Poor Forecasting Record of CERA and IEA

Smoke and Mirrors
by Aage Figenshou

EnergyBulletin.net carries this article
http://energybulletin.net/26474.html

It is difficult to make predictions and one tends to shy away from criticizing other people’s incorrect forecasts. Next time it might be you making an error. However some people and organizations have such a high level of credibility and profile that they are trusted by politicians and captains of industry to deliver solid information. We know these institutions influence decisions that will impact global development. If these institutions year after year deliver bad data, and if they at the same time refuse to accept that something is wrong with their forecasting models, it is actually an important service to point this out. Important decision makers in politics and industry should know that what these institutions say about the future can not be relied upon as a solid basis for policymaking.

The article includes a highly detailed look at the horrible inaccuracy of recent forecasts by both the IEA and CERA. Figenshou concludes:

CERA has made it their task in life to debunk the peak oil myth. They claim that the resource base is plentiful and technology will solve all problems. Somehow many people listen. Would they listen as much if they knew the huge errors CERA has been making? How their forecasts, when analyzed and compared with other sources, look completely unrealistic? And that even based on their own forecast the spare capacity will actually only grow with 1 to 3 million b/d? If the global oil industry cannot do better than that after a decade of unprecedented oil prices, far above anybody’s marginal cost, it means something is terribly wrong with our ability to grow production. In this situation one does not need King Hubbard to understand that “Houston, we have a problem.”

Crude Oil Falls on Concern Demand to Slow

By Christian Schmollinger and Hector Forster

Feb. 28 (Bloomberg) -- Crude oil fell for the first time in more than a week as a global stocks plunge raised concern that economic growth may slow and cut fuel demand.

U.S. benchmark indexes tumbled, erasing all of 2007's gains, after a selloff in China spread and sparked the biggest rout in four years. U.S. durable goods orders dropped 7.8 percent in January, reflecting the biggest slide in business equipment demand in three years.

Crude oil for April delivery fell as much as $1.54, or 2.5 percent, to $59.92 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the biggest intraday drop since Feb. 20. It traded at $60.40 at 3:35 p.m. Singapore time.

Economic growth in China, which consumes about 9 percent of the world's oil, helped push crude prices to an all-time high last year. Chinese oil demand will jump 32 percent to 9.4 million barrels a day in 2011 from 7.1 million barrels a day in 2006, the International Energy Agency said on Feb. 6.

``China is one of those outlier extra demand areas,'' said Rowan Menzies, commodity market analyst with Commodity Warrants Australia in Sydney. ``So if that slows down that would obviously reduce the buffer between demand and supply.''

Asian stocks fell the most in more than eight months, extending a rout in global equities that started in China and triggered a slump in the U.S.

In the U.S, the Dow Jones Industrial Average dropped as much as 546 points, the most since the first trading day after the Sept. 11, 2001, terrorist attacks. Chinese stocks yesterday fell the most since 1997 after the government took measures to crack down on excess speculation that had driven shares to records.

Brent crude oil for April settlement lost as much as $1.12, or 1.8 percent, to $60.24 a barrel on the London-based ICE Futures exchange. It traded at $60.50 a barrel at 3:35 p.m. Singapore time.

Gold rose in Asia as investors sought a haven amid the Asian stocks decline.

Gold for immediate delivery gained as much as $9.30, or 1.4 percent, to $672.65 an ounce and traded at $671.95 at 3:33 p.m. Singapore time. It fell as much as $23.20 to $663.35 yesterday, its biggest decline since Oct. 3.

Crude-oil stockpiles probably climbed 2 million barrels from 327.6 million barrels the prior week, according to the median of responses. Fourteen analysts expected an increase and one said there was a decline.

