this is one of the *bigger* dots that must connect in order for things to continue running smoothly.

link

Effect of Y2K on oil trade feared

By IAN HENDERSON

9aug99 FEARS about the millennium bug could destabilise global commodity markets in coming months, disrupting shipments of grains and leading to supply-demand gaps and price hikes for crude oil.

The warning comes in the latest World Bank Global Commodities Report, released on Friday in Washington.

"Concerns over the potential disruptions associated with Y2K may cause consumers, processors and distributors to stockpile crude oil and products," the World Bank says.

It adds that this could lead to price pressures as key northern hemisphere economies enter the winter season of peak demand for energy.

But with the Y2K deadline now less than five months away, even rapidly managed stockpiling measures intended to avoid any last-minute hitches could run into trouble.

"A shortage of ocean tankers may develop if importers rush to beat the end-of-the-year concerns over Y2K and this could contribute to the potential for price volatility," according to the bank.

Its commodities update is generally mildly bullish about the near future, saying many prices are strengthening as stockpiles are run down and much of the world economy begins to pick up pace.

However, further falls are forecast in agricultural product prices, with stockpiles of rural goods still high and with supply likely to be boosted following another large harvest.

While some crisis-stricken economies are on the mend  including those of Brazil, Russia and, to an unexpected extent, parts of Asia  the World Bank notes that risks remain to the global outlook.

Japan's recovery "is very uncertain", Europe's "is still very hesitant" and a stock market correction in North America and Europe "is possible".

But overshadowing those concerns is a fear of the unknown: the possible impact of the millennium bug.

Consumers might attempt to store in advance of the start of the year 2000 such basic staples as food and fuel. If they do, that could trigger price hikes.

On the other hand, producers could attempt to pre-empt their worries by rushing greater supplies on to the market, thereby easing price pressures.

Either way, the bank says, energy appears to be the commodity most vulnerable to the bug.

For one thing, peak demand is in the winter, and the forecast rise in demand will come just as OPEC's production cuts take effect.

For another thing, the bank notes that "oil production is the most technology-intensive of major commodities".

"Embedded microchips used for production, transportation, refining and distribution leave energy vulnerable to disruption."

A further spinoff of Y2K fears could be disruptions to shipping which force traders to place a high priority on getting high-value goods to market, even if that means pushing low-value commodities off the boats

Grains and tropical timbers could be left on the wharves, while manufactured products took priority, the World Bank report suggests.

- (gasoline@nd.petrol), Augu

-- Anonymous, August 08, 1999

Answers

I have been saying this for months on this forum. This country runs on oil. It doesn't run without it. FactFinder and Malcolm have yet to admit or address this. It doesn't matter a hoot if their two electric plants are perfect. They will both fail if oil is interrupted. I think Malcolm's plant is hydro but it will eventually fail, too. Oil is our Achilles' heel.

-- Anonymous, August 09, 1999

Marianne and Marcella,

Not the lack of "happy face" raiders.

-- Anonymous, August 09, 1999

My goodness, there is that nut loose behind my keyboard again., make that :

"Note" and not "Not"

-- Anonymous, August 09, 1999

Here's my take on this article as an oil analyst (my quotes in all CAPS) :

FEARS about the millennium bug could destabilise global commodity markets in coming months, disrupting shipments of grains and leading to supply-demand gaps and price hikes for crude oil.

I WOULD HAVE TO SAY THAT'S A GIVEN. IN FACT, I THINK WE MAY BE SEEING SOME OF THAT RIGHT NOW. CRUDE SEEMS TO BE UNUSUALLY FIRM THESE DAYS DESPITE THE FACT THAT PRODUCTS HAVE FALLEN OFF SOMEWHAT IN THE LAST FEW DAYS.

"Concerns over the potential disruptions associated with Y2K may cause consumers, processors and distributors to stockpile crude oil and products," the World Bank says.

WHILE I THINK THIS STOCKPILING IS ALMOST CERTAIN TO TAKE PLACE, IT HAS NOT AND WILL NOT START IN EARNEST UNTIL END SEP OR OCT. THIS WILL BE FOR SEVERAL REASONS 1) PHYSICAL STORAGE LIMITATIONS, THERE SIMPLY IS NOT THAT MUCH AVAILABLE STORAGE OUT THERE 2) THE COST OF CARRY, OR IN OTHER WORDS THE ECONOMIC COST TO HOLDING BBLS. AND STORING THEM IS ENORMOUS AND REQUIRES A SERIOUS CAPITAL COMMITTMENT 3) LIFO CONCERNS AROUND END OF YEAR COMBINED WITH Y2K SKEPTICISM.

