If the United States needed another reminder that cheap gas is a thing of the past, it came Thursday as OPEC announced its second production cut in two months.
The 2 percent cut, to begin in February, startled some analysts because oil prices remain above $60 a barrel and supplies are already tight. Clearly, OPEC wasn’t as pleased as the rest of us to see prices slipping from the record high of $77 a barrel this summer. That’s why it imposed a 4 percent production cut in October.
“I hope the market appreciates we are working so diligently to bring supply and demand in balance,” Ali Al-Naimi, the Saudi oil minister, said of the new cut.
Appreciation? Hey, that goes without saying.
Posted by Dave Knadler
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36 Comments
Bush has shown them the possibilities, why should they settle?
With oil comes the potential for influence and power. Look for Russia to rise in global influence because of their huge oil reserves and the know-how to leverage it economically and politically.
Oh yes, those wonderful allies, the Saudis.The Bush family vacations with the royals, don’t they?
I wonder what they talk about?Human rights?Religous freedom?Democratic govt?
Naw, problee just oil.
We should be telling the Saudi’s what they will charge, not the other way around. If we got out of the Middle East, we wouldn’t need that base there. If the Saudi’s don’t do things the way we want it, we destroy their economy … and more importantly, our brave young men and women quit dying for nothing. We can defend Isreal from any number of places without the Saudi base. And the Iraqis, Iranians, and Afghans can fight it out, internally or externally, and let the devil, or Allah, take the hindmost.
We have plenty of Oil at home!
Oh! I forgot! We can’t access it!
oop! I guess we will still buy it from Foreign Countries.
I like both of those scenarios a heck of a lot better than $2.44.9 per gallon I paid yesterday RM and Joe.
rm,
“We should be telling the Saudi’s what they will charge, not the other way around.”
That’s not possible. Oil is fungible, and OPEC has clout.
But we did break OPEC’s control in the 1980’s, by increasing fuel efficiency and cutting demand.Then Reagan rolled back CAFE standards in 1985, and Detroit starting selling more SUVs.
Joe Williams,
“We have plenty of Oil at home!”
Do you mean EXPENSIVE tar sand, and/or shale oil? You need high prices to profitably produce it.
Meanwhile the M-E region makes huge profits on their oil — only costs a few dollars a barrel to produce.
BTW: OPEC wants us to deplete our higher cost oil first. They make higher profits now, and we become MORE dependent on them later.
We would not even be talking about this if our politicians would get off their big oil butts and encourage alternative fuels. But I guess that would never do because then it would actually solve the problem and the big oil companies would not have their big record-breaking profits.
It’s a shame we don’t have real leadership that is guided by real morals.
If OPEC really wants to destroy the American economy they can switch from the current standard of trading on the American dollar and switch to the Euro. Countries and banks would be selling of the dollar and as a result there would be no foreigners propping up our economy that would collapse under our huge debt.
The person behind the decision for OPEC happens to be Hugo Chavez, and Bush has gone to great lengths to piss him off. No wonder America backed a coup to get him out of power and replace him with oil execs loyal to the Bush regime.
Well they couldn’t fleece us like this if we didn’t make it so easy for them to do.
If you won’t do it for the Earth? Do it for your own pocketbook or just as a personal swing at the mideast.
CONSERVE!
Check your tire pressure every time you fill your gas tank. Make sure they are at correct inflation level. This information can be found on the door posts of your vehicle. If we all did that it would MORE than make up for this cut in availability.
And a good one ESPECIALLY for Wichita? Shut off your engine when you are stopped by a train.
If the line at the drive in is more than a few cars long, park and go in.
Make it a personal goal to hit every light green. The idiot behind you has accomplished nothing if he whips around you and beats you to the red light.
We can use wind. We can improve efficiency. We can conserve. We can even use nuclear. Unfortunately, we only seem to be interested in oil.
And no, Jow Williams, we do not have all that much left here. Not at the excessive rate we use it.
Doug,
I doubt that OPEC wants to destroy our economy.
