This Week in Petroleum 11-28-07

2nd Update

Crude was down sharply following today's release. The AP explains:

NEW YORK (AP) — Oil's rise to $100 a barrel, which seemed a done deal as recently as two days ago, was dealt a severe blow Wednesday when the government reported an increase in supplies at the Nymex delivery terminal in Cushing, Okla., which is closely watched by traders as a benchmark of oil inventory tightness.

Overall crude supplies fell during the week ended Nov. 23 by 400,000 barrels, in line with the 500,000 barrel decrease analysts had expected. But that decline was overshadowed by a 600,000 barrel increase in inventories in Cushing, Okla. Cushing inventories are up 13.4 percent in two weeks.

Activity at the Cushing terminal is studied closely by oil traders because it is the physical delivery point for Nymex crude. Falling supplies there are seen as a symptom of a tight market, and those concerns ease when Cushing inventories rise.

At this point, I think the only chance oil has of reaching $100 this year is if OPEC comes out of the meeting next week and really spooks the market. Of course every time I say that, oil runs up $8. But I do expect it to drop into the $80's pretty soon.

Updated following the release

Crude inventories fell less than expected, but mostly in line with expectations. Refinery utilization is picking back up. The one thing to note is that crude imports are now up over the same period last year, and with the reports of more OPEC shipments headed this way, this trend is likely to continue. This is the first time in a long while that I recall imports being up year over year.

Summary of Weekly Petroleum Data for the Week Ending November 23, 2007

Some excerpts:

U.S. crude oil refinery inputs averaged nearly 15.5 million barrels per day during the week ending November 23, up 573,000 barrels per day from the previous week's average. Refineries operated at 89.4 percent of their operable capacity last week.

U.S. crude oil imports averaged nearly 10.4 million barrels per day last week, up 534,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 10.1 million barrels per day, or 144,000 barrels per day more than averaged over the same four-week period last year.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 0.4 million barrels compared to the previous week. At 313.2 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 1.4 million barrels last week, and are below the lower end of the average range.

Nothing earth-shattering in this report. I think now it's a waiting game until OPEC's meeting next week.


Here is the expectation for this week's report:

NEW YORK (Reuters) - U.S. crude oil stocks probably fell last week on lower imports, a preliminary Reuters poll of nine industry analysts showed on Monday.

Analysts called for an average draw of 800,000 barrels for crude oil stocks, a 1.4 million barrel drop in distillates, which include heating oil and diesel fuel, and a 1.0 million barrel increase in gasoline stocks.

However, the estimates were all over the place:

Phil Flynn of Alaron Trading in Chicago, however, predicted that crude stocks rose on higher imports. Crude imports had fallen 667,000 barrels per day to 9.8 million bpd in the week to Nov. 16.

Imports last week could have fallen about 300,000 bpd to 9.5 million bpd, according to an estimate by Tim Evans, analyst at Citigroup Global Markets in New York.

But Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut, estimated crude imports could have risen between 250,000 to 750,000 bpd last week.

Generally, you would expect that a draw this week should push prices back toward $100. However, there are other factors pulling crude in the other direction. Given that one of the major factors that pushed oil up has been a widely held belief that OPEC had nothing more to give (or couldn't back up their promised 500,000 bpd increase), news like this should give traders pause in the short term:

OPEC oil exports, excluding Angola, will rise by 720,000 barrels per day (bpd) in the four weeks to December 8, according to Roy Mason of tanker tracker Oil Movements.

The increase will be the biggest this year, with most of the extra supply heading to Western refiners. Mason estimated that seaborne exports from the 11 OPEC countries would rise to 24.54 million bpd from 23.82 million bpd to November 10.

Based on these observations, I think it is very likely that a new all-liquids peak will be set in November. In fact the IEA's new production numbers for October (the full report is now available for free) show a (preliminary) new record. The total liquids production rate in October was reported to be 86.43 million bpd (see Table 3). That is up almost 2 million bpd over August, and 300,000 bpd above the previous July 2006 record of 86.13 million bpd (thanks to Stuart Staniford for providing that number). The IEA doesn't break out just crude + condensate, but with all-liquids in that neighborhood, C+C should be near record territory as well.

The other big question is the upcoming OPEC meeting. All year I have been in the (lonely) camp that OPEC is setting on some spare capacity. I think that question has been answered, although they were certainly slow to open the taps. The questions now are 1). How much more capacity do they have?; and 2). Can Saudi get the production increase that they reportedly desire? I think there is a lot of risk out there for short-term bulls. Supply appears to be increasing, there are projections that demand will soften at these prices, and OPEC is about to discuss another production increase.

Yesterday's OPIS Report also had a blurb on this:

The list of market watchers predicting $100/bbl oil is growing, putting more pressure on OPEC to boost production at its Dec. 5 meeting. "The market is still not pricing in production increases. I would have thought today would have been a little more give-back," said one trader who expects OPEC will boost supply.

Oil has certainly run up higher than I thought it would this year. However, the factors that helped with the price run-up are starting to shift. The long-term bullish factors remain. Short-term, I would heed the signs pointing to a more favorable supply/demand situation.

Recession talk is likely to get louder after the holidays. U.S. economic slowdown will be the primary story of oil prices and global demand in 2008. In the meantime, prices may touch $100, but I don't think sustained $100 oil and another big jump in prices above $100 is going to be the big story of next year.

Dont worry. We'll see $100 very soon, maybe within 20 days.

There will be a new war - on Kosovo. The Albanian minority in Serbia (but majority in Kosovo) is preparing to declare their full independence, on 10th of December. This will be backed up by the USA and some EU countries. Result: clashes between Albanian and Serbian paramilitants.

I am not saying this conflict could shake the world, but it will be significant enough just to move the oil price a few percents higher, crossing the $100 mark.

As I read this, oil has fallen to $92.75 (Nymex), and the stock market is experiencing a little mini-boom (Dow is up $244 so far today). But it's ironic, given a lot of bad news. Wells Fargo Bank (one of the best-managed US banks) today reports that it is taking a $1.4 billion write-off because of subprime losses.

UPDATE 3-Wells Fargo to take $1.4 bln charge for bad loans

Meanwhile, Citibank looks like it is selling itself to Abu Dhabi:

Citigroup-Abu Dhabi deal: A sign of the times

This is something I've long predicted - insolvent US banks will be looking for "white knights", and the only people with the cash who are foolish enough to buy these liabilities are Middle East countries flush with petrodollars. Whether or not this will be enough to save the rotting US banking system is an open question. I think in the long run, it's probably a doomed exercise, but insolvent America has little choice but to sell the family jewels.