REMEMBER THE JAPANESE MILLENIUM STOCKPILE STORY? THE ONE THAT HAD THEM CHUCKING AWAY ANOTHER 5.4 MILLION BBLS PER DAY FOR SIXTY DAYS? WELL I DID SOME RESEARCH AND FOUND THAT THE SIXTY DAY NUMBER THAT KEPT APPEARING IS ACTUALLY THEIR STATIC SPR! THEY AREN'T DOING ANYTHING SPECIAL, JUST REPORTING WHAT THEY ALREADY HAVE. IN FACT BASED ON WHAT I READ, THEY HAVE ALMOST 90 DAYS STORED WHEN YOU COMBINE THEIR SPR WITH THEIR PRIVATE INDUSTRY STORAGE. BUT AGAIN, THEY HADN'T STEPPED INTO THE SPOT MARKET TO BUY UP EXTRA BBLS. BELIEVE ME, IT WILL BECOME APPARENT WHEN THAT HAPPENS EN MASSE.

It adds that this could lead to price pressures as key northern hemisphere economies enter the winter season of peak demand for energy.

IF WE GET A REALLY COLD WINTER, CRUDE WILL SHOOT THROUGH 25 BUCKS LIKE A .308 HOLLOWPOINT THROUGH JELLO.

But with the Y2K deadline now less than five months away, even rapidly managed stockpiling measures intended to avoid any last- minute hitches could run into trouble.

"A shortage of ocean tankers may develop if importers rush to beat the end-of-the-year concerns over Y2K and this could contribute to the potential for price volatility," according to the bank.

THIS SHOULD INDICATE Y2K STOCKPILING EARLIER THAN THE ACTUAL PRICE OF CRUDE WILL. MY GUESS IS THAT MANY WILL ATTEMPT THEIR STOCKPILING EFFORTS IN STEALTH SO AS NOT TO APPEAR STUPID IN THE MARKET AND TO AVOID MAKING THEIR ENDEAVOR THAT MUCH MORE EXPENSIVE, HOWEVER THE VLCC FREIGHT RATES WILL BEGIN RISING AT LEAST 20 DAYS PRIOR TO THE MARKET'S PRICE REVEALATION OF Y2K STOCKPILING. ONCE THESE RATES BEGIN TO BLOW OUT, YOU CAN BE CERTAIN THAT THINGS ARE GONNA GET INTERESTING.

Its commodities update is generally mildly bullish about the near future, saying many prices are strengthening as stockpiles are run down and much of the world economy begins to pick up pace.

POSSIBLE WILDCARD HERE AS I BELIEVE THE WORLD ECONOMY IS TURNING THE OTHER WAY AND WINDING DOWN, WE JUST HAVEN'T ACKNOWLEDGED THE SIGNAL HERE YET.

Consumers might attempt to store in advance of the start of the year 2000 such basic staples as food and fuel. If they do, that could trigger price hikes.

On the other hand, producers could attempt to pre-empt their worries by rushing greater supplies on to the market, thereby easing price pressures.

BASED ON WHAT I'VE HEARD IN THE INDUSTRY, WE'RE PRETTY SURE JOE SIXPACK WILL STOCKPILE SOME FUEL IN THE GARAGE (PLEASE AVOID THE WATER HEATER, JOE). UNFORTUNATELY, THE DISTRIBUTION SYSTEM IS NOT DESIGNED TO FILL EVERY JOE'S CAR EVERY OTHER DAY. IT SIMPLY CAN'T DO IT. THIS WILL LEAD TO LINES AT THE PUMP AND TO PANIC DUE TO THE LINES.

For one thing, peak demand is in the winter, and the forecast rise in demand will come just as OPEC's production cuts take effect.

I HAVE BEEN SINGING THIS SONG FOR SIX MONTHS. NO ONE WANTED TO LISTEN. THEY'LL LISTEN WHEN WE SEE SERIOUS FUNDAMENTAL SHORTENING FOR THE FIRST TIME IN YEARS. WAKE UP CALL'S COMMING FOR ALL YOU SLACKERS OUT THERE.

For another thing, the bank notes that "oil production is the most technology-intensive of major commodities".

"Embedded microchips used for production, transportation, refining and distribution leave energy vulnerable to disruption."

TRUE, TRUE AND TRUE.

WELL, THAT'S MY TAKE ON IT. GOOD LUCK TO YOU IN THE NEW YEAR. JIM

-- Anonymous, August 09, 1999

Thanks Jim. I appreciate your input. What's your take on oil/gas prices this time next year?

Stev

-- Anonymous, August 09, 1999

Thanks, Jim. I look forward to your posts, especially (of course) on oil related topics.

THE COST OF CARRY, OR IN OTHER WORDS THE ECONOMIC COST TO HOLDING BBLS. AND STORING THEM IS ENORMOUS AND REQUIRES A SERIOUS CAPITAL COMMITTMENT

My general take on Y2K all along has been that many organizations will not get the job done simply because of bottom-line considerations of myopic executives. I get enough unsolicited e-mails from IT professionals to keep my anxieties alive. So, your observation does not bode well with me.

-- Anonymous, August 09, 1999

I have absolutely, unequivocably no idea where the price of oil will be next year at this time. I've always felt that any petroleum economics which were projected farther than 6 months were complete BS anyway. Additionally, I'm still working on a rather bleak assumption of readiness within my own industry.

Interestingly, oil and gas have managed to hide in the shadows cast by the glare of the electric and nuke industry scrutiny. I would argue that this innattention is misplaced and has served to lull all involved into a false sense of security.

