$114/bbl oil

[BenBurch]

Radio said it was trading at $114.

Is there a top end at current supply levels?

[Nogbad]

Radio said it was trading at $114.

Is there a top end at current supply levels?

Can't go above $563 I wouldn't think


;)

[Gate2501]

Radio said it was trading at $114.

Is there a top end at current supply levels?

Once it goes above $2^31, the industry will have to replace their 32 bit servers to track the price!

[BenBurch]

Once it goes above $2^31, the industry will have to replace their 32 bit servers to track the price!

But that could be due to inflation as well...

[The Central Scrutinizer]

Radio said it was trading at $114.

Is there a top end at current supply levels?

Is there a top end to the price of Coca-Cola at current supply levels?

It's unknowable and irrelevant.

[Hindmost]

Oil is still cheaper than bottled water.

glenn:boxedin:

[a_unique_person]

Oil is still cheaper than bottled water.

glenn:boxedin:

*snap*

[gumboot]

Oil is still cheaper than bottled water.

glenn:boxedin:


That must be why there's no cars that run on water...

[rjh01]

For those that are late to the party this appears to be a reincarnation of this now dead thread About $100 a barrel oil (http://forums.randi.org/showthread.php?t=102623)

[BenBurch]

http://afp.google.com/article/ALeqM5iZnMReOMG_AUmA2xjZ30y1ozHntw

"Oil prices shot to a record 117.81 dollars on the New York contract as traders seized on the unrest in key producer Nigeria, the weak US currency and OPEC's refusal to increase production."

[Francesca R]

If oil rises tomorrow there will be another news "reason" why. Or if it falls.

[Just thinking]

Funny thing ... we don't seem to be using any less of it. Not because of price, but because it would seem to me that we should be using less due to supply limits, yet there seem to be none. Odd, almost any other commodity that becomes way expensive very quickly does so because of supply/demand principles, which in turn limits availability --- but is that happening here? Why not? Look what's happening to food in some places, prices have increased quickly due to reduced supply. Result, less food on the shelf. Is there any hint of less gasoline at the pumps? Oil for your home? Fuel for jets? It seems if you got the $$$$ we got the oil --- no matter how much you want.

[Magyar]

oil prices have had absolutely NOTHING to do with availability and demand since deregulation and the creation of the futures market.

Read http://www.citizen.org/documents/House07.pdf


It's all about greed - And NO don't give me crap about open market and competition because it simply does not exist.

[Dymanic]

Funny thing ... we don't seem to be using any less of it.Out of curiosity, how much less gasoline do you think you could you use? If the price suddenly went to say fifteen or twenty dollars a gallon, what percentage of the amount you're buying now would you be forced to buy at that price? Could you cut your use, say, in half?

[Just thinking]

Out of curiosity, how much less gasoline do you think you could you use? If the price suddenly went to say fifteen or twenty dollars a gallon, what percentage of the amount you're buying now would you be forced to buy at that price? Could you cut your use, say, in half?

I don't think I could cut my consumption in half, but in the 1970's I bought a car that got around 20 mpg ... I quickly traded it in (3 years) for one that got 25. Then in the 1980's I bought one that got 30. In the 1990's as a married couple, we bought one that got 30 and recently we bought another that gets over 35 mpg on the highway.

I also insulted my home and my parents' to save on fuel costs (better windows, insulated piping and ductwork, etc.). My wife also van pools to work. We use a solar cover to heat our pool (which can get too hot if not taken off now and then) instead of a gas heater. We switched over from an electric water heater to a gas one and we recently purchased a high efficiency air conditioning unit for the house.

So I would say, over time, my consumption of fossil fuels has gone down. And at no time was it ever an inconvenience, to me, my parents or my spouse.

But my argument wasn't questioning reducing the use of gasoline as a function of price, but rather the curious lack of reduced availability. Nowhere do I see signs of gas stations turning folks away because their tanks ran dry.

[Polaris]

Oil is still cheaper than bottled water.

glenn:boxedin:

Is water at a premium where you live? I bought a gallon jug of it from a convenience store (a term not equated with low prices) for $1.29 yesterday. A gallon of gasoline cost almost triple that here in Texas, where prices are about $0.40 lower than most other states (and I'm not even going to mention California). And with oil at $118 a barrel (I'm assuming the average barrel is 55 gallons), that puts it roughly $1.9 for a gallon of oil.

Bottled water isn't more expensive than oil (it's the same water in my gallon jug that's in a 160z/400-something ml bottle at 7-11). Oil is just cheaper than the names Aquafina/Ozarka/Dasani/Poland Springs, etc. And even then, not always.

[Just thinking]

oil prices have had absolutely NOTHING to do with availability and demand since deregulation and the creation of the futures market.

Read http://www.citizen.org/documents/House07.pdf


It's all about greed - And NO don't give me crap about open market and competition because it simply does not exist.

Well, where do I start?

1) I never gave you any crap about anything ... I merely mentioned the fact that it doesn't follow the pattern of supply and demand and asked why not.

2) The futures market is not limited to oil speculators, so why doesn't this happen in other markets to the extent it does in oil? One might argue with food, but some areas are showing limited supplies --- but not oil. Hence my curiosity.

3) Greed is also not limited to oil speculators. It's everywhere ... when given half a chance it rears its ugly head for all to see. But oil gets most of (if not all) the blame. To me, there's more to it, or at least there seems to be.

[Damien Evans]

Is water at a premium where you live? I bought a gallon jug of it from a convenience store (a term not equated with low prices) for $1.29 yesterday. A gallon of gasoline cost almost triple that here in Texas, where prices are about $0.40 lower than most other states (and I'm not even going to mention California). And with oil at $118 a barrel (I'm assuming the average barrel is 55 gallons), that puts it roughly $1.9 for a gallon of oil.

Bottled water isn't more expensive than oil (it's the same water in my gallon jug that's in a 160z/400-something ml bottle at 7-11). Oil is just cheaper than the names Aquafina/Ozarka/Dasani/Poland Springs, etc. And even then, not always.

Here, bottled water is around $1.60 a litre, and petrol between $1.42 and $1.60, depending on which day of the week it is.

[Dymanic]

So I would say, over time, my consumption of fossil fuels has gone down.
And all those barrels of oil you didn't use are now sloshing around in SUV's.

But my argument wasn't questioning reducing the use of gasoline as a function of price, but rather the curious lack of reduced availability. Nowhere do I see signs of gas stations turning folks away because their tanks ran dry.It's a bidding war. The tanks don't run dry because the losers don't show up. They take the bus; walk; whatever. If gas was fifty dollars a gallon, there would still be takers. The pure status value of driving would be enormous. But in general, the price elasticity of demand (http://en.wikipedia.org/wiki/Price_elasticity_of_demand) for gasoline is relatively low. If potato chips were fifty bucks a bag, demand would immediately drop to zero. Nobody needs potato chips that bad.

[Francesca R]

oil prices have had absolutely NOTHING to do with availability and demand since deregulation and the creation of the futures market.Since "deregulation"? What deregulation? And regulation simply alters supply or demand or price.

It's all about greed - And NO don't give me crap about open market and competition because it simply does not exist.And yet you just said deregulation. Which is it?

[Francesca R]

Funny thing ... we don't seem to be using any less of it. Not because of price, but because it would seem to me that we should be using less due to supply limits, yet there seem to be none.Oil supply (production) has not declined. It's a forecast. (And it's been a forecast for a while). Price increases slow demand relative to what the demand would be without them--but they don't necessarily reduce demand from what it was before. And demand is increasing because of world economic growth and wealth, and in particular, where the growth is concentrated.

Look what's happening to food in some places, prices have increased quickly due to reduced supply. Result, less food on the shelf. Less food on the shelf where? I think there is as much food as people want (are able) to buy. This is not a famine. However (and what you may have meant) it is resulting in malnutrition--in some places quite extreme.

Is there any hint of less gasoline at the pumps? Oil for your home? Fuel for jets? It seems if you got the $$$$ we got the oil --- no matter how much you want.You could say that about any market-clearing price for any item.

[Just thinking]

And all those barrels of oil you didn't use are now sloshing around in SUV's.

Right ... and they're still there none the less.

It's a bidding war. The tanks don't run dry because the losers don't show up. They take the bus; walk; whatever. If gas was fifty dollars a gallon, there would still be takers. The pure status value of driving would be enormous.

OK, but I was referring to the underground tanks at the gas stations. Nowhere have I seen stations turn away anyone because they were waiting for their allocated supply. I have seen (on the news) empty shelves where once there was an abundance of certain foods.

[Francesca R]

I have seen (on the news) empty shelves where once there was an abundance of certain foods.Where though? If you are referring to places like Bangladesh--it's because (tragically) fewer people can afford the food, so it will not get stocked. If, say, they were given a big subsidy then the food would be available.

[Just thinking]

Oil supply (production) has not declined. It's a forecast. (And it's been a forecast for a while). Price increases slow demand relative to what the demand would be without them--but they don't necessarily reduce demand from what it was before. And demand is increasing because of world economic growth and wealth, and in particular, where the growth is concentrated.

