OPEC says pumping more won't bring oil price down

Oy. Have at it gang. From the IHT:

LONDON: Representatives from top oil producing countries Tuesday blamed the steady advance of oil toward $100 a barrel on a combination of financial speculation, geopolitical instability and a shortfall in refining capacity.

The president of OPEC, Mohammed bin Dhaen al-Hamli, who is also the oil minister of the United Arab Emirates, pledged to keep markets amply supplied. But at an oil industry conference in London, he said there was only so much OPEC could do in the current circumstances to keep a lid on prices.

"Increasingly oil markets are being driven by forces beyond OPEC's control, such as geopolitical events and the growing influence of financial investors," Hamli said. "We are of course concerned about the high level of oil prices."

It's everything except the end of the gravy train. I was told last week (by a so-called economist) that the reason why GOM oil peaked in 2002 was because we did not have enough refining capcity (so by his logic we had to keep paying someone else for the oil so that we could putting foreign oil into US refineries...blah, blah, blah).

Here is what will prove us wrong...6 continous months of production of crude plus condensate at more than 74.3 million barrels per day.

"We" will then have to go abck and recalibrate. Until then, the Iron Triangle will do it's best to confuse.

"If you can't convince them, confuse them!"

The really stupid thing about blaming high prices on lack of refining capacity is that if this were true, crude should be low price and gasoline high price. Crude is the feedstock for gasoline. If there were too little refining, there should be a shortage of gasoline and a glut of crude. I guess OPEC doesn't know that! Should we tell them?


In a competitive marketplace, you would be correct. Limited demand from refiners would depress prices as producers compete to win market share.


* Oil is NOT a competitive marketplace. It's dominated by a cartel.

* OPEC knows exactly how much demand there is, because it knows exactly how much refining capacity there is.

* OPEC (esp. Saudi) is willing to lose market share in order to maintain a higher price, even if that benefits free riders like Norway, Russia, and the Oil Majors.

The reason there is no glut of crude is that OPEC is restricting supply.


Another point: why aren't gas prices rising? Flat demand in the US from high prices. No shortages - not at this price...

If any new readers are wondering, the "Iron Triangle" definition:


In regard to discussions of Peak Oil and Peak Exports, I have described what I call the “Iron Triangle,” which consists of: (1) Some major oil companies, some major oil exporters and some energy analysts; (2) The auto, housing and finance group and (3) The media group.

If one resides in the oil industry leg of the Iron Triangle, and if one has concluded that Peak Oil is upon us, or extremely close, does one say, "We cannot increase our production," and thereby encourage massive conservation and alternative energy efforts, or does one say "We choose not to increase production and/or we are temporarily unable to increase production for the following reasons (fill in the blank)?"

They knew the time would come when they would have to pay the piper, and they hope palliatives will fool most of the uninformed.

I guess it doesn't hurt to try...

Seems to work on most people and all governments.

OPEC has been using these exact excuses (plus several others) for several years now. The common theme is higher prices are not their fault, but when prices have been falling and they cut production, the price stability achieved is a result of their effort. I am surprised they didn't mention the weakening dollar in this latest excuse.

Demand destruction happens gasoline is more expensive than your income will allow. Let's take someone making minimum wage that has a long commute (60 miles each way). With an average car (22 mpg) they are burning (60x2x20)/22=109 gallons per month which cost $327. Earning $1120 - rent (500) - food (300) - taxes (200) leaves $120 per month. Once we cross into negative territory, you will see people reacting. The next question will be to figure out the commute distance of low wage workers. That will determine how many people will move to save on gas money. According to my calculations, that would be $4.10 per gallon (Crude $140). With a 40 mile commute it increases to $6.20 per gallon (Crude $230).

Hang on everyone, we are in for a very wild ride.

My primitive numbers are based on $1 crude = 2c gasoline.

You forgot car insurance and beer.

Having lived poor you tend to have the 10 bucks or so for a cheap 12 pack once a week no matter what. Plus incidental expenses. On the plus side a bit of overtime or double shifts or another part-time job helps a lot. You want to drive some on the weekends also.

I think your looking at much over 3 bucks a gallon becoming a real issue even if you have a 40 mile commute.
40*2*20/22 = 72

but lets assume you only get 15mgp say own a truck.

40*2*20/15 = 106

Or lets add a common expense say a small car payment.

You can see that these people are right on the edge much above 2 dollars a gallon which is right now.

Next your making a mistake that how much you earn determines your disposable income a lot of people make more than minimum wage but have the extra money eaten up in home/care expenses.

