The Unintended consequences of the BP Oil Disaster

[Magox]

http://preview.bloomberg.com/news/2010-06-...lling-spot.html

 

The oil market is signaling that prices have nowhere to go but up as the biggest spill in U.S. history curbs drilling and makes it more expensive to develop new fields.

 

Crude’s premium for delivery in eight years compared with today’s price rose 86 percent since the BP Plc-leased Deepwater Horizon rig in the Gulf of Mexico exploded April 20. Oil for December 2018 is $21 a barrel more than next month, compared with $11 before the disaster. More regulation may add $5 to the contracts in coming years, according to Deutsche Bank AG.

 

“The president said stop drilling, and now we are seeing the result,” said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. “Before all is said and done, we’re going to lose more rigs in the Gulf.”

 

A one-year worldwide delay in deepwater drilling may cut 500,000 barrels a day from 2013 supply, according to Sanford C. Bernstein analysts. While that’s less than 3 percent of daily U.S. consumption, it’s almost enough to fuel Argentina, Latin America’s third-biggest economy.

 

Yikes!!

[John Adams]

Doesn't affect me.

 

/murra

[ExiledInIllinois]

Doesn't affect me.

 

/murra

 

Tack me onto that. What should I be enraged about?

[IDBillzFan]

I learned something interesting (though probably obvious to many here) this weekend; Jindahl and company have been complaining about Obama's moratorium on drilling right now because the companies currently set up to drill of their shores won't simply wait until the moratorium is lifted before returning to the site. They'll actually close up shops and take their party outside the US, which not only would cost a few thousands more jobs to be lost down there, but it would take two or three years before the companies are ready to return.

[Magox]

I learned something interesting (though probably obvious to many here) this weekend; Jindahl and company have been complaining about Obama's moratorium on drilling right now because the companies currently set up to drill of their shores won't simply wait until the moratorium is lifted before returning to the site. They'll actually close up shops and take their party outside the US, which not only would cost a few thousands more jobs to be lost down there, but it would take two or three years before the companies are ready to return.

Exactly. There is a global shortage of rigs, so it's not as if those rigs that are to be lost will leave only during the period of the moratorium, those rigs will be leased out beyond that time period, and getting those rigs or any other rigs back will take some time. Basically when you step out of line, you go straight to the back.

 

At least the good news is that we will be importing more middle eastern oil and our trade deficit will get larger.

[IDBillzFan]

Exactly. There is a global shortage of rigs, so it's not as if those rigs that are to be lost will leave only during the period of the moratorium, those rigs will be leased out beyond that time period, and getting those rigs or any other rigs back will take some time. Basically when you step out of line, you go straight to the back.

 

At least the good news is that we will be importing more middle eastern oil and our trade deficit will get larger.

On the up side, the economy is strong is unemployment is on the way down, so we're poised to handle this.

[ExiledInIllinois]

I learned something interesting (though probably obvious to many here) this weekend; Jindahl and company have been complaining about Obama's moratorium on drilling right now because the companies currently set up to drill of their shores won't simply wait until the moratorium is lifted before returning to the site. They'll actually close up shops and take their party outside the US, which not only would cost a few thousands more jobs to be lost down there, but it would take two or three years before the companies are ready to return.

 

This is what I was afraid of...

[Dan]

I would hope everyone could see this for what it really is... the oil companies once again holding us hostage with fear of higher prices while the speculators get rich.

 

So, a worldwide ban takes less than 3% of the supply, but they have to raise prices nearly 100%? How does that figure?

 

They have extended for 6 months the moratorium on new permits for new wells. IMO, given the scope of this accident; I'd say that's completly prudent. Take some time and try to figure out how this mess happened and what should be done to prevent it in the future. But, I suppose we may have high gas priced in 2018, so we should say to hell with all that and just let the companies drill wherever and whenever they want with little concern for potential outcomes like this.