They make maximum revenue by restricting their production so prices go up, but not so high as to hurt the world economy too much (which cuts oil demand).
Another risk if OPEC sets prices too high is that it stimulates alternative fuels, and efficiency.
That happened in the 1970’s. Congress passed CAFE, and U.S. oil imports starting dropping — until Reagan’s stupidity, in 1985.
Then again, with world oil demand so high, maybe OPEC wouldn’t mind hurting the U.S. some?
‘Oil producers shun dollar’http://www.ft.com/cms/s/277471c2-8889-11db-b485-0000779e2340.html“[OPEC] cut their dollar holdings from 67 per cent in the first quarter to 65 per cent in the second.”
We can’t drill our way out and you can’t make people want to conserve.And you most certainly can’t have an administration that lets the energy companies write our energy policy.When President Jimmy Carter asked me to turn down my thermostat, put on extra clothes and put an extra blanket on my bed, I did. I even remember neighbors who stopped putting up Christmas lights on their houses to save electricity. Fortunately, I never had to wait in long lines to fill up my car, but plenty of Americans did. I don’t believe that Americans today could do the things we did back than.I sure can’t see President Bush asking the American people to conserve as a step toward energy independents.
And no, Jow Williams, we do not have all that much left here. Not at the excessive rate we use it.Posted by: Ben Huie | December 16, 2006 at 02:34 PM“We have more oil inside our borders, than all the other proven reserves on earth.
Here are the official estimates:• 8-times as much oil as Saudi Arabia• 18-times as much oil as Iraq• 21-times as much oil as Kuwait• 22-times as much oil as Iran• 500-times as much oil as Yemen…And it’s all right here in the Western United States.”Ben, is this correct or is someone not telling the facts?
a source ra? I have not seen those figures.
ra – sounds like you are looking at some old projections of what MIGHT be there with shale conversion. Have you ever tried to work with extraction from shale? It ain’t easy and is very costly. I think the numbers I saw were something like $100/barrel not counting cleanup costs.
Ben, here is the link-
http://www.stansberryonline.com/PRO/20060515-OIL-COL.asp?pcode=EOILG922&alias=200604OIL-49
Thanks. Like I suspected, shale. Getting oil out of shale is quite “interesting.” Have you ever worked in the field RA? Are you amiliar with the process? It has not been fully proved by any means.
I notice the source is an “investment newsletter” touting this as an investment. Lets just say that when I read such a publication trying to sell me something I take it with a grain of salt.
Correct, Ben.
Oil shale has about much energy per pound as a baked potato.
A king’s ransom has been spent trying to make it pay, and it just won’t go.
Great letter in the paper, btw.
“The Oil Report research service, including everything I’ve mentioned costs just $199 for a full year.”
From RA’s link.
Thanks capn.
WHY do RA, Joe Williams, and others hope oil prices stay very high, so that we MIGHT get some oil from oil shale, and remote, expensive sites, like the Arctic Refuge?
Don’t they understand that Persian Gulf oil costs only a few dollars a barrel to produce? High prices = huge profits, and huge revenues for them.
The U.S. has a “source” that costs only about $12 a barrel, and it’s 100% GUARANTEED — investing in higher energy efficiency. But we STUPIDLY ignore it.
Chavez, OPEC, et. al. are probably ROFL’ing at our stupidity — especially when they read their financial statements.
WHY do RA, Joe Williams, and others hope oil prices stay very high, so that we MIGHT get some oil from oil shale, and remote, expensive sites, like the Arctic Refuge?
Posted by: cosmos | December 16, 2006 at 10:56 PM
————————-COSMOS;WHAT EVER GAVE YOU THE IDEA THAT I LIKE HIGH OIL PRICES???
RA,
Duuuh….? Shale oil and Alaska’s Arctic Refuge oil ARE high-cost to produce.
If you want oil from those sources, then you also need/want the high oil prices necessary to get them.
OK. Let me see if I understand this argument.
We are paying high prices for foreign oil from OPEC & the Saudis, primarily.
Shale and Alaska production and delivery costs will result in high prices.