So why the panic increase in price if supply keeps up with demand?

Less food on the shelf where? I think there is as much food as people want (are able) to buy. This is not a famine. However (and what you may have meant) it is resulting in malnutrition--in some places quite extreme.[/Quote]

How about this (http://ksax.com/article/stories/S390551.shtml?cat=10230)? The rapid increase in price is a direct result of supply.

You could say that about any market-clearing price for any item.

I'm not quite sure what you mean, but it doesn't seem to apply as it does for other items ... even in the futures market.

[Just thinking]

Where though? If you are referring to places like Bangladesh ...

No ... California (http://consumerist.com/382141/costco-one-bag-of-rice-per-customer-please), and elsewhere (http://www2.nysun.com/article/74994).

[Francesca R]

So why the panic increase in price if supply keeps up with demand?Supply is not keeping up with demand. I never said it was. But it is (still) increasing.

How about this (http://ksax.com/article/stories/S390551.shtml?cat=10230)? The rapid increase in price is a direct result of supply.Yes, but the product seems to be available if you can pay.

I'm not quite sure what you mean, but it doesn't seem to apply as it does for other items ... even in the futures market.I mean to a good approximation, if you are offering the clearing price of [Good X] then some of it will appear, as if by magic (or rather, an invisible hand)

[Francesca R]

No ... California (http://consumerist.com/382141/costco-one-bag-of-rice-per-customer-please), and elsewhere (http://www2.nysun.com/article/74994).OK. Rationing is an alternative to price hikes, and appears to be a (voluntary) business strategy of the trading concerns cited here.

[Just thinking]

Supply is not keeping up with demand. I never said it was. But it is (still) increasing.

I haven't seen rationing at the pumps ... have you?

Yes, but the product seems to be available if you can pay.

Sorry, but no. Rationing has taken place with some foods.

I mean to a good approximation, if you are offering the clearing price of [Good X] then some of it will appear, as if by magic (or rather, an invisible hand)

It depends on the goods ... I wouldn't agree 100% with this.

[Just thinking]

OK. Rationing is an alternative to price hikes, and appears to be a (voluntary) business strategy of the trading concerns cited here.

Voluntary? I think they're rationing because the supply isn't there. They would fill their shelves if they could, just as they did in the past. Plus, even with rationing, the price is higher.

[Francesca R]

Sorry I think we're going around in circles. :)

Supply and demand are elastic; prices respond to changes in them, rationing alleviates the price impact of supply/demand fluctuations.

[BenBurch]

...It seems if you got the $$$$ we got the oil --- no matter how much you want.

That is the truth!

The reason is that some "stripper" wells cost so much to extract that they only are put into production when the price goes way up. Current prices have caused people to invest in stripper kit for wells they had previously written off.

In a very real sense we will never run out of oil, therefore, but the price will rise and rise and rise until nobody can afford to burn it.

[Mister Agenda]

With inflation and tax increases, the gas that cost about .50 a gallon when I was kid should now cost about 3.25 a gallon. Perhaps a more interesting question than why is it so high might be why isn't it higher?

[The Central Scrutinizer]

http://afp.google.com/article/ALeqM5iZnMReOMG_AUmA2xjZ30y1ozHntw

"Oil prices shot to a record 117.81 dollars on the New York contract as traders seized on the unrest in key producer Nigeria, the weak US currency and OPEC's refusal to increase production."

Out of curiosity, why are you (and so many others) obsessed with oil (and, by extension, gas) prices?

[The Central Scrutinizer]

I also insulted my home and my parents' to save on fuel costs...

If you want your home to use less energy, I don't think insulting it is a wise thing to do.

[BenBurch]

Out of curiosity, why are you (and so many others) obsessed with oil (and, by extension, gas) prices?

Because everything in this country moves by road and rail and canal, and all of the prime movers in those modes at present burn the stuff. And electric power is about 40% oil-fired.

Hence the price of everything is directly effected by the price of oil.

And were there not to be enough, an actual shortage, the consequences would not be pretty.

[Tailgater]

Out of curiosity, why are you (and so many others) obsessed with oil (and, by extension, gas) prices?

I am because my business is directly affected by gas prices. Traveling to job sites is a nice chunk of my budget. On the other side of that coin, I have to be careful not to outprice myself out of a job to make up the difference. I'm really pushing the boundaries of closing up shop if gas gets near $4. That means I'm looking for a new job and the people who rely on me for income are looking for a job.

[RecoveringYuppy]

And electric power is about 40% oil-fired.
Not sure why people think that.

http://www.eia.doe.gov/cneaf/electricity/epa/epat1p1.html

[Just thinking]

If you want your home to use less energy, I don't think insulting it is a wise thing to do.

Well first I insulted it for being wasteful, then I insulated it.

[Just thinking]

I am because my business is directly affected by gas prices. Traveling to job sites is a nice chunk of my budget. On the other side of that coin, I have to be careful not to outprice myself out of a job to make up the difference. I'm really pushing the boundaries of closing up shop if gas gets near $4. That means I'm looking for a new job and the people who rely on me for income are looking for a job.

Where I live a number of lawn service providers have seasonal contracts that do not include rising fuel price surcharges. Plus my mom has a contract that requires she only pay so much per gallon for oil over the next 12 months. These type of businesses will be hurting too, no doubt.

[Dragoonster]

With inflation and tax increases, the gas that cost about .50 a gallon when I was kid should now cost about 3.25 a gallon. Perhaps a more interesting question than why is it so high might be why isn't it higher?

Yeah, for many years I've heard about $4 or $5 per gallon in Europe and wondered why we were paying much less.

Economists--Will we ever go back to $1.50/gallon? Is this a momentary "crisis" or a long-term correction?

[JoeEllison]

oil prices have had absolutely NOTHING to do with availability and demand since deregulation and the creation of the futures market.

Read http://www.citizen.org/documents/House07.pdf


It's all about greed - And NO don't give me crap about open market and competition because it simply does not exist.

Yep. This is just another case of the parasite class of wealthy investors transferring money from the poor to the rich.

[leonAzul]

Because everything in this country moves by road and rail and canal, and all of the prime movers in those modes at present burn the stuff. And electric power is about 40% oil-fired.

Hence the price of everything is directly effected by the price of oil.

And were there not to be enough, an actual shortage, the consequences would not be pretty.

Not sure why people think that.

http://www.eia.doe.gov/cneaf/electricity/epa/epat1p1.html

Well done.

Yet the transportation costs--which have a more direct impact on food distribution--still apply.

[The Central Scrutinizer]

Because everything in this country moves by road and rail and canal, and all of the prime movers in those modes at present burn the stuff. And electric power is about 40% oil-fired.

Hence the price of everything is directly effected by the price of oil.

And were there not to be enough, an actual shortage, the consequences would not be pretty.

So what do you plan on doing the solve the "problem"?

[dudalb]

Yep. This is just another case of the parasite class of wealthy investors transferring money from the poor to the rich.

Love that Marxist rhetoric.

[The Central Scrutinizer]

I am because my business is directly affected by gas prices. Traveling to job sites is a nice chunk of my budget. On the other side of that coin, I have to be careful not to outprice myself out of a job to make up the difference. I'm really pushing the boundaries of closing up shop if gas gets near $4. That means I'm looking for a new job and the people who rely on me for income are looking for a job.

Yes, it is a cost of doing business. So are insurance, paper, computers, toner, phone bills, etc. Yet I don't see people obsessing about those things. I find it odd.

[The Central Scrutinizer]

Economists--

I'm not an economist, but...

Will we ever go back to $1.50/gallon?

No

Is this a momentary "crisis" or a long-term correction?

It's neither. It's just the way it is.

[Tailgater]

Yes, it is a cost of doing business. So are insurance, paper, computers, toner, phone bills, etc. Yet I don't see people obsessing about those things. I find it odd.

If those things were 30% of the budget and doubled in a few years I'm guessing they would be.

[Dymanic]

OK, but I was referring to the underground tanks at the gas stations.
So was I.

Nowhere have I seen stations turn away anyone because they were waiting for their allocated supply.Not for a while, anyway. Not that there aren't any number of events that could put us there again overnight. Still, there are some even now who turn themselves away by dropping out of the bidding. A person who curtails his driving enough to reduce the number of visits to the pump each month can be said to have done this, though only to a degree; and there are surely at least some who have quit driving altogether due to high gasoline prices, though not everyone is in a position to do so.

I have seen (on the news) empty shelves where once there was an abundance of certain foods.I don't think we'll see rioting in the streets until we start seeing rationing of BigMacs.

So why the panic increase in price if supply keeps up with demand?I don't think we've seen anything like real panic yet. In this context, just owning an SUV is about as close to the opposite of panic as anything I can think of.

Demand is defined by the amount of a good which buyers are willing and able to purchase at a given price, so an increase in demand for a good doesn't have to mean an increase in the total amount purchased; even if that remains the same, demand has increased if there is an increase in the price buyers are willing to pay. When that price increases, one effect is to stimulate an increase in production, but that can only happen as long as the base resource holds out. Once the point of peak oil is reached, then by definition, it will never again be possible to increase production beyond that level. That's one of the reasons oil companies aren't investing in new refineries. They aren't going to need them, and they know it.

