Oil economy

[anton pulisov]

The price of oil keeps going up and I don't see any reason it will go down. More people want oil, and there's less of it left. That's basically it. Even if you factor in the weak dollar, it's still really high.

Food prices are going up. Some of this is due to biofuel stupidity. Some of this is due to bad harvests. My hunch is that most of the price increases are due to the price of oil going up. Processing, transporting and storing food uses energy. Energy comes from oil.

The credit crunch happened after the price of oil went up. Things became more expensive. People in sub-prime mortgages couldn't keep up with payments and then the shit hit the fan. I think the high price of oil has been the driving force behind that as well.

So, the price of oil continues to rise and will continue to rise. Annual oil use has been outpacing new oil discovery for some years now. So the amount available will continue to shrink.

Would I be right in predicting that the world economy, in it's current set-up, is permanently fucked?

I'm not an economist, but this is just my take on things as an earth scientist/engineer.

[Ginger Yellow]

Oil economy

While I've been warning about long term high oil prices for a while, I'd like to make a few counterpoints.

"The credit crunch happened after the price of oil went up. Things became more expensive. People in sub-prime mortgages couldn't keep up with payments and then the shit hit the fan. I think the high price of oil has been the driving force behind that as well."

I really don't think this is true. The two main driving factors were rapidly increasing interest rates (1.5% to 6.% in a couple of years) and incredibly bad underwriting standards based on the idea that house prices would always go up and credit would always be available so people could always refinance. This led to a lot of stupid borrowing and a lot of fraud.

So, the price of oil continues to rise and will continue to rise. Annual oil use has been outpacing new oil discovery for some years now. So the amount available will continue to shrink.

There are large amounts of discovered but mostly untapped reserves, such as the Canadian oil shale and tar sands, which were previously too expensive to exploit. Now that oil is so expensive, it becomes economical, but it takes a while to bring production and refining online. In the medium term, this will reduce the pressure on traditional oil sources, as will a global economic slowdown. Furthermore, I understand the main bottleneck in the oil market is refinery capacity, as very few refineries have been built in the last 20 years. That may no longer be true, though.

In the long term, however, we are clearly fucked if we don't find a way to do lots of things without oil that we currently need it for.

[Greenlander]

Oil economy

Talking to a lorry driver friend the other day, the word is they believe diesel will be above £1.50/litre by the end of the year and how the independent driver will continue to operate is open to question.

The knock on will be massively increased prices in everything we buy. Food costs have risen, and while we may not be rioting a la Haiti and Egypt, the price will be significantly more than it is now thanks to the cost of transportation. It is an unsustainable situation. Capitalism is fucked, and the fuckers thought they 'won' back in 1989.

[Guest]

Oil economy

Well considering most of the price of fuel in the UK is in tax, I think the Goverment could very easily bring these charges down.

But they wont. As for prices rising to take into account transport costs, ha, anything with VAT on they will make money as well.

Added to which, we still are an oil producing country, so shouldn't we be earning money from this?

[linus]

Oil economy

Bryan: "I think the high price of oil has been the driving force behind that as well."

GY: "I really don't think this is true. The two main driving factors were rapidly increasing interest rates (1.5% to 6.% in a couple of years) and incredibly bad underwriting standards based on the idea that house prices would always go up and credit would always be available so people could always refinance. This led to a lot of stupid borrowing and a lot of fraud."
---------------------------------------

GY, one of the main reasons for the rise in interest rates is the rise in inflation, a large component of which was driven by the rise in energy costs (mainly, oil).

According to Peak Oil theory proponents, we're running out of new sources of oil while demand is growing, which will lead to continued price rises. Here is an interesting (and somewhat ominous) presentation by one of the leading proponents, someone who is a respected insider (and a great communicator):

http://www.simmonsco-intl.com/files/...gy%20Funds.pdf

other interesting related presentations here:

http://www.simmonsco-intl.com/research.aspx?Type=msspeeches

Other industry insiders disagree. The proof will be in the pudding, so to speak. If oil supply doesn't rise significantly 5 years from now, we're screwed. Basically the wheels were in motion a few years ago as oil prices crossed some tresholds, so we'll have a decent idea of L/T prospects around the middle of next decade.

