Oil Caps Longest Rally in Two Years on Iran

Oil capped its longest rally since January 2010 as escalating tension with Iran threatens supplies and on signs of a global economic recovery.

Futures advanced above $109 a barrel for the first time in nine months as sanctions against the Persian Gulf nation make it more difficult to sell oil. Iran dismissed UN atomic inspectors’ concerns that nuclear-weapon work is occurring, a document acquired by Bloomberg News showed. American, French and South Korean consumer confidence gained, reports showed today.

“Everyone is looking at $110 oil,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “The tension between Iran and the West has risen to an incredible level. We’re trading on fear that this will deteriorate into a new war in the Middle East.”

Crude oil for April delivery rose $1.94, or 1.8 percent, to $109.77 a barrel on the New York Mercantile Exchange, the highest settlement since May 3. The front-month contract increased 6.3 percent this week. Crude’s seven-day advance was the longest since the period ended Jan. 6, 2010.

Brent oil for April settlement gained $1.42, or 1.1 percent, to $125.04 a barrel on the London-based ICE Futures Europe exchange. Earlier, it touched a nine-month high of $125.55 a barrel.

Iran “dismissed the agency’s concerns” about its nuclear program, the International Atomic Energy Agency said today in the 11-page restricted document. The Persian Gulf nation tripled its quarterly rate of producing 20 percent-enriched uranium, the according to the report from the IAEA, the United Nations’ nuclear arm.

Nuclear Program
While Iran has said its nuclear program is for civilian purposes, the U.S. and its allies have alleged Iran is developing the capacity to produce nuclear weapons. Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries, pumped about 3.5 million barrels of oil a day last month, according to Bloomberg News data.

Turkiye Halk Bankasi AS, the Turkish bank that handles payments for Iranian oil, may stop processing transactions for supplies to Turkey starting in July, according to an official at Tupras Turkiye Petrol Rafinerileri AS, which operates four plants. Tupras won’t be able to use the bank after June 30 without a U.S. waiver, the official said yesterday.

“There’s an undercurrent of fear about the Iranian nuclear situation and what that will mean for global supplies as people scramble to replace Iranian barrels,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The U.S. has offered to help India, which also uses Halk for payments to Iran, get alternative oil supplies, according to three people with knowledge of the matter.

Financial Sanctions
U.S. sanctions against financial institutions that deal with Iran take effect at the end of June, while the European Union plans to ban imports of Iranian oil from the beginning of July. Swift, the global bank-transfer service, said last week it is prepared to impose sanctions against Iranian financial institutions once the EU sets out implementation rules.

“If Swift imposes sanctions on Iran, the country will be squeezed,” Schork said. “There’s a risk they will lash out.”

Israel and the U.S. have said all options are on the table in ensuring Iran doesn’t acquire atomic weapons. The Islamic republic has threatened to block shipments through the Strait of Hormuz, a transit route for about 20 percent of the world’s globally traded crude, if its exports are blocked.

“Iran is a bullish factor that isn’t going away anytime soon,” said Peter Beutel, president of trading advisory company Cameronhanover.com in New Canaan, Connecticut. “We’re waiting for a resolution of some kind, be it negotiations or an attack by Israeli planes.”

Goldman Projection
Goldman Sachs Group Inc. said on Feb. 22 that West Texas Intermediate oil will rise this year, even as the highest U.S. oil output level in nine years threatens to increase stockpiles.

Sales of new homes in the U.S. slipped 0.9 percent to a 321,000 annual pace in January from a 324,000 rate the prior month that was stronger than previously reported, figures from the Commerce Department showed. The median estimate of 77 economists surveyed by Bloomberg News was 315,000.

The Thomson Reuters/University of Michigan final index of consumer sentiment for February rose to 75.3 from 75 in January. A measure of French consumer sentiment rose to 82 from 81 last month, national statistics office Insee said today. South Korea’s sentiment index rose to 100 in February from 98.

IMF Warning
Group of 20 finance ministers and central bank governors meet in Mexico City tomorrow after euro-area governments sanctioned a 130 billion-euro ($175 billion) aid package for Greece this week and the International Monetary Fund warned that debt concern could drag the world into another recession.

