It’s generally assumed that just about every Mid-East oil producer is a big, net exporter of oil and while that’s also true for the United Arab Emirates what’s worth noting, or retelling today, is the means by which the UAE, principally because of Dubai (an Emirate within the UAE), started to become a net importer of natural gas. Let’s start with a chart of electricity demand (click to enlarge).

The next BLS release of unemployment data for California comes this Friday, and its bracing to think what the numbers might be. Currently, the broad measure of unemployment for California–or U6–is running at 19.9% and the more conservative measure, which will be updated this this week, is at 12.2%. I’ve written quite alot on the subject of California this year. So, I watch the macroeconomic newsflow that emerges from the state each week, and most of it is pretty awful.

This Summer I spent a little time on television making the case to both MSNBC and BNN in Toronto that California was extremely overleveraged to the automobile, and should probably think seriously about building out it’s rail system. At that time the machinations over California’s budget were in full swing, and a number of observers thought the budget agreement would put the state on the right path for at least another year. I was doubtful, and said so at the time. Moreover, I tried to draw the two points together: California was now suffering diminishing returns from its vast automobile and highway system, and it was unlikely to crawl forward again as an economy unless petrol became very cheap again (unlikely), or got serious about transition.

The Guardian newspaper dropped a small bomb on the International Energy Agency (IEA) Monday night, on the eve of the IEA’s annual release of their signature product: The World Energy Outlook. According to the British newspaper, at least one if not two whistleblowers within the agency were claiming that the IEA’s record of chronic optimism on future oil supply had been disingenuous at best, and moreover, that this positioning had been influenced over the years by pressure from the US. In journalistic terms, the story was beautifully timed. Because yesterday, media on both sides of the Atlantic from the Financial Times to Reuters, to CNN and even CNBC, produced at least as much coverage on the controversy as the IEA’s scheduled data release. This effectively buried the Paris agency under a mound of accusation.

Let’s go back a few months and find some of the early signals, however, indicating this story was likely overdue. In August, a journalist at a separate British newspaper, The Independent, had conducted a long interview with the IEA’s chief Fatih Birol. In that interview, Dr. Birol made a number of very clear statements about the rather dire prospects for any future growth in world oil supply. This was unsurprising, in some respects, because the IEA had already asserted, in World Energy Outlook 2008, that existing oil fields were declining by at least 4.00% if not 6.00% per annum, and that to actually lift global oil production would require not billions, but trillions, of investment.

40% of global oil supply is provided by OPEC, and 60% of global oil supply is provided by Non-OPEC oil producers. Russia is a Non-OPEC oil producer but if we take Russia out of that category, we are left with 44% of global supply.

This sub-category, Non-OPEC ex Russia, is what I refer to as Free Market Oil. This is ExxonMobil (XOM), BP, Shell (RDS.A), Suncor (SU), and countries like Brazil, The United States, Norway, the UK, Mexico and Australia.

I was surprised to see the following headline in yesterday’s Wall Street Journal: Oil Price Rise Poses Little Threat, Yet, To Economic Recovery. The piece was stitched together with many quotes from economists, saying that oil’s advance to 80.00 was not yet a problem–though it could present a problem if we went any higher.

I suppose that in a multi-year data set, and looking at the world in a rather static way, this might be true. But I thought economists at least shared the view that weak economies were more vulnerable to shocks? 80 dollar oil in the Autumn of ‘07 was a very different overlay, than 80 dollar oil right now. And besides, I’m also not sure about the Journal’s use of the phrase economic recovery. From yesterday’s article:

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With the exception of some work done over the years at Goldman Sachs (GS), I don’t believe I’ve seen such an aggressive confrontation of this difficult subject from any of the other major investment houses. Indeed, most of the comprehensive work done in this area tends to still come from the scholarly community. What’s eye-opening is that Sankey appears to accept that the peak of Non-OPEC production is now in place, that a final peak of global production will arrive sometime in the 2015 period, and, he is offering this viewpoint to the mainstream investment community. Generally, this is a community that remains ignorant of–if not dispositionally hostile to–oil and energy depletion issues.

