Oil Company Myths
 

The rhetoric against oil companies is getting louder and louder as prices for oil and gas increase. Personally I have started to look into the oil industry a bit deeper. I am discovering that some of the rhetoric used by Presidential candidates and many members of Congress is misleading. I want to address some of these issues and separate the facts from the myths.

The first one - the government subsidizes oil companies through tax credits while the oil companies make record profits.

The tax code is complicated and I don't question the fact that the government provides some tax credits to oil companies for some activities. I do question if these tax credits mean the government subsidizes oil companies.

This chart shows oil company profits and oil company taxes paid over time up to 2004.

http://www.taxfoundation.org/UserFil...ge/Figure1.gif

http://www.taxfoundation.org/news/show/1168.html

It seems to me that government takes a larger portion of oil company revenues than the oil companies make in profits. The oil companies also use a portion of their profits to reinvest in future growth.

Using Exxon Mobil's income statement it shows that in 2003 they paid the following in taxes:

Sales Based taxes: $23.855 billion
Other Taxes/Duties: $37.645 billion
Income Taxes: $11.006 billion
Total: $72.500 billion.

They made $21.5 billion in profits.

In 2007:

Sales Based taxes: $31.728 billion
Other Taxes/Duties: $40.953 billion
Income Taxes: $29.864 billion
Total: $102.545 billion.

They made $40.61 billion in profits.

Taxes went up by $30.045 billion while profits went up $19.11 billion.

It seem on a dollar rather than percentage basis, the government is getting a bigger "windfall" profit than Exxon Mobil.

Also, keep in mind dividends, which are taxed at the individual level. In 2003 they paid $6.5 billion in dividends and in 2007 they paid $7.621 billion in dividends. If we use a 25% tax rate on the 2007 dividends the government collected another $1.905 billion in taxes from top line revenues.

Oil companies are making record profits, but they are paying record expenses and record taxes. Perhaps the above is not a myth, but those who use that kind of rhetoric are misleading people in my opinion.

I am open to hearing opposing views on this and perhaps we can discuss othe oil company myths using factual data.

it would also be interesting to see whether the profits oil companies are making, compared to their cost of capital, are within the norms of most other companies. That's probably the most relevant comparison, and my undestanding is that the oil companies' returns are good but a bit on the low side. Certainly less than, say, Google or Microsoft or Procter & Gamble. That's off the top of my head, I could be wrong.

I looked at last fiscal year's return on assets (roa) and return on equity (roe).

Exxon Mobil: ROA 17%, ROE 34%
BP (British Petroleum): ROA 9%, ROE 39%
GOOGLE: ROA 17%, ROE 22%
Starbucks: ROA 13%, ROE 31%
Microsoft: ROA 22.3%, ROE 64%
Home Depot: ROA 21%, ROE 25%
Caterpillar: ROA 6%, ROE 70%
Proctor&Gamble: ROA 9%, ROE - not listed

Return on assets is not good for comparing companies in different industries because of the different capital requirements. In many cases our integrated oil companies may not own the oil in the ground, but may have licencing agreement to pump it, therefore the known oil in the ground would not be an asset.

Return on equity in many cases is a measure of how management manages the balance sheet and to what degree profits are reinvested.

I'm not particularly interested in comparisons to Home Depot, Starbucks or Microsoft.

IMO, and for the purposes of a national energy policy, the more relevant comparison would be the tax breaks/incentives to oil companies as opposed to renewable energy resources and alternative energy development.

The tax breaks/incentives in the 2005 energy bill were weighted heavily (65%-35%...if i recall correctly) towards oil and coal companies ($18 billion..if i recall correctly) at the expense of renewables and new energy technologies.

A 2008 bill try to reverse (or at least equalize) those tax breaks/incentives, but has been blocked by Repubs in the Senate, along with a Bush veto threat.

A national energy policy should be far more balanced in its tax treatment...and IMO, if its tilted at all, it should be tilted towards getting us off a dependency on oil.

How does a tax break for energy producers come at the expense of hypothetical energy sources?

Did they foot 'the bill' instead?

Can you give an example of a tax break currently given to oil companies that you want taken away?

The best example is probably the various provisions in the 05 energy bill that provide relief from royalty payments for drilling on public lands (estimated at nearly $10 billion over five years)

Energy Policy Act of 2005, Subtitle E -Production Incentives (esp. secs 342-347)

But you havent addressed the question of why, if we use taxes as a component of a national energy policy, there should not be greater parity between tax breaks for oil companies as opposed to renewable energy resources or new alternative energy development.

Unless you believe we can drill our way to energy independence.

I find it curious that dc_dux's premise wasn't examined - namely, that there is a national energy policy and that it is focused on tax breaks. I do'nt think there is anything that integrated at all.

We should get rid of "tax breaks" altogether and let the market decide which sources of energy have a future. Neither the existing oil companies nor the pie in the sky energy companies should have subsidies. Whatever works will succeed.

Isn't this in conflict with your desire to artificially raise gas prices via taxation?

I think oil companies should pay a fair market price for the right to drill on public land. I would have never supported giving one company over another such an advantage nor would I have asked tax payers to subsidize an oil company in this manner.

However, if the government knows that giving an oil company an incentive up front to drill in a location knowing the risks, uncertainties of possibly not finding oil - but realizing a potential "tax windfall" at the back-end if the drilling is productive and profitable - then I would give the folks in Washington credit for making a good business decision and thinking long-term. Perhaps the question of why is more complicated than it seems on the surface, or maybe I potentially give the folks in Washington too much credit- and this was really an example of the politics of "you scratch my back and I scratch yours". Which do you think it is, or is there another possibility.

Part of the problem is that we are setup to use cheap gas, coal and natural gas. There isn't a real easy way to say,one year from now I will be free from gasoline. I could spend about $10,000 and reduce my need by about 75% or so. If we subsidize research into alternative fuels/better batteries/public renewable fuel projects we could eliminate our need for foreign oil and reduce our domestic oil use as well. And that is just with the technology we have now, it could be done cheaper and improvements could be made if there was some more start-up funding and less risk in making this switch happen.

I also find it an interesting use of logic - to heavily tax, give some tax relief in some areas although taxes paid go up, and then call that relief a tax break. As Shakespeare wrote: "A rose by any other name would sell as sweet."

there is a difference between a consumption tax and an income tax, ustwo. You know that.

Tax is tax. I'm more for a consumption tax but not for taxes for social engineering.

the point of a targeted consumption tax is that people are free to make choices. They aren't forced to do anything they don't want to. That's the whole point.

I don't see a clear distinction.

You are steering them to one choice you want them to make over the one they want to make using government force, in this case a overly high tax designed specifically to make them not make the choice they want to make.

It IS nicer than a ban, and as someone who is above average wage earnings I can still drive where I want, but I still see it as beyond the proper role of the federal government.

I suppose we can count on taxes on thick cut bacon next for the good of society, better land use, and to ease the costs of rising health care.

1) Bacon doesn't have demonstrable economic negative externalities. Using gasoline-powered vehicles does.

2) Bacon isn't a foreign policy-driven issue. Gasoline is. Our country's principles and independence are endangered by reliance on petroleum and the need to accommodate the world's worst regimes.

If your SUV is worth that much to you, pay for it. If not, don't.

I believe that much of the corporate income, excess profit and consumption taxes are all paid by consumers in higher prices for gasoline as well as every product that has transportation costs. I often wonder why our political candidates are not challanged to explain this when they advocate increasing taxes on the rich oil corporations. Do they really not think that "Joe sixpack" will ultimately have to pay these taxes with higher prices for food, clothing, heating bills, gas for the car, etc..?