[HORN]

Oil economy

Are oil prices included in inflation stats? I seem to remember that gas and electric prices didn't used to be.

[JtS]

Oil economy

If a litre were 107.9p

[linus]

Oil economy

I think they are Horn, but even if they weren't, oil is still a large component in the price of many other key goods (foods, air transport, shipping,...)

[Purves Grundy]

Oil economy

so they charge VAT on the duty? That seems a bit cheeky.

There are a few mega-refineries on the West coast of India that will be cming on-stream shortly, GY. That should give us an idea if the refining bottleneck is the problem. Thing is that if refining were the bottleneck then I'd expec tthe refiners' margins to be higher, and they're not. The World Bank is after all the Sub-Saharan African refineries being shut down (RSA excepted) to take advantage of cheap product coming out of India f'rinstance.

[WOM]

Oil economy

Well considering most of the price of fuel in the UK is in tax, I think the Goverment could very easily bring these charges down.

Someone says this every time the price goes up. But it's not in a country's interest to cut its revenue stream by essentially subsidizing the purchase of petrol. Everyone's going to have to readjust their lives (and, perhaps, business models) to account for the fact that Peak Oil has likely already happened and it's not going to get any better, price-wise. To subsidize petrol prices only delays the inevitable and stops a country from becoming innovative about dealing with alternatives.

Think about Toyota's prescient move to get into hybrid cars. North American automakers were caught napping because the US always thought it would enjoy cheap gasoline.

[Ek weet nie]

Oil economy

so they charge VAT on the duty? That seems a bit cheeky.

The same happens with alcohol and cigarettes.

In Ireland if you buy a new car you have to pay a Vehicle Registration Tax (VRT) of around 23% on the price of the car. Then you pay VAT of 21% on both the price of the car and the VRT.

[Reed John]

Oil economy

Furthermore, I understand the main bottleneck in the oil market is refinery capacity, as very few refineries have been built in the last 20 years. That may no longer be true, though.

My friend who consults for the Saudis says this is the case. Oil is not unlimited, but there's still plenty of it out there the trouble is getting it out of the earth and turning it into sweet, sweet gasoline, plastic and other goodies. Hmmmmm....oil.

Oil refiniries are awful polluters, I guess, or just ugly. I imagine we'll see them crop up throughout the "developing" world.

The World Bank is after all the Sub-Saharan African refineries being shut down (RSA excepted) to take advantage of cheap product coming out of India f'rinstance.

I don't understand. TWB wants them to reopen previously shut refinieries or wants them to shut down their refineries?

Think about Toyota's prescient move to get into hybrid cars. North American automakers were caught napping because the US always thought it would enjoy cheap gasoline.

I don't know if anyone actually thought that, but executives of publicly traded companies are paid big money by shareholders to behave as if there won't be any future beyond three months from now. And people are used to buying a new car every five years, so they don't think too far down the road.

[WOM]

Oil economy

Toyota is also a public company, yet it manages incredible feats of daring-do like building profitable small cars, virtuallly flawless entry-level cars, and hybrids. Regardless of the public's propensity for rapidly replacing its cars, it behooves an automaker to have the product ready when the consumer finally realizes they need it. While Toyota had a waiting list for its Prius, Big 3 automakers were still saying [to paraphrase an actual quote] "We're looking to see if there's a place in our lineup for a hybrid in 3 to 5 years". Excellent followership, there.
What's more, the Big 3 are still shooting themselves in the foot by only offering hybrids on their high-margin gas-guzzlers to prop up their declining sales. Honda and Toyota are showing the good sense to make them available on already-economical vehicles like Civic, Accord and Camry.

