Posted on 06/20/2008 8:45:37 AM PDT by Donald Rumsfeld Fan
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The reason oil prices are skyrocketing is not because there isn’t enough oil to satisfy demand right now but because the market expects that significantly more supply is going to be needed in the future to make up for new demand coming online from the developing world. These new oil supplies cannot be economically produced without significantly higher oil prices to make production economical and higher oil prices are also needed for consumers to cut back on their own consumption of oil.
Another important factor is that the production in many oil-exporting nations has been in decline due to under investment in new drilling and infrastructure by state run oil companies. Venezuela and Iran are two countries that fit into this category. Production in Venezuela and Iran is declining due to years of under investment as oil profits have been funneled into social programs designed to keep each country’s ruling party in power. Recent political instability in the Middle East has also contributed to the oil price rise.
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I think the price of oil will never again drop to the levels we have become accustomed to in the last several decades, and while it may decline in the short term, the price of oil will clearly rise over the longer term.
(Excerpt) Read more at seekingalpha.com ...
Shows exaclty why we need to “Drill Here, Drill Now,” to increase domestic supplies.
Oil Prices will drop as they have always, always done. How much of a drop and when is the difficult part.
What I preceive we have seen the last of is much of a drop in gasoline costs. The politicians in D.C. see Americans are willing to pay more at the pump so when oil drops in price, here comes the taxes!!
This would seem rational if there was some linearity to the price increases, there isn't. One would have to conclude that before, say, 2002, people were too stupid to understand that more supply was going to be needed in the future and that the realization that this is true came in some sort of cosmic flash and that this caused the prices to rapidly rise. BS. We have known for a century, or more, that "significantly more supply is going to be needed in the future".
Another important factor is that the production in many oil-exporting nations has been in decline due to under investment in new drilling and infrastructure by state run oil companies
There is considerable over capacity in world markets including large amounts of unused pumping capacity in most ME countries especially Saudi Arabia. In addition, significant knew finds are being made on a regular basis, e.g. Brazil.
The old "supply and demand" explanation just doesn't cut it.
The GOP sent Bill Clinton a bill to drill in the Alaskan National Wildlife Reserve in 1993. HE VETOED IT because it would take 10 years for it to start producing.
Well, FAST FORWARD TO 2008; 15 YEARS. We’d have plenty of oil by now.
THANK YOU BILL CLINTON.
My 2 cents:
Fuel is not in short supply. What is in short supply are future’s contracts. Actual world usage is only responsible for about $60/barrel of the price.
The future delivery of oil is in doubt. This is due mainly to Iran. This has created a lot of speculation by users who have determined that the cost of being without oil is well in excess of $140 bbl.
It is analogous to generators before a hurricane. The price does not shoot up because electricity is in short supply. It shoots up because people fear that there will be an event in the future that will put it in short supply.
Try going out before a hurricane and trying to talk down the price of a generator based on the fact that the supply of electricity is currently plentiful.
Deal with Iran, or negate the Iran problem by opening up more reserves, and the price will come down. Why? Because the future supply of oil will no longer be in doubt.
What’s also interesting is that oil futures even 3 and 4 years out are priced no higher than crude for delivery this week.
Those supplies, e.g. Tupi Fields are not cheap fields. We are past easy oil. Hence the rise in price.
Now Debke is not the best of news sources but they are right on this.
With the completion of this pipeline network, Venezuela and Iran will loose much of their capacity to interrupt oil supply to the world. This is a real fear for Venezuela and Iran as both countries need to keep oil prices high to keep their ineffective governments afloat.
This is also why Iran (and their good buddy Venezuela, which sells the same type of high sulfur oil) is so intent on controlling Syria and the Bakaa Valley. If they loose the Straights of Hormuz to the western pipeline, the only choke point they can use is is the pipeline passing through Syria and the Bakaa Valley to boost oil prices.
This pipeline should be completed within 2 years if the reports are correct.
Supply vs. demand is a non-linear function.
Bump!!!
:Cheap fields are $20-$30/barrel fields. Hard to get at oil is $30-$60/barrel. No oil is worth $140/barrel based on supply and demand. The price of oil has nearly doubled with no increase in demand and an increase in supply. It's a controlled, manipulated market that seeks to get the greatest price based on fear generated by those who gain from the increase in prices.
That’s the best explanation I’ve ever heard and I’ve been following this delima from day one!
Having once lived in Florida for many years, I can say that your analogy is a very accurate one.
So, despite what the Liberal Luddites say, a clear telegraphing of US intent to make a concentrated effort in genuine, long term energy development (not windmills, ethanol and other pipe dreams) would have an effect on futures.
Which I find ironic because it is always Libbies that believe intentions matter. In this case, that would be correct.
For any lib that doesn't believe this ask them the following, "If GM announced that it would begin selling new cars at half the current price in 2012, what affect would it have on the price of cars right now?" If they don't think it would lower the price of new and used cars, then they are brain dead.
BTTT
BTTT Big Time
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