At close to $3.35 a gallon of gas people keep asking me what I think is causing the high price of oil. I give them my honest opinion, which is, I don't know. I can think of tons of contributing factors. The low value of the dollar, the presence of US Forces in Irak, tensions in the middle east, big oil companies (the White House) wanting to make money, etc. What about a shortage of oil, I get asked. Uhm, no! Why would I think there were a shortage of oil?I have yet to drive up to a gas station that is closed because it is out of oil. I have yet to hear a report from an oil refinery shutting down production because they do not get crude oil delivered to refine. I have yet to hear reports of oil fields closing down because they are dried up.There is no shortage of oil. There are no "natural" supply issues. If there are supply issues they are man/government made. At that point, people usually shake their heads in disbelief and walk off. Clearly, they think, I have no clue what I am talking about and saying there is no shortage of oil is crazy.
Sometimes "majority" simply means that all the fools are on the same side
Oil need not be completely unobtainable in order for a shortage to be recognized. As availability is a factor of price, reduced availability results in higher prices. A shortage does not mean there is no oil to sell, rather that there is no one making it available at the price consumers are willing to pay. Complete unavailability would only be expected under the institution of price ceilings. Shortage is also a relative rather than absolute phenomenon on the production side, as "there is no oil" is not the same as "the oil cannot be profitably extracted." Until recently, prices have been driven by a shortage, not in oil, but in refined petroleum due to Katrina's destruction of refining capacity. In 2008, refining capacity has finally returned to previous levels. Continuing price increases in the present are likely related to the declining exchange value of the dollar, as you noted. However, the possibility of a shortage in supply should not be discounted. Reserves in gulf nations are effectively state secrets, but certain policies are underpinned by an admission that production has peaked - particularly Iran's current energy policies. They've provoked domestic riots by ending consumer petroleum subsidies and risk war for the sake of nuclear electric production. Unless you subscribe to the "axis of evil" theory, the only explanation is that Iran's leadership is concerned about oil supply.
James Morgan Qualls
You should tell them the government made them poorer and that is why they can't afford as much oil anymore.
The fallacies of intellectual communism, a compilation - On the nature of power
I'm sure there are multiple factors at play, but the following quite from Hazlitt (that appeared in one of the daily articles recently) seems appropriate here:
"It is true that a rise in prices (which, as we have seen, should not be identified with inflation) can be caused either by an increase in the quantity of money or by a shortage of goods — or partly by both. Wheat, for example, may rise in price either because there is an increase in the supply of money or a failure of the wheat crop. But we seldom find, even in conditions of total war, a general rise of prices caused by a general shortage of goods. Yet so stubborn is the fallacy that inflation is caused by a "shortage of goods," that even in the Germany of 1923, after prices had soared hundreds of billions of times, high officials and millions of Germans were blaming the whole thing on a general "shortage of goods" — at the very moment when foreigners were coming in and buying German goods with gold or their own currencies at prices lower than those of equivalent goods at home."
It seems rather "coincidental" to me that it's not just the price of oil going up. Like I say, I'm sure there are multiple factors at play, but you'd have to cite the dollar as one of the biggies.
The problem is very complicated. Last December the US Department of Energy released their extimates on commercially significant crude reserves worldwide (which is more than a wild guess than anything else because in countries like Russia these datas are considered a State secret): they were up by 1.6% from the 2006 datas. It was unexpected: everybody in the financial world expected a decline. Yet we know that financial analysts know very little about the real world and that the same datas have slowly yet inexorably gone up since the '80s. Yes, the world economy uses more oil but we also keep finding more oil.
Now, with such datas everybody expected oil price to drop. It didn't. Instead it started gaining momentum and broke the US $100 barrier at barrel for NYMEX. It didn't slow down until March when NYMEX lost more than 10% of its value in a single week. This week it suddenly shoot up to new heights (US $112 yesterday) and will probably get much higher in the next month. The cause, according to the press, is the datas about the US government's "Strategic reserves", lower than predicted. Investors are betting that good Ol' Uncle Sam will start buying crude like there's no tomorrow to fill its reserves to the brim.
