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Old 06-03-2008, 03:33 AM   #1 (permalink)
roachboy
 
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Location: essex ma
oil

moving is a pain in the ass. if you move to a place that is not crosscut with wireless networks, one has to wait around for the cable fucking guy.

i've been interested in the analyses of the relations between oil and food price spikes. it seems to me that finding much coherent in the american press about it is curiously difficult, given the fantasy-consensus that markets are like weather. and besides, this is a bummer, so it's better to focus on lint. anyway, the first piece is an interesting short overview by daniel yergin, which sets the stage:

Quote:
Oil has reached a turning point

By Daniel Yergin

Published: May 27 2008 18:50 | Last updated: May 27 2008 18:50

Oil prices at this level take us into a new world – “Break Point” – where the question is not only “how high can the price go?”, but also “what will be the response?” Is this the point at which oil begins to lose its almost total domination in transport?

Yes, the current high oil price may be a demand shock triggered by what had been several years of excellent global economic growth, and thus more benign than supply shocks caused by 1970s-style disruptions. It is amplified by a dollar shock caused by the fall in the dollar and by the embrace by financial investors of oil (and other commodities) as an asset class.

What is now unfolding is an oil shock. The fact that the world could take $80 in its stride in the context of strong economic growth does not mean that a price that is 60 per cent higher at a time of a credit crunch will be so easily assimilated. The economic toll is mounting. Airlines are certainly in shock as they start charging for checked luggage to find a way to pass on their biggest cost. Carmakers are reeling. Retailers are tracking the shrinking wallets of their customers. The rising prices for food reflect, in part, the impact of higher energy costs.

Oil supply, one might think, should be responding. Yet there are three obstacles. The first is time. These high prices have not been around all that long and development of new supplies takes many years. The second is access to new resources. And the third factor is what is happening to costs. The public focuses on the price at the pump, but the oil industry is preoccupied, and indeed somewhat stymied, by how rapidly their own costs are rising – far exceeding the rate of general inflation. The latest IHS/Cambridge Energy Research Associates (Cera) Upstream Capital Cost Index – the consumer price index for the oilfield – shows that costs for developing a new oil or natural gas field have more than doubled in four years. Some costs have risen even more: a deep-water drill ship might have cost $125,000 per day to rent four years ago. Today it goes for more than $600,000 per day – if you can find one.

Everything is in short supply – people, equipment, engineering skills. Beomgcause of the contractions that came with the price collapses of 1986 and 1998, there is a missing generation in the oil industry. More than half the petro-professionals are less than 10 years away from retirement. A petroleum engineer graduating this year is likely to receive a higher starting salary than an Ivy League graduate going to Wall Street. This competition for people and equipment has driven up costs dramatically. These costs and shortages are now causing delays to new projects.

Demand is already responding to the new prices except in those parts of the world where retail fuel prices are controlled or subsidised. What can be done to improve the supply picture? The International Energy Agency’s work on future supply is getting attention. But the IEA’s message is not that the resources are not there. Rather it is the likely risk that the required investment will be “deferred” – will not take place in a timely way – because of these rising costs and because governments restrict access or postpone decisions.

This underscores the basic need during an oil shock – to encourage the timely investment that will relieve the pressures. That means encouraging efficient decision-making by resource-holding countries and facilitating complex projects that bring on new supplies. An example of the difference engagement can make is the support the US administration gave to the Baku-Tbilisi-Ceyhan pipeline. Without that new 1m barrels a day capacity pipeline we would not have that additional oil flowing to the Mediterranean.

The impact of rising oilfield costs and the importance of encouraging investment need to be taken into account when considering a “windfall profits” tax or other new taxes. However attractive politically, the effect would be to constrain investment and to lead to lower production levels than would otherwise be the case.

Two years ago, Cera created its Break Point scenario, to explore how supply disruptions and delayed development would lead to $120-$150 oil. What was not fully anticipated was the impact of rapidly rising costs. Not anticipated at all was a falling dollar and how it has stimulated a rush by investors into oil. The real question in the scenario was what would be the response to such high prices. Could oil lose its traction?

That answer is already unfolding – in terms of public policy, technology, consumer response and corporate strategies. At the end of 2007, as oil was heading towards $100 for the first time, the US Congress passed the first bill requiring an increase in automobile fuel efficiency in 32 years. Consumers now want to buy fuel efficiency not sport utility vehicles. Hybrids are going from fringe to mainstream and a concerted assault has been launched on the problems of battery technology.

While the backlash against biofuels has gained in intensity with rising food prices, biology is now engaged with the energy business as never before; and biofuels will be a growing part of the motor fuel pool. If “Ethanol” was a country, it would have been ranked number five last year among countries in terms of production growth.

The break point is already here. Oil is in the process of losing its almost total domination in ground transport. It is not going to fade away soon – such is the scale of its use and convenience, it will retain a dominant position for many years. But it will share the transport market with other sources as never before, reinforced by a new drive for fuel efficiency.

