No Plan B

Updates

March 20, 2012: How very, very interesting. Earlier today I posted the note below. I purposely "hid" it here and posted it nowhere else, feeling that it was too speculative for the blog. Then this story that just popped up on Drudge Report: IMF says oil could spike 30%.

IMF chief Christine Lagarde warned Tuesday that crude oil prices may spike by up to 30 percent if Iranian supplies were disrupted, causing "serious consequences" for the global economy.

The standoff between Iran, the world's second-largest supplier of oil, and the West over the Islamic Republic's nuclear program is seen as a flashpoint that could sharply increase world crude prices.

March 20, 2012: it looks like April 1, 2012 is the day the countdown begins for Israel to launch against Iran. ICE will slow down trades beginning April 1, 2012, in an attempt to minimize large price swings. Gee, I wonder which way the price could go?

Original Post

I assume that most readers have heard of Mexico's Cantarell field. I think I've been reading about it for years: in addition to natural depletion, its annual production has taken a hit because the Mexican constitution forbids foreign drillers from operating in Mexican oil fields.

Bloomberg has an interesting story on the Cantarell field and how it plans to increase production from this aging field. [Update: CNNMoney posted a story about Mexico's "big oil" problem on August 17, 2012. It was fairly superficial, a throwaway article, but some folks might see something I missed.]

The article appears to be just another Bloomberg article but it is full of wonderful data points. Here are some of those data points and my comments:

It's hard to believe that Mexico is the world's third-largest oil producer and produces only 2.55 million bbls of oil/day. Iran is #2 and exports about 2.6 million bbls/day.

The Cantarell field is now down to less than 501,000 bopd: for newbies, the Bakken is solidly above 500,000 bopd and increasing about 5 percent each month. I think it's fair to say that the Bakken could hit 750,000 bopd by the end of the year, if the current rate continues.

On the other hand, the Mexicans say they hope to increase production by 6% over the next couple of years, going from 2.55 million bopd now to 2.7 million bopd.

“We plan to increase production to 2.7 million barrels in the next couple years,” Suarez Coppel said. Pemex will produce 3 million barrels a day “by 2017 or 2018, given that we invest enough.” 

"Given that we invest enough." Wow, Mexico even hedges on being able to increase production by less than 20 percent over the next five to six years. Remember, Mexico is the world's third largest producer.

Switching gears......

If Mexico is the world's third largest producer, producing about 2.55 million bopd, can you imagine what might happen with price of oil if we suddenly lost all that production? Well, that is the amount that Iran exports, about 2.6 million bopd.

I posted the other day that the Iranian embargo was to take effect July 1, 2012, but the insurers stopped insuring Iranian tankers effective January 23, 2012. Way back on February 24, 2012, I suggested that countries were already scrambling to find new sources for oil and suggested that was the reason we were already starting to see a spike in the price of oil.

Well, it turns out that may been very, very accurate. Bloomberg is reporting that Iranian shipments are already declining close to 500,000 bopd. My hunch is that the administration thought they had until July 1, 2012, for a diplomatic solution, and had not counted on insurers to bring this to a head much earlier. Although it's also possible, the administration was looking for maximum pain at the pump, only to come in as the shining knight in late June to say that a diplomatic solution had been reached, that Iranian oil was flowing again. The sudden drop in the price of oil/gasoline would occur just as the presidential election closing in on November.

The perfect storm......

Back on March 2, 2011, I wrote that once the global economy turns, the demand for oil will more closely match supply. Anything that disrupts supply, and threatens that demand/supply match (or appears to threaten that demand/supply), there will be a spike in the price of oil.

We now have something that threatens the supply of oil. This time it is not just Libya, it is the number 2 producer of oil in the world, Iran.

Whining.....

Obama cites bottlenecks and speculators as "possible" gasoline price factors.  I'm looking forward to the presidential debates: permitorium, moratorium, the Keystone, ....

It appears the administration has appointed Vermont's Bernie Sanders to be their point man to try to convince Americans that speculators are the cause of the recent rise in the price of oil. Because of the size of our economy, because of the size of our oil industry, it takes awhile to see how policies affect outcome. In the past three years: slow-rolling the domestic oil and gas industry; refusing to allow any drilling off-shore Alaska, or almost anywhere off-shore in the continental US; the moratorium and then then permitorium in the gulf (which caused much more economic damage than the original event); and the killing of Keystone XL.

Bernie whines about speculators, and overlooks everything else. I really don't know who the average American will believe: Bernie Sanders or someone else. It may not matter: at $6.00 gasoline, folks are not interested in casting blame; they are interested in seeing prices come down.

Speaking of the "average American" and the "average price" of oil.....

Yesterday, I wrote that AAA's "average" price of gasoline is not the same as the price that the "average" American is paying for gasoline. In today's news, the evidence. The Drudge headline reported today there is a gasoline station in Los Angeles charging $6.00/gallon. That may or may not be an outlier. But this is the real story: the cost of gasoline in California is now $5.00/gallon. The "average" price of gasoline in the country might be $3.79, but the "average" American is paying much more, and many "average" Americans may be paying as much as $5.00/gallon now.

Anyway, enough of this rambling. I think folks get the picture.

Three years of slow-rolling the domestic oil and gas industry, killing the Keystone XL, the permitorium, the continuing moratorium, .... Steven Chu did not have a Plan B if the Iranians embargoed their oil.

Oh, I haven't even mentioned the three refineries that closed down on the east coast for a variety of reasons, including the cost of environmental compliance.....and the EPA ready to shut down fracking.