“Downside risks from a complete macroeconomic meltdown are receding fast,” said Paul Horsnell, London-based head of commodities research at Barclays Plc. “However, geopolitical risks are on the rise, with the escalating tension about Iran manifesting itself in a series of proxy wars.”

Link -
http://www.bloomberg.com/news/2012-02-24/crude-oil-rises-for-a-seventh-day-as-ir...
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A few observations -
1) Oil Prices are set to rise substantially, over the next few years, due to Peal Oil!
2) But, if the Iran situation gets out of hand, then the Oil Price rise would be much larger and possibly, much quicker!
3) The following chart on US Housing provides one very clear example of how much the US Economy has Declined in recent years, with new housing construction Peaking at around 1.4 million in 2006, it has now slipped to 321,000 and the existing homes market is absolutely clogged with massive numbers of repossessed homes or where the owners have simply walked away from them, for which no buyers can be found!

Oil shale is not a viable fuel source, study says

Scientists’ best estimates of the Energy Return on Investment (EROI) of oil shale suggest it is very inefficient compared to conventional fuel and emits up to 75% more greenhouse gases (GHGs. However, differences in the way energy efficiency is calculated can cause confusion over its potential use, according to the US study.

Shale is a sedimentary rock containing kerogen, which is heated to produce synthetic crude oil (oil shale). Liquid fuel derived from oil shale has been suggested as an alternative to conventional oil and gas. However, the energy inputs or 'costs' associated with oil shale are not always fully accounted for, leading to overestimates of its value relative to other fuel sources.

The study evaluated estimates of the energy efficiency of oil shale, using a method known as 'Energy Return on Investment' (EROI). In its most complete form, this is the ratio of the energy content of the fuel produced to the energy used over the full 'well to wheels' life-cycle of the product, including exploration, mining, processing, refining, transportation and combustion.

The most comprehensive study indicates an EROI of 2 to produce oil shale, meaning that 2 units of energy are produced for every unit consumed. This is very low compared to the EROI for conventional crude oil of around 20. Including the refining step, the EROI of producing gasoline from crude oil is around 4.7 compared to 1.4 for producing liquid fuel from oil shale.

Fully accounting for all energy used is also vital in assessing GHG emissions. Emissions from oil shale, which result from the direct energy input and as a product of the extraction reaction, are estimated to be 1.25 -1.75 times higher than for conventional crude oil. Oil shale production also requires large amounts of land and up to three barrels of water per barrel of oil produced. These environmental costs together with the low EROI lead the researchers to conclude that, although the energy accounting process needs rigourous review, there is little economic or environmental incentive to use oil shale as a fuel source.

Link -
http://ec.europa.eu/environment/integration/research/newsalert/pdf/276na3.pdf
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So, aside from the likelihood that Oil Shale is virtually an Energy sink, it is also likely that the processes involved will also cause -
1) The contamination of underground water acquifiers, with cancer causing chemicals.
2) More GHG's than Conventional Oil.
3) Earthquakes.

Beyond Thunderdome: The Facts On Oil Scarcity

I have seen more fear in the articles discussing oil scarcity than I have in those proclaiming the economic Armageddon is around the corner. While I think we are setup for an economic crash, I am not convinced the end of cheap oil is the end of civilization as we know it. Rather, I think it is the beginning of a new phase of energy usage that will simply change how we value energy and use it in our daily lives.

Supply
the Middle Eastern supply of oil has kept up with aggregate demand increases in Asia. Interestingly, Europe and the US, while large demanders of oil, have not significantly increased their demand for crude in quite some time.

Let's take a look at current oil production graphed against the historical supply growth rate. Production has recently fallen off the 30 year trend, but not as dramatically as originally predicted.



Most supply increase has come from OPEC nations, with US production at 13 year highs owing to hydraulic fracking in shale and carbonate plays. Canadian supply is down slightly. Brazillian supply is down. African supply is down sharply mainly due to conflicts in Sudan.



