#Gasoline prices now are just market action

 
"Oil dropped to the lowest level this month on Tuesday as energy forecasters said the world's supply of oil will remain ample, and a prominent investment bank said prices are too high."  Boston Globe

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We haven't had a good oil price fight here for a while.  I am curious if you "peak oil" types think the high prices now are the product of long or short term shortages.

IMO, 30% of this is just speculative action in the markets operating at the margins of the spot market.

I am not a great admirer of Donald Trump but I heard him say the other day that there is a lot of crude afloat in tankers that can't be sold or placed ashore.  True?  pl

http://www.boston.com/business/articles/2011/04/12/oil_price_tumbles_on_supplies_and_goldman_pullback/

Comments

[Graeme]

Oil is up several dollars since that article.

I would say the long term trend will be "up", but that we will see fairly wild swings up and down along the way.

It is a finite resource, we only have a limited stock. It is sold as though this is not the case, traded in the same manner as renewable commodities such as wheat. We are drawing down a bank account which does not receive deposits.

Hard to see how prices could go anywhere but up (long run) unless we develop a substitute.

My prediction is that price increases will eventually lead to a worse recession. Which will cause prices to drop. Which will lead to recovery. Which will lead to higher prices. Which will lead to recession.

Repeat.

[ex-PFC Chuck]

While I find compelling the arguments Kenneth Deffeyes and others that the world is indeed soon reaching "peak oil" (if it already hasn't) and thus the long term trend is up, I suspect the ongoing jitter in the wellhead prices is a combination of speculation based on world political events and economic trends, spiced with more than a little bit of subtle market manipulation. It's yet more evidence that what's needed are transaction taxes on all securities and commodities trades, with a rate scale inversely proportional to the duration of the hold, the latter calculated on a LIFO basis.

[JohnH]

The key here is spare production capacity. If supply gets too tight or too loose, prices can respond dramatically.

But spare production capacity is a very, very fuzzy number. Producers lie. Saudi Arabia doesn't even publish information. This WSJ article explains it well.
http://online.wsj.com/article/SB10001424052748703296604576005320269265998.html

Today it does not seem that oil supply constraints are affecting the price, so the obvious explanation is speculation or price manipulation.

In 2009 prices never collapsed in response to a gigantic drop in demand. My guess is that a concerted effort was made to protect investments cost justified at the $70/barrel point. It also protected the budgets of a lot of oil producing governments. As a result, lots of crude was stored in oil tankers.

[R Whitman]

1.Ther are always a lot of tankers loaded with unsold oil on the high seas seeking buyers, even in times of great scarcity.

2.The current price of oil is driven by market speculation, nothing more. Those of you that follow the financial markets will recognize the rise of ETF's as a preferred trading vehicle. It is so much easier to trade ETF's than actual futures so more people participate in the market driving up demand for the paper assets not the real product.

[charlie]

crude in tankers was certainly true a few years ago, not so true today.

High oil price means people are looking for a non-dollar investment.

I'd be more concerned about the Saudis slowing down investments as they are pissed right now. Time to remind them who are their friends.

[frank seawright]

Mr Trump may recall having read this article: http://tinyurl.com/3gtdmzd
The claim that that 20 million barrels could calm the market would be a rather short lived calmness because the US uses slightly over 20 million barrels/day.

[Patrick Lang]

charlie

"Time to remind them who are their friends"

How do you do that? They don't need anything that we have. Protection? That is a joke. pl

[Norbert M Salamon]

Nobody has replaced Lybian loss of production as per last Opec/IEA Latest report:

http://www.theoildrum.com/node/7801

Was it intentional or natural constraint, is for the experts to voice, so read the article.

Conversely, a graph depicting USD "exchange value" v. "Brent oil" in USD, the correlation is very high.

I believe [though lost the link] that gold v oil shows tha AU rises faster in USD terms.

Finally contemplate why international oil comp[anies, including the big USA based firms.,are working at Canadian Oil sands, or in the ORINICO HEAVY oil [595 billion recoverable per US Geological survey].
Nr Trunp, a recurring bankrupcy aritst, a new voice in the birther dialogue, knows about as much concerning oil, as I know about Casinos.

