Morgan Stanley Report....the Future of American Domestic Energy Production Lies in Oil

A new report out from Morgan Stanley on the "renaissance" of the American oil industry argues that -- contra the natural gas bulls, the future of American domestic energy production lies in oil.

Specifically, they argue that technological innovation is now allowing for oil extraction from previously un-economical shale deposits. This is game changing. The report is huge, but these four charts really stand out.

The changeover is happening NOW.

Meanwhile, and this is quite eye popping, after a 20 year decline, domestic oil production has finally had positive years.

And finally, if key shale oil regions pan out, the impact in just the next few years could be significant.

Posted courtesy of The Business Insider


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Is The World About To Be Overwhelmed By A Glut Of Oil?

After years of peak oil scare stories, could the world soon be drowning in oil? OPEC has just cut its oil demand forecast for OPEC produced oil, citing a slow down in the global economy as the supportive effects of government stimulus wear off and increased non OPEC oil supply. The organization noted that, "the impact of the slowing economic recovery on oil demand is already evident as growth in oil consumption is slowing down and has even turned negative in some parts of the world," according to Fox Business.

Their latest move highlights the twin drivers of any potential oil glut scenario: The stagnation of demand growth from major developed economies such as the U.S. and Europe The growth of non OPEC oil supply. Already, the U.S. is sitting on more oil than it has in decades.

Fortune: Despite the Iraq War and the resulting production disruptions, despite the moratorium on drilling in the Gulf, despite turmoil in Nigeria and ongoing cross border trans-shipment quarrels in Central Asia and the multiple, repeated declarations that "peak oil" has arrived and supplies will inevitably dwindle, the United States has more petroleum on hand today than it has had since at least the beginning of the first Gulf War.....

At the same time, consumers have finally responded to higher gas prices and, perhaps, concern over the environmental impacts of burning fossil fuels. Miles driven by U.S. motorists have fallen over the last couple of years for the first time since such statistics have been collected, indicating that the American love affair with the automobile could be waning. And gasoline demand in China, the world's largest automotive market, may not skyrocket after all, as the government ramps up its drive to replace internal combustion engines with electric vehicles.

Global demand forecasts are coming down as well:

"In the last 18 months we've seen this big trend emerge," says David Kirsch, research director at PFC Energy in Washington, D.C. "We spent five to 10 years in a supply-constrained market, characterized by the growth of the BRIC countries [Brazil, Russia, India and China] and concerns over the security of supplies."

Now, Kirsch remarks, because of the financial crisis and the time it will take to pare down the debt of the major OECD nations, demand growth over the next decade is likely to be lower than previously forecast.

....Read the entire article.



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Leaked German Military Report Warns Of Apocalyptic Peak Oil Scenarios

The German army doesn't want you to know how freaked out it is about peak oil. But an internal report has leaked to the internet, with excerpts translated by Spiegel. The report says there is "some probability that peak oil will occur around the year 2010 and that the impact on security is expected to be felt 15 to 30 years later."

Nightmare scenarios include:
Market failures: The authors paint a bleak picture of the consequences resulting from a shortage of petroleum. As the transportation of goods depends on crude oil, international trade could be subject to colossal tax hikes. "Shortages in the supply of vital goods could arise" as a result, for example in food supplies. Oil is used directly or indirectly in the production of 95% of all industrial goods. Price shocks could therefore be seen in almost any industry and throughout all stages of the industrial supply chain. "In the medium term the global economic system and every market-oriented national economy would collapse."

Global chain reaction: "A restructuring of oil supplies will not be equally possible in all regions before the onset of peak oil," says the study. "It is likely that a large number of states will not be in a position to make the necessary investments in time," or with "sufficient magnitude." If there were economic crashes in some regions of the world, Germany could be affected. Germany would not escape the crises of other countries, because it's so tightly integrated into the global economy.

Crisis of political legitimacy: The Bundeswehr study also raises fears for the survival of democracy itself. Parts of the population could comprehend the upheaval triggered by peak oil "as a general systemic crisis." This would create "room for ideological and extremist alternatives to existing forms of government." Fragmentation of the affected population is likely and could "in extreme cases lead to open conflict."

From Gus Lubin at Business Insider.Com.

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Are Gulf Oil Disaster Stocks Way Oversold?

Goldman Sachs Daniel Boyd feels the market sell down for offshore drillers is overdone.

Goldman:
Investor fears related to the six month moratorium on deepwater drilling in the US Gulf are overdone from a fundamental perspective, in our view as this represents just 3%-5% of annual revenues for the major companies. We ultimately expect the financial impact to be minimal (3%-7% of EPS in 2010 and we are slightly lowering our estimates to reflect this) and temporary given not only the importance of DW to US oil supply but that many of the rigs will move to international locations where there are current shortages.

