Oil Prices and the Media

[Pangloss]

Last night on ABC News, Peter Jennings claimed that Americans consume 13 billion barrels of oil per day. Yes, he actually said that.

 

Okay, it was obviously just a mis-speak. But I think it's interesting the way the press latches on to the oil story, but only when prices are going up. For most of the last half of 2004, prices were actually coming down. Now that they're on the rise again, it's the hottest story in news.

 

So it ends up going something like this:

 

Headline / Price of Oil per Barrel

 

"Oil hits a new all-time high!" / $48

"Biggest one-day increase in decades!" / $46

"Oil gains huge amidst fears of terrorism!" / $44

"Production shortage drives price of oil upwards!" / $42

 

Obviously in-between these headlines are days, weeks or months of decreasing prices, which aren't reported by the media, or get buried deep in section D or something.

 

I'm not trying to suggest any sort of collusive or agendized behavior here -- it may be nothing more than the usual drive for sensationalism. But it never ceases to amaze me how shallow these people in the news media are, and how well this stuff sells on the street.

[bloodhound]

well, people here in europe would kill for the prices you pay over there. I honest don't understand what the fuss is all about.

[TimeTraveler]

Last night on ABC News' date=' Peter Jennings claimed that Americans consume 13 [i']billion[/i] barrels of oil per day. Yes, he actually said that.

 

Okay, it was obviously just a mis-speak. But I think it's interesting the way the press latches on to the oil story, but only when prices are going up. For most of the last half of 2004, prices were actually coming down. Now that they're on the rise again, it's the hottest story in news.

 

So it ends up going something like this:

 

Headline / Price of Oil per Barrel

 

"Oil hits a new all-time high!" / $48

"Biggest one-day increase in decades!" / $46

"Oil gains huge amidst fears of terrorism!" / $44

"Production shortage drives price of oil upwards!" / $42

 

Obviously in-between these headlines are days, weeks or months of decreasing prices, which aren't reported by the media, or get buried deep in section D or something.

 

I'm not trying to suggest any sort of collusive or agendized behavior here -- it may be nothing more than the usual drive for sensationalism. But it never ceases to amaze me how shallow these people in the news media are, and how well this stuff sells on the street.

 

Its probably their way of relieving their conscience from not reporting peak oil. And they won't report peak oil because really, whos stocks will go up? A couple companies that sell solar panels.

[Skye]

I'm not trying to suggest any sort of collusive or agendized behavior here -- it may be nothing more than the usual drive for sensationalism. But it never ceases to amaze me how shallow these people in the news media are, and how well this stuff sells on the street.

Perhaps, but oil prices are high. I remember reading in the financial section of a local paper, on the first day of the war in Iraq, that the war would be considered a failure if oil prices weren't forced below $27 a barrel.

[Pangloss]

That's odd. Why would Australians they consider the Iraqi war a failure if the price of oil weren't forced below $27/barrel?

 

Certainly wasn't a factor in my opposition to the war. But I guess to each his own....

[Tetrahedrite]

That's odd. Why would Australians they consider the Iraqi war a failure if the price of oil weren't forced below $27/barrel?

 

Certainly wasn't a factor in my opposition to the war. But I guess to each his own....

Maybe some of us were more skeptical about the motives of the US than most Americans are.

[john5746]

I think some of the problem recently is the weak dollar.

[Pangloss]

Well really my point here was not so much about oil prices or the motivations for the Iraqi war (though I don't really mind topic digressions in general; it's cool).

 

My point was more along the line of this: With regard to oil prices, I'm not convinced that there is a problem.

[Cadmus]

well, people here in europe would kill for the prices you pay over there. I honest don't understand what the fuss is all about.

Let me try to help you to understand. Do you think that anyone in Europe would mind at all if the price of gas went up 30%? Do you know what all the fuss would be about?

[TimeTraveler]

Well really my point here was not so much about oil prices or the motivations for the Iraqi war (though I don't really mind topic digressions in general; it's cool).

 

My point was more along the line of this: With regard to oil prices' date=' I'm not convinced that there [i']is[/i] a problem.

