Why Oil Prices Will Tank

[cottonmather0]

You mean, like the unpleasant truth that their whining and crying constituents are the cause of the problem? I have to admit, reading all of these "solutions" to the oil crisis, such as opening ANWR and the coasts to drilling, are fun to read, but it will not lower the price of gas. The three biggest causes of high priced oil are overwhelming increases in consumption, the weak US dollar and instability in the Middle East. And, the US consumer and the US government has been a major factor in all three. Whine all you want, but as long as you support politicians who pander to your wasteful habits, obliterate the dollar, and destabilize the Middle East then you will continue to pay through the nose. And because Americans are all about style over substance, it will continue.

Have a nice summer.

Red, your response is thoughtful, although I disagree with you on some things. Increasing domestic supply by a material amount, even if the oil doesn't flow for ten years, will still put downward pressure on short term prices because short term supplies from places that are already producing won't need to be conserved for consumption in future periods, the logic being that we'll have the ANWR and OCS supplies by then instead. (This is why we have a segmented forward market in the first place, because individual supply and demand factors and the circumstances surrounding them are different at different points in time.)

I agree with you about the dollar (although in real terms, the price of oil has gone up everywhere, even in places where they don't use dollars, it's just gone up by a smaller factor), which is the logical result of the monetary policies that Greenspan and Bernanke have pursued. Interest rates have been low for a long time now, which has led to an oversupply of dollars floating around so the price of a dollar is low compared to the supply of other currencies.

You are also correct about the Middle East, although I would disagree with you about it being the US's fault. Without our presence it would be worse. None of the guys over there like each other and they would very happily invade one another and cause worse supply disruptions if we weren't there. Saddam did it twice before we ever showed up and Ahmadinejad and Khamenei have similar ideas and are only stopped because they know we would retaliate on behalf of Iraq or Kuwait or the UAE or the Kingdom or whoever.

Those seem like valid intermediaries, to me. Airlines, utilities, etc...

But what about greedy hedge funds?

What about all the non-consumer, non-producer intermediaries - who cannot actually do anything with the underlying product?

I read that 70% of oil futures contracts are owned/traded among non-producers, non-consumers of the underlying commodity. How is that helping things? Companies, like Southwest who use fuel hedges, to the envy of all other airlines, is a legitimate use of this method... No argument there. What about the other 70%?

Also

[crunchtastic]

as long as you support politicians who ..... destabilize the Middle East ......then you will continue to pay through the nose.

So, are you saying that our MO of apologizing for Israel while backhandedly bankrolling virtually everyone else, has gotten us into a wee bit of a predicament???

I forget, we hate the Iraqis and the Iranians, both at the same time now? Hmm. Yet Egypt and Syria are our friends? ......interesting

[brerrabbit]

Cotton is right that a large number of the players (speculators) offer credit risk, liquidity, and depth to the futures market that without the market would not be nearly as useful as it is. While he and I may have slight differances of opions on certain parties ability to manipulate the market, the underlying economic principles are correct. If you look to the very beginning of those markets you will see that were developed to give the participants on the physical side of the business the ability to lock in prices for their crops in order to bring stability to them and the market. A Farmer could sell his crops before he ever planted them and know what the value would be and then run his farm with a known set of economics. In the same regard, manufacturers of flour, corn meal, and other commodities could lock in the cost of those products and effectively create cost hedges. The markets serve an extremely useful and needed function. Over the years speculators have had their way in certain areas, the Hunt brothers and the silver market is one example. Today the oil market is an easy one to pick on and say that speculators are driving the price up and their may be truth to that. But the weak dollar, high demand from emerging economies, and the fact that so much oil lies in politically unstable regions add to the high cost as well. For anyone to put a number on any single event and say oil would go down by $x if this was not happening is pretty crazy.

I look at it this way, my wife loves to watch HGTV. There are a ton of shows that deal with house values and they go through and say thats good, thats bad; you will get your money back on that, you won't get your money back on this. How in the hell does anybody know for sure? Yeah, yeah take the average appreciation on houses in the same market and anything the house is worth over that is because of upgrades. Well if you make 10 upgrades how do you divide up the dollars above market you get? The same is true in the oil market, prices are up but how can anyone determine how much is attributable to each cause?

