Article: 60% of oil price is speculation

[Roger]

ANWAR, which we have not utilized.

Brazil's recent offshore discovery is so huge they are buying up all the exploration rigs. It may be bigger than the Saudi fields.

The US would use the ANWAR oil in 3-6 months. ANWAR is a poor example its too small and in too environmental fragile situation compared to other fields, ANWAR would peak at 800k barrels a day, the US uses something like 15mbd right nnow.
http://www.eia.doe.gov/oiaf/servicerpt/ogp/results.html

Tupi, Horse hockey. Tupi at peak is thought to be able to pump 1% of daily world production. Or 14 weeks of world consumption.
http://europe.theoildrum.com/node/3269

ANd if its not a single field... 8 mbd aint going to happen. Additionally no one has ever drilled that deep.thru a salt layer, to get to oil. Ands its API is 28, though I could not find the sulfur content, but refineries built for Arabian crude will have to be rebuilt.



Tupi has been listed as 800km x 200km, Ghawar is nearly 300km, so Tupi is likely a fragmented field, which will also drive up the cost, and means less oil.

Inventories ARE rising.

World liquids production just hit a 3 year peak,

in fact, we may have already passed it. I don't think speculation has anything to do with prices.

Last month set a record for liquids production, breaking the previous may 2005 peak.

I'm sure hedge funds are responsible for 15%-20% of recent increases, there are of course underlying causes for most of the increase.

Bush visited Israel and is going on to visit the Saudis

Its interesting, since we installed a Shia Gov in Iraq, Israel and Saudi Arabia are aligned together against Iran, strange bed fellows indeed.

[OneWayTraffic]

And just to stir the pot a bit, I say that alternatives (like algae, cellulosic ethanol, F-T synthesis from coal, ect, and especially this ridiculous corn-ethanol program of Bush's) are going to be too little/too late to make much difference: OneWay is right, and the name of the game will be reducing consumption. My hypothesis is that the only way you can make people buy less oil is charge more for it. So I think prices are going to just keep going up.

Actually by reducing demand, I was referring to oil specifically, not energy overall. I sincerely doubt that we will be able to reduce energy consumption voluntarily; only outside factors could do this. The best bet for society is to go to efficiency as a stopgap and ramp up alternatives. Even if Polywell works, or we massively increase fission, we'll still have a liquid fuels problem. Plug in hybrids and algae biofuel may be the way forward.

One of the biggest issues people have when talking about future problems is that it's hard to forsee what kind of solutions will be available in the future. Just as we wouldn't use 1940s technology to solve todays problems, we wouldn't use technology available today to solve problems that will arise midcentury. One of the biggest mistakes doom and gloom merchants make is their implicit assumption that the solutions we have now are what we're going to be using on tomorrows problems.

[MSimon]

Roger,

ANWAR is such a small area that its impact on the Alaskan environment would be approximately zero. All the bad stuff expected from the Prudhoe pipeline did not materialize despite the occasional spill. The caribou are doing better than ever.

The value of ANWAR is at the margins. It would lower the price of oil. It need not supply the US totally to do that.

What we want to do is avoid crippling the US/World economy until we have viable alternatives. That means both price and volume. It will take time.

[MSimon]

Its interesting, since we installed a Shia Gov in Iraq, Israel and Saudi Arabia are aligned together against Iran, strange bed fellows indeed.

After being a country for 80 years (not to mention Babylon) the Iraqis have a kind of nationalism. They no more want to be ruled by Persians than American Jews want to be ruled by Israel. Probably even less that that. So they want allies.

As an American Jew I am glad to have brothers in Israel but I think the American system is superior. I would be surprised if there weren't similar feelings among Iraqi and Persian shia. There is no place like home.

Plus at the preset time Iraq is more amenable to secularists.

BTW the Saudis have been edging closer to the Israelis ever since the 2006 Summer war. Not officially mind but de facto as a counter balance against Iran.

It would not surprise me that the day the Israelis take out nuke production in Iran that they flew into Saudi bases for refueling (as long as they didn't stay long). The bases close their gates for a day. The job gets done the bases re-open. Nobody knows nothin'. The Israelis use Saudi markings for the operation to calm any one looking and to confuse the Iranians. Don't forget that the Saudis and Israelis share US eqpt. Handy.

[JohnP]

It would not surprise me that the day the Israelis take out nuke production in Iran that they flew into Saudi bases for refueling (as long as they didn't stay long). The bases close their gates for a day. The job gets done the bases re-open. Nobody knows nothin'. The Israelis use Saudi markings for the operation to calm any one looking and to confuse the Iranians. Don't forget that the Saudis and Israelis share US eqpt. Handy.

Yeah, s'long as the Israelis remember to use only male pilots for the mission.

[Roger]

The value of ANWAR is at the margins. It would lower the price of oil.

800k bpd would do what to 120mbpd prices in the year 2024 ? The Saudis just increased production by 300k bpd, world production just broke the previous record of may 2005. Oil from $100 to $126.

