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Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
by Carrie
Wed Jul 2nd, 2008 at 09:29:07 AM EST
I don't know why the World Oil Congress is being held in Madrid but, given that it is, the Spanish press has access to the participants. Here's an interview published by El Pais today, in which the Secretary General of OPEC blames everyone except themselves: speculators, US foreign policy, US environmental policy, the subprime crisis, you name it... But he also claims that this is not a supply-and-demand problem as there is no unsatisfied demand.
| "Muchos se están haciendo ricos con el mito de que falta petróleo" · ELPAÍS.com | | "Many are getting rich with the myth that there is an oil shortage" - ElPais.com | | ENTREVISTA: La nueva crisis energética | | INTERVIEW: The new energy crisis | | ALEJANDRO BOLAÑOS - Madrid - 02/07/2008 | | By ALEJANDRO BOLAÑOS - Madrid - 02/07/2008 | | El Congreso Mundial del Petróleo que se celebra esta semana en Madrid se ha convertido en un zoco en el que todos tratan de vender la misma mercancía averiada: que la culpa de la brutal subida del precio del oro negro es de otro. Abdalla Salem El-Badri, secretario general de la Organización de Países Exportadores del Petróleo (OPEP), rebate a los que, como algunos Gobiernos occidentales y varias multinacionales, culpan a la falta de producción. Para El-Badri, libio de 68 años, el precio coge impulso en el exceso de especulación financiera. | | The World Oil Congress held this week in madrid has become a souq in which everyone tries to sell the same broken merchandise: that the brutal rise in the price of black gold is someone else's fault. Abdallah Salem Al-Badri, secretary general of OPEC, refutes those who, like some Western governments, blame lack of production. For Al-Badri, a 68-year-old Libyan, the price is propelled by financial speculation. |
| Pregunta. Se exige a la OPEP que ponga más petróleo en el mercado para atajar la escalada del precio. | | Question It is demanded of OPEC that it put more oil in the market to curtail the price rise. | | Respuesta. Déjeme decir, lo primero, que no hay ningún problema de oferta. La subida se debe a la devaluación del dólar, las tensiones geopolíticas, la especulación... No hay escasez en el mercado. En realidad, todo esto es fácil de explicar: la crisis de las hipotecas basura el verano pasado en EE UU hizo mucho daño a los mercados bursátiles, y desde entonces la inversión financiera busca otros productos y las materias primas ahora son el principal atractivo para la especulación. | | Answer Let me say, first, that there is no supply problem. The rise is due to the devaluation of the dollar, geopolitical tensions, speculation... There is no shortage in the market. In reality, all this is easy to explain: the subprime mortgage crisis last summer in the US hurt the stock markets a lot, and since then financial investment is looking for other products and commodities are now most attractive for speculation. |
It is really unfortunate that the journalist doesn't know the first thing about the subject he's interviewing on, because if he did he could mention the fact that the price of oil in Euros has also been going up lately (graph courtesy of DoDo):
As to the claim that the subprime crisis is responsible for the rise in oil prices, note that the price of oil slid down in the autumn of 2006, to start rising again around the start of 2007, months before the stock market crash. Too bad the journalist wasn't able to point that out, or that prices started rising in 2003 from between $20 and $30. | P. Las multinacionales han coincidido en lamentar que las restricciones de la OPEP dificultan el despegue de la inversión. | | Q The Oil Majors coincide in deploring that OPEC's restrictions are making it difficult for investment to take off. | | R. No es cierto que todos los países de la OPEP pongan restricciones. Hay muchos con las puertas abiertas a las compañías privadas. Y algunas de estas compañías privadas mantienen las puertas de sus países cerradas. En el 85% de las explotaciones marinas de EE UU no se puede entrar. Tampoco en el norte de Alaska. Hay que ser justo. | | A It is not true that all OPEC countries set restrictions. Many of them have their doors open to private companies. And some of these private companies keep the doors of their home countries closed. One can't go into 85% of offshore fields in the US. One can also not go to the North of Alaska. You have to be fair. |
Let's call that the American Solutions gambit. As discussed here the 38 billion barrels of American oil reserves currently unavailable because of environmental concerns correspond to just 5 years of current US consumption. Even if those resources were developed, 5 years from now we'd be in the same place, except that those oil reserves would be gone. And that's assuming that you can fully exploit them. Now for a round of he-said-she-said interviewing. | P. El consejero delegado de British Petroleum, Tony Hayward, dijo que el exceso de especulación es un "mito" | | Q The CEO of BP, Tony Hayward, said that the excessive speculation is "a myth". | | R. Puedo responder igual. La falta de oferta es un mito. La causa no está ahí. No es verdad. | | A I can answer the same. The lack of supply is a myth. That's not where the cause lies. It isn't true. |
Whether there is excessive speculation is easy to answer by looking at the "open interest" in oil futures, and it appears the evidence is against speculators driving prices up intentionally.
