Stephen Schork Sees `Fear and Greed’ Pushing Oil past $150

Has ‘Peak Oil’ Arrived–Many analysts see a speculation “premium” of at least $25 bbl

Has ‘Peak Oil’ Arrived

Rick Moran
A Vice President of Russia’s largest independent oil company says that oil production in that country has peaked and in the future will begin declining:

Russian oil production has peaked and may never return to current levels, one of the country’s top energy executives has warned, fuelling concerns that the world’s biggest oil producers cannot keep up with rampant Asian demand.

The warning helped on Tuesday to push crude oil prices to a fresh all-time high above $112 a barrel, threatening to stoke inflation in many countries.

US crude oil West Texas Intermediate surged in London trading to $113.06 a barrel, above last week’s record of $112.21 a barrel. It later traded 125 cents higher at $113.01 a barrel.

Leonid Fedun, the 52-year-old vice-president of Lukoil, Russia’s largest independent oil company, told the Financial Times he believed last year’s Russian oil production of about 10m barrels a day was the highest he would see “in his lifetime”.
Russia is the world’s second biggest oil producer. Mr Fedun compared Russia with the North Sea and Mexico, where oil production is declining dramatically, saying that in the oil-rich region of western Siberia, the mainstay of Russian output, “the period of intense oil production [growth] is over”.

Part of Russia’s problem has been nearly 40 years of pumping those Siberian wells at full capacity according to many oil experts. This was a result of the Communists (and later the Russian Republic’s) desperate need for hard currency. That and the fact that the Soviet’s especially used very inefficient means to pump the oil out of the ground.

Now the Russian oil industry is more productive but their primary fields are becoming less viable due to decreased pressure at the wellhead which makes it harder to get the oil that is still down there. Recovery of the remaining oil will be more expensive but at more than $100 bbl it is certainly worth it.

The question about other big fields like the North Sea and Mexico is one of investment in new facilities versus the likely return. There is also opposition in some countries because of the environmental risks. Hence, declining output from those two major suppliers will be significant as the current fields gradually decline.

The Middle East is a different story. The spigot in Saudi Arabia and the Gulf States is not wide open despite jawboning from Bush and other western leaders. Analysts estimate that another 2 million bbl could be pumped if the Arabs so chose. Why should they when customers keep bidding up the price of what they’re already taking out of the ground?

If the west goes into recession, demand will fall off and prices will ease – how much is anyone’s guess. At that point, the current solidarity on price of oil producing states may fall apart and it will be every country for itself, pumping more oil to keep market share and profits up.

We are not at peak oil yet, not even close. There are huge reserves in several places around the world including Africa, the Gulf of Mexico, Alaska, and South America. The problems today with high prices have much more to do with politics as they have to do with the world running out of oil. Unrest in Nigeria, war or the threat of war in the Middle East, Venezuela playing politics with supply, and a large increase in demand have combined to set the speculators in the commodities markets off on a frenzy. Many analysts see a speculation “premium” of at least $25 bbl – probably more now with this recent spike in oil prices.

The key is to dampen the speculators enthusiasm. Unfortunately, it may take a US recession for that to happen.

Criminals target energy, financial markets, Mukasey says

Supply, Demand, Speculation, & Gouging: Oil, Metals, Food

Supply, Demand, Speculation, & Gouging: Oil, Metals, Food
Posted by Hannah Bell on Fri Mar-07-08 01:43 AM

OIL … ”

Speculators – not supply and demand – are to blame for skyrocketing gas prices: July 11, 2006

A bipartisan Senate report, largely ignored by the media, says that there’s no oil shortage and none is expected. Rather, it’s massive, unregulated speculation that is costing consumers billions of dollars – and vastly enriching people like T. Boone Pickens.

The conventional explanation for high gasoline prices doesn’t work. The notion that energy demand, especially in places like China and India, created a world-wide oil supply shortage which drove up prices and caused Americans to pay more at the pump cannot be squared with the facts.

The report was barely touched on in the news media but its analysis of petroleum prices demands serious attention. This story is far too important to be left lingering on the back pages of the trade press. Petroleum prices deserve better than a mere repetition of the high-demand-low-supply theory, particularly when it is conspicuously inconsistent with the facts.


Presentation to World Bank: Metals

“In the first part of this paper on the “Commodity Bubble”, I make the case that, in real terms, we have had an unprecedented commodity bubble in this decade. This bubble has occurred because of unprecedented investment and speculation in commodities, largely by way of derivatives. The far more important engine of this bubble has been leveraged speculation by hedge funds….

If you take all the economies in the world, valuing GDP based on exchange rates, the overall global growth rate has not significantly changed since the mid 1970’s. So if it is not a new era of supercycle demand growth and supply restraint, what has led to such a high amplitude and long duration bull market in commodities in this cycle. My answer is speculation – nothing more. And speculation on an unimaginable scale.” … ”


Speculation moves forward


The introduction of futures trading in essential commodities under the reform regime has paved the way for speculative price increases.

FORWARD trading has a long history in the country, but it has never been a matter of much public concern. Until recently, that is. While searching for explanations for the increase in the prices of food that began a few months back, some observers turned their attention to the massive increase in forward and futures trading in commodities. What emerged was revealing.

According to Bloomberg, quoting the Forward Markets Commission, volumes on the National Commodity Exchange, which trades futures contracts in 48 commodities, reached $226 billion in the year ended March 31, 2006. That was more than the $184 billion of shares traded on the Bombay Stock Exchange in the same period. Forward and futures trading had been promoted on the ground that it helped traders deal with market uncertainty by hedging their transactions, and stabilised prices for the final producers. However, the surge in futures trading could not be explained by pure hedging requirements, and obviously reflects an increase in speculative activity.

343397, WHEAT STOCKS – 2006
Posted by Hannah Bell on Fri Mar-07-08 01:47 AM

“According to reports private firms such as Cargill India, Adani Exports and ITC and the Australian Wheat Board have together purchased as much as 30 lakh tonnes of wheat this year. While some of this is for conversion into processed goods in their own facilities, a significant part is for resale at a profit. Private firms have also been involved in trading in other commodities. This indicates that large trading firms have cornered supplies of many commodities at prices higher than the minimum support price offered by the government.

One consequence of these trends has been a decline in government stocks from record levels and a rise in stockholding by the private trade for speculative purposes. Thus the government has managed to procure only 92 lakh tonnes of wheat this year as compared with 147 lakh tonnes last year. As a result, wheat stocks with the government stood at 93 lakh tonnes on June 1, having declined continuously when compared with the level on the same date of the last few years, starting at 413 lakh tonnes on June 1, 2002. Overall food stocks with the government stood at 223 lakh tonnes on June 1, 2006, close to a third of their peak level of 648 lakh tonnes on June 1, 2002. These declines are far more than warranted by trends in production, indicating that the private trade has managed to corner a significant volume of stocks.”

343404, I Don’t See How One Can Regulate Speculation
Posted by Demeter on Fri Mar-07-08 06:04 AM

Unless you insist that people must take delivery at their home address….