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A Primer on Oil Prices
There are vast forces at work regarding the price per barrel of oil and one of them is the speculation that has driven up the cost despite the fact that there are ample supplies. The problem is not lack of oil, but whether it can be shipped to a waiting world. The potential for conflicts in the Middle East and elsewhere worries the marketplace. Sebastian Abbot, an Associated Press reporter, points out that, "Hedge funds and other financial institutions have been buying and selling oil contracts in an attempt to generate profits." Such trading has little to do with actual supply and demand and more to do with the kind of gambling that led to the sub-prime mortgage meltdown. And what goes up will go down. The cost of a barrel of oil is also tied to the value of the U.S. dollar. It is likely, too, that the lack of production capacity in the world oil market plays its role in the profits being made these days, primarily by national, as opposed to publicly owned oil companies. Rarely noted are the huge risks and huge investments taken by publicly owned oil companies. This is in marked contrast to the national oil companies representing some 70% of the world’s known oil reserves that, with the exception of the Saudis and other Gulf states, are almost universally failing to make adequate investments in exploration or the upgrade of their facilities. Cassidy points out that, "In the past four years, Exxon Mobil, the world’s largest oil company, has invested more than $60 billion in exploration and development. Between now and 2010, the company plans to begin pumping oil or gas from no fewer than 20 new projects." Are you prepared for a shock? ExxonMobil owns only 1.08 percent of the world’s oil reserves. When you add the five largest private global oil companies together, they represent only 4 percent of the world’s oil reserves. As Richard W. Rahn, a senior fellow of the Discovery Institute, pointed out in a November 2007 article published in The Washington Times, "The high price of oil is a direct consequence of artificial supply constraints imposed by the Organization of Petroleum Exporting Countries and other countries." OPEC is composed primarily of Arab and African oil producing nations, along with Venezuela. Together, they control about 77 percent of the world’s known liquid crude oil reserves. Like Russia and Mexico, this state owned oil is widely seen as poorly managed. "By contrast," notes Rahn, "the U.S. only has about 2 percent of the world’s oil reserves, but produces more than 8 percent of global production, largely because they are privately owned and managed." Despite current high prices at the gas pump, Congress refuses to permit exploration and extraction of potential and known oil and natural gas reserves from 85 percent of the nation’s continental shelf off either the East or West coasts. As this is written, China is exploring for oil offshore of Cuba, barely 90 miles from Florida. Congress has consistently refused to allow exploration and extraction of the vast oil reserves located amidst the 1.5 million acres of the Alaskan National Wildlife Reserve. Less than 2,000 acres would be affected. The Department of Interior estimates that 3.5 billion barrels exist. I have read estimates of as high as 16 billion barrels. For all the political bombast of being "energy independent" our own government stands in the way of accessing our own oil and natural gas. Another factor plays a role in the price of oil. It is our capacity to refine it for gasoline and other products. Not one single new oil refinery has been built in the U.S. for nearly 30 years. The reason is that environment organizations that have advocated a vast matrix of environmental laws passed since 1970 have made it too costly to build one. These are billion dollar investments and no oil company is going to spend that kind of money in the face of hysterical objections by the Greens and impossible obstacles from federal and state government agencies. A recent explosion at a Texas refinery will only serve to drive up the cost of gasoline and other oil products. Troubles in Nigeria contribute to the recent uptick on oil prices. The slowdown of oil production in Iraq following the invasion is yet another factor. Wonder why gasoline costs more? In order to fulfill various air pollution reduction plans, gasoline and diesel must be refined into some 17 different formulations. With three grades of gasoline, that means that refiners must produce some 45 separate blends. That’s expensive and the cost is, of course, passed along to consumers. Since demand outstrips production capacity, weekly gasoline imports more than doubled between 1992 and 2004. The mandate to include the gasoline additive, ethanol, largely made from an ever-increasing amount of the nation’s corn production, further adds to pain at the pump. The irony here is that it drives up the cost of food while reducing the mileage available from a gallon of gasoline with this additive. As a result, oil refiners have cancelled an estimated 40 percent of planned expansions, reducing potential new output from 1.6 million barrels per day to less than 1 million barrels daily. The hard math of a growing U.S. population, plus the fact that petroleum accounts for