As Cotton or any other trader will agree the market is the last trade. Thats how the market values it. The market price by definition is where buyers and sellers are willing to transact. So as long as someone ( consumers, refiners, speculators, etc) are willing to buy and sell then by definition that is where the market is, and should be. There are further considerations that come into play such as refiners investments and cost of idle time, inventory levels, weather, crude shortages, availability of transportation etc., etc. but in the fundemental market place the basic economic theroies hold.

Currently in the refining world there is only one refiner who has actually come forward and said that today's economics do not justify operating publically and that's Valero. In the world we live in today the idea of actually not operating a refinery is not something most would admit. To do so brings the wrath of consumers paying the high prices, the congress, and everyone else you can think of. The article linked in another post in the section talks about how much of the oil in the world is actually controlled by the major oil companies, and if you read it you saw that only 10% of the worlds reserves are actually controlled by the major oil companies. Roughly 70% is controlled by national oil companies so in the end those are the guys making all the money. Think about it, if your paying $4.00 for gasoline and your refiner is buying $140 a barrel oil then the raw cost of the product alone is $3.33 a gallon. Add 40 cents in taxes and thats $3.73 at the pump. No think about all the other people who have to get a piece of the pie, refiners, shipping companies, pipeline companies, trucking firms, the banks in credit card fees (12 cents a gallon at $4) and finally the guy who runs your local gas station. At some point more than one refiner is going to say enough, and either we pay more than $4 a gallon or the product stops flowing. This has not happened yet but it very easily could and if it does look out major recession because the world as we know it would stop dead in its tracks.

Finally drilling domestically would probably help prices, but it might not. The market as a whole reacts to every blip on the radar screen. A week or two ago China anouced they were cutting subsidies to their people on oil products by 8% and I think the market went down by $4. No hard data, just the idea that if prices go up 8% in China, the people will buy less thus cutting demand and lowering prices. Drill a few holes in ANWR or Off Shore and hit a huge find, even though the production facilities would take years, and billions of dollars and I gureentee oil prices would come down. Even though there would be no immediate physical product in the market for as much as two years. That is the nature of commodities markets. Want an example, look at the price of corn, and corn ethanol as the floods were ravaging the Midwest. Floods today mean no corn come harvest time and that meant prices were up. The same holds true for oil, good news translates to lower prices.

[TJones]

Thank You Brer, cotton already knows I believe like you do, that if we lessen our dependency on foreign oil that the price would most assuredly drop as there would not be anymore, at least not as much, "The sky is falling" mentality that the oil supplies are drying up. If there is known to indeed be TWO vast sources for oil production, that would translate into lowered oil prices, the consumption levels may still be there, but the supply would be there to accomodate it. I also hear that a regulatory commission may not be too far away for oil trading. So, the Speculators, if they are inflating numbers and jiggin' their books, will no longer be able to do such practices without PROVING on paper, how they arrive to their numbers.

[cottonmather0]

Thank You Brer, cotton already knows I believe like you do, that if we lessen our dependency on foreign oil that the price would most assuredly drop as there would not be anymore, at least not as much, "The sky is falling" mentality that the oil supplies are drying up. If there is known to indeed be TWO vast sources for oil production, that would translate into lowered oil prices, the consumption levels may still be there, but the supply would be there to accomodate it. I also hear that a regulatory commission may not be too far away for oil trading. So, the Speculators, if they are inflating numbers and jiggin' their books, will no longer be able to do such practices without PROVING on paper, how they arrive to their numbers.

TJ, I still don't understand what you mean by "inflating numbers". We know how much comes out of the ground and how much is in storage - the Department of Energy actually publishes the storage numbers each week. We also know how much is being consumed around the world and you can very easily see that consumption (demand) is growing faster than than production (supply). It's just plain math to extend those trends into the future and see that demand is going to be greater than supply absent some injection of production capacity.

