In inflation-adjusted terms, oil is at its historic peak. The 1980's price of $39.50 a barrel translates to $103.76 in today's money. Many analysts attribute these high oil prices to speculation and increasing demand. And yet the Organization of Petroleum Exporting Countries (OPEC) have long fine-tuned their production output to micromanage world markets. So says the International Herald Tribune. The Trib reports that OPEC may forego their usual springtime production cut to spare the reeling US economy even higher oil prices. Deutsche Bank's chief energy economist says it's one of those PR-type deals. "They don't want to be blamed for a recession," claims Adam Sieminski. "That would be bad public relations." U.S. Energy Secretary Samuel Bodman is down with that. "It is important that the members of OPEC for their own sake carefully look at supply and demand." OPEC's choice, however, is between cutting production and maintaining the current output. For whatever geo-political/economic reason, increasing production seems to be off the table. Once again, it may be time for someone in Washington to pick-up the bat phone and call our good friends at the Saudi embassy…
UPDATE: Reuters reports that OPEC has decided to keep oil output steady. That said, Saudi Arabian Oil Minister Ali al-Naimi claims they’ve been pumping 9.2m barrels per day (bpd), already roughly 300k bpd above their OPEC target.
Just wait until the straws in the ground go dry over there, we’ll probably provide billions in foreign aid too.
The Trib reports that OPEC may forego their usual springtime production cut to spare the reeling US economy even higher oil prices.
It’s fun to listen to OPEC these days. They don’t want to tell the world what’s really going on with their inventories, as they don’t want to precipitate a move towards alternatives, but maintaining production levels is becoming less and less a matter of choice …
It’s interesting. Microsoft is being dunned billions because they won’t give out the keys to their bank vault (admittedly they have done some really crappy, unfair stuff). At the same time, no one does anything about these cartels.
What do you suggest Landcrusher? Should we boycott them or go to war with them? We could try sanctions because those work awesome.
Or maybe we could take steps to wean ourselves off that stuff and let them drown in it.
Bancho,
The latter would be fun, but in the meantime, couldn’t the EU fine them like they do MS? How about one of those class action lawsuits where the lawyers get millions and the rest of us get a coupon? How about every time they have a meeting, we assess a fine for anti competitive practices?
First, we have to decide that cartels like this are wrong. Then we can figure out what to do about it.
The problem is that *they* control demand. They’ll simply sell to someone else or produce even less. They’re rich beyond dreams of avarice. They can last a lot longer without selling us oil than we can last without oil.
And oil blows past USD 104/barrel.
“Badges? We don’t need no stinkin’ badges!”
We’re all likely to see if there is indeed a tipping point in gasoline demand this Summer, as everyone’s best guess is that it’ll top $4/gallon. I heard that demand dipped by just over 1% last week. That hasn’t happened before in the US.
And it’s not just our eternal friends the Saudis getting drowned in Petro wealth. We need look no further than our own MNC’s making money as though they were printing it.
Landcrusher: At the same time, no one does anything about these cartels.
Not exactly true. If I may wax conspiratorial, I think one the unstated motivations (or maybe just a perk) for the Iraq invasion was for the U.S. to get a seat by proxy at the OPEC table. Obviously that’s not working out so hot.
Hey Guys dont worry about the Mid East Petrol suppliers, we here in Canada are the biggest supplier of Oil to the USA! and despite the reference of some of your political people about NAFTA, more Pipe lines are in being started to bring Alberta (Canada) Oil to the USA Texas Gulf coast!
They can last a lot longer without selling us oil than we can last without oil.
I believe that’s exactly backwards, Bancho. How are they going to survive without selling oil? It’s not like they have another industry they can rely on for forex while they idle the oil business.
On the other hand, we have a great capacity to use less oil. As is beginning to happen. Will continue to happen, at these prices.
I’d like to see that one play out. I’m sure the US would flinch long before OPEC would.
We’ve yet to demonstrate we can live without oil. Even if we got off it completely they’ve got more than enough customers lined up to soak up whatever they can pump out of the ground. We are in a poor position to dictate conditions or do them any harm with regard to the way they manage their oil.
“On the other hand, we have a great capacity to use less oil.”
No, we don’t. We wrung most of the non-transportation substituteable oil use out of the economy in the 1970s.
