Now that's some deflation...

[GRG55]

Re: Now that's some deflation...

Lukester will want to know how much the money supply has to increase to offset this... ;)

Pemex to Miss 2008 Oil Target, Mexico's Kessel Says

By Thomas Black and Andres R. Martinez
May 28 (Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, will miss its annual production target of 3.1 million barrels a day as output falls faster than expected at its largest oil field, said Mexican Energy Minister Georgina Kessel...

...The company is trying to boost output at other fields to make up for plunging results at Cantarell, the largest offshore oil field in the world. Production at Cantarell fell 33 percent to 1.07 million barrels in April from 1.59 million barrels a year ago...
http://www.bloomberg.com/apps/news?p...d=ao7To3pIP2qk

And right on cue, as we have come to expect whenever these sorts of bad news announcements are necessary, they are immediately followed by "good news" announcements (a behaviour, just to be clear, that is by no means unique to Mexico):

Pemex Discovers Crude Oil in Deep-Water Well Tamil

By Thomas Black and Andres R. Martinez
May 29 (Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, discovered oil in a deep-water well that is the lightest crude found to date in Gulf of Mexico waters more than 500 meters (1,650 feet) deep.

The project, dubbed Tamil, is the seventh exploratory well Pemex has drilled in deep water. It produced crude with a grade of 18 on the American Petroleum Institute's scale for measuring the viscosity of oil, Guillermo Perez Cruz, director of Pemex's deep-water unit, told reporters today.

The grade is heavier than the company's Maya crude and lighter than extremely heavy oil Pemex discovered at is first deep-water well, Nab, which had crude as thick as grade 8 on the petroleum institute's scale, Perez Cruz said. Lighter crude is easier and less costly to refine into gasoline and other fuels. Further testing in coming weeks should reveal the pressure and amount of potential oil from the well, Perez Cruz said...

...Pemex is counting on producing 500,000 barrels of oil per day from deep-water fields by 2021 to help make up for the decline at Cantarell, the world's largest offshore oil field.

Of the seven wells it has drilled in deep water since 2004, most have either contained natural gas or have been dry. The company plans to drill at least 19 wells in waters deeper than 800 meters during the next four years to seek new fields to slow a four-year decline in output...
http://www.bloomberg.com/apps/news?p...d=aCz08vCVUiC4

And...

Pemex to Add Reserves From Drilling at Chicontepec

By Thomas Black and Andres R. Martinez
May 30 (Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, may add between 200,000 and 300,000 barrels of proved oil reserves for each well drilled at its onshore Chicontepec field, helping stem declining crude stocks.

Pemex plans to drill 500 wells this year at Chicontepec, which would allow the company to add as much as 150 million barrels to proved reserves, said Vinicio Suro, managing director of planning and evaluation at Pemex's exploration and production unit, during a conference in Monterrey.

``There's going to be a small jump,'' Suro said of incorporating reserves at Chicontepec. ``It's going be little by little. There's not going to be a change overnight.'' ...

...Mexico's reserves have declined almost every year for more than two decades because Pemex has pumped more oil than it has discovered since production began in 1979 at Cantarell, the world's largest offshore oil field...

...Next year, Pemex plans to drill as many as 1,000 wells at Chicontepec, which requires sophisticated horizontal drilling techniques because it consists of the small pockets of oil and is located in densely populated rural areas...
http://www.bloomberg.com/apps/news?p...d=azhYrsC2YVkk

Perfect example of "Peak Cheap Oil". While the easy, cheap, good stuff depletes it's replaced with heavier crude, or much more expensive to develop lower grade reservoirs.

Example of the former, Tamil is reported as 18 API crude. Anything less than 20 API is considered heavy & anything less than 10 API is considered bitumen by the Society of Petroleum Engineers. The US DoE EIA considers anything less than 25.7 API as heavy (Mexico's Maya grade is about 22 API).

