With plunging oil prices, the consumers are clearly thrilled but the oil producers, particularly OPEC, not so much. This video below and the image, courtesy of CNN, clearly explains the gigantic complexities that impacts the price of oil. With $2/gallon already in some parts of the US, the current geopolitical scene will get even more volatile in the months ahead.
Image courtesy: CNN Money
Organization of the Petroleum Exporting Countries (OPEC), the cartel of oil producers, celebrates its 50th anniversary on September 14th. The organisation was founded in 1960 with the explicit purpose of manipulating oil prices by controlling supplies. It has generally proved successful. Here are some interesting nuggets for you to chew while you dig deeper in your pockets to pay for that gallon of gasoline/diesel at your neighborhood gas station:
1. OPEC controls around 80% of the world’s proven reserves
2. Over 40% of the worlds production among its 12 member states.
2. Price of oil in the market these days is $75, which the Saudi’s rave as the “ideal price”.
It begs the question who says what’s the ideal price of oil? Speculative investors in the markets around the world are not helping the cause either. It makes you think why are we so hesitant to move away from the fossil fuels and into some other non-petro fuel to power our lives! This group of oil selling, Armani wearing, kingdom-ruling thugs are no different than the Drug cartels who organize and manipulate the market for a different kind of commodity.
An interesting post on Askmen.com goes into great details about the organization. One of the most shocking that I learned from this article is discussed in the next few paragraphs: “Cartels are illegal in many countries. In the U.S., for example, OPEC is in direct violation of antitrust laws, such as the Sherman Antitrust Act of 1890 — the same act that broke up Standard Oil, American Tobacco and Ma Bell. Antitrust laws don’t criminalize monopolies per se, only if the monopoly is used to eliminate its competition through methods of production or price-fixing.
Ordinarily, U.S. antitrust laws explicitly prohibit dealing with cartels. What makes OPEC so special? Simple: Congress grants OPEC diplomatic immunity from prosecution and in essence treats it as though it were a sovereign nation, even though this is not remotely the case. This status was tested in 1978, when the International Association of Machinists and Aerospace Workers (IAM), a non-profit labor organization in the U.S., filed suit against OPEC under the Sherman Act. In 1981, the U.S. Ninth Circuit Court of Appeals rejected the case, claiming OPEC was protected by its sovereign immunity status.
In 2007, a pair of controversial bills were introduced in Congress designed to amend antitrust laws to include OPEC. If the measures are approved in both houses and the president doesn’t veto it, individuals harmed by OPEC in the U.S. can begin to sue the organization. If this were to happen, few expect OPEC to continue doing business with the U.S.”
Now, would you agree with me that many of the Congressmen and women seem to be in bed with the OPEC?
(Source: Autoblog, Bloomberg & ThisDay)
America might get most of its oil from Canada, but the moves that Organisation of Petroleum Exporting Countries (OPEC) makes still reverberate here. Thus, a statement by the Kuwaiti Oil Minister Sheikh Ahmed al-Abdullah al-Sabah to reporters yesterday probably won’t help decrease domestic gasoline prices any time soon. OPEC’s al-Sabah said that the organization will not consider increasing production until the price of a barrel of oil reaches $100.
Crude oil traded in New York has climbed almost 60 percent this year, after plunging more than $100 in five months at the end of 2008 as the global recession curbed demand for fuel.
Oil futures rose above $71 a barrel yesterday for the first time in seven months, and traded at $71.18 as of 9:14 a.m. on the New York Mercantile Exchange.
OPEC had in the wake of the record oil plunge noted that its revenue had been adversely affected, a development which prompted members countries to set back 35 of the 150 projects due to come on line in the next few years to expand supply. OPEC predicted stronger demand as it decided May 28 in Vienna to keep production quotas unchanged. OPEC agreed at three meetings last year that the 11 members with production quotas would reduce output by 4.2 million barrels a day.
OPEC Secretary General, Abdalla El-Badri , had stated that falling prices of crude oil would not only affect investments in both the upstream and downstream, but will delay future investments.
He raised fears that if the present situation does not change, it will lead to cancellation of future investments and automatically affect oil supply to the market.Following the recent price rally, OPEC at its May 28 meeting agreed to leave outputs at their present levels. Lead producer, Saudi Arabia had predicted that oil prices would likely rise to around $75 a barrel by the end of the year on the back of growing demand in Asia .
OPEC President, Angola ’s Oil Minister, Botelho de Vasconcelos had noted that oil should be between $70 and $75 a barrel to cover the costs of production.OPEC’s Director of Research, Hasan Qabazard , had at an Energy conference a fortnight ago expressed fears that oil prices could fall again because fundamentals were still weak.The OPEC scribe had noted that oil markets were still weak, pointing out that the current price “rally may be unsustainable in the short term because the “rally is driven by funds rather than fundamentals”. However, United States investment bank, Goldman Sachs had stated that a potential economic rebound alongside production cuts by the OPEC could prop up price to $85 a barrel by the end of the year and $95 a barrel by the end of 2010.