 

I have no problem with more drilling in the gulf, hell the place is a toxic dump.. who cares. But, this type of article is more of the same old same old of using the price of oil to hold the american public hostage and dictate legislation that grossly favors these few corporations.

[Steely Dan]

I'm amazed that people can speculate on oil contracts more than 8 years in the future.

 

I learned something interesting (though probably obvious to many here) this weekend; Jindahl and company have been complaining about Obama's moratorium on drilling right now because the companies currently set up to drill of their shores won't simply wait until the moratorium is lifted before returning to the site. They'll actually close up shops and take their party outside the US, which not only would cost a few thousands more jobs to be lost down there, but it would take two or three years before the companies are ready to return.

 

Linky

 

 

An array of potentially costly lawsuits are landing at BP's feet. One suit is filed in the name of Kimberly and Do Nguyen, who run a seafood business called The Shrimp Guy. It seeks damages on behalf of all Mississippi businesses engaged in "wholesale, retail and/or delivery" of seafood caught in the Gulf of Mexico, accusing BP of failure to "prevent or mitigate risk" of an oil spill.

 

In common with many similar lawsuits, the claim alleges that BP ignored evidence of a broken seal on its well, 50 miles off the US coast, and that it and Transocean were aware of failures in the power source of a blowout preventer that was supposed to seal the well in an emergency.

 

A class action lawsuit on behalf of restaurant owners has been filed under the name of the Smiling Fish Cafe, known for its locally caught seafood, in Santa Rosa Beach, Florida. It says pollution has made produce costlier and harder to come by, and tourism is under threat. "May is the beginning of the summer season, when visitors and locals alike flock to Florida's coastal seafood restaurants to enjoy the sea's bounty," it says.

The Sprinkle Net Shop, which sells and repairs equipment used by fishermen in Mobile county, Alabama, claims its business and thousands like it have been hit by BP's "negligence". And a trio of Mississippi businessmen say their recently completed 16-room luxury fishing lodge, intended for upscale tourists, has been rendered "practically worthless" by the spill.

 

Mark Lanier, a Houston-based lawyer for one group of plaintiffs, said the litigation against BP would make the 1989 Exxon Valdez oil spill in Alaska look like "an oil leak in a car".

 

"Honestly, this is a monstrosity, it's a tragedy," he told Texas Lawyer magazine. He said it might become the biggest legal battle in US history. "This is going to be, in my estimation, the largest tort we've had in this country."

 

There are a lot more jobs than just those mentioned that are outside the oil industry that are being affected as well. To criticize the administration for putting the brakes on in order to review how the possibility of something like this happening again is minimized is just silly. Anyone who believes that industries are capable of policing themselves is just a shill for those industries.

 

I can't believe that before an oil rig's construction was approved that a plan to deal with this type of thing didn't have to be put into place. It's like nobody ever even thought about something like this happening. I'm positive that the industry lobbyists all made sure that getting an oil rig approved didn't include such "costly" measures.

 

In the meantime 12,000 to 19,000 barrels of oil a day are gushing into the gulf with almost no end in sight. At least one new plume was discovered recently and God knows if there are any more out there. This is the worst environmental disaster in US history and all some people can think about is the poor oil drilling companies?! If the industry had anticipated something like this happening I'm sure a much better plan than "we'll make it up as we go along" would be in place.

 

I want oil rigs back ASAP and continuing to drill but I want it done with tighter restrictions for dealing with things like this.

 

Anyway, Obama is pushing to get the rigs re-opened soon. WSJ

 

Obama to Reopen Oil Drilling

New Rules on Shallow-Water Exploration Expected as Economic Woes Mount

By LAURA MECKLER And JONATHAN WEISMAN

WASHINGTON—The Obama administration, facing rising anger on the Gulf Coast over the loss of jobs and income from a drilling moratorium, said Monday that it would move quickly to release new safety requirements that would allow the reopening of offshore oil and gas exploration in shallow waters.

