Option Investor
Intra-Week Blogs

Iran, Saudi Arabia, Nigeria, Europe, Mexico, Canada

Printer friendly version

Iran, Saudi Arabia, Nigeria, Europe, Mexico, Canada

Sometimes the news if breaking so fast that we miss some of the main stories. These are some of the headlines making news last week. I bet you did not hear them all. 


•  According to new information obtained by Business Week, for at least the next five years, and possibly longer, the Saudis are likely to produce less crude than promised. Saudi Aramco will be limited to sustained production of just 12 million barrels a day in 2010, and will be able to maintain that volume only for short periods before scaling back to a sustainable 10.4 million b/d. That is a far different message than Saudi Arabia put out at the recent oil conference. Seems there is trouble in the oil field and bumping that production is going to take more than the $90 billion they budgeted. 


• Nigeria’s MEND sounded "a stern warning" to British Prime Minister Gordon Brown over his recent statement offering to provide military support to the Nigerian government. Brown made a statement that MEND took as aimed directly at them when he said eliminate the violence and return to control to the government. Gee, you think?


Iran's President Ahmadinejad dismissed the possibility of a war with the U.S. and Israel over his country's nuclear work, saying Iran is trying to avoid conflict. Yet the government also stated it will hit Tel Aviv, US shipping in the Gulf and American interests around the world if it is attacked over its disputed nuclear activities. A government spokesman said Tel Aviv and 32 U.S. bases in Europe and Asia will be destroyed if Iran is attacked. There was no mention of how they expected to pull off that trick.  


Total has decided to back away from planned investments in Iran because of political uncertainty. It is the last western oil company that held out hope but has now given up on Iran. This is a sure sign that the U.N. sanctions are working. Unrest is growing in Iran and even a Chinese firm said they were going to cancel plans to develop a large field in Iran. Nobody wants to be working in a powder keg when it blows. Do you think they remember the hostage crisis in 1979 and don't want it repeated with them as the hostages? 


Biofuels have forced global food prices up by 75% - far more than previously estimated - according to a confidential World Bank report obtained by the Guardian. The figure emphatically contradicts the US government's claims that plant-derived fuels contribute less than 3% to food-price rises. At least they agree it has raised prices. Now all they have to agree on is by how much. What is lost on these people is the facts. The actual corn used for ethanol is not the corn grown to feed people. It is the kind grown to feed animals and after the ethanol is extracted the feed is returned to the animals. I am not an ethanol fan but those opposed should at least get their facts straight. 


• European officials propose scaling back drastically on their goal of increasing Europe’s use of biofuels, a major about-face on a key environmental and energy issue. At the same time, a new report by the British government casts doubt on fuels made from crops as a way to fight climate change. Some recently available data suggest emissions from biofuels could be even more harmful than gasoline. 


US natural gas prices, which have surged 64 percent this year, may stay near "international levels" as buyers there compete with Asia and Europe for liquefied natural gas supplies, Goldman Sachs Group Inc. said. Gas has fallen from $13.70 to $12 in the last week as cooler weather reduced the demand for gas generated electricity. Three years ago there was a rush to build LNG plants to take advantage of the cheap gas fro overseas. Now that LNG is going to Asia and Europe where prices are higher than America. Those LNG plants are going to run dry if prices don't continue to rise in the U.S. to levels that will compete with Asia.


• Global fertilizer demand may rise 14 percent by 2012 as farmers increase plantings to benefit from high prices and growing food consumption, the International Fertilizer Industry Association said. Companies benefiting from these gains are POT, MOS, TRA and AGU.


• E-T Energy Ltd. revealed a process that uses electricity to heat the bitumen-soaked Alberta tar sands. The company claims that it takes about $4 worth of power to produce one barrel of oil, that the use of water-in-place eliminates the need to import water, and that emissions are reduced. If this process really works they will have no trouble finding buyers of their IPO in about 2 years. After two smaller test projects they are stepping up to major development meant to show this will work on a giant scale.


• According to the IEA’s latest Oil Market Report, global oil product demand is expected to grow by 1.1 percent or 860,000 b/d to 87.7 million b/d in 2009, on a par with 890,000 b/d growth in 2008. High oil prices are contributing to a contraction in OECD oil product demand, offset by robust growth in developing economies. Even $4 gasoline and $5 diesel has only been able to slow growth not kill it. As consumers get used to paying the higher prices that growth will return. 


Twenty-five airlines went bust or stopped operations in the first six months of this year and more could fold as fuel prices soar, a spokesman for aviation industry association IATA warned. The following is a quote from the Minneapolis Star Tribune editorial last week, "The days of cheap air travel are over - or at least they should be, if large U.S. airlines expect to survive. With oil at $140 a barrel, the old business model is dead."


• Governors from across New England are warning that some families may have to choose between food or warmth this winter and are calling for a sharp boost in federal home heating aid to offset much higher heating oil prices. I would vote for food. That brings back visions of President Jimmy Carter in his fireside chat and wool sweater telling us to turn down the thermostat and toughen up. The voters did not like politicians telling them to cut back then and they probably will not like it now.  



• According to Matt Simmons, most of the world’s oil analysts are far too optimistic about how long existing fields will last, the prospects for new discoveries, technology’s ability to unlock new sources and to extend the life of existing ones, and so on. He prefers to rely on data rather than daydreams. He predicted $200 oil several times on CNBC recently only to get laughed off almost every show. People better start paying attention or they will suddenly find themselves walking. 


• UK-based oil explorer Tullow Oil said reserves at its Jubilee field in Ghana could be as much as 1.8 billion barrels and that it was on track for first oil in 2010. Great news, sounds big but in reality only 1/16th of our annual consumption. Secondly it will be produced over a 15-30 year period not all at once. We need to find 10-12 each year to stave off peak oil. Since 1990 it has been 1-2 per year. 


• Texas energy tycoon T. Boone Pickens is calling for a massive switch to natural gas as a transportation fuel and a boost in wind power in a plan aimed at reducing U.S. foreign oil dependence by a more than a third. Unfortunately natural gas peaked in North America in 2004. In order to have enough gas to convert to gas as a transportation fuel we would need to import it in huge quantities. Several paragraphs ago I reported that imports are a problem because the rest of the world is paying more for LNG than we are. Secondly gas vehicles only go about 50% as far per tank as gasoline vehicles.


Shell has canceled plans to build a new multibillion-dollar refinery near Sarnia, Ontario, due to poor market conditions and surging construction costs. They neglected to mention falling quantities of readily available oil. 


• The cost of shipping a 40ft container from Shanghai to Rotterdam has risen threefold since the price of oil exploded. Good thing we don't import stuff or our inflation would be going through the roof. Wait, we do import stuff and headline inflation is nearing 4%.


Oil prices are holding at $145 despite the strike in Brazil, another drop in oil output by Mexico, Iran's warning on destroying 32 U.S. bases and last but not least the formation of a tropical depression S.E. of the Caribbean that has a good chance of becoming a hurricane and head towards the gulf. Did I mention August futures expire next Monday? Never a dull moment in the energy sector!


Jim Brown

Leaps Trader Intra-Week Blog Archives