Forgive me but I find it incredulous to think ANWAR oil would ever help lower the price of oil, show me 8 mbpd and I'll show you prices dipping.

BTW the Saudis have been edging closer to the Israelis ever since the 2006 Summer war.

It started when we installed a shia regime in Iraq, 2003.

[TallDave]

ANWAR is a poor example its too small and in too environmental fragile situation compared to other fields

I'd say ~1/20th of total U.S. supply is pretty significant. Anyways, there are numerous sources of domestic oil which we disregarded until very recently, either for environmental reasons or because they weren't economical.

Tupi, Horse hockey. Tupi at peak is thought to be able to pump 1% of daily world production. Or 14 weeks of world consumption.

It's not just Tupi, it's Jupiter too.

In January 2008 Petrobras announced the discovery of the Jupiter field, a huge natural gas and condensate (very light oil) field which could equal the Tupi oil field in size. It lies 37 km (23 mi) east of Tupi.[2]

http://en.wikipedia.org/wiki/Tupi_oil_field

Together they might rival Ghawar. And no one really knows how much more oil is out there.

Oil sets yet more highs despite US inventory rise

Wed 7 May 2008, 15:08 GMT

U.S. crude had fallen more than $1 in an initial response to figures from the U.S. Energy Information Administration (EIA) showing crude oil inventories rose 5.7 million barrels last week while analysts had forecast an increase of 1.6 million barrels

http://africa.reuters.com/wire/news/usnSP317046.html

There's no conspiracy here. China and India and Eastern Europe are growing economies. Demand is strong, the dollar is finally weaker after decades of being manipulated as official Japanese and Chinese policy. Production takes ten years to come on line.

[Roger]

Yeah, s'long as the Israelis remember to use only male pilots for the mission.

Aerial refueling. No Israeli pilot lands in the KSA, ever. Word would get out, and the rulling Sunni in the KSA would be slaughtered. KSA would then be ruled by Shia.

Dont forget the the KSA just replaced its aging ballistic missile fleet with new missiles capable of delivering nuclear weapons, and its 5 billion for the Pakistani bomb, bought access to its own nuke program.

THe KSA would never allow the apostate/infidel nation of Israel to nuke Iran. If the KSA has its own bomb, it is possible they would retaliate against Israel, and the KSA would likely receive the full support of the Arab League.

OTOH, Pakistan has the Arab bomb. And can deliver it. Israel knows this. See wiki for Nuclear deterrence.

Does the KSA have a bomb, I have no idea, but they have bought the delivery system. Its crazy speculation, just as Israel nuking Iran is crazy.

So you people have to decide whats more stupid, the possibility that KSA has the bomb, or the possibility that Israel would risk a regional nuclear war, inciting Pakistan to retaliate.


In his 2003 Naval Post graduate thesis titled "Is Saudi Arabia a Nuclear Threat?" Steven R. McDowell writes:

Now that the CSS-2 missiles are nearing the end of their lifecycle, the Saudi regime may choose to replace them. During a March 11, 1997 interview with Defense News, Saudi military chief of staff, Lt Gen. Saleh Mohaya stated [referring to the Saudi’s CSS-2 ballistic missile inventory], “The [Saudi Arabian] oil kingdom is now considering replacing or refurbishing the desert missile force.”

http://www.ccc.nps.navy.mil/research/th ... well03.pdf

Early in 2006, the German periodical Cicero reported that satellite imagery obtained by Germany's secret service indicated that Saudi Arabia has set up in Al-Sulaiyil, south of Riyadh, a new secret underground city and dozens of underground silos for missiles.

According to some Western security services, long-range Ghauri-type missiles of Pakistani-origin are housed inside the silos.
http://www.truthout.org/docs_2006/122106D.shtml

[MSimon]

Roger,

Having Israel do the job is a twofer. It gets rid of an immediate threat (Iran), they get to publicly castigate Israel, and if the Israels used Saudi bases (secretly) even better. It strengthens ties with anti-Hizballah and anti-Hamas which are both funded by Iran.

You have to remember that the Saudis at the start of the 2006 War encouraged the Israelis and then "rescinded" that encouragement. Let me add that during the war the Israelis took down Iranian financed stuff while leaving near by Saudi financed stuff unscathed. Not bad for "indiscriminate" bombing.

Politics in the region makes Byzantine politics look uncomplicated by comparison.

Clandestine Saudi-Israeli ties:

http://www.jpost.com/servlet/Satellite? ... 5420736576

Here is another avenue of trade:

http://powerandcontrol.blogspot.com/200 ... world.html

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[jmc]

It wouldn't suprise me if Oil refineries are operating at 85% capacity. They have to buy Crude Oil, and if prices are at an all time high, then in order to make a profit they have to sell their petroleum at just as high a price, and it that price is too high, maybe people will drive less.