[nzric]

Not sure if I'm a little late, but I'm still astounded that oil has surged to $30 a barrel (http://news.bbc.co.uk/2/hi/business/644028.stm)!!

"US President Bill Clinton said the rise was "deeply troubling" and refused to rule out any US action to deal with the situation."

"The Secretary General of Opec, Rilwanu Lukman, told the BBC that oil prices were "rather high at the moment", but he expected them to moderate in the near future."

...um...

http://www.energybulletin.net/35732.html

Now where's that darned trendline function on Excel...?

[Magyar]

Yep. This is just another case of the parasite class of wealthy investors transferring money from the poor to the rich.



Yea, FUNNY you should mention it -

"Oil companies, investment banks and hedge funds are exploiting the lack of government
oversight to price-gouge consumers and make billions of dollars in profits. These energy
traders boast how they’re price-gouging Americans, as a recent Dow Jones article makes
clear: energy “traders who profited enormously on the supply crunch following Hurricane
Katrina cashed out of the market ahead of the long weekend. ‘There are traders who
made so much money this week, they won’t have to punch another ticket for the rest of
this year,’ said Addison Armstrong, manager of exchange-traded markets for TFS Energy
Futures."

Leah McGrath Goodman, “Oil Futures, Gasoline In NY End Sharply Lower,” September 2, 2005.

on nothing but manipulating the market (see my original link, which you obviously didn't bother to read so you can hold on to your preconceived ideas)

[JoeEllison]

Yea, FUNNY you should mention it -

Personally, I don't find anything "funny" about it. I was pretty sure I was agreeing with you. :confused:

[BenBurch]

So what do you plan on doing the solve the "problem"?

We need about 10,000 500 MW nuclear power plants and we need them as quickly as they can be built.

Then we use electricity to provide the energy input to synthesize liquid or gaseous fuels for those vehicles that must be run that way. And we electrify ALL of the railroads except perhaps low traffic branch lines, which we run with the synthesized fuel.

Sadly, I see no political will to make this happen.

[quixotecoyote]

Personally, I don't find anything "funny" about it. I was pretty sure I was agreeing with you. :confused:

You managed to be so over the top that the people on your side of the debate thought you were making fun of them. :hit:

[RecoveringYuppy]

We need about 10,000 500 MW nuclear power plants and we need them as quickly as they can be built. [snip] Sadly, I see no political will to make this happen.
You're talking worldwide, right? That's in the neighborhood of 10 trillion in capital costs. And the time frame we need them is what? Over the next 40 years? About 250 billion/year. Worldwide, I'm not even sure that counts as a big number in the energy industry. I certainly don't think it's catastrophic.

It doesn't really seem to be in the realm of requiring a "Manhattan project" mentality.

[Magyar]

Well, where do I start?

1) I never gave you any crap about anything ... I merely mentioned the fact that it doesn't follow the pattern of supply and demand and asked why not.


I didn't mean to emply that this was directed at you. It was at the upcoming comments I knew were sure to come (see JoeEllisons Commie comment)


2) The futures market is not limited to oil speculators, so why doesn't this happen in other markets to the extent it does in oil? One might argue with food, but some areas are showing limited supplies --- but not oil. Hence my curiosity.


Because unlike oil production food is not an oligapoly -

“In just the last few years, mergers between giant oil companies—such as Exxon and
Mobil, Chevron and Texaco, Conoco and Phillips—have resulted in just a few companies
controlling a significant amount of America’s gasoline, squelching competition. The largest five oil refiners controlled one-third of the American market, while the largest 10 had 55.6 percent. By 2005, as a result of all the mergers, the largest five now control 55 percent of the market, and the largest 10 dominate 81.4 percent (see Appendix 1). This concentration has led to skyrocketing profit margins. As a result of all of these recent mergers, the largest five oil refiners today control as much capacity as the largest 10 did a decade ago.


“The consolidation of downstream assets—particularly refineries—plays a big role in
determining the price of a gallon of gas. Recent mergers have resulted in dangerously
concentrated levels of ownership over U.S. oil refining. A recent government study
revealed that the “source of potential market power in the wholesale gasoline market is at
the refining level because the refinery market is imperfectly competitive and refiners
essentially control gasoline sales at the wholesale level” and concluded that “mergers and
increased market concentration generally led to higher wholesale gasoline prices in the
United States.”6
The industry has plenty of incentive to intentionally keep refining markets tight.
ExxonMobil’s new CEO told The Wall Street Journal that even though American fuel
consumption will continue growing for the next decade, his company has no plans to
build new refineries:

see my original post for link



3) Greed is also not limited to oil speculators. It's everywhere ... when given half a chance it rears its ugly head for all to see. But oil gets most of (if not all) the blame. To me, there's more to it, or at least there seems to be.


TRUE - But, the livelyhood and wellfare of my, and everyone elses family is not dependent on being able to buy a jewelery or a boat. And other commodoties have more regulation AND more competition.
If wheat prices go up I CAN eat less bread and switch to rice or soybeand. If gas prices go up I still have to drive to work or my clients where ever they may be.


“In just the last few years, mergers between giant oil companies—such as Exxon and
Mobil, Chevron and Texaco, Conoco and Phillips—have resulted in just a few companies
controlling a significant amount of America’s gasoline, squelching competition. The largest five oil refiners controlled one-third of the American market, while the largest 10 had 55.6 percent. By 2005, as a result of all the mergers, the largest five now control 55 percent of the market, and the largest 10 dominate 81.4 percent (see Appendix 1). This concentration has led to skyrocketing profit margins. As a result of all of these recent mergers, the largest five oil refiners today control as much capacity as the largest 10 did a decade ago."

[dudalb]

You managed to be so over the top that the people on your side of the debate thought you were making fun of them. :hit:

Joe does not seem to understand that his over the top rhetoric backfires on him most of the time.

[JoeEllison]

You managed to be so over the top that the people on your side of the debate thought you were making fun of them. :hit:

:o

Oops... I was in a hurry, and had just got done reading about how wonderful John McCain thinks the economy is doing.

[BenBurch]

You're talking worldwide, right? That's in the neighborhood of 10 trillion in capital costs. And the time frame we need them is what? Over the next 40 years? About 250 billion/year. Worldwide, I'm not even sure that counts as a big number in the energy industry. I certainly don't think it's catastrophic.

It doesn't really seem to be in the realm of requiring a "Manhattan project" mentality.

No, that number is just for the contiguous 48 US States.

And we need to have at least half online in 15 years, and the rest in 30.

Worldwide we would need about 10X that number.

[Magyar]

Since "deregulation"? What deregulation?



You know it always amazes me on a skeptical forum when people can't even take a second to look at a link and then act all smug about their response to something they didn't bother to read!?


