Comments on: Anything but oil Thu, 21 Jul 2016 07:57:19 +0000 hourly 1 By: JKEMP Tue, 22 Dec 2009 17:43:32 +0000 OPEC appears to concur on the danger posed by permanent demand destruction:

According to the Financial Times today, the cartel on Tuesday said high prices and the economic crisis had triggered a shortfall in demand among members of the Organisation for Economic Co-operation and Development, the rich countries’ club.

“The crisis appears to have induced a permanent loss in oil demand in OECD and slower rate of growth in non-OECD, due to policy measures and changes in consumer behaviour,” the cartel’s economists told ministers in a presentation.

By: justanotherjoe Tue, 22 Dec 2009 15:26:48 +0000 There was an interesting article on 9 Oct 2009 by Ed Wallace regarding oil prices. Speculators are what’s keeping prices up. He says according to the data oil usage in the US actually peaked in 2005 and currently is 2 million barrels a day below that level. In addition, oil reserves are currently at a 25 year high. There are literally tankers out there with no place to drop their oil. When oil hit $147 a barrel last year there wasn’t a single gas station anywhere on the planet that couldn’t sell you all the gasoline you wanted. Where is the supply and demand in that? Currently we are told that the price is going up because of the dollar. Yet the dollar lost 15% of it’s value while oil went up 231% since last December. Worse still, Ed Wallace believes that many of the banks have used the cheap money that got from the TARP funds for oil speculation rather than for making loans. Why are speculators allowed in the oil market at all? Something that has this much impact on our economy should be based on the demand of end users not banks and institutions that have so much money in the oil market that they effect the price for their own gains with no intention of ever taking delivery of the contract.

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By: astro_goat Tue, 22 Dec 2009 12:42:39 +0000 One important point that Mr. Kemp’s analysis does not mention is US oil consumption in the agriculture and food sector. While individual consumers can switch from SUVs to more efficient cars the same is not true for the ag sector. So often forgotten, food production, processing and distribution consumes 17% of US oil imports and will not soon be replaced with green energy alternatives.

Simply put, our corn / soybean based food system runs on diesel fuel to plant (including herbicides and insecticides), harvest, process and ship food to market and will not be easily replaced with green energy unless a radical change is made to producing food such as ending corn and soybeans subsidies and encouraging grass based farming that uses much less fuel, as well as local processing and distribution, something the USDA (and the big food industries) have done its best to eliminate since the early 1970s.

Americans are in for a real shock when the heavily subsidized cheap food (thanks to cheap oil) begins to reflect the real cost of production and current oil prices, let along $147 per barrel oil prices of July 2008.

While energy at the pump may be down from highs of $4.70 per gallon, the July 2008 prices have already severely impacted the agriculture sector forcing many more farmers out of business. In southwest Virginia, where my wife and I operate a grassed based dairy, the dairy industry is in trouble (due to high energy costs and very low milk prices) and while most of us don’t give it much thought, those farmers have consumed their seed money to stay in business through this winter. Due to the tight credit markets, banks are not willing to lend to farmers for this springs planting which will likely result in dairy shortages and higher milk prices in the fall of 2010 when the grass is gone and there is no forage to keep the cows in production over the winter. While there may be a lot of cheap ground beef on the market when those cows are sent to slaughter, milk prices will soar and the government is going to have a tough time dealing with that as the USDA has already failed to address the depressed milk prices verses the high cost of production brought on by $70 per barrel oil.

By: Diogenes21 Tue, 22 Dec 2009 12:22:46 +0000 I have an idea that would work if you tried it. ” No Gas Wednesday” simple . Do not buy gas on Wednesdays ! ever! oil will begin to stockpile due to lack of sales no matter how much they cut back production. In the end the little man will win.

By: ChrisJCook Tue, 22 Dec 2009 11:10:34 +0000 I think that the 2006/8 bubble and ‘spike’ in the oil market, and the current bubble are financial phenomena 16/114161/introducing-financial-oil-leas ing/

It seems to me that the oil market price veers between a lower bound and an upper bound in the same way that water swills backwards and forwards on the decks of a RoRo ferry, and with similarly destructive potential.

This volatility is of course in the interests of market makers/speculators (the same thing) – such as investment banls and hedge funds – who aim to buy and sell oil and derivatives for a transaction profit.

For producers & consumers, and investors like ETFs who aim to take on long term energy price risk, this volatility is a tax or imposition.

It is my thesis that Shell essentially invented a new ‘oil leasing’ mechanism in 2005, enabling them to deal directly with ETF investors and thereby ceasing to pay a volatility tax to middlemen. This ability to borrow money, and lease out oil in return, was soon taken up by others and expanded once interest rates went to zero and funds flooded in to alternative assets.

But what has also happened, IMHO, is what Mike Riess calls ‘modern market manipulation’ on a macro scale – of whch the tin and copper markets gave good examples.