I guess one way to solve this would be to tax on the production end and fix prices on the consumer end but total control of the markets will probably not work for long.

flstf, I'm proposing not to camouflage the extra cost but to tack it onto consumers' bills directly. That's much more honest than burying the additional charges in the oil companies' own bills, or the cost of a car, or any of the other ways that charges get swallowed by a company and then included in the price passed along to the consumer.

Burying and hiding the costs is one reason the public doesn't change its behavior. For instance - with CAFE standards, the enforced higher mileage adds to the price of a car and get financed at a few extra dollars a month, so no one notices. Plus, with better mileage people drive more and use more gasoline anyway. Leave car mileage alone and charge what petroleum really should cost, and you'll see massive migration away from gas guzzlers - sorta like what's happening now, only more marked.

Do you have any proof of what it really should cost?

yeah, it's calculable. in principle it's basically the cost of extraction, transportation and refinement plus the cost of capital plus the cost of negative externalities.

I don't have that number. But you insist on leaving out the last piece. Ronald Coase would be displeased.

loquitur, the following was intended to be "Part II" of the OP of the thread I put up last night, asking if nationalizing the assets of major oil corps. operating in the US should be considered now. I might as well post it here. I don't think your posts here indicate that you recognize anything but faith in the propriety and ethics of oil company executives. They don't simply have no recourse but to "pass along" costs of doing business....like tax increases, to their customers.

They have created excess profits, by successfully attempting to control supply of both domestically available crude oil to refine, and of refining capacity itself, choking it off.

If these parasites controlled and distributed the supply of medicinal blood or blood products in the US, and these were the reports about them....Shell lying about every facet of it's decision to close it's Bakersfield refinery in 2004, and dismantle it instead of selling it, there would probably be no question of siezing their BLOOD producing and distribution assets. Petroleum based fuels are the blood of the US economy. The major oil companies have no incentive to increase supply, even as land owners with proven petroleum deposits under the soil wait for the availability of infrastructure to drill for and extract that petroleum, due to a shortage, by design....see Chevron's stock buyback program....of experienced personnel and equipment to extract oil literally sitting next to refineries, robust transportation and storage, and end users of refined products:

Shell OIl had to be dragged, as it kicked and screamed that it was closing amd dismantling it's Bakersfield, CA refinery because it was "obsolete" and because there was a dwindling crude oil supply soon to be insufficient to supply it with raw material...<h3>into selling this refinery, for $130 million....instead of holding it off the market and dismantling it !!!!!!</h3>

Host, let me make this clear so there can be mistake: YOU WILL NEVER SELL ME ON NATIONALIZING ANY INDUSTRY. Nationalizing industries does not work, has never worked, has led to disaster every time it's been tried and cannot be made to work.

Don't assume that merely because Ustwo and I agree on a small public policy issue that I think nationalizing an industry is a good idea. It would be a disaster. If you think we're paying a lot for oil now, just wait until the geniuses who brought us $600 screwdrivers get hold of the industry.

He'll get over it :)

Since oil companies do run at a profit, I can only assume the cost difference would be from the public sector.

My question then is, is the infrastructure 'payed for' by the .47 a gallon tax imposed on average?

Without knowing that, the whole 'real cost' is hard to wrestle with.

Do you really believe that oil companies have a simple business model of independently exploring for and extracting oil and nat. gas, refining and distributing the refined products, and pricing them on a cost plus reasonable rate of return, basis? If they aren't acting independently, and they are successful at constricting the supply of both raw material and finished product, what is a reasonable response?

Don't you think "the rules" were thrown out when the Fed started loaning money to investment banks that are not regulated by the Fed, on the strength of near worthless collateral? Isn't it possible that your "market vision" does not exist?

Isn't it a contradiction for you to believe that "government cannot do anything right", yet believe that it is capable of organizing, training, equipping, maintaining, fielding, and deploying, the "most effective military force in the world"? The USPS delivers mail to you, every day. Doesn't it's existence and functionality challenge your opinion?

your statements about nationalization are simply false empirically, loquitor. one of these days, maybe you'll look at something of how western european economies actually operate.
of course the hayek/liberatarian ideology provides you with no particular reason to engage with the messiness of the actually existing world, so i do not expect that you'll do any research and so am not going to waste my time providing links to information that is self-evident to this extent.
but you might think about the french nuclear industry, it's not hard.
you can do it.
o i know that the neoliberal set thinks all kinds nasty thoughts about france--but in other contexts you argue for nuclear power, and yet market-y america doesn't have it and highly nationalized france does.

==========

the way this thread is pitched is so narrowly focused that a coherent discussion about oil corporations and by extension american energy policy is close to impossible, so i'll just let the string of affirmations of good faith on the part of those nice corporate citizens continue undisturbed by any reality, since they do not admit of it a priori.

if you want to talk about oil, catch me in another thread.
have fun, lads.

host, the fallacy of your position is that it does not follow that merely because a core government function generally gets done in a way that is effective (albeit with inefficencies and corruption on the way to get there), it necessarily follows that all functions can be done by the government. National defense is probably the one function that everyone who isn't an anarchist thinks the govt has to do. It doens't therefore follow that the govt would be good at doing most other things that aren't analogous.

roachboy, the Soviet Union was such a smashing success that I really hesitate to criticize your position. As for France, you might want to look at how long Mitterand's nationalization program lasted and with which results. Lots of countries have this or that business being government owned (often it's media). Doesn't mean it wouldn't be done better if owned privately. And btw, I was only in France once, for a week, and I really loved the place.

EDIT: Not be flip as above, Roachboy, but aren't most power suppliers historically monopolies? In light of that, shoud it be surprising that the govt (also a monopoly, but with guns) supplies power in France? It does not follow that merely because the govt runs one (largely monopoly) business well (i'm taking your word for it on that one) that it therefore can run any business well. Like Renault, say.

Here is a statement from Host (post #22):

I think his view here, that private oil companies control the supply of oil fuels his perception of the oil industry and is commonly held. The question, is it factually accurate or a myth? Do the private oil companies control the supply of oil?

The answer is no. Countries own 90% of the worlds known oil and gas reserves. They can pump or not pump as much as they want or they can contract with oil companies to do it. If company A won't do it company B might, if neither will do it the country can build there own infrastructure to do it. They can contract for exploration or do it themselves.

This can be verified from other sources as well, I just happened to pick this one.

http://www.ncsu.edu/project/calscomm...ns_the_oi.html

If private oil companies don't control the oil in the ground, how can they manipulate the market? As we think about that question, I am sure we will encounter more myths.

Lately we have had many people saying speculators are driving the price of oil. I read a lot but no one explains how they think this is happening other that to say speculators are a higher percent of the futures market now than in the past. I am trying to understand how speculators can actually have an impact on prices. As I write this I might answer my own question, or someone with more insight may be able to help.

First, I think of a group of oil producers (OP), a group of speculators (S), one million barrels of oil, and oil refineries who would purchase and process the oil (OR).

Let say we have a direct market - OP delivers oil to OR. The OR pays a spot market price based on the oil available - supply, and what they need - demand. Let's say that price is $50 per barrel. And let's say that is going to be a constant, the real price (intrinsic price) based on supply and demand. All other things being equal in this market, with no risks, i.e. - political risks, shipping risks, inflationary risks, regulatory risks, etc. If we try to introduce S, there is no profit potential for them. If S could sell the oil for $51, why would the OP let the S make that dollar. Or if the S could purchase oil for $49 why would the OR let the S make that dollar? So in a market with no risk, there is no room for speculators. Speculators can not have an impact on price in a efficient market with no risk.

