Oil at $66 a barrel 8

[jmw]

This is an interesting article but make of it what you will.

http://news.independent.co.uk/business/comment/article305640.ece

It comes as a surprise to find that todays high oil price is demand driven not supply and that demand is from the developing countries.

It also comes as a surprise (this information seems to be concealed from us lest we get complacent, and there was an iteresting comment on "brainwashing" in universities that is probably a topic for a different site) to discover that while the USA and the Uk are amongst those blemde for "gas gussling" that in the UK oil dependence has dropped from 60% to 40% of energy needs and similar is suggested for the US economy.


JMW

http://www.ViscoAnalyser.com

 

[moltenmetal]

Oil prices going up? Great! Bring it on! Increasing oil prices, regardless how caused, are the only thing that will spur conservation and make the truly sustainable energy alternatives look "economically" feasible. I use the quotation marks on "economically" because the market doesn't work when teh entirety of the costs of consumption arent' borne by the consumers, and that's definitely the case with the true costs of oil production and consumption.

I'd much rather that money go into the pockets of my government than into the pockets of some Saudi princes. Even if the government taxation money is "wasted" on bureaucracy, it's still circulating in my local economy!

I WANT those idiots with the SUVs to be suffering for their short-sighted, selfish choices. It can't reach $100 per barrel soon enough for me!

 

[corus]

jmw, I'm not sure of your argument about the AA as we have yet to see such high petrol prices. As you said £5 per gallon was the price they quoted 20 years ago. At today's prices that might be more like £30 per gallon. It cannot be said 'a reduction in car use due to high prices hasn't happened and it won't' (to paraphrase) as we haven't seen those prices, yet.

A report by the BBC

http://news.bbc.co.uk/1/hi/scotland/2513023.stm

says that the introduction of speed cameras has saved lives. I'm not sure how this is costing lives. It does generate money for the government but if people wish to drive round like idiots and ignore the speed limits then let them pay, through the nose preferably. The only complaint I have is against 'sleeping policemen' and other such traffic calming methods. They might make traffic slow down but they don't calm me down one bit.



corus

 

[jmw]

That's quite right Corus, if we extend the AA survey to todays prices your price per gallon is probably correct.
If nothing else had changed the government could raise fuel taxes to bring the price to £30 a gallon and be sure of:
1) they would not reduce peoples use of their cars or petrol
2) they would not imperil this as a source of revenue.

However, this neglects the fact that since that time car ownership has risen dramatically and peoples expectations have changed.

It is why I suggest that before we reach this mythical value that we might suffer a "regime change". It also discounts other mechanisms, not least the increasing disregard for law.

JMW

http://www.ViscoAnalyser.com

 

[corus]

If fuel did reach such a high value, and it was seen to be due to government then, yes, there would be protests etc., particularly as the higher petrol prices would also increase the price of goods in general (something which we are just beginning to see). If fuel price increases were seen to be due to outside influences then I'm sure that the general public would be wise enough to see that a 'regime' change would have absolutley no effect. As to whether it would affect people's behaviour? Well, I have my bike.

Probably the major concern with the increase in fuel prices is the likely increase in the general rate of inflation, and the subsequent increase in interest rates to quell that. Fortunately, due to the import of goods from the far east, prices are being kept low. However, if that were to change then we'll be back to the '80s with 20% inflation and massive unemployment and the subsequent civil unrest and increase in lawlessness. 100$ a barrel may be a good idea for punishing the SUV drivers but not good for the economy and society in general.

corus

 

[jmw]

Ergo,
the interest in this partuicular article which explains why so many times in the past high oil prices have triggered depressions/downturns and why this time, for the western eonomies, that is less likley now.

JMW

http://www.ViscoAnalyser.com

 

[arunmrao]

Good News,today oil price is reduced to 64$/barrel. Hope this down trend continues. Reason attributed end of summer holidays in US and fear of closure of refineries negated.

 

[arunmrao]

A very heartening news I just read on an Indian website

http://www.ndtv.com.

I have reproduced below for easier reference.





Organization of Petroleum Exporting Countries (OPEC) acting chief Adnan Shihab Eldin has said that the current high oil prices, which are hovering around $63 a barrel are very unusual.

OPEC expects crude prices to come down to about $40 a barrel by the end of next year. Eldin said one reason for the current high prices was the bottleneck in refineries.

