OPEC signals it wants high oil prices

Sify ^ | Sunday, 27 February , 2005,

[M. Espinola]

Paris: OPEC is sending out signals to the global market that the cartel wants oil prices, at near-record highs, to remain there this year.

Ali al-Nuaimi, oil minister for Saudi Arabia, OPEC’s largest producer, made it clear on Thursday where he expects the US price of a barrel of crude to be: "The price today is between 40 to 50 dollars, and that’s where it will probably stay during 2005."

These statements appear to confirm what analysts have predicted for several months: Riyadh has been changing its views on pricing, after having for a long time defended a price of 25 dollars a barrel.

At present, the price of crude based on OPEC calculations has increased to about the level indicated by the Saudi minister -- it closed Friday in New York at 51.49 dollars, while in London it sold for 49.61 dollars.

Several ministers in the Organization of Petroleum Exporting Countries have hinted at an increase in the past few months, but it was not clear where Saudi Arabia stood. For that reason, analysts have taken note of al-Nuaimis recent remarks.

"I think it’s a signal to the market that there is going to be a big increase in the OPEC price band," said Kevin Norrish, an analyst at Barclays Capital in London.

The Saudis "have certainly laid out that there is going to be further discussions at the next (OPEC) meeting and I think its possible that it will be unveiled."

The 11-nation cartel, which represents 40 per cent of the world’s crude oil production, will next meet on March 16th in Isfahan, Iran.

All graphics added

[M. Espinola]

OPEC PRICE BAND

OPEC collects price data on a "basket" of seven crude oils, including: Algeria's Saharan Blend, Indonesia Minas, Nigeria Bonny Light, Saudi Arabia Arab Light, Dubai Fateh, Venezuela Tia Juana and Mexico Isthmus (a non-OPEC oil). The OPEC price — which was introduced on January 1, 1987—is an arithmetic average of these oils. OPEC uses this price to monitor world oil market conditions. The OPEC basket price averaged $36.00 per barrel in 2004, $28.10 per barrel in 2003, $24.36 per barrel in 2002, and $23.12 per barrel in 2001.

[EagleUSA]

Start drilling in Alaska, and everywhere else the left does not want us drilling to create an INDEPENDENT ENERGY PLAN for the US, getting us away from Arab oil. Screw OPEC, start drilling.

[carl in alaska]

I'm a stock market trader myself and also interested in geopolitcal events. My view on the oil market is that there are a lot of reserves out in the world that could be developed fairly soon to bring down oil prices or at least keep them under $50. But these reserves are all controlled by top corporate managers in the West and by wealthy elites in the non-Western world. The problem for oil consumers is that neither of these groups has much incentive to develop existing reserves rapidly enough to stop oil prices from increasing in the next 5-10 years.

All the top managers and wealthy elites know that oil demand is steadily increasing while supplies are finite and production will ultimately peak and decline within the next 5-20 years. This situation essentially guarantees that oil prices will be higher than today in 5-10 years. So prudent corporate managers are not going to push for maximum production in the next two or three years. Maximum production in the short run just means their companies make more profits now but lose even greater profits in the future. They would be damaging their future business prospects by pushing for maximum development and production today. The wealthy elites in Latin America, Asia, and the Middle East think the same way: they have plenty of oil revenue today to run their governments and fill their investment accounts, so they don't need to push for maximum production in the next few years as this would just diminish future revenues for their countries and their families.

This is the psychology of producers in an inflating Seller's Market where product prices are rising. Producers are in no rush to produce and sell while consumers are in a hurry to buy now before prices rise further. It's a "virtuous circle" from the perspective of producers, which encourages less cheating on production quotas and even higher prices. My conclusion is that oil prices over the next two or three years are tough to predict but will probably stay between $40 and $55 for 95% of the time. But it looks like almost all capacity that can be brought online in the next five years will probably be completely absorbed by rising demand. So the market is very likely to have a really tight supply-demand balance in three or four years and prices are going to go higher then, up to a $55 to 65 range. Then around 2010-2012 we're looking at zero extra capacity or even production below expected demand and demand will have to be reduced by much higher prices to equal supply. Those prices will have to be $75-90 per barrel or even higher. That would push gasoline up by roughly $0.75 per gallon from today's prices in the U.S. to at least $2.75 for regular unleaded. So I've been buying oil companies with large oil reserves over the last 12 months. The only thing I can think of that will stop this scenario is some big new oil discoveries that are also developed rapidly and increased production of existing reserves. That possibility appears unlikely at this time.

