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Oil the news oil the time

by Jerome a Paris Thu May 22nd, 2008 at 07:15:39 AM EST

It's hard to get excited by yet another headline about yet another record high for oil prices (although this week's run from $126 to above $135 is quite spectacular), but it is going to become increasingly hard to avoid energy headlines in general, as the topic finally becomes, as some of us have predicted for a while, the defining one of our epoch.

We saw yesterday that The markets and the business press are waking up to peak oil, but an even stronger sign is coming today from the International Energy Agency, the watchdog organisation set up by Western countries in the 70s in the wake of the first oil shock. We've long criticized the IEA for its happy bullish forecasts for future oil production, but have noted over the past 2 years signs that they were increasingly uncomfortable with their scenarios (and the 'don't rock the boat' politics they encourage), and they now seem willing to take the plunge on the 'shrill' side, something which is likely to have a huge political impact worldwide:

Energy Watchdog Warns Of Oil-Production Crunch
IEA Official Says Supplies May Plateau Below Expected Demand

The world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.

The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.

This matters hugely, because the IEA numbers are widely used by specialists, politicians, consultants, and the whole ecology of pundits that write about energy. Their sanguine scenarios were used as the backdrop for most discussions of energy into the future, and they provided a reassuring "business as usual" outlook.

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.

The decision to rigorously survey supply -- instead of just demand, as in the past -- reflects an increasing fear within the agency and elsewhere that oil-producing regions aren't on track to meet future needs.

The 100mb/d limit has already been aired publicly by the CEOs of Total or ConocoPhillips, but this has not really seaped into publicconsciousness. Having it underlined by the most authoritative public entity on the subject will have an altogether different impact which nobody will be able to ignore.

The sentence above in the article is also worth flagging: the change is that the IEA will look at production rather than at demand; in other words, they have finally bowed to reality and decided to behave as physicists (look at facts: resources decide) rather than as marginalist economists (follow the ideology: prices decide) in looking at how markets can balance. The significance of that cannot be overstated either.

So don't expect energy to stay out of the headlines in the coming months and years - in fact, it will seep into all areas: economics, politics to take its rightful place after too many years of neglect and waste.


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Apologies if this has been linked already but nothing seems to highlight the total detacthment from reality of the US government than this!

"The House of Representatives overwhelmingly approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure.
The bill would subject OPEC oil producers, including Saudi Arabia, Iran and Venezuela, to the same antitrust laws that U.S. companies must follow."
http://www.reuters.com/article/topNews/idUSWAT00953020080520?feedType=RSS&feedName=topNews&r pc=22&sp=true

From an international relations perspective, this beggers belief!
Firstly, you cant force someone to sell you something!
Secondly, US law is NOT global law!
Thirdly, these oil rich nations have been investing in the US....that investment would vanish overnight...sending the already weak US economy over the edge (its not as if there are other places to invest money!)

There is no chance that this law would pass, but nothing seems to serve as a better example of the arrogance and complete detachment reality that the US elite seems to have. Someone should remind them that oil is a limited reseource and that planet Earth is not run for the sole benefit of the USA!

by EvilEuropean (evileuropean@googlemail.com) on Thu May 22nd, 2008 at 07:41:49 AM EST
You don't understand.  Our politicians believe they have magical powers.  Eight years ago Junior was promising to "jaw-bone" OPEC as a means to getting more production.  A week or two ago, while pushing the gas-tax holiday, Hillary actually threatened to break up OPEC.

So this is really just average on the Washington Stupid Scale.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 22nd, 2008 at 08:42:37 AM EST
[ Parent ]
Drew J Jones:
Hillary actually threatened to break up OPEC.

With what? Her pantsuit?

It would be like McCain promising to put the ay-rabs in their place with his Magic Smile of Doom.

So this is really just average on the Washington Stupid Scale

Which, unfortunately, seems to be calibrated in powers of ten.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 22nd, 2008 at 09:01:17 AM EST
[ Parent ]
With what? Her pantsuit?

No.  Remember she's a big gun-nut now.  Annie Oakley in a pant suit.  And, really, if Obama can't bowl higher than a 37, how can we trust him to stand up to OPEC?

Which, unfortunately, seems to be calibrated in powers of ten.

On a good day.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 22nd, 2008 at 09:16:25 AM EST
[ Parent ]
The DailyKos version of this story incorporated that Congress story: Countdown to $200 oil (6) - Oil jumps $10 in a day and Congress ... wants to sue OPEC?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu May 22nd, 2008 at 08:57:45 AM EST
[ Parent ]
http://www.dailykos.com/storyonly/2008/5/22/84736/1380/384/520314

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu May 22nd, 2008 at 08:56:37 AM EST
I find it amusing that oil skyrocketed so much in one day when at the same time, here on the Atlantic coast of France, petrol stations are almost all closed because of supply chain disruptions (due to protests and harbor blockades). The fishermen have been striking (along with the teachers, railway workers, truckers, etc), which has led to normal supply routes being blocked. No shortages as of yet, but people have become scared and consequently there have been runs on the filling stations.

Sort of surreal, as we talk about peak oil and soaring prices, to have an illustration of people panicking for the last drops of petrol throughout western France.

