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 Why is the price of oil rising in America? (26)

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Diluck(51) pic



Why is the price of oil rising in America?

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4 points

The price of oil isn't rising; rather the spending value of the dollar is going down. If you look at the last 8 years the price of oil in gold has remained mostly unchanged. However the price of oil in US dollars has gone up. This means that inflation is what is causing gas to be expensive. When politicians spend money they have not taxed then they are creating money from nothing. When banks loan out money they are creating money from nothing. When there are more dollars in the market but no added value in the market then the value of those dollars goes down. Therefore the prices are going up because the government is spending money it doesn't have.

Supporting Evidence: Digg Article on Gold Prices (www.thedailygreen.com)
2 points

One of many factors, yes. The primary one. Well said, though for accuracy's sake, it is a combination of the weakening dollar and the 'gold rush' mentality of market speculators/investors with a dollop of OPEC's continuing manipulation just to keep things 'interesting'.

3 points

Apart from an absurd level of inflation that has been occurring, the terminal decline in oil production in many countries can also be linked to rising oil prices. Geopolitics also play a hefty role, of course. Let's take a look at the data.

Top 10 US oil imports (as of Feb 08), in thousands of barrels per month:

1. Canada: 71,446

2. Saudi Arabia: 47,186

3. Mexico: 38,484

4. Venezuela: 32,810

5. Nigeria: 29,711

6. Iraq: 22,634

7. Russia: 13,083

8. Algeria: 11,135

9. Virgin Islands: 10,170

10. Angola: 10,148

(Taken from: http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_m.htm)) ))

5 of the top 10 importers are OPEC nations; the 12 OPEC nations account for over 46% of US oil imports (compared to the 105 non-OPEC nations importing oil into the US). The Persian Gulf alone contributes 21% of imports.

Let's take a look our oil import buddies and see if we can find any cause, geopolitical or otherwise, that would affect gasoline prices:

Canada: Conventional oil production peaked in 1973, causing a gradual drop in conventional oil production - however, this was not noticed much because processing bitumen from oil sands has been making up for the loss. Today production of nonconventional oil from bitumen make up 20% of total oil production in Canada. In fact, 95 percent of Canada's proven oil reserves (which is second only to Saudi Arabia's) are made from oil sand deposits. Processing bitumen is a very costly process, requiring far more refinery work than conventional oil. For example, it takes $25 dollars per barrel to produce crude oil from oil sands - this compared to $5 for producing crude in the Middle East.

Saudi Arabia: Home of the largest oilfield in the world, Ghawar, producing 4.5 million barrels per day (the bulk of Saudi Arabia's oil supply comes from 8 massive fields - out of 80 total fields, and no more giant fields have been discovered since the 1970's). However, Ghawar's production has been declining as well - from 5.7 million barrels per day in 1981 to 4.5 million in 2001. Engineers who have worked on Ghawar have stated this decade will see Ghawar's peak (reports indicate 30-55% water cut, meaning that percentage of what comes from the well is water). The decline rate as of July 29, 2004, was 8%.

Mexico: On march 18, 2006, it was made public that the number two oilfield in the world (second to Ghawar), Mexico's mammoth Cantarell, had peaked. In 2004 it reached its highest output, 2.13 millions of barrels per day, and by 2006 it was at 1.9 mb/d, and in 2007 it was down to 1.5 mb/d.

Venezuela: Peaked in production in 1970, but increasing output by processing large oil sands reserves. In 2005, Hugo Chavez announced a plan to reduce his country's dependence on the U.S. oil market, after the Bush administration supported a failed coup against Chavez. Economic relations between the U.S. and Venezuela have suffered as a result. The recent dispute between Chavez and Exxon Mobil have prompted Chavez to cut off oil exports to the U.S. altogether (although he has not followed through with this threat as of yet).

