if you think the oil situation is bad worse is, page-2

Interesting article Sandy however what is not covered is this - no mention of Brazil which is being identified by some as the place where our reliance on Mid East Oil will come to and end.

In the immediate future we have BP closing their pipeline in the North Sea due to an industrial dispute at their Scottish Refinery, Nigeria and Persian Gulf tensions b/w the US & Iran. Where will it all lead? I don't happen to subscribe to Lehman's view (it is incidently the forecast by many in the oil industry since the end of last year and the beginning of this year) but time will tell:

Who will get their forecasts right and who will get them wrong? It would however be wrong for people to discount what is going on with the commodity as much of what happens in the world is effected by it.

Some reading to get you thinking:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/24/cnoil124.xml&CMP=ILC-mostviewedbox

Lehman warns that oil boom will deflate
By Ambrose Evans-Pritchard
Last Updated: 12:33am BST 24/04/2008

The roaring oil boom of the last few months may be on its last legs as economic growth slows hard across the world and a clutch new refineries come into operation, Lehman Brothers has warned in a hard-hitting report.

“Supply is outpacing demand growth,” said Michael Waldron, the US bank’s oil strategist.

“Inventories have been building since the beginning of the year. We have pretty significant projects starting soon in Saudi Arabia, and large off-shore fields in Nigeria,” he said.

The Saudi Khursaniya field has just opened with 500,000 barrels a day (b/d) of production, and the new Khurais field will start next year with a further 1.2m b/d.

The Saudis have pledged to spend $90bn (£45bn) on their oil industry over the next five years, lifting capacity to 12.5m b/d by the end of 2009.
US crude prices retreated yesterday from their all-time high of $119.90 a barrel earlier this week.

The latest spike was driven by fears that the 'Forties Pipeline’ from the North Sea might be closed as a knock-on effect from threatened strike action at Scotland’s Grangemouth oil refinery.

Lehman Brothers said the price of oil had been pushed to inflated levels by a $40bn inflow into commodity index funds this year, much of it coming from Mid-East sovereign wealth funds.

The petro-investors may have second thoughts about gaining “double exposure” to commodity prices.

“Financial flows have been the marginal driver of prices since the onset of the credit crunch. Investors are using oil as a hedge against inflation and a falling dollar,” said Mr Widmer.

The index effect has lifted prices by $20 to $30 a barrel. This could reverse sharply once the dollar starts to stabilize against the euro, since the euro/dollar exchange has become the proxy watched by oil traders for signals.

A dollar recovery may be on the cards after the G7 powers issued a statement condemning big moves in currencies as a threat to financial and economic stability, choosing the exact wording used before the joint intervention by central banks in September 2000.

A clutch of new refineries will add almost 8m b/d of new capacity by 2010, including a 600,000 b/d plant opening this year in India.

The cost of oil field machinery and rig maintenance has at last levelled after three years of galloping inflation. Drilling costs have even started to fall in the United States, while deep-water rig-rates have stopped rising after jumping fourfold from 2004 to 2007.

These are all time-honoured signs that the cycle may have topped.

Ominously for oil bulls, the underlying value of oil company reserves has slipped slightly over the last two years, failing to “confirm” the huge rise in spot oil prices. The divergence is a warning sign.

It invites arbitrage by hedge funds, who may start to take out “short” positions on crude futures.

The build-up in supply is taking place at a time of cooling world demand. Recession in the US is expected to curb consumption by 300,000 b/d this year.

Lehman has trimmed its forecast for global growth from 1.5m b/d to 1.1m b/d, predicting a slide in prices to $83 next year and $70 to $80 in 2010 – still high by historical standards.

For now, prices remain as tight as a drum. Russian output fell 1pc in the first quarter of this year. Nigeria, Venenezuela, Iraq, and Iran have all suffered setbacks, failing to meet supply targets.

The Saudi government appears to have backed away from its earlier plans to boost capacity to 15m b/d. King Abdullah said he wished to leave some of the country’s untapped reserves in the ground for future generation, rather than exploit it now.

The 'Peak Oil’ theorists may yet win the argument.



http://www.bloomberg.com/apps/news?pid=20601109&sid=aBUoYKhu7PWk&refer=home

Brazil Oil Finds May End Reliance on Middle East, Zeihan Says

By Joe Carroll

April 24 (Bloomberg) -- Brazil's discoveries of what may be two of the world's three biggest oil finds in the past 30 years could help end the Western Hemisphere's reliance on Middle East crude, Strategic Forecasting Inc. said.

