2011 in Review
A massive earthquake in March off the coast of Japan triggered a killer tsunami that knocked out nuclear power plants and affected world oil prices. (image: nationalgeographic.com)
A devastating Japanese tsunami, the Arab Spring uprising in the Middle East and dramatic developments in US crude production helped characterize oil markets in 2011.
The US Energy Information Administration released its 2011 in Review yesterday, a summary of the key developments that affected crude and heating oil supply and demand last year.
The earthquake and tsunami that devastated Japan in March knocked out nuclear power plants and initially cut oil demand, sending prices lower, as the Japanese economy faltered. However Japanese oil demand rebounded as Japan sought alternative energy supplies to rebuild.
Transportation bottlenecks in the US caused massive backlogs of crude oil at inland US markets, largely due to rising oil production in the US and Canada. This triggered a record price spread between the US benchmark West Texas Crude and European benchmark North Sea Brent. The two oil grades have historically traded within similar ranges and edged closer towards year’s end.
Dramatic developments in shale oil production, including the proliferation of hydraulic fracturing and horizontal drilling, helped boost oil and natural gas production in the US to record levels. Similar advances in Canada and Brazil mean the Americas are edging closer to oil “self-sufficiency”, the EIA said.
“The result is that refined product trade flows are being redrawn. In 2011, the United States shifted to net product exporter status for the first time since at least 1949.”
The Arab Spring uprising sent political shockwaves around the world, as oil-producing nations in the Middle East wrestled with internal pro-democracy tensions, raising the treat of global oil supply disruptions.
A bloody civil war in Libya to overthrow dictator Colonel Muammar Gaddafi sent oil prices skyrocketing when the North African nation’s 1.5 million daily barrels of oil supply was cut off.
The subsequent failure of OPEC oil producers in June to agree to a production increase triggered a strategic oil reserve release of 60 million barrels coordinated by the International Energy Agency – just the third such release in history. Debate raged about whether this helped bring prices down or whether the prospect of less crude in reserve for future supply shocks had in fact caused prices to rise even further.
Looking ahead, there are fears Middle Eastern regimes that have launched massive spending programs in the past year to counter pro-democracy insurgency will favor higher oil prices during 2012 to pay balance their books.
And developments in Iran, which faces more international sanctions in response to its apparent nuclear weapons program, threatens to to send world oil prices higher, having already breached the $100 a barrel mark this week.
Mild Weather Could Cut Fuel Oil Bills
Mild weather means heating oil prices could drop. But strong overseas demand for diesel is pushing fuel oil prices up. (image: topnews.in)
A warmer than normal start to the heating season is cutting into demand and means homeowners face lower than expected heating oil bills, the Energy Department says.
But the savings could be offset by strong international demand for diesel, a distillate similar to heating oil, which is pushing fuel oil prices up, nasdaq.com reports.
In its monthly Short Term Energy Outlook, the Energy Information Administration said this week that early winter temperatures were milder than last year’s. Heating degree days, a measure of heat fuel demand, had dropped more than expected in all US regions apart from the West. The EIA has therefore revised its forecast household oil use lower. The average home would use 650 gallons of heating oil this winter – down 4.1 percent on last year.
That will be welcome news in the Northeast, where heating oil is most commonly used as a primary heating source – though the EIA said the warmer temperatures would result in only a smaller price increase than that already predicted last month.
But because of strong global demand for diesel, average residential heating oil prices are still forecast to hit a record $3.82 a gallon – a 13 percent increase on last winter. In dollar terms, the average home will pay $2492 for heating oil this winter, up 8.4 percent from a year ago, the EIA said.
HeatingOil.com has previously reported that diesel is nearly identical to heating oil. As diesel futures are not traded on world commodities markets, heating oil is often traded as a proxy. When diesel is in high demand globally, investors will often buy heating oil futures in diesel’s place, pushing fuel oil prices up.
This leaves heating oil customers and dealers in a tough position, with little price reprieve in the current environment.
National distillate inventories have climbed in recent weeks, indicating tapering demand because of mild weather. But average residential heating oil prices are still nearly 70 cents a gallon higher than they were a year ago, with further increases likely when the cold weather kicks in.
Crude Prices Surge Past $100
Iranian supreme leader Mahmoud Ahmadinejad faces harsh international sanctions amid signs his regime's nuclear program is ramping up. Fears that world oil supplies could be disrupted is helping push prices higher. (image: truthdig.com)
Crude oil broke through the psychological $100 a barrel mark this week for the first time since July, usatoday.com reported.
Heating oil prices are closely linked to those of crude. Crude has now surged 26 percent since the end of September and its rise will affect heating oil customers when it comes times to refill their home fuel tanks. The rally in world oil prices follows increased optimism about the US economy and growing tensions in major oil producing countries.
Crude settled at $102.59 a barrel on Wednesday but pulled back slightly yesterday. Fox News reported that West Texas Intermediate crude had not traded above $100 since July 26.
Though the US benchmark has climbed sharply in recent months, it is yet to reach its 2011 high of $114 a barrel that it posted in late April. Crude prices later fell on a faltering US economy amid fears of withering demand that sent prices crashing to $75.
But the US Energy Department reported this week that weekly crude inventories had fallen 1.1 million barrels, indicating steady demand. Distillate inventories, which include heating oil and diesel, tumbled by more than two million barrels last week as homeowners turned up the thermostats now the heating season is underway.
Jobless claims in the US fell last week according to Labor Department figures. But consumer spending was up and the manufacturing and construction sectors were also more buoyant. A growing economy means more industry and higher demand for oil products.