Costs and EROI
Getting oil out of the ground costs us money. Costs have been rising over time to produce a barrel of oil, and hence the price of oil has increased in unison.

Break-even costs for extracting oil have been rising.



Not all oil is equal; costs of production versus market price gives some producers an advantage.

It is plainly obvious that the energy return on investment for oil has sharply fallen in the US since the beginning of the oil boom age. This is true everywhere. Common EROI values for major forms of energy are shown next.



Just looking at the first EROI graph creates panic that the world as we know it is about to end. But EROI as traditionally presented is a bit of a math trick. EROI is the ratio of the amount of oil we get for each equivalent barrel of oil energy used in extraction. So a 20:1 return implies that for every barrel of oil energy equivalent expended, we get 20 barrels of oil energy in return. As the number falls to 7:1 for most oil sands projects in Canada, it is easy to imagine where gasoline prices should triple in short order. But that hasn't quite happened.

Reserves
Future oil production and supplies are what interests most economists and investors looking to make decisions on what to do next with oil. It is interesting to note that world proved reserves have increased quite substantially in the past 20 years.





Heavy oil, which is harder to process, and oil sands bitumen make up a significant portion of reserves. In addition, the growing gap of new oil discoveries shows that we aren't going to see cheaper oil in our lifetime, unless an astounding breakthrough in mining technologies drives costs of more difficult oil extraction lower. The reasonable expectation here is that innovation in drilling oil will keep prices from rising exponentially in the near term, but not keep them from rising faster than the general level of economic inflation we see in other commodity prices or in gold. Oil is just going to get more and more expensive to gather.





At the end of the day, we are running out of cheap oil. But several factors will mitigate how much damage is done by this, and how quickly. If we act on the several profitable energy projects available to us, and intelligently shift usage of other transportation energy substitutes, we can mitigate the impact of the coming oil drain will have on our way of life. And perhaps we can stop spending $1.2 trillion on oil wars and realize THAT money could have been much better spent proactively planning for the changes in our energy futures.

Link -
http://seekingalpha.com/article/701261-beyond-thunderdome-the-facts-on-oil-scarc...
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Ah, finally remembered, unfinished business here!

1) The first graph, Production - Actual Vs Historical Trend, indicates that Production has now begun the process of decoupling Actual Production from the Historical Demand trend line and that is confirmed by the second chart, the World Oil Supply & Demand chart.
2) The third chart, on the Breakeven Oil Prices for various Oil Producers, confirms that Prices have risen, as the older/cheaper fields have gone into decline.
3) The Net Energy Cliff chart indicates the diminishing returns on Energy, as we move from the older Oil Fields, to the newer ones and as we move to the newer Energy Products, such as Tar Sands & Bio-Diesel.
4) The Growth in "Proven Oil Reserves" is rubbish, given that much of the new reserves is a fictitious invention out of the OPEC countries & much of the rest is in newer, low EROI Products, such as TAR Sands & Heavy Oils, which is confirmed by the World Oil Reserves chart and the collapsing Oil Discovery rate since the mid 1970's.
5) Finally the US Energy use chart, demonstrates the absolute reliance on fossil fuels, particularly bearing in mind the long lead in times to change to new Energy sources, should they miraculously appear!

Peak Oil: ABC 4 Corners

http://www.abc.net.au/4corners/special_eds/20060710/default_full.htm

Beware The Coming Bear Market In Oil

The crude oil price chart for the past year resembles a roller-coaster ride. After climbing through the late fall and winter, prices peaked earlier this spring, dropped precipitously through May and June, and then rebounded during the summer.



Volatility continued last week, beginning with a mini "flash crash" on Monday afternoon, as oil prices dropped by nearly $4 in just a few minutes. Prices dropped further on Tuesday based on news that Saudi Arabia was pumping more than 10 million bpd in order to bring down prices.

In total, oil prices dropped nearly $10/barrel from the Monday high to the Wednesday low. However, oil recouped several dollars of its losses on Thursday and Friday, due in part to supply outages in the North Sea.

