The Price of Oil/Gas and why

[kiwijohn]

US$132.00 a barrel today..................

 

[fatcat216]

You think that's funny...This one will have you snorting your coffee onto your computer screen:

House passes bill to sue OPEC over oil prices
Tue May 20, 2008 2:27pm EDT


By Tom Doggett

WASHINGTON (Reuters) - 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.

The measure passed in a 324-84 vote, a big enough margin to override a presidential veto.

The legislation also creates a Justice Department task force to aggressively investigate gasoline price gouging and energy market manipulation.

"This bill guarantees that oil prices will reflect supply and demand economic rules, instead of wildly speculative and perhaps illegal activities," said Democratic Rep. Steve Kagen of Wisconsin, who sponsored the legislation.

The lawmaker said Americans "are at the mercy" of OPEC for how much they pay for gasoline, which this week hit a record average of $3.79 a gallon.

The White House opposes the bill, saying that targeting OPEC investment in the United States as a source for damage awards "would likely spur retaliatory action against American interests in those countries and lead to a reduction in oil available to U.S. refiners."

The administration said less oil going to refineries would limit available gasoline supplies and raise fuel prices. House passes bill to sue OPEC over oil prices

Foreign investment in U.S. oil infrastructure has declined in the last decade. But the state-owned oil companies of several OPEC nations are owners of U.S. refineries, and those investments could be affected if the legislation becomes law, said Arlington, Virginia-based FBR Capital Markets Corp.

The bill also requires the Government Accountability Office to carryout a study on the effects of prior oil company mergers on energy prices.

The Senate would still have to approve the House measure.

The Senate previously approved similar legislation as part of a broad energy bill. However, the OPEC-suing provision was removed after White House opposition in order to get the underlying energy legislation signed into law.

(Editing by Christian Wiessner)

http://www.reuters.com/article/wtMostRead/idUSWAT00953020080520

I honestly thought is was out of The Onion when I read it.

 

[oldguy]

On the morning news just a minute ago they were predicting a higher then average hurricane season possibly driving gas to $5.50 - $6 a gallon by mid summer

 

[BSWIFT]

On the morning news just a minute ago they were predicting a higher then average hurricane season possibly driving gas to $5.50 - $6 a gallon by mid summer

Again, the profiteering of the futures market is pushing crude prices up more. I really hope the bottom falls out of these speculators butts. If the other 48 states override Florida and California, possibly, maybe, domestic drilling and production will return.

 

[2strokerfun]

Seems to me that it used to be illegal to trade oil futures in the U.S. I remember in about 1981 a local rich guy whom the local minor league field was named after was sent to federal prison for trading futures (so, of course, they ignored the millions he donated and renamed the field after he was convicted). So, doing some quick research, it appears crude futures trading started on the NY mercantile in 1983. Wonder how it would affect oil prices if they stopped trading futures again.

 

[fatcat216]

Seems to me that it used to be illegal to trade oil futures in the U.S. I remember in about 1981 a local rich guy whom the local minor league field was named after was sent to federal prison for trading futures (so, of course, they ignored the millions he donated and renamed the field after he was convicted). So, doing some quick research, it appears crude futures trading started on the NY mercantile in 1983. Wonder how it would affect oil prices if they stopped trading futures again.

Bing Bing Bing. I believe we have a winner. ;)

I also agree wholeheartedly with Rob that the devaluation of the dollar is a huge culprit. (So how many of you guys who have been bashing Prius drivers as estrogen charged eco-Nazis have your trucks parked for the summer?? lol. Times are achanging.)

The next post has a really interesting paragraph in it about unconsidered supply sources feeding China (and other countries) demand, which will curb the rise. It is an intriguing notion, but not one I'm inclined to believe will have a huge impact here, largely because of the value of the dollar and hysteria on the news/in NY.

The analysts who predict lower prices say there are supplies of oil that the bullish analysts are missing. “This year will be a year in which supply will be put into the market by stealth by OPEC and by countries we call black-hole countries,” said Edward L. Morse, chief energy economist at Lehman Brothers. China is one example, he said.

 

[fatcat216]

A friend of mine calls this the Chicken Little approach to oil price discussions.

The Cassandra of Oil Prices

The New York Times

By LOUISE STORY
Published: May 21, 2008

Arjun N. Murti remembers the pain of the oil shocks of the 1970s. But he is bracing for something far worse now: He foresees a “super spike” * a price surge that will soon drive crude oil to $200 a barrel.

Arjun Murti at Goldman Sachs studied the 1970s’ oil spikes. One had drivers lined up at a gas station in San Jose, Calif., in 1974.