Meanwhile the threat of harsh international sanctions is growing against OPEC hawk Iran amid signs its nuclear program is gaining pace. Oil production in Nigeria has also suffered more sabotage, spills and thefts – creating uncertainty around its oil supplies to the US and elsewhere. The tensions are pushing oil prices higher on speculation world oil supplies could face disruptions.
Meanwhile residential heating oil prices in the US continue to rise, gaining seven cents in the last week, according to figures released yesterday by the Energy Information Administration. The average residential price is now 82 cents higher than it was 12 months ago.
Distillate Reserves Take Record Hit
US distillate inventories tumbled six million barrels last week in their biggest fall since 2004. (image: flickr.com)
National reserve inventories of heating oil and diesel have just taken their biggest weekly hit since 2004, Bloomberg reported.
The surprise six million barrel distillate draw-down, which sent oil prices even higher last week, was revealed in the Energy Information Administration’s weekly inventory data report. But it comes at a time when Northeast distillate supplies, which include heating oil and diesel, are already well below average. And average residential heating oil prices are now 80 cents a barrel more than they were 12 months ago, with prices forecast to rise even further this winter.
In its Heating Oil Watch report, the EIA says East Coast distillate inventories typically build to a peak in November to help meet winter demand in December, January and February. However they have been declining since the end of August and are now 11 percent below their five-year average. The Northeast is the nation’s biggest heating oil market, with millions of homes reliant on fuel oil for warmth during the harsh winter heating season.
The EIA attributes this year’s lower stocks largely to foreign export demand, with Europe and Latin America leading the charge. The US exported a record 895,000 barrels per day of distillate fuel in August, the most recent month data is available for. Distillate exports from the East Coast have increased 59 percent (33,000 bbl/d) between January and August compared to the same period last year.
While East Coast distillate inventories are tracking lower, Gulf Coast inventories are still quite high, meaning total US stocks are “more comfortable than East Coast data alone would suggest,” the EIA said. But with limited spare pipeline capacity between the Gulf Coast and Northeast, the most likely method to move oil domestically between the regions is by sea, which is slow and expensive, adding more cost to struggling oil users in North Eastern states.
But the EIA said overall, inventories were “adequate” as we head into winter. The US residential heating oil markets was shrinking, meaning less reserve stock was needed to meet forecast heating demand from homes. This was backed up by the International Energy Agency, which said Friday that the US and other industrialized countries were using less heating oil, reducing the impact of cold weather on demand. The number of households in the US Northeast using fuel oil had dropped 20 percent since 2003, the IEA said.
EIA Launches Weekly Heating Oil Price Data
The EIA has launched weekly heating oil and propane price data as the heating season gets into full swing. (image: newenglandpost.com)
Average heating oil prices across the Northeast and Midwest region rose 9 cents in the last week and are already 80 cents a gallon more than at this time last year.
The EIA, a branch of the US Energy Department, has just launched its annual State Heating Oil and Propane Program (SHOPP). The program provides weekly data on heating oil and propane prices during the annual heating season, which run from October to March.
Energy prices usually rise in the Northeast and Midwest region during the annual heating season on the back of spiking demand as temperatures plummet. During this time the EIA provides weekly oil price monitoring data collected from 22 different states. Officials say the data is useful for policymakers and consumers if supply disruptions emerge during the heating season or winter temperatures become unseasonably cold.
“Unlike natural gas and electricity, which are provided through utility companies, heating oil and propane are sold by independent dealers,” the EIA said. “Both dealers and their customers are subject to considerable supply and price uncertainty. SHOPP enables better communication regarding market developments between fuel providers and state governments.”
Less than 10 percent of US households rely on heating oil to heat their homes. But the Northeast is by far the nation’s heaviest user, with millions of the region’s homes reliant on fuel oil for warmth
According to the EIA’s 2009 Residential Energy Consumption Survey, nearly half of New England homes (41.8 percent) use heating oil for their primary source of space heating.
The EIA predicted earlier this month that average heating oil prices this winter would hit their highest ever levels on the back of cooler temperatures and volatile world crude oil prices. The average home is expected to pay nearly $2500 between now and March, about $200 more than during the last heating season.
However there are hopes that prices will become more stable now federal regulators have signed off new rules designed to rein obsessive speculation in oil markets to help prevent volatile winter spikes in the cost of oil.
Weekly price data figures released last week by the EIA show average residential heating oil prices increased by nine cents a gallon during the week ending October 17. Average prices are now 80 cents a gallon more than at the same time 12 months ago. Wholesale prices are also up 83 cents a gallon compared to a year ago.
Heating oil prices will vary across the nation according to regional wholesale prices, transportation distances from refineries, infrastructure issues and independent oil suppliers’ overhead costs.
New Anti Speculation Bill Introduced
Excessive speculation is blamed for driving up the cost of crude, gasoline and heating oil. But new legislation introduced in Congress aims to clamp down Wall Street traders and make oil prices less volatile. (image: the BBC via bbc.co.uk)
New legislation has been unveiled in Congress in a bid to crack down on unchecked speculation in oil markets and help reduce oil prices.
It comes as the Commodity Futures Trading Commission (CFTC) announces further delays in implementing long-awaited position limits that would clamp down on profiteering Wall Street traders.
Rep Peter Walch (D-Vt) has introduced a new bill that would stipulate how much oil and other energy futures any one speculator could control. Under the Anti-Excessive Speculation Act of 2011, no single speculator could hold more than 5 percent of oil market contracts, greatly reducing the ability of speculators to manipulate prices.
Many commentators blame speculators for artificially driving up the cost of crude, gasoline and heating oil, and other commodities, in a bid to make huge profits.
