Language, the Media and the Price of Oil
Today, CNBC provided an example of why the public has been led so far astray when we are informed by the media about oil and its market structure.
Sharon Epperson, CNBC's oil market specialist, went on the network this morning to report on the price of oil. She advised that the price had inched up another dollar and went on to report that OPEC was considering further production cuts to be determined at OPEC's next meeting.
Then, she provided a key insight into the media mindset that has vastly empowered the oil producers. Epperson advised that according to a report by the International Energy Agency (IEA), OPEC compliance to their previously announced cuts has been but 83%. Then Epperson goes on to comment, "Therefore OPEC has an incentive to deliver on the 'promised' production cutbacks."
And that's the rub -- the use of the word "promised" in place of the word "threatened." It seems like a small detail, but it exposes an important media predilection, all too frequently putting oil patch extortion in the best possible light. It was forever manifest in oil's run-up to $147/bbl and seemingly refuses to go away.
As to another view on the current structure of oil prices, please check out "Why Are We Paying $50 a Barrel for $20 Barrel Oil??" (04.27.09).
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The mainstream media is designed to increase the profits of corporations. They care not about informing the public or about democracy. The mainstream media should be boycotted until they stop their manipulations.
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I want to drill a well that taps into the bottom of the strategic petroleum reserve. Also, hitting the right pipeline could be rich.
I believe the last people to drill into a pipeline won the Darwin Award.
That's good, right?
There's money to be made trading oil-related stocks these days. I bet most of these goobers on here are still wondering where half of their portfolio went?
Why are the majority of the oil well pumps in Colorado not operating?
And New Mexico??????????
No demand. Just a guess.
Because there is no demand. The number of rotary rigs operating in the US last week was 991 compared to 1968 in the same week last year. Natural gas inventories are at the highest they've ever been. Oil inventories at Cushing, OK right now are the highest since the early 80s. There is simply no demand. Factories in the US are running at about 68% capacity. Airlines demand for jet fuel is way down from a year ago. Demand for diesel from the transportation industry is way down. Even demand for gasoline is down a bit from the same week ago despite gas being almost half the price.
You would think people are happy that the country is preserving some of the precious little oil that's left in the US for later... instead they are bitching that we are, for once, not burning the gifts mother nature gave us like the next best madman.
The majority of the wells are not pumping, so 51% or more, correct? Could be many reasons, the lifting cost could be higher that the price received. The pumps could be on timers to pump only certain days ot the week or month to keep from over producing the reservoir and hurting the ultimate recovery, could be produced water issues, mechanical issues, any number of things.
Golly Moses. You mean that oil that costs more to produce than the market price won't get produced? I thought it was a mean conspiracy and that all the oil, per Mr. Learsy, costs only $20/barrel to produce?
Could it be that the price is set by the marginal cost of production that is required to satisfy the last barrel of demand?
Also, is it a little unseemly for Americans such as Mr. Learsy to complain about how OPEC countries won't produce enough to help us out price-wise, while no country in the world does more to suppress development and productiion of its own oil and gas resources than does the old USA?
Ray, I have a feeling that the bailed out banks bad bets were on oil futures.
Someone had to pay the difference between the cost of the futures and the price of the oil on delivery.
One reason why they would not say where the TARP money went.
Just thinking!
Goldman Sachs is probably the most heavily involved in the oil market of any of the financial institutions and their trading profits have been very good. You can blame bad bets on oil futures on hedge funds and pensions funds. If you have a pension, you might want to know what's happening with your money because there's a good chance it might be in commodities markets.
This price is rising because of the currently dropping US dollar. If OPEC is selling oil for $55 and the Buck drops 10%, that means oil, to maintain value has to rise $6 just to stay even.
This not a supply/demand fluctuation!
Job one regardless of price is energy conservation. 5% per year in reduced U.S. Domestic provides a 30% reduction in 6 short years.
This can be done by increasing the average MPG per vehicle over time. Old units can be traded in with a more attractive incentive, currently projected to be as high as $4K based on the increased MPG between the old vehicle and the new one.
We must become energy independent with the help of energy conservation. BTL, CHP, Waste to Energy, sustainable green alternatives are coming soon enough however that ramp up will take time.
5% a year would be great. Optimistic estimates for peak oil assume that we can manage 4% without shortages. On an individual basis that's not so hard. Most people in the US can roughly double the efficiency of their car by replacing it. Further savings can be had from ride sharing and public transportation. Where we have a short term problem is freight. We would have to increase transportation efficiency of trucks quite a bit in the short term since building electric freight train lines will take a long time. And aviation is going to suffer quite a bit from high oil prices. While a modern jet can have a fuel efficiency of 80-100mpg/
Actually, it would be a 34% decrease over 6 yrs because of compounding the percentage.
