Gustav and Oil Price Hysteria

Watching media reportage of the advent of Gustav has become a classic example of how the media and the oil patch has herded us into sheeplike panic accepting of most any set of events to rationalize ever egregiously higher oil prices.

Gustav is about to slam through the Gulf coast. Oil rigs and refineries are in danger. Near 25 percent of our oil production capacity is at risk. Refineries are shutting down. Talking heads on television are predicting an energy Armageddon. Oil prices will skyrocket. Remember Katrina!

Here you have the classic plot of media hype and oil patch propaganda meant to assuage us into complacent acceptance of higher oil prices. It is, has been, a theme repeated over and over again in one form or another. Sadly the oil producers, the oil industry, have gotten away with it time and again. This, while our media has been snoozing away.

Where are the media skeptics asking hard questions and pointing out the following:

*Oil rigs in the Gustav's projected path in the Gulf area produce some 2.2 million barrels a day.

*Even if all rigs were brought to an unlikely standstill for a period of ten days that would entail an interruption of production of 22 million barrels (please note 'interruption' not 'lost" as it will simply be pumped at a later date).

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*The United States currently holds some 300 million barrels of commercial/industrial stocks.

*The Department of Energy has over 700 million barrels in its Strategic Petroleum Reserve (STP).

*The Department of Energy has signaled it is prepared to tap the Reserve if needed by industry.

*The International Energy Agency, a consortium of 26 nations, with petroleum reserves comparable to our STP has also signaled its willingness to make its reserves available in case of need.

*Oil refineries in the region are shutting down as a precaution ahead of Gustav.This means significantly reduced demand for crude oil.

*After Katrina, demand for gasoline dropped sharply and one can assume that will be the case after Gustav passes. Again a reason for lessened crude oil demand.

*Refineries nationwide are operating at about 85 percent of capacity. At the time of Katrina capacity usage was circa 95 percent so it is even questionable that the shortfall in oil production because of Gustav will even be missed.

Now this kind of information is not rocket science. Why is it that our media hardly ever gets it right and lets the oil industry and the speculators run roughshod over our pocketbooks?

Comments

[themodernleader]

GetaBike. Thanks for sharing. The using of corn stocks for fuel is economically suicidal for we are squandering our wealth. Taking food stocks to replace gasoline is dangerous because we are short of food stuffs worldwide as your article indicates. Among our political ellite, the truth is a scarce commodity. Honesty is yet more scarce. However, false information and knowledge benefiting special interests have inundated and clogged our interpersonal, intraorganizational communication.

[GetAbike]

Amen to that. I like the idea that "truth" and "honesty" are commodities, apparently bought and sold in the same way by the powers that be. I am one of those polarized citizens that cannot stomach listening to the GOP bs-ers for even a few minutes. All i know is that the world is full of powerful, vicious, heartless liars that have no concern for the immense problems faced by humanity except to steal as much as they can using war, environmental rape, tax cuts, and injustice.
Ya, I have been accused of being a doomer. Regardless, the facts are on my side. But I'm not totally hopeless or paralyzed. I have hopes for Obama though I realize no politician can/ will tell us that our life-style expectations must come down for us to survive.
When the Chinese would say, "may you live in interesting times", it was meant as a curse.

[themodernleader]

Using .8 billion fewer barrels of oil is "good" if the same energy is derived from other sources or energy savings for the same units of productivity. Alas, fewer barrels of oil reflects a precipitiously declining economic system and a preciptiously poorer people. The less energy, the lower standard of living for the citizentry. We must blame ourselves for electing such despicable leaders who account for our new Age of Demigogic Leadership.

[Swerinjer]

The corporate media favors corporate interests. We need a Fairness Doctrine that includes content supervision and approval by an independent panel.

[siciliabel]

That we haven't seen a rise in oil prices post-Gustav, even though production had to be shut down, tends to support the notion that oil prices aren't just market driven. We certainly have seen prices go up this summer because of perceived possible potential effects possible events that might take place which might maybe affect oil production, potentially. Is it only coincidence that this is occurring during the Republican's convention? I don't believe in coincidence.