"Fundamentally there is no reason for prices to go up. There are geopolitical concerns surrounding it," said Eldin.

"People who make money on the futures market make their own calculations and drive up the prices. I can't really comment on future prices but I know that on an average they will ease up and will go down," he added.

Maintaining that very low oil prices are not good for economy, he said that there is possibility of hiking output and maintaining spare capacity.

He also said that supply from non-OPEC countries will rise next year.

 

[DrillerNic]

I went to a very interesting SPE talk in Aberdeen on the oil price given by one of the Professors from Dundee's Centre for Energy Petroleum & Mineral Law, where he pointed out that since the oil price shocks in the 70's, oil price is no longer controlled by the Seven Sisters and oil has become a traded commodity- the International Petroleum Exchange wasn't formed until 1980, for example, and that due to the influence of the "excitable men in red braces" (that's suspenders for our US readers) oil prices had become much more volatile. A pal who studied Petroleum Engineering with me and went into oil trading tells me that most of his colleagues have very little idea of the oil industry and react to rumours and the (usually poorly informed) news media like the BBC and CNN etc in the manner of sheep.

The oil price is high because of unexpectedly high demand from China and India. Steel prices are rocketing too (but steel prices don't make the evening news). As it takes anything from 2 to 10 years to bring a new field from discovery to first oil, the slack in the supply side (mainly shut in OPEC production) was quickly taken up by the increased demand, so high oil prices. Add in the effects of traders and you get price spikes etc.

On the demand side, during the early noughties, there was little exploring done due to a wave of oil company mergers (exploration stops after a merger as the portfolio of the new company is assessed, and often reworked using teh dominant companie's processes), lowish oil prices (it was $9/bbl in 1999) and so on. For example, only 2 years ago, Schlumberger fired 15% of their global workforce due to lack of work....

The price will drop (possibly even crash, like it has before!) due to increased exploration: for example in the North Sea 18 months ago there were 14 drilling rigs stacked in the Cromarty Firth, now there are 5 (and we're taking one out of cold stack now)...that's 9 (almost 10) more rigs drilling in the North Sea, so over the next 12 - 36 months North Sea production will increase.

Similar things can be seen in the Gulf of Mexico, West Africa, Campos Basin etc.

 

[sms]

I am still haveing a hard time understanding how refinery outages or bottlenecks cause the price of crude to go up. Gasoline yes, but if the crude can't be refined I would expect the inventory to go up and the price to go down.

-The future's so bright I gotta wear shades!

 

[zdas04]

SMS
It really is one of the simpler things in this convoluted industry:

1. There is a refinery outage
2. The futures traders forecast a shortage of gasoline, diesel, heating fuel, etc.
3. The forecast shortages in refined products drives the price of refined products up.
4. To capture the higer prices, every facility capable of cracking a crude molecule moves closer to their physical capacity (which is higher than their rated capacity, where they are all running today) generally at the expense of facility effeciency.
5. The change in refining capacity starts a really fast bidding war for the crude on the market.
6. The price spike from the bidding is reported in all venues possible and voila you have a refinery problem causing a spike in crude prices.

It doesn't have to make sense, this is a commodity business that swings based on rumor and supposition.

David

 

[jmw]

Zdas04,
that explains it all.
With hindsight: when we reflect that just about anyone in finance has "manager" in their job description, we need never again ask how they keep messing up our lives.

JMW

http://www.ViscoAnalyser.com

 

[wes616]

Did anyone see the movie OilStorm. It was on F/X last spring. As this hurricane season is now in full swing, the movie is erily prophetic...

Wes C.

 

[DrillerNic]

I wonder how the Gulf of Mexcio can't build their platforms to withstand hurricanes....we've have major hurricane damage to offshore installations in the GoM for the past three years; is this a question of not setting the metocean design criteria high enough?

In the North Sea, we also see several hurricane force storms (ie force 12+) regularly every winter and we just sit them out....getting bored out of our minds as operations are suspended and hoping the storm will abate before our hitch is due to finish!

 

[SacreBleu]

DrillerNic,
I used to be involved in the design of the GoM platforms. The phenomenom known as a "mud wave", where the seafloor actually heaves and subsides due to the cycles water pressure (wave height rapidly and drastically changing) is a powerful force on the platforms' foundation piles. This is especially bad near the Mississippi River delta due to the great depth of loosely sedimented soils. This was becoming known in the mid-70's, after a major platform was totally destroyed.