 

Pangloss, I am very interested in oil and natural gas and the problems the world faces in the future due to the peaking of the two. I would love to discuss this. I just need to know where to start.

 

Why do you feel that there is no problem? And what do you think the consequences of peak oil and natural gas will be?

 

Also me and Aardvark had some good conversation about peak oil in this thread:

 

http://www.scienceforums.net/forums/showthread.php?t=9398

[Skye]

My point was more along the line of this: With regard to oil prices, I'm not convinced that there is[/i'] a problem.

Ok, but whether it is a problem or not is another thing. The fact that oil prices are high is a story in itself.

[syntax252]

 

My point was more along the line of this: With regard to oil prices' date=' I'm not convinced that there [i']is[/i] a problem.

 

And neither am I.

 

Crude oil has been much higher in the past than the current $55 pr. bbl.

 

Back in the late 70s it was $38, which, when adjusted for inflation, would be equal to about $76 today.

 

We survived it then, we will survive it now. Actually, if the American consumer would adjust his driving habits, we would soon have a surplus, which would drive prices down.

[Pangloss]

Sure, it's a story, I just think it gets pushed too hard because it's a politically correct story. It's too simple. It might be a problem, I'm just not convinced that it is. To that end I'm always appreciative when the news alerts me to something, but this goes way beyond that. I'd have to be a real dullard not to be aware of rising oil prices at this point.

 

My main reason for questioning whether it might be a problem are the massive improvement in the economy since the 1973 and 1979 crises, and the failure of the price of oil to rise in accord with that improvement.

 

Of greater interest to me is the question of supply. Anyone familiar with the history of the oil industry (I recommend Yergin's "The Prize" as critical reading) knows that for almost the entire history of oil, we've had a glut situation. For the first time, we now are approaching what analysts call "the big flop" (or similar phrases) -- the point at which demand finally (after 100+ years) begins to permanently exceed demand. If and when that actually happens, things could get interesting.

 

But that's a fear, not a reality. In a sense it seems almost certain, given the growth of China and India (and of course we're not slacking off here in the States either). But that assumes that no new areas of production growth can be found. I don't think that's a given.

 

It's also not a given that supplies will ever run out. If I'm not mistaken, not one single oil well in the history of oil has ever actually "run out" of oil. They generally just become non-productive.

 

This is one of those things that calls for disciplined, non-partisan analysis. We need to face up to the fact that one of these days humanity is going to have to make some tough decisions that aren't born out of necessity. That's what makes them tough.

[syntax252]

When the oil embargo hitin '73, I was driving a 1973 Pontiac Ventura with a 350 engin in it. It was good for 14 MPG on the hiway.

 

Now, I am driving a 2003 Monte Carlo with a 3800 CC engin in it that is good for 30 MPG on the hiway.

 

Now, the kicker--the Monte Carlo is, in all ways a snappier, better handling and more reliable car that the Ventura was and even if I was driving the same miles every year, I would be doing it on less than 1/2 of the portion of my income that I had to devote to gas in 1973.

 

The "energy crisis" was the best thing that ever happened to us.

 

Yes, we will run out of oil eventually. But it is the sort of thing that is going to happen gradually enough that we will have no problem in adjusting to it. Hell, we may even be glad it happened.

[TimeTraveler]

Its not really a problem right now, it will become a problem soon. What I fear the most is that no one takes the problem seriously. This problem of peak oil has the potential to destroy the US economy and the world economy, send us into a great depression and cause much devestation. We can't expect the problem to go away without a collective effort so I think people need to make themselves aware of the facts of peak oil.

[syntax252]

Its not really a problem right now, it will become a problem soon. What I fear the most is that no one takes the problem seriously. This problem of peak oil has the potential to destroy the US economy and the world economy, send us into a great depression and cause much devestation. We can't expect the problem to go away without a collective effort so I think people need to make themselves aware of the facts of peak oil.

 

If by "peak oil" you are referring to the finite quantity of reserves running out, then I think you are getting a little more nervous than is necessary.

