Oil Surge Begins

Tyler Durden's picture

Just as Europe seems destined to tip into recession and the US growth miracle decouples its reality from perceived global slowdowns, the oil market steps in to balance the equation. With WTI breaking $102 and Brent over $111 this morning, driven by Iran and Syria tensions, it would seem tough for a nation exporting its way to success, that is so dependent on both domestic consumer and energy to grow 'as expected' with energy premia so high - or perhaps the justification is the energy sector will carry the S&P through the next quarter as earnings expectations are cut. Nevertheless, as Reuters points out, the risk of supply disruptions remains high.

 

Reuters: Oil up near $111 on Iran supply risk concerns

 

Oil prices rose on Monday with Brent crude futures up near $111, extending last week's gains as rising tensions between Iran and the West increased the risk of disruption to crude shipments by the world's fifth-largest oil exporter.

 

Iran warned on Sunday that any move to block its oil exports would more than double crude prices with devastating consequences for a fragile global economy.

 

Brent crude was up $1.14 at $111.08 a barrel by 1313 GMT, after last week posting a gain of more than 3 percent, its best weekly gain since mid-October. Earlier Brent had pushed to an intraday high of $111.22 a barrel.

 

U.S. crude was up 81 cents to $101.77 a barrel, having posted a gain of 4.3 percent last week.

 

Christopher Bellew, an oil trader with Jefferies Bache in London, said that worries about Iran and Syria were helping to buoy oil prices. "If Iranian exports were suspended that would be very significant as the market is tight already," he said.

 

The European Union is considering a ban - already in place in the United States - on Iranian oil imports. The storming of the British Embassy in Tehran last week has opened the door for tougher action against Iran which is thought to be working on a nuclear bomb.

 

"The risk of disruptions to oil supplies remains high," said Christophe Barret, global oil analyst at Credit Agricole CIB. An embargo on Iranian oil "would introduce severe disruption to refining in several EU countries" he said.

 

Barret added that speculation about possible military strikes on Iranian nuclear sites have helped to increase the risk premium on oil prices.

 

But on Friday, U.S. Defense Secretary Leon Panetta made one of his most extensive arguments to date against any imminent military action against Iran over its nuclear programme, saying he was convinced sanctions and diplomatic pressure were working.

 

Israel has called a nuclear-armed Iran a threat. Iran says it is enriching uranium for peaceful purposes.

 

In Syria, EU sanctions are already biting with Royal Dutch Shell shutting down its activities there.

 

On Monday, Gulfsands Petroleum said it was reviewing the impact of the latest EU sanctions against Syria on its production activities and its contracts with the Syrian government and the General Petroleum Corporation (GPC).

 

"Syria was exporting about 400,000 barrels per day at the start of the year and it is probably exporting nothing at the moment," said Bellew.

 

Oil ministers from OPEC members Kuwait, Oman and Bahrain said that the market was well supplied, echoing similar comments by Qatar's energy minister and the OPEC Secretary-General Abdullah al-Badri at the weekend.

 

OPEC will meet next week in Vienna, but with Iran holding the presidency of the OPEC conference until the end of the year, analysts do not expect much from the meeting. Iran is OPEC's second-largest producer.

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Joaquin Menendez's picture

This is why the United States will attack Iran.  Oh wait, I forgot, it's all about nuclear energy.

Temporalist's picture

Bernanke's got this covered...just give him 15 minutes.

GMadScientist's picture

Forget about nukes pointed at Israel (if only) and consider the ramifications of an Iran that is less dependent on exports or even drilling services to get the black stuff out of the ground because they have nuclear power generation to keep all those green bandanas tweeting.

How does attacking Iran lower the cost of oil again?

AladdinSaneGirl's picture

Great, will someone please tell Xcite Energy????

CPL's picture

Why would you buy an estimation company in the oil business?

 

It's a third tier business, it doesn't make oil, just tells you how much its worth.

 

WTI is your friend with Oil always.  hope you aren't underwater too much on it, your stop should have saved you in a drop. 

 

Or did you not put in a stop?  If not, I'm so sorry.

Oh regional Indian's picture

Does oil have the potential to break control and go to real value? 