Oil's trading action last week could be indicative of a small correction to establish a new trading range, or it could be the beginning of a more sustained drop in oil prices. I am inclined to believe that oil prices will continue to drop through the fall. There are three primary reasons for this: 1) growing U.S. oil production; 2) seasonally lower demand; and 3) global economic weakness.

Domestic oil production has grown by over 500,000 bpd year over year (nearly 10%) according to recent EIA statistics. While production in Alaska is decreasing, this is far outweighed by growing output in the lower 48 states, most notably from the Bakken formation in North Dakota.

Beyond seasonal factors, world oil demand is stagnating. Whereas the oil market was helped last fall by the belief that Chinese demand would continue to grow, recent economic data from China points toward a "hard landing." None of the other major world economies (the U.S., EU, and Japan) are showing significant growth, either. Additionally, the U.S. and other developed countries have made considerable efficiency gains in recent years, which will permanently lower demand. U.S. gasoline usage has been dropping since the 2008 recession.

Since oil demand in the U.S. and other developed countries has already peaked, and China (the largest developing economy) is mired in a slowdown, there are no demand-side drivers to keep prices above $100.

The oil market has seen violent swings in recent years; once the market recognizes the extent of excess supply available, prices could drop rapidly.

Link -
http://seekingalpha.com/article/883011-beware-the-coming-bear-market-in-oil?sour...
==================================
The central question is, how can "Unconventional" Oil sources intend to compare with the EROEI of "Conventional" Oil and the answer is it can't!

My reasoning here is that Conventional Crude Oil started with an EROEI that was probably a little North of 100/1, but that is now Globally under 50/1 and depending on circumstances, in specific instances it may already be under 20/1, depending on where the Oil comes from and where it's going to.

For "Unconventional" Oil sources 20/1 would be an absolute luxury! In fact, the EROEI of much of the "Unconventional" sources are 5/1 & under.

My point is that Global Economic growth in the modern era has largely come from -
1) Population Growth.
2) Spare Energy Capacity, arising largely from a high EROEI, sourced mainly from Oil & Coal.
3) High Productivity Growth, arising from new Technologies & a large spare Energy capacity.

It should be apparent that Population Growth is now levelling off, prior to going into Decline, as 2 Billion Baby Boomers Globally first retire, and then die over the next 20-30 years.

It is also apparent that spare Energy Capacity has been in Decline for quite some time and that the continuing Depletion of "Conventional" Oil will speed the Decline of the EROEI of Global Oil Energy, to under 5/1, in the not too distant future.

A combination of the above is already resulting in much greater stresses, in Global Productivity & Economic Growth.

Arising from the above, plus historic Global Debt levels & Climate Change related issues affecting Food & water Supply & Pricing, I expect to see the current GFC, re-ignite and force the Global Economy into another serious & this time lengthy slowdown.

Due to these factors, I see the WTi Oil Price going to around the $50-$60 range, over the next couple of years.

However, it will then take off again, irrespective of the state of the Global Economy, when the Demand/Supply realities catch up & it becomes apparent that Consumption/Demand is only somewhat elastic, whilst the Production/Supply of Energy (specifically Oil) is now far less elastic, as Oil Supply (that is actual Production, not so called Reserves) continues to go backward, relative to the Population/Demand curve.

The reason that Prices will again take off is simple, it is because these sources of "Unconventional" Oil will prove incapable of Producing sufficient actual volume, to offset the Depletion rate of existing Global "Conventional" Oil fields and when it finally becomes obvious that Supply can not keep up with even a lowered Demand, then Oil Prices will surge?

That Oil Price surge will further Decimate the disposable income of individuals, businesses & governments, by forcing up Energy & all related Product Costs, which is pretty much everything!

Now, there was & is a 3rd component to modern era Economic Growth & that is Technology. And, it just may be that the Technology cavalry will ride over the hill and save us, at the last moment?

But, I must say, there is nothing currently, even on far horizons, that would suggest any Technology revolution of the nature & scale required AND I really must recommend that relying on last minute miracles is not good Public Policy!

Btw, there may well be other costs to include in the Fracking process, which is one of the new "Unconventional" Oil sources, than would automatically be included in their EROEI.