I recently recieved a regular news letter from a "market share vendor" who used to provide us (my company) with data on which petroleum companies held what market shares, where. In other words, if we were looking at an acquisition in say the Tampa Fla. markets we would pay this vendor to provide us with a data snapshot of the competion and what they pumped on an annual basis etc. When I was in strategic planning doing this type of work I probably spent about 50k a year to this guy. I always felt he was a little wild in an entrepreneurial way, but the latest newsletter I got from him blew me out of the water. Now you have to understand, this company was pretty widely used by the retail petroleum marketing sector and his newsletter goes out to half the damn industry.

Well in his letter he says "goodbye". He states that he is bailing out because the industry has ignored the Y2K problem and will likely suffer greatly due to it's ignorance of this problem. He goes on to say that he is taking his family somewhere safe and closing his business until after this Y2K all blows over. He was extremely blunt. He painted the American Petroleum Institute as a bunch of liars covering for industry etc. etc.

Anyway, it caught us all kinda by surprise and left a lasting impression on a few DGI's that work with me. They really didn't know how to take that one. Good luck to ya, Mac if you're somehow reading this.

-- Anonymous, August 09, 1999

Oh and bye the bye. I learned this week that Mobil's California refinery which recently suffered an explosion in a hydrogen plant, may have destroyed a unit which will take up to six months to replace. Six months. Until then, the units are running at reduced rates and Californians will have to pay up at the pump.

Ya see, it doesn't take much imagination to come up with some scary scenarios in a world rife with failures. Some of the units are quite complex and will take a long time to rebuild out there in the world.

-- Anonymous, August 10, 1999

I have a old history with the oil industry and I can tell you they are the ultimate "spin masters". However, several months ago there were a number of public declarations from a couple of "the majors" of doubts that they would "be ready in time", particularly on the shipping side. But lately, of course, they have been silent or much more optimistic (read, Lawyers told them to shut-up).

I also have a huge concern about the chemical plants. They (oil/chemical) have the same potential problems and the same mind set. I have family working for Dow Chemical at Freeport, Texas (on the coast just south of Houston)who insist all the concern is hype and panic mongering regardless of what the chemical industry "spokespeople" told Congress just a few months ago. I'm really afraid for my daughter and grandchildren there, but they can not be convenced there is any reason to worry.

-- Anonymous, August 10, 1999

Hello Jim! I would very much appreciate it if you would keep us posted regarding the oil tanker freight rates - if you have access to that type of info. TIA!!

-- Anonymous, August 10, 1999

Jim,

On your exploded refinery in California, you say six months? Well, I don't know the exact damage, but in general from reading the newsreports, I would say yes, if they are really lucky and work their tails off. probably 7/24's.

Been there. Done that.

Georgia,

About your family at Freeport, DOW. After Bohpal, India, I talked to a friend of mine who worked there at that plant. He assured me there was no danger because they have tripple backup systems, but he also said that they have stuff at that plant that makes Bohpal look like, and I am quoting here 'cotton candy'. Take it for what it is worth.

XBob

-- Anonymous, August 12, 1999

Marcella wrote: "I have been saying this for months on this forum. This country runs on oil. It doesn't run without it. FactFinder and Malcolm have yet to admit or address this. It doesn't matter a hoot if their two electric plants are perfect. They will both fail if oil is interrupted. I think Malcolm's plant is hydro but it will eventually fail, too. Oil is our Achilles' heel."

Marcella, I would love to rebut you on this, but I can't. I do not know enough about the oil industry in USA to draw any conclusions on what the effects may be. However as far as our Hydro stations here in NZ are concerned, we are not reliant on the oil industry at all. Most hydro stations here in NZ have there own oil filtration plants, and are able to process and recycle their oil. We generally find that 10 to 15 years between topping up our clean oil tanks would be quite normal, and I believe that most hydro stations in USA are similar.

Also over here most Hydro stations are in rural or remote areas requiring workers to live quite close to the plant. Thus there is no real need for oil for transport to get to and from work. I do not know what the situation is for similar plant in USA.

I know that I cannot draw any definite conclusions regarding the american grid from my own experience, which is the very reason why I am part of this forum. But I am very familiar with electrical grids and most types of power generation. I only wish that I could personnally show each and every one of you just what we are doing over here to make the transition to year 2000 as painless as possible.

I am very sure that NZ will come through the times ahead OK, and I sincerely hope that USA does too.

Malcolm

-- Anonymous, August 12, 1999

xBob, Thanks for the info. you are right. I also lived in the Freeport Tx area for several years in the late 70s. I do not know exactly what they produce but I do know most of it is very nasty stuff. the problem is my son-in-law has one brother in the plants copmputer remediation program and another who is a computer whizzz, both telling him there is NOTHING TO WORRY ABOUT, IT'S ALL FIXED. My dautghter has but away a LITTLE bit of extra food and that is all they are going to do for now. Thanks again!!!!! Georgia

-- Anonymous, August 12, 1999