Posted on 04/26/2008 7:49:46 AM PDT by tatown
Mumbai: The oil boom is on its last leg and may last a few months before a clutch of new refineries start operations amid slackening economic growth across the world, consultancy firm and investment bank Lehman Brothers has predicted in a report.
The report said supply is in fact outpacing demand growth even as inventories have been building up for quite some time now. This announcement must surely come as a huge relief for consumers reeling under high oil prices for some time now.
Tellingly, this news comes only two days after Thomas Boone Pickens, an American billionaire who made a fortune in oil speculation, predicted that oil could reach the $150 mark soon. Justifying his stance, he had said that the current global oil supply of 85 mbpd was well short of the requirement of 87 mbpd. "When you have 85 billion to cover 87 billion, the price has to go up," he said.
''Inventories have been building since the beginning of the year. We have pretty significant projects starting soon in Saudi Arabia, and large off-shore fields in Nigeria,'' said Michael Waldron, the US bank's oil analyst.
Saudi Arabia has started production at its 500,000 barrels per day Khursaniya field while the new 1.2 million barrels per day (mbpd) Khurais field will start next year, the report pointed out.
Saudi Arabia plans to spend $90 billion in oil exploration and production over the next five years, lifting capacity to 12.5 mbpd by the end of 2009 while a clutch of new refineries will add almost eight mbpd of new capacity by 2010, the report pointed out..
Reliance Petroleum's 600,000 bpd refinery at Jamnagar in India also featured in the report. The facility is to be tested by trial runs in July and expected to be commissioned in September.(See: Reliance plans trial runs at Jamnagar refinery in July)
However, the report makes no mention of the planned capacity addition which will double the amount of oil refined per day, from 0.6 mbpd to 1.2 mbpd. This would effectively catapult it from the estimated third position to the top of the oil refining stakes. This was asserted by H R Meswani, executive director of Reliance Industries Ltd (RIL), back in 2006, when the company was scouting for funds for the project.(See: Reliance Petro may borrow up to $2 billion for refinery expansion)
The build-up in supply comes at a time of cooling world demand. Recession in the US is expected to curb consumption by 300,000 bpd this year.
hese predictions were not without reason and found echo earlier this week. Oil prices had eased on Wednesday from a record high of nearly $120 a barrel in the previous session, after crude oil stocks rose more than expected last week in the world's top energy consumer the United States.
US crude for June was down 47 cents at $117.60 a barrel at 1506 GMT. The May contract expired on Tuesday at $119.37, after briefly hitting an all-time peak of $119.90. London Brent crude was down 25 cents at $115.70, after touching a record high of $116.75 the previous session.
At that point of time, Waldron had commented, "A lot of the movement up to $120 can be explained with financial demand. We don't feel $120 is justifiable in terms of underlying fundamentals."
Lehman also trimmed its forecast for global growth from 1.5 mbpd to 1.1 mbpd, predicting a slide in prices to $83 next year and $70 to $80 in 2010 . This was very much in contrast to the five-fold increase in prices that oil has seen over the last half a decade.
Drilling costs have even started to fall with the levelling of oilfield machinery and maintenance costs. These are all time-honoured signs that the cycle may have topped, it pointed out.
The report blamed the price spike on a $40 billion inflow into commodity index funds this year, much of it from Middle East sovereign wealth funds - the petro-investors may have second thoughts about gaining ''double exposure'' to commodity prices.
''Financial flows have been the marginal driver of prices since the onset of the credit crunch. Investors are using oil as a hedge against inflation and a falling dollar,'' the report said.
The index effect has lifted prices by $20 to $30 a barrel. This could reverse sharply once the dollar starts to stabilise against the euro, since the euro/dollar exchange has become the proxy watched by oil traders for signals, it said.
The latest spike was driven by terrorists' hit at a Nigerian pipeline and fears that the 'Forties Pipeline' from the North Sea might be closed as a knock-on effect from threatened strike action at Scotland's Grangemouth oil refinery.
Pipeline attacks in OPEC member Nigeria last week shut 169,000 bpd of Bonny Light production, forcing Royal Dutch Shell to declare force majeure on exports.
Britain's Grangemouth oil refinery is proceeding with a gradual shutdown ahead of a planned strike at the weekend. Management and union members are in talks to try to avert the strike which could disrupt fuel supplies in the UK.
"Drilling costs have even started to fall with the levelling of oilfield machinery and maintenance costs. These are all time-honoured signs that the cycle may have topped, it pointed out."
” predicting a slide in prices to $83 next year and $70 to $80 in 2010.”
I’ve got a hunch we’re not going to see a “slide in prices” at the gas station.
LOL...”T. Bone” Pickens has invested hundreds of millions of dollars in OK State’s football program. That should refute any idea that this man is in his right mind. Based on his prediction in this article, sell your oil stocks now.
There’s another article up on FR now with an economist predicting $7/gallon gas by 2012. Then this article predicts a slide in crude oil prices.
I think no one really knows, but everyone has an opinion.
That's a mighty big refinery.
Bigger than any single refinery in the US.
As discussed previously. Although I don't follow crude nearly as much as natgas, this report coincides with my gut feeling that gas will fall to $8.00 by late June or July.
