The End of Oil

[LenexatoKCMO]

yeah, like the more sex you have the higher the probability that you will get any flavor of STD.

Republicans probably aren't going to understand analogies involving "more sex".  You need to talk in terms they will understand like putting more money in high risk mutual funds. 

[AJoD]

More off-shore drilling = more risk.

Yeah, I get that, I just don't know how to quantify it, or really assess it.  It reminds me of all the TIF/economic development arguments on this board.  No more TIFs!  More TIFs!

I mean, how much more risk are we talking about?  Is it a greater risk than transporting overseas oil in tankers?  What is the spill record/safety record of off-shore drilling.

Clearly, there are environmental risks with any oil production.  Looking at the world as a whole, how much greater (or lesser) do those risks become with drilling off the US shore?  Campaign rhetoric (and these last few posts) seem awfully glib about what strikes me as a fairly complex issue.

And more sex doesn't equal higher probability of STDs.  More sex partners, probably; more random sex partners, for sure.

[DaveKCMO]

And more sex doesn't equal higher probability of STDs.  More sex partners, probably; more random sex partners, for sure.

yes, that's what i was trying to convey.

[LenexatoKCMO]

And more sex doesn't equal higher probability of STDs.  More sex partners, probably; more random sex partners, for sure.

One encounter with an infected partner does not gaurantee transmission - repeated encounters . . .

[phuqueue]

yeah, like the more sex you have the higher the probability that you will get any flavor of STD.

Which, incidentally, could also be re-stated "more drilling = more risk."

[AJoD]

The truth about drilling.

Seems reasonable to me.

[KCMax]

The truth about drilling.

Seems reasonable to me.

That does seem very reasonable, however I still don't understand this:

The real value of offshore drilling is in securing more U.S. supplies when America's own production is dropping and the nation is already importing 60% of its oil, some of it from hostile regimes.

How do we keep U.S. oil in the U.S???? The market is global, is it not? You don't buy "U.S. oil", you buy "Exxon oil".

Are they talking about adding to our strategic reserve? In that case, that wouldn't help market oil prices at all.

[AJoD]

The real value of offshore drilling is in securing more U.S. supplies when America's own production is dropping and the nation is already importing 60% of its oil, some of it from hostile regimes.

How do we keep U.S. oil in the U.S???? The market is global, is it not? You don't buy "U.S. oil", you buy "Exxon oil".

My guess is it's about leverage.  If U.S. companies are producing from U.S. sources, we may be less vulnerable to OPEC or Russia or Venezuela shutting down supply.  At a last resort, we could probably commandeer U.S. resources.  Before that would happen, I'm guessing U.S. companies would have a vested interest in the U.S. economy not being completely blindsided or held hostage by foreign oil producers.

It also balances the trade deficit on oil, which prevents the wealth commanded by the high price of a scarce resource from completely being shifted overseas (and often to specifically hostile regimes).

I'm no expert, but those are my guesses.  Maybe the second is more important than the first.

[chrizow]

i thought Highlander or someone said that, by law, Alaskan oil has to be used in the US?

[beautyfromashes]

I'm guessing U.S. companies would have a vested interest in the U.S. economy not being completely blindsided or held hostage by foreign oil producers.

Wrong!  US companies will sell to the person paying the higher amount.

The oil market is not linear but more in steps.  There seems to be somewhat of a ledge where one more additional barrel needed drives the price up significantly.  If the price is right on the edge of the cliff then having one more barrell could have a dramatic effect on all the barrels sold.  You don't have different prices for different barrels.  If one barrel sells for $120 then all the barrels sell for the same amount.  That's market equilibrium. 

[KCMax]

My guess is it's about leverage.  If U.S. companies are producing from U.S. sources, we may be less vulnerable to OPEC or Russia or Venezuela shutting down supply. 

Considering how the market seems to be so reliant on speculators, it seems that a threat by any oil producing nation shutting down supply would probably cause a spike in prices anyway.

I'm not saying we shouldn't drill, we probably should. I'm just saying I don't see it as a way to "stop dependence on foreign oil" at all. It may relieve prices somewhat in the short term by causing "psychological" relief (again, speculators), but its not a long-term solution to anything.

[Highlander]

i thought Highlander or someone said that, by law, Alaskan oil has to be used in the US?

True.  I think it has been that way by law since 2000.  Some LNG from Cook Inlet may still go to Japan for legitimate reasons (lack of local gas market in Alaska and lack of LNG facilities on the west coast of the US).

Wrong!  US companies will sell to the person paying the higher amount.

The oil market is not linear but more in steps.  There seems to be somewhat of a ledge where one more additional barrel needed drives the price up significantly.  If the price is right on the edge of the cliff then having one more barrell could have a dramatic effect on all the barrels sold.  You don't have different prices for different barrels.  If one barrel sells for $120 then all the barrels sell for the same amount.  That's market equilibrium. 

Not really.  Oil sells at vastly different prices depending on sulphur content, viscosity and API gravity.  Those three things impact its energy efficiency and ease of refinement.   What you see traded are benchmarks for oil of like quality.   Almost all US oil produced in the US stays in the US.  That's where the refining is.  There is plenty of market in the US for American oil, no need to ship it overseas.  To put it in perspective, We use 21 million barrels per day and exported only 10 million barrels of oil in all of 2007; a lot of that went to Canada.  There is some LNG produced here and shipped overseas because the US has few ports that will take on LNG due to regulatory issues. 

