“If fusion energy works,” he said, “you’ll have, for all intents and purposes, a limitless supply of carbon-free energy that’s not geopolitically sensitive. What more would you want? It’s a game changer.” (NYTimes/Ed Moses)
Sunday, May 31, 2009
Saturday, May 30, 2009
Thursday, May 28, 2009
Some have said that equity market sentiment, dollar weakness or speculation have caused the recent run up in oil prices.
The relationship between equity markets and oil markets is mostly coincidental rather than there being a causal relationship (wealth effect of equity price movements may have a little causal effect). Equity market sentiment is driven by consumer and other demand-side activities which also impact oil demand.
Dollar weakness is a legitimate factor that can move oil prices in dollar terms. However this effect has been given too much credit for recent oil price moves (more on oil and dollar movement in a coming post).
Blaming speculators for oil price movements has become the most common face saving way of saying "I don't know." Speculation has been proven to have minimal impact on oil prices but is essential in generating liquidity and reducing transaction costs (bid/offer spreads) which reduces prices for consumers.
The main reason for the rally in oil prices has been quite simple. Oil is driven by fundamental physical supply and demand. Currently physical demand is greater than physical supply globally. Above ground oil inventories are no longer increasing and are beginning to fall. Now that we are coming close to the end of the weakest seasonal period for oil demand (second quarter of each year) we should see this oil inventory destocking pace rapidly increase.
Following is a chart of oil stored on floating tankers around the world. Floating storage is a leading indicator in the oil world as it is the most expensive place to store oil and the first to react to changes in fundamentals.
Floating storage beginning to empty is evidence that OPEC members' actions are having their desired effect. Storing oil on floating tankers is described in both the storage chapter and the transporting oil chapter of Oil 101.
Wednesday, May 27, 2009
"OPEC won't cut output as long as crude remains above $60 a barrel, said Morgan Downey...."They've taken more oil off the market than demand has fallen," he said. "It's just a matter of time before we see higher prices."
Sunday, May 24, 2009
The tax is paid by a vehicle buyer at the point of purchase. The tax is posted on the same window sticker as the EPA MPG rating at a new vehicle dealership. The gas guzzler tax only applies to cars. As SUVs and light trucks are not affected, the tax has created a major incentive since 1978 to purchase heavy vehicles. Light truck and SUV sales have gone from around 20% of total non-commercial vehicles sold in the US in 1978 to around 50% today (other factors have also played a part, but these have not been government related).
Gas guzzler taxes apply to cars that get less than 22.5MPG, with taxes beginning at $1,000 and increasing to $7,700 for cars which get 12.5MPG or less.
Want to immediately improve the incentive to become more efficient? Amend the gas guzzler tax to eliminate the exemption for non-commercial light trucks and SUVs or repeal the law entirely and replace with a novel solution like a Vehicle Efficiency Market.
(Oil market environmental regulations are described in Oil 101)
Thursday, May 21, 2009
Tuesday, May 19, 2009
The US Administration announced today that by 2016 US vehicle efficiency is to be raised to 39mpg for cars and 30mpg for light trucks/SUVs. These new efficiency levels will keep US motorists at least twenty years behind Europe in terms of automotive efficiency. Today's announcement (my emphasis in red):
"...simply allows the United States to match today’s European fleet efficiency (vehicles on the road now) some time after 2030." (NY Times/Lee Schipper)
To show the temporary nature of inter-market links, let's take a look at two markets which sometimes move similarly to oil. Let's look first at oil (NYMEX WTI) versus the stock market (US S&P500) over the past twenty years.
Now, let's take a look at crude oil (NYMEX WTI) compared to gold over the past twenty years.
Monday, May 18, 2009
If you are having a difficult time remembering what the various oil rig hands do (described in Oil 101, Chapter 6: Exploration and Production), then perhaps the following song will help:
Sunday, May 17, 2009
Friday, May 15, 2009
(source: The New York Times, Feb 8, 1891. Click excerpt for full article)
Thursday, May 14, 2009
Tuesday, May 12, 2009
Sunday, May 10, 2009
Saturday, May 9, 2009
Most gasoline in the US now contains some ethanol. If you live in the US and look closely at a gasoline pump you will likely see a little notice saying "contains up to 10% ethanol". 10% ethanol and 90% petroleum gasoline is the blend level at which most modern gasoline powered vehicles require no modification (check your vehicle owner's manual).
The minimum mandated gallons of ethanol to be added to gasoline was not a blending percentage issue until US motorists began to buy less gasoline in the recession of 2008 (annual declines in oil consumption are quite rare - the last major declines occurred in the early 1980s). Now gasoline blenders have minimum gallons of ethanol to add to gasoline, but because of the recession these minima may require blending up to 15% ethanol into gasoline.
You may not care about ethanol blend percentages, but you should as the guys who made your car and gas stations are worried.
Automobile manufacturers are expressing concern that their vehicles may not be able to cope with greater than 10% ethanol in gasoline. Retail station owners are also objecting to the higher blend percentages which could damage storage and pump systems.
The US EPA is investigating how to handle the issue and a ruling is expected later this year. The law is clear and so the EPA has to somehow finesse the ethanol into gasoline or hope for a swift recovery and growth in US gasoline demand.
(Note that ethanol is not widely used as a gasoline additive outside the US and Brazil. Oil 101 describes ethanol in detail)
Friday, May 8, 2009
The chart above shows the fall in the purchasing power of the US dollar since the 1920s. A chart of most other paper currencies would show a similar if not greater declines. As Anatole Kaletsky says in an interesting article in today's Times:
"The currency game is not a beauty contest but an ugly contest, in which investors must choose the currency that is least ugly."
Friday, May 1, 2009
The vast majority of Singaporean taxis run on regular gasoline and not CNG. CNG was introduced to a portion of the Singaporean cab fleet within the past five years. The driver mentioned that the slightly slower acceleration of a CNG vehicle compared to a gasoline vehicle didn't bother him much. Cruising on highways he observes no discernible performance difference. He said that during the oil price increase in 2008, the cost of CNG was lower than that of gasoline, but that now that oil is $50 per barrel he doesn't think there is much of fuel cost difference.
Oil 101 outlines why CNG is suitable for city taxi and mass transit fleets but is not practical to use as a fuel outside of urban areas. The Singaporean experience shows that CNG service station roll outs can be a challenge even for ultra-well managed urban areas.
Vietnam: I am in the scooter capital of the world today: Ho Chi Minh City (Saigon), Vietnam. Cars are second class vehicles here and I don't see many push bicycles (which is a big change from 10 years ago). I ride a scooter and motorcycle in New York and am familiar with the benefits and hurdles such vehicles face in a city. Scooter owners in Vietnam drive aggressively. You can tell they are used to ruling the road over cars. There is a lot of scooter-pooling. By my estimation over half of the scooters here carry two passengers. It is the rainy season in Vietnam but that doesn't deter scootering. Drivers and passengers sport a vast assortment of ponchos. Beer delivery even takes place, somewhat precariously, on scooters (see the video below I took earlier today).
Vietnam is a still a net oil exporter with very low but rapidly growing per capita oil consumption (approx. 1.5 barrels per person per year compared with around 24 in the US). There is no sense of anyone in Vietnam cutting back on oil consumption as a result of high oil prices and from the level of economic activity here (5%+ yr/yr growth is generally expected in 2009) one doesn't feel we are in the midst of a global recession.