25 August 2009

Oil Reaches 10 Month High, Thanks To Hurricane

10 Month High and Factors

On 24/8/2009, OPEC's basket price for crude oil stood at USD$72.89. The basket price is an average of prices from various regions. (Ref: OPEC Basket Price.) The graph shows that crude oil prices dropped to a low of USD68.04 on 17/8/2009 and have been climbing steadily since then. The result is a V-shaped movement over the last two weeks -- a decline in the price of oil (from USD72.22 to USD68.04) and its subsequent surge on the 24th of August 2009.

On 24th August 2009, The Malaysian Insider reported that crude oil hit a ten month high at more than USD74/= per barrel. (Ref: The Malaysian Insider, 24th August 2009. Oil rises above US$74, nears 10 month high.) The factors cited in the report were: (1) Hopefulness that the US economy would recover soon, and (2) A storm in Eastern Canada. This storm was caused by Hurricane Bill:

... Hurricane Bill brought rain and heavy winds to Nova Scotia in eastern Canada on Sunday, but the Category 1 storm caused little serious damage as it moved northeast to the region's offshore oil and gas facilities.

However, threats to energy facilities have not yet passed. Bill, the first hurricane of the 2009 season, is now heading towards Atlantic Canada —- an energy producing region that exports oil, natural gas and refined products to the US Northeast and elsewhere.

The article also noted that Nigerian rebels have threatened to attack the energy industry in that country, which could lead to a further shortage of supply. This in turn would cause a shortage.

Hurricane Bill and Tropical Storms

The New York Times on 25th August, 2009 noted that Hurricane Bill "did nothing more than churn up a lot of ocean and create some excitement as big waves struck the beaches of the Carolinas and points north". (Ref: The New York Times, 25th August 2009. A Quiet Day.)

Hurricane Bill began as a tropical storm with a name: Ana. Further reading of the NY Times article reveals that tropical storms do sometimes turn into hurricanes.

Some of the most devastating hurricanes have originated off the west coast of Africa in the vicinity of Cape Verde. They start as what the weathermen refer to as tropical waves, curvy lines of wind and rain that are the earliest iteration of a hurricane. If the water temperature is just warm enough and the atmospheric pressure above the wave is low enough, the natural turn of the earth, known as the Coriolis Effect, often draws a tropical wave into a full circle in the first rotations that are essential for a hurricane.

Exxon Mobil Sable Project and Hurricane Bill

The Canadian project mentioned in the Malaysian Insider article is the Sable Offshore Energy Project. (Ref: Wikipedia. Sable Offshore Energy Project.) There are five (5) partners for the project:
  • Exxon
  • Royal Dutch Shell
  • Imperial Oil Ltd
  • Pengrowth Energy Trust
  • Mosbacher Operating Ltd.

On 20/8/2009 Reuters reported that Exxon Mobil had evacuated its staff from their Sable Offshore Energy Project off the coast of Nova Scotia, in anticipation of Hurricane Bill's arrival. Hurricane Bill was at that point a Category 3 hurricane, with speeds more than 200 km/h. (Ref: Reuters, 20th August 2009. Exxon Evacuating Sable Staff Ahead Of Bill.)

On 25/8/2009, Reuters reported that Hurricane Bill had left the region (of Canada) and there was no damage to the Sable Offshort Energy Project. (Ref: Reuters, 25th August 2009. UPDATE 1-Exxon sees no hurricane damage to Sable project.) Hurricane Bill entered Canadian waters as a Category 1 hurricane, and became a tropical storm as it arrived in Newfoundland.

Categories of Hurricanes

Having seen the extent of havoc a hurricane can cause, the natural question to ask is how are hurricanes categorized? Readers will be curious as to what speeds hurricanes can take, and how damaging these hurricanes can get.

It seems that hurricanes are categorized according to the Saffir-Simpson Hurricane Wind Scale. The National Hurricane Center, set up under the auspices of the US government, has a page detailing the various categories in terms of speed and expected damage. (Ref: National Weather Service: National Hurricane Center. The Saffir-Simpson Hurricane Wind Scale (Experimental). Accessed 26th August 2009)

The Saffir-Simpson Hurricane Wind Scale is a 1 to 5 categorization based on the hurricane's intensity at the indicated time. The scale provides examples of the type of damages and impacts in the United States associated with winds of the indicated intensity. In general, damages rise by about a factor of four for every category increase. The maximum sustained surface wind speed (peak 1-minute wind at 10 m [33 ft]) is the determining factor in the scale.

In its elaboration, the National Hurricane Center explains that the Saffir-Simpson Hurricane Wind Scale used to incorporate many factors, and was confusing to members of the public. Hence, various elements in the calculation and categorization of the hurricanes have been removed.

... to help reduce public confusion about the impacts associated with the various hurricane categories as well as to provide a more scientifically defensible scale, the storm surge ranges, flooding impact and central pressure statements are being removed from the scale and only peak winds are employed in this revised version - the Saffir-Simpson Hurricane Wind Scale.