I think December will be a wild roller coaster ride for the US stockmarket, but ultimately I think it will end in tears.

A couple of more stories of interest:

Recipe for a meltdown

Beware our shadow banking system

We live in interesting times.


For several years running I read constantly that the booming real estate market was holding up the U.S. economy - fueling financial markets and consumer spending. Now the real estate market is in a record-breaking slump - a buyer's market without any buyers. Combine this with the credit crisis, since in any case they can't really be separated, and I wonder if there's anyone out there who really believes a recession next year isn't inevitable.

If China removes the restriction from the yuan currency peg to the U.S. dollar, then it's lights out for the U.S. economy. It is already failing, obviously, but that would be the final fatal blow. Meanwhile, Russia, Norway, and OPEC are drowning in U.S. dollars.
My favorite recent quote from Kunstler: "...the world's 'reserve currency' becomes the world's reserve toilet paper." LOVE IT!

That's a big if, though. China has to be very careful about letting its currency float. It's not going to happen anytime soon.

China has amassed $1.7 trillion (Euro 1.2 trillion) in cash as a result of the peg. Largest most powerful army and navy in the world. The rich and the powerful all make a pilgrimage to China to show their respect. Huge influence in Africa, Latin America, most of North America, Persia, North Korea, Pakistan. Expanding influence in the Middle East.

Neighbors Vietnam, Thailand, Russia, India, Japan cowed and subdued.
Why let the Yuan float?


Their submarines cannot be detected by the American, Russian or any other tin can Navy in this world. And they proved it recently against the USS Kitty Hawk.

chinese subs undetectable?


if by navy you mean a flotilla of wooden junks- then yes, certainly. 'paper' navy is a more apt term.

boy we are in for interesting times if policy makers in the world's most populous nation think anything like the above statement.

I think what you mean was 'delectable'. I'm sure the U.S navy would more than happily correct you. When I was learning english I sometimes made mistakes too. It happens.

You have no idea what you are talking about.

The subs that China has are complete targets. They are loud, the crew are poorly trained, and they suffer from crap target processing software.

A submarine is absolutely made by its crew. The US Navy is so far in front everyone else on crew quality it isn't even funny. The Australians are quiet good, they and the Norse are about the only ones close to US Navy quality. There is a reason for that. Those two nations are utterly devoted to having a top flight submarine force..... They are the premier arm of those two countries Navys.

The 2nd tier can be dangerous but a LA/Virginia class is going to sweep them from the sea 75-90% of the time. (Usually because someone drops a wrench or lets the toliet seat fall.... I'm NOT kidding. Good friend of mine was a Sonar man on an Improved LA boat)

2nd Tier:
Royal Navy
USSR (some officers were as good or better than the USA, their boats simply don't get out enough anymore for their crew to be sharp)
France (good at sinking Green Peace... untested against people that shoot back)

Pretty much anyone in Nato that operates boats does so at an acceptable level. Can they kill a CVN? Sure they can. Can they kill a CVN out at sea during General Quarters? I'm not betting on it if the CVBG has an Improved LA/Seawolf/Virginia escorting it. But hey, even a blind pig finds an acorn sometime. The 3rd tier may have some dangerous boats but unless some Admiral decides to do donuts in Shanghai harbor the odds of a Kilo or Tango sinking a CVN are about 1000-1.

You could give the Chinese a AIP boat from Germany and I still wouldn't bet on them nailing a CVN. They simply don't have the crews...... yet.

If China WANTED a real blue water sub force, they could do it. They have a long way to go though. It is unlikely they could make the structural changes in their naval program that would be required to train the crews in the expertise and flexibility that is needed. The problems are in many ways political.

No more talking about things you have no clue about. You are on probation from the ignorance patrol.

Their submarines cannot be detected by the American, Russian or any other tin can Navy in this world.

And neither can the Russian or American subs be detected by others. It's not that hard to hide a sub, especially during peacetime, and it's kind of silly to say that's what defines "the most powerful navy in the world". Fact of the matter is that China has very little blue-water (long-range) navy, and the subs are pretty much defensive assets against the US's overwhelming naval superiority, especially in terms of force projection.

Regardless of whether people like it or not, the US's navy gives it utterly unmatched force projection ability. As incompetently as its Iraq endeavour is being handled, few other countries would even be able to attempt it, and none would have had a hope of conducting the original bombing campaign that destroyed Iraq's military and military infrastructure. Of the world's carrier-borne aircraft, the US has twice as many has every other nation combined. No navy in the world can match the US's.

None of that is America-boosting; it's just fact. That no military in the world is anywhere near the US's should hardly be surprising, though - no military spending in the world is anywhere near the US's; the next-highest country spends about 10% of what the US does.

in response to Why let Yuan float? I mentioned Michael Gomez of Pimco excellent article on China, the Yuan etc in my earlier post to read in full you can visit Pimco.Com in his article he talks about the contiuing massive growth of their economy and WHY it may be in China's own intersest to now let the Yuan float(an excerpt):

"From an economic perspective, a stronger CNY would help reduce the trade surplus, ease pressure on inflation, mitigate speculative purchases of onshore assets, help the central bank gain monetary credibility, foster proper allocation of investments, stimulate domestic demand, rebalance the economy, and disarm protectionist tensions with the U.S. and Europe (the latter a growing concern, given that EU is now China’s number-one trading partner and the CNY has significantly depreciated against the euro over the last year). At the same time, the sterilization costs of heavy currency intervention will grow as interest rates in China rise, while those in the U.S. fall4. Finally, any concerns of a growth slowdown from the stronger CNY easily could be offset by expansionary fiscal policies, particularly targeted infrastructure and social investment."------as it relates to what i was talking about in my earlier post this will add substantial upward pressure to Crude Oil/Gasoline both in the short term and the long haul------Patrick Kerr of OilGasFutures.Com

I remember, during the Carter administration people actually started to conserve energy. The electric companies had to raise their prices to protect their profits, as did other energy companies. I think, that the great fear of all energy suppliers, including the Arab companies is that Common Americans will suddenly wake up and discover they can save money by simply going to bed at sunset, turning down the temp on the hot-water heater and staying home on the weekends.

