Strategic Forecasting, Inc. had a short analysis this morning on the OPEC meeting scheduled for later this week. OPEC representatives will be meeting to discuss production levels in light of recent declines in the price of oil that have drastically cut revenues.
Oil prices have dropped more than 50 percent in just the last 90 days. A barrel of oil is going for about $70, down significantly from its high of $147. According to STRATFOR, OPEC has already given indications that it may cut output by as much as 2 million barrels per day. OPEC is worried that the price of oil will continue to drop as a result of lowered demand resulting from global economic troubles. "Extra oil in a market where global demand is on an inevitable decline," STRATFOR says, "will lead the price of oil to collapse."
Declining prices can be dangerous for some countries, like Iran and Venezuela, who are heavily dependent on their oil revenues. Both countries, STRATFOR notes, have been calling for a cut in production for some time now.
The main player to watch, the analysis says, is Saudi Arabia, the world's leading oil producer. And right now, STRATFOR argues, "...there is no indication from Riyadh that the Saudis are planning to resist a meaningful cut in output to sustain the price of oil and weaken their main competitors." If Saudi Arabia agrees to the cut in production, we can expect declining oil prices to stabilize.
So, as has been the case for many, many years, we are at the mercy of a select group of countries when it comes to the price of oil. Both presidential candidates recognize that we must decrease, or eliminate entirely, our dependence on foreign oil. Eventually, we will have to eliminate our dependence on oil completely. It is a finite resource, and when it's gone, it's gone.
In the meantime, though, we should do a couple of things. First, we should drill here. This is a short term solution, but it will help to alleviate supply issues and reduce prices while we invest in long-term alternative sources of energy.
Second, we should explore the possibility of getting more oil from Canada. Right now, Canada supplies just over 20 percent of America's crude imports. Investing in Canadian efforts to produce more oil could increase supply in the United States by shifting more of our reliance on imported oil to a non-hostile nation.
It's true that we can't drill our way out of this problem. But drilling now for known oil deposits and investing in the oil industry of a friendly state like Canada could reduce our dependence on oil from nations like Venezuela and Saudi Arabia, increase supplies here in the United States, and help keep prices down.
recommend this
email
print
link to this page
Comments: 52
But the point of OPEC is that i think the raising of oil prices is what triggered the global recession ... not what caused it, what triggered it.
Cutting production to extort more money from the West at this time is going to end up causing more economic havoc, and most likely some kind of war.
One of the reasons OPEC probably wants to cut production and raise prices is to prevent the West from leving more taxes on oil to incent and subsidize the change away from oil.
This has got to be the world's top priority, and we need to see it as total war, an existential threat to civilization. I think the perfect time is now to ramp up government control and spending in this regard and make an executive decision to changeover to nuclear for electricity and any other energy generation means as well as transitioning our cars to electrity and creating the 21st century infrastructure.
if we do not do this we will be bought out, taken over and end up on the ashheap of history. The free-market fanaticism George Bush has only benefits those with lots of capital, and that is OPEC, and China ... do we want to commit suicide on some idiotic priniciple?
I don't think do.
The more we divert to drilling the more we feed our addiction.
The more we degrade the environment.
The longer we extend the oil age.
The more likely that we could be lured back to a status quo of oil
consumption if the price went down substantially.
No, we have to make the break, and drilling just makes it harder.
"Cutting production to extort more money from the West at this time is going to end up causing more economic havoc, and most likely some kind of war."
I agree they have to be careful with this. Saudi Arabia is the key country to watch. Venezuela and Iran can't really impact the global market all that much, but they are dependent on high prices. Saudi Arabia has large cash reserves and a cushion against falling prices. They may not have indicated they would block a cut, but in the end they may let prices continue to fall. The Saudis are well aware of the fragility of the global economy.
"I think the perfect time is now to ramp up government control...." Ideologically, I'm opposed to government control.
"The free-market fanaticism George Bush...." The free market operates on supply and demand. Right now we don't control the supply. Increase domestic supply and supply from friendly nations like Canada, and the free market will work a lot better.
"The more we divert to drilling the more we feed our addiction. The more we degrade the environment. The longer we extend the oil age. The more likely that we could be lured back to a status quo of oil consumption if the price went down substantially."
This is not an either / or solution. The driving factor that will force us to alternative sources of energy is the reality that oil is a finite resource. It will eventually go away. We will have no alternative but to find new sources of fuel. However, alternative fuels are decades away from being perfected and brought to market at reasonable prices.
