NYT reports on gas lines in UAE

The New York Times picks up the story of petrol shortages in the United Arab Emirates:

For the third time in the past 10 months, service stations across the United Arab Emirates have been running out of gasoline in recent weeks.

...

The Sharjah Executive Council, a government policy-making body, is putting pressure on the fuel retailers for more information, after a three-week shortage in the emirate that has forced Sharjah residents to line up at the Dubai stations that remain open.

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Dubai’s fuel retailers typically purchase oil at market prices and then sell fuel at a subsidized cost defined by the government. At a time when Dubai is struggling with more than $100 billion in debt, the gasoline shortages are exacerbating a problem that has existed for years as the cash-strapped fuel retailers look for solutions. On the other hand, Abu Dhabi, the wealthier emirate that holds nearly 95 percent of the U.A.E.’s oil reserves, has not faced supply shortages.

...

The U.A.E. had decided earlier to phase out subsidies for gasoline and even implemented two successive price increases.

“There was talk that this would continue, although plans to pursue this in the short term have been shelved because of regional unrest,” Mr. Dauba-Pantanacce said. “It is a sensitive subject as cheap oil prices have also traditionally been part of an unspoken understanding of redistribution of the national oil wealth among the population.”

Read it all here.

PBS provides a good account of the OPEC meeting's tensions

Check it out here.

Insecure Gulf

The subtitle is The End of Certainty and the Transition to the Post-Oil Era. The author is Kristian Coates Ulrichsen, deputy director of the Kuwait Research Program on Development, Governance, and Globalization in the Gulf States, based at the London School of Economics and Political Science.

Ulrichson takes the present day oil-rich conditions, and imagines what they may mean sometime in the future when the oil resources are depleted and the world is making a transition to a non-oil based economy.

See what you think. You can get a Google preview of the book here.

Oil and democracy

Click on image for larger version. Credit: Bloomberg

Bloomberg:

So does oil inhibit democracy? This is perhaps the central question of our discussion this week about the historical lessons the Arab Spring nations should pay attention to.

Michael L. Ross, a professor of political science at the University of California, Los Angeles, has been researching this issue for a decade. In a 2001 paper, and in updated research in 2009,Ross argues that oil wealth deeply impedes democratic transitions from authoritarian states.

He also found that the undemocratic effects of oil vary by region and have fluctuated between 1960 and 2002. The one causal mechanism for the "oil-autocracy link," Ross wrote in 2009, was the "rentier effect," in which oil states use low taxes and high spending to quell democratic pressures.

To reverse these undemocratic effects, oil states need revenue transparency and institutions accountable to the public -- as we discussed May 23.

Shortages of petrol in Russia, world's largest oil producer

How can it be? Easy -- the Russian government's price controls on petrol. The government wants the public to believe it's market manipulation by the oil companies. It's the government is the one manipulating markets, and public opinion.

Meanwhile, in the US,

The U.S. Federal Trade Commission, one of the federal agencies involved in the Obama administration's new investigation of rising gasoline prices, determined just a few days before being named part of the investigation that prices are going up because of normal market forces.

Dianne Rehm nailed Energy Secretary Chu on just this point Monday -- when gas prices go up, politicians posture that they'll do something about it by looking into market manipulation. But none is ever found -- because it isn't there. It's a case of politicians not wanting to admit they are impotent to stop the natural forces of markets, evidence to the contrary. Rehm asked Chu whether he had any reason to believe this time was different.

Peak oil?

Don't bet on it.

Why are there no Arab democracies?

Second paragraph:

The continuing absence of even a single democratic regime in the Arab world is a striking anomaly—the principal exception to the globalization of democracy. Why is there no Arab democracy? Indeed, why is it the case that among the sixteen independent Arab states of the Middle East and coastal North Africa, Lebanon is the only one to have ever been a democracy?

Last sentence:

When the global revolution in energy technology hits with full force, finally breaking the oil cartel, it will bring a decisive end to Arab political exceptionalism.

Larry Diamond, Journal of Democracy, January 2010.

Saudis will pump below their OPEC target

Price rises above $37/barrel.

Sweet crude at $42/barrel

AP:

Sweet crude for February delivery tumbled 12 percent, or $5.95, to settle at $42.63 a barrel on the New York Mercantile Exchange after the report was released.