Example of the latter, Chicontepec is a huge onshore oil field (covers more than 1200 sq miles) with potentially 70 billion barrels of light oil (about 31 API) in place ( :eek: ). The catch is the reservoir is tight (extremely low permeability) and in a populated area. Groppe Long (Henry Groppe's Houston based firm) estimates it may take as many as 16,000 wells to recover something like 11 billion of those barrels from Chicontepec ( :eek: :eek: )

Yes Virginia, there is a Santa Claus. But he can't bring us what we really wish for now...

Henry's at it again Lukester

Just what we need...rising energy prices creating a further drag on a global economy trying to pull itself out of the ditch.

Enjoy low oil prices while you can: guru

Barry Critchley, Financial Post
Published: Saturday, February 07, 2009

Henry Groppe, founder of Houston-based Groppe, Long & Littell, is 83 years old, a vegetarian and has been a forecaster in the oil and gas business since 1955. And he is not afraid to go against the conventional wisdom. One year back he predicted the oil price would collapse in the second half of the year -- and not reach the much talked-about price of US$200 a barrel.

Now Groppe, a special advisor to the Toronto-based Middlefield group of companies, has done his analysis and concluded that between now and year end the price of oil will double. If that forecast pans out, oil will hit US$80 a barrel, or more than double what others are predicting. His advice to consumers: Enjoy the current low gas prices, because they won't last for much longer.

"Given enough time, it's the fundamentals of supply and demand balances that control the price," Groppe said. "It's just like journalism: 'Get your facts straight,' " he said, when referring to moves inside the 80-million-barrel-a-day global oil business.

He bases his 2009 consumption forecast relative to 2008 on three such factors: the two-million-a-day barrel cut in production from OPEC, the bulk of which will come from three countries (Saudi Arabia, Kuwait and Abu Dhabi); the four-million-barrel-a-day increase in demand that will result from the average 50% decline in the crude oil price; and the 1.2 million barrel drop in consumption that will flow from the global recession. Put them all together and what emerges is a 4.8-million-barrel-a-day net oil shortage.

"There has to be a big upward correction in prices to bring things back into balance," Groppe said.

Groppe pointed out that two of the factors are dynamic, meaning that so-called demand elasticities are associated with them: a 0.1 elasticity between price and demand and a 0.3 elasticity between price and world growth.

Overall, the reduced consumption effect of the global recession, while large, will be more than offset by the effect of the lower price...

[FRED]

Re: Now that's some deflation...

Henry's at it again Lukester

Just what we need...rising energy prices creating a further drag on a global economy trying to pull itself out of the ditch.

He bases his 2009 consumption forecast relative to 2008 on three such factors: the two-million-a-day barrel cut in production from OPEC, the bulk of which will come from three countries (Saudi Arabia, Kuwait and Abu Dhabi); the four-million-barrel-a-day increase in demand that will result from the average 50% decline in the crude oil price; and the 1.2 million barrel drop in consumption that will flow from the global recession. Put them all together and what emerges is a 4.8-million-barrel-a-day net oil shortage.

Is he assuming that output will fall 50% globally as it is on track to in Japan?

[we_are_toast]

Re: Now that's some deflation...

Is he assuming that output will fall 50% globally as it is on track to in Japan?

Huh?:confused:

Not sure what you're saying here. How about a couple more lines of explanation?

[GRG55]

Re: Now that's some deflation...

Is he assuming that output will fall 50% globally as it is on track to in Japan?

He's not clear on the basis for his assumption in this regard. If it's based on the beginnings of a global recovery then he could be off. I also wonder if any such energy price rebound [however ultimately short lived] is the cause of a continued contraction in global economic output in 2010. Sort of a post-stimulus double-dip.

I do note that persistent oil bear Fadel Gheit has also changed his tune. From the WSJ:

February 6, 2009, 4:27 pm
Oil Prices: Get Ready for the Rebound

Oil bears claimed victory Friday, pushing crude down as much as 6% before finishing down about 2% as grim employment data underscored the dismal shape of the U.S. economy.

But not everybody’s an oil bear. Fadel Gheit, top oil analyst at Oppenheimer & Co., is part of a group of supply-siders who worry that OPEC’s drastic steps to halt the oil-price slide are going to combine with an economic recovery to create a big rebound in oil prices. An outspoken critic of the role speculators played in driving up oil prices last year, Mr. Gheit sees fundamentals playing a bigger part this year.

