Oil glut ?....Russia overtakes Saudi Arabia

[GoFlyKiteNow]

BY LIAM DENNING
WSJ
OCTOBER 8, 2009

Inside every oil bull beats the heart of a brooding pessimist. If they aren't proselytizing about "peak oil," they are kicking around Tom Clancy-esque war scenarios or dreaming of a (bitterly) white Christmas.

So it hasn't been a good week for them. Russia said Friday that its oil output crossed 10 million barrels a day in September, 25% more than Saudi Arabia. Over the weekend, militants in Nigeria, producer of some of the world's most sought-after grades of crude, appeared to accept an amnesty.

Still, there always is hope that winter will stoke demand....

 

[zuoom]

ok, with a cold winter, the demand for oil would go up. as with the flow of oil coming out of russia will slow?

what happened to Saudi Arabia oil output? they reduce that much or Russia increase that much?

 

[longbow]

Your 2 posts tie in with each other. General world consumption is down, it is affecting Chinese manufacturing as well as oil consumption. As the world comes out of a recession, demand will pick up blah blah blah.

Meanwhile, Chinese are tying up various energy deals with Russia. So I assume much of this new Russian oil production is going to the Chinese.

Chinese just posted record Auto sales for 2009 so just throw in another 5 years of record auto sales followed with Indian auto sales and that will probably suck up much of this excess capacity.

BY LIAM DENNING
WSJ
OCTOBER 8, 2009

Inside every oil bull beats the heart of a brooding pessimist. If they aren't proselytizing about "peak oil," they are kicking around Tom Clancy-esque war scenarios or dreaming of a (bitterly) white Christmas.

So it hasn't been a good week for them. Russia said Friday that its oil output crossed 10 million barrels a day in September, 25% more than Saudi Arabia. Over the weekend, militants in Nigeria, producer of some of the world's most sought-after grades of crude, appeared to accept an amnesty.

Still, there always is hope that winter will stoke demand....

 

[GoFlyKiteNow]

Your 2 posts tie in with each other. General world consumption is down, it is affecting Chinese manufacturing as well as oil consumption. As the world comes out of a recession, demand will pick up blah blah blah.

Meanwhile, Chinese are tying up various energy deals with Russia. So I assume much of this new Russian oil production is going to the Chinese.

Chinese just posted record Auto sales for 2009 so just throw in another 5 years of record auto sales followed with Indian auto sales and that will probably suck up much of this excess capacity.

The Saudis are cutting back heavily, just to maintain prices at 70 USD..
While Russia need lot of money to maintian its growth levels.
Then oil conservation is kicking in..worldwide..consumption
is lowering in developed nations like Germany on year to year basis
as nw solar and other projects plus fuel efficeint cars and env
laws merge into the economies of Europe.

The oil price can only be maintained by systemic cuts in production
by Saudi, OPEC and Russia.
If not, the price slide will continue.

 

[longbow]

EU cars are already pretty fuel efficient. Many are small econoboxes running on diesel and 40 mpg is standard. Fuel is also very expensive in EU. Thus any cost savings is incremental. ar pop in EU is relatively stable.

On the other side you have China selling 8 million vehicles a year. Many are going to first time buyers adding to global vehicle pop.

Remember that most of US oil imports go to fuel its trucks and cars. Its power plants run on coal or gas. SO car pop can ramp up oil demand.

No doubt about Saudis wanting $70 oil. After all given the weakness of US$, oil is down in price.

The Saudis are cutting back heavily, just to maintain prices at 70 USD..
While Russia need lot of money to maintian its growth levels.
Then oil conservation is kicking in..worldwide..consumption
is lowering in developed nations like Germany on year to year basis
as nw solar and other projects plus fuel efficeint cars and env
laws merge into the economies of Europe.

The oil price can only be maintained by systemic cuts in production
by Saudi, OPEC and Russia.
If not, the price slide will continue.

 

[GoFlyKiteNow]

EU cars are already pretty fuel efficient. Many are small econoboxes running on diesel and 40 mpg is standard. Fuel is also very expensive in EU. Thus any cost savings is incremental. ar pop in EU is relatively stable.

