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Bodman: Oil Suppliers Have Lost Control of the Markets

Toronto Star. In Canada for a tour of the oil sands, US Energy Secretary Bodman remarked on Friday that the world’s oil suppliers have lost control of the markets, ceding that power to traders and giving rise to greater volatility in crude prices.

After hitting an intraday high of US$78.40, the price of crude for August delivery settled at US$77.03 US a barrel on the New York Mercantile Exchange Friday.

“This is the first time in my professional lifetime that the suppliers of oil in the world have really lost control of the markets,” Bodman said during a two-day trip to Western Canada where he toured the rapidly developing oil sands region in northern Alberta.

“They are unable to turn the spigot and increase supplies, and therefore are unable to control oil prices.”

Also on Friday, OPEC issued a statement blaming geopolitical factors beyond its control for the recent price volatility.

Geopolitical developments, over which OPEC has no influence, have been behind this sudden rise in volatility, and these have come at a time when the market was already out of line with today’s supply and demand fundamentals, with speculation playing a significant role in driving up prices.

Bodman also said that the current run-up in crude prices is directly related to geopolitical instability in key energy producing countries around the world, adding that he hoped prices would recede once things calmed down.

However, earlier in the week, Dr. Ali Samsam Bakhtiari, who recently retired as a senior advisor for the National Iranian Oil Company in Tehran, warned that the world’s oil industry has started to reach its peak production rate.

In a speech in Sydney, Australia, he said that the oil industry had hit a peak production of 81 million barrels per day, which would decline to 55 million barrels per day up to 2020.

We are consuming, world-wide, 30 billion barrels of oil every year. It is an enormous amount. But what is the industry finding? It is finding something between four and six only. So every year that passes, that we have passed in this century, we had a deficit on consumption versus finds.

I hope that the oil industry will not go into Antarctica but, today I am not so sure, you know, because when the price will be $200 or $300 per barrel, then anything can happen.

—Dr. Bakhtiari

Comments

Rafael Seidl

Paradoxically, this is actually good news. Yes, prices are high and volatile. However, this will encourage countries with high demand to redouble their efforts to get away from oil and the associated political instability, which itself is born of a culture of dependency in the oil producing nations. Things will not improve overnight, indeed they may get worse before they get better.

Due to (the politics of) global warming, natural gas and coal will only be stepping stones toward renewables and nuclear power (itself highly controversial). Though it seems infeasible today, these will make up the vast majority of energy supplies by the latter half of the century, simply because we have no other choice. Engineers, put on your thinking caps.

Harvey D.

Rafael:

you are correct --- $200 or $300 per barrel for crude oil--- will have major impacts, specially on oil gluttons like Canadians and Americans. The price of gas at the pump may be well over $6/gal without a carbon tax.

Unfortunately, many addicted industrial nations may develop the tendency to replace dirty oil with dirty coal derived fuels.

OTOH, very high crude oil prices will generate the impetus required to promote earlier arrival of efficient PHEVs and EVs.

Car companies with significant hybrid head start, like Toyota and Honda, will benefit greatly. The others will have to catch up to survive. Gas Guzzlers' and Dinosaurs' builders like GM, Chrysler and Ford may not.

Alberta will be the next Klondike and a major one at that. Wonder what it will look like 50 years latter.

Cervus

This is why I am far more worried about Peak Oil than I am about global warming. Has it already happened? Or will it happen in the next ten years? Experts disagree. But the economic impacts will be frightening.

Cervus

Also in the Toronto Star:

Biofuels research reaches fever pitch.

Carson

Let's get a 150cc scooter to save gas for our mother earth. (I am going to get a M1/M2 license soon :))

Consider if your car drives 10,000 miles.
and it's 25 mpg.
it eats 10,000/25 = 400 gallons of gas per year
In my area (California), the price of gas is around 3.2 USD per gallon. So that's like 1280 USD

for scooter, it's 100 mpg. that's 4 times more efficient, and that's only 320 USD.

Within 1 year, the gas difference is 960 usd. The insurance is 150 usd. and you need some extra maintanence (50 usd a year, <-tha'ts a lot), so all to gether the saving difference reduces to 960-150-50 = 760 USD.

A typical scooter 150cc maybe around 1000 USD. so after 2 years, you already making $$ out of your scooter. Just consider the ROI, save gas/ save world and most important save $$. :)

Let's fight gas price together!

Bud Johns

Right on, Rafael. My Prius looks sweeter by the minute....

Cervus

Carson:

Unless you want to buy a cheap Chinese knockoff, 150cc scooters are hard to find. The best choice in terms of quality is the Kymco People 150. Brand new, this scooter is under $4000 and has a two year warrenty. There's also the Yamaha Riva 125, which is very hard to find because it's in high demand.

