Global Oil Production Shorfall is 4% less than Demandgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
4% Oil Production Shortfall
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Bloomberg Energy Fri, 14 Jan 2000, 3:35pm EST
1/14 14:49 New York Oil Prices Surge as Producing Nations Agree to Keep Output Quotas By Josh P. Hamilton Crude Oil Rises to 9-Year High OPEC May Keep Output Low
New York, Jan. 14 (Bloomberg) -- Crude oil rose 5 percent to the highest price since the Persian Gulf War in 1991, after an OPEC committee urged the group to keep production limits in place past their scheduled March expiration. ``We're nearing the point where oil prices will have an effect both on the long-term health of oil and on the economy,'' said Ken Haley, chief economist at San Francisco-based Chevron Corp., the No. 3 U.S. oil company. ``There is little doubt that if they keep production low, prices will go higher.''
The Organization of Petroleum Exporting Countries last March approved a yearlong program to cut production and eliminate a global surplus. Though prices doubled last year as inventories fell, OPEC said it still wants to see lower global stockpiles.
Crude oil for February delivery rose $1.33 to $28.02 a barrel on the New York Mercantile Exchange, the highest closing price since Jan. 16, 1991 and biggest one-day gain since March. Oil rose 16 percent this week. Trading ended early today and the exchange will be closed Monday for the Martin Luther King holiday. ``We're going to have a supply deficit over the first quarter, probably on the order of 3 million barrels a day worldwide, about 4 percent of demand,'' said Tim Evans, senior energy analyst at Pegasus Econometric Group in New York. Oil prices will reach ``at least $30 a barrel in early February.''
Production shortfalls will have to be made up by draining inventories further, and with U.S. crude oil and gasoline stockpiles close to their lowest levels since 1997, ``this is an urgent supply issue,'' Evans said.
To be sure, oil prices still are comparatively modest by historical standards. Prices would have to more than double -- to $65 a barrel -- to equal an inflation-adjusted peak in 1981, according to a study by the U.S. Energy Department in November.
In London, Brent crude oil for February settlement rose 49 cents, or 2 percent, to $25.47 a barrel on the International Petroleum Exchange. The February contract expired today. The March contract gained 64 cents to $25.17 a barrel.
The production agreement last March, which included such non- OPEC countries as Mexico and Norway, aimed to cut daily world output by about 5 million barrels, or 7 percent, from February 1998 levels.
Today's recommendation came from OPEC's Ministerial Monitoring Committee, which reviews members' compliance with the promised output cuts. The committee said OPEC members made 80 percent of their pledged reductions last month.
Saudi Arabia, Venezuela and Kuwait expressed support in recent days for renewing the agreement, while Iran's oil minister today said production should stay at current levels until September.
Rising energy prices lifted the overall U.S. Consumer Price Index last year by 2.7 percent, higher than the 1.6 percent increase in 1998, the Labor Department said today.
Energy prices, which account for about a tenth of the price index, rose 1.4 percent in December after being unchanged in November. Gasoline costs increased 4.1 percent, the report said. Since December 1998, prices at the pump increased 30.1 percent, the biggest rise since a 36.8 percent surge in 1990 -- the year when the Persian Gulf crisis began.
Average U.S. retail gasoline prices rose to a 3 1/2-year high of $1.275 a gallon in the week ended Dec. 13, a government survey of 800 filing stations showed last month. The week's price was the highest since May 1996, according to the Department of Energy. Prices fell to $1.264 a gallon last week. ``The simple arithmetic is gasoline rises 2.5 cents a gallon per dollar rise in a barrel of oil,'' Chevron's Haley said, ``other things being equal.''
Heating oil for February delivery rose 4.53 cents, or 6.5 percent to $73.81 cents a gallon on the Nymex. It was the highest closing price since December 1996. Heating oil received a boost both from rising crude oil and a cold snap in the U.S. Northeast, the fuel's biggest market.