Doesn't affect me a whole lot - I drive a minimum and live in the city, bike to work and the store ... I guess I saw this coming a long time ago.

by Monsieur le Prof (top notch records [all one word] at gmail dot com) on Thu May 22nd, 2008 at 09:39:38 AM EST
You have to remember that it is now silly season in the US. One third of senators, all the representatives and the presidency are up for election. Saying things to appeal to voters is the theme of the day. It doesn't make any difference if they statements make sense economically or even follow the laws of physics as long as they might attract a few more votes.

The heads of the big oil companies that testified yesterday before congress weren't much better. They suggested expanding US exploration, even though they know full well that any finds won't do much to solve shortages.

In addition we are in the middle of a panic. Oil prices are overshooting on the upside and we can expect bad polices to be enacted as a result. If one really wants to understand what is happening then, as usual, follow the money.

I'm not knowledgeable enough to do this, but one has to ask who benefits most from high prices. Speculation is an easy target, but makes little sense. Oil is not gold, you can't hoard enough to make a killing when the price rises. Oil producing states, however, don't have to hoard they just have to get higher revenue when they sell at the higher rates.

I would look at the behavior of the major oil states, especially those who control their oil operations directly and see what sorts of actions they have been taking of late. Have they been taking their windfall revenues and investing them elsewhere, or are they squandering them on expensive civic eye candy as Qatar is doing?

In the past when US "vital interests" were threatened we used gun boat diplomacy to force trading partners to behave as we wished, just because it didn't work out well in Iraq, doesn't mean it won't be tried elsewhere. If I had to guess I would suspect a rise in political instability in South America aimed at toppling the leftist governments that are too independent for America's liking. The CIA is very good at destabilizing governments.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Thu May 22nd, 2008 at 10:00:15 AM EST
Thanks for the insight. I was not aware that silly season had started already!

Though to be honest it is rather scary that such policies are presented as a 'solution' to a general public by the politicans. It seems that its not just the political elite that is detached from reality but a large chunck of the electorate. That has very serious implications for actions in the future.

It looks like the USA is going to be stuck with a 19th century Hobbseian view of the world for a while longer.

by EvilEuropean (evileuropean@googlemail.com) on Thu May 22nd, 2008 at 01:07:10 PM EST
[ Parent ]
I thought a Hobbesian view was 17th century.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Thu May 22nd, 2008 at 01:11:13 PM EST
[ Parent ]
Stuck with a 17th century view whilst beliving its the 19th century?!

Stuck in the past! Thats what I meant!

by EvilEuropean (evileuropean@googlemail.com) on Thu May 22nd, 2008 at 01:16:42 PM EST
[ Parent ]
Let'em continue rising.  It's time we stopped wasting energy as if it were infinite.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 22nd, 2008 at 10:23:44 AM EST
SillySeason forgets that there are various offshore areas where the oil companies are forbidden to drill: the Gulf of Mexico deep waters (but Cuba can in its portion....), off the West Coast, etc. So the US scarcity is partly self inflicted. Add the murderous SUV's to the mix and you get quite a circus
by pampero on Thu May 22nd, 2008 at 12:06:27 PM EST
What alot of people keep forgetting is that the oil researves located in these areas do not amount to much. ANWAR for example has enough fuel to meet US oil demand for just 6 months.
THe biggest self-inflication is the wasteful nature of Americans regarding energy consumption and fuel effieceny. That has been brought about by a government that was more intrested in meeting the short term demands of the car  and oil industry than the long term needs of the people and the nation.
by EvilEuropean (evileuropean@googlemail.com) on Thu May 22nd, 2008 at 01:15:36 PM EST
[ Parent ]

Blame Wall Street for $135 Oil on Wrong-Way Betting

May 22 (Bloomberg) -- Oil's rally to a record above $135 a barrel came as traders bought crude to cover wrong-way bets that prices would decline, according to data from the New York Mercantile Exchange.

The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell, and lose money as they rose.

``In a market like today, which is trending higher while open interest is falling, it's a sign that money is moving out of the market,'' said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. Open interest in Nymex crude futures peaked this year at 1.5 million on March 13.

Hehe, speculators were betting that prices would go down, and as they scramble to limit their losses, they push the prices further up - which means that the prices initially went up despite speculation...


Crude for delivery in December 2016 ended yesterday at $142.09 a barrel, signaling investors anticipate prices will gain for years. Some traders speculate oil will reach $200 this year. The price of a December 2008 option contract that allows the holder to buy 1,000 barrels of crude at $200 each jumped 67 percent in three days to $1.72 a barrel yesterday on the Nymex.

U.S. oil executives told Congress yesterday that prices should be between $35 and $90 a barrel. John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell Plc, pegged the proper range ``somewhere between $35 and $65 a barrel.''

$1.72 to hedge oneself agaisnt $200 oil. Seems still pretty cheap to me...


In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu May 22nd, 2008 at 12:38:42 PM EST

Asia to cut subsidies as oil hits $135

Asian governments on Thursday moved to cut energy subsidies to protect their finances and those of state-owned energy companies in the face of soaring oil prices.

As crude oil pushed through $135 a barrel for the first time, Taiwan, Malaysia and Indonesia announced plans for urgent action to free prices or cut subsidy costs. China denied rumours of an imminent increase in retail prices, but may relax price controls.

Now that would be a major, major policy change. A welcome one, but a momentous one, with lots of potentially nasty politicla consequences.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu May 22nd, 2008 at 03:53:36 PM EST


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