People keep saying it will come down it's like an alcoholic saying ok this is my last beer.. One thing for sure is it's killing the economy as it goes up... 1973 the last refinery was built in the US so as long as we have tight regulations on refineries were going to run into supply and demand problems.. OPEC can manipulate the razor thin margins we have to get a higher price for their number 1 product.. Being the number 1 consumer of oil and as long as we have to rely on hostile nations for it there will be a lot of hurdles to overcome in the near-term future.. I don't know how much harder it has to hit Americans in the head before they recognize it as a major major problem and take some kind of immediate action.. Anyway here's to the start of our new 3rd world country in the making thanks to ignorant Americans.. Cheers...
Ehrlich Quotes : "Giving society cheap, abundant energy would be the equivalent of giving an idiot child a machine gun." - Quoted by R. Emmett Tyrrell in The American Spectator, September 6, 1992 http://www.nationalcenter.org/dos7111.htm Environmental "Scientist": Dr. Paul Ehrlich Dr. Paul Ehrlich is a Stanford University biologist and author of the best-selling book The Population Bomb. Since the release of this book in 1968, Ehrlich has been one of the most frequently cited "experts" on environmental issues by the media, despite the fact that his predictions on the fate of the planet, more often than not, have been wrong. In The Population Bomb, Ehrlich predicted that hundreds of millions of people would die of starvation during the 1970s because the earth's inhabitants would multiply at a faster rate than world's ability to supply food. Six years later, in The End of Affluence, a book he co-authored with his wife Anne, Ehrlich increased his death toll estimate suggesting that a billion or more could die from starvation by the mid-1980s. By 1985, Ehrlich predicted, the world would enter a genuine era of scarcity. Ehrlich's predicted famines never materialized. Indeed, the death toll from famines steadily declined over the twenty-five year period. Though world population has grown by more 50% since 1968, food production has grown at an even faster rate due to technological advances. Perhaps Ehrlich's best known blunder is a 1980 bet he made with University of Maryland economist Julian Simon. Dr. Simon, who believes that human ingenuity holds the answers to population growth problems, asserted that if Ehrlich were correct and the world truly was heading toward an era of scarcity, then the price of various commodities would rise over time. Simon predicted that prices would fall instead and challenged Ehrlich to pick any commodity and any future date to illustrate his point. Ehrlich accepted the challenge: In October 1980, he purchased $1,000 worth of five metals ($200 each) -- tin, tungsten, copper, nickel and chrome. Ehrlich bet that if the combined value of all five metals he purchased was higher in 1990, Simon would have to pay him the difference. If the prices turned out to be lower, Ehrlich would pay Simon the difference. Ten years later, Ehrlich sent Simon a check for $576 -- all five metals had fallen in price.
Most of what you say is also what I have found to be true in the oil business. You do still need to consider the cost of production though: it is expensive to bring many of these deposits out of the ground - some of these deposts while large, are really not hugely profitable until oil is above 60 per barrel on a long term stable basis (stable within the lifetime fo the project). The low cost resevoirs are or have been exploited. However, it does appear that there is a lot of oil that is simply not being pumped or brought out of the ground. The oil companies look at this as inventory: they control it and wont bring it out until they feel they can maximize their price ... and this is no different than any other business.
$60/bar long-term? For exploiting Golf of Mexico deposits? I really don't know WHERE people get their numbers from! In truth, the market price of crude oil is completely decoupled from and independent of production costs, which average about $6 per barrel for non-OPEC producers and $1.50 per barrel for OPEC producers. Even difficult projects (ANWAR) are profitable over $25/bar.
If that were all true then they would be making a killing and you would think there would be a very quick remedy to the problem no?
The longer you can hold out from using your own resources the better.. Think, is it better to use up what you have then be reliant on others, or use theirs first? As the price of oil rises and other wells run dry the oil in Alaska etc is going nowhere....the value of that oil is going up and up...Why use your own oil when others are cheap enough...right now the US people thinks it is hurting under high oil prices but if it taps unused wells then your starting to bite into future reserves that will be worth so much more down the line when it could be REALLY needed....the longer you can hold out, the better....the only problem is this needs a word that so many in the US seem to be unable to say..."Conservation".....Dont be in a rush to use up what you have.
I wasn't refering to only gulf deposits. They dont pump 25 dollar cost fields at 26 dollars or even 25.01. If they can they wait, they do.
Well, as in most markets, oil price is determined "at the margin". And it seems that those last few barrels of demand which determine price "at the margin" are nowadays controlled by funds (speculators). Commercial oil demand is inelastic, because there are no immediate substitutes for oil (e.g. converting from heating oil to natural gas, or using another technology in cars can't be done overnight). Still, "centrally managed" economies, like China, have quickly adapted by switching over to coal for a lot of their energy needs. As I've written before, the PHYSICAL oil market has been weakening, as evidenced in VLCC (very large crude-oil carrier) rates being -50% down from 2005 yearly average and even more down (-80%) from 2004. A large part of the "demand" was US filling the SPR to 100% capacity, regardless of price. Another, was all those "long-only" commodity funds, with billions AUM. Tracking indices like GSCI, whereas GSCI is 75% energy. Add trendfollowers to the mix. I think 4Q2005 should be interesting, as 2005 was supposed to be the year with the most new "mega-fields" production coming online, with more in 2006 and 2007.
It is inelastic but over which timescale ? Look back at previous price spikes: demand relaxed due to conservation. Unless the market adjusts in a reasonable timeframe you will see oil prices relax in the face of conservation effects on demand.
The official loss of production in the Gulf of Mexico: http://www.mms.gov/ooc/press/2005/press0906.htm