However, please read: http://www.forbes.com/forbes/2011/0214/features-christophe-de-margerie-total-high-friends-low-places.html

An inteview with the CEO of Total [Frqance]

[Lysander]

IMHO, peak oil is real. But so is market manipulation. In fact, peak oil makes manipulation easier. Does that mean there should be congressional action? No. Simply because all the oil that is bought by speculators has to be sold again eventually. This will cause prices to crash back down to 70, 60, 50 or whatever. But who believes oil will ever be back at 1999-2000 prices?

[zanzibar]

Correlation is not causation but maybe debasement of the global reserve currency and the liquidity gusher from The Bank of Bernanke may play some role in the current price of oil, food and other commodities.

[Highlander]

My occasional vistor and drinking buddy up here in the hills, owns a small fleet of oil tankers.

He says all that black stuff is out there on the high seas, and can't find a home. He also says cheap oil may be at or near peak, but there is damn sure plenty more hiding out in various corners of the planet, when the price is right.

But he is an ex army spook, what the hell does he know?

[Bobo]

Peak Oil is a farce as oil will always be found as long as the price justifies the pursuit.

What is most interesting is over the past ten years the production of Natural Gas in the USA has grown exponentially. The growth of oxygenated fuels(ethanol)has been surging soon to make the leap to fifteen percent of gasoline, while solar and wind energy are making leaps and bounds.

As to the price there has to be at least a $20+ component with regard to the MENA awakening. Should the awakening hit Saudi Arabia then you will see another big jump in price.

[Bill H.]

The reason given in California for higher gasoline is that refineries are switching to their "summer blend" which is costlier to produce and which has resulted in lower production during the conversion. That doesn't, of course, explain the prediction that they are not going to decline again.

[Griego]

As Norbert M Salamon said no one has replaced the lost Libyan production. Plus the general upheaval in the middle east (and maybe Nigeria? Plus the growth of the global economy. Plus that Japan will soon enter the reconstruction phase. Plus the speculators that follow and reinforce the trend.

I don't know about geophysical peak oil, but I think we will see(geo)economic peak oil in our lifetime - barring a protracted global recession.

[frank seawright]

Mr Bobo, I encourage you to study this graphic : http://tinyurl.com/3ej3pvj and pay attention to the time spans the two sides incorporate. Hint, the right side is a mere five years.

The graphic is from a post that may be found here : http://tinyurl.com/3m6wuab

[marku]

"Peak Oil is a farce as oil will always be found as long as the price justifies the pursuit. "

Funny, that rise in price didn't resurrect Texas, or the North Sea, or Prudhoe Bay. All of which have passed into their own Peak Oil Scenario. But you propose that somehow, when we merge hundreds of oil fields together, we get a behavior not seen in any of the individual fields. Huh....
Yes, we will always have *some* oil. Just not enough for J6P to drive his hummer to work at a price he can afford.

[graywolf]

Oil is dollar denominated.
Bernanke keeps printing dollars.
Dollar loses (relative) value.
More dollars needed to pay for oil.

[Russ Wagenfeld]

Oil and gold prices capture all the attention but silver prices have more than tripled in the last 2 years with most of the increase coming in the past 7 months.

[Jake]

Want a true oil conspiracy? How about the blow-back that the FTC and the CFTC is experiencing from the lobbyists for the traders who do not want any regulation governing oil speculation, which is a huge problem with the current pricing scheme. It's not about big oil, peak oil or supply and demand, its about taking the caps off a commodity that is not just a economic driver but a national security driver as well , while allowing traders to set the prices without governance.. We need not to just stop the ever ending sin taxes, but also the out of control speculation of that national security resource and market driver, not to forget, the out of control and misguided government spending.

[MRW]

Global oil reserves are twice what they were in 1989. (Check government records.) Peak oil has been a threat for 200 years; check the news morgue. Phoniest thing going.

Read: 'Peak oil' doomsayers fall silent as reserves grow ever larger
By NEIL REYNOLDS
Globe & Mail April 11, 2007
http://is.gd/ytZR8f
If you can't access it, these are the last two paragraphs

In 2000, the U.S. Geological Service (USGS) calculated that global URR [Ultimate Recoverable Reserves] would increase by 2.4 per cent a year for the foreseeable future -- rising from 1,669 billion barrels in 1995 to 3,345 billion barrels in 2025. (A billion barrels -- one Gb -- is roughly the amount of oil that the U.S. keeps in its Strategic Petroleum Reserve.) "Peak oil" proponents dismissed the USGS analysis as impossibly optimistic. As with all apocalyptic manifestations, peaks must necessarily be imminent. Yet the forecast has proven significantly understated.

