Saudi Aramco's core area in Dhahran city

The world's insatiable demand for petroleum is about to cause more drilling and pumping in Saudi Arabia, as the country is set to begin setting up shop on the Khurais oil field. A ten-billion dollar investment will be made which is expected to allow the nation to pump one and a half billion additional barrels of oil per day by the end of next year. The project, which is already expected to begin shipping over a million barrels of oil beginning next June, is a massive undertaking.

Saudi Arabia has, to this point, resisted producing additional oil, as it believes there is no shortage at all. Instead, the country points to the low value of the U.S. dollar and unrealistic speculators are the major driving forces behind the record-high oil prices. Still, the country remains extremely important to major oil-consuming nations such as the United States as it currently produces eleven-percent of the world's daily supply of oil and is the only country left with relatively easy-to-tap oil reserves.

[Source: AP via The Detroit News]

OPEC president Chakib Khelil believes that the already staggering price for a barrel of oil could continue to rise. Citing the low value of the U.S. dollar, Khelil says that investors are likely to continue to place their bets on oil, a necessary commodity. With current prices hovering around $120 per barrel of dino-juice, the sixty percent increase mentioned by OPEC's leading man would place the going-rate darn near $200 a barrel.

Those of us living in the U.S. have seen our gas prices rise at an alarming rate, but Whatcar in the U.K. highlights more problems for those living across the pond. A strike at the Grangemoth oil refinery in Scotland could cause a ripple effect which would reach consumers just in time for the summer driving season. OPEC has chosen not to increase their output to help curb the supply and demand problem. Kinda makes us long for the electric car, huh?

[Source: What Car]

Earlier this year when we spoke to Dr. David Cole, one of the risks that he mentioned of relying solely on fuel economy standards as a way to reduce oil consumption was the threat of oil prices dropping. If nothing is done to help create demand for more efficient vehicles, lower oil prices could keep drivers in their thirstier vehicles. Today OPEC released a report where they estimate slower world economic growth in 2008 easing pressure on demand for crude oil. The organization expects oil demand growth to be steady at an extra 1.3 million barrels per day compared to the 2.1 million barrel per day increase projected by the International Energy Agency.

While this may not be enough to dramatically reduce oil prices, the possibility of that happening at some point remains if OPEC feels threatened. In order to minimize the impact of such volatility on consumers and carmakers, Dr. Cole recommended setting a floor price for crude oil of $40-45 per barrel. If crude prices drop below that level taxes would be imposed to maintain that minimum. Given the recent run up to the $100 per barrel range, the floor could probably be reasonably set at at $75-80 a barrel without imposing too much pain on consumers. The tax provisions that were stripped out the energy bill to ensure passage would have had some of this effect. Of the $21 billion in increases, $13 would have come from repealing tax breaks for oil companies. This would surely have been passed along to consumers which would have the desired effect of raising fuel prices and promoting demand for more efficient vehicles.

[Source: Reuters, via Winding Road]

Well, this bit of news will probably leave some people feeling shaken, not stirred. OPEC has announced that the group has set up a committee to look into how the weak U.S. dollar is affecting the cartel's earnings and to figure out if trading oil using a "currency basket" (a concept I just learned about) would be beneficial to OPEC. The committee will report on whether using the average value of a group of currencies (the basket) would be better than trading oil using dollars; details on which currencies might make it into the basket and when the report is due have not been announced. According to the AP, the two countries that have pushed the hardest for this move are Iran and Venezuela. Saudi Arabia is against it. For it's part, the U.S. is calling on the cartel to increase oil production. Apparently, to understand global politics in a nutshell, just look at OPEC.

[Source: AP]

Recently, I have found myself driving in stop/go/crawl traffic at least 4 days a week. Of course, this now-frequent activity coincides with the current 40 cent hike in gas prices we are suffering thru right now. My 8-year old ride drinks heavily in this style of driving and I don't like spending so much of my dwindling hours on this planet in such an unproductive yet necessary activity.

This whole feeling has been compounded by the latest Michael Klare article on energy in The Nation. Seems the author has put two and two together: The Dept of Energy has quietly shifted from "petroleum" to "liquids" as a word to describe the fuel we use for transportation. "Liquids" refers to other hydrocarbon fuels (propane, natural gas, etc.) as well as biofuels that we are slowly beginning to depend on just like petroleum. Changing this definition will mask the fact that petroleum production is just about peaked and older producing fields need to be replaced by new production before total production can reach the levels needed to meet increased world demand. This is not a good "scenario" for those that think the new Malibu will be the trendsetter for the US auto industry.

