OPEC Tosses Us a Few Crumbs While Oil Marches to $80. Why?
The oil price follies continued on Wednesday when NYMEX crude futures closed at an all-time high of $79.91 a barrel -- and that after making a record-breaking intra-day top of more than $80. So much for the Saudi-led crumb-tossing by the Organization of Petroleum Exporting Countries (OPEC) -- a day earlier. (A political aside -- CNN's Anderson Cooper segment this morning reported on the clear intimations that the Saudis would welcome a U.S. attack on Iran. Could it be that one issue (Iran) has anything to do with the other -Saudi magnanimity at the OPEC table keeping the price within a humble $80/bbl range?) Surely not, but shame on us for thinking in such duplicitous ways.)
As you may know if you happened to read Wednesday's New York Times report -- apparently supplied by the PR department of OPEC -- the ever-so-gracious Saudis convinced their crude-pumping buddies to give us oil-addled pigeons a tiny break. "Pump a little more, boys," I imagine Saudi oil minister Ali al-Naimi cajoling, "just so we don't accidentally choke the life out of the oil-consuming goose." Maybe he cautioned them that the U.S. economy is looking a little sickly (see my post of 9/10/07, "Oil Price Follies: This Week Starring OPEC!"). Or maybe he brought up the sub-prime mortgage mess and the threat it portends for the world economy, not to mention the threat to Saudi Prince Alwaleed Bin Talal Alsaud's pocketbook. (The prince happens to be an important investor in Citigroup, which has, along with others, been impacted by the credit-induced stock market declines, declines being further exacerbated by the impact of record oil prices). Does a voracious OPEC want to be blamed for pushing a now struggling economy over the edge?
Well, of course not. That's why the oil boys consented to raising their production quota by 500,000 barrels per day. "Our message to consumers is that we care and we are concerned...," oozed Libya's Abdalla Salem el-Badri, the secretary general of OPEC. Thanks for the sentiment, pal, but a barrel of oil will still cost us the better part of four Jacksons. And there's no guarantee the producers will even live up to their promise. With prices at these levels, OPEC is stalling the 500,000 barrel increase until November 1, the supposedly effective date of the increase. Their cuts in production of 1.7 million barrels instituted at the beginning of the year remain in place till then.
Perhaps the more interesting question, though, is why oil went on to reach new highs after OPEC tossed us this crumb. Might the lack of transparency in commodity futures trading have something to do with it? How easy it would be for OPEC members to promise a supposedly price-easing quota boost just to fill a newspaper headline, while surreptitiously manipulating the price higher by buying up oil futures contracts in markets that are both opaque and commodity exchanges that are largely unregulated from London to Singapore.
But then again, why bother manipulating futures prices higher when the scaremongers and peak-oil pranksters will do it for you? Both the Times and The Wall Street Journal reports hastened to mention and focus on the big drop in U.S. August crude oil inventories. U.S. supplies, however, were still ahead of a year ago, and at levels that comfortably corresponded to five year averages. By the way, if inventories didn't drop at the peak of the Labor Day driving season, when are they meant to drop. But no one seemed to care about that, in that it doesn't fit with the scary theme of the day.
The Journal, picked up on a classic OPEC mantra (OPEC President Mohhamed al-Hamli speaking about oil prices Sunday, "markets have enough oil but lack of capacity to refine it was contributing to high prices") and cited continuing gasoline-supply shortfalls related to refinery outages earlier in the year. This is one of the great canards of the oil patch's blather: "Refineries are down, capacity is constrained, therefore the price of crude goes up." Really?! In the world as constituted for the rest of us, or as learned in Economics 101, if you use less of a product the price tends to go down. Refineries are shuttered or on turn-around, they don't use more crude oil, they use less. Therefore where is the logic, the rationale that refinery bottlenecks cause higher crude oil prices. Certainly if refineries produce less gasoline or fuel oil the price of gasoline or fuel oil may well go up. But not that of the basic feedstock, which is crude oil, and that is what OPEC produces.
And, for good measure, the Journal reporters also threw in the standard party line about most OPEC members producing flat-out, with the Saudis alone supposedly having untapped spare capacity. They failed to note that no one really knows what most of the OPEC members are capable of producing. These are figures held close to the chest though the installed production capability is certainly considerably greater than what is being supplied to market at present with enormous and as yet unexploited potential reserves waiting to be tapped. Just to repeat a point previously discussed, OPEC is currently producing less than the 31 million barrels/day that were being produced in 1979. Yes, 1979!
