to shed long positions. 

"It's a really irrational response," he said February 3. "It is the tension in general that has created the buzz in prices," Gheit said, adding that Yemen is another story, and could be a domino that leads to eruption in Saudi Arabia. Of Yemenis rising in protest, a gleeful Gheit said "I was so impressed; I was so impressed. Women in the streets of Yemen!"

The 1851 census of Great Britain and Ireland revealed the attainment of a stark milestone in the progression of humanity. For the first time in any country anywhere in the world, the statistics revealed that over half of the population -- 51 percent -- lived in one of those new fangled large towns or burgeoning cities or even in the embryonic suburbia. The Industrial Revolution had begun.

Although the metronomic regularity of census returns gives us a precise date for the seismic change, in truth the milestone is simply acknowledgment of a trend that had been underway for some considerable time. It chartered the unenviable move of human fodder from the increasingly-mechanized rural environs to seek the brutal promise of employment in the sweatshop squalor that pulsed at the heart of empire.

The industry keeps building new storage at the NYMEX delivery point of Cushing, Oklahoma, and commercial players keep filling it up.

This week's Energy Information Administration inventory report shows that at the end of last week, there was more crude oil stored at Cushing than at any time in history. Here's our analysis of the data.