My reasoning, starting earlier this year, was as follows: in a world of reduced trade, less dollar reserve building would ensue–thus less sovereign support for US Treasuries. In addition, I also reasoned that Americans, now trapped by debt and job losses, would also not be able to support Treasuries through savings. Each of these conditions have come to pass. Trade did collapse. Less dollar reserve building did ensue. The Agency market and the long end of the Treasury curve have largely been abandoned by foreign reserve managers. Equally, in a world of 1.5-2.0 trillion dollar deficits, the year-to-date savings rate of Americans at 446 billion while an increase over previous years is not enough to support our government spending. Not the last fiscal year, nor the fiscal year to come.

Just so that I’m clear: there is no macroeconomic recovery occurring in the United States. What’s unfolding currently is snap-back from last year’s crash, which led us to the bottom of a spider-hole. The positive bits of macro data, dribbling out here and there, are really just about getting us back to zero. A kind of steady-state, expected to carry on for some time to come. And that’s a best-case scenario.

It is often too difficult to comprehend the totality of very large systems. This is why, unintentionally, many of these – I call them Oil Actors – performed a series of useful stress tests on world oil supply coming out of the 2002-2003 period. Once the feedback mechanism of these events filtered through the price of oil, that sent a new message and a new revelation to producers such as Venezuela, Brazil, and also to Russia and Nigeria – all producers that never before had been able to impact the price of oil.

All of Mexico’s oil production is conducted by PEMEX. And PEMEX tends to release its monthly production numbers on the last Friday of each month. On September 25th, for example, it was reported that Mexico’s August oil production was 2.54 Mb/day, down -0.86% from July, and down -7.90% from a year earlier. But here we run into the first typical problem with media reporting: as you go through Dow Jones, Reuters, Bloomberg, and other news services such as UpstreamOnline or Platts, there is variability in how headline and detailed production figures are reported. First, to track oil production it’s not helpful to read the reports of all-liquids production. The latter include natural gas liquids. Generally Reuters is pretty good about making this distinction, but on Friday, in their initial reports they failed in this regard. Thus, the most accurate report on Friday’s data release came from Bloomberg. Note: Reuters did eventually clean up their coverage by the time the weekend was over.

Somewhere in 18th century Scotland, a writer is making the rationalist case against gold and silver. I’ll conjecture such a counterpoint rebuttal to precious metal coinage (and convertibility of notes) has appeared on occasion during the entire 5000 year history of gold’s employment as money, if not longer.

Asian yards miss out on Petrobras (PBR) drillship contracts – Rio De Janeiro: Asian shipyards are to lose out on a lucrative offshore opportunity in light of the news that that Brazilian oil company Petrobras is to hand out around $9.8bn in chartering costs to offshore operators for expensive drillships – but only if they are built in Brazil. –SeaTrade Asia Online, 11 September 2009

When James Dean’s character Jett Rink strikes oil as a wildcatter in George Steven’s 1956 epic, Giant, he goes up to the big house where Liz Taylor lives in order to laugh and drip oil all over the front porch. Covered in West Texas Intermediate crude (later to become the benchmark grade, traded in New York) he gets, shall we say, a little forward with Liz. That’s when Rock Hudson steps in, and decks him.

Giant was set in the 1930’s, a time when the price of oil was controlled by the Texas Railroad Commission because of overwhelming supply. The timeline on the price of oil during this period is actually a story worth tracking. Using the BP Statistical Review’s larger database on the price of oil going back to 1861, (see BP Historical Data – Workbook) it appears that by 1920, the production of the Model T may have triggered enough oil demand to finally get prices over 3.00 a barrel (about 34.00 in today’s dollars). But then the Black Giant of East Texas was discovered. And that sent prices back down to uneconomic levels.