To settle this argument of bubble or no bubble. There are three possibilities if oil prices are high:

1) Inventories are rising (the only way this could be sustained over years would be if demand was inelastic to price and the rate at which oil companies could increase supply had a long lag time )

2) The Cartels that control Oil are deliberately pumping less to get a better price. In a competitive market this would not be possible as the incentive for a defector to pump more would be too great. But OPEC probably controls enough of the world's oil supply to pull it off.

3) We have really hit peak oil and the rate at which more can be extracted is severely limited.

Let's not place too much importance in speculation, all speculation does is cause inventory sizes to increase or go down, it cannot sustainably keep prices up. I would also add that if the oil giants could rapidly increase supply in response to speculation then all of our inventories would be overflowing at the moment

http://www.eia.doe.gov/pub/oil_gas/petr ... t/wpsr.txt

This link does not suggest that US inventories are that high at the moment.

So the question is: If speculators are driving up the price, where are all these hidden oil inventories?

In conclusion I'm pretty sure its either 2) or 3)

[Helius]

I think the whole question of speculation is not bidding up the price of oil in hand but of bidding up the price of oil futures, through futures contracts and in the murky world of futures derivatives.

I don't think for a minute this is primarily to blame, however, but just adds to the problem we have: Oil consumption is inelastic relative to price in the short term. We're gonna reach about $175 - $200 /bbl in a year or two by best estimates, and current consumption is not sustainable. In the meantime futures contracts (to guarantee oil at some "reasonable price" ) will be extremely high.

The worst thing to me is, is to whom all this great revenue is going: Persians, Russians, Chavas, Wahabbis, and all kinds of thugs and maniacs.
We not only pay for it on the front end, by high price, but we pay for it again on the back end by having to protect ourselves from the revenues of our own oil purchases. What does it cost to build the complete infrastructure to become a Nuclear Power? We're gonna find out in the next decade, because this is exactly what the Persians are planning.

[jmc]

How ever many layers of complication you like to consider regarding futures and derivatives etc., etc., Oil get mined oil gets burned and made into plastics and the difference goes towards increasing inventories or decreasing them. Whether that oil is waiting to be bought or booked for the future.

If there is a massive oil bubble from speculation then there must be vast ammounts of inventories building up. If those inventories are not building up, then either the supply is being kept artificially low (OPEC cartel for example) or it is being kept naturally low relative to demand because we have reached some kind of oil peak.

Although if we have reached a global oil peak it may be temporary until the technology to extract heavier oil from more viscous reserves is developed.

[Roger]

jmc, we just saw a world record

Latest available figures from the Energy Information Administration (EIA) show that crude oil production including lease condensates increased by 194,000 b/d from December 2007 to January 2008. Total production in January broke a new all time high production record at 74.47 million b/d, 168,000 b/d higher than the previous all time high crude oil production of 74.30 million b/d reached in May 2005.

http://europe.theoildrum.com/node/3875

Gasoline inventories are at a 14 yr high

http://tonto.eia.doe.gov/oog/info/twip/twip.asp

http://tonto.eia.doe.gov/dnav/pet/pet_s ... mbbl_w.htm


And dont forget right, Russia is probably the worlds largest producer. Not the KSA.

Robert Rapier on prices:

I showed him my graph where the slope of oil production is up, but the slope for demand is even steeper and eventually intersects with the production curve. That is enough to explain what's happening with oil prices.

http://www.theoildrum.com/node/3675#more

[Roger]

We're gonna reach about $175 - $200 /bbl in a year or two by best estimates,

At what point does a world depression impinge on those estimates ? Or are you refering to the falling dollar, and not the world price for oil ?

[Helius]

How ever many layers of complication you like to consider regarding futures and derivatives etc., etc., Oil get mined oil gets burned and made into plastics and the difference goes towards increasing inventories or decreasing them. Whether that oil is waiting to be bought or booked for the future.

If there is a massive oil bubble from speculation then there must be vast ammounts of inventories building up. If those inventories are not building up, then either the supply is being kept artificially low (OPEC cartel for example) or it is being kept naturally low relative to demand because we have reached some kind of oil peak.

Although if we have reached a global oil peak it may be temporary until the technology to extract heavier oil from more viscous reserves is developed.

I think we're agreeing. I'm just saying that the oil storage is also in the ground, and that oil can in all effect be bid upon in price too, for future deiveries, and is. I don't, however, think there is a huge price bubble; I've heard some estimates that say oil could collapse to $30 / bbl, but I'm not buying it. I'd humbly guess that no one will ever contract for future deliveries of < $60/ bbl ever again, even if by some marvelous circumstance, the writing was on the wall for Petroleum.

I pointed out the inelasticity of demand with respect to price, and you just pointed out the inelasticity of supply with respect to price. The technology and infrastructure for more viscous reservers need to be developed, from the most sour reserves through the tar sands and shales. These newer and more expensive Refineries need to be built and rebuilt to be able to refine these sources. This will all take time. If the oil companies and venture capital had seen $150 /bbl oil, a few years ago, we'd be in a lot better shape today.