Crude Oil To Bust Through $93 a Barrel on Supply Concerns

asiablues's picture

Since the start of the New Year, West Texas Intermediate (WTI) crude oil have been moving with significant bearish sentiment (See Chart) mostly on a lot of profit taking going around in the commodity space, and also on concerns over the high inventory and that supplies would exceed demand. The latest jobs report only further fanned the pessimism.

However, there are two new events that could turn the market around quickly before you can say “what happened?”

Shutdown - Canadian Upgrader

First, there was a fire on Jan. 6 at an oil sands upgrader (that’s where bitumen is converted to synthetic crude oil), which forced Canadian Natural Resources Ltd. to shut production at its 110,000 barrels per day (bpd) Horizon oil sands project.

Canada is the top country where United States gets its crude oil and petroleum product imports.  This 110,000 bpd capacity is almost 6% of the U.S. daily import volume from Canada.

Shutdown - Alaska Pipeline

Then, the Trans Alaska Pipeline, which is owned by BP, ConocoPhilips, Exxon Mobil, Chevron, and Koch Industries Inc., had to shut down on Saturday Jan. 8, after a leak was discovered at Prudhoe Bay. (Talk about how BP just can’t get a break.)

The 800-mile pipeline carries about 15% of U.S. oil production. Oil producers reportedly are in the process of cutting 95% of output, which is normally around 630,000 bpd. So far, there’s no estimate as to how long the shutdown will last.

Worse Than Hurrican Ivan

These two outages could potentially cut the U.S. crude supply by up to 709,000 barrels per day. That’s about 8% of the U.S. crude import, and around 3.6% of U.S. consumption.

To put it in perspective, this 709,000 bpd volume is more than the disruption caused by Hurricane Ivan. When Ivan hit the U.S. Gulf in 2004, it took down about one third of the oil output in the region, which is around 1.6 million bpd.

OPEC Eyeing $110 a Barrel

Last but not least, several OPEC members are increasinly talking about how the Cartel would not act unless crude crosses $110 a barrel.

This new tightened supply picture, couple with OPEC talks will most likely turn crude oil to move on its own momentum. As such, there will be new money coming into the market, more upward pressure, and lots short covering.

Breaking Above $93 on Supply Concerns 

From a technical standpoint, there’s a high probability that crude could easily top $91 a barrel as early as Monday, Jan 10, before busting through $93 a barrel levels by end of the week on supply concerns. And also look for WTI to outperform Brent during the week.

Dian L. Chu, Jan. 9, 2011  | Vote for Me - Shorty Finance Award  | Facebook Page | New Article Alert | Google Profile

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hardcleareye's picture

What is the current refinery capacity projection for the next few months?  

The net cost to the user isn't just the $/barrel but the supply chain, disruptions and cost (think of Enron and "emergency maintenance" during peak electrical demand in California) of the product, gas, diesel, propane, NG....

TeresaE's picture

And no mention of the reduction in oil production from the "hiatus" of oil rigs that surround our nation.

Tools.

Why this REAL shutdown in production never turns up in evaluating the rising price of crude.

I'm starting to believe that these "accidents" seem impossibly convenient for the elite and their speculative fueled net worths.

I know, just another coincidence that transfers money from my pocket to Washington and Wall Street's.

Meanwhile, Soros is ordering custom cakes for his celebration of the growth of his net worth.  The party at Petrobas sings into the night.

hardcleareye's picture

The reason it doesn't show up is because it is "insignificant" in the grand scheme of things (lots of expense, cost overruns and poor production rates with the deep water rigs).  The total Gulf of Mexico oil production is 1.6 Million Barrels per day, of this just a small fraction is from the deep water rigs that were subject to your reference "haitus".

Go to the DOE EIA web site to review production reports..... to confirm above statement.

BigCash's picture

The depot in Oklahoma is full, as is storage in the West Coast.  Just another reason to hike prices.

malikai's picture

I don't know if anyone's watching right now, but there's an all out street brawl going on in crude right now. +.40, -.40, so on. This is good fun.

Lord Koos's picture

"BP just can’t get a break" -- because they are corner-cutting fuckups.

Sudden Debt's picture

Looks like Canada might soon be expecting some American Navy Seals to give them a hand and also free the country from their dictators and clear the weapons of mass destruction :)

rampancy777's picture

I was the last one left after the nuclear holocaust, eh. The whole world had been destroyed, like U.S. blew up Russia and Russia blew up U.S. Fortunately, I had been offworld at the time. There wasn't much to do. All the bowling alleys had been wrecked. So's I spent most of my time looking for beer.

