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May 8, 2008

OPEC: 'There is Clearly No Shortage of Oil in the Market'

This is coming from what is essentially a mouthpiece for the oil and gas industry, but regardless of the source, this report - if true, begs the question of why are gas prices continuing to rise so drastically, with what has been almost daily increases (Note: an says the same thing):

In recent months, oil prices have become increasingly volatile, mainly driven by financial market developments and the increased flow of speculative funds into oil futures. The turmoil in some global equity markets and the considerable depreciation in the US dollar have encouraged investors to seek better returns in commodities, particularly in the crude oil futures market. This has driven prices higher.

There is clearly no shortage of oil in the market. OECD commercial oil stocks remain above the five-year average, with days of forward cover at a comfortable level of more than 53 days. US crude inventories, meanwhile, rose by almost six million barrels last week, which is a further indication that oil supplies are plentiful. OPEC Member Countries continue to produce at more than 32 million barrels a day (mb/d). In addition, a number of new OPEC crude oil projects have started to come on-stream and OPEC spare capacity continues to increase, with the figure currently standing above 3 mb/d. At the same time, crude oil movements indicate that some Member Countries are unable to find buyers for their additional supply.

OPEC will continue to be proactive and monitor these developments closely. The Organization stands ready to act if the market shows a need for any further measures.

The Organization will continue to strive for a stable and balanced market, with prices that reflect fundamentals, and are favorable to both producers and consumers.

Crude oil reached a record $123.55 per barrel Wednesday and were $123.04 Thursday morning. As Fadel Gheit, an analyst at Oppenheimer & Co. in New York, , there is no reason why oil prices should be above $60," given that domestic crude supplies are at average levels and refineries are cutting gasoline production as high prices cut consumers demand for fuel. The physical supplies do not justify the price, it just doesn't make sense. Gheit believes that if oil prices go the way that pundits are expecting, there's no way we'll stay under $4 a gallon,

And as John Wilen in his AP piece today, many analysts feel speculative investment driven by the dollar's protracted decline is the real reason behind higher prices. However, there are other factors:

The dollar fell against the euro Thursday, attracting investors who view commodities such as oil as a hedge against inflation. Also, a weaker dollar makes oil cheaper to investors overseas.

Still, the market sometimes ignores the dollar, as it did Wednesday when oil surged to new records although the dollar advanced. Some analysts say that's a sign that many investors are buying on pure momentum -- believing prices will head higher regardless of negative data, news or dollar movements.

"There's a lot of momentum driving the oil price up," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Is there a short-range solution to our problem? One columnist says you bet there is, and our elected officials are not successfully driving it into existence.

The western United States has the largest untapped high quality oil shale reserves in the world. It is called the Green River formation. The formation is located in parts of Colorado, Utah, and Wyoming. Many processes exist for getting a synthetic form of crude oil out of oil shale. If we were to produce about 12 million barrels of shale-derived crude oil per day, we would not need to import a single drop of crude petroleum. It is known that the process is currently cost effective at $70 per barrel. The formation is also known to be so large that the region has a capacity that can last several centuries.

Yet, if supply isn't really the problem, what is? There may be some merit to the idea that a weak dollar is contributing to the problem. Oil dipped to near $123/bbl today following the previous day's new high as the dollar firmed (of course the change could just as easily been due to the phase of the moon). Likely, the difference is, indeed, speculation. While I'm certainly not an oil price guru, it seems that dropping the ridiculous environmentalist-driven policies requiring multiple blends of gas and prohibiting drilling and new refineries will be a good beginning in driving the prices back down. Should oil prices continue to rise, the voice of the American voter just may get loud enough to wake up the clueless politicians in Washington and force them to listen to common sense solutions.

Posted by Abdul at May 8, 2008 8:30 PM