 

[sms]

Having said that SacreBleu, I suspect that the damage will be less significant than the news and the comodity traders are making it. The biggest problem right now is getting electricity to the pipelines in southern Louisiana. Doesn't matter how much product you produce if you can't transport it.

-The future's so bright I gotta wear shades!

 

[BitTwiddler]

DrillerNic,

There is a HUGE difference between winds which are equivalent to a weak hurricane and the winds in a strong hurricane.

http://www.nhc.noaa.gov/aboutsshs.shtml

Minimum hurricane strength is defined when sustained winds are 65 knots or 75 mph. Katrina at its peak had maximum sustained winds of 150 knots or 172 mph, with gusts up to 185 knots or 213 mph.

http://www.nhc.noaa.gov/archive/2005/mar/al122005.fstadv.023.shtml?

Remember that kinetic energy increases according to the square of the velocity. This means that a sustained wind of 150 knots has 5.3 times the amount of kinetic energy as a 65 knot wind.

Researchers recently estimated that Hurricane Ivan created waves 130 feet high.

http://www.brightsurf.com/news/headlines/view.article.php?ArticleID=20528

Ivan was a Category 4 storm. Katrina was Category 5.

 

[sms]

Here is the latest bullitin on Shell GoM assets fom the Shell USA website:

31 Aug 2005

We have completed a preliminary assessment of nearly all Shell-operated GoM assets and can confirm most appear to have little or no damage except for certain Central GoM assets.

Personnel have already safely returned to our assets in the Western GoM (North Padre Island, and Brazos) some Central GOM (West Cameron, Green Canyon, and Garden Banks) and hurricane recovery and production start up activities have begun. Eastern GoM assets (MP 252, Ram/Powell, Mobile Bay) do not appear to be damaged and post hurricane activities are underway there as well. Production from these assets will resume as appropriate once final inspections of the facilities are completed and pipelines and other related downstream facilities that transport our production to onshore locations have also been systematically inspected and are operational and ready to receive production.

Over-flights and site visits have identified damage to key Central GoM assets, West Delta-143, Cognac, and Mars. Equipment fabrication to repair WD-143 is underway, and assessment teams are visiting Cognac and Ursa today for initial inspection.

As reported earlier, the Mars Tension Leg Platform was significantly damaged in the storm. Attached is a photo of the Mars platform taken by Shell during one of the flights. We are making a full assessment of the damage over the next several days and will then develop a comprehensive repair and recovery plan.

Contractor personnel have boarded and secured both semi-submersible drilling rigs, the Transocean Deepwater Nautilus (DWN) and the Noble Jim Thompson (NJT), whose mooring lines broke during the hurricane. The DWN is currently under tow to a shallow water location for further assessment and repair. The NJT is planned to be secured to tugboats today.


-The future's so bright I gotta wear shades!

 

[davidinindy]

I think another issue us that retail rates at the pump are getting raised 20% more on average than the wholesale cost.

David

 

[DrillerNic]

BitTwiddler: I take your point about the difference between a full hurricane and a force 12 gale, but in January this year I sat on a platform for 5 days in a force 12+ gale with average wind speed at 50m of 90 knots, gusting to 100+kts. And Draupner was hit by a 26m wave in 1995 (The "New Year Wave", take a look at

http://www.math.uio.no/~karstent/waves/index_en.html

for some great pics of big waves!)

So it is possible to build platforms to withstand pretty srong metocean forces; withstanding a hurricane is possible, it's just a matter of doing the risk assessment to decide if the design criteria have to be raised.

And that's a question for the MMS etc!

 

[BitTwiddler]

Here's an article on the damage done by hurricanes to Gulf of Mexico rigs:

http://www.nwanews.com/story.php?paper=adg&section=Business&storyid=128875

It appears that the so-called "linear model" of ocean waves has officially bitten the dust.

http://www.bbc.co.uk/science/horizon/2002/freakwavetrans.shtml

Once things start to go nonlinear, all bets are off. If individual waves become 130 feet high, then no rig is safe for human habitation.

DrillerNic, if you ever find yourself on an oil platform with a hurricane heading your way, please GET OFF.

Hurricanes can go from Cat 1 to Cat 4 overnight. Case in point: Opal in 1995.

http://www.nhc.noaa.gov/1995opal.html