Walch’s bill would also cap the overall level of speculation in a market at its historic 25-year average. The bill’s sponsors say this could reduce oil speculation by up to 55 percent. Additionally, the bill would force regulators to ensure that commodity prices more closely reflect actual supply and demand.
“While energy market speculation may be just another chip at the Wall Street casino, it’s ripping off consumers at a time when they can least afford it. This legislation sends a clear message to profit-driven market speculators: Your days of unfettered gambling on the tab of the consumer are numbered.”
Though crude prices plummeted to a one-year low last week, heating oil prices are already high as we enter the winter heating season. The US Energy Department forecasts prices to rise further as temperatures dips and winter heating demand spikes.
The CFTC was mandated under last year’s Dodd-Frank financial reform act to draw up speculative “position limits” to rein in excessive speculation in commodity markets. Though repeatedly delayed, the rules were finally meant to have been unveiled this week. However this now looks unlikely till later this month.
Welch’s bill has already gained the support of key consumer groups, including The Americans for Financial Reform, a coalition of more than 250 national and state organizations that support Wall Street reforms. The coalition includes heating oil dealers and petroleum marketers.
The bill’s sponsors said speculation had dramatically increased energy prices. They cited a Goldman Sachs note from earlier this year which said speculation added at least $20 to the price of a barrel of oil.
Crude Settles at Lowest Level in a Year
Frantic trading at the NYMEX saw crude prices plunge to their lowest level in a year on Friday. (image: ridelust.com)
Crude oil futures have plunged to their lowest level in a year, settling below $80 a barrel for the first time since September 29, 2010.
Heating oil prices are closely aligned to those of crude. A sharp dip in world crude prices could put pressure on the price of heating oil as we move towards winter and hit the start of the heating season.
In frantic last-minute trading on Friday, crude shed $2.94, or 3.5 percent, to finish at $79. 20 at the New York Mercantile Exchange, the Wall Street Journal reported. The selloff set a new 52-week low for crude futures.
Though prices had been depressed throughout the day, they slid dramatically in the last 25 minutes. Once the $80 a barrel level was breached it triggered automatic sell orders, accentuating the fall.
“It looks as if the equity market and the dollar drove prices below $80, and it triggered some pretty strong technical selling,” said Gene McGillian, a broker and analyst at Tradition Energy.
Oil prices have fallen this year from a high of $114 a barrel, largely on fears the global economy could slide into another recession and dampen demand for oil.
Heating oil prices, however, remain stubbornly high heading into the heating season. The US Energy Department is also forecasting further price hikes this winter because of colder seasonal temperatures and strong international demand.
The wsj.com reported that Friday’s decline was also fueled by investors dumping risky positions ahead of the weekend amid more negative economic news. The bleak reports included new concerns about slowing growth in China and declining personal incomes in the US. Ongoing concerns about the European debt crisis are also creating uncertainty.
“It definitely took a precipitous fall here,” said Sean McGillivray, a vice president and broker at Great Pacific Wealth Management. “People are taking risk off the table. Crude oil is probably the number one risk asset out there, next to gold and copper.”
Crude oil prices have fallen below the $80 mark eight times since Aug. 9, only to bounce back up into the $80-$90 range.
Crude oil contracts for September fell 11 percent – the largest monthly loss since May 2010. And in the third-quarter, oil prices shed $16.22, or 17 percent – the steepest fall since the fourth quarter of 2008 when a global financial meltdown sent oil prices crashing to record lows.
Heating Oil Dealers Say Oil Prices Too Volatile
Heating oil dealers are refusing to offer prepaid oil contracts because oil prices remain to volatile. (image: heatingoil.com)
More heating oil dealers in Pennsylvania are refusing to offer pre-paid oil contracts because of volatility in oil markets and unpredictability of prices.
Heating oil prices are now between 60 cents and $1 a gallon more than they were this time last year, readingeagle.com reports.
Historically oil prices are low at this time of year before beginning their seasonal climb during winter. That has enabled customers to lock in cheaper oil deals early in the season to guard against spiking winter prices.
But some dealers and a US Energy Department economist say current prices are artificially high and could even drop in the near term if demand falters and investors decide to pull their money from oil markets. That could burn homeowners who have locked in pre-paid oil contracts expecting the normal seasonal spike.
Craig Priebe, vice president of heating oil company Penn Pride, said customers last year could prepay for heating oil for the entire season at a locked in price of $2.54 per gallon.
“This year I’m not even offering a prepaid price because I think the current price is artificially high,” he said.
Priebe said if he allowed homeowners to buy oil at last week’s market price of $3.34 per gallon and prices later tumbled, he would have a lot of unhappy customers.
By December last year, the company was charging $2.90 a gallon for 150 gallons or more. That meant customers who had locked in the $2.54 price in September were happy. Heating oil prices rose steadily through winter until the price hit $3.50 at the end of April.
But instead of dropping back in May and June, prices have continued to climb this year for no apparent reason, he said
“In my mind, oil isn’t worth $1 more this year. You used to be able to predict how prices would perform. Those days are over.”
Energy Information Administration economist Neil Gamson said fears about global oil supply and burgeoning demand from the likes of China and India could force oil prices higher this year. However worries about the faltering global economy could also move prices down.
“There has been a lot of economic disappointment in the US, Europe and other places that can drive prices lower,” Gamson said.
The EIA is forecasting heating oil prices to rise this winter, reaching $3.74 per gallon by Dec. 31 and ending the heating season at a $3.95 per gallon high by March.
HeatingOil.com has also reported that strong overseas demand for distillate fuels is also driving the price of heating oil up.