about 40 percent of U.S. energy supply, two thirds of which must be imported, means that Americans are caught in a government designed energy vice. American transportation runs on oil. It accounts for about 28 percent of U.S. energy use. As America’s infrastructure of roads and bridges ages, a two-year study by the National Surface Transportation Policy and Revenue Study Commission recently urged Congress to raise the tax on gasoline by as much as 40 cents per gallon. At the same time, the latest energy bill has increased Corporate Average Fuel Economy (CAFE) standards to require vehicles to get 35 miles per gallon by the year 2020. Analysts project an increase in the cost of buying a new car between $900 and $10,000 depending on which expert is consulted. The only way to achieve this is to drastically reduce the weight of a car, thus increasing the potential for a lethal accident and more dead Americans on the highway. New oil discoveries consistently put the lie to the "peak oil" hypothesis, but a lot more Chinese and Indians, among others, are going to want their own cars as their national economies improve. Investor’s Business Daily recently pointed out that, "The world produces about 85 million barrels of oil a day according to the International Energy Agency. Global energy demand is expected to rise 55 percent from 2005 to 2030." The U.S. energy policy, as it presently stands, is designed to drive up the cost of oil and its derivatives for every American because it will not permit exploration and extraction, and it will not encourage or permit new refineries to be built. The mandate for ethanol use also increases costs. In addition, it is likely to increase gasoline taxes at some point. This isn’t a policy. It is a plan to reduce the buying power of Americans for every necessity. It is abetted by the many environmental organizations that oppose all oil and other energy sources use. It is legislation written by members of Congress who appear to be utterly clueless about the basic economic laws at work here and around the world. Does this make any sense to you? In November we are about to elect a new President and many members of Congress. Each one of them must be asked what they intend to do about this mess. If they start bad mouthing "Big Oil" or "Big Coal", vote for someone else. Have you visited my daily blog yet? I guarantee you a ton of fun The Media Destruction Machine At Work It was entirely predictable and, as such, a perfect example of the way the mainstream media, wedded to the bad science and false pronouncements of the global warming crowd, would attack the 2008 International Conference on Climate Change. The Conference, held in New York March 2-4 and sponsored by the Heartland Institute, attracted some 500 people from around the world to listen to climatologists, meteorologists, economists, policy makers, and others with impeccable credentials. They were brought together by their disdain for the global warming hoax, based largely on the false claims of the Intergovernmental Panel on Climate Change (IPCC). These lies in turn are spread by people like Al Gore, along with scores of environmental organizations. The global warming hoax has been maintained by virtually all elements of the mainstream media (MSM). An event like the conference from their point of view had to be discredited. The media’s global warming advocacy has been analyzed by the Business and Media Institute that has published "Global Warming Censored: How the Major Networks Silence the Debate on Climate Change." One can secure a copy by visiting www.BusinessandMedia.org.
The latest in a line of reporters on the subject is Andrew C. Revkin. He began his March 4 article, "Cool View of Science at Meeting on Warming", by writing that, "Several hundred people sat in a fifth-floor ballroom at the Marriott Marquis Hotel in Times Square on Monday eating pasta and trying hard to prove that they had unraveled the established science showing that humans are warming the world in potentially disruptive ways." This is not journalism. This is opinion. It belongs on the opinion pages, not in the news section. Moreover, the suggestion that the speakers and attendees were "trying hard" suggests that it took anything more than a review of actual climate data to dispute the claim that the Earth has warmed dramatically and is likely to warm more. Even Meteorology 101 students know that the Earth has warmed barely one degree Fahrenheit since the end of the last mini-ice age in 1850. This is a quite natural warming and hardly attributable to human factors. Thereafter Revkin larded his report with the kind of qualifiers intended to discredit anyone named. The famed climatologist, Patrick J. Michaels, was identified as having "a paid position at the antiregulatory Cato Institute…" Presumably, everyone attending the conference had a paid position of some sort or they could have ill-afforded to be there. The conference sponsor, the Heartland Institute, was identified as "a Chicago group whose antiregulatory philosophy has long been embraced by, and financially supported by, various industries and conservative donors." Apparently, having a dim view of the economy-killing matrix of regulations is a bad thing. This kind of funding identification is never applied to Greenpeace, the Sierra