DrillingThe well is created by drilling a hole 5 to 30 inches (13 – 76 cm) diameter into the earth with an oil platform which rotates a drill bit. After the hole is drilled, a steel pipe (casing) slightly smaller than the hole is placed in the hole, and secured with cement. The casing provides structural integrity to the newly drilled wellbore in addition to isolating potentially dangerous high pressure zones from each other and from the surface.With these zones safely isolated and the formation protected by the casing, the well can be drilled deeper (into potentially more-unstable and violent formations) with a smaller bit, and also cased with a smaller size casing. Modern wells often have 2-5 sets of subsequently smaller hole sizes drilled inside one another, each cemented with casing.
Crude surges past $102 a barrel
JOHN WILEN
Thursday, February 28, 2008
NEW YORK — Crude prices rebounded Thursday, shooting up more than $2 (U.S.) a barrel to a new record as a falling U.S. dollar and the prospect of lower interest rates attracted fresh money to the oil market.
U.S. retail gasoline prices, meanwhile, rose closer to records above $3 a gallon.
A pair of dismal economic reports Thursday drew more money into the oil market, as did Federal Reserve Chairman Ben Bernanke's comments that the economy is not immediately threatened with stagflation, a combination of economic weakness and rising inflation.
The Commerce Department said gross domestic product grew at only a 0.6 per cent rate in the fourth quarter, below estimates and at only a fraction of the previous quarter's growth rate, while the Labour Department said applications for unemployment benefits rose by 19,000 last week, more than expected.
Rather than viewing such news as bad for oil demand, investors chose to see it as confirmation of their beliefs that the Fed will continue cutting interest rates to try to shore up the economy. Interest rate cuts tend to weaken the U.S. dollar, and crude futures offer a hedge against a falling dollar. Also, oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.
“I really think that this is oil being viewed as ... a financial instrument,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Light, sweet crude for April delivery rose $2.45 to $102.09 a barrel on the New York Mercantile Exchange after rising to a new record of $102.74.
Crude prices are within the range of inflation-adjusted highs set in early 1980. A $38 barrel of oil then would be worth $97 to $104 or more today, depending on the how the adjustment is calculated. A direct comparison with daily Nymex prices is difficult because historical data, gathered before the crude futures contract was created in 1983, are based on average monthly prices posted by oil producers.
Different analysts have varying benchmarks for an inflation adjusted high. For example, John Kingston, director of oil at Platts, the energy research arm of McGraw-Hill Cos., arrived at an all-time high of more than $104 a barrel, which he said adjusts for delivery costs to and from Cushing, Okla., the Nymex crude oil delivery terminal. Using his own inflation adjustment, A. G. Edwards & Sons, Inc. oil analyst Eric Wittenauer arrived at a widely quoted estimate of $103.76.
However, an inflation calculator maintained by the Bureau of Labour Statistics estimates that $38 in 1980 is worth $97.34 today. A Federal Reserve Bank of Minneapolis calculator puts $38 in 1980 dollars at $99.43 today.
Oil's rally is pulling gas prices higher. At the pump, retail gasoline prices rose 0.9 cent overnight to a national average of $3.161 a gallon, according to AAA and the Oil Price Information Service. Prices are within 7 cents of May's record of $3.227 a gallon. The Energy Department expects prices to peak near $3.40 a gallon this spring; many analysts think prices will rise much higher than that.
Oil prices fell $1.24 a barrel Wednesday after the Energy Department reported crude inventories rose more than expected last week.
But that reflected a rare reaction by oil investors to supply and demand fundamentals. Oil prices have been far more affected in recent months by dollar- and interest rate-driven investment decisions, analysts say.
“[Fundamentals] have no relationship to price right now,” Mr. Flynn said. If prices were responding to supply and demand, fundamentals, they would be falling, he said. Several recent forecasters have lowered oil demand growth predictions for this year due to the slowing economy, and domestic oil inventories have been growing.
Oil prices have received some support in recent days from word of a technical glitch that temporarily disrupted the flow of a small amount of crude out of Nigeria. Eni SpA denied earlier reports that its Brass River oil terminal had been attacked by rebels. Turkey's recent invasion of Northern Iraq in search of Kurdish rebels has also been supportive, Mr. Flynn said, but these stories are not enough in and of themselves to explain why oil continues to trade above $100.
Many analysts believe it's just a matter of time until the fundamentals reassert themselves on the market, pushing prices down.
Other energy futures also rose Thursday. March gasoline futures rose 0.94 cent to $2.4871 a gallon on the Nymex, while March heating oil futures rose 6.23 cents to $2.8334 a gallon.