We have heard for years that the reason gas prices go up in America is not that there is a shortage of oil, but a shortage of refining capacity, that there hasn't been a new refinery built in America in 30 years. Well, while the knee jerk conservative would be quick to blame that on environmentalists, the question must be asked Why? Oil companies can certainly afford to build refineries; they make record profits. And I'm sure there are some red states that wouldn't mind a clean, new efficient refinery in their state and the high paying jobs that go with it (UT, WY, AZ,)
So what gives? With demand for gas at record levels, with crude in abundance, with plenty of capital to build with, why aren't oil companies increasing refining capacity?
Could it be that little thing called supply and demand? You know, capitalism?
You guys are having good threads here; I'd like to hear your POV.
The margin on refining is darn slim as is the margin on retail. The integrated oil companies are getting rid of their retail operations they are however bolting on and enlarging refineries here and there where they can. A brand spanking new refinery is just not an attractive investment.
Demand for gasoline is not at record demand, it is down. Compound it with Californias new blend standards, who in the heck would attempt to build a new refinery in these uncertain times?
We have sufficient refining capacity now, a bigger problem is the foreign crude that we are refining vs. producing more here at home. As for refineries in UT, AZ, WY , the majority of the refineries are on the gulf coast since more than 65% of the refined crude is imported by tanker or shipped via pipeline from the GOM, refineries have to be where the source of the production is.
While it may true that we have not built a refinery in 30 years (in fact, we closed a large number of refineries in the last 30 years), what that sentence totally misses is that refineries have been rebuilt internally several times. A 2008 refinery can do the work of dozens of 1978 refineries, so our overall refinery production capacity far exceeds what we had in 1978.
Also have you noticed the price of diesel? We Americans are the ONLY country that is a gasoline based society. Everywhere else in the world they run on diesel. This is due in fact on OUR process in dealing with pollution, the world has one standard, and we have another. Remenber when gas was a $1.00+ and diesel was $.30. What happened? Refineries have/are making the switch to satisfying the global need for diesel, but the U.S. will not change our antiquated pollution policy....
In the late 1990's the oil refinery owners acknowledged that they were making only about 5 cents per gallon profit on gasoline. They then started closing down refineries in order to "tighten supply" and their profit margin jumped up to 15 cents per gallon. Add in on all of their "scheduled" and "unscheduled" maintenance shut downs of major refineries during peak driving demand and their profit margin increases again for a short period of time.
Whereas its in OPEC's best financial interest to keep supply tight enough to keep prices high enough to support their economies, they also keep the supply loose enough so as people will still purchase their oil.
Check refinery utilizatio
http://ton
In the short term , I would agree, tightening the supply works in their favor, but if we the consumers hitback with lowering our demand, they have no choice but to drop prices.
Thanks for the info. Mr. Learsy's column was on language, media and the price of oil. If all that you guys say is true, and it sounds reasonable, then why do we always, and I do mean always, hear from the MSM and the conservative media everytime gas prices go up that there is a serious lack of refining capacity in this country?
When we were topping combusting 22 million barrels a day, the pipes were straining at both ends of the refineries. At where ever we are now, say 18 million barrels a day, the pipes on both ends are breathing sighs of relief.
But, given where we are today, any fool who rolled out a new refinery in 2007 or 2008, would either be bankrupt himself, or have caused an extended shutdown of some other refinery.
I would be hard pressed to come up with a reason why an industry is obligated to do something that damages their income. And from a ecology perspective, low barrel prices are simply a disaster.
The MSM is very biased against the oil industry. CNBC complains bitterly about high oil prices, and they advocate the notion that low oil prices fuel economic growth; in fact, are absolutely necessary for economic growth. First, it's not true; second, we will never ever have low oil prices ever again, so the economy will just have to figure out a way to grow in spite of high oil prices.
Refineries have added a lot of new capacity in the last 30 years, just in existing refineries rather than building new ones. Refining margins by the way can fluctuate dramatically. At times it has been a very lucrative business but there have been long periods where it was a terrible business with very low margins. There were global refining capacity issues for diesel fuel in late 2007 and the first half of 2008 and US refineries were exporting to capture those high margins abroad.
OPEC's actions are not "oil patch extortion" , it is OPEC extortion. To use that phrase infers duplicity on the part of the oil and gas industry as a whole. We in the "oil patch" i.e. the over 5000 US oil and gas companies, service companies and suppliers that employ over 4,000,000 americans (and fading) live and die by the commodity prices and we do out best to produce domestic reserves in spite of government regulation, politics and the Obama assault on the core american industries.
I'd like to know what "extortion" the author is referring to in oils run to $147 a barrel....
BS
GS lead the way in PUMPING up Crude Prices to $147 in late June 2008.
Then Congress began an investigation at the END of June and the CR00KS ran for the Hills and Oil dropped 23% by the End of July, at the peak of the Driving Season! It then dropped almost 80% by the end of the year!
GS lead the way down also by leverage shorting the price of O1L! They should be in ja!1 for price manipu1ation!
If the CR00KS try that again this summer I hope Congress will SLAP these TRADSTERS With investigations and Prosecutions or this repeated "KI11ING of America's Economy" will Continue!
