Why haven't oil prices dropped like a rock?

[Direckshun]

So I admit I know very little when it comes to this subject. But weren't we told "drill baby drill" going back as far as the 2008 GOP convention, and that an oil surge from something like the Keystone Pipeline would drop gas prices down to something ridiculous like $2/gallon?

I never believed that rosy scenerio, but we've gotten the most promising news in energy independence this past year when it has now been projected for America to overtake Saudi Arabia in oil production.

So here we are, projected to be the global leader in oil production. Something that not even the Keystone Pipeline could have achieved, and goes beyond even its rosy projections in terms of oil generated for American usage.

Oil prices have largely held, have they not? My understanding (limited as it is) is that oil is priced based on the projection of how much we'll be able to acquire in the future:

There are many factors that commodities traders look at when developing the bids that create oil prices:

• Current supply in terms of output, especially the production quota set by OPEC. If traders believe supply will decline, they bid the price up. If they believe supply will increase, they willing to pay as much for oil, and the price falls.
• Oil reserves, including what is available in U.S. refineries and what is stored at the Strategic Petroleum Reserves. These reserves can be accessed very easily, and can add to the oil supply if prices get too high. Saudi Arabia also has a large reserve capacity. If it promises to tap those reserves, traders allow oil prices to fall.
• Oil demand, particularly from the U.S. These estimates are provided monthly by the Energy Information Agency . Demand usually rises during the summer vacation driving season. To predict summer-time demand, forecasts for travel from AAA are used to determine potential gasoline use. During the winter, weather forecasts are used to determine potential home heating oil use.

Our current supply is increasing, our reserves are or will be increasing.

So what's the story on this?

Thanks in advance.

[durtyrute]

Originally Posted by KILLER_CLOWN

Yup, complete ****ing bullshit if you ask me. It happens every election cycle though no matter who the incumbent sides with. Bush had gas prices drop drastically in 08 from $4 to about $1.19 and it rose steadily over a 6 month period(if i'm not mistaken on that timeframe) and Obama had the same thing happen this time around. I knew it couldn't last.

You noticed that too?

[petegz28]

Originally Posted by durtyrute

You noticed that too?

They didn't really come down all that much this last election. They did but nothing like they did in 08.

The fact is as long as the Fed keeps printing money we don't have, oil and other commodities are going to stay generally high and other geo-political factors will just make it even worse.

The best case is to have the Fed quit diluting the $ so much that will punch oil prices in the gut.

[Direckshun]

Originally Posted by GoWalrus

Your Fuhrer has no prize, Direckshun.

[HemiEd]

Originally Posted by bsp4444

Then why the drop in price last quarter last year?

The President has absolutely nothing do with it, the fact that it was cheap at election time is purely coincidence.

[Donger]

Originally Posted by Deberg_1990

Wheres Donger been?

I've been busy.

[Saul Good]

Busy counting his monies...

[Comrade Crapski]

Originally Posted by petegz28

The painfully obvious escapes people like Mrs. Direkshun.

And that communist moron Barry who Drek adores.

[loochy]

Originally Posted by bsp4444

Then why the drop in price last quarter last year?

I have no clue. If I was them I'd keep cranking up the price.

[Radar Chief]

Originally Posted by Saul Good

Busy counting his monies...

[Direckshun]

Originally Posted by Donger

I've been busy.

Good to see you! I'd been wondering, too.

[Direckshun]

Soemthing else worth considering: America's oil boom will be short-lived, apparently.

http://www.slate.com/articles/health...abundance.html

The Myth of “Saudi America”
Straight talk from geologists about our new era of oil abundance.
By Raymond T. Pierrehumbert
Posted Wednesday, Feb. 6, 2013, at 3:07 PM ET

Like swallows returning to San Juan Capistrano, every December some 20,000 geoscientists flock to San Francisco for the fall meeting of the American Geophysical Union. Slate readers have already heard about a presentation with a particularly eye-catching title, but for me some of the most thought-provoking news came in a prestigious all-Union session with the rather dry heading “Fossil Fuel Production, Economic Growth, and Climate Change.” (Search for it here.) This session dealt, in a hard-headed, geological, show-me-the-numbers way, with the claim that we are at the brink of a new era of oil and natural gas abundance.

