Libya May Cut Oil Output as Market Is Oversupplied, Ghanem Says

[phantom power]

(Bloomberg) -- Libya may cut oil production because the market is oversupplied, the nation's top oil official said.

``We are also weighing such a move because of the threats and intimidation against OPEC,'' National Oil Corp. Chairman Shokri Ghanem said in a telephone interview today from Tripoli. ``We have to protect our interests.''

http://www.bloomberg.com/apps/news?pid=20601072&sid=a9KtxEX8W3YU&refer=energy

[Purveyor]

1. Odd article title when the discussion is about threats and intimidation against OPEC

---snip---
Ghanem cited threats of sanctions against Iran and U.S. legislation allowing lawsuits against the Organization of Petroleum Exporting Countries.

[kristopher]

2. Makes sense to me.

The title highlights two important points: Libya, as a producer nation, thinks the supply is matched to demand, and that the current price they are getting is correct and is worth protecting. The statement seems to indicate that Libya feels it is less vulnerable to coercion applied by the US to force a glut.

[phantom power]

3. I'm curious: what is your conception of an *undersupplied* oil market?

That is to say: Can you provide an example of some observation(s) that would lead you to say "Hmm. This market is now clearly undersupplied."

[kristopher]

4. Empty tankers and lines at empty pumps

and a drop in refinery capacity utilization; which is presently at about 95%.

[phantom power]

5. That seems like a description of an underfed supply chain...

which is different(?) than the market serviced by the supply chain. At least, I have always conceptualized The Market as the sum total of buyers: The existing supply infrastructure can be full, but the market may be larger than the capacity of the supply chain.

In fact, we see that, in recent stories about the desire for more oil tankers, oil rigs, etc. The current market is demanding more than the supply infrastructure can deliver. Hence, the run-up in the price of oil.

For what it's worth, that's why I consider this current market undersupplied.

[kristopher]

6. Actually there is a way to do it accurately, without the guesswork.

A graph charting supply and demand is going to reveal an area of 'benefit', the size of which can be observed. There are three elements to this area of benefit: 1)total benefit which is a combination of 2) producer benefit, and 3) consumer benefit.

"Efficiency" is a properly supplied market. It is a point in production where to produce more or less begins to lower the overall benefit because of the relationship between the cost of production and the price. Operating around that point of 'efficiency' it is possible (and I'd say probable) to game different elements of the industry and distort the market causing a disproportionate allocation of the benefit to flow to either the producer (which would include the capitalization behind speculators) or the consumer (something a socialistic approach would aim for).
In a market for an exhaustable natural resource where there is supply competition (even one as distorted as the energy market) the "sweet spot" for long term benefit to the producer is 'efficiency' or where supply is matched to demand. It has clearly been the goal of the producer nations to bring the market into balance, and I think they've succeeded. That is why prices are high and climbing - petroleum is a valuable commodity that has been dramatically under-priced.

So when Libya says it would reduce supply to maintain the current level of supply demand, it should be seen in light of the past several years where all of the producer nations are making the same claim - supply is being set accurately to demand.

[Zachstar]

7. You can bet your ass the moment EEstor annouces peer review sucess they will be pumping like mad

My bet? Oil drops too 100 within a week and these people will try to get rid of as much product as possible.

[Terry in Austin]

8. My ass is too skinny -- how about a hundred bucks?

EEstor has some impressive stuff, and they're home-town boys, too. Good batteries are certainly going to be part of the mix, but the mix is going to be messy, and it's going to amount to a lot less than what we've gotten used to.

Hundred-dollar oil... Hmm. Nice, but I don't think so.

Tell you what -- it'll be The Hundred Dollar Bet. If oil closes below $100 a barrel on any day the rest of this year, I'll send you a hundred bucks. But come midnight, New Year's 2009 and oil hasn't closed below 100, you lose and you send me the hundred bucks.

We're in three-figure oil from here on out -- Congress or no, EEstor or no. Remember, you heard it here first!

:popcorn:

[Zachstar]

9. Internet Gambling is against the law.

Cant do that.

But bookmark this topic because if I am wrong call me out!

[Terry in Austin]

10. Now we're getting somewhere

Glad to see you're game, despite the minor technicalities.

How about this: loser donates the hundred bucks to DU?