Club, and the countless other environmental groups, some of whom have been the beneficiaries of numerous corporations. The March 3 issue of Business Week reported that, "ten of the largest U.S. corporations and four environmental groups joined forces last January to lobby for federal regulations to restrict greenhouse-gas emissions." These restrictions would be the result of legislation before Congress to impose a cap-and-trade scheme that would, in effect, permit emissions to continue under the umbrella of buying and selling "credits" to do so. This will enrich many industries with credits to sell. Revkin made sure that readers lined up on the side of the IPCC reports, noting that, "The latest reports, published last year and embraced by all major nations and scientific academies, concluded that the most warming since 1950 has been caused by humans and that centuries of rising temperatures and seas and ecological disruption lay ahead if emissions of heat-trapping gases like carbon dioxide were not curbed." The IPCC reports have been protested by many of the people at the conference, some of whom are IPCC contributors who data has been repeatedly ignored. The reports have had to be continually revised and are an object of scorn in the scientific community for their deliberate deceptions and distortions of fact. Revkin will never tell you that. With some 500 people available to interview, Revkin ended his article by quoting "a campaigner from Greenpeace (who) sought out reporters." I, on the other hand, had no problem talking with real scientists during the event. Not to be left out of the effort to mock the conference, Juliet Eilperin wrote an article for the Washington Post in which she identified the Heartland Institute as a "free-market think tank funded by energy and health-care corporations as well as conservative foundations and individuals" as if this was some kind of bad thing. She described the event saying, "The meeting represented a sort of global warming doppelganger conference, where everything was reversed." Well, yes! This was the first international conference to confront the deluge of lies about global warming. Rather than interview an actual climatologist, Eilperin chose to quote Frank O’Donnell "who heads the watchdog group, Clean Air Watch," who said that the conference looked to him "like the climate equivalent of Custer’s last stand. They seem to have tried to find every last skeptic on Earth and put them in one hotel off Broadway." Contrast this with the fawning MSM coverage of last year’s United Nation’s Bali conference to breath life into Kyoto Protocols that require nations to limit greenhouse gas emissions. Never mind that carbon dioxide constitutes a mere 0.038 percent of the Earth’s atmosphere and follows climate changes as opposed to the claim that it initiates change. CNN ‘s coverage was even worse if that is possible. Miles O’Brien, its chief environmental correspondence, equated all of the distinguished scientists attending and participating as comparable to people who continued to believe the earth was flat after Christopher Columbus’s voyage. Suffice it to say he mocked leading skeptics that included Patrick J. Michaels, Lord Christopher Monckton, Fred Singer, Dennis Avery, and others whose writings in scientific journals have yet to have been disproved. The founder of the Weather Channel, John Coleman, told the audience at the conference that the channel has become nothing more than an outlet for global warming alarmism. He openly called global warming a fraud. Lord Monckton took an optimistic view that events such as the conference will eventually contribute to the truth replacing that "scare" of global warming. The odds are that Lord Monckton is right. Increasingly, one can sense that the public around the world has grown weary of the idiotic claims of an unprecedented increase in heat resulting from human activities. The average hurricane makes human activity look quite puny. A volcanic eruption makes us all tremble. An earthquake makes buildings and bridges fall down. A theory about warming to which the expansion of glaciers and major blizzards are attributed is so suspect that anyone can see through it. For my part, I found that both the experts and others in attendance were a cheerful lot. The mood was upbeat and optimistic. What remains now is to defeat some truly horrid legislation making its way through Congress that would wreck the nation’s economy even more than the present calamities. The Center depends on donations to maintain our website and communications programs. Take a moment to help. Thanks!
©
2008 Alan Caruba. |
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"The tripling of oil prices since the summer of 2003 has unleashed forces that within the next two or three years will bring oil prices tumbling back down to below $50 a barrel." So said John Cassidy, writing about "The Coming Oil Crash" in the January issue of Conde Nast Portfolio. Yes, the price of oil will come down, though no one knows exactly when. It has topped $100 a barrel and there are indications it could go higher.
Perhaps the most committed to the hoax is The New York Times. Since the early 1980s it has published some of the most astonishingly idiotic articles about it, including the claim that the North Pole was melting.