The popularity of the abundance narrative waxes and wanes, and its current ascendance comes primarily on the heels of a report by Leonardo Maugeri, a former oil-industry chief and currently a fellow at Harvard's Belfer Center. When his cornucopian fantasy came out, I smelled a rat (or at least a not-too-deeply buried fish). But the International Energy Agency jumped on the bandwagon with breathless, and equally fishy, forecasts of the coming “Saudi America.” Most of the media swallowed the story hook, line, and sinker, with even the usually sober Economist rising to the bait.

So what's wrong with this story? Maugeri's problems begin but don't end with an arithmetic blunder so dumb (he compounded a percentage decline incorrectly) it would make even Steve Levitt blush. The geeky geological stuff discussed at the AGU session is more interesting and ultimately more damning. The geological considerations expose a number of common threads of faulty reasoning that pervade the current crop of starry-eyed projections of endless oil abundance.

There are certainly huge amounts of oil locked up in shale formations worldwide. In the United States alone, the Bakken and Eagle Ford shales contain up to 700 billion barrels, and the Green River shale under Colorado, Wyoming, and Utah has a whopping 2 trillion barrels. However, only a tiny fraction of this total is recoverable. For Bakken (in Montana and North Dakota) and Eagle Ford (in Texas), which account for most of the current surge in U.S. oil production, the estimated recoverable fraction ranges from 1 to 2 percent. Though all of these deposits are loosely referred to as “shale oil,” Bakken and Eagle Ford oil is more precisely called “tight oil,” because it is actual, fluid oil that is trapped in the pores of shale, and it can be liberated by fracturing the rock to allow the oil to flow. In contrast, the hydrocarbon in the Green River shale is not really oil at all but a waxy substance that must be cooked at around 500 degrees Celsius to turn it into flowing oil. The technology for extracting oil from deposits like the Green River shale is far more challenging than what is required to tap into tight oil, and it has never been profitably implemented at any significant scale. There is thus no credible estimate of how much oil can be recovered from the Green River formation.

At the high end of the estimates, predicted production from Bakken and Eagle Ford together amounts to perhaps a two-year oil supply for the United States at 2011 consumption rates. That's significant but not a game-changer. Even if it were to prove possible to achieve production rates comparable to those of Saudi Arabia, that would only mean that we would deplete the resource faster and bring on an oil crash sooner.

What would it take to ramp up production to such high levels? Technological developments have made it possible to tap into tight oil, but these are not the same kinds of technological developments that have given us ever more powerful computers and cellphones at ever declining prices. Oil production technology is giving us ever more expensive oil with ever diminishing returns for the ever increasing effort that needs to be invested. According to the statistics presented by J. David Hughes at the AGU session, we are now drilling 25,000 wells per year just to bring production back to the levels of the year 2000, when we were drilling only 5,000 wells per year. Worse, the days are long gone when you could stick a pitchfork in the ground and get a gusher that would produce for years. The new wells are expensive (on the order of $10 million each in the Bakken) but give out rapidly, as shown in the following figure from Hughes' talk illustrating the typical production curve.



Tight oil is headed for a Red Queen's race, where you have to keep drilling and drilling and drilling just to keep your production in the same place. At several million dollars a pop, that adds up to a big annual investment, and eventually you run out of places to put new wells. The following figure, also from Hughes' talk, shows that if you try to increase production by drilling wells faster, you just wind up running out of oil sooner.



Current total U.S. oil production is about 6 million barrels per day. By way of comparison, Saudi production is currently running at 9.5 million barrels per day. To exceed Saudi production, new oil from tight-oil sources would have to more than offset declining production from existing wells. It is clear that even if we do manage somehow to temporarily exceed Saudi production rates, the party is not going to last very long.

High oil prices may make it profitable to recover more oil from unconventional deposits, but ultimately physics rules. In his talk at the AGU session, Charles A.S. Hall pointed out that the energy return on investment—the amount of energy you get out of a well vs. the energy needed to produce the oil—has been getting steadily worse over time. As long as there is some net energy gain and some profit to be made, drilling may go ahead, but the benefits to the energy supply deteriorate at the same time as the collateral damage to climate (in the form of increased carbon dioxide emissions per barrel of oil produced) goes up.