I have to disagree. How much a refinery can get for gasoline is a direct function of how much people are willing to pay for gas. How much they will pay for oil is a direct function of what they can expect to make at the pump. And the sad truth is that until the end of the summer driving season of 2008 the American consumer seemed to be willing to pay ANY price.
The investigation of Congress resulted in exactly nothing. The government's experts agreed in written reports that there was no market manipulation. No action was taken against market participants.
Of course, in 2008 the world economy collapsed. The demand destruction that had set in in 2007 (Feb, 2007 was the peak of consumption in the US) accelerated. By the time people were screaming bloody murder, the market had already taken care of the problem.
http://ton
Thanks for giving us oil industry's perspective.
Are you a PR flack or on someone's payroll?
Either way, your structured talking points give you away.
No I don't believe he is. Kill the Messenger is a very thoughtful poster on a number of subjects. He is usually spot on with his comments, which part of the above do you not understand?
I am the one on the payroll of an oil company. I have 29 years experience in the oil business working for 6 different companies, having a knowledge of the subject may seem strange to some folks but it does offer somewhat of an educated perspective.
BS...oil went up so much because speculators and paper barrels were driving the price.
If you puit one regulation in , you would drive 95% of the speculators out of the market.
" All purchasors must take physical delivery of oil barresl before they can flip them "
This is no different then putting 10K on a 150 K house 12 months before its built and yet, it can be "flipped untold times before the lights are on. And guess what the price of that house is, 300 K.
You've seen it happen , this is no different.
Speculators and hedgers have always been heavily involved in he commodity markets.
This was (is) not new. The key to the huge upward trend in the oil price was that there were a lot more buyers in sellers. The total volume is not what is important. What was important was that everyone wanted to be long oil because the fundamentals were very very good. If fundamentals weren't good, or weren't expected to be good, more folks would have been selling rather than buying.
The idea that oil should be $20 a barrel is ridiculous. It's not even possible because costs for drilling, services, and equipment remain very high. Costs simply haven't come down as quickly as the price of oil. This is why oil prices need to remain in that $45-$65 range. Otherwise, many companies would lose money on every barrel of oil produced. We saw this happening to some degree in Venezuela, where the national oil company couldn't pay the drillers. The result was that Hugo Chavez is now nationalizing the rigs and service companies so he can still produce and not have to pay those bills.
It's even more ridiculous that people are not willing to pay $50 for an amount of energy that equals one year of a person's hard physical labor.
the saudi oil minister said on 60 minutes it only costs them a buck or 2 a gallon to get it out of the ground AND onto the tankers
That would be $88 dollars per barrel, I think that's a tad high.
In the US our f&D cost can be pretty high like $25 per barrel (as in the deepwater).
There is only one place that is capable of storing oil in significant quantities: oil fields - in the earth.
OPEC has to reduce production for one reason - there is no place to put current production. Tanks, pipes, salt domes, etc. have very little capacity. What goes into the the pipes, tanks, etc., has to be burned fairly quickly.
Refiners have no incentive whatsoever to refine enough product to drive the price down to $20. They're not stupid.
Nobody has to pay anything for oil. We can all use less of it and less and ever less and one day we can live without it. Of course, this won't come for free. But then, nothing in the life of adults does.
So how about it? Everybody who hates having to pay so much for oil orders a more efficient car tomorrow. I promise you will all feel better.
:-)
I am afraid that just isn't true. A population of a few billion people can't be supported with anything other than an energy intensive infrastructure.
And the only energy source we have that is cheap and plentiful is (are?) fossil fuels.
I guess we do have a choice We could just starve.
Unlimited Wind, Unlimited Oceans, Unlimited Sun, and Massive Thermal resources!
What we need is People who have Unlimited Ideas and willing to Work Hard on making them REAL!
If we can create a computer that does all the things it can do we can solve the Energy Problem!
"I am afraid that just isn't true. A population of a few billion people can't be supported with anything other than an energy intensive infrastruc
I didn't say otherwise. Today we are using 6TW, by the end of the 21st century we are going to use about 15-20TW of power.
"And the only energy source we have that is cheap and plentiful is (are?) fossil fuels."
Now that is for sure not true. For one thing, fossil fuels are not an energy source but merely fossilized sunshine. The only true energy source we have is the sun. And the sun happens to give us about 10000 times more energy than we need. We are simply not using it. As for cost, if you were to use solar energy on the scale we use oil, natural gas and coal, it would be cheaper than fossil fuels.
"I guess we do have a choice We could just starve."
The real choice is to use our heads for something else than banging them on the wall.
(gatekeeper- there seem to be some comments here from a different post; nothing to do w/ Raymonds' post)
Yes the CNBC crowd do like the big oils, but they also share Raymonds' cornucopian view of resources- which does account for the Unlimited Growth mentality that we see across the board in all of our media, politics, industry, etc.
I mean really, who is going to say, "Curb your f**king appetites America!"
Not Raymond, definitely not the pols, and not industry.
Might as well move along folks.
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