Randi Rhodes nails it on oil supply

[barack the house]

If there was a supply problem America would be queuing round the block for oil. Supply is fine there is a price gouging and speculators problem. The companies profits are soaring and that is where the bulk of the cost is going. Plus even if you buy supply problems Mccain voted against drilling in 2003, no-one should believe a word of McCain by now. Even Malkin admits he is spinning a tale on this one...

http://michellemalkin.com/2008/06/16/mccain-on-offshore-drilling-for-it-before-he-was-against-it-before-he-was-for-it-again/

Obama needs to drum this on supply right round the block.

[bridgit]

1. I don't link to Michelle Malkin, sorry...

But it's good Randi finally nailed something :thumbsup:

[still_one]

2. During the Arab Oil Embargo in 1973 where their was a shortage

cars were in line around the block

I cannot believe that the MSM or Congress for that matter does not even ask that question

[SeattleGirl]

4. I remember that quite clearly.

My dad worked at a gas station, and he would bring us down there in the middle of the night to fill up the cars so we didn't have to wait in line. BUT, we were not allowed any frivolous driving. I had to take the bus to community college. Walk to my friend's houses during the day (the ones who lived nearby), etc. Basically, I could drive to work, because I got off late, and the closest bus stop was nearly a mile from my house. We "cheated" the lines in a way, but as I said, we were not allowed to drive just for the sake of driving.

[still_one]

5. That was a man-made shortage, but still it was a shortage, and nothing

indicates a true shortage now

Later they used odd and even days to fill up ones car based on your license number

[SeattleGirl]

6. Yep.

On both your points.

It was utterly ridiculous. There WAS no shortage, except for the one manufactured by the oil companies.

Bastids.

[Spider Jerusalem]

3. That's overly simplistic

oil production has very probably peaked at a level of around 85 million barrels a day. Demand is at 84-85 million barrels a day; there are no margins for increased production. Surging demand growth from China and India, and the fact that oil is a commodity traded on an open global market, have contributed to spikes in the price. There is some speculative pressure driving oil prices, but the effect of speculation is less than the effect of flat supply combined with rising demand and a weak American dollar. It's not 'price gouging', since international markets set the per-barrel price of oil.

[still_one]

7. Since Phil Graham passed the Enron loophole in 2001 which deregulated

the futures market, gas prices have been increasing

Saudi Arabia says there is more than adequate supply

Speculation is a far greater force then you are painting, and your asertion that it is not price gouging may apply to the service station owner, but it doesn't apply to the oil companies, and the record profits they are experiencing.

If the oil companies were given permission to drill off the coast of the U.S. I would bet that there is no way that the price of oil would drop. When oil was at 75 dollars a barrel, Saudi Arabia was asked to increase production. They did, and the price subsequently went up to 130 bucks a barrel

Demand has dropped, not only here, but also in China and India

Oil companies were given credits to cover the cost to blend oil with ethanol, but instead of making it a neutral effect, they took the credits, and passed on the cost of that blending to the consumer

Soaring oil prices are increasingly the result of speculation, and NOT actual supply shortage

Just the fact that diesel is costing more than gasoline should put up a red flag that something isn't right

[Spider Jerusalem]

8. Of course Saudi Arabia says there's more than adequate supply; it's not in their interests...

to trigger global panic.

I'd like you to do something for me: get the figures for global oil demand in millions of barrels a day (you'll find that I'm correct, and that figure is at about 84-85M bbl). Then get the figures for global oil production in millions of barrels a day (85M bbl). Then try and make a sincere argument that supply isn't a problem.

[Youphemism]

9. Agreed, but this isn't a popular truth...

When the Saudis say, "supply is not a problem" -- given that you want to believe them, it can be viewed as true in the sense that we aren't going to run out of oil tommorrow. There is a supply that will still last a long time.

Pumping capacity is the problem. They're about to increase to pretty much their maximum ability to pump in Saudi Arabia. Everybody else is already at that point.