[KillTheMessenger]

Or... it just supports the notion that high enough prices will ultimately lead to less demand, which ultimately will lead to enough reserve production capacity to survive even pseudo-situations like a tropical hailstorm that has been made into a hurricane by the press desperate for attention.

I don't believe in coincidence, either. But I do believe that using 800,000 barrels less oil a day than a year ago is a good thing for the US.

[siciliabel]

No market is that responsive, that quickly.

[vippy]

Oil fell to $ 107 and gas should be $ 2.86. Why is it not. They are quick to up the prices but they
will drag their feet to bring it down. Why is that? And no one addresses this issue. We are
but cowards in the US, yet blame the French or anyone else.

[GetAbike]

I am glad Raymond has his facts straight this time- I read an article from the AP that was full of similar statistics the morning he posted. That the news readers on cable don"t address these issues should be no surprise. Their only concern, like many of the readers here on Huffpo, is the price of gas.
Raymond, here are a couple of other articles you might consider:
The Wall Street Journal Money and Investing Column 1, this morning-- "Stocks Struggle with Oil's Good and Bad".
The Genius's are starting to realize that high oil demand mean high oil prices and thus a vibrant economy... low oil prices mean low demand and a sluggish economy.

Another article that themodernleader will appreciate is
http://www.sciencealert.com.au/opinions/20080309-17885.html
------------------------
Tackling the Global Food Challenge

World food security, as Australian consumers and others are fast discovering, is at its lowest in half a century. The precipitous fall in world food stocks in the past seven years is forewarning of what we can expect in the next few decades as civilization runs low on water, arable land, nutrients and technology, as marine catches collapse, as bio-fuels grow and energy costs rise, and as droughts intensify under climate change.

The chart of grain stocks reveals that, year on year, humanity now consumes more food than it produces.

Enjoy your non-negotiable lifestyle!

[themodernleader]

killthemessenger. Commodites are assets. Real estate are assets. Agreed? Unrestained credit and unregulated business permitted the production and inflation of commerical and residential units at least three times above their true regulated market value. Our Nation squandered trillions building twice as much residential and commerical space as the market demanded. These trillions were borrowed from around the world. More dangerously, much farmland was taken. Now we import more than we export in foodstuffs. Is that not a shocking fact?
Now the banking system around the world is in trouble. And the entire world is sliding into hard times. The worst times will be experienced by the guilty parties.
Commodities have no reason to go to the heights that we have recently experienced. And they will probably correct to depths that are also unjustified by the fundamentals. Such speculation driven economics are unwarranted and dangerous to world order and peace.

[dadw5boys]

The low UPFRONT MONEY to buy into some futures positions is too low.

Make them give up all the money for each contract and see what happens !!!!!

[KillTheMessenger]

"Commodites are assets."

Only if you happen to own them. If you are dependent on them and you have to buy them from other countries they are liabilities, not assets.

I agree with most of what follows. Yep, another bubble.

"Commodities have no reason to go to the heights that we have recently experienced."

Why? There is no prescribed formula for prices. The price of a commodity is the price the buyer is willing to pay. It has nothing to do with production cost or anything. How much something is worth is solely dependent on the need of the buyer to have it. Lower that need and you will lover the price.

"And they will probably correct to depths that are also unjustified by the fundamentals."

I have not seen a reasonable definition of "fundamentals" that would hold up to serious market analysis. Markets are what they are. There are no baselines and fundamentals to which markets have to be forced to adhere.

"Such speculation driven economics are unwarranted and dangerous to world order and peace."

How so? If the only mechanism that can force the US to lower its demand for a commodity which it does not have enough of itself is price, so be it. All of this could have been prevented 30 years ago with a sane energy policy. We opted for the market solution. So let's not fall into a whiny voice over our own misguided decisions now.

[cylindar]

Yeah well, prices go up, prices go down. It's not news anymore is it?

[politicky]

Who pays the media?

Even PBS's News Hour is brought to you by Exxon, BP, Chevron and alll the big defense contractors.

[KillTheMessenger]

Thank God the information to understand all of this can be had for free at the public library. All you have to do is to go and get it.