Henny Ray Abrams/Associated Press

The oil options pit at the New York Mercantile Exchange; oil prices touched $129.60 Tuesday.

Mr. Murti, who has a bit of a green streak, is not bothered much by the prospect of even higher oil prices, figuring it might finally prompt America to become more energy efficient.

An analyst at Goldman Sachs, Mr. Murti has become the talk of the oil market by issuing one sensational forecast after another. A few years ago, rivals scoffed when he predicted oil would breach $100 a barrel. Few are laughing now. Oil shattered yet another record on Tuesday, touching $129.60 on the New York Mercantile Exchange. Gas at $4 a gallon is arriving just in time for those long summer drives.

Mr. Murti, 39, argues that the world’s seemingly unquenchable thirst for oil means prices will keep rising from here and stay above $100 into 2011. Others disagree, arguing that prices could abruptly tumble if speculators in the market rush for the exits. But the grim calculus of Mr. Murti’s prediction, issued in March and reconfirmed two weeks ago, is enough to give anyone pause: in an America of $200 oil, gasoline could cost more than $6 a gallon.

That would be fine with Mr. Murti, who owns not one but two hybrid cars. “I’m actually fairly anti-oil,” says Mr. Murti, who grew up in New Jersey. “One of the biggest challenges our country faces is our addiction to oil.”

Mr. Murti is hardly alone in predicting higher oil prices. Boone Pickens, the oilman turned corporate raider, said Tuesday that crude would hit $150 this year. But many analysts are no longer so sure where oil is going, at least in the short term. Some say prices will fall as low as $70 a barrel by year-end, according to Thomson Financial.

Experts disagree over the supply of oil, the demand for it and whether recent speculation in the commodities markets has artificially raised prices. As an energy analyst at Citigroup, Tim Evans, reportedly put it, trading commodities these days is like “sticking your hand in a blender.”

Whatever the case, oil analysts like Mr. Murti have suddenly taken on the aura that enveloped technology analysts in the 1990s.

“It’s become a very fashionable area to write about,” said Kevin Norrish, a commodity analyst at Barclays Capital, which began predicting high oil prices around the same time as Goldman. “And to try to get attention from people, people are coming out with all sorts of numbers.”

This was not always the case. In the 1990s, oil research was a sleepy area at banks. Many analysts assumed oil prices would hover near $15 to $20 a barrel forever. If prices rose much above those levels, they figured, consumers would start conserving, suppliers would raise production, or both, causing prices to decline.

But around the turn of the century, oil company after oil company started missing predicted production. Mr. Murti, who covers oil companies like ConocoPhillips and Valero Energy, decided to study the oil spikes of the 1970s.

Since starting his career at Petrie Parkman & Company, a Denver-based investment firm acquired by Merrill Lynch in 2006, he had been conservative in his calls on oil. But by 2004, he concluded the world was headed for a long supply shock that would push prices through the roof. That summer, as oil traded for about $40 a barrel, Mr. Murti coined what has become his signature phrase: super spike.

The following March, he drew attention by predicting prices would soar to $105, sending shock waves through the market. Angry investors questioned whether Goldman’s own oil traders benefited from the prediction. At Goldman’s annual meeting, Henry M. Paulson Jr., then the bank’s chief executive and now Treasury secretary, found himself defending Mr. Murti.

“Our traders were as surprised as everyone else was,” Mr. Paulson reportedly said. “Our research department is totally independent. Our trading departments have no say about this.”

Over time, Mr. Murti was proved right again. Oil crossed $100 in February. Mr. Murti’s forecasts now feed into many of Goldman’s economic and corporate forecasts, affecting research of companies like Ford and Procter & Gamble. His research is distributed widely among investors.

“Even if you disagree with their views, the problem is that Goldman does carry so much credibility,” said Nauman Barakat, senior vice president for global energy futures at Macquarie Futures USA. “There are a lot of traders who are going to buy based on their reports.”

His sudden fame unsettles Mr. Murti. He rarely grants interviews, citing concerns about privacy, and he declined to be photographed for this article. He is not the bank’s only gas prognosticator: Jeffrey R. Currie predicts oil prices out of London.

Mr. Murti, for his part, discounts suggestions that his reports affect market prices. “Whenever an analyst upgrades a stock or downgrades a stock, sometimes you get a reaction that day, but beyond a day, fundamentals win out,” he said.

Mr. Murti falls into the camp of oil analysts who believe that supply is likely to remain tight because of geopolitical factors. These analysts predict higher prices because production is declining in non- OPEC countries like Britain, Norway and Mexico.

