OIL QUESTION

[Bill Greenwood]

Then news last night reported big layoffs at United, and cut backs at other major airlines. Today Continental reports that fuel cost rose $2.3 Billion this year over last year. U S automakers are also in economic trouble, with too many SUVs and trucks.
Something doesn't seem right about this. How is it we invaded a country that is one of the biggest sources of oil, and prices have tripled since then? Thanks a lot. W and Dick.

[CAPFlyer]

Because your buddies on Capitol Hill said that we couldn't take or buy the oil direct, we had to do it through the market (i.e. through OPEC).

Here's a good idea Bill - tell all your friends who don't want to see oil shale mining around you in the Rockies to shut up if they want the oil prices to go down.

NIMBY is what's causing the rising oil prices. There woudn't be a supply problem if we could actually supply oil to ourselves (instead of having to import most of it) and we could actually refine all of it ourselves.

[Bill Greenwood]

Capflyer, I don't have any buddies on Capitol Hill that I know of. Can you be more specific? And the news today is even worse. It gives increases in air fares by the airlines this summer as suddenly doubling, and on some routes even going up triple or quadruple.

[Neal Nurmi]

I'm afraid the basic underlying problem is that we are simply using too much and not willing to use less to make the diminishing supply last a bit longer. There will always be oil available, but never again will there be enough. Prices are set at the margin for any commodity...

An interesting read on the subject:

http://www.321energy.com/editorials/cas ... 60508.html

[bdk]

As the third world industrializes, demand is up. Supply is not up proportionally. Economics 101. What are you complaining about Bill, doesn't this result in a reduction in the use of fossil fuels due to affordability and a reduced carbon footprint to eliminate global warming? Public transportation use is way up. I don't see the problem here! You've gotten exactly what you've asked for all these years. Too bad the carbon footprint is up in Asia though.... I guess most of them didn't sign the Kyoto treaty either.

[CAPFlyer]

I'm afraid the basic underlying problem is that we are simply using too much and not willing to use less to make the diminishing supply last a bit longer. There will always be oil available, but never again will there be enough. Prices are set at the margin for any commodity...

An interesting read on the subject:

http://www.321energy.com/editorials/cas ... 60508.html

Sorry, but that's a load of propaganda if I've ever read one.

There are more KNOWN oil sources now that are economically feasible to produce from now than there has been ever. Too bad the media just buries the continued finds of more and more oil around the world to further their own agenda of making everyone think that we're going to run out of oil sometime in the next millenium. The only reason we have diminishing supply is artificial - POLITICS. It's environmental extremist groups and their willing accomplices in the media and government who perpetuate the lie that production is inherently destructive and that foster the entire NIMBY culture that has prevented, continues to prevent further development of these new finds, and drives the continued expansion of government meddling in the energy industry. When the oil companies have found and know how to get to TRILLIONS of barrels of oil but can't develop those sources because it takes an average 5-10 years to get the approval of the EPA to even drill a prospect well and then another 5-10 to get approval to start full-scale drilling in addition to having to fight off the vocal minority who don't care about the potential mineral rights royalties they may get and only care that they don't want it in their back yard (forgetting that if it's not in their back yard and not in their neighbor's back yard, then no one can get the oil), you get the situation we have - Plenty of oil and no ability to actually get it.

Oh, but wait, it gets better. Cuba is getting the oil that's located just off the Florida coast because they're not beholden to the law that we have that says you can't put a rig within 250 miles of the US coastline. The Cubans set up a rig just 65 miles off the US coastline and I haven't seen a single call by the Greenpeace, the Sierra Club, or any other group that is so concerned about the environment about the fact that Cuba is drilling for oil in our own back yard and nothing is being done about it.

[Neal Nurmi]

I respectfully but totally disagree -- at recent consumption rates even the politically unavailable oil would not make more than a year or two difference. Humanity is being very very stupid, and as always it's gonna be the poor folks that will suffer the most and the quickest when gasoline, natural gas and heating oil prices go where they will inevitably go.

It has been 30-40 years since the last discovery of an oil field big enough to make a real difference in the equation, and there is near zero chance that there's another undiscovered Saudi Arabia out there.