The Energy Information Administration said inventories of commercial crude oil inventories rose 6.7 million barrels, well beyond the 1.5 million-barrel build expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., can influence market trading.

Analyst Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said it was one of the more bearish EIA reports he's seen in a while.
...
The crude futures market is now in what oil traders call a "contango" -- in which oil delivered in the next few weeks is cheaper than in the following months. Sweet crude for March delivery was trading at $49.34, about $5 cheaper than the February contract.

"A steep contango in the front of the NYMEX crude curve and the low cost of carry due to easier monetary policy has provided the economic incentive to store barrels," Linda Rafield, senior oil analyst for Platts, said in an analyst note.

Crude has become so cheap, it is being stored at sea to avoid selling it at current market prices.

"Demand for oil appears to remain weak as traders are seeking as many as 10 supertankers to store crude," Addison Armstrong, director of market research at Tradition Energy, said in a research note. "The carriers hold about 2 million barrels of crude and traders are seeking to lease the ships for three to nine months."

There were already millions of barrels of crude being stored in oil tankers at sea.

Belated Merry Christmas

This chart of oil prices looks like a Christmas tree.

U.S. consumers are "saving" $1B a day as a result.

OPEC "helpless"

Gulf News

Falling oil prices are "wreaking havoc" on the industry and threatening future supply expansion projects, Saudi Arabia said yesterday as top producers find themselves helpless to stem the price slide.
...
Kate Dourian, Middle East editor of energy information provider Platts, told Gulf News adherence to production quotas by Opec members will be the key to supporting oil prices.

"Their options are limited. There is no further cut on the cards for two to three months," she said.

Some in Opec are known to flout their collective decisions, but this time the Saudis, who will bear the bulk of the latest cut, "will not put [up] with non-adherence by others," Dourian added.

Market in disbelief

The market doesn't seem to believe OPEC compliance will be high.

BBC:

The oil producers' cartel Opec has agreed to make a record cut in output, slashing 2.2 million barrels per day (bpd) from its current supply.

Opec has made two other cuts since September, meaning it has cut a total of 4.2 million bpd in four months.

Despite the record cut, oil prices continued to fall as US data provided fresh evidence of falling demand.

US light, sweet crude for January fell as low as $39.94 a barrel, its first time below $40 since July 2004.

The falls were blamed on US inventories figures, which showed that demand for petrol in the four weeks to 12 December was down 2.7% from the same period last year.

The price later recovered slightly to trade on the New York Mercantile Exchange at $40.31, which was down $3.29 from Tuesday's close.

Opec said that it hoped the record cut would boost prices but that it had no formal price target.

The cut means that the target for production for the 12 member states is now 24.845 million bpd. The cut is effective from 1 January, but the big question with Opec production cuts is always whether the member states will actually make the cuts they have agreed to.

"Given the still-substantial risks to demand and ongoing scepticism on Opec compliance, it could take some time before prices recover materially above $50 to $55 per barrel," said Gordon Gray from Collins Stewart.

Now here's some gibberish:

It is hoped a sharp supply cut will put oil on the path towards $75.

"You must understand the purpose of the $75 price is for a much more noble cause," the Saudi Oil Minister said. "You need every producer to produce and marginal producers cannot produce at $40 a barrel.

"Therefore we believe $75 is probably more conducive to marginal producers to continue so we don’t have a shortage in the market and we avoid the future rocketing of prices."

Let's set aside the possibility the statement is self serving. For the world's perspective it's inefficient for a low cost producer to cut output in order to raise price enough for a high cost producer to be profitable.

Someday demand will come back. What the oil minister might be getting at is will the marginal producers be ready when it does, or will there be a rocketing of price as we get this past summer? Daniel Drezner has that on his mine as well.

OPEC disarray

Financial Times:

Saudi Arabia called on Tuesday for the biggest single production cut in the history of the Opec oil cartel to counter the collapsing price of oil.
...
Oil prices jumped on Tuesday after Mr Naimi’s [Ali al-Naimi, Saudi Arabia’s oil minister] comments but fell again to close at $44.04, down 47 cents.
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Iran, Venezuela, and Angola have failed to live up to pledges to reduce production substantially. Angola, Opec’s most recent entrant and next president, increased production last month, according to Opec’s forecasters.

