Oil falling as demand slows, dollar gives support

Can the dollar save oil?

Oil prices (NYMEX:CLU13) started to give in to expectations of slowing demand and a reduction of geo-political risk, but it was the dollar to the rescue. Oh sure some traders are worried about Tropical Storm Dorian and its track that could put it right into the mouth of the Gulf of Mexico next week, but it will be Hurricane Ben Bernanke and his band of merry men and women that may be the major factor. OPEC is showing signs that they will cut production in unison with slowing seasonal demand and Iraq has slowed shipments.

Oil demand may be questionable short term but long term demand for all energy will be strong. A report by the Energy Information Administration that world energy consumption to increase 56% by 2040 led by Asia. Now in the past this type of report would have brought out the peak oil folks telling us the end was near. Yet with the innovations of new technology now the world can welcome these demand expectations and all of the economic growth and improvement in the quality of life for the people involved. With the U.S. on a path to producing more oil and gas, the technologies that have unleashed an energy revolution will spread throughout the world to rise up and meet the demands of the earth in the future.

In fact Australia is saying that it might be the next major shale revolution! Energy Bangla writes the U.S. government's Energy Information Administration noted in its country's analysis for Australia, "Australia, rich in hydrocarbons and uranium, was the world's second largest coal exporter in 2011 and the third largest liquefied natural gas (LNG) exporter in 2012. Australia is rich in commodities, including fossil fuel and uranium reserves, and is one of the few countries belonging to the Organization for Economic Cooperation and Development (OECD) that is a significant net hydrocarbon exporter, exporting over 70 percent of its total energy production according to government sources. Australia was the world's second largest coal exporter based on weight in 2011 and the third largest exporter of liquefied natural gas (LNG) in 2012." Six months ago Brisbane company Linc Energy Ltd.Energy released two reports, based on drilling and seismic exploration, estimating the amount of shale oil in the as yet untapped 30,000 square mile Arckaringa Basin surrounding Coober Pedy ranging from 3.5 billion to a mind boggling 233 billion barrels of oil.  If the upper end estimates are correct then it means that the Arckaringa Basin is six times larger than the Bakken, seventeen times the size of the Marcellus formation, and 80 times larger than the Eagle Ford U.S. shale deposits.  To put the potential of the Arckaringa Basin in context, Saudi Arabian reserves are estimated at 263 billion barrels.

Natural gas?  Six basins in Australia stretching from coastal Queensland to Western Australia's far northwest contain recoverable shale resources of as much as 437 trillion cubic feet of gas, all of which was previously inaccessible because it is contained in shale formations, which could be unlocked by "hydraulic fracturing." But the U.S. Department of Energy predicts that Australia's shale gas industry will develop at a "moderate pace" because the nation's shale oil and gas resources do not as yet have the advanced production infrastructure that has underwritten the U.S. production boom.

And what if estimates for the Arckaringa Basin pan out? We'll leave the final word to the EIA, which notes, "Australia's stable political environment, relatively transparent regulatory structure, substantial hydrocarbon reserves, and proximity to Asian markets make it an attractive place for foreign investment. The government published an Energy White Paper in 2012 that outlines its energy policy including balancing its priority of maintaining energy security with increasing exports to help supply Asia's growing demand for fuel."

Tropical Storm Dorian is hanging in there as it moves across the Atlantic, according to the U.S. National Hurricane Center. The storm may weaken over cool waters but still could be a threat. Stay tuned!  Bring on the Fed!

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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