If you look carefully at the world market you'll see that investors are buying raw materials like maniacs. The prices of copper, zinc, aluminium, wheat, even unprocessed scrap metal and, of course, crude oil are litterally soaring despite a global slowdown on raw materials consumption which started last November in conjunction with the worldwide "credit crunch" following the so-called US subprime crisis. The slowdown is getting worse because there's "less money" available to industries to purchase raw materials and because consumers are less willing to pay more for the finished product because of the economic slump. Investors are pretty much desperately looking for a new way to make a quick buck and raw materials are the last beach. They are basically betting that the Japanese steel mills and the Chinese smelting plants will still buy raw materials at the same frantic pace at whatever price it takes. Of course this will work in the short haul but what the future reserves, nobody can tell. Oh, and there are more complications...
As for gasoline there are also other issues. What the general public doesn't know is that while crude is widely available it still needs to be processed to be of any use (unless you plan on tarring your boat). And that's where troubles start. The US hasn't built a single new oil refinery since the Ford presidency. The plants have been overhauled (mostly to refine the low-sulfur fuels now required by law) but refining capacity is barely enough to keep your wheels rolling. Moreover most US plants (except two run by Citgo) relies almost exclusively on sweet (ie light in sulfur content) and light (ie light in waxes and tar content) crude, like NYMEX, which is of course the less abundant and the most sought after by the industry. The recent ethanol craze took away from the industry many funds which could have been used to increase refinign capacity.
Any more questions?
Volkner said the other day they were because of inflation.
Then you have the 'peak oil' theory, market speculation, OPEC screwing around, the lack of refinery capacity in the States because of the environmentalist movement, war and civil unrest in oil producing countries, increased demand from the BRIC nations...there's also a couple other excuses that can't remember off the top of my head.
There is a shortage of easily extracted oil though. All the new capacity is much more expensive to extract and the overall prices reflect this but the big oil companies also have a bunch of cheaper oil wells so are able to earn record profits almost every quarter.
Kakugo:If you look carefully at the world market you'll see that investors are buying raw materials like maniacs. The prices of copper, zinc, aluminium, wheat, even unprocessed scrap metal and, of course, crude oil are litterally soaring despite a global slowdown on raw materials consumption which started last November in conjunction with the worldwide "credit crunch" following the so-called US subprime crisis. The slowdown is getting worse because there's "less money" available to industries to purchase raw materials and because consumers are less willing to pay more for the finished product because of the economic slump. Investors are pretty much desperately looking for a new way to make a quick buck and raw materials are the last beach. They are basically betting that the Japanese steel mills and the Chinese smelting plants will still buy raw materials at the same frantic pace at whatever price it takes. Of course this will work in the short haul but what the future reserves, nobody can tell. Oh, and there are more complications...
So your argument would be that the price of consumables has been going up primarily as a result of speculation (and not a as a long overdue consequence of inflation)? And you'd lump oil in with all these other products who's prices are rising on the back of "speculation"?
But surely if people are buying these products now it's because they believe (rightly or wrongly) that inflation lies along the road ahead? Take a quick look at the following: http://www.mises.org/markets.asp#monetary
That will take you straight to the TMS (True Money Supply) chart. Now scroll up to the chart above this, which is your west texas intermediate oild price. Someone tell me I'm not dreaming when I say it looks like rising oil prices are almost invariably accompanied by (either shortly before or shortly afterwards) an increase in the true money supply. Would this not imply that the speculators are right? That increases in commodity prices ARE the result of inflation?
It has been arguegd that very recently, despite Fed rate cuts we've actually seen some moderate monetary contraction. However this is a recent phenomenon (whose effects have not likely hit prices on main street yet) and any money contraction to date certainly hasn't been severe enough to counter the unprecedented monetary inflation which we've seen from 2000 to 2007. Is anyone really surprised that commodity prices are high (oil included)?