[KillTheMessenger]

Talking heads on television? Not just there. They are everywhere. People who don't want to understand that simple market forces like supply and demand are at work are a dime a dozen. Not just on tv. We have plenty of them in the blogosphere, too.

And all it really takes is a cool headed look at reality. Oil production has been flat for the last three years and could not follow rising demand since 2002 and this led to a perfectly predicable price increase over the past six years. Now, thanks to prices and a slowing of the economy the world is conserving, for the first time in decades, and the prices are responding, with a downwards trend. As long as we keep our efforts to use less oil ahead of the consumption curve, we will see prices drop. And as soon as we become complacent, again, prices will rise.

[StillAmused]

They're preoccupied reporting important political detritus... and getting much of THAT wrong, too.

Must be at least ONE quality high school newspaper that can step into the breach and save us from all the uninformed, narrative-driven drooling and repetition.

[themodernleader]

The manipulation of prices by an urestrained market that impoverishes people all over the world is a political issue. Yet, all American candidates to my knowledge are silent, as if sudden explosions and implosions of prices concerning oil, corn, wheat, soybeans, cotton and so on were normal and all right.
Such despicable lawful thievery of wealth from the many to the few is a bought policy and procedure that has led to wars within, between and among nations and the slaughter of millions. The leaders of this penurious country are of the most incompetent and cowardly. Our country is now paying dearly and will cry for another country unless soon confronting the grave dangers facing ourselves.

[Paul]

High oil prices are a good thing. The US wastes too much oil from inefficient automobiles and higher prices are the only effective way to reduce consumption.

But giving the money to Exxon is the problem - they will just use it to find more expensive oil.

We need to tax gasoline to the pain threshold and use the proceeds to build a mass transit system so good you will not even need to own a car.

[Rashnak]

yes- punish poor people. Sounds like a typical liberal plan.

[nastyvirus]

Sounds like a plan, except when you factor in greed. After promising extra service in exchange for a fare hike, what did New York City's MTA do with the extra money? Pocket it, giving city straphangers* some lame excuse about property taxes. When you take away the greed factor, everything becomes easier.

*straphanger? No more straps on the trains or buses, so stop using this word, please.

[bgregs]

I wouldn't have a problem with the higher prices, if the money that we were paying would be going to something USEFUL, like research into non-fossil fuel energy sources, and non-polluting alternatives. Instead it is simply going into a combination of oil executives' pockets and Saudi Arabia.

[KillTheMessenger]

That's really everyone's personal choice. There are plenty of more efficient vehicles out there to chose from. The average American can cut their gasoline consumption in more than half, if they want to.

Sadly, not very many people want to.

[ILibertine]

That is nice, but what do those who live in areas without public transportation do in the meantime, or elements of the population living in sparsely settled areas where there will be no mass transit?
Perhaps you would donate some of your income toward a fund to compensate those individuals until there is a viable alternative?
Taxing wage-earners, while a nice premise to the extent it will reduce consumption, also places undue burden upon large segments of the population whose alternatives are limited to buying a more efficient vehicle or reducing trips and expenses in another manner.
Keep in mind the auto-friendly infrastructure was brought upon us through oil and auto companies advocating roads instead of rails (there were great trolley/interurban systems in many citys and some rural areas), as well as matter of convenience.
Obama had the nail on the head recently when he suggested that the Gustav-style mobilization in Big Easy was required in other areas of our society. The proverbial "Manhattan Project" to reduce oil dependency is a necessity. To inflict financial pressure upon an already severely impacted population in such pursuit is wrong. A more appropriate manner would be taxing vehicle size and efficiency, and the exorbitant profits at the top of the oil chain.

[KillTheMessenger]

Nobody stops you from driving cars with smaller engines, from sharing rides, or moving closer to work.

Low gas prices have never been a constitutionally guaranteed right and never will be. The responsibility to deal with them on a one by one basis lies with every citizen.

[mjt218]

Mr. Learsey, where did you get your numbers on demand post Katrina? I personally would be much more interested in post-Rita numbers. Katrina did little to disrupt oil production in the Gulf, or refinery production on land. Rita went through the heart of oil production in the central Gulf and had a much more sustained long term impact (platform topples and damage plus Houston refinery outages).

