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By Robert Rapier on Nov 8, 2007 with 16 responses

Dear Saudi: Stop Hogging Our Oil!

Raymond J. Learsy, author of Over a Barrel,is an idiot. How he managed to write a book will always be a mystery to me. Every time I read one of his screeds over at Huffington Post, I feel dumber afterward. Today’s is no exception:

As Oil Approaches $100, is Saudi Arabia Waging Resource Aggression Against the American People and the World Economy?!

Learsy is upset because Saudi won’t provide the U.S. oil at the price we like. He accuses them of therefore waging aggression against the U.S. I posted a comment following his essay, but they usually don’t post my comments. But what I said was to consider if the roles were reversed. Let’s say Saudi loves American timber. They love it so much that they buy it as fast as we can cut our trees down. But demand just keeps climbing, and we decide it isn’t a good idea to cut our trees down in an unsustainable fashion just so Saudi can have American timber at the price they like. In Learsy’s world, however, America would have the obligation to continue depleting our resources because Saudi can’t control their timber lust. To deny the Saudis their cheap American timber would be to wage aggression against them.

Can you imagine the idiocy of this position? We can’t control our demand, but we expect our supplier to hold prices down on our behalf. This is what we get for having an incoherent energy policy. The U.S., and the world for that matter, can’t rely on Saudi to deplete their resources at a speed that suits us. Those resources are non-renewable. Saudi has to manage them for future generations. If that means it costs more to fuel our SUVs, cry me a freaking river. That’s our problem.

Hey, here’s an idea. Let’s find some political leaders with the guts to implement policies that reduce our demand, and we won’t have to worry about what Saudi is doing with their oil.

  1. By Rob Ryan on April 21, 2011 at 8:57 pm

    Let’s find some political leaders with the guts to implement policies that reduce our demand…

    Why don’t we all put a gas cap under our pillow and hope that the Energy Fairy leaves us an endowment of gasoline? Such a plan is much more likely to come to fruition than the one above.

    We’ll do what you’ve suggested after all military, financial, and begging resources have been expended and the literal inability to pay forces our hand.

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  2. By Rob Ryan on April 21, 2011 at 11:10 pm

    By the way, yours is easily one of the most cogent, well thought out blogs in the energy space. I’ve long since linked it from my blog and encourage anyone with an interest in energy issues to look here.

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  3. By Earl Richards on April 16, 2012 at 1:30 pm

    In the US, Saudi does not set the oil price. The price is set by the excessive demand speculators and the oil market manipulations of the oil traders in the ICE and in the NYMEX.

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  4. By Robert Rapier on April 16, 2012 at 1:33 pm

    In the US, Saudi does not set the oil price.

    The U.S. does not set prices in a vacuum isolated from the rest of the world. Oil is a global commodity; the U.S. does not have its own set of prices. The price in the U.S. is determined by how much people all over the world are willing to pay for oil.

    RR

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    • By Earl Richards on April 16, 2012 at 6:51 pm

      We have two different opinions and we will never agree.  My answer, again, is in  my comment above your comment.

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      • By Robert Rapier on April 16, 2012 at 7:17 pm

        If that were true, why did they allow oil prices to collapse in 2008? Why are they allowing natural gas prices (a much more captive market) to languish below the cost to produce? Why do prices rise and fall in conjunction with prices all over the world? Your explanation does not address these sorts of things. Mine does — and it is based on me actually seeing these things from the inside. What is the basis of yours? Some stuff you read from conspiracy theorists?

        RR   

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  5. By Earl Richards on April 16, 2012 at 8:25 pm

    You do not like Learsy, so may I suggest that you read Engdahl.

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    • By Robert Rapier on April 16, 2012 at 9:34 pm

      Engdahl thinks the Americans were behind the OPEC embargo of 1973 to help out U.S. oil companies, and that oil is abiotic. That tells me about all I need to know about his understanding of the oil markets.

      Look, as I said I have worked in the economics group of a major oil company. We have teams of people whose job it is to project — NOT SET — oil prices. It only works the way you think it works in the comics. Now, you are free to believe the writings of conspiracy theorists who have never worked in the oil industry, but I will try to correct your misconceptions.

      As I said, there is an element of speculation, but that is based on underlying fundamentals. Otherwise, as I have said, natural gas prices would be sky high as well. Why would ExxonMobil want to make a lot of money on oil only to lose money on natural gas?

      RR

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      • By Earl Richards on April 17, 2012 at 3:36 pm

        I have not read all of Learsy’s books and articles. The Americans were not behind the 1973 embargo, OPEC was. The embargo hurt the US economy, but not the oil corporations. Big Oil made fantastic profits, by increasing the price of their petroleum products during the shortage, caused by the embargo.

        The speculation is not based on the underlying fundamentals, it is based on the excessive demand speculation of the speculators and the oil market manipulation and speculation of the oil traders. The cost of the speculation and manipulation is added on top of the fundamental price.

        The Commodity Futures Modernization Act was passed into law on 23 DEC 2000, which gave control of the price of oil to the crude oil futures exchanges. If your economics group wanted to project the oil price, after 2000, all you have to do is follow the price on these exchanges, or ask the exchange what  the will be in the future and they will say, “up.” In 2000, the oil price was around $30 per barrel and in 2008, it was $148, in round figures. This increase of $118 per barrel was caused by speculation, manipulation, fraud and round-trip trades.

