The Choke Point Worth $200 Oil
By Keith Kohl | Tuesday, September 18th, 2012
The Choke Point Worth $200 a Barrel
What will it take for oil to spike as high as $200?
The answer lies with a tiny strip of waterway just 21 miles wide at its narrowest point.
Every day, roughly one-third of the world's seaborne oil shipments pass through the Strait of Hormuz — not to mention the more than two million barrels of LNG also traveling through the passage.
And while we've heard these threats time and again over the last few years (really, decades), attempts to stir the pot and drive crude prices higher have really started to spook some of the world's largest producers.
Both Saudi Arabia and the UAE are bypassing the Strait as much as possible... to the point of opening up new pipelines to offer the countries more flexibility in getting their barrels to market.
China won't be taking Iran's threat lightly, either; half of their daily oil imports travel through the Strait of Hormuz.
Should the U.S. be worried? After all, with our own domestic production booming and the reliability of the three million barrels of Canadian oil flowing daily into the lower 48 states, is the fate of the Strait a real concern?
Well that depends on the answer to this question: Are we out of the woods when it comes to depending on Middle East for oil?
Not Even Saudi Arabia
Can Save Us From High
With oil prices soaring ever higher, Saudi Arabia stepped in last week and vowed to increase its production by 25% if necessary.
But while that assurance managed to siphon a few dollars off of oil futures, the reality is there's nothing Saudi Arabia - or anyone else, for that matter - can do about rising oil prices.
In fact, crude is still on track to reach $150 a barrel by mid-summer.
As Saudi Oil Minister Ali Naimi pointed out last week, current oil supplies already exceed global demand by 1 million-2 million barrels per day.
For its part, Saudi Arabia is already breaking its own OPEC-imposed production quota limit, churning out about 10 million barrels of oil per day - close to its 12.5 million barrel capacity.
Yet the effect of that production has been negligible.
Oil is still trading at $106 a barrel on the NYMEX - something that has clearly flummoxed the world's largest oil producer.
"I think high prices are unjustified today on a supply-demand basis," said Naimi. "We really don't understand why the prices are behaving the way they are."
Naimi and his colleagues may not understand oil's price gyrations, but Dr. Kent Moors, an adviser to six of the world's top 10 oil companies and energy consultant to governments around the world, does.
"Despite the excess storage capacity in both the U.S. and European markets and the contracts already at sea, oil traders set prices on a futures curve," said Moors. "In a normal market the price is set at the expected cost of the next available barrel. During times of crisis, on the other hand, that price is determined by the cost of the most expensive next available barrel."
And with tensions with Iran running high, we are currently in crisis mode. Pushed to the brink by Western sanctions, Iran has threatened to close the Strait of Hormuz - the narrow channel in the Persian Gulf through which 35% of the world's seaborne oil shipments and at least 18% of daily global crude shipments pass.
If Iran closes the Strait of Hormuz, crude oil prices will pop by between $30 and $40 a barrel within hours. Should the strait remain closed for 72 hours, oil trading will push up the barrel price to $180 in New York, and closer to $200 in Europe.
The situation is further complicated by potential military conflict - such as an Israeli air strike on Iran's nuclear facilities.
The Oil Sector that's Quietly Gaining Momentum
By Keith Kohl | Saturday, March 24th, 2012
The Saudis have pledged to bring oil prices back down to a “fair” level...
But let's not confuse their motivations here — the 12 members of OPEC have just one thing on their minds: money.
No matter how generous and charitable they decide to be in raising oil exports going forward, the Saudis don't care how much you and I are shelling out to fill up our gas tanks.
OPEC's political game of seesaw has been playing in the media for decades.
What reason do we have to believe they'll ever grow a conscience?
Years ago, they were adamant that $60 per barrel was the right price. A little later, that changed to $80 per barrel. Today $100/barrel is the right price for them.
Tomorrow — who knows?
Energy chiefs' message: Actions, not words, will determine energy future
BY HAROLD HAMM, AUBREY MCCLENDON, LARRY NICHOLS AND TOM WARD | Published: March 21, 2012
Welcome to Oklahoma, President Obama. We hope you develop a better understanding of the oil and gas industry, one of the largest and most vibrant sectors in the United States, during your visit. As Americans, we share a mutual desire to power our nation with homegrown energy sources. We join you in wanting to secure our energy future by lessening our dangerous dependency on imported oil. Read more...