[Colorado-Valley]

Here's a memo from an oil-and-gas industry insider to George Ure"s always interesting urbansurvivor.com:

"Oil Sources Check In
From our "Houston Bureau" (which happens to be sited in a leading offshore oil exploration and production company, and they are 110% Americans):

"George,
"Our company emergency center has been running full tilt since Friday. Right now, we are looking at catastrophic damage to offshore facilities and the possible complete loss of one of our largest competitor's working assets and marine base for the GOM [Gulf of Mexico.]

"As I have mentioned before, GOM assets and construction companies have been working full-tilt since Ivan last year. I have sent you SONAR scans of some of the damage. That was just the eastern Gulf, which has very little in the way of infrastructure. The two trunk lines that run to mid- and upper-Texas will likely be unaffected, but those lines are just about a quarter of supply.

"This one (Katrina) is plowing through the center of GOM oil and gas production. We are liable to see complete shut-in of up to 90% of GOM production for the near to long term, depending on luck and little else.

"Day-rates for offshore contractors shot up to normal after Ivan last year and have remained there. They are likely going up another 50% or more this coming week and will most likely remain there for the foreseeable future.

"In my estimation, oil prices are low at $70 right now. Fill up immediately. Drive very conservatively. I filled both cars tonight as I expect pump prices to spike in the next couple of days as the aftermath is surveyed. I figure $3 is cheap.

"Some idea of what kind of destruction could be found:
--anchored ships will be pushed by high seas and winds causing the anchors to drag. The anchors will snag pipelines and rip them out causing both interruption to supply and environmental problems.

--Platforms (there are many types, including drilling, production, service and floating) will be capsized and/or uprooted and lost to sinking or simply disappear never to be found.

--FPSOs and the Anderson LOOP could be severely damaged or destroyed resulting in years worth of repairs and long-term interruption to supply.

--Contruction ships and barges that have run for port may be damaged or sunk in port, with resultant loss to recontruction capability and severe damage to piers and shipping lanes.

--Run-off from the Mississippi could swamp shipping fairways and cause severe underwater avalanches, damaging port facilities and hampering damage assessment offshore (divers do most of the damage assessment and will not be allowed down until the mud is stable).

-- Severe damage to shipbuilding and dry-dock facilities causing long delays in repair and replacement of fleets.

--Severe damage to fishing fleets and the industry as a whole. Fertilizers and other pollutants in run-off could cause mass die-offs or severe relocation of marine life.

--Severe damage to wildlife refuges, salt marshes and wetlands all along the coast.

--NOLA's tourist industry may be lost for some time to come and the Quarter may be lost forever.

And that's just a partial list."


Ure -- Most of the folks I know arrived in Houston this morning. I-10 is clogged from NOLA into Houston, normally a 6-hour drive, it has stretched to more than 18, including large-scale construction on I-10 through Houston.

Best of luck to all and my wishes go with everyone in Louisiana"

(We will resume our normal economic reports tomorrow morning about 6 AM Pacific.   - We look for bloodshed in the market and again would advise you to read the article in The Australian because if the Dollar doesn't hold up well, the whole world could go.)

Let me repeat that, in case it didn't sink in yet.  The whole economic system of greed and interest could collapse.  That's why we have been studying the words of Alan Greenspan at the Kansas City Fed conference at Jackson Hole this weekend.  Al got up and said something that sounds suspiciously like "Catch you all later..."

... Hello to $100 oil.

[KevO]

note the

"In my estimation, oil prices are low at $70 right now. Fill up immediately. Drive very conservatively. I filled both cars tonight as I expect pump prices to spike in the next couple of days as the aftermath is surveyed. I figure $3 is cheap".

wake up America get to the gas station as soon as it opens
what should us Brits do?
our gas is getting cheaper by the minute !??!!

[Colorado-Valley]

Not sure what you mena, Kevo ...