Driven by smart technology, global URR now increases each year at unprecedented rates. It has now (December, 2006) reached 3,288 Gb, not far off the USGS calculation for 2025. It increased last year by 114 Gb, compared with a historical annual average increase of 47 Gb. Sustained at this rate for another 20 years, the world's ultimately recoverable oil could increase by another two-thirds to 5,568 Gb, or three times the resource when "peak oil" proclamations began. Assuming consumption of 30 Gb a year, this URR could sustain production for something approaching 200 years. Once again, the end is not nigh.

World Bank sets the price of oil in the City of London for consumers by making us bend over for the community soap. Military consideration is another story as oil is the #1 national security concern, and frankly, consumers don't matter.

Oil is renewable, as the Russians discovered during the Cold War. At the fall of the USSR, our gotta-protect-our-own-ass geologists advising the President refused to believe what the Russian geologists were saying, even though the Russians were oil bereft at the end of WWII and now lead the world in oil exports as a result of their 1956 discovery of abiotic oil. The Russkies got fed up with being sneered at, even though their Dnieper-Donetsk Basin field was based entirely on their abiotic discovery. [Why do you think Putin was pissed at Khodorkovsky and jailed him? Because he was ready to sell Yuko to Cheney and with it would go all the abiotic oil engineers.] Long Live Ptolemy in the minds of American geologists!
Check it out here:
http://is.gd/Hxz2bE
http://is.gd/BZwEAX
http://is.gd/2BvEj6

[clifford kiracofe]

Yes, speculative market pressure.

Several years ago, I had lunch with a VP of a major foreign global oil concern. Oil was at about $65. I asked about this then seemingly high price level and the reply was that his company estimated about $15 of that was speculative pressure by the hedge funds. So...

The UAE announced a few weeks ago that it would make up for any Libya deficit.

It would seem that if producers feel there is plenty of supply right now out there to meet demand they would not be inclined to increase supply.

By some accounts, the US has 100 years worth of natural gas given new tech and discoveries, and we have plenty of coal and so on.

[William R. Cumming]

There is no publiclly available information that would allow any interested outsider to comment intelligently on this post. The Energy Information
agency [part of the department of Energy] has no authority to independently collect statistic info on the energy sector. All is just a guestimate.
With over 90% of proven reserves in the hands of NOC's [national oil companies] whatever "proven reserves" are fact this statistic indicates that energy is, was, and will be a national security concern for all nation-states except where as in the US the politicians trust the energy companies to protect US national security. I guess that is our version of LUKOIL and other Russian oligarchy approaches to energy. See we (US) and the Russians are more alike than many think. Perhaps the real fight for the future is where will the top 1% of wealth holders, corporate and individual hide and utilize their wealth.

[Sidney O. Smith III]

MRW

That was fascinating info. I have nary a clue if it is true or not, but thanks for sharing.

Regardless, I still remain a huge advocate of public transportation via rail, but, as a disclosure, I love to travel by train so it is not all politics. I became so fired up about trains that I was close to joining the national train passenger lobby -- all 12 or so members. Not exactly a powerhouse in DC, I don’t guess. But I adamantly oppose all special interest lobbies.

Yes, I am familiar with the national streetcar scandal which could serve as “similar transaction” evidence to the article you linked, meaning it shows a similar bent of mind, scheme or plan on the part of the transgressors. But the evidence, at least at first glance, looks a little sketchy.

[Norbert M Salamon]

Clifford:

An analysis of the MSM position of 100 year gas supply:

http://ourfiniteworld.com/2011/02/07/dont-count-on-natural-gas-to-solve-us-energy-problems/

There seems to be one h3eck of a lot of optimism, no price analysis, and forgetting somer ecological constraints by MSM. Please read and ponder the analysis

[walrus]

First you need to distinguish between free flowing oil reserves - pushed up by gas pressure, and pumpable reserves.

A researcher I respect told me that free flowing oil production peaked about Five years ago. What that means is that the cost of extraction is gradually increasing. We will most probably never run out of oil, it's just that the cost will eventually make it uneconomic as a ground vehicle fuel.

Current prices? Most probably speculation.