Oil at $66 a barrel 8

[jmw]

This is an interesting article but make of it what you will.

http://news.independent.co.uk/business/comment/article305640.ece

It comes as a surprise to find that todays high oil price is demand driven not supply and that demand is from the developing countries.

It also comes as a surprise (this information seems to be concealed from us lest we get complacent, and there was an iteresting comment on "brainwashing" in universities that is probably a topic for a different site) to discover that while the USA and the Uk are amongst those blemde for "gas gussling" that in the UK oil dependence has dropped from 60% to 40% of energy needs and similar is suggested for the US economy.


JMW

http://www.ViscoAnalyser.com

 

[arunmrao]

JMW ,

Oil tops $67 as US demand soars is news item on BBC news.

http://news.bbc.co.uk/2/hi/business/4144246.stm

The effect of this in India is petrol will cost Rs50/litre(Approx 1.2USD), and diesel Rs 37/litre (approx 0.86USD). There is sure going to be some problem for our government if the hike is implemented.

 

[TheTick]

Stratfor.com predicted oil price spikes of $60-$100/barrel.

 

[sms]

Reporting on the price of oil is complete nonsense. Tropical storm Irene was never predicted to go anywhere near the US gulf coast and they are blaming the oil price in part on that? Oh and someone please explain how a refinery outage causes the price of crude to increase? I could certainly see it effecting the supply of gasoline and as a result increasing the gasoline futures price, but if the refinery can't process crude oil, then crude oil is in an oversupply situation and the price of crude should fall!

The price of oil is going up because demand is outstripping supply temporarily. That will balance out eventually.

-The future's so bright I gotta wear shades!

 

[ScottyUK]

How much of the blame can be laid at the door of the OPEC cartel who have the additional capacity but instead choose to let it stand idle and force up the market value.



----------------------------------

One day my ship will come in.
But with my luck, I'll be at the airport!

 

[zdas04]

SMS,
Short-term shifts in futures prices in all commodities are always a knee jerk reaction to immediate news. An oil-well fire in Lybia (before embargos started to be lifted) would raise futures prices in the US even though very little Lybian oil found its way to the US. A huricane in the Gulf can disrupt supplies and if you haven't locked in a price before the supply is disrupted then you'll pay for it. Futures dealing is much stronger on Oijia Boards and Tea Leaves than on hard cause-and-effect.

ScottyUK,
Blame? If an owner of resources chooses not to sell them until his target price is reached, he's just looking out for his own interests. We've had 20 years of people who couldn't hold out for better prices going out of business in the low product pricing since 1986. If it costs $10/bbl in direct costs and $5/bbl in indirect costs (frivolous things like research and development), and you keep selling into a $12/bbl market the only possible outcomes are to cut indirect costs or go out of business. The industry did the first with a vengence and thousands of companies did the second. Today R&D are dim memories and the new challenges are being met hapazardly (for the most part).

From the producer standpoint, we need something like $105/bbl to get back to 1986 prices (in constant dollars). The record profits being recorded by the oil companies today are a reflection of the seige mentality of the industry after the 1986 depression. Overhead is so low right now that many companies are getting into trouble with regulators for not observing the complex rules--the guy that used to ensure compliance is now selling used cars and the companies don't have a clue what he used to do. Sustained prices this high will eventually cause some companies to add R&D, Engineering, and Administrative staff to allow supply growth to try to meet demand growth.

Right now when I ask a client if they prepared a Storm-Water filing for a pipeline job (for example) I generally get a deer-in-the-headlights stare that doesn't bode well.

David

 

[GregLocock]

My estimate is that oil will have to hit $300 per barrel before it will actually have a significant effect on the US economy. Even then, the effect may be positive because that will make the US's large reserves (please note Scotty) economic.

Until then, the oil price is mainly a way to sell newspapers and soap powder.



Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[BillPSU]

Whenever something goes up in price people look for less expensive alternatives. Anything derived from oil which I will divide into two major categories fuel and plastics. Reductions will occur in the use of plastics by the return of paper and other alternative products. Use of bio-plastics (soy oil polyurethanes) and other alternative will increase. The problem will be finding better materials to replace current materials. Chemistry research will continue to be a good place to work if you are good enough. This type of research will not be out-sourced to India or China as innovations are tough to protect in India and China. As fuel increases in price, electric cars will be more attractive. Raise the price of fuel double again, SUV's will become a dinosaur reserved for the wealthy. Diesel vehicles will become the norm. Public transportation will finally have a chance to be accepted.

Transportation of materials will become a major part of the price of the product and local manufacturing will become more attractive. Business will return to the US. It won't happen overnight but I believe this will happen. I have seen Japan was the supply country of choice in the 80's and now they are some of the highest paid people in the world. Automated manufacturing is the method of choice where labor becomes a non-issue.