All this reeks of war. Tangentially or directly. And it's been 33 years since the first great oil shock...perhaps it's time. Now, we are more dependent than ever on the supply chain choke chain.

ORI

/the-plan/

CPL's picture

The cold chain is the direct hit after the fact.  It sort of supplies us with our daily bread, literally.

 

How's things in your neck of the woods? 

Oh regional Indian's picture

Not good at all. India has the highest or close to the top three gas prices in the world. Relentless rises. Strong diesel/transporter lobby keeps it artificially low and less taxed. So petrol, which is how most of India gets by, is crazy expensive (almost $1.75 /Liter). 

And they've really broken down the traditional hub and spoke produce distribution system into a pure logistics play.

Now my veg guy has fruits from New Zealand, US (Cali/FL/OR/WA), South Africa, Oz..... then India.

Typical, destroy existing infra, then unleash a price rise squeeze and then push through some draconian regulation (tolling of all roads, per mile tax, excuse for rampant inflation...whatever).

The grip is tightening everywhere.

ORI

falak pema's picture

Ori, according to the press, the BIG retail chains are taking over in India : Carrefour and Wal-MArt. Which makes imports and sales of veggies, you name it, easy, as the Oligarch supply chain can work full blast. I see this as a move by Western Oligarchs saying to Indian Oligarchs : you scratch my back, we scratch yours, and we all make money and we all protect certain national oligarchies on both sides. Only the poor consumer gets shafted, as always.

Oh regional Indian's picture

you got it Falak. Nail on the head.

There is a lot of Kabuki going on right now, but it will pass and the systems/M&A stuff is just waiting. They have all come with Cash and Carry and other means already.

NAsty stuff.

ORI

GeneMarchbanks's picture

'Does oil have the potential to break control and go to real value? '

With global ZIRP and 'unconventional' monetary policy how does one find the real value of anything? Isn't this why many are holders of PMs?

War or inflation finally spilling over. My guess? Both.

Oh regional Indian's picture

Sure feels that way eh? See my response to CPL below. 

i can literally SEE the noose tightening.

ORI

LawsofPhysics's picture

That is what the collapse in the spread implies.  Coupled with the beating war drums and a rather muted response from China and Russia (who are fine with letting the western world destroy itself), the implication is yes.  Time for all the talking heads on CNBC to start saying otherwise in 3...2...1...

Snidley Whipsnae's picture

How can there be an imported oil shortage in the US while the supply of dollars is unlimited?

Are those pesky Persians whining about accepting rapidly devaluing dollars for their oil?

Doesn't Iran know the US is in favor of a 'strong dollar policy'? ...any day Ben will be jacking interest rates back up to the historic norm.

 

 

-273's picture

I'm pretty sure there are countries besides America who use oil, and have an increasing demand it ;)

Global oil demand is still around 87 million barrels per day (mb/d)

SRSrocco's picture

-273...VERY TRUE.  Most of the gain in refining has taken place in the Gulf States.  Older plants such as the one that just closed down in Philly...are landlocked and can't expand.  Large refineries can produce oil products cheaper than smaller ones.

That being said, the rest of the world is picking up oil demand.  This is from westexas on THEOILDRUM:

Saudi Arabia and Russia combined accounted for about one-third of Global Net Exports of oil (GNE) in 2005. Here are the numbers for recent Saudi and Russian net oil exports (BP, total petroleum liquids):

Saudi Arabia & Russia respectively, mbpd:

2005: 9.1 & 6.8
2006: 8.8 & 6.9
2007: 8.3 & 7.1
2008: 8.5 & 6.9
2009: 7.3 & 7.1
2010: 7.2 & 7.1

----------------------------------------------------

Here we can see that the top two oil exporters have declined from 15.9 mbd global net exports in 2005 to only 14.3 mbd in 2010.  All the oil exporters are increasing their own domestic consumption on top of declining production.  This is a double-whammy.

Unfortunately GROWTH IS OVER.  Any politician who says we need to grow our economy out of this mess... is totally oblivious. 

-273's picture

Yea exactly, if they sat down and watched that recent Chris Martenson presentation posted here at one of their summits they might actually finally realise that NOTHING conventional (or at all) will work to restart growth and plan accordingly. Surprised they are so ignorant actually, it's not hard to grasp the state of things once you look at the supply/demand data, and realise oil discoveries peaked over 40 years ago. Even the official I.E.A reports are finally painting a relatively clear picture of how tight supply is/will get.