 

Gulf Coast residents, political leaders and industry officials said delays in releasing the new rules, along with the administration's six-month halt on deepwater drilling—both issued amid public pressure—threatened thousands of jobs.

 

Well-owner BP PLC, meanwhile, faces penalties "in the many billions of dollars," for the Deepwater Horizon drilling disaster that has been spewing an estimated minimum 12,000 to 19,000 barrels of oil a day into the Gulf, said White House Press Secretary Robert Gibbs. The costs of the spill will "greatly exceed" the amount BP could recoup by selling any of the captured oil on the market, he said Monday.

 

Retired U.S. Coast Guard Admiral Thad Allen, who heads the federal response, said BP's latest emergency containment system is on track to capture as much as 15,000 barrels of oil per day, which is the maximum amount of oil the drill ship on the surface can process. BP's latest update on the rate of recovery late Monday implies that the containment procedure is approaching that limit. Any leakage beyond 15,000 barrels per day will continue to go into the sea until a second ship arrives, likely in mid-June.

 

The oil industry is awaiting new safety regulations from the Interior Department's Minerals Management Service, which canceled some offshore drilling permits last week and has had others on hold since early May. Administration officials say new rules for shallow water oil and gas drilling could be released as soon as Tuesday.

 

If BP had a plan in place to deal with this and hadn't been in such a hurry to get the rig pumping this wouldn't be at the level of damage it's at. The Whitehouse is dealing with a problem caused by BP. How anyone can blame them for much is beyond me. Evidently prior administrations (That includes Democrats) were too short sighted and/or pressured to believe that something like this will never happen. Taking a little time to re-evaluate the processes is just smart. JMO

 

The oil going into the gulf from this well isn't, in my estimation, going to be completely stopped until sometime in December.

 

I would hope everyone could see this for what it really is... the oil companies once again holding us hostage with fear of higher prices while the speculators get rich.

 

So, a worldwide ban takes less than 3% of the supply, but they have to raise prices nearly 100%? How does that figure?

 

They have extended for 6 months the moratorium on new permits for new wells. IMO, given the scope of this accident; I'd say that's completly prudent. Take some time and try to figure out how this mess happened and what should be done to prevent it in the future. But, I suppose we may have high gas priced in 2018, so we should say to hell with all that and just let the companies drill wherever and whenever they want with little concern for potential outcomes like this.

 

I have no problem with more drilling in the gulf, hell the place is a toxic dump.. who cares. But, this type of article is more of the same old same old of using the price of oil to hold the american public hostage and dictate legislation that grossly favors these few corporations.

 

 

 

BTW, can some of those who are more educated about futures contracts answer me a question please? Is it that the 2018 contracts are merely speculations and have no bearing on what the actual price will be in 2018, or is it written in stone. Are we talking about speculators losing their shirts if the price of a barrel of oil goes down or definite profits? Thanks

[whateverdude]

I'm amazed that people can speculate on oil contracts more than 8 years in the future.

 

 

 

Linky

 

 

An array of potentially costly lawsuits are landing at BP's feet. One suit is filed in the name of Kimberly and Do Nguyen, who run a seafood business called The Shrimp Guy. It seeks damages on behalf of all Mississippi businesses engaged in "wholesale, retail and/or delivery" of seafood caught in the Gulf of Mexico, accusing BP of failure to "prevent or mitigate risk" of an oil spill.

 

In common with many similar lawsuits, the claim alleges that BP ignored evidence of a broken seal on its well, 50 miles off the US coast, and that it and Transocean were aware of failures in the power source of a blowout preventer that was supposed to seal the well in an emergency.

 

A class action lawsuit on behalf of restaurant owners has been filed under the name of the Smiling Fish Cafe, known for its locally caught seafood, in Santa Rosa Beach, Florida. It says pollution has made produce costlier and harder to come by, and tourism is under threat. "May is the beginning of the summer season, when visitors and locals alike flock to Florida's coastal seafood restaurants to enjoy the sea's bounty," it says.