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        • By Robert Rapier on April 17, 2012 at 3:49 pm

          But the price today is lower than it was in 2008. How do you explain that? The price in 2008 also plunged from $147 into the $30′s by year end. How do you explain that? These conspiracy theories can’t explain these things, nor why the natural gas price is currently below the cost to produce it. The underlying fundamentals of supply and demand can.

          If you really want to understand the oil market, just look at how explosive the demand growth has been in Asia Pacific. Why do you think that would not impact on the price?

          RR

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          • By Earl Richards on April 17, 2012 at 5:45 pm

            The natural gas price is below the cost to produce it, because of over-production of natural gas, the production of oil of which natural gas is a by-product and because of the mild winter that scaled-back demand.

            If there really is explosive demand for oil in Asia, it would not affect the US price, because China, India are on the other-side of the world. Chinese demand would affect the oil coming Mexico, Alaska, Venezuela, Ecuador, Gulf of Mexico, California, Texas, Louisiana and a few other places. The oil price on the Singapore spot market does not seem to be zooming-up, to meet Asian demand.

            The oil price is oil price is lower now, a good guess would be, less speculation and fewer speculators.  It is difficult to find a reason when the oil price drops, because ICE records are open to the public, and the CFTC will not investigate the NYMEX, so it is difficult to find out what’s going-on. According to Michael Wittner, the oil price dropped to $30, because of slow economic growth.

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            • By Robert Rapier on April 17, 2012 at 6:47 pm

              The natural gas price is below the cost to produce it, because of over-production of natural gas…

              I don’t think you understand what I am asking. If these powerful entities are gaming the oil markets, then why aren’t they gaming the gas markets? The same people who produce oil and are making money doing that also produce natural gas. Why haven’t they run that price up? Your answer falls back to the fundamentals of supply and demand, which you do not accept in the case of oil. I can see no logical reason why you think one is subject to fundamentals and one isn’t. 

              If there really is explosive demand for oil in Asia….

              You can actually look the numbers up yourself and see. In China, for instance, demand for oil nearly doubled over the past decade. The same trend was consistent throughout the developing world.

              it would not affect the US price, because China, India are on the other-side of the world.

              Those tankers go all over the world. We import oil, and therefore we pay world prices. The U.S. is not a closed market isolated from the rest of the world. Oil is a global commodity.


              According to Michael Wittner, the oil price dropped to $30, because of slow economic growth.

              Which is a supply/demand answer. In other words, he is citing the fundamentals and not a conspiracy that fell apart.

              RR

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  6. By Earl Richards on April 17, 2012 at 7:52 pm

    The powerful entities are gaming the oil market, because the oil market is bigger and there is more money to be made in oil than natural gas.

    With respect to the Chinese demand numbers, I would no know where to look for those numbers. Again, the Singapore spot prices do not indicate any great increase in Chinese demand. Increase in demand sounds to me like phony excuse being used by Big Oil , Wall Street and their media pundits to increase the price of oil, i.e., not increase the price of oil in China, but increase the oil price in the NYMEX and in the ICE.

    Tankers for China, Japan and India would probably come from the Persian Gulf countries, the South China Sea area and not from the US trading areas. The US is  a  non-competitive market, despite the fact that it is open to the world, because the NYMEX and the ICE control the oil price. This “world oil price”  does not  affect the NYMEX price and the ICE price.

    Wittner stated that the oil price dropped because of an economic slowdown. I don’t believe him. A drop of $118 in a relatively short period of time, does not quite click with me, there is some kind of funny business going on. The drop in the oil price in 2008, had something to do with the ICE and the public, the FTC and the CFTC cannot have access to their records. ICE can destroy their records if they want to. I am not sure what you are referring to  about a conspiracy that fell apart, if you referring to ICE, it is alive and well.

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  7. By Robert Rapier on April 17, 2012 at 8:04 pm

    The powerful entities are gaming the oil market, because the oil market is bigger and there is more money to be made in oil than natural gas.

    So they just ignore the billions of dollars of natural gas that are traded every day? Looks like these powerful entities could easily juggle both markets, especially since low natural gas prices are taking away from their oil profits. Your explanation doesn’t make sense.

    With respect to the Chinese demand numbers, I would no know where to look for those numbers. 

    I do. There are a number of places you can find that information. Oil consumption in China was 4.8 million barrels per day in 2000 and 9.1 million barrels per day in 2010. Similar demand growth has been seen across the developing world. Believe it or not, that impacts prices.

    This “world oil price”  does not  affect the NYMEX price and the ICE price.

    Let me make you a bet. I bet if you do a correlation between U.S. oil prices and the price of oil in any other market — you are going to find that correlation through ups and downs is very high (I will bet it is over 90%). If you are correct, then the correlation should be low. Agree?

    RR

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    • By Earl Richards on April 18, 2012 at 6:56 am

      Having reviewed your comments and my comments, I have come to the conclusion that your comments and my comments are in two different worlds, that will never meet, like railroad tracks. To counter your arguments and statements, would be a repeat of my comments.

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      • By Robert Rapier on April 18, 2012 at 3:34 pm

        Well, I am not a conspiracy theorist. You are getting your information from those kinds of people. I am getting mine from first hand knowledge of being involved in economic decisions within an oil company. I am confidant I am a more reliable source of information on this than someone like Learsy. Given that you put more trust in him, then no, we won’t see eye to eye.

        RR

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