Peak Oil Review -
August 13th, 2007
by Tom Whipple
1. Crude and the Credit Crunch
2. The Oil Market Report
3. Nigeria
4. Energy Briefs
1. Crude and the credit crunch
After setting a new record of
$78.77 on August 1st, oil prices declined steadily for 10 days as the credit crisis stemming from subprime mortgage lending engulfed more and more financial institutions in the US and Europe. The general rationale is that the credit crisis could lead to a general economic downturn which would sharply reduce the global demand for oil in coming months. Some of the sharp drop probably was caused by hedge funds and other speculators moving money out of the oil market to deal with more pressing issues.
Even an unexpectedly steep drop in US fuel stockpiles that was revealed in the Wednesday stockpile report was not enough to stem the decline. Some traders seized on a minor drop in weekly gasoline consumption as evidence that US consumption had peaked for the year. The week before last US crude and product imports dropped a bit as did refinery outputs. The result, coupled with higher demand in 2007, was a drop of 4.1 million barrels in commercial crude stocks and 1.7 million barrel decline in gasoline stocks.
The trends in consumption, refining, and imports are beginning to worry the EIA. Although US crude inventories remain above average for this time of year, they have dropped by 11 million barrels in the last two weeks. Should crude imports continue to average about 10.1 million barrels, as they have the last two weeks, and refinery runs stay at their recent levels, crude oil inventories would fall by an average of about 5 million barrels each week putting them back to average levels by the end of August. It may be this analysis that caused Energy Secretary Bodman once again to appeal to OPEC to increase production at the September 11th meeting.
Last Friday US oil prices slipped as low as $70.10, but then rebounded on news that a tropical storm was forming off the coast of Africa. Forecasters report that conditions are favorable for the storm to grow into a major hurricane that could threaten the US in about ten days.
It is still too early to understand all of the ramifications the subprime credit crisis will have for oil prices, production, and indeed the peaking of world oil production. Right now it appears that a $7 a barrel drop in oil prices certainly will not encourage OPEC to increase production, but two weeks from now a major hurricane thrashing around in the Gulf of Mexico could change the situation radically.
The urgent and extensive efforts by European and US central banking authorities to deal with the credit crisis last week give the impression that the situation is indeed serious and that talk of the possibility of major economic setbacks ahead is not out of line. Should the credit crisis grow beyond the ability of central banks to control, then oil production and costs could become subsidiary issues in a very serious economic situation. [/quote]
Back when the credit crunch started (officially Aug 7th 07) -oil was CHEAP by your standards....This isn't going well for you Joe
Cheers
Richard
