Oil, Keep An Eye on Oil

Big Red Car here with gasoline prices in the ATX now at a low of $1.69/gallon at Sam’s Club in South Austin where it was about $1.49/gallon less than two months ago. It’s all about the price of oil. Wow!

Still, that is historically cheap.

Big news in the last few days out of Doha — the OPEC + Russia countries were unable to agree to freeze oil production at current levels through the end of 2016.

Saudi oil pic

The fly in the ointment?

You guessed it — Iran.

Iran and Oil

The Iranians, those normally cheery and cooperative chaps, are just now returning to the world oil markets (courtesy of those shrewd negotiators at the White House) and want to ramp their production up as quickly as they can to earn dollars (the entire oil business settles its business in dollars) and thereby be able to regain a footing in world energy and financial markets.

The Iranians are not going to agree to maintain their production at current levels. The Saudis, the drivers of this entire body of thought, know this and they are not going to agree to anything without making the Iranians toe the same line.

Hope everyone had a good time in Doha cause you didn’t actually do anything.

Oil Impasse

It is a classic impasse.

The world needs to know that this impasse will not last forever. It will NOT last forever and thus the United States should be moving aggressively to gain true energy independence. Alas, that will not happen in an Obama administration which takes seven years to make a decision — a pre-programmed decision, cynics might say — on such things as the Keystone XL pipeline which would have brought a million barrels per day of energy independence into the US from Canada.

Big Red Car predicts we have seen the low in oil and it ended right where the Big Red Car said it might. Now, it is the Big Red Car’s view that oil will stay where it is and might even decline a bit but then it is headed to $60/barrel in mid to late 2017.

Unless, the US gets its act together on a national energy plan.

Know this, if the OPEC + Russia chaps get their act together, it will have a huge impact on prices. Plain, old fashioned cartel strangulation. These guys are huge. We need to get out from under their shadow for energy and national security reasons.

Saudi offshore oil

One last point, if I may. You do know that the low oil/gasoline prices are the only really good thing about our current economy. Right? I’ve told you that, right?

Blog post reference #1

Blog post reference #2

Blog post reference #3

Blog post reference #4

But, hey, what the Hell do I really know anyway? I’m just a regular gas guzzling Big Red Car. Be good to yourself. Treat yourself like an oil sheikh.cropped-LTFD-illust_300.png

  • sigmaalgebra

    IMHO, OPEC got enabled during the Viet Nam war when the US was burning oil as fast as the world could pump it. Then, OPEC got rich, rich enough to restrict the supply and force the price of oil over $100 a barrel. IIRC, before OPEC, the Saudis were pumping oil for $0.25 a barrel.

    So, right, in the short and medium term, oil is quite inelastic, that is, raise the price per barrel a lot, and still sell nearly as many barrels.

    We were stupid. We were dumb. Dumb-de-dumb dumb dumb. It cost us trillions of dollars. E.g., now over releasing the 9/11 details, the Saudis are threatening to sell their US Treasuries worth nearly $1 trillion. Dumb. How could we be so dumb?

    US off-shore drilling? Nope, can’t do that. Fracking, say, 8000 feet down? Sure, “ruin the ground water used for drinking”. The Keystone Pipeline? Nope, would contribute to Obama’s biggest problem, “global warming”, a.k.a. climate change.

    Looks like some powerful forces are trying to keep down US oil supplies.

    Nope. Instead, just make sure that for each barrel of oil want to buy, there are at least three producers darned hungry for dollars and ready, willing, able, and eager to sell. Then can buy the stuff for little more than the cost of production, at times, a little less.

    So, let’s see: There is Libya and to the east Saudi Arabia, the other states of the Persian Gulf, and Iran. There is oil all along that path. So, interpolate. Maybe there is oil in the rest of North or Central Africa. E.g., 1 million square miles of desert in the Sudan. The rest of Saudi Arabia. The Red Sea. Maybe Sinai. There’s oil in Nigeria — and maybe in the rest of West Africa, especially off-shore.

    Indonesia, lot of oil. Then how about nearby? How about the South China Sea?

    Not all the smartest people are in Tennessee, but female school teachers in Tennessee don’t make much money. Why? Well, Tennessee has a lot of teachers colleges, and getting in is easy, and the costs are low. So, lots of young Tennessee women go to teachers college. Then, wonder of wonders, thank you Mother Nature, those women tend to marry Tennessee good ol’ boys, maybe rednecks, and, thus, stay in Tennessee and go for teaching jobs. So, right, presto, bingo, Tennessee doesn’t have to pay them very well.

    Can be much the same for oil: Just have the suppliers eager to pump a few million barrels a day more than they can sell. Then get really low prices until pump dry nearly all the big fields. And, not much telling how big those fields are. How low? They might still be able to pump the stuff for $1 a barrel. So, have them do that.