So say you earned a take home of 2000 a month or 24000 a year take home or 30k or so before taxes. Your rent/house payment is probably closer to 800 or 1000 and you would have and additional car payment say 100-150 a month.

You can see that on the disposable income side your not really insulated against higher gas prices until your income moves into the 40-60k range if your reasonable with your expenses.

Next of course your not factoring increased secondary costs for food etc as they pass on higher transportation costs.

Of course a lot of people in the above ranges will continue to buy gasoline they will just cut out expenses say eating out for lunch which causes some guy making minimum wage lose his job.

As you can see owing and operating a car is a tenuous capability for most people below 30k a year.
My own experience being poor was that this was the case you sacrificed quite a bit to get a car and more to drive it any distance. This was well before sky high gas prices.

This means of course that consumption of other goods and services outside of the basics will drop of fairly quickly for the population below the 30k mark as gasoline prices increase.


This give 5% of the population making the minimum wage.
I found a stat of 15% of the population below poverty.
Lets guess that its 30% are twice the poverty level you can find the exact stats.

You can see from this graph 40-50% of the population falls into this at risk category of people who can barely afford a home car and additional expenses. The reason is people will tend to expend extra money on both cars and housing so they stay fairly close to the edge in the US.

Even if this group can afford higher gasoline costs it seems obvious that it will eliminate a lot of their disposable income cutting their additional purchasing power close to zero. The American consumer at the low end is close to extinction. I'd simply watch Wal-Mart earnings.

Less than 30% of the population in the US can absorb high fuel costs and obviously this percentage would drop if the lower half stops spending.

I don't think the US can really even handle 2+ a gallon long term. We are probably already above the gas price level needed to cause a consumer led recession. The housing bubble and easy consumer credit is probably the only thing that kept us going.

Interesting stats. Lets take someone earning $15k and drives 30 miles each way. The average one way commute is 25 minutes. I'm guessing that it represents 10% of the population based on the graph. Take home pay is $1062 - rent(500) - insurance (75) - food (300) leaving $187 to pay for gas. If he uses an average car (25mpg) that means 48 gallons. The pain threshold is $187/48=$3.90 per gallon (crude $130).

Not far from my original estimate of $4.10, except that now we are talking about 10% of the population instead of a worst case.

If this person moves closer and commutes 10 miles each way (without paying a higher rent), they will save $130 per month with $3.90 gas. If they need to pay a higher rent, we may see more car campers or uninsured drivers.

Interesting analysis.

However, I believe the pain threshold is even lower. Car maintenance, for example, is a real cost and expensive. So even ignoring the likelihood of a monthly payment on a vehicle loan, a monthly value for maintenance would lower the pain threshold. If the maintenance is cheap, say $25/mo, then the PT is knocked down to $162/48, or $3.38 per gallon.

Sixty miles a day seems high. I believe it's more like 45 miles for the average commuter (DOE stats). This would put the PT back up to 3.38/(45/60) = $4.50/gal. However other costs are likely higher. Shows how sensitive this calculation is to a myriad variables. It would be interesting to see a more detailed accounting.


graywulffe in CVO, OR

Congrats, you're on the right lines.

Its not the absolute levels, its the disposable income and the change that create pain and thus demand destruction. I'd suggest that many of the poor in the US are actually closer to the edge than you calculate, something closer to the $20 left level.

The other factors are:
- taxation level on petrol
- government subsidies
- average vehicle mileage
- average miles driven
- speed of change in price
- total country consumption number

If you put these together and make some assumptions for the values in countries worldwide then you can can rank groups and countries by who will feel pain in what order. You can also say at what oil price that pain kicks in.

This is why I've previously suggested that the US is going to be an early victim of oil prices:
- its low tax level means in percentage terms the hit will be larger than high tax level countries
- no subsidies or caps
- low fuel economy of vehicles
- high mileages of vehicles
- high country percentage use
- and add to that a currency that's going steadily down.

When you rank the countries and those that have already suffered demand destruction, that makes the US the next 'plateau' level. Prices will rise until sizable numbers of the US poor start getting hit. It will then stagnate as the demand destruction gradually eats through the large consumption numbers of the US poor. That will have a sizable impact on the way of life in the US, even if the poor there are generally ignored.

At rough calcs that happens around the $110 level, although the very strange crack spread numbers is putting that off at the moment.

I think it was Norman Tebbit (UK Right Wing Politician) who in the 1980s said regarding looking for work:


-the advantage of this is two fold:

1. No gas to pay
2. It makes you fitter (something a lot of Americans should seriously consider regardless)

The thought that civilisation will collapse if Joe 6 pack cannot afford to fill his 15mpg 1980s gas hog is nonsense. Get over it.