"Energy trading markets were deregulated in two steps. First, in response to a petition by
nine energy and financial companies, led by Enron36, on November 16, 1992, then-CFTC
Chairwoman Wendy Gramm supported a rule change—later known as Rule 35—
exempting certain energy trading contracts from the requirement that they be traded on a
regulated exchange like NYMEX, thereby allowing companies like Enron and Goldman
Sachs to begin trading energy futures between themselves outside regulated exchanges.
Importantly, the new rule also exempted energy contracts from the anti-fraud provisions
of the Commodity Exchange Act.37 At the same time, Gramm initiated a proposed order
granting a similar exemption to large commercial participants in various energy contracts
that was later approved in April 2003.38
Enron had close ties to Wendy Gramm’s husband, then-Texas Senator Phil Gramm. Of
the nine companies writing letters of support for the rule change, Enron made by far the
largest contributions to Phil Gramm’s campaign fund at that time, giving $34,100.39
Wendy Gramm’s decision was controversial. Then- chairman of a House Agriculture
subcommittee with jurisdiction over the CFTC, Rep. Glen English, protested that Wendy
Gramm’s action prevented the CFTC from intervening in basic energy futures contracts
disputes, even in cases of fraud, noting that that “in my 18 years in Congress [Gramm’s
motion to deregulate] is the most irresponsible decision I have come across.” Sheila Bair,
the CFTC commissioner casting the lone dissenting vote, argued that deregulation of
35 7 USC §§ 9, 13b and 13(a)(2).
36 The other eight companies were: BP, Coastal Corp (now El Paso Corp.) Conoco and Phillips (now ConocoPhillips),
Goldman Sachs’ J. Aron & Co, Koch Industries, Mobil (now ExxonMobil) and Phibro Energy (now a subsidiary of
CitiGroup).
37 17 CFR Ch. 1, available at www.access.gpo.gov/nara/cfr/waisidx_06/17cfr35_06.html
38 “Exemption for Certain Contracts Involving Energy Products,” 58 Fed. Reg. 6250 (1993).
39 Charles Lewis, “The Buying of the President 1996,” pg 153. The Center for Public Integrity.
Public Citizen Testimony Before the House Energy and Commerce Committee, Subcommittee on Oversight and Investigations energy futures contracts “sets a dangerous precedent.”40 A U.S. General Accounting Office report issued a year later urged Congress to increase regulatory oversight over derivative contracts,41 and a congressional inquiry found that CFTC staff analysts and economists believed Gramm’s hasty move prevented adequate policy review.42 Five weeks after pushing through the “Enron loophole,” Wendy Gramm was asked by Kenneth Lay to serve on Enron’s Board of Directors. When asked to comment about Gramm’s nearly immediate retention by Enron, Lay called it “convoluted” to question the propriety of naming her to the board.43
Congress followed Wendy Gramm’s lead in deregulating energy trading contracts and
moved to deregulate energy trading exchanges by exempting electronic exchanges, like
those quickly set up by Enron, from regulatory oversight (as opposed to a traditional
trading floor like NYMEX that remained regulated). Congress took this action during
last-minute legislative maneuvering on behalf of Enron by former Texas GOP Senator
Phil Gramm in the lame-duck Congress two days after the Supreme Court ruled in Bush v
Gore, buried in 712 pages of unrelated legislation.44 As Public Citizen pointed out back
in 2001,45 this law deregulated OTC derivatives energy trading by “exempting” them
from the Commodity Exchange Act, removing anti-fraud and anti-manipulation
regulation over these derivatives markets and exempting “electronic” exchanges from
CFTC regulatory oversight.
This deregulation law was passed against the explicit recommendations of a multi-agency
review of derivatives markets. The November 1999 release of a report by the President’s
Working Group on Financial Markets—a multi-agency policy group with permanent
standing composed at the time of Lawrence Summers, Secretary of the Treasury; Alan
Greenspan, Chairman of the Federal Reserve; Arthur Levitt, Chairman of the Securities
and Exchange Commission; and William Rainer, Chairman of the CFTC—concluded that
energy trading must not be deregulated. The Group reasoned that “due to the
characteristics of markets for nonfinancial commodities with finite supplies … the
Working Group is unanimously recommending that the [regulatory] exclusion not be
extended to agreements involving such commodities.”46 In its 1999 lobbying disclosure
form, Enron indicated that the “President’s Working Group” was among its lobbying
targets.47


And yet you just said deregulation. Which is it?

This is incoherent! The industry wanted the deregulations so they can make deals based on insider trading, and by-passing anti-trust laws so they can make MORE profits without getting in trouble or having oversite.


[quote]And regulation simply alters supply or demand or price.[quote]

And waht is that have to do with the fact that oil prices are going up because of questionable trading practices and insider deals so people can make more money (greed) as opposed to ACTUAL cost of production, demand or availability or actual real economics and markets?

[BenBurch]

My mental math was 3X the right number;

In 2006, the total electric power generated by all fixed plant power stations was 4,064,702,227 MW/hours. Synthesizing most of our liquid fuel and running all the trains with electricity would about double that, so, 8 billion MW/hours, times demand increase of 30% in 30 years and you get about 2500 500 MW plants plants running 24/7/365. Now, all of the nuclear plants I ever worked on were down on average three months out of the year, so about 3125 is the right number for the USA.

Sorry! I do things in my head when I should grab the slide rule...

:)

Source for that total; http://www.eia.doe.gov/cneaf/electricity/epa/generation_state.xls

[RecoveringYuppy]

No, that number is just for the contiguous 48 US States.

And we need to have at least half online in 15 years, and the rest in 30.

Worldwide we would need about 10X that number.
I just noticed you're revising your calculations.

But in the meantime I'll point out that 10,000 500MW plants be 5 TW of generating capacity and current world wide energy consumption from all sources is 15 TW.

[BenBurch]

Remember that synthesizing fuel is very, very inefficient.

Also remember that world demand for energy is growing faster than US demand, which makes sense when you consider how impoverished much of the planet is.

[The Central Scrutinizer]

We need about 10,000 500 MW nuclear power plants and we need them as quickly as they can be built.

Then we use electricity to provide the energy input to synthesize liquid or gaseous fuels for those vehicles that must be run that way. And we electrify ALL of the railroads except perhaps low traffic branch lines, which we run with the synthesized fuel.

Sadly, I see no political will to make this happen.

And what are you personally doing to see that this gets done?

[BenBurch]

And what are you personally doing to see that this gets done?

You mean besides considering a return to nuclear plant engineering?

Talking to every politician who will listen to a humble Precinct Committeeman.

[Hindmost]

You mean besides considering a return to nuclear plant engineering?

Talking to every politician who will listen to a humble Precinct Committeeman.

I just went back...China has bought some plants and there are about 30 planned for the US. Jobs are very easy to get.

http://www.scana.com/en/news-room/press-releases/current-news/sceg-authorizes-purchase-of-long-lead-materials-for-new-plant.htm

Capacity is a problem...the Japanese have indicated they won't gear up their shops any more than what they have now and they can only build so many heavy vessels. Korea has some capacity, but they have their own plants to build.

glenn

FYI: capacity factors for Nuke plants are much better now...they are down about 45 days in a year.

[Hindmost]

Is water at a premium where you live? I bought a gallon jug of it from a convenience store (a term not equated with low prices) for $1.29 yesterday. A gallon of gasoline cost almost triple that here in Texas, where prices are about $0.40 lower than most other states (and I'm not even going to mention California). And with oil at $118 a barrel (I'm assuming the average barrel is 55 gallons), that puts it roughly $1.9 for a gallon of oil.

Bottled water isn't more expensive than oil (it's the same water in my gallon jug that's in a 160z/400-something ml bottle at 7-11). Oil is just cheaper than the names Aquafina/Ozarka/Dasani/Poland Springs, etc. And even then, not always.

I was joking, but some people will pay a bunch for bottled water...I think it is really silly especially since the govt. purity requirements for treated public water are more stringent than for bottled water.

glenn

[soylent]

This looks rather less alarming across the pond.

Only a handful of years ago the euro and USD were at price parity; now the cost of oil is 118$/bbl, which only comes to 74€/bbl. Also consider the effect of a hefty per-volume fuel tax, a 43 mpg average fuel economy and societies that are on average more centered on cities.

[BenBurch]

Now its $118/bbl... And DOUBLE one year ago.

http://www.wtrg.com/daily/crudeoilprice.html

[bobdroege7]

My mental math was 3X the right number;

In 2006, the total electric power generated by all fixed plant power stations was 4,064,702,227 MW/hours. Synthesizing most of our liquid fuel and running all the trains with electricity would about double that, so, 8 billion MW/hours, times demand increase of 30% in 30 years and you get about 2500 500 MW plants plants running 24/7/365. Now, all of the nuclear plants I ever worked on were down on average three months out of the year, so about 3125 is the right number for the USA.

Sorry! I do things in my head when I should grab the slide rule...

:)

Source for that total; http://www.eia.doe.gov/cneaf/electricity/epa/generation_state.xls

How about 1152 plants at 1356 MWe each, makes it easier to swallow.

http://en.wikipedia.org/wiki/ABWR

thats just 23 in each state or about 4 sites per state, more for California and Nevada.

[Francesca R]

Now its $118/bbl... And DOUBLE one year ago.
Now it's 113.14 so your thread has failed ;)

http://h1.ripway.com/FrancescaR/oilprice.jpg

[The Central Scrutinizer]

Now its $118/bbl... And DOUBLE one year ago.

http://www.wtrg.com/daily/crudeoilprice.html

So?

[Slydermv]

Something I read recently regarding why the oil prices are climbing, that has nopthing to do with supply and demand. Intresting, but I don't know much about the global market place. Any Truth? (couldn't post the links so I pasted the text.)

If you think prices have become insane, you're right. But insanity rules markets for everything from oil to rice right now. In fact, insanity is the new "normal."

For example, why should oil sell for $119 a barrel, a whopping $55 a barrel, or 86%, higher than it did last April?

It's like the United States is suddenly out of oil, right? March crude oil reserves in the U.S. were actually 2.4 million barrels higher than reserves in February and only a trifling 3.4% lower than reserves in March 2007, according to the Energy Information Administration. An 86% jump in oil prices because reserves fell by 3.4%? I don't think so.

The global picture is similar. Global oil stocks held by developed economies came to 2.58 billion barrels at the end of March -- pretty much the same as at the end of 2007.

Global supply and demand is tight, with the latest projections from the International Energy Agency showing supply at 87.3 million barrels a day and demand at 87.2 million barrels. Tight, but supply is still ahead of demand.

Don't stop with oil prices, though. Look at rice, which recently cracked $1,000 per metric ton. The price of export-quality rice is up 173% in a year, even though global rice stocks will finish 2008 about 1 million metric tons higher than at the end of 2007, according to the U.S. Department of Agriculture.

Or copper, which is setting record highs just about every day and has climbed in price by 30% so far this year. Or aluminum -- up 28% this year. Or wheat. Or corn. Or, well, you name it.

Why normal rules don't apply
We've all heard the explanations. Demand for this or that has soared due to growth in developing nations, increasing production of biofuels or whatever, and supply has stumbled due to miners' strikes or an electricity shortage or a drought in Australia.

