An unexpected drop in U.S. inventories, strong demand in Asia, and a colder than average winter boosted the price of West Texas Intermediate crude to a record high of $112 a barrel on Wednesday, the Financial Times reported.[1] --  (Peak Oil went unmentioned.)  --  "U.S. petrol reserves have shrunk for four successive weeks and this is leading to concerns about supplies," Javier Blas and Chris Flood said.  --  "Poor profit margins for processing crude mean U.S. refiners are not producing enough petrol [i.e. gasoline] and diesel to cool prices."  --  The U.S. Dept. of Energy warned that gas prices may reach $3.50 a gallon this summer.  --  The Financial Times noted that the price of oil has increased by 124% since January 2007.  --  Bloomberg News noted that experts are divided over what to expect in the near future:  "'OPEC has lost control of the oil market to institutional investors who are looking for a sanctuary from the weak dollar and slowing economy,' said Richard Chimblo, manager of global business development at Calgary-based Genoil Inc.  'I believe the bubble will break and prices are going to fall to the $85 area before the winter heating season.'"  --  But Tom Bentz, a broker at BNP Paribas in New York, said that "It looks like this move will accelerate and prices will move toward $115.  This is all part of the big uptrend, and where it stops nobody knows."[2]  --  Mainstream media sources continue to treat the rise of the price of oil as though it were dominated by demand factors, ignoring the growing Peak Oil school of thought according to which the world is entering into a new and traumatic area of limited and expensive energy.  --  The exclusion of Peak Oil from the U.S. mediais so strong as to make discussion of the subject almost taboo.  --  Elsewhere the subject is discussed a bit more, as in a piece published Tuesday in Canada's Globe and Mail that focused on the views of Matt Simmons, who appeared Monday at a U.S. Department of Energy conference in Washington.  --  Simmons said that oil shortages "could lead to social chaos and war.  The issue is the most serious risk to sustaining the 21st century.  Peak oil is real, and we have to take it seriously," he said.  --  Simmons "argued that production of conventional crude peaked in May, 2005, at 74 million barrels a day.  --  Since then, the world has met rising consumption — now at about 88-million barrels a day — by cutting inventories, tapping natural gas liquids that typically are included in crude production figures and using better refinery efficiencies."  --  But a Google News search suggests that not a single mainstream media source in the U.S. called attention to the conference.  --  The only blip Simmons's remarks produced on the U.S. mainstream media's radar screen, apparently, was a sentence in a Wall Street Journal blog.[4] ...

1.

Markets

Commodities

OIL HITS RECORD HIGH AFTER U.S. INVENTORIES
By Javier Blas and Chris Flood

Financial Times (London)
April 9, 2008

 

http://www.ft.com/cms/s/0/d9718494-0652-11dd-802c-0000779fd2ac.html

 

Oil prices jumped to above $112 a barrel on Wednesday, a fresh record high that threatens to stoke inflation further as the Federal Reserve faces pressure to cut interest rates again to counter the risk of recession.

The increase came after the U.S. Department of Energy said there was an unexpected drop in oil inventories last week. Strong demand in China and the rest of Asia, after a colder than average winter, also helped to boost prices, traders said.

The department said this year’s soaring prices had led it to revise its estimate for OPEC’s revenues to almost $1,000bn, nearly as much as the financial sector is expected to lose because of the credit crisis.

The U.S. crude oil benchmark, West Texas Intermediate, leapt $3.71 to an unprecedented $112.21 a barrel, while European Brent jumped $3 to $109.34 a barrel.

The jump in oil costs saw the price of corn, used to make ethanol, surge to a new all-time high of $6.16 a bushel, up 35 per cent since the start of the year.

U.S. petrol reserves have shrunk for four successive weeks and this is leading to concerns about supplies. Poor profit margins for processing crude mean U.S. refiners are not producing enough petrol and diesel to cool prices.

The U.S. Department of Energy said U.S. petrol prices jumped to a record of $3.33 per gallon last week, almost 20 per cent above last year’s level. It warned that drivers may face prices above $3.5 per gallon this summer, a level that threatens to increase inflation and dent consumer confidence.

