Help Me Understand The Price Of Oil

[PhilHarries]

I hate all this complaining about oil prices ... this problem will solve itself ! in fact, that's what's actually happening right now ... the free market works ! too much consumption -> prices go up ... can't be any easier

I might be misinterpreting what you are trying to say but I read it that rising prices curbs demand thus prices fall.

This is certainly true of domestic recreational consumption but there is a level below which it is very difficult for demand to fall. Many years back people were born, schooled, worked, married, lived and died in the same town or county. Once a year the family might take a holiday at the coast, seldom overseas, and the travel would be by public service (bus or train). A lot of the food they ate was also produced locally and the majority within their own country.

Now all that has changed. People think nothing of commuting 100 miles a day, or even more, to and from work. Families take overseas holidays once or twice a year. Much of the food on sale in the supermarkets has been grown the other side of the world. Manufacturing industries are relocating their production facilities to low cost places like India or Viet Nam. Thus, even taking out the recreational holiday travel, there is a lot of transport these days that has become all but essential.

Then we factor in the rising demand of developing countries like India and China and we see that prices would have to dramatically increase before demand fall back. An interesting little twist to this is that the government in India subsidises fuel costs thus the average consumer is shielded against rising costs. However there is now talk of cutting back on this practice as it is costing the country too much money leaving less and less in the coffers for other essentials like health care.

[quiksilva]

All those ENRON traders had to find work elsewhere.

[Ratsima]

Pretty fascinating what different opinions there are. The "Economist" article cited above seems absolutely convinced that speculation in crude oil futures has little or no effect on the price of crude. Others, including OPEC and Big Oil seem convinced otherwise.

[NanLaew]

The 'peak oil' theory is a bust. I have been looking for the stuff for over 30 years and this year I worked in 2 new 'frontier' oil provinces so it's still out there. The comment that 'easy oil' has all been accounted for is spot on and the good thing is the current high prices for the raw commodity makes the newer, harder locations more viable and keeps me in a job. The amazing changes in exploration technology and earth sciences makes the duster that was drilled 20 years ago a gusher tomorrow just by revisiting the old data and looking at it with new tools.

It's mismanagement of the existing resources that can be a problem. The oil fields of Iraq were mismanaged technically during Saddam's rule with the end result that a sizable portion of what could have been recovered is now lost. Iran is one step behind them in screwing up what proven resources they have for the same reason; lack of investment. The former Soviet Union is similarly blighted as it's a cash-cow right now for the new regime but they aren't reinvesting in it enough to maximise what they already have. Unfortunately, the majors like Shell and Exxon haven't covered themselves in glory either putting money back into the ground so to speak.

However, the majors don't account for much in the global scheme of things. The smaller Exploration & Production companies that don't have fleets of tankers or sell you coffee when you pump gas are much more proactive. I worked for one E&P company extensively these past 2 years and they have replaced their proven reserves through exploration by 240%. I think the best a major has done is around 7%.

[Smithson]

The 'peak oil' theory is a bust. I have been looking for the stuff for over 30 years and this year I worked in 2 new 'frontier' oil provinces so it's still out there. The comment that 'easy oil' has all been accounted for is spot on and the good thing is the current high prices for the raw commodity makes the newer, harder locations more viable and keeps me in a job. The amazing changes in exploration technology and earth sciences makes the duster that was drilled 20 years ago a gusher tomorrow just by revisiting the old data and looking at it with new tools.

You don't seem to understand the peak oil theory. It means production will peak and then fall, while demand will continue to rise. Yes, it is still out there, but harder to find, more expensive to drill and lower quality, therefore it will be expensive and unlikely to meet demand.

The largest field ever found was in Suadi, this was back in the 60s or 70s. Since then exploration technology has improved greatly, so it's very possible that no huge finds remain.

I worked for one E&P company extensively these past 2 years and they have replaced their proven reserves through exploration by 240%. I think the best a major has done is around 7%.

This could be misleading. In terms of barrels what amount was the 240% and what was the 7%?

[johna]

I firmly believe that the present high price of oil is the result of OPEC and major oil companies withholding oil from the market, all the excuses we here are simply to distract us from this fact.

