Brother, Who Can Spare Another Dime for Oil?

Well, I said in the morning the futures were irrationally exuberant and so they were. I suppose traders are never going to learn that $109 oil is bad for the overall markets and commodity traders really don’t seem to understand that every $1 per barrel they increase the price of oil costs global consumers $85M more per day. While that may not seem like a big number by itself, $85M times $50 per barrel of increases since last Q1 works out to $4.25Bn A DAY that is not being spent at the Gap, or at TGT or at the movies or at Home Depot.

Is this so hard to understand? Where do energy traders think the next $1Bn a day is coming from? Last year they had the consumer all to themselves as they raped and pillaged the planet, but now the Food traders have caught onto the scam (see 3/29 Weekend Reading) and they want $1Bn a day too! Before you know it, a Billion here and a Billion there and you’re talking some real money!

In order for oil to go from $110 to $120 a barrel, global consumers must come up with $1Bn a day, but now that agriculture is tied into it, it’s more like $1.5Bn a day, and now that energy costs are breaking the backs of corporations, who are forced to pass the costs on, it’s about $2Bn a day. Even if we generously assume that 2Bn people on this planet equally share this burden, that’s still $1 per day per person in your family that has to go up in smoke for every $10 increase in the price of oil.

With a median income in the US of $26,036, for one half the people in this country who take home less than $400 per week, that $1 per day is 2% of their net income. The last five $10 increases have cost the "below average" American workers 10% of their net income already, yet commodity traders think they can squeeze another 10% without breaking the camel’s back, but they are wrong - the back of the consumer is already breaking and it is irrational to continue buying commodities with the expectation that they can keep rising.

The truth is that the US consumer is not the "average" citizen of the World. We consume 25% of the world’s energy so the very scary figures I just gave you are CONSERVATIVE as they apply to gas-guzzling US consumers. How much is too much? Well credit card default and bankruptcy trends indicate we passed too much quite some time ago.

Oil and Food are not optional items; if people can’t afford them, it should be considered a crisis by the Administration, not some joke that happens to poor people. On TV yesterday, the President said "People are worried about the cost of fuel - that’s why we have to keep taxes low."" Can he possibly be that clueless? Does the man really believe that sending out checks for $600 (10 tanks of gas) while running up $168Bn in additional debt in order to SUPPORT $110 oil is a solution?

IT IS THE PROBLEM, NOT THE SOLUTION!

Also part of the problem is George Bush’s maniacal filling of the Strategic Petroleum Reserve over the objections of Congress.

Democrats on the Senate Energy and Natural Resources Committee charged. "There’s a carnival of speculation in the markets. Prices for both crude oil and gasoline are bouncing around at high levels, yet we’re taking oil off the market and into the ground," said Sen. Byron L. Dorgan []D-ND] during the committee’s Feb. 26 hearing on US oil inventory policies and the SPR.

In a bill he introduced on Feb. 6, Dorgan calls for suspension of SPR purchases for a year, restoring them only if oil prices fall below (a negotiable) $50/bbl. Money now being spent on SPR fill could be better used, he said, for domestic ultradeep and unconventional drilling research, which the administration repeatedly "zeros out" and which he keeps having to put back into DOE’s budget. "We can expect some push-back from the administration," he told reporters. "I understand that a substantial portion of this is coming from the Vice President’s office."

So the DEMOCRATS keep trying to fund additional drilling and the Vice President keeps killing it!

Aside from being the single largest buyer of oil in the history of this planet, with 300M barrels of oil purchased by George Bush, using $21Bn of your tax dollars to put oil in the ground at an average rate of 850,000 barrels a week since he’s been elected (5% of US consumption, 10% of our imports), George has also set the modern military record for consumption, running a now 5-year war that consumes an additional 400,000 barrels of oil a day in fuel, another 2% of total US consumption (each deployed US soldier consumes an average of 15 gallons of fuel per day - so the surge IS working!).

In fact, 100% of the US increase in fuel consumption since 2001 has entirely been attributed to George W. Bush’s personal filling of the SPR and his war in Iraq!

How long do we plan to keep putting up with this? Can we afford to stay this course for another 8 months? The markets say no, something must be done about the price of oil or this economy will break and no amount of tax cutting is going to fix it!

Comments

[AlexS:]

Give me a break. Democrats for drilling? Dorgan said research, not drilling. He wants a grant to North Dakota State or something. And how much oil has DOE actually produced? Do you buy gasoline from a DOE service station? DOE doesn't do any of that stuff. They mostly award grants to academics. But there are companies (real oil companies) actually drilling in North Dakota, under those tax breaks the Dems are so fond of criticizing. You want to allow more drilling? Why have most Democrats opposed drilling in coastal ANWR where there really is a lot of oil? Why have most Republicans favored it (sadly, not including McCain)? Pardon, but your Democratic bias is showing, and it's leading you into a nonsensical arguement.

2008 Apr 08 02:58 PM

[User 161473:]

Philip,

I have read some of your other articles and you seemed to be convinced the only reason oil is this high is becuase of specutlators. For three years world wide oil productions has remained flat even though billions have been spent. Specualtors are in this market for a reason. This is not a tempory problem and specuators along with all natural buyers may never go away.

