Why are oil prices so high?

[killarney_sailor]

I found this quite interesting, in particular the part about midway down where he suggests that oil prices are not driven be classical supply/demand interactions entirely but that producer need for high prices will keep supply low and hence prices high.

Zakaria: Why oil prices will stay high – Global Public Square - CNN.com Blogs

I don't know the actual average cost of production in Russia or the Middle East but I can't imagine that it is any more than $20. The Saudis, the emirates and the Russians are keeping their populations quiet, if not altogether happy, by subsidizing lifestyle costs with oil revenues. We met cruisers in Grenada who had spent hurricane season in Venezuela (2009). They said diesel fuel was 2 cents a litre and food was dirt cheap. If oil prices were to drop to the levels that would make sense (supply/demand) the fact that the emperor has no clothes (ie there is no economy beyond oil) would appear and governments would change - probably for the good in places like Russia and Venezuela; for the bad in Saudi and the Gulf.

One thing you can count on is that when demand growth picks up in the US and Europe it will be yet another opportunity for oil prices to go up some more.

[jackdale]

It is amazing that the the article omits any mention of OPEC, the oil cartel.

[kd3pc]

Originally Posted by killarney_sailor

I found this quite interesting, in particular the part about midway down where he suggests that oil prices are not driven be classical supply/demand interactions entirely but that producer need for high prices will keep supply low and hence prices high.

Don't need Zak. to tell us this, it has been the case since at least the late 70's...

I would add that the "supplier" need for high prices, ie OPEC, is almost as big a driver as the producers...they control it, the US just thinks it does.

The supply is "managed", thus common sense disruptors really have little affect on the price. See the stock market as related to oil price..

The real question then becomes "who" manages this? One could argue that previous managers, until the last few years, were the US and OPEC/Saudis...now China/India/Opec/Middle east countries seem to be driving the market, with the US all but an outsider looking in.

One thing for sure, the high price of oil and the availability will continue to cost this nation trillions over the long haul, and will ultimately be it's downfall, as we have not done a thing (even when we had a good chance in the 70's) to prepare for it.

[PCP]

Well, once it was the 5 sisters that now are 7 (and not the same that with OPEP) control the world prices for oil:

China National Petroleum Corporation (China)
Gazprom (Russia)
National Iranian Oil Company (Iran)
Petrobras (Brazil)
PDVSA (Venezuela)
Petronas (Malaysia)
Saudi Aramco (Saudi Arabia)

Every year the world wastes more oil and the important number here is the one that will be the one when shortage and prices will invert that situation. Nobody knows exactly when that is going to happen. The more optimistic point for 2020 and that is only 8 years from now.



Peak oil - Wikipedia, the free encyclopedia

The prices will continue to rise and eventually that is not a bad thing because that will help governments to implement more costly ways of producing energy but through renewable sources, that will become more and more competitive with the raising prices of oil and that will prevent a major crisis at least for the ones that are preparing themselves for the future.

Regards

Paulo

[killarney_sailor]

Originally Posted by kd3pc

Don't need Zak. to tell us this, it has been the case since at least the late 70's...

I would add that the "supplier" need for high prices, ie OPEC, is almost as big a driver as the producers...they control it, the US just thinks it does.

The supply is "managed", thus common sense disruptors really have little affect on the price. See the stock market as related to oil price..

The real question then becomes "who" manages this? One could argue that previous managers, until the last few years, were the US and OPEC/Saudis...now China/India/Opec/Middle east countries seem to be driving the market, with the US all but an outsider looking in.

One thing for sure, the high price of oil and the availability will continue to cost this nation trillions over the long haul, and will ultimately be it's downfall, as we have not done a thing (even when we had a good chance in the 70's) to prepare for it.

I think we are moving into a post-OPEC phase. If you look at the nine countries (taking EU as a country) that export the most oil, five of them are not OPEC - Russia, EU (taken collectively), Norway, Canada and the US (which is #9). I think if you are an oil producer/exporter in one of these countries you are quite happy if OPEC does the heavy lifting of controlling oil production and keeping prices high.

The point of Zakaria's blog is that the cost of keeping the people of Russia, Iran, Venezuela, Saudi Arabia reasonably happy (i.e off the streets) has become so high that crude prices >$100 are now a floor rather than a ceiling.

[Tempest]

Originally Posted by jackdale

It is amazing that the the article omits any mention of OPEC, the oil cartel.

Yes, a major omission. Speculators also account for a percentage of the increases. Demand has only increased in the last 40 years and will continue to do so.