Riight. Let's all go bike 40 miles per day in the cold and in the rain so that we get all good fitness for work and take care of our children with the time spared in the process...

Sorry, realist. 60 mile one way commute distance for a min wage job? I think that is an unreasonable assumption. The only way people will keep a job under those conditions is if they REALLY love the work...(they would also have to REALLY love the location they live in.) Please give me an example of a minimum wage job that people love so much they are willing to commute two hours each day, in concert with a location that demands a 60 mile commute.

For example: Living on the beach in Cocoa Beach and commuting 60 miles to Disney World to walk around as Goofy....hey wait a minute, that was too good of an example. Except your rent is now 3000 a month.

The first thing that will happen, under those assumptions, is a switch in jobs within walking distance.

Let your views be known: www.cafepress.com/crashdummy

I was going for worst case, since those will be the first to cut demand. Moving closer is not always so easy if the rents are higher or your partner has a short commute, kids, etc.

Don't get me wrong. I like where you are going with this thread. Thanks for starting it. I just think that even for worst case, minimum wage is not a good assumption. Min wage jobs are too easy to come by to support the need for a 60 mile commute. In your response you addressed one side of my comment (moving closer to the job you love), but what about the other half (taking a job closer to where you live)?

Show me a person 60 miles from an available min wage job, and I'll show you a farmer. :)

Let your views be known: www.cafepress.com/crashdummy

I don't disagree about the distance but 20 mile commutes are very common. This is the distance from a small town to the rural areas and is a common commute for someone that lives in a trailer on a rural plot.

I lived a lot of my life poor and was born and raised in a poor state you don't have the sort of cash reserves people are considering. An 10-15 dollars a hour is still consider very good pay in a lot of the country.

As you get off the costs the demographics I posted change quite a bit and you get closer to 50% of the population in the 40k and below income level. No one has even considered that these people have children.

Two dollars a gallon is enough to cause some pain this is why WalMart has already had problems. I've personally had to save for a few months to purchase a cheap dvd player at WalMart thats the type of income level your talking about.

How to explain it.

Their exists a sort of base living standard that people strive for this is:
1.) A reasonable Apartement/House/Trailer.
2.) A decent car if your luck new.
3.) Health care
4.) Clothes School supplies etc for the kids.
5.) Some toys for the kids and electronics for the adults.
6.) Enough money to cover heat/water/electricity etc.

This is not in any real order but what happens is as you earn more money a lot of it goes into a better house and car and more toys. So your disposable income does not increase till your past about the 50k mark. Its only when you cross about 50k these days in income that your actually earning money that can be saved and thus is really disposable and also living a reasonable life.

Higher oil prices have already taken a bite out of consumer spending and we would expect to see even more pain as it increases. Understand a lot of these people now work in retail/sales oriented businesses so they are susceptible to a slowing economy. And understand that many are totally dependent on getting overtime or extra shifts to make ends meet. Overall their income is very susceptible to increasing costs.

Now higher gasoline costs are just part of the price increase and many have noticed we are seeing increased transportation costs for all goods passed down to the consumer so your not just dealing with direct costs but also indirect costs such as higher food prices. When your talking about people that are happy when they have 150 dollars left over at the end of the month the price point at which they pull back significantly from purchasing luxury items has already in the past.

Also consider we are seeing the dollar fall in value leading eventually to higher costs for cheap imports.

Some of these people did get involved in the housing bubble but in general most don't own their own homes or if they do the got them through government loans that have stricter standards the economic slowdown from this group is pretty much purely related to increased costs and despite the government stats we are seeing signs of a slowdown in spending in the lower tier income levels. Also of course construction and other housing related business is a big employer in this income range.

Remember we are in a growth based economy. High oil prices need only cause a retraction or stagnation in the economy to start a cycle of job loss/lowering incomes. The reality is that if these people start losing regualar overtime second shift work they are toast. This process has already started higher oil prices will only serve to aggravate the situation. The crazy housing boom managed to hide the truth for a bit at the cost of deeper pain post boom.

Think about the materials used to build a road, a school, an office building, a supermarket or a home.

Cement, steel aluminum, copper, asphalt, plastics etc. are all highly energy intensive. Either they come right out of a barrel of oil,1.e. asphalt, or are heated to well over 2000 degrees F
during their manufacture.

So these materials have been rising with the cost of oil and gas.

But folks average income have been rising at a much slower rate, not even keeping up withe general (non-energy) rate of inflation. Now government comes along and says the only way to build a new school,widen a road, build a wastewater treatment plant, etc. is to raise your taxes. It's sticker shock time when a new high school is needed.

