Chevron, Saudis Admit Oil Supply Woes

Having trouble viewing this issue? Click here. Refer a Friend to Energy and Capital.

Chevron, Saudis Admit Oil Supply Woes By Nick Hodge | Tuesday, July 12th, 2011 Late last month, the International Energy Agency announced it was releasing 60 million barrels of crude oil into world markets. Obama graciously pledged 30 million of it from our own Strategic Petroleum Reserve (SPR). You should find our wanton oil disbursement a bit peculiar, especially since your own government defines the SPR as the “nation's first line of defense against an interruption in petroleum supplies.” So tapping it inherently implies we're facing an interruption in petroleum supply. From its creation after the 1973 OPEC oil embargo up until this summer, the reserve had only been tapped twice: We released 17 million barrels in conjunction with our invasion of Iraq in 1991. We released another 11 million barrels after Hurricane Katrina knocked out 95% of crude production and 88% of natural gas output in the Gulf of Mexico in 2005. This time — only the third time ever — we released more oil than in the two previous events combined. What could be so dire that we need to invoke the “nation's first line of defense against an interruption in petroleum supplies”? Advertisement Will You Be Prepared? Some people will move into the hills and hoard copper and glass... Some will plant themselves on "farms" in the Midwest where no one can find them... And some will simply stay where they are and live out of boxes. Sound like some science fiction novel? The sad and highly disturbing thing is, this could be the face of our very own country in just a few years. But you don't have to be one of these people. You can remain in the safety of your own home while protecting your finances and your family. Find out what I mean right here.  All Tapped Out Bloomberg ran this headline this morning: Middle East Oil Rises on Signs Saudis Won't Offer Extra Supply But ask anyone who's not a Big Oil employee or a politician, like Goldman Sachs, and they'll say the Saudis can't offer extra supply. As I told you this weekend, Goldman is adamant about its claim that “Saudi oil production peaked in 2008 at 9.5 million barrels per day and will never reach that level again.” And it isn't only Goldman that thinks so. I've told you before about Sadad Al-Husseini, former vice president of the Saudi Arabian Oil Co. (aka Aramco), who said: Many of the so-called reserves are in fact resources. They're not delineated, they're not accessible, they’re not available for production. Sadad knows the rest of the world is in trouble, too. Since leaving Aramco, he's become something of a Peak Oil prophet. Given some of the stuff he's said in recent interviews, I'm surprised the collective global oil industry doesn't have a price on his head. He recently offered up this gem when asked why there is so much denial about the world approaching Peak Oil production: If you look at published information — for example, British Petroleum’s annual statistical report — it very clearly shows that from 2003 forward, oil production has hardly increased. So the information is there. If you look at some of the advertising that Chevron has been putting out for years now, they clearly say we’re half-way through the world’s reserves. The information is there. The facts are there. Oil prices did not jump four-fold over a three- or four-year period for any reason other than a shortage of supply. Yes, there may have been some recent volatility in 2008, but the price trend started climbing way back in 2002-2003. So, these are realities and the push-back is a sense that somehow the market is not able to deal with these realities, that somehow people can’t cope with these realities. Speaking of Chevron... After the market closed yesterday, Chevron announced it expects second quarter earnings to rise over the previous quarter, thanks to higher oil prices. So it's all good, right? Higher oil prices, higher profits, happy shareholders. Everybody can rest easy...  Until you look more closely at the details. Chevron's U.S. production in the first two months of the quarter (April/May) was down 1.8% from a year ago. Internationally, output decreased 2.4%. So they produced less oil but made more money because prices are higher. If that's not a Peak Oil symptom, I don't know what is. It's the same market dynamic that takes effect when any good is scarce, like those last few tickets to the Super Bowl or an award-winning Broadway play. Advertisement How will you get to work when gas is $20 a gallon? How will you feed your family when a loaf of bread is $15? If you can't answer these questions... You should watch this video and find out.  