IEA, IRAN and OPEC

Jim Brown
 
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The IEA's head, Nobou Tanaka, told a gathering in Tokyo that there is more risk of a decline in oil demand than a recovery. The IEA recently revised growth estimates for 2010 to 1.6 mbpd. The rebound follows two years of declines caused by the worst recession since the 1930s. However, Tanaka said price spikes as demand increases could cause volatility and again decrease demand.

I believe Mr Tanaka has run out of topics to discuss. Everyone agrees that higher oil prices will slow some demand but continued economic growth from India and China plus the "normalization" of prices in the west will continue to add to demand.

It is a historical fact that higher oil prices, actually higher gasoline prices due to higher oil, decreases demand temporarily. Prices peak, demand slows, prices ease slightly and the entire process repeats only with a higher price point before demand slows. Consumers get used to a price point and begin to see it as normal. When prices rise again they rarely come back to the prior normal and consumers eventually raise their idea of what normal is today.

Tanaka went on to say that while oil demand would probably rise by 1.2 mbpd annually over the next five years the oil producers would struggle to add more than 1 mbpd in total over that period. "The world's oil producers should not be worried about price."

Iran's Shell Game

When Iran was caught building a secret underground facility for uranium enrichment the leaders insisted they had no other choice. With their nuclear facilities under constant threat of attack, they said only a fool would leave them out in the open.

Evidently a fool is in charge of Iran. International inspectors watched in surprise two weeks ago as Iran moved almost all of its stock piled, low enriched nuclear fuel to an above ground plant. One official noted it was though they had painted a bulls-eye on it.

Western officials are baffled. Why would Iran take nearly their entire supply of low enriched uranium and put it in an above ground plant and actually show IAEA inspectors and the press where it was located?

Multiple scenarios are being discussed. Under one scenario they are hoping Israel will strike and give them a reason to abandon the enrichment farce and take up a holy war against Israel. A second scenario they are taunting the west in order to win further concessions in the current negotiations. The third scenario is the one president Obama believes and that is they had no other suitable storage containers for that quantity of fuel and they had to move the entire container to the new site for the 20% enrichment phase. That would not be my choice.

Iran claims it is going to build 10 new underground enrichment facilities but analysts claim Iran can't do this because they don't have enough equipment, personnel, scientists or uranium. Basically Iran has talked itself into a corner and now they don't know what to do.

By giving Israel a clear shot at the enriched uranium they are hoping Israel will end their misery. If the uranium is destroyed then Iran can claim the program cannon continue without uranium and they can rail against Israel and unite the fragmenting country under a death to Israel banner.

The Iranian Revolutionary Guards could be inviting the attack simply to unite the country and give themselves more power. They know the enrichment program is doomed so getting someone to end it for them is a huge political gift.

If someone attacked and destroyed the uranium, Iran could rise up in a rage and throw all the IAEA inspectors out of the country and withdraw from the nuclear nonproliferation treaty. Then they would be like North Korea and able to enrich and create bombs to their hearts content without any inspectors and overseers. They may be trying to create an event that will let them exit the agreement.

Others believe this is one last desperate attempt at brinksmanship. By putting all their uranium eggs in one basket in full view at the plant where they can enrich to 20% or higher, they are threatening to turn it all into bomb grade fuel. This is a colossal bluff in hopes of getting some new concessions and let them end the program peacefully and then brag about how the west gave in to their demands.

Whatever the reason for moving the uranium, the stakes have definitely risen.

OPEC Production Hits 14-Month High

According to a Bloomberg report, OPEC output rose +125,000 bpd in February to an average of 29.17 mbpd from all OPEC countries. That is the highest level since December 2008. The numbers were based on a survey of oil companies, producers and analysts.

OPEC cut production in January 2009 to 24.845 mbpd to stop the price from falling any further. That was a 4.2 mbpd cut in production. In December 2009 OPEC left the production targets at that same 24.845 mbpd despite rampant cheating by nearly all OPEC countries. Iraq and Nigeria do not have a quota. Production by countries subject to the quota was 26.785 mbpd. Compliance with the quotas fell to only 54%.

OPEC will meet again in Vienna on March 17th to discuss quotas. As long as prices are over $70 there is no chance they are going to cut production and since the blanket cheating is working so well there is no chance they are going to raise production. Look at the numbers in the paragraphs above. They produced nearly 2 mbpd more than the quota in February and crude prices are still over $80. As far as OPEC is concerned it is a perfect world.

Saudi Arabia boosted production in February by 100,000 bpd to 8.25 mbpd and the highest level for them since December 2008. Saudi exceeded their official quota by 199,000 bpd. Angola increase production by 75,000 bpd in February and pushing them to 428,000 bpd above their quota.

Jim Brown

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