[William Osborne]

The 'peak oil' theory is a bust. I have been looking for the stuff for over 30 years and this year I worked in 2 new 'frontier' oil provinces so it's still out there.

I worked for one E&P company extensively these past 2 years and they have replaced their proven reserves through exploration by 240%. I think the best a major has done is around 7%.

i agree with you, its still out there, just couple weeks ago massive find in Brazil, then you got Canadian tar sands with as least 50 years proven reserves. Lots happening offshore West africa and can't they can't build LNG plants fast enough in Oz.

Bush is also trying to push a bill so they can drill offshore US where there are proven reserves which is currently offlimits due to environmently issues (more likely these field were being treated as reserves)

also people are forgetting how crap the dollar is , today $130 barrel of oil is 80 euros whereas 2 years ago 80 euros would be the equivelant as $100

BTW which E&P company are you referring too with reserves of 240%

Edited June 18, 2008 by William Osborne

[AnnyLing]

I firmly believe that the present high price of oil is the result of OPEC and major oil companies withholding oil from the market, all the excuses we here are simply to distract us from this fact.

I believe the earth is flat. Anybody trying to tell me that this is not the case simply wants to distract me from this fact.

[johna]

I firmly believe that the present high price of oil is the result of OPEC and major oil companies withholding oil from the market, all the excuses we here are simply to distract us from this fact.

I believe the earth is flat. Anybody trying to tell me that this is not the case simply wants to distract me from this fact.

Hi AmyLing, you want to know what's happening in this flat earth, just follow the money

[BEENTHEREDONETHAT]

The 'peak oil' theory is a bust. I have been looking for the stuff for over 30 years and this year I worked in 2 new 'frontier' oil provinces so it's still out there.

I worked for one E&P company extensively these past 2 years and they have replaced their proven reserves through exploration by 240%. I think the best a major has done is around 7%.

i agree with you, its still out there, just couple weeks ago massive find in Brazil, then you got Canadian tar sands with as least 50 years proven reserves. Lots happening offshore West africa and can't they can't build LNG plants fast enough in Oz.

Bush is also trying to push a bill so they can drill offshore US where there are proven reserves which is currently offlimits due to environmently issues (more likely these field were being treated as reserves)

also people are forgetting how crap the dollar is , today $130 barrel of oil is 80 euros whereas 2 years ago 80 euros would be the equivelant as $100

BTW which E&P company are you referring too with reserves of 240%

Here is a look at what inflation has done to oil since 1946

http://inflationdata.com/inflation/images/...rices_Chart.htm

[lannarebirth]

Basically, the way it works is, if the line on the chart is moving up, speculators will buy it believing that is the trend. Their buying forces the price higher still. If the line starts moving down they will sell it, which will drive the price down furthur. It's pretty simple.

[meom]

I firmly believe that the present high price of oil is the result of OPEC and major oil companies withholding oil from the market, all the excuses we here are simply to distract us from this fact.

They are not so much withholding oil from the market but from the futures market. The majority of oil is sold on long term contracts but the price is being set by the futures market where not much real physical oil is changing hands.

[dotcom]

I just saw the Iraqi Oil Minister on CNN. He claimed that increasing production will not lower prices as there is already an oversupply of crude on the market, some of which is going in to national reserves. He also claimed that the high prices are the result of speculation in the futures market; speculation which he said is hurting both consumers and producers.

I disagree with this 100%. OPEC are producing flat out. They lie about their capacity. They all cheat and produce as much as possible.The Saudi's lie about their level of production.

They say they are producing 9 million barrels a day. It's probably closer to 5. When they say they are going to increase 200,000 BPD they are lying. They don't have spare capacity.

1 fire offshore Norway. A pipeline bombed in Nigeria. Any incident like this will cause the price of crude oil futures to spike. Then factor in that 2 madmen control a lot of production. Iran's Achmad...wtfever of Iran & Hugo Chavez of Venezuela. These 2 <deleted> always lobby OPEC to cut production & stick it to the west. While sellingg gasoline to their citizens at 25 cents a gallon to maintain their grip on power.

