World War 3?

[Anonymous]

I worry about that as well, and so far have not seen any indication that attacking Iran isn’t a possibility.

-re analyst

[Doofrat]

Great post Flinger!!! I agree. I had the same debate with a co-worker. He was saying that the oil companies were gouging us. I asked him if he had an oil well in his back yard, what would he sell his oil for? The market price was his answer. Well, there you go, the market sets the price. The market is NOT the oil companies, they are only producers, the market is ultimately the consumer, and when the consumer is willing to pay high prices for oil, the oil companies are more than happy to sell it to them for that price.

There’s alot of talk about needing to conserve oil here in the US. One problem now is that even if we cut our consumption here in the states, other developing countries are thirsty for oil, which I’d guess will keep the price up. The one good thing that will probably come out of this though is it might change our energy consuming ways a bit, but I wouldn’t equate cutting our consumption to a drop in the world price of oil.

[hs]

You don’t know the Chinese. They are too busy to make their money to improve their own life of living.

BTW, why our government let them buy our debt? You should tell Bush to stop owning too much debt to the Chinese.

[lindismith]

the market is ultimately the consumer, and when the consumer is willing to pay high prices for oil,

What alternatives do consumers have?

Please name one?

It’s hardly a free market.

[bob007]

consumers have plenty of options

1. consumers have an option of buying a toyota corolla or honda civic to a ford explorer. it is not like 50% of population need SUVs and pickup trucks.

2. consumers can purchase houses close to their workplace.
If everyone wants a five acre lot with a big backyard their commutes will be longer.

3. change the link between homes and schools. A lot of folks purchase their homes in neighborhoods which have good public schools. lots of folks live in suburbia and work in metro areas. it leads to a lot of gas consumption.

4. most people have voted against mass transit initiatives. mass transit works only if there is a critical mass in the network and in the number of users.

[Anonymous]

I know that in a country where the government is controlled by a totalitarian regime, 1 in 4 chinese are illiterate or semi-illiterate and education is controlled centrally (along with most everything else) the Chinese people have very little say in what their leaders choose or choose not to do. The Chinese have traditionally held that they are a powerfully autonomous people, I doubt that they think they need the U.S. solely to maintain prosperity.

-re analyst

[Doofrat]

I believe we have options to lessen the pain of high oil prices such as those bob007 has shown, but I don’t know how much control we have over high oil prices themselves. The market sets these prices, and the market is the world market, not just the market in the US.

Again, going back to the oil well in the backyard scenario. If I have an oil well in my backyard, and my neighbor has a Hummer and complains about the amount of money he is currently spending on gas (assuming he can refine my oil to make gas), he has three choices: He can ask me to sell him my oil for less than the market will give me for my oil (that’s not going to happen, I’m going to sell my oil at the market), he can buy a Prius, or he can just continue driving his Hummer and paying high oil prices hoping the price of oil comes down, and I’ll keep selling my oil to him or the Chinese, whoever pays the market price to me.

Currently, the US is deciding to keep driving that Hummer. If the US decides to drive a Prius, our demand for oil will go down (and the money we export to import oil) and oil prices are likely to decline (how much, who knows?), but if the worldwide demand makes up for this, prices are likely to stay high IMHO.

[hs]

What is your source for “1 in 4 chinese are illiterate or semi-illiterate” comment?

[OwnerOfCalifornia]

All great replies. Regarding what consumers can do…bob007 mentioned many alternatives already. These are the ‘fundamental lifestyle changes’ I am referring to. Yes, surging demand from developing countries promises to keep oil prices high for the indefinite future, especially in the face of limited supply. Personally, I drive less than 5000 miles per year, I live close to work, and commute by bicycle 2-3 days per week. I keep the thermostat at 68 degrees in the winter and raraly run the AC in the summer (since it is San Diego after all, and the weather is perfect so everyone wants to live here and therefore home prices will never decline har har har). Remember that slightly less than 1 billion of our planet’s 6+ billion people can even drive, so have some perspective when you question what ‘alternatives’ we consumers have.

OPEC does not actually set the price of crude oil. Rather, they attempt to control production to maintain a price band that is “fair” to both buyers and sellers. They raise production in the event of high prices and lower production in the event of lower prices. The official price band was $22-$28 per barrel, but of course prices have gone haywire in the last few years and no amount of heroic production increases have had an effect. Some people wonder whether OPEC should even exist anymore, as they and the rest of the world seem unable to increase production at this point (perhaps you are familar with the ‘peak oil’ debate, but that’s an entirely new thread).

Yes, oil companies do charge market rates for oil and many people find that unnerving. But what would happen doofrat tried to be realy nice and sell his refined gasoline at a lower price? I would step in and buy it, then immediately turn around and sell it for it’s true market value and retire a tremedously rich young man. This is why any act of charity on OPEC or the oil companies’ part would not work–people will always step in and arbitrage it for it’s true market value.