The main problem for the U.S. may be an infrastructure breakdown for refined gasoline, diesel, heating oil and natural gas in the coming months.

I'm not sure how that will affect the rest of the world -- unless the U.S. decides to confiscate your refineries for its own needs.

I wouldn't put it past us ...

[richardmmm]

buy on rumor, sell on news,

incase that is not clear enough 4U.....

the price of oil has been running up on rumor, innuendo and fear mongering in the press, whilst crude stocks showed modest increases and are above 5 year averages.

now we have the terrible bad news that the entire oil supply in the GOM has been wiped out (somewhat of an exaggeration i feel but none the less assume the worst).

so now you sell / liquidate long positions / go short. this is the moment when the market has loads of liquidity with anyone and everyone greedly rushing in to buy crude on the basis that it is off to $500 a barrel with barely a pull in.

however those of us that have been long since $10, and hold huge positions, see this as a perfect exit point. there may not be another opportunity to exit from large positions at such high prices without causing a price collapse.

250,000 contracts traded on the NYMEX access night market this evening which is unheard of volume for sunday night. yet the price is only up a couple of dollars. who the hell do you think it was taking the other side of the buy orders. large hedge funds or santa claus ?

this is a very tight zero sum game, not money for free.

250,000 buy orders = 250,000 sell orders.

[energyaddict]

Calm down, there are simply no problems ahead...:

From the latest IAE release:
$this->bbcode_second_pass_quote('', 'T')he Oil Market: Towards a more Comfortable Balance

... The 2004 demand spike has abated. Second quarter 2005 world oil demand grew by just 1.1% in sharp contrast to the 5.3% growth in the same period last year...

...Responding to lower levels of spare production capacity, industry is building higher inventories. Thus a more comfortable measure of spare capacity will emerge. ...

[KevO]

$this->bbcode_second_pass_quote('richardmmm', '
')however those of us that have been long since $10, and hold huge positions, see this as a perfect exit point. there may not be another opportunity to exit from large positions at such high prices without causing a price collapse.
.

[pilferage]

$this->bbcode_second_pass_quote('richardmmm', 'h')owever those of us that have been long since $10, and hold huge positions, see this as a perfect exit point.

[NeoPeasant]

$this->bbcode_second_pass_quote('Colorado-Valley', 'H')ere's a report from an oil-and-gas industry insider to George Ure"s always interesting urbansurvivor.com:
...
"In my estimation, oil prices are low at $70 right now. Fill up immediately. Drive very conservatively. I filled both cars tonight as I expect pump prices to spike in the next couple of days as the aftermath is surveyed. I figure $3 is cheap.

... Hello to $100 oil.

[OilsNotWell]

Richard3M:
$this->bbcode_second_pass_quote('', 'b')uy on rumor, sell on news,

incase that is not clear enough 4U.....

the price of oil has been running up on rumor, innuendo and fear mongering in the press, whilst crude stocks showed modest increases and are above 5 year averages.

now we have the terrible bad news that the entire oil supply in the GOM has been wiped out (somewhat of an exaggeration i feel but none the less assume the worst).

so now you sell / liquidate long positions / go short. this is the moment when the market has loads of liquidity with anyone and everyone greedly rushing in to buy crude on the basis that it is off to $500 a barrel with barely a pull in.

however those of us that have been long since $10, and hold huge positions, see this as a perfect exit point. there may not be another opportunity to exit from large positions at such high prices without causing a price collapse.

250,000 contracts traded on the NYMEX access night market this evening which is unheard of volume for sunday night. yet the price is only up a couple of dollars. who the hell do you think it was taking the other side of the buy orders. large hedge funds or santa claus ?

this is a very tight zero sum game, not money for free.

250,000 buy orders = 250,000 sell orders.

[Eli]

Good question Oil

I think that old adage can some what be thrown out the window. The news has not even begun to come in about what the actual damage is to the oil production in the Gulf.

And holding at this point makes much more sense to me at this point.