Here is a list of people who think we have a problem with production, all of these people think we will never get above 100 millon barrels a day, most think we won't even get above 90:

1)Jim Mulva (CEO Conoco Philips)
blog.foreignpolicy.com...

2)Christophe de Margerie (CEO Total)
www.davidstrahan.com/b...

3)Jim Buckee (CEO Tailsman Energy)
www.energybulletin.net...

4)Faith Brohil (Chief Economists IEA)
energybulletin.net/313... and independent.co.uk/news... www.davidstrahan.com/b...

5)Salad Al-Huseni (Former Head of Production Saudi Aramco)
www.davidstrahan.com/b... Listen to audio
www.nytimes.com/2005/0... Page 8

6)James R. Schlesinger (Former Head of CIA)
globalpublicmedia.com/... trascript U.S. senate committee

7)Franco Barnabe (CEO of ENi Italy)
www.greatchange.org/ov...
sandersresearch.com/in...

8)Mike Bowlin(Former CEO of ARCO)
www.energybulletin.net...
www.oregonpublichealth...

9)Helge Lund (CEO Statoil Norway)
www.dn.no/forsiden/ene... need to change to english

10)Shokri Ghanem (CEO Libyan NOC)
www.energycompass.com/... click on the presentation

11)Jeroen Van der Veer (CEO Shell Oil)
www.energybulletin.net...

12)John Hess (CEO Hess Energy)
www.pennenergy.com/dis...

13)Rick Wagoner (CEO General Motors)
www.energybulletin.net...

14)Robin West (CEO PFC Energy)
www.davidstrahan.com/b... Listen to audio

15)Richard Branson (Virgin)
www.davidstrahan.com/b... Listen to audio

2008 Apr 08 03:00 PM

[AlexS:]

The Dems have taken action. Just the other day Ed Markey (D-Mass) had hearings where he lambasted some oil executives. C-SPAN ran a picture of Markey, finger pointing, looking stern. What more do people want? It was a very stern picture. Well that about exhausts the Dems intellectual toolbox. Now there's nothing left but pandering and political power.

2008 Apr 08 03:26 PM

[AlexS:]

Here's Dorgan on ANWR:

Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)

Yeah, he's a real driller's friend he is (sarcasm alert).

2008 Apr 08 03:40 PM

[BKR:]

Phillip, I beleive the point your trying to make is that this just can't continue and I agree totally. The powers that are responsible for the price of oil and gasoline are watching the situation very closely and will (are) push(ing) the economy just short of the brink in order to get the last dollar out of the consumer.

2008 Apr 08 04:03 PM

[BKR:]

Phillip, I beleive the point your trying to make is that this just can't continue and I agree totally. The powers that are responsible for the price of oil and gasoline are watching the situation very closely and will (are) push(ing) the economy just short of the brink in order to get the last dollar out of the consumer.

2008 Apr 08 04:03 PM

[BKR:]

Phillip, I beleive the point your trying to make is that this just can't continue and I agree totally. The powers that are responsible for the price of oil and gasoline are watching the situation very closely and will (are) push(ing) the economy just short of the brink in order to get the last dollar out of the consumer.

2008 Apr 08 04:03 PM

[AlexS:]

So Philip, tell me, clearly when you talk about Dems and Reps, relatively the Dems are the party against drilling and the Reps for it. Anyone who is in the midst of discussing oil investing would know that. So your sentence "So the DEMOCRATS keep trying to fund additional drilling and the Vice President keeps killing it!" is an honest mistake, Democratic propaganda, or a baldfaced lie. So which is it? Do you know what you're saying is not correct, do you think of it as a white lie, or do you think that any lie would be justified if it helps the Dems? I'm really curious. I mean, do you think Hillary really thinks she dodged bullets, or is she just a baldfaced liar? And if she's a liar, why would anyone believe anything she presents, and do you think the same standard would (should) apply to you as well?

2008 Apr 08 04:19 PM

[User 170687:]

You ARE really giving Ben Stein a run for his money for worst financial reporting.

2008 Apr 08 04:22 PM

[Philip Davis:]

The Ultra-deep drilling funding is a very complex road and has been blocked by both sides of the aisle at times but, recently, it's been the Republicans blocking the bill. I don't make these things up, the link to the original article is right in my post, here's a background paper on the R&D issue:

dpa.aapg.org/testimoni...

I see you focus on this one issue and then launch into an off-topic attack on Hillary but the fact is that Bush (who IS a Republican) had done NOTHING to conserve energy, despite the attack on our country during his first year in office and has, in fact, become the world's single largest buyer of oil and has knocked out the oil production of Iraq and made virtually no progress improving that over 5 years.

Those are facts, probably a 3M barrel a day swing in consumption between Bush and pretty much anyone else who was faced with the same situation and gave a damn about solving the problem.

Defend it all you want, vote Republican no matter what, that's all up to you but I am mad as hell and I am not going to take it anymore and I will work for a real change in this country and that includes replacing jokers like Markey with men of action who will do a lot more than point fingers at these crooks.