But despite the official price outlook, Mohnton-based heating oil company I.H.S Fuels owner David DeGezell is also refusing to offer pre-paid prices this year, or advising homeowners when to make their oil purchases.
“The market is too volatile,” DeGezell said.
He had given up trying to predict which way heating oil prices would go this winter.
“You don’t know what the market is going to do this afternoon.”
New IEA Head on Strategic Oil Reserves
New IEA head Maria van der Hoeven is vowing not to use member states' strategic oil reserves in a bid to lower world oil prices. (image: parool.nl)
A watchdog for 28 oil-using nations has appointed a new head who promises not to use strategic oil reserves to influence world oil prices.
Maria van der Hoeven is the International Energy Agency’s (IEA) new executive director. She replaces Nobuo Tanaka of Japan.
In an interview with Reuters from the group’s Paris headquarters, Van der Hoeven said the IEA’s emergency oil reserves were only to be released in cases of supply disruptions, not to help the economy or lower world oil prices.
“It is an answer to a supply disruption and it ought to be an answer to a supply disruption,” Van der Hoeven said.
The IEA’s 28 members are required to hold stocks equal to 90 days of their consumption. The US reserve holds 727 million barrels of crude oil in caverns along the Gulf of Mexico coast,
In June the organisation coordinated a 60 million barrel release from its members’ strategic oil stocks to counter the ongoing loss of Libyan oil exports due to civil war.
The move followed OPEC’s failure to agree to a production increase in Vienna.
Oil prices initially fell before rebounding, though they have since tumbled even further amid concerns for the world economy and global oil demand.
The June release was only the third in the IEA’s 37-year history. The US contributed about half of the 60 million barrel release. Some experts claimed that dipping into emergency reserves could actually push oil prices higher as it left oil-using nations with less contingency measures in the case of another oil shock.
Van der Hoeven, a former Dutch economy minister who started at the IEA this month, said the June emergency oil release was a success.
You do it for the right reason, and the right reason is always to have a solution for a disruption of supply. That’s what it’s intended to be.
The IEA has repeatedly said this year oil prices pose a threat to growth, and that the rally of European benchmark Brent crude above $90 a barrel threatens the global economic recovery.
But van der Hoeven dismissed a widespread perception at the time of the IEA release that the agency had acted to protect industrialized countries from rising oil prices. “I wasn’t there when the debate was going on, but definitely not.”
Meanwhile, she plans to build closer relationships with OPEC oil-producing countries and also foster ties with non-IEA countries China and India, whose burgeoning economies are creating massive international oil demand.
“It’s very important to have them associated with the IEA and to have joint working programs with those countries,” she added.
UK Heating Oil Websites Slammed By Watchdog
A freezing winter saw heating oil prices spike in the UK. Many households faced massive heating bills, sparking accusations of price gouging. (image: panoramio.com)
Websites offering price comparisons between heating oil dealers in the UK have been sanctioned by a consumer watchdog and forced to change their practices.
An investigation by the Office of Fair Trading (OFT) has criticised three price comparison websites for not disclosing links with heating oil dealers and even posting false testimonials.
About four million homes are not connected to the mains gas grid in the UK and more than one million rely on heating oil. Unprecedented price spikes last winter lumped many homeowners with huge heating oil bills, forcing many into fuel poverty and in need of fuel aid assistance.
The OFT found that some heating oil users could have been misled by the website, the BBC reported. The sites were not open enough about links to single supplies while looking like bona fide price comparison services. The investigation found:
* False testimonials on the fuelfighter.co.uk website run by WCF Fuels Ltd.
* The boilerjuice.co.uk price comparison website failed to be clear about its links to parent company DCC plc, which owns the largest heating oil distributor in the UK, GB Oils Ltd.
* Changes were needed to the cheapheatingoil.co.uk website run by Johnston Oils Ltd.
“Our investigation has aimed to ensure that any relationships between businesses supplying heating oil and websites are transparent and that the number of prices that have been compared by the website is stated prominently,” said OFT spokesman Clive Maxwell. ”It is important that people can genuinely shop around and make informed decisions about which suppliers to use.”
Watchdog Consumer Focus said heating oil customers faced massive bills last winter after oil price spikes. The organisation had raised concerns about price gouging tactics at the time, sparking a separate investigation by the OFT – due to report back next month.
“We would urge anyone worried about the cost of heating oil to buy before winter kicks in to avoid paying peak prices,” said spokesman Adam Scorer.
Energy Minister Charles Hendry said “decisive action” by the OFT would prevent people being misled “and sends a clear signal that a fair and open market is essential for consumers to make informed decisions about which suppliers to use for the best price.”
HeatingOil.com deplores such action by overseas websites. Unlike the UK sites, HeatingOil.com has no links to any one oil supplier, meaning we are independent from the industry. We aim to put customers in touch with several different suppliers in their area, enabling consumers to make the best choice for themselves in terms of oil prices and services.
US distillate Exports Booming
Snow blankets a Boston street. Heating oil prices are tipped to spike again this winter as temperatures dip and demand rises. (image: ysvoice.tumblr.com)
Strong overseas demand for distillates continues to drive heating oil prices, despite warmer weather and lackluster heat fuel demand here in the US.
Figures released by the Energy Information Administration show US exports of distillate fuel, which include heating oil and diesel, reached 656,000 barrels per day last year, and have grown each year since 2003.
Overseas demand is so high that during the first six months of 2011, diesel exports averaged 730,000 barrels per day – a 32 percent increase on the same period in 2010.
