CONSUELO MACK: This week on WealthTrack, the prospects for oil in an uncertain world. Will the Arab spring lead to new shortages of petroleum? Will a global slowdown dramatically cut oil demand? Find out what star oil analyst Charley Maxwell is forecasting next on Consuelo Mack WealthTrack.
Hello and welcome to this edition of WealthTrack. I’m Consuelo Mack. No matter how you toss it, oil still matters. Yes, the price of oil has dropped precipitously this year, along with other commodities in the face of a slowing global economy. West Texas Intermediate, the traditional U.S. benchmark, has fallen about 25% from its spring highs. But according to this week’s guest, the fundamentals of supply and demand do not hold out much hope of any sort of sustained drop from here.
Black gold is still the dominant source of fuel in the world. According to the U.S. Energy Information Administration, it accounts for more than a third of world energy consumption, followed by coal and natural gas, and dwarfing nuclear and other alternative energy sources. And according to the IEA, by 2030 that energy pie shouldn’t look that different, except for a couple of more percent from alternative sources and a few less from oil- which means the uprisings in the Middle East are of more than just political and human rights interest. The outcomes can make the difference between affordable or expensive oil, and surplus or shortage.
As our guest this week, veteran oil analyst Charles Maxwell points out, ten nations that control some 16% of the world’s daily production have serious internal political problems. They range from sizable producers such as Iran, Iraq, Venezuela, Nigeria and Libya, to smaller producers such as Syria and Egypt. And we haven’t even mentioned the fact that non-OPEC oil production, including in the U.S., has already peaked and predictions are that production will peak in other regions over the next ten years or so. This all makes the life of an oil analyst challenging, to say the least. But Charley Maxwell, senior energy analyst at Weeden and Company, has the experience and knowledge to sort it all out. A student of Middle East Language, Literature and History at Oxford, he began his career working for Mobil Oil in 1957 with posts in Europe, the Middle East and Africa. He became an oil analyst in 1968 and has been ranked number one in his field nine times over the years. In a recent interview, I asked Charley why oil should be on our radar screens?
CHARLES MAXWELL: Well, oil is so involved in our lives. It’s the largest single source of energy that we have among all the big sources. It’s about 36 % of total energy used on the planet, is still oil. So it’s terribly important to us that we have continuous and even growing supplies of oil. And my work suggests that continuous is not really likely in the present political environment, and growing, probably not likely in the natural environment in which Mother Nature is beginning to question whether we can continue to lift oil production when we have so many old oil fields that are beginning to contribute their negative volumes.
CONSUELO MACK: So let’s start with the political aspects first, and I know you told me that ten countries that are known for oil production have serious internal political problems, and I’m thinking of not only the Arab Spring, but other issues, as well, with Iran and Venezuela.
CHARLES MAXWELL: Yes, indeed.
CONSUELO MACK: So what is the potential impact of these internal political problems that there are in some of the major oil producers of the world?
CHARLES MAXWELL: Well, the key point is that we have about 89 million barrels a day of production going on now in the world, and we’ll have averaged that for the year. And in that we have about 6 more million barrels a day that are surplus to our needs.
CONSUELO MACK: So that’s our margin of safety, 6 million barrels a day?
CHARLES MAXWELL: That’s our margin of safety. And of that 6 million, actually about 1 ½ million barrels a day are of high sulfur, very sludgy, dense types of oil that no refinery wants, or can afford to run because it cleans out the inside of the refinery and pits the surfaces.
CONSUELO MACK: So we’re down to a margin of 4 ½ million barrels.
CHARLES MAXWELL: So now we’re down to about 4 ½, and then we have Libya, that dropped out about a little bit more than 1, so now we’re down to about 3 and a quarter, and then we need about 2 million barrels a day to operate the system on the inventory requirements, so we’re down to something like 1 to 1 ½ million barrels a day that’s all that’s actually extra to our needs, and that just isn’t enough. Any one of these ten countries going down will make a difference and two or three of them go down, and they’ve gone down in the past, then we’re going to be tight, and suddenly we’re going to be back on higher prices.
CONSUELO MACK: So with oil prices now it’s been ranging somewhere between, what, $80 and $90?
CHARLES MAXWELL: Yeah, five.
CONSUELO MACK: $95 a barrel. So what do you think, looking at the global supply to paint a picture right now, what do you think that a fair price of oil is?