AnAnonymous's picture

Enjoy your radioactive environment.

AnAnonymous's picture

Not that soon. North and South to the US are preserved because they are in the neighbourhood.

Currently, ME oil pays for the US projection of forces in the ME. That is how a sound extortion scheme works, get the extorted pay for the extortion scheme.

When oil runs too low to support the projection, well, the US will reduce its projection range.

At that moment, it could be that Canadian oil helps the projection of US forces into Canada. As South American oil will help the projection into SA. 

 

Extortion scheme: work on the periphery and keep the neighbourhood for the end.

CrashisOptimistic's picture

Just an FYI to whoever cares, but the pipeline in Alaska has a minimum flow rate before it starts freezing in winter.  Prudhoe is depleting pretty fast now.  The zero point is going to be well above zero, meaning that the quotes in the story are 650K bpd (it was once several million bpd) and the pipeline freezes when the flow rate gets down below (several diff numbers are in the literature) about 450K.

In other words, at 450K the pipeline can't be used.  The hot oil doesn't flow fast enough to prevent freezing and pipe damage.

This is coming and somewhat soon.

malikai's picture

Any citations to these claims would be awesome.

Drag Racer's picture

check this out...

Gov. Susana Martinez removed all the members of the state Environmental Improvement Board Tuesday for helping create an “anti-business environment.” Before being sworn in, Martinez was critical of the board’s decision to institute cap-and-trade rules in New Mexico.

http://newmexicoindependent.com/68492/martinez-axes-all-environmental-im...

mt paul's picture

walk much 

bytches...

JustACitizen's picture

Uh huh - terrific. Well, lucky for us po' folks - we only have 20 nickels in our dollar...and unlike the gubmint - we cannot just take more $$$ - so we'll probably just have to drive less.

eigenvalue's picture

Several weeks ago, you are talking about crude oil crash based on stockpile numbers. Now the price has risen and you are talking about $93 crude oil based on supply concerns. I never expected that the fundamentals change so fast in your world...

apberusdisvet's picture

The incremental economic destruction of this country moves forward, thanks to all the Marxists and Radical Progressives in power positions.  They won't be happy until Ben applies to coupe de grace; then we are all fukked (market crash within 12 months; bet on it).

Gully Foyle's picture

apberusdisvet

"The incremental economic destruction of this country moves forward, thanks to all the Marxists and Radical Progressives in power positions."

That some GOOD shit you be smoking. GOOD SHIT! HAHAHAHAHAHAHA

57-71's picture

The fire at CNRL will shut production for several weeks.
Then, they will be able to restart on half production while the other line of upgrader produces. 1/2 production could continue for 2 weeks to 4 months. No one knows yet, the investigation is not finished.
According to the company website, routine and annual maintenance was completed throughout 2010.

These upgrader fires are not altogether uncommon in this type of process.

UninterestedObserver's picture

These two outages could potentially cut the U.S. crude supply by up to 709,000 barrels per day. That’s about 8% of the U.S. crude import

 

? I thought 6% + 15% = 21%

Matt's picture

6 percent of Canada exports to the US, plus 15 percent of US domestic production. Suppose to be equal to around 8 percent of the amount the US imports in total from all external sources, or around 3.6 percent of total consumption. Without current sources, its difficult to check these numbers.

SwingForce's picture

$100 a bbl? Blow me.

Salinger's picture

re post

Market on alert over BP leak

By Sheila McNulty in Houston

Published: January 9 2011 20:18 | Last updated: January 9 2011 22:35

Oil markets were braced on Monday for the impact of the loss of up to 15 per cent of US crude after a pipeline leak forced BP the UK-based oil company, to shut down 95 per cent of production from North America’s biggest field.

http://bit.ly/gZQPFz

 

Sunshine n Lollipops's picture

I hope this 'leak' is slightly smaller than their last one.

espirit's picture

Back to basics on how da boyz can squeeze that last nickel out of a turnip.

Oil, grains, and other essential commodities.

Gully Foyle's picture

espirit

 

Arthur Clements: [proposing that Titan Oil can raise their gasoline prices] The people will accept the 12 cents now because we can blame it on the Arabs!
Adam Steiffel, Chairman Titan Oil: Ah, Arthur, you're missing the point: We *are* the Arabs.