TransportGooru Musing:
1. The power of the cartel and its influence in manging the oil prices can only be countered with sustained investments world over in alternative fuel technologies such as electric vehicles ( like in US, Japan and Europe) and hydrogen technology (Norway has a solid lead here).
2. The developing economies are going to have a tougher time in this round compared against the previous years, especially with the recession still showing its strong grip in many countries. Especially, for China and India high oil prices can be crippling as they are battling to out of the recession.
3. Speculative trading in the markets should be reined in (a very hard to execute. Period.
4. Above all, the only real sense of control remaining for ordinary people against this oil mafia is to simply repeat what they did in 2008 – stop driving unless it is really, really necessary. If there is a transit alternative, park the damn car and take the bus or train. Try and find if you have a carpool option available in your city. It might be ridiculous to think about this “shun your car” as an option here. But the secret lies in the “power of one” – as an individual your contribution might be negligible but if done effectively in every community it can make a serious impact.
(Source: The Infrastructurist)
The so-called peak oil debate has taken many twists and turns over the years. After long being an oddball survivalist preoccupation, the debate gathered mainstream momentum a few years ago as oil prices began a long ascent from around $30 per barrel to $147, where they topped out last summer. By the time a barrel of West Texas crude was rising eight bucks a day, scarcity seemed like the best and only explanation–that no matter how hard we tried, we couldn’t pump enough oil to meet demand. OPEC cut production, inventories rose, and it seemed like, in fact, we had plenty of oil for the foreseeable future and the whole thing had just been hedge fund shenanigans.
Maybe not, Raymond James now cautions. “We believe that the oil market has already crossed over to the downward sloping side” of all-time total production, say analysts at the financial services company. While cautioning that nobody but historians can be sure, they believe production peaked in 2007 for non-OPEC countries (Russia, Norway, Mexico, etc.) and last year for OPEC (Saudi Arabia, Venezuela, Iran, etc.). “It is entirely intuitive to conclude that if both OPEC and non-OPEC production posted declines against the backdrop of $100/bbl oil–when the obvious economic incentive was to pump at full blast–those declines had to have come for involuntary reasons such as the inherent geological limits of oil fields.” In other words, we had a perfect environment for testing the peak oil hypothesis, and the results are in. We’ve peaked.
My reponse? Yawn. We’re all unemployed Prius drivers anyway these days. Oil is an anachronism.
The biggest immediate crisis would be in transporation, because that’s where most of our oil goes. When gas hit $4 per gallon last spring, the financial strain was hitting the breaking point for many households–particularly outer suburban households. The arrangement of many American cities started to look insane: Working class people commuting 50 miles by car each way to their jobs?
The answers in this scenario would have to be rapid. No 30-year development plans. Instead: find cheap and efficient ways of getting lots of people around, and find them pronto. As a start, that would mean making it much easier for people to ride bikes, take trains, and form van pools.
Peak oil has always been an eye-roller in the establishment debate. It’s not clear that Obama has ever even been *asked* about it.
ALGIERS (AFP) – OPEC wants to see oil prices rising to more than 70 dollars a barrel, the oil cartel’s secretary general Abdalla El-Badri said Sunday.
“The price of 50 dollars is not enough to cover investment costs for the future,” El-Badri told reporters in Algiers.
“The price which allows reasonable and acceptable revenues is more than 70 dollars a barrel,” he added.
El-Badri was speaking after talks with Energy Minister Chakib Khelilahead of the next meeting of the Organization of Petroleum Exporting Countries in Vienna on May 28.
“There are positive signs of a recovery in the world economy, which we have to take into account before taking a decision on the future,” he added, in response to a question regarding a possible cut in oil production.
“Our forecasts are coherent, those of the IEA (International Energy Agency) are exaggerated,” he added.
On April 15, OPEC lowered its forecast for demand for crude oil in 2009 because the drop in consumption caused by the worldwide recession.
It now says production will drop by 1.6 percent, or 1.37 million barrels a day, down to 84.18 mbd. Its previous report in March forecast a drop of 1.01 million barrels a day to 85.55 mpd.
The IEA, in its latest forecast earlier this month, cut oil consumption by 1.0 million barrels a day for 2009 to 83.4 million barrels, citing the weak global economy as a factor.
TransportGooru Musing: With the entire world moving with heavy investments towards alternative energy such as electric vehicles, OPEC’s “The price of 50 dollars is not enough to cover investment costs for the future” sounds idiotic. OPEC will continue to survive as a group until the developing economies in Asia and Africa figure a way out of oil-dependency.
