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Monday, November 11, 2013

Is OPEC losing control on world’s crude oil prices?

Since October 16, 2013 West Texas Intermediate (WTI) crude oil decreased in price from $102.49 to $94.11 a barrel, for an 8.2 percent loss, with more to come on the horizon. Good news for consumers with oil companies having enough on hand in cash reserves to make it through yet another pricing adjustment as happened in July 2008. The question on the Oil Producing Export Countries (OPEC) controlling the world’s energy market has been resolved. It has been exactly 40 years since Saudi Arabia and other members of OPEC imposed an embargo on exports of crude oil. Since 1973 US consumers have seen gasoline prices go from $.369 to almost $5 per gallon. Crude oil has rallied back up over to $100 a barrel since the early days of 2009 when West Texas Intermediate crude oil bottomed out at $32 a barrel. Since then the price has been influenced by wars and rumors of wars as well as being threatened by domestic terrorist attacks such as the Boston Marathon bombing earlier this year.
More downside should be expected for crude oil and the dive is just beginning now. Major technical support lies at $60-$62, and oil may not bottom until it falls to as low as $40 The weekly Department of Energy inventory report shows a rise for seven straight weeks. Last week, they rose 5.2 million barrels. Over the past four weeks, inventories have risen by 22 million barrels, the second largest increase since February 2009. Domestic oil production, mainly being fed by hydraulic fracturing, is on the rise and the good news is North America will become energy secure by the end of 2014. OPEC has slowly been losing control on pricing the world’s crude oil requirements. Bob van der Valk lives in Terry, Montana and is currently the Senior Editor of the Bakken Oil Business Journal as well as Fuel-pricing Analyst for US petroleum distributors and retail station owners. He can be contacted at: editor@bakkenoilbiz.com

