Article

2005-04-05 Arabia

Oil Slips After Soaring to Record Over $58 a Barrel, OPEC Mulls Output Hike

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Posted by Fred 2005-04-05 00:00:00|| || Front Page|| [9 views since 2007-05-07] Top

#1 The fundamental issue is world demand for oil increases each year and the price (at current prices) has little impact on demand. The long term trend is a 2% per annum increase in demand. In recent years that has accelerated. last year it was 3.4%. World oil consumption is 84 million barrels per day. At a 3.4% annual growth the world needs an extra 500,000 bpd EVERY NINE WEEKS. Given it takes 5 years or more to bring a typical major oil production online, OPEC even if it has the oil in the ground can't bring enough oil to market at any price. There are only 2 ways out of this. The price of oil rockets to the point where developed countries overcome their fear of nuclear power or we have a major recession we have not seen the like of since the 1930s. I personally think both will happen.

Posted by phil_b 2005-04-05 2:55:00 AM|| 2005-04-05 2:55:00 AM|| Front Page Top

#2 There is NO surplus capacity. Stratfor has been harping on this for a while, and I believe 'em. If there were any surplus capacity, it would be producing due to the huge profits that are availible. So sayeth Stratfor, anyway.

Posted by gromky 2005-04-05 4:07:49 AM|| 2005-04-05 4:07:49 AM|| Front Page Top

#3 Noone wants to develop surplus capacity because everyone fears a repeat of 1986, when everyone in the US oilfield almost went out of business or went out of business.

Posted by Phil Fraering 2005-04-05 6:09:10 AM|| [http://newsfromthefridge.typepad.com] 2005-04-05 6:09:10 AM|| Front Page Top

#4 If there were any surplus capacity, it would be producing due to the huge profits that are availible.

Except that the "huge profits" wouldn't be so huge. You can't just multiply the CURRENT price per unit by the additional production and call that profit; each additional unit produced will drive the price down a bit.

I have no doubt that the Saudis have capacity they're not using, regardless of what Stratfor says. The Saudis know that the one thing they CAN'T let happen is sustained high prices. If prices are high enough for long enough, then wells in areas that are CURRENTLY unprofitable become attractive. At some point the US starts uncapping Oklahoma and Texas wells -- already happened, according to some reports -- and at a later point we start uncapping wells in Tennessee, Ohio, Pennsylvania, etc.

That all serves to make Saudi oil, and its attendant jihadi ties, less attractive. Eventually the US could decide that, while we're pumping our own oil anyway, we may as well clean up that rat's nest known as Saudi Arabia.

Posted by Robert Crawford 2005-04-05 9:27:47 AM|| [http://www.kloognome.com/] 2005-04-05 9:27:47 AM|| Front Page Top

#5 Gromky

Problem is not the lack of surplus capacity but the fact Arab countries have most/all the oil who is cheap to extract. It goes like this: you notice that at 45$ a barrel Alaska oil becomes profitable so you spend a fortune drilling oil wells but just when your oil wells come into production the Saudis lower price to 35$ so you have to close your wells and you lose your investments. Then they raise price again waiting for the next sucker.

Posted by JFM 2005-04-05 10:25:58 AM|| 2005-04-05 10:25:58 AM|| Front Page Top

#6 Real bottleneck in capacity is refining, not pumping.

Posted by too true 2005-04-05 1:53:31 PM|| 2005-04-05 1:53:31 PM|| Front Page Top

#7 I'm afraid the Saudi reserves are overestimated. And the real problem will not be how high oil price must be in order to make pumping in Alaska or elsewhere profitable, but how much energy do you need to spend to extract a barrel.
The Saudis no longer control the prices. Asian demand does.

Posted by True German Ally 2005-04-05 1:57:58 PM|| 2005-04-05 1:57:58 PM|| Front Page Top

#8 Yep. God's gift to the oil market has lost control of pricing.

Posted by Shipman 2005-04-05 5:19:17 PM|| 2005-04-05 5:19:17 PM|| Front Page Top

#9 As, too true, has mentioned, more refineries need to be built. The eco-bastards won't let it happen without throwing a sissy fit. A lack of power generating plants is one of the main ~~also price gouging~~ reasons for electricity problems in Cali-fornia. The electric de-regulation went very smooth in Texas because there are so many power generating plants in Texas, that close to half are put off-line for a period of time.

I apologize TGA, but I don't believe the increased Asian demand theory, for the high prices. I have been hearing this theory in the MSM for about a year now and my research doesn't show as a valid reason for the price increases. There is plenty of oil, refining is the problem.

Posted by Poison Reverse 2005-04-05 6:04:56 PM|| 2005-04-05 6:04:56 PM|| Front Page Top

#10 Rising demand for oil substantially from Asia is an incontravertable fact. And even if the Saudis have the 1.8m bpd spare capacity they say they have, it will be used up by rising demand sometime around the end of this year (on current trends).

Posted by phil_b 2005-04-05 6:21:51 PM|| 2005-04-05 6:21:51 PM|| Front Page Top

#11 Poison Reverse, the sudden jump of prices may be exaggerated but Asian demand is a reality and it continues to rise. While a speculation bubble might burst and oil prices fall some, we'll NEVER see the 20s again, and probably not even the 30s (except for short spells maybe).
It might be better this way. We need to push alternatives, we've waited far too long.
As for China, they are building up a huge strategic reserve. They know why. They'll buy up every barrel they can get if prices go down. And with their huge trade surplus, they have the dollars to pay for it.
I'll bet my *** on the fact that the Saudis DONT have the reserves they claim.
Unfortunately Europe doesn't care much about a substantial strategic reserve. Will be a rude awakening.
We will have a major recession, if not depression, and an oil crisis bigger than 1973 in this decade.

Posted by True German Ally 2005-04-05 11:11:20 PM|| 2005-04-05 11:11:20 PM|| Front Page Top

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