The surge in foreign diesel demand and offshore distillate exports is helping support heating oil prices, with further rises tipped once US winter demand spikes. The EIA predicted in July that heating oil prices would rise 28 cents a gallon by next year – a 7.4 percent increase.
As reported previously on HeatingOil.com, heating oil is a distillate petroleum product which is almost identical to diesel. As diesel futures are not traded on world commodities markets, heating oil is often traded as a proxy, so the two products are closely linked in price.
If energy traders predict a surge in diesel demand, they will buy up heating oil contracts for a profit, in turn driving up the price of heating oil for dealers and their customers.
Central and South American countries imported nearly half the US distillate exports last year – 311,000 barrels per day. Mexico was the region’s largest importer, averaging 94,000 daily barrels.
The EIA said limited refining capacity in those countries combined with their relative proximity to Gulf of Mexico refining markets also contributed to the rise in US distillate exports.
Europe was also a big importer of US diesel and heating oil. The Netherlands was the single largest importer in 2010, buying 115,000 barrels of distillate per day. However, much of this was likely consumed in other Western European countries as Amsterdam and Rotterdam are major hubs for the European petroleum market.
European diesel imports have increased for many years as the continent’s transportation sector becomes more diesel-intensive. Europe also requires very low sulfur diesel fuel, which many refiners outside the US cannot produce.
In the US, stringent low-sulfur heating oil and diesel standards are being mandated in numerous states for environmental and health reasons.
The New York Mercantile Exchange is to discontinue its heating oil futures contract in 2013. It will be replaced by an ultra low-sulfur diesel contract in response to changing environmental regulations in New York State and elsewhere.
Exxon Signs Prized Access Deal to Russian Arctic
Russia's Arctic Ocean could be opened up to deepwater drilling under a landmark deal with Exxon Mobil. (image: yahindnews.com)
Exxon Mobil has signed a landmark deal with Russia to explore for oil in the potentially lucrative but notorious Arctic Ocean, nytimes.com reported.
The deal will see Russian firms take ownership in some US oil drilling operations in the Gulf of Mexico and land-based hydraulic fracturing wells in Texas.
The Arctic is estimated by the US Geological Survey to hold one-fifth of the world’s undiscovered, recoverable oil and natural gas. But opponents fear its pristine environment could be destroyed by a major spill and clean-up operations hampered by its harsh icy conditions and permanent darkness in winter.
The Kara Sea in the Arctic was once seen as a useless, ice-clogged backwater. But oil companies are now taking notices as the sea ice recedes, making exploration and drilling more feasible.
Russian Prime Minister Vladimir Putin announced the deal, describing it as a potentially vast investment by Exxon in the Russian Arctic, worth as much as $500 billion.
“The scale of the investment is very large. It’s scary to utter such huge figures.”
Exxon officials later said the figures, at least initially, were more likely to be in the tens of billions of dollars.
About 60 percent of Russia’s export revenue is dependent on petroleum. Russia now pumps more oil than Saudi Arabia so its oil policies have big ramifications for world oil supplies, which affect heating oil prices in the US.
However Russia’s onshore fields in Siberia are in decline, threatening the Eastern block nation’s petroleum wealth and political clout.
The Exxon deal is important for Russia as the state-owned Rosneft oil company would become part-owner of Exxon US drilling operations. This will enabling Russia to learn more about deepwater drilling and hydraulic fracturing in order to utilize the technical expertise to expand its domestic oil operations.
The Rosneft play in the US is among the most significant attempts by foreign companies to acquire US oil fields and is likely to be reviewed by Washington.
Alan T. Jeffers, a spokesman for Exxon, said Rosneft would be subjected to the same regulatory oversight in the United States as any other oil company.
The Arctic deal also comes at a time when oil companies’ attempts to drill for deepwater oil deposits off the coast of US and Alaska are being restricted amid environmental concerns from BP’s Deepwater Horizon Gulf of Mexico spill.
The American Interior Department eased restrictions this summer by granting Royal Dutch Shell conditional approval to drill exploratory wells in the Arctic Ocean off Alaska’s coast starting next year.
Keystone Pipeline Necessary to Supply US Refineries
Hundreds of protestors campaigning against the proposed Keystone XL pipeline were arrested this week outside the White House. The pipeline would carry more than 500,000 barrels of tar sands crude from Alberta Canada to US refineries each day. (image: upi.com)
The US State Department has issued its final environmental impact and safety assessment on the controversial Keystone XL pipeline, Reuters reported.
It says the $7 billion proposed project, which would pump 500,000 barrels a day of tar sands crude from Alberta, Canada to refineries and production hubs in Texas and Oklahoma, would have “no significant impact” on the environment.
Proponents of the ambitious 1711-mile pipeline say it would help guarantee US oil supplies from a neighboring ally, reducing our reliance on oil imports from volatile Middle Eastern countries. It would also create thousands of jobs and boost economic development and wealth.
However critics argue the pipeline is a potential environmental calamity. They fear oil spills contaminating major aquifers that provide drinking water to millions of people in eight states, irrigation for huge swathes of US agriculture, and habitats to thousands of animals and plants.
There are also claims the pipeline would contribute to global warming as tar-like sands crude requires greater energy to extract and process than conventional oil, generating more greenhouse gas emissions in the process.
However, the State Department report, released Friday, says the pipeline would not significantly threaten water in the Great Plains or have serious impacts on climate change, miamiherald.com reported.
Officials predict the pipeline would suffer nearly two oil spills each year in excess of 2100 gallons. The existing Keystone pipeline, which began operating in June 2010, has experienced 14 spills so far.