Byron King on Shell's Hofmeister and Peak Oil

http://www.energybulletin.net/26455.html

http://www.whiskeyandgunpowder.com/Archives/2007/20070222.html

Byron King has a long article about Big Oil's stance on the Peak Oil Theory at Energy Bulletin:

The critics focus on the point that the Peak Oil concept focuses on conventional oil, and does not take into account other hydrocarbon alternatives. Well, yes, after a fashion. Peak Oil is, and always has been, about “conventional oil” recovery. The discovery and recovery of conventional oil has been occurring for about 150 years, since 1859, when Col. Edwin Drake pounded down his famous well at Titusville. When former Shell geologist M. King Hubbert first articulated the Peak Oil concept in the 1950s, conventional oil was the whole ballgame. And the world is now at the point at which conventional oil extraction is a more or less flat, at a production rate of something over 80 million barrels per day (mbd), with the balance in natural gas liquids and other
energy fluids.

Mr. King makes some excellent points, but he could use some brushing up on the differences(particularly in numbers) between "conventional" crude and NGLs.

Five Easy Oil Market Lessons

Posted on Feb. 19, 2007
By A. F. Alhajji
http://www.energytribune.com/articles.cfm?aid=393

Much of what you read and hear about world oil pricing is wrong. Here are a few things to keep in mind whenever you hear pundits talk about oil prices:

Lesson One: Prices in a competitive market are determined by supply and demand. If the world oil market is competitive, the price of oil on any given day is the result of the intersection between supply and oil demand. Through that process, we end up with “equilibrium” and the price is called “the equilibrium price.” There are no “shortages” in such a market. A shortage indicates that what people are willing and able to buy is more than what sellers are willing and able to sell. In the case of a shortage, prices will increase until we reach equilibrium: a balance between supply and demand. Economics 101 tells us that if the price for West Texas Intermediate is $75 per barrel, then the oil market is at equilibrium at that price and supply and demand are balanced.

We cannot have a market price of $75 and say that there’s a “clear imbalance between supply and demand,” as an OPEC document states; or “a fundamental imbalance between supply and demand growth,” as a senior official at a leading Canadian investment bank recently asserted; or a “misalignment between supply and demand,” as a well-known industry analyst has declared. Imbalance implies a shortage, and a shortage results in an increase in prices until we reach “balance.” Therefore, as long as there is a price – low or high – there is a “balance.”

Click on links above to read full article

Oil Survey Correct 54% Of Time

By Mark Shenk

Feb. 23 (Bloomberg) -- Crude oil may rise next week because of falling U.S. fuel stockpiles and the unexpected closure of some U.S. refineries in the past two weeks.

Seventeen of 39 analysts, traders and brokers, or 44 percent, said prices will increase, according to a Bloomberg News survey. Sixteen expected a decline and six forecast little change. Last week, 50 percent of respondents said futures may fall.

Crude oil for April delivery rose $1.28, or 2.1 percent, to $61.14 a barrel this week on the New York Mercantile Exchange. Today's closing price was the highest since Dec. 22.

The oil survey has correctly predicted the direction of prices 54 percent of the time since it was introduced in April 2004.

Bloomberg's survey of oil analysts and traders, conductedeach Thursday, asks for an assessment of whether crude oilfutures are likely to rise, fall or remain neutral in the comingweek. The results were:

RISE NEUTRAL FALL
17 6 16

Oil Prices Likely to Dip

February 21, 2007
By Brian Fallow
New Zealand Herald

http://www.nzherald.co.nz/category/story.cfm?c_id=37&objectid=10424966

World oil prices will continue to fall, BP's chief economist Peter Davies believes, but probably not back to the levels prevailing earlier in the decade.

"We expect prices to stay over US$40 a barrel for the next three or four years at least," said Davies, in Wellington for an international energy economists conference.

He readily acknowledges that like his peers he failed to predict the jump in the oil price between 2004 and 2006 when it rose from around US$27 to a peak of US$78 last August. It was US$58 yesterday.

The downward influences on prices had the upper hand at the moment, he said, but only up to a point.

One was global spare capacity - the extent to which producers can quickly ramp up production.
It had become very tight in 2004, triggering the price rise, Davies said. "But spare capacity is rising again, because markets work."

Inventories were also high.

Then there was the impact of higher prices in dampening demand and encouraging an increase in supply.

The offsetting upward influences on oil prices included Opec's policies. Its two moves in recent months to cut back production had underpinned prices, Davies said.

