Admit it, you read the news, Wall Street sits poised on the edge, but somehow it hasn’t collapsed yet. Why? It took me a while to realize the answer, and I found an article today while checking out some new news sources, Business Intelligence – Middle East in this case. I’d suspected this was the case, and the following article shows it fairly clearly.

Sovereign funds from the Middle East and Asia were also highly active in providing more than US$43 billion in capital to Wall Street banks starved of funds during the credit crisis that erupted last Summer.

Sovereign wealth funds – JPMorgan Chase catalogued 50 of them – are pools of money derived from official surpluses, such as foreign reserves, commodity revenues or fiscal sources. Profits from the funds are meant for the benefit of a particular nation’s future generations.

A steady and deep source of capital for many private equity firms and hedge funds will likely be welcome news, especially since many private investors have become more risk averse lately.

The report also cites talk that sovereign funds may provide private equity with debt financing for leveraged buyout deals, replacing bank financing, which dried up in the face of the crisis.
BI-ME and Reuters, 22-05-2008

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See how it unravels? The industries that rely on the balance between what they can pay for fuel and what consumers can pay for the end product are going to feel the oil peak prices first, and will fail first. Trucking is probably one of these industries as well, by the way, only it is not as discretionary as air travel so it should survive for longer in a recognizable form.

The cost of protecting airline bonds from default soared and bond prices plunged as oil reached a record $135 a barrel, stoking concern that carriers will run out of cash as jet-fuel prices surge.
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A 94 percent increase in the price of jet fuel the past year may push some airlines into bankruptcy, Soleil Securities Corp. analyst James M. Higgins said yesterday.

“We now expect AMR [American Airlines] to have trouble avoiding bankruptcy by sometime in 2009,” Higgins wrote in a note to clients. “UAL [United Airlines] is too close to that possibility for our comfort,” and Continental is “close to our comfort threshold.”

Surging jet-fuel prices may help produce a record full-year loss for the largest U.S. airlines of $7.2 billion, JPMorgan Chase & Co. analyst Jamie Baker estimated this week. That estimate is 57 percent wider than Baker’s previous projection for the industry’s 2008 deficit.
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James May, president of the Air Transport Association, told reporters yesterday in Washington that major U.S. airlines face liquidation should capacity cuts and fare increases fail to cover rising fuel costs.
Bloomberg: Airline Default Risk Soars, Bonds Tumble on Record Oil Prices, May 22 2008

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Check out this interview with Philip Sutton. You can also listen to the second and first parts of the interview (see below for links). What is being talked about here is scary stuff, and is going to start manifesting even more than it is already today, in increasingly obvious, and probably, deadly, ways.

Mankind has a test now, it can chose to take it seriously, or just try to carry on with business as usual as long as it can, which isn’t looking like it will be that long.

This is the third interview with Philip Sutton, coauthor with David Spratt of a recent report titled Climate Cod Red: The Case for a Sustainability Emergency. The first interview reviewed the latest scientific understanding of climate change and established an appropriate target for temperature change and atmospheric greenhouse gas concentrations. The second interview discussed the socio-political implications of the latest scientific understanding—namely the need to go into “emergency” mode, abandoning business and politics as usual in order to make a rapid transition to a fossil-fuel free economy before catastrophe unfolds.
Philip Sutton, GobalPublicMedia, 28 Apr 2008

Download/Stream it directly (mp3).

You can find Part II here, and listen to mp3 here.

Part I is here. Listen to mp3 here.

Finally, the truth on peak oil is coming out, piece by piece. This one is on the front page of the Wall Street Journal. The words are starting to get used, which is the key. First you’ll read this in the Journal and the New York Times, then it trickles down to the rest of the newspapers, then finally it hits the television news. How they will decide to spin this basically all bad news is going to be interesting to watch, that’s for sure.

The world’s premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.

The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world’s top 400 oil fields. Its findings won’t be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.

A pessimistic supply outlook from the IEA could further rattle an oil market that already has seen crude prices rocket over $130 a barrel, double what they were a year ago. U.S. benchmark crude broke a record for the fourth day in a row, rising 3.3% Wednesday to close at $133.17 a barrel on the New York Mercantile Exchange.

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day.
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But the direction of the IEA’s work echoes the gathering supply-side gloom articulated by some Big Oil executives in recent months. A growing number of people in the industry are endorsing a version of the “peak-oil” theory: that oil production will plateau in coming years, as suppliers fail to replace depleted fields with enough fresh ones to boost overall output. All of that has prompted numerous upward revisions to long-term oil-price forecasts on Wall Street.
Energy Watchdog Warns Of Oil-Production Crunch, Wall Street Journal, May 22, 2008

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You’ve probably been hearing various stories the last few weeks, like Saudi Arabia agreeing to “increase production by 300,000 barrels per day. What you’re not reading, however, is what type of crude oil this increase in production will be producing. These two stories should help you start to understand a bit more about how all this refining/crude production stuff actually works.

This first article helps explain. I just cut out the section headers to keep the quote short, but they make it fairly clear. Read the full article to get a better sense of how the global refining vs crude supply market really works, it’s interesting.

As medium sweet crude oil blends have strengthened in recent months, medium and heavier sour blends have fallen behind. In particular, Middle East heavy crudes have been unable to keep up with the growing appetite for low sulphur middle distillate products, with differentials between Saudi Super Light and Saudi Heavy crude blends widening to record levels.
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Medium sweet crudes are becoming a preferred blend
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Global refining bottlenecks are at the heart of the problem
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Middle distillate demand is pulling up medium sweet crudes
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Sulphur content in crude is again more important than gravity
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Due to refining constraints, heavier crudes are falling behind
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Despite strong demand, the global refining sector is disjointed
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Only diesel, jet are helping refining margins thus pushing up medium sweets
Thus, only diesel and jet fuel are really helping keep refining margins above water. The inability of refiners to turn more gasoline, naphtha or residual fuel oil into jet and diesel has now pushed the gasoil to fuel oil spread to record levels. Merrill Lynch said this spread is unlikely to contract much until a substantial amount of new cracking and coking capacity comes on line in 2009-2010. In turn, this situation will likely continue to provide support to medium sweet grades around the world in detriment of heavier, sourer grades.
Heavy crude can’t keep up, Business Intelligence – Middle East, 08-05-2008

These heavier, sour grades, are in fact the “excess capacity” Saudi Arabia keeps talking about. And you can rest assured that when more of this sour heavy crude hits the market, the market will not be able to absorb it, then Saudi Arabia will be able to say that it was not a supply problem, but some non-geological problem, like declining value of US dollar, speculating, etc.

You may also have heard that Iran is currently unable to sell all its crude oil. How can this be when the world is supposedly peaked, and demand is exceeding supply? Read on to learn more.
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