OPEC Cuts, Oil Falls: Something's Not Sustainable 9 comments
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"I hope we surprised you," said OPEC President Chakib Khelil after he announced yesterday that OPEC would cut production another 2.2 million barrels per day in light of falling oil prices and rapidly rising inventories. NOPE!
With oil below $40 OPEC is desperate. But unfortunately for them, and fortunately for the rest of us, the 13 country free trade hating cartel does not control enough of the world’s black crack to fix prices (they are missing the big bad Russian bear). Oil prices today are ruled by shifts on the demand curve, not shifts in the supply curve, and OPEC is powerless to control demand in the short term.
Also, to the advantage of the West, the cartel has been traditionally plagued by oligarchic game theory-esque problems; that is, not all nations abide by their quotas.
Where does oil go from here? Anyone who “knows” for sure is probably just guessing. It all depends on the depth of the world recession, the flight to quality (appreciating US dollar), and how aggressively OPEC ends up cutting production. In my opinion, we could easily see 30 dollar oil given the world outlook and recent inventory numbers.
But I think the oil boom and bust has a very important lesson for America. Now is the time to divest into technologies that will enable us to import less oil and take advantage of more sustainable energy sources such as wind and solar. Oil’s eventual ascent above 100 is inevitable in the long term given the rather stringent supply and unavoidable climb in demand due to population growth and raising standards of living. The smart money is in companies that can take advantage of pricey oil in the future.
My advice to the cartel: to stop trying to manage supply, let oil prices fall as they may; cheap oil will stimulate the world economy and you guys will be able to make more money in the long run. My advice to America: cheap oil is not sustainable; we need to either start developing alternative fuel sources now or start preparing to fight China, Russia and India for the world’s dwindling supplies.
In my opinion, oil is a stupid thing to go to war for given how possible it is to develop substitutes. We all saw what happened in Iraq; let’s use our brain and not our brawn in 09’.
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This article has 9 comments:
Fight Russia for oil? Do you really mean that? Nobody in their right mind would fight Russia for anything. What about China and India? Frankly, that sounds like a bad idea. It might also be interesting to point out that Russia has plenty of oii, and even more gas. In fact their reserves of gas are probably sufficient to allow them to do what T. Boone Pickens thinks - erroneously - that the US can do with that resource. According to my logic, Russia is also liable to go along with a large cut in their supply of oil,
As for OPEC being desperate. I don't believe that, although this might be true in the future, and perhaps even the near future for a few of those countries. However the last couple of years have provided most of those countries with a nice bit of cash, and if they are careful they can easily get by until the next global macroeconomic upturn.
Ferdinand E. Banks
The time to act really is now when we have a chance - but, what is the solution?
Some would say tax petroleum products at a higher rate to force conservation. That is not an intelligent solution as it may help conservation but it will also worsen the financial/economic crisis and will just provide more of our money for the gov. to spend unwisely.
Some would say fund a massive research program - again, a waste of taxpayer money. There is plenty of company/private research and gov. funded research in the past has not been productive. And, there are plenty of potential processes available to commercialize now.
The real issue is the volatility in crude prices - which makes investing in newer processes/technology difficult when investments would be on the order of $20 billion for the equivalent of 300,000 bbls/day of products - the output of a large refinery.
Long term, our energy will need to come from solar or biofuels from algae (the only two sources large enough). Nuclear could work but there is currently no acceptance of that route by the public.
So, how do we bridge the gap (until solar or biofuels are viable)? Congress could easily pass a bill to set a floor price for all renewables, alternatives or unconventionals at say $65-70/bbl equivalent. That would allow companies to invest the large sums necessary and would ensure that the best processes were commercialized (rather than having the gov. mandate - via subsidies - solutions which are morally and socially unacceptable - including food to fuel).
yeah, as most Americans this guy is good when it comes to economy, but looks so, sorry, stupid when it come to something outside of baseball "World" series :)
1) Ok, you defeated China and India, so what's next? They are NOT suppliers of oil, my dear "expert"! All you can do is to prohibit them to consume oil, if you can occupy them! :)
2) Fight Russia? I don't want even mention fate of Napoleon and Hitler after they tried to do that. I just want to let you know, my dear "expert", that Russia can annihilate America in 1 hour. Literally! Russia preserved the Soviet era nukes completely.
If you don't know that, too bad!
Stupid Bush And Co., instead of supporting puppets (that BTW don't obey its master!) like Saakashvili, would rather establish good ties with Russia!
If they don't know how to do that they can ask American astronauts and NASA guys that work successfully with Russians since 1975 in space!
Anti-Russian propaganda in America in its peak now, although all Russian leaders, whatever you hear of them from CNN and AP, keep calling America "our partner" and keep saying that all they want is to have good relationship with us!
It is America that does whatever it can to worsen relationship with Russia by being arrogant, ignorant and just plain stupid sometimes!
I hope Obama and Co. will finally stop confronting Russia and make it our ally!
I am sure glad he put the word "today" in this comment.
I'm not really worried about "today".... I'm thinking more about "tomorrow".
"Tomorrow" oil prices will be ruled by shifts in the supply curve...(downward).
Maybe you should try to use your brain instead of your leftist politics. We didn't go to war for oil!! We actually found out that the U.N. wanted to prevent us going there because it would break up the nice little oil money siphoning program some UN officials were involved with!! Look up "Food for Oil scandal"...time to quit repeating the tired, leftist, failed, anti-America drivel of the last 8 years.
Hey everyone, he is not saying going to war with India, China, or Russia to plunder their oil, he is saying unless we come up with an alternative to oil we will be waring against them (and they against us) for what oil is left, no matter who is on top of it.
Booba, I must say you done good today, your boss at the KGB or whatever it is called today spent a few good rubles.
There is a third option and that is we curtail (at our option or otherwise) oil dependent activities and never ever forget, oil is about more than energy and serves as the raw material for medicines, plastics, fertilizers, etc etc etc.
I think those who say we didn't go to war in Iraq or wherever on account of oil are just as barmy as those who say it was the sole reason (or any one of a number of other kooky ideas - e.g. to avenge the foiled assassination plot against HW). Oil elevates what would otherwise be a wasteland to vital importance, as I say above, so much of our modern lives depend on it. The difference is there are a whole set of reasons oil being one of them.
Hint: Research the investment required to produce one megawatt of "alternative energy". How much capital would be required to meet just 10% of the US electricity needs ? What is the internal rate of return assuming various interest rates and a range of non-renewable ( natural gas or coal ) energy prices?
The amount of capital needed will astound you. This amount of capital invested in energy production may raise interest rates to levels that will eliminate any possibility of a return. So, who will make this investment?
That is the heart of the issue. That is why we have no choice but to use military means at this time.
Conservation through human behavioral change offers the hope of reducing the cost of energy by reducing demand. However, any reductions here are more that offset by growth in other developing nations.