The analysts who predict lower prices say there are supplies of oil that the bullish analysts are missing. “This year will be a year in which supply will be put into the market by stealth by OPEC and by countries we call black-hole countries,” said Edward L. Morse, chief energy economist at Lehman Brothers. China is one example, he said.

But while oil and gas prices have been rising for a while now, Americans have only just begun to reduce gasoline consumption, so their efforts to conserve have not dragged down oil prices.

“The fact that the U.S. gasoline demand can be down and that the U.S. gasoline consumer is no longer driving world oil prices is a monumental event,” Mr. Murti says. He spends most of his time talking to money managers and analysts, many of whom keep asking him if oil prices will stay high if speculators abandon the market, and says he applauds investors for driving up oil prices, since that will spur investment in alternative sources of energy.

High prices, he says, “send a message to consumers that you should try your best to buy fuel-efficient cars or otherwise conserve on energy.” Washington should create tax incentives to encourage people to buy hybrid cars and develop more nuclear energy, he said.

Of course, if lawmakers heed his advice, oil analysts like him might one day be a thing of the past. That’s fine with Mr. Murti.

“The greatest thing in the world would be if in 15 years we no longer needed oil analysts,” he says.

 

[Filthy_McNasty]

You think that's funny...This one will have you snorting your coffee onto your computer screen:



http://www.reuters.com/article/wtMostRead/idUSWAT00953020080520

I honestly thought is was out of The Onion when I read it.

So, if I understand the article right, Congress has the idea that, if they pass a law that says OPEC must abide by U.S. laws, then by God those OPEC scoundrels wouldn't dare disobey our laws and will just fall submissively in line. Sound about right?

The last time I checked the Middle East was definitely not on U.S. soil, so my guess would be the members of OPEC and the leaders of their countries will laugh all the way to the bank as they thumb their noses at our Congress and tell them where to stick their new law...

 

[rickyd]

Has the price per barrel gone up because out dollar is not worth as much?

 

[XRpredator]

Has the price per barrel gone up because out dollar is not worth as much?

yes

 

[fatcat216]

Here's another blurb on commodities, pension funds, and the Senate Hearings.

http://www.businessweek.com/bwdaily...8/db20080520_524455.htm?campaign_id=rss_daily


It does a nice job of explaining the surge in index speculators and the lack of regulation going on by the CFTC. I'm sure I'm not summarizing this very articulately but it's a long article that may not tweak everyone's interest.

In short, pension funds get exempted from reporting requirements which normally limit investment position. Through swap agreements with the investment banks there has been a 20 fold rise in investments in the last five years- thus driving up prices- equal in demand increase we've seen by China......Those investors are Goldman Sachs type investment banks. You know...guys like Bear Stearns that we just bailed out with your ever devaluing dollar? Of course, the ever devaluing dollar spurs more investment in long funds, etc. A round robin effect which diminishes the effect of supply and demand on price. (But of course, demand is up, too.) In short, you get to pay more for gas, and anything else that comes in from overseas. Assuming you don't lose your job in the process of recession and inflation. Neato.

How come Jaybird hasn't stopped in on this thread to share his profound knowledge of this stuff. I thought he was a wizened old bird when it came to oil futures? Come on Jaybird...it is safe to come out and play on this one. Your time has come. It's in the news and topical. Or was that someone else? I'm always confusing you guys.

 

[Patman]

Might I suggest a book called "Pirates of Manhattan" for some very interesting reading.

 

[Jaybird]

We can wax philosophical forever and two days on this issue, and nothing will change until we figure out what the real culprit of inflating prices are. And by golly it seems to me that if we look close...it always turns out that supply and demand hold the purse strings.

I made my thoughts known earlier in this thread concerning what is effecting the supply side of this equation. And since it is clear that the demand side is rising, the only way to stabilize pricing, is to bring the supply side up.
Unless of course there are outside forces working on this issue, say for example futures traders and investment bankers who get free rides for bad deals. And let's not forget big gov that thinks it can manage an economic system using it's controls....

When you meddle with eco101, you get what you get.
Proven time, and time, and time again.

If the other 48 states override Florida and California, possibly, maybe, domestic drilling and production will return.

Other 48?
See...now I am confused. I thought one of the leading Pres candidates said there are 57 or is it 58 states?...

i want the black dude to win.

That is exactly what we would have too.
That and another pocket full of sharp. Way sharp.
But, he is in good company. A whole tote full of sharp to choose from this go around.
It's &%#*in' sad folks. ('scuse my Francaise, bitte)

 

[Tony Eeds]

Jaybird is correct about supply and demand.