We asked Mr. Gheit how he sees the oil market evolving.

WSJ: Like many analysts, you’ve often warned of a looming supply crunch that could send oil prices back up. How does that square with recession in the U.S. and signs of weakening demand?

Fadel Gheit: The market has been looking at OPEC as a savior. But as OPEC cuts, demand continues to slide—OPEC is just playing catch-up right now with falling demand. Once that stabilizes, prices will rise.

I call it ‘the second oil bubble.’ The longer oil prices remain low—and low in my book is below $50 a barrel—the more violent the rebound is going to be. It’s not a question of if, but when.

WSJ: Because lower prices mean less upstream investment?

Gheit: Look, oil companies are going to lose 40% of their cash flow this year, and capital expenditures will be cut sharply […] If you thought the fourth-quarter numbers [for oil companies] were bad, wait until you see the first-quarter numbers. Oil prices are now about where they were five or six years ago, but the cost of extracting oil has doubled in that time…

At the larger oil companies, 80-90% of spending is on new projects to offset decline [at existing fields]. Most companies are indicating that the rate of decline will increase because the capital expenditures just can’t keep pace.
[Older fields] are like aging athletes…you don’t want to spend the money, sign them to a long-term contract. So all the bets are on the rising stars, but those are projects that won’t have an impact for maybe five years.

WSJ: What will send prices higher?

Gheit: The spike will be the product of several factors…demand has to stabilize, and that won’t happen next week. And the production cuts from OPEC are coming slowly, you can’t just shut off the wells.

But non-OPEC production is also in decline…Russia, Mexico…Candian oil sands are underwater at these prices…Once you have stabilized demand and the supply crunch comes, prices will go up—it’s going to look like a hockey stick. And hurricanes could really accelerate this whole process…you could conceivably see 6 million additional barrels come off the market [this year], and I don’t see demand falling that much.

WSJ: Put a pricetag on that hockey stick.

Gheit: I can see a 40-50% increase, easily into the low $60s. [Unlike the 2008 spike that drove oil over $100] this spike is going to be driven by supply and demand, and not so much from speculation, so it will be more moderated. Another [moderating factor] which will put a cap on prices is that, unless demand recovery is robust, you are going to have a big spare capacity overhang. You could have 5-6 million barrels of spare capacity.

Now oil demand will come back, but it will be significantly below prior forecasts [because consumers showed signs of changing behavior].

If we wait until another bubble to really change demand habits, we deserve $10 gasoline.

[Guest]

Re: Now that's some deflation...

Now Groppe, a special advisor to the Toronto-based Middlefield group of companies, has done his analysis and concluded that between now and year end the price of oil will double.

Fascinating stuff GRG55. I'm thinking of that analyst David Bensimon. In late 2007 he started forecasting that oil prices would "imminently" collapse down to $60 when they were north of $127 and climbing (got a lot of incredulous responses), that they would bottom going into March-April of 2009, and that in the year 2009 the oil price would not just double but rise to $200 by the beginning of 2010. Then he insisted that they would collapse all over again (weak global economy collapses yet again?) to bottom out a second time at the end of 2010.

At the end of 2010 the oil price would then take off again and go on a blistering rise up to $400 by 2016 or 2017. I ponied up $500 for an hour long chat with him around Christmas this year, mostly to get his detailed thoughts on the PM's with emphasis on silver. So he went over the oil price trajectory a bit as well and despite the market collapse having driven the oil price quite a bit further down than his forecast he insisted we were "quite well on track for the rest of the trajectory".

This is not a post to reassert the viability of Bensimon's forecasts or method. It's just relaying what the guy said and anyone can take it or leave it.

Now it would seem quite likely that he's going to be off by a large margin, on that first peak of $200 by the end of 2009, but my take away from his forecasts was thinking "wow, whatever the outcome, the single most startling thing he's forecasting is a truly gargantuan rise in the petroleum price in year 2009. And it looks like the sober comments of Henry Groppe have just given Mr. Bensimon's suggestion a strong nudge.

