Ready for $262/barrel oil?

yahoo ^ | 1-27-06

[LouAvul]

DAVOS, Switzerland (FORTUNE) - Be afraid. Be very afraid.

That's the message from two of the world's most successful investors on the topic of high oil prices. One of them, Hermitage Capital's Bill Browder, has outlined six scenarios that could take oil up to a downright terrifying $262 a barrel.

The other, billionaire investor George Soros, wouldn't make any specific predictions about prices. But as a legendary commodities player, it's worth paying heed to the words of the man who once took on the Bank of England -- and won. "I'm very worried about the supply-demand balance, which is very tight," Soros says.

"U.S. power and influence has declined precipitously because of Iraq and the war on terror and that creates an incentive for anyone who wants to make trouble to go ahead and make it." As an example, Soros pointed to the regime in Iran, which is heading towards a confrontation with the West over its nuclear power program and doesn't show any signs of compromising. "Iran is on a collision course and I have a difficulty seeing how such a collision can be avoided," he says.

Another emboldened troublemaker is Russian president Vladimir Putin, Soros said, citing Putin's recent decision to briefly shut the supply of natural gas to Ukraine. The only bit of optimism Soros could offer was that the next 12 months would be most dangerous in terms of any price shocks, because beginning in 2007 he predicts new oil supplies will come online.

[thackney]

"What's needed is a tariff on imported oil, to permanently change the economics in favor of domestic production"

I agree. IMHO we need a $15-20 per barrel oil import fee.

Oh yes, that would really help what manufacturing we have left stay in the country. Can you honestly believe this could help? How about drilling ANWR and OCS and using the royalty payments to fund development of new energy sources, including shale oil.

[Sunnyflorida]

"IMHO we need a $15-20 per barrel oil import fee. "

You really, seriously need to study economics. Your proposal is nutts - with all due respect.

Putting a tariff (TAX) on any oil would just raise the price of ALL oil consumed in the US including domestic produced. Oil is completely fungible. The price of ALL oil in the US would try to go up by the exact amount of the tax and then it would hit the price curve and come down a BIT as marginal demand would be reduced due to a slowing economy. But price would DEFINITELY be up, it would NOT come down to pre-tax levels. Foreign countries would benefit from marginally cheaper oil prices (up to $15-20). I must repeat taxing OIL will send it up. There is NO doubt about it. We would no longer be competitive to the extent that our cost of production would go up. It is not just OPEC that is setting price. So is the Congress of these United States.

Plus, no way could you police this. A barrel of oil does not have a VIN. It all goes into a giant market. Canada would just buy it without the tariff and re-sell it to us AT THE HIGHER PRICE. XOM could do the same. Buy it from the Saudis and trans-ship it.

This is really a hair brained idea. Something I would expect from a Democrat.

[WOSG]

I was going to write a detailed response and starting doing research to back it up, but I found this, and I'll leave it at that:

http://www.menafn.com/qn_news_story_s.asp?StoryId=123321

"A new report by the Energy Information Administration (EIA) of the US Department of Energy, showed that the Middle East's proven oil reserves have surged by nearly 68 billion barrels over the past five years although the region has pumped in excess of 35 billion barrels to the global market, Khaleej Times reported.

The report showed that recoverable crude oil resources in the Arab region and Iran peaked at nearly 743.1 billion barrels by the beginning of 2006 compared with 675.6 billion barrels at the end of 2000."


If you are going to disbelieve ME proven reserve numbers, let alone recognize that these are lower bounds on oil resources, then there is really not much more to say.