[rick derris]

Oil economy

I remember once touring the southern states on holiday in a large family hire car

filled it up one day, enough to last for 3 days driving and it was 16 dollars. It seemed obscene and it was

[WOM]

Oil economy

I remember driving in France in '99 on my honeymoon. We had a little Fiat Punto with a little engine and it cost me $80 to fill the tank. I damn near shit myself. The same car in Canada would have cost $20-$25 at the time. That said, you don't see barge-sized cars in France, and there aren't three or four cars per family like we have here.

[Reed John]

Oil economy

Well, Toyota and Honda have to be more forward thinking about stuff like quality and gas mileage because their cars are incredibly boring and ugly.

[linus]

Oil economy

WOM, Toyota is actually one of the most conservative car manufacturers out there, but it does look revolutionary in comparison to the Big 3. Most of the innovation in small cars is coming out of Europe.

it cost me $80 to fill the tank. I damn near shit myself

and that was before the tolls on the autoroute...

[Guest]

Oil economy

When I was in Oman it cost about 8 euro to fill the tank. Having never had a car before, I did not think twice, but my dad almost fainted when I told him.

[rick derris]

Oil economy

SAME IN KUWAIT LODZ. couldnt believe it, shame there was nowhere to really drive to

[Purves Grundy]

Oil economy

The World Bank wants the African nations to shut down their small toppin grefineries that jsut about meet domestic demand but are generally inefficient and seldom operating anywhere near capacity. The point being that where the bottom line is concerned it is cheaper to buy product from the new Indian refineries. It overlooks various other considerations such as associated support indistries, national prestige, burgeoning interdependence and harmony among the more forward-thinking African nations and stuff like that.

Happily the Chinese and Indians (and Iranians, if the number of Memoranda of Understanding they've signed wrt sundry existing and putative African refineries count for anything) seem to be taking a different view. A lot of it's to do with securing their supplies (in the case of teh new Khartoum refinery paid for and managed by the Chinese for instance), but in general it's all still good for Africa as the newer technology makes it easier to produce higher-spec products. Only North Africa is still using lead in petrol and sulphur sontent of diesel is gradually being driven down across the continent. Plus greater domestic refinng capacity means less exploitation by external oil majors and also less exposure to the whims of said majors.

[erwin]

Oil economy

.

Isn't the price of oil very much supply/demand driven? OPEC can manipulate the price simply by deciding to lower or raise the number of barrels produced.

There was a big find off the coast of Brazil announced this week - as big as deposits in Saudi Arabia and Kuwait, apparently. It won't flow until ten years' time, though.

When it comes on line, here's hoping the income filters down to the poor of that country (although let's not hold our breath on that score).

.

[linus]

Oil economy

erwin, the estimated reserves from that new field according to Petrobras is 700 million barrels, which is about what Saudi Arabia currently produces in about 3 months. It won't make much of a dent into the world market.

Saudi Arabia and all other middle eastern oil producers have been pumping as much oil as they can (except for Iraq), and many experts are predicting that Saudi Arabia production is going to start declining next decade, while global demand is surging...

[erwin]

Oil economy

.

According to the Brazilian Agência Nacional de Petróleo (ANP), the reserves are 30 billion barrels (to be confirmed). Maybe just wishful thinking, though.

.

[linus]

Oil economy

Pretty exciting prospects for Brazil, if those 30+ billion barrells predictions turn out to be true. That would be great news for just about everyone.

http://www.guardian.co.uk/business/2008/apr/16/oil.brazil

[caja-dglh]

Oil economy

I really hope we don't run out of oil in my lifetime.

It is one of the most beautiful commodity trading products there is. It is fascinating to observe in the way it behaves to fundamentals and technicals. I recall in November 2007 the world all laughed at the guy who did the first trade at $100 a barrel, and now how the guy must have wished he held the deal, rather than gaming a small, significant certificate of achievement.

The credit crisis has nothing to do with oil, but that doesn't mean that oil isn't fascinating.