April natural gas futures jumped 41.3 cents to $9.473 per 1,000 cubic feet. The Energy Department said inventories fell by 151 billion cubic feet last week, slightly less than expected.
In London, April Brent crude rose $2.18 to $100.45 a barrel on the ICE Futures exchange.
© Copyright The Globe and Mail
JOHN WILEN
Thursday, February 28, 2008
NEW YORK — Crude prices rebounded Thursday, shooting up more than $2 (U.S.) a barrel to a new record as a falling U.S. dollar and the prospect of lower interest rates attracted fresh money to the oil market.
U.S. retail gasoline prices, meanwhile, rose closer to records above $3 a gallon.
A pair of dismal economic reports Thursday drew more money into the oil market, as did Federal Reserve Chairman Ben Bernanke's comments that the economy is not immediately threatened with stagflation, a combination of economic weakness and rising inflation.
The Commerce Department said gross domestic product grew at only a 0.6 per cent rate in the fourth quarter, below estimates and at only a fraction of the previous quarter's growth rate, while the Labour Department said applications for unemployment benefits rose by 19,000 last week, more than expected.
Rather than viewing such news as bad for oil demand, investors chose to see it as confirmation of their beliefs that the Fed will continue cutting interest rates to try to shore up the economy. Interest rate cuts tend to weaken the U.S. dollar, and crude futures offer a hedge against a falling dollar. Also, oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.
“I really think that this is oil being viewed as ... a financial instrument,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Light, sweet crude for April delivery rose $2.45 to $102.09 a barrel on the New York Mercantile Exchange after rising to a new record of $102.74.
Crude prices are within the range of inflation-adjusted highs set in early 1980. A $38 barrel of oil then would be worth $97 to $104 or more today, depending on the how the adjustment is calculated. A direct comparison with daily Nymex prices is difficult because historical data, gathered before the crude futures contract was created in 1983, are based on average monthly prices posted by oil producers.
Different analysts have varying benchmarks for an inflation adjusted high. For example, John Kingston, director of oil at Platts, the energy research arm of McGraw-Hill Cos., arrived at an all-time high of more than $104 a barrel, which he said adjusts for delivery costs to and from Cushing, Okla., the Nymex crude oil delivery terminal. Using his own inflation adjustment, A. G. Edwards & Sons, Inc. oil analyst Eric Wittenauer arrived at a widely quoted estimate of $103.76.
However, an inflation calculator maintained by the Bureau of Labour Statistics estimates that $38 in 1980 is worth $97.34 today. A Federal Reserve Bank of Minneapolis calculator puts $38 in 1980 dollars at $99.43 today.
Oil's rally is pulling gas prices higher. At the pump, retail gasoline prices rose 0.9 cent overnight to a national average of $3.161 a gallon, according to AAA and the Oil Price Information Service. Prices are within 7 cents of May's record of $3.227 a gallon. The Energy Department expects prices to peak near $3.40 a gallon this spring; many analysts think prices will rise much higher than that.
Oil prices fell $1.24 a barrel Wednesday after the Energy Department reported crude inventories rose more than expected last week.
But that reflected a rare reaction by oil investors to supply and demand fundamentals. Oil prices have been far more affected in recent months by dollar- and interest rate-driven investment decisions, analysts say.
“[Fundamentals] have no relationship to price right now,” Mr. Flynn said. If prices were responding to supply and demand, fundamentals, they would be falling, he said. Several recent forecasters have lowered oil demand growth predictions for this year due to the slowing economy, and domestic oil inventories have been growing.
Oil prices have received some support in recent days from word of a technical glitch that temporarily disrupted the flow of a small amount of crude out of Nigeria. Eni SpA denied earlier reports that its Brass River oil terminal had been attacked by rebels. Turkey's recent invasion of Northern Iraq in search of Kurdish rebels has also been supportive, Mr. Flynn said, but these stories are not enough in and of themselves to explain why oil continues to trade above $100.
Many analysts believe it's just a matter of time until the fundamentals reassert themselves on the market, pushing prices down.
Other energy futures also rose Thursday. March gasoline futures rose 0.94 cent to $2.4871 a gallon on the Nymex, while March heating oil futures rose 6.23 cents to $2.8334 a gallon.
April natural gas futures jumped 41.3 cents to $9.473 per 1,000 cubic feet. The Energy Department said inventories fell by 151 billion cubic feet last week, slightly less than expected.
In London, April Brent crude rose $2.18 to $100.45 a barrel on the ICE Futures exchange.
© Copyright The Globe and Mail
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