Yes, it’s technically correct to say that driving around in stupid SUVs one per car 20,000 miles per year is something that’s ‘easy’ to change. How are you going to go about it in this political environment, though? Suggest a $3/gallon gas tax? Try to send through the hypothetical version of CAFE that doesn’t end up as a loophole-ridden disaster?
People on this very site continue to insist that there’s a Magical Fuel Genie that will save us (usually diesel) despite all the evidence to the contrary. There’s not; the era of the exurb as we know it is grinding to a halt.
If we make any substantive moves towards alternate fuels, they will just lower the price until the threat subsides. They have done it before and can easily do it again.
“I’d like to see that one play out. I’m sure the US would flinch long before OPEC would.’
Look up what happened in the 70’s when OPEC embargoed the USA. It played out before.
This is not the ’70’s.
Look how many new nations are increasing their oil consumption. The US is in zero position to affect OPEC (unless we invade more countries I suppose). If we don’t buy their oil they’ll sell to someone else happily.
Isn’t it possible (probable?) that OPEC is reaching, or reached peak production and thus must maintain status quo or drop production as to not dwindle rapidly their reserves? Mexico’s big oil field in the Gulf is losing production fast (leading to less exports to U.S and probably more immigrants to the U.S. as Mexico’s economy gets hammered by less oil revenue, which makes up over 35% of the national economy there.) Venezuela is on the brink of war, troubles in Nigeria, who trusts Russia? The North Sea is flattening on production. Canada has lots of oil but a lot of oil there is in tar sands and expensive to extract.
Here in California, Vallejo, San Mateo and the central coast are already paying over $4 a gallon. In central California where I live, the local Chevron station is selling regular unleaded for $3.65 a gallon, self serve.
China is rapidly increasing their oil purchases (they can backfill some of what the U.S. doesn’t buy from OPEC if that should happen, besides China has the $$$ to do it, the U.S. has made China wealthy and getting weathier.) The U.S. has a $11 trillion deficit and growing, and per the New York Times two days ago, the Medicare hospital trust fund is on track to be unable to pay its obligations in no more than eleven years (yet politicians are still promising health care for everyone), and the baby boomers have yet to really hit the system. Where is the money going to come from? IMO, its not, some thing is going to give in a big way and it probably won’t be pretty.
All of this and all the other bad economic items in the U.S. are going to continue to hammer the automakers. Introducing the new Challenger or Camaro is not going to help, probably way too late for the new “muscle” cars anyway.
Look for $125 a barrel soon.
Last time I checked, we have 300-400 years of proven uranium reserves, the land (if not the political will) to build 100’s more nuclear power plants (and yes I do live near a nuclear plant and I’m fine with it), and the ability to use that electricity to split water and generate either hydrogen fuel for transportation needs or to power up an all electric vehicle fleet.
Or maybe we could actually drill where the oil is, like the Carribean, (China is building an off shore oil will in Cuban waters as we speak), the California coast line, ANWAR (it’s a blasted landscape of ice, only idiots that have never been to Alaska find beauty in it), or the Atlantic Contintal Shelf.
Or we could switch over the natural gas powered vehicles; not as much range or capacity but it’ll get the job done (and we aren’t running low on methane anytime in the next 50-75 years).
Boo-hoo, the Arabs are running out of oil. GOOD! I’m glad we had the common sense to use up other people’s energy supplies before we drained our own. The sooner they run out of oil, the sooner we can stop guarding the Straits and let them descend back into the dark ages. Oh Canada is what i’ll be singing (in New Jersey) once that happens.
The age of the exurb has just begun.
Actually, we don’t have to invade. All we have to do is shut off the pipelines and shipping lanes so they can’t sell to anyone. Also, most of their wealth is tied up in paper that can fairly easily be grabbed by western powers. Stocks, bank accounts, bonds, debts, etc. If some court has the power to end cartels by grabbing property it can be done. We will not freeze before they starve, and or die of lack of water (how does one protect a desalinization plant from cruise missile attack?).
If the EU can force it’s will on MS, they can certainly do so on Saudi Arabia and friends (with help from the US of course).
So in the end you choose sanctions *and* war. Ok, that’s all I was asking earlier.
That’s basically conceding that we can’t live without that oil and we’ll fight to get it.
