NewEnergyNews: OIL USED UP/

NewEnergyNews

Gleanings from the web and the world, condensed for convenience, illustrated for enlightenment, arranged for impact...

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YESTERDAY

THINGS-TO-THINK-ABOUT WEDNESDAY, August 23:

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  • TTTA Wednesday-ORIGINAL REPORTING: The IRA And the EV Revolution
  • THE DAY BEFORE

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  • Weekend Video: Impacts Of The Atlantic Meridional Overturning Current Collapse
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    WEEKEND VIDEOS, July 15-16:

  • Weekend Video: The Truth About China And The Climate Crisis
  • Weekend Video: Florida Insurance At The Climate Crisis Storm’s Eye
  • Weekend Video: The 9-1-1 On Rooftop Solar
  • THE DAY BEFORE THAT

    WEEKEND VIDEOS, July 8-9:

  • Weekend Video: Bill Nye Science Guy On The Climate Crisis
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  • Weekend Video: A “Massive Global Solar Boom” Now
  • THE LAST DAY UP HERE

    WEEKEND VIDEOS, July 1-2:

  • The Global New Energy Boom Accelerates
  • Ukraine Faces The Climate Crisis While Fighting To Survive
  • Texas Heat And Politics Of Denial
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    Founding Editor Herman K. Trabish

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    WEEKEND VIDEOS, June 17-18

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  • WEEKEND VIDEOS, August 24-26:
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  • The Virtual Power Plant Boom, Part 1
  • The Virtual Power Plant Boom, Part 2

    Friday, October 12, 2007

    OIL USED UP

    Contango has become backwardation. (Explained below) If the net result of the shift away from inventory storage, as described by Ann Davis of the WSJ in this article, is real diminishing supply, Peak Oil has arrived and yet higher prices are in the offing. Some analysts foresee $90/barrel or even $100/barrel oil in the very near future.

    This is a superb piece of in-depth reporting and deserves lengthy attention. What makes it especially striking is an October 8 item in "Oil & Gas Journal"
    : Gaz de France acquires Romanian gas storage. GDF already owns 65% of Romania’s 3rd biggest storage center. Now it has bought 59% of Romania’s 2nd biggest. Could it be that something similar is afoot in Europe’s natural gas sector?

    Where Has All The Oil Gone? After Sitting On Crude, Speculators Unload It. The World’s Eyes Fall On Cushing, Oklahoma
    Ann Davis, October 6, 2007 (Wall Street Journal)

    WHO
    Traders in oil storage: Enbridge Energy Partners LP, BP PLC, Plains All American Pipeline LP, SemGroup Energy Partners LP in Cushing; Vitol Group, Morgan Stanley and other investment groups around the world.

    Classic photo by Ann Davis, WSJ. (click to enlarge)

    WHAT
    - A major shift away from stored oil inventory is suddenly taking place, possibly signaling a downshift in long term oil supply.
    - Market condition “Contango”: For the last 3 years, the price of oil delivered in the future rose so far above the spot price investors began storing oil.
    - Market condition “Backwardation”: Oil becomes more valuable from immediate sale. Storage no longer demanded.

    WHEN
    - In mid-July, oil companies and speculators were storing oil wherever they could for later sale. Almost overnight, it became more lucrative to sell in spot market. Now oil inventories are disappearing.
    - At the end of 2006, worldwide storage was 97% full.
    - April 2007, tank owners were turning customers away.
    - US crude inventory September 28: 321.8 million barrels – at 21million barrels/day, that’s a little over 2 weeks of oil.

    WHERE
    Cushing, Oklahoma, has long been the central crossroads for US oil supply and storage. Storage there went up fast from the time NYMEX oil futures trading began in 1983until this sudden shift.

    While EIA statistics verify the article's contentions and the fluctuations at Cushing are extremely curious, the overall storage numbers present a more complicated picture. (click to enlarge)

    WHY
    - For the last few years, oil prices were expected to rise so the purchase now for sale later was almost a sure bet. Commodities traders accentuated the market impact of this. Investing in futures requires storage. The market trend created a rising value in oil storage.
    - Cushing’s acres and acres of 575,000 gallon tanks (5% - 10% of US storage) make it emblematic of the recent trends: Vitol Group, Swiss/Netherlands oil-traders paid $170 million for an Amsterdam oil-terminal; Morgan Stanley bought oil handler TransMontaigne Inc., and a European company runs tankers; Singaporean trading firms are among the port's largest storage providers.
    - Causes of contango: The usual suspects – Chinese and Indian demand, oil region violence, etc., but most importantly, the fear of the sudden supply disruption.
    - Cause of backwardation: Supply margins narrow, spot prices rise above futures prices. Subprime mortagage mess led to higher costs of borrowing and made it harder to hold assets.

    QUOTES
    - Stephen Schork, publisher, the Schork Report (on energy markets): "Factors other than supply and demand are now impacting the price…We now have to factor in how the speculators are going to affect the market, because they have different priorities in managing their portfolios."
    - Cushing saying: “Storage so vast it takes two men and a boy just to look at it.”
    - Philip Verleger, energy economist: "The credit crunch has made it very expensive to hold oil…"
    - Tim Evans, analyst, Citigroup Inc.: "The market seems to be pricing in a looming shortage…But the only place in the U.S. that seems short of crude oil is one very small, but influential location -- Cushing, Oklahoma."

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