The Sprinkle Net Shop, which sells and repairs equipment used by fishermen in Mobile county, Alabama, claims its business and thousands like it have been hit by BP's "negligence". And a trio of Mississippi businessmen say their recently completed 16-room luxury fishing lodge, intended for upscale tourists, has been rendered "practically worthless" by the spill.

 

Mark Lanier, a Houston-based lawyer for one group of plaintiffs, said the litigation against BP would make the 1989 Exxon Valdez oil spill in Alaska look like "an oil leak in a car".

 

"Honestly, this is a monstrosity, it's a tragedy," he told Texas Lawyer magazine. He said it might become the biggest legal battle in US history. "This is going to be, in my estimation, the largest tort we've had in this country."

 

There are a lot more jobs than just those mentioned that are outside the oil industry that are being affected as well. To criticize the administration for putting the brakes on in order to review how the possibility of something like this happening again is minimized is just silly. Anyone who believes that industries are capable of policing themselves is just a shill for those industries.

 

I can't believe that before an oil rig's construction was approved that a plan to deal with this type of thing didn't have to be put into place. It's like nobody ever even thought about something like this happening. I'm positive that the industry lobbyists all made sure that getting an oil rig approved didn't include such "costly" measures.

 

In the meantime 12,000 to 19,000 barrels of oil a day are gushing into the gulf with almost no end in sight. At least one new plume was discovered recently and God knows if there are any more out there. This is the worst environmental disaster in US history and all some people can think about is the poor oil drilling companies?! If the industry had anticipated something like this happening I'm sure a much better plan than "we'll make it up as we go along" would be in place.

 

I want oil rigs back ASAP and continuing to drill but I want it done with tighter restrictions for dealing with things like this.

 

Anyway, Obama is pushing to get the rigs re-opened soon. WSJ

 

Obama to Reopen Oil Drilling

New Rules on Shallow-Water Exploration Expected as Economic Woes Mount

By LAURA MECKLER And JONATHAN WEISMAN

WASHINGTON—The Obama administration, facing rising anger on the Gulf Coast over the loss of jobs and income from a drilling moratorium, said Monday that it would move quickly to release new safety requirements that would allow the reopening of offshore oil and gas exploration in shallow waters.

 

Gulf Coast residents, political leaders and industry officials said delays in releasing the new rules, along with the administration's six-month halt on deepwater drilling—both issued amid public pressure—threatened thousands of jobs.

 

Well-owner BP PLC, meanwhile, faces penalties "in the many billions of dollars," for the Deepwater Horizon drilling disaster that has been spewing an estimated minimum 12,000 to 19,000 barrels of oil a day into the Gulf, said White House Press Secretary Robert Gibbs. The costs of the spill will "greatly exceed" the amount BP could recoup by selling any of the captured oil on the market, he said Monday.

 

Retired U.S. Coast Guard Admiral Thad Allen, who heads the federal response, said BP's latest emergency containment system is on track to capture as much as 15,000 barrels of oil per day, which is the maximum amount of oil the drill ship on the surface can process. BP's latest update on the rate of recovery late Monday implies that the containment procedure is approaching that limit. Any leakage beyond 15,000 barrels per day will continue to go into the sea until a second ship arrives, likely in mid-June.

 

The oil industry is awaiting new safety regulations from the Interior Department's Minerals Management Service, which canceled some offshore drilling permits last week and has had others on hold since early May. Administration officials say new rules for shallow water oil and gas drilling could be released as soon as Tuesday.

 

If BP had a plan in place to deal with this and hadn't been in such a hurry to get the rig pumping this wouldn't be at the level of damage it's at. The Whitehouse is dealing with a problem caused by BP. How anyone can blame them for much is beyond me. Evidently prior administrations (That includes Democrats) were too short sighted and/or pressured to believe that something like this will never happen. Taking a little time to re-evaluate the processes is just smart. JMO

 

The oil going into the gulf from this well isn't, in my estimation, going to be completely stopped until sometime in December.