I know in my gut that petroleum at a price of $35-$40 a barrel has been an truly hallucinatory (means nonsensically LOW) price. I have a very high level of confidence in Groppe's call. And in the broadest sense also in Bensimon getting the large trends right over the next 5 - 10 years. BTW if Bensimon is right the Rick Ackermans and Mish's of this world are going to find their prognostications in a pot of quite warm water soon enough.

You've got me thinking really hard about freeing up a big chunk of bullion parked cash and putting it into oil for an 80%-120% return in the next 18 months. BTW, multi billionaire Richard Rainwater who called the start of the petroleum bull market in '99 and then got out at the very top in early 2008 is now uber bullish on oil and (I think) is already starting to buy back in aggressively. He refers to "buying back all my former positions". That guy knows how to skin the cat apparently, quite well.

Thanks for the heads up.

BTW - I notice you mention a sharply rising price of oil as potentially introducing the cause for another generalized global strong GDP decline - Bensimon's forecast indeed includes just that. The price soars in 2009, shocking everyone, and the global economy takes it on the chin all over again and does a lot of falling in 2010 before embarking on a longer sustained rise out from 2011. We'll see if Mr. Bensimon got these calls approcimately right, or even very right.

But there is another guy, Andrew McKillop who's been a regular energy analyst/strategist for several EU countries and agencies and is really not bad - he argues that a renwed bull market in petroleum, if it's sustained long enough, actually creates a "boom" chain reaction in all the commodity exporter and producer nations, which then filters into all the "factory floor" nations.

Sharply rising petroleum kicks off a boom in the entire commodities chain and directly transmits robust pricing power to the emerging economies. So that thesis is 180% opposite to your idea, (and I think it's also generally iTuluip's?) that a soaring oil price brings on economic collapse. McKillop doesn't say this reaction is permanent, only that in the mid trajectory of sustained oil price rises, this has a strong stimulant effect on the global economy.

The articles examining that make interesting reading and he's not an amateur in the analysis as far as I could tell.

[GRG55]

Re: Now that's some deflation...

Fascinating stuff GRG55. I'm thinking of that analyst David Bensimon. In late 2007 he started forecasting that oil prices would "imminently" collapse down to $60 when they were north of $127 and climbing (got a lot of incredulous responses), that they would bottom going into March-April of 2009, and that in the year 2009 the oil price would not just double but rise to $200 by the beginning of 2010. Then he insisted that they would collapse all over again (weak global economy collapses yet again?) to bottom out a second time at the end of 2010.

At the end of 2010 the oil price would then take off again and go on a blistering rise up to $400 by 2016 or 2017. I ponied up $500 for an hour long chat with him around Christmas this year, mostly to get his detailed thoughts on the PM's with emphasis on silver. So he went over the oil price trajectory a bit as well and despite the market collapse having driven the oil price quite a bit further down than his forecast he insisted we were "quite well on track for the rest of the trajectory".

This is not a post to reassert the viability of Bensimon's forecasts or method. It's just relaying what the guy said and anyone can take it or leave it.

Now it would seem quite likely that he's going to be off by a large margin, on that first peak of $200 by the end of 2009, but my take away from his forecasts was thinking "wow, whatever the outcome, the single most startling thing he's forecasting is a truly gargantuan rise in the petroleum price in year 2009. And it looks like the sober comments of Henry Groppe have just given Mr. Bensimon's suggestion a strong nudge.

I know in my gut that petroleum at a price of $35-$40 a barrel has been an truly hallucinatory (means nonsensically LOW) price. I have a very high level of confidence in Groppe's call. And in the broadest sense also in Bensimon getting the large trends right over the next 5 - 10 years. BTW if Bensimon is right the Rick Ackermans and Mish's of this world are going to find their prognostications in a pot of quite warm water soon enough.

You've got me thinking really hard about freeing up a big chunk of bullion parked cash and putting it into oil for an 80%-120% return in the next 18 months. BTW, multi billionaire Richard Rainwater who called the start of the petroleum bull market in '99 and then got out at the very top in early 2008 is now uber bullish on oil and buying back in aggressively. That guy knows how to skin the cat apparently, quite well.