This curve has not been disproven by your various points:

http://www.iea.org/textbase/nptable/Oil%20cost%20curve,%20alternative%20presentation.pdf


We keep pumping oil, and yet proven reserves numbers *and* overall production rates keep going up. It take a lot of 'fuzzy math' to turn this reality into an imminent 'peak'. It simply is NOT happening - not yet, anyway.
Not with 10 million barrels of capacity in a few years coming on stream.


you say ... "If we are about "one third of the way through", the peak maybe only 15 years out as there is a general belief that demand is growing."

maybe so. at 100 million barrels a day, which the world might hit in 10 years, we are chewing through 36billion barrels a year. It is more than likely that 'peak' will look like a plateau, which will turn into a phase-in of a post-oil- energy complex.

PS. " I think I explained to you Matt Simmons rationale for the potential collapse in production in Ghawar. "
I havent touched that one, but I've read plenty of retorts to his analysis. Simmons' theory is dismissed by the ARAMCO and Saudi folks running these fields.

[Sunnyflorida]

Mr. Jack, Are you saying $250 worth of wood is providing the same heat as $1200 worth of oil? That is pretty impressive savings.

I was not suggesting trading options. Last year when oil started to go up I just looked at how much gas I was using and figured to buy some XOM to hedge out of my IRA. Worked too good. When we got the recent dip I was hoping for higher prices. We do not use a heater down here. It gets cool at night but warm during the day.

Hard work always works. Good luck with your wife's business. That is exciting. Most people that work for themselves tend to work longer and harder. But once you do it, it is hard to go back.

[WOSG]

"What's needed is a tariff on imported oil, to permanently change the economics in favor of domestic production"

"I agree. IMHO we need a $15-20 per barrel oil import fee."

"Oh yes, that would really help what manufacturing we have left stay in the country."

Surely ... As I said, I favor moving taxation from production to consumption, and this is a part of that. Higher oil tariffs matched with lower taxes on manufacturing (payrolls and income taxes) is a net plus.

The manufacturing would and should not be on oil energy but be on electricity generated via nuclear power, renewables or coal. Nuclear power can get down to 4 cents/KWh wholesale, while there is little use of oil in industrial, and what little there is should be shifted.

Oil will hit transportation and consumer. They will and can change behavior to have more fuel efficiency - which is a *goal* of such taxation - so that we have lower fuel imports. The point being - reducing our oil dependency reducing our trade deficit, reduces our political and economic dependencies and helps build us up to a post-oil energy complex, which is needed anyway.


"Can you honestly believe this could help?"

Can you honestly believe that are current payment of $200 billion to unstable oil-owning Governments is a good thing?
Can you honestly say that we should do nothing to stop this drain on our economy, a drain that has political conseqences in building up Chavez, crazy Mullahs, and terrorist-coddline and financing nations?

" How about drilling ANWR and OCS and using the royalty payments to fund development of new energy sources, including shale oil."

I am in favor of all of the above. But of course an oil tariff is the #1 way to encourage and incentivize domestic production.

Shale oil *requires* an oil tariff to be a practical long-term solution because its cost of development will not be incurred up-front unless there is clearly a price point that can sustain it. In other words, shale wont happen until the player know that OPEC wont just flood the market and knock shale back out of the game with $20 /barrel oil.

(Dont be surprised, oil was under $20 7 years ago, it could be there again sometime.)

[fallujah-nuker]

Subsidizing the oil exports of the Mideast punishes domestic producers of oil and prevents development of a synthetic oil industry. A tariff would make sure that oil imports pay their own way instead of taking a free ride on the back of the US taxpayer.

[SunkenCiv]

"U.S. power and influence has declined precipitously because of Iraq and the war on terror and that creates an incentive for anyone who wants to make trouble to go ahead and make it." As an example, Soros pointed to the regime in Iran, which is heading towards a confrontation with the West over its nuclear power program and doesn't show any signs of compromising. "Iran is on a collision course and I have a difficulty seeing how such a collision can be avoided," he says.

s/b, "George Soros is a war criminal and belongs in a noose."

In related news, Al Gore blamed the defeat of the corrupt Liberals in Canada on Big Oil.

[Sunnyflorida]

You are right about one thing, a tariff will discourage consumption all right but only in the US.

