Oil prices - 2012

"A year ago SST had a piece on oil prices at the height of the Libyan revolt. There were all kinds of theories expounded on why oil prices should escalate beyond reason. It is time to look back and see what really happened during the last year. Using WTI one month futures at Cushing, OK as a base, the price was $94/bbl a year ago. It is $87 today. The highest price during the year was about $110 (caused by the usual geopolitical crap in the Middle East) and the lowest $78 (caused by a temporary glut of oil on the US Gulf Coast due to a refinery startup failure)."  R. Whitman 

Download OIL PRICES 2012

Comments

[MRW]

Every smart government enters into contracts with resource developers to lock in prices for 50 years. China does it with rare earth supplies. Australia with wool.

What did we do when oil was $50/barrel after the Global Financial Crisis (GFC)?

Zip. People sewed teabags into their hats and bought lawn chairs in February to object to a darkie in the White House under the guise of concern over the economy.

Both the Republicans who caused the GFC--their watch-- and the econ idiots who came in with Obama did zero to secure the price of oil for our long-term benefit. The US govt could have made deals with Canada, Venezuela, and whomever else, with the standard automatic increases built it.

Instead, we let a bunch of jejune traders sitting in the CIty of London decide the price.

[Norbert Salamon]

With great respect to MRW,his proposition is erroneous, in my opinion, based on eonomic reality.
Thecost of production for tar sand oil with respecty to newer and proposed mines is in excess of $ 80.00. Perhaps MRW did not read the news that Shell and others are contemplating the cancellation or possibly of postponing newer investments as the capital requirement is very large and the return on investmenrt very long, not withstanding the generous depreciation rules ion Canada. Canada does not tkae a large % of production, such as Iraq [amd most Gulf producers], and still investmenr is questionable at a time of ZERO INTEREST.
The cost/income sceratio for DEEP WATER oil prospect is similar, as is the cost of Bakken and other shale oil sources.

At $50.00 per barrel there would be no sales as such a price would bankrupt the producers when considering tar sands [major part of Canada's oil production], Deep water, Saudi arabia [need for preventing internal regime change, they need 90
+ per barrel] Kazakhstan [constant delays for technical and political reasons], Syria, Yemen and others with instability, etc. .

[William R. Cumming]

What is the average level of DoD expenditures on fuel annually and where and how is that spent?

Do we provide energy supplies to Israel?

Will mechanized warfare largely end this century due to costs or scarcity of petroleum products?

[Fred]

Really? China owns their rare earth supply so they are contracting with their own government to set prices for 50 years? Well they are still communist.

[Jose]

1. Fracking has more to do with lower prices than ME.

2. We have more "Rare Earth" supplies in California than China, but BHO will not allow mining because of "eco-nuts."

3. When BHO begins to shut-down coal plants, price will rise.

[Eric Dönges]

Jose,

rare earth mining has a number of (mildly) radioactive and (highly) toxic byproducts. You don't have to be an "eco nut" to demand strict environmental controls. Unfortunately, strict environmental controls are more expensive than lax environmental controls with little meaningful enforcement - so almost all mining is currently done in China. The way I see it, either the prices of rare earths will rise to a point where other mines are competitive again because the Chinese refuse point blank to sell to anyone else or actually implement meaningful environmental regulation, or we will continue to buy the stuff cheaply from China while the Chinese slowly poison themselves. Either scenario works for me (though I would prefer the former as I'm not a total asshat).

[Mark Gold]

Thanks to climate change, there may soon be another source for rare earth metals: Greenland. See http://www.guardian.co.uk/environment/2012/jul/31/rare-earth-greenland

[Fred]

Fracking pollutes more groundwater than ME oil.

[JoeC]

Somewhat relevant to this thread is the very recent recognition that we probably have something like 100 billion barrels of economically extractable oil from below oil field levels (and apparently between some fields) that has only recently been demonstrated to be economically produced. The key is that one needs a lot of CO2 to do this and most CO2 currently used for this "Enhanced Oil Recovery" (EOR) process has been mined (like natural gas) and thus quite cheap. It does appear that the economics of producing CO2 for this purpose from several types of industrial facilities that currently vent large amounts of CO2 and I see innovative developers looking to site new natural gas plants with carbon capture in markets that will today pay the most for CO2. EOR was invented in the Permian basin but has been an industry backwater that most big oil companies were not paying attention to until quite recently. The really new and potentially huge OIL EOR resources is Residual Oil Zone (ROZ production). This is the stuff that may well be located in large amounts between known oil fields (see second report below)

For those interested in more information on this topic the following two DOE reports are a good place to start:

http://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_final.pdf

http://www.fossil.energy.gov/programs/oilgas/publications/eor_co2/ROZ_Melzer_Document_with_figures.pdf

We are also hearing that the shale oil resource is also quite large (don't have the numbers) and whose expansion has been limited somewhat by suppliers inability to scale up drill bit production, etc, fast enough. The next big shale oil basin will be in Wyoming, at least based on a conversation last one of my colleagues had flying to Denver with a drill bit salesman who was embarrassed that his company could not keep up with the orders, that his bosses kept sending him back to the same customers to pitch more orders and these customers all were putting in big new orders, regardless of how backed up his company's production was. He though the Wyoming shale oil play would be bigger than the North Dakota Bakken play.

I would also note that the the EOR resource is not yet well recognized by oil industry analysts, but I expect that to change over the next 24 months. The real irony is that we will need to capture a very large amount (~33 billion tonnes) of CO2 that is today being emitted (or would be emitted by future fossil power plants) to the atmosphere to produce most of this new oil resource.

It does not appear that the US is going to have any lack of economic oil resources to significantly expand domestic production for the foreeseable future..

I would also note that the the EOR resource is not yet well recognized by oil industry analysts, but I expect that to change over the next 24 months. The real irony is that we will need to capture a very large amount (~33 billion tonnes of CO2) carbon that is today being emitted to the atmosphere to produce most of this new oil resource.

[Lee]

Fracking is made possible by higher oil prices set on the world market. When prices ratcheted up we reduced consumption considerably more than the increase that came from fracking. If prices dip much lower for long you'll see Bakken production decline sooner, if you want to see domestic production of unconventional oil increase it'll come from consistently high prices that will stifle economic growth given the infrastructure built on $30/barrel oil.

[JoeC]

Sorry about the formatting glitch. Can anyone tell me how to reformat this post so it is all within the white space?

[r whitman]

EOR using CO2 has been aroung for some time. I can remember being indirectly involved in a 60 mile CO2 pipeline in New Mexico-West Texas in 1985-86.

[Oil and Gold Prices]

With the rich discovery of oil and gas fields in USA I think what we need is to promote the development of pipelines to lessen our reliance on imported gas and oil from other countries.