My argument is only against the shortage itself. If I had to start to dwell into what is driving the prices to these new heights I would need a few free hours to type and, much more importantly, I do not still fully understand the intricancies of fluctuactions in the money supply. For example why prices are rampant even in Europe, with its strong currency and relatively tight money policy? I still have to fill quite a few gaps in and I am always eager to know more. Also there are other political factors driving the price up.
For example the Australian government has "declared war" on fossil fuels of any kind. They are moving away from coal (of which they have the second largest proven reserves in the world after the US) and they are putting in place so many enviromental restrictions to oil drilling that companies find it cheaper to shut down operations and move to other areas (many are relocating to the newly discovered Papua oilfields). Even with the NYMEX firmly entrenched over US $100. Also consider that supplier of heavy and sour oil (still not very popular in the industy) like Ecuador are considerably jacking up their prices for political reasons.
Kakugo:why prices are rampant even in Europe, with its strong currency and relatively tight money policy
Relative to what - the US and China? Sure, they're relatively tight. But because the Zimbabwean's are devaluing their currency doesn't mean the Chinese are adding value to theirs. Similarly, loose monetary policy in the US won't necessarily help contain prices in Europe. Although it might push the strength of the Euro, as measured in dollars (or Zimbabwean rand) up, it won't necessarily push the price of Euros, as measured in rice up. Are interest rates in Europe high? Who knows - how could we possibly know what interest rates would be in the absence of a central bank? I know my parents were paying around 23% interest on their mortgage when I was a kid and the overnight cash rate in Iceland right now is 15% - so relative to either of those you might not call the ECB's monetary policy tight.
Kakugo:For example the Australian government has "declared war" on fossil fuels of any kind.
Yes, Australia has a fairly fragile environment so it's probably not surprising if they're getting a bit frisky about the various negative costs of mining (which due to the way property rights are structured are not bourn by those who run the mines).
On the supply side Australia is a massive player. On the demand side though, you'd probably need to look at China and the emerging Asian countries to understand what's going on. I think the supply and demand issues are extremely complex though and I don't profess to have any great knowledge of them.
All I know is that everyone is looking for the "reasons" prices are going up. In the case of individual goods you could understand specific factors affecting supply or demand (most often temporary factors). But when prices are going up a lot and across the board for all goods, there is always and has always only been one reason... and that concerns the money supply.
Yes, the supply-demand side of the thing is complex. Also let's not forget that one of the world's biggest proven reserves of proven oil (the Paracel Isles) is currently untapped because of political issues. The Russians discovered a large oilfield on behalf of the Vietnamese in the arearecently, proving once again how obsolete and incorrect are Western theories about oilfield exploitation. And personally I am ready to bet some of my (inflated) money that the long-forgotten Fischer-Trops process (how to obtain liquid fuels from coal, in very simple words) will very soon make a comeback. We have immense quantites of coal nobody wants lying around; differently from wheat and soy you cannot eat lumps of coal for breakfast. Enviromental concerns are all good and well but soon the demand for cheaper energy from the industry will force the Western government to rethink their catastrophic energy politics. Rationing (because that's what Al Gore and his cronies are pushing) simply won't work because nobody, even the most fanatically committed enviromentalists, is prepared to go back to washing bedsheets by hand once a month, freezing in winter and getting along with what today is consider meager even by African standards (I am talking about late XIX-early XX century Europe, not the Middle Ages). Anyway back to the subject at hand.
If you look at the ECB rate (4%) it's considerably higher than both what's set by the US Federal reserve and the Bank of Japan. Of course European governments have been very wont on inflating ever since the Euro arrived, who could resist the temptation? But just take a look at the financing sector right now and you'll see how interest rates have risen in the last twelve months. Of course bank accounts interests are still a crying shame, but nobody is offering the crazy deals I've seen in the past few years. The easy money bubble is bursting and we are entering a "credit crunch" phase.
