Tumultuous times for the dollar this week. Gold has hit an all-time high three days in a row (this morning it’s at $1,045 troy ounce – it was only $990 on 29 September) while WTI oil is up at $71.50 a barrel todaycompared to $66 just over a week ago – both commodities head upwards when the greenback’s going the other way. So what was going on? Over to the NYT for the stocks and bonds report in Wednesday’s paper:
Investors clamored to buy pretty much anything on Tuesday — as long as it was not the dollar. A seven-month slide in the value of the dollar gained force as investors migrated to other markets and fretted over a report that crude oil could one day be priced in other currencies, hobbling the dollar’s role as a vehicle for global trade.
Whatever would give investors that idea, you wonder? Answer:
A report on Tuesday in The Independent, a British newspaper, suggested that China, France, Japan and Russia were in secret talks with Persian Gulf countries to abandon the dollar for international trade in oil and replace it with a basket of currencies and gold.
The Independent? Not the FT, not the WSJ, but the Independent? Yup, the FT’s Alphaville blog says so too:
The Independent appears to have rocked the world on Tuesday with its Robert Fisk exclusive exposing a secret plot by international central banks to topple the US dollar.
So what on earth did he say that managed to move markets on the other side of the Atlantic?
Deutsche Bank have good news and bad news, as the Wall Street Journal’s excellent Environmental Capital blog recounts:
Here’s an intriguing thought: Global oil supplies are indeed set to peak within a few years, and no, that is not bullish for oil. Quite the contrary—it will spell the end of the “oil age.”
That’s the take from Deutsche Bank’s new report, “The Peak Oil Market.” In a nutshell: The oil industry chronically under invests in finding new supplies, exemplified both by Big Oil’s recent love of share buybacks and under-investment by big oil-producing nations. That spells a looming supply crunch.
That will send oil to $175 a barrel by 2016—and will simultaneously put the final nail in oil’s coffin and send prices plummeting back to $70 by 2030. That’s because there’s an even more important “peak” moment on the horizon: A global peak in oil demand. That has already begun in the world’s biggest oil-consuming nation, Deutsche Bank notes:
US demand is the key. It is the last market-priced, oil inefficient, major oil consumer. We believe Obama’s environmental agenda, the bankruptcy of the US auto industry, the war in Iraq, and global oil supply challenges have dovetailed to spell the end of the oil era.
The big driver? The coming-of-age of electric and hybrid vehicles, which promise massive fuel-economy gains for short-hop commuting but which so far have not been economic.
Deutsche Bank expects the electric car to become a truly “disruptive technology” which takes off around the world, sending demand for gasoline into an “inexorable and accelerating decline.”
Is a peak for global oil demand in sight, wonders the Guardian’s Data Blog this morning? Er, no – what might make them think that, you wonder? Answer: a new Greenpeace report called Shifting Sands, which argues that the case for developing tar sands in Canada is rapidly diminishing as oil demand falls. The report pulls together demand forecasts from OPEC and IEA, and argues that on top of the effects of the recession,
“In the longer term, the impact of two key policy instruments adopted in the US and EU are cited as gaining in influence. These are the US Energy Independence and Security Act and the EU Climate and Energy package. These policies, and the fact that there has been a degree of saturation in these markets, have led to the unanimous conclusion among these agencies that oil demand in the OECD has peaked.”
OECD, schm-OECD! They’re beside the point! Let’s remind ourselves of what the last IEA Outlook report actually said:
Global primary demand for oil (excluding biofuels) rises by 1% per year on average [in the report’s Reference Scenario], from 85 million barrels per day in 2007 to 106 mb/d in 2030 … all of the projected increase in world oil demand comes from non-OECD countries.
It is entirely true to point out, as Greenpeace do, that investment in tar sands has fallen off a cliff as oil prices have crashed from $147 last July to their current level of around $60, and that investor uncertainty over future demand is the big driver here.
But to go from there to talking about a peak in world oil demand? I wish.