Monday, July 16, 2012

Hearing on the America’s Energy Future

Testimony of Michael Ziesch Manager, Labor Market Information Center Job Service North Dakota Before the Committee on Oversight and Government Reform United States House of Representatives Hearing on the America’s Energy Future A Blueprint for Domestic Energy Production July 14, 2012 Chairman Issa, Ranking Member Cummings, and members of the Committee on Oversight and Government Reform, thank you for the opportunity to testify on: A Blueprint for Domestic Energy Production, and North Dakota’s contribution towards the Nation’s energy independence. I am Michael Ziesch, Manager of the Labor Market Information (LMI) Center of Job Service North Dakota (JSND). Ours is the state workforce agency that administers the unemployment insurance program, labor exchange systems connecting job seekers with openings posted by employers, and various workforce programs for North Dakota. Detailed information related to our agency and its mission, as well as links to job openings, and our LMI website can be accessed at www.jobsnd.com As a subset of JSND, the Labor Market Information Center operates as the provider of choice for data related to North Dakota’s labor market by policy makers, businesses, the public and media. Our staff collect, edit, compile, and disseminate employment, wage and labor force data under cooperative agreements with the Bureau of Labor Statistics. We also conduct special survey activities related to labor market and economic topics in North Dakota. Background North Dakota has experienced a long period of economic strength and employment opportunity. Activity has been led in recent years by agriculture and energy. But, the economic gains have also been more widespread throughout the industries of North Dakota. This gives evidence of a balanced economy in the state and is highlighted in several labor force statistics. For example:  In the month of May 2012 (the most recent period state data are available) North Dakota’s not seasonally adjusted unemployment rate was 2.7%; compared to 7.9% nationally. o North Dakota has posted the lowest not seasonally adjusted unemployment rate in the nation since April 2009.  Not seasonally adjusted Nonfarm Employment year-over-year, for the month of May, showed an increase of 6.8%; compared to 1.4% for the nation. o All employment sectors showed increase, with the exception of Government. For a longer term perspective, comparing calendar year 2000 and 2011 annual averages, there has also been considerable growth in Covered Employment and Wage levels. Please consider:  The number of employer worksites increased 4,374 (19.0%); from 22,994 to 27,368 28,000 27,000 26,000 25,000 24,000 23,000 22,000 21,000 20,000 Total Private Ownership Establishments in North Dakota Source: Quarterly Census of Employment and Wages program 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011  Covered employment grew by 70,210 (22.3%); from 309,223 to 379,433 Annual Average Covered Employment in North Dakota Source: Quarterly Census of Employment and Wages program 400,000 300,000 200,000 100,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011  Annual average covered wages increased $17,095 (69.3%); from $24,683 to $41,778 $50,000 Annual Average Covered Wage in North Dakota Source: Quarterly Census of Employment and Wages program $40,000 $30,000 $20,000 $10,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 As mentioned, energy development has been an important contributor to the State’s strength. In North Dakota there are many components to energy production. A subset includes:  Oil & Gas  Coal  Biomass  Geothermal  Solar  Hydroelectric  Wind On topic with this morning’s Committee Hearing, oil & gas exploration and production activity in the Bakken Formation will be focused upon. The impact of the Bakken Formation on employment and wage levels in the state has been significant. However, measuring its total contribution to the state’s economy is challenging. This is because the activities taking place in the Bakken include companies involved in direct exploration and production industry codes (which are subsets of the mining industry and easily identified), as well subsets of related industries. For instance, a portion of employment and wages from companies across all industries codes could possibly be associated with the Bakken play, especially those located in the northwest portion of our state. Industries with strong Bakken relationships would include:  Transportation o Oil, water, sand & gravel, other materials and supplies.  Construction o Roads, bridges and well pads, commercial and residential buildings, specialty trade contractors.  Wholesale trade o Equipment, supplies, and material.  Professional and business services o Engineering, surveying, and geology companies.  Utilities o Providing infrastructure and supply.  Manufacturing o Storage tanks and specialized equipment.  Other services o Repair and maintenance of equipment. With that being said, to get an idea of the Bakken’s impact, we will look at employment and wage impact geographically (oil & gas producing counties), and by industry. We will look at the data pre-Bakken, using 2004 calendar year, with 2011 annual average being the most recent time period available. Comparing 2004 and 2011 annual averages in oil & gas producing counties versus North Dakota show:  Total covered employment grew 48.3% in oil & gas producing counties; compared to 18.2% statewide. o From 67,911 to 100,717 in oil & gas counties. o From 321,108 to 379,433 statewide.  Total covered wages (payroll) grew 178.6%; compared to 70.3% statewide.  Annual average wages increased from $27,275 to $51,244 (87.9%) o This was nearly double the statewide percentage increase of 44.1% in the same period ($28,987 to $41,778). More specifically, the impact of just the oil & gas exploration and production companies can be viewed over time. For instance:  In calendar year 2004 annual average covered employment, of exploration and production companies, was approximately 2,050; increasing to nearly 15,000 by 2011 (631.7%).  Annual average covered wages nearly doubled from approximately $50,000 a year in 2004 to over $90,000 in 2011. o Annual average wages include the influence of such things as over-time pay and bonuses. Current Condition The current period job creation environment, which is a demand indicator for North Dakota, can be gauged by looking at labor exchange system data administered by JSND. For the most recent time period, (June 2012), there were 22,695 open and available positions posted with our agency. This was an increase of 8,321 (57.9%) from prior year. The job openings, posted by employers in the state, were across all major occupational groups. They varied from those more general and statewide in nature such as:  STEM (Science, Technology, Engineering and Math) related in: o Business and Financial Operations o Computer and Mathematical o Architectural and Engineering o Life, Physical and Social Science.  Health Care Practitioner and Support  Sales and Related  Office and Administrative Support To those more closely related to Bakken activity:  Construction and Extraction o 1,915 in June 2012; up from 1,188 in 2011 (61.2%)  Transportation and Material Moving o 2,298 in June 2012; up from 1,796 in 2011 (28.0%) As mentioned, job opening activity in the state has been influenced by the strength of the Bakken. However, slightly less than 1/3 of the state’s job openings are in the oil and gas producing counties of western North Dakota. The majority of open and available positions are in the balance of state, anchored by the three largest metro areas (Fargo, Bismarck and Grand Forks). Current supply information is available by incorporating job seeker data from the labor exchange system. In June 2012 job seekers, posting resumes, numbered 15,099; down slightly from 15,835 in prior year. The data include both out-of-state job seekers, and North Dakotans, utilizing the system to find employment. Future State The Job Service LMI Center also produces industry and occupational projections for short-term (2 year) and long-term (10 year) periods. We have recently completed a new set of projections for each time period. During the process we relied heavily on data from our state’s Department of Mineral Resources regarding production activity forecasts. The next set of short-term projections, which cover the 2011 to 2013 time period, will be available in August of this year. The current data covers the 2010 to 2012 time period, with percent change of employment expected to be 4.4%. Gains were projected to be widespread among most industries and occupations, with the largest increases in those most closely related to the Bakken activity. The new set of long-term employment projections will be available on July 20th 2012 and will cover the 2010 to 2020 time period. This puts us at the end of the 2008-2018 data sets. During that timeline (2008-2018) employment was projected to have a percent change growth of 9.2% and occur across most industries. As with short-term projections, industry gains will be led by those associated strongly with the Bakken (Mining, Construction, and Transportation). Occupational growth is also expected to be widespread and led by jobs closely associated with Bakken activity (construction & extraction, and transportation and material moving positions). Conclusion North Dakota has enjoyed a long period of economic strength among businesses and employment opportunities for job seekers. It has benefited greatly by activity related to oil & gas exploration and production in the Bakken fields. But, it’s employment and wage growth has also been balanced across other industry sectors and geographies in the state. I thank you for this opportunity to present and would welcome any questions you may have. Michael Ziesch has worked at Job Service North Dakota for the past 15 years. He is a Manager (BLS), in the Labor Market Information Center, which is charged with administering the federal/state cooperative programs related to North Dakota’s labor market. He also acts as a Governor’s Liaison to the U. S. Census Bureau. A native of North Dakota, Michael holds a Bachelors degree in Business Administration from North Dakota State University. He lives in Bismarck with his wife Cathy and step-son Noah. JUNE 2012 ONLINE JOB OPENINGS JOB OPENINGS • Online job openings totaled 22,695 open and available positions in June 2012. Openings were lower by 2.8 percent (-655) over the prior month but 57.9 percent higher (+8,321) than one year ago. • Of the 22 non-military major occupational groups, Office and Administrative Support reported the largest number of openings with 2,385, followed by Transportation and Material Moving with 2,298 and Sales and Related with 2,290. Six other occupational groups also reported job opening counts greater than 1,000 (Management; Healthcare Practitioners and Technical; Food Preparation and Serving Related; Construction and Extraction; Installation, Maintenance, and Repair; and Production). • Nineteen of 22 major occupational groups reported over-the-year gains of 100 or more led by Office and Administrative Support with a gain of 1,155 openings. • Cass County reported the largest over-the-year increase in the number of job openings with 2,721, followed by Burleigh County (+1,337) and Grand Forks County (+704). Five counties reported over-the-year decreases. ACTIVE RESUMES • Active resumes totaled 15,099 in June 2012. Active resumes were lower by 3.3 percent (-514) over the prior month and 4.6 percent lower (-736) than one year ago. There were a total of 11,148 in-state active resumes and 3,951 out-of-state active resumes. • Of the 22 non-military major occupational groups, Office and Administrative Support reported the largest number of active resumes with 3,111, followed by Construction and Extraction with 2,076 and Transportation and Material Moving with 1,818. Two other occupational groups also reported active resume counts greater than 1,000 (Management; and Production). • Three of 22 major occupational groups reported over-the-year gains in active resumes with two reporting gains of 100 or more (Construction and Extraction; and Transportation and Material Moving). SUPPLY/DEMAND RATES • North Dakota’s job openings rate was 5.2 percent in May 2012, the latest month for which data are available. One year prior, North Dakota’s rate was 3.6. The U.S. rate for May was not available at the time of publication, but an April 2012 comparison showed North Dakota at 5.5 percent versus the U.S. rate of 2.7 percent. The job openings rate is the percentage of all jobs in the economy open and available. • North Dakota’s rate of unemployed persons per job opening was 0.5 in May 2012, the latest month for which data are available. One year prior, North Dakota’s rate was 0.8. Again, the U.S. rate was not available at the time of publication, but an April 2012 comparison showed North Dakota at 0.5 unemployed persons per job opening versus the U.S. rate of 3.2. Twenty-seven North Dakota counties reported unemployed-per-opening rates of less than 1.0 which indicates more job openings than resident labor supply. One year ago, ten counties reported rates of less than 1.0. • North Dakota’s rate of active resumes per job opening was 0.5 in June 2012. One year ago it was 0.9. Twenty of the 22 non-military major occupational groups reported rates of less than 1.0 while one year ago nine occupational groups were in that category. All 22 non-military major occupational groups reported rate decreases from the prior year. JOB OPENINGS DATA JOB OPENINGS--TOTAL JUNE 2012 ONLINE JOB OPENINGS REPORT--JOB SERVICE NORTH DAKOTA 30,000 25,000 20,000 15,000 10,000 5,000 0The job openings rate is simply the percentage of all jobs in the economy open and available and is calculated by taking the number of job openings divided by total nonfarm employment (filled jobs) from the Current Employment Statistics (CES) program plus job openings (unfilled jobs). A higher rate is an indicator of increased job opportunities for seekers. This supply/demand rate includes those working more than one job and commuting from out of state. The latest month for which North Dakota employment data are available is May 2012. The latest month for which U.S. job openings data are available is April 2012. U.S. data taken from the U.S. Bureau of Labor Statistics. BACKGROUND Online job openings statistics provide a timely overview of the current supply/demand dynamic of North Dakota's labor market. The Online Job Openings Report (OJOR) is the earliest published monthly indicator of North Dakota’s labor market activity. Data publication generally occurs the first Tuesday of the month following the reference period. The report involves the monthly collection, processing, and dissemination of online job openings posted by employers and active resume activities of job seekers. Both job openings and active resumes are published for the major occupational groups at the statewide and regional levels. Data for counties are only available at a total aggregate level. Various supply/demand rates are calculated for major occupational groups and select geographies. Job openings and active resumes data are used to calculate the rate of active resumes per job opening. Unemployment data from the Local Area Unemployment Statistics (LAUS) program is used to calculate the rate of unemployed per job opening and employment data from the Current Employment Statistics (CES) program is used to calculate the job openings rate. All these supply/demand rates provide users with alternate views of the local labor supply/demand situation. For comparability, national level job openings data from the U.S. Bureau of Labor Statistics (BLS) are extracted from the Job Openings and Labor Turnover Survey (JOLTS) and featured in the report. For a detailed description of the various supply/demand rates, see the ‘Terms and Concepts’ section. METHODOLOGY AND COVERAGE The OJOR is essentially a universe count of all North Dakota worksites with online advertised jobs posted either directly with Job Service North Dakota or indirectly through other online job sites. It should be stressed that coverage is limited to jobs posted online. Job vacancies advertised strictly through word-of-mouth, local print-only newspapers, outdoor signage, or any other non- online means are not counted. The database from the Job Service North Dakota online labor exchange system is the underlying source for the OJOR and its corresponding time series. The data are a combination of local openings brought into the system either internally or externally. An internal job opening is submitted directly to the labor exchange system by either local office staff or authorized local employers. An external job opening is "spidered" into the system from outside online job sites including corporate, educational institution, newspaper, government, private job board, and recruiter sites. Keep in mind, almost all of the online job openings and active resumes data are self-reported by the employer and job seeker, respectively, so accuracy cannot necessarily be guaranteed though system checks are in place to flag potential errors. Every effort is made to ensure the report is constructed using unduplicated data. The unduplication process involves the systematic analysis of key fields of each opening, such as company name, job title/description, and location, against all openings, flagging potential duplicate matches. An analyst reviews and eliminates legitimate duplicates. The OJOR is not subject to the typical sampling error and non-response error components associated with most statistical surveys. Non-sampling error sources would include population under-coverage due to missing a portion of the targeted population (e.g. a large Internet job board), and over-coverage due to the inability to fully eliminate duplicate job openings. Additional potential sources of non-sampling error would include occupational and/or geographic coding errors which could affect the proper classification of individual job openings. Occupational coding is done at the 6-digit Standard Occupational Classification (SOC) level and the 8-digit O*NET level. The SOC coding used in the OJOR is the same definitional coding used for federal employment and unemployment statistics. It should be noted that are no changes at the major occupational group level in the 2010 SOC revision, though the detailed composition of the groups may have changed but not enough to be significant at the group level. The geographic coding for an internal opening is determined by information submitted directly to the labor exchange system by either local office staff or authorized local employers. An external opening is coded against location information from the original posting. Data are not seasonally adjusted and subject to revision. Dashes (---) indicate data not available. TERMS AND CONCEPTS DATA REFERENCE PERIOD. The OJOR collects data using a mid-month reference period (the week that includes the 12th of the month), which is standard for most BLS programs and provides a more accurate comparison for measures using data from those sources. JOB OPENINGS. Job openings include all open and available online openings during the reference period. This figure may include openings posted no more than 90 days prior but still active during the reference period, as well as new openings. ACTIVE RESUMES. Active resumes are all online resumes that have been created or otherwise modified during the reference period. This figure may include resumes posted no more than 90 days prior but still active during the reference period, as well as new resumes. Active resumes may include those created by out-of-state candidates. Candidates may post multiple online resumes so active resumes should not be interpreted as an individual candidate count. Active resumes are not necessarily an indicator of unemployment since candidates posting resumes may or may not be unemployed. SUPPLY/DEMAND RATES. Supply/demand rates, as outlined below, only provide a measure of relative slack of the labor market and whether a potential imbalance exists, but does not suggest that the qualifications of the job seekers directly align with the requirements of the advertised vacancies. Over time, these rates tend to trend closely with the general economic cycle, specifically labor market contractions/expansions. JOB OPENINGS RATE. The job openings rate is simply the percentage of all jobs in the economy open and available and is calculated by taking the number of job openings divided by total nonfarm employment (filled jobs) from the CES program plus job openings (unfilled jobs). The number of unfilled jobs is an important measure of the unmet demand for labor. With that statistic, it is possible to paint a more complete picture of the state's labor market than by looking solely at the unemployment rate, a measure of the excess supply of labor. A higher rate is an indicator of increased job opportunities for seekers. This supply/demand rate includes those working more than one job and commuting from out of state. Calculations for the U.S. job openings rate use data from the JOLTS. Due to timing issues, supplemental data used to calculate this rate typically lag one month, therefore the most recent published rate will lag one month in the latest published report. The U.S. data typically lag two months. ACTIVE RESUMES PER JOB OPENING. Active resumes per job opening is a supply/demand rate that uses active online resumes as the supply input and is the most timely of the supply/demand rates. For this measure, only local active online resumes (i.e. resumes tied to an in-state North Dakota address) were used in the calculation in order to get a more accurate measure of the local supply situation. Out-of-state resumes are excluded from this calculation. A result less than 1 indicates more job openings than local active resumes, while a result greater than 1 indicates more local active resumes than job openings. Also, this is the only supply/demand rate that generates results at the occupational group level. UNEMPLOYED PER JOB OPENING. Unemployed per job opening is a supply/demand rate calculated by taking the number of unemployed persons from the LAUS program and dividing by job openings. A result less than 1 indicates more job openings than potential resident labor supply, while a result greater than 1 indicates more potential resident labor supply than job openings. Calculations for the U.S. rate of unemployed per job opening are based on data from the JOLTS and the Current Population Survey (CPS) from the BLS. Due to timing issues, supplemental data used to calculate this rate typically lag one month, therefore the most recent published rate will lag one month in the latest published report. The U.S. data typically lag two months. OCCUPATIONAL DATA. Occupational groups are based on the 2000 SOC coding system. It should be noted that are no changes at the major occupational group level in the 2010 SOC revision, though the detailed composition of the groups may have changed but not enough to be significant at the group level. Openings and resumes are coded to the 6-digit SOC level and 8-digit O*NET level whenever possible. Data are aggregated to the major occupational group level. UNEMPLOYMENT DATA. The unemployment data used in this report come from the CPS and the LAUS programs. Both programs provide timely and accurate data on the unemployed and are used to calculate supply/demand rates of unemployed per job opening. The unemployed are defined as those 16 years of age and older who were unemployed but actively seeking and available for work within the last month. REGIONAL DATA. The eight North Dakota regions were established in 1968 are made up of groupings of counties around a regional city center providing a majority of the services and exhibiting the greatest economic influence. Openings data are coded based on worksite location. Resumes data are coded based on the current residential address of the job seeker. While the regional reports are not as comprehensive as the statewide report, they do provide some local detail and comparisons not otherwise available. WAGE DATA. The average hourly wage data are the latest available from the Occupational Employment Statistics (OES) program. OES wage data provide an accurate, comprehensive, point-in-time snapshot of wage levels of currently employed workers across all 800 SOC occupations. These wage data should not be interpreted as an advertised wage for openings in that occupational group. Occupational wage data specific to the OJOR regions are not available, instead, state-level North Dakota occupational wages are provided as a general guide. DATA INTERPRETATION The OJOR contains a lot of data and information. For many, the issue becomes how to interpret it. While the top-line numbers get the most attention, the emphasis in interpreting the data should focus on the trend over time. Since the time series is not seasonally adjusted, the most appropriate comparison for any month should be the same month one year earlier. Job openings data reflect a relative demand for labor. Job openings include all open and available online openings. It should not be assumed that the published job openings number is the entirety of the job openings market. There is a segment of the job openings market that relies solely on means other than online to recruit workers. Those openings aren’t captured in the OJOR. Active resumes data reflect a relative supply of labor. Active resumes include all online resumes that have been created or otherwise modified by job seekers with a desire to work in North Dakota. Therefore, a segment of active resumes belong to out-of- state candidates. Candidates may post multiple online resumes so active resumes should not be interpreted as an individual candidate count. Active resumes are not necessarily an indicator of unemployment since candidates posting resumes may or may not be unemployed. It should not be assumed that the published active resumes number is the entirety of the potential labor supply market. For example, those unemployed who haven’t created an online resume are not counted in the active resume total. Similarly, “casual” job seekers who may peruse job openings but not create an online resume are not included in the count. Supply/demand rates are a calculation used to reconcile the relationship between labor market demand (e.g. job openings) and labor market supply (e.g. active resumes, unemployed). The resulting ratios highlight the relative slack of the labor market for occupational groups and select geographies. Generally, supply/demand rates (e.g. active resumes per job opening, unemployed per job opening) below 1 indicate a greater need for workers in an occupational group or area. In other words, there’s not enough supply (workers) to keep up with demand (job openings). Generally, the opposite is true when supply/demand rates exceed 1. Of course, such an analysis only provides a general idea of where excess demand exists; it does not necessarily indicate a match if a candidate doesn’t have the individual education, skills, or experience to get hired. Caution should be exercised when interpreting supply/demand rates. Occupational groups and geographies with a small number of openings exhibit much more volatility and may skew a user’s interpretation of an area’s labor market situation. It’s important to reference the number of openings for an occupational group or geography in order to add context to any supply/demand analysis (high/low rates may mask a relatively small labor market demand and/or supply).This is especially true for geographies with small populations and labor forces. Career planning and exploration is an integral component to a successful work life. Students are increasingly being introduced to career planning and exploration activities early on in their academic life. In conjunction with other pieces of labor market information (e.g. projections, wages, skill requirements, etc.), the supply/demand data can alert students, educators, and counselors to excess supply or higher demand in certain occupational groups or geographies. For job seekers, the OJOR data can help focus job searches and highlight occupational groups and/or geographic areas with the greatest opportunities or toughest competition. The business community, economic developers, and policy makers use supply/demand data to track trends in the labor market. OJOR data can potentially highlight labor imbalances. This can be especially helpful if a business is looking to expand or relocate, therefore needing a supply of available workers. Economic developers and policy makers use the data to gauge the general health of the economy and look for opportunities to maximize labor supply and demand.