We are pissing away our grandkids' money with our lunatic spending and borrowing, and we are incredibly rapidly burning the gasoline that they could have had if only we had a bit more sense...

[Bill Greenwood]

Neal, your reference post seemed to make a lot of sense. However as a former investment broker, I must point out that it seems to come from a source that is selling or promoting Canadian Oil and Gas stocks and especially smaller over the counter ones with more or unknown risk. I am by no means an expert in this, but I think there may be a good chance for deception there, and a lot of caution is in order.

[Bill Greenwood]

Capflyer, are you telling us that US companies don't have any oil wells closer than 250 miles off the Gulf coast? I don't have any facts, but that doesn't seem correct. I don't think all those helicopters out of Galveston and La. float planes are making a 500 mile round trip to fly crews to the rigs. I know when I was about college age, we scuba dove on a rig that seemed less than a couple of hours out by boat. I don't recall it pumping, but I might not have noticed. The water was less than 100' deep, I think.

[CAPFlyer]

Bill, we're not allowed to drill any new rigs closer than 250 miles. And yes, they do have to make some pretty long trips out to some of our rigs.

http://www.heritage.org/research/Energy ... wm1135.cfm

Note - this is an editorial piece about a House Bill that failed in 2006 to pass which would have lifted these restrictions, but it has references for all of its facts hyperlinked so you can look at the background of where this information is coming from.

[Dan K]

http://money.cnn.com/2006/05/09/news/ec ... /index.htm

[Neal Nurmi]

Bill -- I should have included a disclaimer of some sort. I do not in fact particularly agree with the investment advice at the end of the article myself, and my primary investments are in different but still energy-related areas. I thought the main points about energy consumption and depletion of supply were what were interesting in the article. I certainly did not mean to be giving or passing along investment tips or advice in any way. I apologize if I gave that impression as I agree with you on your point.

[T2 Ernie]

The sky is falling.

The rise in oil prices is not due to a single factor, or even a group of related factors. It's a confluence of varied factors - many of which are not even market related.

Oil is not a commodity - it is artificially controlled by OPEC. So the "supply & demand" argument is only partially true. Demand is market driven, supply, however, is OPEC controlled.

Oil is traded on the international market in US Dollars. Normally, this is a favorable situation for us. With the dollar in a slump against most major international currencies, the price of oil seems higher than it really is. Instead of pricing oil in dollars, why not compare it to a relatively stable currency like gold - an ounce of gold buys about the same amount of oil now as it did fifty years ago. But did you notice that gold is up over $900/oz now?

The US imports anywhere from 25-40% of our oil. We have more than enough capacity to produce 100% of our oil. Why do we buy foreign oil? Many reasons - oil purchases are often politically driven. Our buying power (as weakened as it is with a soft Dollar) is a huge political tool and instrument of national power. We broker deals to purchase oil from countries in exchange for a variety of things - security, trade, tariff reduction, political influence, etc. We even pay premiums - (ie - cost + x%) when we're desperate to influence someone. Despite China's recent gains in consumption, we still are the world's leading consumer by a wide margin - probably 3-times that of China. This will change, but not real soon. This means we should have buying power, but we don't because of OPEC & our desire to use oil as an instrument of strategic political influence.

Another reason, and this is pure speculation on my part, but the circumstantial evidence supports it, is I believe the US strategy is to be the last country standing with its own oil. We drill & cap wells all over the southwest, gulf, alaska, etc. We run wells & pipelines at bare minimum capacity to keep them viable. The AK pipeline runs about 30-40% of capacity - not due to a lack of oil in AK, but that's how much it takes to generate the profit to maintain the oil line. We also sell almost all of the AK oil to Russia & Japan - we sold to Russia throughout the cold war too - despite the fact Russia sits on huge oil reserves of their own.

There are huge reserves of oil locked up in areas where it hasn't been economically feasible to extract it - shale, coal sands, tar, etc. The norther tier states (primarily N. Dakota) sit on the Baaken oil reserves - potentially as large as the fabled Saudie oil fields, but it's more difficult to extract.

There are more huge reserves in areas we "don't want" to go get right now - Alaska, Gulf of Mexico, Everglades, etc. We have lots of oil.