The news reports cast OPEC's magnanimity in terms of a balancing act -- how to mitigate damage to a potentially slowing world economy while also making sure that the price doesn't drop too far, too fast. In other words, how to keep the goose just healthy enough to push out those golden eggs. It's a tough job, but with all the outside help from a dozing press, a silent U.S. government, and the Chicken Littles clucking words of doom, OPEC should have no trouble keeping oil prices far above rational free-market levels.
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The petro-mafia is playing us like a cheap guitar, the 'fix' for that is to advance on green-tech to the point where we just don't need them anymore...but wait, next they'll start giving money to somebody to whine about
the environmental impact of green fuels...well, it will impact their environment...their runaway profit environment, that is...E85, solar, biodiesel etc. are good investments,
of course if we get it done, they'll all have to find new buddies to play golf with, but...
Hey Raymond, CNN did a story on Peak Oil today. When are you going to talk about it?
The Saudis are doing what is in their interest. As the world's largest oil supplier, they have some ability to control prices, just as Texas did for many years until about 1970. The days of the mythical Texas oil man, larger than life, made popular by James Dean in "Giant" are over. James Dean has been dead for over 50 years. Even the American auto industry is a shadow of its former self. The City of Detroit has lost over half its population since 1950. Are cars even assembled with the city limits any more? So enjoy your gas guzzling SUV while you can still afford to drive it. When oil reaches $200 a barrel, you may just have to ride the bus.
Hey it could get that high if president Cheney gets his war with Iran:
http://news.bbc.co.uk/2/hi/business/5101444.stm
Time for Admiral Fallon to speak up, eh?
As painful as it is - we need to get used to the idea that OPEC is all about making money for those member countries and NOT about producing oil efficiently and cheaply.
We need the high prices of oil to finally convince us to do 'whacky' things like dump SUVs for smaller efficient cars, find alternative energy sources that work, invest in real public transportation systems that can actually get you to work/shopping/school, and get free(er) from our need for resources that we can't find within our own territories.
I know I am driving less, walking more, and planning for my next car to be a hybrid or plug in.
1.When oil went to $78 a barrel it was $3.70 at the pump in the midwest. Why isn't it at $4.00 today at $80, I just paid only $2.60 tonight? 2.Ten years ago there were 259+ refineries. Now they have closed or taken offline, or therwise had/made shutdowns, to where there is now only 143! 3. Who is buying oil at high prices? Why? If no shares would trade up just for 3 or 4 hours by a national/international boycott prices would tumble because of the fear of the attitude growing in the populous. Our disgust of the product dependancy, if it was properly managed as a strategy towards independent and alternatives, could very easily cut U.S. consumption 10% in one weak if we had leadership, and oil would tumble accordingly..
We were warned back in 1973. And for a while, the Energy Crisis did make the West serious about reducing oil consumption. But then prices fell in the '80s and we slid back into bad habits. And now the chickens have come home to roost again.
Well, don't think that the Saudis won't lower the price again if any serious alternative starts to gain traction.
They are laughing all the way to the bank. The quote below was uttered on 9/11/07 after this guy bid $3.5 million for a baby race horse. The Emir of Dubai bid $3.7 million.
"Do you know, oil was at $77.89 a barrel this morning," joked Clarence Scharbauer, a Texas oilman. "That's good for me. I'm sorry y'all have to pay $3 a gallon, but . . ."
We've played the energy game to someone else's tune for long enough...whatever happened to that apollo energy alliance thing-jobber? Did everyone just fart that off after it was no longer politically chic?
The science is there, but change is difficult, expensive, requires a minimum level of consciousness, and the dreaded Hard Work.
People grew up using something called 'a gas station'. You drive to the gas station, you pump the precious Juice into the yawing abyss in the back of your 4wd land yacht, and then off to the drive-thru. It's like a playskool
car town, but for grown-ups. Our infrastructure, towns, cities, what you may call it, are designed around cars. The only place you'll find a building with no parking lot is in a city where space restrictions prevent it. But, even there, you'll find parking garages, consolidated parking etc.
Instead of the national anthem, we should have a Gary Numan single, because that'd be truth in advertising, there. And, a lot of people, especially in some foreign countries, are banking on there not being any real disruptions in that status quo. Bienvenidos a el globalisacion, VISA/MC accepted, and your little vote thing there is quaint, here, have a bowl of Quaintles to go with it, now let the grown-ups get down to business etc....
