OPEC: The US Is To Blame

[Dr. Shane]

OPEC unhappy with oil price surge: El-Badri

OPEC chief Abdala El Badri on Thursday said members were unhappy with surging prices he blamed on speculators and a weak US dollar.

"We are not very happy with this increase in oil prices," said El-Badri during a visit to Ecuador.

"Volatility has nothing to do with the fundamentals. It has nothing to do with world demand," he said, stressing that a dropping dollar was driving prices higher.

[text taken from link]

[Dr. Shane]

This is the problem I have with this. If the falling value of the dollar was the only thing driving the price of oil, oil would be $35/barrel. That is given that it was $29 in the year 2000. $35 today will has the same purchasing power as $29 did in 2000. Since oil is now over $130/barrel, there is obviously more playing into that than the falling dollar.

[Neil D]

Quote:

Since oil is now over $130/barrel, there is obviously more playing into that than the falling dollar.

Agreed....

[Stan]

So why can't Bush say.. NO we are only going to pay $35? of $50 or what ever...

[Dr. Shane]

I don't think Bush could do that alone but certainly the US government could do that. That price then becomes what is called an artificial price. The word artificial is used because the price is not being set by market forces. Artificial prices lead to shortages because the consumers consume more and the producers produce less. So when artificial price controls are imposed, rationing has to be imposed along with it. Rationing limits the consumers to how much they can consume and tells industry how much it must produce. This is much like what went on in the US during WW2. There becomes a forced partnership between government and industry. People are not generally happy with the arrangements which is why it was done away with after WW2. If the price of oil keeps going up, out of control, this may be something the governments of the world have to consider.

[jasd]

QR frame:

Checked out other commodity prices on the COMEX lately?

Investments al dente - that is, the tooth test: aside from increased demands from newly industrializing nations - capital seems to be more in search of intrinsic goods rather than

bad paper.

imho

[Dr. Shane]

The price of oil which is reported is the price of light sweet crude. Many nations, like Mexico and Venezuela have oil that is much darker and heavier so it sells for less money because it costs more to refine and yields less gasoline. Light means it low density and sweet means it has less surfer. Light sweet is the best.

As the price of oil increases more and more heavy, sour oil is being sold on the market. Venezuela, Mexico, Iran, Canada and Alaska are all major producers of this heavy, sour crude - although they also produce light, sweet oil. When the price of oil was under $50/barrel, the heavy sour oil cost more to get it out of the ground than it could be sold for. So with the price above $50/barrel we have a much larger supply of oil simply because of all the heavy sour crude that can be profitably pumped out and refined.

[jasd]

>>So with the price above $50/barrel we have a much larger supply of oil simply because of all the heavy sour crude that can be profitably pumped out and refined.<<

By and large, a pretty good assessment. However, we might bear in mind a coupla things: refinery capacity (a minor fire in a Houston refinery and the price of gas reflects it) and the price of crude oil futures on commodity exchanges, which in turn is reflected in market prices. Moreover,

a larger supply of oil is insufficient, witness: our Prez asks the Saudis to pump more oil. (the price of crude represents 70% of the pump price)

[Dr. Shane]

Absolutely. This isn't a supply and demand problem. When the President asked the Saudis to pump more (and they agreed to) they pointed out that the world is already pumping more oil than it is using. Eventually things will settle down and the price of oil will fall. We don't know how far. The price between $55/barrel and $75/barrel is a good place but it could fall below $50/barrel.

[Neil D]

Wait....

You're saying that there is too much oil on the market NOW?

Where is this information coming from???

[Dr. Shane]

I read it in the news. That is exactly what the Saudis told Bush. They increased production as a political favor, not because the market requires it. However speculation is high because the increase in demand is growing at such a pace there are real fears that production will not be able to keep up with demand. The increase in price should actually curb consumption which would prevent the short-fall.

[Amelia]

As I understood things, it wasn't so much as an oil shortage as it was a refining problem. There is oil out there but with the USA having few refineries, they aren't keeping up with the demand and thus the higher prices at the pump.

But my information could just be diddly. teehe

[olger]

If I was president, I would.

1) Drill in Anwar. Move equipment into the area and begin drilling no later than March 09.

2) Remove restrictions for drilling off of our coast. Limit the sight of an off shore oil platform to one from a 6' line of sight on shore.

3) Authorize the construction of 10 new refineries. Keep the EPA out of the decision altogether, and require the refineries to conform to Ethanol Plant guideleines (which are reasonable).

4) Build 10 new nuclear power plants and allow the states to bid on them.

Honorable mention) I would terminate 40% of the EPA. Terminate? What do you mean by that? I would fire them, and turn their building into something more useful (like laser tag).

These four initiatives would create a wave of optimism in Americans. It woldn't solve our problems overnight of course but it would shine a big light at the end of a shortened tunnel. The economy and the stock market would flourish as common sense flooded back into our lives.

regards,

oG

[Dr. Shane]

Just authorizing the drilling for oil in Anwar and off shore would curb a lot of the speculation out there. I think too much is made of the refinery issue. Saying we haven't built a refinery in many years is only half true. We have added on to many existing ones. A company I worked for a few years ago did a lot of refinery work in Houston.

Electrical is the promise of the future. Batteries need to become more reasonably priced, which mass production should do. The air-car also shows a lot of promise. Trains need to make a big come back. A lot more of our freight can be moved by train and trains are already electric (although fed by diesel generators). We need more forms of clean electrical generation like wind and solar and these need to be backed up with nuclear. I think that is the long term.

Short term is drilling in more places and converting coal to oil.

[Amelia]

Oregon has been building wind farms like crazy and has more planned. Our state has quite a few green options for energy. The only problem is the green energy costs more than basic energy.

This is a map of all the diverse types of natural energy projects in the northwest.

[Neil D]

Waves can generate electricity as well, and there is a project going on in Reedsport in an attempt to generate enough electrity to power the city without disrupting the fishing, and what few commercial fishermen we have here.

[Dr. Shane]

The problem with "green" electricity is that it is not reliable enough to be the sole source to feed a power grid. The technology is expensive because it is new. That is why I say it is our long-term solution. Our short term solution is drilling for more oil and converting coal to oil.