Adam Sieminski, chief energy economist at Deutsche Bank, said on Wednesday’s price jump was the continuation of a rally from $50 to $112 a barrel since January 2007.

He said there were several factors behind the rise, including increasing demand in China and India, under-investment in oil infrastructure, geopolitical risks in oil-producing countries such as Nigeria and Iraq, and the weakness of the dollar.

“This rally just doesn’t want to quit,” Mr Sieminski said.

The International Monetary Fund warned on Wednesday that crude oil prices would remain at about $95 on average this year and the next, in spite of the slowdown in the world economy.

Coal prices are also rising, with utilities in Asia this week accepting a 100 per cent rise in the annual price they pay for coal supplies. Steelmakers have agreed to pay up to 240 per cent more for coking coal.

2.

CRUDE OIL, GASOLINE CLIMB TO RECORDS ON U.S. INVENTORY DECLINE
By Mark Shenk

Bloomberg News
April 9, 2008

http://www.bloomberg.com/apps/news?pid=20601103&sid=a5KMzZ675xFU&refer=news

NEW YORK -- Oil rose more than $2 a barrel, after touching a record $112.21, and gasoline jumped to the highest ever following an unexpected decline in U.S. crude supplies.

The 3.1 million-barrel drop in crude-oil stockpiles reported by the Energy Department sent the price up as much as 3.4 percent in New York. Gasoline futures jumped as much as 2.6 percent. At the pump, consumers are paying a record $3.343 a gallon, said AAA, the nation's largest motorist organization.

"This reaction to the DOE numbers suggests that the supply and demand fundamentals are still important,'' said Adam Sieminski, Deutsche Bank's chief energy economist in Washington. "It's not just the speculators that are driving prices higher."

Oil's 80 percent gain during the past year is the second biggest among 19 commodities on the Reuters/Jefferies CRB Index, trailing only wheat, which doubled. Rising global demand for raw materials and a weakening dollar have led to records this year for raw materials including corn, soybeans, rice, and gold.

Crude oil for May delivery rose $2.37, or 2.2 percent, to settle at $110.87 a barrel at 2:51 p.m. on the New York Mercantile Exchange, a record close. The intraday record of $112.21 a barrel was the highest since Nymex futures trading began in 1983.

Gasoline for May delivery climbed 2.38 cents, or 0.9 percent, to close at $2.7742 a gallon. Futures reached $2.8228, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

RECORD PUMP PRICES

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.2 cents to the record, AAA, the nation's largest motorist organization, said today on its Web site. Diesel prices advanced 1.2 cents to $4.032 a gallon, AAA said. Diesel pump prices reached a record $4.037 on March 22.

Rising fuel prices and cooling demand will produce first-quarter losses at five of the seven biggest U.S. airlines, based on Bloomberg surveys of analysts. Four of the nation's five biggest airlines, all except AMR Corp.'s American Airlines, have started charging some passengers $25 for a second checked bag to blunt rising fuel costs.

Inflation "has also been a source of concern," with higher commodity prices and the weaker dollar, Federal Reserve Chairman Ben S. Bernanke told Congress's Joint Economic Committee on April 2. At the same time, he said the Fed expects inflation to "moderate in coming quarters," echoing the Federal Open Market Committee's March 18 statement. A "leveling out" of commodity prices and slower global growth will help, Bernanke said.

U.S. gasoline demand may drop by 85,000 barrels a day this summer, Guy Caruso, administrator of the Energy Information Administration, said April 7. In 1991, gasoline use fell 1.4 percent in the summer, following a nine-month recession during George H.W. Bush's presidency, Caruso said.

REFINERY OPERATIONS

Refineries operated at 83 percent of capacity last week, down from 88.4 percent a year earlier, the Energy Department report showed. Refiners operated at 82.2 percent in the week ended March 21, the lowest since October 2005.

"The report is supportive across the board," said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. "I'm surprised gasoline isn't up more because of the larger-than-expected drop in inventories."

Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell. Gasoline inventories dropped 3.44 million barrels to 221.3 million last week, the report showed. A 3-million-barrel decline was expected.

Crude-oil imports fell 13 percent to 8.91 million barrels last week, the report showed.

"Most of the drop occurred on the Gulf Coast, which could be a result of fog delays in the Houston Ship Channel or because refiners may have been purchasing less oil," Evans said.

GULF COAST

Inventories on the Gulf of Mexico coast, known as PADD 3, fell 2.4 million barrels to 167.1 million barrels, the report showed, the biggest drop since the week ended Jan. 4.

Crude-oil supplies last week were 316 million barrels, 0.1 percent above the five-year average for the period, the department said. A week earlier stockpiles were 1.8 percent higher. Gasoline inventories were 7.9 percent above the five-year average, compared with 9.1 percent above a week earlier.

Heating oil for May delivery rose 12.43 cents, or 4 percent, to settle at a record $3.2345 a gallon in New York. Futures touched an intraday record of $3.2561 a gallon.

Supplies of distillate fuel fell 3.7 million barrels to 106 million last week, the report showed. A 1.5 million barrel decline was forecast.

FUEL DEMAND

"Domestic demand isn't great but that's not important," said Antoine Halff, head of energy research at New York-based Newedge USA LLC. "Global demand is still growing and that's what matters."

Total implied U.S. fuel demand averaged 20.5 million barrels a day in the past four weeks, down 0.4 percent from a year earlier, according to the department. Consumption was down 2.2 percent from a year earlier in the four weeks ended March 21.

The Organization of Petroleum Exporting Countries will hold its next formal policy-setting conference in September. Many OPEC ministers will hold informal discussions during a conference in Rome on April 20-22. The group's 13 members produce more than 40 percent of the world's oil.

"OPEC has lost control of the oil market to institutional investors who are looking for a sanctuary from the weak dollar and slowing economy," said Richard Chimblo, manager of global business development at Calgary-based Genoil Inc. "I believe the bubble will break and prices are going to fall to the $85 area before the winter heating season."

Brent crude for May settlement rose $2.13, or 2 percent, to settle at a record $108.47 a barrel on London's ICE Futures Europe exchange. Futures reached an intraday record of $109.50.

"It looks like this move will accelerate and prices will move toward $115," said Tom Bentz, a broker at BNP Paribas in New York. "This is all part of the big uptrend, and where it stops nobody knows."

--To contact the reporter on this story: Mark Shenk in New York at This email address is being protected from spambots. You need JavaScript enabled to view it..

3.

Report on business

Energy

OIL PEAK THEORIST WARNS OF CHAOS, WAR
By Shawn McCarthy

** Veteran oil industry financier paints grim picture of resource scarcity, derailed global growth; others disagree&nbnsp;**

Globe and Mail (Canada)
April 8, 2008

http://www.theglobeandmail.com/servlet/story/LAC.20080408.RPEAKOIL08/TPStory/Business

WASHINGTON -- Matt Simmons sounds the alarm like the Cassandra of the oil industry, warning that crude production has peaked and that looming energy shortages could derail global growth and even spark armed conflict.

As a prominent "peak oil" theorist, the veteran oil industry financier paints a grim picture of a world facing resource scarcity. Still, it doesn't take a "peak-ist" to conclude that the global oil producers will find it increasingly difficult to keep up with growing demand.

He squared off yesterday against other experts who argue that the world has yet to reach the physical limits of oil production. But while they disagreed on the extent of the problem, the panelists at a U.S. Department of Energy conference in Washington concurred that future crude production will be constrained by physical, economic, and political factors that add up to tight markets and higher oil prices.

Despite oil prices that have topped $100 (U.S.) a barrel, there was little sense at yesterday's conference, put on by the Department of Energy's Energy Information Administration, that high prices would spark either a boost in oil output or a sharp fall in global demand.

Record pump prices -- and a sharply slowing economy -- have cut into U.S. demand, which represents 25 per cent of the world's total. But analysts who follow the emerging economies said there is no sign yet that triple-digit crude prices have seriously dented demand in China or India.

