Fossil Fuels

Spare capacity theory

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In truth, the spare capacity that the world cares about — that the oil futures market cares about — is not the inventory level. But rather, actual production capacity that can be brought on immediately. You can see the problem, from a price standpoint. If the world loses Libya’s 1.5 mbpd production for 90-120 days, and starts drawing down above-ground inventories, this only makes the inventory cushion that much thinner for any new supply disruptions. The question on the mind of the oil market therefore is not Mr. Fyfe’s 1.6 billion barrels of crude, but whether countries like Kuwait, the U.A.E. and especially Saudi Arabia or even Russia can lift supply. Immediately.

The peak oil crisis: inflection point?

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Add the loss of all or a major portion of Libyan oil production for an unknown period and the likely more-than-forecasted increase in Chinese demand, to the possibility that the Saudis will never produce much more than 10 million b/d, and the world is in for some real problems. To avoid shortages, the price of oil will be moving significantly higher.

Where the demonstrators wave black flags: Algeria, Part 1

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As elsewhere in the region, the main foreign powers involved — France, Spain, and the US — don’t seem to care much as long as the oil and gas flows, the country implements World Bank/IMF structural adjustment programs to modernize the oil industry to increase output, and their ‘strategic interests’ are protected. As long as these things happen, the country can go to hell in a hand basket – as it has. None of them have lifted a finger in protest to government practices and corruption.

Why Saudi is now in play

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Oil prices are going through the roof today, and gasoline prices at the pump will follow, as we get the first regime-rattling news in a major oil-producing state. What’s happening is that the sketchy news out of Libya makes the country look like it’s on fire – Col. Muammar Qaddafi may be spending his last days in power. And even though no oil supplies have been disrupted, traders are engaging in some casino behavior and bidding up prices to new two-year highs.

How markets may respond to resource scarcity: The Goldilocks syndrome

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The standard economic assumption is that, as a resource becomes scarce, prices will rise until some other resource that can fill the same need becomes cheaper by comparison. What really happens, when there is no ready substitute, can perhaps best be explained with the help of a little recent history and an old children’s story.

Egypt, a classic case of rapid net-export decline and a look at global net exports

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Consider the first 15 minutes after the Titanic hit the iceberg versus the last 15 minutes before the ship sank. In the first 15 minutes, only a handful of people knew that ship would sink, but that did not mean that the ship was not sinking. In the last 15 minutes, it was readily apparent to everyone that the ship was sinking, but by then it was far too late to try to get to a lifeboat.