Given that scenario, and the current demand increase trend, the people who are dealing in oil futures are upping the price. This is not a "bubble." It won't go away, because the demand will only keep increasing. Even if the US does a stellar job of cutting back on consumption, bringing renewable energy resources online, etc... The new demand being created daily in India and China will offset all of our gains within 1-3 years.

This is a much more real problem than the manufactured crisis of the 70s.

[still_one]

12. The trashing of the U.S. dollar and the unregulated speculation in the future market have an effect

also.

The U.S. economy IS slowing. That implies that consumers will also slow in their spending, which will have an effect on Asia consumption, and should cause a decrease in the price of energy

[Youphemism]

15. Good points, but...

If it were only the trashing of the dollar, then oil would only be expensive in countries based on the dollar. This is not the case. The low dollar doesn't help, but it's not the cause, nor is it a large factor. Oil prices in non-dollar based countries have gone up proportionally.

Regarding unregulated, speculation, there is no cure for that. And I'm no fan of speculators. But as was pointed out, we are approaching maximum pumping capacity, at a time when more and more people are demanding more and more oil. That is a *real* thing these speculators are responding to.

The US economy, and many other economies are slowing -- another good point. You're right, this will slow down oil consumption.

But remember where most of the people in the world are: India and China... Those two countries export more to the US than they import, so they aren't going to be hit as hard, and they are in a massive industrialization cycle.

India and China's growing oil consumption threaten to offset our reduced consumption.

That doesn't mean that we're helpless to do anything about it. But anything we do takes a long time to take effect, so it won't be easy, and we need to do something.

We're all collectively drinking from a hose right now... The shortage is not (yet) in the lake -- it's the bottleneck created by the hose itself.

[still_one]

11. I agree demand has increased, but not enough to account for the price increase

I believe the trashing of our dollar along with the unregulated futures market have had quite a significant effect to the price increase

http://dallasfed.org/research/eclett/2008/el0805.html

[hokies4ever]

10. Oil production hasn't peaked

Saudi Arabia just increased its production last week. OPEC meets to determine how much oil to produce. They could produce more if they want, but that might cut into their profit margins. Even the oil refineries in the USA only operate at about 85% of maximum output.

Also, do you REALLY think that a barrel of oil increased from $30 to $140 just because of supply and demand? Did world demand really increase by 4-fold over the last few years? As fast as China is growing, its growth rate never exceeds about 10% per year. The 4-fold increase in oil barrel prices aren't accounted for by supply and demand.

[still_one]

13. A huge effect in the price increase was due to the trashing of the U.S. dollar

and speculation in an essentially unregulated futures market

Of course the invasion of Iraq, and destabilization of the entire region has also led to increased speculation

[Spider Jerusalem]

14. GLOBAL production probably HAS peaked.

Record net output is 85.5M bbl/day; this level was reached in summer of 2005, and has not been equalled or exceeded. The fact that Saudi Arabia may be able to increase their output by a few hundred thousand barrels doesn't alter this basic fact, not when you factor in decline rates in the North Sea, Mexico, Alaska North Slope, etc.

Do YOU really think that there is a direct relationship between supply and demand when talking about a limited resource that's traded on a global market? There doesn't HAVE to be a fourfold increase in demand for there to be a fourfold increase in price. Tighter supply thanks to increasing global demand, and demand competition for a limited resource on the global market, DOES account for a significant part of the price increase. (Here's a graph showing where a significant portion of that demand increase comes from, below:)

[hokies4ever]

16. You're pretending like oil companies aren't trying to make a profit

if that's true, then your analysis holds. Unfortunately, you're wrong. Have you heard of OPEC? They meet to determine how much oil to produce. Many countries, especially in OPEC, are sitting on vast amounts of untapped oil. Right now we're even having a political debate about offshore oil drilling. Oil production has NOT maxed out, it's just not very profitable right now to drill a lot more of it. OPEC could increase their oil production if they wanted to, but that would decrease the price.