Global demand for oil will continue to grow, analysts forecast, even as the developed world reduces consumption in the face of high prices and environmental concerns. Economic growth and rising living standards in developing countries like China, India, and the Middle East will more than offset reduced energy consumption in the mature economies of North America and Europe.

The views of Mr. Simmons, who runs Houston-based Simmons & Assoc. investment bank, bordered on apocalyptic.

Oil shortages "could lead to social chaos and war," he warned. "The issue is the most serious risk to sustaining the 21st century. Peak oil is real, and we have to take it seriously." He argued that production of conventional crude peaked in May, 2005, at 74 million barrels a day.

Since then, the world has met rising consumption -- now at about 88-million barrels a day -- by cutting inventories, tapping natural gas liquids that typically are included in crude production figures and using better refinery efficiencies.

Peter Jackson, a director at the Cambridge Energy Research Assoc., said Mr. Simmons was overstating decline rates of existing fields, was not taking into account the prospect for new discoveries, and played down the importance of unconventional resources such as Canada's oil sands.

Still, he said the industry faced "above ground" problems that would make it difficult to keep production growing fast enough to meet rising demand. About 90 per cent of existing conventional reserves are controlled by state-owned oil companies, many of which are not investing enough in capacity expansion, he said.

At the same time, the industry worldwide has seen construction costs explode, even as oil companies are forced to exploit smaller, more remote, and more geologically complex reserves. The average cost of producing a barrel of oil has more than doubled in the past eight years, with most of that increase occurring in the past four, he said.

James Schlesinger, who was the United States' first energy secretary 30 years ago during the oil shock of the late 1970s, warned of a new crisis looming.

That 1970s shock was the result of supply disruptions caused by the 1973 Arab embargo and then the Iranian revolution. The current runup in prices reflects a more fundamental disconnect between constrained supplies and rising demand in the developing world, he said.

"At some point during the decade immediately ahead, we will hit a plateau, and this will have a tremendous shock both economically and politically," Mr. Schlesinger said.

4.

Environmental capital

GREEN INK: PEAKING, PEAKING EVERYWHERE
By Keith Johnson

Wall Street Journal
April 8, 2008

 

http://blogs.wsj.com/environmentalcapital/2008/04/08/green-ink-peaking-peaking-everywhere/

 

Oil markets are all about supply, as currency drivers fade into the background, notes the WSJ. Just don’t tell OPEC: The Secretary General says the world is awash in crude, and that the current price is “proper and fair,” reports the Guardian. Maybe it’s demand: Crude loses its oompah just short of $110 on U.S. economic fears, reports Bloomberg.

But the supply situation isn’t getting better, many say. The Globe and Mail reports on more “peak oil” warnings from Matt Simmons. Russia may already be facing peak oil, and will have a hard time exporting any more, reports Commodity Online. Mexico’s also declining fast; the NYT returns to the political battle over Pemex. At least the search for new reserves has Pennsylvanians happy, the NYT notes -- locals cash in on sky-high leasing prices as drilling companies work on the Marcellus Shale.

As soon as Congress gets its act together and lays down the groundrules for tackling climate change, American entrepreneurs will unleash a wave of innovation, says Environmental Defense head Fred Krupp (also the author of a book touting clean energy tech) in a WSJ op-ed. One baby step could come today, as the Senate tries to sneak in an amendment to a housing bill to extend renewable-tax credits, notes Hill Heat. But the amendment doesn’t have any funding provision and violates pay-as-you go rules, the site notes.

At least solar power can shake the “solar pollution” tag, reports Salon. Studies show that even the manufacturing process for solar panels leave a smaller environmental footprint -- and that thin-film solar is the cleanest of all. If land use is a problem, use balloons, reports Reuters. Researchers in Israel are working with flying solar power to bring juice to remote areas.

Researchers at Purdue, meanwhile, have mapped greenhouse-gas emissions in the U.S., at Wired. The new maps offer a big improvement over earlier guestimations, and show the U.S. South is a bigger emitter than previously thought. The next step, reports Dot Earth, is a global version of the same map.