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By Robert Rapier on Mar 22, 2010 with 63 responses

Energy Security Populism: Oil Prices, American Leaders, and Media

The following guest essay is by Kevin Kane. Kevin is an energy market strategist, Asia political affairs analyst, and Korean language linguist living in Seoul, South Korea. Kevin previously published American Freedom from Oil: A Bipartisan Pipedream.

Energy Security Populism:

Oil Prices, American Leaders, and Media

By Kevin P. Kane

American leaders and news outlets often refer to American-company overseas oil field purchases, oil & gas discoveries, freedom-from-oil initiatives, and offshore drilling as vehicles towards energy security. These efforts do not, and cannot, enhance oil security for the U.S. without simultaneously increasing global oil security—defined as insulation from price and supply shocks.

Inaccurate views and statements coming from our leaders continue to misinform the public about the nature of oil and its relationship to energy security. Insofar, leaders often refer to supply initiatives such as offshore drilling, foreign oil field developments, and exploratory block procurements as national zero-sum pursuits for energy security; statements that perpetuate these views reflect a calculating effort to appeal to American liberal and conservative energy populism. No choice of energy-related rhetoric could be more misleading to the public and farther from the economic and financial integration truth. Although Republican and Democrat leaders are equally responsible for appealing to energy security populism for political support, reporters also help to circulate these misleading and framing-loaded statements through media outlets.

Past & Present Oil Supply Security

In 1980 following Soviet military gains near oil producing states, the Iranian Revolution, the Arab Oil Embargo, and the Organization of Petroleum Export Countries (OPEC) price hikes, President Jimmy Carter contended in his State of the Union address,

“The region which is now threatened by Soviet troops in Afghanistan is of great strategic importance: It contains more than two-thirds of the world’s exportable oil… therefore, that poses a grave threat to the free movement of Middle East oil… An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force…”[1]

President Carter went on to argue that by reducing dependence on Middle Eastern oil, this would make America stronger. This argument reflected a zero-sum national security view of oil, one in an era before the emergence of economic integration, before the decline of OPEC’s influence on world prices, and before the evolution of today’s supply and demand fundamental market forces serving as the dominant driver behind oil prices.[2]

The belief that diversifying oil import sources coupled with securing physical supply for national consumption would improve energy security reflected the reality of the Cold War; we are no longer in the Cold War, although some leaders speak of oil security as though we are! Although many informed energy security advisers in the U.S. may view oil from a market lens that reflects vulnerabilities inherent in financial and trade integration, supply nationalism in the form of energy security populism appears to be creeping back into the hallways of the D.C.-area bureaucracy, at least in rhetoric.

A Survey of Leadership Misinformation

President Barack Obama

President Jimmy Carter set the U.S. on a course towards “energy independence” in his 1980 State of the Union address.[3] Like former President Carter, all of the presidents after him sought to “free the U.S. from foreign oil,” including U.S. President Barack Obama. In 2006 speaking before the Governor’s Ethanol Coalition in Washington, D.C., in a speech tellingly titled “Energy Security is National Security,” the then-Senator Obama contended,

“During World War II, we had an entire country working around the clock… When we wanted to beat the Russians into space, we poured millions into a national education initiative that graduated thousands of new scientists and engineers. If we hope to strengthen our security and control our own foreign policy, we can offer no less of a commitment to energy independence.”[4]

In 2004 when speaking at the Democratic National Convention, the then-Senator Barack Obama quoted John Kerry and said,

“John Kerry believes in energy independence, so we aren’t held hostage to the profits of oil companies or the sabotage of foreign oil fields.”[5]

President Obama and the Democrats are not alone in perpetuating misinformation on oil markets.

Senator John McCain

In 2007 speaking at the Center for Strategic International Studies in Washington D.C., John McCain said,

“As President, I’ll propose a national energy strategy that will amount to a declaration of independence from the fear bred by our reliance on oil sheiks and our vulnerability to the troubled politics of the lands they rule… energy security is our best defense. We won’t achieve it tomorrow, but we must achieve it in our time.”

In June 2008, John McCain also argued in his remarks on energy security and the economy,

“What we really need is to produce more [oil], use less, and find new sources of power…In the short-term; this requires more domestic production, especially in the Outer Continental Shelf… But as a matter of fairness to the American people, we must assure affordable fuel for America by increasing domestic production.”[6]

Former Governor Sarah Palin

In October 2009 through an Op Ed titled “Drill,” Sarah Palin argued,

“Reliance on foreign sources of energy weakens America. When a riot breaks out in an OPEC nation, or a developing country talks about nationalizing its oil industry, or a petro-dictator threatens to cut off exports, the probability is great that the price of oil will shoot up. Even in friendly nations, business and financial decisions made for local reasons can [destabilize] America’s energy market, since the price we pay for foreign oil is subject to rising and falling exchange rates. Decreasing our dependence on foreign sources of energy will reduce the impact of world events on our economy… It’s about building a more secure and peaceful America, an America in which our energy needs will not be subject to the whims of nature, currency speculators, or madmen in possession of vast oil reserves.”[7]

A Survey of Media Misinformation

Perpetuating misinformation, media outlets and journalists also report on oil drilling, nationally owned oil company (NOC) investments, and national energy initiatives as zero-sum increases in a single nation’s energy security. This becomes particularly true when media outlets cover stories on Chinese oil companies investing in Africa or when Chinese NOCs attempt to participate in mergers and acquisitions, including the example of the failed Chinese company attempt to purchase Unocal.

Time Magazine

In 2004, Time magazine ran a major essay written by Mathew Forney, titled “China’s Quest for Oil.” The author attempted to frame the efforts of Chinese oil companies to acquire upstream Exploration & Production (E&P) investments as a national objective aimed at “[securing] long-term supplies independent of the world’s fickle prices.”

Financial Times

On January 20, 2010, the Financial Time released an article by Christian Oliver titled “S. Korea’s [Korean National Oil Company] KNOC eyes $6.5 [billion] oil deals.”[8] The journalist wrote that “Seoul officials have stressed they will strive to avoid being muscled out of resource deals by powerful Chinese competitors…The moves to increase energy security go hand in hand with Seoul’s pledge to reduce wasteful consumption.”[9]

CBS News

On July 17, 2008, amidst high oil prices during the second major peak, only this time driven purely by the fundamentals of supply and demand, Mark Hemingway argued in the National Review Online that,

“An [Oil price] fell another $3.71, to $135.03, and at one point was trading as low as $132… U.S. crude-oil supplies rose by 3 million barrels…but bizarrely, the AP did not mention that…President Bush removed the executive order imposing a moratorium on offshore drilling in the United States. To think that this dramatic and unexpected move by the Bush administration did not have a significant effect on oil prices is folly… The price of gas dropped significantly upon Bush’s word that more domestic offshore drilling was one small step closer to becoming a reality. How much more will it drop if we actually start drilling and producing oil…Of course, it’s not as simple as saying that, if we allow more offshore drilling, the oil companies will have America’s energy problems solved in a mere two years. ”[10]

Summarizing Assumptions: American Leaders and Media

President Obama’s arguments are based on the flawed premises that energy security can be achieved by reducing oil imports without having our trade partners also reduce their oil price exposure, and that oil companies can exert downward pressure on pricing—the converse action of holding hostage the American economy with prices. Naturally, both of the assumptions behind these arguments are flawed.