Over and above those are models like the Honda Reflex (250cc, single cylender, Yamaha Majesty (400cc single), Yamaha Burgman 400. There are also various models from Vespa and Aprilia that range from 150 all the way to 500cc. Over both of those are the Honda Silverwing (600cc dual-cyelender), and the Burgman 650 (dual).

The single cylenders over 150 all get similar milage. I get 65-72 on my Reflex. A friend of mine gets 60-70 on his Burgman 400. These can retail brand new up to $7500. Still, my friend rides his everywhere and has probably saved hundreds of gallons of gas the past couple years he's owned it.

t

Sounds like Bodman is admitting that we have or are reaching peak oil. It is now official. Bring on the $10 per gallon gas. Personally, I would welcome it. It's too bad, however, that we are not engaging in a planned and controlled transition to that level. Just waiting for the market to do that will cause massive pain for the populus.

Saudi Arabia will not admit, however, that there is a basic supply problem. They would rather blame the consumer, the traders, and geopolitics. They don't want people to believe that we are in for permanent shortages because they fear a truly radical effort to become less dependent upon oil and more dependent upon alternative energy.

John W.

High prices will indeed have some very good R&D effects (I'm overlooking the volatile and bad effects here). Solar (and wind) is often written off by many as not being big enough producers, but even something so simple as putting a fresnel lense in front of a small solar cell hugely increases the output of the cell, to a limit of course (before it melts!). Consider the SunBall Solar Appliance. Using a quarter of the silicon (or whatever the cell material is made of) greatly reduces the cost, as traditionally the manufacturing of the silicon adds most to cost.

Vertical axis turbines are also coming along nicely too, and they would virtually steal away every excuse for a complaint some of these anti-turbine groups have (killing off the misquitos!!). And they would be cheaper too. Wonder why we don't hear more about them.

Hey Carson, your idea about getting a scooter is real good: they even have them with detachable roofs now to give you a lot more protection from the elements, plus you got lots of trunk space for errands, etc. And they are a lot of fun too. But your price is off: you can barely get a 150cc cheap import scooter off Ebay for a $1000.00 (most are $1500.00 to $2000.00), let alone a descent brand name with a good warranty and reliable parts infrastructure. A Honda Reflex (250cc) is at cheapest about $5500.00 to $6000.00, for comparison's sake. The 20 year old design of the Honda Helix is still going to run you 5 grand new. It's hard to get a *good*, cheap scooter anymore. A shame, that.

John W.

Oops, Cervus you said the same thing I did about the cost of scooters before me. I wouldn't have been redundant if I had known.

Mark R. W. Jr

It has been these speculators all this time that have been driving up the oil prices. Because of their actions, this is why we pay higher prices at the pumps.

That said, this is why we need to develop ethanol/butanol, biodiesel, and plug-in electric/plug-in hybrids.

J

http://feedstockreview.ornl.gov/pdf/billion_ton_vision.pdf
Ethanol is the future. There is enough ethanol in agriculture waste to replace 60% of the current gas consumption.
http://www.greencarcongress.com/2005/12/gm_to_introduce.html
By takeing advantge of the high octane rating you can get more power from 1 gallon of E85 than 1 gallon of gas.

no more wars

the way out is the same as the way in: consume less, much, much less...

no more wars

according to the 'nice' dr.(?), "anything can happen", which is very reassuring, and that certainly includes the destruction of our only home, our planet ... what a bunch of phoney dr.'s these bullies are ! but that's what we are up against ...

fred@dzlsabe.com

Sadly, oil consumers have also lost control of the market. Thanx to CARB/EPAs overly stringent NOx specs on light-duty diesels, we have effectivly eliminated a technology that could be stretching fillups 30~50%. While leaving off-road and marine diesel basically unregulated. Its time to consider a rollback to previous levels for NOx emits.

allen Z

Terror premium, plus instability premium, and tight supplies means high and higher prices. Alot of money also has flooded into the oil futures market. All told, it has added a premium of at least $20 a barrel of light sweet crude.
_
___Additionally, if you look at all those OPEC oil reserves, they are suspect. They might very well have been added to inflate production quatas decades ago. Now it may come back to haunt them, and the world too. The oil may very well exist underground in rock pores/ formations. However, it is likely to be difficult/ expensive (in the $$$ and BTU sense) to get oil out of the ground, sour/contaminated with metals (mercury, etc) and heavy. This may mean a dropoff in production as OPEC scrambles to develope/install these new tech to make this petroleum commercially viable. In the meantime, oil futures goes skyward past the inflation adjusted high of ~$97 a barrel. I would not be surprised if a major disruption caused by Gulf hurricanes in US/Mexican onshore/offshore production pushed it to $150 before coming down due to Strategic Petro/commercial reserves/stocks release. Then there is the question of Al-Qaeda taking out tankers/major oil installation worldwide. If the Suez is blocked by a crippled ship, the European markets will go mad. Similarly, if a pirated ship is sunk in the Straits of Malacca, it would create chaos in the world economy.