    • E.g., now over releasing the 9/11 details, the Saudis are threatening to sell their US Treasuries worth nearly $1 trillion. Dumb. How could we be so dumb?

      Explain?

      • sigmaalgebra

        Well, I tried to explain:

        (1) The Mideast was poor, and the British and later us were getting their oil for not much. IIRC, ARAMCO in Saudi Arabia was pumping the stuff for about 25 cents a barrel or some such and maybe getting paid not much more than that.

        (2) From our dumb energy policies back at least to the Viet Nam war, we were too eager to import oil, e.g., from Saudi Arabia. So, the Saudis got rich.

        (3) The Saudis were rich enough that in 1973-74 they were able to afford to have and did have an oil embargo and, thus, contributed to the US oil crisis. E.g., here in the US we had really long gas lines, and in some cases aircraft
        jet fuel went from 16 cents a gallon to 55 cents. The Saudis saw that they had some significant world political power.

        (4) As time went on, the Saudis got much richer. IIRC, in the 1980s here in NYS, I was buying heating oil, essentially Diesel fuel, for 25 cents a gallon. Two years or so ago the price was about $4 a gallon.

        So, what happened was that the Saudis were so rich that they were motivated and willing to sell us less oil than the could pump so that they could get more money per barrel for what they did pump and eventually got the price of oil over $100 a barrel. Or, they have oil field geologists estimating how much oil is in the main Saudi fields, and the Saudis can do the simple arithmetic: Long term, they get twice as much for that oil selling it for $100 a barrel than for $50 a barrel. And, if they pump that oil more slowly, they can get the $100 a barrel. And if they can live on $100 a barrel at the rate they are pumping, then they should not pump more and let the price fall to $50 a barrel.

        (5) Basically we were buying the oil a little faster than we should have. So, if we bought less oil, then we could have kept some or all of the OPEC countries hungry and eager to sell for whatever they could get and, to get more revenue, just sell more.

        Apparently there is a rather sharp switch worth many hundreds of billions of dollars a year: On one side of the switch, (A) if we buy 1-3 million barrels of oil less than OPEC can easily pump, then enough members of OPEC will be desperate to sell as much as they can by lowering their price. On the other side of the switch, (B) if we eagerly buy all or about all the oil OPEC can easily pump, then they can raise their prices.

        With (A) we can pump OPEC dry of oil at less than $30 a barrel, maybe less than $10 a barrel. With (B) OPEC can bleed us white of money at $100+ a barrel.

        (6) Basically all it took to get OPEC’s prices down by over $100 a barrel was (i) somewhat less gasoline demand from more fuel efficient cars, (ii) less consumption of oil from a slower economy, (iii) more efficiency in commercial airplanes, home insulation, industrial processes, (iv) no big wars for a while, (v) Canada producing more from their enormous tar sand deposits, (vi) maybe some desperation to sell oil from some of the sources in South and Central America, and (vii) production from US fracking sources. So, in some ways we got smart and got the price of OPEC oil way, Way, WAY down.

        (7) But, that the Saudis are holding nearly a $1 trillion in US Treasury securities and can try to influence US politics by threatening to dump them indicates that in the past our actions gave the Saudis a lot of both money and power. That’s where we were dumb.

        In the future, we should take steps to have energy supplies that are good for all our energy needs, low in cost, high in reliability, and that don’t cause us problems in foreign relations, international finance, or national security. Simple stuff. Not doing these things would be dumb.

        We need to get Jane Fonda out of our Default Secretary of Energy at Large, set aside the hysterical, professional alarmists, and, e.g., if only following France, get all we can out of nuclear fission for energy.

        And for greenhouse gases, my carefully considered view is that they have nothing, not even zip, zilch, or zero, to do with the temperature or the climate, and, instead, the main causes of changes in temperature and climate are changes in the rates of sun spots. Period.

        So, in particular, I don’t care about CO2 from fossil fuels.

        To buy into the wacko quasi-religion of Al Gore about CO2 is as dumb as the practice of the Mayans killing people to pour their blood on a rock to keep the sun moving across the sky. Gore would shutdown much of our economy in a totally useless effort to affect the climate. It is just totally obvious, at the fifth grade or so, that Gore’s effort at science is total nonsense. If we buy into that expensive nonsense, then we are dumb beyond all belief, right down there with the Mayans.

  • JLM

    .
    The Saudis cannot come to grips with the Iranians for a number of reasons, the latest of which is the production level of oil.

    http://themusingsofthebigredcar.com/keep-eye-oil/

    This will turn out to be a huge deal.

    BRC
    http://www.themusingsofthebigredcar.com