John McCain went so far as to propose a “declaration of energy independence” while arguing that by reducing oil imports, the U.S. will be able to remove itself from the politics of the Middle East. John McCain went to suggest that energy security in the U.S. could be achieved by increasing domestic production. This implicitly suggests to the listener that such a drilling effort would insulate Americans from world prices through domestic supply. Of course, no matter how much the U.S. drills, domestic oil price will always be the exact same as international oil price. Thus, domestic drilling creates globally supply increases and global energy security, not American energy security per se.

Sarah Palin fares no better than President Obama and Senator McCain, suggesting that by reducing U.S. oil imports, Americans can become “free” from the price insecurities inherent with the Middle East. It is of course impossible to be “free” from Middle Eastern oil in a one-world price system where economic linkages connect us to shocks through the stock market, interest rates, foreign investments, exchange rates, derivatives, futures markets, and not to mention the economies of China, Japan, South Korea, and the rest of the world that depend on Middle Eastern oil. She went on to suggest that the U.S. could do something independent of international action through drilling that would insulate it from “the whims of nature, currency speculators, or madmen in possession of vast oil reserves.” Nothing could be further from the truth. All of the aforementioned leaders are appealing to mistruths, or energy security populism.

Time Magazine ran an article that led the reader to believe Chinese companies were on a quest for world oil domination despite the fact that Chinese companies, CNPC, CNOOC, Sinochem, and Sinopec sell—as of 2004—11%, 92%, 98%, and 99% of their oil production on the world market place, respectively.[11] Thus, they contribute to world energy security, not China’s oil supply relative to the rest of the world’s.

The Financial Times ran an article that suggested a nation’s oil NOC could improve energy security through upstream investments on the other side of the world despite the fact that transportation costs force them to sell the produced oil on the international market place. South Korean, or any other nation’s, nationally owned oil company investments on the other side of the world do nothing to improve their energy security. If KNOC invests in Canada, this does nothing for Korean energy security since they will likely sell the oil to local markets.

Through CBS News, the National Review Online ran a story suggesting that a change in offshore drilling policy—despite that policy not immediately resulting in a supply inventory change—influenced oil prices. It is obvious to anyone who follows oil markets that a White House statement about investment in the Gulf of Mexico will not result in meaningful price changes in oil prices unless it results in daily production changes so significant it expands global, not American, supply. Correlations are not the same as causation.

Not understanding the nature of oil companies , oil economics, derivatives—risk and hedging, and price discovery in a one world oil demand and supply system, leaders are either misinformed or misleading when speaking to the public about oil prices: both explanations however are equally as troubling. If they are misleading, they are pursuing populism. If they are misinformed, they may not be qualified to lead.

Such Views or statements as those described above promote conspiracies, and economically uninformed nonsense about investment banks, oil companies, and OPEC. The continued circulation of massive misinformation on oil supply initiatives will lead to an energy security bubble that will burst at the first chance such energy security measures are tested in our globalized economy.

Correcting the Way we Frame Oil

It’s time for politicians to either read about the fundamentals of oil markets, or if they do already understand them, stop pursuing the low hanging populism fruit by promoting the continued circulation of misinformation through national pride-pandering statements such as those presented by the aforementioned public leaders. Such misleading statements about oil promote energy security populism and the following deeply flawed beliefs among the public,

(1) Domestic oil prices can be eased separate from world prices through increases in domestic supply

(2) Countries acquire oil rather than companies who discover it for market sale

(3) Companies that acquire oil sell it to their home country as opposed to selling it on the market place

(4) Acquiring physical supply benefits countries in a zero sum relationship

(5) NOC and private company upstream investments will increase domestic supply

(6) Oil is a public good when within a country boundary, and consumers are entitled to it

In order to explain what is wrong with the above views, let us take a look at the “Oil 101” fundamentals of the oil market.[12]

“Oil 101”

Oil prices derive first from physical supply and demand fundamentals. Oil futures contract—an agreement to purchase oil at a future date—traders analyze these fundamentals by introducing information on a commodity exchange market—primarily on the New York Mercantile Exchange (NYMEX) and the International Continental Exchange (ICE). They introduce information and factors—such as supply changes, present and expected demand, and spare capacity—they believe determine oil’s market value—defined in prices—in the near and long-term.[13] [14] Through the introduction of this information, traders participate in the process of price discovery.[15] On NYMEX, spot market prices for West Texas Intermediate (WTI) crude oil are discovered, and ICE Brent Crude prices are generally set at or around this price. Oil suppliers around the world base their prices generally on the same, or closely similar, prices as WTI depending on benchmark formulas as well as the benchmark itself.[16] Ceteris paribus, the rest of the world crude oil spot markets and Over-The-Counter (OTC) crude oil market traders are approximately the same price as WTI with the exception of minor occurrences of arbitrage, benchmark formula variances, and transportation costs.[17]

On the issue of the emotionally loaded concept of “excessive speculation,” the OTC market derives oil prices from the futures markets. Thus, investment banks cannot exert any sort of pressure through derivatives on oil prices despite some—excluding the former Commodity Futures Trading Commission (CFTC) senior economist who found they do not influence prices—in the U.S. CFTC trying to encourage us to believe otherwise without any empirical—causal and not correlative—evidence to back up their politically motivated arguments based on time order correlations and “what ifs.”[18]

In addition to our single supply and demand oil market serving as a priori evidence the aforementioned views are flawed, globalization and interconnectedness further complicates oil markets and energy security.

Oil Shocks in an Era of Financial and Economic Integration

Of the newest issues in oil supply security, economic and financial integration appear to be the least discussed aspects of any single nation’s oil supply and energy security calculations. In an era of goods and financial services economic integration, if one globalization-connected country’s economy experiences a supply shortage or price shock, seemingly distant and unrelated, but economically integrated, countries will feel the effects of these shocks in their own trade and financial sectors, just as they did during the 2008-2009 Financial Crisis.[19] Thus, the pursuit of “freedom from oil” and energy independence reflects a pre-globalization view of the world: also known as Cold War thinking. On the other hand, one country in this world has achieved energy independence and freedom from foreign oil: North Korea. Therefore, perhaps not all hope is lost for the donkeys and elephants who aspire to rally Americans behind their campaign for freedom from foreign oil.

The bias in our terminology towards energy security is so commonplace that it permeates even in the most basic terminology we use to describe oil. For example, in our single supply and demand curve global oil market, there is no such thing as “foreign” oil. The term “foreign” before the word “oil” encourages people to view oil supply and the companies that acquire it from a flawed lens since it would have us implicitly assume that there could be a national role in the pursuit of oil resulting hopefully in a two price and supply structure: foreign and domestic. Nothing could be farther from reality and more impossible. First, there is only one kind of oil: not foreign, not domestic. Second, in an age of globalization, U.S.-based multinational companies are not American anymore since they belong to stockholders who may be from any nation around the world. Their profits, successes, and losses do not belong to the American people.