Sunday, July 15, 2012

New Middle East pipeline bypasses the Strait of Hormuz

A short crude oil pipeline connecting the United Arab Emirates (UAE) with a harbor on the Gulf of Oman being inaugurated on Sunday, July 15, 2012 in the Arabian Gulf. Iran will be the biggest loser is this game of brinkmanship and a game changer in future negotiations as a bargaining chip. Ironically, the Iranian theocrats are the main cause of this attempt to skirt the Arabian Gulf, which is currently being used by Very Large Crude Carriers to ship 20% of the world demand for crude oil. This pipeline is a reaction to Iran’s overt threats to shut down the Strait of Hormuz if the US, Europe, Israel and Saudi Arabia push them against the wall over nuclear fuel enrichment and allow UN nuclear inspectors into facilities possibly used for this purpose. The US military has already bolstered its presence in the region and sent four mine sweeper ships in early June, joining four other mine sweeping vessels already in the region, according to its Bahrain-based Fifth Fleet spokesperson. On Thursday, July 12, 2012 US officials said the United States deployed a fleet of robot subs in the Gulf to prevent Iran from blocking the strategic Strait of Hormuz with mines making good on their official pronouncements. And in late April, a squadron of F-22 stealth fighters was sent to an air base in the United Arab Emirates.
Crude oil exports have begun through the new pipeline bypassing the Strait of Hormuz by connecting Abu Dhabi, the capital of the United Arab Emirates, to Fujairah on the Gulf of Oman. The operation of the 263-mile $4 billion pipeline could represent about 30% of the amount currently shipped through Persian Gulf and will be sufficient to blunt the impact of any Iranian attempt to seal the Strait of Hormuz. Fujairah is located in Oman and is the world’s third biggest refueling ports for commercial ships. In case Iran does not make good on its threats, the pipeline still makes economic sense because a new $5 billion refinery will be built on Fujairah, one of the U.A.E.’s seven sheikhdoms, for local sales of oil products. A terminal will also be built at the port for transiting liquefied natural gas. Regardless of Iran’s actions, the oil pipeline and its future expansion will forever break dependence on the narrow and vulnerable Strait of Hormuz for crude oil bought by the US, Europe and the Far East. It renders hollow the ability of Iran to blackmail its Arab neighbors and the West to extract concessions for its regional ambitions. The pipeline will also dampen the impact on the global economy, if Israel eventually does bomb Iranian nuclear installations or Washington leads sharper coercion of Tehran. Currently, about one fifth of world’s oil transits through the Strait of Hormuz. Abu Dhabi, which holds over 90 percent of the UAE’s oil, has taken a risk by angering the Iranian regime, although Tehran has dismissed the pipeline’s potential as Western propaganda. However, Iran may be hit by a double whammy because prospects are increasing of turmoil in world oil and gasoline prices. In July, energy tensions became worse after the European Union started implementing a nearly total ban on crude oil imports from Iran as part of Western economic sanctions. Domestic US crude oil supplies, which are being extracted from shale rock through the use of hydraulic fracturing, will more than offset any of the Iranian crude oil not being shipped due to economic sanctions. The expanding American domestic supply is turning the US into a decider of world crude oil prices overshadowing Saudi Arabia. American light-sweet crude is not easily exportable but the large supply capacity combined with heavy investments in infrastructure will allow the US to boost exports of products as a substitute for other types of oil. Proven shale oil reserves have risen by 68 percent in the US and Canada since 1990 and the US may become energy secure by 2025 for both crude oil and natural gas as hydraulic fracturing becomes a widespread method for North America for their energy needs. Some information for this article was obtained from The Moderate Voice written by RIJ Khindaria at: http://themoderatevoice.com/153172/new-pipeline-could-trigger-biggest-changes-in-gulf-since-1930s/

