Article

2007-11-01 Home Front Economy

The new math of oil - why high prices are a good sign

Archived material is restricted to Rantburg regulars and members. If you need access email fred.pruitt=at=gmail.com with your nick to be added to the members list. There is no charge to join Rantburg as a member.

Posted by gorb 2007-11-01 02:56|| || Front Page|| [7 views ] Top

#1 The high oil prices today are because of high demand

And don't forget the devalued nature of the dollar. This ain't a fy2000 dollar anymore. The Chinese have billions rotting on the books. It's easy to dump them for something they need to keep the pending revolution at bay.

Posted by Procopius2k 2007-11-01 09:19|| 2007-11-01 09:19|| Front Page Top

#2 Maybe not so much. Dumping to hurt us will in turn hurt them.

One thing I like about globalization is that it tends to make war a bit more difficult when bombing the other guy damages your lines of supply.

To bad the muzzies don't make anything (other than grief).

Posted by kelly 2007-11-01 10:43|| 2007-11-01 10:43|| Front Page Top

#3 It is hard to figure that rising oil prices are good for U.S. when it means rising prices for everything consumed. It seems inflationary. Oh well, the new math was never my strong suit.

Posted by JohnQC 2007-11-01 10:44|| 2007-11-01 10:44|| Front Page Top

#4 It just means we are enriching our enemies. $5 oil (bankruptcy) or $40 oil (economic to produce CTL oil under sensible laws) is good for us. $90 oil just gives greater than drug smuggling level profits to islamic imperialists, Russian fascists and Venezuelan racists.

Posted by ed 2007-11-01 14:31|| 2007-11-01 14:31|| Front Page Top

#5 I'm with ed on this.

Also, Exxon-Mobil had a relatively bad quarter because the price of crude was high while the margin on refinery products was low (even slightly negative for some products).

Posted by mhw">mhw 2007-11-01 14:49|| http://hypocrisy-incorporated.blogspot.com/]">[http://hypocrisy-incorporated.blogspot.com/] 2007-11-01 14:49|| Front Page Top

#6 Demand push - but much of it is from China. How long until the Spratleys heat up?

One other question - I have always heard that sustained prices above $60 makes oil shales, lower quality oil fileds, and capped wells here in the US economically viable, as well as alternative sources of energy, such aas solar and coal gassification.

Well we are half again over that amount. When will we start seeing those coming on line to feed our domestic refineries, feed power demans (alternative energy) and cut our need for petroleum imports?

Posted by OldSpook 2007-11-01 15:00|| 2007-11-01 15:00|| Front Page Top

#7 From what I've heard the oil bidness in the intermountain area is booming. I suppose that includes the sort of things you mentioned OS.

Posted by Abdominal Snowman 2007-11-01 15:23|| 2007-11-01 15:23|| Front Page Top

#8 While it's true that the demand increase is driving the cost of oil, it's also true that higher prices have a dampening effect that even a strong economy can't fight forever. Dampening is the effect the Fed tries to get when it raises the short rate. Note the recent reduction in the short rate.

As for shale and oils sands, I believe (don't quote me) that oil sands are cheaper, therefore oil sands will be tapped first. This takes years and billions though, so it makes perfect sense for companies to be reluctant to make the investment if it's effects will eventually combine with a decreased demand and drive down the price oil far enough to make oil sands a big fat loser.

Posted by Mike N. 2007-11-01 15:31|| 2007-11-01 15:31|| Front Page Top

#9 Old Spook, there must be some truth in what you say about the price of oil. Kinda answers a question I had a couple of weeks ago.

20 years ago, my husband put quiet a bit of money in some oil stuff. Checks were regular for a long time. Then, I haven't had one in 10-12 years!

Out of the blue, one came a couple of weeks back! Wasn't much, but it did buy me a new pretty!