Which, incidentally, could also be re-stated "more drilling = more risk."

Drilling and production are not risk free but the overall risk is minimal.   Major spills from production facilities are extremely rare.  During storms, fields are shut in at the well heads to ensure no problems result from harsh seas.  During drilling, there are several lines of defense against any potential environmental and safety concerns.  Everything is massively over-engineered.  Spills cost companies in downtime, loss of product and fines, it's in their best interest that these things are few and far between which should be obvious from the pretty impressive environmental and safety records associated with offshore production. 

You could argue that offshore production cuts risk because it obviates the need for the transocean transportation of whatever volume of crude oil would be produced offshore.  Shipping is a far more risky proposition than offshore drilling and production. 

[aknowledgeableperson]

My guess is it's about leverage.  If U.S. companies are producing from U.S. sources, we may be less vulnerable to OPEC or Russia or Venezuela shutting down supply.  At a last resort, we could probably commandeer U.S. resources.  Before that would happen, I'm guessing U.S. companies would have a vested interest in the U.S. economy not being completely blindsided or held hostage by foreign oil producers.

It also balances the trade deficit on oil, which prevents the wealth commanded by the high price of a scarce resource from completely being shifted overseas (and often to specifically hostile regimes).

I'm no expert, but those are my guesses.  Maybe the second is more important than the first.

Highlander can probably shed more light on this but in the 70's this country was less dependent on foreign oil than we are now.  And look and see what OPEC did to us back then.  We are now more dependent on foreign oil and if one of our major suppliers do what OPEC did what would happen to our economy.  I would imagine that what we have gone through this last year would not even compare to how we would have to cope with higher prices and less supply - all of the sudden instead of over time.

[NDTeve]

That does seem very reasonable, however I still don't understand this:

The real value of offshore drilling is in securing more U.S. supplies when America's own production is dropping and the nation is already importing 60% of its oil, some of it from hostile regimes.

How do we keep U.S. oil in the U.S???? The market is global, is it not? You don't buy "U.S. oil", you buy "Exxon oil".

Are they talking about adding to our strategic reserve? In that case, that wouldn't help market oil prices at all.

Also a case of supply and demand. More sources...more product...less reliance on OPEC

[LindseyLohan]

It's good to hear OPEC is doing something to keep the price of oil from falling to much...

http://money.cnn.com/2008/10/09/news/in ... 2008100913

[Highlander]

It's good to hear OPEC is doing something to keep the price of oil from falling to much...

http://money.cnn.com/2008/10/09/news/in ... 2008100913

At the moment, demand concerns are so strong that they are totally outweighing supply issues.  OPEC cuts have not shored up the price, which keeps falling and I really doubt if taking 500,000 barrels off the market will make much difference.  What will make a difference is when the market realizes that demand is not falling off near as much as expected.  Actually, I think oil company stock is a good buy right now.  Many companies are down 40%, some more,  but the oil reserves are still in the ground and supply concerns will return in the not-to-distant future.

[aknowledgeableperson]

So, was the price spike to $145 based on solely demand or was it also due to speculators dumping money into the oil markets, buying and selling contracts with no intention of holding on to the product?

[DaveKCMO]

Actually, I think oil company stock is a good buy right now.

um, don't you work in the industry?

[beautyfromashes]

Cutting production would hurt the world economy.  That means more people losing jobs, higher unemployment and welfare roles, inflated food prices, etc. 

[Highlander]

um, don't you work in the industry?

Yea, I figured that my recommending oil stocks to the Bill Gates's of this forum would single-handedly rescue the industry.

The oil industry is cash rich and undervalued, and the oil price, while down considerably from a couple of months ago, is still relatively high.  That makes a lot of them, especially the mid sized companies, nice takeover candidates.  The smaller majors will probably start buying shares back to support their stock price to avoid takeovers by Exxon, Shell or BP.  The oil is still in the ground so the assets have not gone away.  Probably one of the better buys on the market right now although I suspect they will drop a bit more before turning around

So, was the price spike to $145 based on solely demand or was it also due to speculators dumping money into the oil markets, buying and selling contracts with no intention of holding on to the product?

 

You forgot the pathetic shape the dollar was in during that time.  Supplies were tight and demand was high when prices were 145$/barrel so the loss of value with the dollar had a huge impact.

Cutting production would hurt the world economy.  That means more people losing jobs, higher unemployment and welfare roles, inflated food prices, etc.  

OPEC is always discussing cutting production everytime the price drops.  Currently, the market is so overly concerned about demand that OPEC's threats to cut production are not having much impact.  I really doubt if demand drops off all that much.  Even when prices went to 150$/barrel, demand only fell by a few hundred thousand barrels per day in the US.  We use 21 million barrels per day.  US Oil companies won't cut production*, they live and die on cash flow but oil producing nations are a different story and they are the entities that control the vast majority of world's oil reserves.  Who can blame them.  In most cases, like Kuwait and Saudi Arabia, it's the only asset they have and they are starting to see the end game in terms of production looming in the not too distant future.

*while oil companies won't cut production, they will end production on those assets that cannot be operated at a profit at lower prices.  That includes more challenged production like heavy oil and shale gas.