They're approaching the trough valuations they hit when the world was ending in early 2009:

Here's a stock-by-stock breakdown of the price to book valuations:

Look for 2Q earnings as a positive catalyst:

With P/B and EV/GCI at “reasonable” trough levels, we recommend longer-term investors buy the group now though recognize that short-term investors might prefer to wait until either the oil spill is contained, which will give more confidence that the DW drilling ban will be lifted in six months, or 2Q results which we expect to confirm our view that global fundamentals will remain strong.

Mr. Boyd is also particularly bullish on another gulf disaster stock, outside of the drillers, Halliburton

(HAL)

We maintain our Buy rating on Halliburton. We think that the shares are now discounting trough assumptions given that it is trading at just an average historical multiple of the actual 1Q2010 trough in earnings.

Perhaps these are the smarter BP-disaster plays, the stocks which have fallen hard along with BP due to the gulf disaster, but aren't nearly as exposed to the ballooning potential liabilities.

From Vincent Fernando at The Business Insider

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Here Are 20 Signs That China Is Cornering The Global Oil Market

In response to the BP's Deepwater Horizon disaster, President Obama has launched a 6 month moratorium on new deepwater exploration contracts and other oil drilling restrictions.

But China isn't stopping. Just this month, state-owned Chinese companies have signed contracts worth over $50 billion in Canada, Brazil, Argentina, Iraq, Venezuela, and Nigeria.

Most deal include an export clause, locking down energy supplies for the growing Chinese economy. If America's demand ever increases, these deals would present a serious problem.

And Beijing has no qualms about offshore drilling.

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Clearly, OPEC Lost Control Of Oil In March

Non OPEC global oil supply increased in March and is now expected to average 51.53 million barrels per day (mb/d) for 2010, which is a 0.50 mb/d increase over 2009 according to Hellenic Shipping News (HSN). It is also an increase of 0.10 mb/d to the 2010 forecast from just a month ago.

HSN:
Russia supply in March marked a new post-Soviet record oil supply from Russia is expected to grow by 0.09 mb/d over 2009 to average 10.01 mb/d in 2010, representing an upward revision of 20 tb/d from recent evaluations. The healthy production figure in the first quarter, which came higher than previously expected, necessitated the upward revision. Russia oil production reached a new post Soviet record in March following strong production levels in January and February.

China supply to increase by 80 tb/d in 2010 China’s oil production is estimated to average 3.93 mb/d in 2010, an increase of 80 tb/d over the previous year and an upward revision of 40 tb/d from the previous month. The strong production figures from the first two months required the upward revision, which was the highest in the first quarter compared to other non-OPEC countries’ revisions.

Meanwhile, OPEC members continue to violate their group's production quota's and over produce. OPEC output rose 5.6% year over year in March to 29.2 mb/d. While OPEC says it would 'mull an output boost' at $100 oil, note they are already increasing output thanks to violations. So one has to wonder if $100 can even be reached, sustainably, despite some forecasts in the market.

OPEC's reference price for a basket of 12 crude oil types just dropped by $1.97 to $80.89 per barrel.

Reporter Vincent Fernando can be reached at The Business Insider


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Oil, Not China, Is The Real Destroyer Of America's Trade Balance

UBS's head of Asia-Pacific economics argues that the real global trade imbalance isn't U.S.-China, it is U.S.-oil. As shown below, current account surpluses from fuel exporting-nations have been a far larger driver of total global trade imbalances coming from emerging markets. China's current account surplus (in blue) has been large in recent years, as a percentage of the global economy, but it has been dwarfed by fuel exporters (in green):



Looking at the movements from the late 1990s through 2006, when the overall U.S. deficit worsened from 2 percent of GDP to nearly 7 percent of GDP at the trough, a full three percentage points of that adjustment came from other advanced economies and from fuel imports; only two percentage points came from China and other non-fuel emerging markets. And the recent drop in the U.S. deficit had almost nothing to do with China; again, it was oil prices and developed trade that explains the entire swing over the past 18 months.



Thus the U.S. could use a little less finger-pointing at China... and a lot less driving... if it really wants to correct its global trade imbalance.
This is a huge argument against U.S. trade protectionism since protectionism would miss the largest cause of America's trade deficit while only hurting U.S. export prospects by pissing off trade partners.


Reporter Vincent Fernando writes for The Business Insider


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OPEC Has Way Too Much Oil For 2010

According the Energy Information Administration's (EIA) latest energy outlook, while world energy consumption is expected to grow in 2010, it will only be adding 1.1 million barrels of consumption and will remain below its past peak consumption.
This tepid demand growth will butt against production increases for many non OPEC oil producers, which means that OPEC will be under substantial pressure to limit its output, and obviously will.

Yet this will require massive discipline for the member nations given that OPEC's surplus crude oil production capacity will actually rise in 2010, after a huge increase is surplus capacity during 2009. 2010 will see the worst OPEC overcapacity situation since 2002.....Let's go to the charts!.

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