Cdad's picture

Nice useless post based on almost nothing.  There is not a supply concern with oil at the present time.  There are useless hedge fund managers playing poker with the nation's oil futures.  Each time I see a useless post like this, it is more evidence of what I speak.

Dain L. Chu can kiss my rear end.  Get a job...a real one.

 

Non Passaran's picture

Useless compared to your useful posts posted ... Where? Or compared to your unsubstantiated and insulting comment here? LOL.

Freddie's picture

+1

The US is the largest producer and reserve for nat gas in the world.  It happned in the last 5 years thanks to George Mitchell's efforts aka horizontal drilling.  Most people are not even aware.  Thank smaller and medium sized energy companies plus Mitchell's efforts.

 

The US has almost endless supplies of nat gas, coal, oil, shale oil, hydrates - you name it - much of it locked up on federal land.  The Democrats aka stooges for the Saudis keep locking up fed land with environmntal groups which are front groups for the saudis and OPEC.  

DosZap's picture

BINGO!.

Nat Gas alone, enough to (disc so far) to power 160 million homes for over 100yrs.This does not even take into acct the HUGE field found in West Texas last week,

cosmictrainwreck's picture

yeah yeah yeah...been hearing that crap for 5 years. what's it gonna take to convert 100 million autos to natgas? then we have an effect

dracos_ghost's picture

Don't need to convert autos or anything else. You can reform the nat gas into longer hydrocarbon chains (ie gas,diesel) with little to no shock to distribution or current infrastructure. Fear mongering MSM should stay out of engineering fields. Small minded hedge fund wankers just want to spew as if they know everything and bring the world down. There is no fuel shortage. Crude oil is a FEEDSTOCK not an end product.

Crude is going up because the TPTB are creating their new little socioeconomic puppet called MENA(Middle East North Africa). Need to securitize their resources into big money. As if the world shitting a BRIC wasn't enough.

 

malikai's picture

GTL is only really useful for stranded gas reserves. In areas where there is already a market, GTL is't really economical.

http://www.chemlink.com.au/gtl.htm

dracos_ghost's picture

I think we are getting to a crossover point where it is becoming economical for more use cases and as others have said South Africa has large production now, Indonesia is another place, so it is doable. There have been huge advances in Fischer-Tropsch processess that are reducing the GTL costs dramatically.

Another point is that all the doomsday is surrounding 'light sweet crudes' which our refineries are tooled. Right now there are relatively large fractions of bunker crude(aka baby shit) products that are pretty worthless other than basis for Macadam roads. Again, innovation in catalysts and processes are advancing cracking and reforming this stuff which would mitigate some of the pain. Simple googles will give more information. The economics are not ripe here yet either but again at $110-$120/bbl, they will be looked at guaranteed (they were in 2008).

If the price is right, people will try and fill the feedstock gap (perceived or manufactured, it doesn't matter). That's why oilsands and other 'ridiculous' processes are being scaled up. We gobbled up the light crudes because sticking a straw into the ground and sucking it up was cheaper and had better margins than being creative and it was politically motivated-- bad dog. Now it's a new ballgame. Why do so many people on this site throw their hands up and say game over dude. Yes, things are f&*(ked up. They have been before and they will be in the future. People will adapt. The species is a little older than the 30 years of social engineering biodirt we are discussing here. It amazes me that posters on this site will say don't believe anything the establishment says and then buy into the Peak Oil crap.

People will innovate when greed suits them. It's a good thing.

 

rampancy777's picture

your comment is very interesting. do you happen to know of any good web sources for information on reforming natural gas into longer hydrocarbon chains? i don't know anything about this, but i would like to learn about methods and related costs.

your post also reminded me of the gasifier engine i've been wanting to build, only reverse concept. you have probably heard of gasifier engines before but they are pretty new to me and seem like they might be really ideal in some sort of doomsday scenario, and practical and cool regardless. if anyone wants to check it out fema actually released a doc in 1989 detailing the concept and execution of a basic unit. there are also more expensive prefabs available with a google search.

fema article pdf:

http://www.woodgas.net/files/FEMA%20emergency%20gassifer.pdf

thanks

AnAnonymous's picture

You can reform the nat gas into longer hydrocarbon chains (ie gas,diesel) with little to no shock to distribution or current infrastructure.