The market is not laying the foundations for an era of unending oil-based prosperity. The market is pushing inexorably toward investment in expensive technologies to extract the last drop of profit through faster depletion of a resource that's guaranteed to run out. If we're going to invest in expensive energy technologies, it would be better to pick long-term winners rather than guaranteed losers.

The flaws in the abundance narrative for fracked natural gas are much the same as for tight oil, so I won't belabor the point. Certainly, the current natural gas glut has played a welcome role in the reduced growth rate of U.S. carbon dioxide emissions, and the climate benefits of switching from coal to natural gas are abundantly clear. But gas, too, is in a Red Queen's race, and it can't be counted on to last out the next few decades, let alone the century of abundance predicted by some boosters. Temporarily cheap and abundant gas buys us some respite—which we should be using to put decarbonized energy systems in place. It will only do us good if we use this transitional period wisely. We won't be much better off in the long run if cheap gas only succeeds in killing off the nascent renewables industry and the development of next-generation nuclear power.

Does all the new American oil give us yet another way to fry ourselves? At 0.1159 metric tons of carbon per barrel of oil, the oil in Bakken and Eagle Ford amounts to a carbon pool of 81 gigatons, and the Green River shale adds up to 232 gigatons. Given that burning an additional 500 gigatons of fossil fuel carbon is sufficient to commit the Earth to a practically irreversible warming of 2 degrees Celsius, these are scary numbers. However, if oil analysts such as those speaking at the American Geophysical Union are right, almost all of this oil will remain inaccessible. In that case, coal—which certainly contains enough carbon to bring us to the danger level and probably much beyond—remains the clear and present threat to the climate, and the fight to leave as much coal as possible in the ground remains the front line in the battle to protect the climate. This does not mean the threat posed by the carbon pool in unconventional oil can be completely ignored. The case against oil abundance seems persuasive, but I'd hate to bet the planet against the ingenuity of future oil engineers, which is why I feel that some rearguard actions that inhibit development of unconventional oil are warranted, notably in the case of the Keystone XL pipeline, which taps into Canada's Athabasca oil sands.

False hopes for an unending age of oil abundance provide an excuse to put off the hard decisions we need to make in order to smooth the road to a sustainable energy future. If oil cornucopians like Leonardo Maugeri are wrong, then the end of oil and gas is not many decades off (a few would say this is true for coal as well), and so even without bringing climate change into the picture, it is necessary to begin planning for new energy sources. Economists offer up a rosy picture in which gradually rising prices call into being some combination of increased production and resource substitution, but the resource depletion endgame does not always work this way. The story of Wisconsin white pine timber depletion, recounted in William Cronan's book Nature's Metropolis, should give us pause:

The manufacturer's acute seasonal need for short-term credit drove them to the one market where they knew they could get quick cash, even if it meant that they were forever selling lumber at lower prices than they liked. Under such circumstances, the only way they could keep up with costs was to cut more trees, contributing still further to the overproduction and saturated markets that had created low prices in the first place. Chicago thus became the focal point of a vicious circle: Undercapitalization caused overproduction, which in turn kept prices low and accelerated the destruction of the northern forest. The Lumberman summed up the problem by attributing it to “so many men … striving to carry on a larger business than their capital will warrant” and, as a result, having to turn natural capital into liquid capital merely to survive. “The only reasonable explanation of this paradoxical state of affairs,” the Lumberman's editors wrote, “is that the mill men … are using up their capital, as it exists in the form of stumpage, for no other end than simply keep themselves in business."

This description is eerily similar to the last-gasp scenario described in Chris Nelder's article on the oil endgame, “The Last Sip.” Whales were driven to the brink of extinction before petroleum replaced whale oil, and we may well fry our planet—and bankrupt ourselves while doing so—before we're finally forced to kick the fossil fuel habit. It will be hard to muster the resources to develop replacements for fossil fuel energy if we wait until both the economy and climate are in ruins. We are in for a hard landing if we don't use our current prosperity to pave the way for a secure energy and climate future.

[Direckshun]

http://www.washingtonpost.com/blogs/...ed-gas-prices/

The boom in U.S. oil drilling hasn’t lowered gas prices
Posted by Brad Plumer
on February 11, 2013 at 10:58 am

Last year, the world pumped more oil out of the ground than ever before in history. In the first nine months of 2012, the world produced an average of 88.8 million barrels per day, about 2 million more barrels per day than in 2010. Nearly half of that increase came from new drilling in the United States.

