While the U.S. and China continued sniping over the details of the Kyoto Protocol aimed at cutting polluting carbon emissions, a key U.S. senator has emerged as a voice of reason, calling, in effect for a combined Long March toward energy security for the two major consumers. Sen. Joe Lieberman, D-Conn. told the Council on Foreign Relations on Wednesday that the U.S. - the world’s largest oil consumer - and China - with its soaring oil demand growth - are on a collision course for future supplies, and should be acting as partners, not rivals.

‘’It’s time for the U.S. and China…to begin to talk more directly about this global competition of oil,'’ he said. ‘’Wars have been fought over such competition for natural resources. If we let it go, this could end up in a real military conflict.'’

Lieberman argues it ‘’makes sense'’ for the two biggest oil consumers to cooperate on use of more secure, renewable energy supplies. He noted China’s demand is forecast to double in the next 20 years, while U.S. use will grow by 40% in the same period.

He also called for China to join the Internatonal Energy Agency, the West’s energy watchdog.
While Lieberman made his call, China told a U.N. conference on cutting emissions that the U.S. should join the Kyoto treaty, rejecting arguments that it is flawed because it fails to restrict emissions from developing countries. Associated Press quoted Sun Guoshunis, a senior foreign ministry official, as saying China was cutting its pollution and that it was unfair to ask people in impoverished nations - such as China and India - with the world’s largest populations - to cut back on energy use. The U.S. - the world’s largest polluter - has called for a reduction its emissions, but won’t sign on to the Kyoto pact. IEA’s Chief Economist Fatih Birol estimated that by 2030, the increase in carbon dioxide emissions from China will be 30% greater than the combined CO2 emissions from the U.S., Canada, Japan, Australia and others combined.

On the other side of the world, Saudi Arabia was confirming its plans to gain a greater footing in China’s growing oil market. An official of state-owned Saudi Aramco said plans are afoot for building a 250,000 barrels a day refinery in northeast China’s Qingdao area in addition to on-going plans to triple capacity at the 80,000 b/d Fujian province refinery in the southeast.

Unlike in the telecoms industry, where the population of developing countries go from no telephone at all to the most modern of cells phones, the transportation sector seems on an inevitable path of old-fashioned cheap and dirty fuels as the make the great leap forward into the auto age. And that’s just the way that Saudis and their Middle East neighbors, holding the lion’s share of global oil reserves want to see it for decades to come.

While oil producers and consumers made news recently at talks in Saudi Arabia by seeking assurances from each other about supply and demand outlooks down the road, one consuming country’s decidedly different route to the future has received scant notice.

Sweden announced plans last month for an ambitious detour on the global path toward increased hydrocarbon consumption: No More Oil.

Prime Minister Goran Persson announced he would head a commission aimed at phasing out completely the country’s dependency on oil by 2020. In 2004, Sweden, which is heavily dependent on nuclear power for its electricity, cut its oil use by 3.9%, to 319,000 barrels per day, while global oil demand rose by 3.1%, according to the BP Statistical Review of World Energy.

Its consumption - about as much as Hong Kong or the United Arab Emirates - amounts to just 0.4% of global demand. Alone, that’s hardly enough to give Saudi Arabia Oil Minister Ali Naimi shivers, or to make his call for a ‘’road map'’ for future oil demand more genuine. The world’s oil consumers can’t make intelligent predictions on far-out oil demand without a clear signal from the world’s biggest oil producer and exporter of what crude oil price they will defend in the future.

Naimi should know full well that you just can’t get a free map at a gasoline filling station anymore.

Sweden’s anti-oil stance comes as the government is fully buying into the idea that ‘’climate change is the greatest and most important environmental challenge of our time.'’ That thinking is far from taking a firm hold anywhere else, particularly in the U.S., where government forecasts call for gasoline demand to rise by 17% by 2012. Sweden’s initiative may take hold domestically thanks to national culture and dedication - think of the dramatic growth of IKEA into the world’s largest home furnishings store, covering the globe will all those assemble-yourself cabinets with drawers to hold all those small black wrenches.
But Sweden’s government isn’t fooled by the considerable hurdles.
‘’The real challenge will be to substitute gasoline and diesel oil in the transport sector,'’ said Persson. After that, it seems, the plan would proceed smoothly.

Sweden’s ambitious notion may face a political detour, though. Persson, seeking re-election next September, reportedly may face a no-confidence vote for failing to mobilize a rapid response to the last year’s Asian tsunami, which claimed the lives of more than 520 Swedes.

‘’Beautiful'’ was the succinct summation of the oil market Saudi Arabian Oil Minister Ali Naimi offered earlier this week. Naimi, OPEC’s de facto leader, was referring to prices stabilizing at around $50 for OPEC’s reference basket of crude and around $57 for the U.S. benchmark , with global inventories at what he reportedly called ‘’comfortable'’ levels.

