[CAMWEST-discuss] Fw: Energy Economist: Record Oil Price in Europe - December 22, 2011 2

Danny Hannan danny_hannan at yahoo.com
Mon Jan 2 00:30:03 UTC 2012

G'day all,
Happy New Year!
While I wish I was the bearer of better news it is still better to be informed than not.
This article is very relevant and if you could not be bothered reading it all just cut to the conclusion in bold at the end.
Keep in mind that all three IEA, EIA and ASPO have all warned of a global shortage of supply of liquid fuels in 2012 and declining global supplies after 2014, and the sabre rattling in Iran.  While I agree with the conclusion the global economic crash in 2008 caused prices of US$147 to US$32/barrel, a range of US$115/barrel.  Any oil price over about US$120/barrel is negative for the economy.  A spike in oil prices to US$150 plus/barrel would likely cause a worse collapse than 2008.  The probability of a spike in oil prices to above US$150/barrel is high, but is dependent on the level of global economic recovery and supply interuptions, difficult to predict both the extent and timing of either, but I doubt that we will see much in the way of recovery, supply interuptions are another matter.
danny_hannan at yahoo.com

----- Forwarded Message -----
From: James Williams <wtrgecon at centurytel.net>
To: jlwiliams at energyeconomist.com 
Sent: Saturday, 24 December 2011 3:36 AM
Subject: Energy Economist: Record Oil Price in Europe - December 22, 2011 2

Energy Economist: Record  Oil Price inEurope - December 22, 2011
Issued 3-4  times per week.  
If you have trouble viewing the graphs in this report go to the on line report 
Record Prices

If you live in Europe, then 2011 is a record year for oil prices.

The Causes

Libya's revolt started February 17, 2011. By March, 1.6 million barrels per day of production was off line. There was a predictable impact on the price of oil. The effect on the NYMEX contract was less than it was for Brent which exceeded $125 per barrel. The reason for the divergence was bloated stocks of oil at Cushing. With its limited pipeline access to the U.S. markets that need crude oil this caused the NYMEX price to drop below world market value. At times the difference was as much as $27 per barrel. Crude oil produced near the Gulf Coast sold for prices comparable to Brent. The price difference was a phenomenon local to Cushing, Oklahoma and points north.

Since the June it takes more euros to buy a dollar.
From January through May the increase in the value of the euro relative to the dollar dampened the impact of the rapidly increasing price, but from June forward a weakening euro  wiped out the $12 decline in oil prices.

For all practical purposes to a European oil prices have been flat near 81 € / barrel since the end of February. 

Since its inception in 1999 the euro went from parity with the dollar at the end of its first year to near 1.60 $ / € in 2008. So far this month is 1.32$ / €.
The monthly average Brent price in euros is € 81.86 so far this month and € 4.30 below the highest month on record.  That record was established July 2008 at € 86.16.

On an annual basis Brent will average about $110.90 for 2011 compared to the previous highest 12-month record of $106.10. That period was for the twelve months ending September 2008.  Recession in Europe followed.

Switching to the euro this year will average € 79.61 per barrel. That is € 9.27 (13.2%) higher than the € 70.34 price in the 12-months ending September 2008. 

Price Impact

A long term look at the price in euros and the impact on the European economy isn't possible becausethe euro only dates to 1999 when it came into existence. Alook at the U.S. will make our point. A sustained period of high prices is usually followed by recession. 


Europe has enough problems to justify a full blown recession. The impact of high oil prices and a weaker euro increases the chance of a European economic meltdown. If that turns out to be the case, contagion would expand to the United States followed by Asia. Under that scenario, the price of crude could easily drop to $50 per barrel. If high oil prices cause recession, it is equally valid that recession causes low oil price.

If there is another supply interruption, then 2012 could easily be one of those years when the daily high separates the low by more than $80 per barrel.

  Weekly EIA Report

The EIA report this morning was bullish. Total stocks down 18.2 million barrels. Crude down 10.6million barrels, gasoline down 400,000 and distillates (heating oil and diesel) down 2.4million barrels. However, there was something for the bears. Consumption is 1.148 million b/d (5.8%) below last year with gasoline down 425,000 b/d (4.7%) from a year ago. The bearish report has to fight bullish concern about Iran, but so far prices are lower.
U.S. Petroleum Production, Refining, Consumption, Imports, Stocks
Monthly 1973 - December 16, 2011
Monthly 1995 - December 16, 2011
Weekly Report and Graphs

>U.S. Rig Count
U.S. rig count was down 11 rigs as a 5 rig gain in rigs targeting oil was not able to overcome a 16 rig loss in natural gas.  Drilling in Canada took its normal pre-holiday drop down  125 rigs. The trend continues with the drop in natural gas rigs out pacing the gain in oil rigs. With the spot price of crude oil 5 times that of natural gas on an energy content basis and the price of gas stuck near $3.00, the only incentive to drill a gas well is to hold on to expiring leases or to target gas that is high in liquid content. The liquids sell at prices comparable to crude oil. We continue to expect growth in rigs targeting oil while experiencing additional decline in rigs targeting natural gas. U.S. & Canadian Rig Count
NYMEX Prices for December 22, 2011
NYMEX Light Sweet Crude +0.86
ICE Brent  +0.18
RBOB Gasoline NY Harbor +0.0199
Heating Oil NY Harbor -0.0011
NYMEX Natural Gas +0.014
To unsubscribe email jlwilliams at eneryeconomist.com with unsubscribein the subject line. Copyright © 2011James L. Williams WTRG Economics               (479) 293-4081         (479) 293-4081
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