Yet oil and gasoline prices remain at elevated levels. Brent crude is still trading for around $120 per barrel, higher than it was two years ago. Here in the United States, pump prices averaged $3.59 per gallon in early February, a record for the usually calm winter months. Again, that’s all despite the recent boom in tight-oil drilling in places such as North Dakota and Texas.

So why is that? The big thing to remember is that oil prices are a function of both supply and demand. If world demand for oil rises faster than producers can pump the stuff out, prices will go up. And that’s what is happening now. As James Hamilton of UC San Diego explains, China alone has consumed about half of the extra oil that’s been drilled since 2010:

China likely consumed nearly half of the global 2 mb/d increase. The EIA reports that China increased its petroleum consumption by almost 500,000 b/d in 2011, and preliminary estimates are that China added another 420,000 barrels to its daily consumption in 2012.

Technically, the world isn’t even producing enough oil to keep pace with the rise in global incomes. Oil supply has risen by 2.3 percent since 2010. But the world economy has grown by 7.1 percent since then. The only reason that oil prices haven’t soared to record highs, Hamilton points out, is that countries have been undertaking new conservation measures. Americans, for instance, are buying more fuel-efficient cars in droves.

Granted, oil prices would almost certainly be even higher than they are now without the drilling boom over the past two years in places like North Dakota. But at this point, the extra drilling is struggling to keep up with the pace of global economic growth.

Most forecasters expect that to be the case for years to come. The International Energy Agency recently projected that U.S. oil production would continue rising through 2020 and beyond, as companies extract more “unconventional” oil from shale rock and other sources. But global demand was also expected to rise 35 percent between now and 2035, with China on pace to become the largest oil consumer in the world in the next two decades.

Further reading:

–James Hamilton has much more detail on why gasoline isn’t cheap. In particular, he notes that much of the rise in global petroleum supplies has come in the form of “natural gas liquids,” which have been a boon to the petrochemical industry but not much use to drivers.

–Americans are buying more fuel-efficient cars, polluting less.

[RNR]

Originally Posted by Direckshun

http://www.washingtonpost.com/blogs/...ed-gas-prices/

The boom in U.S. oil drilling hasn’t lowered gas prices
Posted by Brad Plumer
on February 11, 2013 at 10:58 am

Last year, the world pumped more oil out of the ground than ever before in history. In the first nine months of 2012, the world produced an average of 88.8 million barrels per day, about 2 million more barrels per day than in 2010. Nearly half of that increase came from new drilling in the United States.

Yet oil and gasoline prices remain at elevated levels. Brent crude is still trading for around $120 per barrel, higher than it was two years ago. Here in the United States, pump prices averaged $3.59 per gallon in early February, a record for the usually calm winter months. Again, that’s all despite the recent boom in tight-oil drilling in places such as North Dakota and Texas.

So why is that? The big thing to remember is that oil prices are a function of both supply and demand. If world demand for oil rises faster than producers can pump the stuff out, prices will go up. And that’s what is happening now. As James Hamilton of UC San Diego explains, China alone has consumed about half of the extra oil that’s been drilled since 2010:



Technically, the world isn’t even producing enough oil to keep pace with the rise in global incomes. Oil supply has risen by 2.3 percent since 2010. But the world economy has grown by 7.1 percent since then. The only reason that oil prices haven’t soared to record highs, Hamilton points out, is that countries have been undertaking new conservation measures. Americans, for instance, are buying more fuel-efficient cars in droves.

Granted, oil prices would almost certainly be even higher than they are now without the drilling boom over the past two years in places like North Dakota. But at this point, the extra drilling is struggling to keep up with the pace of global economic growth.

Most forecasters expect that to be the case for years to come. The International Energy Agency recently projected that U.S. oil production would continue rising through 2020 and beyond, as companies extract more “unconventional” oil from shale rock and other sources. But global demand was also expected to rise 35 percent between now and 2035, with China on pace to become the largest oil consumer in the world in the next two decades.

Further reading:

–James Hamilton has much more detail on why gasoline isn’t cheap. In particular, he notes that much of the rise in global petroleum supplies has come in the form of “natural gas liquids,” which have been a boon to the petrochemical industry but not much use to drivers.

–Americans are buying more fuel-efficient cars, polluting less.