[IMA_FARANG]

I'm sure I have a horribly naive view of how the oil industry works. Here it is:

A big oil company (like Shell) pumps oil out of the ground in a place like Saudi Arabia. Shell pays royalties on this oil. Shell then ships the crude oil to a refinery that they own on a ship that they own and they produce fuel and other petroleum products. Then Shell ships the final products to retail outlets that they own via trucks, ships and pipelines that they own. They sell those products to consumers.

So, where do the futures markets and speculators come in?

Oh, thank you for bringing up this topic, so I can do my rant.

Your mistake is that while a big company like Shell may own the exploration company, that company is only a loose part of a vertical integrated group of companies. So while Shell does indeed ship the oil to it's own refiners, it does not do it for free. In fact it SELLS it's oil to it's own subsidery. The 2nd company is then able to write off what they paid for the oil they recieved as a COST on their taxes. That company then refines it into some oil product, and sells that to another company in the same group of companies. The 3rd company then writes off the oil product they bought, again as a tax loss. This chain extends all the way up to the final company, say a retailer who sells the gasoline (petrol for you Brits) at a filling station. All the way up the chain, from the time it leaves the ground, through transportation, to refining, to sale at the pump, each company in the chain adds cost to the product, writing off what they paid for the for the product they recieved, and adding a cost for whatever they do. The fact that the entire profit chain eventually goes to the umbrella company at the top that owns the entire chain is ignored by those who have a vested interest in keeping oil prices high.

The fact that this is little more than a scam game in which the consumer pays the price for the ultimate cost is not mentioned by the oil companies.

They just call it "Market Capitalisim".

Edited June 18, 2008 by IMA_FARANG

[Jimjim]

as I said before, what is a "speculator"...it does not matter dude. We are at the mercy of these privately owned companies, and that is a better question that what is a speculator.

WHY isn't oil a world commodity since the entire world NEEDS it with the way our fore-fathers set up the current energy systems.

One of the first posts talks all about what speculators are and I believe you should educate yourself in this matter. For being so gung-ho in your position you lack the knowledge needed to discuss the wide issue and thus lose a lot of credibility. Educate yourself more about all the factors involved in the world market and how it affects oil prices before you say more. You're just repeating things you've heard without much understanding.

[meom]

The fact that the entire profit chain eventually goes to the umbrella company at the top that owns the entire chain is ignored by those who have a vested interest in keeping oil prices high.

The fact that this is little more than a scam game in which the consumer pays the price for the ultimate cost is not mentioned by the oil companies.

They just call it "Market Capitalisim".

You forgot to mention the Government that in most countries puts a huge chunk of tax on the end product.

[dotcom]

Well spotted Jim.

The oil majors are pubicly traded companies. Millions of people own these stocks in their retirement plans either knowingly or unknowingly.

The fact of the matter is that Governments (or Families) in the case of the Saudi's OWN inverted commas most of the oil in this world.

How it normally works is this - You (the oil company) pay all the development costs (in places like Angola, Algeria, Nigeria Indonesia) then assuming you hit a reservoir they give you 40% of the production while keeping 60% for themselves. Till the investment is paid off & then it reverts 100% to the host country.

[AnnyLing]

I just saw the Iraqi Oil Minister on CNN. He claimed that increasing production will not lower prices as there is already an oversupply of crude on the market, some of which is going in to national reserves. He also claimed that the high prices are the result of speculation in the futures market; speculation which he said is hurting both consumers and producers.

I disagree with this 100%. OPEC are producing flat out. They lie about their capacity. They all cheat and produce as much as possible.The Saudi's lie about their level of production.

They say they are producing 9 million barrels a day. It's probably closer to 5. When they say they are going to increase 200,000 BPD they are lying. They don't have spare capacity.

1 fire offshore Norway. A pipeline bombed in Nigeria. Any incident like this will cause the price of crude oil futures to spike. Then factor in that 2 madmen control a lot of production. Iran's Achmad...wtfever of Iran & Hugo Chavez of Venezuela.

*****These 2 <deleted> always lobby OPEC to cut production & stick it to the west.*****

While sellingg gasoline to their citizens at 25 cents a gallon to maintain their grip on power.

Does that mean if a businessman tries to sell his product for the best price he is an asshol_e?

[dotcom]

Those 2 dictators are <deleted>. They aren't businessmen.

One wants the Islamic bomb. They other one wants a communist utopia. Screw them.