Thursday, July 12, 2012

A Time for Choosing - Ronald Reagan

For three decades, we have sought to solve the problems of unemployment through government planning, and the more the plans fail, the more the planners plan. “We have so many people who can't see a fat man standing beside a thin one without coming to the conclusion that the fat man got that way by taking advantage of the thin one!” So they are going to solve all the problems of human misery through government and government planning. Well, now if government planning and welfare had the answer, and they've had almost thirty years of it, shouldn't we expect government to read the score to us once in a while? Shouldn't they be telling us about the decline each year in the number of people needing help [or] the reduction in the need for public housing? But the reverse is true. Each year the need grows greater, the program grows greater. We were told four years ago that seventeen million people went to bed hungry each night. Well, that was probably true. They were all on a diet! But now we are told that 9.3 million families in this country are poverty-stricken on the basis of earning less than $3,000 a year. Welfare spending is ten times greater than the dark depths of the Depression. We are spending 45 billion dollars on welfare. Now, do a little arithmetic, and you will find that if we divided the 45 billion dollars up equally among those 9 million poor families, we would be able to give each family $4,600 a year, and this added to their present income should eliminate poverty! Direct aid to the poor, however, is running only about $600 per family. It seems that someplace there must be some overhead. So now we declare "war on poverty"....We are now going to solve the dropout problem, juvenile delinquency, by re-instituting something like the old CCC camps, and we are going to put our young people in camps, but again we do some arithmetic, and we find that we are going to spend each year just on room and board, for each young person that we help, $4,700 a year! We can send them to Harvard for $2,700! Don't get me wrong. I'm not suggesting that Harvard is the answer to juvenile delinquency! Yet anytime you and I question the schemes of the do-gooders, we are denounced as being against their humanitarian goals. They say we are always "against" things, never "for" anything. Well, the trouble with our liberal friends is not that they are ignorant, but that they know so much that isn't so! We are for a provision that destitution should not follow unemployment by reason of old age, and to that end, we have accepted social security as a step toward meeting the problem. But we are against those entrusted with this program when they practice deception regarding its fiscal shortcomings, when they charge that any criticism of the program means that we want to end payments to those people who depend on them for a livelihood. The above speech was given by Ronald Reagan in 1964 in support of Senator Barry Goldwater for President.

Friday, June 15, 2012

What happens to crude oil prices after the OPEC meeting?

July WTI crude oil opened this morning at $83.91 a barrel with ICE Brent crude oil down 53 cents to $97.28 a barrel. The bearish mood for the prices of crude oil has not yet set in after the just concluded OPEC meeting held in Vienna on Thursday, June 14, 2012. In the official meeting members decided not to change export crude oil quotas from the current 30 million barrels per day. However, before the official meeting Iranian Oil Minister Rostam Ghazemi dropped a verbal bomb aimed at the Saudis warning them not to use oil as a weapon against it by pumping more oil to countries no longer buying Iranian crude due to the economic sanctions being imposed. Those sanctions will kick in on July 1, 2012 when the Western European nations will cut off any of their Iranian oil shipments. Minister Ghazemi went farther by warning the US and Europe their tactics will have a reverse effect. Saudi Arabia will not necessarily be able to ruling the OPEC crude oil pricing roost with Venezuela now exceeding their oil reserves per an internal BP report: http://oilprice.com/Latest-Energy-News/World-News/BP-Announces-that-Venezuela-Now-Have-the-Largest-Oil-Reserves-in-the-World.html However, Hugo Chavez is having severe health problems and may not be able to continue to control Venezuela with his social dictatorship very much longer. The new production being explored in US shale oil formations in Colorado, Montana, North Dakota and Montana will give it the US the ability to cut crude oil imports from OPEC countries thereby taking away any price control they have had in the past 50 years.

Monday, June 4, 2012

Should you lock-in home heating oil price for the 2012-2013 winter?

By: Bob van der Valk June 4, 2012 In July 2008 crude oil hit an all time high of $147 a barrel, which put the price of raw material cost before refining at $3.50 per gallon Crude oil and heating oil prices are priced in sync and reached a recent historical low 2009 of $31 a barrel in January 2009. You could have locked in on $5 per gallon on heating oil for the 2008-2009 winter. Big mistake but hindsight is always 20-20. There is no need to be pre-paying heating oil contracts when there is very little upside in price but plenty of room for the prices to go back down. Home heating oil is already 2% down from a year ago when the Arab Spring was in full force with the cut off from Libyan crude oil driving the price crude oil ever upward. Today there is more downside pressure on crude oil and in the coming months we may even see in an instant replay of what happened in the latter part of 2008. That year was also a Presidential election year but political forces were not involved in the price of heating oil going into a freefall. West Texas Intermediate (WTI) crude oil prices have already declined to a price range of $80-85 with the current price at about $82 a barrel. That puts the price of raw material at about $2 a barrel for crude delivered at the refinery gate. Our recent mild winter will keep oil price manipulators, who artificially inflated the prices of petroleum products, away from hedging this market thereby driving prices up. You could pre-buy heating oil today at a locked-in price of $3 per gallon or pay as you go with each delivery. One warning, crude oil prices tends to bottom out at the end of each year, and then increase in the beginning of the year. Oil companies are on the “Last In –First Out” accounting system, for they lower inventories by December 31st, then building them back up right after the first of the year. The variants in setting the price of home heating oil will depend on the price of crude oil. By keeping an eye on the price of crude oil and you can not go wrong. About the author: Bob van der Valk lives in Terry, Montana and is a Petroleum Industry Analyst. He reports on fuel-related trends and events. E-mail: tridemoil@aol.com and http://bobthegasguyvandervalk.blogspot.com/2012/06/crude-oil-prices.html

Crude oil prices

Sunday, April 15, 2012

FrackNation versus Gasland

The word “Passionate” comes to mind immediately upon first meeting documentary filmmaker Ann McElhinney. She shared her current passion explaining hydraulic fracturing for shale oil and gas by showing a sneak peak of her “FrackNation” film to a crowd of over 50 people.

The event was held Thursday night, April 12th at the MidRivers community meeting room in Glendive, MT, which was hosted by “The Eastern Montana Patriots Organization” (TEMPO) and sponsored by the “Montana Policy Institute” (MPI).

Carl Graham, who is the CEO of MPI made the introduction of Ann McElhinney, said she was asked to speak to the mostly Eastern Montana audience in attendance to raise awareness about hydraulic fracturing and its consequences.




Ann McElhinney at the April 12. 2012 Glendive, MT sneak preview of “FrackNation”
“Competing documentaries are made from different viewpoints” is how Ann McElhinney describes the film she and her husband are in the middle of making. “FrackNation”will be about the oil industry’s safe practices of hydraulic fracturing known as fracking.

It will also respond to “Gasland,” a film made by Josh Fox, which raised concerns about the safety of hydraulic fracturing. It shows the purported affects in areas of our country where methane is released along with the drinking water where hydraulic fracking. This affect of nature has been occurring in the area of the Marcellus Shale formation in Pennsylvania for the last 400 years.

The Glendive presentation was her only stop in Montana after she toured the area around the Bakken and Three Forks oil shale developments. She has already given presentations in Minot and Bismarck, ND before heading home for Hollywood and back with her husband Phelim Mcaleer, who is the co-producer of their latest documentary.



Carl Graham, the CEO of the Montana Policy Institute, introduces Ann McElhinney

“Towns like Glendive, Baker, Circle and Terry are going to have their growing pains, but I don’t think anyone wants the oil production to go away”. Most of the people she met on her tour have given her great encouragement to go through with her project in order to straighten out the misinformation being published by the environmentalist groups who are against any kind of fossil fuel production.

McElhinney pointed out major discrepancies featured in “Gasland”. She told her very attentive Glendive crowd how the water in Dimock, PA has been flammable for hundreds of years. Controversy has been brewing between the eleven families suing the oil companies and the other 1500 families not willing to join the class action lawsuit and has given the town about the negative publicity brought on by all the media attention from the GasLand film.

McElhinney also commented about the United States Environmental Protection Agency (EPA) ruling frequently against hydraulic fracturing and just reverses its decisions in Pavillion, WY, Fort Worth, TX, and Dimock, PA. The anti-fracking ruling and threat or huge potential fines are costing the oil and gas exploration millions of dollars in legal costs.

McElhinney and her husband produced several other documentaries debunking environmentalists’ cases against different issues, such as mining in Romania.

She sought out the Sierra Club, GreenPeace and the National Wildlife Association for special skepticism in their well funded attempts to halt all oil drilling anywhere to make the US no longer dependent on fossil fuels. Her question to them is: “If not fossil fuels, then what do we use for our daily energy consumption?”

The premiere of the movie “The China Syndrome” coincided with the Three Mile Island nuclear power plant disaster. It doomed nuclear energy as one of the alternative energy sources for the immediate future and not one new nuclear power plant has been build since March 1972.

“Environmentalists are terrifying average people with well made movies and making documentaries presenting untrue facts, which are easily debunked with the truth.”

Ann McElhinney saved her real harsh words about Environmental Protection Agency (EPA) current dealings with sustainability. Sustainability has emerged as a result of significant concerns about the unintended social, environmental, and economic consequences of rapid population growth, economic growth and consumption of our natural resources.

In its early years, EPA acted primarily as the nation’s environmental watchdog, striving to ensure that industries met legal requirements to control pollution. In subsequent years, EPA began to develop theory, tools, and practices that enabled it to move from controlling pollution to preventing it.

