Written by Dave Cohen

Wednesday, 16 July 2008
It ain’t over ’til the fat lady sings
— anonymous

The fat lady is warming up
— anonymous

I now believe that the hypothesis of a near or medium-term peak in the world’s oil supply is confirmed beyond any reasonable doubt. A shift in emphasis that speaks to reducing our demand for oil and examining alternatives to oil is now required. I will be taking that road in the future, leaving specific concerns about the oil supply behind.

Today’s story briefly summarizes why I believe “peak oil” is a done deal. The forecast¹ below reflects my own view. This analysis does not necessarily reflect the view of ASPO-USA.

Global oil (crude + condensate) production will peak at 76.5 ± 0.5 million barrels per day (b/d) in 2011, ± 1 year, with a probability of 80%. There is a 20% likelihood that output will peak at another level—not 76-77 million b/d—between 2009 and 2013.

This estimate intentionally says nothing about the shape of the production curve after the peak. I stand by this forecast and will not be revising it in the future. A “peak oil” forecast examines the supply-side of the oil market, but reality dictates that high prices will affect demand. My estimate can thus be viewed as a “low price” or “reference” case that ignores the effects of rising prices. See the Summary for a brief discussion.

Saudi Aramco Update

Business Week published Saudi Oil: A Crude Awakening on Supply? on July 10, 2008. Steve LeVine’s story should leave us with no doubt about what to expect from the Kingdom in coming years. Mysteriously, this story was not Front Page News in every media outlet all over the world.

Business Week received a  “detailed document obtained from a person with access to Saudi oil officials.” The new information simply confirms what I already knew, but independent confirmation helps us reach firm conclusions. PFC’s Roger Diwan, a respected oil analyst, vetted the Business Week document.

The data describes Saudi maximum sustainable capacity (table above). Capacity remains around 12 million barrels per day (b/d) for the next 5 years. An important shift occurs which should give us all pause.

One dramatic part of the data concerns a site called Ghawar, which has been the kingdom’s workhorse field for decades. It shows the field producing 5.4 million barrels a day next year, but the volume then falling off rapidly, to 4.475 million daily barrels in 2013. “That’s why Khurais is so important—to make up for that decrease,” said the oil industry executive who released the data.

The long anticipated decline (”twilight”) of Ghawar, the world’s largest oil field, is reflected in the Saudi Light data (blue circle). If these numbers are accurate, Ghawar output declines 17% between 2009 and 2013. This works out to about 4%/year for each of the next 5 years. Production of “good oil”—not Manifa heavy sour oil (gray circle)—to offset these declines is supposed to come from Shaybah.

Though 2014 is not included in the data, one of the fields listed—Shaybah—is to have a volume increase to 1 million barrels a day that year, from 750,000 barrels a day from 2009 to 2013, according to the oil executive.

Simple arithmetic tells us that additions from Shaybah after 2013 will not offset Ghawar declines for more than one year. Business Week’s source indicates that 10.4 million b/d is Saudi Arabia’s maximum sustainable production level between 2009-2013.  This number confirms what I wrote in The Saudis Are Blowing Smoke Again (ASPO-USA, March 12, 2008). Whether the Kingdom will actually produce at their maximum sustainable capacity is another question. See Sleepwalking Toward the Oil Precipice to learn about setting correct expectations about OPEC production in the coming decade (ASPO-USA, April 30, 2008). This passage is from Blowing Smoke—

Khurais and Manifa are very likely the last large (≅ 1 million b/d) increments that Saudi Arabia will be able to put on-stream—ever.  A “paradigm shift” means the Kingdom is not going to knock itself out raising crude oil production to (best case) levels beyond 10.5 million b/d in the medium term out to 2012 or so, and will likely not be able to do so thereafter—Ghawar will not last forever, despite what Mr. al-Naimi or CERA think. Investment in additional capacity available after 2011 would have to be on the drawing board now, but there is no indication that Saudi Arabia has thought that far ahead.

