Saturday, June 28, 2008

US Energy Secretary: Don't Blame the Speculators

JIDDAH, Saudi Arabia - The U.S. energy secretary said Saturday that insufficient oil production, not financial speculation, was driving soaring crude prices.

Secretary Samuel Bodman said that oil production has not kept pace with growing demand, especially from developing countries like China and India.

"Market fundamentals show us that production has not kept pace with growing demand for oil, resulting in increasing prices and increasingly volatile prices," Bodman told reporters. "There is no evidence that we can find that speculators are driving futures prices" for oil.

He said commodities markets have experienced a huge influx of money from financial investors in recent years, but they have been following the market upward rather than driving the increase in the price of oil.

30 Comments:

At 6/28/2008 7:33 AM, Blogger juandos said...

"There is no evidence that we can find that speculators are driving futures prices" for oil"...

Hmmm, I wonder if said speculators AREN'T making bets on the oil market per se but betting on the actions of Democrats and other like minded individuals instead?

 
At 6/28/2008 9:33 AM, Blogger Sophist said...

This is political double-talking...

While there is an ongoing investigation of oil market manipulation the Energy secretary is trying to pressure OPRC to increase production. He wants to drive out speculators using fundamentals, not realizing that this will be a temporary solution.

OPEC has said many times that there is a significant speculative premium in oil prices.

More importantly, I'm surprised about the peculiar statement of the Secretary. Markets are not magical price setting mechanisms. Participants drive price. Oil worth what market participants are willing to pay for it. Arguing to speculators just follow prices up is a peculiar statement given the indications that speculators cause now a significant portion of trading volume.

Taxes and speculation is the cause of rising oil prices and the Secretary cannot fool OPEC.

He will only cause an adverse reaction and they will lower supply if they get upset with such statements.

 
At 6/28/2008 9:43 AM, Blogger rufus said...

Our imports from Mexico, and Venezuela are running 32% below this time last year.

The North Slope is dwindling, and the North Sea is Plunging. Nigerian exports are way off due to political mayhem. Saudi exports are running below the 2005 level, and Russian production is starting to fall.

Meanwhile, 75 Million New Cars hit the road last year.

Yeah, it's Supply/Demand.

 
At 6/28/2008 9:46 AM, Blogger rufus said...

Folks, we're going into the 4th year of Flat Global Production. In the same period Global GDP has been increasing 5%/yr.

Why would you need "speculators" to drive prices up in a situation like that?

 
At 6/28/2008 9:52 AM, Blogger Sophist said...

rufus, the question is not whether price of oil should be up. It should be higher than two years ago of course. The question is what is the speculative premium.

Nothing that you stated justifies triple oil price is a year or so when demand in US is going down.

 
At 6/28/2008 10:01 AM, Blogger rufus said...

Sophist, Oil is a Global Market. $140 Barrel is a "Global" Price, not a U.S. Price.

Valero is bidding against Sinopec. Exxon is bidding against Total.

Who can say what the correct price of a sandwich is when 10 starving men realize there are only 9 sandwiches left?

 
At 6/28/2008 10:16 AM, Blogger Sophist said...

rufus, there is no oil starvation. Oil production is plenty to keep up with demand. US is the biggest consumer of oil.

In the last year we had a tripling of oil prices, demand was up a mere 2% while production was also up. there is a problem with refined products but we are talking here about crude price.

 
At 6/28/2008 11:02 AM, Blogger juandos said...

"While there is an ongoing investigation of oil market manipulation"...

So sophist, just how many investigations has that been now?

Question: How Many Times Has the FTC Found Evidence of Price Gouging by Energy Companies?
Answer: Zero


The Energy Scorecard of the OPEC Congress

When the Dems are in trouble for their own actions the first thing they do is call for an investigation in an attempt to divert blame from where it belongs...

Democrats at root of energy problems

"Taxes and speculation is the cause of rising oil prices and the Secretary cannot fool OPEC"

Scapegoating the Speculators

BTW there is more than enough blame to go around, the Republicans most definitely deserve a health share of that blame too..
Democrats Manufacture "Economic Crimes"

 
At 6/28/2008 11:10 AM, Blogger rufus said...