Saudi Arabia's influence as the biggest oil exporter would wane if the fields are as big as advertised, and China and India would become dominant buyers of Persian Gulf oil, said Peter Zeihan, vice president of analysis at Strategic Forecasting in Austin, Texas. Zeihan's firm, which consults for companies and governments around the world, was described in a 2001 Barron's article as ``the shadow CIA.''

Brazil may be pumping ``several million'' barrels of crude daily by 2020, vaulting the nation into the ranks of the world's seven biggest producers, Zeihan said in a telephone interview. The U.S. Navy's presence in the Persian Gulf and adjacent waters would be reduced, leaving the region exposed to more conflict, he said.

``We could see that world becoming a very violent one,'' said Zeihan, former chief of Middle East and East Asia analysis for Strategic Forecasting. ``If the United States isn't getting any crude from the Gulf, what benefit does it have in policing the Gulf anymore? All of the geopolitical flux that wracks that region regularly suddenly isn't our problem.''

Tupi and Carioca

Brazil's state-controlled Petroleo Brasileiro SA in November said the offshore Tupi field may hold 8 billion barrels of recoverable crude. Among discoveries in the past 30 years, only the 15-billion-barrel Kashagan field in Kazakhstan is larger.

Haroldo Lima, director of the country's oil agency, last week said another subsea field, Carioca, may have 33 billion barrels of oil. That would be the third biggest field in history, behind only the Ghawar field in Saudi Arabia and Burgan in Kuwait.

Analysts Mark Flannery of Credit Suisse Group and Gustavo Gattass of UBS AG challenge the estimate for Carioca. Lima, the Brazilian oil agency director, later attributed the figure to a magazine.

Flannery told clients during an April 16 conference call that 600 million barrels is a ``reasonable'' estimate and suggested Lima may have been referring to the entire geologic formation to which Carioca belongs.

Supply Boost

Carioca is one of seven fields identified so far in the BM- S-9 exploration area, part of a formation called Sugar Loaf.

If additional drilling by Petrobras, as Petroleo Brasileiro is known, confirms the Tupi and Carioca estimates, the fields together would contain enough oil to supply every refinery on the U.S. Gulf Coast for 15 years. Petrobras said it needs at least three months to determine how much crude Carioca may hold.

Zeihan said that beyond supply gains from Brazil, it will take a tripling of Canadian oil-sands output and greater fuel efficiency to end Western reliance on Middle East oil.

The U.S. imports about 10 million barrels of oil a day, or 66 percent of its needs, according to the Energy Department in Washington. Saudi Arabia was the second-largest supplier in January, behind Canada.

Persian Gulf nations accounted for 23 percent of U.S. imports, compared with Brazil's 1.7 percent share. Brazilian crude output rose 1.9 percent last year to 2.14 million barrels, according to the International Energy Agency.

``Hemispheric energy independence sounds a little pie-in- the-sky given that this hemisphere already is generating one- third of overall global demand,'' said Jason Gammel, an oil analyst at Macquarie Bank Ltd. in New York. ``It's pretty tough to talk about self-sufficiency unless we were to see food-based biofuels taking an even bigger role in the next five to 10 years than is already mandated.''

Offshore Fields

Zeihan predicts a 2012 start to production at Tupi. Technology needed to tap fields like Tupi, which sit hundreds of miles offshore beneath thousands of feet of rock, sand and salt, hasn't been developed, he said.

Petrobras, Chevron Corp., Royal Dutch Shell Plc and Norsk Hydro ASA plan to start pumping oil from eight Brazilian fields in the next 2 1/2 years that will produce a combined 1.02 million barrels a day, enough to supply two-thirds of the crude used by U.S. East Coast refineries.

More discoveries will follow in Brazil's offshore basins, most of which have yet to be opened to exploration, Zeihan said. Repsol YPF SA, Exxon Mobil Corp. and Devon Energy Corp. are among the producers scouring Brazil's waters for reserves.

``The finds they've got so far are just the tip of the iceberg,'' Zeihan said. ``Brazil is going to change the balance of the global oil markets, and Petrobras will become a geopolitical supermajor.''