Thursday, November 22, 2007

Experts say There's No Fuel Shortage; Reduced Demand; and "Energy Militants" are a Big Factor in Price of Fuel

For non-expert mortals like this blogger, the factors affecting gas and oil increases can be a confusing and complex mix of information. We often hear about the huge growth in the Chinese and Indian economies, and how their demand for oil and gas is continually rising. We also relentlessly hear about how world conflicts affect oil prices, because it could disrupt the supply of oil. Oil is close to $100 a barrel now. Local fuel price prognosticator, George Murphy, provides a regular heads-up on price changes. His forecast for the coming winter and summer is, not surprisingly, dismal. On his blog he outlines factors that influence prices - one of which is international political volatility. However, according to this Globe & Mail article, the overall international demand for energy has been reduced three times in recent months by 901,000 barrels a day. One might wonder, "shouldn't prices be falling?"

In the Globe story, and it's no big surprise, several oil industry analysts say that the current environment of rising fuel costs is largely generated by geopolitical fear speculation. Michael Economides says that "Energy Militants" such as Iran's mullahs, Russia's Putin, and Venezuela's Chavez, use their energy resources as weapons, as their economies are "based on high oil prices". (3 years ago Economides predicted that oil would reach $100/barrel)

"He also dismissed as irrelevant refinery and other shutdowns that news reports sometimes cite as contributors to rising prices." (Globe article)

Tim Evans of Citigroup Global Markets Inc. says that

"we are not in a situation of tight inventories or imminent supply disruption here." (Globe article)

Oil analyst Fadel Gheit at Oppenheimer & Co. in New York dismisses the current environment as a bubble.

“It's a farce, ... The speculators have seized control and it's basically a free-for-all, a global gambling hall, and it won't shut down unless and until responsible governments step in.”

“The players have solved the riddle, ... They know what is coming they can make a bet on that. It's almost like fixing the score in a sporting event.” (Globe article)

Michael Ecomonides even speculated that you would see oil at $150 a barrel if a headline read, "Israel Attacks Iran."

That area of the world has been in a continuous state of combustion for decades, so even the suggestion of events like this can certainly be used to fuel rising fuel prices. It's quite plausible for leaders like Putin and Chavez to cryptically promote through any channel that helps, like the media, suggestions that there are immediate threats to energy supplies. We've been hearing that for years, and now the price of oil is just about $100 a barrel. It certainly benefits oil selling nations and oil companies.

The huge profits from bloated oil prices won't be money in the bank for average consumers, but rather directly more money out of pocket, and less spending power for other things. For the individual it is financially hard. Someone will benefit though. The only compensation, which comes with mixed emotions, is knowing that there is a silver lining for Newfoundland and Labrador in the much higher than expected oil revenues the province will benefit from.

Oil analyst Fadel Gheit mentioned responsible government stepping in to shut down the rising price trend. In the past, there have been calls for federal and provincial governments to cut taxes on fuel. The trend sadly looks like oil will top the $100/barrel price. There may be a renewed pressure on governments to give people a break at the pumps, but with overflowing tax profits, it may fall on deaf ears.

In the meantime, here's a suggestion. For Christmas, that spending/giving time of year, wrap up a gas station gift certificate for that special someone. It's a gift they're sure to use, and it just keeps on getting more valuable. So don't be embarrassed when you tell someone, "this Christmas, I gave my better half gas" - they'll thank you at the pumps. One way or another, it's hard to avoid getting gas.

Here are some fuel-saving tips from a 2006 post.


BNB said...

I'm considering the purchase of a smaller H2 Hummer to pull my fifth wheel motorhome. And one time I took a bike ride. Just doing my part.

Charles Cheeseman said...

You're to be admired. I don't know how you do it - you'd make Suzuki proud. I just got back from the bank to take out a loan on a tank of gas, fingers crossed. said...

I think the Globe article really only had part of the story right. There is obviously speculation in commodity markets, and the U.S. dollar is playing an important role too. We have always had geopolitics influence the price of oil as well. We learned that in the 1970s.

The one thing that really wasn't touched was the ability to pump the stuff expeditiously out of the ground. Many oil industry CEOs are now saying it will very difficult to reach 100mb/d. This is now echoing some of what the peak oil proponents are saying. In fact, since 2005 the world has only been able to produce roughly 85 mb/d. When demand exceeds supply (as evidenced by falling OECD inventories) prices go up.

Interestingly, your blog entry popped up when I was compiling stories for my blog (


Charles Cheeseman said...

Thanks energyshortage for your input. As I mentioned in the post there is often a confusing mix of messages going around. I just scanned a site called Energy Bulletin, which echoes what you've said about peak oil, and supply/demand capacity. I am wondering if alternate sources of energy development like solar, wind, hydro is being taken into account when future projections are made on oil supply. Society has only begun to utilize these sources in my opinion, and it can only grow. Can it grow enough by 6-8 years when it is suggested that supply won't meet oil demand, I don't know.

There's no doubt about the world's largest country's growth and demand. On the Energy Bulletin page oil execs were quoted on supply growth. It's dramatic information that's for sure, but it also serves big oil well to have it out there. So I would not expect much else from them. Just looking at different sides of the issue. I also can't help but wonder about funding for some oil-friendly web sites. Fear speculation according to the Globe's article drives oil price to a large extent, so the web is one vehicle that can do some of the driving. said...

Hi Charles,

Thanks for responding. There's so many different factors at play and I don't doubt your suspicions about CEO vested interest for a moment. One thing that has been historically telling is that Big Oil has gone out of its way to dismiss peak oil proponents as fringe. ExxonMobil had a super big campaign a couple of years ago doing just that.

One reason that this is the case is that it does oil companies no good to admit to limited reserve growth. Oil company stock prices are often determined by both the spot price of crude and how much crude they have access to.

Also, many companies truly believe that there is ample supply.

There is. But I think the problem is that what's left in the ground is becoming incredibly difficult to extract without extensive investment. And in some case, such as Alberta, serious environmental costs in addition to capital costs.

As for the alternatives. It is generally agreed among engineers and others that viable liquid energy alternatives are quite a few years away. Hydrogen, for example, is nowhere near ready for use in cars.

The problem isn't so much electricity (which solar, wind hydroelectric, nuclear etc. can generate now) as it is with liquid fuels.

That's why I think car companies need to get cracking on plug in cars and we need to look at electric rail as the Europeans have now.

To burn our endowment of oil up in motor gasoline is really foolish.

Good to chat about this. Please visit my blog if you have a moment and take a look at the Google Map!