I better stop soon because I could go on for pages, but a final thought on alternative energies. Very few are scalable, and there are no silver bullets, but certianly some technologies will have a limited role in the future. We need to be smarter about how we use energy going forward, and we need to have rational and educated discourse on the subject instead of pointing fingers or praying for miracle technologies. After all, it’s a new paradigm (seriously, it is 🙂

[Anonymous]

What is your source for “1 in 4 chinese are illiterate or semi-illiterate” comment?

Thanks for calling me on this data. When I looked it up again, I realized the data that I must have read at the time was old (1985 to be exact) China has since stated that it has improved it’s illiteracy rate to about 1 in 10 this includes semi-literates. This is according to figures released by the PRC, which should probably be taken with a grain of salt, because real figures are hard to come by with China. But the bigger and more important issue is the centralized oversight of education by the communist party.

-re analyst

[hs]

your mind seems is in 1985, too. Ha ha,just kidding!

[powayseller]

flinger, since the oil companies buy their oil on the open market, wouldn’t their profits fall as the price of their input goes up? If the price of apples would double, the Farmers Market wouldn’t have record profits; the profits would be unchanged. So why are oil company profits higher? The answer must be that they own a lot of reserves, and they do NOT pay mineral rights in the US. So the oil companies can charge market rates for all oil they drill in the US. Plus, they get millions of dollars of government subsidies.

The book you recommend is better than Peak Oil or Twilight in the Desert? Did you read Stephen Leeb’s book: The Coming Economic Crisis?

All those who believe oil prices will hit $100 or $200: do you own any oil company stock?

hs, about your question: why does Bush allow China to buy our debt? Actually, Japan owns twice as much Treasury debt as China. We need someone to fund our budget deficit. The government needs $2 billion daily from foreigners, to keep running. Without China and Japan and other countries buying our debt, how would we pay the salary of Bush, the paving of our roads, and all the other government bills? And if we were to stop selling them our assets, they wouldn’t be so keen on dollars anymore. The cheap imported goods has kept our inflation much lower. The US is a debtor nation. This is a sad statement. We were once mighty and powerful, but now are a debtor nation. Will we ever regain our glory days?

[OwnerOfCalifornia]

PS, oil producers must reinvest some of their oil to produce more oil. As long as they are producing multiple barrels for every barrel invested, the production process will remain profitable for them. This is called EROEI by some authors (energy returned over energy invested) and perhaps energy producers are not using their output product to produce more energy, but they must be able to extract more energy than they invest in any form for the production to be profitable. As I recall, in the early days of US production (until 1950) this ratio was as high as 100:1, but lately it has dropped to as low as 5:1 for offshore deepwater drilling. I will look for a hard source on that but I can’t back up those numbers yet. Simply put, oil companies will profit as long as they sell a lot more than they use. How many seeds are in a single apple, and how many apples will grow on the tree that those seeds produce? Certianly more than one.

I have read both of Stephen Leeb’s books, and Simmons’ Twilight in the Desert. Not sure which book you mean by ‘Peak Oil’ as that describes a lot that deal with the subject :). But I have read most of them. Twilight is an excellent book, but is technical and not for a beginner in the subject. The book I recommended, A Thousand Barrels a Second, strikes an excellent balance between the “we’re all gonna die now” crowd and the “we should do nothing because everything is OK and there is tons of oil” crowd. It explains the real problems and challenges we face going forward, and does so in layman’s terms.

I wholeheartedly agree that the US government should not subsidize offshore drilling and exploration. Corporate welfare is absolutely not a free-market policy. The subsidies were put in place to encourage domestic exploration and production in the face of inexpensive foreign oil, and US oil companies certainly don’t need the help anymore, if they ever did.

I currently own Chevron and Exxon-Mobil, and while I believe oil may hit $200, that could still be several years away. I certainly think there is little downside risk.

[barnaby33]

China wants to do buiness with us, not hurt us. Where do people get these crazy ideas????

Well, because China does want to hurt us. Americans have a much shorter view of time than the Chinese. As a culture they are quite capable of taking a longer term view than we are. They see us as a rival to be conquered in asia, if not the whole world. Today they want to sell us stuff, tomorrow they want to dominate us in the way that we currently dominate them and most of the rest of the planet.

Josh

[powayseller]

Yes, the Chinese planners and government take a long term view, and are patient. There is a long term plan, whereas I feel that in the US, we just “wing it”. One of my friends believes that China will keep us dependent on them until they have the one thing they are lacking today: technology patents. Once they get our manufacturing for software, hardware, and other high tech products over there, they can more easily copy and manufacture those items. In the meantime they are buying up natural resources globally and striking deals with other countries to get access to resources like oil, uranium, gold, lumber. By the time of the Olympics, they will be ready to show off their economy. Afterward, I expect they will dump us, if they are ready by then. One interesting thing is when the Chinese President came to the US recently, his first stop was Seattle and dinner w/ Bill Gates. His LAST stop was Pres. Bush, and he spent only 30 minutes! Isn’t that a strong signal that China has the upper hand?

[Author]

Posts