On the other side you have China selling 8 million vehicles a year. Many are going to first time buyers adding to global vehicle pop.

Remember that most of US oil imports go to fuel its trucks and cars. Its power plants run on coal or gas. SO car pop can ramp up oil demand.

No doubt about Saudis wanting $70 oil. After all given the weakness of US$, oil is down in price.

The Saudis have the largest disposable reserves in the world. At one time last year they were earning close to Billion dollars a day in oil revenue.

They also have a vested interest in the US economy. Not just for economic reasons. For their very survival, the USA is a close ally. Hence what they do in the oil industry has an impact worldwide.

These economic statistics are fine to debate with.
But the real factors that decide are geo politics with which economic fundamentals and basis can be built or destroyed.
Most people thinks about economics all the time to make their assessments.

 

[boundThunter]

Then oil conservation is kicking in..worldwide..

You go pedal your own pushbike, another 500 Chinamen are thinking of owning a car.

 

[annexa]

Your 2 posts tie in with each other. General world consumption is down, it is affecting Chinese manufacturing as well as oil consumption. As the world comes out of a recession, demand will pick up blah blah blah.

Meanwhile, Chinese are tying up various energy deals with Russia. So I assume much of this new Russian oil production is going to the Chinese.

Chinese just posted record Auto sales for 2009 so just throw in another 5 years of record auto sales followed with Indian auto sales and that will probably suck up much of this excess capacity.

The Chinese are using COAL. They buy them in bulk from Indonesia and Australia. Oil is not a major item in energy production for China. They use it for their huge fleet of cars, yes. Energy in China is mostly coal.

 

[GoFlyKiteNow]

The Chinese are using COAL. They buy them in bulk from Indonesia and Australia. Oil is not a major item in energy production for China. They use it for their huge fleet of cars, yes. Energy in China is mostly coal.

matter of time..China will increase the price of gasoline..by taxing it heavy..it just cannot afford huge oil imports to meet the car population demand of its big population.

 

[longbow]

The US does not use oil for its power plants, they use coal and gas. China uses coal for power plants.

Most of the oil is going to be used for cars and trucks in China. The building of the infrastructure - roads, bridges, rail is also going to use lots of oil.

BTW no idea what Goflykite is talking about. Oil just end at $80 which is high for the year.

The Chinese are using COAL. They buy them in bulk from Indonesia and Australia. Oil is not a major item in energy production for China. They use it for their huge fleet of cars, yes. Energy in China is mostly coal.

 

[GoFlyKiteNow]

The US does not use oil for its power plants, they use coal and gas. China uses coal for power plants.

Most of the oil is going to be used for cars and trucks in China. The building of the infrastructure - roads, bridges, rail is also going to use lots of oil.

BTW no idea what Goflykite is talking about. Oil just end at $80 which is high for the year.

The price is high at 80 because of odd reasons..speculators at it again..
do not get fooled and fall into the investor bubble race..

 

[zuoom]

i would have thought oil is at what it is because of it's low value.

using local SGD against the USD and then translate recent oil prices, it's not as quick or steep rise at in pure USD viewpoint.

there's also the rumor that some of the opec countries would want to move away from the USD.. and that adds to the pressure to drop USD.. which will inturn prop the number on oil up.

 

[GoFlyKiteNow]

i would have thought oil is at what it is because of it's low value.

using local SGD against the USD and then translate recent oil prices, it's not as quick or steep rise at in pure USD viewpoint.

there's also the rumor that some of the opec countries would want to move away from the USD.. and that adds to the pressure to drop USD.. which will inturn prop the number on oil up.

I have hard this "Move away" from USD and "alternate currency" talk for so long that it makes one think it is real.

Think about it. Lets say the OPEC nations decide on "moving away" to another currency. If they go to EURO, and they have 1 Trillion USD to move out.

