I have yet to hear a definitive discussion on why oil is priced so high? Who's talking this issue w/clarity?
We've heard 20-30% of the price of oil is due to speculation, how much for simple supply and demand, how much due to global terrorism: so who has a definitive and clear picture about why oil is so high and what is the prognosis for the future. Why are we being saddled with these prices and how/who can make the difference in turning this trend around?
Answers
2183 points
ChaosNantuko answered one year ago …
Ok, heres the explanation.
The lifecycle of a single oil field goes something like...
field is built.
oil production ramps up over a number of years.
oil production peaks, stays the same for a short period of time, then
oil production quickly declines.
It turns out that, based on historical evidence, countries follow similar lifecycles when it comes to oil, because it gets harder and harder to find big fields over time, and so it becomes more and more expensive to produce.
At this point in time, many of the major oil fields are peaking, and soon to be in decline. This includes many of the fields in Saudi Arabia and other OPEC nations. If you look at oil production from Mexico, this life cycle is apparent.
A look at this graph of USA's oil production is revealing http://gailtheactuary.files.wordpress.com/2007/03/us-production.jpeg
W hen it comes to the supply side of things, its a Geology issue, not the Geopolitics issue some claim, and not a monopoly/conspiracy issue like others claim. This kind of production pattern has been demonstrated in many other countries. Recently, the world was stunned when Mexico's production of oil started declining a year or so ago, further proving that its simple Geology thats the culprit.
Once we realize its Geology that we're fighting against, the reality becomes much simpler.
As the difference between supply and demand increases, due to increasing demand (China and india still both have less then 20 vehicles per 1000 people. America has over 700. China and india are trending towards industrialization, so regardless of what roadbump gets in the way, demand is going up), and decreasing supply (due to geological reasons), the price of oil will continue to go higher and higher and higher. BTW, this was all predicted years ago, so we're not just matching theories to what we're seeing.
As for how we can make a difference turning the trend around, thats a much more difficult question. Many "renewable" energy sources are dependant on oil at one point or another, whether it be in the building process, or the maintenance process. I think the best bet is for the government to move towards better public transportation systems, as they are significantly more efficient then individual cars driving places. Even then, we'll have to find a good renewable energy eventually.
In the mean time, i think we may as well profit from the increasing oil prices, but thats getting off topic.
2183 points
ChaosNantuko answered one year ago …
for further clarification... i'm not saying we're running out of oil, there is still plenty left. I'm just saying that oil production is slowing.
We've had so few discoveries of new fields, so now that the older fields are entering the peak/decline stage, production is bound to decrease.
1130 points
sundarkambam answered one year ago …
This link will explain the complete picture to you:
http://www.onlineopinion.com.au/view.asp?article=7437&page=0
A few extracts :
"One of the stories used to support the oil futures speculators is the allegation that China’s oil import thirst is exploding out of control, driving shortages in the supply-demand equilibrium. However, the facts do not support the China demand thesis.
The US Government’s Energy Information Administration (EIA) in its most recent monthly Short Term Energy Outlook report, concluded that US oil demand is expected to decline by 190,000 barrels a day (bpd) in 2008. That is mainly owing to the deepening economic recession. Chinese consumption, the EIA says, far from exploding, is expected to rise this year by only 400,000 barrels a day. That is hardly the "surging oil demand" blamed on China in the media. Last year China imported 3.2 million bpd, and its estimated usage was about 7 million bpd total. The US, by contrast, consumes about 20.7 million bpd."
One dramatic line stands out
"The oil price today, unlike 20 years ago, is determined behind closed doors in the trading rooms of giant financial institutions like Goldman Sachs, Morgan Stanley, JP Morgan Chase, Citigroup, Deutsche Bank or UBS. The key exchange in the game is the London ICE Futures Exchange (formerly the International Petroleum Exchange). ICE Futures is a wholly-owned subsidiary of the Atlanta Georgia International Commodities Exchange. ICE in Atlanta was founded in part by Goldman Sachs which also happens to run the world’s most widely used commodity price index, the GSCI, which is over-weighted to oil prices."
