partially responsible for the run-up in oil and gas prices. Some of the blame surely does fall to Big Oil. Some of it is speculators making bets and buying futures contracts at prices they believe the market will support. Some of it is supply/demand fundamentals. Some of it is depletion.
http://business.timesonline.co.uk/tol/business/columnists/article3823656.ece">Here's a big-picture summation of the oil situation, the relevant portion of which is excerpted below.
Perhaps I didn't communicate well enough what I was trying to say. By saying that noone ever provides any substantiation for the claim that Big Oil is screwing us, I didn't intend that to be taken as a direct challenge to the theory that Big Oil is the primary driver of high oil/gas prices. I genuinely want sources that back up this claim as I am more than willing to consider it in my thinking if there is good evidence.
I'm in the alternative energy business, specifically solar power. However, I don't limit my efforts to just solar power issues. I study oil, ethanol, wind, and other energy sources. As such, my market and intellectual research has resulted in the realization that many factors, as partially described above, are coming together to drive up oil and gas prices.
But the first thing that always comes back around in my research is that
http://en.wikipedia.org/wiki/Supply_and_demand">supply/demand dynamics play a major role in how commodities are priced. For instance, if a substantial portion of the wheat crop is infected by
http://www.forbes.com/feeds/ap/2008/04/16/ap4898074.html">African stem rust that is quickly spreading to places such as Uganda, Ethiopia, Yemen, India, Pakistan and Iran, or the
http://www.journal-advocate.com/articles/2008/04/17/news/agriculture/ag1.txt">brown wheat mite and other pests, there will be less wheat supply to meet demand. In my business, if the supply of raw materials used to manufacture solar panels is not enough to meet demand, solar panels cost more.
The same can be said for oil fundamentals.. The Saudis have all but admitted that they are now in decline and King Abdullah has ordered newer, smaller finds to remain in the ground for future generations. Mexico, which has provided up to 10% of US imports, is in sharp decline and has announced that they will no longer be exporting in about 7 years. North Sea oil is drying up even faster. Google provides many more oil depletion news and source links.
From the Times Online:
http://business.timesonline.co.uk/tol/business/columnists/article3823656.ece">Times Online
-snip-
Production of oil is being constrained by several forces, none of them due to God’s failure to put enough of the black gold under our feet. Several countries that are important sources of supply are in political turmoil, and unable to bring to market the oil they are capable of producing. Think Nigeria, where security problems have shut down about 20% of the nation’s capacity of 2.5m barrels a day and discouraged new investment, and Iraq, where political paralysis and terrorists have kept production at less than half its potential.
Other countries will not develop the reserves of oil known to lie under their territories.
Russia has made it clear that foreigners who invest in its oil industry might be playing a game with Vladimir Putin known as heads I win, tails you lose. Find nothing and you lose your money; find substantial reserves and the state squeezes you until your shareholders’ pips squeak. Only companies at least 51% owned by Russians – read FOPs, Friends of Putin – are allowed to look for oil in the new, difficult areas in which it is to be found. Little surprise that oil output dropped in the first quarter of this year.
Mexico’s president, Felipe Calderon, wants to revive Petroleos de Mexico (Pemex), the world’s third-largest oil producer, by contracting with foreign companies to introduce modern methods of extracting more from existing fields and finding new ones. But legislation is stalled by left-wingers who have seized and are sleeping at podiums in both houses of congress.
Saudi Arabia’s royal family has announced that it will not expand capacity. Abdallah Jum’ah, chief executive of the kingdom’s oil company, said high prices didn’t mean the world needs more oil because such market signals were “imperfect”, and energy minister Ali al-Naimi has announced that there are no plans to embark on a new round of expansion. The oil is there, but with current production yielding about $120 a barrel, there is no incentive to find more, especially since new production might drive down prices as demand from the slowing American economy falls.
Venezuela’s oil industry can only be described as a mess.
-snip-
And, from Saudi Arabia's King Abdullah, who's apparently worried about his depletion rates:
RIYADH, April 13 (Reuters) - Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations, the official Saudi Press Agency (SPA) reported.
"I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'," King Abdullah said in remarks made late on Saturday, SPA said.
-snip-
That is clearly a supply/demand scenario that is contributing to the increase in prices, more so than a conspiracy by Big Oil to gouge us at the pump. And Big Oil is also dealing with rising operations costs, rig shortages, and geopolitical contraints. And each year their share of the world's oil production is slipping. To me, they seem to be the lucky benefactors of high oil and gas prices, rather than the instigators.
It's basic economics. Yet, instead of addressing the shortfall in supplies versus increased demand and applying the laws of capitalistic economics, some people instead look to conspiracy or bogeymen.
blonndee: "I was going to post about our conversation the other day but it was so light on specifics that I didn't think it was worth posting after all." I'm resisting the urge to read this as a snark. Do you have the link for this conversation? I'd like to go back and have a look at it. Thanks! =)
angstlessk: "A guy who works in oil here told me the other day that they're putting more in storage
than sending out for consumption, at least when it comes to the oil we drill here in the U.S. I have no idea if that's true or not, though. Do you?" No, I've seen nothing that substantiates that. But that doesn't mean he's mistaken. Bush held off for awhile refilling the Stratgic Petroleum Reserves hoping that oil prices would go down. But since they haven't, he's ordered the SPR to be refilled (after Katrina and Rita) at a time when Congress and critics charge that he should be releasing oil from the SPR - which they say will lower fuel prices. So, if that's what he's referring to, then yes, we are hoarding oil. Otherwise, I'll have to do some checking as anything else that may be going on with us storing more oil than we consume hasn't jumped out at me along the way.
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