The economy will suffer. There is no way around it.

Energy independence does not mean no imports it means dictating the terms of import. To get there we do not need to replace ALL imported oil. We only need to have control over the marginal supply futures. I was watching the oil markets tick-by-tick during Katrina. You can see the news in the ticks. When Bush announced freeing a tiny amount of world consumption from the strategic reserves global prices reacted out of proportion.

I do agree to build nukes, and drill. Number #2 is not necessary to encourage domestic production. Getting a new Congress would do that.

A tariff would only benefit the ME because prices would go up.

Plus I worry that any decrease in consumption could retard our efforts to stave of global cooling.

[SunkenCiv]

related topics:

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The oil sands of Alberta
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one of several similar:

Oil for Missiles. Our friends the Saudis make friends with the Chinese.
opinionjournal.com | 01/25/2006 | Richard L. Russell
Posted on 01/25/2006 4:00:04 AM PST by peyton randolph
http://www.freerepublic.com/focus/f-news/1564530/posts

[SunkenCiv]

Soros on FreeRepublic

[Sunnyflorida]

This chart seems to suggest that the amount of ME oil available at $15 and $80 is identical. That is highy suspicious. I don't buy it.

[WOSG]

1) "Putting a tariff (TAX) on any oil would just raise the price of ALL oil consumed in the US including domestic produced. Oil is completely fungible. The price of ALL oil in the US would try to go up by the exact amount of the tax"
"But price would DEFINITELY be up, it would NOT come down to pre-tax levels."

... I never said otherwise. Oil is priced higher domestically. My point is that I WANT THAT.
I WANT us to have high-price oil and gas so we stop using it from the oil dictatorship. Result: More conservation, use of alternatives like nuclear energy, and inducements to domestic oil and gas supply. Final result: Energy independence.

A tariff on oil imports is the only way to actually acheive energy independence. We have wasted billions on subsidies of hare-brained ideas, but people keep using gas because it is there, the cheapest answer. We are better off taxing oil to the rate that it really costs us - economically and politically.

2) "We would no longer be competitive to the extent that our cost of production would go up."

This is a silly comment as it assumes that cheap oil is a pre-requisite for 'competitiveness'. Hardly. There are other forms of energy and the taxation on oil doesnt impact those, in fact it shifts the benefit to using them. For example aluminum remains as competitive, keyed off the electricity price as key determinant. That price can and would be based on nuclear, coal and NG. Further, oil is less than 1.5% of the economy. When you have something like jet fuel or gasoline now at $1.88/gal wholesale pretax, a $15 oil import fee is imposing about 35 cents on that; prices have fluctuated even more than that in 2005, so this is not a hardship that is unusual.

An economist will tell you the marginal impact ... but then back out that $20 billion tax CUT we can give to other
sectors of the economy, and it would net out a plus, because the manufacturer getting less revenue is now ... a foreign oil exporter.

This will certainly have an impact of lower oil consumption.
That is what is intended. the result will be less money being sent overseas to oil dictatorships.

3)" It is not just OPEC that is setting price. So is the Congress of these United States."

Yes, but we do this ALREADY via many other taxes, including gas taxes, income, payroll, etc. taxes. These taxes are more onerous on domestic production BY FAR than an oil tariff would be.

4) "Plus, no way could you police this. A barrel of oil does not have a VIN." Shocking statement since gas is taxed in all 50 states.

"It all goes into a giant market. Canada would just buy it without the tariff and re-sell it to us AT THE HIGHER PRICE. XOM could do the same. Buy it from the Saudis and trans-ship it."