Just as the Japanese are now finding out with their Nuclear industry, it is likely there will be additional costs to Fracking, according to seismologists?

The End Of An Era

The economy as we know it is facing a lethal confluence of four critical factors – the fall-out from the biggest debt bubble in history; a disastrous experiment with globalisation; the massaging of data to the point where economic trends are obscured; and, most important of all, the approach of an energy-returns cliff-edge.

Through technology, through culture and through economic and political change, society is more short-term in nature now than at any time in recorded history. Financial market participants can carry out transactions in milliseconds. With 24-hour news coverage, the media focus has shifted inexorably from the analytical to the immediate. The basis of politicians’ calculations has shortened to the point where it can seem that all that matters is the next sound-bite, the next headline and the next snapshot of public opinion. The corporate focus has moved all too often from strategic planning to immediate profitability as represented by the next quarter’s earnings.

This report explains that this acceleration towards ever-greater immediacy has blinded society to a series of fundamental economic trends which, if not anticipated and tackled well in advance, could have devastating effects.

The growth dynamo winds down
One of the problems with economics is that its practitioners preach a concentration on money, whereas money is the language rather than the substance of the real economy. Ultimately, the economy is – and always has been – a surplus energy equation, governed by the laws of thermodynamics, not those of the market.

Society and the economy began when agriculture created an energy surplus which, though tiny by later standards, liberated part of the population to engage in non-subsistence activities.

A vastly larger liberation of surplus energy occurred with the discovery of the heat engine, meaning that the energy delivered by human labour could be leveraged massively by exogenous sources of energy such as coal, oil and natural gas. A single US gallon of gasoline delivers work equivalent to between 360 and 490 hours of strenuous human labour, labour which would cost perhaps $6,500 if it were paid for at prevailing rates.

Energy does far more than provide us with transport and warmth. In modern societies, manufacturing, services, minerals, food and even water are functions of the availability of energy. The critical equation here is not the absolute quantity of energy available but, rather, the difference between energy extracted and energy consumed in the extraction process. This is measured by the mathematical equation EROEI (energy return on energy invested).

For much of the period since the Industrial Revolution, EROEIs have been extremely high. The oil fields discovered in the 1930s, for example, provided at least 100 units of extracted energy for every unit consumed in extraction (an EROEI of 100:1). For some decades now, though, global average EROEIs have been falling, as energy discoveries have become both smaller and more difficult (meaning energy-costly) to extract.


The killer factor is the non-linear nature of EROEIs. As fig. 1.5 shows, the effects of a fall-off in EROEI from, say, 80:1 to 20:1 do not seem particularly disruptive but, once returns ratios have fallen below about 15:1, there is a dramatic, ‘cliff-edge’ slump in surplus energy, combined with a sharp escalation in its cost.

Research suggests that the global average EROEI, having fallen from about 40:1 in 1990 to 17:1 in 2010, may decline to just 11:1 by 2020, at which point energy will be about 50% more expensive, in real terms, than it is today, a metric which will carry through directly into the cost of almost everything else – including food.

Crisis, culpability and consequences
If the analysis set out in this report is right, we are nearing the end of a period of more than 250 years in which growth has been ‘the assumed normal’.
That comfortable assumption is now in the process of being over-turned.

The views set out here must provoke a host of questions. For a start, if we really are nearing a cliff-edge economic crisis, why isn’t this visible already? Second, who is to blame for this? Third, how bad could it get? Last, but surely most important, can anything be done about it?

Where visibility is concerned, our belief is that, if the economy does tip over in the coming few years, retrospect – which always enjoys the 20-20 vision of hindsight – will say that the signs of the impending crash were visible well before 2013.

Aren't companies now in sourcing (getting jobs back from overseas!).

Globalisation was a good theory, and while it has made companies rich, hasn't really made the standard of living better for anyone.

SHALE AND WALL STREET:
WAS THE DECLINE IN NATURAL GAS
PRICES ORCHESTRATED?