There was also an ongoing trend of higher production costs and taxes.

And geopolitical concerns were a perpetual factor.

In Iraq no international oil company was operating despite its great potential, Davies said. "Even if there was security it would take two years at least to increase production significantly."

Tensions between Iran and the US were not diminishing and the possibility of disruption to Iranian supplies was seen as a risk in the market.

Tensions in the Niger delta continued and in Venezuela the industry was effectively being nationalised.

"All this does not look particularly good," Davies said. "But it is not much worse than we have seen before."

On the demand side China was an important but not dominant factor.

It accounted for just over a third of the growth in world oil demand between 2000 and 2005.
But over the past 10 years the increase in Chinese and Indian consumption combined had been matched by the increase in Russian production.

Despite concerns about "peak oil", global proven oil reserves continued to rise, Davies said. That is, the amount of oil that could be produced with today's technology and economics was increasing faster than it was being depleted.

At 1.2 trillion barrels it represented about 40 years' supply at today's rate of consumption.
"Energy policy should not be based on expectations that oil will run out," he said. Nor should it be based on concerns that falling production within OECD producers such as the United States, Britain, Norway and Australia implied increasing reliance on the Middle East.

"The share of world reserves represented by the Middle East has not been going up," he said. "But we are becoming more reliant on Russia, and we are seeing in non-OECD countries a tendency towards resource nationalism."

As for biofuels, BP has committed to investing $500 million, concentrating not on producing ethanol from corn - which people or livestock can eat - but from cellulosic sources like agricutural wastes or switch grass grown on marginal land.

"We could easily get 1 million barrels a day by 2020 globally," he said.

But that is less than one year's growth in demand for oil.

Cuba Boosts Oil Production

Posted on Feb. 19, 2007
ET Staff

In 2006, Cuba produced a record 78,000 barrels of oil per day, and the country continues to ramp up its exploration efforts. Last year’s production is about seven times what Cuba produced in 1990, and domestic output now supplies roughly 43 percent of the country’s total consumption. The new production has meant about $260 million in annual savings for Cuba, which has long relied on imports.

State-owned Cubapetróleo (CUPET) oversaw the drilling of 30 oil wells in 2006, six of which it operated. In 2007, CUPET plans to double the number of wells it drills to a dozen, with most of the activity in the island’s western part. Offshore exploration is increasing as well. A number of foreign companies are now exploring an area covering 30,000 square kilometers of Cuba’s territorial waters in the Gulf of Mexico.

Lou Grinzo Says Peak Oil in 2011

Guess #3: Ethanol will become a much more interesting liquid motor fuel thanks to the supply constraint and higher prices triggered by peak oil. Even though Matt Simmons has said we're at peak oil right now, I'm still siding with Chris Skrebowski's analysis which says it won't happen until 2011. As gasoline prices rise, car companies will bring out more vehicles that can run on E85, greatly broadening its appeal. Any major disruptions in supply causing a price spike or even limited shortages will only accelerate the adoption of flex-fuel vehicles.

http://www.grinzo.com/energy/blog_entry_archive/2007/02/2007x02x07_1.html

Expanding SPR Won't Increase Prices

by Alex Kaplun 2/20/2007

URL: http://www.rigzone.com/news/article.asp?a_id=41564

The Bush administration's effort to expand the Strategic Petroleum Reserve will not drive up oil prices on the open market, Energy Secretary Samuel Bodman said today.

The government will buy oil for the reserve in quantities that will be largely "inconsequential" on the worldwide market, Bodman told a Washington energy conference.

The Energy Department currently has roughly $500 million available for buying oil and will start its purchases this spring, Bodman said.

"We have enough cash to get started in the process," he said.

The petroleum reserve contains roughly 690 million barrels of oil, with a maximum capacity of 727 million barrels. President Bush announced his policy in his State of the
Union address that he plans to expand the reserve to 1.5 billion barrels.

DOE has already announced plans to add a fifth SPR in Richton, Miss., as well as expand the existing facilities. The process of both expanding the SPR and filling it with additional supplies is expected to take about 20 years.