Most of the people I associate with are starting to walk to work, replace all their incandescent bulbs with fluorescents, (as I have done months ago), and quit using their cars or doubling up. We are all staying home on the weekends, only using our cars when we have to. I think the magic price of gas that promotes this phenomenon is $3.00 and above.

I believe that the oil companies know that if prices were to rise above this mark, it will cause a trend to set in the minds of most Americans and they (the oil companies) will be caught on the tail-end of a conservative revolution that will erode their profits and inflict fear in the minds of most energy suppliers. If I'm right, gas prices should continue to fall back below $3.00 a gallon as the oil companies try to get people back on the road.

After the Carter days, one of the first things they tried to do in every state was lobby to get rid of the 55 mph speed limit. There was a tremendous promotion to get people to move away from the conservative, alternative energy mindset. They tried really hard to bury this mindset. And, they were successful.

I think we all know the direction we need to go and one day, it will happen and that is what will bring down the economy. The transition to alternative energy, if it is even possible , will be a sudden shift in the mindset of the people. This is the fear in the minds of all energy suppliers. If it sticks, it will be their end, even before their oil supply tanks are moving towards empty.

Another thing people fail to realize is that they have tow options when reducing energy consumption, both equally effective. They can 1) Cut down by doing less (50% less driving, 50% less time lights are on, etc.) or 2) Become 50% more efficient (fluorescent vs. incandescent, hybrid vs. conventional IC, etc. etc.). As our friend Kunslter points out, however, it may be that we have to completely revamp our car culture and stop blowing green smoke up people's asses with hybrids, plug-ins, which realistically will never attain > 25-30% of the U.S. automobile fleet even with soaring gas prices.

"Meanwhile, Citibank looks like it is selling itself to Abu Dhabi"

It will be interesting to see how the islam-haters react if the family jewels suddenly start doing islamic banking!

Hey Robert, You may be right on your outlook for the near term trend...I still love to see these pullbacks, and view them as a chance to get into a longer term investing/Trading strategy at a better price....also I've read reports about shortages and rationing in China along with the Chinese Government ordering refiners to make sure the public is supplied with the fuel they need. Additionally as I'm sure you know they are Fast-Tracking new refineries and are now allowing "teapot" refiners (1/10th regular size) to refine again to help meet demand...also the other factor that I think will keep pushing prices higher is the dollar---Pimco's Michael Gomez wrote an excellent article on why the Chinese are going to allow the yuan to appreciate if Pimco's Gomez is right(i think he is) and the Chinese with their continuing high growth let the yuan appreciate this could mean crude will go much higher.---So will the US slowing down curtail demand of crude?, well yes maybe but the subprime/potential recession will keep the fed cutting rates and keep the dollar weak--making crude more affordable to foreigners like the chinese- anyway crude looks interesting on pullbacks--the bigger the pullback the better it looks-right now-we've had a nice $4-5 dollar pullback over the last several days---pre-OPEC meeting on Dec. 5....OPEC is setting market up to be disappointed if they can't increase verifiable production massively(regardless whether they say it or not it's likely they can't increase it much at all) and the Chinese are locking down all the supply they can---we could see the market quickly retest $100 per barrel level or higher-----for investors/traders Pullbacks look like opportunities to get in at better prices-and jumpstart some very aggressive returns right off the bat---Pk of OilGasFutures.Com

Based on the limited data available, it would seem that higher prices managed to pull some extra production. I wonder if what we are seeing now is real spare capacity being used up, or it is a short-lived burst that cannot be sustained for very long. After all, I'd imagine that every oil producer in the world has at least a few barrels of "spare capacity" if the price is high enough.

I've been following the "Has Saudi Arabia" peaked for a while now, and if seems at least that the most pessimistic views have not been borne out.

One of the things that Stuart Staniford's tracking of production data has shown (at least recently) is that the IEA data seems optimistic in terms of what is being measured in the very near-term compared to the more delayed EIA data.

There are different ways of viewing peaking. For example, is it really just one-single month? That is one way to measure it and using the EIA data for C+C, we still get May 2005 at 74.3 MMBPD.

Is it the sustainable 3-month production level (I would quantify that as the "minimum" of a centered value for any given month)? If we did it that way, May 2005 would still be "the peak" because the 3-month sustainable comes in at 73.9 MMBPD.

How about a recursed value like what Stuart has shown us before (and the method I also use to smooth the data). Using a 13-month centered moving average, single recurse value gives you a peak of November 2005, though just barely compared to the mathematical values for October and December 2005. Over a longer averaging time, single-month spike gets lost as high frequency "noise." The recursed average for November 2005 comes in at 73.7 MMBPD, fairly close to the 12-month moving average.

An advantage to this centered, recursed moving average is the ability to project forward (at least for a few months) into the future trends that are not easily altered unless very substantial and sustained changes in the data occurs.

Could we have seen the single month peak coming using this projection technique? No. However, what is evident as you retrace the data was that projecting forward, the rate of increase was definitely slowing as seen by the shape of the curve.

So, what does all this mean in the context of the latest data? Well, there might be a new single month peak C+C value coming on the horizon but given the data available from the EIA, that would require a move (increase)of 1.8 MMBPD over a two or three month period. There has not been that sort of increase since May-July 2004, and production was just under 71.4 MMBPD when that increase started and lasted for all of two months.

As for Saudi Arabia, they've got a way to go to get back to their 2005 highs of 9.6 MMBPD and an even longer way back to their 1981 highs of 10.2 MMBPD. We'll see what they pull out of their bag of tricks.

But I suspect that the numbers that are being reported for liquids by the IEA include a substantial increase in the NGLs. In addition, OPEC Lease Condensates (which does not count against the production quota) has been gradually increasing in recent years (now constitutes ~4% of the reported volume).

James Hamilton over at Econbrowser has a very interesting article about Saudi Oil production. He includes numerous links to support his conclusion.

“I take the latest Saudi production estimates as confirming that the Kingdom has the ability and the intention to boost production substantially above the 8.6 million b/d low we saw for most of the last year.”

Check it out at:

State of Denial: Bush at War III, page 287
(Friday, February 20, 2004)

Maybe the speed of this process could be sort of expedited," Bush said, agreeing that the reforms had to be home grown. He thanked Bandar for what the Saudis were doing on oil --- essentially flooding the market and trying to keep the price as low as possible. He expressed appreciation for the policy and the impact it could have during the election year.

About a year ago there was some discussion here about the Saudis increasing their storage capacity for crude oil and speculation that this was in anticipation of a call for them to increase production. The thought was that they could increase exports for a limited period of time rather than admit they had no more spare capacity. Could something like that scenario be at play here as the Saudis promise to "increase production?"