[I should add now that Khurais and Manifa must meet capacity expectations for the Business Week scenario to come true. Also, most Manifa oil will likely be refined in Saudi Arabia, not exported. The Saudis will export refined products beyond what they use themselves.]

The Saudi peak is now in sight. Saudi Arabia is the only OPEC member that can raise production by any significant amount in the medium-term to 2013. The longstanding argument about the Saudis is over.

The Non-OPEC Peak Is Assured

Oil supply growth outside of OPEC has slowed considerably in recent years despite a long list of new projects. Unfortunately, the amount of new oil coming on-stream looks better on paper than it does in actuality.

In February of this year, the EIA released its Outlook For Non-OPEC Oil Supply Growth in 2008-2009. The forecast boldly stated that the oil supply coming from outside the OPEC cartel would be 2.4 million b/d. The EIA has now revised their forecast as shown below (STEO, June 8, 2008). The revised numbers are shown in red.

In my now inaptly titled These Are The Good Years, I shaved 1 million b/d off the EIA’s numbers (ASPO-USA, February 20. 2008). Even this downward revision was insufficient. The EIA now puts growth at 1.06 million b/d for both years combined. Apparently I was overly impressed with paper barrels. It is not a mistake I intend to repeat. Predictably, the EIA has pushed most of the growth into next year. They are still playing the pollyanna game.

In my Good Years column, I reviewed all the reasons why the EIA and other analysts have been overly optimistic about non-OPEC output. Delays are one factor, but the main reason for lowering forecasts is the overall non-OPEC production decline rate, and underlying rates for particular countries like Brazil or Norway. Now comes news that the International Energy Agency (IEA) has recalculated the global decline rate.

Project delays averaging 12 months, coupled with global average decline of 5.2% - up from 4% last year – are the factors behind these revisions. Over 3.5 mb/d of new production will be needed each year just to hold global production steady. “Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream — to assure that the market is adequately supplied,” stated [Nobuo Tanaka, IEA Executive Director].

It is crucial to understand that the decline rate outside of OPEC is higher than that within the cartel because non-OPEC oil includes the United States, the North Sea, Mexico, and other countries on the downslope of their production curves.  Thus, the IEA revision can only mean one thing: non-OPEC declines are accelerating. This is the main reason behind the EIA revision.

I am now going to switch gears and look at some data from the IEA’s 2008 medium-term report covering the years 2008-2013.

You can plainly see in the IEA’s data why I called my review of the EIA’s forecast These Are The Good Years (click to enlarge, look left). The data also reflect the peak of Russian oil production, for no “key non-OPEC increment” is listed for the world’s largest producer outside Saudi Arabia. I also believe the addition from the Canadian tar sands (ASPO-USA, January 2, 200 has been overstated—it is the largest addition! A significant part of Brazil’s large contribution comes from increased sugarcane ethanol production.

I am going to revise the IEA’s forecast. First, I’m going to toss out their prediction for 2013. If we can’t estimate next year’s non-OPEC additions, how can we make a specific forecast for 5 years from now? Taking a closer look at the data, we see that OECD declines are minimal in 2009 and 2013. The 2009 estimate is understandable in light of the fact that both Atlantis and Thunder Horse are now on-stream in the Gulf of Mexico. Both fields will hit their maximum capacity (450,000 b/d combined) later this year or next year.

The 2013 estimate can not be trusted, however. Even if there are scheduled additions in the Gulf of Mexico in that year that compensate for OECD declines, we should keep in mind that both Atlantis and Thunder Horse were subject to 3-year delays beyond their initial start-up dates. The 2013 addition is suspect, and does not affect my peak estimate in any case.

Second, I am talking about crude + condensate, so I will toss out the ethanol, natural gas liquids (NGL) and refinery processing gains included by the IEA.

After revisions, I believe the net addition is approximately 500,000 b/d for the medium-term. If 2008-2009 are not the good years, and apparently they are not, then no amount of highly profitable light sweet crude from places like Ghana will save us. The non-OPEC crude + condensate peak in 2010 is all but assured.

