Oil Prices Surge, Media Yawns

Granted, this prediction of $250 for a barrel of oil may be a little wild, but have you noticed the media is no longer obsessed with oil and gasoline prices?

At this time last year you could not go five minutes without a breaking news story about the price of gas.

Why is the media no longer interested?

The price of oil burst through the $71 a barrel mark today amid revelations that proven reserves had fallen for the first time in 10 years and predictions that the price could eventually hit $250.

The latest high – from lows of $30 only four months ago – came on the New York Mercantile Exchange, where the cost of July deliveries rose by $1.35 to $71.36.

This comes on top of a $2 rise the day before as investors rushed into the market on the back of lower stockpile figures, higher demand estimates and speculation against further falls in the dollar.

"I wouldn't be surprised if we're testing $80 in a week or two," said one analyst, while BP's chief executive, Tony Hayward, questioned whether $90 could be the "right" value.

Kuwait's oil minister, Sheikh Ahmad al-Abdullah al-Sabah, put some of the rise down to signs of recovery in Asia but warned that overall demand was still weaker than last year. Opec would not raise supply at current oil prices but did not rule it out "if it reached $100", he said.

Alexei Miller, chairman of the Russian energy group Gazprom, raised the stakes further when he reiterated last year's estimates of $250 a barrel. "This forecast has not become reality yet, given that the [credit] crisis gained momentum and exerted a powerful impact on the global energy market. But does this mean that our forecast was unrealistic? Not at all."

Maybe if prices at the pump return to the $4 a gallon level we'll see the press return for 24/7 coverage. Somehow I doubt it, though.

They don't have Bush to blame any longer.

Instapundit links. Thanks.

Dude, Where'd My Windfall Profits Go?

For most of last year we had to listen to various pundits rail about how George W. Bush's buddies in the oil industry were fixing prices artificially high. Well, get a load of this.

Royal Dutch Shell on Thursday swung to a $2.8 billion loss, as the tumble in oil prices hurt the value of inventories that it has yet to sell. Shell said adjusting for that impact, or what it calls current cost of supplies, its profit would have dropped 28% to $4.79 billion.

Production was basically flat at 3.41 million barrels a day, but it sold oil and gas for 31% less than it did a year ago.

But I that they could fix prices and dominate the consumer? Well, if they could fix prices back then, they could fix prices now.

The fact prices dropped 31% in one year (pretty close to the drop in the stock market) shows how those blowhards like Bill 'Reilly and other "populists" are full of it.

It always boils down to supply and demand.

A Steep Drop in Oil Prices to Come?

Some pretty smart people are looking for oil prices to drop significantly.

Oil's jump makes history, but true test is yet to come.

The future of global oil demand is more uncertain than ever given the U.S. rescue plan for the financial market, and no one's sure about the impact and recovery pace of production and refinery activity in the Gulf of Mexico following the recent hurricanes, analysts said.

On Monday, a steep drop in the U.S. dollar, assumptions that the government rescue plan will help improve the economy and boost oil demand as well as short-covering related to the expiration of the October crude contract on Nymex all combined to pull oil prices to their highest intraday level in two months.

So, oil jumped today because of the dollar dropping in value and the anticipation of the government bailout working and economic growth taking off. So now what?

"But some of what's going on really doesn't make any sense. A worrisome economy and financial market should translate into lower demand for oil, some analysts said.

"The oil market is caught up in the same hysteria of the rest of the financial markets," said Anthony Sabino, a professor of law at St. John's University, whose legal practice includes oil and gas law.

"We can and will get through this" as the markets did back during the Great Depression in the 1930s, he said. "So oil traders getting caught up in the general panic is just plain dumb. If the economy is so bad and uncertain and panicky, [the] price per barrel should be deflating like crazy because demand is cratering," Sabino said.

The same insane speculation that drove investors into "toxic investments" such as subprime lending and collateralized debt obligation has infected the oil market, "so for no good reason at all they are driving oil up to unsustainable prices," he said.

It's a "wholly illogical disconnect," Sabino said. With the U.S. stock market down by so much and money tight, logic says oil demand will "continue to drop like a stone, so prices should be back at $90 and heading south to $80."

What you have is money running around the market like a rat in a maze, looking for a safe haven and some positive yield on the investment. But every move made to reinvest in something else creates more disconnect between actual supportable price and what the market price is. Of course, that Congress playing games for election purposes does not help at all.

I'm looking for things to be volatile until the election and then settle down. After that, I think oil may drop to the $80-$90 range.

Demand for Oil to Drop?

Indications are starting to appear that the demand for oil is expected to drop.

The International Energy Agency Tuesday cut its five-year forecast for global oil demand, saying booming oil prices are causing wealthy countries' drivers to park their gas-guzzlers.

The agency also said there is "little evidence" that large investment flows into the oil futures market have sparked an imbalance between supply and demand and the surge in oil prices. In its Medium-Term Oil Market Report, the IEA forecast global demand will rise to 86.87 million barrels a day in 2008, down 1.4 million from the 88.27 million barrels it projected in last year's report. It also lowered its demand forecasts for the years 2009 to 2012, citing weaker economic growth and the sharp rise in oil prices.