Nigeria: A militant insurgency has lately lashed out in an attempt to cripple Nigeria's oil industry, in a war on foreign oil companies, reducing oil exports (such as when Chevron, Texaco, and Shell suspended production in 2006 following the murders and kidnappings of industry personnel). Nigeria's Delta province is estimated to hold vast reserves, however due to political instability, projects to capitalize on them remain under-developed.

Iraq: The economy remains unstable due to the ongoing conflict, and oil production is hindered as a result. Oil facilities have been targeted by insurgents throughout the operation (282 attacks total between April 2003 and October 2005). Production has declined to around 1.9 mb/d, and refineries are operating at half capacity, necessitating large refined oil imports of 200,000 barrels per day.

Russia: Production peaked in 1987, sharply dropped after the Soviet Union collapsed, but rose as investment increased in the industry. A second production peak has been predicted to hit in 2010. A lack of modern technology and many aging oil fields is hindering Russia's ability to maintain and expand production levels.

Algeria: A tax on oil was passed by Algeria's Parliament. This "excess" profits tax could vary from 5% to 50% on Algerian profits of foreign companies, thus increases the pice of oil to its buyers. They also passed a provision that Sonatratch, the country's oil monopoly, take a 51% controlling interest in all future production and refining contracts.

Virgin Islands: Couldn't find a lot of crises facing them, geopolitical or otherwise. Cool.

Angola: Once the civil war ended in 2002, Angola has stabilized and is steadily increasing its oil output. In the next 10 years, production will increase by 2 mp/d to 3.4 mp/d. However, there are signs it could turn into the next Algeria. Angola's most productive and future oil fields are within the exclave province of Cabinda. The huge royalties derived from Cabinda's oil production goes directly to Angola's capital, Luanda, with little returning in development funds for the province. The people of Cabinda recognize they should be some of the wealthiest people in Africa (with only 300,000 people in the province), and there is a long history of armed struggle for independence in that province (such as the Cabinda Liberation Front and Armed Forces of Cabinda). Angola might not be in a crisis at the moment, however there is a strong possibility of a Nigeria redux with insurgents striking against the country's oil industry.

So, I guess my answer to why oil prices are increasing are that, aside from inflation, the oil production of 8 of our top 10 oil imports is being hampered or even crippled in one fashion or another, affecting prices worldwide. Also remember that oil consumption is increasing globally as well. China and India are also developing at an accelerated rate, and their enormous populations will require an equally enormous amount of oil if development continues.

Increased demand + Decreased production = Increased prices.

fenix(7) Disputed
4 points

"So, I guess my answer to why oil prices are increasing are that, aside from inflation, the oil production of 8 of our top 10 oil imports is being hampered or even crippled in one fashion or another, affecting prices worldwide. Also remember that oil consumption is increasing globally as well. China and India are also developing at an accelerated rate, and their enormous populations will require an equally enormous amount of oil if development continues.

Increased demand + Decreased production = Increased prices."

Aside from inflation? Considering that market speculation is readily agreed by all parties to be 60% of the reason for the current oil prices, that's quite a big 'aside', indeed, it is an oversight.

Your argument is interesting, but hardly the groundbreaking insight you seem to find it. Allow me to educate you.

(1) Market speculation is readily identified as a major component (60% according to numerous outlets, including the citation below) of rising oil prices and has been so since 2006.

Citation: http://hsgac.senate.gov/_files/SenatePrint10965MarketSpecReportFINAL.pdf

Summary citation of the senate paper at:

http://www.cfr.org/publication/15033/role_of_the_market_speculation_in_rising_oil_and_gas_prices_senate_staff_report.html

(2) The so called 'geo-political' issue you seem to be trying to raise is not only non-existent, it is fallacy.

"Between 1981 and 1994, about 145 U.S. refineries closed. In the same period, overall U.S. refining capacity fell to 15 million barrels per day, pushing utilization rates to a more sustainable 92 percent.

Since then, refining capacity has grown at a slightly greater rate than demand. Between 1994 and 2002, capacity grew 11.6 percent while demand for finished products grew by 11.5 percent. This trajectory enabled refineries to operate profitably in a deregulated marketplace. Only over the past two years has refining capacity fallen behind the growth in demand for finished products."