The Rest of OPEC

We have figured out what to expect from the non-OPEC countries, and we know what to expect from Saudi Arabia. It is now a simple matter to figure out what the contribution from the rest of OPEC will be, add up all the increments, and make our “peak oil” prediction.

The next graphic shows the IEA’s take on OPEC growth in the medium-term (below, click to enlarge).

The IEA’s data shows that OPEC capacity rises 2.5 million b/d in 2008-2013, but we must revise that number based on the new Saudi data. In its June Oil Market Report, the IEA puts Saudi capacity at 10.65 million b/d. If we add 1.78 million b/d to this number (graph above), we get 12.43 million b/d. But we know that Saudi capacity never exceeds 12 million b/d in the medium-term, so the IEA has overstated that capacity addition by 0.43 million b/d. If the total OPEC addition is 2.5 million b/d, then the revised number is now 2.07 million b/d and the Saudi addition is 1.35 million b/d.

Regardless of the Saudi contribution, the “rest of OPEC” contributes 0.72 million b/d of new production capacity in 2008-2013. In the IEA’s pie chart (graph above, right), the numbers do not add up to the supposed total addition of 2.5 million b/d. This “miscalculation” is understandable in view of the impossibility of assessing future additions from Iraq or Nigeria.

Now is not the time to get into a heated argument about whether “peace will break out” in Iraq or Nigeria allowing some production increases. I am going to accept the IEA’s number of an addition of 0.72 million b/d outside of Saudi Arabia.

In Summary…

I am now in a position to add up the production numbers arrived at above, but first I need to establish a baseline. I will use the EIA’s data (here and here) for May, 2008. The EIA’s 4-month average for 2008 is 74.325 million b/d. Saudi production in May was 9.4 million b/d, up 300,000 b/d from April. I will add those barrels to the 4-month average to obtain a baseline of 74.625 million b/d.

We can now add our additions to the baseline. The non-OPEC increment is 0.5 million b/d, the Saudi increment is 1 million b/d, and the rest of OPEC increment is 0.72 million b/d. Together, these yield 2.22 million b/d. Adding this to the baseline, we get 76.845 million b/d. If you look back at both of the IEA charts, you will see that OPEC capacity additions fall off considerably in 2011, while non-OPEC additions drop after 2009. My view is that after 2011, we will never surpass production levels achieved that year.

The oil price is rising quickly. The higher prices preceding the peak are now dampening demand in the United States and elsewhere in the OECD. However, subsidized consumption growth outside the OECD (China, etc.) is still soaking up demand reductions elsewhere. I can not predict future oil prices with any certainty, and I can not predict future oil demand with any certainty, although I have discussed these subjects at length in other columns.

Obviously, I can not predict the exact shape of the world oil production curve in the next 5 years. What I can do, however, is establish a ceiling for world oil production should demand remain strong going forward. That ceiling, now and forever, is likely to occur in 2011 somewhere between 76 and 77 million b/d.

We are so close to the peak now that quibbles about the numbers cited here do not matter. My familiarity with the oil industry justifies many of the “hidden assumptions” I’ve made and did not have time to discuss. If you remain unconvinced that a peak of world crude oil production is not almost upon us, nothing I could say further will persuade you in any case.

As I said at the top, this is my official forecast and I will not revise it in the future. I will note for the historical record that in July of 2008 few Americans have come to grips with the implications of a permanent peak in the world’s oil supply despite the strong price signal we’ve seen for several years now. I have done all I could over the last few years to warn everyone about what’s coming. My conscience is clear even as my concern remains high.

For me, the time has come to examine measures we might take in the post-peak world.

Contact the author at dave.aspo@gmail.com

By Andre Angelantoni

This advertisement, sponsored by Shell and CNN’s Principal Voices Series, appeared in Time and Fortune over Easter and was written by Jeremy Leggett, the climate change and peak oil activist.