But lots of folks -- I get e-mail about this every day -- don't buy these stories. They see small production shortfalls, but still substantial stockpiles, and ask how this adds up to a 100% increase in the price of oil or rice or wheat in a year.

More on rising prices:
Gas to hit $1.40 a litre this summer: report
High food prices coming: report
Why oil could hit $180 a barrel
Could we really run out of food?
Don't count on a 'normal' recession
How to profit from rising food prices
Well, it doesn't -- in a normal economy. But the global economy is now playing by different rules, the rules of economic scarcity, and the rules of scarcity say the normal relationship between supply and demand and prices doesn't hold. Yes, prices are insane. But this kind of price insanity is exactly how a scarcity economy works.

The concept of scarcity is central to the economics of normal markets. Most goods, whether bluejeans or peanut butter, don't exist in unlimited supply. The market rations those goods with prices that match supply to demand.

For example, at $3 a pair, consumers might demand 2 million pairs of sneakers, while factories can produce just 1.5 million pairs. At $8 a pair, demand might fall to 1.5 million. Consumers who wanted sneakers at $3, but don't at $8, delay or forgo buying sneakers, or wear sandals instead.

It starts in our heads
And in a normal market, if there isn't enough demand at $3 a pair, the price falls -- either in the short term through discounting or in the long term by companies going out of business -- until demand meets supply, and the market clears.

Scarcity markets play by different rules. In fact, scarcity markets exist because buyers believe the normal rules of supply and demand have broken down. Buyers in a scarcity market don't believe higher prices will depress demand or increase supply enough to allow supply to meet demand. In such a market, prices are driven by fear that there will not be enough supply at any price.

If, for example, companies that need copper to make electrical machinery, wire or pipes bid prices higher because they worry that current prices won't bring supply and demand into alignment anytime soon. They fear they won't be able to buy copper at any price when they need it.

Scarcity markets aren't created overnight. Potential buyers need to be bloodied by repeated experience on both the supply and demand side. Consumers of copper know that for each of the past six years, the copper industry has failed to deliver projected increases in supply.

In 2008 and 2009, according to UBS AG (UBS.N), the industry will fall short again. The bank projects production a shortfall of 800,000 metric tons over those two years.

In the oil industry, major suppliers that were being counted on to increase production have announced production declines. Production fell 1% in Russia for the first quarter, for example. And suppliers who were being counted on to stabilize production have announced even bigger shortfalls. First-quarter production in Mexico dropped almost 8%.

And it helps establish scarcity economics as the rule of the markets if potential buyers become convinced that higher prices won't dampen demand. That happens fastest in markets for goods that buyers especially need. Most Asian consumers of rice, for example, can't choose to eat less without running a real risk of hunger or starvation. And there isn't a ready substitute for high-priced rice. What are they supposed to do, eat even-more-expensive wheat or corn?

A sense of inevitability
But the most profound effect of scarcity economics on prices comes in markets where buyers who were convinced that higher prices would cut demand come to believe that higher prices have little effect on demand. That has happened in the oil market in the past year. Oil at $80 a barrel and gasoline at $3 a gallon (79 cents US a litre) were supposed to cut demand and bring prices back down. But they didn't.

Judging from the futures market, where oil trades above $100 a barrel as far into the future as the eye can see, potential buyers believe today's high prices won't reduce demand anytime soon.

And because demand for oil hasn't declined, oil analysts now worry it will take a run above $175 a barrel from the current $119 before price reduces demand. (See my April 22 column, "Why oil could hit $180 a barrel.")

Once a scarcity market is established, it produces behaviour by buyers that can lead to the very scarcity they fear. Hoarding, for example, can empty shelves. Of course, the emptying shelves themselves create panic buying that just empties the shelves faster.

Security at any price
And by taking supply off the market, hoarding produces shortages. During the gasoline crises of the 1970s, drivers who topped off their tanks daily out of fear there wouldn't be enough gas the next day helped cause those long lines at gas stations and, by moving a substantial part of the gasoline supply from the public market into their private tanks, reduced the available supply.

Scarcity economics also turns the relationship between low- and high-cost producers upside down. In a normal market, a low-cost producer sets prices low enough to sell out all of production and high enough to maximize profit without decreasing demand and endangering sales. In a scarcity market, the high-cost producer sets prices because buyers who fear they won't be able to get the goods they need will pay almost any price to ensure themselves of a supply.

You can see scarcity economics at work in today's fertilizer market, for example. Potash of Saskatchewan (POT.TO) produces potash and nitrogen fertilizers. But with the world short 1.2 million metric tons of potash in 2008 and desperate for nitrogen fertilizer, Potash is seeing its already high margins soar to astounding heights. In announcing its first-quarter earnings, the company projected that margins in 2008 will be roughly 3.5 times as high as in 2007.

Price insanity becoming the norm
Think that's insane? As long as scarcity economics rules the fertilizer market, there's a good chance Potash will get its price, and other fertilizer makers will go along for the ride. The global scarcity has made high-cost, government-subsidized producers in India the price setters in the market: If you've got to have supply, you'll pay any price, right? That price and not Potash's production costs are now setting the market price.

Supply contracts for potash for the second half of 2008 are up for negotiation in Japan and India. Japan paid just $120 a ton for potash in its contract for the first half of 2008. China recently signed a long-term contract for $576 a ton. That was a $456-per-ton price jump. And even with that increase, the Chinese didn't get all the potash they wanted. The country is now looking at a shortfall that some experts peg as high as 40%, just when China is trying to increase food production to cut inflation in domestic food prices.

From 1989 through 2006, potash delivered in Asia sold for $200 a metric ton. According to the company, potash prices could reach $1,000 a ton by the end of this year. That has left Wall Street analysts who recently increased their projections to a range of $700 a metric ton struggling to catch up.

And yes, that all sounds insane. But insanity is "normal" when scarcity economics rules. Remember that when you try to figure out what price to pay for shares of any producer of fertilizer, copper, tin and oil these days.

[Hindmost]

Something I read recently regarding why the oil prices are climbing, that has nopthing to do with supply and demand. Intresting, but I don't know much about the global market place. Any Truth? (couldn't post the links so I pasted the text.)

If you think prices have become insane, you're right. But insanity rules markets for everything from oil to rice right now. In fact, insanity is the new "normal."

For example, why should oil sell for $119 a barrel, a whopping $55 a barrel, or 86%, higher than it did last April?

It's like the United States is suddenly out of oil, right? March crude oil reserves in the U.S. were actually 2.4 million barrels higher than reserves in February and only a trifling 3.4% lower than reserves in March 2007, according to the Energy Information Administration. An 86% jump in oil prices because reserves fell by 3.4%? I don't think so.

The global picture is similar. Global oil stocks held by developed economies came to 2.58 billion barrels at the end of March -- pretty much the same as at the end of 2007.

Global supply and demand is tight, with the latest projections from the International Energy Agency showing supply at 87.3 million barrels a day and demand at 87.2 million barrels. Tight, but supply is still ahead of demand.

Don't stop with oil prices, though. Look at rice, which recently cracked $1,000 per metric ton. The price of export-quality rice is up 173% in a year, even though global rice stocks will finish 2008 about 1 million metric tons higher than at the end of 2007, according to the U.S. Department of Agriculture.

Or copper, which is setting record highs just about every day and has climbed in price by 30% so far this year. Or aluminum -- up 28% this year. Or wheat. Or corn. Or, well, you name it.

Why normal rules don't apply
We've all heard the explanations. Demand for this or that has soared due to growth in developing nations, increasing production of biofuels or whatever, and supply has stumbled due to miners' strikes or an electricity shortage or a drought in Australia.

But lots of folks -- I get e-mail about this every day -- don't buy these stories. They see small production shortfalls, but still substantial stockpiles, and ask how this adds up to a 100% increase in the price of oil or rice or wheat in a year.

More on rising prices:
Gas to hit $1.40 a litre this summer: report
High food prices coming: report
Why oil could hit $180 a barrel
Could we really run out of food?
Don't count on a 'normal' recession
How to profit from rising food prices
Well, it doesn't -- in a normal economy. But the global economy is now playing by different rules, the rules of economic scarcity, and the rules of scarcity say the normal relationship between supply and demand and prices doesn't hold. Yes, prices are insane. But this kind of price insanity is exactly how a scarcity economy works.

The concept of scarcity is central to the economics of normal markets. Most goods, whether bluejeans or peanut butter, don't exist in unlimited supply. The market rations those goods with prices that match supply to demand.

For example, at $3 a pair, consumers might demand 2 million pairs of sneakers, while factories can produce just 1.5 million pairs. At $8 a pair, demand might fall to 1.5 million. Consumers who wanted sneakers at $3, but don't at $8, delay or forgo buying sneakers, or wear sandals instead.

It starts in our heads
And in a normal market, if there isn't enough demand at $3 a pair, the price falls -- either in the short term through discounting or in the long term by companies going out of business -- until demand meets supply, and the market clears.