Now if we add risk. We have OP who may want to protect the downside. They may realize, in the future oil demand may go down. They may want to obtain money today for delivery at a future date (perhaps to fund war, fund investment in other things or more oil exploration). Introduce S. They are willing to take the risks of future delivery. They charge a price for this. The price has two components, profit and a risk premium. The OP may have to sell the futures oil contract at $45. Then the speculator sells the oil at $50 to the OR at the future date. The market works, all knowns are on the table, everyone is happy.

On the other hand we have the OR, who may want to manage risk. First they could become a S, and buy the futures contract at $45. But let's say the OR want to minimize the risk of future price increases in the market. They want to make sure they have an available supply at a known price. Again, the S can come in and assume the risk. They are willing to sell a futures contract to the OR at a price today for future delivery. Again this futures contract has two components, profit and a risk premium. Perhaps that contract sells for $55. The market works, all knowns are on the table, everyone is happy

So, the two price components involved with S is profit and risk premium. What happens if either of these components gets out of line?

Let's say there are more and more S's that come into the market all wanting to buy futures contracts for delivery of one million barrels of oil in 60 days. They all flock to the OP, bidding up the price of oil. Let's say they bid up the price to $130 per barrel for that future delivery. The intrinsic value of that oil is $50 per barrel, so we have a risk and profit premium of $80. What does the OR do? All other things being equal and if the OR had no options and they wanted to buy that futures contract on the day it peaked at $130, they would have to buy the oil at $130. If they then could pass the increased price on to consumers the $130 price would be supported.

What if the OR had other sources of oil? They could buy from those other sources, perhaps direct from the OP at a price less the profit for the S. Perhaps they could wait, and buy on the spot market for $50. Becuase we know that the S can not take delivery of one million barrels of oil so the closer we get to the delivery date the more incentive they have to lower the price and sell the contract.

What about the OP? Why would they sell their oil to S for less than $50, knowing that S can sell the oil to OR for $130? Or why would the OR buy at $130 when they could buy at $50 or less?

So, I am thinking at best S can only have a short-term impact on price and that eventually price will reflect the real intrinsic value. I think competition among S will in time lower profit margins to reasonable levels. However, I think the risk premium, is what it is, and that the risk premium is what is really driving the price.

What happens if you have every hedge fund, every 401k, every bank, every investor dumping their money into the safe bet of oil (real estate, stocks, bonds every other sector isn't as good or is losing money lets say). They know that consumers would pay up to $1000/barrel (a guess, but I'm sure they have graphs of demand vs. price and they aren't too impacted by it. At least the profits on the expensive oil will make up for lower sales.)

The delivery thing is a problem, since the oil investors don't want the barrels of oil. But since demand has (and probably will) remain fairly constant (we cut our use by 3.8% since last year, price went up 30%), they know that the OR will buy it from them.

They aren't trying to corner the market or take a run at it by hording all the oil in a huge imaginary tank and preventing it from being sold, then selling it when we've run out of oil to the highest bidder. But, they are acting like middlemen and not adding anything of value. And if their (S) only role is to manage risk, then I think the OP and OR should be made to play the real game and have to lose sometimes. he thing is, as long as there is a demand for every ounce of oil produced, it will be treated as a commodity and the 'market' will set the price. If demand fell by half, I bet you would see them try to make it a product and set their own price (they would say we can't produce or refine it for less than $2/gal, even though it would only cost them $1 let's say) This would be the cartel setup that congress was trying to find.

I call shenanigans.

From the Union of Concerned Scientists:

Here's the details of the 2005 Energy bill, from Public Citizen:

A 2006 New York Times article:

I could go on, but I'll leave you with this quote from the hardly anti-big oil Energy Politics blog from Oil And Gas Investor:

Not to go all host on everyone, but the idea that Big Oil isn't receiving unnecessary and excessive subsidies from the U.S. government is just that ridiculous.

Colbert had a piece a while back where he made fun of a full page ad the oil companies took out (NYT I think) showing where your dollars go when you buy gas. Basically the ad showed they make no money selling gas, all the money they bring in goes elsewhere. Somehow he found it odd they made no money from selling their product yet managed to post profits... record profits. How odd indeed.

If you're dumb enough to believe the spin the oil companies are putting out you deserve to pay $10 a gal.

You're a tool.
Prices are now being driven by speculators. Thank-you GWB and DC! The secret meetings worked!
When GWB took office, oil was at $20/gal, w/a promise to lower. Now we're at $140/gal. Strange - he's an oil man/Cheney is part of Haliburton. How does that work out? No wonder McCain is part of them.

It's the rest of the time we have to worry about.

GWB wants more oil produced in general and more oil produced domestically in particular. Democrats have been fighting Bush on producing more oil and are against increased domestic production.

Given the above and assuming speculators are driving the price of oil (which I don't think is true), what would be the one thing that would cause speculators to immediately drive the price down?

More oil production currently, them knowing more oil will be produced in the future and them knowing the future oil will come from a stable source, i.e. not the Middle East.

So assuming speculators are driving the price of oil, who is really to blame?

ace--there's a combination of factors that are probably to blame for the price spikes of late---as usual, the econ 101 level supply-demand relationship is not adequate to think about much. it's therapeutically interesting, however, in that it reduces complexity.

on the other hand, it is difficult from the viewpoint of someone outside the games themselves to get adequate information--so finding a particular set of trends or actors to pin the spikes on is problematic. there is a supply issue. there have been shifts over the past 6 months in the way futures speculation has been carried out--if you believe george soros, one of these is the arrival of large-scale index speculators, which buy up huge amounts of futures and sit on them for predetermined periods---the argument as i understand it is that this tactic removes the futures from play in the shorter run---the effects has to be a function of the volume that is being taken out of play. but that's hard to say. in the oil/food thread, i've been assembling information about this from time to time and there's a debate about the relative importance of these actions--and i confess that i am agnostic about it simply because i don't feel that i can get close enough to real-time information and so can't see for myself what is going on.

i don't see the demand argument which pins all this on china and india as being coherent--i haven't see any data that backs it up (sudden rises in car sales in these places for example).

generally, though, i think the price spike is a function of
(a) the devaluation of the dollar
(b) irrational energy policies in general, particularly in the united states
(c) supply-level politics on the part of opec
(d) the war in iraq

i don't have time at the moment to explain d really--it ties to a in that i see it as a political factor that in part explains the devaluation of the dollar--note that i write "in part"

the domestic drilling issue seems to me a curious factor in all of this: basically it appeals to a sense of nationalism, a fantasy of control. i am not convinced that opening up drilling in the us will solve much of anything--the problem is more irrational energy policies in general--if the states can do something--and it won't happen with republicans in control--it is to re-examine the american transportation model and maybe take a significant percentage of the monies presently wasted on the national security apparatus and the idiotic "war on terror" and redirect it into infrastructure development (expanding public transportation) and encouraging alternative transportation technologies that benefit people who are not part of the ownership complex behind monsanto, for example.

gotta go.

I think we agree on your item b. On one hand we have a Republican administration that want to drill for more oil, wants to use military intervention to stabilize the Middle East to protect the flow of oil. Then we have Democrats who want to minimize our carbon foot print and subsidize inefficient alternatives to oil. Over the years we have ended up with no real alternative to oil, we spend billions on our military in the Middle East, we spend billions subsidizing inefficient oil alternatives, and we are not producing any oil domestically.

I know that generally on TFP, members want to put all of the blame on Bush but it seems to me that the problem is bigger than Bush and predates his administration. It is going to get worse unless there is cooperation in Washington on this issue.

ace....demand in the US is down....and "the market":
Three new Gulf of Mexico petroleum projects, all routing their production via the new "Mardi Gras pipeline" (see Chicago Tribune article below for details on pipeline....) to south Louisiana refineries.... all coming on line in the last six months....two of the three....just in the past month....combined expected increase in total domestic US oil and gas production is more than 7 percent....and price has done the opposite of what you say such a perception by "the market" will bring, ace..... you posted nothing more than republican party driven talking points....