This is why you do both: drill now to increase supply and reduce prices while simultaneously investing in the long term technologies that we will eventually be forced to turn to anyway.
"By the way ... good article." Thank you.
The leases, which companies can lock up for 10 years with annual rents of $2 to $3 an acre, are an economic boon to some companies because they count as assets that can make debt refinancing easier and ease tax burdens.
We have 40-million acres of land in this country leased by the oil companies that are going basically unexplored and are really being used as assets to help with balance sheets.
Why is this happening? I actually support oil exploration and drilling in this country... starting with the 40+ million acres already under lease.
> energy is the reality that oil is a finite resource.
Oh Greg, this idealism centered over the fairy tale of the free
market in isolation from everything else in the world just
worries me. The market has its place, and should be free
for the most part, but do you hear yourself say effectively
things will change when we realize ... things never change
when we realize things, we never realize things until a
crisis and this world is too brittle to afford the shocks of the
excesses of the free market anymore.
Sure the winners in the free market think everything is fine,
because they effectively blot out any ownership, rights or
humanity of anything that does not represent capital ...
and that is where the free market needs to end, and does
end - usually in a big crisis like we are seeing now.
we have to be smarter than that, and since we do not
know if we really can be smarter than that, we need to
en-franchise everyone so that problems do not start out
screwing over a few people, and then grow like the frog
in boiling water until we realize that 90% of our people
are in trouble, and 10% own everything and are unwilling
to help.
you should read a book just to challenge yourself called "bad samaritans" about free trade, replete with facts, history and statistic, a real eye opener.
Then why were the leases given in the first place? You mean we entered into long-term leases with neither party knowing whether it was economically feasible to drill?
I think Bruce had a point with his "The free-market fanaticism George Bush....", because I think Bush is among those who think the lack of competition on the supply side of the equation is good for the bottom line and what is good for business is for the national economy.
The oil industry is but one of many industries where big retailers of products and services have been allowed to buy up smaller competitors and thus reduce the effect of consumer demand on the retail price of goods. In the case of the oil industry it got to the point where the retailers no longer really tried to compete for retail level consumers and in the process became the only consumers that mattered to the producers of crude oil who started imitating their example and starting to control the supply available to the retailers.
In the long run Increasing the availability of domestic crude with not have a dramatic effect on the prices that end consumers pay as long as the energy supply is controlled by a small number of companies, and it will merely delay the day when the energy suppliers are forced to really compete for the business of the consumer market and business executives are forced to looked beyond the effect of retail prices in the short term. In the long term we must do what is necessary to increase competition on the supply side of the equation and allow consumer demand to force suppliers to compete to increase their market share.
The preceding is a simplification because we have already passed the point when governments should have reacted to prevent the consolidation of of suppliers that has allowed suppliers rather than the consumer market to control prices. For capitalism to survive business must compete for consumers not try to increase profit by controlling the the supply available to consumers. When business are allowed to grow to the point where they control the market, it doesn't matter who owns them they become the destroyers of free enterprise and the only peaceful way of controlling them will be via the voting booth.
"...think the lack of competition on the supply side of the equation is good for the bottom line and what is good for business is for the national economy."
That would be true if we dominated the market, but we are a very small slice of the market, so a lack of competition benefits most those we are getting the oil from.
"In the long run..." It's not meant to be a long term fix. It's a short term fix to alleviate price pressures while we invest in long term alternative technologies.
Investing in alternative technologies will be of little avail if we let those alternative tecnolgies be controlled by a small number of suppliers. We will merely be replacing one monoply that discourages competition with another.
Carol, the problem the [false] hope of democracy is that unless it has teeth, it is always subverted. We, the US, go to Iraq and say we are going to institute a democracy. That's fine as long as they vote yea on our policies. What makes Americans think that we are any different than the rest of the world. If the vote did anything it would be abolished.
America has turned into a tax base for a hegemonic system that goes around the world imposing its will on masses of people by finding the greediest and blododthirstiest among them and then turning over the country to them. This is of course how things have always worked to a large extent, but the US is going backwards.
Anyway, we agree on oil ... Greg, drilling is not a fix in the near, medium of far term. I am not for or against drilling more, because drilling for oil is insignificant, except as a symbolic issue so Republicans can pretend they are superior in economics to Democrats. The case is not made because that argument only appeals to people who do not care about the facts.