The writer is author of ‘The Prize: the Epic Quest for Oil, Money and Power’, and is chairman of Cambridge Energy Research Associates

http://www.ft.com/cms/s/0/57b6ff18-2...0779fd2ac.html


so what do you think is driving this and what might be done?
yergin makes two different types of argument:

conjuncture-->
3 or 4 basic points:

a) rising production costs
b) weak dollar
c) commodity speculation
d) biofuels.

structure--->
a) the role and status of transportation/logistics in the current "globalizing capitalist" model.

the last point is probably the real connector between oil and food price spikes---and is a problem with the entire model (one of them)--but that maybe we can get to either here or in another thread.

focusing on the conjunctural factors, then, because after all this is amurica and we are only thinking in these terms...

the causes are probably all of these--with the first being the point which for me at least requires some research still (if any of you have been thinking about this matter and have investigated it, please post what you've found....)

this morning, though, i found two articles which emphasize basically different interpretations.

from a cluster of articles in the guardian about the ongoing food price spike/crisis whcih has been affecting the southern hemisphere quite radically already--and which i'll make another thread about once the comcast asshat shows up---this piece about the connections of american biofuel production and its underlying subsidy pattern (go neoliberalism, its ideology and its reality) and fuel costs:

Quote:
US downplays impact of biofuel subsidies on world food prices

American subsidies for biofuels have emerged as the focus of controversy at this week's UN food summit even before the meeting formally started this morning.

The US agriculture secretary, Ed Schafer, stirred controversy on the eve of the Rome summit with his defence of corn ethanol, arguing that biofuel production only contributed "2 to 3%" to the recent dramatic rise in global food prices.

The claim clashed with research carried out by several international organisations. The International Monetary Fund (IMF) has estimated that 20 to 30% of the food price increases in the past two years are accounted for by biofuels, and that last year they accounted for about half the increase in demand for principle food crops.

The OECD has published an estimate that, between 2005 and 2007, biofuels explained nearly 60% of the increase in useage of cereals (principally in the US) and vegetable oils (mainly in Europe).

Rob Bailey, a biofuels expert at Oxfam, questioned the accuracy of Schafer's claims and said it was critical to focus on eliminating biofuel subsidies in the US as it was one of the few policy levers in the hands of western governments.

"We can't control the weather, we can't control the growth of demand in China, we can't control the oil price but we can control biofuels policy, because it's politically created in the first place."

Schafer said he was prepared to examine conflicting evidence about biofuels and if the US numbers were wrong, "then the United States is going to have to develop a public policy that is appropriate in the global marketplace." But he added: "We can't say what that is right now because we believe our numbers are correct."

He also repeated US claims that corn ethanol was "an efficient producer of energy" despite studies suggesting that it offered little or no environmental benefits over fossil fuels.

The Brazilian president, Luiz Inácio Lula da Silva, also came to Rome to defend his country's cultivation of sugarcane ethanol. Brazilian officials were this morning distributing glossy brochures extolling the fuel's environmental and social benefits.

Bailey said that Brazil's biofuel programme would be less controversial than America's, as the price of sugarcane is not strongly correlated to the world prices of staple foods and Brazil had extensive arable land not being used to full capacity.

In his opening speech, the UN secretary general, Ban Ki-Moon had been expected to criticise US subsidies for biofuels, which amount to about $11bn (£5.6bn) a year. But in the final text he said only: "We should reach a greater degree of international consensus on biofuels."
and from this morning's financial times, an article concerning commodity speculation and oil prices which centers on george soros:

Quote:
Soros sounds alarm on oil ‘bubble’

By Joanna Chung in Washington

Published: June 3 2008 05:06 | Last updated: June 3 2008 05:06

Billionaire investor George Soros is to tell US lawmakers on Tuesday that “a bubble in the making” is under way in oil and other commodities and that commodity indices are not a legitimate asset class for institutional investors.

He is expected to tell a congressional committee that rising oil prices are the result of a number of fundamental changes and factors in the market, but that the relatively recent ability of investment institutions to invest in the futures market through index funds is exaggerating price rises and creating an oil market bubble.


“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance which led to the stock market crash of 1987,” Mr Soros will tell the Senate commerce committee, according to a draft text seen by the Financial Times.

“In both cases, the institutions are piling in on one side of the market and they have sufficient weight to unbalance it. If the trend were reversed and the institutions as a group headed for the exit as they did in 1987 there would be a crash.”

The comments by Mr Soros, chairman of Soros Fund Management, a $17bn hedge fund, are likely to fuel a debate about the role of speculators – including hedge funds, pension funds and other institutional investors – in the rising costs of energy and food. The fund declined to comment on its specific market positions.

Regulators and other officials have said surges in oil and commodity prices are mainly due to fundamental supply and demand factors combined with a depreciating dollar, which is used to price and trade commodities.

However, some politicians believe that the new wall of money entering the asset class through commodity indices is a key factor. Tuesday’s Senate hearing into energy market manipulation and federal enforcement regimes is one of a series of held in Washington in recent months examining aspects of the market.

Mr Soros said index-buying was based on a misconception and commodity indices are not a legitimate asset class. “When the idea was first promoted, there was a rationale for it ... But the field got crowded and that profit opportunity disappeared,” his prepared remarks say.

“Nevertheless, the asset class continues to attract additional investment just because it has turned out to be more profitable than other asset classes. It is a classic case of a misconception that is liable to be self-reinforcing in both directions.”

Mr Soros will say a crash in the oil market “is not imminent”. But he says it is desirable to discourage commodity index investing – or the “elephant in the room” in the futures market – though not with more regulation.
http://www.ft.com/cms/s/0/5dbd0ffe-3...nclick_check=1


then there's the story of the collapsing value of the dollar since january...

this is still partial, but enough to maybe set the wheels of thinking into motion:

what do you think is going on here?
what if anything can be done about it?

perhaps this can be a collective thought experiment more than the ususal differend between folk who like the idea of markets in the abstract as over against folk who see economic activity as a type of social activity more broadly and so who reject the separation....
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Last edited by roachboy; 06-03-2008 at 04:05 AM..
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