People have worried about running out of oil since the 1800's because they judge the present known supply of oil by estimating it's consumption through the technology of the time. These estimates never take into account the ever increasing efficency in energy use that comes about through technological development in a free market system.
As far the prices of oil rising I think there is a bunch of different factors I won't get into. But I will say taxes and regulations have alot to do with it. For one taxes count as a cost in a business so the more they are taxed the higher the cost of doing business. So they might pass that cost onto the end price of the product. After that there is the consumption taxes both federal and state in the United States but in other countries it might just be one level of government taxing the consumption of it. Not to mention that many governments restrict the construction of new refining facilities which will drive up the cost of oil due to supply. These are just a few of the problems with the price of oil today.
The Truth About Crude Oil First Crude Oil is NOT from Dino the Dinosaur or his brothers. Logically speaking if the earth was covered with a dense primeval forest and there was a Dinosaur living in every five square mile area on the face of the earth, and all this was compressed into a sub surface space for tens of thousands of years, and produced a pool of Crude Oil, it WOULD ONLY FEED the needs of this world for the PAST twenty years, so WHAT FUELED the Industrial Age for the first EIGHTY YEARS??????????????????????????? Think about what is stated above! Science states that oil is the by product of the earths ENGINE as it rotates creating GRAVITY and super heating rock formations, that through this process release oil and this oil flows into cavities within the earth. Now with this said, what is the reason for the excessive spike in Crude and Natural Gas prices? GREED. In the 60’s gas sold for 35 cents a gallon, cars got 5 to 7 MPG so a 100 mile trip would take some 16 gallons at a cost of 5 dollars. Today cars get 30 miles to a gallon and that same trip would only take 3 gallons of gas at a cost of 12 dollars. Take into account the LOSS OF VALUE of the FRN and you will see that BIG OIL is KEEPING ITS bottom line HIGH as the efficiency of the engines increase. There was a contrived oil crisis in the 70’s and there is one today. Why? It is the GREED of BIG OIL! It takes less than 20 dollars to get oil out of the ground and refined into its product and delivered. It takes from 6 months to a year for a well from the day the drill head starts the hole until it produce oil. The Russians can do it in three mounts. Today’s wells exceed 6000 barrels a day, and one off shore platform can have over 20 SLANT WELL HEADS producing oil 24 hours a day. The United States of America is sitting on the worlds largest coal reserves; it also has more crude oil than the Middle East. Recent finds in Montana exceed what is found in Saudi Arabia, and Pennsylvania has over 3 trillion cubic feet of Natural Gas yet to be pumped into the system. Alaska has extensive reserves yet CONGRESS has for years REFUSED to allow the release of this oil, because of RED TAPE and that they are under the control of ENVIRONMENTALIST groups. These groups want all Americans to ride bikes and live as the settlers did in the 1800. Congress continues to LIE regarding the time it takes to drill a well and get the oil into the system. They state that it would be ten years before wells drilled today could produce oil. This is a BOLD FACE LIE. Congress has prohibited drilling for the past two decades, if what they say is true and if they allowed drilling decades ago we would NOT HAVE FOUR DOLLAR A GALLON GAS PRICES, and HOME HEATING OIL WOULD NOT BE OVER FOUR DOLLARS A GALLON, THAT WILL CAUSE A HEATING CRISIS THIS WINTER, and SOME AMERICAN MAY FREEZE TO DEATH FOR LACK OF HEAT. CONGRESS IS TO BLAME IF THIS OCCURS. Today’s advances in drilling insure a protected environment. The WILD CAT wells of the early 1900 are a thing of the past. Environmentalist claim that the exhaust of power plants create TONS of CO2, HOWEVER, CO2 is a GAS and is measured in cubic feet NOT TONS. The advance scrubbing of the exhausts prevent most hydrocarbons from being suspended in the atmosphere. Most ALL the reasons given by environmentalist are not science, but an agenda to deprive Americans of their standard of living. For MORE INFORMATION of the Truth About Big Oil visit http://www.ilm-efx.5u.com/photo4.html You Will Be Amazed, and make sure you click on the link GLOBAL WARMING and read what the ENVIRONMENTALIST do not want you to know about NON GLOBAL WARMING BY MAN.
