Oil: so much that they're turning it away?

[mtzianos]

Quote from energytraderus:

Saudi and OPEC pumped as much oil as possible at $30; that Saudi production stays at 9.5 MM bbls/day indicates that they can't pump more.

Well, Saudis say is that there is no DEMAND for them to pump more. No buyer.

If they pumped it anyway, they'd have to build storage facilities to keep it above-ground. What purpose would it serve?

Sounds very much like the reason LOOP in US is giving for refusing delivery of more oil. No more space left to store it.

 

[power_uptick]

No, my statement would imply that no NET
new capacity is coming online. Global depletion rates are conservatively estimated at 3% (by Dick Cheney, no less).
How much net new capacity will come online is a controversial topic. If you expect the net new capacity to increase by
more than 2 million barrels a day per year assuming current depletion and demand trends then the price of oil should go down unless we have some disruption to supply.
I don't think net new capacity of anywhere near 2 million barrels a day per year is realistic. The only organization predicting this is CERA (Cambride Energy Research Advisors). Matthew Simmons called their research report "flawed." But more importantly, Simmons said that he would be willing to bet that Saudi Aramco is one of the biggest clients for CERA, which means CERA is paid to tow the Saudi line.
The Saudis want everyone to believe that they are fully capable of meeting
projected oil demand. Why is an open question. But some have suggested that it could be in part because they do not want to open up their domestic oil
industry to foreign companies, which they would be under intense pressure to do if the U.S. and other countries thought they could not meet global demand.

Quote from mtzianos:

But... this would imply that no new capacity is coming online. On the contrary, 2005 was expected to be the year when most new capacity would come online:

 

[power_uptick]

mtzianos,

When is that Petroleum Review report from? It states that between 2003 and early 2007 projected demand is 3 million barrels. Demand in 2004 ALONE was 3 million barrels according to the IEA. The current demand forecasts suggest that demand between 2003 and early 2007 will
add up to around 8 million barrels, which
suggests a shortfall.
Also keep in mind that the largest offshore oil platform that was scheduled to come online in 2005 (Thunderhorse) has been delayed until next year due to hurricane damage in the Gulf.
We could debate all day exactly when there will be no global spare capacity left in oil. But it is clear that things are getting very tight, and we are one disruption away from another oil crisis.
In this environment, it is not surprising that the price of oil is not coming down.

Quote from mtzianos:

But... this would imply that no new capacity is coming online. On the contrary, 2005 was expected to be the year when most new capacity would come online:

 

[cakulev]

I am not agreeing with everything Raymond J. Learsy says about OPEC, but it’s interesting. Somehow over the decades they always claim they have very thin leeway whether they are producing 20 or 30 Mbpd……

http://www.netcastdaily.com/broadcast/fsn2005-1112-2.asx

 

[daddyeaux]

If you listen carefully to Saudi statements:

they said they would supply the market with crude, but they never said they would supply it at a discount....

 

[cakulev]

What would really be important if you can calculate long term average price of alternative energy. If you can obtain this number is irrelevant if there is peak oil or not. The demand of oil over this price will be by definition close to zero…

 

[cakulev]

http://www.nytimes.com/2005/11/21/n...00&partner=rssuserland&emc=rss&pagewanted=all

...about $35 a barrel...

 

[Spddst]

mtzianos,
To touch on your topic, I see two reasons for the discrepancies between the cash market and the derivatives market,

1) The “terror” premium, which has been pointed out already.
2) The pipelines and storage facilities are full because the “smart” money has been storing raw commodities and using long-term hedges for an anticipated run up in prices over the next six months. The cost of storage is cheap relative to the derivative market – which is still cheap.

Anyone who has the capacity and infrastructure is building their reserves, even through the derivative market and taking delivery. Physical arbitrage is pretty prominent among a select group of firms, but very profitable.

 

[mtzianos]

Quote from Spddst:

...is building their reserves, even through the derivative market and taking delivery.

But...

Why would anyone need to use the derivatives market to take delivery, when the physical market is drowning in oil and no-one is coming to take it (per OPEC)?

After we have reached a level of inventory to provide a reasonable cushion against events like Katrina, what is the difference of storing oil "above ground" (in human-built storage facilities) vs keeping it underground ?

On the topic of "reserve building":

1/ Commercial stockpiles are at 5yr highs (as far as my data goes) and much higher compared to 2-3yr ago.

2/ US Strategic Petroleum Reserve was filled at 100% of capacity of 700Mb in Aug-05 for the first time since it was created (it was being filled gradually over 2 decades, until Bush decided to fill it in 2 short years in 2002, a price insensitive buying spree, which many think played a role in spike up of oil prices)

 

[mtzianos]

Also, any ideas why the spread between NYMEX and Brent has narrowed from $2-$3 to $0.4 during last few days?

NYMEX Jan06: $60.5
Brent Jan06: $60.1

This must the the smallest spread between the two that I've ever seen.