- quoted from the Progressive Policy Institute's article available online at:

http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=116&subsecID;=155&contentID;=253566

If there is any validity at all to the assertion that "geo-political factors" are involved, they are, by far, on the tail end of the list of contributing pressures; so marginal that NO ONE has seen fit to mention them. Not the Fed. Not the market. Not the investors. Not the corporations. No one.

It is also worth noting the case supporting OPEC's toying with the market is neatly made therein. A tactic that has been but one aspect of their continued push for market control and their profound lack of confidence in the flagging U.S. Dollar.

Citation: http://archive.newsmax.com/archives/articles/2004/12/6/211118.shtml

(3) In case you missed it, less than 1% of the countries you cites contribute to the United States' supply chain of gasoline or blending components from which to make it.

Perhaps you should consider reading ALL the numbers and not just the ones that seem to support your argument.

Here's the list with blended components (citation): http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_epobg_im0_mbbl_m.htm

And here is the list with finished gasoline product (citation): http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_epm0f_im0_mbbl_m.htm

Even if you tally in unfinished oils (which could conceivably be somewhere in the supply chain) you STILL have less than a pebble's effect on the overall ocean of oil prices as a result of "geo political factors".

Needless to say, at this point, your theory is not only blown out of the water, it's damn near blown into the stratosphere.

(4) Even the site from which you quoted references market speculation as a primary factor, albeit obliquely, saying in relevant part:

"If all of the low-range estimates for supply occurred, total gasoline supply would increase about 200 thousand barrels per day (Figure S1). However, record crude oil prices are nonetheless pushing current and expected gasoline prices to record levels."

citation: http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2008/spgmogas2008/spgmogas2008.html, full report available at: http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2008/spgmogas2008/spgmogas2008.pdf

Did you notice they are predicting an INCREASE in production? Hardly hampered.

(5) The simple fact is, NO ONE in ANY sector of the market, nor any research, nor even your own citations support your whacked out theory that "geo-political factors" are in ANY way responsible for the current situation with gasoline prices or even for oil prices overall.

It is people like you, sir, who should be taken out back and whipped into bloody unconsciousness for contributing to hysteria and misinformation because, apparently, you actually think a god damn Google search equals having experience and knowledge.

If there is any future in this site whatever, it is people like you who will see it driven into the dust.

Let someone who has time in the industry and a grasp of economics and global markets deal with these kinds of topics, kiddo. You need a few more biscuits and a hella lot more inside the temporal lobes.

Pitiful. Truly.

p.s.: Yes, I debited every one of your asinine, misinformed, and overblown posts in this debate. You're an idiot and it's a damn shame some people will mistake ego and verbosity for insight and knowledge. You have neither.

2 points

Oh, and i almost forgot, you owe Cienna an apology. She was dead right about every damn bit of it, and had more sense than I did when it came to refusing to engage you. I'll need another walk to get over the indignation of the arrogance of you. Sheesh.

2 points

Fenix, thank you for setting me straight; I concede the point. I never claimed I had insight, never claimed I had above-average intelligence or all the answers. All I wanted was for Cienna to refute my position. That's all; I had no illusions that it was perfect, I had no illusions that I was the most informed individual on this forum. I was putting forth my ideas for criticism like everyone else, and you have demolished them, just as it should be done.

"It is people like you, sir, who should be taken out back and whipped into bloody unconsciousness for contributing to hysteria and misinformation"

Interesting hostility on your part. Education furthers intellectual understanding more than torture, and you have educated me on this subject. If you really think I should be "whipped into bloody unconsciousness" for good measure, you might have some issues to be worked out.

Personal attacks aside, thank you again for correcting me on the subject, fenix.

