Weekly Market Recap
Just want to highlight some interesting stories I came across this week for you:
Violence and bombings aimed at destroying Nigerian Oil output will begin again:
MEND will start “a sweeping assault starting from Rivers state that will change the face of oil and gas exports from Nigeria,” the group’s spokesman, Jomo Gbomo, said in an e-mailed statement.
Attacks by MEND and other armed groups on Nigeria’s oil industry have cut the west African nation’s exports by more than 20 percent since 2006. Nigeria is Africa’s leading oil producer and the fifth-biggest source of U.S. oil imports.
A good story that highlights the fact how much some costs associated with Oil production and transportation have dropped recently is here.
The cost to transport crude oil from the Caribbean on Aframax tankers has dropped 62 percent in four weeks as rising stockpiles of crude oil and the weakening U.S. economy reduced demand for shipments.
Tanker rates dropped as U.S. crude inventories reached 338.9 million barrels, the highest level since August 2007, according to a Jan. 28 Energy Department report. Stockpiles have risen seven of the past eight weeks.
I don't know for sure how much drilling and exploration costs are going down at the moment but I'm sure they must be down in the range of 40-60% since the peak. Of course Oil is down even more than that put if you can pay these lower costs now to get discovering and oil flowing by the time we recover, you should be laughing all the way to the bank.
Abdalla el-Badri, OPEC secretary- general, said $70 to $90 a barrel is a “reasonable” oil price to support investment in new production.
“It’s a reasonable price where we can invest and that’s the most important thing for the world,” el-Badri said in a television interview at the World Economic Forum in Davos today. “We control 75 to 80 percent of the world reserves, we need to develop that reserve so we can have more supply to the world.”
So it seems like OPEC will continue to cut output until they get their "magic" price. The only problem I see is that when we do get to this price, we might have very limited output and if we have any shocks such as a rebounding economy needing larger than anticipated amounts of oil, how fast will they be able to restart supply? Could we be in for some oil supply shocks like in the 70's?
Till next week!