OPEC Cutting Estimates, Pressure Building on Obama

Jim Brown
 
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OPEC said there was no reason to increase production because they are revising demand estimates downward. In the U.S. the pressure is mounting on President Obama to end the ill conceived moratorium on drilling.

OPEC cut its demand estimates for 2010 by 70,000 bpd from the prior estimate and now sees a year over year decline if -175,000 bpd in 2010. OPEC said there would be no supply increase because there is no place to put it given the weaker demand.

OPEC also said it was raising its 2010 estimates for non-OPEC production by 110,000 bpd making a total increase of 640,000 bpd in 2010. The largest increase in supply came from the U.S. with rising production from the Bakken and new production finally coming online in the gulf. Several major gulf projects had been delayed for a couple years due to technical problems. Those have been resolved and the wells are starting to come online.

OPEC quota bound members increased production by 19,600 bpd to 26.83 mbpd in May.

The cartel said 2010 consumption would rise to 85.37 mbpd in 2010.

In the U.S. the Interior Secretary Ken Salazar told a Senate committee that the Whit House drilling moratorium could end sooner than the targeted six months. Salazar said the moratorium could end as soon as the commission investigating the Horizon explosion completed their task and reported their findings.

President Obama has been coming under increasing pressure from various groups to lift the ill conceived moratorium. Senator Mary Landrieu, a Democrat from Louisiana said 330,000 jobs are at risk in her state if the moratorium is not lifted. Lawmakers from all around the gulf coast are pressuring Obama to drop the moratorium because of the billions in revenue they receive from the oil industry in the gulf. There are three sources of income to the gulf states. Those are tourism, fishing and drilling. Various analysts claim there are 35,000 to 45,000 workers on the water at any given time and most are on the deepwater projects. Adding in the support services, commerce and recreation for those families and the employment numbers grow very large very quickly.

Almost since day one of the moratorium the president has been besieged by state related politicians to cancel it. Everyone know it was put in place to make him appear to be doing something important about the spill but it was also the wrong move. Now to backtrack will cost him credibility so I don't expect a quick resolution. He will have to wait a reasonable time after getting the commission findings to make it appear he is studying the results and making new regulations.

President Obama is now being criticized for his carefully planned and executed use of the phrase "I wanted to know whose ass to kick." The president was doing a softball interview with Matt Lauer where Matt fed him scripted questions so the president could deliver pre-formulated answers. This is done all the time in politics under the guise of a real interview. The delivery of the scripted answer was so obvious that critics were quick to point out that is was just one more in a long line of comments that were more flash than substance.

The Senate is about ready to vote on a major increase in the "oil spill liability tax" from 8 cents per gallon to 41 cents per gallon. There are 42 gallons in a barrel so that would equate to a $17.22 tax per barrel of oil. Refiners will pay the tax on every barrel of crude they process. I understand the desire by lawmakers to create a fund to use when there is a spill but is this the way?

Who is going to pay that tax? If you answered anyone other than the consumer then go sit in the corner. The day this tax begins it will be the equivalent of raising the price of oil by $17 per barrel. Refiners are going to pass it along to consumers and it will be the equivalent of a 45-cent increase in every gallon of gasoline. Do we really need a 45-cent increase when the economy is struggling? The House has already passed the bill with a 34-cent tax.

BP has upped its target capacity for processing the oil from the leaking well. BP is aiming for capacity of 28,000 bpd by next Tuesday using two ships. The current drillship, the Enterprise, can process from 15,000 to 18,000 bpd but will run out of room for storage after a week, They are currently transferring oil from the Enterprise to a tanker. The second rig will be the Helix Q4000 but the Q4000 has no storage capacity. Any oil recovered through the top kill lines will have to be immediately transferred to another tanker.

The water must be rough tonight because the streaming video shows the containment cap rocking sharply and continuously in the top of the well. BP is working on a way to disconnect from the well if a hurricane heads their way and then reconnect after the storm passes.

Jim Brown

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