80+ oil is a lock this week.

[dumpster56]

The north slope oil fields in alaska are now off line. 400,000 barrels a day from BP is off due to a spill and corrosion of the pipeline. They have no idea when it will be running again. That equals over 8% of total american production.

With the mess in the ME I can tell you from what I have read and heard over the weekend watch the sorry oil traders on monday morning. Ouch fear will drive the oil price this week.

Look out!

 

[Mwsinron]

Didnt the fed guy just say to Congress America's oil production cant dent oil prices anymore. Will be interesting to see what happens this week.

 

[eridanus]

I am long oil as of about an hour ago.

 

[AltaRed]

Probably some speculative increases since Alaska oil is destined for the West Coast and there is no easy substitute except to send more tankers across the Pacific from the ME

 

[Brat]

There is a lot of product that comes out of the Huston channel, but most of it is additives. Jeesh!! The west coast processors are all geared for AK crude.

No need to concern ourselves about increasing the pressure in the pipeline. There won't be enough product.

 

[Nords]

Here's a Reuters link through Fidelity.

As of Sunday night:
"The outage, which will cut global daily oil output by about half a percent, sent U.S. crude oil futures 1.6 percent or $1.19 higher to $75.95 a barrel as dealers fear it will put more strain on a supply chain already working at near capacity.
BP said it shut down the pipeline on Sunday morning and had begun a phased shutdown of the Prudhoe Bay oil field after finding corrosion during an aggressive inspection programme that followed an unrelated 200,000-gallon spill discovered in March, the biggest ever recorded on the North Slope.
So far it has inspected 40 percent of its transit lines and is conducting speed inspections of the remainder, BP said."

"Speed inspections"-- I wish we had those in the military.

Anyway, bring it on. I've been looking for a buying opportunity and I was wondering if we'd have to wait until September.

 

[Leonidas]

Fascinating reading here: http://hsgac.senate.gov/_files/REPORTTheRoleofMarketSpeculationInRisingOilGasPrices.pdf

I'm only halfway through reading it and have to put it aside for now, but it says that supply is keeping up with consumption and the amount of oil and gas in storage is extremely high. Because of increased consumption outside the US and some past problems in the supply chain (Iraq off-line, hurricanes beating up Gulf Coast facilities, etc.) there is less cushion in case of shocks (like Iran going crazy and declaring an embargo - or a pipeline going offline). But that does not account for $75 or $80 a bbl. Enron-like speculation and manipulation is adding about $25 a bbl to the price. The Senate report says the speculators are making money hand over fist and there is currently no way to track or regulate how they are manipulating the market to do that.

With Prudhoe Bay going offline I bet these guys are dying to get their hands on their trading terminals so they can see just how high they can make it go.

 

[Brat]

Most folks don't know that crude has a lot of 'grit'. It will erode the inside of a pipe. The elements in crude can also interact with the pipe (like minerals in water can interact with the inside of water lines). The only maritime employee of ARCO who flew first class a pump man. Without him the ship might as well been a cruse ship.

My son once remarked that oil traders made a huge profit in spite of themselves (when oil was under $35).

 

[Evelyne]

Got this from The Seattle Times today Major Alaskan oil field shutting down :

http://seattletimes.nwsource.com/APWires/headlines/D8JBBDSG0.html

 

[Leonidas]

Most folks don't know that crude has a lot of 'grit'. It will erode the inside of a pipe. The elements in crude can also interact with the pipe (like minerals in water can interact with the inside of water lines). The only maritime employee of ARCO who flew first class a pump man. Without him the ship might as well been a cruse ship.

BIL is director of engineering for a company that makes undersea exploration equipment. He was telling me about a 2 year project to fix a screw up in one of their products that was causing a leak on the sea floor. It was caused by the fact that somebody had painted a surface that wasn't supposed to be painted and the product had scoured it off, causing a very tiny fraction of an inch gap inside the equipment. Something on the order of 1/64th of an inch or thinner.

My son once remarked that oil traders made a huge profit in spite of themselves (when oil was under $35).

Apparently they got smarter.

 

[dumpster56]

Whatever the situation I say we maybe looking at 90+ a barrel.

There will be a major recession, you think housing prices were sliding last week?

Just wait.

 

[JPatrick]

My money says $78 at the most this week.  Remember, this Alaska stuff will hurt some companies as it helps others.  If you are buying the crude be sure to look at the contracts a few months out to see what they are doing.  Not much is my early guess. If the Middle East takes an unexpected bad twist. (how many more can there be?) then we could exceed $78 this week.
Again, barring more MidEast trouble, I'm betting on a very nice drop in oil somewhere within the next 90 days.  Still high oil (meaning $50 plus) is here to stay so the oil service stocks continue to live at my house.

 

[Cut-Throat]

Whatever the situation I say we maybe looking at 90+ a barrel.

There will be a major recession, you think housing prices were sliding last week?

Just wait.

Ahhhh Oh Gaaaaaaa!