The relative cost of foreign production is low, so OPEC & the Saudis, primarily, make huge profits. The money flows out of the US economy.
The high cost of shale and Alaska production would not result in huge profits, but those profits would stay in the US economy.
The US would not be dependent upon OPEC and kiss their ass whenever they bend over.
And this is a bad thing.
Have I just about got it right?
rm – problem is, if we move to develop high-cost alternatives the Saudis will undercut the price just long enough to stop it. Been there done that with SRC and other technologies. As cosmos notes; the best approach is efficiency.
There are also some significant environmental issues with shale – what do you do with all the arsenic-laced crud left over.
Ben: Historically, didn’t we develop the industry over there in the ’50’s, and then they nationalized and we just virtually let them get away with it? Why did we respond that way? There’s no point to these questions — just trying to put it all in perspective for my own knowledge.
Yep. And, we helped the Shah nationalize the Iranian oil industry.
I guess I really blew that question. What I meant was: What was our political rationale at the time? What did we think we were getting out of it? Cheap oil forever? Covert control of supposedly independent countries forever? In short, what the hell were we thinking?
Covert control. Also, a lot of inside deals where certain individuals got very rich.
I think Exxon figured they would always make a lot of $$$ dealing with Saudi Arabia and the Shah.
rm,
Russia is also nationalizing their oil now.
The only way we can be “independent” of OPEC is for the entire world to use much less oil, so that OPEC loses their control.That happened in the 1980’s — lowered demand caused by high prices and efficiency (CAFE) caused prices to fall.
World demand today almost exceeds world supply, and OPEC controls about 40% of the supply.
Besides undercutting, which Ben mentioned, it benefits OPEC for us to develop high-cost domestic oil sources. Their reserves last longer, and we become more dependent on them later, after depleting our reserves.
Oil is basically traded freely worldwide. We can’t reduce exports from one particular country, or region. If/when we stop importing from a country, other nations buy from them — and possibly re-sell to us (transshipment).
Book at http://www.oilendgame.com (free PDF) discusses issues on page 14 (PDF 38 of 332)
Note ‘Figure 3: World oil consumption and real price, 1970–1Q2004′ on following page.
“Companies are coming up with ways to extract oil from the Green River Formation very cheaply.
For example, one Utah-based company says it can extract the oil for as little as $10 a barrel. In fact dozens of companies have stepped forward with similar claims. With oil prices approaching $70 a barrel – these are pretty significant breakthroughs.”—————————Ben, any truth in the above statement?
RA – none that I have read about in the trade literature. I get all sorts of pitches for stocks claiming that the company has invented a qay to ‘turn lead into gold’. I tend to ignore them.
I used to work in the field and still keep up with the trade publications. What I read about shale is reminiscent of what I read about nuclear fusion … “soon” …
Ben & cosmos: Thanks both of you. I downloaded oilendgame.com and I’m working my way through it. :)
I saw one of the guys from RMI on Charlie rose recently. He used a line I had stolen from them (with permission) many years ago. “When get home from work I want a hot shower and a cold beer” If we can find a way to achieve that without using tons of fossil fuel my lifestyle is still good. They have demonstrated numerous technologies toward that end.
I don’t agree 100% with RMI but I agree a lot more than I disagree.
HEY Ben, how about $30 a barrel.
http://www.dailyreckoning.com/rpt/OilShale.html
But a new technology has emerged that may begin to tap the oil shale’s potential. Royal Dutch Shell, in fact, has recently completed a demonstration project (The Mahogany Ridge project) in which it produced 1,400 barrels of oil from shale in the ground, without mining the shale at all.Shell thinks the whole thing is economic at a crude price of $30. So barring a major reversal of geopolitical trends, they’re forging ahead.Since the Bureau of Land Management owns about 80% of the oil shale acreage in Colorado, there is no investment play on private companies that might own land with rich shale deposits. Although, if Shell and the DOE are right that you can recover a million barrels of oil per acre…it wouldn’t take much land to make a man rich out here.