Using pretty simple microeconomics, you can derive that the supply curve in a competitive market is just the marginal cost of production - how much it costs to produce one last unit of product. One reason that the world became so reliant on Saudi Oil is that it is fairly close to the surface and inexpensive to get out of the ground. But if demand grows to such a high level that it cannot be entirely met with the cheap stuff, then that very last ("marginal") barrel has to come from a more expensive source, like the bottom of the arctic ocean or from tar sands or oil shale (literally boiling it out of rocks) and the market price will be whatever it costs to get that last expensive barrel out of the ground. No one is making this up - there is a great deal of data out there that shows exactly what these amounts are.

[RedScare]

Using pretty simple microeconomics, you can derive that the supply curve in a competitive market is just the marginal cost of production - how much it costs to produce one last unit of product. One reason that the world became so reliant on Saudi Oil is that it is fairly close to the surface and inexpensive to get out of the ground. But if demand grows to such a high level that it cannot be entirely met with the cheap stuff, then that very last ("marginal") barrel has to come from a more expensive source, like the bottom of the arctic ocean or from tar sands or oil shale (literally boiling it out of rocks) and the market price will be whatever it costs to get that last expensive barrel out of the ground. No one is making this up - there is a great deal of data out there that shows exactly what these amounts are.

This seems to be what everyone forgets. Not only is the last bit of oil required to satiate demand very expensive to produce, these new "vast sources" of supply are expensive, too. The days of Jed Clampett finding oil by firing his varmint rifle into the ground are long gone. Producing oil out of these offshore sites that everyone is salivating about ain't cheap, and anyone that thinks drilling for oil in ANWR is a walk in the tundra should catch a few episodes of 'Tougher in Alaska' on the History Channel. And, lest we forget, as soon as the price of gas drops a few pennies, people like TJ will immediately bust the muscle car out of the garage and drive demand back up to surpass supply...not to mention, a few million Chines and Indians will rush out and buy a new car or motorcycle.

What IS happening is that people are adjusting to the price of oil by changing their habits. Some drive slower and eliminate unnecessary trips. Many are ditching the SUVs. They will demand more mass transit and use it. If all of these activities manage to drop demand far enough, the price may moderate, or even drop slightly. But, barring a worldwide recession (not impossible), the price will not collapse. And, we STILL do not know if Saudi Arabia's oil supply is what they claim. If and when we find that their supply is not what they claim, watch the price then.

EDIT: Oh, and I am STILL waiting for someone to explain how we "lessen our dependence on foreign oil". What government regulation do you propose to keep US oil in the US? Remember, in a free market, oil goes where the highest price is paid...probably China. How do we keep it here?

Edited for cotton's edit.

[cottonmather0]

EDIT: Oh, and I am STILL waiting for someone to explain how we "lessen our dependence on foreign oil". What government regulation do you propose to keep US oil in the US? Remember, in a free market, oil goes where the highest price is paid...probably China. How do we keep it here?

Lessening our dependence probably makes sense for security reasons, but it absolutely will not lower the price one bit. All of our cheap oil was in West Texas and Oklahoma and all of that's just about mostly gone, which is why we switched to the foreign stuff in the first place. Whatever would theoretically replace the foreign stuff is going to be more expensive, pretty much by definition.

MY OWN EDIT: I need to point out that my first draft was "some advanced math" and Red quoted me while I was editing and re-editing it to "simple microeconomics".

[TheNiche]

Trying to get Niche to say peak oil is like getting George Bush to say recession. They'll say the exact same thing as you, reason it the same way as you, but call it a different word, just so that they do not have to say the word you are thinking.

Oil production has been flat since 2005. There has been an increase this year, but it will be interesting to see if it lasts all year. There are many experts who do not believe the Saudis can do what they claim. We'll see.

I said it in the last post that I made and fully accept that--strictly speaking--it is a plausible outcome that global oil production will at some point peak and then decline.

Trying to get Niche to panic over Peak Oil is another matter altogether, and that seems to be what proponents of Peak Oil are apt to do. It would most likely occur as a result of happening that are greatly beneficial to human civilization.

[BryanS]

What strikes me is how little these "new reserves" actually are. If you look on page 15 of the July 7/14 issue of Newsweek magazine, there is a full-page ad from "the people of America's oil and natural gas industry." Some key points in the ad:

"85% of the lower 48 OCS acreage is off-limits to oil and natural gas development."

"Where on Earth could we find enough oil to power 60 million cars for 60 years? ... You might be surprised to learn that the answer is right here in America."

