Commentary by Eric Wilder – The consensus at OPEC’s latest meeting seems to be to keep their daily output of crude oil unchanged at 28 million barrels per day.  The world community has followed this meeting closely to see what Iran, OPEC’s second largest producer would do.  Threatened sanctions against Iran because of its nuclear energy policy have kept the price of crude oil high.  Today’s announcement indicates OPEC’s somewhat unexpected solidarity and this kept crude oil future’s above $68 per barrel on the New York Mercantile Exchange.

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Commentary by Eric Wilder – The oil minister of Saudia Arabia, Ali Naimi, said in New Delhi that "I have no control over prices. We accept that they're high, and of course, we want them to come down."  Naimi’s statement isn’t totally true.  What he means is, OPEC no longer has control over the downward movement of crude oil prices.  One of its members, however, is directly responsible for its continued high price near $70 per barrel.

OPEC is producing near its capacity and has little ability to lower prices by opening the tap as it once did.  It still affects the price of oil, but in an upward sense.  Threatened sanctions on Iran are causing marketers to keep the price of oil near $70 per barrel.  Iran is the number two producer in OPEC and crude oil is its major export.  Sanctions against this country would adversely decrease the world’s supply of crude oil.  The resultant imbalance between supply and demand would surely cause crude oil prices to rise dramatically.

Despite Ali Naimi’s claim of no control, nervous oil marketers know the truth and are keeping a wary eye on the continuing situation.

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“The meek shall inherit the earth, but not the mineral rights.  J. Paul Getty

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Commentary by Eric Wilder – The price for crude oil on the New York Mercantile Exchange reached $68.35 today, a 4 1/2 month high.  Natural gas also was on the increase, gaining 37.5 cents to settle at $9.28 per MCF.  The session is unusual because it is coming off reports by the EIA that indicate storage of both crude oil and natural gas are more than adequate and also on the rise.

Increasing demand for both products, or perception of increasing demand, is perhaps the underlying reason for today’s rise in fossil fuel prices.  This, along with continued unrest in the Middle East, particularly Iran, and further disruption of infrastructure in oil-rich Nigeria.  And, the savvy marketers haven’t forgotten about the quickly approaching hurricane season.

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This Week In Petroleum

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Commentary by Eric Wilder – Oil reached $66 per barrel today, a 3 1/2 month high, amid news of production disruptions in Nigeria and continued speculation about the result of sanctions on Iran.  Iran is a major exporter of crude oil and sanctions would have a negative affect on the already tight supply of that commodity.

Spokespersons for Iran have said that sanctions on their country will cause as much hardship for the world as it will for Iran.  Oil marketers know that this statement is very true and will likely catapult already high crude prices to rarified heights.  What should the U.N. do about sanctioning Iran?  At the moment, that is the sixty-four dollar question.

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Commentary by Eric Wilder – Royal Dutch Shell has announced that it has the rights to explore for natural gas on its recently acquired 70,000 acres in Central Arkansas.  Shell is looking for natural gas in the Fayetteville Shale, a producing horizon similar to the Barnett Shale in Texas.

The Barnett has emerged as perhaps the top gas play in North America and every prospective acre in Texas is literally leased.  This leaves no room for late players wishing to cash in on the boom.

The Fayetteville Shale in Central Arkansas is a look-alike to the Barnett Shale.  For years, Shell has concentrated its exploration only in areas outside the continental United States.  Their venture into Arkansas is a strong statement as to what they think about the United States’ growing natural gas shortage.  If Shell has thrown its hat into the ring, can other majors be far behind?

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Commentary by Eric Wilder – Early December temperatures in Oklahoma were some of the coldest ever, but 2005 ended just the opposite – with record warm temperatures.  Weather wise, 2005 was a topsy-turvy year, and not just in Oklahoma.  The country experienced and continues to experience extended stretches of mild temperatures.  The result is that the U.S. is entering 2006 with ample supplies of natural gas in storage.  Why then are natural gas prices remaining near $10 per MCF?

Mild weather is only one factor in the complicated scenario of natural gas supplies.  Other factors affect pricing. 2) Higher prices have resulted in increased drilling that has also increased supply.  3) An abnormal hurricane season greatly decreased the country’s supply of natural gas.  4) Higher prices have resulted in conservation and lessened demand for natural gas.

It’s still early January and natural gas prices on the New York Mercantile Exchange are just under $10 per MCF.  What’s keeping the price high even though we seem to have ample supplies in storage?  Uncertainty.  The real price of natural gas is a complicated formula that involves four factors.  Will warm weather continue?  What’s the prognosis on the upcoming hurricane season?  If prices drop, will energy explorers keep drilling at the present rate?  Will demand continue to decline?