The issue is larger than even Washington. I think a lot of this has to do with the producing nations' questionable ability to fill demand over the next few years. It is the catalyst. It is what spurs speculators to make things worse.

Demand in China and India is a real thing. Car sales there isn't the best indicator because it would be an isolated one. The growth in demand is tied to expanding economies. As an economy expands--and modernizes--it uses more oil products in virtually every aspect of the economy: industrial, commercial, and residential.

But while these two nations are in the spotlight, they aren't the only expanding economies. Producing nations as a whole are having a tough time expanding their production capacity when it comes to sweet light crude...the good stuff...and some nations in particular are faltering in this respect and are seeing diminishing production. The data is out there.

Washington has a big role in this game, but they aren't the only players. America consumes much of the oil that is produced, but the demand is shifting to other economies. Also consider the impact of oil-producing countries when the prices spike: their own economies expand. This generates more demand even within their own borders, let alone where they happen to ship the oil. Look at the Calgary area. They've had trouble finding enough people to fill jobs, not just in the oil industry, but many others in general as a result of the booming growth. Now picture this happening in virtually every oil-producing nation in the world, who are benefiting from high oil prices.

This is a convoluted problem that no means of simple summary can describe. It is the problem of our time.

Host,

If I explain the flaw in your argument will you take the time to read it and try to understand it?

But first, let see if I understand your point. You seem to be saying that in spite of an increase in domestic oil production of 7% and a decrease in domestic demand of gas and diesel, oil prices have gone up rather than go down. Is this a correct sumation of your point?

ace....I've posted support for the idea that the first part of the quote of you above is inaccurate....and the rest is inaccurate because there is clear evidence that the Bush administration has constantly been at work destabalizing the security in the middle east, and not what you claim.

Ace, Iran is not a threat to US National Security....our own intelligence agencies issued a report last November, that the Bush administration stifled and contested for a year before it was released....with the president claiming the opposite of what the NIE said.....since Bush knew that the assessment of US intelligence was that Iran had ceeased it's nuclear weapons development program in 2003.

Iran is perhaps a threat to Israel's security, but would Iran ever launch a "first strike" on Israel, even if it did develop a nuclear warhead capable of being delivered via a missle, since Israel is host to the third most holy place in Islam?

Do you think this constant "dictation" from "unidentified US officials" to Michael Gordon of the NY Times, and other cooperative corporate media shills, by the Bush administration....serves to lessen tensions in the ME, ace, or to increase them? Do you think this constant belligerence influences petroleum prices to go down?
...and, ace....do you think the Bush administration policy of treating Israel, in terms of it's seccurity, as if it were the 51st US state, has the effect of pushing already feeble democrats into a corner, politically? Do you think it is "normal" for democratic presidential candidate and political opponent, Obama, to have to declare, over and over.....that any enemy of Israel is an enemy of the US, and that he, as president, would order US troops to defend against an attack on Israel, as if it were an attack on the US?

Do you think that kind of a political climate may have led to the following, and do you think the consideration of this bill, this week, will lower tensions in the ME, and oil prices.....or raise them?

This chart show the price of oil adjusted for inflation, perhaps the real problem is we have been spoiled given decades of relatively stable prices. This crisis will pass, just as it did in the 1970's.

http://inflationdata.com/inflation/i...ices_Chart.jpg

http://inflationdata.com/inflation/i...ices_Chart.htm

I agree that there is a war risk premium in the current price of oil. I have stated that. I don't know how much it is, but I bet it is higher than whatever the historical norm would be. However, I think we succeed in stabilizing Iraq the premium would go down significantly below its historical norms.

Iran will not be a Bush issue in a few months, my guess it will be an Obama issue. And it seems Obama is running towards Bush's ME policy. Like I predicted, I betting under Obama we will be in Iraq at least through his first term. Are you voting for Obama? Do you support a continuation of our current ME policy? Looks like you won't have a real choice.

This chart shows just one picture of a multidimensional problem. Do you realize how many oil wells have been tapped since the '70s? Do you think that can be done again between now and 2040? The world is only so big....

Here's a little research project. Have a look into the portfolios of some of the most successful investors in the world. I'm talking about the ones who invest $millions, if not $billions, at a time in the tradition of Warren Buffett. They aren't speculators, they're investors--they invest for the long term. Look at how many of them are in oil. They understand how businesses work and how they are valued, and they understand supply and demand. These are the same guys who wouldn't touch high-tech in the '90s before that bubble burst (Buffett included), even though they were losing clients left and right as they were getting their ears chewed off and were being called idiots. These clients left them because they thought they were losing out on $millions in gains, but look who got the last laugh: These guys were making money while the markets were losing.

These same guys are in oil, and they are in it as huge chunks of multi-million dollar portfolios. That and precious metals, which is another story when it comes to supply, demand, and expanding economies. They know a good thing when they see it.

Look forward to $200 a barrel.

ace, you've been a long term supporter of the fanatically pro-Israel, neocon agenda...
....but you also espouse "drilling our way" out of the current oil price crisis, even though slack demand and a dramatic, immediate increase in US domestic petroleum prices has been met with the opposite movement in price that you say should happen.

The foreign policy you fully support result in the "resolution" now being contemplated in congress, described above. But you are concerned about high oil prices, and you're sure that the policies of the Bush admin. "are not responsible".... IMO, ace, you're chasing your tail.

Only war in the ME or US wage inflation driven demand increases would make $200 (US) oil possible, IMO....with ramping unemployment now, the second factor ain't likely to happen.. I am predicting a worldwide, deflationary depression that will influence oil to drop below $55 bbl, so soon, it will shock "the guys in oil", and wipe out a significant portion of their investment gains....

That would not be necessary. For example, look at what Brazil has been doing with bio-fuels, dino oil alternatives can be viable. In Brazil they are using sugar cane which is much more efficient than our approach of using corn. Also oil exploration and drilling is simply more effecient now than 30 years ago. Each individual well can be much more productive today than in the past.

At some point oil will hit $200 in nominal terms, but a loaf of bread may cost $25. Everything is relative.

One reason billionaires may be avoiding investments in oil companies is because of people like Chavez in Venezuela (stealing oil company assets) or even the Democrats in Washington who want to penalize oil companies through wind-fall profit taxes and excessive regulation.

Biofuels are an unrealistic widescale alternative for the next few years. And it isn't about efficiency in finding and drilling oil, it's in finding and drilling sweet crude at all. You can only expand capacity so far before it becomes impossible to keep up with demand, especially when you get down to the crude that needs more refining. Refining capacity has been a problem recently, too.

We can't have the number of new oil fields go online as we've seen over the past 40 years. I think that's logistically impossible.

This will likely happen by 2010, not 2040.

I'm not talking about the billionaires avoiding the investments; I'm talking about the ones who are jumping into the earning potential over the next few years. I'm talking about the investors who know about value investing. They see these oil companies with real asset- and earnings-based value up to and past 2010. By the time oil were to return to sub-$70 prices, these guys would already have sold off long ago. Currently, they are in for a bit of a haul and some are still buying up. They see oil & gas as still set to go.

ace....you post crap you read in IBD and WSJ editorials as if it was gospel truth. I wish you would support the things you post with sources we can go to and consider....sources other than editorials.....here is a more fact filled and evenhanded piece on the recent history of oil corp. relationships with the government of Venezuela:

http://www.businessweek.com/bwdaily/...4558_db016.htm

The folks in charge in Venezuela in the 90's presided over wealth inequity that should even make a conservative wince....as they were negotiating away the petroleum rights of all of the people of the country.... while the wealth flowed undeniably and exclusively to the wealthy. Has not nearly every third world nation with relationships with "big oil", done exactly as Venezuela has?