"Then why were the leases given in the first place?" My understanding is that the leases were granted based on potential production capability. Once testing was done, it was discovered that the leased lands were not economically feasible.
"Greg, the world is not even close to running out of oil, so your talk about supply and demand is really all about manipulation and screwing with consumers who need [cheap] energy, ie. inflexible demand to large extent - that is, you argument is spurious propaganda."
Not hardly. The world has plenty of oil, but not all of it is being produced and refined. We don't control production for 97% of the world's reserves. So it doesn't matter if there are x barrels of oil if the guys who control it only produce x-y barrels. That is exactly why we need to increase the percentage we control through drilling. Nice try, but your argument doesn't pass muster.
And while you may feel free trade is a "false deal," its opposite, protectionism, leads to fewer jobs and higher prices. Try reading some Adam Smith.
"Greg, drilling is not a fix in the near..." Not a fix, but a short term measure that would increase supply and relieve price pressures while we developed long term solutions.
"...so Republicans can pretend they are superior in economics to Democrats." That's just ridiculous partisanship. Drilling is absolutely about economics, specifically the law of supply and demand and letting people spend less on fuel.
Greg, if you understand supply and demand what part of the equation in drilling are you missing? The supply we get from drilling is practically insignificant, and by the time we get it I can only hope that we will not need it.
Again, there is no country that has developed a powerful economy that has not practiced protectionism. Every country that has been hoodwinked into the free trade straightjacket has gotten stuck in dependency and become a simple exporter or resources. You are way wrong in your world view ... I'd say 18th century, but Adam Smith was motivated to seek truth, you just repeat the same of propaganda. I'm sure Adam Smith would be way past "The Wealth Of Nations" today, but he got much of the morality in it right ... it's funny how Conservatives just ignore that.
And for someone who is outdated, Adam Smith is still taught extensively in post-graduate work.
The supply we get from drilling is practically insignificant? Estimates I've seen for ANWR say we could replace all the oil imported from the Middle East for at least 60 years. That's hardly insignificant. And as for when get it, well all I can say is that if Democrats in Congress hadn't been blocking drilling legislation for the past decade, we'd already be "getting it."
The drilling thing is all about being able to scapegoat Democrats yet again in another way. I am really sick of the Republican neverending tirade of lies and misinformation tactics.
Your statement about ANWR is not qualified at all. At what price is that oil available. How many wells would have to put up how fast and how much of a cost to equal the supply we get from the Middle East, or the world gets from the Middle East, because that is where the cheap sweet crude is ... pumps out at $1.50 a barrel net cost.
That tells you there is not supply or demand, and you are also not factoring in global warming, which you probably do not think is necessary because you think it does not exist. You have it all figured out, the problem is you are not the only smart, or persuasive, or conceited person around to think you know it all.
Republicans for so long have claimed a monopoly on expertise, in buisness, in technology, is ethics, virtually in everything, it is a show, a sham. Look at how Republicans have run the government. Deregulate everything and fight the government in any way possible, run up the deficit to kill government spending, without explaining what they are doing to the country ... really democratic.
Look at the top level so-called experts all they can do is repeat memorized sentences like "that's socialism", "supply and demand", "free-market", they do not even know what they are talking about.
Free-market capitalism is most akin historically to a religion, so why should not the book that teaches it be old and set up as a Bible that is inaccessble and interpretted only by a corrupt elite.
You are really telling me that you think Adam Smith says all there is to say on economics from mid-1700's? And you also do not mention the Theory of Moral Sentiments either.
No, this theory, has been interpretted for the political benefit of an elite group financeers. When you start asking questions and looking at data that economics does not describe the world.
We are at a point in American history where reality is being obfuscated in order to paralyze democracy in order to leave the decisions to an elite that thinks it is so much smarter than others, and better than using democracy. Their an elite because they have monopolized all the cash and vote each other onto the boards of directors of each other's companies and give each other raises so they 10x the salaries of CEOs in the rest of the world, and look at their performance, it has been miserable for the country. So they leave the democrats around to waste the energy of the opposition and lay out the blame on while they ignore reality and their own incompetence.
We do not have a free market when people's cash can disappear like that and no one knows what happened.
By the way, what do you mean Adam Smith is "taught" in post doctoral work ... post doctoral work is research, so what do you mean by taught ... maybe you mean milked or illuminated or encrusted, or mummified? ???? I don't know?
"...Adam Smith's writings are not problematic, you just seem to not have any perspective on them."