Guess what happens.

As a side note. Well marbled beef is extremely energy intensive. Chicken much less so. Anyone know what is actually happening to their consumption.

He knows he is lying. The OPEC folks do not want the world to know that we need to move beyond oil and that Peak Oil is upon us.

What is beyond OPEC's control is the insufficient amount of oil in the ground.

My only thinking on that though is that, if OPEC really wanted to destroy alternatives, they would glut the market and bring CL back to $50/bbl.

If they can.

(insert "I double dog dare you" referent.)

Well, if they wanted to destroy alternatives, then Saudi Arabia wouldn't be investing on solar energy, now would they?

And why would they want to destroy the world economy? They ought to know that even if more renewables come at hand, high oil prices are here to stay.

Sorry, how do you _know_ he is lying and more specifically how do you _know_ that he knows that he is lying?

I still don't have the conclusive data on this and a lot of signals also seem to indicate that there is indeed a sizeable geopolitic/fear/speculation premium on oil price.

In such a case, one would really have to flood the market a lot, to bring the oil down. I mean, more than it makes sense from the supply/demand point of view.

That is, at least how I've read into the issue.

And I'm not denying the possibility of peak, just saying the timing is still shrouded in lack of data.


Oil ministers know how much oil each of their countries can produce. They know about which oil fields they haven't developed yet.

In a nutshell: These people at the top of OPEC are not ignorant. They are well briefed. There aren't all that many facts they need to know in order to know the real score.

Really, the truth is not that hard to figure out. They are in a position to know the truth.

Boy, that is a far cry from what Sadad al-Huseini just said about not being able to pump any more out. They really need to get their stories straight!

al-Husseini doesn't work there anymore: he doesn't have to spin for them.

WSJ has an article up as well. I don't know how long the Oil & Money conference is going to go on, but you can Google for Oil & Money and pick up additional articles over the next day or so.

Why Oil May Not Stop at $100

Several leading oil experts, gathered here yesterday for an annual energy conference, sketched a near-term future in which mounting global demand and shrinking supplies push oil prices well past the $100-a-barrel mark.


Sadad I. Al-Husseini, an oil consultant and former executive at Aramco, Saudi Arabia's national oil company, gave a particularly chilling assessment of the world's oil outlook. The major oil-producing nations, he said, are inflating their oil reserves by as much as 300 billion barrels. These amount to hypothetical reserves that are "not delineated, not accessible and not available for production."

A lot of production in the Middle East is from mature reservoirs, and the giant fields of the Persian Gulf region, he said, are 41% depleted.

Global oil and gas capacity is constrained by mature reservoirs and is facing a "15-year production plateau," Mr. Husseini said.


Andrew Gould, the chairman and chief executive of Schlumberger Ltd., an oil-services company, [noted that] 70% of the oil fields that now quench world demand are more than 30 years old. The growth in global demand since 2003, he said, has been roughly the equivalent of the daily output from two of the world's larger suppliers: the North Sea and Mexico.

"Our industry simply cannot cope with these kinds of increases," Mr. Gould told the assembly.

When SLB "can't cope," where is the hope?

when the drill bit doesn't fit, you must acquit.

All's well with a petro dry spell.

Give up not on your financial goal,
Switch instead to clean clean coal.

When in doubt, nuke it out.

Tired of living in the petro lands?
Come on up to the trusty Tar Sands!

The Lord is on your side, The Market shall provide.

Fear not the end of oil,
We will be saved by new tech and tin foil.

amen :-)

When liquids are constrained, Peak Oil will be ordained.

Let your views be known: www.cafepress.com/crashdummy

Peaked out CH slime,
May cost way more than just a dime.

The major oil-producing nations, he said, are inflating their oil reserves by as much as 300 billion barrels.

Any juicy past quotes from Al-Husseini making statements to the contrary? And is he burning bridges back home - or even putting his life into danger - by making such a statement now?

Supportive to that statement is what Sadad al-Husseini said during a (probably the same) conference:

OPEC sits on about 75 percent of the world's total proven oil reserves of 1.208 trillion barrels, according to figures compiled by BP in its Statistical Review of World Energy.
Husseini said at the conference that reserves estimates are too high and oil prices can only remain on a rising trend.
Proven oil "reserves" are overstated by 300 billion barrels of speculative "resources", mainly in OPEC countries, he said. By 2030, production of oil and natural gas liquids could fall to about 75 million bpd.

Very interesting statement: 300 billion barrels are overstated. That is what most of us said already for quite some time. Now (at least for me), I see such a statement made officially at an OPEC conference for the first time! And that statement is published at Reuters, so in the main stream media.



