Earlier this week I spoke to Jeff Rubin, former chief economist at CIBC and one of the most mainstream of the economists who believe in peak oil (in that he believes conventional oil production has peaked). He’s recently had a book published called ‘Your world is about to get a whole lot smaller’, about globalisation in the age of energy scarcity. Following is an extract of our conversation:
What do you think the oil price rise to now $68 will mean for economic recovery?
I think we’ll see a return to triple digit prices very early into an economic recovery, probably within 12 months of that recovery being under way, and I guess the issue is going to be: will the return to triple digit oil prices lead us right back into recession? Because I think triple-digit oil prices have played a much larger role in the global recession than it’s yet been given credit for.
If that is the case, will a future rendez-vous with triple digit oil lead to a similar result? Read more
Monday marked the official start of oil exports from Iraq’s Kurdistan region, celebrated by a ceremony complete with strobe lights and a musical score.
For investors who have attempted to follow the byzantine politics leading up to this event, Monday might have appeared the breakthrough that has been anticipated for a long time, after lengthy tussling between Iraq’s central government and the Kurdistan Regional Government over who had the right to authorise exports, and under what terms.
Except for the payment problem. Read more
As oil prices have raced ahead in the past few weeks, more than doubling from their low point below $33 per barrel in February, the behaviour of natural gas prices is puzzling.
Or, looked at another way, it is oil prices that are puzzling and gas prices that are easily explicable. Demand for both oil and gas is weak. Inventories for both oil and gas are high, in the US and elsewhere. In that environment, you would really expect prices to be falling.
In fact, while oil has been surging ahead, gas has been languishing. This is the chart for the US:
The red line is WTI, US crude, the blue is the Henry Hub gas price, which tracked oil pretty closely during the upswing to the peak last summer, and during the downturn through to February this year. Since then, however, the two lines have parted.
So why the divergence? Read more
We’ve been hearing for some time that input costs for oil production will begin to follow oil prices downwards – and oil services companies such as Schlumberger laying off staff certainly supported that. However it has cost savings haven’t become apparent very quickly, mostly because of existing contracts that were set at higher prices than the current oil prices. BP in late April it had seen costs fall 11 per cent, and now Shell says it is seeing signs of cheaper services now.
“As far as projects are concerned and normal operating costs, we see a
lot of our renegotiations … enter with lower costs at this moment,” Chief
Executive Jeroen van der Veer said on the sidelines of an industry conference in
More interestingly, the vast Canadian oil sands reserves, which suffered a big fall in investment as oil prices fell too low to support the expensive extraction process required, might be back in play. Read more
Oil prices slipped on Wednesday ahead of the latest US weekly inventories data while base metals were mixed and gold consolidated around the $980 an ounce level.
In oil markets, Nymex July West Texas Intermediate slipped 53 cents to $68.02 a barrel while ICE July Brent lost 40 cents at $67.77 a barrel. Read more
A difference of opinion among Opec members on the cause of the recent oil price rises was evident at the cartel’s meeting in Vienna last week, with Saudi oil minister Ali Naimi was positive about the world economy, while some of his fellow Opec members, such as Chakib Khelil, Algeria’s oil minister, were speaking more warily about whether it was fueled by speculators.
Opec’s chief economist, Hassan Qabazard, told the National Oil Companies Congress in Abu Dhabi yesterday that it ‘non-fundamentals’ were a bigger driver than fundamental – and that prices might fall again as a result. Read more
On Monday we wrote that the rise in oil prices, so far, was not in the range thought to risk threatening an economic recovery. James Hamilton, who wrote the most complete and influential study on evidence that high oil prices helped put the US into recession in late 2007, also noticed the price rise. And he doesn’t seem concerned with $65+ oil either.
Hamilton is more concerned with the reverse question, which is just as interesting (and a little more immediate): whether the rising oil prices signal an economic recovery: Read more