The previous question relative to Marcellus shale production is as follows: a.Impact volumes won't be seen for 2-3 years in that it is just now being exploited, but every report thus far makes it a Barnett shale type play, only bigger. b. The figure you quoted of $7.00 per mcf to bring it to market seems way high, more like $2.00 to $3.00 max.
The production I referred to is mine and not related to any company and is weighted 90/10 natgas to crude, spread from Premian Basin area, Powder River Basin, N MI Antrim Shale, Ohio oil and a few other minor pieces.
[I’ve got a hunch we’re not going to see a “slide in prices” at the gas station.]
So you don’t think there is competition amongst the oil companies?
>>>I think no one really knows, but everyone has an opinion.
Opinions are like wazoos. Everyone has one, many stink.
“Oil prices will fall”
Another popular misconception. Prices do not “rise” or “fall” due to some mysterious invisible “hand” in the market, they rise or fall because there is either an undersupply for current needs, or there is an oversupply.
The cost of recovering the oil has little to do directly with the market price of the oil. Oil that is recovered at very high cost (like deep drilling in the Guilt of Mexico, at depths exceeing five miles), or by expensive “reclamation” methods, is the first to disappear off the market when prices drop. But this production is marginal at best, only being added when the prices are very high. Only when this source of oil is the only one left, do the management teams of the various oil patch companies around the world re-open the capped wells.
Alternate energy that has been mentioned include compressed natural gas, a widely available and less expensive alternative to gasoline. Spark-ignition and compression-ignition engines run perfectly well on CNG, much cleaner and without many of the difficulties involved in gasoline or Diesel oil, which require a number of add-on engine accessories to operate even half-way acceptably. For one thing, practically no refining is required, the natural gas can be burned right straight from the pipeline.
For another, there is a HUGE untapped source of natural gas, Methane Hydrate, which is simply lying in the sedimentary ooze at the bottom of the continental shelf, and needs only be scooped up and allowed to separate into methane, the major constituent of natural gas, and the volume of water in which it is contained.
The Japanese, the Chinese and the Indians are all working feverishly on this technoloby, to recover Methane Hydrate. This is so much more available to us, on the short term, than hydrogen shall EVER be.
Hydrogen we can make, if the price of electricity is low enough. Simply send a DC current through water, and collect the free hydrogen at the cathode. The hydrogen may be then piped to whatever application deemed necessary.
But hydrogen is only a storage medium for energy that has gone into its generation. And hydrogen does not store well, as it has a propensity to leak out of EVERY seam at a joint, and even seep through most materials of which containers might be constructed. Say like stainless steel. The hydrogen combines with the iron and other metals in the stainless steel, and forms a hydride, a brittle, easily fractured substance, which corrodes the container from the inside, finally thinning the body of the container enough so the hydrogen under pressure may escape to open air. Borosilicate glass can contain hydrogen, but the glass itself is comparatively fragile. Composite containers have been constructed that seem to overcome these technical difficulties, but they turn out to be so expensive that the use of hydrogen is limited to highly specialized applications, like aboard spacecraft.
Elegant solution, but at a horrible cost.
The article twice says that a “clutch of new refineries” will be coming on line soon. It doesn’t say specifically, but I don’t think ANY new refineries are being planned or built in the U.S.
So, this will help, but we will still be dependent, as the Democrats insist we should be, on the kindness of strangers.
Ask 3 economists a question and you'll get 4 answers.
I'm confused. If supply is outpacing demand, why does Pelosi want to raid America's strategic oil reserve?
I can’t remember if it was Exxon or BP, but one of the big oil companies down in south Texas is making a pretty big refinery expansion down there. Not a new refinery, but I guess it will help.
That's the whole concept behind the subject The Black Swan, and how universally it is the driving force in everyone's lives.
you are inncorrrect...there are many drivers using hydrogen gas fed directly into the air intake for anywhere from 25-100% more mpg’s. No need to store it and compress it. Protiumfuelsytems.com has a wonderfull generator that is doing great. And they will be coming out with a 100% hygrogen gas fuel injector which will be a bolt on to any car for zero need for any other fuel. This is happening.
And your take on the raising of prices in the oil commodities may have some validity, but what you fail to see is the insiders manipulation of the commodity to raise the prices well beyond any reasonable profit margin. The supply and demand thing is just a sophisticated excuse for greed that is hurting our economy badly. Do they not make entire great profits even at $2.50 per gallon with the supply going up or down? Of course they do, the need continues to go up and so does their profits, regardless of the market situations. It’s all coming to an end fairly soon, thank God.
there will come a day when the USA and most first world countries might be able to afford gas, but... most of the second world won't and the third world??? only if we pay for it, and bring it to them, and pump it into their cars. and that's not enough sold to keep them in business no matter how high $oro$ and the oil speculators want the price to be. kinda like the Laugher curve of oil
You are probably right, but not because of the relationship with oil prices. The government will be sure to add some taxes in there to keep that price buoyed.
And actually, unless the gas prices are being artifically inflated before it gets to the gas station, there are limits on how much profit those stations make per gallon, along the lines of 3 cents or so.
Where are the refineries being built in the U.S.?
None.
Watch all these people go out and buy these foreign go-carts death traps, that aren’t even big enough for my cooler, knees on their chests....And then gas will go back down to $110. a gallon.
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