3 points

One of the key additional costs for oil involves transport and refining, a situation of mammoth concern. As the price of refined fuel rises, so does the cost of operating a transport vessel; since the cost of refined fuels is impacted by the cost of oil, we get a rather vicious cycle when oil and fuel prices spiral out of control. Refinery capability and production cycles also feed into this problem; since most refineries in the world are operating well below peak capacity, there is limited storage space available landside. Every day that the oil sits in a cargo hold, the cost of transport goes up, and with New Orleans and Houston at less than 30% production and less than 10% available storage of crude oil, the tankers are unable to run efficiently.

While Big Oil is raking in records profits (since when is a $36 billion quarterly profit simply an "up cycle?"), the oil companies are not wholly responsible for the current prices of oil. The current "price" is actually a speculative price, not a "real" one. Oil speculators have driven prices up while looking for the market's break point, but the oil companies are not as yet paying those costs. They will, in about six months, if the market does not resettle, but until then, they are almost certainly relying on stored crude at the refineries or oil that has been purchased under contract from source nations from months back that has yet to be delivered.

0 points

Also, I'd like to point out that it's not "in America" that prices of oil are increasing. Global prices for oil are rising, and while it's true that the inflation of the US dollar affects this, certain OPEC countries are now beginning to sell oil in Euros instead of the once-standard USD. Simply because the Euro is more stable in value than the US dollar - yet oil prices are still increasing, no matter what exchange standard is being used.

In fact, there is wide speculation that the Euro will replace the dollar as a global currency (such as Vladimir Putin suggesting Russia trade in Euros and not dollars). Losing out to the Euro as the global standard currency will cost us greatly in the long run - when our currency was the global standard, we were able to control commodities and resources much easier because it was our banks that had the power. Prices will inevitably go up, since we will no longer have that buying power.

So really it's a total [maelstrom of crappy circumstances] that causes oil prices to go up: The soon-to-be loss of global economic presence to the Euro, inflation of our dollar, peak oil, a growing demand for oil with a shrinking supply, and instability in the oil industries around the world.

Cienna(50) Disputed
-2 points
Muaguana(154) Disputed
1 point

Oh no! Not a sarcastic rebuttal lacking any solid argumentation and doesn't even address the facts in my post that I base my contention on! Alas the day, what ever am I to do?!

(Note: I'm going to have fun with this one; you want to forgo intellectual discourse and make it a pissing contest in sardonicism, I'm game.)

"Er, you kind of forgot about that oversupply from 2006."

Er, that has no relevance to the data I posted, nor does it, er, have any effect on what, er, I was, er, saying. Er.

You know, it would help if you made an argument and explained the relevance of the aforementioned "oversupply" so I can make a proper rebuttal, because as it stands it doesn't further any point. Er.

"And the video of the OPEC meeting that leaked."

Very ambiguous; how about you actually extrapolate information from your source and form an argument for a change, rather than referencing something and assuming I can read your mind to understand whatever point you're trying to make? I know, what mind-blowing concept.

"And the statements by the various talking heads (with backing) who make it clear the speculator market is responsible for these spikes."

Oh, the esteemed and highly credible "various talking heads" said so, huh? Well, can't argue with those guys; I mean, I don't even know who they are... how can I argue against their wise "statements" that you fail to post or link to your argument if they're so secretive? I guess I'll have to take your word for it at face value then. Not.

"And the weakness of the dollar."

Already mentioned that; kudos for not reading my comments before voting them down and belting out a poorly stated reply.

"Not to mention the herring of China and India will want more oil, oh my!"

I assumed it's common sense that China and India will want more oil. I mean, they're both increasing in oil consumption each year, at a rate much faster than most Western countries. If you have some kind of argument that they DON'T want oil, I'd love to hear it.

"Erm, maybe you missed it, but China is already active in the market as is India... and neither are going to suddenly or exponentially unbalance things."

Erm, have you even done research on this subject before blowing your load on this piss-poor response? No? Didn't think so; how about I enlighten you with some figures, eh? As of 2007, China's oil consumption was 6.93 million barrels per day. Their oil production was 3.73 million barrels a day. Therefore it was importing roughly 3.2 million barrels of oil a day. In the next two decades its consumption is expected to grow at a rate of 7.5% per year (compared to 1% growth for industrialized countries). In the January to April period of this year, imports for China rose 10% from last year. While China's oil production is on a steady rise, it's demand has already far surpassed it, therefore warranting more oil imports.