However no spill would hurt the entire Northern High Plains Aquifer System, nor would the pipeline cross any “sole-source aquifers, or aquifers serving as the principal source of drinking water,” the report said.
Furthermore, the environmental assessment argues the pipeline is necessary because refineries in Texas - which account for half the nation’s refining capacity - have declining supplies of heavy crude from Mexico and Venezuela.
Fourteen alternative pipeline routes were considered but ruled out because of cost, technical problems or environmental risks.
Though the report is not the final go-ahead, it will lend weight to pipeline proponents in the Obama administration, who have argued that Canada will continue to exploit Alberta’s oil sands whether or not the Keystone pipeline goes ahead.
“The sense we have is that this oil sands is going to be developed and therefore there’s not going to be any dramatic change in greenhouse gas if the pipeline was to go forward or without the pipeline,” Kerri-Ann Jones, the assistant secretary of state for oceans and international environmental and scientific affairs, said in a briefing.
Keystone, according to the report, must take steps to prevent damage from geologic hazards, erosion of soil, contamination of water bodies and soil, destruction of wildlife and fisheries, loss of endangered plants and animals and noise pollution.
But pipeline critics remain unconvinced. Hundreds have been arrested in peaceful protests against the project outside the White House last week.
“The US State Department’s final report on the Keystone XL is an insult to anyone who expects government to work for the interests of the American people,” Sierra Club executive director Michael Brune said.
The Obama administration must make a final decision on the pipeline by November.
Investment Banks Slash Oil Price Forecasts
There are hopes the rebels' advance will topple Libyan leader Moammar Gadhafi and allow the country to resume production of its 1.3 million daily barrels of crude. (image: thetechherald.com)
Some of the biggest Wall Street investment banks have slashed their oil price forecasts to reflect developments in Libya and general economic gloom.
But the bearish sentiments come just weeks after Goldman Sachs and the International Energy Agency predicted surging world demand would send crude and heating oil prices higher next year.
JP Morgan and Citibank Group both trimmed their projected prices for crude this week, citing waning oil demand forecasts and an improving supply picture, marketwatch.com reported. Morgan Stanley and Goldman Sachs sounded notes of caution.
Citigroup’s projections were the most dramatic. The bank cut its price forecast for the US benchmark West Texas Intermediate crude to $72 a barrel for 2012 – down from a previous forecast of $80. Crude oil contracts were selling for more than $85 a barrel yesterday.
“Falling oil demand growth is paralleling recent macroeconomic headlines and points to lower prices ahead,” the bank said in a note.
The price revision comes amid fears the world economy is slipping back into recession following sovereign debt crises in Europe and worrying economic signals from the US – the world’s biggest oil using nation.
But the discounted forecasts also reflect this week’s developments in Libya. Oil prices spiked this year to 30-month highs after a civil war to topple Libyan leader Moammar Gadhafi halted production of the North African country’s 1.3 million daily barrels of crude, disrupting world oil supply. But now that rebels have stormed the capital Tripoli, there are hopes Gadhafi will be forced from power and Libya’s oil production can soon resume.
JP Morgan also lowered its price projection, tipping Europe’s benchmark crude, Brent, would slip $9 next year to $115 a barrel. Goldman Sachs acknowledged that a speedy end to violence in Libya could boost the world’s oil supply. Morgan Stanley said a return of Libyan production would dent its oil price outlook in the short-term.
Oil prices, which peaked at $140 a barrel in 2008, crashed to $30 a barrel when the global financial crisis hit and demand bottomed out. This week’s revised price forecasts carry significant weight in oil markets and are watched closely by investors for signals of where the market is headed.
As heating oil prices are closely linked to those of crude, a drop in actual prices would likely lead to savings for home heating oil customers. But many commentators are picking prices to surge again when demand peaks this winter.
Oil Speculators Named in Secret Data Release
Independent senator Bernie Sanders blames speculative traders like investment banks and pension funds for artificially driving up the price of oil. (image: schema-root.org)
The release of secret oil trading data naming big investment banks and hedge funds has shed light on speculative activity just before the 2008 financial crisis.
The information was collected by federal regulators and made public Friday by Vermont independent senator Bernie Sanders. Sanders said it showed speculative traders were responsible for the 2008 spike in oil and gas prices, burlingtonfreepress.com reported. They deserved to be publicly named.
“This report clearly shows that in the summer of 2008 when gas prices spiked to more than $4 a gallon, Goldman Sachs, Morgan Stanley, and other speculators on Wall Street dominated the crude oil futures market causing tremendous damage to the entire economy,” Sanders said in a statement.
“The CFTC (Commodity Futures Trading Commission) has kept this information hidden from the American public for nearly three years. That is an outrage.”
Wall Street speculators have been blamed for artificially driving up the cost of crude, heating oil and gasoline by making massive bets on prices for huge profits, with no intention of using the oil they buy and sell.
The US Energy Information Administration predicts the price of heating oil in the Northeast this winter will be 33 percent higher than last year.
The Dodd-Frank financial reform act, passed by Congress a year ago, gave the CFTC powers to implement new rules to crack down on speculators and prevent volatile spikes in commodity prices. But the rules have been delayed amid fierce opposition from the banking sector while regulators seek more information.
Along with banks such as Morgan Stanley Group and Goldman Sachs, traders listed in Sanders’ data release include hedge fund operators and pension funds. End users like airlines and heating oil dealers, who legitimately invest in oil futures to lock in prices, were also listed.
“The American people have a right to know exactly who caused gas prices to skyrocket in 2008 and who is causing them to spike today,” Sanders said.
In his statement, Sanders called CFTC claims that it needs more data to impose speculative position limits “laughable.”
