Digital Globe satellite image of an oil storage facility. The company takes satellite images of oil production and storage facilities for use by oil companies and oil market analysts. (image: digitalglobe.com)

CNBC reported Tuesday on Digital Globe, a private satellite company that sells birds-eye-view photos to oil companies, oil analysts, and investors.

The company, which operates three satellites at altitudes of between 300 and 600 miles, can take images of basically anything that is visible from the air. US intelligence agencies are top Digital Globe clients, but civilian industries are finding more ways to use the images. Common private-sector applications of the satellite images are urban planning, land use, agricultural analysis, location-based services on cell phones and other handheld devices, and of course evaluating oil production and shipping.

The company’s images can help oil analysts determine how much oil is actually being produced at a certain extraction sites like offshore platforms. While using satellite pictures to count the number of trucks or tankers going to or from an oil well may seem like a haphazard way of gauging oil supplies, it makes a lot of sense when one considers the notorious inaccuracy of official oil supply data released by the American Petroleum Institute (API), the US government’s Energy Information Administration (EIA) and the International Energy Agency (IEA). Just this week, the API report showed a 5.86-million-barrel increase in US crude oil stockpiles during the previous week, while the EIA report showed an 800,000-barrel decrease over the same period.

It’s hard to say how the use of more sophisticated analytical tools like Digital Globe’s images will affect the oil market. But if it brings a bit more certainty to the task of accurately measuring supply and demand, it could help create a more stable market that is truly grounded in fundamental forces.

To watch a video of CNBC’s report from Digital Globe “Mission Control,” visit the CNBC website.

The Capitol building in Albany--the site of a rally urging legislators to pass a moratorium on hydrofracking three weeks ago--saw the Senate pass just such a moratorium on Wednesday. (image: Nicholas Whitcker for HeatingOil.com)

In a whirlwind session on Wednesday night the New York State Senate approved a moratorium on the controversial gas drilling technique known as hydraulic fracturing or hydrofracking. Local public radio station WNYC reported on Thursday that the measure passed by a vote of 48 to 9, with 15 yes votes coming from Republicans. Speaking to WNYC, ProPublica reporter Abrahm Lustgarten noted that the bill acknowledges the state Department of Environmental Conservation’s (DEC) pending review of hydraulic fracturing and “takes pressure off” of the agency by giving it more time to perform a thorough review of the technique.

The bill, S8129B, would suspend all permits for hydraulic fracturing in New York State until May 15, 2011. By that time, the DEC’s review will most likely be completed, and the state government will have collected and considered more information on the practice. The moratorium on hydrofracking would expire on May 15 of next year, and would have to be replaced by new legislation if the DEC, the State Legislature, and/or the Governor finds sufficient evidence that calls for closer oversight or an outright ban. According to the bill’s author, upstate Senator Antoine Thomson (D), its bipartisan passage stemmed from “noticeable effects” of hydrofracking on drinking water in Pennsylvania and concerns over the safety of oil and natural gas drilling intensified by the oil spill in the Gulf of Mexico. Hydrofracking, which involves injecting chemical-laden water deep underground at high pressures, is the suspected cause of water contamination and health problems at drilling sites around the country. However, drilling companies have repeatedly asserted that hydrofracking is safe and that no definitive scientific links have been established between the practice and water contamination.

The Senate’s passage of the bill marks a victory for New York’s anti-fracking activists, who staged a rally at the then-empty capitol building on July 20. The bill still requires approval by the Assembly and Governor David Paterson before it becomes law.

The Deepwater Horizon oil platform shortly before it sank last week. (image: green.autoblog.com)

On Tuesday, the oil drilling rig Deepwater Horizon exploded in the Gulf of Mexico, killing 11 workers and injuring several others. After the explosion, the rig was engulfed by a crude oil-fueled blaze until it sank a day later. The sinking of the drilling platform caused the pipeline that had connected it to the the sea floor to rupture, opening up an oil leak that is currently estimated to be gushing 42,000 gallons (1,000 barrels) of crude per day into the waters of the Gulf.

On top of the heavy human cost of the incident is the threat of widespread environmental damage, which is growing by the minute as a massive oil slick spreads toward land. By Monday afternoon, the size of the oil slick was estimated at 1,800 square miles, the New York Times reported. Although no environmental effects have yet been observed, sea flora and fauna could soon be harmed by the presence of the oil in the water. Environmental damage could worsen as the oil slick moves into coastal ecosystems, which the US Coast Guard estimated would not happen for at least 36 hours, according to the Wall Street Journal. BP, the oil company that commissioned the sunken platform, is charged with stopping the leak and cleaning up the spilled oil, both of which could take months.