The last two weeks have seen a storm of insurgent activity in Nigeria: Shell’s onshore output has been halved to around 140,000 barrels a day, Chevron has lost about the same again (taking the aggregate output lost to over to a fifth of Nigeria’s total) – and for the first time Lagos has been attacked. According to Africasia.com,
Fighters from the Movement for the Emancipation of the Niger Delta (MEND) attacked the facility, the first strike in Nigeria’s economic nerve centre since the oil insurgency was launched in 2006. Rescuers said five people were burnt beyond recognition in the blast.
“The militants went into open shooting with the naval officers guarding the facility but they were overpowered. They used dynamite to destroy the manifold,” said Geofrey Boukoru, a member of the emergency rescue team.
The militants arrived in four speed boats, exchanging fire sporadically with the navy for about three hours before hurling dynamite into the facility, said a senior official from the Pipelines and Products Marketing Company, an affiliate of the state-run petroleum corporation.
The Lagos attack took place just before the federal government’s planned amnesty release of Henry Okah, the head of MEND – a release that, in the event, still went ahead despite the attack. MEND has since said in a statement that it “considers this release as a step towards genuine peace and prosperity if Nigeria is open to frank talks and deals sincerely with the root issues once and for all” – although as Abubakar Momoh of Lagos State University observes to AlJazeera, “What the government has done in the case of Okah is like treating the symptom and not curing the disease … there are issues that drove the militants to the trenches. Until those issues are resolved in a fair and just manner, there will never be peace in the Niger Delta.”
As David noted back in November last year, counter-insurgency expert John Robb has called Henry Okah “one of the most important people alive today, a brilliant innovator in warfare”. Here’s Robb’s account of how Okah did it. Continue reading
From a post here last October:
[We can expect] a reduction in commodity prices for the duration of the global downturn (however long that may be) as demand for them falls. As I’ve mentioned, futures prices for grain crops are already falling; we can expect that trend to be supported by falling energy prices, which will reduce some of the pressure on food that’s come via fertiliser prices, transport costs and demand for crops as biofuels.
That said, let’s be clear: the fall in commodity prices due to a global downturn does not mean that we’re out of the woods for good on high food and fuel prices. As Javier Blas notes in the FT today, the downturn also means that necessary investment in increasing supply will be put off. As soon as we’re out of the dowturn and demand starts going up again, we’ll discover that there’s been no shift in the underlying supply fundamentals – and hence that the stagflation drivers we were all worrying about until the credit crunch really began in earnest are just waiting where we left them.
Latest oil price data (Jul 08 – now, courtesy of BBC News):
Latest FAO Food Price Index:
Royal Dutch Shell - Flickr User Lee Otis
After 13 years, Royal Dutch Shell has agreed to pay $15.5 million compensation to settle a court case over its alleged part in the execution of Ken Saro-Wiwa and other Ogoni leaders in the Niger Delta. Much of the backstory can be found here.
Now I’m no judge (not yet, anyway), but $15 million doesn’t seem a lot for a firm with 2008 revenues of $458 billion. Michael Goldhaber, who does know something about law, describes the sum as ‘nuisance value’ from Shell’s point of view.
Yet the fact that Shell settled the day before the trial was due to begin is indicative of the firm’s distaste for either the publicity that court proceedings would create, or the culpability that might be uncovered. Continue reading
Nobuo Tanaka, the executive director of the International Energy Agency, is quoted in the FT this morning as saying that “it would be in the interests of producers and consumers if oil stayed at its present level of about $45”.
This strikes me as a bit odd. A whole range of senior oil industry figures has been warning that with prices having fallen off a cliff since last summer’s peak of $147, investment in new production capacity has fallen sharply as well – setting the stage for a potential supply crunch as soon as the world begins to emerge from the downturn and demand starts to pick up.
Nick Butler, for example, suggested in December that a price band of $50-$75 a barrel is needed to ensure that sufficient new investment comes on stream to meet demand (which the IEA projects will rise from 85m barrels a day in 2007 to 106m mb/d by 2030). Total CEO Christophe de Margerie, meanwhile, said in October last year that if the oil price fell to $60 a barrel and stayed there, “a lot of [new] projects would be delayed”.
Strangest of all, it’s less than a month since Nobuo Tanaka himself was briefing heavily about the risks of a future supply crunch resulting from under-investment, and stressing that he expected demand to rise by about 1 mb/d from next year onwards.
So what’s going on?