In 2011, shale mergers and acquisitions (M&A) accounted for $46.5B in deals and became one of the largest profit centers for some Wall Street investment banks. This anomaly bears scrutiny since shale wells were considerably underperforming in dollar terms during this time.

As prices plunged, Wall Street be gan executing deals to spin assets of troubled shale companies off to larger players in the industry. Such deals deteriorated only months later, resulting in massive write-downs in shale assets.

As documented in this report, emerging independent information on shale plays in the U.S. confirms the following:

Wall Street promoted the shale gas drilling frenzy, which resulted in prices lower than the cost of production and thereby profited [enormously] from mergers & acquisitions and other transactional fees.

U.S. shale gas and shale oil reserves have been overestimated by a minimum of 100% and by as much as 400-500% by operators a ccording to actual well production data filed in various states.

Shale oil wells are following the same steep decline rates and poor recovery efficiency observed in shale gas wells.

The price of natural gas has been driven down largely due to severe overproduction in meeting financial analysts’ targets of production growth for share appreciation coupled and exacerbated by imprudent leverage and thus a concomitant need to produce to meet debt service.

Due to extreme levels of debt, stated proved undeveloped reserves (PUDs) may not have been in compliance with SEC rules at some shale companies because of the threat of collateral default for those operators.

Industry is demonstrating reticence to engage in further shale investment, abandoning pipeline projects, IPOs and join t venture projects in spite of public rhetoric proclaiming shales to be a panacea for U.S. energy policy.

Exportation is being pursued for the
differential between the domestic and international prices in an effort to shore up ailing balance sheets invested in shale assets.

It is imperative that shale be examined thoroughly and independently to assess the true value of shale assets, particularly since policy on both the state and national level is being implemented based on production projections that are overtly optimistic (and thereby unrealistic) and wells that are significantly underperforming original projections.

Unconventional oil and gas from shales has been claimed to be a game changer, revolutionary, “a gift and national treasure”. Resource estimates for the U.S. have been giddily referred to as larger than “two Saudi Arabias” by Chesapeake Energy CEO Aubrey McClendon. It has even been said that shale oil and gas will provide energy independence for the U.S. While such statements are expected from an industry which stands to gain monetarily, a careful, thorough and independent examination of shale production data and company filings demonstrate that shale promises have been vastly overstated, leading to troubling prognostications for the shale industry as a whole and for those regions exploited or planning to be exploited for this resource.

Shale development is not about long-term economic promise for a region. Such economic promise has failed to materialize beyond the first few years of a shale play's life in any region of the U.S. today that has relative shale maturity.

Shale development is not about the long-term financial viability of shale wells. The wells have not performed up to expectations. Well decline curves are precipitously steep in shale gas and even steeper in shale oil based on historical production data filed by the operators in various states.

Shale development is not about vast reserves or “100 years of gas.” A recently published report reviewing production data of over 60,000 shale gas and oil wells observes that U.S. shale gas has been on a plateau since December 2011, and that 80 percent of shale gas production comes from five plays, several of which are in decline. Further, according to a recent report by the Oil and Gas Journal, and industry publication, it is confirmed that the recovery efficiencies of shale plays are truly dismal.

The energy context
For the past 100 years fossil fuels have held the primary position as the drivers of the U.S. and western economies. Nevertheless, fossil fuels are finite. New deposits of hydrocarbons have proven harder and harder to replace. 

Further, there are various grades and types of hydrocarbons, some much more efficient as fuels than others. Additionally, some hydrocarbons simply require such an expenditure of energy to extract and produce that their use becomes questionable. This measure is referred to EROI (energy returned on investment) and is often seen as a ratio. For
instance, it is estimated that in the early days of the U.S. oil industry, the EROI for oil was 100:1 (that is, 100 units of energy recovered for every one unit of energy invested) but this has since declined to an EROI of under 20:1.
Because unconventional hydrocarbons like tar sands and shales are by definition more challenging (i.e., more energy-intensive) to produce, they generally have very low EROIs:  ikely well under 5:1.

Link -
http://shalebubble.org/wp-content/uploads/2013/02/SWS-report-FINAL.pdf
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In short, this field is high on HOPIUM!