[Spider Jerusalem]

17. Oil companies are going to make a profit regardless.

And the production capacity is NOT THERE. There are infrastructure limitations to how much oil can be produced. The maximum capacity of Saudi Arabia, for instance, is estimated at about 9.2 million barrels a day. They WERE at 8.8 million; an increase of 300K puts them close to capacity. And I say again, global output has not reached the high of the summer of 2005; production has remained flat despite continued demand growth. It makes no sense for oil-producing nations, particularly OPEC countries, to NOT increase output; razor-thin supply margins are not a good thing, because of the lack of excess capacity to meet increasing demand (which is, by the way, projected to rise above current supply levels over the next year or two). Even assuming that there were 'vast amounts of untapped oil' (which is not a safe assumption; global oilfield discovery peaked more than twenty years ago), it takes five years for a new field to come online, from discovery to production. The rate of decline in production in the North Sea is 7% per annum; in the Cantarell field in Mexico (the largest oilfield outside of Saudi Arabia) is approximately 14% per annum. Given the cumulative loss of output due to oilfield decline, any new production put onstream NOW would not increase the total global output; it would only replace losses due to that decline. At this point, there's a growing consensus among petroleum geologists and major players in the oil industry that we have, in fact, reached peak oil--see this, for instance: http://uk.reuters.com/article/ousiv/idUKN1734058420080617

[hokies4ever]

18. "Production has peaked" is not the same as "no more production capacity"

For example, this election we'll have a say as to whether or not we want a lot more offshore oil drilling in the USA. Production of oil in the USA will be the same next year as it is this year, but we do have the option to invest in more capital equipment to drill more oil. If we wanted to, we could just say 'screw off' to the polar bears and start government subsidies to drill all along the arctic shelf. There is more production capacity out there that could be exploited.

[Spider Jerusalem]

19. And more production capacity being exploited...

will only serve to marginally offset declines in output, because of the five-year lag between initial exploration and drilling and production. It won't fundamentally alter the basic situation.

[hokies4ever]

20. If oil production can be greater five years from now

then by definition it hasn't peaked.

[Spider Jerusalem]

21. Oil production probably won't be greater five years from now.

You apparently aren't paying attention to the data I provided about decline rates fro major oilfields, for one thing. Given those rates of decline, and the net effect of that decline on cumulative output, any new production would have to not only replace the losses (which are not insignifacant) but exceed them in order for cumulative production to exceed current levels. And US domestic production peaked in 1970, at about 11 million barrels a day. Current US production is at about 5 million barrels a day. An increase in US domestic production above current levels would still leave output below peak levels.

[hokies4ever]

23. I was addressing your '5 year lag' comment

Also, see the other reply I left linking to an article posted on DU

[hokies4ever]

22. Congress finds Big Oil holding back fields that could DOUBLE US output

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x3472049

'Nuff said. Oil production is where it is because that's where the oil companies and OPEC want it to be at.

[Spider Jerusalem]

24. That's arrant nonsense.

Claiming production COULD increase by 4.8 million barrels a day is silly. Is there a geological estimate of the reserves of those fields? Of the P50 (50% probablility) reserve levels? Of the estimated production capacity? And what of the infrastructure? There are over 1100 active drilling rigs in the continental US; all of the equipment that the oil companies have for drilling, exploration, etc, is already in use. Whence comes the added drilling rig capacity and manpower to exploit these supposedly rich fields? And if the oil companies, after geological surveys, actually thought these fields had the prospects that some pandering Congressman playing to public fear by posturing and saying 'oil companies aren't drilling enough' (because it's a political LOSER to tell people there are supply constraints and they need to change their wasteful lifestyles, after all), why are they not already drilling there?

[hokies4ever]

25. The main point isn't how much oil COULD increase

obviously that involves some guesswork. The main point is that production is determined by the oil companies and their profit margins. Why are they only operating at 85% of maximum capacity?

[Spider Jerusalem]

26. You're talking about refineries now, not crude output.

Those are unrelated factors, and given that the price of oil is set on world markets, increased domestic refinery output wouldn't do much to move the per-gallon price of gasoline.