"...OPEC should have no trouble keeping oil prices far above rational free-market levels."
Uhh, Ray... as you well know there is no such thing as a "rational free market". That's a myth propagated by "economists".
Just look at reality for a second: the U.S. wealthy elite use our military to occupy Iraq, thereby gaining control of the world oil supply (they hope). Now they have leverage over OPEC and can divert maximum profit to themselves.
Their domination of us, the consumers, has never been at risk.
Wish I could get on the nuclear bandwagon but not until the problem of what to do with the waste is worked out.
For now, I'll conserve by riding my motorcycle as much as possible.
"Imagine what it'd be like if, next month, EVERYbody did what I described above...10 bucks a barrel?"
Nope. China and India together are putting 5,000 new cars/day on the road. The only solution to the pollution, CO2, and price problem is a massive investment in nuclear technology for electricity so that a switch to an entirely electric car like GM's scrapped EV1 can be made (Go see the documentary "Who Killed the Electric Car" -- a chilling indictment of those who want to keep using oil/gas)
The EV was a failure because nobody wanted to pay the price of gasoline car for one with a range the equivalent of a four gallon gas tank. And for that matter, a tank that takes SEVERAL HOURS TO REFILL.
The only answer is to abandon the fantasy of carworld.
You can reduce the amount of oil you use in 3 simple steps: 1)slow down 5MPH. 2)air up your tires like they're supposed to be. 3)plan your trips a little.
By putting just a teeny amount of air gap between your right foot and that gas pedal, you can accomplish miracles. Also, read about biodiesel and E85. Both of these are viable fuels that can help take the edge off of the whole middle east OPEC blackmail dealie. Imagine what it'd be like if, next month, EVERYbody did what I described above...10 bucks a barrel?
Wow! Somebody finally speaks the truth about Peak Oil. This peak oil nonsense has been going on since the early part of the last century. The oil producers will go places as yet unimagined to get the black gold. Then they will choke off the supply just enough to keep the prices nice and high. Sakhalin Island is another Saudi Arabia just beginning to come on line. Expensive to extract? You bet, but oh so worth it at $80 a barrel.
Oh and I suppose you believe that the supply is effectively infinte?
I'll stop believing in Peak oil when you show me somebody pumping more back into the ground.
Have to agree with Bluesman. We don't know for sure if there really is a "peak oil" crisis (it's still just a theory, not accepted by most scientists at all), but we do know for sure that the people talking about it so much are driving oil prices up. But it's good for the oil companies. They get to justify more drilling, and of course the price keeps going up.
Immanuel, no one is suggesting that there is an infinite supply of oil in the ground. Just that there is more than enough to last for quite a long while, and certainly until the time when alternative energies are able to replace it. In fact, the switch to alternative energies is already causing demand for oil to drop, and rather significantly. After all, why would anyone drive an expensive, polluting fossil fuel burning vehicle, when electric cars, bio-diesel and other kinds are so much cheaper, and more effective?
And why do so many people keep denying that Russia has plenty of oil, and in fact is now producing just about as much as Saudi Arabia, and with many new fields just coming on line?
Sorry for the multiple post but this caught my eye the second time I read the article:
"with enormous and as yet unexploited potential reserves waiting to be tapped"
I have yet to see any data that even hints at this - and heaps of data that show the opposite.
OPEC assures us they can meet any demand - but oil companies are not increasing the refining capacity needed for any increase in demand. I think the refiners know that there will not be any more oil on the market than there is today - so why spend billions of dollars on a refinery if there won't be oil for it to refine?
If I sold a commodity, and I only accepted dollars as payment, I'd be raising my prices too. With the dollar going down the shitter, you need to raise prices just to maintain purchasing power.
I suggest reading http://www.rmi.org/store/p15details11.php?x=1&pagePath=00000000
Of course the oil industry will do everything to prevent us from acheiving self-sufficiency. They will squeeze every penny of profit they can out of our addiction.
The drop in the dollar is a major culprit in the rise of oil prices. Nobody wants to talk about it, but the expectation by Wall St. to lower interest rates has major negative impact on exchange rates, thereby inflating prices for imports-oil included. Bernanke is between a rock and a hard place on interest rates, and constant pressure to lower the rates will have real implications for inflation. Watch out for a really rough ride.
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