Completely invalid point. It's not a hard concept or impractical ideal to tax oil that shows up at the ports where oil is shipped in. We'd have to deal with Canada
So the whole concept of tariffs as a whole is 'hare-brained' now. Ahem, the US basically funded the US Federal Govt for 100 years solely on tariffs,

5) "This is really a hair brained idea. Something I would expect from a Democrat."
Well, Lieberman did suggest a 50 cent gas tax.
But I'm not the only Republican woken up to a need and desire to end our dependence on foreign oil.
The events of 2005 showed us that we can suffer from high gas prices anyway. So let's bite the bullet. Tax oil imports and keep our $$$ at home.

[SunkenCiv]

Wholeheartedly agree! A tax (say, $10 a barrel) on both imports and exports of petroleum would encourage domestic exploration and development of other sources and transportation technologies, and in the long run increase worldwide supply, destroy the OPEC cartel; meanwhile, domestic prices would stabilize, which is important to keep maintain productivity, a necessity for job creation.

[fallujah-nuker]

Beyond that, the economic harm of sending $200 billion overseas each year needs to be considered. Oil dependency is making America a weaker nation politically and economically, and our military costs to preserve mideast oil flow is just a part of the price we are paying.

And they claim we are "stealing" their oil.

[WOSG]

"Subsidizing the oil exports of the Mideast punishes domestic producers of oil and prevents development of a synthetic oil industry. A tariff would make sure that oil imports pay their own way instead of taking a free ride on the back of the US taxpayer."

I like your way of putting it.

Until the Saudis send us $20-40 billion a year for our military services supporting their #1 export business, I'd like to see us get that $20-40 billion back via an oil import fee.

[WOSG]

"This chart seems to suggest that the amount of ME oil available at $15 and $80 is identical. That is highy suspicious. I don't buy it."

All their (conventional) oil can be extracted at $15 or less is the point.

As we can see by recent prices ... they are happy to sell it at any price higher as well.

[Sunnyflorida]

Holy Cow Batman. A tariff IS a tax. and it will be the US taxpayer paying it. Think about this:if you further wanted to whack the economy of say, France, how would you do it? You'd encourage them to TAX energy. An attempt to place a tax on imported oil would effectively be applied to ALL oil consumed in the US.

Oil is fungible you CANNOT tax just ME oil. Can't be done. Putting a US tax on oil would subsidize the REST OF THE WORLD. Don't you get it?

Not that I would mind because I can afford it and I own some XOM. But for the moderate income it would be a killer. I seriously hope the Dems propose this.

You are correct, If you tax oil enough, you will drive up prices making people boil their cats and dogs for it.

[fallujah-nuker]

Until the Saudis send us $20-40 billion a year for our military services supporting their #1 export business, I'd like to see us get that $20-40 billion back via an oil import fee.

If spent that much on ethanol subsidies in the Midwest the "free market" guys would have a conniption fit, but they don't bat an eye about such sums to subsidize Mideast oil exports.

[Sunnyflorida]

Look OPEC gets stronger if we raise prices of oil. the easiest way to do that is through taxes. the way to screw opec is through increases in domestic production. We do not have to replace very much. Just find the marginal amount and Katrina indicated the price is on a knife edge.

We need to drive prices down not up. Reduce the regulations. Build nukes. Explore, explore, explore.

We export because it is more efficient. Efficiency keeps prices down.

I have to say that if you want prices higher and US tax payers subsidizing the world you have found an ideal tool. A tariff helps opec. because world prices will go up. US consumers will pay the bills.

[fallujah-nuker]

Oil is fungible you CANNOT tax just ME oil. Can't be done. Putting a US tax on oil would subsidize the REST OF THE WORLD. Don't you get it?

I did not say tariff Mideast oil imports, I said ALL oil imports for just the reason you stated, "oil is fungible." BTW a $15 per bbl tariff works out to about 27.5 cents per gallon so I think your concern for Fido ending up in the gas tank is a little melodramatic. The tariff would reduce oil imports and depress the world oil price, including that for oil exported to the US. Revenue to the governments of Iran and Venezuela would go down, revenues to the US government would go up. Couldn't happen to nicer people if you ask me.