BIKE: Texas toll road building frenzy is doomed

[Roger Baker]

As the following articles make clear, OPEC is pumping flat out and  
the Saudis can only pump more heavy sour crude, which the world no  
longer has the refinery capacity to handle. (As world oil demand  
rises rapidly and supply remains fixed, fuel prices will continue to  
soar until they deflate the world economy, likely after a period of  
stagflation).

I understand (gas guzzling) vehicles stay on the road for an average  
of 17 years in the USA. If you can't afford to buy a hybrid, you will  
automatically drive less or use transit. -- Roger

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 From the NY Times, June 14, 2005
Strong Demand Limits OPEC's Leeway
By SIMON ROMERO

VIENNA, June 13 - OPEC representatives arriving for a meeting here
this week said that they were prepared to lift their oil production
ceiling in an effort to bring down high crude oil prices, but
emphasized that strong global demand for oil limited their ability
to influence markets.

"OPEC members are already pumping at full capacity and can do
nothing about prices," Bijan Zanganeh, the oil minister of Iran,
OPEC's second-largest producer behind Saudi Arabia, said in Tehran
before traveling to Vienna.

Ali al-Naimi, the oil minister of Saudi Arabia, the most pivotal
member of the Organization of the Petroleum Exporting Countries,
said he supported raising the group's output ceiling by 500,000
barrels a day, but suggested that refining bottlenecks in rich
industrialized nations would prevent such an increase from having
much effect on prices.

The group, which produces 40 percent of the world's oil, still
appears to be somewhat stymied by the resilient demand for oil in
major markets like China and the United States, even if member
countries have been delighted about the financial windfall created
by high oil prices.

Production quotas for OPEC's 11 members, excluding Iraq, stand at
27.5 million barrels a day. The International Energy Agency,
however, estimates that those 10 OPEC nations actually produced
27.51 million barrels a day in May as they rushed to exploit strong
demand.

Katherine Spector, an energy strategist for J. P. Morgan in New
York, said that while some OPEC members were publicly calling for
more production, such statements were "mostly semantic" because, in
effect, OPEC members have recently been giving a smaller discount
for the oil they sell in international markets in relation to
commonly quoted prices.

OPEC's enhanced bargaining power is yet another illustration of the
growing global demand for oil. Demand is expected to reach 86.4
million barrels a day in the fourth quarter, the International
Energy Agency said this month, translating into 1.78 million barrels
a day more than last year, or a 2.2 percent increase.

World oil demand rose 3.4 percent in 2004, its fastest pace in a
quarter- century, as the economies of China and the United States
required more oil for their factories and automobiles. China alone
accounted for about 40 percent of new oil demand from 2001 to 2004,
and is planning to build a strategic petroleum reserve similar to
the reserves in the United States and some European countries, a
move that could put additional pressure on oil prices this year.

Oil prices rose sharply ahead of OPEC's meeting, which is scheduled
for Wednesday at OPEC's headquarters here. Crude oil for July
delivery climbed $2.08, or nearly 4 percent, to $55.62, on the New
York Mercantile Exchange yesterday on concern about refining
capacity. Oil prices have been volatile since rising above $57 a
barrel in early April before pulling back somewhat.

Some OPEC representatives remain worried that high oil prices could
encourage consumers in rich countries to start switching to other
fuels as energy efficiency becomes a bigger concern. There is little
evidence, however, to suggest that such a large-scale transition
might be under way.

In fact, major international oil companies are factoring in
estimates for relatively high oil prices into the foreseeable
future. Senior executives at two companies, Royal Dutch/Shell and
BP, recently said they expected oil prices to remain at or around
$40 a barrel for at least the next several years.

Forecasters at Shell went even further this month, discussing the
possibility of governments of oil-rich countries becoming more
aggressive over the next two decades in their dealings with private
companies.

The pursuit of such policies by the governments of countries in OPEC
and elsewhere might seem reminiscent of the 1970's, when the United
States, Europe and Japan were shaken by embargoes and the
nationalization of private oil company assets in several producing
countries. But in a major difference with those oil shocks, oil
price increases over the last two years have not been driven by the
restriction of supply but by an unforeseen and steady climb in
demand.

OPEC could add about 700,000 to 800,000 barrels of daily production
capacity among its members by the end of the year, according to the
International Energy Agency. But it remains to be seen whether the
availability of that oil will have an effect on prices, given the
tight refining capacity for certain blends of oil and forecasts of
rising demand.

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Oil Firmly Above $55 on Winter Fear

By REUTERS
Published: June 14, 2005
Filed at 3:38 a.m. ET

SINGAPORE (Reuters) - Oil prices sat tight above $55 a barrel on  
Tuesday on concerns over the world's ability to make enough diesel  
and heating oil ahead of the winter and as OPEC appeared powerless to  
turn back the rally.

U.S. July light sweet crude (CLc1) traded down 14 cents to $55.48 a  
barrel by 0716 GMT, barely denting Monday's $2.08 surge, which took  
prices to their highest level in seven weeks.

``The increase in U.S. diesel demand, which is boosted by the strong  
economy, is sparking exceptional concerns on heating oil supplies,''  
said Hiroyuki Sato, general manager of crude oil and products  
acquisiton at refiner Japan Energy Corp.

Traditionally, demand for distillates -- including heating oil --  
becomes the guiding factor only in the fourth quarter, after the  
summer gasoline season ends.

But below-average inventories of the product and already stretched  
global refining capacity has thrown distillates into the spotlight  
early this year, pushing prices within a few cents of the record  
highs touched in early April.

Heating oil futures (HOc1) were at $1.6665 a barrel, up 0.34 cent.  
July gasoline (0#HU:) was up 0.24 cent at $1.5585.

``The market is very sensitive to the upside,'' said Tony Nunan of  
Mitsubishi Bank. ``The focus has shifted to middle distillates where  
demand growth is strong,'' he said.

U.S. diesel demand over the past four weeks has been running more  
then 6 percent higher than last year, according to the most recent  
government data, partly as the trucking industry moves Chinese  
imports to market from the West Coast.

OPEC HELPLESS

The Organization of the Petroleum Exporting Countries (OPEC) meets on  
Wednesday to discuss output policy, but has admitted it stands little  
chance of stemming a rally driven more by a shortage of refined  
products than the crude oil it produces.

The cartel is likely to raise its official ceiling by 500,000 barrels  
per day (bpd) to 28 million bpd, rubber-stamping existing  
overproduction but not adding any fresh barrels to the market,  
President Sheikh Ahmad al-Fahd al-Sabah said in Vienna.

``It will give a good signal...of what is actually in the market,''  
he said. ``Just symbolic.''

Saudi Oil Minister Ali al-Naimi and others have also backed the move  
and are reluctant to inject more crude in to a market already swamped  
with supplies. U.S. commercial inventories this summer hit their  
highest level in six years.

Naimi said prices below $50 a barrel would be ``reasonable'' but said  
there was ``absolutely no shortage'' on world crude markets. He  
pointed instead to a deficit in refinery output of middle distillate  
products diesel, heating oil and jet fuel.