I always tell my students that fixing an economic problem is a lot like treating a physical illness. You can't properly cure the illness until you accurately figure out what it is in the first place. Otherwise, you are just kidding yourself and wasting time.

I know it is popular these days to blame speculation for the rise in oil prices. Human nature loves conspiracy theories, plus it suggests that the solution to high prices is fairly easily attainable. Just regulate the speculation and you are done, with no changes required by the consumers. But unfortunately, reality does show that there is little if any evidence of speculation driving up the prices. There are as much if not more "short contracts" in the market than long positions. No, the problem has been demand surpassing supply, so price is bid up.

Well, now that prices have escalated, the Law of Demand (the more something costs the less you demand, the less something costs the more you demand) is taking effect. People are changing their consumption behavior as the price of fuel escalated and they are finding way to conserve. As time passes, you will see more and more adjustments by the consumers to their consumption behavior to cut their consumption. I ride my bicycle past several used car lots every day and I see them choked with large pick-ups and SUV's now marked way down. I see more people riding scooters and bikes. I know of several people now who have started ride sharing. Anecdotal evidence to be sure, but I think indicative of the fact that the consumer is starting to adjust.

Don't be surprised if at some time in the near future you see the price of oil plummet on the spot market. Of course, if that happens, nobody in the media will be talking about speculators doing that. No, you can find the reason for high oil prices is looking right back at you in your rear view mirror.

Shocker: Americans Driving Less

The Law of Demand (the more something costs the less you demand of it, the less something costs, the more you demand of it) is starting to have an effect on fuel.

Americans drove 1.4 billion fewer highway miles in April than they did in April 2007, the Department of Transportation said Wednesday.

That marks the sixth consecutive monthly drop and coincides with record gas prices and an increase in transit ridership, Transportation Secretary Mary Peters said.

April's drop is more than three times larger than the drop from March 2007 to March of this year, which was 400 million fewer highway miles.

Peters said vehicle miles traveled on all public roads for April fell 1.8 percent from April 2007.

Americans have driven nearly 20 billion fewer miles overall this year and nearly 30 billion fewer miles since November, the department said.

Surprise, surprise! The increasing price of gasoline is causing people to take steps to conserve fuel. This fits with previous empirical evidence that the U.S. consumer starts conserving when the price of gas gets to about $3.50 a gallon, adjusted for inflation. Below that price, we just tend to complain but not change our consumption behavior.

Due to time lags in drilling and refining (approximately 10 years, I hear, but I'm not a petroleum industry expert), the only effective way to lower the price of gasoline at the pump in the short run is to cut demand/consumption. While gasoline has what is called an "inelastic demand" (demand tends to not be sensitive to a price increase), eventually you hit a price where people are priced out of the market.

More drilling and refining will help long term, but the best way to see the prices come down is to find ways to consume less of the product. This will create a surplus and the price will drop at the pump. I know some folks theorize that the oil companies will just drop production then to keep prices high. I really don't think so because of the profit motive somebody in the group will jump production to scoop the market and make a larger profit.

In both the long and short run, market forces and not politicians will fix this situation and bring it to equilibrium.

It's About Time: Environmental Wackos on the Defensive

Now that Americans have an awareness that environmental nutcases, Democrats and their willing media accomplices are responsible for the increases in energy costs, it's time for them to change their strategy.

The environmental movement, only recently poised for major advances on global warming and other issues, has suddenly found itself on the defensive as high gasoline prices shift the political climate nationwide and trigger defections by longtime supporters.

Opposition to offshore drilling -- once ironclad in places like California and Florida -- has begun to soften. Gov. Charlie Crist of Florida on Tuesday eased his opposition to new energy exploration off the coast.

"Floridians are suffering, and when you're paying over $4 a gallon for gas, you have to wonder whether there might be additional resources that we might be able to utilize to bring that price down," said Crist, a Republican.

At the same time, pressure to drill is mounting.

President Bush today is expected to call on Congress to lift the ban on new offshore drilling, and a House committee will consider a proposal to relax the moratorium.

As elections cycles fluctuate, issues rise to the top, and public anger of gas prices has now reached a crescendo.

The candidate who capitalizes on this now has a solid chance at winning in November. There's nothing in Obama's record (oh yeah, what record?) that he'll do anything to reduce prices and John McCain has long flirted with the environmental movement and the global warming hoax. But if he has half a clue, he'll know to latch on to drilling here and drilling now.

President Bush today is expected to call on Congress to lift the ban on new offshore drilling, and a House committee will consider a proposal to relax the moratorium.

John McCain, the presumed Republican presidential nominee, opposed new offshore drilling in his 2000 presidential campaign. He said Tuesday that he now supported lifting the long-standing ban.

"I believe it is time for federal government to lift these restrictions and put our own reserves to use," the Arizona senator said in a Houston speech on energy security.

Obama's name is entirely omitted from the Los Angeles Times story and for good reason. He has no plan other than raising taxes and gouging the oil companies. After all, he wants higher prices.