“The bad news is that no combination of technologies can plug the energy gap if the peakists are correct. There will be a third, and last, global energy crisis. It will dwarf previous crises. Profound economic dislocation will result. The challenge for human civilization will be how we rebuild post-peak.”

It would seem so, given the CEO’s comments at the World Economic Forum in Davos earlier this year:

http://indpress.wordpress.com/2008/02/05/shell-ceo-admits-peak-oil-could-be-here-in-7-years

“Regardless of which route we choose, the world’s current predicament limits our maneuvering room. We are experiencing a step-change in the growth rate of energy demand due to population growth and economic development, and Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand.”

He went on to criticize the sluggish response by policymakers to the coming energy crisis:

“Taking the path of least resistance, policymakers pay little attention to curbing energy consumption - until supplies run short. Likewise, despite much rhetoric, greenhouse gas emissions are not seriously addressed until major shocks trigger political reactions. Since these responses are overdue, they are severe and lead to energy price spikes and volatility.”

The effects of peaking are going to be felt long before 2015 (they’ve already begun) and if you wait to prepare, you will not have the options you do now.

If you aren’t preparing for peak oil, what’s stopping you?

Guest Essay by Ron Cooke, author of “Oil, Jihad and Destiny” and “Detensive Nation”

Does Iraq have anything to do with the price of gasoline? Diesel fuel? Heating oil? Propane? Let’s examine what Hillary and Barack don’t want you to know and John is reluctant to reveal.

Let’s start with a statistic. At least 42 percent of the accessible conventional oil we humans need is located in one relatively small region on our planet. The Middle East. And the people who run this region do not seem to be in any hurry to send it our way. Get used to it. These people will produce their oil on their schedule. They are not going to produce their oil on our schedule. Existing drilling programs guarantee demand will exceed supply. Sometime between 2010 and 2017. Perhaps sooner. And they really don’t care if we do not like the price of gasoline.

Get the picture?

Let’s digress for a moment.

Natural gas. Heat in winter. Fertilizers to grow food. Electricity. Do you think heat and food and electricity are important?

Approximately 40 percent of the world’s known accessible natural gas is in the Middle East. The big players are Iran (38% of identified Middle Eastern natural gas) and Qatar (34% of identified Middle Eastern natural gas). The other big player in the world market is Russia with over 70 percent of the accessible EurAsian natural gas. In fact, between them, Russia and Iran control over 41% of the world’s known reserves of accessible natural gas. These people have made it very clear. They will produce their natural gas on their schedule. They are not going to produce their natural gas on our schedule. If we do not like the price we have to pay for natural gas – too bad!

Do you believe Putin really cares how cold it gets in European homes?

Reality check

Every nation needs a stable supply of oil and natural gas. Most nations want to increase their consumption of these fuels in order to grow their economies. Germany. France. England. America. Australia. Japan. China. India. We are competing for the same barrel of oil or cubic foot of natural gas. That is reality. As a result, we are in the midst of a brutal international competition for commodities that can not be easily replaced from available resources. That means higher prices for every fuel you purchase: gasoline, diesel, propane, kerosene, heating oil, propane, and natural gas. Ever higher prices will drive weaker buyers out of the market. Low income consumers will drive less or not at all. They will be cold in the winter. This is not some dreary prediction of the future. It is already happening!

Has Barack Obama been willing to discuss these issues? Why not?

Motivation.

Putin – the guy who runs Russia – wants to restore Russia’s position as a world military and economic power. He is using Russia’s oil and natural gas reserves as a tool to achieve his goals. He has already told the European Union – we have natural gas - and you don’t. So. If you want our natural gas, then support the Russian political agenda. That little reality is altering the international geopolitical balance of power. Putin is also courting Iran. Being very nice. Why? Because between them, Russia and Iran control a big chunk of the world’s oil and natural gas production.

Should we be concerned about Iran? Shia Iran. Muslim theology. The church is the state. And vice versa. Spiritual and political power are inseparable. Iran’s leaders have a vision. Shia Iraq marching in lockstep with Shia Iran. Backed by guns and money. Iran would like to control the Middle East. And its oil. And its natural gas.