We import a huge percentage of our foreign oil from S.America (Mexico, Venezuela, etc), not necessarily from the Mid-East, although it varies year to year (see above about political motivations).

If oil were a true commodity traded in a free open market in the buyer's currency, I don't think oil would be trading at $140/bbl - I think it would be about half that.

The Democrats approach of taxing the oil companies' profits is the stupdiest thing I've ever heard. The oil companies are not making profits on markup as much as they are on volume and percentage increases in the price. If their markup is 3%, but the cost of a barrel doubles, the 3% markup doesn't change, but the final dollar amount sure does. Do we penalize them for factors they do not control? That's short-sighted at best and dangerous at worst.

Both Republicans & Democrats have called for a moratorium on gas tax - that's another equally stupid idea that is 100% politically motivated to show "we're doing something" - doesn't matter if it's something that means anything or not...

The real embarrassement is that the US leads in consumption & not efficiency. With the resources this great country has, you'd think we could figure out ways to be more efficient...and lead the world at doing so.
We've been pampered with relatively cheap gasoline for so long that reality is painful.

EDIT: Found this posted on another forum:
This article is from 2007 Gas is still much cheaper today as a percent of income compared to 1980 or 1981. To be as expensive as gas was in 1980-1981 gas (as a percent of income), prices today would have to get all the way up to $4.62 per gallon. Pumping more oil is not the answer using less gas is the only answer My truck burns 17 mpg I have a boat that burns 30 gallons an hour, I dont complain about the price of gas because like most of us I am a gasaholic and I know that as much as it costs our gas is still the cheapest in the industrialized world.

http://bp2.blogger.com/_otfwl2zc6Qc/RlX8D64kMCI/AAAAAAAABbc/ZQVlScrmmwA/s1600-h/gas.bmp(click link to see chart)

According to the Energy Information Admininstration (EIA), the highest average monthly gas price in the early 1980s was $1.417 per gallon in March of 1981, which in today's dollars is $3.22 per gallon, which also according to the EIA is the average retail cost of gas today.

However, gas prices as a percent of income are still way below the early 1980s. In both 1980 and 1981, 1000 gallons of gas at the average price cost 14.1% of per-capita disposable personal income in those years. Gas prices averaged $1.245 and $1.38 in 1980 and 1981 respectively, and per-capita income was $8,822 and $9,765 in those years (see chart above, click to enlarge; source for Personal Income is Bureau of Economic Analysis, Table 2).

Gas is now selling for an average of $3.22 and per-capita disposable personal income in March was about $33,000, so that 1000 gallons of gas now costs 9.76% of per-capita personal disposable income (see chart above, click to enlarge).

Bottom Line: Gas is still much cheaper today as a percent of income compared to 1980 or 1981. To be as expensive as gas was in 1980-1981 gas (as a percent of income), prices today would have to get all the way up to $4.62 per gallon.

Reason: Gas prices have increased about 2.5X since 1980-81, but per-capita personal disposable income has increased by about 3.5X during that same period.


AND FOUND THIS:
http://www.dallasnews.com/sharedcontent/dws/dn/opinion/points/stories/DN-jeffrey_08edi.ART.State.Edition1.4646f8a.html

[muddyboots]

Because your buddies on Capitol Hill said that we couldn't take or buy the oil direct, we had to do it through the market (i.e. through OPEC).

Here's a good idea Bill - tell all your friends who don't want to see oil shale mining around you in the Rockies to shut up if they want the oil prices to go down.

NIMBY is what's causing the rising oil prices. There woudn't be a supply problem if we could actually supply oil to ourselves (instead of having to import most of it) and we could actually refine all of it ourselves.

totally false. We buy ALL of our oil on the common market. We also sell ALL our oil (minus the strategic reserve) on the common market. our adding more national oil will not drop prices on bit, as they are being driven up by market players. When you hear the guy on tv say "market forces are driving the cost of oil and therefore gas, up"--what he is actually saying is that indivuduals have decided that they have to have oil so will pay a little more. Then someone else sees his price and has to pay a little more. Than a couple more people see taht and decide oil is going up so get in now, which drives the cost up even more...

The wonders of market deregulation.

[bdk]

The wonders of market deregulation.

How does regulation solve this? Isn't regulation just another form of tax?