[Chris Lawrence]

I watched an interview with Sheikh Zaki Yamani: the link is below:

http://news.sbs.com.au/dateline/

George Negus was the interviewer.

[Pundi64]

It is called gonad snacthing, the Arabs have us by the "Gonads"

Edited June 18, 2008 by Pundi64

[Johpa]

It is called gonad snacthing, the Arabs have us by the "Gonads"

If you think it is the producers causing the price increase then perhaps you are afraid to look who else is grabbing on to your gonads, you petrolphobe you. Don't want to admit to being fondled down there by Norskes, Brits, Slavic types, Turks, Farsis, Nigerians, Venezuelans, and of course the hosers up in Canada eh?

This ain't rocket science folks. You have a limited and slowly dwindling supply of a commodity (sweet crude) that is becoming increasingly expensive to extract while at the same time a burgeoning demand for that same product. Sweet baby Jesus, it don't gets too much simpler.

[plachon]

It is called gonad snacthing, the Arabs have us by the "Gonads"

<deleted>! The yanks and the brits have the arab nations by the gonads, and the oil corps have the yanks and the brits and the rest of the oil-addicted world by the short n' curlies. The result of this state of affairs is quite plain to see, once the black-stained needle is removed from the patient's arm.

[Smithson]

Those 2 dictators are <deleted>. They aren't businessmen.

One wants the Islamic bomb. They other one wants a communist utopia. Screw them.

Screw them? I thought invasion was the normal procedure?

[Smithson]

you got Canadian tar sands with as least 50 years proven reserves.

50 years? It takes almost as much energy to extract the oil as what you left with. Where did you get this figure? How many barrels are you talking about? What do you think the demand will be in 50 years? Insane.

can't they can't build LNG plants fast enough in Oz.

Didn't they once jut burn the LPG offshore? This is gas, not oil, the fact they are now interested in supports peak oil.

Bush is also trying to push a bill so they can drill offshore US where there are proven reserves which is currently offlimits due to environmently issues (more likely these field were being treated as reserves)

So now they are compromising the enviro standards due to oil scarcity.

BTW which E&P company are you referring too with reserves of 240%

Yes and how many barrels are the reserves? People who don't support peak oil don't have the figures to back up their claims.

[Schooner]

The price of oil is high because of speculation and whoever said that the Enron traders have found a new place to dwell are not far from the truth. Enron wrote the book on driving up energy prices and this pattern is the same as that. There were no shortages then and there are no shortages now.

The fact is the worldwide demand is actually less than it was two years ago. I agree that it is projected to increase but it is not what is driving these prices. Oil is sold the same as most comodities. The only difference is that you don't actually have to take posession of it and you don't even have to use any of your own money.

What is incredibly interesting is how everyone here is speculating what the cause is depending on their particular political view and that my friends IS the problem. WE DON'T KNOW for sure because Bush gutted the SEC years ago and there is no one left who could tell us what the hel_l is going on.

Also there is a trading organization CIS that congress allowed (when no one was paying attention) that is outside the US regulatory authority and no one really knows what the hel_l their doing. I've seen numbers between 15% and 49% of the futures are being bought buy this group. Huge institutions are buying futures on margin as a hedge against the declining dollar and their are no margin limits. So the speculates are speculating what the other speculator will do with a rumor or a bit of bad news and there is no oversight

This administration wants this to happen because it creates a buzz of fear that we won't be able to drive to work and we won't be able to afford food and it is in that time of fear that there will be an election and guess what?

But the real reason for the price is BECAUSE THEY CAN it is as simple as that. Americans (I'm an American) have become sheep. They are so fat and lazy that they can't get off the couch to protest. The government can tell them anything (through the existing media) and they will believe it and even after they learn that they have been lied to they will do nothing.

[slapout]

I like to think of the whole oil/gas workplace from pre drilling (lease/ sesmic of tracts), drilling, completion, transporting raw product, (pipeline, trucks, tankers, refining, etc) to marketing the end products as similar to a no limit poker game. The comsumer is probably the player who has the least resources at the table. The other 6 players depending on if its the oil companies, government, service companies, refiners, pipeline/gathering, or speculators/funds, have varing amounts of monies and potential stakes in their pocket.The only real knowledge any of them has is what cards they hold and what is in their pocket/bank. Guess the winners will be those who draw the best cards, read their opponents, and bluff at the best times and have the money to stay in the game. I always figure that the players setting around the table are not known for their truthfullness while gambling thus take what they say with a grain of salt. Too bad there is not a house cut on each pot with the consumer being the house and let the rest of them hammer each other.