Is no one familiar with the ‘good old days’ when we had lots of domestic oil? The home boys were real good to us. They bought and owned lots of politicians, LBJ for one, Robert Kerr for another, who wrote and passed legislation such as the oil depletion allowance that compensated oil companies for selling their oil since they wouldn’t have it to sell anymore. Nice arrangement. They found a way to eat their cake and have it too, or at least a good hunk of what it was worth.
Yes, the oil producers are in it for the profit and do what they can to control, or at least influence, the market. It’s been our choice to drive gas hogs and blunder ahead like the cheap energy would go on forever. And notice the huge profits piled up by the likes of Exxon; it’s not just OPEC that’s doing well. It’s pure American arrogance to expect everyone to roll over for our benefit while we do things like overthrow an elected government in Iran so we could install the Shah to gain access to Iranian oil. Ousting Saddam with a similar objective hasn’t worked out as well though. We have the resources to greatly reduce our need for oil, but not the will.
If we factor in the hundreds of billions we’re spending for oil in the form of ‘defense’, the cost is much greater than $103 a barrel or whatever it is currently.
It’s time to bring democracy to Saudi Arabia.
Some clarifications:
“Microsoft is being dunned billions because they won’t give out the keys to their bank vault” MS is being fined because it didn’t live up to earlier pledges to play fair. Courts give monopolists less slack.
“no one does anything about these cartels” The cartel in question is a group of sovereign nations. Sovereignty can be waived, but can only be overriden by force.
“The problem is that *they* control demand” They control supply, not demand, and only partially at that. Moreover, cartels always eventually collapse. OPEC has a history of cheating on allocations.
“And oil blows past USD 104/barrel” As the article mentions, in real terms the price is back where it was in the 1980’s. Folks complain about the price of gas, but the inflation-adjusted rise in college tuition charges make oil companies look like eleemosonary institutions.
“the oil depletion allowance that compensated oil companies for selling their oil since they wouldn’t have it to sell anymore.” I assume this refers to percentage depletion, which oil companies lost years ago. The statement is like saying a deduction for the cost of goods sold is a way of compensating merchants since they won’t have the goods to sell again. “Compensation?” No, it’s a way of distinguishing between sales revenue and profit. Incidentally, back in the day, the industry was said to regard the option to expense intangible drilling costs as more important than percentage depletion.
“we do things like overthrow an elected government in Iran so we could install the Shah to gain access to Iranian oil.” Where to start? It was the British who wanted to (re)gain access–their oil interests had been expropriated. Our worry was that Iran would become a Soviet client. The “elected government” in the form of the Iranian parliament was abolished by Mosaddeq, who’d been appointed by the Shah and ratified by the parliament, but had dismissed parliament and was exercising dictatorial powers. There was great opposition to Mosaddeq inside Iran, so he would have been overthrown even without the CIA and British cash, intrigues and propaganda. Certainly Eisenhower grabbed a tar baby, but this is not a simple case of white hats and black hats.
“Where to start? It was the British who wanted to (re)gain access–their oil interests had been expropriated. Our worry was that Iran would become a Soviet client. The “elected government” in the form of the Iranian parliament was abolished by Mosaddeq, who’d been appointed by the Shah and ratified by the parliament, but had dismissed parliament and was exercising dictatorial powers. There was great opposition to Mosaddeq inside Iran, so he would have been overthrown even without the CIA and British cash, intrigues and propaganda. Certainly Eisenhower grabbed a tar baby, but this is not a simple case of white hats and black hats.”
It wasn’t just the British, although they were eager participants. Of course there was opposition to Mosaddeq; there’s opposition to every US president too. For a decent insight into what our CIA did in this and many other instances, I suggest “Legacy of Ashes: The History of the CIA” by Tim Weiner”. The ‘fear’ that Iran, South Vietman, etc., would become Soviet clients has been a 50-year boon to the military/industrial complex that Eisenhower warned against. Or, more accurately as was in a draft, the military/industrial/congressional complex.
It’s seldom a case of white and black hats, and this mixed bag is often further confused by the meddling of large corporations, as sometimes represented by the CIA, in the form of money and other inducements for one side or the other with assassinations on the shelf if needed. If Iran had not had oil, our interest would have been minimal.
A decent overview of how domestic oil companies corrupted our society can be found at the link below. Or read Robert Caro’s books on LBJ.
http://www.spartacus.schoolnet.co.uk/JFKoildepletion.htm
is it worth pointing out that $104USD ain’t what it used to be? hard to blame OPEC for thinking $100 is a fair price when global demand continues to increase and the euro is at $1.53 or disagree that the US economy is mismanaged after 7 wasted years.