[alloysteel]

This just provides a growing incentive to locate, develop and adopt alternative energy sources.

And there is a HUGE deposit of one energy source relatively close at hand, virtually endless, and by all standards, one of the cleanest around. At the bottom of the continental shelf, there are deposits of a substance called Methane Hydrate, a gelatinous, amorphous substance, that is composed of methane (natural gas) and somewhat saline water. Heavier than saline ocean water, the compound sinks to the lowest level available, and collects in deposits in the ooze at ocean bottom, eventually becoming sealed in the sediment, where it becomes a natural gas reservoir, to be tapped sometime in the future as a gas well.

Instead of waiting for the sediment to solidify into a layer of rock, why do we not simply scoop up the Methane Hydrate, pump it up to the surface, and permit it to go through a phase change, which happens as the substance warms a few degrees above 38 degrees Fahrenheit? It is well know that oceans at depths of more than about 500 meters have a steady temperature of 38 degrees Fahrenheit, a fact overlooked by the global warming alarmists, and a HUGE argument against runaway temperature rises. That is just a tremendous quantity of water to warm up. And how would the warmer water get down there? Water at that temperature is at its most dense, therefore remains at the greatest depths. Water EXPANDS as the temperature dips closer to freezing, and density decreases even more as ice forms (else ice would not float).

All this time, Methane Hydrate is being formed naturally and continuously, as the small amount of methane dissolved in water (from organic decomposition) forms Methane Hydrate almost immediately under the conditions of temperature and pressure present.

So if we mine the ocean floor for Methane Hydrate, we shall have an endless supply of RENEWABLE energy, which is forming as fast as more organic material continues to drift to ocean bottoms.

In fact, there is a continuous turnover of the Methane Hydrate, as there is microscopic life that takes whatever small amount of free oxygen available in ocean depths and combines it with the methane fraction, forming CO2 and free water. At those temperatures, carbonic acid, H2CO3, is a stable solute in water, and acts to break down deposits of other minerals, forming carbonate salts of those minerals, resulting in sediment layers of limestone. And the limestone is what keeps the Methane Hydrate deposits trapped until the gas well is tapped. So you see the process has been going on a long time. Billions and billions of years, and it is continuous.

Sometime soon, in the not too distant future, it shall become economically feasible to tap this energy source. It may be already, in some locations. By cooling the methane to the point it becomes liquid, LNG may be transported anywhere in the world, offloaded at a port that opens into natural gas pipelines, and be further transported to end users. By keeping it in liquid form, and filling smaller portable tanks, it would be possible to make LNG a feasible substitute for both Diesel oil and gasoline, as it combusts much more efficiently, with less particulate matter, NO sulfur, and at a much higher octane rating (about 130) than the best of refined gasoline.

I see a potential win-win for the US on this matter.

[Route101]

Why?....He wants to buy three more yachts???...

[M. Espinola]

U.S. Public Mostly Supports Release of Oil from Strategic Reserves

Blame for rising prices shifts from oil companies to OPEC, according to new poll

From the Gallup News Service 2-22-05:

 "Prices for crude oil are on the rise again, with traders blaming political instability in the Middle East, cool weather in the Northeast, and dwindling U.S. inventories of crude oil and home heating oil. November futures contract prices for crude oil delivery are now at their highest level since Sept. 22, when President Clinton announced his decision to release 30 million barrels of crude oil from the Strategic Petroleum Reserve.'

[Malesherbes]

Look at the names of the 11 countries on the OPEC chart. Of the 11, 9 are Muslim. Nigeria is half-Muslim and unstable. And then there is Venezuela, run by an insane Marxist. We'd better start drilling in Alaska big time.