Think about that. If you have children under the age of 10... and assuming we start drilling in OCS... by the time they are 70, those reserves would be depleted. In their lifetime.

60 years.

But they also appear to be liars.

Because according to FHA numbers, each year we add ~4 million cars to the road. Assuming these OCS reserves can actually be used to fuel 60 million cars... 60/4 = 15 years, not 60.

15 years. Not enough time. That means that both you and your children will see this reserve vanish in our lifetimes.

And then there's the depressing fact, that over the past 100 years, all this time we've been using internal combustion engines... We've lost/wasted almost 80% of all that oil/gas to heat loss in all those engines. Internal combustion engines are only, on average, 20% (or less) efficient. For some reason I want to even say even less, 12 to 15%, based on my thermodynamics class in college. If you look on page 44/45 of that same Newsweek magazine, ~70% of all the world's oil goes to transportation, mostly motor vehicles.

70% of 85M bbl/day = ~60M bbl/day * 80% loss = 48M bbl/day lost to heat/wasted. That assumes that there is no loss in converting oil into gasoline, which we know is not the case. We waste even more.

We really need a different approach to transportation, so we don

[RedScare]

What strikes me is how little these "new reserves" actually are. If you look on page 15 of the July 7/14 issue of Newsweek magazine, there is a full-page ad from "the people of America's oil and natural gas industry." Some key points in the ad:

"85% of the lower 48 OCS acreage is off-limits to oil and natural gas development."

"Where on Earth could we find enough oil to power 60 million cars for 60 years? ... You might be surprised to learn that the answer is right here in America."

Think about that. If you have children under the age of 10... and assuming we start drilling in OCS... by the time they are 70, those reserves would be depleted. In their lifetime.

60 years.

But they also appear to be liars.

I scream at that cocky b*tch every time I see that ad. The worst part is the suggestion that providing gas for 60 million vehicles for 60 years somehow solves all of our problems. Well, it would if we lived in Germany, where they have about 54 million vehicles. But, here in the US, where we have 257 MILLION PASSENGER VEHICLES, you're just reminding us how screwed we are!

http://en.wikipedia.org/wiki/Passenger_veh...e_United_States

[cottonmather0]

What strikes me is how little these "new reserves" actually are. If you look on page 15 of the July 7/14 issue of Newsweek magazine, there is a full-page ad from "the people of America's oil and natural gas industry." Some key points in the ad:

"85% of the lower 48 OCS acreage is off-limits to oil and natural gas development."

"Where on Earth could we find enough oil to power 60 million cars for 60 years? ... You might be surprised to learn that the answer is right here in America."

Think about that. If you have children under the age of 10... and assuming we start drilling in OCS... by the time they are 70, those reserves would be depleted. In their lifetime.

60 years.

But they also appear to be liars.

Because according to FHA numbers, each year we add ~4 million cars to the road. Assuming these OCS reserves can actually be used to fuel 60 million cars... 60/4 = 15 years, not 60.

15 years. Not enough time. That means that both you and your children will see this reserve vanish in our lifetimes.

And then there's the depressing fact, that over the past 100 years, all this time we've been using internal combustion engines... We've lost/wasted almost 80% of all that oil/gas to heat loss in all those engines. Internal combustion engines are only, on average, 20% (or less) efficient. For some reason I want to even say even less, 12 to 15%, based on my thermodynamics class in college. If you look on page 44/45 of that same Newsweek magazine, ~70% of all the world's oil goes to transportation, mostly motor vehicles.

70% of 85M bbl/day = ~60M bbl/day * 80% loss = 48M bbl/day lost to heat/wasted. That assumes that there is no loss in converting oil into gasoline, which we know is not the case. We waste even more.

We really need a different approach to transportation, so we don

[TJones]

Yet, look how far we've come in 60 years. Do you think that technology will just STOP if we drill and find more oil ? Is it plausible that we could use those 60 years of oil to produce even MORE technology and possibly find an alternative fuel in the meantime ?