Cervus

allen:

I will say one thing in favor of all this speculation.

Prices are high, but we currently do not have a shortage. But as prices have risen the past few years, we've seen furious research into alternative energy. This will be important as we head towards the downslope of oil production. We now have a head start on the peak. Whether it'll be enough... well... that I can't say.

K

Speculators can control prices very little. They win by correctly forecasting a future price and buying or selling accordingly. The lose by being mistaken.

Prices are thus controlled by the balance of all speculations but not speculators individually.

The danger at the moment is mania. If enough people believe oil can only rise because a certain group (speculators) get all the profits then people will become speculators themselves and a mad rise in prices will begin. And a crash will follow that.

Mania and crash would not be very serious in, let us say, Irish potato crop futures this summer. In contrast energy supplies, especially oil, is the crucial element in world industry. So much is at risk.

Joseph Willemssen

US Energy Secretary Bodman remarked on Friday that the world’s oil suppliers have lost control of the markets, ceding that power to traders and giving rise to greater volatility in crude prices.

A self-serving statement from these people? What a shock. "It's not our fault!"

Whatever.

miket1

To Carson,

I think that using scooters and motorbikes are a good way to reduce fuel consumption, only if they can be made to pollute a lot less. I think that it was on greencarcongress a while back that there was a posting from a study that said that motorcycles typically emit 80-100 times the pollutants (excluding CO2)that a typical car emits. As an asthma sufferer, I constantly find myself having to put on the recirc in my car ('96 Civic) when I drive behind a scooter or motorbike. A lot of them stink and it is the NOx and SOx, particulates and other lung irritants that aggrevate asthma. I believe it is neccessary to reduce carbon dioxide output through reduced fuel consumption, but not at the expense of air quality. My hope is that we will reduce fossil fuel consumption and clean up the air simultaneously.

sjc

It quickest way to stablilize this is for the U.S. consumers to use less NOW.

hampden wireless

Gas demand in the US has proven to be quite steady regardless of price. High prices are not heavily reducing demand. Prices will continue to rise unless the US consumer starts to conserve in a meaningful way.

Joseph Willemssen

Hampden,

Demand seems to have tapered out with high gas prices the past few years, even though the population is still growing.

http://tonto.eia.doe.gov/dnav/pet/hist/mgfupus1m.htm

Andrey

Fred:
1.Recheck your sources of information. Diesel engine of comparable performance increases MPG for 20-30% over gasoline, but because diesel fuel is about 15% denser then gasoline, amount of saved crude oil is only about 10% (and CO2 emission too). Diesel cars never was popular in US, way before oncoming EPA emission regulation, and are minuscule in Canada where EPA limitation does not exist. The reason is very simple: you have to drive twice more to offset higher cost of diesel car (multiplied by higher insurance premiums and prime on purchase loan). Only in market highly distorted by taxes prefentially treating diesel, buyers could realize savings from diesel engine, like it is happening in Europe. Meanwhile, even Japanese with high fuel taxes are currently imposing EPA/CARB like emission restrictions effectively killing diesel car market in Japan.
2. EPA is relentlessly pursuing incredibly tough emission standards for every diesel engine within their reach, including off-road, check for example at dieselnet.com
3. There never were any light transportation diesel engine technology in US/Canada. Nothing to destroy here.
4. Even modern diesel engines is ten times more polluting then current gasoline, especially high canserogenic diesel soot. Europeans have paid dearly for their delusional affair with diesel by millions and millions of premature death in last two decades. Look, for example, for previous post, where mayor of London Livingston claims that excessive pollution from diesel cabs only cost to Londoners 1000 premature death yearly.
Meanwhile, there are number of way more cost effective ways to reduce oil consumption, like hybrid cars, NG and propane cars, maintaining proper tire pressure at least.

Forcing of over expensive, marginally effective, dead-end technology with terrible cost in human health and high death toll is not only immoral, but just plainly stupid.

allen Z

This is interesting...
http://www.iags.org/n0331044.htm
http://www.eapc.co.il/reverse-flow.html
_
This process, and another using CO2 as a supercritical fluid linked below, could make things interesting. IF oil shale kerogen could be had at lower costs, energy and dollar wise, then the energy game changes. It may be possible for Canada to export bitumen for US oil shale kerogen production. Heavy refining products (domestically sourced) may be used as well. The problem is the cost ofupgrading the kerogen to syncrude. It is similar to tar sand bitumen upgrading and will require natural gas as a source of H2. There may be a source of H2 from refineries/upgrading plants if the waste heat is used in high temperature hydrolysis.

http://www.businessweek.com/globalbiz/content/jul2006/gb20060705_516609.htm?campaign_id=alerts
http://www.greencarcongress.com/2006/05/raytheon_and_pa.html

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