Heating demand will be 24 percent above normal in the Northeast over the next week, according to Weather Derivatives, a forecasting firm in Belton, Missouri. In New York, the biggest single market, demand will be up 26 percent.
Gasoline for February delivery rose 3.25 cents, or 4.6 percent, to 74.52 cents a gallon on the Nymex, the highest close since Nov. 29.
-------------------------------------------------------------------------------- ) Copyright 2000, Bloomberg L.P. All Rights Reserved.
-- Bill P (firstname.lastname@example.org), January 14, 2000
OPEC expects to unanimously extend quotas to September 2000
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Bloomberg Energy Fri, 14 Jan 2000, 3:49pm EST
1/14 13:36 OPEC Committee Recommends Extending Output Cuts Beyond March By Andy Webb-Vidal OPEC Committee Recommends Extending Oil Output Cuts (Update1)
Vienna, Jan. 14 (Bloomberg) -- The Organization of Petroleum Exporting Countries should extend oil output cuts beyond their current expiry in March to ensure prices remain near nine-year highs, an OPEC committee said.
The production cuts, which have caused the oil price to more than double in a year, should be kept because world oil inventories are still too high, OPEC's Ministerial Monitoring Committee said. ``In light of the continuing market volatility and the remaining high stock levels, all those present at the meeting agreed to strongly recommend the extension of the current agreement,'' said Fernando Garay, an OPEC spokesman.
Crude oil rose as much as $1.41, or 5.3 percent, to $28.10 a barrel in New York, its highest price since January 1991. OPEC accounts for about 40 percent of world oil supply. ``Now we have suffered so much from the low price, I'm not worried about the high price'' said Bijan Namdar Zanganeh oil minister for Iran, OPEC's second-biggest producer, a member of the committee.
Zanganeh said a decision on how long any extension of the cuts should last would be taken at a meeting in March.
The recommendation from the MMC, which reviews how closely OPEC members have followed their program of restricting output cuts, follows similar calls by the group's top producers, including the world's biggest supplier, Saudi Arabia.
OPEC made almost 80 percent of the cuts they promised in December, Garay said. A Bloomberg survey estimated the 10 members of OPEC that are parties to the agreement to limit output made 82 percent of their promised cuts in December, down from 85 percent in November.
All OPEC nations except Iraq had agreed to trim output by 4.316 million barrels a day, or about 6 percent of world supply, from February 1998 levels. They made cuts of 3.532 million barrels a day in December, the Bloomberg survey of producers, oil companies and analysts showed.
Before the meeting, Zanganeh said he expected a consensus among OPEC members to renew the quotas, which are due to expire at the end of March, until the end of September. ``We think we are going to get a unanimous decision,'' he said.
---------------------------------------------------------------------- ---------- ) Copyright 2000, Bloomberg L.P. All Rights Reserved.
-- Bill P (email@example.com), January 14, 2000.
Just in case anyone's wondering what effect this bump in oil prices might have, here's a little "Then and Now" for a very bullish analyst:
Then: May 5
...The ever-bullish Philip Tasho, CEO of Riggs Investment Management in Washington, said he had no worries about inflation. "Oil prices are almost at $19, and the last time we had these prices, we still had declining interest rates," he said. "And we've seen huge increases in productivity - there's still plenty of competition out there. We still have broad-based strength [in stocks]...
And now: From TheStreet.com (All rights reserved by site. Sorry, no link available.)
...Greenspan is "trying to walk a fine line," said Philip Tasho, CEO at Riggs Investment Management in Washington and long one of the Street's most bullish strategists. "He's not looking at a crash like when he first came in, in 1987, but he's trying to mute returns in the stock market for this year to dash expectations. He'll continue to [tighten] until he gets what he wants," which is both a slowing economy and a dampening of consumer confidence and investors' expectations.
Investors focus today on "robust earnings expectations" after Intel's report is akin to when the Titanic hit the iceberg "and people still had a few hours until reality hit," he said. "Here, we're still enjoying the party."