Well thats a factor. Another big factor is Saudi Arabia is in general very conservative with production practicing a round robin type approach and resting wells. This is documented.

As long as they don't produce flat out they always have the ability to boost production for a short time say less than six months by stopping this practice. Also its my understanding that a new field is either coming online soon or may be online already don't know the field. But its several hundred kb of production. And of course they have storage draw down. Even if your overall output is in decline as long as new fields are brought online you can boost production for a bit.

Next of course we don't know for sure the type of oil. I don't think anyone has ever disputed that they have a fair bit of heavy sour oil that is difficult to sell. US refinries may well have been upgraded to the point they can take delivery of the oil.

I think the last argument is probably true since we know that a lot of refineries have been upgraded to handle heavier sour crudes. I'd guess this is both for stuff coming from the tar sands and KSA.

So given that refinery utilization is up and imports are up and we know that many refineries have been upgraded then the logical conclusion is US refiners are now buying the heavy sour oil from KSA. This is not unexpected although I thought that KSA would eventually refine this stuff themselves.

I guess at least for the US market the choice was refine the crude or if KSA refined it they would send the refined products to local markets.

I'd suspect on the Saudi side a lot of their comments about lack of refining capacity where actually directed at lack of heavy sour refining capacity.

On the flip side is if what we really are seeing is a increased supply of heavy sour then the markets are over reacting by lowering the spot price. I'm sure eventually this will be corrected. The heavy sour refining probably requires a pretty good price spread to be profitable.

What this means to me is that we have probably tapped basically the last big increment of crude that could be brought online. Depending on decline rates etc this addition would I think be worked out in less than 6 months. Also if I recall correctly this is almost 2mbd of production I think some of it was already shipping but they could have another 500kbd increment at least of this stuff still waiting for buyers.

Sorry for not finding all the numbers but first we have to verify that the increases are actually heavy sour. I'm a bit surprised since I thought that this stuff would not sell until late next year at the earliest.

Does anyone know what the KSA ability to refine their own sour, heavy crude is?

What is their ability to refine their own crude likely to be in the next few years?

They're in the process of adding a refinery to ultimately deal with a million barrels a day from Manifa, I believe.

Right I know about that thats a bit different very high in vanadium. But they have other heavy sour fields up too 2mpd if I remember. And I don't think all that was being utilized. They have been trying to sell their heavy sour for a long time. Someone with more knowledge of the fields may be able to explain in more detail. Until recently this stuff was a very hard sale.

If its really being sold now then this is not good news it means we are officially scraping the bottom of the barrel.

Here is a link.


We have a winner !$95/bbl/

So I was right looks like Saudi Arabia folded and just increased the spread.

So time to check the price of asphalt over the next few months looks like we will have it coming out of our ears.

Right I know about that thats a bit different very high in vanadium. But they have other heavy sour fields up too 2mpd if I remember. And I don't think all that was being utilized. They have been trying to sell their heavy sour for a long time. Someone with more knowledge of the fields may be able to explain in more detail. Until recently this stuff was a very hard sale.

If its really being sold now then this is not good news it means we are officially scraping the bottom of the barrel.

Here is a link.


We have a winner !$95/bbl/

CGES said, "Saudi Arabia also took an important step for price, widening significantly the discounts against benchmark grades for US customers of all the Kingdom's export streams for November liftings and increasing them further for December, when Arab Heavy will be sold fob Ras Tanura at a discount of $16.35/bbl to spot West Texas Intermediate. The increased discounts ought to make heavier Saudi Arabian grades attractive to refiners with simple hydroskimming capacity, something that the CGES has been urging for many months."

So I was right looks like Saudi Arabia folded and just increased the spread.

So time to check the price of asphalt over the next few months looks like we will have it coming out of our ears.
Also this says to me KSA does not have anything else to sell. I really thought they would hold the line and not do this till towards the end of next year. These guys are getting desperate.

Robert, your camp hasn't been entirely lonely on whether Saudi has been sitting on, or has been developing, more production capacity. I have said several times that nobody* knows how much capacity Saudi really has, nobody knows why Saudi production (until now) did not increase, nobody knows ....

My comments are typically shot down by some arrogant doomer hothead lacking sufficient mental agility to admit that only God is omniscient.

* My use of the term "nobody" is a generalization that excludes the three or four people who actually probably do know, but I round down to "nobody" for simplicity's sake.

The Saudi Oil minister had an interview in Singapore this morning - he mentioned that they are capable of 11 or 12 million bpd. Probably an exaggeration.

Robert, your camp hasn't been entirely lonely on whether Saudi has been sitting on, or has been developing, more production capacity.

I would think that the number of people who think that Saudi Arabia has not been sitting on AND is not developing more production capacity is just about zero.

I'm presently adding more production capacity in Texas. Does that mean that the Texas has not peaked?

In any case, as I noted in a September post, I estimated that Saudi Arabia will show close to a double digit decline in net oil exports from 2006 to 2007, even if they do average 9.0 mbpd (C+C) for the fourth quarter of 2007.

West, I meant net productive capacity---of course, you know what I meant---and you're off-base my comments otherwise. Admitting that one does not know, that any assessment is unable to confirm either way whether important information lacks, is not to say Saudi hasn't peaked. One simply does not know. And even to throw in a probability statement ("well, then, Saudi *probably* has peaked ...") is inaccurate because what is is. "Probability" language would only indicate one's own internal inability to say what is. Keep your eyes on the inability. It's a good teacher.

By the way, your comment re double digit declines says nothing about the future, hey? That's the relevant point here, again: *unable* to say ...

If Saudi Arabia maintained their 2005 production rate for decades and if their rate of consumption from 2005 to 2006 stayed the same, their long term (25 year) overall net export decline rate would be about -10%/year, resulting in zero net oil exports in 2036. The net export decline rate would accelerate with time.

In any case, this was our May, 2006 assessment (the Texas/Saudi production graph), using production data through 2005:

We do know, based on our model and recent case histories, that net export decline rates tend to accelerate with time, and we know that Saudi Arabia will show an accelerating net export decline rate from 2006 to 2007, versus 2005 to 2006.

I would think that the number of people who think that Saudi Arabia has not been sitting on AND is not developing more production capacity is just about zero.

