Posted on 01/08/2015 11:18:42 PM PST by Citizen Zed
Four things are now affecting the picture. Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Second, turmoil in Iraq and Libya—two big oil producers with nearly 4m barrels a day combined—has not affected their output. The market is more sanguine about geopolitical risk. Thirdly, America has become the world’s largest oil producer. Though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.
(Excerpt) Read more at economist.com ...
I thought we had become a net exporter of refined petroleum products.
Number one’s a huge part of what’s going on. So is the US contribution to supply. It’s just plain silly to think it’s “all” number 4 as if nothing else matters.
I think it’s also possible that the oil companies have been over producing for so many years, because the price was so high, that they have backlogged a huge surplus of oil that they just can’t keep off the market any longer. There are only so many places that you can hide the stuff.
I think we are, but not crude oil
The oil still has to be transported and refined and sent to market. The US has the best refine/transport system. Yeah, Saudis make a bigger profit
but US producers still make something and they supply a local market as we can’t export.
I get Conoco from Montana so it is all local stuff. We even have no ethanol 90 for the price of premium. Small engines last longer.
I think a decision was made to stop the soviet union from invading its neighbors by economically strangling them with cheap oil.
I no conspiracy theory stuff
Any way you look at it the Saudis are in control I guess. Always have been too.
Don’t forget about the value of the Dollar. A healthy robust Dollar makes for much more buying power, especially with a commodity that has historically been traded for Dollars. One our currency goes back in the crapper, oil prices will go back up.
What’s odd about current oil prices is how speculators have curtailed their knack for artificially bidding up prices every time a camel barfs in the desert.
This won’t last long too many powerful people and governments stand to lose with low oil prices. Someone will eventually do something desperate and then up it will go. Or the Fed will start back up with its money printing schemes and that will debase our money again.
I’d gladly pay that. It’s not even available near me due to EPA regs.
I have a station about 15 miles from me. Ethanol free 87 is about $0.50 more per gallon. You would think there would be more available for folks who are willing to pay for it.
My theory, which is my own, is based on the inelasticity of demand for gasoline. This is the same reason for the “oil shock” of the seventies. Inelastic demand means that people buy as much gas as they need, irrespective of price, within a certain range, of course. In the seventies, demand began to outstrip supply, and the price rose in response, but to no effect, as people just ponied up for their gas fix. This led to de facto rationing by the gas stations, which ran out of gas.
Now the same rule ( inelasticity ) is applying in the opposite direction. Demand has moderated, and the supply has outstripped consumption. But reduction in price has not increased consumption, since people aren’t going to fill up more often just because gas is cheap.
As far as I’m concerned, this is the whole story.
“There are only so many places that you can hide the stuff.”
I’m a producer and I’m interested in why anybody would think I would shut down my income just to sit on oil, my bills come in every month just like everybody’s. And as far as hiding it good luck! There are state agencies that keep track of every barrel produced, states receive a severance tax on every barrel produced. Trying to hide oil is a good way to go to jail and shut down your business. We make no money by sitting on oil.
I have to imagine the fact that we have less people actually working now than 40 years ago would play a role in demand, affecting pricing. Less commuting/utilization of transportation for productivity purposes.
“What’s odd about current oil prices is how speculators have curtailed their knack for artificially bidding up prices every time a camel barfs in the desert.”
How would you like to be the guy who purchased a million barrel of oil at 140 per over in the mid east only to have it’s price drop by 40% before you could get it to port in the US. That has a tendency to knock the feathers out of speculators.
I can’t imagine speculators in newer technologies for extraction are very pleased with the Saudis trying to undercut their ROI right about now. I also can’t imagine that Iran, Russia or venezuela are thinking warm thoughts about them given the death spirals of their economies. Speculators are major concerns for business but the latter are entire regimes. And regimes can retaliate.
“You would think there would be more available for folks who are willing to pay for it.”
Before the gas station near me went belly-up, they sold ethanol free gas. There was a lock on the pump. When I asked why they told me that state law said that the gas could only be put in pre-1988 cars or gas cans. So, they walked out to look at what you were filling and took the lock off.
No one at all, not even Saudi Arabia. They spend far more to produce oil. A recent example:
They spent $17-billion (significant overruns from estimates) on the Manifa project for 900,000 barrels a day.
Offshore in shallow waters, they built 27 man-made drilling islands, 13 platforms, and 15 onshore drillsites. The project includes 41 km of causeways and 3 km of bridges designed to maintain natural water flow in Manifa Bay. They have worked for over half a century trying to figure out a way to economically produce this lower value, high sulfur heavy oil with high metal content.
For the curious, I included a bunch of links for info on this project.
https://www.saudiaramcoworld.com/issue/196006/manifa-oil.field.under.the.sea.htm
http://www.theoildrum.com/node/9056
http://www.oilandgasnewsonline.com/Article/33782/No_plans_to_raise_output_capacity
We do refine more oil than we use and export some surplus products, but we still import ~7 million barrels a day of crude oil.
EIA expects that global liquid fuels supply will continue to outpace consumption, resulting in an average stock build of 0.4 million bbl/d in 2015. Stock builds are expected to be concentrated in the first half of the year, averaging 0.7 million bbl/d during this period. EIA forecasts global liquid fuels supply to average 92.8 million bbl/d in 2015
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