Will you hear this from Hillary Clinton? No. She doesn’t want you to know.

China is being nice to Iran and Iraq. Why? China needs copious quantities of oil and natural gas to support its economic growth. China envisions itself as a world power. That adds to China’s thirst for fossil fuels. If China’s growth falters, there will be internal rebellion. So China is – and has to be - a very assertive consumer in world oil and natural gas markets. The Middle East is an obvious target for China’s aggressive diplomatic and military agenda. China has already signed agreements to acquire large quantities of Iranian oil. China is squabbling with Japan over access to Russian natural gas.

The European Union does not have enough oil or natural gas. It must acquire a growing percentage of its oil from the Middle East. Russia, Iran and Qatar are resources for natural gas. Iran, Iraq, Kuwait and Saudi Arabia are primary resources for oil. The EU can not survive unless it has strong consumer relationships with Russia and the nations of the Middle East. That reality is having a seminal impact on the EU’s diplomatic options.

The United States does not have enough oil or natural gas. Imports account for a growing percentage of the fuels we use each year. Although the United States has diversified its oil imports away from the Middle East, a growing percentage of future imports will have to come from this region. Like the European Union, the United States needs closer ties with Russia and the Middle East. That little reality has been ignored by all three candidates for President.

Consumer nations are in a precarious position. We are competing for the same reserves of oil and natural gas.

Shouldn’t we be hearing this news from John McCain? Why is he silent?

Iraq

Now. What happens if the United States fails to control the outcome in Iraq? We seem all too anxious to ignore the consequences. When we invaded Iraq, we took on a moral obligation to keep the peace as best we can while the people of Iraq develop the institutions they needs for self-governance. The military personnel who went into Iraq from multiple nations recognized that challenge from the start. Fashioning a working government out of the ashes of a fallen dictatorship would take courage, willpower and patience.

Both Hillary and Barack have suggested America walk away from Iraq. Bring the troops home. Give up. But - what happens next? Chaos. Civil war that leaves many thousands dead. As we have already witnessed, it will be Shia against Shia. Shia against Sunni. Shia Iran will link up with Iraq’s Shia population. Iran has enough military power to dominate Iraq and its vast reserves of conventional oil. It is only a matter of time before an Iran led coalition sweeps into the oil fields of Kuwait. Between them, Russia and Iran will then control over 41% of the world’s known accessible natural gas and over 29% of the world’s known accessible conventional oil. Can you guess what would happen to the price and availability of oil and natural gas? Would Iran be tempted to sweep on through the oil and natural gas fields of the Persian Gulf? The Russian Iranian coalition would then control 55% of our planet’s identified natural gas and 40% of its identified accessible conventional oil.

Will China send an army of 500,000 men into the Middle East to defend its interests? Neither NATO nor the United States have the military resources, or the fuel, to block the resulting military chaos and carnage. And we can expect Russia to warn the EU: don’t mess with the Middle East or we will shut off your natural gas.

Brutal. Isn’t it. Reality.

Fuel shortages are highly likely if war disrupts Middle Eastern production. That means long lines at the gas pump. You can expect to pay a lot more for natural gas, gasoline, diesel, propane, kerosene and heating oil fuels. And you will pay more for electricity. Expect to be colder in the winter and hotter in the summer. The price of everything you buy will go up. And you may be unemployed.

Yes. I know. This is a terribly pessimistic scenario. And none of the alternatives are much good either. And we can whine forever about how we got into this mess. But here we are. What do we do next? We need truth. A reality check. A frank discussion of our situation.

Will they evade these issues?

Probably. This is bad news and politicians do not like to talk about bad news. It makes voters nervous. Then they ask questions like: Why did you let this happen to us?