Savvy marketers are keeping natural gas near $10 per MCF because pricing is a complicated problem that no one, as yet, has solved.

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Commentary by Eric Wilder – China’s planning agency announced today that it expected the country’s economic growth to slow to 8.5 to 9.0 percent.  This rate of economic growth is still very high.  Because of China’s supercharged growth, its demand for oil is stretching the world supply thin and keeping prices near $65 per barrel.

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Commentary by Eric Wilder – Six of the world’s largest industrial powers announced a meeting to be held in Australia this week to discuss ways to curb greenhouse emissions without sacrificing economic growth.  The partnership of Japan, China, India, United States, South Korea and Australia is being called the Asia-Pacific Partnership for Clean Development and Climate.

The partnership is drawing criticism from some sectors that say it is only an attempt to circumvent the Kyoto Protocol on greenhouse gases.  Proponents of the new partnership say it isn’t meant to rival Kyoto, only complement it.

The six members comprise 45 % of the world’s population, burn 48 % of the world’s energy and are responsible for the emission of 48 % of the world’s greenhouse gases, according to data released by the new partnership.  The U.S. and Australia say that developing cleaner technology for curbing emissions is a better and likely more effective idea than simply setting target goals for reduction.

With abrupt climate changes occurring before our eyes, rhetoric is no longer an option and immediate action is needed.  I see the new partnership as a positive step because any dialogue concerning the grave situation is better than no diagogue at all.

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In 1833 Captain Henry Miller Shreve, Superintendent of Western River Improvement, began dismantling the 165 mile long log jam known as the Red River or Great Raft.  Shreve had earlier invented the snag boat and his creation had a jaw-like bow that could yank snags and tree trunks out of the water.  The trees and snags were then cut up with a saw mill on the boat’s deck.

In 1835, the Shreve Town Company was formed by eight businessmen at the site of Captain Shreve’s camp.  When a rival group started a nearby town they called Coates Bluff, the Shreve Town Company hired Captain Shreve to divert the river slightly.  He did so, leaving Coates Bluff without access to the Red River.

Today, Shreveport, named in Captain Henry Miller Shreve’s honor, is Louisiana’s second largest city and Coates Bluff little more than a faded memory.

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Commentary by Eric Wilder – Crude oil closed on Friday at $64.21 per barrel, up $1.42 from the previous session.  Natural gas prices, suffering all week because of moderate temperatures throughout much of the U.S., rebounded to $9.63, up 13.3 cents.  Crude oil seems to be closing on $65 per barrel while natural gas seems locked just below $10 per MCF.  As usual, marketers are keeping a close eye on Mother Nature who seems to have spent much of the past year in a drunken revel.

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Commentary by Eric Wilder – East Texas has an abundance of lignite, the lowest grade of coal.  As a graduate student, I briefly considered writing a Master’s thesis on the subject.  Driving to Louisiana last week, I passed a large strip mine west of Mount Pleasant, Texas.  Texas lignite has low BTU content but is apparently valuable enough to warrant many acres of stripped ground and mega-tons of heavy equipment.  Texas lignite isn’t the only coal mined in the United States.

Even though Coal is found from Montana to Pennsylvania it wasn’t all created equally.  There are three basic grades of coal that indicates its general BTU content: lignite, bituminous and anthracite.  Energy content isn’t the only difference.  Some coals are fairly clean, others not so clean.  Sulfur, mercury and other heavy metals are often inextricably connected to the coal.

Crazy fact:  Oklahoma produces very clean coal.  Since the air quality in Oklahoma is good, primarily because of prevalent winds, Oklahoma coal isn’t burned in Oklahoma.  It is shipped to the East Coast where the quality of air suffers.  Oklahoma burns coal from Montana – dirty coal that is unexceptible in most states.

Do we have lots of coal in the United States?  Yes.  Do we have an inexhaustible supply?  No way.  It we did, then why are we spending millions to mine low-grade lignite in East Texas.  Coal, like oil, is getting harder to find in economic quantities.  Because of this, it is also becoming more valuable.

How valuable is coal to the economy of the United States?  Yesterday’s death of twelve West Virginia coal miners highlights the danger involved in extracting energy from Mother Earth.  Just ask the members of their families.

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Commentary by Eric Wilder – Crude oil on the New York Mercantile Exchange settled at $63.20 on the first day of trading for 2006.  This is the highest price reached since October 18, 2005.

Marketers are keeping a close watch on both the weather and crude oil stocks.  A drop or rise in either the temperature or inventories usually results in an upward or downward spike in prices and wary traders are keeping their fingers on the buy/sell button.

Since there is no significant news concerning either the weather or inventories, today’s closing price likely reflects the market’s outlook that crude oil will remain above $60 per barrel, at least for the foreseeable future.

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