Oil Prices: Speculation or supply and demand?

[Straybow]

Originally posted by Oerdin
One can argue over if this is a good thing or not but Japan has come to the conclusion that come hell or high water they're not going to make their country any more dependent on foreigners then they have to.

Irrelevant. You're talking about a culture where they've lived in virtually unheated, paper-walled houses for a thousand years, and grasp the concept of putting on clothing when the weather gets cold. Americans want to sit on the couch in their skivvies thru the winter.

[Victor Galis]

Originally posted by Straybow

Originally posted by Oerdin
One can argue over if this is a good thing or not but Japan has come to the conclusion that come hell or high water they're not going to make their country any more dependent on foreigners then they have to.

Irrelevant. You're talking about a culture where they've lived in virtually unheated, paper-walled houses for a thousand years, and grasp the concept of putting on clothing when the weather gets cold. Americans want to sit on the couch in their skivvies thru the winter.

Is it wrong to want them to change now before the oil actually runs out and the real shortages begin then?

[Victor Galis]

Originally posted by Straybow

Originally posted by Oerdin
One can argue over if this is a good thing or not but Japan has come to the conclusion that come hell or high water they're not going to make their country any more dependent on foreigners then they have to.

Irrelevant. You're talking about a culture where they've lived in virtually unheated, paper-walled houses for a thousand years, and grasp the concept of putting on clothing when the weather gets cold. Americans want to sit on the couch in their skivvies thru the winter.

Is it wrong to want them to change now before the oil actually runs out and the real shortages begin then?

[Victor Galis]

Originally posted by Straybow

Originally posted by Oerdin
One can argue over if this is a good thing or not but Japan has come to the conclusion that come hell or high water they're not going to make their country any more dependent on foreigners then they have to.

Irrelevant. You're talking about a culture where they've lived in virtually unheated, paper-walled houses for a thousand years, and grasp the concept of putting on clothing when the weather gets cold. Americans want to sit on the couch in their skivvies thru the winter.

Is it wrong to want them to change now before the oil actually runs out and the real shortages begin then?

[Kuciwalker]

Doubly wrong

[Dinner]

Originally posted by Straybow

Originally posted by Oerdin
One can argue over if this is a good thing or not but Japan has come to the conclusion that come hell or high water they're not going to make their country any more dependent on foreigners then they have to.

Irrelevant. You're talking about a culture where they've lived in virtually unheated, paper-walled houses for a thousand years, and grasp the concept of putting on clothing when the weather gets cold. Americans want to sit on the couch in their skivvies thru the winter.

Japan has ultra modern buildings. BTW the paper houses were only in the south of Japan where the climate is semi-tropical and thus people were more worried about keeping cool then heating things up. Compare that to the northern Japanese Island of Hokkaido where people always had sturdier homes because the climate is the same as coastal Siberia/Alaska.

[Victor Galis]

How about we blame a more likely scapegoat: Third world subsidies making demand inelastic:

http://www.nytimes.com/2008/07/28/business/worldbusiness/28subsidy.html?_r=1&hp&oref=slogin

Fuel Subsidies Overseas Take a Toll on U.S.
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By KEITH BRADSHER
Published: July 28, 2008
JAKARTA, Indonesia — To understand why fuel prices in the United States have soared over the last year, it helps to talk to the captain of a battered wooden freighter here.

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Kemal Jufri/Imaji, for The New York Times
Freighters in Jakarta run on diesel, kept cheap by subsidies. Subsidizing nations make up nearly all the growth in oil demand.

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Subsidizing Fuel
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Costly Diesel
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Times Topics: Oil (Petroleum) and Gasoline
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Arko Datta/Reuters
Without a kerosene subsidy, one economist says, many Indians would turn to wood for cooking.
He pays just $2.30 a gallon for diesel, the same price Indonesian motorists pay for regular gasoline. His vessel burns diesel by the barrel, so when the government prepared for a limited price increase this spring, he took to the streets to protest.

“If the government increases the price of fuel any more, my business will collapse totally,” said the boat captain, Sinar, who like many Indonesians uses only one name.

From Mexico to India to China, governments fearful of inflation and street protests are heavily subsidizing energy prices, particularly for diesel fuel. But the subsidies — estimated at $40 billion this year in China alone — are also removing much of the incentive to conserve fuel.