2 vast sources Red, not just one, not just the almigthy OPEC. TWO sources, with our source actually being larger than OPEC's ever was. What is the oil companies ultimate goal ? It certainly isn't to put a premium product out there for the least amount of profit, now is it ? It isn't even for a reasonable amount of profit either, though, what I think is fair has no leverage in the oil world. Big Oil wants to maximize profit and what better way than to have your product on your own turf to get it to market faster and easier.

[cottonmather0]

I scream at that cocky b*tch every time I see that ad. The worst part is the suggestion that providing gas for 60 million vehicles for 60 years somehow solves all of our problems. Well, it would if we lived in Germany, where they have about 54 million vehicles. But, here in the US, where we have 257 MILLION PASSENGER VEHICLES, you're just reminding us how screwed we are!

http://en.wikipedia.org/wiki/Passenger_veh...e_United_States

How is advocacy cocky? Oil companies take hits left and right from ignorant consumers and the politicians who pander to them, yet they're not allowed defend themselves? Give me a break.

[RedScare]

How is advocacy cocky? Oil companies take hits left and right from ignorant consumers and the politicians who pander to them, yet they're not allowed defend themselves? Give me a break.

Aside from missing the fact that I was speaking of the actress in the ad, what defense is smugly claiming that you can provide gasoline to less than one fourth of the vehicles on the road? I realize that ignorant consumers may not grasp the significance of 60 million vehicles, but what about the rest of us?

[BryanS]

60 years ago, most of the major fields in the world that are producing today had not been discovered and most of the the major fields in the US, that are now either dry or very close to dry, had only recently started producing. 60 years does not seem that unusual, it seems normal.

You also might want to check your math on the "15 years" comment. 60 million cars x 60 years = 3600 million car years. 3600 million car years / (60 + 64 + 68....) cars = between 30 and 31 years, which, I think is the calculation you're trying to get to, but how is it relevant how many cars are added to the roads each year? The ad never states that there's enough oil to power every car in America, a number which is more like 251 million, just that there's a certain finite of oil there that is equivalent to the consumption of 60 million cars over 60 years.

So now we know that you think oil companies are "liars" and hedge funds are "greedy". Who's next on your list?

I checked the math. The ad indicates they fuel X amount of cars over Y years, given some growth rate of vehicles added to the road. You assumed that 60 million cars x 60 years = 3600 million car years. That is, you assumed that their figure for a 60 year time span, was correct. I think that is terribly optimistic.

So if we add, on a net gain basis, 4 million a year, every year, taking into account that we have to continue to fuel cars placed on the road in past years:

Year 1: Add 4

Year 2: Add 4 more, 4 + 4 = 8

Year 3: Add 4 more, 4 + 8 = 12

Year 4: Add 4 more, 4 + 12 = 16

...

Year 15: Add 4 more, 4 + 56 = 60 million total cars.

We hit 60 million cars in 15 years, not 60, based on the FHA estimated growth rate of adding ~4 million cars a year to the road.

That is how I arrived at my number. But let's say its 30 years, your number. They said 60. I guess that only makes them half liars then.

I don't have any issue with a person's employment at oil companies. I think the advertising, however, is misleading.

[RedScare]

Bryan, I think you missed what they are trying to say, though I'll admit that this is why it is a meaningless and useless statistic. Currently, domestic oil reserves would be enough oil to supply 60 million cars with gasoline for the next 60 years. What cotton and I are saying is that 60 million cars is one quarter of the cars on the road today (251 million). So, if NO cars were added to the US fleet for 60 years, domestic oil production will cover one-fourth of them, meaning 75% must be fueled by foreign oil. As the population increases, 4 million vehicles are added each year. So, that 60 million vehicles is actually increasing each year, meaning we do not actually have 60 years worth of fuel left.

Using the 60 million/60 year figure, you have 3,600 vehicle years of fuel. If we were to magically become self-sufficient, we would run out of oil in 13 years (251+255+259+263...etc.). To look at it another way, the 60 million/60 year figure represents one-fourth of current consumption. In 13 years, it would be roughly one-fifth, meaning we'd be importing 80% foreign oil in 2021....that is, unless TJ's vast reserves come online and produce 5 times what the US produces now. Not even the most optimistic scenarios predict that.