Keep raising those prices, innovation will kick in and force us to do what we should have done for the last 20 years. Solve our energy problem, not with new oil research but other energy sources, wind, sun, geo-thermal, fusion, and even fission.

 

[arunmrao]

On the eve of Indian Independence day, our President has talked about energy independence and more stress on hydro ,solar and nuclear power.

Manufacturing coming back to US may not happen as the will and skills have eroded. You need to alter your labor and OSHA which is not posible . The whole mindset is about a spending community with huge cars and other energy guzzling devices.

 

[sms]

Zdas, I agree that most commodity moves are often emotional or knee jerk reactions. My point is that the news people that report on these shifts in commodity prices have no clue about the reasons, and in my opinion just make stuff up. The news will report stuff like oil is up today, and the US embassy in Saudi Arabia shutdown for security reasons, so the oil price jump must have been due to that. Huh???

Maybe I am giving them more credit than is due, but I am pretty sure that commodity traders have enough on the line that they are not making stupid decisions based on stuff like that.......

-The future's so bright I gotta wear shades!

 

[zdas04]

SMS,
I totaly agree with the statement that the news guys "just make stuff up".

I've known a few commodity traders (all were in some facet of energy trading) and they all started their day with a stack of newspapers (one said that the National Inquirer subscription was a holdover from his predecessor, but it was always on the top of the stack). A couple of them had a clipping service that went through the papers for them. The end result was that they would add or subtract from their bid prices for stuff like (these are real): (1) the U.S. President was visiting Moscow (one guy dropped his offer-ceiling because he thought the president would somehow remove barriers to Caspian production, another raised his cieling because he thought the plane might crash); (2) a tropical storm heading generally toward the Gulf of Mexico; and (3) election day in Mexico. I have a hard time making all of these connections, but they were very real to these guys. One of them told me that the Wild-West cattle drive analogy was very apt (i.e., one steer starts running for no apparent reason and the rest of the heard will always stampeed to follow a leader) and the trick was being one of the first few steers to bolt because they were the only ones that made real money.

If people can think that "Technical Stock Trading" has any validity, then crude-oil futures trading using "Dan Rather Science" and the National Inquirer is truly a high art.

David

 

[arunmrao]

Commodity trading is purely speculative and their actions are justified by out of the world logic. But that is where they all make the big money and opinions are formed, whilst we engineers simply rant over here.

 

[corus]

You will find an informed opinion on the news, though it depends what news you watch or read. Generally in the UK you'll find somebody from the stocknarket invited to appear on tv to comment on some particular economic event. I've seen the same on US tv too so I'm not sure where the comment 'they make stuff up' comes from.

The current increase in oil price comes from being worried about what will happen in the future

http://news.ft.com/cms/s/ebb3f0dc-082c-11da-97a6-00000e2511c8.html.

corus

 

[zdas04]

Corus,
You wonder where the comment "they make stuff up" comes from and then you post a link to

Warnings of a possible terrorist attack in Saudi Arabia and worries over Iran's resumption of its nuclear programme helped push crude prices to nominal records, with analysts saying the price could soon breach $65 a barrel.

I can point to a dozen other articles where talking heads claim some pet event is driving prices.

I always love reading about an Oil-related news event in The New York Times, Wall Street Journal, the Washington Post, and the Journal of Petroleum Technology. The "facts" that each chose to display are more a function of editorial bias than the public's "right to know".

A wonderful example is the coverage of the list that developed in the BP Thunder Horse platform during a huricane last month. The technical journals covered it as a problem that the platform was designed to deal with and it was quickly dealt with. The newsrags newspapers were full of "multi-billion dollar platform in danger of capsising", "oil prices soar on catastrophe in Gulf", and "production will be delayed from Thunder Horse at least 3 years".

Important facts get burried, skewed, or omitted to make the story bring home a particular point - I call that "making stuff up".

David Simpson, PE
MuleShoe Engineering

http://www.muleshoe-eng.com

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips Fora.

The harder I work, the luckier I seem

 

[jmw]

Some interesting points rasied here.
Given the reduction in the dependence on oil as an energy source in the more developed nations and the desire to push through Wind farms etc with big tax subsidies, one might suppose that not only are politicians and government economists more sanguine about a high $ price per barrel, they may even welcome it and not take steps they might otherwise have done.

In the UK petrol now reaches around £4 a UK gallon. This is pretty strong stuff but I recall an AA report of around twenty years ago that suggested that petrol would have toreach £5 a gallon to have an impact on car use. That's a 20 year ago £5 and what that equates to now i coulodn't say. Also the articles comments about the proportion of GDP etc suggests the value today would be significantly higher.

However, also in the UK the high price of fuel has disuaded the Chancellor from increasing fuel tax yet again as the last time he did this the truckers took to blockading terminals and crawling round the motorways at 20mph. Some sectors are affected. We should remember that what we see is not the fuel price but the tax. Tax is a huge proprtion of the actual fuel cost and it is this which magnifies the effect.