2008 Apr 08 06:53 PM

[Philip Davis:]

User 161473 - I do appreciate the link list but I don't have a production question. While production could obviously be increased somewhat the answer is conservation. The US auto fleet consumes 25% of the world's gasoline with a world-wide low average of 17.9 mpg (vs Europe's 35 mpg requirement). That means a 5-year program to bring us up to EU standards could cut up to 5Mbd of global consumption. Pushing solar and other alt energy can cut another 3-4 Mbd over 10 years and if other countries are 1/2 as successful then global consumption can be reduced from 85 Mbd to perhaps 60 Mbd or less in about 10 years.

That would make production peaks pretty much a non-issue wouldn't it. When you are running out of something, finding ways to use it up faster is not always the best answer but just look at the Army, who awarded the fueling contract to Airbus even though the BA tankers used 20% less fuel because "fuel was not a consideration" - That kind of gross negligence comes from the top and it's a culture of waste that can only be eliminated by strong leadership.

2008 Apr 08 07:01 PM

[Bruce Pile:]

We have been hearing the speculation explanation ever since $45/bbl. We've had adequate inventories ever since $45/bbl. We've been at demand destructive levels ever since $45/bbl.

There are two types of explainers to keep in mind when it comes to what's happening with oil. First, there are geophysical types, the followers of Marion Hubbert who look primarily at the oil situation in the ground - the Marion Independent Nonaffiliated Deducer types or MINDs for short. This type has been writing The End of Cheap Oil and other science oriented works since oil was $12/bbl in the late 90s (Deffeyes, Campbell, etc.) Hubbert himself explained clear back in 1956 that the U.S. production would peak by the early 70s and he explained that by the early 2000s global production would be peaking. Then there is the second type of explainer, the economist types who look primarily at some soap opera of above ground intrique - the Market Oriented Reporters Of Nonsense or MORONs for short. These people have been publishing errant projections on oil for many moons. Just go back over Valueline's price range predictions on microfilm for the last 20 years or so (I have). Nearly every projection was wrong, both for up and down ranges and they totally missed the rise in oil of the last 5 years. You would have done very well investment-wise doing the exact opposite of their projections.

The MINDs, on the other hand, have been right all along. Hubbert was about the only human on the planet who knew U.S. oil would peak in 1971 and that global peak is happening very close to now. The End of Cheap Oil has indeed arrrived. And I really don't think it's just a speculation.

2008 Apr 08 07:10 PM

[User 175214:]

I have a question: peak oil theory predicts $200 (or more) a barrel, so doesn't filling up the SPR at $100 a barrel makes economic sense?

2008 Apr 08 07:58 PM

[circus_side...:]

No, filling the SPR @ $100 per barrel doesn't make sense. Lowering the speed limit 10% globally (reduce demand) does... at least until we find a technological solution. Our politicians won't push the agenda because the oil lobby is too far in their back pockets. They have no integrity and should be shot.

2008 Apr 08 11:46 PM

[cynic69:]

George Bush has faild at everything he has ever tried to do. The one good thing he has done is put oil in the SPR. The only thing that is going to help the oil crisis is to make the price of oil so dear that people stop driving SUVs, we get rid of long haul trucking (trains instead), stop fostering urban sprawl by building more freeways and using only the greenest of construction. Higher oil prices are going to good for the world in the long run but they are going to cause us a lot of pain.

I think its wonderful that there is oil in the ANWAR. If its still there in 50 years it will give the USA a little more security and technology will have advanced to the point that the effects of drilling will be greatly reduced.

2008 Apr 09 01:30 PM

[Steven Ward:]

Dorgan isn't making any sense. Private industry is pouring billions in deep and ultra-deep technology. Also, dorgan's home state of N. Dakota has two oil bearing layers, The Bakken and the Madison and they require no deep or ultra-deep technology. Dorgan should be funding research for further advances in horizontal drilling or fracturing as those technologies will enhance recovery in his state.

But this all maybe a political PR ploy to show the folks back home he is for expanded drilling when in fact he's not when you look at the details.

2008 Apr 09 02:04 PM

[LightnRod:]

High costs is due to the US people and govt has decided to purchase oil/gas from foreign countries rather than develop their own reserves and energy sources. Higher costs is the result.

Now the US people /govt have decided to convert land from food production to fuel production. So food costs are now increasing.

Is this not what the US people want?

To conserve? It does mean higher costs. See rest the world..

The US has it easy.

from the UK...

2008 Apr 09 08:12 PM

[huskerbob:]

Don't worry Phillip! Even if petroleum prices are set (as you seem to assume) completely arbitrarily, this problem will take care of itself. The price will go up until we consume less oil. Then it will go down. Of course there will be significant economic carnage, but we kind of brought that on ourselves by building an economy based on cheap oil.
Expecting the government to fix things seems, based on their track record, seems like a combination of idiotic/suicidal thinking.

2008 Apr 10 01:50 AM

[sansbrook:]

Sometimes it's just not worth responding. The lunacy is self evident.

2008 Apr 10 07:49 AM