 

First, we always know where the next 20 years of oil is comming from. Exploration for new sources is not carried beyond that because it cost money to explore for new sources of oil and beyond 20 years is longer than investors want their money tied up.

 

Second, even when it does run out, it is not all going to run out at once. It will slowly peter out, and other sources of energy will come to the fore, such as alcohol, solar and wind power, hydroelectric sources, geothermal sources and many other sources that are here-to-fore sitting on the back burner because oil is so cheap and so easy.

[Pangloss]

No, the issue with "peak oil" is production capacity, not reserves. It's a legitimate, long-standing concern that's been the subject of intense (if less well-known) debate almost since the oil industry began.

 

The problem I have with doom and gloom predictions based on production capacity is that we've never actually seen a practical limit to the amount of daily production a nation can reach. I realize it's more complicated than just sticking more holes in the ground, but in the final analysis there's always been plenty of money available to invest in new infrastructure, and that's still the case today.

 

An interesting sidebar to this is to look at the history of market forces on the price of oil, and how that price is manipulated (and why) by the oil-producing nations. To give a vast oversimplification by way of explanation, the major nation enacting downward pressure on oil prices has always been Saudi Arabia, acting on the conventional wisdom that their reserves are vast and it makes sense to keep prices low as a way to prevent development of alternative fuel. The major nations enacting upward price pressure have been Iran under the Shah, and Venezuela. They historically prefer a higher price, because the conventional wisdom is that their reserves are smaller.

 

But that conventional wisdom has been challenged over the last decade or two, and we may be seeing the results of that change already. Saudi Arabia has recently backed off from that position, supporting higher oil prices in the short term, saying they needed to offset higher production costs.

 

Other factors at work here include:

- Iraq's still-untouched southern reserve (the second-largest in the world)

- Iran and Venezuela thought they'd be out of oil by the early 1990s, but still no show signs of running out, and in fact production is double what it was when those predictions were made

 

These factors actually suggest a downward pressure on prices. If capacity can be addressed, we might actually see prices fall again. The question is whether demand can be met.

[Pangloss]

Just to add another (brief) angle to that, and submit a prediction, my guess is that we will see prices settle in the range of $40/barrel over the long haul, and that higher price will help fund production capacity that previously was unprofitable.

 

This is not a bad thing. Just market forces at work. It doesn't mean long lines at the gas station, wells running dry, or OPEC acquiring more power. It does mean more air pollution, I suppose.

[TimeTraveler]

I think the problem is being over-simplified and underestimated.

 

Many experts think Saudi Arabia has already peaked. And remember when Saudi set the goal for $25/barrel - that was when it was at $35/barrel, instead of going down it is now nearly $50/barrel.

 

Price increase is a good thing, that will be the factor that makes people pay attention.

If Saudi Arabia has peaked then essentially the world has peaked.

 

Peaking is not when we run out, it is when we reach the point that we can no longer extract it at a rate that it was once extracted at, discovery of new oil will not change that, once it peaks, supply continues to fall. Right now demand continues to increase, and if we are at peak supply will soon begin to fall. Increase demand, decreasing supply = higher prices, and those prices will never stop rising. There might be little waves or good points but in general oil supply will continue to steadily decrease.

 

Its seems ideal to just say lets change over to something else. Well, its not that easy or that realistic. To make a crossover it will take alot of time and a collective effort, and we need to determine a good source that will be able to support the absent oil from the demand. As of right now I am completely unaware of anything that will do that. There is alot of ideas and hopes but so far as I have seen nothing will make an effective replacement.

 

Not to mention natural gases and other resource depletions. Electricity is also becoming a problem, remember the blackout of 2003 that left 50 million people without light for 3 days? That happened because we reached the threashold of maximun output. The branch that fell excuse was pretty bogus, sure a branch fell on a line but the system tripped because the output was so close to max the branch caused a disturbance that took down the power to 50 million people.

 

I suggest the documentary The End of Suburbia for anyone interested in the coming problems, it also gives some great insights on things we can do here in America to prepare/help adjust for the problem.