Democracy worked ace. The masses voted out wealth inequity, and the flow of wealth went away from the elite. This is the only non-violent recourse that an oppressed mass has, against a usurping elite. The people of Venezuela managed to stop the concentration of wealth in their country, peacefully, but you condemn them for it....

Are you a Canadian? What do you think about the tar sands? Viable? At $200 a barrel for oil, profitable?

I believe Israel has a right to exist. Do you?

I believe we should honor our treaty with Israel. Do you?

On the basis of those two questions, you call my view "fanatically pro-Israel"?

I clearly identify opinion pieces as opinion pieces. The read can decide if those pieces add any value. I express my opinion as my opinion, nothing more.

If you think it is o.k. for governments to seize private assets without compensation, that is your view and I can still respect a view different than mine. However, governments seizing oil company assets or profits is a risk that "smart money" may want to avoid.

Yes, I'm Canadian. I think we have a lot to gain from high oil prices. But our ability to supply demand is limited.

Yes, the main reason why the tar sands are booming is because oil prices are high. The extraction, as you probably know, is difficult compared to many of the oil fields in, say, Saudi Arabia. The high prices make it worthwhile (and, yes, profitable).

But the problem remains: Worldwide demand will outstrip production (well, some reports will tell you it already is outstripping it). It's a good thing we have reserves, but that won't keep prices down to where we want them.

When (sorry, "if") $200 a barrel hits, Alberta will be laughing. Let's hope the feds keep the transfer payments flowing. (I live in Ontraio.)

well, i was wrong about the demand increase.
unfortunately, the database i was looking at this afternoon has been down the past couple hours---

http://www.earthtrends.wri.org/

but if you go to this, you can get a reasonable snapshot of some of the longer-term trends (1990->2000->2003 in the case of oil consumption rates, for example)...production data is also available. it's pretty comprehensive in these areas, and in several others that i would have written about here had i been able to get at the site.

here's a world bank report (pdf)

http://web.worldbank.org/WBSITE/EXTE...K:4607,00.html


prepared for the g8 summit on the coupled oil and food price spikes--i probably should put this in the other thread, but i'll stick it here as it is a little compendium of much of what's been talked about between the two threads, to the extent that they're both concerned with the prices...pay attention to the footnotes as the devil's in the details, here as everywhere---biofuels as significant factor (see the oil/food/oil thread), changes in the way futures speculation has been happening (index speculation, i think it's called) etc...

of course, freaked out about Regulation, the head of bp blames states for all this:

http://www.businessweek.com/globalbi...aign_id=rss_eu


=======
meanwhile, at the g8 summit there was this---truly glorious----image of contemporary capitalism that you will no doubt NOT see footage of on american television:



http://www.guardian.co.uk/environmen...d.foodanddrink

um...
yeah.

It's not for themselves that they do it, RB. It's for us. There is no limit to the sacrifices they are willing to make.

you know, there's a reason that dame edna was the first to pop into my mind when i read that account. like her, they give and give and give.

O.k., I really need some help with this. Pelosi and many Democrats are resolutely against increasing domestic oil drilling or increasing supply, they are against high oil prices, they think speculators and oil companies are the primary reason oil prices are as high as they are. Yet, she thinks releasing a small amount of oil from our strategic oil reserves will lower prices. Can some one make sense of this?

http://thehill.com/leading-the-news/...008-07-08.html

Ace, the answer is political. The politicians you are describing would like to be seen doing 'something' about high oil prices - which are painful for constituents - but advocating new drilling would usually offend their and their constituents' environmental sensibilities. The SPR is therefore seen as a safer target, since it doesn't involve opening up wildlife reserves or threatening beaches.

Now that entire chain of reasoning is fairly wrong-headed and reflects a shallow understanding of why we are where we are with regard to oil, but I think it should answer your question as far as 'making sense' of these positions (with which, to be clear, I don't agree).

ace, how is a comparatively small amount of oil, not possible coming on the market until the year 2017, and not owned by the public, i.e. it will be sold, when it becomes available....at wolrd market price.....supposed to be relevant to today's situation. I already have posted that three BP Gulf of Mexico projects, complete with a pipeline to transport the oil and gas they add to the market, right to nearby south Louisiana refineries....a combined increase in US domestic production, of close to 7 percent by THE END OF THIS YEAR....has had no dampening affect on price, or on market psychology.

Can you explain, considering my points, how your points, and concerns, are relevant to any solution to high oil prices? Isn't ridiculously disproportionate US domestic consumption, vs, per capita consumption in the rest of the industrialized and post industrailized world, the area to seek reasonably rapid mitigation to high prices, from?

Host,

In the past you have generally not accepted things that I find most obvious, and then you ask me to prove the obvious which I find to be a waste of effort. That is our pattern, and here we go again.

If the US makes a commitment to producing domestic oil it will have an impact on current oil producers. If a current producers have a virtual lock on the market and supply, they will drive the price up as much as possible to maximize profits. Changes in new supply and changes in total demand generally have relative long tails, and changes in new supply is capital intensive (takes alot of new money). Producing more from existing sources has a shorter tail and is less capital intensive. A current producer has incentive to try to maintain as much of a lock on the market as possible. Current producers realize that if prices are too high "today" (profits too high), then prices can very easily be made too low "tomorrow" (profits too low and loss of market control of supply). A smart producer will lower profits "today" to make it less attractive for new production to come online "tomorrow". Again, their motivation is too maximize profits. Theoretically, we could simply posture that we are making a commitment and prices could go down.

You know how I love pointless analogies, so here is one to chew on. If a junkie tells his pusher, that he is going to give up drugs. The pusher won't be to happy about that, so what do you think the pusher might do? Perhaps, give the junkie a few free hits, lower the price, make it a little bit more difficult for the junkie to give up the habit of buying from the pusher.:orly: Hasn't that been the pattern of OPEC over the past 40 years? When the price goes high enough, for the US to get concerned and start to do something, the price goes down. This has happened time and time again. Now, however, not only do they have the US they have China, India and other developing nation with the addiction to oil.

That is what I thought. I wonder were DC is, when I state things like what you have stated, he sees it as a baseless criticism and the rantings of an extremist.

ace....please post a link where I have characterized a post of yours (or anyone here) as the "rantings of an extremist"....OR stop putting words in my mouth.

In terms of releasing oil from the strategic reserve, it has about the same merit as the Bush/McCain gas tax holiday idea.

I did a search on your posts and found this one, in about 60 seconds, want more? I am not sure what a "uberConservative" is if not an extremist, and perhaps I did mis- characterize what it meant. But, before putting anymore effort into this, am I to understand that your current view is that I am not a ranting extremist?

6/26/2008, post #109 - Obama & Dem Leaders Act Same as Bush...

I did not know Bush was involved with that idea, but I was against it then and against it now. I stated that it was a political gimmick.

ace....taking my post out of context again! nice try.

My reference to uberconservatives was part of a post (my resolution as part of my disagreement with host) that also mentioned uberliberals...and I didnt characterize either one as ranting extremists.

But enough of this silly game.....just STOP misrepresenting what I post or I will ask the mods to have such false statements deleted in the future.

DC,

Excuse me, but I can't just let this go given your last post.

I read and understood the context of your quote. Are you suggesting that being characterized as a "uber" anything is not being characterized as extreme or an extremist? I know people can reasonably disagree on issues, but to me this is pretty clear.

{added}

Speaking of extremists...

http://www.investors.com/editorial/c...toon071608.gif

As compared to Bush's press conference yesterday.

http://www.investors.com/editorial/e...01003789555596

ace...its really quite simple.

You can include any post of mine in "quotes" (with a link to see context). That is your right as a member of the forum.

