December 2011 Archives

The declining net import dependence of the US is no longer news. But that doesn't mean that each month's release of data doesn't have an endless series of comparisons and twists to be digested. Here are a few noteworthy things in the October figures:

This week's EIA inventory report surprised the market with a build in crude and distillate inventories. Gasoline demand also rose.

You can read our analysis of the numbers here.

A close reading of the Environmental Protection Agency's 97-page final rule setting 2012 production requirement for renewable fuels reveals that when it comes to the futuristic area of cellulosic biofuels, the EPA is crossing its fingers, knocking on wood and blowing on dice.

The final rule, issued December 27, boosts cellulosic requirements next year by 31% to 8.65 million gallons. The EPA is relying on production from six facilities, five of which have yet to come online.

It's hard to say with a straight face that 2011 for the Commodity Futures Trading Commission was truly historic.

The idea of historians a century from now breathlessly discussing the debate over the federal commodity position limits regime or a new market manipulation standard may seem downright absurd.

Apparently it was heavy losses on his currency trading that prompted John Maynard Keynes to quip that "markets can remain irrational a lot longer than you and I can remain solvent."

Perhaps one of the root causes of irrationality, particularly in oil markets, remains the human element. The impulsive, sometimes selfish, emotional and -- yes -- irrational decisions we make on a daily basis that seem to confound logic and fly in the face of reason affect us all, from traders to end users.

It's enough to make you think the world's gone mad. Again.

Our top 10 survey this year had 37 news stories suggested as candidates for the biggest events of the year in the oil business.

There's certainly not a lot of consensus out there: 24 of those 37 stories got 1st place votes. We've never had a distribution like that in the five years we've been running this survey. Unlike last year, when Macondo stood out among all the events of 2010, or 2008, when the march to almost $150 crude and its subsequent post-Lehman Brothers collapse dominated the news, 2011 had a lot of things going on. But it didn't have that one signature story that everyone talked about, which is kind of surprising when you think about it.

A few months ago, we took a look at the oil to gold relationship. The two have no obvious physical relationship: one being the industrial lifeblood of the world, as well as a financial proxy, and another a minimally important commercial product but one as a historical barometer of inflation and fear.

This week's EIA inventory report shocked the market with the sheer size of the decline in crude inventories. Distillate inventories also plunged.

You can read our analysis of the numbers here.

The Obama administration has made no secret of its support for renewable energy, but in the case of the offshore wind there's a question of whether the administration has enough tools at its disposal to get the industry -- which still doesn't really exist in the US -- off the ground.

A big part of the problem is that offshore wind, like most renewables, is a policy-dependant industry dealing with a dysfunctional Congress. 

Almost ten.

That's the estimate of total US liquids production by 2016 that the International Energy Agency foresees, in millions of b/d, out of the US by 2016. The IEA, in its latest monthly report, was downright ebullient in its forecast of what the US, and to a lesser degree, other non-OPEC countries were going to be producing over the next few years.

Despite the buildup of more than a year and a half of anticipation, it was still difficult to get a read on the likely bidding behavior of oil companies as the time came for Western Gulf of Mexico Lease Sale 218 this week.

OPEC ministers earlier today put aside the acrimony that had characterized their previous meeting in June and agreed to legitimize current crude output at an overall ceiling level of 30 million b/d.

The agreement doesn't include individual country quotas but it does cover the production of all 12 members, including Libya and Iraq. 

Overshadowed on a day when oil prices were spooked by reports of Iran planning war games in the key Strait of Hormuz, the International Energy Agency and OPEC both offered up apparently bearish oil market outlooks today.

The Marcellus Shale has spurred jobs, environmental debates, the possibility of new economic opportunities in revived manufacturing...and now its own radio show.

In the end, it was the final fifty minutes of negotiations on the fly between the heads of the Indian and EU delegations that reached a compromise agreement at 3:30 am Sunday at the Climate Summit in Durban, ending the longest running climate summit ever, a dubious achievement. 

