China is hoping their massive stimulus package will spur demand of goods and services inside China and that added demand will also increase usage of oil products. At least that is what investors are hoping early Monday morning as they pushed the price of oil higher. The dollar was falling in overnight trading and that also helped support crude prices.
We saw oil prices decline on Friday to a new 18-month low under $60 and OPEC's president was quick to suggest there would be another round of production cuts at the December 18th meeting if oil prices did not rally soon. He claimed a fair price for oil would be between $70 and $90 per barrel. Venezuela's oil minister said OPEC should cut another million barrels at the December meeting. Iran's OPEC Governor said the current global recession and credit crisis could reduce global demand by three million barrels per day and OPEC needed to be vigilant not to let global supplies turn into a glut.
OPEC's biggest producer, Saudi Arabia, said on Sunday they would cut production another 5% in December and provided the most visible evidence so far they were adhering to the cuts mandated at the October OPEC meeting.
Gasoline prices here in the U.S. vary widely with some states selling gasoline under $2 per gallon and others in the high $2 range. I paid $2.14 in Denver last weekend and $2.69 in San Diego two days later. When I returned to Denver on Friday the price had dropped to $2.07. The difference in prices among geographic areas is directly related to demand and the proximity of a refinery. Transportation of gasoline to the area and competition between refineries are the two biggest factors in the retail price of gasoline.
A top ExxonMobil executive came out against the concept known as peak oil. Vice President Richard Vierbuchen said the world has not reached peak production or was fast approaching that level. "Most of these fears are unfounded. The global hydrocarbon resource base has been continuing to grow as technological capabilities were improving. There is no indication so far of any resource limit to increasing oil production," Vierbuchen told the Khaleej Times on the sidelines of the Abu Dhabi International Petroleum Exhibition and Conference. Vierbuchen said estimated global reserves are now four-trillion barrels and we have only recovered one-fourth to date. On the surface this sounds like a death knell to the peak oil crowd. It made a good sound bite and got plenty of play in the press. Unfortunately he went on to say that the majority of that oil was not available for international oil companies like Exxon, Chevron, Conoco and Occidental to explore and produce. Those reserves were in places like Mexico, Venezuela, Russia and various OPEC nations. Political concerns are keeping that potential oil from being recovered.
If you follow this thought process to conclusion you will see this is actually accelerating peak oil rather than delaying it. There could be 10 trillion barrels but if the world only has access to 500 billion then 500B is all we are ever going to produce. National oil companies are notoriously badly managed, recover a smaller portion of oil in place and recover it over a longer period than international companies. It all boils down to flows. Peak oil is not about how much oil there is left to recover but how fast it can be recovered. The majority of the oil remaining to be produced is difficult to recover oil in difficult geographical places with difficult governments and nationalistic laws that prevent outside exploration. Picture a million barrel tank farm in a country like Nigeria. Oil is flowing from Nigeria but due to internal strife it is being produced at a garden hose rate. The same is true with Venezuela, Mexico and dozens of other countries. It is not the size of the oil reserves in place but the size of the flows that matters. That makes comments from people like Vierbuchen hard for the general public to understand and delays planning for peak oil that much farther into the future. Don't be fooled by sound bites in the news.