It's hard to believe this! Just a year or two ago we peakists were ridiculed everywhere. And now Sadad al-Husseini is saying basically what Bakhtiari, Salameh et al. were saying about OPEC "reserves" quite some time ago. OK, not quite the same, but now we have a former chief of Saudi Aramco saying that OPEC's stated reserves are bollocks!

Now the million dollar question is "will this make any difference to our politicians?"

Or will they still heed John Major's advice:

"When you're back against the wall, you have to turn around and fight!"

Not a former 'chief of Saudi Aramco', an 'executive'.

A very significant bit of information, nonetheless.

from Saudi-American Forum

Sadad Al-Husseini retired from Saudi Aramco on March 1, as executive vice president and a member of its board of directors. He joined Aramco in 1972, and his assignments have included various senior executive posts in its oil and gas exploration, production, and development operations. He was a special representative of the kingdom of Saudi Arabia, in its natural gas negotiations from 2000 to 2002. Al-Husseini was a member of the Saudi Aramco Management Committee from 1992 until his retirement and was elected a member of its board in 1996. He also was a member of the Consolidated Saudi Electric Co. board during 2000-03 as well as holding other board positions in joint ventures and subsidiaries of Saudi Aramco. Al-Husseini graduated from the American University of Beirut with a BS in Geology in 1968. He obtained his MS in 1970 and PhD in geological sciences in 1973 from Brown University (distinguished graduate school graduate). He is an honorary member of the American Institute of Metallurgical, Mining & Petroleum Engineers and the Society of Petroleum Engineers.

Not ex-president but a bit more than 'an executive'

"Will this make any difference to our politicians?"

If it does, how long will they take to make up their collective minds that:
a) it does make a difference
b) they are in the position to lead
c) they can and WILL lead
and finally
d) it makes more sense to be a strong leader and tell their constituents the "unpalatable" truth of the situation rather than to sell them a sleepwalking line?

MS in Ontario Canada

In the coming battle between the 'rightness' of our economic model, and the geological limits to growth, I have a strong suspicion that the geologic limits may win.

I have a strong suspicion that the geologic limits may win.

But only after the silent voting majority is silenced by death.

I apologize for the grim reaped conclusion.
However, consider this:

Well over 50% of the voting populace is composed of consumerist zombies who have been irreversibly indoctrinated into the religion of cornucopiac consumerism based on the petro production "surge" of the last 100 years. It is too late to re-educate them.

You can lead a zombie to the oil trough but you can't make him stop his addicted drink. They will keep drinking till the oil is gone and then they are gone. (Sorry. Truly sorry.)

Politicians are addicted to the oil-addicted voters. No politician in a democracy can win unless he caters to his/her base: the oil-addicted petro-drinking majority. It would be political suicide to tell them the truth. Therefore it must continue to go this way until it runs itself out. The politicians must lie in order to get elected. The zombies will only vote for politicians who feed them the convenient lies. (This is why Al Gore cannot run and chew out the truth at the same time.)

(Hat tip to Big Gav for the cartoon)

"Increasingly oil markets are being driven by forces beyond OPEC's control, such as geopolitical events and the growing influence of financial investors," Hamli said. "We are of course concerned about the high level of oil prices."

He's trying to scare investors away from alternative energy by saying any day now the price of oil will crash as soon as the financial speculators and geopolitical problems go away. Therefore don't make any big investments in CTL, Ethanol, etc. because we're going back to business as usual as soon as we get these minor political and financial problems worked out.

Another interpretation of this statement is that they are basically admitting to no longer being the swing producer, without explicitly saying so.

Bob EbersolePemex announced today that they have shut in 600 thousand barrels a day due to weather related problems. Who knows what the real situation is? I think the Saudi's probably have some spare capacity but dont intend to use it unless an absolute emergency occurs.

I think he just got it mixed up--what he really meant to say was that they can't pump more oil no matter how high the price goes.

Mark Folsom

Who do they think they are fooling with this tripe.

The Qatari Energy Minister, Abdullah bin Hamad al-Attiyah, rhetorically asked "To increase by 500,000 or one million barrels, do you believe today it will bring back the price?" and answered "I don't think so."

Are we to believe that if OPEC were to increase output, high crude prices would remain unabated? It does not take a degree in economics to detect the distinct scent of bovine excrement emanating from this assertion. Do I also detect the faint scent of fear mixed in the effluvium?

The eminent oil minister then follows this odoriferous emanation by insinuating that the high crude prices have something to do with a shortage in refinery capacity. Nice try. As seismobob pointed out, this would result it high prices for refined products, but would drive crude prices down. Are we to believe this excess crude is being whisked off the market at premium prices and stockpiled for later refinement?