The Truth About Crude Oil
First Crude Oil is NOT from Dino the Dinosaur or his brothers. Logically speaking if the earth was covered with a dense primeval forest and there was a Dinosaur living in every five square mile area on the face of the earth, and all this was compressed into a sub surface space for tens of thousands of years, and produced a pool of Crude Oil, it WOULD ONLY FEED the needs of this world for the PAST twenty years, so WHAT FUELED the Industrial Age for the first EIGHTY YEARS???????????????????????????
Think about what is stated above! Science states that oil is the by product of the earths ENGINE as it rotates creating GRAVITY and super heating rock formations, that through this process release oil and this oil flows into cavities within the earth.
Now with this said, what is the reason for the excessive spike in Crude and Natural Gas prices? GREED.
In the 60’s gas sold for 35 cents a gallon, cars got 5 to 7 MPG so a 100 mile trip would take some 16 gallons at a cost of 5 dollars. Today cars get 30 miles to a gallon and that same trip would only take 3 gallons of gas at a cost of 12 dollars. Take into account the LOSS OF VALUE of the FRN and you will see that BIG OIL is KEEPING ITS bottom line HIGH as the efficiency of the engines increase.
There was a contrived oil crisis in the 70’s and there is one today. Why? It is the GREED of BIG OIL! It takes less than 20 dollars to get oil out of the ground and refined into its product and delivered. It takes from 6 months to a year for a well from the day the drill head starts the hole until it produce oil. The Russians can do it in three mounts. Today’s wells exceed 6000 barrels a day, and one off shore platform can have over 20 SLANT WELL HEADS producing oil 24 hours a day.
The United States of America is sitting on the worlds largest coal reserves; it also has more crude oil than the Middle East. Recent finds in Montana exceed what is found in Saudi Arabia, and Pennsylvania has over 3 trillion cubic feet of Natural Gas yet to be pumped into the system. Alaska has extensive reserves yet CONGRESS has for years REFUSED to allow the release of this oil, because of RED TAPE and that they are under the control of ENVIRONMENTALIST groups. These groups want all Americans to ride bikes and live as the settlers did in the 1800. Congress continues to LIE regarding the time it takes to drill a well and get the oil into the system. They state that it would be ten years before wells drilled today could produce oil. This is a BOLD FACE LIE. Congress has prohibited drilling for the past two decades, if what they say is true and if they allowed drilling decades ago we would NOT HAVE FOUR DOLLAR A GALLON GAS PRICES, and HOME HEATING OIL WOULD NOT BE OVER FOUR DOLLARS A GALLON, THAT WILL CAUSE A HEATING CRISIS THIS WINTER, and SOME AMERICAN MAY FREEZE TO DEATH FOR LACK OF HEAT. CONGRESS IS TO BLAME IF THIS OCCURS.
Today’s advances in drilling insure a protected environment. The WILD CAT wells of the early 1900 are a thing of the past.
Environmentalist claim that the exhaust of power plants create TONS of CO2, HOWEVER, CO2 is a GAS and is measured in cubic feet NOT TONS. The advance scrubbing of the exhausts prevent most hydrocarbons from being suspended in the atmosphere. Most ALL the reasons given by environmentalist are not science, but an agenda to deprive Americans of their standard of living.
For MORE INFORMATION of the Truth About Big Oil visit
You Will Be Amazed, and make sure you click on the link GLOBAL WARMING and read what the ENVIRONMENTALIST do not want you to know about NON GLOBAL WARMING BY MAN.
The rising price of oil is nearly 100% caused by money supply inflation. People who suggest other explanations are trolling.
If you look at "price of oil" divided by "price of gold", then the rate of increase is pretty slow, a few percent per year. Quoted in real money, the price of oil is not substantially increasing.
I have my own blog at FSK's Guide to Reality. Let me know if you like it.