Don’t Blame the Speculators

Posted on April 25, 2012 by admin

This is a guest post by Derik Andreoli, Senior Analyst at Mercator International LLC (dandreoli@mercatorintl.com)

Never trust a politician to explain oil prices

I believe in markets. I believe that when supply falls short of demand, prices increase, and in doing so, send signals to consumers to conserve and producers to invest. I bet you agree.

Yet, when it comes to the price of oil and fuel, a significant portion of the population believes that Wall Street speculators are responsible for driving prices above the level supported by the fundamentals of supply and demand. While this explanation may be politically expedient, it reveals more about the politicians who have been promoting it than the oil market itself. read more …

Posted in Analysis, Headlines | Tagged , , , , | Leave a comment

Easy Predictions

Posted on February 10, 2012 by Jonathan Callahan

Ten days ago in the Gas Boom Goes Bust post I wrote:

We should expect 2012 to be a year in which we see a variety of knock-on effects:

  • Natural gas producers and investors with poor hedge books and too much debt will end up in bankruptcy court.
  • Drilling operations will focus on liquids-rich plays only.
  • Jobs creation in the natural gas drilling industry will fall well short of expectations.
  • Several older coal-fired plants will close.
  • New wind power generation will fall — especially if the production tax credit is not extended.
  • Natural gas fueled fleet vehicles should become more popular.

These were admittedly easy predicitons to make but confirmation is coming in faster than I expected:

At this rate, I expect to hear about cancelled wind turbine projects next week and complaints about missing drilling jobs in a month. Bankruptcies by summer?

[... EDIT ... ]

Oops, should have done a little more research. Here are some more links courtesy of a comment from Paul Nash at The Oil Drum:

Posted in Headlines | Tagged , , | Leave a comment

Gas Boom Goes Bust

Posted on January 30, 2012 by Jonathan Callahan

The current boom in drilling for ‘unconventional’ gas has helped raise US production to levels not seen since the early 1970′s. This has been an incredible boon to consumers and has kept spot prices contained below $5 per million BTU for the past year, recently dropping below $3/mmbtu. Unfortunately, this price is below the cost of production for many of these new wells. When the flood of investment currently pouring into natural gas drilling operations dries up, the inevitable bust will be as scary as the boom was exciting. read more …

Posted in Analysis, Headlines | Tagged , , , , | Leave a comment

Trouble in Gas-Land

Posted on January 25, 2012 by Jonathan Callahan

Increased production of natural gas from shale wells, combined with decreased consumption due to a warm winter are leading to a supply demand imbalance and very low prices in the United States. With current spot and future prices below the cost of production, some companies are in trouble.  read more …

Posted in Headlines | Tagged , , | Leave a comment

The Bakken Boom – A Modern Day Gold Rush

Posted on December 8, 2011 by Jonathan Callahan

This is a guest post by Derik Andreoli, Senior Analyst at Mercator International LLC (dandreoli@mercatorintl.com)

“That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach”. Aldous Huxley

In 2009, U.S. oil production began to climb after declining for 22 of the previous 23 years. The shale oil production of the Bakken formation, which straddles the Montana-North Dakota border and stretches into Canada, has been a significant contributor to this temporary uptick in oil production.

Figure 1: Map of the U.S. Bakken-Lodgepole Total Petroleum System (blue), five continuous assessment units (AU) (green), and one conventional assessment unit (yellow) (Source: USGS [1] )

The Bakken boom has inspired a number of prominent commentators to resurrect the energy independence meme. Daniel Yergin was first at bat, asserting in an essay published by The Wall Street Journal that rising prices and emerging technologies (esp. hydraulic fracturing) will significantly drive up world liquid fuels production over the coming decade(s). Ultimately, Mr. Yergin argues that tight supplies lead to high fuel prices, and high fuel prices will bring previously inaccessible oil to the market. The trouble with this line of thinking is that high prices aren’t merely a symptom of the supply problem; high prices are the problem. read more …

  1. USGS National Assessment of Oil and Gas Factsheet: Assessement of Undiscovered Oil Resources in the Devonian-Mississippian Bakken Formation, Williston Basin Province, Montana and North Dakota, 2008 [↩]
Posted in Analysis, Headlines | Tagged , , , , , | 4 Comments