The oil company BP, known for thorough statistical analysis of energy markets, estimates that countries with subsidies accounted for 96 percent of the world’s increase in oil use last year — growth that has helped drive prices to record levels.

In most countries that do not subsidize fuel, high prices have caused oil demand to stagnate or fall, as economic theory says they should. But in countries with subsidies, demand is still rising steeply, threatening to outstrip the growth in global supplies.

President Bush warned about the effects of subsidies on July 15. “I am discouraged by the fact that some nations subsidize the purchases of product, like gasoline, which, therefore, means that demand may not be causing the market to adjust as rapidly as we’d like,” he said.

Indeed, the biggest question hanging over global oil markets these days may be how much longer countries can keep paying the high cost of subsidizing their consumers. If enough countries start passing the true cost of oil through to their citizens, many economists believe, demand growth will slow, bringing the oil market into better balance and lowering prices — although the long-term economic rise of China and other populous countries makes it unlikely that gasoline prices will plunge back to the levels of several years ago.

China raised gasoline and diesel prices on June 21, though still keeping them below world levels. World oil prices plunged more than $4 a barrel within minutes on the expectation that Chinese demand would slow.

In Indonesia, the government spends six times as much on energy subsidies as it does on agricultural investments, even as rice prices have skyrocketed this year.

Many countries, like India, have raised oil prices considerably in recent months, only to watch world prices climb even further, pushing up the cost of subsidies once again. China’s estimated $40 billion in subsidies this year is up from $22 billion last year, mainly for this reason, although consumption has also risen, with Chinese buying 18 percent more cars in the first half of this year than in the period a year earlier.

Political pressures and inflation concerns continue to prevent many countries — particularly in Asia, where inflation has become an acute problem — from ending subsidies and letting domestic prices bounce up and down.

“You talk about subsidies, you’re not only talking about the economy, you’re talking about politics,” said Purnomo Yusgiantoro, Indonesia’s minister of energy and mineral resources. He ruled out further price increases this year beyond one in May that raised the price of diesel and regular gasoline to $2.30 a gallon.

Nobuo Tanaka, executive director of the International Energy Agency, said that subsidies were clearly a big factor contributing to the mismatch in supply and demand that has helped push up world oil prices. “We think the price mechanism is not working enough to make consumers more efficient,” he said.

Indonesia spends more on fuel subsidies, $20 billion this year, than any country except China. Some economists estimate that fuel use in Indonesia would fall by as much as a fifth if the government were to eliminate subsidies entirely.

Malaysia’s government incited public anger on June 4 when it raised gasoline prices by 40 percent. The prime minister, Abdullah Ahmad Badawi, announced the following week that he would retire, although he has since said that he will not do so until 2010.

Before adjusting the prices, Malaysia was spending 7.5 percent of its entire economic output on fuel subsidies, a greater share than any other nation. Indonesia follows with 4 percent.

Coming elections in Indonesia and India make further subsidy reductions less likely in both countries. And big oil exporters like Saudi Arabia have so much revenue right now that they can easily afford to subsidize fast-growing domestic demand.

Chinese fuel policy is the hardest to predict: the country’s leaders are struggling to reduce inflation and are not expected to take any action on fuel until after the Olympics, at the earliest. But they are also campaigning for greater energy efficiency and less reliance on fuel imports.

Many in Asia bridle at being told to reduce oil use, particularly by the United States, a country of sport-utility vehicles and big houses.

“What about the energy consumption in the United States? Isn’t it one of the highest in the world?” said Irvan Saefurrohman, a student activist in Jakarta who organized a fuel-price demonstration in May that turned violent as protesters threw rocks at police and set cars on fire.

Making matters worse, Asia’s own oil production has barely risen over the last decade.

Indonesia, with extensive oil fields that made it a top target for Japanese conquest during World War II, became a net oil importer in 2004. Output from its aging fields has fallen almost 40 percent since 1995, and the country plans to withdraw from OPEC at the end of this year.

So Asian nations increasingly compete with the West to import oil from the Mideast and Africa.

In Asia, subsidies have been particularly prevalent for diesel, although many countries subsidize gasoline as well. The subsidies have been an important reason diesel prices have climbed almost twice as quickly as gasoline prices have over the last year in the United States.

Many governments see diesel as more important because truckers and ship captains need it to distribute goods; if diesel prices rise, consumer prices often follow. Diesel is essentially the same fuel as heating oil, so high diesel prices mean high prices for heating oil. Spiraling prices already have some in the Northeast United States worried about how families will afford to heat their homes this winter.