Well, Sophist, Good Luck with your short. Since I drive, and I'm not betting on the market, I'm pulling for you.

 
At 6/28/2008 11:48 AM, Anonymous diz said...

Nothing that you stated justifies triple oil price is a year or so when demand in US is going down.

Demand is a function of price.

Demand is going down in the US because oil price has tripled.

Rightward shifting demand curves (Due to higher vehicle penetration in China, India, etc., movement along demand curves as prices increase (in the US.) The impact these shifts have on a equilibrium price.

This sort of thing is covered on about page five of any basic economics textbook.

Basic economics can explain the current situation rather well.

 
At 6/28/2008 12:09 PM, Blogger Rick Ballard said...

"Folks, we're going into the 4th year of Flat Global Production."

If one believes Peaker fairy tales. OTOH, if one gives at least minimal credence to the Energy Information Administration's annual International Energy Outlook 2008, paying some attention to Figure 4 "World Liquid Production 2005-2030" one might note that the "flat spot" of '05-'07 coming to a rather abrupt end this year, with production increasing by 2.6 mbd.

 
At 6/28/2008 12:47 PM, Blogger rufus said...

Rick, keep in mind that "liquids" includes the, approx., 1.5 million bpd increase in biofuels.

You will, also, note that the years for which they have complete records, 2005, 2006, and 2007 were perfectly flat even with the increased biofuels production. The year for which they only have 3 months data (they run about 3 months behind) they "Predict" a sizable increase.

BTW, the IEA has, always, been very poor at "Predictions."

I'll stick with my contention that this Oil Production this year will be, for all practical purposes, flat with the previous years.

 
At 6/28/2008 1:02 PM, Anonymous Norman said...

In the demonizing of 'speculators' Congress is really decrying supposed minipulation. But the Mother of All Minipulations is governmental intervention. Won't they ever learn this?

 
At 6/28/2008 1:29 PM, Blogger juandos said...

"Rick, keep in mind that "liquids" includes the, approx., 1.5 million bpd increase in biofuels"...

Is that the light purpline on that graphic rufus?

Thanks for the link Rick Ballard...

 
At 6/28/2008 2:35 PM, Blogger rufus said...

Juandos, I didn't notice; and, I don't want to go back (the last time I did it tried to install excel, and froze up my computer.

But, liquids includes Natural gas liquids, refinery gain, ethanol, and some other stuff. Again, EIA "Projections" have been notoriously inaccurate. They, basically, attempt to foresee future "demand," and, then, assume that supply will expand to meet it.

 
At 6/28/2008 2:51 PM, Blogger Rick Ballard said...

juanddos,

The makeup of the increase is:

OPEC 1.5
Non-OPEC .6
Unconventional .7

Unconventional is primarily tar sands with a tiny drop of bio - which won't hit 1.5 mbd until 2030 according to the report (which doesn't require Excel to read).

The Azeri and Kazakh Caspian plays are coming on line. If you go to Projections of Petroleum and Other Liquids Production in Five Cases Tables (1990-2030) and look at Table G1, it gives the sources for increases and decreases.

That report is only a few days old so the Peakers haven't generated their "that's impossible" riff to its usual point of imbecility yet.

 
At 6/28/2008 2:59 PM, Anonymous Anonymous said...

the "flat spot" of '05-'07 coming to a rather abrupt end this year, with production increasing by 2.6 mbd.

A hope and a prayer. Through Q1.08, EIA puts all liquids production at 85.7 mbd at an annual rate. To this eye, the bumpy plateau continues.

In the end, declining net exports from OPEC (non-OPEC production has been flat for 4 years) will trump any increase in liquids production. There are less global exports for the US and other importers to purchase.

 
At 6/28/2008 4:25 PM, Blogger rufus said...

Rick, I didn't say the report required excel. I said my computer froze because it started trying to load excel. I don't know why, and I don't care, why.

THIS is a list of all the US ethanol refineries. You will see that we're, currently, producing 600,000 barrels/day. This does not include biodiesel (probably about 1/10 th of that) nor Brazilian ethanol (probably about 400,000 bpd, nor Indonesian, Malay, Indian, Chinese (3rd largest,) nor Thai (they're going 20% ethanol.)