But when you post: DC .....sees it as a baseless criticism and the rantings of an extremist.....you are attempting to speak for me.

And the fact is, YOU DONT SPEAK FOR ME. I speak for myself, when I chose and how I chose.

If it happens again, I will ask that it be deleted.

You seem to be getting aggravated about how you describe me. You should ask that this be deleted. In your post in question, there was no need to reference me, but you did, perhaps you should have that deleted as well.

Here is an excerpt from a speech Bush gave outlining his energy plan over 7 years ago. Too bad he never got the support he needed from Congress to get it done.

http://query.nytimes.com/gst/fullpag...=&pagewanted=1

Also here is a link to his 2001 plan.

http://www.whitehouse.gov/energy/Nat...rgy-Policy.pdf

{added}

Before some of you try to rewrite history - The Senate (controlled by Democrats at the time) and the House never acted on Bush's plan, they did try to develop their own plans, they never reached agreement and nothing passed, then or when Democrats took control of the House and had control of the Senate. So the next time you hear Reid or Pelosi talk about Bush's failed energy plan, ask them to look in a mirror and stop with the B.S.

Don't fret. Most innovation comes from private money, not public money.

July 8, 2008
http://www.cnn.com/2008/TECH/science...lan/index.html

Baraka....I'm not a fan of T Boone, the oil widlcatter turned slash and burn corporate takeover mogul and funder of the Swift Boat ads, but the Pickens Plan makes sense to me.

It focuses on wind power..the US has the largest potential for wind power of any country in the world.

The plan is to increase the use of wind power to supply over 20% of US power needs and then converting natural gas currently used for power generation to transportation. The result is a significant decline in reliance on foreign oil....and its clean....its renewable...and its cheap.

The Pickens Plan.

In his 2006 State of the Union address, Bush proclaimed that "America is addicted to oil"...then went on to suggest, in effect, that if we're addicted, it should be to ourselves, rather than to others....while at the same time, cutting funding for some renewable energy programs in each of the last three or four budgets.

An addiction is still an addiction.

IMO, it would be far better to aggressively pursue a goal to lower that addiction rate....and accomplish other goals as well (ie cleaner environment) than to continue to feed the addiction.

An interesting partnership may emerge on the issue....T Boone Pickens, the Republican oil guy and Al Gore (clean energy goal articulated today), the Democratic climate guy....to lead such an effort.

It certainly wont happen if the next president (and vice president) develop a national energy plan in secret with only oil company executives at the table.

There are some forward thinking people in oil country...

Is it possible that their are some renewable energy programs that are worthy of being cut?

Is it possible that the Bush administration evaluated the programs and given limited resources decided to allocate those recourses in the most cost effective manner?

Are you referring to actual cuts in dollars or cuts in percentage increase?

Are you suggesting that if the next President changes budget priorities and makes budget cut on some of Bush's energy programs that it means they are against those the fundamental goals of those programs?

If we agree or disagree with Bush's budget proposals, doesn't Congress have the final word on the budget?

Is the process of developing an energy plan more important than the plan? Are you suggesting that no one knew Bush was going to propose an energy plan?

And even if they did not know, didn't everyone have an opportunity to give input before Congress acted on it, or failed to act on it?

I agree with this. My perspective is that oil & gas is only expensive because of how much we use it. At the time of this posting, a pint of oil is worth $0.38. Compare that to other fluids you typically buy: water, beer, milk, pop, soup. Suddenly, it isn't so bad.

Sure, you need to burn the stuff in your everyday life, and it adds up. But when you look at the big picture and consider your use of the stuff to move your 3,000+ pounds of metal, plastic, and rubber around, ask yourself this: Is it worth it? What are you moving with it? Is it just you? Is that worth it?

There are far too many communities built around the idea that we can and should (must, actually) drive everywhere. No wonder people are griping over something that still costs relatively little.

A single human's ability to move over 3,000 pounds with incredible ease and at high speeds and maneuverability is an amazing feat. How cheap do you expect that to be? How cheap did you expect that to remain?

If the people who want to stop using oil, actually stopped using oil wouldn't that solve the problem that people who want to stop using oil think we have?

The term "addiction" has been used loosely in the context of our oil consumption, but I think some who use the term don't literally think of our use of oil as an "addiction", anymore more than using water could be considered an addiction.

Personally, I simply want cheap oil and I think it is possible to have cheap oil. I have no interest in riding a bike, mass transit, using a golf cart or driving 55 mph on the interstate. If others want those things, that is o.k. with me. And if the people who want those things, just did them wouldn't we all be happy?

But, relatively speaking, oil is cheap. I understand that you want cheaper oil, but how cheap can you go given all the variables? We cannot repeat what we did in the second half of the 20th century to increase capacity. How do you think the world economy will change over the next 40 years?

Seriously: I think oil is as cheap as it's getting for at least the next 10 or 15 years before supply can catch up again, and this will only happen when alternatives kick in and demand moves to meet it half way (figuratively speaking). I could see it maybe dropping as far as $100/barrel in the near future, but that may only be a result of volatility. There is a lot of investment in oil right now, so you'll see many things come out of the industry to help production, refinement, and new sources, but this growth of output will be slow compared to the growth of short-term demand. We cannot indefinitely expand capacity. There is only one Saudi Arabia and only one Athabasca Oil Sands. We might get lucky in some of the sea beds around the world, but I wouldn't bet on it.

I think excessive regulation and counter productive government policy has inflated the price of oil far beyond what is reasonable. I agree there are many variables affecting the price other than the two factors I mention, but I think we could have an energy policy that gives us "cheap" oil, protects the environment, gives incentives for cost effective alternatives, and reduces our dependence on importing oil.

I think we can increase capacity. Technology applied properly has made a measurable impact on maximizing oil produced from older wells and our ability to produce oil from locations not accessible in the past.

I think the key to a sound energy policy is to encourage the development of alternatives and incrementally lowering demand while maintaining fair and reasonable prices for oil. Incremental changes in fuel efficiency standards in vehicles has lead us to a wide selection of vehicles that are safe, powerful, produce little pollution and are fuel efficient. If we removed 10% or 20% of the oldest vehicles currently in operation that would have a bigger impact on what we could do for the environment and overall fuel efficiency than any other reasonable idea in my opinion. Another example In the areas of urban development, the trend towards mixed use (residential, commercial, recreational development in a condensed urban setting) in an effort to stop suburban sprawl can have a material impact on our national oil consumption. These and other ideas can be done in addition to using wind, nuclear, biofuels, natural gas and solar, without panic, without excessive taxes, or excessively high oil prices. I think the next 40 years can be dynamic and exciting in terms of the possibilities.

Do we know what the true price of oil is? Given all the factors that make up the price of oil, if we simply looked at the costs of production, refining, shipping, and reasonable profit those costs might less than 50% of the current cost. Have those costs materially changed in the past 12 months? I don't think they have.

You've made some interesting responses that we could build upon to further realize the challenges, possibilities, and opportunites, but I wanted to sort this out first:
We can try to find the "true" price of oil, but we need to deal with the "real" price, which is the price the market serves us. We could isolate the cost of production and distribution, but we cannot stop there, as we are dealing with open and free markets (for the most part). The issue isn't so much the cost of production (though they are increasing due to the technology cost you've mentioned for extracting deeper oil, and also due to skyrocketing steel prices, which affect construction costs), but what we are really at the mercy of is the cost of consumption.

I came across this interesting piece: Global Energy: Increasingly Unsustainable. It was published in Finance & Development, which is a part of the IMF, so let's keep biases in mind. But what interests me is the data. Here's a sample:

India needs to import 75% of its oil to meet demand, so their economy has relatively inelastic demand for it. Their economy has suffered lately because of high prices, but it will be a matter of time before the government does something to alleviate this and encourage further development and investment. And China imports a heck of a lot too, but I don't have numbers handy.