To be sure, subsidies are not the only cause of high crude oil prices. Strong global economic growth, particularly in Asia, is requiring a lot of energy. Political tensions between the United States and Iran and market psychology have played a role.

Additional factors have contributed to strong demand for diesel in particular. European automakers have been shifting toward the production of more cars with diesel engines, which typically get more miles to the gallon than gasoline-powered cars — although the cost advantage of burning diesel is disappearing with higher prices.

When Vietnam reduced fuel subsidies on July 21, it raised domestic gasoline prices by 31 percent, to $4.22 a gallon for 92-octane fuel. But Vietnam increased diesel prices by only 14.3 percent, to $3.54 a gallon.

The fast-growing demand in China is skewed toward diesel as well. Automakers are on track to sell half as many gas-powered cars in China this year as in the United States. But in China they already sell at least 50 percent more medium- and heavy-duty trucks, the workhorses of a manufacturing economy. Virtually all of those run on diesel.

The cheapest fuel per gallon in many Asian countries is not diesel but kerosene, commonly used for cooking by the very poor. In India, for example, the government subsidizes kerosene so heavily that it sells for just 97 cents a gallon, compared with $5 a gallon in the United States.

While the subsidies encourage greater consumption, eliminating them is not easy. “If you reduce the subsidy for kerosene, people are likely to forage in the forests for fuel, and environmentally that is very bad,” said Ifzal Ali, the chief economist of the Asian Development Bank.

Kerosene is similar to jet fuel, so strong Asian demand has helped push up costs for airlines.

Some spending on subsidies is simply wasted: Mr. Yusgiantoro, the Indonesian official, said that fishing boats take drums of subsidized diesel out to sea for resale to foreign fishing vessels. But a lot of subsidies are delaying what could otherwise be a slowing of economic activity.

Mr. Sinar, the freighter captain, said that his vessel hauls cement to outlying islands with limited cement production of their own. Higher diesel costs would make it much costlier to move the cement, which would force builders to accept the prices of their local cement producers and probably cause a construction slowdown.

The nearly 30 percent increase in prices for low-octane gasoline, which Indonesia put in place in May, has already prompted some less affluent families to drive less. Subrata, a 34-year-old who sells gasoline in glass bottles to local motorcyclists in Karawang, Indonesia, said that the increase had halved his sales — and that plenty of motorists were upset.

If the price rises further, he said, “people will not buy it and it will be a heavy blow for the lower classes.”

[Arrian]

Can you find one person whose cause of death is listed as "air pollution?" I've been in New York, Chicago, Los Angeles, and I never had a problem breathing, even during rush hour.

This is either ignorant, or deliberate bull****. I'm not sure which.

Back in highschool, they brought in three lungs. One was a healthy non-smoker's lung. It was pink. One was a smoker's lung. It was black. Lung #3 was the lung of a non-smoker who lived in NYC all his/her life. It was gray. It looked more like the smoker's lung than the non-smoker's lung.

There are a host of chemicals that our industrial society creates/releases that we know are inhalation hazards. Obviously, you visiting the big city once or twice isn't going to do major harm. Living there, on the other hand, can do real harm (greater exposure).

I don't think it's a good idea to push off the damage done to the individual, and just shrug and say "well, gosh, we live in an industrialized country." That attitude leads to virtually unchecked pollution. Thankfully, we've learned a few things (and are still learning) and have adopted a different approach. It's not perfect, but it's definitely an improvement.

I used to be the type of guy who scorned them thar environmentalists. But then I got a job handling environmental claims for an insurance company. I see contaminated site after contaminated site. I'm no longer so cavalier. We've made a helluva mess, and cleaning it up is a real ***** (necessary, but often very difficult). Far better would be to cut down on the pollution in the first place - prevent, rather than remediate. But that will cost money, and nobody wants to pay for it. It's the same thing we do with everything else: put it on the credit card.

-Arrian

[Winston]

This might be of interest.

From The New York Times / International Herald Tribune

Don't blame the oil companies

By Henry Lee

Thursday, July 24, 2008

If you listen to many elected officials and political pundits, you might think oil companies or speculators are to blame for high oil prices. The evidence does not support such a verdict.