Then first of all they will have to buy Euro worth 1 Trillion dollars. Which will hike the Euro value against the dollar. Fair enough. So the OPEC now has EURO and the Europeans have USD>

Now what do you think the Europeans will do with the 1 Trillion USD.?.
They will buy USD treasuries or notes to back their EURO..which is already 40% pegged by USD value. In fact the EURO has already 40% of its inherent value pegged to the USD.

So now, the OPEC will use EURO to trade and the Europeans will use the USD to back their EURO. Which brings back the same amount of dollars into circulation worldwide.

So back to square one.

In case the US govt decides not to sell the Europeans any of their notes, then the Europeans in turn will refuse to sell their EUROS to the OPEC people. Simple as that.

No dollar no Euro. Same for other smaller currencies.

 

[longbow]

http://www.latimes.com/business/la-fi-china-oil22-2009oct22,0,2776603.story?track=rss

BTW latest LA times article about China drilling for oil in US waters. China's current oil consumption is about 8.5M barrels per day. It is project to increase 30% per year from 2008 to 2010. So in 3 years Chinese oil consumption is double from 8.5M to 17M barrels per day. That is a 8.5M barrel increase per day. Entire Russian oil production in 2007 is only 8.5M barrels per day. So the world needs another Russia just to meet Chinese demands. And that does not factor in continued growth in Chinese demand after 2010 (maybe at slower pace of 20%), increase in Indian demands as people there move from motorcyles to the Tata Nano.

The Chinese can see this and are desperate to increase its oil reserves (see article). Fortunately for them they have lots of money and are throwing their billions to get the reserves. Which is also a good idea as its shifts away from US Treasuries to another US$ based product hence no impact on forex.

 

[longbow]

You seem to see in extremes. The move away from US will be gradual. So maybe some of oil is conducted in Euro and some in RMB.

The Arabs will not move 1 Trillion from US to Euro just like the Chinese will not dump their Treasuries. Arabs will probably start by accepting Euros and meanwhile attempt to reduce their Treasury holdings into gold, US assets, and other assetsetc. They shifting out of US Treasuries to non US$ assets will further weaken US$ and the chain reaction continues. Along the way people like Soros will place a big bet on the US$ weakening even more and reap billions (he knows that the big holders cannot move fast and will lose too much if things move too fast - Chinese might even come in to defend the US$!).

Everything will be gradual.

After all the Arabs have lots of things to buy from China in terms of -the usual items that the rest of the world buys - clothing, toys, electronics, furniture etc etc etc. So they would not mind holding RMB. They might hold onto some Euro because they buy lots of aircraft, weapons, industrial tooling, travel (since US is not that welcoming of Arabs) and they will probably hold some US$ (US weapons, aircraft, software) too.

So the move will be gradual. As the US economy gets itself into more debt, its finances become more shakey. Who would accept an IOU from a person on the verge of bankruptcy?

Do you mean that you cannot see a situation where people stop buying US debt or demand higher returns for US debt should the US fiscal situation contine to weaken? When the Chinese start asking for more returns, that high level of interest will impact US economy. And with the high levels of US debt, the politicians would like to devalue the US$ to burn off that debt since high inflation is good for debt (bad for the debt holders too).

And the situation is gradual on the debtholder's side too. US$ is not going to go to 0. It will weaken, for example 10 to 15% per year. And as it continues to weaken, the Chinese will ask for more returns and or start to diversify out of Treasuries into maybe US real estate, US farm land or US ag companies.

Throw in 10 years and I can see the US slowling losing its reserve currency role and RMB with another basket of currency forming a new reserve currency. But it will be gradual.

And guess what, if the US puts its financial house in order the US$ may still be a dominant currency. However that means painful cuts on expenditure. It means leaving Japan, South Korea, reducing it military and as such have a smaller global footprint, recognizing that it is not longer a military superpower/global police. It will have to reduce services to its citizens.

I remembered when Ringgit and S$ was at parity. But slowly as Ringgit weakened, people slowly stop accepting Ringgit. At 10% differential, many still accept the coins but when it got larger, even Malaysian coins were not wanted.