Couple that on the fact that America has been shoving inflation down the throats of the rest of the world via devaluation of the dollar and you create a perfect storm when you toss in market uncertainty (Iraq), increased consumption of countries other than the traditional oil consumers (China and India).

Now for an aside ...

Politics and Sports are pablum for the masses to distract us and keep our eye off the ball.

We are sitting on the sideline witnessing a battle royal for control of earth's economic health. Big Government and Big Business are the players.

Choose sides my friends and sit back and watch ...

Both sides are in it for the long haul

Big government can change the rules all it want's but big business has the cash to play the game to the hilt. Only time will tell who wins.

One thing for certain ...

Big Government = Socialism = less for all ... Obama said so :nener:

Big Business = Capitalism (their sort) = messy but unparalleled opportunity for those that know where to look for opportunity.

 

[fatcat216]

Might I suggest a book called "Pirates of Manhattan" for some very interesting reading.

Thanks Patman. It actually wasn't the book I was thinking of when I looked it up just now. Much more of a personal adviser read? It seems I've been knee deep in mechanical and the like reading. I'll take a peek at it.

[Funny- you can buy it on Amazon used for twice what it sells for new. Is this some sort of book that pays dividends sitting on your shelf?? :debil:]

 

[Patman]

It's an eye opener no matter what prospective you look at it from. :)

The reality is that oil is only a very small part of the bigger picture and as has pointed out most are distracted by sports and politics with almost the rest taken with the oil/fuel price issue.

 

[Brandon1]

The only thing I do not like about drilling around Fl is the weather tearing the drill rigs apart. And being a local scuba diver (Brooksville West Coast) it would make the west coast diving worse. As is it now it is about a mile a foot heading out and maybe 100 vis on a good day. I also do not mind the farming way of life beings I also team rope and have horses. But if it gets to pricey not to be able to ride my bikes that will be hell

 

[Patman]

Not in my backyard and let other people change seems to be part of what has kept us in the pickle we're in.

 

[BSWIFT]

Not in my backyard and let other people change seems to be part of what has kept us in the pickle we're in.

If I had the mineral rights on my place, I'd sink a well. 1-2 barrels a day would make it worth looking at.

 

[stumanarama]

Could the rise in crude oil over the years also be related to the fact that it is a non replinishable resource? perhaps instead of trying to figure out ways to get more out of the earth faster we should take it as a cue to start investing heavily in more renewable resources.

 

[kiwijohn]

I heard part of a news broadcast about oil prices that was very upsetting! Especially since ours has gone up 10 cents in one day!

Did you know the oil price is not set by physical costs or supply and demand but by the stockmarket? they speculate on the price which raises / lowers the price depending on how the market has reacted / is reacting to current speculations - not related to actual costs in any way.... I'll try and find the weblink from the interview - amazing and more than a little depressing :(

 

[just-startin]

What annoys me is that high speculative spot prices seem to manifest themselves at the pump almost instantly ( despite the fact that there are stores in-country, purchased at older, cheaper prices ) but production price drops seem to lag forever or not even materialise.

I must admit that I look around at how much our lifestyle is currently dependant on cheap, abundant, energy. I harbour a certain nagging feeling of panic at the prospect of what a crazy shift in energy prices will bring.

At the same time, China and India are only just starting to come online and producing US $2500 brand new cars like the Tata Nano for their massive populaces http://en.wikipedia.org/wiki/Tata_nano

 

[kiwijohn]

Great points - here's FOX networks blurb.....
http://www.foxnews.com/story/0,2933,166038,00.html
And this one reckons 60% of the oil price is due to specualtion only....tsk tsk.

http://www.globalresearch.ca/index.php?context=va&aid=8878

But can we do anything? Seems obvious to me that there are no dirt bike riders at the NY or Tokyo exchange!

 

[kiwijohn]

What annoys me is that high speculative spot prices seem to manifest themselves at the pump almost instantly ( despite the fact that there are stores in-country, purchased at older, cheaper prices ) but production price drops seem to lag forever or not even materialise.



One of my friends did a stint at Mobil Oil here in NZ as a crude oil buyer, and the rule then (10yrs ago) was to stockpile at the lowest price they could then set the price on the new stock when that came into the market, but competition kept the oil companies reasonably even... but now, they can bump the price up whenever they like, and it's more like a challenge to see who can go the highest the earliest :p

 

[ignition retard]

I must admit that I look around at how much our lifestyle is currently dependant on cheap, abundant, energy. I harbour a certain nagging feeling of panic at the prospect of what a crazy shift in energy prices will bring.

It's not an energy problem, its a liquid fuel problem, but you're right, if the prices of product shipping and production go up due to expensive petroleum then the standard of living goes down.