Iraq violence sends oil soaring

Sectarian violence in Iraq sent the price of oil skyrocketing on Thursday, propelling both Brent and West Texas Intermediate up more than two percent amid growing concerns about a threat to global supply.

After a delayed reaction to turmoil raging in the country, oil prices soared as open warfare between rebel forces—threatening a reconquest of Iraq barely a few years after U.S. forces departed—and the government spilled on to the world stage. Iraq is a member of OPEC, second only to Saudi Arabia as one of the world’s largest producers of crude.

With violence threatening Iraq’s civilian population and overwhelming the country’s security forces, a shadowy group known as the Islamic State in Iraq and Sham (ISIS) has managed to seize control of key cities including Mosul, the country’s second-largest, Ramadi, Falluja and Tikrit. Fears about global supply mounted, as reports surfaced that Russian tanks had moved into beleaguered Ukraine, sending crude on a tear and overwhelming the impact of lackluster U.S. economic data.

Source: CNBC

Drill, Baby Drill!

drillbabyAmerica is poised to displace Saudi Arabia as the world’s top oil producer with fracking. With that could come a hobbling of Opec and unforeseen shifts in US foreign policy.

So rapid has been the change in its energy fortunes that even some experts, as well as policy-makers in Washington, are struggling to keep up. Nor are we just talking oil. So much natural gas is being released by the shale also that for now outlandish quantities of it are simply being burned off into the atmosphere.

Even predicting future oil output isn’t the precise science you’d expect. “We keep raising our forecasts, and we keep underestimating production,” Lejla Alic, an analyst with the International Energy Agency noted recently. Last year US production reached 7.4 million barrels a day, an increase over 2012 of 15.3 per cent. A jump that large hasn’t been seen since 1951. This year the US should produce 8.3 million barrels a day.

Take another indicator – the volumes of crude being moved by trains, often a mile long, from the shale fields to refineries and terminals. In all of 2008, train companies moved 9,500 wagons of the black stuff. Last year, 400,000 of them rumbled across America.

How long America’s shale boom will last is hard to forecast also. In Texas, which on its own is set to increase production to 4 million barrels a day this year, the drilling peak still hasn’t been reached, but it’s the politicians around the world who set the price and make the markets. Increasingly, the decisions that matter will rest with the US, as it adjusts to its new status as a glut producer.

“The United States is now poised to become an energy superpower,” write By Robert D. Blackwill and Meghan O’Sullivan, in the current issue of Foreign Affairs magazine.

The consequences are likely to be far-reaching, notably affording Washington a chance it hasn’t had since the energy crisis of the early 1970s to reassess its relationships with those countries, often ruled by unappetising despotic governments – Saudi Arabia included – on which America has had to depend for so long to feed its fossil fuel needs.

“Since 1971, when US oil production peaked, energy has been construed as a strategic liability for the country, with its ever-growing thirst for reasonably priced fossil fuels sometimes necessitating incongruous alliances and complex obligations abroad,” they write. “That logic has been upended, and the newly unlocked energy is set to boost the US economy and grant Washington newfound leverage around the world.”

Among the determinations Washington must make is whether to overturn a federal law, also dating back to the early ‘70s, that forbids US companies from exporting crude in all but a few circumstances. Full energy independence may still be many years away, but proponents of ending the ban argue it would not only further boost the US economy – fracking added 0.3 per cent to GDP growth last year – but also help America mitigate or even end Opec’s market influence and lessen Russia’s leverage also.

The Russia equation has, thanks to the Crimea crisis, raced to the fore, though it is more about gas from fracking than oil. America will see captured output touch 70 billion cubic feet a day in 2014, reaching over 100 billion cubic feet per day by 2040. In the past days, Bills have been tabled in both houses of Congress demanding that the federal government speed up the granting of licences to companies to export natural gas across the Atlantic precisely to reduce the dependency of Western Europe and Ukraine on Russian supplies.

Among those wading in is House Speaker John Boehner. “The US Department of Energy’s excruciatingly slow approval process amounts to a de facto ban on American natural gas exports that Vladimir Putin has happily exploited to finance his geopolitical goals,” he said in a statement last week.