Probably about 1.5 million bpd.

There are scores of new fields coming online in the next couple of years. The important metric is "flow rate." Most experts figure existing fields are decling at a rate of about 4.5%/yr. Some a whole lot faster (Cantarell - Mexico, some slower, some (Ghawar - Saudi Arabia) you just don't know.

One thing we do know is Exports have been dropping since 2005. And, really, that, plus rising consumption, is all you Need to know.

 
At 6/28/2008 6:59 PM, Blogger OBloodyHell said...

> In the last year we had a tripling of oil prices, demand was up a mere 2% while production was also up. there is a problem with refined products but we are talking here about crude price.

....and once more, our resident geenyuz, sophist, demonstrates that he still has not the slightest clue about volatility and the smoothing effects over time of market speculation. The fact that the market is taking into account the fact that GLOBAL demand is expected to rise substantially as India and China develop more and more is utterly lost on him. That India and China alone represent a potential doubling of the demand over the next 10+ years is lost on him. That the price has risen so that people will conserve NOW so there will be more available LATER is lost on him.

In general, as you can see from his claims, pretty much the entire field of economics is lost on him.

Ok, now -- C'mon, sophist, let's hear your usual witty, well-reasoned and thoroughly referred rebuttal!!

"Nuh-Uhhhh !!!"

Aaaaatsa boy!

.

 
At 6/28/2008 7:01 PM, Blogger OBloodyHell said...

> Basic economics can explain the current situation rather well.

Yes, but sophist feels himself to be a much freer thinker when unburdened by any real understanding of anything so plebian.

 
At 6/29/2008 5:28 AM, Blogger Sophist said...

obloodyhell said in another thread:

"Pricing is kind of opposite to quantum mechanics. You can determine the xact price at an exact space and time, but it's not reliably valid for entirely identical objects if you vary either the space or the time -- even a little."

As everyone can see... there is nothing for anyone else to contribute here. obloodyhell has a well-rounded spherical view of the problem...with a touch of quantum mechanics

Basically people, according to obloodyhell, "Pricing is kind of opposite to quantum mechanics" and that resolves the issue once for all.

Let the speculators do their job and discover future price for us. "Pricing is kind of opposite to quantum mechanics" according to obloodyhell. There is no problem billions of speculatove funds are pilling up in oil futures markets, and use several cross-asset strategies to take advantage of the bubble they create and are feeding up.

"Pricing is kind of opposite to quantum mechanics"(obloodyhell, 2008)

This is the final obloodyhell kind resolution.

 
At 6/29/2008 10:01 AM, Anonymous Anonymous said...

While sophist and obloodyhell continue with their verbal vacuous verbosity (alliteration for the english grads), can we bring some economic formulaes to the table.

How about this dialetic:

Thesis: There is no evidence that Bodman is wrong about speculation in the oil markets.

Antithesis: There is evidence that Bodman is wrong about speculation in the oil markets.

Synthesis: Discuss the negation of the negation.

My synthesis: Falling petroleum demand in the developed countries (the US and Eurozone) is offset by rising petroleum demand in the developing countries (Chindia) while petroleum supply (on a net energy basis) is declining. Worldwide demand from oil importers will increase faster than worldwide supply from oil exporters until there is a worldwide recession.

Thesis: The worldwide recession begins after the Beijing Olympics.

Antithesis: blah, blah, blah

 
At 6/29/2008 11:04 AM, Blogger Sophist said...

Anon,

You seem to have wikied dialectic.

Can you now go back and Wiki HYPOTHESIS?

Your hypothesis cannot prove or disprove whether there is a significant premium built in oil prices due to money flowing from hedge funds and other sources.

We can argue forever. Both sides can bring up several arguments and it will be an exercise in futility.

The only way to find out is empirical, not by framing hypotheses.

Block speculation for some time and monitor the effect. If process go down significantly, speculators were affecting them. If they do not, or even rise, let speculators on the lose.

This is the only way. I do not know the answer. Limited comprehension people interpret my statements as I claim I have proof speculators are the problem.

I do not. I just tried to explain that there are counter arguments and specifically describe how such speculation works and where the benefits lie.

The only way to find out is by experimenting.

 
At 6/29/2008 1:47 PM, Blogger juandos said...