The oil market operates almost exactly the way a perfectly working market would in an economics textbook. With thousands upon thousands of individual players in the global oil market, we all purchase oil from the same exact global pool regardless of where it is produced. Thus, the market is out of the control of any single government or oil company, even Saudi Aramaco. We are no longer in the Cold War.

Energy Security Populism: Changing the Words We Use

In order to move past the Cold War and into our present reality, we have to start with the following approaches to correcting misinformation on oil,

(1) Pressure our leaders to use the direct truth as the basis for persuasion, which requires using vocabulary that accurately represents what a policy will achieve. Our leaders have to correct flawed views and cease the use of pride-pandering statements that relate to oil markets through direct and concise, even condescending if necessary, language.

(2) Pressure media outlets to stop reporting on company oil investments as zero-sum national gains by removing terminology like “energy security” and “foreign oil” from their vocabulary.

Our leaders should trust the American people to be educated enough to understand that, first, we have no natural right to low oil prices, and second, that we should support oil companies not for energy security, but because it gives profits to companies—especially those in the Middle East—that have used their earnings to raise 4/5 of the world out of poverty over the last twenty years thanks to their investments in producing and supplying fuel to the world’s economy.

Our leaders must encourage Americans to embrace the market place as the proper means to determine who will get what rather than their government through freedom from oil and energy security populism. Our leaders must communicate to the truth to the people, that the market place is more powerful than any single country or investment bank. We are all without paddles in the same ocean, trying to steer the boat together with each nation on board. One nation’s energy problem is another nation’s economic problem. This is the reality from which our leaders should initiate their public discourse on oil.

Works Cited


[1] Jimmy Carter. “State of the Union Address 1980.” (January 23, 1980),http://www.jimmycarterlibrary.gov/documents/speeches/su80jec.phtml (accessed February 09, 2010).

[2] James Hamilton, “Understanding Crude Oil Prices” Department of Economics, University of California, San Diego (May 22, 2008), 20-25, http://dss.ucsd.edu/~jhamilto/understand _oil.pdf (accessed February 09, 2010).

[3] Jimmy Carter. “State of the Union Address 1980.” Jan 23, 1980.http://www.jimmycarterlibrary.gov/documents/speeches/su80jec.phtml (accessed February 09, 2010).

[4] Barack Obama. “Energy Security is National Security.” February 28, 2006.http://obamaspeeches.com/054-EnergySecurity-is-National-Security-Governors-Ethanol-Coalition-Obama-Speech.htm (accessed Feb 10, 2010).

[5] Barack Obama. “2004 Democratic National Convention Keynote Address.” Keynote, Democratic National Convention, Fleet Center Boston, http://www.americanrhetoric.com/speeches/convention2004/barackobama2004dnc.htm, July 28, 2004. (accessed Feb 10, 2010).

[6] John McCain. “Remarks on Energy Security and the Economy” Remarks. Arlington Virginia.http://www.procon.org/sourcefiles/McCain20080618.pdf, June 18, 2008 (accessed Feb 10, 2010).

[7] Sarah Palin http://article.nationalreview.com/410205/drill/sarah-palin, October 16, 2009 (accessed February 26, 2009)

[8] Christian Olive, “S. Korea KNOC eyes $6.5bn oil deals,” Financial Times Online, http://www.ft.com/cms/s/0/174ce20c-0590-11df-88ee-00144feabdc0.html January 20, 2010. (accessed January 20, 2009).

[9] Ibid.

[10] Mark Hemingway, “The Immediate Benefit of Offshore Drilling,” National Review Online, CBS News online, July 17, 2008,

http://www.cbsnews.com/stories/2008/07/17/opinion/main4267743.shtml?source=RSSattr=Opinion_426773 (accessed March 2, 2010).

[11] Erica Downs, “China,” Brookings Institute, The Brookings Foreign Policy Studies Energy Security Series (2006): 43, http://www.brookings.edu/~/media/Files/rc/reports/2006/12china/12china.pdf(accessed February 10,2009).

[12] Morgan Downey, Oil 101 (Wooden Table Press LLC, 2009).

[13] U.S. Government, “Interim Report on Crude Oil” Inter Agency Task Force on Commodity Markets, Commodity Futures Trading Commission (2008). 17-29. http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/itfinterimreportoncrudeoil0708.pdf (accessed January 10, 2010).

[14] Morgan Downey, Oil 101 (Wooden Table Press LLC, 2009), 331-340.

[15] Ibid, 331-340.

[16] Ibid., 320-322.

[17] Morgan Downey, Oil 101 (Wooden Table Press LLC, 2009), 331-340.

[18] This author thanks Morgan Downey for explaining why the OTC market cannot exert influence on price discovery.

[19] Kevin Kane, “American Freedom from Oil: A Bipartisan Pipedream,” The Oil Drum, December 16, 2009. http://www.theoildrum.com/node/6045 (accessed February 15, 2009).

Author Bio

Kevin Kane is an energy market strategist with the Korean Energy Economic Institute, South Korea. Kevin offers energy firms seven years of cumulative experience leading in business development, international project management, energy market analysis, and Asia-U.S. business and strategic government relations.

Presently working on projects related to green growth and oil markets, Kevin looks forward to utilizing his energy expertise coupled with his diverse international strategic affairs experience to work with companies that wish to penetrate and excel in Asian and North American markets.

Kevin’s Resume

Email: KevinPKane@Gmail.com

LinkedIn: http://kr.linkedin.com/in/kevinpkane

Website: Energy-Fanatic.com

  1. By rufus on March 22, 2010 at 12:18 pm

    $2.00/gal cellulosic ethanol courtesy of Novozymes, and Dupont-Danisco.

    Two 10 million gpy refineries in each county. 60 Billion gpy. Next.

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  2. By Kup on March 22, 2010 at 12:22 pm

    Kevin,

    Thanks for the post but I’m not so sure how persuasive your argument is. For example, you state “we should support oil companies not for energy security, but because it gives profits to companies—especially those in the Middle East—that have used their earnings to raise 4/5 of the world out of poverty over the last twenty years thanks to their investments in producing and supplying fuel to the world’s economy” but that argument is, IMHO, clear as mud and a bit misleading to boot.

    Yes, I’m very thankful that I live in an era of cheap fossil fuels. It has raised the living standards of millions, even billions of people, all around the world and that is all good. But the reason I drive my car and use fossil fuels is so that I can earn a paycheck, go get food, see the world, etc. The fact that the fossil fuel, at least part of it, is coming from the Middle East who use some of that money to raise standards of living for their citizens is a serious after thought to me and is not remotely the second most important consideration.

    Further, I don’t have a problem with the governments in the Middle East using the profits to improve their citizen’s lives. I have a problem with them unduly enriching themselves; not preparing their people enough for the post fossil fuel era and using their profits for very unsavory actions like funding Hezbollah and Hamas and building fundamentalist madrasas that promote Wahabi-ism.

    It seems to me that you are arguing about the semantics of our politicians while I’m much more interested in thinking of the desired outcomes of the actions of our politicians. If we can reduce our consumption, and simulatanesouly increasingly switch to alternative energy sources, while maintaining some semblance of our lifestyle, the language used by the politicians doesn’t overly concern me while it seems to be your primary concern.