The growing oil slick on the surface above the leak. (wsj.com)

Observers of oil markets are accustomed to seeing events that have only tenuous connection to the oil industry, some occurring in far-flung places, have a significant impact on oil prices. However, this disaster, despite the potential environmental damage and massive cleanup costs that will be shouldered by BP, has so far had no effect on oil prices. Crude and heating oil prices fell on Monday, but analysts attributed the drop to economic factors unrelated to the oil spill.

Because of the tiny amount of oil produced by one drilling rig in relation to world supply, the sudden loss of one rig’s oil is not enough to affect the price of crude oil on global markets.

The explosion and oil spill could have an indirect effect on US energy policy, however, as opponents of offshore drilling will have fresh evidence of the risks incurred by each new offshore rig. According to the Washington Post, White House spokesman Robert Gibbs told reporters on Friday that the incident did not lead the president to rethink his recent decision to open up large swaths of coastal waters to oil drilling. However, with images of the burning platform and huge oil slick fresh in their minds, citizens and members of Congress may think twice before supporting any expansion of offshore drilling in the near future.

Speculation on commodities markets has been driving up heating oil and gasoline prices for months. (image: freeople.com)

As crude and heating oil prices rose during the course of 2009 in the face of low demand and massive supplies, it became increasingly clear that speculation was once again driving up oil prices.

This week, crude oil prices hit a 17-month high, sparking a new thrust of media activity on oil speculation’s outsized influence on prices that leads directly to Americans paying more for gasoline and heating oil. Following a story on speculation driving up prices from a producer at MSNBC published on Wednesday, writers for the Wall Steet Journal’s MarketWatch column, the Miami Herald, and CNBC all got in on the story this week:

From Jim Jelter at MarketWatch:

…mixed into the fundamental news are forces that have less to do with the laws of supply and demand than with financial forces far beyond the oil industry. Oil futures long ago ceased to function merely as vehicles for managing risk in the energy business.

From Kevin G. Hall of the Miami Herald:

“It’s the story we’ve been talking about . . . . It’s really about oil being an attractive investment for investors right now,” said Troy Green, a AAA spokesman. “You’ve seen quite a bit of money flooding into the oil markets because of that.” What’s different about today’s price run-up from two or three years ago is that oil is now in ample supply.

In response to President Obama’s announcement of expanded oil drilling off the US coasts, Michael W. Masters wrote for CNBC:

It’s important for observers to realize that, while more drilling may help domestic supplies over the very long term, oil price formation is dominated by speculative money flows today. So in this case, despite a major announcement by the President, which could easily be viewed as leading to larger supply, oil prices rise.

For the last year (and perhaps longer) there have essentially been two prices of crude oil and other petroleum products: the real world or “nominal” price based on supply and demand (the only forces that should influence prices) and the speculative “paper” price set by surging investment activity by major players on the financial markets. Despite living in the real world, consumers of heating oil and gasoline have been forced to pay prices determined by the speculative world that only exists within the world’s commodities markets.

Kudos to the national mainstream media for finally reporting on this phenomenon. Perhaps that reporting will help speed along regulations under consideration by the CFTC aimed at curbing excessive speculation.

Just remember when you read a story on speculation driving today’s higher oil prices—HeatingOil.com reported it first.

President Obama gives a speech on energy security at Andrews Air Force Base on Wednesday. (image: nytimes.com)

In a speech delivered at Andrews Air Force Base in Maryland, President Obama announced that the Interior Department would lift bans on oil and natural gas drilling off the coast of the southeastern US and parts of Alaska. Along with the announcement, Obama made a clear effort to cast his decision as a middle road between unchecked drilling and a blanket ban on drilling expansion. Details of the policy reported on Wednesday by the New York Times support this characterization: vast areas of the Atlantic ocean, a section of the Gulf of Mexico, and select areas off the coast of Alaska will be opened, while waters along the entire Pacific US coast and other Alaskan coastal regions will remain off-limits.

In his speech, Obama referred to the compromise decision as a product of careful deliberation on America’s energy security and future energy resources. As such, he tied expanded drilling to an increase in renewable energy use, saying that both resource categories were required to meet US energy needs. “We have less than 2 percent of the world’s oil reserves. We consume more than 20 percent of the world’s oil,” he explained. “And that means drilling alone cannot come close to meeting our long-term energy needs.”