Thanks for the heads up.

BTW - I notice you mention a sharply rising price of oil as potentially introducing the cause for another generalized global collapse - Bensimon's forecast indeed includes just that. The price soars in 2009, shocking everyone, and the global economy takes it on the chin all over again. But there is another guy, Andrew McKillop who's been a regular energy analyst/strategist for several EU countries and agencies and is really not bad - he argues that a renwed bull market in petroleum, if it's sustained long enough, actually creates a "boom" chain reaction in all the commodity exporter and producer nations, which then filters into all the "factory floor" nations.

Sharply rising petroleum kicks off a boom in the entire commodities chain and directly transmits robust pricing power to the emerging economies. So that thesis is 180% opposite to your idea, (and I think it's also generally iTuluip's?) that a soaring oil price brings on economic collapse. McKillop doesn't say this reaction is permanent, only that in the mid trajectory of sustained oil price rises, this has a strong stimulant effect on the global economy. The articles examining that make interesting reading and he's not an amateur in the analysis as far as I could tell.

Lukester: I am being very, very careful. Things are getting increasingly chaotic, in Washington as well as the markets. I cannot understand who on earth will have the ability to extend to the USA the credit required to run endless trillion dollar deficits for years to come, as the new President has openly said is "necessary". So that means...print, baby, print...as far as I can tell. You have indicated a view that the US$ will remain comparatively strong. I cannot see a strong US$ and significantly rising oil prices at the same time. It's a mad, mad world... :p

[Guest]

Re: Now that's some deflation...

You are dead on right GRG. I can't make any damn sense of that too. Other than being foolishly over exposed in the precious metals after EJ's "sell everything" call in Dec 2007, I have been the classic "nervous nellie" in that I duly sold every last stock I owned. I've owned nothing but cash and (too much) precious metals, so despite three or more years of careful forewarning, I managed to put myself into the hot water and lose a bundle right along with everyone who arrived at this event without a clue it was about to start. I doubt anyone could have screwed up the positioning worse than I did, with all the forewarning in the world. I am like you - very skeptical about all sustained trends right now, and particularly so regarding the robustness of GOLD going through the next six months. It sounds incredible given the monetary stress, but gold has a long history of bucking it's owners off the ride with truly nasty jolts. If it breaks to the downside on global jitters, it could break down big. Petroleum conversely - I don't think it's got much downside at all.

Lukester: I am being very, very careful. Things are getting increasingly chaotic, in Washington as well as the markets. I cannot understand who on earth will have the ability to extend to the USA the credit required to run endless trillion dollar deficits for years to come, as the new President has openly said is "necessary". So that means...print, baby, print...as far as I can tell. You have indicated a view that the US$ will remain comparatively strong. I cannot see a strong US$ and significantly rising oil prices at the same time. It's a mad, mad world... :p

[cobben]

question for Luke on Bensimon

I used to enjoy looking at the free struff on Bensimon's site some years ago, back before the Australian SEC I believe it was changed the rules and he couldn't post free "advice" anymore. He participated on the old Colorado longwave forum, and also occasionally on another yahoo forum that I haven't monitored for years (way too many junk posts). Haven't seen anything by him for some time now.

As I recall he is an extreme E-waver, he had done e-wave descriptions of thousands of years of human history, and also projections hundreds or even thousands of years into the future, more like science fiction than anything else, resembling Stapledon's "First and Last Men".

Now I never paid for his services, but tracking his more down to earth short term predictions, to the extent he put up free versions, as I recall he was not bad, but often would get things 180 degrees wrong and have to completely revise his projections. Now I see that as normal, I'm not knocking him.

I'm just curious Luke, if you do subscribe to any of his services, how well has he been doing?

[Guest]

Re: Now that's some deflation...