As if striving to outdo his previous absurdities, he follows up by heaping blame upon excessive European oil taxes. How exactly does this logic work? Silly me, I had always thought taxing something lowered demand and thus price.

Did I miss the punchline somewhere? This might be funny if it were not so pathetic.

I would suggest that OPEC is already running at or near the limit and this desperate ploy is a sorry attempt at concealing the obvious. What else could it be?

"I would suggest that OPEC is already running at or near the limit and this desperate ploy is a sorry attempt at concealing the obvious. What else could it be?"

It could be the cue to bring in something that will obfuscate the central problem, appealing to another, manufactured smoke-and-mirrors issue. Barbara Ann comes to mind.

Then if oil shoots to 100+ (as everyone and their brother knows it will within the next twelve months), it's because of the necessary military campaign to keep X from doing Y - not because of inelastic supply and runaway demand.

Result: twelve more months bought until the whole mess can be dumped on the lap of the poor bastard who inherits 1600 Pa. Ave.

These are my principles. If you don't like them, I have others. -- Groucho Marx

Whadyaknow - just posted the comment above and went to check out Nouriel Roubini's blog. Found the following insight from the highly-regarded NYU economics professor:

The only two exceptions of a housing recession not leading to economy-wide ones were those during the Korean War and the Vietnam war when a massive fiscal stimulus rescued the economy. What we spent – or waste – on Iraq is not sufficient to get that fiscal stimulus; we would need another equivalent of $200 billion fiscal stimulus to do the job. A war with Iran is such an option: but a war in Iran would lead to an overnight doubling of oil prices to $200 per barrel plus and would lead to a certain U.S. and global recession.

"These are my principles. If you don't like them, I have others." -- Groucho Marx

I suspect you are right on the mark. It only a matter of time before the economy implodes and probably sooner rather than later. America's home equity ATM machine is overdrawn and it appears Americans have substituted their credit cards to fill their fiscal shortfalls. When the credit cards are finally declined in mass, consumer spending will crater and the economic house of cards will fly apart.

Historically, war has been very effective at mending a broken economy. Politicians might also see war with Iran as an inviting solution to a number of ensuing domestic problems. Specifically, it would provide adequate cover for concealing the world energy crisis for a few more years, obviating the need for embarrassingly pathetic narratives. It would provide employment for all those, who otherwise would have too much time on their hands: read civil unrest. The actual economic collapse could even be pinned on Iran, thus deflecting domestic criticism. If the war works out, they will even find themselves in control of a significant fraction of the worlds remaining reserves. This superficial analysis of benifits might be appealing to superficial people.

It's a bone-headed idea and it will likely lead to horrific unintended consequences, but that has never stopped politicians in the past.

Never underestimate mankind's capacity to pursue a self-destructive ideal to it's logical conclusion, no matter how much it hurts.

But the last time a war salvaged our economy (and I'm not sure it really did--I think the post-war world-building boom manufactured in the U.S. salvaged our economy), we weren't $9 trillion in national debt and Americans had savings (rather than massive personal debts) to throw into war bonds. Different deal today. I don't see how another $180 billion a year thrown into a war with Iran will help us. And probably, with the military already overstretched, we can't fight a ground war there anyway so will rely on an aerial campaign and will only succeed in having Iran close the Straits, and then we are really toast.

Oh, Oh Mr. Kotter, Mr. Kotter - Not to mention how the US of A was the worlds oil producer.

It's a bone-headed idea and it will likely lead to horrific unintended consequences, but that has never stopped politicians in the past.

I don't think bombing Iran is a bone-headed idea at all. It makes perfect sense because it will provide the alibi for why oil costs 100+.

A definable, transient explanation will have been created, on the (false) assumption that as soon as things in Iran calm down, the Strait of Hormuz is unblocked, whatever, then oil will retreat from its high prices. That's a much better alternative than, "Oops, oil production peaked. Sorry. No more gas until, uhm, forever".

Iran's predictably-violent reaction to a bombing would also create a great explanation for why the wheels are coming off the American economy. Everything from deflation to a crashing dollar could be ascribed to it.

"We're in the pits? It's all Iran's fault. We told them not to do X, Y, and Z, but they went ahead and did it anyway after they got bombed".

Who coulda thunk.

These are my principles. If you don't like them, I have others. -- Groucho Marx

The question is: In major wars, is there demand destruction?

If US needs a fixed quantity (maybe a rising %) of world's oil to keep BAU, then it could destruct the demand of others.