 

[Scrooge]

If the Middle East takes an unexpected bad twist. (how many more can there be?)

Never say never

 

[Nords]

Ahhhh Oh Gaaaaaaa!

Here, lemme get that for you:

 

[Brat]

I venture that all stops are out to repair the problem in AK.  Until that time we have a supply disruption starting two weeks out.  Crude from different fields has different chemical properties.  It isn't easy for refineries to turn on a dime to adjust to another source.  What this means is that some west coast refineries may go off-line.  

On the north west coast the major pipeline goes north-south, the ships go north-south.  I seem to recall talk of a pipeline across Panama but I don't know if it was in the planning stage or had been built.  There may also be a line from TX through AZ to SCAL.  Whatever its status I doubt if they has the capacity to make up this loss.  The resource options are: transport by ship through the canal, bring it around S. America or buy it from our Asian neighbors.  

There is always an inventory in a couple ships sitting off-shore waiting for a contract.  I am absolutely sure that bidding for that inventory has been hot.

We may be back to alternate day of the week fill-ups for a month.

[modified to add time line]

 

[Zathras]

If the Middle East takes an unexpected bad twist. (how many more can there be?)

I don't think there is such a thing as an unexpected bad twist in most people's mind. After all, would you really be surprised if Iran supplied a dirty bomb to hezbolla (sp?)? Or if Al-queda hit and disrupted oil in Saudi Arabia?

 

[JPatrick]

I don't think there is such a thing as an unexpected bad twist in most people's mind.  After all, would you really be surprised if Iran supplied a dirty bomb to hezbolla (sp?)?  Or if Al-queda hit and disrupted oil in Saudi Arabia?

All those events fall under the expected--only the time/date/faces/places remain to be seen.

 

[IHateCNBC]

What gets me is:

BP (British Petroleum) owns a pipeline that U.S. taxpayers dollars paid for.   

 

[MasterBlaster]

What gets me is:

BP (British Petroleum) owns a pipeline that U.S. taxpayers dollars paid for.

IHateCNBC:

For what it's worth.

The Alaska Pipeline website indicates that it was privately funded.

 

[frayne]

What gets me is:

BP (British Petroleum) owns a pipeline that U.S. taxpayers dollars paid for.   

Not even close. Privately owned and operated by a consortium of oil companies.

 

[Brat]

When BP bought ARCO it aquired some of ARCO's interest in AK, the rest were sold to Phillips (along with it's marine transportation division). 

Oil companies are global and they are all competiting for resources.  It is no accident that Russia effectively re-nationalized their oil companies. 

My mariner son commented that this incident will demonstrate the impact of sudden resource changes on the economy, and it doesn't take much of a change to hit hard. 

IMHO it will take at least 50 years to decrease oil's % of our energy source.  Brazil thought this through years ago but we will be pushed, kicking and screaming, by world events.

 

[brewer12345]

I'd guess the only reason oil hasn't spiked much higher is that the gummint will open the taps on the strategic petroleum reserve if this outage takes a long time to fix.

All we need know is a well-placed GOM hurricane...

 

[IHateCNBC]

Not even close.  Privately owned and operated by a consortium of oil companies.

Tax Break for 3 Oil Companies to Build an Alaskan Pipeline
Title VII, Section 706
Cost to Taxpayers: $150 million

Oil Company Tax Break
Title VII, Section 707
Cost to Taxpayers: $295 million

Tax Breaks for Oil Refiners
Title III, Subtitle C, Sections 328-329
Cost to Taxpayers: $119 million

Government Subsidizies
Title II, Subtitle A, Section 201
Cost to Taxpayers: $1.26 billion over 10 years

 

[AltaRed]

Tax Break for 3 Oil Companies to Build an Alaskan Pipeline
Title VII, Section 706
Cost to Taxpayers: $150 million

Oil Company Tax Break
Title VII, Section 707
Cost to Taxpayers: $295 million

Tax Breaks for Oil Refiners
Title III, Subtitle C, Sections 328-329
Cost to Taxpayers: $119 million

Government Subsidizies
Title II, Subtitle A, Section 201
Cost to Taxpayers: $1.26 billion over 10 years

Those are nothing but tax breaks on accelerated tax depreciation and lower capital taxes to ease the front end burden of the oil companies making the investments in Alyeska. The companies spent billions to build the line itself.

Don't mix tax breaks which are calculated based on standard tax code formulae, with the taxes themselves.  Had their been no capital investment, there never would have been any taxes paid.  Thus there is no "real" cost to the taxpayer, just a potential 'lost opportunity' cost. Those comments are nothing but spin by those in opposition.

Example (for illustration only - not factual):

Potential investment:  $2B
Standard tax code: $500M in taxes
As incentive for private industry to invest, tax breaks: $200M
Actual taxes paid: $300M

So....the odds are:  Do you want to get $300M in taxes paid? Or roll the dice and get greedy for $500M and possibly get $0?

That is how the tax system works everywhere when there is significant capital investment.

Disclosure:  I spent a career in project management of mega capital projects.