Posted by Sherry 2007-11-01 15:35|| 2007-11-01 15:35|| Front Page Top

#10 Nobody is going to put up the several billion $ to build these plants as long as oil prices can be dictated by OPEC. Investors got burned in the early '80s when oil prices plummeted. The only exceptions are Canadian oil sands producers who can make a barrel for less than $20.

If you want CTL, Shale, marginal fields, then the gov will need to guarantee a stable minimum price.

Solar is growing, not because of value, but because the German government buys solar electricity at 0.50 Euros/kWh (73¢/kWh) and then sells it to consumers at 0.20 Euros/kWh. Huge amounts of PV panels are going up in overcast Germany to take advantage of the subsidy. Contrast this with US wholesale electricity prices of 5-6¢/kWh and my electric bill of 10-12¢/kWh.

Posted by ed 2007-11-01 15:47|| 2007-11-01 15:47|| Front Page Top

#11 Oil is in limited supply. Prices will continue to increase as supplies decline. Oil is like the new antibiotic that is the only cure for some disease--it is the only game in town. Demand for the antibiotic is high and people are willing to pay whatever the price might be. The elasticity of demand is relatively low for oil; changes in supply greatly affect price although demand does not diminish with increases in price. The only way out of the problem with oil is to find substitutes for oil, i.e. have a paradigm shift in the way we power automobiles, e.g. hydrogen fuel cells. We could also increase the fuel efficiency of automobiles. Consumers will suffer in the short run. There will be a push to increase wages to keep up with increasing transportation costs Businesses will pass on the costs to consumers of increases in oil prices resulting in inflation. We need an energy policy that is realistic. We are going to have to accept some of the environment-energy tradeoffs. We need a long-run energy policy that is not based on sound bites that sound good on television and are voiced to get votes and get elected.

Posted by JohnQC 2007-11-01 16:02|| 2007-11-01 16:02|| Front Page Top

#12 Apparently the Canadians are surface mining the oil shale/sands (I don't remember the details of the article I read some time ago) as fast as they can get the equipment out into the woods.

Posted by trailing wife">trailing wife 2007-11-01 17:34|| 2007-11-01 17:34|| Front Page Top

#13 Old Spook,
At current projected prices of above $60 per barrel a LOT of projects are being funded. Several oil shale pilots are underway in Colorado and nearby. Oil and tar sand production in Alberta has expanded to what the infrastructure and environment can manage (and maybe beyond). Offshore production in over 5000' of water is underway. Etc. I bet 20% of new North American oil production is the direct result of high prices. What that means is - take away the oil company profits and lose substantial supply next year and the year after.
High projected prices are also funding some intriguing long-term science. Chevron and some government agency are just starting a research project on developing strains of algae to create cost-effective biofuels. Long-term, but I suspect this direction (whether Chevron or not) will be essential in a few decades.

Posted by Glenmore">Glenmore 2007-11-01 19:29|| 2007-11-01 19:29|| Front Page Top

#14 "There will be a push to increase wages to keep up with increasing transportation costs" There may be a push, but there won't be any increase in wages due to increasing transportation costs. Heaven forbid.

Posted by Anguper Hupomosing9418 2007-11-01 19:51|| 2007-11-01 19:51|| Front Page Top

#15 See? Glenmore actually knows what I thought I was talking about. ;-)

Posted by trailing wife 2007-11-01 20:39|| 2007-11-01 20:39|| Front Page Top

23:59 JAB
23:15 ed
23:13 Old Patriot
22:55 Icerigger
22:53 Thromotle Hapsburg8103
22:51 Red Dawg
22:08 Icerigger
22:03 Frank G
22:01 Zenster
21:46 Jan
21:38 trailing wife
21:34 DarthVader
21:32 trailing wife
21:30 trailing wife
21:11 Icerigger
21:07 Procopius2k
20:59 SteveS
20:58 TomAnon
20:58 Frank G
20:54 Whiskey Mike
20:53 Alaska Paul
20:47 Frank G
20:39 trailing wife
20:39 Alistaire Spains7209