Nueva Crisis en el Mercado de Petróleo

miércoles, 21 de mayo de 2008

2016 Oil Futures Rise 14% to $140 in Three Days
I'm just a wee observer of skeptical temperament. A move of this magnitude based on one analyst's reading seems a bit disproportionate. Even Abby Joseph Cohen and Mary Meeker didn't have this sort of sway in their heyday. However, contracts that far out are thinly traded, so it doesn't take much of a change in demand to skew the price.

Similarly, I must note in all these discussions, no one talks much (at all?) about Iraq. Now I admit that Iraq will not solve a long term "we're running out of oil" problem. But depending on which source you consult, Iraq has the second or third biggest oil reserves in the world. In fact, Iraq recently claimed improved surveying makes it number one:

The Iraqi Deputy Prime Minister told The Times that new exploration showed that his country has the world’s largest proven oil reserves, with as much as 350 billion barrels. The figure is triple the country’s present proven reserves and exceeds that of Saudi Arabia’s estimated 264 billion barrels of oil. Barham Salih said that the new estimate had been based on recent geological surveys and seismic data compiled by “reputable, international oil companies . . . This is a serious figure from credible sources.”

This bit of news sounds awfully convenient. However, as of 2002, Iraq had substantial unexplored regions, and given the instability of the country, there hasn't been much exploration since then. Only 2000 wells had been drilled, versus one million in Texas alone. Nevertheless, I'll believe the factoid about Iraq's newly-discovered reserves when I hear it confirmed by third parties.

Is it too embarrassing for oil analysts to discuss how the deteriorating security situation has reduced output? (Although now note the Iraq Oil MInistry is targeting daily output of 3 milllion barrels by year end, up from 1.9 million in March. Note the pre-war peak production was 3.5 million b/d).

Again, inclusion of Iraq may not make much difference. But when analysts are considering the impact of production in Brazil, the use of very heavy (read nasty) crude from Venezuela and Iran, and even upon occasion Canada's tar sands, the absence of Iraq from mention seems a considerable, peculiar omission.

From Bloomberg:
Oil prices are heading to almost $140 a barrel in the next eight years, futures contracts on the New York Mercantile Exchange show.

Oil for delivery in December 2016 surged $17.08, or 14 percent, in the three trading days since Goldman Sachs Group Inc., the world's biggest securities firm by market value, forecast oil would average $141 a barrel in the second half of 2008 and $148 a barrel next year because of supply constraints.

The gain, more than triple the rise in oil for delivery this summer, ``fits in'' with the Goldman forecast which ``talked recently about long-dated crude in particular,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York.

Oil giants such as Exxon Mobil Corp., Royal Dutch Shell Plc, BP Plc, Chevron Corp., Total SA and ConocoPhillips will spend a record $98.7 billion this year on exploration and production, more than quadruple the amount eight years ago. The supplies they tap from non-OPEC countries will only meet about 20 percent of world demand growth over the next four years...

``The move was a big jump in one day for markets that far forward, which also makes it seem as if the market's thin out in those contract months,'' Evans said. Sixty-seven contracts traded, compared with more than 296,000 for the most-active July contract.....

Oil for July delivery climbed $2.26, or 1.8 percent, to $128.98 a barrel.

James Hamilton at Econbrowser has a nice post that looks at oil fundamentals. He believes that the oil run-up has a speculative component but sees underlying demand-supply trends at work too:
Although I believe this speculation has gotten ahead of fundamentals in the last few months, there is no question in my mind that market fundamentals are the main reason for the broader 5-year move up in oil prices. Here I review those fundamental factors.....

The developed economies consume a disproportionate share of the world's energy, with North America and Europe accounting for about half of the total oil use in 2006. However, it is the newly industrialized countries and oil producers that account for the recent rapid growth in demand, with Asia and the Middle East accounting for 60% of the increase in petroleum use between 2003 and 2006. North America and Europe contributed only 1/5 of the growth.

Particularly dramatic in this growth has been China, whose petroleum consumption between 1990 and 2006 increased at a 7.2% annual compound rate. It's always amusing to project these impressive exponential growth rates. If that rate of growth were to continue, China would be using 20 million barrels a day by 2020, about as much as the U.S. is today. By 2030, China would be up to 40 mb/d, twice the current U.S. consumption.

Are such projections plausible from the point of view of potential demand? During 2006, China used about 2 barrels of oil per person. For comparison, Mexico used 6.6-- Chinese oil consumption could triple and they'd still be using less per person than Mexico is today. The U.S. used almost 25 barrels per person..... Yes, I would say that these astonishing numbers for potential future Chinese oil demand are not at all inconceivable.

Are such projections plausible from the point of view of potential supply? Not remotely....At any point in time, some of the world's producing fields are well into decline, some are at plateau production, and others are on the way up. It is not clear what average decline rate is appropriate to apply to aggregate global production, but a plausible ballpark number might be 4%. That would mean that in the absence of new projects, global production would decline by 3.4 mb/d each year.

To summarize, I think we will see some net production gains this year, and expect this to bring some relief for oil prices. But I cannot imagine that the projected path for China above will ever become a reality. Oil prices have to rise to whatever value it takes to prevent that from happening.

Note that Hamilton has a chart that projects a demand trend line for China out to 2030. Things are going to start getting complicated in the next six to seven years as its demographic problems start to hit (the number of aged relative to productive will get out of whack). China also has roughly 800 million subsistence farmers. It does not seem obvious that the number of people from the countryside (even a shrinking number) can attain even a Mexican standard of living. Thus the growth in energy demand from China may slow not simply for price reasons but also due to the fact that there simply isn't enough higher value added work for enough of them to increase their energy consumption at a robust rate. Note that does not mean that energy demand from China will not continue to grow, but there are reasons to think the trajectory will flatten.

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