Next time you encounter an zombified Obamaton babbling about hope and change, ask them how they'll be affording $10 a gallon gas once he's in office. The reaction will be interesting.

Drilling on our own land will do nothing to advance global warming, since that's a hoax to begin with. But the benefits are enormous. It will help ever sector of our economy while at the same time sending a clear message to other oil-exporting nations that the days of our reliance on them may come to an end.

Which is why you'll see them all hoping Obama wins.

They know an easy mark when they see one.

Oil Futures

Inventories are up.

Demand is down.



On Thursday, June 5, 2008, Congressman Bart Stupak (D-Michigan) was interviewed by KNX 1070 Business Editor Frank Mottek regarding the runup of oil and gas prices.

Interestingly, Stupak didn't go into his usual Bush Derangement Syndrome mode. That should be news in and of itself. :-)

China Boosting Oil Reserve

China is boosting their oil reserve, which should continue to spike demand.

China's plans to build its strategic petroleum reserves to at least 100 million barrels by 2010 could add more pressure to crude prices which have already been at record highs.

The world's second-largest oil consumer already has built two underground storage reserves in east China and will put into use two more storage bases soon, a senior Chinese official said over the weekend, according to China's official Xinhua news agency.

"Although China is not the only source of rising oil prices, it has consumed the largest share of the global increase in oil demand in the last seven years," said Donald Straszheim, chairman of Straszheim Global Advisors and an expert on Asian economies. "Building reserves will of course add more pressure on global oil prices."

This increase is slated to take place over ten years, but I would look for crude oil prices to stay high for the foreseeable future. It is also a good way for China to dispose of dollars in the world market (oil is priced in dollars).

So how big of an impact are we talking about?

It's unclear how much oil China has stocked in its existing bases. But since the country is just in the first steps of building reserves, China will likely need to buy 100 million barrels in two years to reach the 120 million barrels level in 2010, Williams said. That's about 140,000 barrels a day, or 2% of China's current consumption. The percentage isn't small compared to some estimates that put China's growth in total oil demand at around 6%.

I would not expect a significant drop in oil prices any time real soon.

Oil Crunch Ahead?

IEA sees oil supply crunch after 2010

Crude-oil supplies will be tighter in coming years, with a "supply crunch" after 2010 as OPEC's spare production capacity evaporates, the International Energy Agency predicted Monday.

Supplies will tighten because economic growth will drive up demand and offset significant increases in oil-refining capacity, the IEA said, according to media reports citing the agency's annual medium-term forecast.

The IEA, which monitors energy markets for the world's 26 most-advanced economies, doesn't forecast oil prices, but its conclusions imply consumers should expect continued upward pressure on energy costs, The Wall Street Journal reported in its online edition.

"Oil and gas price pressures look set to remain in the coming years," the IEA reported, according to the Journal. "Slower-than-expected (gross-domestic-product) growth may provide a breathing space, but it is abundantly clear that if the path of demand doesn't change on its own, it may well be driven to change by higher prices."

Don't go out on the window ledge just yet. Will oil get more expensive? Sure. Will demand for energy grow? You bet. But not to worry, economics will keep things in equilibrium over time.

Here's why.

As prices of a given commodity increases relative to income, the consumer begins reassessing the value of that product to their everyday life. We make our purchasing decisions at the margin, i.e, what is the next unit worth to me, and at some point it is just not worth the price anymore.

So, as oil prices rise, we re-evaluate our consumption patterns, shift consumption patterns and so, over time, alter our demand for various products to stay in equilibrium. All that means is some consumers will be priced out and lower their consumption patterns, plus other energy sources and means of transportation now become more viable and affordable.

I know of several people who are bicyling to work in good weather now, as I have now for years, because of the recent price rise. For the past few years I have made a summer golfing trip to Alabama. This year I am skipping that trip and golfing locally cause it is just not worth spending a couple hundered dollars in gas to me to go.

While those are minor anecdotal examples to be sure, the cummulative effect of millions of similar decisons by other consumers across the land will keep things in equilibrium.

Sooner or later, almost everything boils down to economics.

Oil Steadies Above $71

LONDON (Reuters) - Oil steadied above $71 a barrel on Monday after gunmen in Nigeria overran an oilfield station on Sunday, renewing concern about supplies from the world's eighth largest oil exporter.

So here we go with more potential supply disruptions, folks.

Violence in Nigeria has also supported prices this year. About 600,000 bpd of the country's output is shut down because of militant attacks. A union leader said this week's general strike will halt oil exports.

The supply risks come as world oil demand is growing faster than expected according to the International Energy Agency, an adviser to 26 industrialised countries.

So, despite the increasing prices, demand continues to grow. So, if demand continues to grow, we have to increase supply, or else see continuing increases in price. It all boils down to economics, and how high we want to chase ourselves up the money tree before we allow more oil drilling and refineries to be built in the U.S. The problem is, you have, according to what I have read on the sublject, about a 10-year lead time on those kinds of projects.

But not to worry, I'm sure Al Gore has all the answers...