A White House press release offered a more general statement from the President on that subject:

I want to emphasize that this announcement is part of a broader strategy that will move us from an economy that runs on fossil fuels and foreign oil to one that relies on homegrown fuels and clean energy. And the only way this transition will succeed is if it strengthens our economy in the short term and the long term. To fail to recognize this reality would be a mistake.

As proof of this broad and balanced approach, Obama made two announcements on the energy efficiency of vehicles along with the allowance of expanded drilling. In just a few days, he said, the White House would unveil higher fuel efficiency standards for vehicles sold in the US that would amount to saving “1.8 billion barrels of oil.” In addition, the president announced that the federal government would “lead by example” and vastly expand its use of hybrid vehicles:

In order to save energy and taxpayer dollars, my administration—led by Secretary Chu at Energy, as well as Administrator Johnson at GSA—is doubling the number of hybrid vehicles in the federal fleet, even as we seek to reduce the number of cars and trucks used by our government overall.

The Navy’s energy security logo on the F18 fighter jet scheduled to be “the first plane ever to fly faster than the speed of sound on a fuel mix that is half biomass.” (image: navy.mil)

After he emphasized the “sensible” and middle-of-the road nature of the new energy policies, Obama drove home his view of why it is important. He touched on the issues of energy independence and efficiency in the context of national security. He lauded the US Armed Forces for their leadership in energy efficiency, citing huge investments in efficiency measures this year, and pointed to an Air Force F18 fighter jet parked behind him.

This navy fighter jet, appropriately called the Green Hornet, will be flown for the first time in just a few days, on Earth Day. If tests go as planned, it will be the first plane ever to fly faster than the speed of sound on a fuel mix that is half biomass.

As is expected in all major political statements in our current economic climate, Obama peppered his speech with references to energy initiatives creating jobs and growing the national economy. He began his remarks by congratulating his administration on making the “largest investment in clean energy in our nation’s history,” and said the investment was “expected to create or save more than 700,000 jobs across America.” He repeated previous statements that a robust green energy industry in the US is crucial to America’s economic recovery.

Finally, Obama used his administration’s moderate approach to the issue to urge Congress to act on energy reform. He closed his speech with a broad call to action:

I think that we can break out of the broken politics of the past when it comes to our energy policy. I know that we can come together to pass comprehensive energy and climate legislation that’s going to foster new energy—new industries, create millions of new jobs, protect our planet, and help us become more energy independent. That’s what we can do. That is what we must do. And I’m confident that is what we will do.

For American consumers, the new drilling policies will not change much, at least at first. The allowance of drilling in new areas does not mean drilling will begin in the next few years, if at all. According to analysis from the Times, “Much of the oil and gas may not be recoverable at current prices and may be prohibitively expensive even if oil prices spike as they did in the summer of 2008.” The new policy gives oil and natural gas companies the option of drilling in a wider swath of territory, but offers no incentives to begin drilling activity. The lower prices and increased domestic production claimed by drilling supporters, which have been contested by many sources, including the Department of Energy, would not be realized for at least five years, and probably more.

The stricter vehicle efficiency standards will deliver cost savings to American drivers by requiring them to buy less fuel. As Obama put it, “new standards…will reduce our dependence on oil while helping folks spend a little less at the pump.” However, these requirements will only apply to new vehicles and probably won’t go into effect for a few years, so it will only be the new car owners of tomorrow that will see the benefits of higher fuel efficiency mandates.

Desire Petroleum’s oil platform offshore of the Falklands has yet to find a commercially viable oil field. (image: drillingcontractor.org)

When Desire Petroleum made the decision to drill for oil off the shores of the Falkland Islands, some observers thought the British oil company’s push for natural resources could reignite the longstanding conflict between Britain and Argentina over the sovereignty of the islands. Now the first results of Desire’s drilling are in, and are so disappointing that the company could abandon the well altogether, the Times of London reported on Sunday.

According to the Times, Desire’s results were “technically successful” but “non-commercial”—that means they found oil, but not enough to make it worthwhile. Prompted by the Times’ report over the weekend, Desire released a statement on Monday that confirmed the lackluster results and said that more testing would be required before the company decided “whether the well will need to be drilled deeper, suspended for testing or plugged and abandoned.” Desire still has rights in other fields near the Falklands, and could still find a productive oil field elsewhere.

The political conflict between Britain and Argentina could be eased if drilling continues to produce unpromising results. In the meantime, Desire Petroleum is the clear loser—the AP reported Monday morning that on the London Stock Exchange the price of the company’s shares had fallen by 48 percent.