[Jimjim]

So now they are compromising the enviro standards due to oil scarcity.

Actually the argument is that European nations with stricter environmental standards are doing the same thing so if they can do it within their environmental regulations why can't the U.S.?

[rethaired]

The price of oil is high because of speculation and whoever said that the Enron traders have found a new place to dwell are not far from the truth. Enron wrote the book on driving up energy prices and this pattern is the same as that. There were no shortages then and there are no shortages now.

The fact is the worldwide demand is actually less than it was two years ago. I agree that it is projected to increase but it is not what is driving these prices. Oil is sold the same as most comodities. The only difference is that you don't actually have to take posession of it and you don't even have to use any of your own money.

What is incredibly interesting is how everyone here is speculating what the cause is depending on their particular political view and that my friends IS the problem. WE DON'T KNOW for sure because Bush gutted the SEC years ago and there is no one left who could tell us what the hel_l is going on.

Also there is a trading organization CIS that congress allowed (when no one was paying attention) that is outside the US regulatory authority and no one really knows what the hel_l their doing. I've seen numbers between 15% and 49% of the futures are being bought buy this group. Huge institutions are buying futures on margin as a hedge against the declining dollar and their are no margin limits. So the speculates are speculating what the other speculator will do with a rumor or a bit of bad news and there is no oversight

This administration wants this to happen because it creates a buzz of fear that we won't be able to drive to work and we won't be able to afford food and it is in that time of fear that there will be an election and guess what?

But the real reason for the price is BECAUSE THEY CAN it is as simple as that. Americans (I'm an American) have become sheep. They are so fat and lazy that they can't get off the couch to protest. The government can tell them anything (through the existing media) and they will believe it and even after they learn that they have been lied to they will do nothing.

Thank you!

I thought I was the only one thinking this (and reading this).

I feel more empathy than this about "Americans" or "Canadians" because as a European I can see how much advertising the average North-Am. will watch. There was an interesting study that I read a few years ago indicating that sweetness and the taste of fat are passed on (along with any other taste) to a breast-feeding baby, which does explain why NA love sweeter, say, chocolate than other people on earth, why a fat baby has fat parents. Now, it could be true that diet make people stupid (as TV does or underfunded schools or poor parents or drugs/smoking/alcohol or video games or absent parents or obsession on watching baseball for 3 hours eating pop-corn,...), but I digress!

Anyway, I totally agree with you that speculators are using the Enron loophole: http://www.closetheenronloophole.com/ and that is the main reason that is driving (pun intended) the price of gas! Anyone who believes that it is peak oil should know that that supply has increased VS demand (demand has decreased). Sorry to burst your speculative bubble!

Edited June 19, 2008 by rethaired

[PeaceBlondie]

I feel more empathy than this about "Americans" or "Canadians" because as a European I can see how much advertising the average North-Am. will watch. There was an interesting study that I read a few years ago indicating that sweetness and the taste of fat are passed on (along with any other taste) to a breast-feeding baby, which does explain why NA love sweeter, say, chocolate than other people on earth, why a fat baby has fat parents. Now, it could be true that diet make people stupid (as TV does or underfunded schools or poor parents or drugs/smoking/alcohol or video games or absent parents or obsession on watching baseball for 3 hours eating pop-corn,...), but I digress!

Indeed, we digress - especially since very few American mothers breastfeeed. Even in Texas, and neither with sweet nor sour crude oil.

But thanks for empathizing with us brain-washed, chocolate-chomping, popcorn-popping North Americans. I think crude oil was first drilled in Pennsylvania (Titusville?), and chocolate and corn were both invented in North America. Europe and Thailand can also thank us for potatoes, tomatoes,squashes, chilies, vanilla, fireworks on the Fourth of July, May Day without May poles, and tobacco. However, gone are the days when the gushers of the Texas Spindletop could satisfy the world's appetite for crude oil.