Despite references to that famous disaster, Tasho is not looking for a "dramatic fall" in stock prices but expects modest returns this year for major averages in 2000 of below 10%. He believes "long-term investors should always stay invested" but foresees bonds, interest-rate-sensitive stocks, and "more stable" growth names such as health care as being better alternatives in 2000 than those with exceedingly high valuations...
-- DeeEmBee (firstname.lastname@example.org), January 14, 2000.
So corrected for inflation = $65.00 per barrel, eh? I guess that means $3.00 to $3.50 would be an inflation adjusted price per gallon of gasoline then...
-- Michael Erskine (Osiris@urbanna.net), January 14, 2000.
The funds have been getting long all week and today, they blew the doors off it. As I've said before, when these guys wanna buy something, they buy it. You should all think real hard about whether you buy the "new saw" that CPI is really meaningless unless you separate it and "get to the core inflation". Ask yourself how many things you use that don't involve oil? Really think it through and then ask yourself if you think rising crude prices are inflationary, deflationary or meaningless? You're kidding yourself if you answered anything but inflationary. Why do you think we're sending the Michelin Man (Richardsonian) over to make an ass of himself with the Saudis et al?
Also, I can tell you for a fact that the "funds" don't get long crude to make a quarter. These boys are looking for a real move. That would mean 29-30 dollar WTI for us. The reason for thier bullishness comes from some amazing new found Arab solidarity over there.
These guys (OPEC) are getting some serious payback for last year and then some. Me thinks the "new economy" is going to have to reconcile itself to the "new OPEC" before we start chalking up any more 100 point days on the Daq. Opec is dead serious about not cheating with this thing and keeping solidarity. We blew our foreign policy bigtime. These guys even managed to keep the Vens in the game despite some VERY serious shit down in Venland. This is a wake up call people. We hit nine year highs on the crude today. Not seen since the freaking gulf war. And no, I don't think this is wholly due to Y2K, but I wouldn't go so far as to rule out production problems as a contributing factor either. I know (f*ck you pollies) of actual Y2K problems that HAVE caused problems at refineries post rollover. And, there are refineries that are having problems getting back on their feet after little "un-named" snafus. I don't buy the story that all is well.
Regardless, inflation is here now and is here to stay for a while.
-- Gordon (email@example.com), January 14, 2000.
I wonder how much of this shortfall is intentional. And how much of it is caused by OPEC equipment failure, if any.
-- snooze button (firstname.lastname@example.org), January 14, 2000.
Author Comment Downstreamer Administrator (1/14/00 1:25:45 pm) Reply Soliciting reasons for todays $1.30 rally on NYMEX crude. ---------------------------------------------------------------------- -------- -- This current cold weather snap in the Northeast is NOT a sustainable pattern. I'll post the National Weather Service 6 to 10 day outlook when it comes out at 2 CST, but this month is on track to be one of the warmest Jans on record. Its also interesting that this is strictly a NYMEX move. The Brent is now trading at a $2.50 discount to WTI after being at less than $1 / barrel discount most of late '99. Notice the IPE Feb/Mar Brent spread is at 30 cents while our NYMEX Feb/Mar spread is 90 cents. What's the deal? Downstreamer Administrator (1/14/00 1:28:51 pm) Reply Re: Here's the OPIS explanation ---------------------------------------------------------------------- -------- -- This was published well before the strong close. 