I found this essay, with charts, by James Hamilton to be helpful in understanding the current oil supply-and-demand situation. Here's his bottom line:
I think we will see some net production gains this year, and expect this to bring some relief for oil prices. But I cannot imagine that the projected path for China [daily oil consumption by 2030 twice current U.S. consumption rate -- RD] above will ever become a reality. Oil prices have to rise to whatever value it takes to prevent that from happening.So yes, I do believe that speculation has played a role in the oil price increases, particularly what we've observed the last few months. But it's a big mistake to conclude that speculation is the most important part of the longer run trend we've been seeing.
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From the article:
"Now consider the situation today in oil markets: the Gulf, according to Mr Rothman [Mike Rothman, of ISI, a leading New York consulting group], is crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell. That physical oil is in excess supply at today's prices does not mean that producers are somehow cheating by storing their oil in tankers or keeping it in the ground. All it suggests is that there are few buyers for physical oil cargoes at today's prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year. This situation is exactly analogous to the bubble in credit markets a year ago, where nobody wanted to buy sub-prime mortgage bonds, but there was plenty of demand for 'financial derivatives' that allowed investors to bet on the future value of these bonds."
Even I learned something new. We were told by Paul Krugman that growing physical inventories of oil did not exist so I just assumed the oil producers were keeping the oil in the ground at these prices. He appears to be wrong.
Hey Pyrrho, where do you typically go to get such reasonable commentary on commodities?
About Peak Oil, I spotted this in an interview with F. William Engdahl in the latest Acres USA:
Now, I don't know if he's onto something here, or is competely crackers, but I always thought the dinosaur bones explanation was odd. When plants and animals die, their bodies decompose gradually, returning to the earth from whence they came. Why would there be a huge pile of dead plants and animals in the first place? It's an interesting theory, anyway. Unfortunately, he goes on to claim (essentially) that we aren't pumping all this oil because of a world-wide conspiracy to keep oil prices up, and I have a harder time buying that.
Mhoram: "[W]here do you typically go to get such reasonable commentary on commodities?"
That's precisely the problem! I usually have to piece things together out of scraps taken from various articles and reports. This is what you do when you're ahead of the curve ;-)
Let me make two things clear:
[1] I am convinced adherent of the Peak Oil theory, but
[2] I believe there is a more "parsimonious" explanation for recent events in the oil market: financial speculation.
The peak may well be nigh.
Mhoram, yep, Engdahl is competely crackers.
I personally do not see any relief in the near future for the spike in the price we pay at the pump as long as we have politician's who are premitted to gain in the sale of gas and almost a form of racketeering in its utmost defined status.
Until America wakes up to the truth's of who is making the money and demand's an immediate hault to such practices...the only thing we are going to be able to count on is the price of gas continuing to rise!
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