3963 points
MNSL answered one year ago …
I particularly like answer given by Sundarkambam. He has given some good points.
What is the main reason for sudden surge for some commodities last two days?
Speculation plus dealings in complex instruments 24x7
I think same thing will happen to commodity market what happened to real estate market and credit market. If investors want to make profit this is the greatest opportunity that they will have in the commodity market. With slower growth, inflation, recession etc demand for commodities also will come down.
Still we have enough oil and other commodities to meet the demand. India and China producing more grain now and they do export as well. Recently India enforced banned on some commodities in the futures market and they will ban others as well very soon to control inflation .India is taking some bold steps to control inflation. Very soon they will bring down commodity prices and as a result some of their industries will have competitive advantage in the world market in next 02 years. Any weakness in the Indian market will give great opportunity for long term investors
117 points
driver answered one year ago …
Sundarkambam's comment in the last paragraph began, ""The oil price today, unlike 20 years ago, is determined behind closed doors in the trading rooms of giant financial institutions like ........". The names mentioned are those of the same financial institutions whose lax and greedy realestate loan policies have put the US and world economy in a tail spin. Does this account for such a fast rise in oil and a means for the greed and recovery of said institutions?
Read more from driver flag as abuse great answer119 points
ChuckS answered one year ago …
A big part of the problem is governments. The US congress has blocked drilling in Alaska for at least 7 years. I've heard that there are 10-18 billion barrels there. If they had allowed it, we would now be getting perhaps 1 million barrels/day (MBD), which would help a lot. Also, I heard that there is perhaps 89 billion barrels offshore, which could supply perhaps 11 MBD. I'm figuring that they would want to pump at a rate that would yield for 20 years. I also heard that about 40-50% of the oil in government owned land is off-limits. To be honest, the liberals should say that the high prices are the price we have to pay to protect the environment, since that's the stated reason for the restrictions.
Also, governent owned oil production - from Saudi Arabnia to Venezuala - is less innovative and efficient that free enterprise production. Venezuela had a significant reduction in output when Chavez nationalized the oil industry.
I heard that T. Boone Pickens recently said that world demand is 87 MBD and supply is 84 or 85 MPD. I've read that demand is expected to go up to 115 MBD several years from now, if we can produce it. Demand was only 74 MBD 5 years ago, so increasing supply is a real challenge.
People say that we should pressure OPEC to increase production. That would be good, but we should even more pressure Congress and the presidential candidates to allow increased US production.
Incidentally, more domestic production would mean more jobs in the US and less money going to Iran, Saudi Arabia, and Venezuela. If some of the new oil gets sold to another country, that's still good. It would increase the world supply and bring money into the US instead of Iran, etc.
Alternative energy will perhaps be good eventually, but I think most of it is less efficient and more expensive at this time, if you consider all the costs and subsidies.
Another factor is that dozens of blends of reformulated gas required by many regions increases the cost of refining, which I think is a big part of increased gas prices every summer - I think starting about May.
102 points
jwill answered one year ago …
I would add that there are significant oil reserves in the form of oil shale and oil sands which are just beginning to be explored. We should also develop nuclear energy as a clean and relatively cheap abundant source of power. The disposal of nuclear waste can be largely mitigated by recycling fuel rods the way the French do. The remainder of the waste is low-level waste which can be disposed without significant expense or extraordinary measures.
Read more from jwill flag as abuse great answer106 points
bdanaher17 answered one year ago …
96% of US oil producing land is off limits!!
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Philip answered one year ago …
Oil is priced in US dollars. The US dollar has been tanking because our politicians are spending money to try and buy votes (recent tax rebate). The cost of the US involvement in Afghanistan and Iraq have devalued the US$ against all currencies. The same politicians that caused this problem are asking the Oil companies why the cost of oil is so high. This is becoming a joke.
Speculators recognize the lunacy in Washington and laugh all the way to the bank.
