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Get used to high oil prices

By Joe Romm

"Get used to high oil prices"

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No one is going to come to the rescue on the supply side — and, of course, we remain stuck with an administration that doesn’t believe in demand-reduction strategies.

opec.gifAs the Wall Street Journal (subs. req’d) reported in “OPEC’s Lever Loses Its Pull on Oil“:

Oil prices are hovering near historic highs, but consuming nations shouldn’t expect quick relief from OPEC, the world’s only source for big, quick supplies.

For several reasons, the Organization of Petroleum Exporting Countries has neither the clear leverage nor the inclination to open the spigots and drive down the price of crude, which jumped past $90 a barrel in intraday trading in New York last week for the first time.

This figure shows how little spare capacity OPEC has — essentially none outside of Saudi Arabia, and the Saudis have no inclination to initiate a major price drop, especially since these prices do not appear to be destroying demand.

Moreover, the International Energy Agency (IEA) warned back in July that it saw “OPEC spare capacity declining to minimal levels by 2012.

And the WSJ notes no one outside of OPEC will be coming to the rescue either:

Saudi Arabia has little to fear from the world’s other major producers, such as Russia, which in decades past have ramped up supplies in an effort to capture a greater market share. But at the moment, the world’s major producers for the most part are already pumping flat-out.

“They have little competition from non-OPEC suppliers and few worries about losing market share,” says Jeffrey Currie, senior energy economist at Goldman Sachs in London.

We cannot be far from $100+ oil.

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7 Responses to Get used to high oil prices

  1. Lou Grinzo says:

    This is why I constantly refer to the peak oil situation as “the other monster under our bed.” A large portion of the general public has heard of global warming and understands the basic notion–emissions from burning stuff are bad because they alter the climate.

    But peak oil is an equally large threat, and its early effects are already being felt, in the form of the oil price run-up since 2003, just as we’re seeing the early impacts from global warming in drought conditions, quicker than expected Arctic ice melt, etc.

    I invite people to visit my site (The Cost of Energy; just click on my name), and download my latest presentation on The Oil Crunch from the Downloads page.

  2. Paul K says:

    The high price of oil is a positive for alternative energy and the electric car. Peak oil sounds like Birch Society stuff to me.

  3. IANVS says:

    Right on, Paul, right on!

  4. John Mashey says:

    Paul K & IANVS: I’m not sure what you’re meaning to say, but I don’t understand how Peak Oil is “Birch Society stuff” or in fact any kind of a political concept at all.

    It’s a long-established science/engineering/economics idea, and it’s a no-brainer, in general (an recoverable oil in an oil field is a finite resource, and we’ve already found most of the cheap oil), with the harder work being reservoir modeling, statistics, technology predictions (for expected improvements), and economics to predict timing, which is what serious professionals spend a lot of time doing. (I used to sell supercomputers to these guys 10 years ago).

    http://en.wikipedia.org/wiki/Peak_oil is OK.
    Look up ASPO (just last week in Houston) or
    http://www.lastoilshock.com (his book is good).

    Oil is $90/barrell. Sometime i nteh next 10 years, we’ll consider that cheap.

  5. Earl Killian says:

    Nearly everyone subscribes to the Peak Oil hypothesis, because only crazies think the Earth creates oil at the rate we use it. The USGS does not dispute Peak Oil, but they disagree with Campbell, Simmons and Pickens on the date. I’ve read the USGS stuff, and it seems to be based on just as many assumptions as those they criticize. The whole issue boils down to the definition of economically recoverable. For example, look at slide 10 of http://tinyurl.com/l48mg which shows they tend to agree on what is in the ground, but differ on how much can be taken out. I think both camps suffer from binary thinking too much. Everyone talks about “cheap oil”, but in fact oil prices will vary continuously from cheap to unaffordable, taking on most points in between. Until an analysis predicts oil prices and the resulting investment and demand, I am afraid things are just too simple to get to the truth. The only clearly unaffordable oil is that which takes more energy to recover than the oil contains, but I suspect recovery stops long before that point.

    To get an idea of the ASPO postion, at a recent conference, T. Boone Pickens was speaking, and was reportedly asked by a woman in the audience about Peak Oil:
    “Well, I’ve got a short answer for you,” he said. “We’ve peaked. We’re running out. For various technical reasons, world production will never be more than 85 million barrels a day. Period. The problem is that world demand is already at 88 million barrels a day and growing…”

  6. Paul K says:

    Part of the rise in oil prices is due to the weakening of the dollar in currency markets. Pickens is probably correct that we are at the limit of oil production, but not because of peak oil. Environmentally aware countries are not pursuing additional resources. That would mean oil will probably not be cheap again. This has long been considered a good thing by alternative energy advocates. The time is right for a big change in motive power.

  7. Ronald says:

    I’m in the “peak oil is here” camp. Considering that the United States had it’s peak oil year in 1970 (or was that 1971) and the world is just 35 years behind. From what I’ve read at ‘the oil drum,’ the peak may have been in June, 2005. Oil production has been going down ever since and we’ll see if that holds up as the peak month. Is production going down because of politics or production or something else, we may not ever know for sure.

    We need some bumper stickers to add to those “I’m spending the kids inheritance” bumper sticker on motor homes. We need ones saying “I’m using up all the oil from my grandkids too.”

    The problem with using up the oil is that along with alternative energy being used is the companies are going to dig up oil shale, oil sands, oil tars, etc. It won’t be pretty.