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  3. By rufus on March 22, 2010 at 12:52 pm

    figuring 700 gallons/acre it will take about 14,000 acres or 4.7 miles square to produce 10 Million gal of Cellulosic ethanol from switchgrass, poplar, etc. You could supplant some of this with agricultural waste (corn cobs/stover, wheat straw, etc.)

    Put one plant on the North end of the county, one on the South. Use about 4% of your most “marginal” land. 60 Billion Gal/yr. Doesn’t even include the 7 to 10 Million gal/yr for each county for municipal solid waste. Another 21 to 30 Billion gallon/yr for the U.S. as a whole.

    Plus, of course, the 15 Billion Gallons from Corn Ethanol. Brings you to 95 Billion gpy; add in some fuel efficiency for our vehicles, and we’ll be wondering what to do with all of our Domestically-produced oil.

    This is really, really easy.

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  4. By rufus on March 22, 2010 at 1:01 pm

    I’ve got to think that we’ll be able to “cookie-cutter” these cellulosic plants in for $3.00/gal per year, or about $30 Million for a 10 Million/yr facility. That brings our cost for the cellulosic facilities to around $180 Billion – or, about what we’re spending in the Afpaki/Gulf region, now. Except, it’s a ONE-TIME investment, not a Yearly investment.

    The Bad Part: This probably does NOT give Exxon the warm, and fuzzies.

    Nor does it give orgasms to the eco-armageddonists that want us to move back into the caves and slowly starve to death.

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  5. By armchair261 on March 22, 2010 at 2:03 pm

    A nice article, but what an uphill battle we face as responsible consumers of energy to meet the goals stated in the closing section. Drop in on, say, a garden variety MSNBC blog on the latest oil news, and you’ll see the depth of distrust held by the American people.

    Good recent examples of media irresponsibility:

    - In today’s LA Times, a letters to the editor writer suggested that the wave of mergers executed by Exxon, BP, and Chevron has created an oligarchy that is largely responsible for recent price surges. One of the nation’s largest newspapers saw fit to give credibility to this writer, who failed to note that the combined global market share of the three companies he criticized is about 6%.

    - A recent 60 Minutes documentary on the oil business included a reporter interviewing a refinery manager. The reporter stressed that the number of refineries in the US had declined over the past few decades, adding a flavor of intrigue to the show. He failed to mention that US refinery throughput capacity had increased significantly over the same time frame.

    Finally, although the concept of energy security is a little shaky, nevertheless there are real benefits to domestically discovered oil beyond the marginal price change. New oil supply means more jobs and a lower trade deficit.

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  6. By Benny BND Cole on March 22, 2010 at 3:38 pm

    Good article, but I do disagree with some of it.
    Iwould not so easily dismiss the ability to game futures markets. Obviously, oil exporting nations have a deep stake in fostering higher prices–witness deliberate and public actions by OPEC to take product off the market in recent years. I would say Putin would be remiss in his duties to his country and his own survival if he did not try to game the MYMEX. Obviously, Putin would have zero ethical concerns, or legal worries. So, we can assume Putin is trying to game the NYMEX.
    The Hunt brothers did in fact game silver markets in the 1980s. They had but the merest sliver of OPEC exporting nations, or even a Goldman Sachs.

    As to energy secuirty, I think the concerns are real, and that energy independence is a viable and desirable goal. OPEC and other oil-exporting nations are thug states, with no cares about property rights, human, rights, contract law, press rights. Therefore, they are unreliable despots.

    We could see a fair fraciton of oil supplies go off the market in some sort of political turmoil.

    Lastly, buring fossil feuls does pollute. If we can migrate to PHEVs, we will reap cleaner air and a better balance of trade, and more domestic jobs.

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  7. By Paul N on March 22, 2010 at 4:10 pm

    I’m with you Benny – I don’t agree with all of this article. (btw, I have added the N to my name in anticipation of other Paul’s joining RR’s new blog location)
    Fundamentally, I don’t see what is wrong with a nation wanting “energy independence” -it is the same thing as any person/family wanting “financial independence”. While the rational economic view presented here, that you can always buy oil in the market, without having to “secure it” is true most of the time, there are times when it is not. The OPEC oil embargo was such a time, where it was not available, period. Look at what happened when food prices spiked in 2008 and countries suddenly banned exporting their own food – it could easily happen with oil.

    A country, like the US, that is primarily dependent upon imported oil is the equivalent of a household living paycheque to paycheque – as soon as that reliable flow is disrupted, things go south very quickly. For the US government, half the problem is not that things would be that bad, but that people will think it is that bad, and start to behave irrationally. Companies are unwilling to invest in new projects in such times, people hoard their cash (and fuel) etc etc. It is a reasonable goal for a government to avoid these situations.

    If there were no geo politics involved in oil, putting the countries fate in the hands of the market would be fine, but there is politics involved and if other countries see oil as a noose that can be tightened, sooner or later, it will happen. A prudent government keeps its options open, all the time.

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  8. By Benny BND Cole on March 22, 2010 at 8:01 pm

    Paul N-

    Now that you have added in your commentary, I have to say I agree especially with your sentiments about having options. If our only option is a loose confederacy of thug states, that is a poor option indeed. Oh sure, they have to sell the oil–but they can last longer than we can, in a stand-off. Moreover, due to internal turmoil, they may not be able to sell the oil–religious nuts take over Saudi Arabia, and declare oil wealth is polluting the country, for example. Not likely, but then religious fundamentalism is rife in the Mideast to say the least.

    Addtionally, it seems to me the more oil demand we can displace through increased domestic supply or substitution, the lower the global price for oil will be. We are such a large consumer, that we could perhaps tanbk the price of oil for a long time, just by restricting–a double savings for us.

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  9. By Paul N on March 22, 2010 at 8:23 pm

    Benny,
    “e are such a large consumer, that we could perhaps tanbk the price of oil for a long time, just by restricting–a double savings for us”
    I coulldn’t agree more. If the Us was able to get by with it’s own production + imports from Canada/Mexico, I would call that energy independence. And if that were to be achieved, such that the US did not have to buy ANY oil on the world market, the price would drop dramatically.

    I have said before, buying oil from the thug states is a mug’s game. Whoever can get out of it first, wins, and reclaims their independence.

    I just don’t understand why it has not become a real national priority for the US. Unlike health care, eliminating mid east/Venez oil imports is something everyone can agree on, can participate in the process, and the results can be measured very easily.

    All that is need to start, would be for every project that gets federal funding to have an oil reduction component, and some threshold of barrel/day saved per $ spent.

    In that context, we would still end up funding Range fuel type projects, but we wouldn;t be paying for solar panels on roofs, for teachers to stay on the job at their inflated pay, etc etc.
    Instead of having the Army in the mid east, have them building CTL plants, or something

    Of all the projects that the government (of either party) could embark on, this is the only one that I think would truly capture the imagination and motivation of the people, and thus actually succeed.

    I cannot see our leaders saying or the people accepting “Our leaders must communicate to the truth to the people, that the market place is more powerful than any single country or investment bank.”. I think the American people, and the people of any country, would all like to believe that their country is NOT dictated to by “the market”.