Today EPA aims to make sustainability the next level of environmental protection by drawing on advances in science and technology to protect human health and the environment, and promoting innovative green business practices.

Greg Cross, owner or Cross Petroleum in Glendive, MT, attended this sneak preview. He commented after the presentation: “The movie is not yet set for release but the promo was excellent. The lessons learned are simple; the anti-fossil fuels crowd is winning the propaganda battle as most of the pro- side is busy making a living and most important we can win IF we can maximize our involvement in social networking, i.e. Twitter and FaceBook to make our opinions known we can make a difference.”

He further said: “My thoughts are that we should have a break-out session during our convention to set up and teach us how to take advantage of this opportunity. Frack Nation tweeted and FaceBooked to raise almost $250,000 in a very short time to finance their documentary on Kickstarter.com. We first need someone to teach us in layman’s terms how to Tweet and FaceBook on a computer our smart phone.”

Matt Damon, the actor, and Gus Van Sant, a prominent director, are making an anti-fossil propaganda film this summer which will likely become another Oscar nominee like Al Gore’s “An Inconvenient Truth”. The latter created fear in people about climate change having an immediate affect on our lives if we continue to depend on fossil fuels as our main Ann McElhinney and Phelim Mcaleer may also be nominated for an Oscar and perhaps even the Nobel Peace Prize for being so passionate about such a controversial subject as the telling of the real story behind hydraulic fracking.

Donations for the making of this documentary are still being accepted but the producers want to maintain full transparency and keep their film free from special interests. Monies to fund this project are not being accepted from oil companies or any of their senior executives. FrackNation is an independent film, wants to remain independent of the oil and gas production industry.

You can follow the progress made towards funding on FrackNation.com as well as KickStarter.com.

Friday, March 23, 2012

Keystone XL pipeline - Memo from Bill Klesse - Valero CEO

Date: January 24, 2012

To: Valero Employees

From: Bill Klesse

Subject: Keystone XL Pipeline Statement

As you know, the Obama administration decided last week to deny TransCanada's application to ship crude oil via the Keystone XL pipeline from Canada to the Gulf Coast . Valero has planned to be a shipper and purchaser of that oil since 2008, and obviously we were disappointed in the decision. We issued a statement in response to questions from the media, and I wanted to share it with you in case you get questions from friends or business partners, and so that you would know why Valero supports the Keystone XL pipeline. This is the statement:

Despite the uncertainty and political fighting over the Keystone XL pipeline, Valero has continued to invest in its U.S. refining operation. In 2011 we spent nearly $3 billion on projects, and for 2012 our capital expenditure budget is over $3 billion. These expenditures are keeping our employees on the job and putting additional people to work. To reference two of our refineries, at Port Arthur , Texas , we have 1,600 contractors working on an expansion project, and at St. Charles Parish, Louisiana , we have another 1,000 contractors working on a separate project. We need this kind of economic activity to accelerate to help all Americans.

This illustrates why President Obama's rejection of the Keystone XL pipeline is so absurd. There are pipelines in every neighborhood all across America . The administration's decision was not about pipelines, it was about the misguided beliefs that Canadian oil sands development should be stopped and that fossil fuel prices should increase to make alternative energy more attractive. Instead, we should be impressed with how well the oil sands engineering and recovery technology has advanced, and the economic benefits this development brings. Having more oil available in the marketplace has the potential to lower prices for consumers. As an independent refiner, Valero buys all of the oil we process. Due to the administrations misguided policies, refiners like Valero will have to buy more oil from other sources outside the

U.S. and Canada . Consumers will bear the additional shipping cost, not to mention the additional greenhouse gas emissions and political risks.

With all the issues facing our country, it is absolutely unbelievable our federal government says no to a company like TransCanada that is willing to spend over $7 billion and put Americans to work on a pipeline. The administrations decision throws dirt into the face of our closest ally and largest trading partner.

The point above is that it is not about pipelines as many pipelines cross the Ogallala Aquifer, in the Great Plains region, and, in fact, there is already significant oil and gas production in the area covered by the aquifer. This is politics at its worst.

Thank you for your support.

Saturday, October 29, 2011

Terry City Council dealing with growth problems

The Terry City Council met in special night session at the Terry Town Hall on October 27, 2011 to enact an emergency zoning ordinance. It would have prohibited the construction of any new trailer courts, campgrounds, work camps, hotels, motels, or other multi-unit housing complexes, within the Town of Terry and up to 1 mile beyond the corporate boundaries of the town to take effect immediately after passing for an initial period of 6 months with possible extensions for up to 2 1/2 years. Dire consequences, associated with any sudden influx of transient oil workers into the small town of Terry, were outlined in a handout given out to the attendees prior to the meeting.


Terry Town Council - Ron Kiosse, Mayor from right to left around the table from him are Lynn Strassheim, City Clerk, Becky Convery, City Attorney, Josh Helmuth, Tom Pisk, Clinton Rakes and Rolane Christofferson, City Council Members

The meeting was attended by an overflow crowd of about 85 residents, who were allowed to voice their opinions prior to the council taking the ordinance under consideration for their final vote, with most of them indicating opposition to the ordinance. Local Terry resident Steve Phipps, who consults with oil companies in the Bakken oil field, made one of the most eloquent comments defending the hard working people in the oil and pipeline industry. His remarks included the drug screen requirements in the pre-hiring process of any workers as well as ongoing random drug and alcohol testing being conducted by the companies working in the industry. One infraction of the rules, including being found under the influence of alcohol or drugs, may be cause for immediate termination and removal from any facility housing the individual involved.

Many other excellent points were made for and some against passing this ordinance by town’s people well as ranchers and farmers in Prairie County. But the one predominating theme during the hearing was the dampening effect it might have on attracting new people and businesses to move to the small town of Terry, which has a currently population count of 602 per the US census. This ordinance also would have sent a clear message to the oil companies they would not be wanted in Terry and their workers and corporate people would, if given the choice, avoid doing business in the town.

After hearing the comments against the ordinance during the public hearing Becky Convery recommended to the City Council she’d be allowed her to rework the onerously written ordinance. She said she could make it more palatable to any new residents as well as prospective businesses and make it conform with upcoming any growth and zoning studies once the committees complete their work.

Becky offered to take out the most of the offensive and confusing language. Instead of calling it an "emergency zoning ordinance" it would be re-titled an "urgent zoning ordinance". Exceptions could be made on a case to case basis for companies and persons inquiring to move their businesses or establish multi-unit homes in Terry. She agreed to take the word, "transients", which is usually referred to as being "homeless", out of any language in the proposed ordinance.

In addition Becky Convery advised the council during their discussions any previous actions dealing zoning issues, including previous ones limiting keeping horses and chickens on any property within the Terry city limits, cannot be enforced until a zoning and a growth plan first is first adopted by the Terry City Council.

About the Author - Bob van der Valk lives in Terry, Montana and is a Petroleum Industry Analyst with over 50 years of experience. He has been quoted by the news media as well as government entities and be contacted at: tridemoil@aol.com or (406) 853-4251.

Thursday, October 27, 2011

How do you feel about having a man-camp in or near Terry?

The Terry Tribune is conducting a poll to register your opinion about a proposed emergency interim zoning ordinance by the City Council of the Town of Terry at:



http://terrytribune.com/home

This ordinance will prohibit the construction of any new trailer courts, camp grounds, work camps, hotels, motels or other multi-unit housing within the town of Terry and up to a one-mile radius of Terry's town limits. If passed it will be effective for an initial period of 6 months and, after another public hearing, can be extended for up to one year. This ordinance specifically addresses concerns we would have with problems associated with an influx of a large number of transient workers.

POLL

How do you feel about having a man-camp in or near Terry?

1. No, it would bring too many transients and increase crime in our town.

2. No, it would cause too much strain on our water, sewage services and other infrastructures.

3. Yes, businesses and Terry as a whole would benefit from the increase of people it would bring.

4. Yes, but the man-camps shouldn't neighbor our residential area of town.

Please pass this email along to anyone concerned with this issue and either register your opinion with the Terry Tribune on-line poll or respond to my email with your vote. You may also include your view points in your email responses, which I will present to the Terry City Council at the public hearing being held at 7 pm tonight, Thursday, October 27, 2011 at Terry Town Hall.

Your neighbor,

Bob van der Valk
508 S. Washington Ave.
Terry, Montana 59349

tridemoil@aol.com

Thursday, August 25, 2011

Terry’s Badlands Café Celebrates 2-Year Anniversary

It's been two years since they opened their doors in Terry, Montana, and to celebrate the Badlands Café and Scoop Shoppe is hoping you will drop by for a day of giveaways this coming Saturday, September 3rd between 11 am and 3 pm.

You might know their story already, the duo of Arline and Inger Koppenhaver – one born and raised in Montana the other, her daughter-in-law from California – who celebrated the grand opening of their café back on September 5, 2009.








In the above picture from the left Jerry is holding 6-week old Samuel standing along with Paul, Inger, Nathan, Emily, Kayla, Arline Koppenhaver, Bob and Tammy van der Valk at the grand opening of the Badlands Café and Scoop Shoppe in 2009.