[ken21]

yours is an unusually intelligent reply.

thanks.

[ken21]

the problem is this a cartel which works like a union. they raise the prices to suit their fancies. they are opportunists.

the only difference between a cartel and a union is that the union doesn't own the "means of production" to use their marxist stuff.

cartels and unions are at odds with free market economies.

[palmer]

But these reserves are all controlled by top corporate managers in the West and by wealthy elites in the non-Western world.

Controlled by smart investors who realize that given Saudi's pumping cost of $5, they have no choice but to wait to invest in production. Otherwise they sink billions into production and the Saudis bring the price back down to $20 for 20 years. Who in their right mind would invest in that environment?

[snowsislander]

I find it interesting that this current price for this non-seasonal commodity is nowhere near the cost of production for the large majority of current sites.

[M. Espinola]

Excellent overview. The comment you made, The problem for oil consumers is that neither of these groups has much incentive to develop existing reserves rapidly enough to stop oil prices from increasing in the next 5-10 years is well taken.

At the present moment many in the energy world may not clearly view the immediate pressure to develop existing known reserves of oil & natural gas, plus increasing production of coal gasification, among other sources of energy, in order to bolster our own national security energy requirements, but with rouge terrorist promoting OPEC states, such as Iran, the global economic situation can be altered quickly.

Syria & 'nuclear' Iran continue to 'assist' Islamic Jihad terror attacks against Israel. Expect a firm response from Israel if the Islamic terrorist groups they bankroll do not stop directing incidents of mass murder against innocent Israeli civilians. Any new major acceleration having the potential of disrupting the oil flow from the Gulf, to add even more bullishness to energy prices.

The crude oil price range you issued is very likely, unless additional problems transpire in or near the oil rich Persian Gulf. The Syrian-Iranian-Hizballa terrorist Axis is alarming. The jihad instigators running Iran is one my main concerns, coupled with the corrupt Wahhabi regimé in Saudi Arabia being subject to internal upheavals, including 'petrol-terrorism' from the very wahhabist jihad monster Riyadh created.

Quoting: According to Baker Hughes Inc., which has tallied weekly U.S. drilling activity since 1940, domestic oil and natural gas drilling rebounded sharply since the low point of 488 reached in late April 1999 following the oil price collapse of late 1997.

In mid-October 2001, for instance, the U.S. weekly "rig count" reached the 1,141 mark (933 for natural gas and 208 for oil), close to the highest number since late 1990. The U.S. "rig count" then fell, reaching 843 (703 gas rigs and 137 oil rigs) as of mid-October 2002, before rising once again, reaching 1,225 during the week ending October 15, 2004.

During October 2004, natural gas rigs outnumber oil rigs in the United States by more than six-fold (1,068 to 171). Historically, U.S. drilling activity peaked in 1981, with a total of 91,553 wells (43,598 oil, 20,166 natural gas, 27,789 dry wells) drilled in that year. For 2003, a total of 29,984 wells (19,722 natural gas wells, 6,284 oil wells, and 3,978 dry wells) were drilled in the United States, up from the low point of 18,465 total wells drilled in 1999, and also up (16%) from 25,744 wells drilled in 2002.'

'During January-September 2004, total U.S. oil and natural gas wells drilled were up 15% from the same period in 2003.'

Source You also mentioned $75-90 per barrel or even higher

I would not rule striking those price levels if certain adverse events take place in the Middle-East sometime in 2005.

After crude oil prices dropped like a lead weight in early 2003, triggered in part by American & Coalition ground forces secured Saddam's remaining offensive missiles, during the early phase of the war, thus removing the threat for a broader war, oil prices sunk back to high 20's & very low $30's.

Back in the Fall of 2003 I stated there was a very strong likelihood crude prices would reach $45 to $50 per barrel in 2004, primarily based on increased demand from mainland China coupled with the unstable situation in the Gulf region.