Scarcity markets play by different rules. In fact, scarcity markets exist because buyers believe the normal rules of supply and demand have broken down. Buyers in a scarcity market don't believe higher prices will depress demand or increase supply enough to allow supply to meet demand. In such a market, prices are driven by fear that there will not be enough supply at any price.

If, for example, companies that need copper to make electrical machinery, wire or pipes bid prices higher because they worry that current prices won't bring supply and demand into alignment anytime soon. They fear they won't be able to buy copper at any price when they need it.

Scarcity markets aren't created overnight. Potential buyers need to be bloodied by repeated experience on both the supply and demand side. Consumers of copper know that for each of the past six years, the copper industry has failed to deliver projected increases in supply.

In 2008 and 2009, according to UBS AG (UBS.N), the industry will fall short again. The bank projects production a shortfall of 800,000 metric tons over those two years.

In the oil industry, major suppliers that were being counted on to increase production have announced production declines. Production fell 1% in Russia for the first quarter, for example. And suppliers who were being counted on to stabilize production have announced even bigger shortfalls. First-quarter production in Mexico dropped almost 8%.

And it helps establish scarcity economics as the rule of the markets if potential buyers become convinced that higher prices won't dampen demand. That happens fastest in markets for goods that buyers especially need. Most Asian consumers of rice, for example, can't choose to eat less without running a real risk of hunger or starvation. And there isn't a ready substitute for high-priced rice. What are they supposed to do, eat even-more-expensive wheat or corn?

A sense of inevitability
But the most profound effect of scarcity economics on prices comes in markets where buyers who were convinced that higher prices would cut demand come to believe that higher prices have little effect on demand. That has happened in the oil market in the past year. Oil at $80 a barrel and gasoline at $3 a gallon (79 cents US a litre) were supposed to cut demand and bring prices back down. But they didn't.

Judging from the futures market, where oil trades above $100 a barrel as far into the future as the eye can see, potential buyers believe today's high prices won't reduce demand anytime soon.

And because demand for oil hasn't declined, oil analysts now worry it will take a run above $175 a barrel from the current $119 before price reduces demand. (See my April 22 column, "Why oil could hit $180 a barrel.")

Once a scarcity market is established, it produces behaviour by buyers that can lead to the very scarcity they fear. Hoarding, for example, can empty shelves. Of course, the emptying shelves themselves create panic buying that just empties the shelves faster.

Security at any price
And by taking supply off the market, hoarding produces shortages. During the gasoline crises of the 1970s, drivers who topped off their tanks daily out of fear there wouldn't be enough gas the next day helped cause those long lines at gas stations and, by moving a substantial part of the gasoline supply from the public market into their private tanks, reduced the available supply.

Scarcity economics also turns the relationship between low- and high-cost producers upside down. In a normal market, a low-cost producer sets prices low enough to sell out all of production and high enough to maximize profit without decreasing demand and endangering sales. In a scarcity market, the high-cost producer sets prices because buyers who fear they won't be able to get the goods they need will pay almost any price to ensure themselves of a supply.

You can see scarcity economics at work in today's fertilizer market, for example. Potash of Saskatchewan (POT.TO) produces potash and nitrogen fertilizers. But with the world short 1.2 million metric tons of potash in 2008 and desperate for nitrogen fertilizer, Potash is seeing its already high margins soar to astounding heights. In announcing its first-quarter earnings, the company projected that margins in 2008 will be roughly 3.5 times as high as in 2007.

Price insanity becoming the norm
Think that's insane? As long as scarcity economics rules the fertilizer market, there's a good chance Potash will get its price, and other fertilizer makers will go along for the ride. The global scarcity has made high-cost, government-subsidized producers in India the price setters in the market: If you've got to have supply, you'll pay any price, right? That price and not Potash's production costs are now setting the market price.

Supply contracts for potash for the second half of 2008 are up for negotiation in Japan and India. Japan paid just $120 a ton for potash in its contract for the first half of 2008. China recently signed a long-term contract for $576 a ton. That was a $456-per-ton price jump. And even with that increase, the Chinese didn't get all the potash they wanted. The country is now looking at a shortfall that some experts peg as high as 40%, just when China is trying to increase food production to cut inflation in domestic food prices.

From 1989 through 2006, potash delivered in Asia sold for $200 a metric ton. According to the company, potash prices could reach $1,000 a ton by the end of this year. That has left Wall Street analysts who recently increased their projections to a range of $700 a metric ton struggling to catch up.

And yes, that all sounds insane. But insanity is "normal" when scarcity economics rules. Remember that when you try to figure out what price to pay for shares of any producer of fertilizer, copper, tin and oil these days.

Some of this price increase is due to the weak dollar (oil is priced in dollars), some of it is due to the futures market and people betting on scarce oil with large demand. Also, OPEC was formed to keep oil prices high and they now control enough of the market to get that done.

The problem ultimately stems from growing economies using up a finite resource. China and India have a lot of people and a growing middle class. The US economy is based on cheap oil and demand is difficult to slow up because the infrastructure is based almost completely on oil and natural gas.

Any commodity will follow this track of rising prices if supply doesn't meet demand. Now, any commodity that relies on energy is going to see prices increase. Now, if we have reached peak oil, this means we have pulled about half of the recoverable oil out of the ground. So, it looks like we have lots of oil around, however, it becomes increasingly difficult to produce the 87 million barrels a day because the well start to go into decline. North sea, Norway, Mexico, US, are all on the downside and that will never change unless new discoveries are made.

the changes in inventroy in the US are all noise. When we are using 22 million barrels a day--or 8 billion a year--who cares about a few million...that's where the futures markets push things around.

I would say...in the last few years, the price increase may not totally be driven by supply and demand, however it is the underlying cause and certainly will be in the near future. All the easy to extract oil has been found. I don't think Jubak has all the answers...he doesn't seem to understand how much of the economy is based on energy with oil providing 80% of that energy.

glenn

I am not a moderator, but : you are not supposed to paste full text of copyrighted material...just post the link..and someone will can repost it for you until you get enough posts.


http://articles.moneycentral.msn.com/Investing/JubaksJournal/WhyWereStuckWithInsanePrices.aspx?page=1

[nzric]

Has anyone come up with a refined peak oil theory, a hubbert v2.0? As far as I can see, anyone who has the time and the inclination could probably check if/when we've reached peak in world oil by measuring the last few years oil production compared with oil industry investment $, adjusted for inflation/US$ value. Looks like most people here agree that just using the US$ value per barrel is a crude measure of reality for various reasons.

I'm not an economist, but if we've reached peak oil, wouldn't the major company's investment be climbing along a predictable (hubbert) path to reflect the fact it's harder to get the oil out of the ground, even though production rates are steady...?? e.g. size & cost of new rigs, infrastructure investment for remote drilling, manpower & equipment, etc? It's one thing to speculate but has anyone done the research?

Most of the peak oil sites I can find either repeat hubbert with no elaboration, or are a collection of dire news clippings.

[Hindmost]

Has anyone come up with a refined peak oil theory, a hubbert v2.0? As far as I can see, anyone who has the time and the inclination could probably check if/when we've reached peak in world oil by measuring the last few years oil production compared with oil industry investment $, adjusted for inflation/US$ value. Looks like most people here agree that just using the US$ value per barrel is a crude measure of reality for various reasons.

I'm not an economist, but if we've reached peak oil, wouldn't the major company's investment be climbing along a predictable (hubbert) path to reflect the fact it's harder to get the oil out of the ground, even though production rates are steady...?? e.g. size & cost of new rigs, infrastructure investment for remote drilling, manpower & equipment, etc? It's one thing to speculate but has anyone done the research?

Most of the peak oil sites I can find either repeat hubbert with no elaboration, or are a collection of dire news clippings.

Hubbert did his work back in the 50s and his work has been refined. Take a look at this link. Others have advanced his work. Hubbert refined his own work as well.

http://dieoff.org/page140.htm

Oil companies look at production quite extensively....they have super secret stuff they don't publish as well.

the evidence seems to indicate that the big fields have been discovered since most of our oil comes from fields discovered prior to 1970. However, there could be something out there. Ultimately, peak oil will occur of course--even if it is ten years away, that is too soon since the amount of energy the planet uses is just enormous.

It is only recently that the price of oil made it profitable to drill for oil in the US and in hard to reach places around the world...break even for oil companies was in the 30 dollars a barrel range. That wasn't too long ago.

glenn

[Nogbad]

So?

I would like to pay last prices if I may.

[a_unique_person]

According to this, it's heading for $200 in a few years.

http://www.abc.net.au/worldtoday/content/2008/s2238924.htm



PETER RYAN: This is all about the spiralling price of crude oil which is being driven not just by speculators, but unrest in Nigeria and supply shortages in Russia.

Now the global investment bank Goldman Sachs is talking about US$200 a barrel for crude oil within two years, as part of what it calls a "sustained super-spike".

Seasoned commodity strategists like Howard Wheeldon are battening down for a rough ride, powered by the basics of supply and demand.