While they came from different backgrounds, they have more in common than just their last names. They shared the inkling of an idea for a 50’s themed, family oriented, specialty cafe with many menu items that feature made from scratch items, a variety of unique ice cream flavors and tempting blended drinks plus a full espresso bar all located in the boutique town of Terry, Montana.


"We opened the restaurant during a really tough economy," says Inger.

"Of course our goal was to provide good food and service, but we wanted to do it with great prices as well and we have tried really hard to be able to accomplish our mission."

Arline recalls some of the feedback she received from friends and family when she told them about her plans to open a family restaurant.

"Some close friends threw up some alert flags letting us know that running a café takes lots of time and energy," she says.

"We have discovered that it's never easy in this business, but our hearts are warmed by the fun that we have with our local customers and those who stop in on their way to various vacation destinations. It has been two years and we are even more excited and ready to continue to serve great food to our local patrons and travelers in Eastern Montana."

In honor of their two year anniversary, Arline and Inger are asking you to make Prairie County your vacation destination for Labor Day Weekend to help celebrate their 2- year anniversary on Saturday, September 3rd. Sunday, September 4th is the date for the Fallon Harvest Festival, which annually draws large crowds to its traditional all day and evening Harvest Fest Fun. Plus, Terry is the home of Evelyn Cameron, Pioneer Photographer, and also hosts many delightful specialty shops that will satisfy the most discriminating shopper.



The café will be giving away free regular birthday cake ice cream cones while supplies last as well as featuring an “Off the Menu Surprise Special” on Saturday, September 3rd.



They will also have four big giveaways throughout the 11 a.m. – 3 p.m. day. Fill out a survey and enter it for a chance to win at 12, 1, 2, and 3! Biggest giveaway is a $25 gift Certificate!



Reaching 200 Facebook fans at: http://www.facebook.com/BadlandsCafeMT by Friday, September 2nd, will add another grand prize to be given away. They encourage you to become a fan of their page and pass along the information to others.



Labor Day weekend just might be a really great time for your family and friends to visit Prairie County, Montana. Please find out more at: www.visitterrymontana.com and click on “The 100 Top Things To Do In Terry, Montana” button for more ideas to help make your weekend trip to Terry the best vacation of the summer!.




Sunday, May 22, 2011

Belly flopping into a sea of gasoline




Belly flopping into a sea of gasoline


The market bounced back from steep lows last Friday putting crude oil prices back on track up to the $100 a barrel mark . Crude oil managed a strong rebound even as the US dollar showed strength. June WTI traded as low as $95.99 and bounced back $3.50 to expire at the $99.49 a barrel level gaining $1.05 a barrel. The $96 a barrel was reached at one point as the US dollar rose with big money investors worried about the outlook for global growth and the financial health of countries in Europe. The crisis was abetted by the recent arrest and subsequent resignation of Dominique Strauss-Kahn, the head of the International Monetary Fund.
The euro fell against the dollar as wariness about disagreements on how to tackle Greece’s debt and ahead of a Spanish regional election caused investors to cut back on the euro before the weekend.


The dollar, which often moves inversely to commodities because oil and other raw materials are priced in the US currency, rose around 0.6 per cent against a basket of currencies.
WTI crude oil futures for June, which were due to expire later on Friday, were trading around $96.40 per barrel, down $2.04 by 1400 GMT, after hitting an intra-day high of $99.60 with Brent crude oil for July dropping $2.12 to $109.30. Crude oil prices have declined 15 % from April 29 through May 20, 2011.


This week began with crude prices still battered and bruised from double-digit losses sustained the week prior. The chart above this article shows the trend between Brent and WTI crude oil prices from February 5 through May 16, 2011.



Meanwhile gasoline prices at the pump remained at their lofty heights and oil companies are acting as of nothing is happening. Gasoline is a refined product of crude oil with retail gasoline and crude oil prices tend to move in tandem in the up market.


Domestic crude oil inventories are at all time highs and concerns of potential refinery disruptions in the Mississippi Delta region receded as fast as the drop in water level. Gasoline pump prices were temporarily buoyed even while crude oil prices kept going ever lower. The Mississippi Delta area is home to 11 oil refineries with a combined refining capacity of 2.461 million barrels of gasoline per day, which is 13.1 percent of total U.S. refining capacity. Weather-related disruptions caused by floods or hurricanes could have a serious impact for gasoline prices across the country.


Motorists should finally see the price of gasoline drop at the pump barring any other unforeseen market moving developments in the next several weeks. The relief will be felt just in time as prices will ease heading into the Memorial Day travel weekend with the average price for gasoline in the US heading down towards the $3.50 per gallon mark.


It may be short lived with the summer driving season and threats of hurricanes affecting the Gulf Coast refineries. Belly flopping into the sea of gasoline will make the water splash over the sides of the pool but things get back to normal pretty quickly afterwards.

Friday, May 6, 2011

The Bin Laden Effect on the Oil and Gasoline Market

ExxonMobil's map showing areas of the US with boutique gasoline summer blend requirements.



The oil market turned around this week and spot market gasoline and diesel prices in turn went back down the week of May 1, 2011. This goes against the grain of what usually happens when American Petroleum Industry (API) and Department of Energy (DOE) inventory reports show draws for both gasoline and diesel.


The average price for unleaded gasoline in the US is $3.982 per gallon on Wednesday and may touch $4 by this Friday. But the demand for gasoline is down with numbers from March showing a steep decline showing the effects of the ever increasing gasoline prices. The AAA Fuel Gauge report on May 4, 2011 showed the following gasoline prices:

Regular
Current Avg.
$3.982
Yesterday Avg.
$3.967
Week Ago Avg.
$3.879
Month Ago Avg.
$3.662
Year Ago Avg.
$2.904



Highest Recorded Average Price:
Regular Unl.
$4.114
7/17/2008
DSL.
$4.845
7/17/2008


The national price for unleaded regular gasoline may peek at $4 per gallon with California currently at $4.265 and the State of Washington at $4.018 staying about the same by the end of this week.


The news of Osama Bin Laden's death on the night of Sunday, May 1st gave the country great relief and a chance to celebrate in spite of our economical situation. The dollar stayed weak but prices for both West Texas Intermediate and Brent crude oil went down, which caused wholesale gasoline prices to go down 20 cents per gallon since Monday.


The world woke up Monday morning with a new attitude and oil traders took heed by turning bearish. Last week’s Commodity Futures Trading Commission (CFTC) report showed paper traders with record longs in the market, a position which bets on oil prices continuing increase.


Money managers increased their net length by 2.8%, setting an all-time high when you look at both futures and option positions. However, this report was prepared before this weekend’s big events in Asia and North Africa.U.S. gasoline consumption fell last week and maintained a deficit to year-ago levels. SpendingPulse report showed demand for gasoline decreased by about 93,000 barrels per day (b/d), or 1%, to an average of 9.157 million b/d for the week ending April 29. Compared to the same calendar week in 2010, demand last week was 0.6% lower and the week's demand was 1.2% lower compared to a year ago, it was the second week in a row in which the year-over-year gasoline demand shrank.


US motorists have been told speculators, unrest in the Middle East and North Africa, natural disasters, a weak US dollar and world demand were the causes for the march towards the seeming inevitability of seeing $5 per gallon gasoline at the pump. However, this march towards a never before reached milestone seems to have been broken for the time being.


However, the US Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) set standards for gasoline creating areas in the country with boutique gasoline requirements. That is the main reason for the huge price differentials in parts of the country other than federal and state taxes. The following ExxonMobil map shows areas of the US affected by these oxy fuel or RFG compliance requirements for gasoline:

The worst area of the country to be hit by these requirements is Chicago with gasoline in the Windy City currently the most expensive in the nation at $4.467 per gallon. They perhaps will hit the $4.50 per gallon mark by the end of this week but then prices will come crashing down.

Fair warning the adage: "Gasoline prices shoot up like rocket, drift down like a feather" will apply as major oil companies slow down passing the lower cost for crude oil along to their branded retail station accounts. The independent non-branded station prices will be the ones reacting quick to their new found advantage by lowering their pump prices.

Sunday, May 1, 2011

Busting the myth about oil company profits




What can we do to stop commodity speculators from causing the rapid hike in gasoline prices? Arrest them, put them in jail, and try them before a jury before we hang them?

Early last week, President Obama started that ball rolling by telling US Attorney General Eric Holder to stop oil market fraud. Eric Holder promptly announced he was appointing a “working group” focused on rooting out the cases of fraud in the oil markets that might affect gasoline prices. This might work in any other business but the petroleum industry is not going to be simple to control.

Later in the week ExxonMobil reported their 1st quarter profits went up a whopping 69 percent to $10.7 billion from the same quarter a year ago. This ignited a firestorm almost immediately raising the ire of politicians and activists alike, who accused the oil industry of profiteering while Americans pay nearly $4 a gallon for gasoline.

Instead of being good news it was reported as bad news on the front page of major newspapers and became the lead off story on most of the TV and radio news broadcasts.

On the other hand Apple, which showed a 95% increase in net profits in their quarter from $3 billion to $6 billion, had Steve Jobs proudly announce those results in his April 20, 2011 news conference.

No one screamed “Off with their heads!” about Apple’s profits, so why all the brouhaha about ExxonMobil and the other oil company’s profits? Surely they are both stalwart organizations making the capitalistic system work for their shareholders, expecting to receive a fair return on monies invested in those companies. They should be allowed to make a profit with products everyone either wants or needs and you can charge for them according to what the market will bear.