Our intellectual leaders are terribly misguided, be they from Europe, Australia, New Zealand, the United States or elsewhere on our planet. Members of the international elitist political clique are especially clueless. They worship the theology of misguided beliefs. Truth does not matter. Facts do not matter. Rational thought is rejected. Smug insider conviction rules.

Get out of Iraq. Ignore the consequences. Blame the Bush Administration, Republicans, Conservatives, America, corporations, and the rich (which pretty much means anyone who actually works for a living). Ignore oil depletion. It does not exist. Stop building coal power plants (except in China). Our reserves of natural gas will last forever. Shortages are a greedy corporate conspiracy. Ignore the reality of a resurgent Russia and a bellicose Iran. Placate Islamic extremists. Ignore the cultural changes now happening within the Muslim world. The list of obtuse intellectual reasoning goes on and on.

Hillary is singing the hymns of this philosophy because it is politically correct to do so. Barack has decided it is politically expedient to dodge these issues. And John dare not tell us the truth, least he be castrated by the media.

If you have read this far, you are probably very upset. These are unpopular concepts. But our political leaders appear to be reluctant to even discuss the consequences of our actions in the Middle East. That failure is incredibly irresponsible. We must work together. We must control the outcome. Because if we fail, we risk economic destitution and human carnage on a scale greater than we humans have ever experienced.

Let’s all ask Hillary, Barack and John to tell us how they plan to deal with the issues raised by this little essay.

Ron

PS: What would I do? My recommendations are outlined in two books – “Oil, Jihad and Destiny” which provides a detailed discussion of oil and energy, and “Detensive Nation”, a book that describes the kind of government we will need to deal with the challenges that lie ahead. Both books are available at Amazon. I place an emphasis on a realistic assessment of our options and a robust program of international cooperation.

Isn’t that better than killing each other to control our planet’s remaining oil and natural gas?

Guest Post by Andre Angelantoni

My peak oil interview is now up on Living Green.

In it, I discuss:
* when peak oil is likely to occur
* what specifically people should do to prepare
* what I’m calling “The New Game for Humanity”
* the role business can play in a post-peak economy
* the Relocalize and Transition Towns Movements
* and more…

You’ll find the interview at http://www.livinggreenshow.com. Scroll down until you see “Latest Podcast Episodes” and click on Listen Now beside #32.

The only thing I would change is that at one point I say that oil is running out, which technically is true (that started the day we began to use it) but the more important concept is that production is about to decline. Oh, well.

I hope you get value out of the podcast.

-Andre’
——————————

Guest Post By Andre Angelantoni

In a wide-ranging speech on March 13, 2008, James Schlesinger starts out with:

“We face a challenge, an immense challenge, both foreign and domestic.

The question is our ability to respond effectively to that challenge and that remains a bit problematic. In his study of history, a 12-volume study of history, Arnold Toynbee examined I think it was 27 civilizations and why some of them had failed, why they had collapsed and it was in response to a challenge that they could not handle, some specific challenge. And a question about which we might brood is whether the combination of energy and environmental challenges will be ones that we can handle, handle with severe damage or fail to handle.”
— James Schlesinger’s Speech at The National Academies Summit on America’s Energy Future - The Geopolitical Context of America’s Energy Future; Day 1, Part 3, March 13, 2008

He later points out:

“The National Petroleum Council, in its recent study…said that we will not be able to produce any more conventional oil after 2022, 2023, some 15 years out. Unlike the peakists, they do not attribute this to the limitation on resource but they attribute it to the limitation on access. But whatever the reason, bear in mind, we face a painful transition to the future in which we hit a limitation, a plateau as you were in the ability to produce crude oil and we might begin effectively to start making adjustments to that transition now rather than later.
Think of it in the large. We are producing 86 million barrels a day. We have a present decline curve of 5 per cent, 4.5 per cent. If you look out to 2030 and if you assume, as the EIA does, that conventional oil will rise to about 105 million barrels a day, that means that we must find or develop, given the decline curve and the higher aspirations, the equivalent of nine Saudi Arabias. I think the probability of being that successful is very low.”

