Friday, October 6, 2006

There are now 4 kinds of lies: mine, yours, statistics, and OPEC’s

It was reported in the American Media today that OPEC planned production cuts of 1 million barrels per day (“bpd”). The report cited “unidentified people”.

The U.S. Secretary of Energy was not happy about the report.

"We still need oil for sure. We still need all the oil we can get," U.S. Energy Secretary Sam Bodman told Reuters in a telephone interview October 5, 2006. Bodman said he plans to drive that point home in conversations with OPEC oil ministers. Peak winter demand for heating fuel lies just around the corner.

The media reports have consistently trumpeted “high inventories”. Relative to what? Inventories always build at this time of year, before the winter peak oil demand, and we have not built any new storage facilities to speak of since 2000, even though the economy has grown roughly 20% since then. U.S. oil consumption has increased roughly 5 % during that time, but more importantly, world oil consumption has increased nearly 9% (BP Statistical Review). Some economists point out the difference in economic growth and oil consumption and conclude that the economy is less dependant on oil. Yea? Thankfully, I couldn’t think as slow as those guys if I was asleep. It would seem to me that our economy is that much more LEVERAGED to oil (Secretary Bodman would seem to fall into my camp), and that any decline in the availability would have a correspondingly larger negative impact on the economy, which would also explain the runup in prices. A decline in prices might presage a worldwide recession.

It has been reported that the Kingdom of Saudi Arabia (“KSA”) intends to invest $24 Billion to expand oil production over the next 5 years.

“At a mid-September OPEC meeting in Vienna, Oil Minister Naimi said Saudi Arabia plans to expand production in seven fields to add 2.4 million barrels per day of capacity, boosting its total to about 12.5 million barrels per day by 2009. On Oct. 1, the Saudis announced they would start work in early 2007 on a new oilfield called Moneefa, which will have 900,000 barrels of capacity and come on line in 2011.” Business Week Online, October 5, 2006.

Clearly the KSA is not concerned with a long term drop in the price of oil caused by over capacity. At least $24 billion worth of not concerned.

Further, how can you trust any comments coming out of OPEC? This is not a unified, all for one and one for all merry bunch of guys. Whatever jawboning you hear – for the most part is just that.

``There is no agreement for an informal cut, or any type of cut,'' Kuwait's oil minister, Sheikh Ali-Jarrah al-Sabah, said in an interview. ``I've had no consultations with other ministers.'' Bloomberg October 5, 2006

Here is one quote that I find to be a reasonable attempt at the truth.

" ‘There is concern that the volatility in the markets is so beyond anyone's control that it could cause severe damage to the world economy,’ says Sadad Al Husseini, the retired exploration and production chief of Saudi Aramco, the national oil company. The Saudis, he says, ‘are determined to try and manage better.’ “ October 5, 2006

Count on continuing volatility, perhaps wild volatility, in the price of oil, but don’t count on anything anyone within OPEC says.

mentatt (at) yahoo (dot) com

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