US could keep oil coming in - as other countries cannot.

Does anyone know why Kazakhstan suspended operations in the Kashagan oil region. It was touted as the great hydrocarbon hope some years back?
I enjoy the scholarship on this site. Great work folks

Hello Snair,
Where have you seen this story?




"A warning sign of another sort was provided by Kazakhstan's August decision to suspend development of the giant Kashagan oil region in its sector of the Caspian Sea, first initiated by a consortium of Western firms in the late '90s. Kashagan was said to be the most promising oil project since the discovery of oil in Alaska's Prudhoe Bay in the late '60s. But the enterprise has encountered enormous technical problems and has yet to produce a barrel of oil. Frustrated by a failure to see any economic benefits from the project, the Kazakh government has cited environmental risks and cost overruns to justify suspending operations and demanding a greater say in the project. "

What effect would this suspension have on the Skrebowski/Ace megaprojects analyses, and the timing of the all liquids peak/decline. Ace could you give us your conclusions? Murray

This field is proving notoriously difficult and increasingly expensive to develop. The Kaz govt is peeved at missing out on revenues. Who would want to work on a field in an environmentally sensitive area which belches hydrogen sulphide at you and can kill you in an instant !
"Originally scheduled for startup in 2005 the development of Kashagan is being implemented in multiple phases. Due to high reservoir pressure and the presence of hydrogen sulphide, the reservoir technologies adopted in Kashagan are very advanced. The oil lies at depths of 4,000-5,000m. The main technological problem is the high pressures and huge volumes of hydrogen sulphide."

The last paragraph in this link certainly reflects current thinking ie, " don't sell the family silver "

Hugo Chavez will help the poor by donating his heavy fuel oil to the barrios and ghettos.

Estonia had today a historic moment. Dollar made lowest price in our currency ever. Last record was 19-th april 1995. Our currency is from 20 june 1992.

Lets dissect

"there was only so much OPEC could do in the current circumstances to keep a lid on prices"

He is right! There is only so much OPEC can do when facing 'current circumstances' (translation: geological limit). The 'so much' is when one try its best but unable to achieve desired results. The message is simple, its not they not Want to increase oil supply, especially to take advantage of very high oil prices now before american economy go in recession, it is that they just Can't.

That is confirmed in the next paragraph

"Increasingly oil markets are being driven by forces beyond OPEC's control..."

Ok not cherry picking but obviously the part of sentence in dots is the usual diplomatic stuff. So he is saying that oil markets are driven by forces beyond OPEC's control. A teenager knows that demand and supply are the only two fundamental market forces. In recent years demand rise of 2% is compatible with historical year over year demand rise, even lower if you look at a longer range on timeline,
so nothing extra ordinary going on there. Its the other fundamental market force, the supply which is going out of their (OPEC's) control.

If you can read behind the lines you can get the message, he is accepting that things are out of his control.

Finally, captain obvious speaks the truth. Thanks, Pakistan Man. That sums up pretty well.

I was just wondering, with prices above $90 a barrel, who besides Robert Rapier, still believes OPEC is not now pumping flat out?

Ron Patterson

I don't. Do the math. Demand is strong and stable at $90/bbl. Ten billion barrels at $35/bbl is worth 350 Billion. Same amount at $100/bbl is worth a trillion dollars. You have read all the comments saying that people will still be driving the same way at $10/gallon or $300/barrel. $300 makes your oil worth three trillion. You have a rising population to feed and employ, and high crude prices force energy intensive industries to move to your country, bringing jobs and investment. Why in the world should anybody in the Middle East be pumping anywhere near full capacity?
Increasing production now is sheer insanity, economically.

Increasing production now is sheer insanity, economically.

Of course it is! And you assume that OPEC nations are behaving sanely? When did they start doing that? When did any nation behave sanely with regard to the environment or their natural resources?

Were we a rational society, a virtue of which we have rarely been accused, we would husband our oil and gas resources.
- M. King Hubbert

Ron Patterson

Ron, George Littell of Groppe, Long & Littell thinks Saudi Arabia still has plenty of spare capacity. Forbes just came out with a print article, also online (free registration required, I think), writing up Littell's views, and perhaps trying to talk the price down:

Slippery Slope: Expect $60 Crude -- Soon

According to some longtime observers, we will soon see $60 oil. Their argument is that the main driver of price spikes is something hardly mentioned these days: a miscalculation by the world's most important supplier, Saudi Arabia. And within the next two months that miscalculation will be corrected and oil prices will drop. "It's sure getting set up for a hard fall," says George Littell, partner at Groppe, Long & Littell, a Houston firm that advises oil drillers and investors on the outlook for crude prices since 1955.

