oil and energy
The unusually warm and dry weather across more than half of the United States has resulted in one of the worst droughts in U.S. history. Much has been made about how the crisis will affect crops and cattle, but it could also alter oil production and prices.
With nearly 64% of the contiguous United States in a drought, the highest percentage since the U.S. Drought Monitor began recording such data in 2000, the economic repercussions are searing.
To date, 2012 has already surpassed 2011's $12 billion in drought losses, and this year is on pace to rival the droughts of 1980 and 1988, which endured losses worth a current value of $56 billion and $78 billion, respectively.
According to 70 years' worth of data studied by the National Center for Atmospheric Research, weather (from heat waves to cold spells to droughts) can cause up to a 1.7% rise or fall each year in the U.S. economy's gross domestic product.
Farmers and agricultural companies have been voicing concerns, now oil and gas companies are speaking up.
With farmers trying to hold on to every ounce of water they find, oil companies don't know how they will get the water needed to drill into their oil fields.
"Water is the key to unlocking oil and gas. We take it for granted," in the U.S., said Chris Faulkner, president and chief executive officer of Breitling Oil & Gas, which has numerous operations in several of the new shale regions.
oil and energy
The Libyan Factor
Now that Moammar Gadhafi is about to be toppled from power in Tripoli, international oil majors are poised to stream back into Libya. Italian leader Eni S.p.A. (NYSE ADR: E) already rushed back field specialists Monday morning to assess damage even before the smoke (or the politics) cleared in the capital.
The great unknown is how long it will take to ramp up production to pre-crisis levels. Anecdotal evidence is pointing in all kinds of directions. Some European analysts have already concluded it could take one or two years at some of the primary fields, while others are saying the brunt of production could be back on line within a month.
This is going to be a field-by-field approach. More to the point, the condition of pipelines, gathering and processing facilities, terminals and port facilities will be just as important as the oil fields themselves. We know that some of these were heavily damaged. And that means full export volume is not something we can expect to see resume anytime in the near-term.
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The Oil Supply Constriction Is Fast Approaching
Shortly I'll be off to Victoria Station, the train to Gatwick, and a welcome flight home to Pittsburgh. However, there is an accelerating development I need to tell you about before getting on the plane.
As you know, last month, the Paris-based International Energy Agency (IEA) and the U.S. government announced they were releasing 60 million barrels of crude oil into the international market, 30 million of which coming from the U.S. Strategic Petroleum Reserve (SPR).
I said at the time that this would only make matters worse. The market has already confirmed my conclusion.
The move hit an unprepared market while I was in Athens on the first leg of this five-week trip. And from the outset, neither the rationale provided by Paris nor Washington rang true.
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