Peak Oil Notes – Dec 3

Following two days of little change, oil prices fell precipitously on Wednesday after the EIA reported an unexpected 1.2-million-barrel jump in US crude stocks last week. Coupled with the likelihood that OPEC will make no significant change in its production policies when it meets in Vienna on Friday, December 4^th, New York futures fell 4.6 percent to close at $39.94 a barrel and London fell 3.8 percent to a close of $42.74. This was the 10^th straight week of stockpile increases.
 
On Tuesday, it was reported that Iraq’s November crude exports averaged 3.37 million b/d as compared to 2.7 million in October.   This was the highest Iraqi exports have been in decades, but was partly due to bad weather restricting exports in October. Russia’s oil production in November hovered near the post-Soviet record set in October. Moscow’s weak currency allows Russian oil producers to earn a fairly good price in rubles for their oil after export earnings are repatriated. This has allowed them to continue drilling as their expenses are in rubles.
 
The OPEC meeting on Friday is likely to be a lively one as the majority of the cartel’s members are facing serious domestic problems from the low prices and are calling on the Saudis, the Russians and the rich Gulf Arab states to cut production enough to force prices back up. On Wednesday futures prices rose briefly after the Iranians announced that a majority of OPEC members favor a production cut, but fell after it became apparent that the Saudis were not part of Tehran’s “majority”.  So far the Saudis have pledged to listen carefully to what the other OPEC members have to say, but along with the Russians and the Iraqis have given no indication that they intend to make significant production cuts.  This has led many analysts and traders to predict that prices will continue to fall in the days ahead. Hedge funds have never been so bearish. The short open interest in oil futures is now close to the record set in mid-August.
 
The other major event is the UN climate change meeting taking place in Paris. Unlike at the 2009 Copenhagen summit, there is some optimism that the meeting may make progress. This time around most major countries submitted their own plans to reduce their own emissions in advance of the conference. Some 150 countries have completed or are working on plans to reduce carbon emissions over the next 10-15 years. Therefore, much of the discussion this year is to focus on ways to measure and monitor progress towards the announced goals.
 
A major problem, however, is finding enough money to finance the transition to less polluting fuels by the poorer countries of the world and to help those already being affected by rising seas and changing climate.  This, of course, fundamentally involves the world’s richer countries aiding the poorer ones which in the past has been highly controversial issue. While the result of the initial plans to reduce emissions probably will not be sufficient to keep global temperatures from rising to dangerous levels, the simple fact that nearly all the world’s countries have come together, recognized the seriousness of the situation, and have pledged to do something about it is highly significant. 
 
This time China, the world’s biggest carbon emitter, is clearly committed to reducing emissions after suffering a series of life-threatening air pollution events and coastal storms, including a smog this week which forced Beijing to close 2100 factories as the air became too hazardous to support life.
 
Despite a new poll showing that two-thirds of Americans back a legally-binding climate change agreement, the US Republican Party, including its Presidential candidates, remains in denial of the imminence and dangers of global warming. On Tuesday, House Republicans passed a bill, which will be vetoed by the President, blocking new federal rules to cut power plant emissions — a symbolic move warning the climate conference that a significant portion of Americans are in denial that climate change is really happening.