What I always find amazing is that people complain about the price of oil but seem perfectly willing to pay ridiculous prices @ retail for filtered water.

And milk and beer consistently cost more than gas.

A 6 pack of beer 12 oz bottles ( 72 oz. ) " coors lite" costs roughly $6.50.
which equates to $11.55 for a gallon of beer.

Milk maybe $4.50 / gallon

And water about $1.89 gallon based on a cs of 24 each 1/2 liter bottles @ $6.00 cs.

Oil has to be discovered, extracted, transported, refined, transported again, and it only costs us $ 3.15 gallon. ( lowest price, I've seen at the pump lately)

So, considering what goes into delivering a gallon of gas to the pump, I find the price relatively inexpensive compared to the per oz/ gallon price of some other consumer products.

[SloopJonB]

Originally Posted by PCP

Well, once it was the 5 sisters that now are 7 (and not the same that with OPEP) control the world prices for oil:

China National Petroleum Corporation (China)
Gazprom (Russia)
National Iranian Oil Company (Iran)
Petrobras (Brazil)
PDVSA (Venezuela)
Petronas (Malaysia)
Saudi Aramco (Saudi Arabia)

Every year the world wastes more oil and the important number here is the one that will be the one when shortage and prices will invert that situation. Nobody knows exactly when that is going to happen. The more optimistic point for 2020 and that is only 8 years from now.



Peak oil - Wikipedia, the free encyclopedia

The prices will continue to rise and eventually that is not a bad thing because that will help governments to implement more costly ways of producing energy but through renewable sources, that will become more and more competitive with the raising prices of oil and that will prevent a major crisis at least for the ones that are preparing themselves for the future.

Regards Paulo

I've been hearing and reading about "peak oil" for longer than I can remember. The date keeps getting pushed back & back. I recently read that our oil sands alone have the equivalent of more than 100 years of WORLD consumption capacity at current consumption rates.

The oil companies have been focused for decades now on convincing us that oil is running out so they can keep jacking up the prices but they keep on finding more somehow.

How much of the incredibly vast expanse of Asia from the Black Sea, north of the Himalayas to the Pacific has even been explored for oil, let alone drilled? I know they find dinosaur bones in great quantities and the two usually go hand in hand.

[kd3pc]

Originally Posted by SloopJonB

I recently read that our oil sands alone have the equivalent of more than 100 years of WORLD consumption capacity at current consumption rates.

Keep reading....the COST to recover said oil, is what has prevented it from being viable...current theory is that oil would have to get to $250-300/bb, for the recovery to even be considered. That is the territory where natural gas and solar also become more economical than oil. Today's rates and economy benchmark. Future may get better.

difficulty, and enviro-nuts are what makes the recovery of those oil sands that are in the US impossible...see fracking and know that the earthquakes in OH, recently - are caused by so much crap being pumped in to the earth. Read up on the rocky mtn arsenal and how they even quit pumping stuff in to the ground....funny it just comes to the top, in or with the water.

Canada's oil sands are much more easy to recover, thus the idea of the Keystone pipeline to the transport that oil to a place. (see control)

enviros are not too happy about ANY of this, so one would have to believe that until things are destroyed (way of life, travel costs, food production/transport/storage) this will not change dramatically...just rise in cost to the point that only the haves - have, and the have nots will starve...

Especially with this president, and his decent chance of being re-elected.

[jzk]

Originally Posted by kd3pc

Keep reading....the COST to recover said oil, is what has prevented it from being viable...current theory is that oil would have to get to $250-300/bb, for the recovery to even be considered. .....
Canada's oil sands are much more easy to recover, thus the idea of the Keystone pipeline to the transport that oil to a place. (see control)

I think Sloop was talking about Canadian oil sands. WTI needs to be at least $65 for the average Canadian oil sands project to jproduce single digit returns. The surface hasn't even been scratched there. Keystone is a no-brainer. Opposing Keystone will not slow one drop of Canadian oil sands production but rather let others reap the benefit of it.

[jzk]

Originally Posted by PCP

The prices will continue to rise and eventually that is not a bad thing because that will help governments to implement more costly ways of producing energy but through renewable sources, that will become more and more competitive with the raising prices of oil and that will prevent a major crisis at least for the ones that are preparing themselves for the future

Higher oil prices are a terrible thing, especially for the poor. Lower oil prices will stimulate economic activity which will pay for the development of those alternative energy sources.