But if Saudi has been setting on some spare production capacity, then talk of decline rates is meaningless - because the decline rates include managed declines of unknown magnitude. Go back to March and see the projections of where Saudi would be right now. Those projections were based on an involuntary decline - Saudi unable to arrest it. People were projecting 8 million or even less bpd by now. I think a lot of folks - not aimed specifically at you - have developed amnesia over what they were saying in March. When Stuart wrote this back on March 2nd:

Overall, I feel this data is clear enough that I'm willing to go out on a limb and conclude the following:

Saudi Arabian oil production is now in decline.
The decline rate during the first year is very high (8%), akin to decline rates in other places developed with modern horizontal drilling techniques such as the North Sea.
Declines are rather unlikely to be arrested, and may well accelerate.

A great number of people lapped that up. In fact, you wrote that you had been out on that limb for a long time. But at least part of that limb has broken off, and I have yet to see anyone come out and admit they they blew it on that call.

But you did say that Saudi may see "somewhat of a rebound", so you may not have been on the "unlikely to be arrested" bandwagon. But many were. And not only were those people wrong, in fact exactly the opposite of those predictions happened.

Here's what I wrote on that account on March 4th:

So, count me among those who still don't think Saudi has peaked. If fact, I think you will see their decline stop by summer, and if demand picks up you will see their production head back up. If that happens, I suspect a lot of people around here are suddenly going to develop amnesia regarding all the predictions that have been made.

Those are unambiguous statements. And no two ways about it, this is EXACTLY what has happened. It still doesn't answer the question of peaking, but Saudi has done exactly what I predicted they would do (which was definitely a minority opinion here).

And as you know, in March I specifically talked about Saudi Arabia being able to increase production (to a level below the 2005 peak), after an initial sharp decline, as new projects came on line. But the bottom line is this, what refutes a peak is a new peak. We will need to see a calendar year average production rate of 9.6 mbpd or more (C+C) to refute the 2005 peak.

As noted above, in September I assumed a fourth quarter production rate of 9.0 mbpd (C+C). I estimated that this, along with higher consumption, would result in a -9.5%/year net export decline rate from 2006 to 2007.

And as you know, in March I specifically talked about Saudi Arabia being able to increase production (to a level below the 2005 peak), after an initial sharp decline, as new projects came on line.

What has never been clear to me is whether that "initial sharp decline" was past tense. You were talking about it in March, but even then production had flat-lined. We just didn't know it yet. So it was never clear to me whether you thought production would fall from March. But it also didn't bump up. It went flat, and stayed flat until recently.

Again, decline rate is irrelevant when we know at least some of that decline was managed. My suspicion is that you are going to be showing an increase from 2007 to 2008. Will that matter? If not, why does an artificial decline matter this year?

Edited to add: And I have made it clear that I think the net exports argument is generally correct. Although I doubt Saudi is going to let them fall to the point that they no longer have any cash flowing into their economy. In that case, I think they would start to restrict supply at home so they have some for generating cash.

I didn't have a specific time frame for a production rebound. My reasoning was that the North Ghawar crash would pull production down pretty sharply at first, with new fields temporarily bringing total production back up, to a level below the 2005 peak. (Note that the actual UK net export decline rate was -55%/year.)

Two comments from March:

Stuart’s March 2, 2007 Article
My Post:

This is why I have been speculating for a while about a future rebound in Saudi production, albeit to a level much lower than their peak.

What we may see is a very sharp decline, because of a crash at Ghawar, followed by a rebound as some smaller fields come on line.

Stuart’s March 8, 2007 Article
My Post:

The P/Q intercept for Saudi Arabia is less than for Texas, which suggests a somewhat lower decline rate. However, the wild card is Ghawar. The largest field in Texas at peak production was only about 7% of total production.

On an average annual basis, the Saudi decline from 2005 to 2006 was 4.3% (C+C), which is quite close to the long term Texas decline rate of about 4%.

However, as I pointed out up the thread, the key factor to keep an eye on is Net Oil Exports.

Many of these post-peak regions showing single digit decline rates are going to show double digit decline rates in net oil exports.

For example, the decline rate in net oil exports in the UK (with a single digit production decline rate) was probably on the order of 40% per year--they went from exporting one mbpd in 1999 to being a net importer in 2005 (I assumed 1.0 mbpd net exports in 1999 and 0.1 mbpd net exports in 2004).

Texas & Saudi HL plots:

Great, the Decline Wars rematch!

It doesn't matter what the decline was, but it's really really important to establish who gets the bragging rights.

Can't we just move on?

Yes, agree.

Splitting hairs again. Plateau/Peak Lite is 100% agrument.

If there is still another 1MMBPD of ALL LIQUIDS to be squeezed out of WHALE BLUBBER...may be!

KSA could produce another 2MMBPD for 6 months...but doesn't appear that it is or will be sustained.

So, and therefore, OIL production growth seems Non-existent (year over year).

So, how long can we hold onto the plateau, and maintain the supply/demand balance.

Can't we just move on?

I think that I started suggesting that over a year ago.

I think we're at peak splitting hairs, or whatever we're calling this.

Well done! You win again!

You are truly a God.

It doesn't matter what the decline was, but it's really really important to establish who gets the bragging rights.

What's important to understand - and is the point that posts like yours miss - is "why" the decline was. For instance, I suppose you would agree that if Saudi is setting on a couple million barrels of spare capacity (which is not what I think, by the way) that it makes a big difference in the PO discussion. Not in the ultimate consequences, or whether we should be preparing now. But if they went out and cranked up production by a couple of million barrels, credibility is completely shot, and they would have the world forever believing that they are in fact still the swing producer. Also, you would have a few more years to get ready for the hard times. That matters a lot when people are telling college kids to drop out and learn how to repair bicycles.

My debates with WT have never been about bragging rights, although a lot of people can't seem to understand that. If I wanted bragging rights and back-slapping privileges, I wouldn't have taken such a contrarian view (for TOD, anyway).

My debates with WT have never been about bragging rights

You sure fooled me!

You the guy with the blog post about how many times you have been proved right? You "don't want bragging brights"? Pull the other one!

Arguing about production figures is never going to prove why any decline occurred, so its already a futile debate. We can't mind read the Saudis.

It is obvious to the observer that these debates are partly about decline but mostly about two guys too vain to admit they might be wrong. In the absence of sufficient data, it just becomes ape-like chest beating.

You the guy with the blog post about how many times you have been proved right? You "don't want bragging brights"? Pull the other one!

Those are the sort of misleading to inaccurate cheap shots that prompted my decision to stop posting so much here. I should have stuck to that decision.