[brerrabbit]

Thank You Brer, cotton already knows I believe like you do, that if we lessen our dependency on foreign oil that the price would most assuredly drop as there would not be anymore, at least not as much, "The sky is falling" mentality that the oil supplies are drying up. If there is known to indeed be TWO vast sources for oil production, that would translate into lowered oil prices, the consumption levels may still be there, but the supply would be there to accomodate it. I also hear that a regulatory commission may not be too far away for oil trading. So, the Speculators, if they are inflating numbers and jiggin' their books, will no longer be able to do such practices without PROVING on paper, how they arrive to their numbers.

When I say we should drill it's not to lessen our dependence on foriegn oil so much as its saying more oil in the market place would reduce the cost somewhat. The idea that we will ever do away with dependence on foriegn oil is a falacy. We use far more than we could ever produce and that trend will probably continue. The point of mentioning domestic drilling is merely the fact that even the possibility of it (via congressional approval of drilling offshore ore in ANWR) could or would have an effect on the market. As far as speculators go, I have no difinitive proof that they are affecting the market, just more of a gut feeling that some are playing games. They are not inflating numbers or jiggin' their books, they are doing trades in the open and the prices are transparent to everyone in the market, they are just profiting from the market as a whole.

Get away from the idea that someone has to "prove on paper" how they arrive at their numbers, because the market is what the market is. Those who trade crude futures don't do it in a vacum, the prices are listed for the whole world to see, and remember that for every sale in the market, there had to be a buyer so again by definition that is the market price.

There is in some way a feeling that a lot of people have that if a commodity is produced for $20 then the seller should add his profit margin (say 10-15%) sell his product and move on. Well thats not how oil or any other scarce commodity works. The market sets the price based on expectations, supply, demand, and other factors. For this very reason we get into situations like we are currently where the price of oil is up, while the price of gas even though it is up, is not up enough. When you take what the market price for gas is today, net back transport, terminal fees, taxes, and pipeline fees, and then look at the cost of a barrel of oil what you see is the crack spread for making gasoline is negative. Yeah you read that right, refiners are loosing money making gasoline today even though the price is almost $4 a gallon. Something has got to give, because refiners will not continue this forever. This has happened on and off for the past twenty years but until prices went to their current level no one cared. What most people do not understand is that most refiners, including the majors buy all the oil they refine. Look at my example I posted yesterday with oil at $140 a barrel, thats $3.33 for the raw product. Average tax per gallon in the US is 40 cents. Thats $3.73 a gallon and so far no one has made any money on the deal other than the Nationalized oil company that sold the oil and the state and federal government. Based on this information how can anyone reasonably say that big oil is screwing the consumer, if big oil owns refineries they are getting screwed by continuing to refine gasoline.

[cottonmather0]

There is in some way a feeling that a lot of people have that if a commodity is produced for $20 then the seller should add his profit margin (say 10-15%) sell his product and move on.

I heard a guy call into a radio show yesterday (not sure which one, maybe Limbaugh) saying this exact thing, blaming refiners because the weighted average cost of their inventory included some fixed price contracts that were way below the current market price of oil. Ergo, they were being disingenuous and picking the consumers pocket in sayng that their costs have gone up.

When I was responsible for coal procurement for my old company, I would have the hardest time getting this idea of opportunity cost across to the engineers who ran the power plants. They were of the mind that our cost of fuel (and emissions credits) was the historical contracted purchase price of the inventory in our possession, regardless of where the open market was trading, and they could not fathom the idea that the company would come out better by just selling our inventory back into the market instead of generating electricity with it.

Similarly speaking, even if a refiner happens to have some barrels in inventory that he obtained below the current market price of crude, he would be making the wrong decision (if all he cared about was money) if he just sold the refined prodict for some fixed markup, because he would make more money flipping that barrel to someone else for the market price. Accordingly, the price he receives for selling his product - the price of gasoline - needs to be high enough to compensate him for forgoing that opportunity to sell his crude oil back to someone else.

(Similarly the price is high today as compared to tomorrow for the exact same reason - he's forgoing the opportunity of sitting on it and selling it in the future so he should be adequately compensated for that decision to forgo and sell it to you as right now gasoline instead.)

This is a very important concept in commodity markets and is essentially the definition of what a commodity is - a fungible product that is easily transferred between buyers and sellers and across periods of time.