Production of conventional crude oil – the largest single component of oil supply – remains at current
levels before declining slightly to around 68 mb/d by 2035. To compensate for declining
crude oil production at existing fields, 47 mb/d of gross capacity additions are required,
twice the current total oil production of all OPEC countries in the Middle East.

Snidley Whipsnae's picture

"if they sat down and watched that recent Chris Martenson presentation posted here at one of their summits they might actually finally realise that NOTHING conventional (or at all) will work to restart growth and plan accordingly"

.....................................

Chris Martenson and Kyle Bass both have it right. We're looking at growth of 1.5% gdp (maybe) as far as we can see ahead when 2.5% gdp growth is needed to stabilize the workforce at whatever level it happens to be. Muddle through is a best case scenario unless the Martians help us out with some new free energy source. 

There is no doubt in my mind that we will see wide spread social unrest. Governments have made a lot of promises that they will be unable to deliver on. Perhaps the FEMA camps are their 'plan accordingly' solution?

Pay particular attention to minutes 41 - 44...

http://www.youtube.com/watch?v=5V3kpKzd-Yw

 

SRSrocco's picture

-273... I like Chris, but those figures are pretty optomistic even in my book of facts.  Conventional Crude actually falls to approx 40-42 million barrels a day by 2035 (graph here: http://www.cleanbreak.ca/wordpress/wp-content/uploads/oilforecast.png)

Then we have the work by Jeffrey Brown and the Land Export model showing a decline of AVAILABLE NET EXPORTS by 2020:

(0.1% annual decline rate) = http://i1095.photobucket.com/albums/i475/westexas/Slide10-1.jpg

(1.0% annual decline rate) = http://i1095.photobucket.com/albums/i475/westexas/Slide11.jpg

If you take a look at those two graphs you will see that we are really SCREWED by 2020 and not 2035.  If the 33 exporting oil countries suffer a 1.0% annual decline rate, Available Net Exports (minus China-India) will only be a pathetic 16 million barrels a day in 2020, compared to 35 million barrels a day in 2010.

SEE... I make Chris Martenson look like a PIKER...

-273's picture

I agree it will be worse, according to my own research of depletion rates, new finds and growing internal demand of oil producers. both IEA and EIA have been consistently downgrading their expectations with each passing report, was just pointing out that even THEY are now admitting we need to find 2 new middle easts to offset depletion, in a relatively short space of time, which is obviously not going to happen, whatever the timescale.

Those are some scary charts man. Of course what is important is the amount of oil available to export, not just produce and those charts dont look good for those who need to import, which is most people.

AngryGerman's picture

"If Iranian exports were suspended that would be very significant as the market is tight already" - Does anyone besides me hear the Chinese laughing? 


falak pema's picture

Every time the price of oil goes up Exxon's profits double.

Sudden Debt's picture

it won't go up by that much. Maybe to 250$ a barrel. We can handle this.

 

e2thex's picture

Exxon is a sovereign nation. 

Oil kills economies.

Water scarcity kills Civilizations.  That is the Black Swan that everyone is looking for.

Sudden Debt's picture

FIRE UP ALL THE COLD FUSION REACTORS SCOTTY!!

Scotty?!....

HELLO!!!??

Anybody?!!

 

LawsofPhysics's picture

Working on it.  Refining the nuclear fuel for these babies is not trivial and requires a significant capital and energy cost up front.  We'll worry about dealing with the waste later.

In the mean time you might want to start feeding all your biodegradable waste to a methane digester.  Very easy to modify a 90's style fuel injector to run on methane or hydrogen gas.  Both gases are major products of anaerobic fermentation of your typical waste products.  The best part is your can simply cut out the catalytic convertor in your exhaust system and sell it for a few grand.