[Pangloss]

Many experts think Saudi Arabia has already peaked. And remember when Saudi set the goal for $25/barrel - that was when it was at $35/barrel, instead of going down it is now nearly $50/barrel.

 

Just to clarify (you're not wrong, I just want to flesh that out a little), OPEC and its member nations don't actually set the price of oil. It's a commodity, so "the price of oil" is based on the negotiated exchange markets played off against the speculation of investors through the futures markets (like NYMEX).

 

What OPEC and the member nations control is production. What's happened recently is that demand has reached the level of production (for the first time in history), coincidentally happening at about the same time as the Iraqi war. This lead, of course, to a "perfect storm" in the markets, and essentially a doubling of the price.

 

The logical thing for the oil-producing nations to do, of course, would be to step up production, which one would assume they would love to do, because it means more income. But there's a catch -- they were already producing at max capacity. Every single one of them... except Saudi Arabia. They were holding back a tiny (~1 million b/d) production reserve in case of emergencies, as part of an old OPEC understanding between the Sauds and the Shah (or rather an accomodation to the Shah, if memory serves). If I'm not mistaken, they put those wells into production last year, so that, as they say, is that. There is no more available production capacity anywhere on the planet.

 

So for production to increase beyond current levels (~76m bpd), new development is required. That means 3-5 years of infrastructure investment.

 

(BTW, I haven't mentioned anything here about the US situation, which is a little more complex because of the refinery issue.)

 

 

Peaking is not when we run out, it is when we reach the point that we can no longer extract it at a rate that it was once extracted at, discovery of new oil will not change that, once it peaks, supply continues to fall.

 

This is where the science, IMO, gets a little dubious. You're absolutely right in your reporting of the issue, but the "givens" being used by the various people involved are awfully presumptive. They assume such things as:

 

- No more oil awaits discovery anywhere in the world, therefore increased capacity can only come from "proven resources" (this isn't directly bearing, but see the next point)

- Increasing the number of wells that draw upon an existing source decreases the productivity of other wells pulling from the same underground source (this assumption is based on early oil-industry science and is frequently disproven today; in fact if it were the case then Saudi Arabia would not be producing anything like its current level of output)

 

They could be right. But the history of the oil industry has demonstrated such claims to be wrong every single time, for decade after decade after decade. Simple logic suggests that sooner or later they HAVE to be right -- the Earth is only so large, after all, and there has to be something else beneath our feet besides oil. (grin) But the science just isn't able to give us sufficient accuracy just yet.

[budullewraagh]

i seriously think we need to stop using hydrocarbons. it's becoming rediculous. our existence really depends on hydrocarbons. i suggest we find better sources...catalysts, perhaps? methanogens?

 

woot, 2000th post

[TimeTraveler]

Here is something I often follow, Michael C Ruppert is well known for his reporting and expertise on peak oil:

 

http://www.fromthewilderness.com/free/ww3/030805_world_stories.shtml#0

 

Keep in mind I am very pessamistic about peak oil, intentionally. Better to be safe than sorry, I am already trying to eliminate my families dependancy on oil, where I can. It can only help.

[Pangloss]

Grats on "A Post Odyssey" (2001), Bud.

 

My personal feeling is that more incentives are in order. IMO generally tax dollars should go to incentives that help society grow and prosper, not entitlements that weigh it down.

[john5746]

You would think avoiding excessive gas usage would be an incentive. Instead of buying big SUV's, buy smaller cars and hybrids.

[Pangloss]

You would think avoiding excessive gas usage would be an incentive. Instead of buying big SUV's, buy smaller cars and hybrids.

 

Yes you would, and the SUV and small truck popularity statistics suggest exactly the opposite. Which is proof positive that gas is undervalued in this economy.

 

Here's one way to look at our options: We basically have a choice. We can offer incentives, or we can tax gas at a higher level.

 

The former option boosts the economy by pumping taxpayer money directly back into it.

 

The latter option takes more out of your pocket and causes massive inflation, harming the economy.

 

Which would you all prefer?