ExxonMobil sent out Ken Cohen, their Vice President of Public and Government Affairs, to face skeptic reporters at a news conference on April 28, 2011. He launched a preemptive public relations strike to blunt expected criticism from politicians and the public about of seeing gasoline pump prices increase along with ExxonMobil’s profits.

The following graph from the US Energy Information Agency (EIA) shows the results of what happens to oil company profits when crude oil prices increase:





Ken Cohen wrote an article entitled: "Gas prices and industry earnings: A few things to think about", which can be read it in full on the ExxonMobil Perspectives blog at http://bit.ly/j2qbkB

ExxonMobil does not own the patents to the iPhone or iPad franchise but they have something even better by being the largest company in an oligopoly made of oil companies producing a product we cannot do without . . . . . . fuel.

A few of the talking points used in Ken Cohen’s article need closer scrutiny and examination since they are now been repeated almost verbatim by pundits and analysts alike:

Point: We don’t own 95 percent of our station, and therefore we don’t set the price.
Counterpoint: The first part is correct; however the retail pricing manager for ExxonMobil checks the spot market regularly during the day and makes wholesale pricing decisions dependent on the area of the country. The methods used by ExxonMobil are rack and zone pricing giving them the ability charge whatever the market will bear. The competitive pricing data is gathered for them by third parties such as Oil Price Information Service and The Lundberg Survey. The latter is the most important one since Lundberg gathers Dealer Tank Wagon (DTW) prices for each locale in which ExxonMobil has retail operations. Rack pricing is used to set the wholesale prices for either branded or unbranded gasoline. The DTW prices are charged to those dealers who have branded supply contracts direct with ExxonMobil. These are not the prices posted on the pumps at the station and are the most secretive part of gasoline retailing. Zone pricing, or a Temporary Voluntary Allowance (TVA) method of pricing, controls almost 85% of all the branded-contracted gasoline sold in the US with the difference sold to unbranded non-contracted stations.

Point: Local stations are often owned by a businessman or businesswoman in your community, and they set their own prices based on local market conditions.
Counterpoint: The owner or dealer of a local station receives deliveries of gasoline with the new wholesale price set by the oil companies, and then adds a margin to the gallon of gasoline. They are contractually obligated with long term supply agreements to only buy from the “branded” supplier with whom they signed up.

Point: For every gallon of gasoline, diesel or finished products we manufactured and sold in the United States in the last three months of 2010, we earned a little more than 2 cents per gallon.
Counterpoint: Adding all the oil company profits together including their upstream, downstream and chemical divisions and then dividing that amount by the total gallons of fuel sold is somewhat misleading. Each one of those is separate profit centers and not the only products sold by the oil company.


Point: Crude oil is a commodity, and like all other commodities – such as corn, wheat or sugar – the price is determined by buyers and sellers in a global market.
Counterpoint: ExxonMobil is one of five “super major" vertically integrated oil companies in the US controlling the process of refining gasoline from the wellhead to the pump. Crude oil, the raw material from which gasoline is refined, is either purchased or obtained from company owned or controlled wells with prices set according to the gravity of the crude oil. ExxonMobil utilizes the Last In/First Out method of accounting and the last price at which crude oil was obtained establishes the posted price for crude oil delivered to their refinery gates.

Point: ExxonMobil owns less than 1 percent of the world’s oil reserves, and it produces less than 3 percent of the world’s daily oil supply.
Counterpoint: ExxonMobil is the largest oil company in the world and when the elephant in the jungle trumpets, the market listens. The throughput of their refineries and percentage of market share have a big influence on the other oil companies’ reaction on how they in turn price their products.

Point: Last year, our total taxes and duties to the US government topped $9.8 billion, which includes an income tax expense of $1.6 billion.
Counterpoint: This is a somewhat misleading statement since taxes and duties include tax credits allowed on payment to foreign governments. It is another subsidy, devised by the US State Department in the 1950s, which allows US based oil companies to reclassify the royalties they are charged by foreign governments as taxes. Those can then be deducted dollar-for-dollar from their domestic tax bill. That provision alone will cost the federal government $8.2 billion over the next decade, according to the Treasury Department. These are currently allowed to be reported as taxes paid to the US Government. The following opinion re-printed from the Harvard Law Review gives a more detailed explanation on how this works:


BP, ChevronTexaco, ConocoPhillips and Shell, the other four super-major oil companies, said their profits rose in the first quarter because of soaring crude prices and other factors.

Members of Congress and President Obama used the record setting earning reports to step up calls for the repeal of the $4 billion in annual depletion allowance tax breaks for oil producers. John Boehner, R-Oh, Speaker of the House, first seemed to want to go along with eliminating this tax break only for the large oil companies but then changed his mind.

Jeff Sheets, Chief Financial Officer of ConocoPhillips, said that while the industry's profits are higher, the margins are still slim compared to the amount of assets oil companies maintain, and profits haven't risen as fast as gasoline prices. “When critics focus only on the bottom-line number, they lose the scope of what's required to produce that profit," Sheets said
.
The industry further argues that ending tax breaks would cut investment in new oil and natural gas projects, cost new jobs and decrease oil and natural gas production.

Senate Majority Leader Harry Reid, D-Nev., said the Senate as early as next week could take up Obama's proposal to halt the tax breaks and President Obama said the $4 billion a year in oil subsidies would be spent on alternative energy investments.

Holding a commodity off the market and then selling it after the price goes up is only one form of speculation, and it’s not one that works very well in the oil market. Simply put when gasoline prices increase so do the profits at the oil companies.

Saturday, April 23, 2011

B of A New Oil Price Target Suggests $4.25 Gasoline in the US by Memorial Day

While living in The Hague, Holland as a young boy I often wondered what was on the other side of that vast expanse of water known as the North Sea. How could I have known about the vast crude oil reserves lying underneath the angry waters of the North Sea and its eventual exploration by the countries surrounding it?




Economic zones in the North Sea

Brent geese would fly over my province of South Holland much like Canadian geese fly over Montana on their way south. I now live in Terry, Montana, which is a long distance from Holland and the North Sea, but the word "Brent" once again has once again become part of my every day vocabulary while discussing the reasons for the fuel price increases.

The word Brent was originally derived from the naming policy of Shell UK Exploration and Production, operating on behalf of ExxonMobil and Royal Dutch Shell, which names all of its fields after birds. In the case of their North Sea operations the field was called Brent Goose, which was later shortened by the market to Brent encompassing similar type crude oils being produced in the area.

Brent Crude, Brent Sweet Light Crude, Oseberg, Ekofisk, and Forties are all part of the Brent crude oil sourced from the North Sea and traded on the Intercontinental Exchange in London (ICE). The Brent crude oil marker is also known as Brent Blend, London Brent and Brent Petroleum and is used to price two thirds of the world's internationally traded crude oil supplies.

Why has the Brent crude oil benchmark price become so important to consumers of gasoline and diesel? The answer: It just recently replaced the New York Mercantile Exchange (Nymex) West Texas Intermediate (WTI) as the reference price for other “crude oil baskets” such as OPEC, Dubai, Russian and even Alaska North Slope crude oils.

The problem lies with the US Commodity Futures Trading Commission (CFTC) not having the power to regulate commodity transactions on the ICE. The big money is being moved into Brent and ICE thereby bypassing the Nymex and putting the WTI crude oil secondary to Brent. Even the Alaska North Slope crude oil posting is now tracking the Brent crude oil posting.

Bank of America Merrill Lynch recently increased its forecast for benchmark Brent crude for 2011 to $122 a barrel, and said that Brent could “briefly” surge above $140 a barrel in the second quarter of 2011. For WTI crude oil, the bank forecasted an average of $101 a barrel for this year, up from $87.

Bank of America also forecasted a 30 percent chance the price of Brent crude oil would reach $160 per barrel in 2011 with global demand for oil increasing and Libya supplying about 1 million barrels per day less than it did before the NATO coalition bombing started on March 19, 2011.

Each dollar differential in the price a barrel of crude oil represents 2.4 cents per gallon change for gasoline and diesel. When the price reaches the $140 level, it will add another 40 cent per gallon to today’s $3.856 per gallon national average price for unleaded gasoline per AAA Daily Fuel Gauge Report. That means $4.25 per gallon for regular gasoline by the end of May, which is right at the beginning of the summer driving season.

The average gasoline price in the US could reach $4.75 per gallon if the Brent crude oil reaches the predicted $160 a barrel sometime this year.

Crude oil prices now are determined not so much by supply and demand but by financial markets like the Nymex and ICE. Most oil is traded using derivative financial instruments that are not based on the physical exchange of crude oil (wet barrels in the trade) between seller and buyer. In the 1990's, physical transactions accounted for about 30 percent of oil traded, but they now number less than 1 percent of contracts traded on the various exchanges.

Crude oil prices soared to new highs in 2005 when U.S. pension funds were permitted to invest their members’ retirement monies in oil futures. The US Congress convened a special hearing in 2008 after prices soared to $147 a barrel for WTI crude oil to consider the influence that speculation has on crude oil prices. Analysts calculated for each $100 million pumped into the oil market the price per barrel was pushed up by 1.6 percent.

