There they go again. It was so nice and quiet on the oil front for a short while. Had the price of oil held at $147 we would have been regaled endlessly with all the good reasons why it should go ever higher. Procrastinations came from far and wide and were trumpeted loudly for all to hear. Next stop $200/bbl by Goldman Sachs, or to $250 by Alexei Miller CEO of Gazprom (on June 10, 2008) and $500 by the "Old Reliable" of oil price excess, Matt Simmons (not to speak of vertiginous price moments by T. Boone Pickens along the way). But then watching the price fall from the undreamed of heights of $147/bbl to the dowdy mid-fifties and below seemed to have made the oil guys and gals tongue tied in disbelief. But not for long . This past week they came out with guns blazing.
Here, answering his call to duty was Jad Mouawad writing for the New York Times. A scribe who must be one the oil patch's favorite cheerleaders, and who during the entire oil price bubble never met an oil price rise he didn't like, could not support or wouldn't do double somersaults to rationalize away trying to make us feel better at the pump and not get too heated with the good old oil boys and their OPEC dancing partners. In an article this week he tried to light a fire under our collective angst ("Rising Fear of A Future Oil Shock," March 27), he cited extensively from a report fashioned by the Cambridge Research Associates (CERA), an oil consulting firm with deep and close ties to the oil industry. With their findings, splashed over the pages of the New York Times by Mouawad, we were thus initiated into the new oil patch gospel.
It goes like this: You see, when oil was veering toward $147 a barrel we were advised by Mouawad and the oil industry flacks that not only was the price of oil a reflection of true market dynamics, but watch out above. We are going ever higher was the general theme. You see "peak oil "was in the air fed us by the barrel by oil industry PR departments, the likes of the American Petroleum Institute and friendly scribes throughout the media. The received gospel then was that we are running out of oil. This all in the spirit of an updated version of Samuel Kier hawking his "Rock Oil" patent medicine back in 1855, when crude oil was still bubbling to the surface in Pennsylvania. "Hurry, before this wonderful product is depleted from nature's laboratory," was the tag line then and again at $147/bbl.
And then, poof! The price of oil goes down over 60% from heights never dreamed of before, and guess what? Well now we are told there is plenty of oil out there, but we poor folks in the oil patch just need to get higher prices to justify going after it. And then, as if on cue, the Wall Street Journal piles in with their take on the same issue ("Spending Slowdown Will Haunt Oil Prices," March 27). It goes on to give the usual high drama about the prospect of a surge in crude prices , because "falling oil prices have squeezed oil companies' finances and forced many to cut capital spending and postpone projects." Then it goes on to quote CERA: "A price collapse of this magnitude really registers on the Richter scale , and its impact on levels of future investment will be felt for years."
But wait, "price collapse of this magnitude." Really. Consider the following: In March of 1999, ten years ago, the spot price for crude as determined by the Energy Information Administration was less than $13 a barrel. Thus, the current level of $52/bbl reflects an increase of 300% (or multiplier of 4). What else in your day to day experience has gone up that steeply in the past 10 years? Think about it.
The Wall Street Journal reported that CERA in part hedged its dire predictions citing their uncertainty at the rate at which oil demand will recover. If it doesn't begin to rebound next year, as many predict, the oil market could face a "large surplus of production capacity for the next several years."
Certainly the most positive comment comes at the end:
"Government policies to counter climate change and increase energy efficiency could also drive down the West's appetite for oil."
It is encouraging that the new administration is saying and hopefully doing all that can be done to achieve that end. And with its success, so too the price of oil will be driven down, as will the oil industry's hegemony over our lives.
Certainly the administration has its hands full, but the rapaciousness of the oil industry
and its willful dependence on the OPEC cartel to push for ever higher market manipulated prices, it may well be time to consider the Norway Oil Trust solution for the development of oil and gas on public lands (please see "The Oil Industry is Driving Away With Our Future: The Norway Solution," April 24, 2006). Simply put, in Norway the nation's wealth of oil and gas resources is developed and under the overall management of a National Oil Trust (i.e. Petoro and Statoil) to the benefit of all Norwegians. It works, and all Norwegians are the beneficiaries.
As to employee health care, my company gives the same benefits to management, engineers and workers. We all have the same health care and 401ks. No difference. Your assumptions about the affordability of health care are wrong. Walmart and friends are quite able to give good benefits... but unlike some small and medium businesses which are not run by greed they just don't want to. We care about our employees and they don't. That's all there is to it.