It seems to me that one or more producers, probably at least one oil major and at least one sovereign nation, have – financed by funds via investment bank intermediation – been inflating and supporting the global oil market price via the BFOE/Brent complex. Since only $3bn to $4bn in BFOE quality oil is produced each month such ‘macro’ manipulation does not require particularly deep pockets in global terms.

It seems to me that money invested with investment banks by energy funds is what is being used – plus liberal applications of hype – to pump up the oil price to the upper bound.

The bubble burst once already and collapsed back to the lower bound, but the continuing zero interest rates have ensured that the All the King’s Men have been marched back to the Top of the Hill again.

In a market that is not totally dysfunctional – and it is possible (see below) to imagine a ‘Peer to Peer’ dis-intermediated architecture which will work – then it would be quite possible to achieve a measure of price stability. In fact, that’s how the oil market was for maybe 50 years or more.

The question then is at what level the global energy price (in fuel use) of carbon should be set, and to work back to a fair allocation of the proceeds from this price as between consumer nations, service providers, and producer nations.

To achieve this means abandoning the completely hopeless (but hugely remunerative to the usual suspects) Kyoto/Copenhagen attempt to monetise intrinsically worthless CO2 and to monetise the energy value of carbon instead. I outlined how all this might look in Rotterdam recently in the context of gas. -market-presentation-03-12-2009

By: OracleOfMumbai Tue, 22 Dec 2009 08:54:43 +0000 What a load of ignorant baloney. What “demand destruction” is this idiot talking about? Gasoline demand is virtually unchanged in the US despite a massive recession and the fatuous ethanol mandate that takes up ever increasing percentage of gasoline supply despite horrific ecologic problems and economic subsidies.

This xenophobic fool is making a cardinal mistake by focusing on developed economies and totally ignores what has been driving demand (and prices) – the developing countries (BRIIC – Brazil, Russia, India, Indonesia and China). Imagine what happens to demand as the US and other Western economies recover – supplies will tighten yet again and prices will follow.

But why did oil spike in the first instance? It’s not because we are running out of oil – far from it. The “problem” was that oil was priced too cheaply for too long. Producers had vast excess capacity and prices collapsed to $10 bbl just a decade ago. Prices were so low for so long that it offered little incentive for new production to be brought online and the industry was caught flat footed when world demand quickly accelerated (thanks to loose US monetary policy that created a massive world wide asset bubble).

The industry belatedly responded (who can blame them for being dubious after so many decades of over supply?) and we have seen large increase in investment (that take years to see results) – huge investments in high cost oilsands and deep offshore have begun with predictable results of large new supply coming online (Saudi Arabia just brought on 1.5MM bpd of light oil – something the “experts” said was impossible a few years ago).

And a few years ago we were repeatedly told by those same “experts” that no new large (1+B bbl) discoveries would be made – presumably the large discoveries offshore Asia, South America and Africa have shown otherwise.

Frankly, I am amazed that such absurd “analysis” is deemed fit to print by Reuters.

By: mvmourik Tue, 22 Dec 2009 08:37:20 +0000 Mr. Kemp, I think you miss a few points here. Cartels work, but in industries like oil and shipping, they exist to avert collapse, not to extract premium profits. OPEC has had to face massive overcapacity for two decades, and now it hardly has any. There is no Cartel control, other than that capacity expansion is controlled, resulting in very tight markets ahead. Prices gyrate out of control, because demand is close to inelastic in the short run, and supply even more. There are huge lead times to get new capacity. And even if it were easy, why would anybody invest in something that would put capacity out of action and bring the price down? Perhaps for once, somebody would recognise the fact that the interest of the consumer is not aligned with that of the producers (be they OPEC or private oil companies), and neither are consumer governments on the side of their own citizen consumers. Taxation is great, and OECD governments have succesfully creamed off all price increases since the late 70s, until recently. We pay at the pump equivalents of 250-300 USD/barrel, not 70.and the refining margin does NOT explain the difference. As long as consumer governments have a vested interest in this thinly veiled taxation and great scape goat to extract even more tax from its citizenry without sparking a revolution, there will be no waning off towards other solutions. Only if and when there is an alterative that could be taxed better. Have a read of the early release of the EIA’s Annual Energy Outlook 2010. the US Gov’t expects oil consumption in the US to rise continuously, despite high prices and despite a massive GDP downturn. What would it take then to get us off oil? Only bold policy action (which would effectively stimulate the economy). But that won’t happen, as the OECD spending habits are out of control, and they need the oil taxation to pay for at least part of it (in the UK, for a large part).

By: Moosewax Mon, 21 Dec 2009 23:46:46 +0000 Hopefully the trend continues to stop wasting oil on frivolous crap such as fuel. Oil is not an infinite resource and people should be thinking in terms of “How do we want to use up the last of it over the next couple hundred years?” Who thinks we should even be trying to use all of it, we might wanna save some for our childrens children type of thing.

Shuttling food to be packaged halfway across the world, then shuttling it back to country of origin can only last for so long, and it is a pathetically stupid waste of oil if one actually considers how much energy is wasted to get those food calories to them.