For the record, that post wasn’t about “how many times you have been proved right.” It was a result of a comment following another post in which someone asked if I had ever tracked my predictions. So I went back, dug up every single one I could find, and detailed which were right, which were wrong, and which were still to be determined. Do you lack the intellect to understand the difference between that and a post bragging about how many times I have been right? There is a difference: I objectively look at both sides, try to learn from inaccurate forecasts, and I don’t attempt to rewrite history in such a way to downplay failed predictions. I even asked readers in that essay to highlight any that I may have missed – specifically any that I had been wrong on.

Arguing about production figures is never going to prove why any decline occurred, so its already a futile debate. We can't mind read the Saudis.

Then you must think this entire board is futile, as this is mostly all about debating things that we can’t conclusively prove. We are all searching for answers here (except for those fortunate enough to already have them). In my experience, debating the evidence is the best way to come to the most logical position on an issue.

It is obvious to the observer that these debates are partly about decline but mostly about two guys too vain to admit they might be wrong.

Except for the little fact that I pointed out exactly what would indicate that my position had been wrong. If Saudi production had not flat-lined earlier in the year; if they had continued their declines even as prices rose; if they failed to respond to higher prices – then I said I would have been wrong. Because if you can’t provide a reasonable falsification of your forecasts, you don’t really have a forecast.

I am honestly finished wasting my time explaining this kind of stuff to folks more interested in throwing mud than in discussing issues. If you want to think it was just an exercise in vanity, by all means, continue to do so. But if you want to see a really pointless contribution, look no further than your own post. It’s just a cheap shot, it was wrong, and it adds nothing to the debate.

Those are the sort of misleading to inaccurate cheap shots that prompted my decision to stop posting so much here.

A wise decision, if a difficult one to enact. I, for one, appreciate your contributions, both in terms of their content and in terms of their evidence-not-belief attitude.

It's nice to see someone who realizes that being right or being wrong are both just stepping stones to being informed.

I appreciate the information that you provide Robert. As a technology futurist, I also believe that there should be accountability for predictions. If one is trying to get better at predictions or any subject then the reasons why someone is correct or incorrect needs to be reviewed.

Bobcousins seems to want to run away from data that he does not like. This behavior results in the protection of beliefs in facts which may be false.

Bobcousins seems to want to run away from data that he does not like. This behavior results in the protection of beliefs in facts which may be false.

I guess this always happens when you step in the middle of an argument. Both sides blame your for supporting the other.

As it happens, Robert Rapier's prediction was closer to events, but since we lack essential data on Saudi oilfields it was based on luck as much as judgement. Being lucky does not prove anything, as I am sure RR will remind us if he loses his $1000 bet.

I guess this always happens when you step in the middle of an argument. Both sides blame your for supporting the other.

You're not being blamed for "supporting the other side". You're being blamed for being a jerk.

Being lucky does not prove anything, as I am sure RR will remind us if he loses his $1000 bet.

That kind of cheap shot is why people are saying bad things about you. You want that to stop? Then stop being a jerk. It's really not that complicated.

Hi Robert,

I appreciate the work you do here, and it is great to have someone take the more positive view. It seems to me that you don't want the Oil Drum making doomsday predictions, which are proven wrong so many times that nobody bothers listening. If that is correct, I am definitely in agreement.

I believe that many who have argued for an involuntary decline for KSA (or the more reasonable arguments IMO) have proceeded as follows: KSA ramped up to 9.6 mbpd for about a year and started having difficulty sustaining those levels, they responded by reducing output to a level (8.6 mbpd) below their maximum sustainable output, so that they would have spare capacity when needed. Some people guessed(before the recent output increase) that output could rise to 9.1 mbpd, but it would be unlikely to rise back to 9.6 mbpd. You (and others) are certainly correct in pointing out that this is merely speculation (except the part about raising production to 9.1 mbpd, since they are already at 9.0 mbpd today). Dec 5 will be interesting because if opec is going to pump more crude, say 0.5 mbpd, most of it will be coming from KSA which would bring them back to 9.5 mbpd. It will be interesting to see how long they can sustain it, if Opec agrees to raise output.


Discussing issues is fine, but what you do is rake over old coals. This is the way you started this one:

I think a lot of folks - not aimed specifically at you - have developed amnesia over what they were saying in March. When Stuart wrote this back on March 2nd:

And the fact that you don't admit any fault in this raking of old coals pretty much proves my point. My beef is not that you discuss "what" was the right analysis, but the importance you place on "who" had the right analysis.

I am not singling you out in this, so you can spare us your persecution complex. Jeffrey is equally to blame for crowing over his predictions.

If sticking to your own blog saves us from two proud fools arguing over who said what and when, then fine. We still get the analysis, but not the pointless debate over trivia.

Discussing issues is fine, but what you do is rake over old coals.

Analyzing the accuracy of past predictions is crucial to determining how best to make future predictions.

Due to the murkiness of the data, though, most of the predictions are more intuition and belief than solid analysis. Given that, it's very important to determine which beliefs lead to accurate predictions, and which beliefs keep being undercut by the data. Failure to do that will lead to failure to reassess beliefs, which will mean those same false beliefs will keep making people come to wrong predictions and wrong conclusions, over and over again.

By bringing up those failed predictions, RR is trying to make people face the fact that some of their beliefs are wrong, and that they need to re-evaluate what they believe in the light of new information. That is an absolutely crucial step to learning what is true and what is false - I can forward you some recent research on that, if you'd like - and letting people get away with known-false beliefs is nothing less than intentionally keeping them ignorant.

If you think making hypotheses, testing those hypotheses, and throwing away beliefs that lead to false hypotheses is "trivia", then you have no idea how the scientific method works.

Arguing about production figures is never going to prove why any decline occurred, so its already a futile debate. We can't mind read the Saudis.

Let's assume two primary possibilities: (1) The Saudis believe that they have hundreds of billions of barrels of remaining proved reserves; (2) The Saudis believe that their remaining proved reserves are less than 100 Gb.

You are correct. We don't know which of the two statements is true. Note that this has no direct bearing on actual reserves; we are talking about what they believe, and mistaken beliefs about proved reserves are not uncommon, e.g., Shell's significant reduction in proved reserves.

That is why I have long been focused on the HL method, because it allows us to take the two numbers that we have the most confidence in, annual production and cumulative to date, to derive a relatively objective estimate of URR, without having to rely on Saudi estimates and beliefs.