Calorie, the article in Forbes would have more credability if it the chart gave the correct figures for Saudi production. It shows Saudi production increasing in September. But according to OPEC's own Monthly Oil Market Report for October, Saudi production declined by 70,000 barrels per day in September. I know this report is "according to secondary sources" but these are the figures OPEC used when setting quotas.

But all that being said, this is what the debate is all about isn't it? Steve Forbes has been saying for over two years that oil is going back down to the $40 dollar range. Well actually he said the mid $30s two years ago. Does anyone still believe him.

I don't know much about George Littell but I think I would take Al-Husseini's word over his. This is a debate between the cornucopians and us doomers. Will oil peak around 2037 or 2050, or are we at peak right now? In other words is Forbes, Lynch, Yergin and Littell correct or are those vast Middle East reserves a myth?

Ron Patterson

Ron, I thought it was interesting that this was coming from George Littell primarily because his partner, Henry Groppe, is a peakist, if I'm not mistaken. There must be a lot of interesting and potentially heated debates within energy firms as well as in the press and blogosphere.

I actually agreed in general with this graph. I felt that oil prices probably would drop soon to around 70 a barrel or slightly lower. My reasoning is different. A lot of the price rise is do to speculation and like any other resource when the speculators cannot keep the price increasing they take profits and leave the market. While they are driving up the prices the real buyers tend to increasingly pull back. Once prices collapse the real buyers step in by more oil and hedge putting a floor on prices and speculators step back in.

Rinse and repeat.

The problem is it seems we are seeing a much lower speculative level and a lot more of the purchases seem to be caused by real buyers doing basically panic buying. They have held out till they have no choice but to buy.
This panic buying or forced buying means a lot more real oil is being bought on the spot market and is leading to a strong and supported price increase. This is new and quite different from the past.

So we are now I think in what I call the Wack-A-Mole stage
To many real oil buyers are having to make panic purchases this leads to price increases which leads to other real buyers to delay until they also have to make panic purchases.

This puts a very strong floor on prices and speculator profit taking results in very short term dips as real buyers rush to purchase on any downswing and are forced to purchase on the upside. You can see that this leads to a strong ratchet effect on prices.

I really thought this would not happen till later next summer I don't understand completely why its earlier. I just now came to understand the technical effect and I think that its the main culprit in shifting things forward now since it seems to indicate we will fall off our current plateau in production instead of the gentle decline we have seen.

I expect we will soon see the poorer nations petitioning the UN to help them with high oil prices.

The next 2 weeks are going to be very interesting. The ship watchers say OPEC oil deliveries for the first half of November are down sharply. If that's true, the markets will go nuts when the ships hit the fan. OPEC is the magic oil producer with effectively infinite reserves that always come through. If their production actually goes down with oil prices this high, look out.

What's the problem on the ships? That the ships are not AT the OPEC ports taking delivery (a demand-driven problem); or that they are there, but there's not enough oil to go around? (supply - uh oh!)

I don't. Why increase production and drive down prices? OPEC has found a sweet spot. Prices are just high enough that demand is flat and refiners are squeezed. If there were really more demand out there, refiners would increase their utilization rates and raise their costs to consumers. That they have not done so suggests that refiners don't think they can recover the extra costs of higher utilization rates thru prices increases.

And that in turn suggests that demand is flattening out. The declining dollar is pushing US prices up, reducing demand. If we get a recession in 4Q-07 or 1Q-08, demand will drop even more - especially if it spreads to Asia.

Why open the taps just before the slump and risk a repeat of 1998?

Here's one instance where an OPEC spokesman's lips were moving and he might actually have been telling the truth:

Saudi oil executive Sadad Al-Husseini, June 2007: "There has been a paradigm shift in the energy world whereby oil producers are no longer inclined to rapidly exhaust their resource for the sake of accelerating the misuse of a precious and finite commodity. This sentiment prevails inside and outside of OPEC countries, but has yet to be appreciated among the major energy-consuming countries of the world." ..

The only thing that might convince them to change their minds is if the lives of the ruling classes depended upon their increasing production-- say, there was a looming threat to their existence from a rival power dominated by a different religious sect, the only protection from that threat was by the sole superpower in the world, and that superpower demanded more oil production as a cost of that protection.
That scenario, if it doesn't exist, has to be created, if you were a paranoid neocon.

Panama, would you be open to sharing the reference for that quotation? I'm still making changes to my Executive Briefing and that quotation helps make the case.

Andre' Angelantoni
Preparing for a Carbon-Constrained World
Online Executive Briefing