« Education | Main | Environment » EnergyOctober 4, 2007Epigram of the monthI was preparing to name "Gogol Bordello is hell's Bar Mitzvah band" the epigram of the week. But that was before Scott Adams knocked it out of the running with this gem:
September 28, 2007Gas prices up, but not as much as oil pricesThe Economist had a chart a few days ago showing that oil prices have roughly doubled since early 2005, when I was writing stories about the scary possibility of $60 a barrel oil. But here's another interesting chart from the Energy Information Administration:
The doubling of oil prices has increased the retail price of gasoline by less than 50% since early 2005. This helps explain why demand diminution has so far been less than economists were expecting. September 20, 2007Whither oil?When will it stop, beg my friends with long auto commutes. At $83.84 a barrel, perhaps it's time to think about trading that gas-guzzling Prius in for a bicycle. ``The storm threat and falling dollar are pushing us higher,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``We will see even bigger inventory draws in next week's statistics as a result of the evacuations in the Gulf.'' Lower US interest rates make US assets less attractive, which decreases the demand for dollars, which makes the dollar fall. That's why the monetary nationalists among my friends are instant messaging me to moan about the American dollar's newfound parity with the Canadian dollar, a state of affairs that has not prevailed in decades. Since oil contracts are denominated in dollars, the relative price of oil is falling in other countries, which means those lousy foreigners are going to buy more of the stuff, which means there will be less here, which makes our price rise. The interest rate cut also makes it less likely that we'll have a recession, which also pushes up the price of oil, because economic growth increases American demand for black gold, and American demand is one of the major factors determining the price. Yet with inventories high, temporary closures like the one in the gulf shouldn't cause such big spikes. One way of looking at it is that the market is irrational, but no one's willing to short it because, as the aphorism goes "the market can stay irrational longer than you can stay solvent". But another way of looking at it is that there are so many potential problems with the oil market on both the supply side and the demand side, that people are pretty sure that today's inventories will be very valuable in the future, even if they don't know which of the potential military, economic or political problems will make them so. I am finding the latter more convincing these days; analysts have been proclaiming a "speculative bubble" in oil markets since 2004. But perhaps I am only buying into the bubble at the top. September 14, 2007Oil, oil, toil and trouble . . .A couple of years ago, it seemed as if I couldn't escape from oil prices. Oil would hit a new high, and I would buckle down to another piece explaining why this was happening. The culprits were always the same: Chinese demand, apparent American insensitivity to gasoline prices, and a worrying inability on OPEC's part to open the taps. But there was always the new price record to talk about. How high could it go? It seems odd, then, that the current price situation is so little remarked. Oil prices just topped $80 a barrel before sinking backwards, which is a record in nominal terms. This is still not up to the real record, which occurred during the Iran crises, when oil prices briefly touched about $100 a barrel in today's dollars. But we journalists have been repeating that mantra since oil was at $50, and it's getting thinner as we grow towards that mythical target. For environmentalists, and those of us who would like to see a carbon tax, this is good news: oil markets are doing our work for us. On the other hand, it's not clear how long this will last. To be sure, Saudi Arabia's biggest oil field may be beginning to falter, other key producers such as Nigeria, Iraq, and Iran are having security problems. In Venezuela, Hugo Chavez, who is sitting atop a gigantic reserve of crude so heavy and sulphurous that until recently it wasn't even classed as oil, is doing his best to make sure that that crude never comes out of the ground by diverting investment funds to social spending. And the areas we exploited last time, such as the North Sea, are pretty fully developed now. But of course, the current state of oil prices generally looks permanent until it's not; witness my former employer's famous forecast of $5 a barrel oil. Demand could collapse, either through recession or because people push for greater efficiency. Saudi Arabia cannot be happy to hear of Americans switching to more fuel-efficient cars. And exploration could ramp up. Venezuela is not the only country with "non-traditional" oil reserves; my understanding is that oil shale and tar sands are cost-effective to exploit at well under current prices. The main thing holding oil companies back is the fear that current prices may not last. |
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