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Tuesday, January 4. 2011
Crude oil pricing is fascinating to me, but I know little about it. I do know that OPEC controls the big spigot, and thus controls global supply and global pricing. (Pricing is global, not local, and I do know that it is determined, in the final details, by global commodities exchanges.) But, in an interesting and rather cool feedback loop, if oil is too high, it can begin to strangle economies, reducing demand and thus reducing the prices the oil producers can get.
I also know that the American oil companies are, sadly, rather small players on the world scene, nowadays:
We probably have readers who can explain the vicissitudes of crude oil pricing, from the producers to the pump. If you can, please do. In 100 words or less (or is it "fewer"?).
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Seems the Obama Administration is doing everyhting possible to destroy what little American oil production was previously allowed. No shallow drilling, no deep sea, and as little onshore drilling as possible.
I don't know much about the market either - except that the price is based on current supply, demand, and the predicted supply and demand. Demand is going up and our supply is going down.
The danger will be if the rest of the world recovers faster than we do. In that case, we will have a stagnant economy pushed even further down by rising oil prices. The green freaks have no idea how muchwe depend on oil for basics like growing & distriuting food.
It's 'fewer' - good thought.
(I can't seem to get the bbCode "[url]" tag to work here.)
Yes, indeed, the Obama Administration seems to be doing everything possible to destroy domestic oil production. I'm personally convinced it is because they want to nationalize our domestic oil industry, like all those wonderful Mid eastern countries, and countries in this hemisphere, like Venezuela and Mexico have done. But our American owned companies still have some ideas up their sleeves. The best thing that has happened recently is the discovery of very large oil and natural gas reserves in several of our states. Pennsylvania is one state which has vast supplies just waiting to be frakked out of the shale and in fact has more than 100 producing wells in operation already. Texas has a big field called the Eagle Ford field that covers a large portion of the lower half of Texas.
If you're interested, The Wall Street Journal had a special section devoted to America's oil shale fields and the fact that, when they are fully in producing mode, we won't have any oil or natural gas crisis to worry about for many years.
Junkie, if you're worried about our energy future, do some internet research on this and see if you can find that article from the Wall Street Journal, a special section devoted to this exciting new energy source.
And cheer up. We ain't down yet, as Molly Brown said.
Ok, I'll give it a shot. One Hundred Words starts now:
Oil (raw barrel) commodities futures are based on potential supply and demand. They are related to gasoline prices on a day-to-day basis as the daily supply price is not based on at hand inventory, but the potential future price of a gallon of product. The future price of product is based strictly on daily, weekly and monthly demand balanced against the supply of available product. This availability is based on refining production capacity, blending of seasonal product, transportation and demand. An additional issue if the strength of the dollar in comparison to other currencies.
96 words - not bad. :>)
The producer can set a price for a barrel of oil, but it is the futures trader who determines the delivery price at the refinery. That is where the problem with oil futures begins - it is rife with advance information, large amounts of ambiguity, insider information and political manuevering among the producers, refiners and product delivery suppliers. Transparency in the oil futures business is not a feature, it is treated as a bug and being opaque to the outsiders is the feature of oil trading. Add in hedging, short selling, speculation and you have the potential for disorder and price manipulation.
The true nature of oil commodities futures, much like other commodity futures, are bought and sold on fractional differences in price. 1/8. 1/4, 3/16ths, etc., of a penny.
Say, for instance, a barrel of oil is $100. (A barrel by the way is 44 gallons.) A speculator/trader can purchase the right to buy 100 barrels for a set price for each barrel - say $1.00. So essentially, the speculator can purchase the rights to, and control, $10,000 worth of oil for $100. Where the speculator/trader makes money is trading the rights to that $100K worth of oil for marginal gain - say they sell the rights for a $1.01 per barrel. So they make a total of a $1 on the trade. Doesn't sound like a lot, but magnify that a couple of thouand times per barrel, every trade making or losing money depending on how the speculator/trader needs to position themselves and it all adds up.
There is also a human factor in commodity trading - the ebb and flow of human emotion, panic, enthusiasm, etc. Mob mentality can also greatly affect prices.
Environmentalists who want to end the use of transportation fuels should read "Black Beauty" before they get rid of the car. When horses were primarily equipment instead of treasured pets, they were often treated callously or even cruelly.
Environmentalists who think that petroleum-sourced pollution and coal-sourced pollution are bad have a point. But before they put on that "Split wood, not atoms" T-shirt, they should review the data on Asia's brown cloud and on carbon monoxide deaths. They should also review the cost in real terms of clothing or food in 1810, 1850, 1950 and 2010.
For that matter, they should consider the cost of a nice bath like I had last night. In 1850, the real cost was quite high.
Energy makes the world go round, and smell better, and feeds the hungry.
Not only is the left trying to kill your American oil industry, it is trying to reach out to us in Canada and wreck ours, or at least stop your imports from us. And bgarrett is right, Canada is now your largest supplier.
Many lefty fools in the USA are calling for banning our 'tar sands' oil. The Chinese are not. They want us to build a pipeline to the Pacific and they'll buy all we can produce. Maybe you should control your lefties a bit because if we do a deal with the Chinese, you guys will be at further risk from unreliable suppliers. You likely won't pay more, much, because oil is fungible, but if (when) the balloon goes up (again), who do you want supplying your military, reliable, boring Canuckis or Hugo Chavez?
The chart is a bit misleading for a number of reasons. It's a mish mash of corporate and state ownership, it under-states the effect of western oil companies who are the ones who actually provide the knowledge and technology to the third worlders. Do you think the various dictators, oligarchs and commies, from the King of Saudi Arabia to el Presidente de Mexico can reliably extract, transport and market oil even from the richest oil field, without the west?
Finally, it fails to include the Canadian tar sands which would put Canada at number 2 for reserves.
Fred Z ... Hi neighbor. Good post. I may be mistaken, but I think that 'tar sands' is another term for oil and gas shale deposits. And if so, you guys do share with us a huge shale deposit, the Marcellus shale I think it's called, which covers quite a bit of the northeastern U.S. With your usual efficiency and dispatch, you Canadians are already producing from this shale. I wish we were this smart. And not hampered by our Administration from producing oil and gas from within these widespread deposits, which are so conveniently and undeniably within our own borders and already in private hands, ready to be explored and produced.
I wonder how our present Administration plans to overcome that barrier. Maybe by telling a credulous public that oil and natural gas are filthy, the way they've tried to do with coal.
They aren't, of course.
P. S. to my above post.
Got worried after I posted this that maybe tar sands and oil/gas shale are not names for the same thing, so I checked with my-husband-the-oil-editor and I was at least partially wrong. Oil in tar sands is trapped in sand and can be fairly easily harvested. Oil and gas shale deposits are trapped in sandstone, which is similar but different, as far as removal techniques are concerned. Simply put, the sandstone shelves and layers have to be fractured, or 'frackked' to allow access to the oil or gas. In fairly recent times, oil removal techniques have become sophisticated enough, and low enough in cost to make this practical. Combine that with modern slant drilling techniques, and the harvesting of these energy sources becomes reasonable in cost -- certainly more reasonable than being beholden to the whim of dictators.
Soo ... mea culpa for the mistake.
And I beg you, don't bring this to Mr. Obama's attention, or he'll put one of his Busybody Czars on the job and we'll all regret it.
Ezra Levant..."Ethical Oil".
Ezra has done good work (as usual) on this subject. I wish it would got more attention in Canada and the USA.
He is also on youtube...