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10 tough questions on oil and gas prices
Joseph A. Davis, Nieman Watchdog (“Questions the Press Should Ask”)
… The climbing world price of oil and the soaring domestic price of gasoline are certainly related, but are actually two very separate phenomena governed by very different sets of causes. First: crude oil.
Crude oil prices
The world price of crude oil in April 2008 went above $120 per barrel. In March of 2007, it was below $60 per barrel.
The oil price can not be simply set by policy – OPEC policy, U.S. policy, oil-state policy, or corporate policy – although it can be influenced somewhat by all of the above. Crude oil and some petroleum products are bought and sold on a fairly free world market, cranky as it is. Also a bit simplistic for an understanding of today’s market is the idea that oil companies are all affiliated with a single state (though in the case of nationalized oil companies, some are). Most big oil companies are multinationals, with scant loyalty to the interests of any single nation, and scant dependence on the wells of any one nation. The idea that U.S. companies can somehow solve our problem by producing more U.S. oil – thus saving us from a “dangerous dependence on foreign oil” – does not reflect the realities of the oil business. …
Twenty or thirty years ago, a rising oil price could be counted on to eventually bring more oil into the market. Not so today. The question is why, and we do not have to search too hard for answers. Here is a short, incomplete checklist of some big ones.
- World demand is rising fast as economic development fuels the economies of emerging nations like China.
- Many of the easy-to-get oil reserves have already been tapped and extensively drained. Bringing more oil online may be more expensive today than 30 years ago, in many countries. We are running out of cheap, accessible oil.
- Military conflict, political instability, and national policy are preventing reserves from getting to market from many more countries than 30 years ago….
- Speculation and currency-market shifts are a huge factor. As the dollar weakens vis-a-vis other currencies, the dollar price of oil goes up regardless of other factors. Oil-rich nations are reconsidering the long tradition of pricing oil in dollars – and this would only make things worse. As stock and real-estate prices tumble, investors seek to put more money into commodities like oil, and the buying pressure drives the oil price up. Pure speculation is also a factor, whether based on real economics or an illusory “bubble.” Speculators may be betting that the world price of oil is headed upward on various timeframes. But they may also be betting that oil futures are a good hedge against geopolitical chaos.
The numbers say one thing clearly: we can not drill our way out of this pickle (which is essentially the oil policy embraced by the White House and some in Congress). We have already pumped and burned most of our U.S. oil. However you count them, U.S. proved and potential reserves are only a small fraction of the reserves left in North America, and an even tinier fraction of the substantial reserves left in nations like Saudi Arabia, Iran, Iraq, Kuwait, United Arab Emirates, Russia, etc.
The problem is not a dangerous U.S. dependence on foreign oil; the problem is a dangerous dependence on oil itself. If the oil price is headed upward permanently, then the best policy answers most likely involve learning to use what there is more efficiently – and diversifying our base of fuels, technologies, and energy sources.
(5 May 2008)
About the author:
Joseph A. Davis has been writing about the environment, energy, and natural resources fror 30 years. During the 1980s, he covered the environment-energy beat on Capitol Hill for CQ Weekly Report.
Skeptics doubt Saudi Arabia can boost oil supply
Jim Landers, Dallas Morning News
Saudi Arabia – The Saudis have had their big show on the Red Sea. Now the oil markets will test the peak oil theory.
A growing number of oil traders believe the kingdom has reached the peak of its oil production capacity and won’t be able to fill your tank in the future. They are buying and selling contracts dating all the way out to 2016, and their expectations are pulling prices toward $140 a barrel.
On Monday, the day after an emergency meeting of oil producers and consuming nations here, oil futures continued their climb, rising $1.38 a barrel to settle at $136.74.
… Houston energy banker Matt Simmons studied hundreds of petroleum engineering papers written over the years about Saudi Arabia’s fields and wrote a book called Twilight in the Desert that argues Ghawar and other Saudi fields are going down.
Senior engineers with Saudi Aramco, the national oil company, debated Mr. Simmons at the Center for Strategic and International Studies two years ago. The Saudis argued that sophisticated technologies such as horizontal drilling of wells branching like trees and three-dimensional seismic imaging have extended the life of older oil fields.
Amin Ali Nasser, senior vice president for production with Saudi Aramco, said Monday that Ghawar has a long life ahead of it yet.
… If the Saudis really want to make their point, they could turn up the valves and turn down the price. Discounts might annoy other OPEC countries, but they would certainly get the attention of oil traders.
(24 June 2008)
Saudis or Speculators? Oil-Price Finger-Pointing Heats Up
Keith Johnson, Environmental Capital (blog), Wall Street Journal
Where to find the answer for expensive oil – Saudi Arabia or Capitol Hill?
When Saudi Arabia rebuffed President Bush’s request for more oil production last month, the reasoning was simple: No customers were asking for more oil, so it clearly wasn’t a supply issue.
So how to read the Kingdom’s decision Sunday not just to juice the wells with a short-term fix of an extra 200,000 barrels a day, but also a multi-billion dollar, long-term plan to produce more oil than Saudi Arabia’s ever produced before?
For many observers, it’s just OPEC’s way of keeping the oil monkey on the world’s back, even if the promises seem flimsy.
(23 June 2008)
China fuel price hike as much politics as policy
Chen Aizhu, Reuters via Guardian
China’s surprise fuel price rise on Friday may look an inevitable domestic measure, but analysts say it also reveals Beijing’s desire to be seen joining world powers in a desperate bid to tame global oil prices.
In a week that began with the resolution of a gas field dispute with Japan and will conclude with China’s vice president at a global oil summit in Jeddah, the unexpected 17-18 percent increase in diesel and gasoline prices could be the most important for Beijing’s international standing.
“It’s reasonable to speculate that China’s fuel price increase hits a few targets, the secondary one being an answer to the U.S. call and a gesture of cooperation with friendly Saudi Arabia,” said Shi Yinhong, professor of international relations at People’s University.
All agree that an increase in domestic fuel prices was inevitable. They had only risen once in the past two years, a 10 percent increase last November.
(20 June 2008)
Oil rebounds after fall on China fuel price hike
Santosh Menon, Reuters
Oil rebounded more than $4 a barrel on Friday in response to views now gaining ground that a fuel price increase by China may actually boost rather than curtail demand for fuel.
… Initial forecasts suggested the move by China, the world’s second-largest oil consumer, would hurt demand, but some analysts now say consumption will rise as the price increase will encourage healthier supply at the pumps.
(20 June 2008)
More from CNN Money: Oil prices climb on Iran, China news.