“We have a responsibility to do everything we can to lower gas prices so that they reflect the fundamentals of supply and demand and bring needed relief to the American people,” he said.
In a letter to CFTC chairman Gary Gensler, Sanders called for an emergency meeting to crack down on speculators and provide needed relief for motorists and residents in cold-weather states, like Vermont, who face sharply higher prices this winter for heating oil, opednews.com reported.
There is little doubt that the same speculators who caused gasoline and heating oil prices to unnecessarily spike in 2008 are playing the same games again in 2011. This is simply unacceptable and must not be allowed to continue.
Heating oil dealers are part of a coalition campaigning for the new rules to be implemented to help lower oil prices and provide more certainty in oil markets.
Heating Oil Price Trend for August 23: unchanged
Rebels have moved into Tripoli, sparking hopes that Libya's lost oil production could soon resume. But despite the developments, heating oil and US crude gained in price yesterday at the NYMEX. (image: googleimages.com and HeatUSA.com)
Even as Libyan rebels marched on Tripoli, raising hopes the North African country’s oil production would soon resume, crude oil prices rose again.
For months, climbing crude and heating oil prices have been blamed on disruptions to world oil supplies following a bloody civil war to topple Libya’s embattled leader Moammar Gadhafi.
But as the world’s gaze turned to dramatic fighting in Tripoli yesterday amid hopes the dictator would finally be forced from power, traders bet oil prices would continue their upward trend.
US benchmark West Texas Intermediate crude added $1.86, or 2.3 percent, to settle at $84.12 a barrel. Heating oil edged 0.2 percent higher at the NYMEX.
As the two contracts gained in value, however, Europe’s benchmark crude contract Brent lost ground as oil speculators bet Libya’s 1.3 million daily barrels of light sweet crude would soon return to the market, increasing global supplies and dampening prices.
Brent is more closely tied to the fortunes of Libyan oil than US crude. The Libyan supply shortage has combined with a glut in US supplies to drive the price spread between the two benchmarks to record levels this week, though it eased slightly yesterday.
And although the weekend’s progress by Libya’s rebels raised expectations that prices would pull back, market participants remain cautious about a quick return of the country’s exports if insurgents target pipelines, wells and oil infrastructure.
Yesterday’s oil rally also reflected strength in equities’ markets, bullish manufacturing data out of China and the expiration of September’s front-month oil contract, which often leads to volatile trading.
Oil prices were firming this morning in anticipation of US Federal Reserve Chairman Ben Bernanke’s speech at Jackson Hole on Friday.
The average retail heating oil price in the Northeast is unchanged from Monday’s average price
Heating Oil Price Trend for August 22: +3¢
Libyan rebels have captured most of Tripoli, sending oil prices lower on hopes that Libya's 1.7 million daily barrels of crude will soon return to world markets. (image: thedailybeast.com)
Crude prices dipped slightly on Friday while heating oil prices nudged upwards following the previous day’s massive sell-off on fears the world economy is dipping back into recession.
Libyan rebels have captured most of Tripoli, sending oil prices lower on hopes that Libya's 1.7 million daily barrels of crude will soon return to world markets. (image: thedailybeast.com)
Crude oil for September delivery fell 12 cents, or 0.2 percent, to finish at $82.26 a barrel at the NYMEX. Heating oil posted a small climb. Crude lost 3.7 percent for the week amid concerns over the European debt crisis and weakening US economic indicators.
Market commentators said Friday’s up and down trading was driven by other markets like the strengthening US dollar and reflected continuing uncertainty on Wall Street.
Thursday’s dramatic falls, in which heating oil shed 9 cents and crude lost $5.20 a barrel, followed more lackluster economic data out of the US and widespread fears the global economy is heading into another slide.
Oil prices initially rebounded on Friday buoyed by a rise in the stock market. But they retreated again later in the day, dipping as low as $79.17 a barrel.
The spread between the US benchmark West Texas Intermediate crude and Europe’s Brent stretched to a new record earlier on Friday – with Brent trading briefly at a $26 premium. Though the two benchmark contracts have traditionally traded within a dollar of one another, supply bottlenecks have moved the markets apart in recent months.
Traders were also weighing reports Friday that besieged Libyan leader Moammar Gadhafi was preparing to flee his civil war-torn country as rebels closed in on the capital Tripoli.
Crude was falling this morning after rebels took control of most of Tripoli yesterday. Libya’s 1.7 million daily barrels of crude have been effectively off line since the conflict erupted earlier this year. An end to the violence could see the oil come back on to the market, boosting global supply and sending crude and heating oil prices lower.
The average retail heating oil price in the Northeast is 3 cents higher than Friday’s average price
US Oil Production Forecast to Increase
Oil production from shale reserves like that of Eagle Ford are experiencing a boom. The EIA has increased its forecast for US oil production, largely because of new shale supplies. (image: worldoil.com)
US oil production is forecast to increase in 2011 and 2012 thanks to more unconventional domestic shale reserves being tapped, the Energy Department says.
Releasing its August Short-Term Energy Outlook last week, the Energy Information Administration said domestic oil production would average 5.57 million barrels per day in 2011 – up slightly from last year’s output and slightly higher than July’s forecast.
For 2012, the EIA expects domestic production to average 5.65 million bpd, platts.com reported – slightly higher than last month’s estimate.
The oil gains are all coming from increased production in the lower 48 states, the EIA said, with shale reserves accounting for a significant chunk of the increase.
Alaska production is expected to fall to an average of 550,000 bpd in 2011 and 530,000 bpd in 2012. Gulf of Mexico production is tipped to decline to an average of 1.47 million bpd in 2011 and dip further in 2012 to an average of 1.39 million bpd.