Building the infrastructure to export quantities needed to alter the energy politics of Europe will take several years. Nor will changes in America’s foreign policy stance because of its newfound oil fortunes become obvious overnight.

Indeed, some experts warn against over-stating the likely effects. “The US has a lot of interest in what’s going on around the world, in the Middle East and elsewhere, regardless of whether it is independent or self-sufficient in fuels,” Adam Sieminski, the administrator of the Energy Information Administration in Washington told the Financial Post. “Those political and economic interests will remain whether we become an exporter or not.”

As vivid as the gas flares in the Texas sky at night, however, is America’s new-found love affair with fracking. Environmentalists warn loudly of water contamination disasters and some home owners speak of being rattled by man-made earthquakes, but there is no giving it up now. It’s a whole different world to 2008, when US oil production was at a historical low and Sarah Palin was drawing liberal ire declaring that “Drill, Baby Drill!” was the answer to all of America’s problems. Suddenly she seems to have been right.

Source: The Independent

Iraq, Iran to challenge Saudi oil dominance

saudioilIraq is poised to flood the oil market by tripling its capacity to pump crude by 2020 and is collaborating with Iran on strategy in a move that will challenge Saudi Arabia’s grip on the Organisation of Petroleum Exporting Countries.

Iraq’s intention to challenge Saudi Arabia’s status as the “swing producer” in the OPEC cartel could see a dramatic fall in oil prices if Baghdad decides to break the group’s quotas and sell more of its crude on the open market.

“We feel the world needs to be assured of fuel for economic growth,” Hussain al-Shahristani, Deputy Prime Minister for Energy in Iraq told oil industry delegates attending a Chatham House Middle East energy conference.

Al Shahristani said on Tuesday that Iraq plans to boost its capacity to produce oil to 9m barrels a day (bpd) by the end of the decade as Baghdad rushes to bolster its economy, which is still shattered by war and internal conflict. Iraq was producing 3m bpd in December, according to the International Energy Agency.

“It’s very difficult to predict actual world (oil) demand by 2020 because the world economy is unpredictable,” said Mr al-Shahristani.

British oil giants BP and Royal Dutch Shell are also poised to benefit from Iraq’s ambitious production plans.

Both companies are already managing two huge oil fields in southern Iraq which are vital if Baghdad is to achieve its goal.

However, even if Iraq is able to achieve its target of boost production capacity it is unlikely to be able to put in place sufficient pipeline and port infrastructure to export the additional crude.

Iraq’s main export terminal for loading oil tankers at Al Faw near Basra will require billions of pounds worth of improvements in addition to the refurbishment of its pipeline network.

Iraq’s ambitious plan could see it clash increasingly with the regime in Saudi Arabia, which has used its influence in OPEC over the last decade to keep oil prices above $100 a barrel. Saudi itself is now under pressure to boost output to maintain market share. The kingdom pumped 9.8m bpd in December up by about 100,000 barrels from the previous month.

Experts say that attention within OPEC, which pumps 30pc of the world’s crude, could increasingly focus on compliance with more of the group’s members tempted to pump more barrels to protect their share of the market as the cartel grapples with the rise of US shale oil production.

Combined, Iran and Iraq hold greater reserves of oil than Saudi Arabia and the potential with the help of international investment to match its capacity to produce oil, which currently stands at around 12.5m b/d of crude.

Source: The Telegraph

Coming ‘oil glut’ may push global economy into deflation

oilglutOne piece of the jigsaw puzzle is missing to complete the deflation landscape across the West: a slide in oil prices. This is becoming more likely each month.

Turmoil across the Middle East and parts of Africa has choked supply over the past two years, keeping Brent crude near $110 a barrel despite a broader commodity slump. Cotton and corn prices have halved, as has the UBS index of industrial metals. Such anomalies rarely last.

“We estimate that crude oil is now the mostly richly priced commodity in the world,” says Deutsche Bank in a fresh report.

Michael Lewis, the bank’s commodity strategist, said markets face an “new oil supply glut” as three forces combine. US shale will add 1m barrels a day (b/d) to global supply for the third year running; Libya will crank up shipments after a near collapse in 2013; and Iran will come out of hibernation. “This will push OPEC spare capacity to levels last seen in the depths of the financial crisis in 2009,” he said.

Source: The Telegraph