In my simplistic understanding of business, when you have boom times, you take the profits and reinvest in the future while saving some so you can make it thru the next downturn. These massive companies have huge cash reserves, they might even keep it in holding tanks, and they can afford to add capacity to existing refineries, they can afford to put in new pipelines and they can afford to explore and extract from the more hostile environments.
If the oil business is so bad for them then maybe they should sell out to someone else?
I refuse to feel bad for big oil companies.
So you’re telling me that Exxon put 26 Billion into new exploration and gave the rest out to shareholders? It sounds like they did put some money into the future and they do have money to make it thru the lean times ahead.
Exxon will not go belly up because of a low oil price. They may not post record profits but a profit will be made.
And with the glut of Nat Gas on the market the immediate profit of new production may not be there but the long term profit is firmly intact. I have to plan for my future, so can they.
There's always a two year supply of Oil, 'on shore' here in America.
As the Price soared to those undreamed of heights - and the Pump Price of Gas rose in lock-step; the Oil Cos. were refining Oil that they'd bought two years earlier - and at the Price du jour (say, $50/bbl.), NOT $147/bbl..
They then made unheard of Profits by selling the Gas they made from that $50/bbl. Oil - TO US - at a price that made it LOOK LIKE it'd cost them $147/bbl..
When that two year 'on shore' reserve - or, at least, most of it - was used up; down goes the bbl. price once more, and they refilled all of those Big Tanks you see at shipping terminals - at $47/bbl..
It's all a SCAM!!!
Just be glad that we didn't let them get their filthy hands on the Social Security Trust Fund!
Ugh! Wall Street, and the Oil Scam, were their 'consolation prize'.
This SCAM brought to you by the folks who also brought you the S & L Crisis.
Yes, This Wonderful Life Fans, we're all living in 'Potterville' now!!!
Beyond that you seem to mistake the oil companies for the refiners. They are not always the same. Please look at
http://en.wikipedia.org/wiki/List_of_oil_refineries#United_States
Oil companies are running a tight business by buying exploration rights only to those oil fields that they deem will be profitable to exploit some time down the road. After all, why buy something and sit on it if ain't going to make money for you?
I think that's probably what you meant with two year 'on shore' reserve. That's not the same thing as the oil spot market, though. And in case of US oil imports the spot markets are what counts, especially since contract prices are tied to spot markets, too. So even if the purchase was done two years in advance, the oil company will have to give some of its additional revenues to the actual owner of the oil field that they lease.
Oh, I don't know, Mr. Leary. Perhaps millions of suddenly middle class Indians and Chinese, who suddenly are able to afford automobiles for the first time?
In your studies of the oil industry, in your fervor to unveil a cabal, perhaps you missed the Law of Supply and Demand?
You can't envision a scenario where demand pushes oil prices to new heights, and then lack of demand during a worldwide recession, pushes it lower?
You also can't EVER imagine oil prices climbing back up, when one day we crawl out from this downturn?
When the millions of trucks and cars that are sitting idle, GLOBALLY, are finally called back into service?
We now have an oversupply but that's just because of the world recession. Once we come out the price will go to $175+/bbl.
$200/bbl is something we don't need because it just gives more money to Iran, Russia, Venezuela, oil dictators and terrorists. The US needs to tax oil to pay for it's large subsidies both direct and indirect like tax breaks, Persian Gulf military costs, ect according to the WSJ, Economist mag, CIA, ect. This will reduce consumption thus keep oil/bbl prices low. It's either the US gov get the money or our enemies. Obama/Dems wants to use it for tax cuts and help cut oil demand.
Personally I drive an EV because I refuse to pay for both sides of the oil wars. It helps that my fuel only costs $.003/mile or about 600mpg cost wise ;^D. Sadly I had to build my own because it's the only way to get one now. But it's not hard. Google EV clubs/ EV racing for info and one near you.
Once again, Mr. Learsay expresses scorn for Peak Oil theory as another plot by OPEC and the oil industry to screw over Americans. I urge all readers of this blog to please read the freely available literature. Start with http://www.theoildrum.com/ or Google "Hirsch Report." produced for the DOE - or the 2005 GAO report. Unfortunately, Peak Oil and the common phenomenon of resource peaking is a law of nature - not some idealogical philosophy. There's plenty of good science and data to suggest that we only have around half of the oil left - which defines now as our oil peak moment. Petroleum production - including natural gas liquids and tar sands - has not gone much above 85 million bbl/day since 2005. CERA and API until very recently have been in Peak Oil denial - claiming Peak Oil would not occur for another 20 years. A sober assessment of the data has forced them to admit the obvious.
But now there is even less of it than there was a couple of years ago. That's what happens when you suck on a finite reservoir.
:-)