Future of Oil

Future of oil

The Hubbert peak theory, also known as peak oil, is a controversial theory concerning the long-term rate of conventional oil and other fossil fuel production and depletion. It assumes that oil reserves are not replenished, and predicts that future world oil production must inevitably reach a peak and then decline as these reserves are exhausted. Much of the controversy is over whether past production or discovery data can be used to predict a future peak. Based on available production data, proponents have previously (and incorrectly) predicted the peak years to be 1989, 1995, or 1995-2000. A new prediction by Goldman Sachs picks 2007 for oil and some time later for natural gas.

Classification

The oil industry classifies "crude" by the location of its origin (e.g., "West Texas Intermediate, WTI" or "Brent") and often by its relative weight or viscosity ("light", "intermediate" or "heavy"); refiners may also refer to it as "sweet", which means it contains relatively little sulfur, or as "sour", which means it contains substantial amounts of sulfur and requires more refining in order to meet current product specifications.

The world reference barrels are:

• Brent Blend, comprising 15 oils from fields in the Brent and Ninian systems in the East Shetland Basin of the North Sea. The oil is landed at Sullom Voe terminal in the Shetlands. Oil production from Europe, Africa and Middle Eastern oil flowing West tends to be priced off the price of this oil, which forms a benchmark.
• West Texas Intermediate (WTI) for North American oil.
• Dubai used as benchmark for the Asia-Pacific region for Middle East Oil
• Tapis (from Malaysia, used as a reference for light Far East oil)
• Minas (from Indonesia, used as a reference for heavy Far East oil)
• The OPEC Basket consisting of
• Arab Light Saudi Arabia
• Bonny Light Nigeria
• Fateh Dubai
• Isthmus Mexico (non-OPEC)
• Minas Indonesia
• Saharan Blend Algeria
• Tia Juana Light Venezuela

OPEC attempts to keep the price of the Opec Basket between upper and lower limits, by increasing and decreasing production. This makes the measure important for market analysts. The OPEC Basket, including a mix of light and heavy crudes, is heavier than both Brent and WTI.

Pricing

In modern western economies, both the primary source of energy and the primary form of stored and transported energy is hydrocarbon fossil fuels. Because pumping the hydrocarbons out of the ground is currently inexpensive (about one U.S. dollar per barrel in Saudi Arabia in 2004), the price of energy comes from the costs of refining and distribution, and from taxation and profits by the various governments and companies in the custody chain between producer and consumer. The price of crude delivered to a refinery in the U.S. is about $50 a barrel in late 2004.

The price of oil fluctuates quite widely in response to crises or recessions in major economies, because any economic downturn reduces the demand for oil. On the supply side the OPEC cartel uses its influence to stabilise or raise oil prices. During 2004, the OPEC official price range for its crude oil is US $22 to US $28 per barrel.

A recent low point was reached in January 1999, after increased oil production from Iraq coincided with the Asian financial crisis, which reduced demand. The prices then rapidly increased, more than doubling by September 2000, then fell until the end of 2001 before steadily increasing, reaching US $40 to US $50 per barrel by September 2004 (see Oil price increases of 2004). In October 2004, light crude futures on the NYMEX for November delivery exceeded US $53 per barrel and for December delivery exceeded US $55 per barrel.

The New York Mercantile Exchange (NYMEX) trades crude oil (including futures contracts) and provides the basis of US crude oil pricing via WTI (West Texas Intermediate). Other exchanges also trade crude oil futures, eg the International Petroleum Exchange (IPE) in London trades contracts in Brent crude. Wet oil is normally bought and sold via bilateral deals between companies, typically with reference to a marker crude oil grade that is typically quoted via the pricing agency Platts , for example in Europe a particular grade of oil, say Fulmar, might be sold at a price of "Brent plus US$0.25/barrel".

Top petroleum producing countries

(Ordered by amount produced in 2003):

• Saudi Arabia (OPEC)
• United States
• Russia
• Iran (OPEC)
• Mexico
• China
• Norway
• Canada
• United Arab Emirates (U.A.E) (OPEC)
• Venezuela (OPEC)
• United Kingdom (U.K)
• Kuwait (OPEC)
• Nigeria (OPEC)

(Ordered by amount exported in 2003):

• Saudi Arabia (OPEC)
• Russia
• Norway
• Iran (OPEC)
• United Arab Emirates (U.A.E) (OPEC)
• Venezuela (OPEC)
• Kuwait (OPEC)
• Nigeria (OPEC)
• Mexico
• Algeria (OPEC)
• Libya (OPEC)

Note that the USA consumes almost all of its own production.

Source: Energy Statistics from the U.S. Government