[infinity]

What's your point?

[nastyvirus]

The point is, Rita was a bigger bitch. At least Katrina used deoderant.

[mjt218]

I'm saying that Katrina in general did not have that big of an impact offshore. Now we can argue about which storm hit refineries worse, but Rita's path should have had more of a long term impact on crude oil supply in the Gulf than Katrina.

[LeftRight]

Rita wasn't the one that cut the REFINERIES. That was Katrina. Rita was more on the mark for the oil platforms, but Katrina hit the refiners hard!

[SShaw490]

Raymond, it's a good thing it's not rocket science, because I'm pretty sure you wouldn't be able to figure it out. They don't just flip a switch and turn this stuff off and on, and they don't shut it down without good reason. 2.2 million bbl/d is about the output of Iraq - shut that down and see what happens to prices.

These price swings are the result of a market in which suppy and demand are at a precarious balance - any loss of supply, increase in demand (or decrease, as we've seen in the last few months), and prices swing significantly. It's the nature of the business. In the electrical power world, prices can swing from $30/MW to $200/MW in a 24 hour period, driven completely by supply and demand.

[mightbesane]

Bull Cookies!

These price swings are the result of the Instant Age - Instant Communications, Instant Speculation and Instant Pricing. For the laws of supply and demand to affect pricing, there has to be a measurable change in one or the other. We know that a hurricane MIGHT affect crude production or refining capacity many days in advance. Speculation leads to higher prices for crude. Rises in crude futures lead to a rise in the price that gas stations charge for the refined gasoline that's already in their underground tanks - bought and paid for at the pre-hurricane price. What does the law of supply and demand have to do with that process?

Not a darn thing!

[ZellaBee]

Has anyone ever heard the term "price gouging"? If a small business in NOLA raised their prices for say water or supplies, in advance of the storm, the attorney general would be on their @$$. But the Petroleum party government can do whatever they want. I really think we should just stay home, drive as little as possible and let them sweat it out at the next shareholders meeting.

[Rule Of Law]

This is an excellent point, and I am amazed more people haven't remarked on it. Oh, I remember why, it flies in the face of peak oil conspiracy crowd's notion that gouging doesn't exist.

[mjt218]

Unfortunately, every facet of our existence depends on oil. From national defense, to personal transportation, to the transportation of everything we eat and use, to the materials used to make the keyboard I'm typing on, we need oil.

While, curbing US demand for gasoline does have an impact on refining margins, I'd be surprised to see any boycott attempts rattle boardrooms, especially as China and India continue to increase their petroleum use.

[ZellaBee]

True. Demand is NOT the real reason, though most of the oil we use IS for transportation. It's all about greed, power, and control. We need some oil, but not as much as we are using and have had 30+ years to solve the problem, since the gas crisis of 1978-79. We have the technologies, most of them need further funding to perfect them. Solar, wind, hydrogen, and the earth and its atmosphere itself, just to name a few. The military uses secret technologies no one has ever heard of, so we pay for their R&D, but we don't reap the benefits. Just read about Nikola Tesla, and how the corporate run government has a LONG history of trying to stop development of technology, that would have solved our energy problems over 100 years ago. If we spent only HALF of what we have wasted on the horrible oil war, on green technology, we would be living in a safer, cleaner, healthier environment with low cost energy, We would have lots of jobs and we could be the leaders of the world in green technology. We would also have a balanced economy and more. It will happen when we have a President, Congress and Senate and other people whose vision does not include oil as the only option and who care more about people, and the whole Earth , that they do about them selves, their positions, and their bank accounts.

[KillTheMessenger]

"I really think we should just stay home, drive as little as possible and let them sweat it out at the next shareholders meeting."

That's a great idea that comes about 30 years too late. When Jimmy Carter proposed it the great American voter gave him the shaft.

[LeftRight]

Unfortunately you are entirely correct. I HAVE cut my driving back to the bare minimum, and will continue to do so. However, the OTHER options, alternative energies, fuel efficient vehicles, etc.... are all too expensive or not present for most people to afford them!