Bryan, I think you missed what they are trying to say, though I'll admit that this is why it is a meaningless and useless statistic. Currently, domestic oil reserves would be enough oil to supply 60 million cars with gasoline for the next 60 years. What cotton and I are saying is that 60 million cars is one quarter of the cars on the road today (251 million). So, if NO cars were added to the US fleet for 60 years, domestic oil production will cover one-fourth of them, meaning 75% must be fueled by foreign oil. As the population increases, 4 million vehicles are added each year. So, that 60 million vehicles is actually increasing each year, meaning we do not actually have 60 years worth of fuel left.

Using the 60 million/60 year figure, you have 3,600 vehicle years of fuel. If we were to magically become self-sufficient, we would run out of oil in 13 years (251+255+259+263...etc.). To look at it another way, the 60 million/60 year figure represents one-fourth of current consumption. In 13 years, it would be roughly one-fifth, meaning we'd be importing 80% foreign oil in 2021....that is, unless TJ's vast reserves come online and produce 5 times what the US produces now. Not even the most optimistic scenarios predict that.

I think you are both missing it, although Red is 99% there. What they don't say is, "3.6 billion cars for one year" because that statement would indeed be misleading as they can't get it all out at once. Mark Barnes can explain this a lot better than me, but wells produce at a fixed rate and you can only get a certain amount of oil out of the ground in a fixed period of time. Annual production would start out small and then as wells are drilled and transportation facilities come online in those fields it would increase each year until it, ahem, peaked, and then it would slowly decline to near zero as less and less oil can be taken out. I am pretty sure that "60 million cars for 60 years" is an approximation of the average yield from those fields over their lifespan. It won't run out sooner because it can't run out sooner, assuming the initial estimates are correct in the first place. You guys are right that demand is not constant and is increasing, which is the whole reason for the run up in the market price, but this advertisement isn't about demand.

There is nothing misleading at all about this statistic, unless you start out with the assumption that the oil companies are working in bad faith and trying to imply that it's a solution to all of out problems, which I personally don't think they are. It's simply a statement about how much total oil is there and is an attempt to educate Americans that we would not be as dependent on foreign sources if we made better use of what we have domestically. (Nor is it a statement on prices, but that's a different post all on its own)

[TJones]

I haven't said that we WON'T need foreign oil, have I, if I did, I jumped the gun. We need it, as we fill reserves with our own crude. I think by us NOT using any foreign oil, we would ultimately destablize the world economy as we NEED so much of that black gold that it in turn helps foreign countries. By me saying we need our own source is to say we need our own source to help drop the price of oil. Brer, I again agree with you that MORE oil on the market will ultimately drop the price across the board. It is like the grocer who has eggs on sale for $2.50. A woman comes into the store and says, "the grocery store down the street has eggs for $1.20." the grocer says, "then why don't you go buy his eggs?" The woman says, "Well, he's sold out of eggs." The the grocer says, "Then I guess he doesn't have eggs on sale for $1.20 now does he?" It's the whole reason WHY we need to tap our side of the oil market again.

[cottonmather0]

I'll go ahead and point out that the price today is theoretically the marginal production cost of the last barrel consumed (which is what I said last night), that theoretical price point being referenced to the market consensus of where that marginal barrel can reasonably be assumed to be coming from. Right now, you could say that's tar sand syncrude or arctic ocean stuff, which is where the most expensive barrels that we are fairly sure to be produced sometime in the future. Someone correct me if I am wrong and there is another source somewhere that's more expensive and that we know will be producing in the future. (it doesn't matter whether it's producing today, btw, because, remember, even the cheap stuff can be held in inventory so producers need to be compensated equally for selling it today as 10 or 20 years from now)

OCS and ANWR and North Dakota oil isn't cheap to produce, but it's also not as expensive as some of the other sources, either. Since neither has been officially opened up for production, most traders are not factoring that production into their forward curves, so those marginal costs are excluded from the theoretical forward price of the future. If we know for sure (or if enough traders think it's a safe assumption) that enough of these alternative sources will be opened up to displace those really expensive barrels that are currently being used for forward projections, then the price would theoretically come down (or at least not go up as rapidly, depending on demand assumptions) since the marginal cost of that last barrel would be coming from a cheaper source than the ones that are assumed today.