In effect, oil has become a speculative commodity whose price is determined by how investors anticipate its value will increase or decrease at a given point in the future.
No sooner had Bank of America Merrill Lynch given its “bullish” prediction than the commodities market rallied and the price of Brent oil surpassed $120 per barrel. Nonetheless, do analysts have at least some idea of an upper limit to prices?

The two dominant theories of the 1970's and 1980's held that oil prices were limited by the prices for alternative energy sources to crude oil or, by contrast, that the price ceiling was determined by the purchasing power of oil consumers who are also unable to reduce demand. This is just partly true today.

In the end, the main “energy resource” of the past 40 years was not oil but energy efficiency, and consumers’ ability to save money by reducing consumption and using alternative energy sources as prices increased.

Saturday, April 9, 2011

Keystone Pipeline: 'Just Say No' Could Mean $7 a Gallon at the Pump


U.S. Imports of crude oil by country


Route of the proposed Keystone XL pipeline


Consumer studies by researchers at Harvard’s Belfer Center for Science and International Affairs suggested a year ago that in order for the Obama administration to meet their target to cut greenhouse gas emissions, Americans will soon be spending $7 per gallon. That day may now come sooner than most Americans think.


The Opinion page of the Sunday April 3, 2011 edition of the New York Times (NYT) carried an editorial against approving the TransCanada Keystone XL pipeline, which was scheduled to transport crude oil from the Athabasca Oil Sands in northeastern Alberta, Canada to refineries in Illinois, Oklahoma, and to the lucrative U.S. Gulf Coast by the end of 2012.


The NYT editorial is in line with the Obama Administration agenda, but will ultimately be bad for fuel consumers by hitting them where it hurts; right in their wallets, while benefiting alternative energy producers with better economics.


The following chart above this article was obtained from the EIA website shows the top 15 countries of petroleum imports of the U.S. where Canada ranks number one with increasing volume from 2010 into 2011.


This increase in imports shows the importance and U.S. reliance on Canada--the friendly neighbor to the north--to replace the more volatile crude oil supplies from countries in the MENA (Middle East and North Africa) region. Imports of petroleum products from Canada for the period from August 2010 to January 2011:


Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11

76,988 74,251 72,698 75,313 84,092 87,619


The Keystone XL pipeline, an expansion project that would raise the line's capacity by 500,000 barrels of crude per day, has already been approved by various state agencies in the U.S. through which it runs.


Two major obstacles to receive the necessary rights of way were eventually overcome with, at times, heavy negotiations. The first obstacle was the local crude oil producers obtaining ramp access into this pipeline for crude oil currently being hauled by rail car and trucks to refineries for processing into gasoline and other fuels. The second one was meeting with constituents in each of the areas being affected with their concerns not only about the interruption of their daily lives, with a massive construction project, but also by ongoing operational problems with the pipeline after it is completed.


The current administration’s Department of Energy now says the pipeline will have a minimal effect on prices since there is already sufficient pipeline capacity to double United States imports from Canada. They are thereby affirming President Obama’s campaign promise of making the U.S. less reliant or needing additional imports of crude oil.


The proposed Keystone XL pipeline will cut across the Bakken and Three Forks oil shale fields from Saskatchewan into Eastern Montana, through South Dakota, Nebraska and Kansas ending up at the major crude oil terminal hub of Cushing, Oklahoma. North Dakota, Montana and other state governors became involved early on in the approval process and addressed local environmental and right of way concerns.


TransCanada executives met with various private and public officials and hammered out agreements to have local oil producers gain access to this much needed pipeline to make the shipping of crude oil more economical for US domestic oil producers. In some cases, due to the lack of takeaway capacity, crude oil is being sold at $10 a barrel discount off the WTI crude oil posting, which is one of the main reasons Wyoming, Montana and North Dakota currently have some of the lowest prices for gasoline and diesel fuel in the US.


The Keystone XL would greatly improve the transportation logistic issues in the Bakken and Three Forks oil shale basins. None of the states involved have put up additional major objections.


Early this year, Secretary of State Hillary Rodham Clinton initially came out, after the State Department report was issued, and said she was “inclined” to support the project. However, after criticism from environmental and alternative energy groups she called for additional environmental impact studies to be reviewed.


President Obama, in his April 2, 2011 Saturday morning radio address, said that even if we used every last drop of all the oil the U.S. has, it wouldn’t be enough to meet the long-term energy needs. So, real energy security can only come from energy efficiency and investing in cleaner fuels and greater efficiency.


The folly involved in President Obama’s approach comes from the fact that only $7 gasoline prices will ultimately justify the cost for those alternative energy projects. Meanwhile, they are supported by the taxpayers in the form of subsidies to the ethanol, solar and wind machinery manufacturers.


The Canadian government has been a staunch supporter of the Keystone XL pipeline project, and perhaps has an even greener approach to their environment and clean air issues than does the US.


The U.S. is now being boxed in from all sides on the energy front. Concerns about the future of nuclear energy, the instability of governments in oil producing countries in MENA, have all contributed to crude oil prices spiking to their highest level since September 28, 2008. What stands in the way of any major decisions to make the US energy secure are politicians not willing to make tough decisions in an orderly and efficient manner.


Meanwhile, the environmental organizations have been trying to block the Keystone XL pipeline at every turn even threatening court actions to stop the start of the construction. The State Department and the White House will have to make the final decision on Keystone XL, since it crosses the Canada-U.S. border.


But it probably will be the end of 2013 at the earliest to having any of the crude being shipped in the proposed pipeline, even if the approval is received from the Department of State by July 1, 2011. By then, there’s a good possibility that gasoline prices would be reaching a record high and the discontent from consumers will be at a fever’s pitch.

Monday, March 14, 2011

Japan Earthquake Could Test U.S. with $5 Gasoline Prices




The fallout on the fuel market will be severe following the 9.0 Japanese earthquake on Friday, March 11. 2011, since Japan will have to supplement their nuclear energy power production with coal, natural gas and oil-fired power plants.

Information is short and hard to obtain about the status of the nuclear power plants in Japan. Not being a nuclear physicist it is hard to sort the facts from the hysteria but going on past history we are being fed pap by official press officials of the Japanese government about the real situation in dealing with this cataclysmic event. These same officials withheld vital information after the 1995 Kobe earthquake, which killed more than 6,000 people.

We are now hearing and seeing different versions between watching the live feeds on T.V. and Twitter as events enfold and the reports from official press reports. Under the circumstances that may be understandable as the government does not want to cause a panic. But do we believe them or our lying eyes?

Japan is the third largest country in the world in terms of nuclear energy production, following France, and the U.S. which is in first place (see table above). The country gets about 30% of its power from nuclear sources. Reportedly, 11 nuclear reactors and 21 thermal power plants where shut down after the earthquake, and BBC News put the reduction in output at Japan's nuclear power generators at anything from 25% to 50%.

On top of the loss in the power generation capacity, the Wall Street Journal reported that about 1.2 million barrels per day refining capacity in Japan is also shut down after the earthquake disaster. With this much capacity off line, Japan needs to secure alternative means of generating power and petroleum products as well.

Meanwhile, diesel fuel and coal are readily available. Cargoes of diesel fuel can be shipped almost immediately from the U.S. West Coast refineries to meet up with this new found Japanese demand.

The following graph shows the world refining capacity and how much North America and Far East Asia use crude oil for fuel production:




More refineries will have to be brought into production with economics justifying their running at full capacity. It may not cause crude oil to spike up, but it will most likely test whether consumers are going to be willing to pay $5 per gallon for gasoline and diesel fuel in the U.S.

San Antonio-based refiner Valero Energy Corp. (VLO) closed their 235,000 barrels per day located on the island of Aruba in the Caribbean in July 2009, after the plant had been losing tens of millions of dollars a month.

Valero re-started their refinery near the end of 2010 because of improving economic conditions. Valero has since completed refinery wide maintenance at the plant and is ready to go at full capacity. It will be “just in time” to make up the anticipated shortfall in middle distillate demand expecting to increase after the powerful 9.0 earthquake in Japan.

Closer to Japan, one of China’s largest refineries, Sinopec, recently suspended refining operations in Maoming due to high crude oil prices. The 270,000 barrels a day plant stopped delivering fuel and petroleum products in March 2011, because the Chinese government establishes the price for fuels delivered to the market by their local refineries.

Those fuel prices are equivalent to crude oil prices at $85 a barrel versus today’s Brent ICE posting of $113 a barrel. The difference in the allowed fixed price for fuels and the cost of crude oil leaves privately owned refineries with a negative crack spread.

PetroChina Co Ltd, which is Asia’s largest oil and gas company, has been having similar difficulties. It has been losing money in their oil refining segment resulting from an increase in crude oil prices due to the unrest in North Africa and the Middle East.


Diesel fuel prices on the U.S. West Coast are already amongst the highest in the country, and will be impacted by the March 11th earthquake in Japan. The bulk of the price action will likely fall on diesel fuel, but crude oil could be affected as well.

In the end it will not be about the price of Brent or West Texas Intermediate (WTI) crude oil but refineries being geared up to keep up with new found demand from Japan for their fuel products.

About the author - Bob van der Valk is a Petroleum Industry Analyst with over 50 years of experience in the petroleum, gasoline and lubricants industry. He has been often quoted by news media, most recently by Los Angeles Times, and his opinions solicited by government entities, in addition to his daily business of managing large scale supply and marketing operations.