Tag Archive | "Oil"

Case for Sustained $100 Oil

Making The Case for Sustained $100 Oil

In our latest guest analysis, Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, talks about oil prices and the different factors affecting their levels.

In 2011, oil was one of the top performing commodities among those we track, with Brent rising more than 13 percent. Geopolitical risk and unexpected non-OPEC supply losses caused oil to rise significantly in early 2011. By October, we saw the black gold sink to a low of $96 per barrel before rising to its current level of nearly $108 a barrel.

Last year’s unrest demonstrated how major oil-producing regions can significantly affect oil prices. As I’ve previously stated, according to PIRA, the Middle East accounts for over 70 percent of OPEC oil production and, along with North Africa, more than 95 percent of the cartel’s capacity growth.

A disruption of the supply chain can also influence oil prices. One of the largest chokepoints along the global oil supply chain is the Strait of Hormuz, which roughly 90 percent of all Persian Gulf oil tankers—some 18 million barrels per day—pass through, according to Barclays. With Iran controlling the entire northern border of the strait, there is a significant chance for disruptions should the country fall into conflict or war.

The story will likely continue into the new year, as “sanctions against Iran, including a possible European Union oil embargo, and fear of an Israeli attack on Iran’s nuclear facilities led 2011 to close on a bullish note” for oil, said PIRA Energy Group in their new report today. Additionally, there’s new political uncertainty in Iraq that may keep oil elevated.

The chart below sums it up: With more than 40 percent of the world’s oil controlled under autocratic rule, oil supply in democratic nations likely depends on the state of autocratic nations.

Case for Sustained $100 Oil

Read The Many Factors Fueling a Return to $100 Oil
China Rises to Top of Energy Pyramid

Another significant development in 2011 was that China surpassed the U.S. to become the world’s largest energy consumer. BP’s Statistical Review of World Energy report calculated that China’s energy consumption rate grew 11 percent over the previous year, with the country consuming 20 percent of global energy.

Case for Sustained $100 Oil

Read China is World’s Largest Energy Consumer

While coal accounts for a significant portion of China’s total energy use, the country’s need for oil should continue to rise. Its rising income levels, the government’s social housing plan, and an aggressive transportation effort to link 700 million people across more than 250 cities should continue drive this growth. Bank of America-Merrill Lynch agrees, suggesting that “China’s oil dependency will rise as U.S. imports fall.”  In the chart below, it’s projected that China’s imports of crude oil and petroleum products will surpass the U.S. in 2014. BofA-ML thinks that on a volume basis, China oil imports “will grow quite rapidly on the back of rapid per capita income growth.”

Case for Sustained $100 Oil

China’s demand is what makes today’s oil situation different from the end of 2007. At that time, a lack of supply increased oil prices even though the U.S. was in a recession. What’s different is that “China is likely to re-accelerate” in 2012, according to Goldman Sachs.

China, along with other emerging markets, and the European Central Bank are in the early stages of a global easing cycle, primarily by cutting interest rates to spur growth. Also, the Federal Reserve should remain stimulative. These government actions set the stage for sustained, or perhaps higher, demand for oil. As stated earlier, geopolitical threats remain on the horizon, and could also be a positive catalyst for oil.

As always, our team will closely follow these events, as well as the monetary and fiscal policies, to find global investment opportunities in 2012.

We wish you and your family a very happy and prosperous new year!

John Derrick contributed to this commentary.

U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.

For more updates on global investing from Frank and the rest of the U.S. Global Investors team, follow us on Twitter at www.twitter.com/USFunds or like us on Facebook at www.facebook.com/USFunds. You can also watch exclusive videos on what our research overseas has turned up on our YouTube channel at www.youtube.com/USFunds.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

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Navy Helping Oil BP (NYSE:BP) Gulf Spill Response

Kris Alingod – AHN News Contributor

Washington, DC, United States (AHN) – A U.S. Navy blimp and a new oil collection device will begin helping federal and state agencies with the Gulf spill cleanup.

Navy Helping Oil BP (NYSE:BP) Gulf Spill Response

The MZ-3A airship is on its way to the coast and will serve "an important role in achieving the goal of saving a way of life," said the unified command, a multi-agency operation that includes the Fish and Wildlife Service and the departments of Defense, Commerce, Interior and Homeland Security.

The blimp was requested by the Coast Guard to support skimming and wildlife rescue. Officials say it can operate for up to 12 hours, saving time and fuel used in flying planes and choppers. The airship also has the advantage of traveling much slower, making it a more effective platform for aerial observation.

Oil continues to gush out of the sunken rig off the coast of Louisiana following the April 20 blast that killed 11 workers. The spill is the largest in U.S. history and oil has reached the shorelines of all five Gulf states, affecting livelihoods and destroying ecosystems.

The National Oceanic and Atmospheric Administration on Monday expanded its fishery closure to 33 percent of federal waters in the Gulf of Mexico. The agency also said in its latest update that 438 sea turtles and 52 dolphins have been found dead within the spill area.

BP plc (NYSE:BP), which owns the oil leaking into the ocean, is working to slow down the spill with a system called the lower marine riser package, put in place early June. The system does not plug the leak but contains it by bringing oil up to the surface where a ship collects it and then flares off natural gas, a method that officials have admitted is slow and difficult because of the hurricane season.

The riser cap method serves to mitigate the disaster until BP (NYSE:BP) finishes drilling two wells that will relieve pressure from the sunken rig's existing well. Drilling of the relief wells began in early May and is expected to take until August.

Federal officials have also begun using a bag, called Heavy Oil Recovery Device, that collects thick, heavy fuel traditional skimming methods are unable to remove.

The device, which has a capacity of two tons, is held open by an aluminum frame and dragged through the water by shrimp boats. Shipyards in Alabama and Florida are manufacturing the bags and 1,000 units will be deployed in the coming weeks.

It is "essentially a single unit that acts as a filter, containment and disposal system rolled into one," according to the unified command. "[Its] simple design greatly improves a boat’s maneuverability and ability to safely perform at faster speeds and in higher seas."

Oil continues to leak at 2.5 million gallons a day more than two months after the Deepwater Horizon rig exploded.

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Oil From BP (NYSE:BP) Spill Reaches Texas Coast

Ayinde O. Chase – AHN News Editor

Galveston, TX, United States (AHN) – Tar balls from the BP (NYSE:BP) oil spill in the Gulf of Mexico reached the Texas coast over the weekend. The sighting means that the spill has reached all five U.S. Gulf states.

Oil From BP (NYSE:BP) Spill Reaches Texas Coast

According to investigators, five gallons of tar balls were discovered near Galveston. Tests on the substances revealed it came from the Deepwater Horizon leak.

It remains unknown if the tar balls drifted in the currents or if they were deposited by ships that had been working in the cleanup zone.

The joint BP-U.S. government response team issued a statement saying, "The testing found that the oil was lightly weathered, raising doubts that the oil traversed the Gulf from the spill source.”

So not only is the state dealing with the possibility of encroaching plumes of oil severely affecting the coastline but oil from the spill is purposely invading Texas–slated for permanent disposal in underground salt domes and injection wells.

The state has numerous environmental services companies, refineries and oil salvagers, making it one of the states tasked with recycling or permanently disposing of the oily waste collected during the ongoing clean up efforts.

Since April 22, oil has been leaking from a blown-out sea floor well, deluging the Gulf with a torrent of oil that has cost the BP plc (NYSE:BP) over $3 billion in cleanup costs.

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