I also appreciate your analysis, especially the Export land model. The HL method must be taken with a big grain of salt. The data one uses to constuct the linearization changes the URR estimate, do we include only C+C, do we use all liquids, what year do we start at? You have argued that Texas is a useful analog, but if you only had the data for Texas through 1972, it would have been difficult to estimate the URR correctly, which is where we are today with KSA. Based on the HL plots I have done lately (data through July 2007) I would estimate the URR for KSA between 200 and 240 GB and at current output levels (9 mbd) would reach 120 GB by 2010. So peak (assuming peak arrives at 50% of URR) would arrive between 2006 and 2010 if that estimate was correct. The problem is that the URR estimate keeps moving up as we move forward in time so that even the seemingly conservative estimate of 2010, may in fact be overly pessimistic. We just don't have the data we need (field by field output data in all Opec countries). WHT's recent article on dispersive discovery was amazing, but I don't think we have the data necessary to apply it to KSA.

A final quick point. Using EIA monthly data for C+C for KSA I did several HL plots for data from Jan 1991 to Dec 2003, 2005 and 2007 (for 2007 I estimated production after aug at 8.7 mbpd for sept and 9 mbpd for the remainder of the year. The URR was 162 GB for 2003, 184 GB for 2005, 193 GB for 2007, the upper bound for the 95 % confidence interval was 218 GB for the most recent estimate. We just do not know when these estimates will stabilize.


Its not a problem with HL in a sense since HL uses current production to estimate the future. HL is a fairly good way to pickout peak production rate given the change in production.
And if the same factors apply after the peak then its a fair bet your getting fairly correct numbers. Even though your seeing URR increases the peak date and amount at peak production does not change.

Whats critical is why are you seeing these URR increases. A simple reason is a new large discovery HL does not include future discoveries in its predictions if a discovery is large enough to cause a change it the depletion rate then you have a increase in URR. You need WHT model's to try and factor in discovery. A perfect example is Alaskan oil.

However a more insidious and scary problem that HL is pointing out is we are seeing URR increases without discovery. Thus people claim HL is broken. Its not broken it just means its assumption of a symmetrical production profile may be incorrect. So increasing URR without backing real discovery means a lot but not what you think it means.

Its actually neat because HL is signaling that its symmetric assumption is incorrect and the real curve is asymmetric.
In fact its even providing the value of the correction factor.

We have a wide variety of sources that indicate that 160GB seems correct for KSA so we know this figure is probably sound. So a increasing URR without discovery indicates say
160/218 == 73% So they are over extracting now at about 73%
Its actually fairly conservative compared to other places that are over extracting by 200% or more. This does mean that KSA actually has a fair amount of room to do more over extraction if they wish. I figure its reasonable to assume they can at the least extract 25% faster. The problem for them is Ghawar so even if they can increase extraction rates at all their other fields I can't see how they can make up for Ghawar increasing extraction rates in Ghawar can only last for a few more years at most.

Higher extraction rates work great till they don't.

I'm pretty sure that if they keep pouring in the money they can keep extraction levels close to 6mbpd for about 5-10 years. Above that really depends on Ghawar if Ghawar is in steep decline then they will if the want be able to hold around 6mbpd I just can't see them able to make up for Ghawar declines for long.

As far as when HL will stabilize that depends I think it should continue to increase as long as Ghawar does not go into steep decline. They have room to pump a lot faster compared to say the USA.

As I have noted several times, the key data point to derive from the total Texas HL plot is to determine at what stage of depletion that it peaked, around 55% to 58% of Qt, depending on who does the HL plot.

The Saudi HL plot is much more stable than the prepeak Texas plot, and IMO the infamous "dogleg up" is just an artifact of Saudi Arabia ramping up their production to maximum, or near maximum productive capacity.

After we posted the May 2006 Texas/Lower 48 article, I noted that if we discount the Saudi dogleg, we get a Qt estimate of about 150 Gb (C+C) and that the best pre-peak Texas HL estimate came from discounting the prepeak dogleg up.

In any case, note that the 2006 and 2007 Saudi HL data points are falling back along the slope of the line that Khebab showed in the Texas/Lower 48 Saudi HL plot. Could we be wrong? Of course, but my estimate is that the URR (C+C) for Saudi Arabia is between 150 Gb and 185 Gb, probably closer to 185.

From here, we will just have to see if Saudi Arabia exceeds 9.6 mbpd (C+C) for a given calendar year. My prediction is that they won't.

I'm not so sure about the higher estimates since technology seems to me at least to have played a lot larger role in production rates then has been accounted for. In general advanced extraction methods tend to give double or triple the production rate vs simpler approaches with a resulting decrease in the symmetry of the production profile. Saudia Arabia is basically the only large producing region that has practiced water injection for a long time. In both the US and Russia its was generally done after primary pressure began to decrease. So HL's for both the US and Russia include this two step process so its not quite right to compare them to KSA.
In KSA because of the long history of water injection the data is pretty much all inflated. So the base extraction profile has a pretty much builtin asymmetry that cannot be deduced from production data alone.

To solve this you have to look at water cut not production rates. KSA URR has in a sense always been based on a binary fluid system water/oil while in Russia and the US the move from primary to secondary happened over a longer period of time. This says to me that HL for KSA is probably optimistic vs the US and Russia.

It would be nice if we had another large producer that practiced water injection to the extent and more importantly as early as KSA has but I'm not aware of a comparable region. So to figure out the real URR you need the HL for water and the one for oil the overall system is symmetric.


When I look at the Texas HL, the data prior to 1972 point to a very different URR. If you mean by ignoring the dogleg, you just ignore the "dogleg" data and just look at the line formed by the other pre-1972 data, the URR preicted would have been about 1/2 of the URR based on data up to 2005. If you want to assume KSA must look like Texas, that is fine, but there is no apriori reason to do so IMO.


The argument that things are different now due to technology does not apply to Norway, if you plot an HL for Norway, it follows a very nice stable straight line for most of its production history. WT is right that KSA is similar to Texas in that it serves as the world's swing producer. Only when it can no longer serve that role (like Texas after 1970) and the taps are opened fully will we really know what the HL plot looks like for KSA. Note that for Texas the meaningful data (used in the HL PLot)is from after 1972.


I've tried to search your posts for this answer to no avail. Do you consider the KSA maximum the more recent "maximum" 9.6 MMBPD in 2005 or the earlier 1981 10.2 MMBPD?