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  10. By armchair261 on March 22, 2010 at 9:22 pm

    Paul/Benny,

    i think you are missing one of the key points the author makes. Let’s suppose the US is self sufficient in energy in 2018, and achieved in this time frame (improbably) by a combination of rapid introduction of natural gas as a transportation fuel replacement (direct or indirect), an aggressive domestic drilling program, and far better than imagined drilling and extraction success.

    But suppose Japan, Western Europe, China, and most other nations are not so successful in their self-sufficiency programs. They still rely on imported fossil fuels.

    I think the point the author is making is that we still wouldn’t be energy independent, because if a Middle Eastern regime took the kind of actions you fear, it would cause massive disruption to the world’s economies. The US might be a fossil fuel island in my scenario, but it wouldn’t be an economic one. A future Saudi despot turning off the spigot would still do great harm to the US; it would only be indirect in the sense that it would lead to global recession.

    Now, if we instead became energy independent by discovering and implementing a cheap alternative(s), it would be a completely different ballgame. In that case, other countries could also use our technologies, and the threat of oil supply disruption would lose at least a lot of its influence on the global economy.

    But, we’re not there yet, and until that time, I agree with the author. The US needs to be collectively sat down and read the facts of life when it comes to energy.

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  11. By Kevin Kane on March 22, 2010 at 11:12 pm

    Armchair261,

    Thank you for capturing what perhaps may be the most important argument in my essay.

    Sincerely, Kevin Kane

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  12. By Kevin Kane on March 22, 2010 at 11:15 pm

    Benny BND Cole,

    Consumers should game on higher prices since its too their economic benefit in the long run. First high prices induce conservation and efficiency seeking technology, and second they result in directly measurable and solidly empirical increases in E&P around the world. Both of these efforts increase absolute supply of oil relative to world demand.

    Sincerely, Kevin

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  13. By Kevin Kane on March 22, 2010 at 11:16 pm

    Benny BND Cole,

    Consumers should game on higher prices since its for their economic benefit in the long run. First high prices induce conservation and efficiency seeking technology, and second they result in directly measurable and solidly empirical increases in E&P around the world. Both of these efforts increase absolute supply of oil relative to world demand.

    Sincerely, Kevin

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  14. By Kevin Kane on March 22, 2010 at 11:17 pm

    Benny BND Cole,

    Please pardon me, “its for their economic benefit…”

    Sincerely, Kevin

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  15. By rufus on March 22, 2010 at 11:27 pm

    Yep, the more Saudi Arabia robs us, the better off we’ll be. Got it. Boy, wuz I dum.

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  16. By Paul N on March 23, 2010 at 12:00 am

    Armchair 261 wrote “Now, if we instead became energy independent by discovering and implementing a cheap alternative(s), it would be a completely different ballgame.”

    I am in agreement with this statement, and I would suggest that natural gas represents the current ,best cheapest, proven technology, scalable alternative.

    Biofuels, like ethanol, are not a large scale option for Europe and certainly not Japan

    Then we are left to hope for some breakthroughs on electric cars, and I wouldn’t bet the future on that. And as for conservation, Japan, Europe and the rest of the world is already well ahead of N. America.

    I am in favour of a domestic high price, via an import tariff, but that’s the extent of it. Otherwise, transferring any more money to mide east is plain silly, and I can’t see how any domestic consumer will see themselves paying high prices for imported oil is good. If they are paying high prices to NOT import oil, by import tariff, more domestic ethanol, etc etc, they can probably live with that.

    Agreed that an oil shock would still hurt the rest of the world even if N. America is independent, but let’s face t, with US put of the world oil market there is more to go around and far less “tension” and chances of a shock. That, alone, would be the next best thing to development of a new, oil free technology (other than NG), and has a better chance of happening, in my opinion.

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  17. By rufus on March 23, 2010 at 12:56 am

    Europe, and Japan can do what they want, but I could have the United States off imported oil in Six Years, easy. Two 10 million gpy cellulosic biorefineries in every county. No muss. No fuss. 6 yrs.

    Require All new autos to be flexfuel, immediately. (Half of all miles are put on by cars six years, and newer.) Require all nonflex fuel cars built after 2000 be converted (approx $200.00)

    That’d do it.

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  18. By rufus on March 23, 2010 at 1:01 am

    Total “one-time” cost: approx. $200 B. (including cost of converting non FFV cars to Flexfuel)

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  19. By Kevin Kane on March 23, 2010 at 1:24 am

    Rufus,

    I can definitely tell you have not studied anything about oil economics, and never have you looked at the freely available data at the Department of Energy, Energy Information Agency. Saudi Arabia is one, of many players, in the world oil industry. No matter how much money Saudi Arabia makes, it has nothing to do with oil prices or your gasoline prices.

    Sincerely, Kevin

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  20. By armchair261 on March 23, 2010 at 1:27 am

    Paul N,

    I also think that natural gas has tremendous potential. But here’s a case where the author’s point on US energy illiteracy comes into play. Do US politicians welcome the development of natural gas, a possible domestic game changer, source of jobs, cleaner fuel, tax revenues, and lower trade deficits? Some do… but many others focus solely on the perceived environmental dangers of gas shale fracture stimulation. Wait, me let me rephrase that. Many politicians, taking for granted that the oil industry is out to rob Americans and maximize environmental damage for the sheer enjoyment of it all, will not accept scientific evidence based on 60 years of fracture stimulation experience, because it comes from the Bad Guys. And, they reason, what’s bad for the Bad Guys must be good for the country (and incidentally their election chances).

    People who think like this are not insignificant in number, and they may throw a roadblock in the way of US natural gas development. That’s not to belittle the environmental concerns (obviously no one wants water tables ruined), but it’s all about how opponents view risks, costs, and benefits. I don’t think that that view is objective or based on sound science. The threat is real enough that Exxon felt compelled to insert a safety clause into their XTO takeover agreement, in order to protect them in the event they were barred from developing XTO’s gas shale assets using fracture stimulation technology.

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  21. By Kevin Kane on March 23, 2010 at 1:42 am

    There are many empirical +100 country statistical case studies out there that show that companies are often better preservers of the environment than governments due to their ability to place a value on a finite resource while governments are generally unable to do so: Property Rights 101. Moreover, company stockholders fear environmental moral hazards that could adversely affect public opinion (lessons from the Exxon Valdez spill), and then their dividends. Thus, companies are often better preserves of environment than government. Unfortunately however, stock holders are often portrayed in the media as fat rich people. Its normal middle class hardworking Americans who are often stock holders. While I was a soldier, we all often attended classes on how to invest. Its normal Americans who own these companies: not some mythical bad guys in black suits.

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  22. By armchair261 on March 23, 2010 at 1:52 am

    Exactly. Why would an operator by cavalier about environmental damage? When you consider the costs of cleanup and remediation, lawsuits, lost production, and reputation… and possible loss of business license (think Santa Barbara Channel), operators have every incentive in the world to keep clean. But this is only the case because of the laws and social customs that are in place. The incentives weren’t so strong in, say, 1923. So there is something to be said about federal regulations… as long as they’re reasonable, informed, and achievable, and still allow the operator to do business.

