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Monday, October 4, 2010

September 2010 Monthly Average Crude Oil Price: High Inventories, Tame Price

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The monthly average U.S.-dollar price of West Texas Intermediate crude oil retreated by $1.51 (2.0 percent) in September, to $75.31 per barrel. That price decrease occurred despite a weaker dollar, consumption of nearly 19.3 million barrels per day (BPD) in July -- the highest levels since October 2008, but in conjunction with persistently high crude stocks.

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Recent oil-related developments include the following:

· The U.S. Export-Import Bank, an independent federal agency, loaned more than $1 billion to the Mexican state oil company PEMEX in 2009 to support the company's oil drilling in the southern Gulf of Mexico. The bank has another $1 billion in loans in the pipeline for 2010 that, like the 2009 loans, would result in PEMEX employing U.S. oil contractors and engineers for both on-shore and off-shore oil production.

Mexico is the United State's second largest source of foreign oil, according to the Energy Information Agency, accounting for 1.2 million barrels per day in imports -- 200,000 more barrels per day than from Saudi Arabia. Because the United States accounts for a large share of Mexico's oil exports, it is inevitable that the country will import oil produced as a result of federal loans, meaning that the U.S. federal government loaned money to the Mexican government to produce oil so that we could import it.

The Bank's activities are not affected by the Obama administration's ban on offshore drilling because that ban applies only to deepwater (500 meters of water or deeper) drilling and the PEMEX projects financed by the Ex-Im Bank are shallow-water projects.

· The Obama administration will require oil and gas companies operating in the Gulf of Mexico to plug nearly 3,500 non-producing wells and dismantle about 650 production platforms that are no longer used.

More than 27,000 abandoned oil and gas wells lie beneath the Gulf of Mexico, and more than 1,200 oil rigs and platforms sit idle. An Associated Press investigation showed that many of the wells have been ignored for decades, with no one checking for leaks.

The order requires operators to plug wells that been inactive for the past five years. Production platforms and pipelines must be decommissioned if they are not being used for exploration or production, even under an active lease. Current federal regulations require idle structures to be decommissioned - a process that involves plugging wells and dismantling and removing platform structures and pipelines - within one year of the lease's expiration date.

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