It was previously known as the Saffir-Simpson Hurricane Scale. Information about the change can be found here.

Back To Malaysia

Of course, the point about hurricanes may be lost on us Malaysians because of our relatively sheltered geographical position. The following map will show you why.


View Larger Map

It seems the West Coast of peninsular Malaysia is relatively well-shielded from hurricanes. The existence of Indonesia across the Straits of Malacca helps ensure that our shores remain relatively unscathed from heavy weather. States on the peninsular's East Coast experience stormy seas during the monsoon season, known to Malaysians as "musim tengkujuh". Sabah is known as the "Land Beneath The Wind", and Kota Kinabalu is a windy city.

On my part, I have no knowledge of whether freakish storms have caused our local oil rig operators to evacuate their crew. Perhaps it is material for a future piece.

18 August 2009

August Update

In the past few months, crude oil prices have gone down and climbed up again. Forbes reports that crude oil futures for September delivery traded at more than USD69 per barrel today, a rise of 3% from yesterday. (Ref: Reuters, 18th August 2009. Oil rises above $68 on Wall Street gains.)

In the local Malaysian scenario, the following interesting stories have appeared.

(1) The International Monetary Fund (IMF) advised that Malaysia should reduce its dependency on oil. (Ref: The Star Online, 16th August 2009. IMF: Take preventive steps and reduce dependence on oil.) The Forbes today also reported:
Malaysia shelved plans to implement GST in 2007 but has recently put it back on the drawing board due to declining oil revenues.

Malaysia's budget deficit excluding oil revenues will be 11 percent of GDP in 2008, according to the IMF, and with lower oil prices in 2009 than in 2008, the income from oil will shrink in 2010 as it is based on 2009 prices.

(Source: Forbes, 18th August 2009. UPDATE 2-Malaysia targets lower budget deficit in 2010)


The good news is that GST isn't implemented just yet in Malaysia. The bad news is that it may, if the expectations about the shrinking profits from oil in 2010 prove to be correct.

(2) Malaysia and Iran have agreed to set up a joint company called SKS_PARS. Gas condensate construction in both Iran and Malaysia are expected to lead to the daily production of 120,000 barrels (Iran) and 250,000 barrels (Malaysia) of crude oil. (Ref: United Press International, 17th August 2009. Iran, Malaysia team up on energy.) Interestingly enough it was noted in another UPI report that "Washington opposes any project that could give Tehran economic benefits, especially in the energy sector." (Ref: UPI, 18th August 2009. Washington links Pakistani aid to IPI.) It remains to be seen whether SKS_PARS will face hostility from Washington.

(3) Until 31st August 2009, Shell Malaysia is running a competition to award weekly cash prizes of RM30,000, RM3,000 and RM300. The competition runs for eleven (11) weeks all in. You can check out the winners for the first eight (8) weeks so far. There's another three (3) weeks left to go! Check out the link.

(4) Shell launched its RON 95 fuel late July 2009, in response to and in support of the Government's initiative of introducing RON 95 nationwide by 1st September 2009. (Ref: The Star Online, 28th July 2009. RON 95 petrol launched, Shell targets 1m users.)

(5) Cadbury New Zealand announced that it will stop using palm oil in its chocolate making recipes. Bernama made reference to an NZ report that linked palm oil supply with native land deforestation. (Ref: Bernama, 17th August 2009. Cadbury In New Zealand To Stop Using Palm Oil In Its Chocolate.) An excerpt from a report at Stuff magazine (NZ):
Palm oil is derived from the fruit and kernels of the oil palm and is used in cosmetics, cleaning products and many processed foods.

Much of the oil comes from land where existing rainforest has been slashed and burned to make way for Palm oil plantations.

Three quarters of all Palm oil comes from Malaysia and Indonesia where rainforests - housing the Bornean and Sumatran orangutans and other flora and fauna - are being destroyed.
(Source: Stuff.co.nz, 17th August 2009. Cadbury stops using palm oil in chocolate.)


Readers may also like to consider that the terrible haze in Kuala Lumpur recently has been pinned on plantation firms. Considering that it was the Indonesian State Minister for Environment who blamed the plantation companies for the forest fires, it certainly is a bold accusation / statement. (Ref: The Jakarta Post, 9th August 2009. Plantation firms behind forest fires in Riau: Minister.)

(6) Malaysia and Brunei are exploring the possibility of an oil joint venture. (Ref: The Star Online, 7th August 2009. Malaysia and Brunei closer to inking deal on oil and gas joint venture.)

(7) Malaysia and Morocco will considering increasing two way trade in a mutually beneficial way. Morocco will consider importing more palm oil from Malaysia while Malaysia will consider importing more phosphates from Morocco. (Ref: The Star Online, 15th August 2009. Eager for a fair exchange.)