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  23. By Paul N on March 23, 2010 at 4:07 am

    Armchair/Kevin,

    I thionk the Bad Guys are the ones in Saudi etc. If the American people would truly vote to keep getting oil from their when they have a made in America alternative, then America deserves what’s coming to it.

    The shale frac thing, well, we’ll see. I’m sure the industry knows it is under the microscope, and if they can do it cleanly, they will have a green light to power America! AGree with Kevin about companies (now) doing their part on env protection, if they don; they don;t get to operate, simple as that.

    Much as we like to bait Rufus, he does have a pint about ethanol, in the context of a serious attempt to eliminate oil imports. Not displace entirely, but if gasoline use is cut i half, and current ethanol production (10% is doubled), it suddenly becomes 40% of what will be used – a significant portion.

    I have said before, and will say again, my ideal flex fuel vehicle would run on ethanol and NG, and unbeatable combination for a high compression engine (diesel efficiency). And you could substitute methanol, or hydrogen (in CNG as Hythane) lots of options to be had, once you reject gasoline – but that’s the hard part…

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  24. By russ on March 23, 2010 at 5:20 am

    Excellent article Kevin – thanks!

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  25. By rufus on March 23, 2010 at 8:22 am

    Got’cha Kevin. Saudi Arabia isn’t the country that manipulates prices by holding oil off the market, and organizing other ME countries to do the same. Silly me.

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  26. By rrapier on March 23, 2010 at 12:25 pm

    Rufus said:

    Yep, the more Saudi Arabia robs us, the better off we’ll be. Got it. Boy, wuz I dum.


     

    But domestic robbery is much better, eh?

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  27. By rrapier on March 23, 2010 at 12:27 pm

    Rufus said:

    Europe, and Japan can do what they want, but I could have the United States off imported oil in Six Years, easy. Two 10 million gpy cellulosic biorefineries in every county. No muss. No fuss. 6 yrs.

    Require All new autos to be flexfuel, immediately. (Half of all miles are put on by cars six years, and newer.) Require all nonflex fuel cars built after 2000 be converted (approx $200.00)

    That’d do it.


     

    Getting the U.S. off of imported oil is trivially easy to do on paper. No technical challenges to overcome at all. All I have to do is use rosy assumptions, and suddenly we are off of imported oil. Of course we are all very familiar with rosy assumptions gone awry when they start to actually build plants.

     

    RR

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  28. By armchair261 on March 23, 2010 at 1:03 pm

    “I think the Bad Guys are the ones in Saudi etc.”

    I don’t think the majority of the general public distinguishes between OPEC and the rest of the oil industry. This is the problem. They are all perceived as being part of some blurry monolith called Big Oil.

    I also believe that if the US had won the geological lottery instead of the Saudis, the US government would probably take steps to discourage dumping oil on the market (it has removed oil from the market in the past, such as the NPR’s in Alaska and Elk Hills, and the SPR), because this would threaten its long term security. Because the Saudis aren’t acting in the interests of American drivers, it doesn’t necessarily follow that they are doing something “bad.”

    Finally, I think the power of OPEC is overrated. They were around for the price collapses in 1986, 1998, and 2008, and were around from 1986 through 2000 when oil stayed pretty close to $20 for just about the entire period. They are well aware that excessively high prices will choke demand and encourage competing forms of energy.

    “If the American people would truly vote to keep getting oil from their when they have a made in America alternative, then America deserves what’s coming to it.”

    Yes, but what’s that alternative, right now? There isn’t one. So in the meantime it really doesn’t matter where America buys its oil, as far as prices are concerned. If you refuse to buy from the Saudis out of principle, they’ll just sell to someone else, and that someone else’s previous supplier will sell to the US instead. It’s a hollow and transparent gesture. An incremental Saudi barrel is no different, as far as US prices go, to an incremental barrel from Texas.

    “The shale frac thing, well, we’ll see. I’m sure the industry knows it is under the microscope, and if they can do it cleanly”

    But they HAVE been doing it cleanly, for about 60 years. Just because it’s recently come to the public’s attention doesn’t mean it’s a new and untested technology.

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  29. By rufus on March 23, 2010 at 1:23 pm

    No Alternative?

    Give me $200 B (about the cost of one year in Iraq) and I’ll put the Saudis back on their camels.

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  30. By armchair261 on March 23, 2010 at 2:00 pm

    No realistic alternative, I meant. :-)

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  31. By Benny BND Cole on March 23, 2010 at 2:33 pm

    Kevin Kane- Thanks for your reply to my post.
    You raise a valid point–an oil cutoff to the world would injure us.
    But if we became energy indpendent, there would be a near-chronic glut of oil on world markets. Any cut-offs that hurt would be decades in the future.
    Also, you did not address gaming of the NYMEX. I think it is a serious weakness in current oil and trade markets.
    We are exporting hundred of billion of dollars, that could be directed to Penn. and LA. gas boys. They would spend the money here.
    Perhaps I lack the requisite comopolitan virtues, but I would rather give money to some US gas guys than a thug state.

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  32. By rufus on March 23, 2010 at 2:36 pm

    If raising a few acres of switchgrass, or some poplar trees isn’t a “realistic” alternative, I guess I really don’t understand the words “realistic,” and “alternative.”

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  33. By Paul N on March 23, 2010 at 3:48 pm

    Rufus, not saying it can;t be done, assuming that a practical way of making ethanol from switchgrass can be found (it hasn’t yet), but I don’t see the ethanol industry putting forward such a plan today, nor at any time in the recent past . If you could do it in six years, then surely the industry can.

    BY my calcs, you would need about 100 million acres, which is hardly a few, and I’m not sure if it s realistic in any time frame, let alone 6 yrs.

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  34. By Better Rufus on March 23, 2010 at 3:53 pm

    Wow, the guy with my same name is dumb as a rock.

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  35. By rufus on March 23, 2010 at 4:38 pm

    Paul, both Poet (Novozymes enzyme,) and Dupont Danisco (Genera – Vonore, Tn) are running pilot plants as we speak. Both say their “Commercial” plants will produce cellulosic ethanol for right at $2.00/gal. These are responsible folks. If they say $2.00 I have to believe it will be $2.00.

    Our farmers know how to grow “grass” and bale straw (and, they have the equipment.)

    ICM, Broin, and Fagen know how to build the refineries.

    Uncle Sam, sure as shootin, knows how to lend.

    It’s a slam dunk, son. All it would take, now, is a “committed” government.

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  36. By Kevin Kane on March 23, 2010 at 9:56 pm

    Benny,

    I have the terminal derived data from NYMEX that is reported to CTFC. There is zero empirical evidence anyone is gaming NYMEX.

    To whoever it concerns,

    If Saudi were hiding oil and holding it off the market, they wouldn’t be drilling for it offshore. A little a priori logic does wonders.

    Kevin

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  37. By rufus on March 23, 2010 at 11:44 pm

    My little a pinhead logic tells me that Saudi Arabia, and the rest of OPEC took 4 Million Barrels off the market in the 4th quarter of 2008.

