The oil surplus - where did it come from?

[FloridaPat]

For months all we've heard is Bush is going to ask the Saudis to increase output. They were asked sometime last year and upped the sour oil, becasue they couldn't eek out anymore sweet. So the Saudi king flew over here to discuss the increase in output - and all of a sudden there is no shortage! There is actually tons of oil everywhere! The problem is - not enough refineries!

Now, you mean to tell me the people running the USA are so inept they can't figure out whether there is a shortage or tons of oil? The entire oil industry can't tell the difference??? What happened in Texas that they discovered this missing oil???

Or, are they lying to us?

[Teaser]

1. What do you mean?

Oil has been on an upward trend because of the belief that in the near future supply won't meet demand. Nothing has changed that fundamental belief in the market. However, in the last week we socked away a little more oil than had been anticipated by the market, hence today's price declines. But the near term possibility of shortages remain, which is why oil will stay in the 50+ range for some time yet.

[Psephos]

2. Actually, there's not a big surplus of oil

The world is using pretty much all the oil that's being produced currently. India and China in particular are using far more than in the past. As the economic cycle cools off, that will drop a bit, and ease the marginal price swings we've been experiencing. But of course, that means less economic activity, i.e., less jobs.

The Saudis can up their output some, but it is going to take a long time. They have to build more infrastructure. I imagine they rather like getting $50 for a barrel, too, which means the incentives are not in our favor.

The refinery shortage in the U.S. has been a problem for a long time. No new refineries have been built for over 30 years, due in part to NIMBY syndrome.

Check out US refinery utilization here:

http://www.eia.doe.gov/oil_gas/petroleum/info_glance/refineryops.html

US refineries are running around 92-94% of capacity. That is extremely close to full utilization, leaving almost no margin for problems. Remember also that there are bulges and distortions in the distribution system. Refineries can not ship with equal efficiency to every market.

No supply system (whether it is energy, agriculture, or what have you) can run near its theoretical maximums for long before there is trouble. Unforeseen problems are part of life. Without reserve capacity, we've been begging for trouble. Any disruption spells big price spikes.

Peace.


EDIT: fixed a typo, and rewrote a paragraph to increase clarity.

[norml]

3. "Or, are they lying to us?" Yes they are. Link to one of my oil threads...

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=104x3545478

[Nederland]

5. Finally

Somone else who gets it.

OPEC nations have every reason to lie to us about how much oil they have. They love $50 a barrel oil and have absolutely every incentive to make it seem that supply is shorter than it is.

[global1]

4. Professional Birth Control.....

why spend money to build infrastructure to increase oil output or refinery output just to have to sell oil cheaply. Keep the supply down - keep the price per barrel up. Wait till it really hurts the American Public, the Politicians, etc - so that they give the money to the oil companies to increase output. Why should they spend the money. Keep the obscene profits up.
Do you think it is a good time to put some money into oil stocks?