It is true that some major oil companies have made huge profits, but this does not mean that they are responsible for the price of oil. When a consumer buys a gallon of oil, the company benefiting is more likely to be the national oil company of Saudi Arabia, Nigeria or Venezuela rather than Chevron, Shell or Exxon. About 86 percent of the world's oil is produced by state-owned oil companies. The reality is that the major U.S. oil companies are price takers: Their prices are set by the world market where they contribute smaller and smaller percentages of the world's production.

If the major oil companies are not to blame, what about the speculators? There is little doubt that the number of speculators participating in the marketplace has grown exponentially and that they are responsible in some part for both the speed and magnitude of the recent increases in world oil. Who are these speculators? They are oil-consuming companies, like airlines, that fear prices may go still higher. They are oil-producing companies that fear that the price may fall precipitously and thus "sell" into the futures market. They are brokerage firms and banks that are trying to protect their assets in a market where inflation fears are rising and the value of the dollar is declining. Almost certainly there are some bad actors among the hundreds of speculators, but most are not Enron clones ripping off consumers. They are companies and individuals trying to protect their assets.

So, why are oil prices so high? The answer is simple: Demand is high and supply is low.

Between 1982 and 2002, oil prices were low. Gasoline prices more than doubled between 2002 and 2007, and instead of cutting back, Americans drove more and continued to buy large gas-guzzling vehicles. Part of the reason was that they were a lot wealthier than they were in the 1980s. Thus their change in incomes over the past 30 years was dramatically greater than changes in the value of their oil purchases. With gas at $4.10 a gallon, this situation is finally shifting, and consumers are forced to allocate an ever-growing proportion of their incomes for fuel.

Finally, oil consumption in countries such as China grew faster than GDP. Since the GDP was increasing at rates more than 9 percent per year, China's oil demand was skyrocketing, not just for gasoline to power cars and trucks but for diesel oil to run thousands of small electric generators.

Why didn't supply keep up with the demand growth? In 2004 and 2005, some pundits were predicting that 10 million to 15 million barrels of new oil would come on stream by 2010. Since then, only about 1.5 million barrels of non-OPEC new oil has come onto the market. Ironically, part of this problem is that oil supplies are controlled by state national oil companies that make investment decisions based on criteria that are often less commercial than those used by the major oil companies that we like to berate.

No one knows whether prices will continue to rise, but there are three truths worth considering. Oil prices are volatile, which means that prices that go up rapidly can go down rapidly. The best way to reduce prices is to reduce the rate of demand growth, and there are signs that this is finally beginning to happen. Finally, speculators who bid the price up can also bid the price down, but they will only do this if they believe that the fundamentals are shifting.

If people want lower gasoline prices, they should first identify the true culprits: unsustainable rates of consumption growth and a world oil supply that is unlikely to meet the forecasted consumption levels.

Henry Lee is director of the Environment and Natural Resources Program at the Harvard Kennedy School's Belfer Center for Science and International Affairs.

In other words, consumer choice of demands and state control of supplies are the major factors to point to. Not the free market or big, bad speculators.

Carry on.

[Imran Siddiqui]

[q=article]The best way to reduce prices is to reduce the rate of demand growth, and there are signs that this is finally beginning to happen.[/q]

[Zkribbler]

The best way to reduce prices is to reduce the rate of demand growth, and there are signs that this is finally beginning to happen.

It's called a recession.

[Kidlicious]

Originally posted by rmsharpe

Jesus Christ...

It's a wonder we have any civilization left at all.

That depends on how you define "civilized."

[Kidlicious]

Originally posted by Winston
In other words, consumer choice of demands and state control of supplies are the major factors to point to. Not the free market or big, bad speculators.

Carry on.

That's a contradiction. The problem is supply and demand and oil companies, states and speculators are getting rich. Now who's fault is it?

edit: btw, oil is a free market. No state or entity controls the supply. Saudi oil production has increased by about 10% for the year.

[Felch]

Originally posted by Kidicious
edit: btw, oil is a free market. No state or entity controls the supply. Saudi oil production has increased by about 10% for the year.

That depends on how you define "free." I'd say that it is a mostly free market, but it is disrupted by every government I can think of. Subsidies and corporate welfare are not what the free market is about.

[Victor Galis]

Originally posted by Kidicious


That depends on how you define "civilized."

Yeah, I imagine that if you chose to define as "civilized" things which cause life not to be nasty, brutish, and short, regulating pollution would be quite civilized.