“If Iran had not had oil, our interest would have been minimal.”
Vietnam didn’t have any oil. They didn’t have much of anything as far as i can tell. Wish somebody had told Kennedy/LBJ that. Oh yea, South Korea too.
“disagree that the US economy is mismanaged after 7 wasted years”
Yea, I disagree. WTF are you talking about? Since the dip in the 3rd quarter of 2001 (let’s see… what happened in the 3rd quarter of 2001?) the US economy has experienced 25 quarters of continuous economic growth. Lower unemployement on average than the Clinton years, with less taxes to pay from WORKING Americans – remember Bill’s ‘tax on the rich’ which hit people earning the ungodly sum of $32000? I’ll never forget the (liberal) newspaper cartoon I saw that had a statue of person in a museum with the title of ‘The Middle Class’. There was big screw right thru the middle of it. The placard said the artist was Bill Clinton.
This you call mismanaged? Who do you get your information from, the Barack Obama campaign?
Damn… would that everyone’s economy could be mismanaged like the US. Maybe they wouldn’t have double digit unemployment in Europe.
Bancho,
I suggested that some governmental body take the OPEC states to task for running a cartel. Then YOU jump to the conclusion that they will just embargo us.
Yes, if they try to embargo the West in response to a court order to pay a fine and cease acting as a cartel, THEN we could take more drastic actions.
I would propose ceasing of property first. We would not need to take military measures (far from actually going to war) unless they were obstinate beyond reason.
In fact, ALL actions of a government are backed by a threat of violent force. War is the ultimate violent action, and ALL governments reserve the right to wage it to enforce their will. If you do not believe me, stop paying your taxes and see how long before Hillary/Obama’s jack booted thugs come to take you and your home.
If I were to mangle your position like you did mine, I would have to say that you propose we use magic to power our society or be forced to give up our first born children as slaves.
50merc,
Yes, the governments can claim soveriegnty.
However, I suggest that a good lawyer would get around that pretty well. I believe that there is always some sort of corporation involved in these deals. For instance, can you not sue PEMEX? Aramco? When some prince or potentate rushes in to try and stop a foreign court from acting against Aramco, it will be they who are attacking sovereignty.
What would happen if the US intervened against the EU and declared that MS would not be paying any fines?
Note also that MS is not looking at an embargo on the EU.
The point is, there is no embargo, they’re just not *increasing* production. It’s their country. It’s their oil. It’s their decision. There are other nations who produce oil as well. The thing is, there is an ever inreasing demand for their oil so our needs here in the US are *not* the sole factor dictating how *they* produce their product.
Their oil is a finite resource (unless you believe in magic) so it’s in their interest to make that resource last as long as possible.
The whole premise of this thread was that they wouldn’t *increase* production to help alleviate our high fuel prices. If anything the great free ride we’ve had as fuel prices go is gone forever.
The whole comparison of this with MS is a different situation altogether.
Bancho,
Self interest is not a defense for cartel. A cartel is market manipulation. Why is it wrong for Exxon, Shell, and Chevron to collude on supply? Either it is wrong or it is not.
If it is wrong for Exxon, Shell, and Chevron to collude on supply, then it should also be wrong for PDVSA and Aramco to do so. The same people controlling PDVSA and Aramco are the ones behind OPEC’s decision to control output. It doesn’t matter what OPEC decides. The second they meet, they are violating the laws of free countries.
Hiding behind “sovereignty” will not stand. If it’s that easy, then let’s get some little country to back us, and we will go take over some other market and manipulate it to our mutual benefit. Certainly one of the African dictators would relish the ability to stick it to the man while making some money from us.
I guess we can agree to disagree.
Personally, I think the best long term strategy to “sticking it to them” would be to use less oil overall. There’s only so much oil on the planet and there is an ever increasing number of people who want it.
@windswords: the most the Bush administration can claim is that the US has grown at trend – that’s during a period of record low interest rates. Meanwhile government spending is out of control,
So yeah cutting taxes and increasing government spending results in growth but eventually the bill arrives in higher prices, higher interest rates and a ballooning national debt.
That’s the definition of “economic mismanagement” to any fiscal conservative.