Smoke, Mirrors and Reality…

Opinions and stories on events as they happen in the News!

Posts Tagged petroleum

OPEC to cut oil supplies to keep prices high

Oct 19

Posted by Ben in Current events, energy

Reuters reports OPEC may cut oil supplies in 2 rounds: Khelil. With the price of oil falling from $147.27 to under $70 per barrel, OPEC is now trying to stop the decline. The November sweet crude contract rose from $69.85 to $71.85 even in anticipation of OPEC meeting to cut production.


Updated Monday morning (10/20/2008): crude rose more than $2 to over $74 a barrel.

Updated Tuesday afternoon (10/21/2008): U.S. oil for November delivery tumbled $3.98 a barrel to $70.27 by 12:33 p.m. (1633 GMT) on weak demand, despite the OPEC supply cut.

Updated Friday morning (10/24/2008): U.S. light crude for December delivery traded down $4.80 at $63.04 a barrel. Earlier it touched $62.85, its lowest since May 2007.

Updated Monday morning (10/27/2008): Crude for December delivery dropped $1.99, or 3.1%, to $62.16 a barrel.

Updated Tuesday morning (10/28/2008): OPEC officials say ready to act again to boost oil. Prices recovered to $64 a barrel.

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PickensPlan.com

Jul 10

Posted by Ben in Economy

In this Denver Business Journal article, we learn that T. Boone Pickens, a famous Texas oil man, has started a web site PickensPlan.com to promote the weaning of America off of its dependence on imported oil. He supports the increased use of natural gas and wind power, both of which have abundant supplies in North America.

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Fuel Economy and Gulf Oil

Jun 12

Posted by Ben in Economy

As of 1985, the Corporate Average Fuel Economy (CAFE) standard of 27.5 mpg (fleet average) for passenger cars has been in effect. Fleet averages for light trucks and SUV’s must be at least 20.7 miles per gallon.

At an April town hall in Wilkes Barre, PA, Obama said:

“If we increase fuel efficiency standards on cars to 40 miles per gallon, we would save the equivalent of all the oil we import from the Persian Gulf. And imagine what that would do to gas prices if we reduced our consumption by that much. That’s something we can accomplish right here and right now.”

The official energy statistics from the US government show that approximately 9 million barrels per day are consumed for gasoline for transportation.

Let us assume that the fleet is composed of:

  • 48.7% cars
  • 51.3% light trucks (vans, SUVs, pickups, recreational)

fleet average fuel economy = .487 * 27.5 mpg + .513 * 20.7 mpg = 24.01 mpg

Increasing the fleet average to 40 mpg, assuming the miles driven and all other factors remain unchanged, the number of barrels of oil consumed for gasoline would be reduced to 5,402,250 barrels per day. This is a reduction of 3,597,750 barrels per day.

The US crude oil imports from the Persian Gulf are 2,518,419 barrels per day (using March 2008 numbers).

In fact, it would be impossible to achieve this goal any time soon, because of the time required to replace the installed base of vehicles in service today. If 40 mpg vehicles became available today, it would probably take over a decade to completely replace every passenger car, light truck, and SUV on the road. To achieve this fuel economy, vehicles will have to be built lighter and with smaller engines. The American penchant for large, high powered SUVs will need to be radically altered to buy small, under powered passenger cars. Even Obama, who drives a Chrysler 300 at 340 hp and 390 lb-ft with a fuel economy of 17 mpg city and 25 mpg highway demonstrates a taste for a big powerful vehicle that is antithetical to his rhetoric.

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oil price inflation

Jun 8

Posted by Ben in Economy

Contributors to the rise in the price of oil:

  1. US dollar has fallen – US dollar strength has fallen from 113 to 84 since 2002 and is continuing to decline; US prices would need to rise 35% to offset this currency devaluation. The federal reserve has been flooding financial markets with money for years.
  2. Ultra-low sulfur diesel (ULSD) – As of 2006, almost all of the petroleum-based diesel fuel available in Europe and North America is ULSD.
  3. Tier 2 Gasoline Sulfur Control – As of 2004, sulfur content is reduced from an average of 340 ppm to 30 ppm. These standards were enacted by Bill Clinton in 1999.
  4. light sweet crude demand – more easily distilled into sulfur standards compliant gasoline than heavy sweet crude, which requires more extensive and costly processing.
  5. light sweet crude supply – production has been declining steadily, whereas more heavy sour crude is being produced.
  6. older refineries – older refineries need to consume light sweet crude to produce low sulfur fuels, while heavy sour crude requires more sophisticated processing. Because of the mismatch in refining capacity as compared to the mix of light sweet crude and heavy sour crude being produced, there is now a shortage of light sweet crude and a glut of heavy sour crude. In fact, Iran has 28 million barrels of excess sour parked in tankers with no place to go, and additional tankers are being added.
  7. regulatory hurdles – new oil refinery construction to enable heavy sour crude to be used is severely choked by government regulation. This impairs the ability for refining capacity to adapt to the supply of crude oil, and meet the demand for low sulfur fuels.
  8. fuel subsidies – many nations subsidize gasoline, which lowers prices to consumers and causes demand to increase.
  9. commodities futures – speculative investors are buying futures contracts for crude oil, increasing demand. Index fund crude oil assets have risen from $13 billion in 2003 to $260 billion through March 2008.
  10. political tensions – between Iranian intransigence to international pressure to stop uranium enrichment and their pursuit of nuclear weapons, Nigerian militants disrupting oil production, insurgents and al Qaeda in Iraq, and Venezuela’s crazy Hugo Chavez, there is plenty of risk priced into oil.
  11. strategic petroleum reserve – In 2001, GW Bush ordered the SPR to be filled to capacity at a rate of 70,000 barrels per day of increased demand. This directive filled the SPR from 545 million barrels in 2001 to its current 2008 level of 703.3 million barrels. Congress suspended this filling in May 2008.
  12. exploration and drilling – regulatory restrictions on exploration and drilling along most of the US coast line and ANWR impair the ability to increase supply, regardless of the availability of reserves. Despite record highs in global oil reserves discovered by exploration, this has not translated into production. State interference to discourage investment in oil production is a factor.

As you can see, the majority of causes of the stratospheric rise in energy prices is the consequence of government policies. Despite oil and gas reserves steadily increasing and out-pacing production and demand, as exploration discovers new deposits, it is the inability to bring refined heavy sour crude products to market that is continuing to put unreasonable demands on light sweet crude.

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North Dakota has a Lot of Oil!

Apr 30

Posted by Jackie in Economy

Hannity, on his radio show, announced we have a large supply of oil in North Dakota. They think, in my opinion, that putting processing plants up North, will pollute things. What about us down South? We have your processing plants. I also agree with a greener America, but slowly, baby steps, and build some industries. You can’t outsource what you need yourself!

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