2000-01-14 11:05:27 EST ***GULF COAST GASOLINE SPIKES ABOVE 70CTS GAL; NYMEX HITS WATERSHED LEVEL Cold temperatures, continued refinery problems, and a clear OPEC consensus on production are all combining this morning to send futures prices and cash values appreciably higher. NYMEX WTI futures hit $27.30 bbl in the first half hour of trading, easily surpassing the post Gulf War high. At presstime, they stood at $27.28 bbl, up 59cts bbl, and threaten to close above $27 bbl for the first time since the Persian Gulf conflict. A strong close could signal another leg in this long bull market, but skeptics note that crude has traded above $27 bbl about eighteen times on an intraday basis, but has yet to settle above that number. Gulf Coast gasoline is moving up with the NYMEX, but also because of very strong buying from at least two refineries. Those companies have chased prompt unleaded gasoline to where it is only discounted by 2.25cts gal off the NYMEX. With NYMEX unleaded up 1.68cts gal to 72.95cts gal at midmorning, the cash price was at 70.75cts gal. The Gulf Coast gains aren't necessarily being matched in other areas. Group 3 gasoline has advanced with the NYMEX, but sellers are sticking with a 2.25cts gal discount for a net price of about 70.75cts gal. Chicago sellers have actually dropped the premium they are looking for versus the NYMEX, and are now looking for 1.85cts gal over the screen, versus 2.25cts gal last night. That still puts Chicago gasoline at about 74.75cts gal, a recent high. New York gasoline has rallied with sellers narrowing their discount to 1.8cts gal to the Merc, putting the absolute value at just over 71cts gal. Distillates are very active in New York with refiners buying heating oil in N.Y. Harbor. They've paid 2cts gal over the Merc, or 73.4cts gal. February NYMEX futures were up 2.12cts gal at midmorning to 71.4cts gal. But diesel in New York isn't matching the NYMEX gains with the premium to the Merc dropping to 2.85cts gal over the screen or about 74.75cts gal. Diesel at the Gulf Coast isn't particularly active with spot prices at a 0.9cts gal discount to the Merc, putting the value at 70.5cts gal. Midwestern diesel is pegged at 1.25cts gal under February futures in the Group (about 71.75cts gal) with Chicago volumes at 2.6cts gal off the screen, or about 70.35cts gal. Markets are very active for a Friday. Refiners that were supposed to be back up and running appear to be having some problems. There are also reports of a problem with BP Amoco's Yorktown refinery. - Tom Kloza, Mark Mahoney
-- Andy (2000EOD@prodigy.net), January 14, 2000.
I spoke to a friend today who is President of a multinational speciality chemical company.
He said in his opinion:
1. $28 crude is not sustainable.
2. His corporate projection for 2000 is $22-23 crude.
I asked him if it went up to $30+, what effect it would have and he advised:
1. His company can raise prices as the price rises slowly, but has trouble maintaining a price parity with crude, if it continues to move up quickly.
2. He also said if crude stabilizes over $23 then much of the world including the USA will likely experience a recession this year.
I asked about Y2K affecting crude availability and he said: No, he didn't think so, rather recent price spike mostly a response to OPEC's extension of production quotas. He advised that once they set quotas, enforcing them is difficult and the price may come down to a more sustainable level in low $20s.
I asked about the Exxon and Shell production cuts in Asia; the refinery interuptions in the US, and other possible Y2K effects that could push the crude to $30+ and he changed subject to natural gas pricing and weather pattern. Oh well, he was a DGI and feels Y2K is all hype and hoax. Time will tell.
Most interesting point was the price level that in his mind would trigger a recession. Personally, I don't see how we can avoid a moderate recession or worse in coming months.
-- Bill P (email@example.com), January 15, 2000.
Interesting Post... I conclude that this guy has no clue as to what is really going on in the oil markets. And I don't mean that to be a slam to him but in reality very few really know what is going on right now. The oil industry insiders are keeping this one close to the vest so it seems.
A recession does seem to be likely, actually inevitable.
He doesn't really understand what is going on with Nat gas either. So many explosions of late. He probably uses nat gas in his co. in a big way is the reason he switched topics on you.
This is obvious from his sudden change of subject to nat gas when you asked him about Asia and refining problems. Frankly he didn't want you to force him to admit that he didn't know what was going on.
-- RC (firstname.lastname@example.org), January 16, 2000.