None of these factors seem to apply when Bush was in office In fact this whole new spin from the left that the president has little power leads one to believe Bush was the last powerful president, replaced by a powerless weakling. I wish Barry was as powerful as George was that way he could fix ALL of our problems, the left has spent years convincing us he created~

[Direckshun]

http://www.washingtonpost.com/busine...e3d_story.html

Gas prices are on a mysterious climb
By Steven Mufson
Feb 20, 2013 01:45 AM EST

The average price of a gallon of regular gasoline has jumped 45 cents in the past 31 days, according to AAA, the fastest run-up since 2005.

Retail gasoline prices have climbed for 33 days in a row. A month ago, a gallon of regular gasoline cost $3.30; on Tuesday it stood at $3.75 nationwide.

Gasoline prices have risen to within a nickel of $4 a gallon in the District as pump prices nationwide have been marching higher — the result of refinery closures and maintenance, lower oil production by Saudi Arabia, market anxiety about tensions in Iran and Iraq, and guarded optimism about the prospects for economic recovery in the United States, Europe and China.

The prices in the District are among the highest in the country, outstripped only by New York, Connecticut, California and Hawaii.

“This is the most expensive we’ve seen gasoline in the dead of winter,” which is usually a time of relatively low consumption, said John Townsend, a spokesman for AAA Mid-Atlantic. Noting that the increase comes just as the payroll tax cut has expired, Townsend said that “this is a double whammy for many consumers, especially on the East Coast, because many people there use home heating oil. . . . People got that shock to the system and now a shock at the gas pumps.”

The price increases have been a rude reminder that even though the United States’ reliance on imported oil is less than it has been in nearly two decades, prices at service stations are still tied to global prices and subject to global market trends, as well as to regional refinery constraints.

In the District, gasoline prices inched up to $3.95 a gallon Tuesday, up from $3.57 a month ago and $3.77 a year ago. In Maryland, gasoline stood at $3.74 a gallon, up from $3.39 a month ago and $3.62 a year ago. In Virginia, it registered $3.65 on Tuesday, up from $3.26 a month ago and $3.54 a year earlier.

Analysts differed widely on the causes of the increase.

The price of crude oil, which makes up about two-thirds of the price of gasoline, remains extremely high by historical standards. The price of a barrel of the benchmark West Texas Intermediate grade of crude oil for March delivery climbed 80 cents to settle at $96.66 a barrel on the New York Mercantile Exchange. In London markets, the price is about $20 a barrel higher.

One factor is lower crude oil output from members of the Organization of Petroleum Exporting Countries. Saudi Arabia is producing about 700,000 fewer barrels a day than a year ago, according to the International Energy Agency.

Yet global inventories of oil are ample, and the IEA has forecast that increases in oil supplies around the world — including the United States, Kazakhstan, southern Iraq and Africa — will outstrip increases in oil demand.

“Oil prices are inflated by concern about potential oil supply disruption. All I have to do is watch TV for five minutes,” said Fadel Gheit, an oil analyst with Oppenheimer. He pointed to continuing tension between the United States, Israel and Iran over Tehran’s nuclear program; the ongoing civil war in Syria; and factional violence in such oil-exporting nations as Libya and Iraq.

Greg Priddy, an oil analyst with the Eurasia Group, said prices appeared to be higher than supply-and-demand fundamentals would justify. “There is a growing tension between market fundamentals” and the risks that traders and investors are willing to take, he said.

“The markets are breathing a sigh of relief about tail risks like euro zone, the fiscal cliff and sequestration,” he said, referring to the recent U.S. budget brinkmanship. “There has also been some positive economic data in places like China.”

But some analysts also pointed to refinery issues. Several refineries have been shut down for routine maintenance, and in the eastern United States, several refineries simply went out of business in the past year.

“Atlantic Basin capacity closures have improved refining fundamentals,” the nation’s biggest refiner, Valero, said in a slide presentation at a Credit Suisse conference this month. It estimated that refineries have closed nearly 1 million barrels a day of capacity on the East Coast or in the U.S. Virgin Islands in the past two years, which Valero said allowed it to increase profit margins.

[KC native]

Oil and a bunch of other commodities got slammed down today. Bloomberg was reporting that there was a hedge getting blown up.

Should provide some near term relief.