The key issue is that both of these economies are growing as developing nations becoming industrialized nations. This means their growth in demand for natural resources occurs at a rate several times higher than that of industrialized nations. Consider oil & steel, which are the backbone resources for expanding economies. The amount of oil that will be pumping into these countries, coupled with the amount of steel being shipped there, will keep prices for both items relatively high. This isn't necessarily tied purely to the cost of production and delivery, it's also tied to the price of these items in an open market, in addition to investors dropping large amounts of money into the industries that mine and extract them.

As you can see, it's a complex set of variables. But note how it all comes down to one real cause: Demand is skyrocketing (relative to historic demand in these specific countries). The cost of industrializing large populations isn't cheap.

Of course the price of oil is high. But now what do we do? This is something we are starting to get at.

I think it is important to find and understand the "true" price of oil. If we do then we can better understand the "real" price of oil. I have not taken the time to do any real mathematical calculations, but I think a large portion of the "true" price and the "real" price is governmental policies and regulations ( I am not an anarchist, some regulation is needed). For example what impact has Venezuela's actions had on the price of oil? What impact has Iran and the threat of them having nuclear weapons had on the price of oil? What impact has the US's unwillingness to explore and develop its own oil had on the price of oil? What impact has the constant threats of windfall profits taxes had on the price of oil? What impact has the devaluation of the US dollar (Fed Policy) had on the price of oil?

I think China and India are real factors impacting the price of oil, however the demand for oil is predictable. Given a country like China developing an industrial base, statisticians can easily look at historical patterns and project future needs. Given the predictable nature of demand the market price should not be as volatile as it has been. I truly believe the other factors have had a bigger impact on price than demand. 12 months ago oil was trading about $50 per barrel, now it is at about $130.

Putting the issue of regulation aside for now, although the increase in demand is fairly predictable, the future ability to fill it isn't so much. For starters, we aren't even sure how accurate the numbers are on Saudi Arabia's reserves. We are also beginning to question the ability of other nations to maintain their current level of production. Also consider unpredictable things such as conflicts and natural disasters. Those are the unpredictable factors. And regardless of these, demand will chug ahead, as predictable as always. When asking why oil prices went up so fast in just 12 months, consider the value of the US dollar, which is how oil is priced. Also consider the recent reports that certain nations have faced dwindling production capacity. This is mainly volatility, but as time marches on, we will see the average price remain high, even after the volatility settle down (if it ever does).

Generally, on this issue, one big reason the prices are high is because the increases in demand are outstripping increases in production. The first is relatively predictable, the second isn't.

I was not able to find more current global fuel oil consumption information, but this graph shows the trends from 1995 to 2005.

http://www.investis.com/bp_acc_ia/st...s/images/9.jpg

BP - Statistical Review charting tool

This chart shows proven oil reserves.

http://www.investis.com/bp_acc_ia/st...s/images/2.jpg

BP - Statistical Review charting tool

This chart shows oil production.

http://www.investis.com/bp_acc_ia/st...s/images/3.jpg

BP - Statistical Review charting tool

I know the obvious problems with showing these three graphs together and trying to draw conclusions, but through 2005 the general trends suggest that we are doing a good job of finding new proven reserves, increasing available supply, and moderately controlling demand. The information I find consistently leads me to the conclusion that the recent price escalation has less to do with normal supply and demand and more to do with other factors..

Interesting data, nonetheless. But have a look at this to help illustrate what I mean:

http://www.brushtail.com.au/assets/j...d_gas_2004.jpg

Projections aside, have a look at what happened between 1950 and 2000, and then ask yourself if you think this is repeatable in anywhere near the same capacity between 2010 and 2060. Even if demand for oil doesn't grow at the same rate it did between 1950 and today, we can still assume there is much growth to occur in largely populated developing nations as they modernize.

To help me understand your perspective on this, if the other factors would be resolved, what do you think the "true" price of oil is? What is the lowest it could be, and what do you see happening to that price between now and, say, 2050?

I agree that we probably can not duplicate 1950-2000 in terms of production. However, I don't think demand for oil will duplicate that period either. As the US industrialized it was at a unique time in history. I think China, India and other countries can industrialize without the same thirst that the US had for oil. For example in the US, with the introduction of the telephone, it required phone lines to be placed to every location where there was a phone. Today, with cell phone technology one strategically place (whatever they are called) can serve thousands of phones. Every industry can point to these kinds of efficiencies.

Perhaps close to $50 or $60 per barrel.

Some excellent points here. I find it interesting that Japan has actually reduced its need for oil over the past 30 years despite being the second largest economy in the world. That's efficiency for you. It will be intersting to watch others such as France and Germany in this respect as well.

We will likely see the same with virtually every other developed nation over the next while, but this will be offset somewhat by developing nations that will have a high demand for oil not only for fuel but also for construction and manufacturing, etc. They will possibly be more efficient than post-1950s America, but also remember the collective population of these developing nations (which include others besides China and India) is far greater. This is why oil should remain relatively high.

I don't believe we'll see $80 in the foreseeable future, barring some major unpredictable event.

A report to Congress by the Commodities Futures Trading Commission did not support the common notion that speculators were the cause of the spike in oil prices this year. Seems like it is supply and demand as the primary market forces in their view.

.

http://www.marketwatch.com/news/story/cftc-report-undercuts-claim-investors/story.aspx?guid={06B5DBFD-CC90-41A2-A3C0-6F18A3DBC03A}&dist=hppr

A recent report to Congress from the Energy Information Administration suggests that ending the drilling moratorium on the Outer Continental Shelf (OCS) would have an insignficant impact on the price on domestic crude production or prices before 2030:
IMO, a better way to reduce the cost before 2030 would be to lower demand through conservation and conversion to alternatives.

I don't dispute the finding above or the idea of reducing demand for oil through conservation and alternative. However, I think we can send a clear message to oil producing nations and minimize wild price fluctuation by committing to drilling now. I like the "all of the above" approach.

So why dont these facts "send a clear message" by committing to drilling now on current leasehold:

Between 1997 and 2007, drilling permits for oil and gas on public lands increased more than 361%

Since 2004, BLM has issues 28,776 permits to drill on public lands

Offshore, only 10.5 million of the 44 million leased acres are currently producting oil or gas

Combined, oil and gas companies hold leases to nearly 68 million acres of land that are not producing oil and gas....but could produce 4.8 million barrels of oil a day and could cut imports by nearly a third

Majority Report of the House Committee on Natural Resources (pdf)

I'm just tyring to understand why we need to open up more areas for drilling..when millions of on and offshore acres are already permitted and leased but not under production.
-----Added 12/9/2008 at 12 : 47 : 29-----

IMO....Psycho-babble

YouTube - President Bush: Drilling Will "Change The Psychology"

YouTube - President Bush: Drilling Will "Change The Psychology"

Wait a minute. Aren't they saying the market is oversupplied? Isn't this why the prices may have fallen recently? Further oversupplying the market will drive prices down to far, making drilling, extraction, and refinement financially unviable. One reason why we're in such a mess with price is because it's getting more expensive to get the oil in the first place. And now we're talking about trying to get more from new sources when the market's oversupplied? Bad idea.

i don't think the drill baby drill mantra operates in any rational connection to the state of the oil market past present or future. it is more about an illusion of control over oil markets which plays on the kind of nationalism that the right mobilizes when it comes to things like "the war on terror" and ignores when it comes to things like the trans-nationalization of industrial production---in other words, it is an example of an instrumentalized nationalism which uses oil as a signifier. as an instrumentalized term, a tactic, it links to other things---the notion of being-persecuted by some phantom Left, in this case the Evil Environmentalists who seem at times to lurk about populist rightwing discourse the way the black helicopters lurk around the fever-dream world of the militia set---signifiers which condense anxiety about loss of control and which direct it toward a semi-definite Other and so serve a therapeutic effect. the Evil Environmentalist is understood to think less of the petit bourgeois american's "right" to tool about in an enormous 10 mog pickup or suv or maxivan than he or she does of animals far away-----and in this there is another index of percieved (or manufactured, depending on your viewpoint) victimization--which emerges pretty obviously in the obsession with drilling in anwar in the face of all reason, and in particular in the "drill baby drill, petro inferno" slogan at the rnc, which i thought a kind of genius creation insofar as it allowed you to peer into the strange but seemingly endless tunnel of conservative resentment.

similarly, i don't think this thread is about oil at all, really: the data is not systematic, there is no effort to actually talk about the international petroleum market or system and there's no need for it, given how the thread is framed.

just saying.