On the other hand, 98% of all goods travel by sea. Fuel is 70-80% of the operating costs even with zero taxed HFO. The high price of crude has a direct knock on effect and the first signs of the impact are the reports from a number of ferry companies introducing fuel surcharges and/ or suspending operations, especially those in direct competition with airlines who also enjoy a tax benefit for their fuel.

Sooner or later these costs will be evident in the high street but, because sea freight is so efficient, maybe not many will notice.

One concern has to be that so many different governments have milked oil for tax revenues and used taxation as a substitute for policy that the situation is very confused.

JMW

http://www.ViscoAnalyser.com

 

[zdas04]

JMW,
I think you have it right. The government has the obligation (but rarely the will) to set policy (including tax policy) to further the society's long-term goals. Great Briton and most of the EU have done a pretty good job of setting taxes in place to get the price of transport high enough to be a significant factor in decision making. The result is more fuel-effecient vehicles on average, more public transport, more bicycles, etc. All good things. The U.S. on the other hand failed to implement similar actions when fuel prices were very low and now that they seem high (at least the news tells us every day that they are high), the will to impose new taxes just isn't there - the result is that public transit is mostly a joke (except in the rare town where the price of parking has become prohibitive, supply and demand again), too many people drive 3 ton SUV's with abysmal effeciency (I have three of them), and very few people can get their bicycles out of the garage.

David

 

[EddyC]

I don't own, have never owned and will never own an SUV. My vehicle of choice gets good gas mileage. I certainly don't want the government to increase fuel taxes that would penalize me as well as those who choose to drive fuel guzzling vehicles. Is it not enough that I have to pay higher fuel prices per gallon as a result of the demand caused by those who drive big vehicles? I suggest a luxury tax on large vehicles rather than fuel taxes.

 

[corus]

jmw has his facts slightly wrong regarding fuel tax in the UK. All chancellors have increased the fuel tax each year approximately in line with inflation. In 2000 the protest at the rise in petrol to 80p per litre was stopped by a (later) postponment of this increase in tax. This tax increase in line with inflation has again been postponed in 2005 with petrol at 90p per litre. Although petrol tax in the UK is high it does have the benefit of cushioning any effect of increases in the wholesale price of the price of a barrel of oil on the open market as the chancellor can in effect control the price to the consumer with only a relatively slight increase due to wholesale prices. Whilst petrol (gas) prices in the US may increase rapidly, in the UK there is only a small increase which most believe is due to external factors and not to the chancellor, and hence no protests this time. The other advantage is that those who wish to drive their kids to school, in what amounts to an armoured personnel vehicle, are taxed to the hilt for their excessive use of petrol and harmful emmissions. It is a luxury tax, paid by the mile.

corus

 

[Roadbridge]

I remember 79 when oil prices surged and the world went into recession now some encomists are talking of a depression if prices continue to rise.

 

[jmw]

I take your point Corus, but I this "cushion" you speak of is the Kings new suit of clothes. I'd rather have a 6-10p a gallon price that fluctuates than an 84p a litre price that is insulated from cost price variation.

The point about so many taxes is that the government pretends that they are there to promote something good e.g. more use of public transport, when all they are is a money grab: the AA report gave the lie to the price of fuel, augmented by high taxes, contributing to a reduction in private car use. It hasn't andit won't. Too high a price is more likely to result in a regime change than a shift to pblic transport.

A recent news article informs that a Highways Agency study has allegedly been sat on by them for 18 months (during which they installed even more speed cameras)which has shown an "dramatic increase" in deaths where cameras are sited. To hide the report and continue investing in speed cameras on the safest roads in the safest country for driving actually is costing lives but generating millions of "free" money for the government (any government).

However, if the government were to get tough with the school mums they'd be doing something worthwhile. ALl those mums for whom road laws are suspended so they can individually take their kids to school and collect them is a nonsense that by itself must surely contribute hugely to unnecessary fuel consumption. When I was a kid there was a school bus. Everyone used it. Now?

Now an interesting point, a couple of years back the SMMT (Society of Motor Manufacturers and Traders) produced a report which showed diesel fuel prices across Europe being lower than petrol prices due to tax reasons and the sales of deisel cars increasing as a consequence. In the UK the diesel tax situation is such that diesel costs more than petrol and diesel car sales in the Uk uniquely no where near as robust as elsewhere. So as not to offend anyone I am happy to admit that all politicians are idiots, not just, in the UK, New Labour or old Tory.

Good government (and sorry, I don't know of any) ought to make rational decisions. They frequently don't. Mr Prescot dreamed up the idea of prohibiting councils from requiring new developments to provide more than one parking space for each dwelling. The idea being to encourage people to use public transport. All it does is let the developers put more houses and flats down per acre and increases the misery of street parking.


JMW

http://www.ViscoAnalyser.com