When the oil market is going up, people always make hyperbolic predictions about how high it can go. When oil was over $40 per barrel in the early 1980s, people said it was going to $100. When it was over $100 in 2008, people said $200, or $250. It takes a special sort of courage to predict soaring prices after a collapse. Step forward Matthew Simmons, founder of Simmons & Co, an investment bank specialising in energy. He is quoted on the Forbes website predicting a $500 barrel “somewhere in the next two to five years”.
If he is right, it would certainly solve the energy industry’s cash-flow problem, at the cost of finishing off whatever is left of the world economy by then.
On the other hand, as the excellent energy blogger Robert Rapier points out (scroll down), Mr Simmons has sometimes been wrong.
China’s latest move to scoop up natural resources assets at depressed prices is CNPC’s $357m bid for Verenex Energy of Canada. Recently most of the commitments by Chinese companies or the government have been as loans or equity stakes, rather than takeovers, but advisers believe that more bids are coming.
After the EIA storage data this week created some excitement that gasoline demand had stabilised,
On the supply side Conrad Gerber of PetroLogistics tells the WSJ that “the floor has been reached” as we are seeing unusually high levels of compliance from Opec members – now estimated by PetroLogistics at 83% of the 4.2m cumulative cuts announced since September. In fact Gerber says this, combined with non-Opec countries such as Mexico and Russia seeing their output fall as their fields decline, means Opec could reach its desired price of $60 to $80 later this year.
But what about demand? Year-on-year comparisons are already affected by the fact that the run-up the June price peak was already starting to take effect. The Oil Drum’s Gail the Actuary puts together a nice chart from EIA data comparing the previous three years. Note that this includes non-gasoline petroleum products.
Total petroleum demand
Commit more money for renewable energy efforts: Obama’s budget will call on Congress to create a cap-and-trade program in which companies would have to pay for permission to emit greenhouse gases. Revenue from the program is intended to pay for a $150 billion renewable energy fund among other things.
The new cap-and-trade program would pay in large part for making the Making Work Pay credit permanent, which the White House estimates will cost $537 billion over 10 years.
Brad Plumer reports from a media conference call:
The administration is aiming for a cap and trade system to be up and running by 2012, but that assumes an extremely fast passage through Congress which an official admitted is ‘optimistic’
- The White House is expecting the price of carbon will settle at around $20 per tonne.
- They are assuming zero free giveaways of new permits – auctions only
Clean coal sceptics have a new weapon: film-makers. The Coen brothers havedirected a satirical TV spot for the Reality Alliance, a coalition of environmental organisations dedicated to tackling the coal industry’s arguments that it is in fact not so bad for the environment.
And it doesn’t stop there.
After weeks of criticism that the USO’s 20% stake in the Nymex WTI contract was distorting the benchmark oil price, the Commodities and Futures Trading Commission last night announced it was investigating the situation.
Criticism of WTI late last year and in January focused on whether storage at Cushing, the delivery point for the WTI contract, was depressing the price as its neared capacity.
But in recent weeks and days USO has been the focus of claims of distortion in the contract, as retail investors piled in to take advantage of low oil prices (a practice which many argue was utterly misguided) – and one of the most strident critics is analyst Olivier Jakob of Petromatrix.
Energy news from elsewhere:
- Total may cut as many as 300 refinery jobs, CGT says (Bloomberg)
- Chevron says 3 projects delayed, raises cost targets (Bloomberg)
- Oil close above 34-day mean may spur rally (Bloomberg)
- Shell’s oil sands expansion costs rise, partner says (Reuters)
- CNPC buying Verenex to scoop up Libyan oil assets (Reuters)
- China gambles on expansion of its oil sector (WSJ)
Energy news from the FT:
- US watchdog probes ETF’s oil contract stake
Fears United State Oil Fund’s activities distorting market
- BG sweetens bid for Australia’s Pure Energy
Third offer aims to thwart rival Arrow
- Centrica has options if British Energy deal falls through
CEO focused on inking a deal ‘for value’
- Indonesia’s Adaro expects virtually no impact from crisis
Supplier to Thai Power and J-Power confident of weathering storm
- Sonagas to pursue plan in Equatorial Guinea
Will partner with Eon Ruhrgas to form West Africa gas hub
- Xstrata faces protest over £4.1bn rights issue
Several top investors to abstain or vote against deal
The most noteworthy feature of today’s results from Centrica, Britain’s biggest energy supplier, is the 36 per cent rise in tax payments to more than £1bn. The reason: a shift in the mix of profits away from the downstream and towards the more highly-taxed upstream business, giving a group tax rate of 53 per cent which is the highest of any large British company. Even Shell and BP pay a lower rate.
Centrica’s problem is that its gas production is concentrated in the UK, where on most of its fields it pays a 75 per cent tax rate.
It is not just Vladimir Putin and Hugo Chavez who know how to gouge the industry.