If the peak oil predictions are true in the short range - 5 years - then we need to drive a lot, lot, less and learn how to melt down a lot of SUVs and crossovers and replace them with vehicles that weigh about half as much and burn about half the energy currently used. That is essentially making the US national fleet about as energy comsumptive per person as the European fleet. Are we capable of such a transformation? Are we willing?

There is a kind of silver lining to this. Thanks to the weak dollar and our energy habits, more and more of the US is owned by the OPEC nations. Remember, we give them our dollars for petroleum. We burn the petrol up but they still have the dollars. They are so invested in us, they can't squeeze us till we hurt as it would also hurt them.

When I am stuck in traffic, I can't help feeling like the frog that Al Gore described in his movie - the one who can't sense slow change in his environment fast enough to get out and find safety. Is it getting warm in here?

[Source: The Nation]

Bush sent a letter telling Congress what changes they can make to the energy bill so he does not veto it. Allan Hubbard wrote the letter that the White House sent to Congressional leaders (Nancy Pelosi, Harry Reid, Mitch McConnell and John Boehner) with a list of "deal-makers and deal-breakers." The energy bill does not have enough votes to make the bill veto-proof, so Congress will probably read this letter very carefully.

Bush says Congress can "reform and strengthen" CAFE but such actions should be "based on sound science, safety and cost-benefit analysis." Also, Bush does not want to see anti-trust violations against OPEC or price controls during energy emergencies. Capiche Congress?

Related:

• Bush might veto the energy bill

[Source: Bloomberg]

Maybe you figured this out when you filled up the car. Maybe when you drove by the pump. Maybe from websites like GasPriceWatch. However the news gets around, the reality is that gas prices are still climbing.

According to the aforementioned GasPriceWatch, average prices at the pump today are two cents higher than Wednesday. As you can see from the AAA graph to the right, this is a small part of a trend that's been kicking around since late last year, even though crude prices are dropping slightly. The average price is $2.82 today for gasoline. For diesel, its $2.92. Automotive News (subs req'd) says that crude prices may rise because OPEC might limit production. Hey, there's another happy thought (now, where's the font for sarcasm?).

[Source: Natasha Robinson, Automotive News, AAA and GasPriceWatch]

With all the talk and rumors over the last month, we expected to see OPEC cut oil production by 1 million barrels per day. However, according to Reuters, Friday's announcement of the deeper than expected cut of 1.2 million barrels seemed to send an intended message to buyers on the oil market: if the price of oil does not stabilize, OPEC would be open to even deeper cuts.

Unofficial talk of further production cuts seems to be lurking from many different sources and those cuts may come as soon as December. Qatar energy minister Abdullah bin Hamid Al-Attiyah said that the cartel's members are not excluding further cuts while the Dow Jones Newswire reported that OPEC president Edmund Daukoru said that the possible need of a further half million barrel cut was "in line with my own thinking."

By the end of the day, the price of light sweet crude oil rose 47 cents to 58.97.

Related:

• OPEC cuts output, OPEC doesn't cut output. Rumors abound, oil prices on the rise

[Source: Reuters via MSNBC]

This'll teach me to stare at news feeds all morning. At 7:39 AM EDT, the Dow Jones Newswire reported that the Organization for Petroleum Exporting Countries agreed to cut oil production by 1 million barrels per day (about 3 percent). As a result, early electronic trading saw the price of crude oil futures rise back up above $60 per barrel before the New York Mercantile Exchange rang its opening bell. At the time of this writing, it was at a $1.45 increase.

By the time I was about to submit a post this matter turned into a bit of a mess. At 10:30 AM EDT new news came out saying that OPEC president Edmund Daukoru denied the announced reduction. This article (subscription required) in the Wall Street Journal quotes a senior cartel official saying, "All I can tell you is that you should listen to what the OPEC president is saying; he is the one authorized to speak for OPEC."

So was it all just a sham by some "unnamed OPEC governor"? Maybe not. Daukoru says, "We each have an idea of what is an appropriate response... We agree that something needs to be done. We will have to agree on how much, how soon and how we distribute it among the member countries."

The WSJ article also points out that last Thursday there was an unsourced report in the Financial Times saying that OPEC has formally agreed to cut output by 4 percent in the coming weeks to defend the $50 to $55 price per barrel range. When two unofficial leaks converge in this fashion, a certain substance forms that's difficult to discount.