    Chart here:

    http://europe.theoildrum.com/n…../6304#more

    But, understanding, as they do, that production from current wells is declining at the rate of about 4 Million Barrels/Day, annually, they are drilling exploratory wells in many places.

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  38. By od on March 23, 2010 at 11:51 pm

    Kevin,

    I do not believe the statement If Saudi were hiding oil and holding it off the market, they wouldn’t be drilling for it offshore. is necessarily true. Saudi has been invested in offshore drilling since the 1950s. This isn’t something new to them. They began offshore exploration in the 1940s.

    And how distasteful Better Rufus to make an account for the soul purpose of trolling. Have you nothing better to do?

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  39. By Kevin Kane on March 24, 2010 at 1:50 am

    OD,

    Perhaps there is truth to your argument. I can’t claim to be an offshore E&P expert. Feel free to email me anytime if you have some further reading that can perhaps refine my arguments on this matter.

    Sincerely, Kevin

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  40. By rrapier on March 24, 2010 at 5:48 am

    Rufus said:

    If raising a few acres of switchgrass, or some poplar trees isn’t a “realistic” alternative, I guess I really don’t understand the words “realistic,” and “alternative.”


     

    Again, it is surely that easy on paper, but in real life you have real technical challenges to deal with. I can name them. To you, they are mere abstractions that you can wish away. But this is why we don’t have commercial cellulosic ethanol plants today. The technical challenges are real. And if POET manages to produce some cellulosic ethanol from corn cobs, I can give you several reasons why that is very different from the situation with switchgrass.

     

    RR

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  41. By Benny BND Cole on March 24, 2010 at 2:51 pm

    Kevin-
    I don’t understand your statement. You say there is no evidence based on evidence you have. But what is the evidence? “Terminal data” I am not sure what that means.

    There are quotes from actual oil traders that the current market is a result of speculation and manipulation.

    This from heatingoli.com today:
    Speaking at a conference in Geneva, two ministers of OPEC member states expressed their organization’s strong support for regulations on oil speculation, which the ministers believe is driving current prices. The Boston Globe reported on Tuesday on the comments, given to press in Geneva on Monday.

    “Prices are driven by something totally unrelated to supply and demand,” said Germanico Pinto, OPEC’s president and Ecuador’s oil minister. The minister made clear his belief that “acute and excessive price speculation” is that driving force.”

    Okay, maybe the OPEC ministers are lying again. But saying that “terminal data” dismisses this argument seems a little blunt. Can you explain?

    And jeez, it sure seems to me that Saudi Arabia is holding oil off the market–there are public declarations by OPEC as to controlled output etc. They have production ceilings. I don’t think this is even controversial. You may wish to reconsider your statement here.

    And yes, to the anti-Rufus: Rufus has his point of view. Express yours! But just attackng Rufus does not add to the mix.

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  42. By rufus on March 24, 2010 at 4:30 pm

    OD, Benny, thanks.

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  43. By armchair261 on March 24, 2010 at 4:47 pm

    Speculation manipulation.

    I think when OPEC or a trader says that prices were driven by speculators, what they mean is “buyers and sellers were fearing growing supply/demand imbalances and as a result, the perceived value of oil was increasing.” The price shifted away from current supply/demand balance to anticipation of future problems. This attitude was reflected not just in oil but in many different commodities as well. Putin had no interest in gaming the rubber, iron ore, or wheat markets, and yet they behaved similarly to oil, peaking at the same time and then falling dramatically. And we can’t just say “oil drives everything”; some commodities didn’t mimic oil.

    Natural gas is also traded in futures markets. There are powerful incentives for someone to game that market as well. Yet the price of gas has remained weak. One could come up with many such examples.

    Finally, there are also powerful incentives countering Putin et al. If we are to assume oil producers game the system because it’s in their interests, why would we assume that equally powerful forces (i.e. importers US, Japan, EU) wouldn’t game the system in the opposite direction?

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  44. By armchair261 on March 24, 2010 at 4:48 pm

    hmmm… i typed the “not equal” sign – left and right brackets – but they didn’t appear.
    Should have read “speculation does not equal manipulation.”

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  45. By Paul N on March 24, 2010 at 7:19 pm

    OK, so we can all agree that gaming the oil market can, and does occur, and realistically, probably can’t be stopped, with OPEC being the biggest and most successful gamer to date.
    But I am still not convinced by the main thrust of Keven’s article, that anny efforts to reduce foreign oil usage do not really enhance energy security. Ultimately, if you don’t have to play this game, the better.
    Granted that other economies do have to stay in the game, and what hurts them hurts us, but I would rather suffer the indirect effects than the direct effects of the machinations of the oil market. Just look at the domestic oil industry itself – it goes through bigger boom and bust cycles than anything else, because it suffers the direct effects. The wider economy may follow suit, but it is somewhat diversified and does not suffer the same extremes.
    For a country’s energy supply mix, to reduce exposure to extremes must surely be good policy, and good for business?

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  46. By Kinuachdrach on March 24, 2010 at 8:06 pm

    <i>“Prices are driven by something totally unrelated to supply and demand,” said Germanico Pinto, OPEC’s president and Ecuador’s oil minister.</i>

    Benny, the following does not conform to your idea that evil Saudi Arabia is behind oil price manipulation, but it might be worth your thinking about.  I came across this charge on a now-forgotten tin-foil website.

    Although oil is a huge global commodity, much oil changes hands at prices related to two rather small markets, one of which (for Brent crude) is in Europe.  British Petroleum has in the past been fined by the UK government for manipulating the Brent market (which amounts to less than 1% of global crude — but which affects the pricing of over 60%).  BP got caught once.  How many other times has BP not been caught?

    It is apparently common for Brent producers to be active traders on the Brent market, buying & selling the same barrel (which they have or will produce) several times.  Some of this may be simple good commercial trading to lock in margins; some may have an ulterior motive.

    The Saudis, on the other hand, are single-handedly bearing the very substantial costs of providing the only significant stand-by spare oil production capacity in the world.  And the Saudis have clearly brought that spare capacity on line from time to time to contain price rises.

    Why detest the Saudis when you have more reasonable grounds for detesting the Brits?

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  47. By Kevin Kane on March 24, 2010 at 9:38 pm

    Benny BND Cole,

    From what I can tell, Heatingoil.com in many ways serves as a forum for airline industry and other oil end user lobbyists that are less concerned with a proper market value for oil and more with low prices regardless of the true value. They are likely bias and seeking evidence that supports their interests. I do not seek evidence that serves anyone’s interest.

    Moving on, there are two terminals that business analyst access (not for free use): Reuters and Bloomberg. I have raw data for trading on NYMEX. By 2007, the monthly sum value of trading, long and short (buying and selling), was decreasing towards net selling. Traders in 2007 were trading with the expectation prices were going down, not up. For anyone to have manipulated the market or anyone to have manipulated NYMEX, they would have been buying, not selling, their futures contracts.

    Moreover, why don’t read the empirical economic paper in my citations by James Hamilton. Its free online to read. Please do not rebut with a question about who he works for or who pays him or some other nonsense diversion from the facts.

    Heating Oil.com posts a lot of bogus statements from people who operate off intuition, not verifiable evidence.