If you've tapped into the media lately, you'll get an interesting picture.

Oil's dipped to as low as $59 recently, and now you have the IEA giving another peak oil scenario: There will be a supply crunch because of forecasted demand increases and the fact that cheap oil will discourage companies from making new investments.

This is what global economic meltdowns do: they twist and turn in on themselves and create environments where potential economic growth is stunted. This is why I believe governments should play a role in these things. They need to open up their coffers and offer incentives to companies to ensure supply doesn't become a problem.

An alternative would be to hit a brick wall.

Fun times.

In my life time oil prices have followed a consistent pattern and the foundation is supply and demand. Given those two factors when supply is impacted in a negative way prices go up and when demand is peaking prices go up. Given the clear pattern our nation should have a clear energy policy that is consistent through changes in supply and demand. Generally we exploit prices when they are low and take low prices for granted and we panic when prices are high. When prices are high we try a number of quick fixes and we generally fail to follow through. This pattern has been true since the early 1970's. In my view we should develop our own sources of oil to the highest degree possible, develop cost efficient alternatives, and engage in policies that encourage stability in supply and demand. Given the length of time it takes from exploration to production we need to make sure capacity is available when needed. When demand begins to peak after the economy recovers and supply/demand is at a fine balance, having the additional capacity our own drilling can provide, may make the difference between normal pricing and speculative pricing in the market. A sound energy policy based on the above is not psycho-babble or political paranoia.

My understanding is that "our own drilling" usually involves oil companies selling the oil extracted from American soil on the international petroleum market, resulting in very little if any effect on oil prices for Americans.

Oil is a commodity. A drop of oil is a drop of oil in the world market for oil. There are a few subtleties, for example some types of oil require a specific type of refining capacity that may be concentrated in certain areas. but outside of that fact, like I said above we need a consistent policy regardless of the current price. When demand is peaking any issue with supply can trigger an "explosion" in price. When the market is on that margin, smaller amounts of marginal production can prevent that "explosion" in price.

Keep in mind that I am not talking about financial speculators, but for example if you are an industry that needs 100 million barrels of oil, and you fear that the supply is going to be disrupted in the future or that prices will be 50% higher in the future, what do you do? You try to lock in your supply. How much over current real market price are you willing to spend for that "insurance"? If the market is stable and you anticipate stability, the premium you would pay for that "insurance" would be less or zero.

One of Bush last EOs that I hope Obama quickly overturns is the one that will authorized the BLM to open up thousands of new acres to oil and gas drilling in the most sensitive areas in Utah adjacent to the Canyonlands National Park and Moab desert and close to the Grand Canyon....particularly when there are already millions of acres of public land in Utah already under lease.

It was one final bone thrown to his oil buddies and it will have little or no impact on the price of a barrel of oil.
-----Added 12/11/2008 at 06 : 32 : 09-----

Do we really need to "drill baby drill" here:

http://media3.washingtonpost.com/wp-...8103004664.jpg

Bureau Proposes Opening Up Utah Wilderness to Drilling - washingtonpost.com

The price may factor in the contracts that big consumers (airlines/power companies, etc...) will lock their rates in at and will pay a known price today if they are afraid of it going up higher next month.

But, I see no real fluctuation in demand to warrant the price swing over the last few months and the profits the oil companies made because of it. I don't see 20 million electric cars or 5 million bicyclists out there not using gas now to cause demand to fall. There are just as many airlines in the sky now as last summer, and people haven't started to take mass transit and carpool in big enough numbers to justify the 'lower demand' the media is talking about. Maybe the lower demand from big banks because they aren't investing in oil anymore is causing it...

I'm sure all the free market people will get upset, but if oil was a product sold at a set price that rarely changed, but attempted to match real world demand and actual supply, it would work out better for consumers. You would cut out the middle man who doesn't do anything but wants the price to go up, and if they buy up most of the oil and aren't willing to sell unless the price goes up higher, it's not a good deal for the consumer or other businesses. The thing is that there may be gas shortages if the gas companies set the price instead of the market and the people who are willing to pay 5, 6, 7 dollars a gallon might not be able to get it.

Why do you ignore the complexity of the issue? Why do you seem to assume every acre under lease is capable of efficiently producing oil? Why do you seem to assume that leased land without an oil derrick is not being explored?

If you were an oil company and there is land under lease at spot "A" that costs $x dollars to develop but risk/reward ratio is less than land at spot "B" and you have limited capital to invest - where would you put your money?

There are hundreds of issues like this that can be put on the table, yet you don't seem to consider them. In addition the foot print of modern drilling is very different from the days of having what amounted to oil derrick fields. An oil company could drill in areas and people would not give it a second thought with the pristine character of natural areas maintained.
-----Added 13/11/2008 at 12 : 13 : 39-----
Perhaps some one is going to issue a formal study on the price fluctuations over the past 2 years to give us a more detailed understanding of what happened. It seems Congress's primary concern were financial speculator (They were not the cause of the spike in price) and oil company profits and CEO salaries. However, there is a fundamental price for oil (cost of production, plus reasonable profit), and then there are risk premiums built into the price. Secondarily, there is demand, which also affects price. Perhaps, there was a "perfect storm" in these factors that drove prices up and now there is a near "perfect storm" driving prices down.

We have been living with OPEC for decades as they try to set the price for oil. they have an impact but can not set the price. No entity or government can do it. Also, when we look at the actions of OPEC, they don't always want the prices to go up, in many circumstances they try to balance maximizing their income over the long-run, while keeping a lock on the market. If prices are too high, alternatives become more cost effective - that is bad for their business.

ace....perhaps I should use your preferred method of simplistic analogies.

Instead, I'll just share a video of Utah's Nine Mile Canyon, home to one of the most important and extensive collections of prehistoric rock art panels in the world.


You dont think increasing industrial traffic by over 400% alone might adversely impact these priceless treasures in a federally protected historic preservation area?

http://www.ninemilecanyoncoalition.o...anta_petro.png

If you want to talk about the complexity of the issue...it is more than just oil derricks.

The fact is that BLM is bypassing environmental reviews by using a loophole in the '05 energy bill to get quick approval before a change in administration. The GAO is investigating why the Bush BLM has waived environmental review procedures nearly 500 times for oil and gas project in Utah alone last year.
-----Added 14/11/2008 at 08 : 24 : 49-----

The above is interesting but I don't know where you want the information to lead us regarding a national energy policy. If you want all new domestic oil production/exploration stopped because of what may be inadequate regulation, I don't agree. Understand that I am not a person who suggests that there be no regulation or consideration for the environment. I think we can develop our oil resources and be good stewards of the environment. I would be the first to agree that an oil company will exploit loop holes and take short-cuts if they can get away with them, that is why I think we need to thoroughly understand the issues from both points of view.