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Commentary

Oily questions

  • If oil prices has started to hit usage everywhere, including the US, then why isn’t the slowdown hitting the oil futures prices? Why is oil price at $142 today, when the US driving stats show drops of 4% and nearly all countries have slowed down usage?
  • Isn’t speculation apparent in that there are now pension funds and long only commodity funds contributing to nearly 1.9 trillion dollars worth of commodities, of which nearly 70% is oil? What will happen if these speculators, which include banks, are told to put up more cash as margin or scale down non-delivery positions, an extremely likely even should prices rise any more?
  • If this is all demand and supply like everyone seems to say, why are there at least 14 Iranian oil tankers carrying 2 million barrels each sitting idle in the persian gulf?
  • What happens when China stops buying crude for diesel that it is stockpiling for the Olympic games in August? China has taken the price of diesel way beyond petrol, when it is in fact easier to produce than petrol (less refining required).
  • When people say we have reached the peak of supply, do they not realise that the current prices will push people in looking for supplies where it was earlier unprofitable to do so? And that supply will suddenly materialise out of nowhere because a lot of countries have hidden their sources, and some haven’t even explored areas which they know may contain oil but it’s been too expensive to get at? And the thought that countries like India have a MASSIVE amount of oil under rocky beds like the deccan plateau, which is likely to be able to fuel the world for the rest of our lifetimes, but are too bloody expensive to explore?
  • The problem with power has always been that it could not be stored in large enough quantity for a long enough time. With battery technology scaling up it is likely to reach the point soon where power can be stored in manageable sizes; then excess power which is currently lost can be reused. Won’t this reduce the need for oil dramatically over time, and consuming units like cars, motors and mechanical equipment have attached batteries to store unused power? (Note: this is not very close by)
  • What happens if the US opens up the strategic reserve, canada and alaska decide to forego environmental issues and open up the gigantic reserve and russia explores a lot more in the arctic? And that exploration is allowed in the antarctic belt? It will not just destroy oil prices, but absolutely kill Saudi Arabia, UAE, Nigeria, Iran and a whole host of smaller hostile countries like Libya, Columbia and Sudan. That would be a good consequence?
  • What will happen if, as part of the worldwide slowdown, the demand for the output of the crude refineries (i.e. petrol, diesel etc.) drops tremendously, and the pension funds are left holding assets now selling at half price? Who suffers?

There are no correct answers. But there may be more questions.

  • a h says:

    >Iran’s tankers is not a a great deal of supply. The world will consume it in roughly 6 hours.

    Also, when you talk of new explorations, it will take at least a decade (for places like deccan plateau, antarctica, etc. perhaps even more) to actually increase supply. Would a possibility of increase in supply 10 years later be enough for prices to drop?

    With auto industries rushing to enter the nano type small car segment, it is very hard for me to image by how much will the oil demand in india rise. It would be nice if someone can add estimates here.

    However, one question you ask is worth pondering. i.e. why isn’t fears of slowdown, rising flight tickets, not adversely affecting oil prices? I have no idea.

  • Siddharth says:

    >Below is the link for a latest article on the oil from the Offshore Engineer magazine by Professor Economides.

    http://rapidshare.com/files/126089189/Price_of_conspiracy_theories.pdf.html

  • Deepak Shenoy says:

    >a h: not really – that’s about 30 million barrels of oil and the world consumes 85 a day. 30 will take aroun a day to consume, if you can find arefinery to take the heavy sour crude. THe point is, there is stockpiling going on in epic proportions – heck, there must be more being stored inland, no?

    And there is a lot more exploring IN progress. 10 years is the old time – today you can get stuff up in a few years if you like – look at what BP has done. And they are in the process of adding more.

    Plus if you look at existing finds – big gas finds by reliance coming online in two years, and more in the pipeline, finds in Rajasthan coming up, Brazil just found a 1m bpd offshore well, and so on – supply will continuously increase in the next few years. Even with teh North sea gone we’ll have enough supply to meet world needs for a long long long time – and like Silver in the 70s, supply will emerge “from nowhere”.

    I’d also like to see how much demand increases with the nano. Will definitely be interesting…

  • Siddharth says:

    >Deepak,
    I am doing pipelines in North sea right now. Well 10 years is much longer stake now. Operators want it now and fast. Even in North Sea, smaller operators have bought the reservoirs of bigger entities, like shell BP. True big oil cant afford to keep these smaller or depleting reservoirs running. They just cant afford, whereas smaller ops try utlising available resources and optimise the production with latest technology. It works for them. See Nexen, Canadian co is doing excellent in North Sea. So many examples.

    The timescale for projects varies based on many factors,e.g. amount of reserves, technicalities and complexities of getting the production to land, use of ofshore production facilities, construction time etc etc. If you see the development in the oil and gas, 10 years is too much to wait.

    Believe me or not, oil and gas industry is doing very good right now is exploring, developing new technologies as money is flowing and demand is increasing.
    At times drilling was limited to few meters of water depth some years ago now its gone kms of water depth. Now you have Floating Production systems which can be relocated to new reserves.
    my two cents, if it helps.