Saturday Oil Report -- January 7, 2012

Source: Decline of the Empire

Oil prices have risen since our previous report on December 17. Nymex WTI stands at $101.56 per barrel and the Brent price is $113.06. Most of the rise can be attributed to fears of a confrontation (war?) with Iran which could close the Strait of Hormuz. Clifford Krauss of New York Times told us so in Oil Price Would Skyrocket if Iran Closed the Strait of Hormuz. Jeez, those guys at the Times are smart. Really sharp. I wouldn’t have been able to figure that out if Clifford hadn’t told me about it.

I’ve seen this Iran crapola come and go many times in the several years I’ve been writing about oil. It’s always something. The global economy is shaky. Without those concocted Iran fears, the price of oil would be falling. There’s no reason to raise the alarm level.

Oil Alarm Level — Orange

Do you know what I say to these fearmongering assholes? Go ahead, have your war with Iran. See what happens after that. Go ahead. Make my day. Let’s proceed with this report as if the world were a sane place and humans are eminently reasonable. Obviously we’ll have to pretend.

Two developments warrant our attention. Neither is new. First, we’re getting less oil from south of the border, as reported in the Washington Post’s Latin oil supplies for U.S. start to dry up: Canadian pipeline can fill gap.

The political and environmental debates swirling around the proposed $7 billion Keystone XL pipeline from Canada to Texas miss a crucial point, energy analysts say: The Canadian oil is needed to replace fast-dwindling production from two other major suppliers of oil — Mexico and Venezuela.

The United States remains the largest consumer of oil in the world, requiring more than 8 million barrels a day of fuel imports to feed its appetite, with nearly half of that coming from oil-rich neighbors in Latin America as recently as 2005.

But oil production south of the border has fallen off dramatically, and Canadian crude in recent years quietly overtook imports from Mexico, Venezuela and even Saudi Arabia to become the most important outside source of oil for the U.S…

“As traditional supplies of heavy crude from countries such as Mexico and Venezuela decline, Canadian oil sands become more important,” said Lucian Pugliaresi, an analyst with the Energy Policy Research Foundation Inc. Canada ships about 2.5 million barrels a day of crude to the U.S., more than twice as much as Mexico and Venezuela combined.

Yes, if the junkie is going to get its fix, the most convenient thing to do would be to build the Keystone pipeline. Mexico’s oil production (and thus exports) has been in radical decline for years now. Venezuela under Chavez is an unmitigated disaster. So the argument now is that we can’t maintain our “Happy Motoring” lifestyle without that Canadian tar sands slop.

The second development warns of growing domestic consumption in Saudi Arabia, which I originally took note of back in July. MarketWatch gave us the story in Saudis use more oil; exporter status threatened.

LONDON (MarketWatch) — Growing domestic energy consumption in the world’s largest oil exporter, Saudi Arabia, threatens its ability to adequately supply world markets, said a report from London-based think tank Chatham House.

The report, posted on the Chatham House website Wednesday, said without significant policy changes, rising Saudi energy consumption could deprive the world of 2 million barrels a day of oil exports by 2020 and make major oil price spikes more likely.

It urged the Saudi authorities to curb demand growth with some urgency by increasing domestic fuel prices and pushing for greater efficiency.

“Saudi Arabia’s energy consumption pattern is unsustainable,” said the report. “Demand for its own oil and gas is growing at around 7% a year. At this rate of growth, national consumption will have doubled in a decade.”

If you want the grim details—if you’re a glutton for punishment—read the Chatham House report. If you are familiar with Al Bartlett’s talk on the exponential function, you know that 7% annual growth results in a doubling over a decade. That’s the rate at which Saudi Arabia’s internal demand for its own oil and gas is growing.

And on that cheery note, I will conclude this report. What will happen to oil prices in the next two weeks? (These reports are biweekly.) God Only Knows. As I said above, it’s always something in this wild, wacky, wonderful world of ours.

Read more at Decline of the Empire