Friday's (2-25-05) April-2005 NYMEX crude contract settled @$51.49 after reaching a high for the day's trading session of $51.90, thus in the event global oil supplies are threatened with shortfalls due to the Iran problem with prices of over $50 a barrel, what shall the panic driven trading high be?

Remain in those oil/energy related stocks!

[M. Espinola]

After reading the information you wrote, which is very interesting, some additional data was located at this Source

[Iris7]

I think you are pretty close. Actual future prices, though, ten or fifteen years out, say, are unknowable.

I rather see oil reserves confiscated by governments in the name of national security. Oil is the sinew of war.

[RFEngineer]

".....Start drilling in Alaska, and everywhere else the left does not want us drilling "

oil exploration and development, being a capital intensive process will be invigorated by this. Since there is little risk now that the Saudis will force the price dramatically lower, investment in properties that are marginal at $25/barrel will be more worthwhile at $40/barrel and domestic production will rise.

[Iris7]

There are reports that China is providing a complete oil infrastructure to Brazil for zero money and a share in future production. Project is about ten years to completion. Chinese are investing enough cash in this project that, it is reported, it will require world prices for petroleum of $150 a barrel for them to break even.

So the Chinese are betting on $5.00 a gallon gasoline in ten years. Hmm.

Wonder where this oil field is. All they say is in the Andean foothills.

[Iris7]

There are reports that China is providing a complete oil infrastructure to Brazil for zero money and a share in future production. Project is about ten years to completion. Chinese are investing enough cash in this project that, it is reported, it will require world prices for petroleum of $150 a barrel for them to break even.

So the Chinese are betting on $5.00 a gallon gasoline in ten years. Hmm.

Wonder where this oil field is. All they say is in the Andean foothills.

[antivenom]

The o&g service industry was dessimated years ago...the providers of pumps, engines, etc and other required components to build equipment used at the surface to "manage and control" wells has been set on it's head with recent orders.

We are currently trying to build 6 coiled tubing units to be used offshore (GoM) as well as 6 industrial nitrogen units...we placed these orders LAST year...and the builders of these components units, (Hydra Rig, Stewart & Stevenson etc) can not meet deadlines, because they TOO are being held up on lead times. It has become a vicious circle.

AND MARK my words...as soon as we have all the revenue generating equipment finally in place,,,the OPEC dogs will allow the price to drop...and once again the o&g service providers will go under or bankrupt or will have no choice but to sell out to the few remaining large O&G service providers.

My company is currently turning jobs away...and our competitors too...the demand for "fracing, hydraulic workovers, foam washes, jetting, fishing tools etc...the mundane little pain in the ass work required to keep wells healthy is becoming back logged.

The US's O&G oilfield service sector was damn near destroyed and now that the O&G owners need to get their existing wells producing better they have no one to turn to...we are SWAMPED with work...we have customer's now waiting 3 -4 weeks before we can show up on location and a a typical job may last the same amount of weeks before the well is at optimum performance.

The O&G dillemma is much bigger than you have desctibed as being wealthy greedy people controlling events...it comes right back to "SUPPLY AND DEMAND" (even the supply and demand for a triplex pump or a injector head)...PLUS add the new regulations of pipeline maintenance that has affected the industry...the picture is much bigger.

Your post doesn't even touch reality in the oil patch you are speculating on events that you think will make you money. BTW you should look at the following stocks...SPN, RES and BJS...

[FreedomNeocon]

OPEC can suck it.

Seriously... We'll drill elsewhere, or someone else will pick up the slack, or investment in alternative fuel will be more 'attractive' to the private sector...

They'll just 'accelerate' the evolution of our energy policy. As long as we are flexable and stay true to our free market and entrepreneurial systems and keep gov't out of the way... we'll be fine.

[JasonC]

And in other shocking news, the sky is blue, trees do not grow to the sky, birds fly south in winter, bears...

Of course an oil cartel wants high oil prices - what are we, daft? High oil prices will nevertheless bring increases oil production. Particularly if we react to that price rationally, allow all possible development, economize uses and alternatives, etc.

Chart output and stockpiles as well as prices. They aren't going down...