David Kirsch, analyst at PFC Energy, the consulting group, said: “Naimi clearly has reservations about seeing Saudi Arabia reprise its classic swing producer role within Opec by shouldering the lion’s share of any production adjustments. Nevertheless, it now appears that the Saudis are willing to do what it takes to strengthen prices, irrespective of other members’ compliance levels.”

The dramatic drop in the oil price, now below the level at which Saudi Arabia can balance its budget, was the prime reason for the kingdom’s decision.

My emphasis.

Update: Writing from a U.S. perspective, TigerHawk observes,

I cannot help but notice that two of OPEC's leading cheaters, Iran and Venezuela (which had the stones to call for deeper production cuts just today, even though it had not implemented the last one), are the most openly anti-American of its members. So, our enemies are doing their level best to steal from and undermine the cartel that is fixing the international price of our most important strategic commodity.

I don't care who you are, that's funny.

Gulf Oil CEO says $20 oil possible

Pittsburgh Tribune-Review:

Gasoline prices may fall to $1 a gallon by early next year, Gulf Oil CEO Joe Petrowski said this week.

Oil prices, which rose to a record $147.27 a barrel in July, were driven up by speculators, and "there is a chance the market will overshoot on the way back down," resulting in much lower prices at the pump, Petrowski said during a talk in Newton, Mass.

Thanks to Carpe Diem who also has many other posts on the falling price of oil including this one.

EnergyOutlook thinks maybe $75 is the "right price."

Who said it?

"Ten years from now the price of oil will be below $100/barrel."

Emirates Economist - September 2, 2005

I'm a little ahead of schedule.

But, seriously, my prediction had to do with the oil supply elasticity, and with energy supply elasticity in general keeping a lid on prices in the long run. I wasn't making a prediction about where prices would be between 2005 and 2015. Since my prediction in 2005 oil prices have rocketed up and rocketed down.

Sentences to ponder

The confusion and distrust about production is so deep that Opec members regularly request data about fellow members' production from the International Energy Agency. This is ironic because the IEA, created after the 1970s oil shocks as the western countries' oil watchdog, is basically to Opec what Nato was to the Warsaw Pact.

Read more at the Financial Times; interesting throughout. Thanks to Carpe Diem for the pointer and where you can find more quoted.

Prediction: $200 oil

Globe and Mail:

Oil's immediate future looks so gloomy, at least from an investor's standpoint, that raging bull T. Boone Pickens is packing in his energy hedge fund. That's probably a wise decision, considering that the fund has racked up $2-billion in losses and is down 60 per cent so far this year.
...
Some analysts, ever eager to get in front of a trend, even started talking up $200 oil.

Too bad they weren't paying attention to a veteran energy economist named Philip Verleger Jr., who insists oil never should have gone much above $70 a barrel; that it did so only because of "a perfect storm" of U.S. policy mistakes, European economic developments and currency shifts; and that it could well end up back in the low $20s before the global economy gets back on its feet.

"I think it will go a good deal lower, particularly next spring [when oil markets are traditionally weakest]," Mr. Verleger said in an interview. "If this thing follows a natural cycle, I think we'll see something as low as $20 to $25."
...
Mr. Verleger was at Yale when energy expert Daniel Yergin declared that the second oil shock of 1979 had triggered a permanent change in the characteristics of the market and prices would be heading higher. In 1981, oil was at $35; five years later, it was down to $10.

Thanks for the link goes to Carpe Diem.

IEA long term oil market forecast due mid November

The International Energy Agency releases World Energy Outlook 2008 on November 12. The Financial Times yesterday published two articles based on a draft version of the outlook and the IEA says, appear "to be based on an early version of a draft from several months ago that was subsequently revised and updated."

The FT wrote, "Output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows. Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent."

Gregor.us has more.

Speculators bet oil price will fall

Bloomberg:

``It certainly seems to me that we could get down to $50 a barrel,'' Adam Sieminski, Deutsche Bank's chief energy economist, said in a Bloomberg Radio interview today. ``You could look at the OPEC cut as a sign of weakness, not strength.''

The cost of the option jumped on speculation that an output cut announced today by the Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world's oil, won't be enough to stem plunging prices.

economix explains the classic theory behind why it is difficult to collude to hold down production.

Net Oil Exports produces this telling chart. Discussion here.

Funny business in oil prices?

Econbrowser takes a look at the movement in oil prices on Monday of this week.