No, my perspective just differs from yours. And that is the problem for you.
"The drilling thing is all about being able to scapegoat...."
No, the drilling thing is all about increasing supply and relieving price pressures. It's about what's best for consumers.
"At what price is that oil available." If it wasn't a reasonable expedition, do you think anyone would be interested? That's why no one is drilling on the lands already leased. Too expensive for the returns.
"Deregulate everything and fight the government in any way possible...."
Actually, Barney Frank and Chris Dodd blocked stronger regulation of the financial industry. Funny how Henry Waxman decided to hold hearings on Fannie and Freddit AFTER the election. Do you think he would have waited if Republicans would be implicated? Never mind, don't answer that.
As for limiting government, YES YES YES YES. That's the ideal upon which this country was founded. Very specific powers granted to the federal government in the Constitution, WITH ALL POWERS NOT SPECIFIED TO REMAIN WITH THE STATES. The federal government is out of control.
"We do not have a free market when people's cash can disappear like that...." That's exactly what a free market is. It entails risks.
Post graduate work is a combination of coursework and research. As part of that coursework, Adam Smith and The Wealth of Nations is still required reading at most universities (depending on the discipline, of course - you wouldn't read Adam Smith if you were a physics guy).
There may be a paradox within OPEC over all this as well, those that want it to stay low to lessen the economic likelihood of America/Canada drilling more (oil independence) hurting thier sales, and those that have counted on the high prices for thier own economies now, like Iran, Venezuela, Russia...
You see you think about politics the same doctrinaire way you think about economics, that there is one common wisdom way to look at things. I never claimed the Democrats were perfect or apolitical, so why do you produce the straw argument that says that is what I believe? The problem is the that a system of doing things that is one sided, with no answerability has taken over. It justifies itself with one-line slogans that bear little truth value, and it does not work. It just has not taken over the Democrats quite as much as it has the Republicans. We may get a chance to criticize the Dems as well if they cannot clean house or produce anything useful either.
Yes, John, the profit game is going to suck us right back into the status quo, the more time, money, thought, hope we give to producing more oil, the less we will be able to take the leap to independence. We are not going to get to independent by trying to drill lots of well in the United States.
It is not a good idea to drill expensive wells and then the price of oil drops ... we have been through that cycle after the 70's, and even then we were stuck spending too much money doing buisness with a toxic dump of terrorism that now is extroting over half a trillion dollars a year while we are failing economically.
it is a bit like the insurance companies suing you while you are undergoing cancer treatment, and who put us in this circumstance?
Supply is restricted artificially. The market does not respond classically in this case, so drilling is not going to do anything, unless we discover a lot more cheap oil.
Even if we did, and we drilled holes in Alaska like swiss cheese we are still based around oil, and the oil industry and people will lose their motivation to invest in changing over this time just like before.
"You see you think about politics the same doctrinaire way you think about economics, that there is one common wisdom way to look at things."
I never said that there was one common way to look at things. And politics and economics are inextricably interrelated. You cannot separate the two.
As for criticizing the Dems, I believe you will get your chance. This is Obama's race to lose. If he wins, Dems will control the executive and the legislative. There will be no one else to blame.
Look, bottom line is you seem to prefer protectionist policies while I favor minimal government interference in the free market. Those opposing positions will not reconcile themselves, meaning I will not change your way of thinking and you will not change mine.
"...explain why the price of oil is varying from the 70's to 140's in less than a year?" Supply and demand. It's a two part equation. Global demand hit an all time high over the summer. Everything has a price point where behavior changes. For us, it appears to have been at about $4 a gallon for gas. When the price hit $4, people began to drive less. Behavior changed and demand dropped. As demand drops, so do prices.
"...will lose their motivation to invest in changing over this time just like before." That's where government should be involved. Incentives (tax incentives) to invest in alternative sources. Oil companies are businesses. They exist to make money. If there is no monetary incentive to pursue alternative sources, they will not jump eagerly at the development of althernative sources.
A nation cannot exist in this world without looking to its own self interest and survival, and an attempt to do so, which is what the US has turned into is going to prove suicidal. I can only hope we see this and remove the faithful from office and power before we have to turn out the lights for good.
You are wrong about this summer, the supply was cut back by OPEC. Demand is dropping because wild fluctuations in energy prices start to perturb everything else in the economy, that is another reason they broke up the monopolies/trusts in the early 1900's, because of energy games like OPEC is playing with us to make money. You cannot run an economy or a world while someone is trying to extort money based on a virtual monopoly.