Also, are we really talking about the KSA being able to put another couple of Ghawar's online or is it moe akin to the North Sea where the first UK peak (1984) occurred with 28 producing fields and the second and higher peak occurred in 1999 with 136 producing fields?

If it's the latter rather than the former, then whether or not the KSA can really increase production seems like an exercise of counting the number of angels on the head of a pin.

New kid here, first post :)

Just wanted to say that I like this column very much. It's short and to the point and gives non-insiders like me a pretty good picture of how the US crude market works, which is a pretty good indication on how the world crude markets works too.

Also, wanted to say that I'm always very, very cautious about people who say things about oil, the economy and the environment in terms of certainties, like "the KSA has no more spare capacity" or "the DOW will fall 1.000 points before X date". Being a historian by profession, it's been my experience that predictions in matters like these tends to be wrong 90% of the time, if not more. Of course, some of them are right, and when they happen, people have the tendency to believe it's easy to make predictions, because they readily forget the 90% of the predictions that failed. It's just the nature of the business when it comes to predictions.

Also, I've been noticing here that there's a big number of people that are ready to believe that a "perfect storm" is likely to happen. It isn't, really, and I'm not taking a "cornucopian" view here. I think we can say that almost everyone here is a "doomer" of some sort, who doesn't believe that technology will rescue us from some form of Peak Oil collapse. The main disagreement here appears to be between the drastic doomers, who believe in perfect storms, and the cautious doomers. I'm in the second camp, btw, as I think you are (which might explain why I like your analysis).

Anyway, keep up the good work. Now back to lurking.

Hi there History Lurker.

The big question is this:

If a tree falls in the woods and a historian doesn't notice, did the sound and the glory happen?

The point being that there are probably folk going over the edge right now due to Peak Oil. But their numbers are small and they are the 'expendable' ones in our society. They can't afford gasoline at its current price. They can't drive to a job --and besides the job has been offshored anyway. So they disappear over the cliff with quiet voices and no back lash.

The main stream journalists don't notice it. The historians don't notice it. It isn't happening even though it is.

As more and more people begin to fall over the edge (i.e. increased foreclosures, increased homelessness, increased crime) the mainstream herd will begin to make more grunting noises and it will start waking up to the idea that somehow, "we are not moving in the right direction anymore."

The noises will grow in strength as more and more people fall over the edge. At some point the herd will shift direction and they will vote for (or riot for) "change". No one will admit that it was because of Peak Oil or because of the unsustainability of our economic system. There will be something else to blame, somebody else's fault. The dark and looming terrorist boogeyman did it.

We're not there yet. But it's coming soon.

Well yes and no. The people one the edge now or over the edge have the luxury of adjusting their life styles in a society that is still functional. This means public transportation walking and using a bicycle. Plenty of poor people go to work every day without using a car. In other countries the choices differ. Cars are expensive so generally overall once they find a position that does not require a car they probably make more money.

I'm just saying that as long as society continues to function smoothly the fact we are have a slow transition forced or not of a larger and larger portion of our population to living without cars is not a bad thing. Painful yes but bad no.

To me, the point you're making seems to be pretty close to the one I was making. Yes, I'm aware that it's probably going to be a breaking point, when people really take notice of what's happening, and it's not going to be pretty. I was just saying that it is very, very difficult to predict when this point is going to happen, what will make it happen, how it will unfold, etc. The details, even the broad trends, will be difficult to predict and it seems to me that everyone that risks such predictions does it more or less gambling on the future.

Also, two other comments. Historians are not really professionally interested on what's happening right now (we have interests, but as ordinary citizens), so you're probably talking more about a deficiency of the media (as you pointed) and of social sciences in general. And yes, it is a failure, for the exact reasons you're pointing. What happens with individual people who loose jobs, can't afford transportation, etc, is really difficult to measure and understand, because we are more or less programmed to not see those broad trends. People are usually much more aware of superficial stuff, like who will win the next election, than those trends. It's notorious that very few social scientists predicted the fall of the Soviet Union, for example, even though AFTER the fact it was pretty clear for historians that the results were, in fact, written on the wall. It's the beauty of hindsight, and that's why historians in general are more cautious than social and political scientists that don't have the benefict of it. Just had to defend my turf a bit.

The other point is that I pretty much agree with Memmel. The impacts will be different in other parts of the world outside of Europe and the USA, where you people are more reliant on cars than in other parts. I'm from Brazil, for example, and although we are a large industrialized country, we have WAY few cars, very different cities (very few suburbs, in the american style) and we see cars in a vastly different way than you do. I've actually written some stuff about the potential impact of Peak Oil on Brazil (and Latin American in general), and I'm trying to see if I can get it published here, but so far had no answer from the editors.

Thanks for the response.
Good points.

The reporters did not seem to care about a 1.8 million barrel drop in total petroleum + product stocks:

Total Stocks (Excl SPR): 1,005.7

Previous week: 1,007.5

Inventories are about 5.4% below the inventory levels of the previous year. Total products supplied was nearly flat at .2% YOY positive growth. Domestic production was up .7% YOY.

At this point demand seemed to be flattening out. If oil prices go higher, the demand might start to fall off. With winter coming expect more inventory draws to come.

For all those interested here is a link to petroleum “mega projects.” Note that Saudi Arabia has quite a few that should yield (could yield?) in excess of 750,000 bbl a day next year. That is in addition to Haradh’s 300,000 bbl production.

It Seems that Robert has called Fate Upon Him...
A fire in a main pipeline from Canada will curtail about 20% of US Crude shipments for an unknown amount of time (maybe 2 weeks?)
This is more than sufficient to launch crude price over the 100$ mark, into the sky


Why would the loss of the crude that is not lost, but undeliverable, result in higher crude prices. Seems to me it could drive up the cost of gasoline in the US, especially in that area, because the result of the fire is the loss of gasoline, not the loss of crude.

Is that why the market pulled back.

I said that because the financial actors usually overreact to such news ;-)

Let's see what oil inventory level we'll find next week and the following... and what kind of reaction it brings


What tends to get lost in the debates over 1 mbpd here or 1 mbpd there in production increases and oil prices is the global oil consumption curve climbing at around 2% per year. This simply means that the Saudis, or some swing producer, must "flood" the market with a sustained increase of nearly 2 mbpd this year and follow that feat up by doing the same thing next year just to keep the fundamental price of oil where it's at now. Having said that, I agree with Robert that oil probably will cool down into the $80s just because it seems a little overbought right now.