 

 

 

 

 

BTW, can some of those who are more educated about futures contracts answer me a question please? Is it that the 2018 contracts are merely speculations and have no bearing on what the actual price will be in 2018, or is it written in stone. Are we talking about speculators losing their shirts if the price of a barrel of oil goes down or definite profits? Thanks

Market prices do not follow the laws of supply and demand they follow emotion, trends and crowd sentiment.

[Magox]

I'm amazed that people can speculate on oil contracts more than 8 years in the future.

 

BTW, can some of those who are more educated about futures contracts answer me a question please? Is it that the 2018 contracts are merely speculations and have no bearing on what the actual price will be in 2018, or is it written in stone. Are we talking about speculators losing their shirts if the price of a barrel of oil goes down or definite profits? Thanks

 

Speculation doesn't come just from investors, as a matter of fact, most of the contracts that are purchased come from those that process the crude into refined products such as gasoline and diesel. It's called hedging.

 

There is a report, called the Commitment of Traders Report, and there you can find lots of useful answers. In these answers you can find who is buying these contracts.

 

http://www.321energy.com/cots.php

 

So, the companies that process the crude, are anticipating higher input costs, stricter regulations, less rigs, and other points of data, and they are bidding the price up. Think about it for a second, if Hedgers (you know the one's that are going to be using the Crude) are bidding up the price, why would they be doing that? Why would they want to bid up the price of crude if they are the one's who have to use it?

 

I'll tell you the answer, it's not that they want to see higher crude prices, obviously they want them to be lower, but they are locking in these prices because they anticipate prices to go even higher, so if they lock in today at $90 a barrel for a 2018 futures contract, and 2018 comes around and the price happens to be $120, then they just saved themselves a crapload of money.

 

Now the one's who sell crude, could also hedge out as well. Except the difference is that they would be selling the crude and locking in gains going out to a 2018 futures contract lets say. If they thought that this price wasn't justified, I can assure you that the Oil companies would be selling heavily into the forward looking contracts, which would create a lot of selling pressure, which of course would put downward pressure on prices. So it's quite clear that the market, which are the hedging users and hedging sellers is signaling us that prices are going higher based on supportive fundamentals.

 

 

This also by the way, destroys Dan's off the cuff ignorant comment regarding the oil markets. The Speculators make up approximately about 15-20% of the total demand of both the shorts and longs in the Crude Oil Markets. Just so you guys know, the market will always eventually find it's real price, so if some "greedy, rich" speculator wants to buy a long and the fundamentals don't support higher prices, then at some point he will get burned for it. That's what makes a market, there are shorts and longs and the proper fundamentals always eventually forsee the correct price.

[Steely Dan]

Speculation doesn't come just from investors, as a matter of fact, most of the contracts that are purchased come from those that process the crude into refined products such as gasoline and diesel. It's called hedging.

 

There is a report, called the Commitment of Traders Report, and there you can find lots of useful answers. In these answers you can find who is buying these contracts.

 

http://www.321energy.com/cots.php

 

So, the companies that process the crude, are anticipating higher input costs, stricter regulations, less rigs, and other points of data, and they are bidding the price up. Think about it for a second, if Hedgers (you know the one's that are going to be using the Crude) are bidding up the price, why would they be doing that? Why would they want to bid up the price of crude if they are the one's who have to use it?

 

I'll tell you the answer, it's not that they want to see higher crude prices, obviously they want them to be lower, but they are locking in these prices because they anticipate prices to go even higher, so if they lock in today at $90 a barrel for a 2018 futures contract, and 2018 comes around and the price happens to be $120, then they just saved themselves a crapload of money.