The entire interview is here: http://www.wealthtrack.com/transcript_09-09-2011.php
Hello and welcome to this edition of WealthTrack. I’m Consuelo Mack. No matter how you toss it, oil still matters. Yes, the price of oil has dropped precipitously this year, along with other commodities in the face of a slowing global economy. West Texas Intermediate, the traditional U.S. benchmark, has fallen about 25% from its spring highs. But according to this week’s guest, the fundamentals of supply and demand do not hold out much hope of any sort of sustained drop from here.
Black gold is still the dominant source of fuel in the world. According to the U.S. Energy Information Administration, it accounts for more than a third of world energy consumption, followed by coal and natural gas, and dwarfing nuclear and other alternative energy sources. And according to the IEA, by 2030 that energy pie shouldn’t look that different, except for a couple of more percent from alternative sources and a few less from oil- which means the uprisings in the Middle East are of more than just political and human rights interest. The outcomes can make the difference between affordable or expensive oil, and surplus or shortage.
As our guest this week, veteran oil analyst Charles Maxwell points out, ten nations that control some 16% of the world’s daily production have serious internal political problems. They range from sizable producers such as Iran, Iraq, Venezuela, Nigeria and Libya, to smaller producers such as Syria and Egypt. And we haven’t even mentioned the fact that non-OPEC oil production, including in the U.S., has already peaked and predictions are that production will peak in other regions over the next ten years or so. This all makes the life of an oil analyst challenging, to say the least. But Charley Maxwell, senior energy analyst at Weeden and Company, has the experience and knowledge to sort it all out. A student of Middle East Language, Literature and History at Oxford, he began his career working for Mobil Oil in 1957 with posts in Europe, the Middle East and Africa. He became an oil analyst in 1968 and has been ranked number one in his field nine times over the years. In a recent interview, I asked Charley why oil should be on our radar screens?
CHARLES MAXWELL: Well, oil is so involved in our lives. It’s the largest single source of energy that we have among all the big sources. It’s about 36 % of total energy used on the planet, is still oil. So it’s terribly important to us that we have continuous and even growing supplies of oil. And my work suggests that continuous is not really likely in the present political environment, and growing, probably not likely in the natural environment in which Mother Nature is beginning to question whether we can continue to lift oil production when we have so many old oil fields that are beginning to contribute their negative volumes.
CONSUELO MACK: So let’s start with the political aspects first, and I know you told me that ten countries that are known for oil production have serious internal political problems, and I’m thinking of not only the Arab Spring, but other issues, as well, with Iran and Venezuela.
CHARLES MAXWELL: Yes, indeed.
CONSUELO MACK: So what is the potential impact of these internal political problems that there are in some of the major oil producers of the world?
CHARLES MAXWELL: Well, the key point is that we have about 89 million barrels a day of production going on now in the world, and we’ll have averaged that for the year. And in that we have about 6 more million barrels a day that are surplus to our needs.
CONSUELO MACK: So that’s our margin of safety, 6 million barrels a day?
CHARLES MAXWELL: That’s our margin of safety. And of that 6 million, actually about 1 ½ million barrels a day are of high sulfur, very sludgy, dense types of oil that no refinery wants, or can afford to run because it cleans out the inside of the refinery and pits the surfaces.
CONSUELO MACK: So we’re down to a margin of 4 ½ million barrels.
CHARLES MAXWELL: So now we’re down to about 4 ½, and then we have Libya, that dropped out about a little bit more than 1, so now we’re down to about 3 and a quarter, and then we need about 2 million barrels a day to operate the system on the inventory requirements, so we’re down to something like 1 to 1 ½ million barrels a day that’s all that’s actually extra to our needs, and that just isn’t enough. Any one of these ten countries going down will make a difference and two or three of them go down, and they’ve gone down in the past, then we’re going to be tight, and suddenly we’re going to be back on higher prices.
CONSUELO MACK: So with oil prices now it’s been ranging somewhere between, what, $80 and $90?
CHARLES MAXWELL: Yeah, five.
CONSUELO MACK: $95 a barrel. So what do you think, looking at the global supply to paint a picture right now, what do you think that a fair price of oil is?
The entire interview is here: http://www.wealthtrack.com/transcript_09-09-2011.php