 

Most brilliant idea, most brilliant idea.

Troubles for TPTB is they are not rich enough to buy their tickets into that venture. That is why they want to maintain the oil structure.

Remember the e bubble? big money did not make it in the capital of successful e firms.

Sam Clemons's picture

a Cash for Gas (not natural) Cars program?

RmcAZ's picture

Don't give them any ideas...

TDoS's picture

When are US carrier groups going to run on natural gas?  When is large farm equipment and the US semitruck fleet getting converted to coal power?  When will plastic be made from coal? Oh, that's right, never. 

Keep dreaming.

TDoS's picture

I love the "Flag as junk" crowd, that will never accept that there could be any natural limits to consumption, who attack any comment, no matter how rational, that challenges their cornucopianism.  

The only reason anyone would ever suggest that sand be washed from tar to make fuel, is BECAUSE global conventional oil reserves have peaked.  Why would anyone, ever suggest we use a more expensive, more energy intensive product otherwise?  Please, enlighten me.

Slim's picture

1) I don't know why they junked you.

2) It's all about cost of extraction.  The low lying cheap extraction stuff is done or mostly done, that doesn't mean there isn't any oil or that oil is declining - just super cheap easy oil (or at least known fields with it).  That said, the overwhelming majority of known oil is still in the ground.  As the cheap/easy oil is used up the cost rises and it becomes economic to extract other oil sources.  Additionally technological advancement brings expensive/unextractable oil within reach constantly (same with Nat Gas and other resources).  Where people go wrong is that they view oil as binary there/not there and fixed cost to extract.  As the marginal cost rises the supply of extractable oil vastly expands.  Basically there is X amount of $50 oil in the world but many many multiples of X amount at $100 and $150.

3) I'm not making the case for infinite consumption or that we can't be a whole lot more intelligent with our energy use.  You may already know everything I've typed, not sure, but I thought it useful to put in perspective as a lot of the peak oil folk don't really think through that level.

AnAnonymous's picture

 As the cheap/easy oil is used up the cost rises and it becomes economic to extract other oil sources. 

 

 

 

Economic? Sure, sure. Economic is a great word, so meaningful.

So when a non expensive solution fades away, suddenly, the more expensive solutions become affordable.

That is what economic means.

Who wants to drive a 1.5 $M car? You just have to make sure that the less expensive offers disappear. This way, the 1.5$M car will become economic.

 

TDoS's picture

This in no way means society can afford to function on expensive oil alternatives like bitumen, liquified coal, etc.  Not to mention, the over 500,000 products made from oil, some of which have no non-petroleum replacement.  

Any argument to the contrary is an admission of ignorance as to how indebted our society is to cheap oil. 

TDoS's picture

Actually, I think this is a great response, pretty much right in line with what I would say.  Most peak oilers are right in this zone too, understanding that we are not talking about oil running out, just the cheap oil being gone.

What peak oilers worry about, is that ours is a cheap oil society, that is, we can't afford to run the western world on expensive oil (or expensive substitutes.)

Lord Koos's picture

Yes much of the low-hanging fruit has been been picked, in this hemisphere at least.

John_Coltrane's picture

Are you aware that the entire South African chemical/fuel industry (e.g. SASOL) is coal based and they are net chemical/fuel exporters?  The entire German chemical/fuel industry during WWII was coal based using coal liquefaction (essentially depolymerization of coal-the opposite of normal crude oil cracking).  So, yes, our entire countries fuel requirements could be based entirely on coal.  The key is don't burn it liquefy it to make high value chemicals.  At one time the steel making industry in this country supplied all the aromatic dyes and other chemicals used by all other industries as a byproduct of carbon steel making.

EscapeKey's picture

And you do realize the only reason the Germans performed this conversion was because they had no choice? Are you aware this process is not only enormeously wasteful in terms of energy loss, but also incredibly polluting?

Gully Foyle's picture

TDoS

"The only reason anyone would ever suggest that sand be washed from tar to make fuel, is BECAUSE global conventional oil reserves have peaked.  Why would anyone, ever suggest we use a more expensive, more energy intensive product otherwise?"

Um no Jimmy.

Oscar Goldman: Steve Austin, astronaut. A man barely alive. Gentlemen, we can rebuild him. We have the technology. We have the capability to build the world's first bionic man. Steve Austin will be that man. Better than he was before. Better, stronger, faster.