(Source: Wall Street Journal)
DALLAS — Since Henry Ford began mass production of the Model T nearly a century ago, car-loving Americans have gulped ever-increasing volumes of gasoline. A growing number of industry players believe that era is over.
Among those who say U.S. consumption of gasoline has peaked are executives at the world’s biggest publicly traded oil company, Exxon Mobil Corp., as well as many private analysts and government energy forecasters.
The reasons include changes in the way Americans live and the transportation they choose, along with a growing emphasis on alternative fuels. The result could be profound transformations not only for the companies that refine gasoline from crude oil but also for state and federal budgets and for consumers. Much of contemporary America, from the design of its cities to its tax code and its foreign policy, is predicated on a growing thirst for gasoline.
As Americans commute less, use more fuel efficient cars and take more public transportation, gas stations have shut down. There are 11% fewer places to pump gas in the U.S. today than there were a little over a decade ago.
In the vast market for crude oil, American gasoline consumption matters. One of every 10 barrels of crude ends up in U.S. gasoline tanks, more than is used by the entire Chinese economy.
Right now, the recession is curbing U.S. gasoline consumption, as laid-off workers stop commuting and budget-conscious families forgo long road trips. Drivers filled their cars with 371.2 million gallons of petroleum-based gasoline every day in 2007, according to the U.S. Energy Information Administration. It expects that to fall 6.9% to 345.7 million gallons in 2009, as demand at the pump declines and the use of plant-based ethanol increases. Even if usage climbs after the recession ends, it won’t exceed 2007 levels, according to EIA forecasts.
Demand for all petroleum-based transportation fuels — gasoline, diesel and jet fuel — fell 7.1% last year, according to the EIA. This is the steepest one-year decline since at least 1950, as far back as the federal government has reliable data.
Many industry observers have become convinced the drop in consumption won’t reverse even when economic growth resumes. In December, the EIA said gasoline consumption by U.S. drivers had peaked, in part because of growing consumer interest in fuel efficiency.
Exxon believes U.S. fuel demand to keep cars, SUVs and pickups moving will shrink 22% between now and 2030. “We are probably at or very near a peak in terms of light-duty gasoline demand,” says Scott Nauman, Exxon’s head of energy forecasting.
If Exxon is right, the full impact of falling demand for fuel would take years to be felt. But some deep changes are under way.
Click here to read the entire article. Also, don’t forget to explore the interactive graphic that offers some stunning statistics. Below is a video report from WSJ for this story.
(Source: Green, Inc. – New York Times via AutoBlogGreen )
Fears about energy security, and last year’s oil price spike, have sparked a serious push for renewable energy in the United States, the world’s largest oil consumer.
The trend is apparently making the world’s largest oil producer, Saudi Arabia, nervous.
Speaking at a major energy conference earlier this month, Ali Al-Naimi, the Saudi oil minister, offered an impassioned defense of oil, which he called “an enabler of progress and prosperity.” He cautioned that the current economic crisis — and the uncertainties over future oil consumption — could force producers to trim their supplies, and hence could cause a new price shock.
Mr. Naimi also offered his strongest public criticism against the drive for alternative fuels — which he referred to as “supplemental” energy — and the inconsistent policies of consuming countries. Although he never once mentioned either the United States or President Obama by name, these were clearly his targets.
But as I listened to the speech carefully again this week, it also struck me as one of the most important discourses on the economics of petroleum made by a senior oil official in recent times.
A video of the session is available here — though it takes a while to get through other speakers. (The relevant parts start around the ninth minute and last about 20 minutes.)
Mr. Al-Naimi, without doubt the most influential spokesman for the petroleum industry, began his address by praising the virtues of oil, the mainstay of the Saudi economy for 60 years.
“Oil is expected to retain its leading position as the world’s largest single source of energy,” Mr Al-Naimi said.
An article on AutoBlogGreen says: “Court disaster.” “Catastrophic.” “In their infancy.” These are logical statements for someone who represents the Saudi oil industry, but it sure sounds like someone is working hard to dial down expectations for anything that threatens the dominance of oil.
Thanks to AutoBlogGreen for pointing to a video on OPEC’s website featuring Mr. Naimi’s speech (starting at minute 9 in the video).
The agency said demand would drop for a second consecutive year for the first time since 1982-1983.
In its closely watched monthly survey, the IEA cut its forecast for demand this year by 270,000 barrels a day to 84.4 million barrels a day — 1.5 percent lower than a year earlier.
The Paris-based agency said demand for oil last year was estimated to have slid 0.4 percent to 85.7 million barrels a day.
To put that into some kind of concrete yet still unimaginably large and therefore abstract terms, the IEA estimates that the world will consume 270,000 fewer barrels of oil every day. On a related not, a professor at Cambridge University is predicting a 40-50% drop in greenhouse gas emissions due to the global economic downturn.” reports GreenDaily.com
Click here to read more.