Drilling is just another incentive, it is a dead end and a waste of time. Really it does not matter to me much, it is simply not going to be a major factor in oil prices no matter what happens, and it could fool people into going back to sleep, and ruin some environment. In short, there is no point, and it is the country's land.
Besides your whole argument goes up in smoke when you say the government needs to create the incentive artificially to build new energy infrastructure ... which we agree on. If the government has to do it, then do it and do it based on metrics and numbers, and all the numbers say that the only thing drilling in the US provides is emotional release for drill baby drill republicans.
Saudi Arabia, the leading producer of oil, increased output over the summer. As Saudi Arabia goes, so goes OPEC. Supply outstripped demand by about 150k bpd, which is tight. Fears over a shortage in the event of a catastrophe / emergency of some sort during a tight margin between supply and demand help to drive up prices.
Drilling is not a waste of time. It is a short term measure to increase supply and alleviate price pressures while we work on long term alternatives. I find it interesting that you say it's the country's land. When gas prices were at $4 a gallon, the majority of the country was calling for more drilling.
And as for government intervention, it's a matter of degree. You and I have differing opinions on how much government should be involved. I say minimally, but there are instances where government should play a role, albeit a small one.
Give me some numbers. What kind of output in what kind of time frame are you thinking? As a percentage of world supply, how much do you think that will be and what kind of price decrease do you think we'll see and when? Or since that is a major quesiton, whose data are you looking at?
Since I have not talked about any specifics about government intervention you really have no idea how much government intervention I support or where, minimal or maximal. To turn the discussion into the same old referendum on big government small government has never been intelligent or productive, it is a bad rhetorical tactic trying to substitute for truth and thought.
I am offering my perspective on the role of government based on the perception you have given thus far. It may be right, it may be wrong. But it is the perception I have.
By the way, your comment about this supply being for domestic consumption only really impeaches your economicly oriented take on this question.
The question of where any oil goes should be and would be decided by the market, There used to be complaints that we shipped lots of Alaska oil to Japan ... but that is where we got the best use for it. Lots of it was high-sulfur and we were not set up to refine it. Ultimately all oil goes on the world market anyway. You cannot ask Americans to drill for oil and then sell it at a discount to America and expect that be supportive of the free market.
I think your perception of my opinons on the market are poor. You appear to be targetting my disagreement with drilling and then associating me with others who do not want drilling.
If that was true I would not support increasing nuclear power bigtime either.
On the other hand, I am basing my opinions of your beliefs on the level of your rhetoric and facts. I am not asking or expecting you to be able to give me exact numbers on oil production, but you appear to just be appealing to an ideal to the point of contempt for the facts, looking for them, or thinking about them.
So, think of this question, let's say you and I want to argue intelligently on this matter. Is it relevent to ask or find out what kind of production or what kind of oil with what kind of costs and problems - holistically (ie. including environmental costs, threats to tourism fishing) and how would you answer those questions.
More importantly I think those questions need to be answered before taking a stand on this issue. Otherwise it is like approving a drug before you know about its safety. To push the point of regulation, we need to regulation political action as well as financial so we do not divert huge amounts of the country's energy, time and money into a rathole - for example the Iraq war, based on slogans.
That depends on construction of wells and other factors controlled by someone other than me. The point is the reserves are there. Now let's go get them.
"The question of where any oil goes should be and would be decided by the market...."
Not if the objective is to reduce our foreign dependence on oil.
"I think we critically need to be in a trajectory to be off oil in 10 years, and completely off it in 20."
Sounds eerily like an Obama talking point.
No, that is not the point. The point is that it makes no sense to get those reserves, to take the time, money and focus and put it in oil.
As for just saying because something sounds like an Obama point, whatever that means, is eerie, is like the whole basis for your argument here ... smoke.
The mathematics and economics of drilling in the US say we would do much better to put out money and focus into alternatives, and it would also create more jobs and US expertise faster.
Some of these wells cost hundreds of millions of dollars, the offshore ones almost a billion.
When you spend that kind of investment on something that should be phased out by 15-30 years it is a waste to save a few quarters on a gallon of gas between years you spend a hell of a lot of money and get only a small window where it makes sense, unless you extend the oil system into the future.
It is an anti-incentive.
It's interesting that you're not even interested in exploring the cost benefit analysis, assuming off the bat that it's just not worth it.