HOWARD WHEELDON: Two hundred dollars a barrel, and I certainly support that view. I mean, I wouldn't put a time scale on it. But we are heading that way. Laws of straightforward, simple supply and demand tell us that that's the way oil is going.

PETER RYAN: Fadel Gheit of Oppenheimer and Co agrees the world is witnessing an unprecedented spiral.

FADEL GHEIT: Once you move through $100 oil, the next stop is $150 and the logical one is $200.

PETER RYAN: He says oil prices of US$60 or even US$100 a barrel are now a fading part of history.

FADEL GHEIT: Before you know it, everybody now is very bullish on oil prices, and it's like, "Oh, $100 is a cakewalk, now we're $120, now we're going to go to $130". So instead of raising oil prices by one or two dollars now we are in the habit of raising oil prices by $10 or $20 at a clip, so again, I think it's a bubble. The question is how high it will go.

PETER RYAN: And the leading economist and Reserve Bank board member, Warwick McKibbin, has weighed in saying the super spike will be a shock like no other.

WARWICK MCKIBBIN: We've seen oil price shocks since the '72-'73 oil price shock. Most people expected those oil price shock were temporary, 'cos the last one went away, the next one will go way, whether it was for the Gulf War in '91 or whatever.

The current oil price shock is looking increasingly more like a permanent shock, and so we're going to start seeing some pretty big energy investment activity going on.

[rjh01]

Oil has gone up almost 100% in the last year. So $200 a barrel in just over a year's time is nothing but a continuation of current trends.

[Francesca R]

Oil has gone up almost 100% in the last year. So $200 a barrel in just over a year's time is nothing but a continuation of current trends.
Not that "What oil did last year" should be a reliable guide to "What oil will do next year".

[The Central Scrutinizer]

According to this, it's heading for $200 in a few years.

http://www.abc.net.au/worldtoday/content/2008/s2238924.htm

Great news. Even higher would be better.

[The Central Scrutinizer]

http://money.cnn.com/2008/05/07/news/economy/120_oil/index.htm?cnn=yes

100% correct.

[rjh01]

Not that "What oil did last year" should be a reliable guide to "What oil will do next year".

It is one piece of evidence. Combine it with other pieces (see the posts just above this one for example) and then it starts to be reliable. For it to stop going up one of two things will need to happen

1. Increased supply
2. Decrease in demand.

1. Will not happen in the next few years. Supply has not up much in the last few years and I can see no reason for it to do so in the future. If anyone does start pumping up new reserves of oil, or making oil from say coal, they will be demanding a high price.

2. Decrease in demand. This will happen. But at what price? Which consumers will be the first to stop or reduce their demand? Probably the ones with the weakest currencies.

[Francesca R]

2. Decrease in demand. This will happen. But at what price? Which consumers will be the first to stop or reduce their demand? Probably the ones with the weakest currencies.You omit speculative demand. Commodities (not just oil) have become an increasingly popular "investment category" and some prices look like speculative bubbles. As to why a speculative component would be so strong of late, there is the Frankel (Harvard) argument that low real interest rates give producers more incentive to not sell commodities, but give speculators more incentive to buy commodities.

I don't know how important this is, but I do not think that the explanation of commodity price rises is all in end-user demand.

If much of the oil spike is market speculators (profit-seeking traders) then it could unwind at any time.

[rjh01]

Oil has been going up in price since about 2002. Look at these graphs for a good scare.

http://www.wtrg.com/oil_graphs/oilprice1970.gif
http://www.wtrg.com/daily/crudeoilprice.html

Oil price is not this high because speculators are buying oil. If that was true the bubble would burst when the captains of the oil ships tell the speculators 'Here is your oil, what do you want us to do with it?'

[diggy70]

GET out of debt. 200 dollar here we come.....
and if Bill O’Reilly asks again who's buy oil, tell him diggy70. loading up on Oct. futures.

[BenBurch]

Not that "What oil did last year" should be a reliable guide to "What oil will do next year".

But its not a bad guess...

[Soapy Sam]

$135 today. $200 by Christmas?

[The Central Scrutinizer]

$135 today. $200 by Christmas?

Hopefully.

[soylent]

Oil price is not this high because speculators are buying oil. If that was true the bubble would burst when the captains of the oil ships tell the speculators 'Here is your oil, what do you want us to do with it?'

Speculators who will take posession of actual gloopy oil, not just trade in futures, do exist. The extent of stockpiling is not known to me, but it's not difficult to find articles such as this from 2004(I think that was during the last time oil was in contango. Pardon the headline-writers disease): http://business.timesonline.co.uk/tol/business/article481363.ece.

A large part of the price is just the decline of the dollar. 130 US$ is a mere 80 €. Another part is that light sweet crude appears to have peaked, and that's what gets quoted as the price of oil, rather than the cheaper sour crude and unconventional oils that haven't yet peaked.

[BenBurch]

Fact is it would take immense amounts of capital to corner the oil market in the long term. And; where do you PUT if you are stockpiling? Storage has a cost and shipping oil TO storage and then pumping it out and shipping it AGAIN to a final customer makes it hard to profit from such a scheme unless you are a very minor player.

However, a minor player in this market absolutely could make himself quite rich; But such a player, or several of them, could not possibly cage enough oil to make a difference this large in the global market.

[negativ]

Hopefully.

I don't begin to claim to understand economics, beyond my own very meager personal finances.

Can you (or someone) explain to me, in small words that I can understand, just how the hell it's supposed to be a "good" thing for the price of oil to go through the friggin roof?

Here's what little I know, and probably illustrative of why I don't understand:

1. Approximately every damned thing in the world is either made with, or needs oil.
2. Every single service or product I use both at work and in my personal life has to be transported by some sort of oil-using appliance.
3. I drive 60 miles a day round trip to & from work. I'd happily use public transportation, as soon as someone would build some.
4. Work: Shipping is our highest expense after payroll. We have two choices - charge higher prices to recoup the costs and risk losing business, OR charge the same and put employees out of work. Hooray.
5. Home: They don't just automatically start paying me more money even though I am suddenly paying a shaite-load more just for the privilege of driving to work, not to mention the increase in food and electricity costs.


Not everybody is making $50k+ a year and driving aircraft carriers on wheels. Not every company that employs people is Exxon-Mobile. So how does it "help" when it becomes just that much harder for business and individuals to survive financially?

[Dymanic]

Can you (or someone) explain to me, in small words that I can understand, just how the hell it's supposed to be a "good" thing for the price of oil to go through the friggin roof?
As oil prices rise, both businesses and individuals will become increasingly motivated conserve, to explore alternatives, perhaps even to curtail certain activities altogether. This will be a good thing, because it will mean this freight train we're all riding on will only be doing maybe sixty miles an hour when it goes completely off the rails instead of the seventy-five miles an hour it's doing now.

[geni]

I don't begin to claim to understand economics, beyond my own very meager personal finances.

Can you (or someone) explain to me, in small words that I can understand, just how the hell it's supposed to be a "good" thing for the price of oil to go through the friggin roof?

Here's what little I know, and probably illustrative of why I don't understand:

1. Approximately every damned thing in the world is either made with, or needs oil.

Nothing needs oil. Oil may be the easiest option but there are always alturnatives. For example you can get benzene from coal or there are potential ways to do it starting with fats.


2. Every single service or product I use both at work and in my personal life has to be transported by some sort of oil-using appliance.


Nope coal burning transport is certianly technicaly posible and there are numerious other options.


3. I drive 60 miles a day round trip to & from work. I'd happily use public transportation, as soon as someone would build some.


Been tried a lot. So far people don't start useing the public transport (the exception being things like big cities it simple isn't practical to drive into).


5. Home: They don't just automatically start paying me more money even though I am suddenly paying a shaite-load more just for the privilege of driving to work, not to mention the increase in food and electricity costs.


The days of living 60 miles from work are probably numbered in any case. I expect sub-urban populations to fall in future.


Not everybody is making $50k+ a year and driving aircraft carriers on wheels. Not every company that employs people is Exxon-Mobile. So how does it "help" when it becomes just that much harder for business and individuals to survive financially?

Strategicaly anything that reduces the US relicance on oil is good for the US.

[The Central Scrutinizer]

I don't begin to claim to understand economics, beyond my own very meager personal finances.

Can you (or someone) explain to me, in small words that I can understand, just how the hell it's supposed to be a "good" thing for the price of oil to go through the friggin roof?

Here's what little I know, and probably illustrative of why I don't understand:

1. Approximately every damned thing in the world is either made with, or needs oil.
2. Every single service or product I use both at work and in my personal life has to be transported by some sort of oil-using appliance.
3. I drive 60 miles a day round trip to & from work. I'd happily use public transportation, as soon as someone would build some.
4. Work: Shipping is our highest expense after payroll. We have two choices - charge higher prices to recoup the costs and risk losing business, OR charge the same and put employees out of work. Hooray.
5. Home: They don't just automatically start paying me more money even though I am suddenly paying a shaite-load more just for the privilege of driving to work, not to mention the increase in food and electricity costs.