And as far as India is concerned, it produces 834,600 barrels per day, and consumes 2.4 million barrels per day; it consumes two thirds more oil than it produces. "But", you might say, "India is 'active in the market'! That must mean it doesn't need to import oil!" ERM, no - the numbers are right there, you do the math. Here's another figure: From 2001 to 2006, India's oil consumption increased by 11.9 percent. It's the ninth-largest importer of oil, and by 2030 (if oil is still around by then; this is a mathematical estimate not taking into account oil depletion) it is predicted oil demand would reach 5.6 million barrels per day. Erm, make sense?

For more reading on this subject (notice how I made my argument first, then posted links?), read these articles:

http://www.independent.co.uk/news/business/comment/economic-view-running-on-empty-peak-oil-production-is-in-sight-global-supplies-will-dwindle--and-the-us-for-one-is-illprepared-399827.html

http://www.stls.frb.org/publications/re/2007/b/pages/oil_prices.html](http://www.stls.frb.org/publications/re/2007/b/pages/oil_prices.html](http://www.stls.frb.org/publications/re/2007/b/ pages/oil_prices.html

Now to put the final nail in this issue's coffin: Erm, maybe you missed it, but the fact that China and India are in the market doesn't mean they don't import oil. So, ERM, at their current growth rate, they WILL "suddenly or exponentially unbalance things", as you say. Both nations already import a great deal of oil, and their oil consumption is growing faster than any Western country. It stands to reason that they will import oil to satisfy their needs, and they will demand more and more oil as development continues. Remember: We consume a massive amount of oil, more than 25% of the world's total consumption (this a figure from 2000, so obviously it's much higher now). When India and China become developed, there will doubtlessly be some competition for oil to meet domestic demands. If you think you can contest this, I'd love to hear your logic.

"Maybe you should read the link I gave in my previous post."

Maybe you should actually make an argument rather than dropping ultimatums and parroting slogans, ignoring all the facts and points I make, and essentially say, "I'm right, you're wrong. Haw haw." Are you familiar with "debating" at all?

I read the article. It goes under the assumption that peak oil is non-existent, which is a completely ignorant position to take. You haven't even debunked all the information I posted relating to falling oil production, and you're assuming off the bat it's all bunk and your proposition is correct? Your article doesn't even go into detail how oil depletion is not an issue; it primarily focuses on proving speculation increases prices, nothing further - so how the hell can you just say, "read dat article, yo" and expect me to be blown away and admit defeat? I actually agree that speculation influences prices - that's why I didn't post a rebuttal to your previous post - but to assume declining oil production has nothing to do with this increase is basically arguing with your head up your ass.

One line in your article caught my eye: ". . .given the unchanged equilibrium in global oil supply and demand over recent months. . ." Doesn't explain what this equilibrium is or what this assumption is based on. And it ignores the chaos among the largest oil producing nations in their production levels - this whole article goes under the assumption that peak oil is non-existent, when the data clearly show otherwise. Marion King Hubbert's theory on Peak Oil reflects the reality of oil field production - as production increases, it hits a peak where the most it will ever produce is extracted, and subsequently production falls into terminal decline. His three methods of predicting peak for certain oil fields accurately prophesied the US's oil peak in the 1970s, and oil peaks have been observed in fields around the world, such as the Cantarell supergiant field and the North Sea field, as well as total oil production in countries such as Venezuela, Germany, Tobago, France, Egypt, Iran, Russia, and Canada (not including bitumen).