Cobben - I'm not a subscriber. However he had a string of utterly jaw dropping calls in the past five years. Some bloopers in there definitely, but to call the rest of his estimates "random hits" would be merely obtuse. I paid (a fair chunk of change) for a single in-depth consultation based on this recognition. I'm very interested now to see Henry Groppe of Groppe, Long & Littell beginning to substantiate the broad outlines of his forecast for 2009. He described this as one of the most wrenching years for the gyrations of the petroleum price. We'll see. After reading GRG's post from Groppe I'm fascinated to track a potential validation of this guy's method.

JUst to be clear - For me Elliott Wave is a "bad word". I think those guys are kooks. But Bensimon uses about six different other analytic approaches as well as being a prodigious market historian. His method encompasses far out stuff but also very mainstream stuff. And anyone wishing to disparage this guy in generic terms would find themselves walking through a field of landmines attempting to summarily dismiss his past ten years track record. It's easy in blogs to "casually wave a hand" and say "it does not necessarily mean much".

Don't mean to enlist Bart's endorsement without his express permission, but Bart has looked through his stuff and given it at least a provisional "good housekeeping seal of approval". Suggests, if we regard Bart as careful with his provisional endorsements, that the guy's work has some real value. Let's keep a keen eye on the oil price this year, shall we?

[cobben]

Re: Now that's some deflation...

Bensimon was smart, no question about that, and had quite a few novel ideas of his own.

As to the price of oil doing continued stunt flying types of wild gyrations, I have no problem with that. Volatility is going to increase across the board in all markets I believe, not least driven by continued & increasing instability in currency exchange / the forex markets.

The big banks' & hedge funds' trading desks are on hard times & in need of new income sources, which simply guarantees high volatility with markets seemingly out of touch with reality for extended periods.

[Slimprofits]

Re: Now that's some deflation...

Lukester, Cobben:

Check this appearance on Bloomberg TV in I think early October '08 when oil was in the high $80s. A graphic is shown that says Bensimon's firm, Polar Pacific predicted that oil would be $109 in November '08, $200 in December '09 and $98 in November '10.

Bensimon says: "We ultimately can reach as far as $80, sometime next year" - If I understood the interview, that was his target for a low price in April '09.

His low gold target was $732 in April '09, even though (as he points out) it had already hit $740 in September.

[Guest]

Re: Now that's some deflation...

Thanks Babbittd. Evidently he flubbed it considerably. I don't know about anyone else, but I have got my eye on this guy's calls going forward though, regardless.

Lukester, Cobben:

Check this appearance on Bloomberg TV in I think early October '08 when oil was in the high $80s. A graphic is shown that says Bensimon's firm, Polar Pacific predicted that oil would be $109 in November '08, $200 in December '09 and $98 in November '10. ... Bensimon says: "We ultimately can reach as far as $80, sometime next year" - If I understood the interview, that was his target for a low price in April '09. ... His low gold target was $732 in April '09, even though (as he points out) it had already hit $740 in September.

[D-Mack]

Re: Now that's some deflation...

I believe you are in Eastern Europe? Poland?

Given the long and precarious history of Poland and Russia (my father-in-law was born and raised in Poland and fought against both the Germans and Russians in WWII) I can imagine that dependence on Russia for primary energy supply is not acceptable, no matter what the rest of Europe may delude themselves into doing.

They will stuff their allies with money as long as they play ball, Poland with it's missiles for example.

UPDATE 2-IMF considers aid for Poland to prevent crisis
Sat Feb 7, 2009 9:57am GMT

By David Chance and Julie Goh

KUALA LUMPUR, Feb 7 (Reuters) - The International Monetary Fund is holding talks with Poland, central Europe's largest economy, on a possible loan to fend off contagion from the global financial crisis that forced the Fund to intervene in Hungary.
http://uk.reuters.com/article/market...39644720090207

[metalman]

Re: Now that's some deflation...

"There has to be a big upward correction in prices to bring things back into balance," Groppe said.

if symbols is correct and oil was a bubble then this forecast must be wrong. bubbles don't come back after they've popped.



if oil was a bubble then it reverts to its mean value of $15 - $20 or symbols was wrong.

[Guest]

Re: Now that's some deflation...

Symbols vs. Henry Groppe. The clash of the titans.

KING KONG VS. GODZILLA - SYMBOLS VS. GROPPE.jpg