Thursday, October 25, 2012

Oil Supply ... Our Cup Runneth Over ... Who'd a Thunk It?

My, how things have changed. We've gone from what was perceived to be total dependence on suppliers like OPEC, Russia and Venezuela for our energy needs to what could be total North American energy independence if our politicians stepped up to the plate and swung the bat (and for all you would-be English teachers out there, swang is not a word).

In fact, we could even become a net exporter of energy rather than being OPEC dependent, unreal as that thought may have seemed just several months ago. So why wait?

This incredible and dramatic change in oil market supplies is reported in Supply Boom Upends the Oil Market, appropriately subtitled 'Only a few months ago, traders and investors were fretting about a shortage of crude oil. Now, many are worried there may be too much.'

Here's in pertinent part what the story says:

"Suddenly, the world is awash in oil.
Only a few months ago, traders and investors were fretting about whether tensions in the Middle East and production problems elsewhere would lead to a shortage of crude oil. Now, many are worried there may be too much.

Forecasters say that in the fourth quarter, global oil output will top demand by more than 630,000 barrels a day, the biggest surplus in four years. The jump is due to a confluence of events: Turmoil in the Middle East has subsided along with the production and transportation problems that had been stifling oil flows from the U.S., North Sea and Africa. Meanwhile, Saudi Arabia is pumping more oil to replace falling Iranian exports, keeping output from the Organization of the Petroleum Exporting Countries steady. . . .

Crude-oil prices have been particularly vulnerable to worries about the global economy that have recently seized financial markets. Many investors and traders say that with growth in many major oil-consuming countries still sluggish, demand isn't going to be strong enough to absorb all the extra supply.

A sustained decline in crude-oil prices should lead to cheaper gasoline and diesel products used by consumers and businesses, they add.

"There's plenty of oil out there now," said Tariq Zahir, head of Tyche Capital Advisors, a $4 million commodity-trading advisor. He has wagered that rising supplies will push prices lower.

On Wednesday, oil prices fell following a report from the U.S. Energy Department that showed domestic stockpiles rose last week to the highest level since July. Crude for December delivery fell $0.94, or 1.08%, to $85.73 a barrel on the Nymex. Brent crude on the ICE Futures U.S. exchange closed down 40 cents, or 0.37%, at $107.85 a barrel. {NOTE: They're mostly unchanged today.}...

The International Energy Agency earlier this month forecast supplies from countries outside OPEC will rise to 53.6 million barrels a day in the fourth quarter, up 600,000 barrels a day from the third quarter. {NOTE: It could even be higher than that 600,000 number, too.}

Non-OPEC nations account for nearly 60% of world output. While OPEC tries to control its members' production to keep prices higher, other countries and private firms are more focused on increasing output. {NOTE: Why not put the peddle to the metal in the U.S., too?}

Skeptics see lingering U.S. bottlenecks and Middle East conflicts keeping prices higher. There still aren't enough pipelines to bring all of the increased U.S. and Canadian production to refineries along the coast, limiting the impact of rising supplies, some investors and analysts said.

Also, turmoil in the Middle East remains a factor . . . . Syria's civil war risks pulling in neighboring Turkey, where pipelines help transport oil to European customers. . . . Still, as parts of the Middle East simmer, some countries in the region are boosting production. Iraq oil output this summer rose above 3 million barrels a day for the first time since 2000, and Saudi Arabia, the world's biggest oil exporter, has pledged to keep pumping near record levels to offset any supply shortfalls from other OPEC members.

Ed Morse, global head of commodities research at Citi Global Markets Inc., says the IEA's fourth-quarter estimate for global oil output is too conservative. He estimates the U.S. alone could increase production by 600,000 barrels a day. "It's the beginning of a big change," he said."

Summing Up

And so it is the beginning of a big change indeed. A humongous change, in fact.

Accessing less expensive and more abundant U.S. energy will mean more U.S. manufacturing plants due to the lower cost of energy. 

As a result, we'll experience higher consumer spending, more and better paying U.S. jobs, additional U.S. tax revenues and a safer and more secure U.S. as well.

Now all we need to do is get the "tree huggers" to move to the side of the road.

What's not to like about that? 

Thanks. Bob. 

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