Bodman said DOE will begin buying oil at a rate of roughly 50,000 to 100,000 barrels a day -- "not a consequential amount," he said.

But if DOE determines its purchases are pushing prices up, "we will back off," Bodman said. Bodman also said DOE would consider including ethanol in the reserve. "We
are in the process of doing that, but we are very early in the game," he said.

Price Swings in Crude Oil Widening

Feb. 20 (Bloomberg) -- Crude oil was little changed after falling yesterday as warmer weather moved into the eastern U.S. and Europe, curbing heating-fuel consumption.

Daily price swings in crude oil futures are widening. Futures fell or rose more than 1.5 percent on 26 trading days in the past two months compared with 15 days in the same period a year earlier, according to data compiled by Bloomberg.

Heating Season Ends

``The warmer weather is concentrating minds on the fact that the end of heating season is near,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Crude-oil supplies should build in the next couple of months as refineries perform maintenance.''


Iran, the world's fourth-largest oil producer, has the ``right'' to pursue its nuclear program, Iranian President Mahmoud Ahmadinejad said yesterday, rejecting the request of a United Nations Security Council to halt uranium enrichment by today.

U.S. Buildup

The Security Council unanimously voted Dec. 23 to impose sanctions on Iran over the program, including a ban on the acquisition of materials and technology that might be used to build nuclear weapons. The UN also froze the assets of individuals and groups associated with the program and gave Iran 60 days to halt enrichment.

A U.S. aircraft carrier battle group led by the USS John C. Stennis arrived in the Persian Gulf region as part of a buildup of forces amid heightened tension with Iran. The Nimitz-class Stennis arrived in the region Feb. 15 to join the USS Dwight D. Eisenhower as the second aircraft carrier battle group in the region, the U.S. Navy's Fifth Fleet said yesterday.

Russia Lowers Price Forecast For 2007

Feb. 19 (Bloomberg) -- Crude oil fell on speculation U.S. fuel inventories are sufficient to meet heating demand in the world's largest energy consumer as the end of winter approaches.

Temperatures in much of the U.S. Northeast, the nation's largest heating oil consuming region, may be above average in the week ending March 4, according to the National Weather Service. Crude oil may fall this week as warmer weather moves into the eastern half of the U.S., curbing demand for heating oil and natural gas, according to a Bloomberg News survey.

Crude oil for March delivery fell 89 cents, or 1.5 percent, to $58.50 a barrel on electronic trading the New York Mercantile Exchange at 5 p.m. in New York. Floor trading is closed today for the Presidents Day holiday.

Twenty-one of 42 analysts, traders and brokers, or 50 percent, said prices will decline this week, according to the survey. Ten expected an increase and 11 forecast little change. The week before, 35 percent of respondents expected futures to fall.

Russia Cuts Forecast

Russia, the world's largest oil producer after Saudi Arabia, cut its forecast for crude prices this year and next, Deputy Finance Minister Tatiana Golikova told parliament today, according to local news services.

The ministry cut its forecast for 2007 to $55 a barrel from $61 a barrel and the 2008 estimate to $53 a barrel from $56, RIA Novosti and Interfax cited Golikova as saying.

Russia calculates its budget according to the price of Urals, the country's benchmark blend of crude. Urals currently trades for about $55 a barrel.

Iranian Oil Minister Kazem Vaziri-Hamaneh said OPEC probably won't need another production cut at current prices, the Islamic Republic News Agency reported Feb. 17. OPEC's 12 members will meet in Vienna on March 15 to examine market conditions.

OPEC's basket price, a weighted average of 11 blends produced by OPEC nations, rose 76 cents to $53.56 a barrel on Feb. 16, the latest available data.

Blogs

Blogs

Peak Energy http://peakenergy.blogspot.com/

Lou Grinzo http://www.grinzo.com/energy/

Simple Production http://philhart.com/peak_oil

Conrad Black

http://www.torontolife.com/blog/conrad-black-trial/

http://www.blacksjustice.com/


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