EU and India occupied center stage in the dispute over whether emerging economic powers such as China and India should have the same legal responsibilities for controlling their greenhouse gas emissions as do industrial countries.  The compromise Durban Platform for Enhanced Action was embraced, if not fondly, but at least with relief by exhausted delegates, most of whom worked through two or three nights of negotiations. 

In diplospeak, the Durban Platform for Enhanced Action is an "agreed outcome with legal force," rather than the more vague "legal outcome" that India and China wanted, or a "protocol with legal instrument," EU's preference. 

However, under the Platform, all nations will be required to commit to reducing emissions starting in 2020. But that will require the climate summit in Qatar next year to launch negotiations toward an agreement by 2015 to include targets that countries will have to achieve in 2020.

Reaching a  deal by 2015 will be  arduous. The Durban agreement also extends the Kyoto Protocol for the EU and a few other developed countries during a second commitment period after 2012. The rest of the world will have only voluntary commitments until 2020. 

The following Regulation & The Environment column published in Monday's Platts Oilgram News, was written prior to the conclusion of the Durban meeting.

Commodity Futures Trading Commission Chairman Gary Gensler decided to not participate in the federal investigation of MF Global in order to further his own career, dodge blame, help out a former Goldman Sach ally and skip town in time for a European vacation.

None of that may be true, but it's certainly what some members of Congress, primarily Republicans, want you to believe as they have attempted to turn criticism of Gensler into one of the dominant narratives of MF Global's historic collapse and the probe of potentially more than $1.2 billion in missing customer funds.

As next week's OPEC meeting draws closer, all indications are that ministers will leave crude output pretty much unchanged. But what does "unchanged" mean exactly?

With oil prices hovering at or above $100/barrel, there is no great pressure on the oil producer club to do anything drastic for the time being.

We've written previously about the US natural gas liquids market facing the problem/blessing of a growing supply of liquids coming from the shale plays. It's a blessing for NGL consumers, and in some ways, it's a blessing, at least now, for drillers: the price of liquids moves mostly in tandem with crude and as a result has made some drilling projects economical when the price of natural gas would otherwise sink those projects economically.

But it's also a problem for petroleum refiners, where they face a declining value of those liquids coming from the refining process.

Those issues are at the center of a new report produced by Bentek Energy, a division of Platts, and Turner, Mason & Co., a refinery consultant. (Full disclosure: Platts uses Turner, Mason refining models to produce Platts Daily Yield.)

We all know that arresting of ships is a legitimate tool in the international maritime world to secure claims. And as the global tanker market continues to stay depressed, more and more ship owners are finding it hard to stay afloat these days.

The market has seen a spate of tanker companies -- from giants to minnows -- filing for Chapter 11 bankruptcy protection or going bust. Many tankers are being arrested for a host of reasons, including defaulting on mortgage payments (arrested on behalf of the bank lenders) or for not paying bunker fuel suppliers (arrested on behalf of the fuel supplier.)

Such a situation has brought in a scenario where charterers are getting increasingly wary of chartering vessels for the fear of their cargoes getting stuck in the event of these ships getting arrested.

Japan and South Korea initiated talks at the end of November on LNG policy that could challenge the domination of the LNG supply chain by the international oil majors and producing countries.

Indeed, the talks could be seen as setting out an outline for an eventual forum of major LNG consuming countries that would provide a counterweight to moves by gas exporting powers to exercise more control over international gas supply.

In compiling the list of our nominees for the 10 biggest oil stories for the year, there weren't any that jumped out quite like in some past years. In 2010, it was Macondo; in 2008, it was the price of oil spiking to almost $150/b.

So this year's vote by our readers may turn up a wide divergence of opinions. Make yours heard by voting at this site. Only one vote per computer, but you can send the link around to as many as you like. You can see the "ballot" here.

Check back in a few weeks and we'll have the results.