Reuters also reported on the alleged oil production cut. In their original article, they speculated that further cuts may be incurred at OPEC's next meeting on December 14th.

I'm sure we'll be hearing more about this quite soon.

Note: The rise in crude oil futures have since dropped to +89 cents on the day, still trading above $60 per barrel.

Late update: Crude oil futures for November delivery settled up 62 cents at $60.03 per barrel. Intraday trading saw the price rise as high as $60.97.

[Source: Wall Street Journal, subscription required]

It might be the auto and energy question of the decade: what effect do gas prices have on green car habits and green car technology? Automakers are investing billions in gas-free propulsion sources and sales figures show that consumers are more than eager to go along with these advanced powertrains. At least, consumers who want to get the most out of $3.50-a-gallon gas were. But what happens when gas gets cheap(er)? Recently, we had posts about the possible return of $1.15 gas as well as customers' attitudes about high gas prices. The current situation lies somewhere in between, and when crude prices dropped to below $60 a barrel Monday they brought the average price of gasoline down to $2.38 a gallon in the United States. Some energy analysts told the AP that it's headed even further south, to around $2 a gallon. In light of this, some OPEC members have hinted at a production cut if prices stay below $60 a barrel. The future is uncertain. Do you know what you'll be driving?

Related:

• Gas for $1.15 a gallon? It could happen again
• JD Power on high gas prices and auto consumers

[Source: AP via Yahoo! News, thanks to Ann]

At a conference today in Vienna sponsored by the Organization of Petroleum Exporting Countries, Abdallah S. Jum'ah, president and CEO of the state-owned Saudi Arabian Oil Company (Aramco), proclaimed that the world has only consumed about 18 percent of its total crude oil supply. He said that with a 4.5 trillion barrel global potential, there is enough to maintain current consumption levels for 140 years.

Many industry experts believe the there are at least 3 trillion barrels of oil left on Earth, possibly more than 4 trillion. Rex W. Tillerson, the chairman of Exxon Mobil, however, points out that global demand for oil will rise by 50 percent in just the next decade. It sounds like an incomprehensible figure until you factor in the rapid growth the Chinese economy. According to Xinhua, China's car sales were up about 27 percent during the first six months of 2006 while recording an overall profit increase of 76 percent when compared to the same period last year.

Jum'ah went on to challenge oil ministers and executives to step up exploration and add 1 trillion barrels to the world's known supply in the next 25 years. He believes that new technologies should make it possible to realize that target.

Even if Jum'ah is correct about the world having 4.5 trillion barrels of oil waiting to be pumped, he doesn't actually address the peak oil theory at which point the rate of the world's total oil production will enter a decline in relation to the exponentially growing demand.

[Source: Associated Press via MSNBC]

The Associated Press reports that despite a $10 drop in the price of a barrel of crude oil since mid-July, the Organization of Petroleum Exporting Countries (OPEC) is expected to maintain its output quota of 28 million barrels per day. However, there is speculation that OPEC is drawing up an action plan in the event that crude dips below $60.

Jason Schenker, a Wachovia analyst, believes that demand for crude oil will slacken as economic growth slows especially if the U.S. economy falls into recession in 2007 as some economists predict.

Analysts estimate that a $10 drop in the price of crude is the equivalent of about a 25 cent drop per gallon at the pump. With crude oil currently at about $66, we're looking at the potential of a 15 cent per gallon buffer before any OPEC action is taken.

[Source: Associated Press via MSNBC]

Could OPEC be looking to go green? Or is the cartel warily keeping an eye on a possible competitor? Edmund Daukoru, president of OPEC and also the oil minister of Nigeria, recently met with Petrobras CEO Sergio Gabrielli. Apparently Petrobras, which is owned by Brazil, is looking into importing liquid petroleum gas (LPG) from Nigeria. Brazil imports LPG from neighboring Bolivia, which has been steadily increasing its prices.

But it's Daukoru's interest in the world's ethanol capital that's of interest. He is meeting with Petrobras to discuss importing ethanol into Nigeria while the African nation looks into building its own ethanol production.

Note that Nigeria, as the U.S.' fifth largest source of imported oil, is not facing a fuel shortage. Is Daukoru's visit a harbinger of the future? Or mutual economic policy?

[Source: Associated Press via Houston Chronicle, Wikipedia]