 

Now the one's who sell crude, could also hedge out as well. Except the difference is that they would be selling the crude and locking in gains going out to a 2018 futures contract lets say. If they thought that this price wasn't justified, I can assure you that the Oil companies would be selling heavily into the forward looking contracts, which would create a lot of selling pressure, which of course would put downward pressure on prices. So it's quite clear that the market, which are the hedging users and hedging sellers is signaling us that prices are going higher based on supportive fundamentals.

 

 

This also by the way, destroys Dan's off the cuff ignorant comment regarding the oil markets. The Speculators make up approximately about 15-20% of the total demand of both the shorts and longs in the Crude Oil Markets. Just so you guys know, the market will always eventually find it's real price, so if some "greedy, rich" speculator wants to buy a long and the fundamentals don't support higher prices, then at some point he will get burned for it. That's what makes a market, there are shorts and longs and the proper fundamentals always eventually forsee the correct price.

 

Thanks for the link. Can you tell me how buying oil contracts led to four dollar a gallon gas?

[Magox]

Thanks for the link. Can you tell me how buying oil contracts led to four dollar a gallon gas?

Are you referring to 2008 or some other time?

 

Also, just the same as Crude, in the commitment of traders report you can see the demand picture for the Unleaded gasoline markets, and again just the same as crude, the hedging contracts make up the vast majority of the overall demand.

 

It's natural as the price of Crude goes up, then so do it's biproducts...

 

Sure, at times speculation can get rampant, and can add to the price of Crude and gasoline, but that only happens when prices are supportive of higher prices. Once the fundamentals don't support these higher prices, a correction WILL come about, prices will go down and those who bought those contracts chasing after higher prices WILL GET PUNISHED! So excessive speculation does occur at time, but it's usually very very short lived.

[Steely Dan]

Are you referring to 2008 or some other time?

 

Also, just the same as Crude, in the commitment of traders report you can see the demand picture for the Unleaded gasoline markets, and again just the same as crude, the hedging contracts make up the vast majority of the overall demand.

It's natural as the price of Crude goes up, then so do it's biproducts...

 

Sure, at times speculation can get rampant, and can add to the price of Crude and gasoline, but that only happens when prices are supportive of higher prices. Once the fundamentals don't support these higher prices, a correction WILL come about, prices will go down and those who bought those contracts chasing after higher prices WILL GET PUNISHED! So excessive speculation does occur at time, but it's usually very very short lived.

 

You said this above;

 

This also by the way, destroys Dan's off the cuff ignorant comment regarding the oil markets. The Speculators make up approximately about 15-20% of the total demand of both the shorts and longs in the Crude Oil Markets.

 

What am I missing?

[Magox]

What am I missing?

Apparently everything....

[Steely Dan]

Apparently everything....

 

So then I guess speculators make up 15-20% of the total demand and that means it's a vast majority?

[KD in CA]

So then I guess speculators make up 15-20% of the total demand and that means it's a vast majority?

 

Yes, because "hedging contracts" and "speculators" mean the exact same thing.

[Steely Dan]

Yes, because "hedging contracts" and "speculators" mean the exact same thing.

 

Speculation doesn't come just from investors, as a matter of fact, most of the contracts that are purchased come from those that process the crude into refined products such as gasoline and diesel. It's called hedging.

[Magox]

So then I guess speculators make up 15-20% of the total demand and that means it's a vast majority?

*sigh* Commercial hedging speculation is different than investment speculation.

 

Why would a gasoline refinery buy a 2018 Crude Futures contract? It's not that difficult, think about it for a second then get back to me.

[DC Tom]

I would hope everyone could see this for what it really is... the oil companies once again holding us hostage with fear of higher prices while the speculators get rich.

 

So, a worldwide ban takes less than 3% of the supply, but they have to raise prices nearly 100%? How does that figure?

 

Tight supply. If you can produce 100 widgets a day, and your demand is 80 a day, you can cut your production by 20% without an appreciable effect on widget prices. If demand is 98 a day, and you cut production to 97...now demand exceeds supply, and the price goes up - and probably goes up a lot, if the market for widgets resembles anything like an auction.