"But, liquids includes Natural gas liquids, refinery gain, ethanol, and some other stuff"...

Well rufus googling for a definitive explanation of, "unconventional liquids" turns up a myriad number of answers over and above what you it seems correctly stated...

None the less you may find the following EIA posting dated June '08 interesting: International Energy Outlook 2008

Some of the stuff you've already seen before if your comments were anything to go by...

Figure 5, 'World's Electricity Generation by Fuel, 2005-2030' is the really interesting one to me at least and it seems that renewables are ranked right behind nuclear...

I've always thought there was gold (so to speak) in those landfills...:-)

 
At 6/29/2008 2:17 PM, Blogger OBloodyHell said...

> it seems that renewables are ranked right behind nuclear...

I think it's absurd that nuclear isn't ranked at the top.

If we switch to some form of electric (probably through an advancement in fuel cells, as seems likely at the moment) then electic power will replace gas as the source of transport. And if you want to cut back on carbon emissions, eliminating the vast amount of electric production that comes from coal alone would make a huge leap in that direction

It could easily produce a massive cutback in those developing countries, as well, and all that without everyone switching to the massive inconveniences of mass transit.

Anonymous 10:01:
Yeah, I'll try to cut back on wasting my time on him. Either he's getting it or not.

 
At 6/29/2008 2:20 PM, Blogger OBloodyHell said...

The advantages of a modular, standardized, multi-gigawatt powerplant being on the market would be astounding.

I suspect that some corporation which studied the hell out of this, and came up with a design for most places, with interchangeable parts and a largely modular design, along with a full delivery-to-disposal model for solving most of the problems with modern plants would stand to make a mint in the coming economy.

 
At 6/29/2008 2:44 PM, Blogger juandos said...

"The advantages of a modular, standardized, multi-gigawatt powerplant being on the market would be astounding'...

Hey OBloodyHell, about 12 years ago when visiting France I did get in two tours of electrical generating plants that were nuclear fired and I asked the very same question about the modularity of its construction since the two plants appeared to be quite identical in most ways...

So its not rocket science anymore...

 
At 6/29/2008 3:42 PM, Blogger Rick Ballard said...

Juandos,

Of the 24 reactors currently in planning, 12 are of a single design - AP1000. The EIA site has quite a bit of information scattered around.

BTW - GE/Bechtel have a standardized design available for coal gasification that is very interesting. If the coal utilities bought the Peaker line, they would be doing siting studies right now. They seem to just have an unreasonable amount of faith in the EIA's ability to forecast.

Strange - why can't they just buy off on the propaganda generated by the same people who manufactured AGW? Well, not AGW anymore - Climate Change! For the moment.

Who knows what's next in the pathetic renaming genre.

 
At 6/30/2008 9:12 AM, Blogger rufus said...

Juandos, you're right. There's Gold all around us. It's time to quit wasting waste.

Every twenty pounds of solid waste you put in the trashcan will yield one gallon of ethanol. California communities (Rialto, Ca for one) creating electricity from sewage. Nat gas from landfills popping up everywhere.

In thirty years your great grand-kids are going to see pictures of "smokestacks" in their history books and say, "What were they Thinking?"

 
At 7/01/2008 4:03 PM, Blogger juandos said...

"Every twenty pounds of solid waste you put in the trashcan will yield one gallon of ethanol. California communities (Rialto, Ca for one) creating electricity from sewage. Nat gas from landfills popping up everywhere"...

Well locally the use of trash, most especially tires have been used in power generation going on at least twenty years...

The same scrubbing technology explored and used by US Steel back in the seventies is what keeps the stacks from emitting soot...

Not all trash is equal though nut I understand your "20 lbs per trash can" comment...

Right now except in a few places methane flare tubes are generally what's used in most covered landfills since unlike California the population density isn't nearly the same here in Missouri...

The cost of running a recovery system for methane between disparate landfills at distances in excess of 30 to 40 miles makes that a idea of methane recovery a non-starter...

This is starting change though due to advances in materials technology, especially with what is generally known as PVC piping...

Varients of that product are now looking like it might make it worth the effort since the piping is better and cheaper and people want the gas for their own purposes...

 

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