Bloomberg: Blame Wall Street for $135 Oil on Wrong-Way Betting (May 22, 2008) 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. But, in any case, the futures price of oil has been lagging, not leading, the rise of the spot price, and nowadays future prices are essentially the same as spot prices, rounded down to the nearest pretty number (hat tip to Jerome)
| P. ¿Qué puede hacer entonces la OPEP para enfriar el mercado? | | Q What can OPEC then do to cool down the market? | | R. Mantenemos el 40% de la producción mundial y estamos invirtiendo 160.000 millones de dólares en exploración y producción, tenemos 120 proyectos en marcha. BP, por ejemplo, podría invertir en intentar sacar más petróleo del Mar del Norte. Y tenemos capacidad de aumentar la oferta si es necesario. Pero déjeme poner esto claro. No hay nadie haciendo cola por petróleo, toda la demanda está satisfecha. | | A We maintain 40% of world production and we're investing $160 billion on exploration and production, we have 120 projects going. BP, for instance could invest on trying to get more oil out of the North Sea. And we have the ability to increase supply is it is needed. But let me make this clear. There is nobody queuing for oil, all demand is satisfied. |
To the claim that North Sea oil is not being developed one can counter with the following chart (from Euan Mearns of The Oil Drum: Europe). Note the brown "new development" in the upper right:
But one thing is true: there are no statistics on people queuing for oil because unsatisfied demand (unlike production capacity) is not measurable, and actual consumption is taken as a proxy for demand. The problem is that there are no barrels of oil waiting for buyers either - that is, there is no slack of production capacity (as shown also by Jerome recently)
But the rising price of oil is having an effect on consumption. (chart from The Oil Drum: Have we passed "Peak Travel"?)
 | P. Arabia Saudí ha anunciado un aumento de su oferta en medio millón de barriles diarios ¿La OPEP podría tomar una decisión conjunta similar? | | Q Saudi Arabia has announced an increase of its supply by 500,000 barrels per day. Could OPEC take a similar joint decision? | | R. No creemos que haya escasez. Y Arabia Saudí lo que dijo es que aumentará su producción, si hay más demanda, pero no vamos a producir si no hay clientes. | | A We don't believe there is a shortage. And what Saudi Arabia said was that they would increase production if there is more demand, but we're not going to produce if there are no customers. |
Oh, that's interesting. So on the argument that there isn't really unsatisfied demand, Saudi Arabia didn't really mean it when they announced their last production increase? In any case, Jerome already debunked the hype around the Saudi production increase
European Tribune: Countdown to $200 oil (7) - Saudis announce oil production increases - again So we see that the Saudis seem to be regularly announcing or promising production increases to supply the market - and yet always seem to have production around 9.5 mb/d after such increases (I'll explain the higher numbers in a sec). And it's no wonder: that's where their production has been for the past several years
(graph from a 2006 Econobrowser post) If you're wondering how it's possible to announce increases every other year, and still produce the same, it's simple: there are production decreases along the way.