I recommend that everyone listen to the whole speech (45 min).

Also, see an excellent 10-minute clip of Sadad Al-Husseini, former VP Exploration of Saudi Aramco discuss oil yesterday on CNBC.

At around 5:50:
Husseini: “Conservation is probably the best solution in the short term.”
CNBC: “Kind of hard to get there though before prices get to an elevated level where there is a motive, correct?”
Husseni: “There should be a motive right now and if it’s not being felt yet, it will be felt probably soon, in the summer or later in the year.”

Sadad Al Husseni on CNBC Video

Finally, Russia has begun its decline:

“Now we’re saying the production rate is falling this year. This is not a bogeyman, unfortunately, this is real,” says Yuri Trutnev, Russia’s Natural Resources Minister.

As shown on Weekly chart on the right side of the diagram, oil continued trending upward in the first week of March, surging to an all time high of $106.54 - breaking the upper trend line from May 2006 - on the last day of the month before dropping to close the week at $105.15. The week ended with oil above the upper Bollinger Band. Resistance is at $106.54 and support is at $103.64 which was the midpoint of last weeks candlestick body.  The next support is at $100.09 which was the previous high a month ago. Since crude passed $100.09 two weeks ago, it appears to have set up for a double bottom (12/06/2007 and 1/22/2008). If oil is to complete this pattern, it will reach approximately $115 probably riding the upper Bollinger band up over the next month or two. Now, it must break Friday’s resistance at $106.54.

From a candlestick, the last four weeks are three advancing soldiers plus two which presages more strength.

As shown in the Daily chart on the left, oil continues in a upward channel (shown by the yellow straight lines) and ends up between the Upper Bollinger and the 5 day moving average. The last candlestick was almost a long legged doji with the upper and lower shadows both longer than the body. Resistance is $105.97 and $106.54. Support is at $103.91 to $103.95. Next support is at $102.49.

As shown on Weekly chart on the right side of the diagram, oil was trending upward the entire month of February, surging to an all time high of $103.05 - hitting the upper trend line from May 2006 - on the last day of the month before dropping to close the week at $101.84. The week ended with oil slightly above the upper Bollinger Band and comfortably above all the weekly moving averages. Resistance is at $103.05 and support is at $100.09 which was the high when oil first broke the $100 benchmark and also is the mid point of last week’s green candlestick. The next support is at $97.75 which is last week’s low and the mid point of the previous week.Since crude passed $100.09, it appears to have set up for a double bottom (12/06/2007 and 1/22/2008). If oil is to complete this pattern, it will reach approximately $115 probably riding the upper Bollinger band up over the next month or two. But first, it must break Friday’s resistance at $103.05.

From a candlestick, the last four weeks are three advancing soldiers plus one which presages more strength.

As shown in the Daily chart on the left, oil has been riding just below the Upper Bollinger for four weeks. It is now below the Upper Bollinger but right above the 5 day moving average. Resistance is $103.05. Support is at $101.25. Next support is at $100.09.

The Oil Independent Oakland by 2020 task force’s draft final report has been released and will be presented at The Special Public Works Committee meeting on Tuesday, February 26, 2008, which begins at 10:30 am. The OIO Action Plan is item 5 on the Agenda. If you wish to speak on the item, you must submit a completed Speaker Card to the Clerk at the meeting before the item is called, or you may sign up to speak online. You may also download the Legislative Analyst Memorandum, which summarizes the Action Plan.

On October 17, 2006, the Oakland City Council adopted legislation, sponsored by Councilmember Nancy Nadel, creating a Task Force to help make Oakland oil independent by 2020. The legislation was endorsed by various groups, including the Ella Baker Center for Human Rights, the Oakland Apollo Alliance, and Bay Localize. [Press Release]

Inspired by Sweden’s landmark national action plan that articulates programs and policy measures expected to reduce Sweden’s oil consumption by 40-50% by 2020, Oakland hopes to provide a similar model for cities in the U.S. which are facing an absence of state and federal leadership on sustainable energy policy.