Shale rock formations which lie beneath large tracts of the US in places like Eagle Ford in Texas and Bakken field in North Dakota.
Energy companies are using new technologies like hydraulic fracturing and horizontal drilling to exploit the shale rock’s trapped fuel reserves, creating a surge in domestic energy production.
This has boosted supplies of crude, natural gas and propane, reducing America’s reliance on foreign oil imports and helping to make the US more self-sufficient.
As reported last week, US oil imports are currently falling thanks to greater fuel efficiency, an increase in unconventional energy sources such as shale oil and gas, as well as declining oil demand.
But there are also significant environmental concerns about extraction methods used to tap the unconventional oil reserves, with “fracking” linked to water contamination and dangerous air emissions.
US Reliance on Foreign Oil Imports Falls
US reliance on foreign oil is falling thanks to greater domestic production, growing fuel efficiency and reduced oil demand. (image: ships-info)
US oil imports are falling thanks to greater fuel efficiency and a surge in the production of domestic oil and alternative fuels supplies like natural gas liquids and biofuels.
A McClatchy Newspapers report last week says the US was so dependent on foreign oil in 2008 it imported two-thirds of what the country’s refineries needed to produce enough gasoline, diesel and other petroleum products to meet domestic demand.
Many commentators argue importing such a big chunk of our domestic energy supplies leave us vulnerable to the whims of hostile oil-producing nations and spikes in world oil prices – including heating oil markets.
However recent figures from the Energy Information Administration show oil imports have fallen to less than half the country’s energy needs – 49 percent.
Part of the recent drop relates to the way oil imports are measured, the article argues. “Net petroleum imports” are considered a more accurate measure of foreign oil dependence. It counts imports of both crude oil and refined petroleum products, but then subtracts US exports of petroleum products, which have been growing.
“It’s a more comprehensive picture,” said James Williams, an analyst for WTRG Economics.
The US recently began exporting more refined petroleum products than it imported for the first time since 1973, on the back of growing international energy demand, McClatchy Newspapers say.
A second factor is weaker domestic oil demand following lacklustre economic growth in the US combined with more fuel-efficient cars.
Meanwhile, US oil production is on the rise, as new shale reserves are tapped in places like Eagle Ford in Texas and Bakken field in North Dakota.
Perhaps within a year the state is expected to supply more oil for domestic use than the 1.1 million barrels a day that Saudi Arabia now exports to the United States.
A surge in liquid natural gas supply from shale reserves are also boosting domestic energy production. As more propane is produced, a small but growing proportion of our transport sector is switching to the cheaper and cleaner-burning vehicle fuel.
And the US is producing more biofuels, such as corn-based ethanol, which is meeting a growing hunk of our domestic energy need. Biofuel already displaces 5 percent of domestic gasoline supplies.
Put them all together, and the United States has cut its dependence on imports substantially — with further declines possible if the trends continue, the article says.
“It’s a silent revolution,” said Fundamental Petroleum Trends spokesman Lehi German. “This is a big deal.”
Earlier this year, President Barack Obama set out his vision for the country’s energy future, which centred around greater use of renewable biofuel energy to reduce our reliance on foreign oil.
A cheap and reliable domestic supply of quality biofuels could be good news for heating oil dealers and customers.
Heating Oil Dealers Slam Federal Regulators
CFTC chairman Gary Gensler is again under pressure to implement new rules to rein in the effects of speculation on the price of oil. (images: huffingtonpost.com)
Heating oil dealers have again hit out at federal regulators over the failure to implement new financial rules to tackle the effect of speculative traders on oil prices.
New England Fuel Institute (NEFI) president and CEO Michael Trunzo wrote to Commodity Futures Trading Commission (CFTC) boss Gary Gensler last week. He urged the commission to immediately impose long-awaited “position limits” on speculation in the energy markets. The rules were supposed to have been in force six months ago to help counter volatile spikes in the price of crude, gasoline and heating oil.
On behalf of the New England Fuel Institute (NEFI) and its member companies, we are extremely disappointed that the CFTC has failed to finalize a rule and impose limits by the January 2011 deadline.
The new rules were mandated by Congress under last year’s Dodd-Frank financial reform act in the aftermath of the 2008 financial crisis, when crude oil prices surged above $145 a barrel. But they have been repeatedly delayed as federal regulators come under huge pressure from the powerful financial sector lobby to water-down the proposed requirements.
In an article in last week’s NEFI newsletter, Trunzo says the repeated delays are unacceptable for heating oil dealers and their customers.
The CFTC was required under the law to set and impose limits by mid-January on the size of positions that can be held by speculators in the energy markets, including crude oil, gasoline and home heating oil futures, options and swaps.
Because of the delay, Trunzo argued that “unchecked speculation continues to cause hardship for all Americans” and “undermines the hedging and price discovery functions of the energy markets and threatens our economic recovery.”
Gensler appeared before the House Agriculture Committee earlier this month and said new data reporting and anti-manipulation requirements would bring competition and reduced costs to commercial end-users, while speculative position limits would help address the volatile price swings wreaking havoc on small businesses.
He hoped to have the new rules implemented by next fall. However, Trunzo said the fall deadline was too far out, putting supporters of speculation limits on edge and fearing further delay.
We urge you and your fellow Commissioners to expedite a final rule on speculative position limits and to avoid further delay of this important requirement.
A continued delay would further erode the CFTC’s mission to protect the public, Trunzo said. His comments come a week after a coalition of oil-using industries wrote to the CFTC calling for immediate implementation of derivatives market reforms.