| P. Si todo se debe a la especulación, llegará un momento en que la burbuja estalle, ¿bajará entonces el barril de los cien dólares? | | Q If this is all due to speculation, there will be a time when the bubble will burst, will the barrel then drop below $100? | | R. Si el mercado vuelve a comportase según la relación entre oferta y demanda, los precios bajarán. Si dejamos el mercado a los especuladores, un día se dice que el precio llega a 140 dólares, otro que subirá hasta los 200, y el mercado entra en pánico. Hay muchos que se están haciendo ricos con el mito de que falta petróleo. | | R If the market goes back to behaving according to the relation between supply and demand, prices will drop. If we leave the marker to speculators, one day it is said that the price reaches $140, another that it will rise to $200, and the market goes into a panic. There are many who are getting rich with the myth that there is an oil shortage. | | P. ¿Es necesaria entonces una reforma de los mercados de contratos de futuros? | | Q Is, then, a reform of the future markets necessary? | | R. Lo que creo es que hay algo en el mercado que ha ido demasiado lejos. Hay que decir, paremos un momento, algo está mal, hay que volver a la normalidad. No estoy diciendo que se elimine a los especuladores del mercado. Lo que digo es, calma, no hay escasez, dejemos a la oferta y la demanda jugar, ése debe ser el juego del mercado. | | A What I believe is that there is something in the market that has gone too far. It has to be said: let's stop for a minute, something is wrong, we have to go back to normal. I am not saying that speculators should be eliminated from the market. What I'm saying is, be calm, there is no scarcity, let supply and demand play out, that must be the play in the market. |
So, what is he saying? Somehow drop the price of oil, then there will be more demand, then OPEC will increase production to match? The fact is, despite steady increases in production and production capacity (see the chart above), exports have been flat for a number of years (again Jerome):
I dealt with the futures situation above, but now watch how he spins the IEA forecasts to his benefit: current high prices will ensure that the IEA's prediction is made inaccurate by higher investment. | P. En muchos países, como España, un aumento así del precio tiene efectos muy graves ¿No hay nada más que se pueda hacer? | | Q In many countries, such as Spain, such a price increase is having serious effects. Is there nothing else that can be done? | | R. Ustedes también son víctimas de esta situación. Les afecta la especulación, la devaluación del dólar... Para mí, la cuestión está en poner barreras a la especulación. La Agencia Internacional de la Energía dice que no hay ningún problema de oferta en el corto plazo, pero que habrá problemas a partir de 2012. Con este alto nivel de precios, no se puede decir que habrá tensión en el mercado después de 2012 porque no es verdad. Con este nivel de precio, si hay demanda, todo el mundo invertirá y habrá más oferta. | | A You are also victims of this situation. You are affected by speculation, the devaluation of the dollar... For me, the question is to set barriers to speculation. The International Energy Agency says that there is no short-term supply problem, but that there will be problems starting in 2012. With this high price level, it cannot be said that there will be tensions in the market after 2012 because it isn't true. With this price level, everyone will invest and there will be a higher supply. |
Spain is affected by the devaluation of the dollar? Didn't we already show that the price of oil in Euros has gone up as well? | P. Las multinacionales oponen que el aumento de impuestos al petróleo en algunos países desincentiva esa inversión... | | Q The Oil Majors counter that the rises of taxes on oil production in some countries discourage investment. | | R. Las empresas tienen que olvidarse de que la idea de las siete hermanas [siete multinacionales con gran influencia en el precio internacional hasta los años setenta] vaya a resucitar. Las compañías estatales y las multinacionales privadas tienen que convivir. Ya no pueden ir a un país e imponer el precio que quieran y no pagar impuestos. | | A Companies need to forget about bringing the seven sisters [that is, their ability to influence the global oil price before the 1970's] back to life. State companies and Oil Majors have to live together. They can no longer go to a country and impose the price they want and not pay taxes. | | P. Es difícil pensar que la OPEP tenga interés en acabar con la subida de precios, a precios más altos, mayores ingresos... | | Q It is hard to imagine that OPEC can be interested in ending the price rises, the higher the price the higher the revenues... | | R. Le tengo que corregir. Altos precios significan más ingresos para los Gobiernos de los países consumidores porque aumenta la parte que se va en impuestos. Y déjeme recordar que más del 85% de los ingresos que tenemos vuelve a los países consumidores, con ese dinero compramos productos textiles, alimentos, materias primas o productos industriales a Estados Unidos y Europa. No acumulamos más riqueza con esta situación, no es verdad. | | A I have to correct you on that. High prices mean more revenues for the governments of the consumer countries because the part that goes to taxes increases. And let me remind you that more than 85% of our revenue goes back to the consumer countries; with that money we buy textiles, food, raw materials or industrial products from the US or Europe. We don't accumulate greater wealth with this situation, it isn't true. |
How does that make sense? Just because they spend it all doesn't mean they don't benefit from increased revenues. And, to end, a dig at US foreign policy. | P. El Congreso de EE UU quiere que se lleve a los tribunales a los países de la OPEP que no ajusten su producción a las necesidades del mercado ¿Qué le parece? | | Q The US Congress wants to take to court those OPEC countries which don't adjust their production to the needs of the market. What do you think? | | R. Quiero que, como primera potencia mundial, deje de hostigar a los países de la OPEP. Con el boicot a Libia, el boicot a Irán, el problema creado en Irak, hay cinco o seis millones de barriles diarios menos en el mercado. Debería intentar ayudar, no echar más gasolina al fuego. | | A I want that, as the world's first power, they stop harassing OPEC countries. With the boycott to Libya, the boycott to Iran, the problem created in Iraq, there are five or six million fewer barrels each day in the market. They should try to help, not throw fuel on the fire. |
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