The Oil Independent Oakland (OIO) By 2020 Task Force, composed of local, regional, and national experts including Richard Heinberg, developed a robust oil independence plan, consolidating measures from around the world that can be used locally to reduce oil consumption citywide. The action plan recommended bold initiatives to not only reduce emissions of greenhouse gases, but to also establish Oakland as a national leader in the green economy and green jobs creation, while seeking to reduce Oakland’s energy dependence.

Top Recommendations

1. Adopt the Oil Depletion Protocol, thereby committing the City of Oakland to reduce oil consumption in the entire city of Oakland by 3% per annum
2. Reconfigure the city into multiple Urban Villages that co-locate residential, commercial, retail, and possibly light industrial. This involves and number of steps including updating the General Plan, design review guidelines, and zone.
3. Develop and implement a Public Transit Master Plan. This also involves an update to the General Plan and the task force strongly urges Oakland to consider a municipal streetcar system.

Enabling Recommendations

1. Establish and Oil and Gas team charged with management of Oakland’s oil independence activities
2. Develop financing options including a local carbon tax and regional congestion charging
3. Embark on a massive public outreach and education campaign

Preparedness Recomendation

1. Develop Contingency Plans for oil price and availability shocks

Some minor tweaking of the report is expected after the report is presented to Council. For information updates or to download the draft final report and appendix (right click and Save Link As…), visit the Oakland Oil Independent by 2020 task force page at EnergyPreparedness.net.

Overall

As shown in the monthly crude oil chart below, the price and volume traded in crude oil has been growing exponentially since 2003. As indicated by the widening of the upper and lower price trend lines, the volatility is increasing. For the past six months, prices have been above the 5-period moving average (show in white) and been riding up the upper Bollinger band (two standard deviations above the mean, shown in pink). While it would not be surprising, if prices touched down to the lower Bollinger band in the next year, it seems highly likely given it’s trajectory that prices exceed $150 per barrel in the next couple of years.  A target of $150 per barrel within several years seems conservative given the solid fundamentals for oil demand overreaching oil supply in the upcoming years. Given the supply and demand situation and assuming continued global oil dependence, prices may soar only beginning to stabilize when significant “demand destruction” occurs, mostly likely in the form of a severe economic recession or depression, deeper than any most of us have experienced.

Monthly Chart

Crude dropped more than 4% from last years close at $95.98 to January’s close at $91.75. Last month’s candlestick (the second to last bar above) was solid red with long upper shadow and an even longer lower shadow. The RSI touched 70 and dipped below the overbought zone.   Crude is now at the 5 month moving average which appears to have peaked.

Weekly Chart

As shown in the weekly chart on the right, Crude oil dropped $1.75 last week ending at $88.96. I went as high as $92.71, leaving an upper shadow.  The red solid candlestick did not confirm the bullish reversal hanging man from the previous week.  The 5, 10, and 20 week moving averages are converging at about $91 right below resistance at the half way point of the the solid red candlestick three weeks ago.  Next resistance is last weeks upper shadow at $92.71.  Support is at about $85.

Daily

As shown on the daily chart on the left, the uptrend ended mid week and crude has moved down the past two days.  Crude ended the week right around the support at $89.11 and below the 5,10,and 20 week moving averages.  Additional support is at $88.46 and below that at the lower Bollinger Band (about $86.50).  Resistance is now at $90.22, the midpoint of Friday’s solid red candlestick. Next resistance is at $92.19/$93.02.

Final Thoughts for Crude

Crude is on a four downtrend.   Support is at $85, resistance at $91 and $92.71.

Disclaimer: this technical analysis is provided as a public service so that people start to understand that oil prices go in cycles and that volatility is increasing which means we may see some drops here and there but the trend is upward and for wider swings. It is not intended to be investment advice. Note also that technical analysis is solely based on chart patterns and that changes in fundamentals such as oil stock inventories can easily overwhelm and alter technical trends.