Not everybody is making $50k+ a year and driving aircraft carriers on wheels. Not every company that employs people is Exxon-Mobile. So how does it "help" when it becomes just that much harder for business and individuals to survive financially?

Two words: Urban Sprawl

Higher oil (and by extension higher gas) prices gets more cars off the road, and more people onto subways and trains. It means people will move closer in instead of farther away. Given enough time, of course.

[Francesca R]

Higher oil (and by extension higher gas) prices gets more cars off the road, and more people onto subways and trains. It means people will move closer in instead of farther away. Given enough time, of course.Quite a few governments subsidise the price of petrol at the expense of public debt and therefore future generations (such as India) and the effect you speak of is still moving fast in the opposite direction.

[Francesca R]

Can you (or someone) explain to me, in small words that I can understand, just how the hell it's supposed to be a "good" thing for the price of oil to go through the friggin roof?It just is what it is. It causes a bigger transfer of wealth from consumers to producers. That does not--by itself--make everybody net better-off, so it is not "good" in dispassionate economic parlance.

Here's what little I know, and probably illustrative of why I don't understand:

1. Approximately every damned thing in the world is either made with, or needs oil.
2. Every single service or product I use both at work and in my personal life has to be transported by some sort of oil-using appliance.
3. I drive 60 miles a day round trip to & from work. I'd happily use public transportation, as soon as someone would build some.
4. Work: Shipping is our highest expense after payroll. We have two choices - charge higher prices to recoup the costs and risk losing business, OR charge the same and put employees out of work. Hooray.
5. Home: They don't just automatically start paying me more money even though I am suddenly paying a shaite-load more just for the privilege of driving to work, not to mention the increase in food and electricity costs.

OK your firm, like most, is a net energy consumer, and a price-taker like the rest of us.

Not everybody is making $50k+ a year and driving aircraft carriers on wheels. Not every company that employs people is Exxon-Mobile. So how does it "help" when it becomes just that much harder for business and individuals to survive financially?It doesn't help and the immediate effect is to subtract from consumer spending and profit margins outside of energy. Others have mentioned that expensive oil makes alternative power sources more attractive in comparison, and to the extent that alternatives may have less severe negative externalities (undesirable spillover effects onto everyone else) then the relative promotion of alternatives (energy sources and economic behaviour) can be a "good" thing.

"Things tend to work out best when people have to live with [finance] the costs of their own behaviour"--Steven E Landsburg, from "More Sex is Safer Sex" (Incidentally this is a truly great recent book about economics suitable for a lay reader. I like it very much)

[The Central Scrutinizer]

Quite a few governments subsidise the price of petrol at the expense of public debt and therefore future generations (such as India) and the effect you speak of is still moving fast in the opposite direction.

Long term, this is unsustainable. IMO.

[a_unique_person]

"Things tend to work out best when people have to live with [finance] the costs of their own behaviour"--Steven E Landsburg, from "More Sex is Safer Sex" (Incidentally this is a truly great recent book about economics suitable for a lay reader. I like it very much)

Which is exactly what is not happening now. The rich, who have a disproportionate influence on economic and political power, find the recent oil prices rises personally no more annoying than a flea bite. Those with little money simply have to go without.

[The Central Scrutinizer]

Which is exactly what is not happening now. The rich, who have a disproportionate influence on economic and political power, find the recent oil prices rises personally no more annoying than a flea bite. Those with little money simply have to go without.

This is not unique to oil.

[Francesca R]

Which is exactly what is not happening now. The rich, who have a disproportionate influence on economic and political power, find the recent oil prices rises personally no more annoying than a flea bite. Those with little money simply have to go without.That has nothing to do with the statement in the quote. You are simply stating that rich people can buy more, which is not relevant IMO.

[Francesca R]

Long term, this is unsustainable. IMO.No I agree, it is merely inflationary (for the future) to hold prices down with debt issuance. However, urbanisation is very unlikely to stop advancing. I also think that cities are perhaps more energy efficient per capita than rural areas, so there is no reason why it should.

[diggy70]

No I agree, it is merely inflationary (for the future) to hold prices down with debt issuance. However, urbanisation is very unlikely to stop advancing. I also think that cities are perhaps more energy efficient per capita than rural areas, so there is no reason why it should.

what are you doing to protect your self from inflation? and what kinds of jobs do you see in the future? With higher energy prices will wipe out lots of jobs less energy use. Suburbia is dead in the water, the problem is see is that suburbia creates a ton of jobs. What will replace those jobs.

[Francesca R]

what are you doing to protect your self from inflation? Again you sidestep the discussion to try to re-transmit your own sensationalist points, and I think you fail to understand the situation. There is no particular inflation threat in the "rich" world. Growth is slowing down, and is practially zero in the States. Excluding food and energy, core inflation is not worryingly high (and if you think the statistics are a conspiracy I would respectfully ask you to discuss that on the appropriate forum). Wages are also not rising much.

The inflation problem exists in rapidly growing emerging economies where energy intensity is accelerating and where food is a larger fraction of consumers' spending. And I pointed out that price subsidies by these governments merely accelerate money supply growth and defer inflation to future generations via public debt rising--and I agree with the unsustainability of that.

One way or another, China, India, Russia and Brazil need tighter monetary policy and/or stronger exchange rates (Brazil has the latter already), yet they are resisting these developments (which would have happened already if FX rates were freely floating and central banks were independent). So when it eventually transpires the result could be an overshoot--soaring capital inflows, overvalued currencies, and a nasty accident. It has happened before.

"Surbubia" is not dead in the water. And cities like Mumbai and Sao Paolo--which have terrible infrastucture predicaments already--will still get larger.

Expensive oil will not kill western economies. It is an incentive for changes in behaviour. And people respond to incentives.

[Damien Evans]

Every time I come into this section I feel silly. You guys are so far over my head I can't even see you.

All I know is, petrol is currently very expensive, which is not good for me, someone saving for my first car.

[rjh01]

Petrol at the moment is cheap. You wait until next year. Then it will be less cheap. Expensive is what you pay when oil hits the peak.

[soylent]

Petrol at the moment is cheap. You wait until next year. Then it will be less cheap. Expensive is what you pay when oil hits the peak.

Expensive is what oil is when there are cheaper alternatives. Oil use for process heat and electric power generation is very expensive. Oil use for vehicles is not.

[Dragoonster]

Every time I come into this section I feel silly. You guys are so far over my head I can't even see you.

LOL, I feel the same way, particularly in my "contributions" to the gold thread. If I could mention any other ego-bruiser to an acquaintance it would be this business forum :).

I'd still buy gold though. And a FNP90. Yeah, I'll eviscerate you with lead on the way to the woods and my secret gold stash :p

[diggy70]

LOL, I feel the same way, particularly in my "contributions" to the gold thread. If I could mention any other ego-bruiser to an acquaintance it would be this business forum :).

I'd still buy gold though. And a FNP90. Yeah, I'll eviscerate you with lead on the way to the woods and my secret gold stash :p

Guns are cool. but oil furtures with make you rich,,,,,

Please all you who think 200 oil wont start ww3,, get your head out of you @@@. other than Jonny you all have Bad view on oil. oil is the life of modern life. when it aint cheep we fight plain and simple.

[soylent]

http://hsgac.senate.gov/public/index.cfm?Fuseaction=Hearings.Detail&HearingID=3fe95f08-0b7d-45d0-94ea-4c4346c353de

Senate comittee hearing titled 'Financial Speculation in Commodity Markets: Are Institutional Investors and Hedge Funds Contributing to Food and Energy Price Inflation?'

(If you dislike real player, get the 'real alternative' codecs instead.)

[The Central Scrutinizer]

Guns are cool. but oil furtures with make you rich,,,,,

Please all you who think 200 oil wont start ww3,, get your head out of you @@@. other than Jonny you all have Bad view on oil. oil is the life of modern life. when it aint cheep we fight plain and simple.

Ion?

[Francesca R]

Please all you who think 200 oil wont start ww3,, get your head out of you @@@. other than Jonny you all have Bad view on oil. oil is the life of modern life. when it aint cheep we fight plain and simple.Oh. Well WW3 should be good for the oil price, so $300 I suppose. Then that may start an even worse WW4 which will send crude soaring to $600 and trigger WW5, which ought to put a bunsen burner under the energy market.

[bobrayner]

Guns are cool. but oil furtures with make you rich,,,,,

Please all you who think 200 oil wont start ww3,, get your head out of you @@@. other than Jonny you all have Bad view on oil. oil is the life of modern life. when it aint cheep we fight plain and simple.

Indeed. Just look at historic oil prices (http://en.wikipedia.org/wiki/Image:Oil_Prices_1861_2007.svg).

I'm sure we all remember the two world wars: the first in the 1860s and the second in the late 1970s. Also, we look back with nostalgia on the long peace of 1931-1972, when the world no longer trembled under the threat of war.

Oh, when will we ever learn from the lessons of history?

Petrol at the moment is cheap. You wait until next year. Then it will be less cheap. Expensive is what you pay when oil hits the peak.

Are you suggesting that peak prices will coincide with peak production?