KK Tipton's picture

Build one yourself. No welding:

N55 Trike and trailer
http://www.n55.dk/MANUALS/SPACEFRAMEVEHICLES/spaceframevehicles.html

N55 SPACEFRAME VEHICLES - YouTube - http://bit.ly/ujmYIX

N55 SPACEFRAME VEHICLES - YouTube - http://bit.ly/s6AhEe

Mike2756's picture

Time for another margin hike.

j0nx's picture

Good. The higher the better because all of the bullshit, lies and fraud will be over that much sooner the higher gas goes. I almost spit my coffee on the floor at the grocery store this weekend when I saw how much groceries have risen in the past 2-3 weeks since I went. I honestly don't know why Americans aren't flooding onto the Capitol steps to demand an end to this bullshit. Paychecks stagnant, epic UE regardless of Goebbels-ized stats, and necessities rising 5% a month are starting to really grate my fucking nerves here and I am doing much better than many others out there. Yet not a peep from the lamestream media...

Chump's picture

You won't hear peeps from anyone, just gunshots.  People may be suffering in silence but they won't starve quietly.

Ruffcut's picture

Most people are narcissitic self entitled. They still think that the gubbermint is looking out for them and will resolve it.

90% of the sheeple I talk to, are clueless. Info has to be spoonfed to them via the MSM. My inlaws come over and I don't talk to thme anymore. I give up on all the morons. Pity that my doom of truth spoil their day. Fuck em.

Flakmeister's picture

Actaully there was a study out recently that found when confronted with complicated issues, most people take the "Ignorance is Bliss" approach and rationalize that the governement will take care of it...

 I'll root around for the link...

Chump's picture

I have a slightly similar experience.  I have several family members I'm close with who are well aware of the current problems even if they don't grasp the nuances.  But at the end of a good conversation, when we've finally detailed the fundamentals of why things are spinning out of control, and pondered the result of no more SNAP and bouncing gubbermint checks, they simply blank out.

"But things won't get that bad."

"But we'll get through this.  We got through the Great Depression."

Some have made just-in-case preps: couple cans of food, extra box of shells or two.  But none are prepared to go for even two weeks of real disruptions.  I've included these few in my own preps as far as antibiotics and some food, but I have to think about my own family first and foremost.  Believe me, there are others that are going to hear, "You always brushed me off when I warned you.  I can't risk my family's survival for yours."

flattrader's picture

>>>I almost spit my coffee on the floor at the grocery store this weekend when I saw how much groceries have risen in the past 2-3 weeks since I went<<<

I thought it was just me.  I had the same WTF? moment myself.  I assumed it was because I hadn't been paying attention...and I always pay attention.

LawsofPhysics's picture

Same here.  Significant increases over the last month or two.

jomama's picture

i just spent a hundred bucks on one bag of groceries yesterday.  it was a heavy bag, but god damn.

Spastica Rex's picture

The price of iPads hasn't gone up. Or houses.

kito's picture

what does that have to do with the price of tea in china?

Temporalist's picture

This is what:

"Witness last week's visit to Queens, New York, by New York Fed President William Dudley, who got a street-corner education in the cost of living.

Keep in mind the Fed doesn't think food and gas prices matter to its policy calculations because they aren't part of "core" inflation.

So Mr. Dudley tried to explain that other prices are falling. "Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful," he said.

Reuters reports that this "prompted guffaws and widespread murmuring from the audience," with someone quipping, "I can't eat an iPad." Another attendee asked, "When was the last time, sir, that you went grocery shopping?""

http://online.wsj.com/article/SB1000142405274870489360457619911345271927...

 

the not so mighty maximiza's picture

Because unemployment went down with their creative math they can ramp this oil sucka higher

Flakmeister's picture

At what point do you start fading the oil price surge? $150??

firstdivision's picture

Anyone else notice that the price of gas seems low in their area, especially relative to oil?  I know we're having a warmer than normal winter where I am at, so consumption for heating is down, but pump prices have dropped even further today here.

fuu's picture

It was $3.13 a gallon last Wednesday where I live. It is 3.33 this morning. Nothing like a 6% jump in less than a week.

firstdivision's picture

At least your area is reflecting reality with raising the price today.  My area fell, and I am at a loss.  They will probably go up 10% here tomorrow. 

fuu's picture

I was wondering what was going on to be at 3.13 last week. I actually bothered to fill up both tanks.

fonzanoon's picture

A lot of people seem to have noticed in my area. Is it the warm weather?