[nth]

Things are crazy now.
I've read from 600k to 1.5mbpd of production being shutdown. We can't even figure out how much real oil production has been shutdown, much less how much damage the hurricane has caused.

There is not that many refinery issues, so we shouldn't be seeing a catastrophe inregards to refined products from this storm. Also, what kind of oil are being shutdown? If it is sweet kind, then pop goes the price.

edit:
Actually, I take it back. Over 1mbpd of refinery capacity is shutdown.
That is a lot.

[Jaymax]

$this->bbcode_second_pass_quote('nth', 'T')here is not that many refinery issues, so we shouldn't be seeing a catastrophe inregards to refined products from this storm.

[MicroHydro]

Half of my retirement money is positioned long (2010, 2011) on crude on the NYMEX, so I am not a disinterested observer. richardmmm is correct from the view of an active professional trader. Oil could drop back into the $50s before resuming the long stairstep climb up to $200+ by the end of this decade. In theory, a trader with perfect knowledge could maximize return by selling at intermediate peaks and buying on intermediate dips. In reality, the market is chaotic, and retail investors who attempt to time the market inevitably lose out over the long run to professional traders with more timely sources of information.

The big picture is that the bull market in oil and natural gas will continue until liquid or gaseous fuels created from organically grown biomass or synthesized from renewable sources of electricity are cheaper and more abundant than the fossil fuels. That day is decades away. Simmons is correct that $1/pint or $336 per barrel is a reasonable price for oil as it becomes increasingly scarce. Any 'collapse' in the oil market will be little more than a bull market correction.

[Heineken]

If oil were to drop back to the 50s the Chinese will just start buying like gangbusters. I don't think we'll ever see $50 again.

[nth]

I don't think oil price will drop below $60.
Considering that Saudi Arabia said they will not go above 15mbpd of production ever and that reaching 15mbpd without finding new large oil fields will be difficult, all this info about Saudi points to them trying very hard to keep up production. This is bad news for the industry and makes it unlikely oil production will grow faster than demand.

As far as alternatives, biofuel will only be competitive when fertilizer costs don't rise up and oil is at $70 in the U.S. agricultural system. Brazil can compete when oil is at mid $60's. But the key here is fertilizer costs. Now, it is based on natural gas costs, and NG is rising, so that competitive price point is a rising target. It is highly possible that we will never hit it.

[nth]

$this->bbcode_second_pass_quote('Jaymax', '')$this->bbcode_second_pass_quote('nth', 'T')here is not that many refinery issues, so we shouldn't be seeing a catastrophe inregards to refined products from this storm.

[Jaymax]

$this->bbcode_second_pass_quote('MicroHydro', ' ')richardmmm is correct from the view of an active professional trader.

[backstop]

nth -

given 4 nags (plus maybe a chicken) as the problematique, 3 of those nags, being global soil depletion, water depletion, and air pollution/climate destabilization,

are empowered by any agribusiness biomass energy industry achieving a significant scale.

So beside the embedded energy cost of the fertilizer, I see little prospect of unsustainable biomass fuels constraining global liquid fuel prices in the mid to long term.

Please note that I'd draw a clear distinction between the potentials of agribusiness (arable) biofuels and their potentially sustainable hill-forestry counterparts.

Regards,

Backstop

[Heineken]

I don't know why so many otherwise informed POers still put so much faith in biomass, when a recent study demonstrated pretty squarely that biomass (in this case, ethanol) requires more energy than it liberates. (I don't have the citation at hand, but I think David Pimentel was one of the investigators.) Even if the ratio were slightly more favorable, we're going to be needing our badly strained base of arable land for food.

[I_Like_Plants]

I'm glad the wind tore a couple of holes in the Superdome roof, if those people have to stay in there a few days or longer, the ventilation will make it bearable. Sure some rain may get in but that may also be a blessing in disguise, if things get really bad, it makes catching rainwater for drinking possible.