So why would the market believe that OPEC’s position is essentially: You’re Beautiful! Now Change?

That kind of thinking can do more than just get you in trouble with your significant other. For the oil market, the damaging confusion comes in trying to balance Naimi’s comments with the remarks of Kuwait’s oil minster, whose words perhaps carry a mistakenly loud echo because he currently holds the title of OPEC’s president.

Sheikh Ahmad al-Fahd al-Sabah, the Kuwaiti, who will host OPEC’s Dec. 12 talks at which no formal change in oil production policy is expected, has said in recent days that OPEC wants to see global inventories rise.
The Kuwaiti said he has support for keeping OPEC’s official output ceiling unchanged and an additional 2 million barrels a day of production on offer, if needed. He also said he would be comfortable with commercial oil inventories in the major industrial countries holding 56 days of forward demand cover by the end of the first quarter.

According to the International Energy Agency, commercial stocks stood at 52 days of forward demand cover at the end of September. That means stocks would have to rise even as global oil demand in 4Q ‘05 and 1Q ‘06 rises by more than 2.5 million barrels a day from the third quarter and OPEC output has held fairly steady.

What’s more, al-Sabah’s 56-day comment was a rehash of a statement he made in mid-June that seemed out of the OPEC mainstream when he first uttered it . Since then, commercial stocks in the industrial countries fell to 52 days of forward cover from 53 days.

Commercial stocks haven’t been at the 56-day level since 2Q 2002, IEA data show. And stocks haven’t risen in the first quarter from the fourth quarter by anything close to the 4 million barrels the Kuwait is targeting, since 1996. Oil prices fell by 7% in that period, which would translate to a drop of more than $4 a barrel to near $55 today.

The market reality is likely to be that - with the Saudis content with the status quo - OPEC output may creep up slightly as winter demand emerges, but there won’t be any overt, full-throttle production rise, barring some major catastrophe in a producing country. That means commercial stocks will grow and oil prices will ease only by the extent that demand drops off at the end of winter.

Beauty is indeed in the eye of the beholder and part of the beauty of OPEC’s machinations in its 45-year history is that it’s never crystal clear what the group’s precise aims are.

At such times, bet on the Saudi view to prevail. And Naimi thinks things are beautiful.

He may do well, though, to recall Socrates, who said: ‘’Beauty is a short-lived tyranny.'’

-It was a November to remember for the heating oil futures market, with a 14% price swing leading into a sweater-shedding drop to below $1.60 a gallon - the lowest price since late July - as the December-delivery contract expired. While it wasn’t exactly July weather, November was warmer than normal in the New York harbor region - the world’s largest heating oil market. While some in the market talk about what wasn’t: cold weather - let’s talk about what was: an impressively accurate weather forecast from a perhaps surprising source - The Old Farmer’s Almanac.

In an age when TV weathermen are quoting the latest Doppler 6000 data, the Almanac makes weather forecasts based on a proprietary formula developed by its founder, Robert B. Thomas, back in 1792. Its yellow cover still features a nail-hole for hanging on the outhouse door and its forecasts are tucked in among planting tables, tips on animal husbandry, recipes and quirky tales like ‘’How To Teach Old Chickens New Tricks.'’ It claims an 80% seasonal accuracy rate over the past 214 years - but as oil traders will inevitably ask: What has it done for me lately? For November, the Almanac’s forecast - prepared by Accu-Weather using Thomas’ age-old secrets based on tracking sunspot activity was on the money. In the Atlantic Corridor - from Boston to Richmond, Virginia - the forecast called for temperatures 4 degrees above normal in the north and 1 degree above in the south. The bulls-eye of the region is New York City, where temperatures were smack in the middle of the range at 2.7 degrees above normal.
And the Almanac’s winter outlook suggests the Nymex price rally since December’s expiration may be well supported for the next couple of months.

December’s average temperature will be 6 degrees below normal; January 2006, 7 degrees below normal; February 7 degrees above normal and March 1 degree below normal.

The end of November was supposed to bring the end of hurricane season to the U.S. Gulf Coast region. But as this record-breaking season has shown, if Mother Nature pays little heed to man-made inventions such as buildings, oil rigs and refineries, what respect will she have for a calendar? History suggests that after suffering through Katrina and her evil twin, Rita, the key oil producing and refining region is in for a respite as rebuilding continues. In the past century, only 1 major hurricane has made landfall in Texas or Louisiana after September, according to the U.S. National Weather Service.

That’s some solace as trackers report that Hurricane Epsilon has formed in the Atlantic, but doesn’t appear to be a threat to land.
While the worst of this hurricane season is past, forecasters warn that we’re in a violent, active cycle for years to come.