Strategic Petroleum, Indeed And that brings us circuitously back to the strategic petroleum reserve and the 30 million barrels we're releasing from it. Remember, that's the most oil we've ever released at one time. So there must be a serious and imminent threat to global supply. A quick look at who bought that oil and how much they paid serves as further evidence. Yesterday the Department of Energy announced it had signed 28 contracts to sell the crude at prices ranging from $104.97 to $109.26 per barrel. As I write this, oil is trading for $95, begging the question: Why are the companies buying this SPR crude willing to pay a $15 premium to current prices? There is only one answer. They think oil prices are headed much higher. Here's who bought some of the oil: Exxon Mobil (NYSE: XOM), Shell (NYSE: RDS-A), BP (NYSE: BP), ConocoPhillips (NYSE: COP), Valero (NYSE: VLO), Tesoro (NYSE: TSO), Murphy Oil (NYSE: MUR), Sunoco (NYSE: SUN), Marathon Oil (NYSE: MRO), Barclays (NYSE: BCS), Hess Energy Trading Co., Trafigura, JPMorgan (NYSE: JPM), Vitoil, Plains Marketing. As I just showed you via the Chevron example, these companies are not increasing production. Production is declining. So they're more than willing to pay a small premium for easy supply to keep their refineries and profits flowing. The banks, on the other hand, have a different motivation... Since the government doesn't ban purchasers of SPR crude from storing it (even though that's contrary to its intent — but we're talking about the government, so what's new), banks can buy the crude, sit on it, and sell it later for a higher price. And that's clearly what JPMorgan, Hess Energy Trading, Barclays, and Trafigura are going to do. Higher oil prices are coming, folks. And the only way to prevent them from having ill effects on your bottom line is to put them to use for you — just like those banks are going to do. Before you go, let me offer one more kernel of wisdom that undeniably proves we're at a major crossroads for the oil industry. The last time the SPR was opened back in 2005, the government planned on selling 30 million barrels. It could only sell 11 million barrels because of lackluster demand. This time, companies were banging down the door to buy easy oil at a premium. Just as these oil majors and banks are executing their contingency plans for the end of oil (by taking maximum profits from what's left), you need to do the same. Call it like you see it, Nick Hodge Editor, Energy and Capital P.S. Large new finds of crude will not delay the peak, though they will pad the coffers of anyone involved because of higher prices on the horizon. Think about it... JPMorgan and Barclays think they can turn a profit on $109 oil. And they bought 1.7 million barrels to prove it. So how much do you think 71 billion untapped barrels are worth? Related Articles Peak Oil is Past Tense Peak Oil Investments 2015: End of the Oil Age Weekend: Goldman Says Saudi Oil Has Peaked From the Archives... Uncovered: Africa's Secret Energy Stash 2011-07-11 - Jeff Siegel Merger Details Finalized 2011-07-11 - Brianna Panzica Joint Bid with ArcelorMittal Holds Promise 2011-07-11 - Brianna Panzica MIT Researchers Develop Printable Solar Panel 2011-07-11 - Brianna Panzica Postponed Again 2011-07-11 - Brianna Panzica Economic Releases for the week of Monday, July 11th, 2011: Jul 12 - Trade Balance Jul 13 - MBA Mortgage Index Jul 13 - Treasury Budget Jul 14 - Core PPI Jul 14 - Business Inventories Jul 15 - Michigan Sentiment Jul 13 - Export and Import Prices Jul 14 - Retail Sales Jul 15 - CPI Brought to you by Wealth Daily

You can manage your subscription and get our privacy policy here. Energy and Capital, Copyright © 2011, Angel Publishing LLC, P.O. Box 84905, Phoenix, AZ 85071. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Energy and Capital does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. The publisher, editors and consultants of Angel Publishing may actively trade in the investments discussed in this newsletter. They may have substantial positions in the securities recommended and may increase or decrease such positions without notice. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable by law. Please note: It is not our intention to send email to anyone who doesn't want it. If you're not sure why you're getting this e-letter, or no longer wish to receive it, get more info here, including our privacy policy and information on how to manage your subscription.