Here's another line from your article: "Compelling evidence also suggests that the oft-cited geopolitical, economic, and natural factors do not explain the recent rise in energy prices can be seen in the actual data on crude oil supply and demand." Doesn't cite the "compelling evidence", doesn't say what the hell it is, and doesn't give one statistic from the "actual data" that is so decisive... how convenient. "Although demand has significantly increased over the past few years, so have supplies." A nice helping of bullshit; "supplies" have not increased whatsoever; oil PRODUCTION increases with increased development of fields that have not hit peak yet (as well as pumping sea water into oil wells to increase pressure and obtaining oil from "heavy" sources like bitumen, which is more costly than light oil), however the amount of oil in the ground is not increasing, but decreasing. Obviously they know jack shit about retrieving oil, hence their denial of the trends in oil fields and countries to peak then slide in a recession. Even the discovery of oil peaked in 1965; since then we've never discovered a field as massive as Guhwar. On average, the fields we discover are smaller and smaller.

"The conclusion that it's scarcity and demand (aside from inflation) is over-simplified and mis-informed."

You're the one who hasn't made a single damn argument against all the facts I've given. You voted both my comments down, so obviously what I said was wrong, but you don't even try to prove me wrong. I never said I rejected speculation's involvement with rising oil prices, however you have dismissed all other probabilities and embraced that alone, as can be seen by you claiming all other standpoints are too simplistic or misinformed. You make the assumption it's all the speculative market that's behind the price increase, and that's it (apart from inflation, which is the only other possibility you embrace)? You're the one over-simplifying things, not I.

Also, just saying "you're misinformed" doesn't make it the case. You actually have to... I don't know... offer an ARGUMENT or two to prove that allegation, maybe? Is it so hard to request that you actually debate my points rather than dismissing them and making ultimatums? It is? Well, get the hell off this debate site then.

Now that was fun (despite the fact I wasted 2 hours worth of research on a response to a person who can't formulate an argument). Oh, and one more thing: ERM!!!!!

2 points

The question "why is the price of oil rising in America" can be answered in one sentence. There are not enough oil refineries.

Experts say that building new refineries in North America will allow the US to keep up with the increased demands of consumers and lower the cost of their oil and gas production. Environmental concerns however have prohibited development from occurring, and as a result we have suffered.

My solution is that we instead focus on finding safe ways of developing and running refineries.

Did you know that the last refinery was built in 1976? Since then, have we not learned more about how to better safely produce oil?

We have of course, and its time we use this new found knowledge to build refineries in a healthy environmentally friendly way and lower the price of oil.

If we do not keep up with demands, our reliance on foreign, unhealthy, expensive refineries will only continue, and our control on how that oil is refined and produced will be out of our hands, and cost us much more in the long run.

Supporting Evidence: Directory of Operable Petroleum Refineries (www.eia.doe.gov)
1 point

We can thank the speculator's market, the falling value of the dollar, and the abysmal denial of our federal government for the current situation.

While it would be easy and simple to blame 'big oil', the simple fact is that it's never that simple.

Supporting Evidence: Supporting Evidence (www.marketoracle.co.uk)
2 points

Actually, the blame does rest elsewhere. It rests just as well with the avid consumer who wants to pay $1.00 a gallon to fuel an Escalade while complaining about jobs flying overseas and cowering from the ever-present threat of immediate terrorist attack as anywhere else.

Rampant consumerism provides the foundation upon which the speculators gain motivation.

1 point

May not be the primary reason but news of disruptions in Nigeria, one of Africa's largest producers and a major U.S. supplier, have helped push oil prices higher over the past year.

Supporting Evidence: Gas Prices Keep Climbing (www.huffingtonpost.com)
1 point

Supply is not meeting demand.

-2 points
Diluck(51) Disputed
0 points

I agree with you mostly; however I disagree with who you are blaming; (Not to say they aren't partially to blame). It is our monetary system that we must revolt against. The Federal Reserve and other banks should not be allowed to create currency out of thin air. We need to have our money backed by something real like gold or silver otherwise it is only trust that keeps the money valuable. Inflation; which drives prices up, is caused by uncontrolled government spending. The government needs to stop spending money it doesn't have or else our money will eventually become worthless. And it very well may take a revolution to fix that; it did the first time in 1776.

-2 points