    I will upload the graphs from the data on my blog in a few days to end the misinformation.

    Sincerely, Kevin

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  48. By Kevin Kane on March 24, 2010 at 9:50 pm

    Correction: here is the presentation on speculation and oil prices:

    https://docs.google.com/fileview?id=0B2rzNcvAJHmTZDMyODY3NmItNTk0MC00MmMwLTk3ZjAtMWRhM2RkM2ZkYWY5&hl=en

    There is no effect of speculation on oil prices.

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  49. By Kevin Kane on March 24, 2010 at 9:53 pm

    You can find more information on my blog http://Energy-Fanatic.com

    I also completed a statistical study on the effects of oil prices changes and 6 types of R&D across a sample of 12 countries in period blocks from 1977 to 2007

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  50. By rufus on March 24, 2010 at 11:45 pm

    I wonder where all that Saudi “Spare Capacity” was when, in July of 2008, oil prices hit $147.00/bbl?

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  51. By savro on March 24, 2010 at 11:12 pm

    “From what I can tell, Heatingoil.com in many ways serves as a forum for airline industry and other oil end user lobbyists that are less concerned with a proper market value for oil and more with low prices regardless of the true value. They are likely bias and seeking evidence that supports their interests.”

     

    What makes you say this, Kevin? I haven’t seen any evidence to suggest that this is the case and wonder where you gleaned this from.

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  52. By od on March 25, 2010 at 12:18 am

    Does anyone know why the comments are repeating on the article on the main page? It makes reading them extremely hard.

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  53. By savro on March 25, 2010 at 12:25 am

    OD,

    That happened because of an update to the comment structure we’re in the midst of implementing. There shouldn’t be any more duplicates now.

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  54. By armchair261 on March 25, 2010 at 12:35 am

    According to MEES…

    In January 2008, Saudi production was 9.2 mm bopd, and OPEC production was 26.7 mm bopd.
    In July 2008, Saudi production was 9.7 mm bopd, and OPEC production was 32.7 mm bopd.

    While Saudi Arabia was increasing production by 500,000 bopd in 2008, OPEC was increasing by 6 mm bopd. This suggests to me that OPEC was pumping all they could, and that Saudi Arabia was perhaps close to capacity (otherwise why not produce more into an environment where cost, demand, and supply were increasing?). By early 2009 they were down to 8.1 mm bopd; OPEC was down to 28 mm bopd. I don’t think anyone can question that Saudi and OPEC now have significant spare capacity. But you can’t say that OPEC or Saudi production cutbacks caused the high prices.

    Peak Saudi production by year
    2004 9.6 mm bopd
    2005 9.6 mm bopd
    2006 9.5 mm bopd
    2007 9.1 mm bopd
    2008 9.7 mm bopd
    A pretty even keel during the run-up.

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  55. By russ on March 25, 2010 at 1:55 am

    Remember the Hunt brothers and a couple of others trying to corner the silver market? That is peanuts to the oil market – the price manipulation story is one of the conspiracy stories that many people love to carry on about.

    Rufus – give you 200 billion and ten years later we would still be in exactly the same place but that much more in debt. Maybe you could get Khosla to help you!

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  56. By armchair261 on March 25, 2010 at 2:29 am

    And let’s not forget that the Hunt boys dropped a few dollars on that little episode. The public and lots of politicians seem to think that speculating on commodities is risk free easy money.

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  57. By rufus on March 25, 2010 at 3:37 am

    Worse things have happened, Russ.

    We dropped a $Trillion in Iraq, and ten years later we’re still in the same boat.

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  58. By rufus on March 25, 2010 at 3:52 am

    Armchair, you’ve looked at the numbers wrong, or something. EIA puts OPEC output right around 31 mbd in Jan of 2008.

    http://europe.theoildrum.com/n…../6304#more

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  59. By armchair261 on March 25, 2010 at 11:26 am

    Rufus, you’re right. I don’t know what happened with my Jan 2008 OPEC figure – must have grabbed the wrong year by mistake. But the point holds – both OPEC and Saudi were increasing production into the July 2008 peak.

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  60. By rufus on March 25, 2010 at 12:54 pm

    I think they were producing “flat out.” The point I was making was that when prices headed down they started cutting back production. They do, somewhat successfully, manipulate “Supply” to manipulate Price.

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  61. By armchair261 on March 25, 2010 at 3:02 pm

    Yes of course, the fact that they cut back is well known. But how is this different from any other industry? Did GM close plants to manipulate the price of cars? No industry wants to produce more products than people want to buy. Excess capacity is not a good thing in any industry. If OPEC merrily produced at full capacity, that might be a good thing for us in the short term, but what do you think the impact of flooding the market with cheap oil would be on the western oil industry, and therefore western energy security in the long term? We’d be seeing OPEC market share steadily climbing, and I thought that’s what you didn’t want?

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  62. By Paul N on March 25, 2010 at 3:49 pm

    So the Saudis, and OPEC, cut back production to try to maintain the price, but how successful were they? It went from $150 to$30 in less than a year, and a year later has gone back up to $80. Huge swings, and yet we see (world)and OPEC) production varying by less than 10%, and not in lock-step with the prices. So I would say their efforts at price manipulation don’t amount to that much, unless there is a perceived threat to the security of supply, which there often is.
    Security threats aside, I think the price is really driven by demand, and demand for the last 10% of production, at that. The recession hit and suddenly no one needed that last 10%, so the price plummeted. OPEC can influence supply, but really can’t influence demand. Even the price doesn’t influence demand, that would be industry and consumers, who generally will pay whatever it costs, because it’s still cheaper and more convenient than non oil (or non liquid) alternatives.

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  63. By griff on March 28, 2010 at 6:37 pm

    Kup said:

    Kevin,

    Thanks for the post but I’m not so sure how persuasive your argument is. For example, you state “we should support oil companies not for energy security, but because it gives profits to companies—especially those in the Middle East—that have used their earnings to raise 4/5 of the world out of poverty over the last twenty years thanks to their investments in producing and supplying fuel to the world’s economy” but that argument is, IMHO, clear as mud and a bit misleading to boot.

    Yes, I’m very thankful that I live in an era of cheap fossil fuels. It has raised the living standards of millions, even billions of people, all around the world and that is all good. But the reason I drive my car and use fossil fuels is so that I can earn a paycheck, go get food, see the world, etc. The fact that the fossil fuel, at least part of it, is coming from the Middle East who use some of that money to raise standards of living for their citizens is a serious after thought to me and is not remotely the second most important consideration.

    Further, I don’t have a problem with the governments in the Middle East using the profits to improve their citizen’s lives. I have a problem with them unduly enriching themselves; not preparing their people enough for the post fossil fuel era and using their profits for very unsavory actions like funding Hezbollah and Hamas and building fundamentalist madrasas that promote Wahabi-ism.

    It seems to me that you are arguing about the semantics of our politicians while I’m much more interested in thinking of the desired outcomes of the actions of our politicians. If we can reduce our consumption, and simulatanesouly increasingly switch to alternative energy sources, while maintaining some semblance of our lifestyle, the language used by the politicians doesn’t overly concern me while it seems to be your primary concern.


     

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