Peak Oil Notes – Dec 18

After setting recent lows of $53.60 in New York and closing at $59.86 in London on Tuesday, futures ended up higher on Wednesday, after volatile trading with wide price swings, closing at $56.47 in New York and $61.18 in London. Most observers are saying the pause in the rapid decline in oil prices is mostly techincial and that lower prices still are expected.
 
The weekly stocks report showed high levels of refining continues; the US crude inventory is down by 800,000 barrels vs. an expected drop of 2.5 million; and the inventory at Cushing, Okla. rose by 2.9 million barrels to the highest level since March.
 
While there has been much cheering over the $400 million a day American consumers have been saving on lower oil prices, others are starting to talk about the long-term consequences of what is likely to be falling investment in finding and drilling for more oil.  Goldman Sachs is warning that $1 trillion worth of oil production projects are threatened by the lower prices and that the loss of these projects will lower global oil supply by 7.5 million b/d in the next decade.
 
Most attention this week has focused on the continued fall of the Russian ruble and Moscow’s unsuccessful efforts to contain the situation. What started as satisfaction that Putin’s aggressive geopolitical policies were back firing under the combined weight of lower oil prices and Western sanctions is turning into fears that Russia’s economy is on the verge of collapsing into a depression.  There are fears that there will be massive defaults on the hundreds of billions owed to European banks that will in turn spread to other markets. The precipitous drop in the value of the ruble that is taking other currencies along with it is compounding the problem. Finally there is the possibiity that Putin might lash out in desperation by cutting gas supplies to Western Europe or even launching some new military adventure to distract attention from the faltering economy. All we know now is that the situation is serious and could have major consequences in the coming year.
 
Elsewhere in the world, China’s economic troubles continued with another drop in industrial activity. Beijing announced that a major downward revision in the size of its 2013 GDP will be announced later this week after a new census of economic activity.  China continues to fill its strategic oil reserves at the current low prices. Oil going into the reserve is expected to make up a major share of any increase in China’s oil imports next year.
 
There is a nationwide oil-worker strike in Nigeria which could threaten oil exports. However, in the past Nigerian oil-worker strikes have usually been short-lived.
 
President Obama has blocked drilling for oil and gas in Alaska’s Bristol Bay.