I agree with your sentiments DrChaos. Too many ppl in the US are whining about fuel prices - a nation in denial that cheap oil is a thiing of the past. Our yankee brothers have yet to experience the $7 a gallon prices we already pay today in the UK for petrol.
DrChaos, what you write is certainly a possible scenario. That oil producers are lying. It is a belief shared by all PeakOilers I've come across. OK, so Saudi Oil Minister is Baghdad Bob. Also lying is Saudi Aramco CEO Abdallah Jum'ah: "At Saudi Aramco's present production levels, that means we will have well over a century's worth of oil to produce." a month ago. (http://www.saudi-us-relations.org/articles/2006/ioi/060613-jumah-speech.html) What about Iran? Are they lying too? I guess it'd be quite easy to verify whether there actually are e.g. 9 VLCC supertankers (18 million barrels) in Iran looking for buyers.
While we're talking about lies... ... the percentages quoted above are a good example of "how to lie with statistics" (I remember I had a book with this title in my library)
follow the $$$ ??? The Best Energy Bill Corporations Could Buy: Summary of Industry Giveaways in the 2005 Energy Bill OIL & GAS SUBSIDIES: $6 BILLION http://www.citizen.org/cmep/energy_enviro_nuclear/electricity/energybill/2005/articles.cfm?ID=13980 It all boils down to, who makes decisions?...who benefits? Why not funnel these $$$ into cheaper cleaner alterative energy sources? Want cheaper oil? if you really care and mean it, focus resources on alternatives. Good for the people and environment, but not so good for the oil barons. Isn't 36 billion enough?. Are they hurting so badly? Do they really need taxpayers to subsidize their operations? http://abclocal.go.com/kabc/story?section=nation_world&id=4084481
So, to talk about the analogy, the price of wheat is going up because of bakery bottlenecks? Well, not quite, it's because of the broken pricing system, which prices everything off LSC, which is the type "in scarcity" (real of artificial) while we're awash in heavier crudes. If LSC scarcity is real, due to actual lack of refinary capability, after all these years of financial bleeding of 100s of billions/yr would suggest criminal negligence on the part of oil industry regulators. PS: And ofcourse let's not forget the other "scenario" mentioned earlier by another poster, that producers from Saudi Arabia are actually running out of oil but are lying to everyone so that the ruling regime doesn't lose their heads. (Iran too?)
Basically it's simply a broken pricing mechanism (at least compared to every other market I know, stocks or commodities). Since there can practically be no arbitrage between futures and physical market (as the types of crude eligible for delivery represent minimal % of production), oil futures trades like a paper stock, in a bull/bear struggle. Supposedly speculators are "rational", but ... you remember dotcom. IMO we now experience the opposite situation of 1998, when oil price was driven down to $10 by players in the futures and "the price-setting futures market" didn't believe the producers, until they had cut too much. Considering the financial bleeding of oil consuming countries, I can only think there's a hidden agenda behind accepting this broken pricing mechanism. Robert Mabro (with decades in the oil market) explained the issues very elogently in his 2000 article: http://www.oxfordenergy.org/comment.php?0008 which I think is a must-read for anyone who comments on the oil market. Here's an extract: It's not as if knowledgeable people haven't been pointing out the flaws in the oil pricing system for a looong time... And I think you'll agree that the current mess is 1000 times worse (for oil consuming nations) than Y2000 when those comments were written.
This BPM is also known as a vacuum. In basic Economics, in a vacuum, a number of common things usually occurs including the conditions that we see. We have artificial price support, and the method that is used most heavily is domination of the business and financial press and TV news by the Oil Administration and Interests in pushing and justifying why we as Americans are paying enough for what we've got. Mean time, the oil companies are happy to receive all these outsized profits and pay special interest lobbyists to appear on TV, CNBC and other financial press shows just to continue to pacify and influence Amercians so as to desensitive them and push for even higher prices. At present, the events over in the middle east are being used to prepare the American people for $4.00+ unleaded gas, as well as $100+ per barrel oil. this manipulation as well as the unchecked brazen conduct of these profiteers are symptomatic of events being in this vacuum or broken price mechanism. Normally supply and demand cause prices to stabilize at an acceptable market level. What we have had in this country has been manipulation of the "perception of supply" to create artificial shortage conditions, just to justify these prices being charged. These acts are criminal, at best and immoral and obsene at worse. Simply put, its Oil Terrorism!
Saudis complaining about the "lack of advanced refining facilities" is a clever deception around the real problem. The refining facilities have always been what they are now and they haven't been degrading in technology. The difference is that the Saudis, and the world for that matter, have been unable to supply the necessary amounts of <b>high-grade crude</b>, i.e. the light (in weight) and sweet (low sulfur) crude. Now we have to look at THAT question. Why? The price of light-sweet is higher than any others so if producers had it, they'd sell it. The conclusion is that they are unable to produce more light sweet crude despite their desires and the markets demand for such. The fact that petroleum production is transitioning away from light-sweet to heavier sour oils, despite the fondest wish of producers, is an unmistakable sign of the imminence of Peak Oil. I think the peak has effectively happened in light sweet this year. Britain's North Sea has been going through a remarkably and unexpectedly rapid decline in production, despite significant efforts. Norway is also in decline. The US of course peaked in 1971, and has declined ever since, despite the deployment of enormous numbers of wells and the highest technology available in the least restrictive regulatory environment available (LA & TX). At one time the USA was the "Saudi Arabia" of oil production and in fact was probably endowed with the best quality and largest size oil reserves of any nation---probably equal in size to Saudi's but better quality. And yet....
Iran, in contrast to Saudi, does believe in 'peak oil' apparently has a policy of not producing too quickly, or with the really highest technology, as that can result in higher output temporarily, but later damage and ultimately lower recovery of oil. Think of things this way. In the really long run, the political posturing of wackjobs like Chavez and Ahamanijad are actually good for the world. The reason is that if they produce less oil for political reasons, it will stay in the ground, and eventually be produced in later years. This means that the 'peak' in oil production will be slow and broad---what we will need to be able to transition away from petroleum with technological means and capital investments, without a massive disruption in society. By contrast, using really high tech methods to extract oil faster---which doesn't really increase the total amount of oil available---will result in the nasty back end of the peak plummeting faster and faster. War and economic collapse will preclude technological development and long-term capital investment necessary to attack this enormous problem. This is the "Mad Max" scenario. What would be bad of course is "oil nationalization" which means that producers close their borders and sell internally at a much lower price than world prices encouraging domestic waste, like Saudi gasoline being 30c a gallon or similarly in Venezuela. Venezuela's consumption will probably be limited on a global scale, but Saudi could be dangerous in the event of a fundamentalist revolution.
I would like to suggest that people spend a few minutes to check the facts about how the oil market works (what is the role of LSC etc) and what the current supply/demand situation is. With the exception of a period in 2004 due to a spike in demand from China (along with a spike in "demand" for adding to inventories), there has been no tightness in the real "wet barrel" oil market. The only "real" issue is that of spare production capacity. I.e. what happens IF a significant part of production MIGHT go off-line. But the real problem is with how price is determined. Otherwise, I think it's fascinating to see what a rising price can do to people's minds. And the incompetence and inertia in failing to change an obviously broken pricing mechanism (or maybe maliciously, with the intent to redistribute wealth).