It's a lot more complicated in practice, but that's how it would work in theory, at least, so yeah, the "60 million cars for 60 years oil" would like have a negative effect on prices, depending on your perspective.

My personal opinion is that the world has already shown that it can absorb $140 oil pretty easily, so we're never going to see $70 or $80 or even $100 again, so the real effect that this would have would be that we won't see $200 as quickly as we would otherwise. I think that's still good in and of itself, but I know I'm in the minority.

[RedScare]

The speculators must have heard TJ talking tough on HAIF. Oil is down $4.87 today.

[TJones]

The speculators must have heard TJ talking tough on HAIF. Oil is down $4.87 today.

LOL! Jackhole.

I am not talking tough, I am talking sense !!!!

North Dakota crude is cheaper to get to, it is like Texas crude, it is in pockets, you just have to get through the dirt, it is not oilshale or the like. It is Bubbling pure crude and there is more of it there than in all of OPECs deserts.

[CDeb]

and anyone that thinks drilling for oil in ANWR is a walk in the tundra should catch a few episodes of 'Tougher in Alaska' on the History Channel.

We seem to be drilling just a few miles away without any major problems.

[cottonmather0]

North Dakota crude is cheaper to get to, it is like Texas crude, it is in pockets, you just have to get through the dirt, it is not oilshale or the like. It is Bubbling pure crude and there is more of it there than in all of OPECs deserts.

It's fairly deep and the strata (layers) are rather thin, compared to other sources, so its more complicated to drill for, iirc. Maybe Mark could help us out with this one?

[TJones]

It's fairly deep and the strata (layers) are rather thin, compared to other sources, so its more complicated to drill for, iirc. Maybe Mark could help us out with this one?

We also need to be drilling off the coast of California, but that is a whole other can of worms.

Cotton, the oil in N.Dakota is about 15000 ft. down as opposed to the usual 10k to 12k. There is ONE possible cost prohibited feature with drilling in N.Dakota though. I forgot that there is a layer of DOLEMITE to drill through! That stuff can tear up a bit quick if they aren't careful. That could definately effect some operating cash if you don't have a driller that knows what he's doing.

[houstonmacbro]

I haven't said that we WON'T need foreign oil, have I, if I did, I jumped the gun. We need it, as we fill reserves with our own crude. I think by us NOT using any foreign oil, we would ultimately destablize the world economy as we NEED so much of that black gold that it in turn helps foreign countries. By me saying we need our own source is to say we need our own source to help drop the price of oil. Brer, I again agree with you that MORE oil on the market will ultimately drop the price across the board. It is like the grocer who has eggs on sale for $2.50. A woman comes into the store and says, "the grocery store down the street has eggs for $1.20." the grocer says, "then why don't you go buy his eggs?" The woman says, "Well, he's sold out of eggs." The the grocer says, "Then I guess he doesn't have eggs on sale for $1.20 now does he?" It's the whole reason WHY we need to tap our side of the oil market again.

As I said before, I'd really like to give all the drill-til-we-drop folks the go-ahead to drill for oil and see what it does.

I'd predict not a whole lot.

[jm1fd]

It is Bubbling pure crude and there is more of it there than in all of OPECs deserts.

Cite your source please.

[TJones]

Cite your source please.

Not allowed to, sorry. I actually could tell you, but at the risk of those involved that told me, it is not worth the risk. I can tell you that the source is VERY reliable.

Here is one surce I can quote though.

http://www.nextenergynews.com/news1/next-e...-news2.13s.html

[Mr. Chenevert]

Seems there is some disagreement about how much is "recoverable"

This article states that only 4.3 Billion Barrels are recoverable.

http://www.usgs.gov/newsroom/article.asp?ID=1911

[TJones]

Seems there is some disagreement about how much is "recoverable"

This article states that only 4.3 Billion Barrels are recoverable.

http://www.usgs.gov/newsroom/article.asp?ID=1911

There isn't much disagreement here about how much is in the Bakken.

http://www.cbc.ca/money/story/2008/05/23/f...ton-bakken.html

BTW, this still isn't my "source" for my info.