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By Robert Rapier on Feb 3, 2011 with 12 responses

Oil Price Could Doom Obama

The following guest post is from OilPrice.com. Normally I don’t add any of my own commentary to these guest essays, but in this case I would say that the idea that oil prices are manipulated by speculators is by no means limited to “left-wing blogs.” I would also add that I predicted several times before the last presidential election that whichever party won would have a hard time getting reelected, because I thought the U.S. was in for several difficult years no matter which party won. The recent elections demonstrate that the country isn’t happy, but I think it would have been the same result had John McCain won.

As an aside, right after Obama was elected I wroteI think the expectations for Obama will be impossibly high, and he is sure to disappoint many as he begins to make necessary compromises.” Not only has he disappointed people on the right (to put it mildly), he has disappointed many in his own party who thought he would completely revolutionize the way the U.S. government does business.

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Oil Price Could Doom Obama

Like death and taxes, the price of oil is always with us. And like taxes, it may be President Barack Obama’s worst nightmare at election time next year.

Among forecasters, there is a sharp division between those who see an inexorable rise in the price of oil and those who believe it will stabilize about where it is now.

The hawks see gasoline streaking ahead to $4-a-gallon this year and $5-a-gallon in 2012.

Others say demand will collapse and it won’t go that high. The Energy Information Administration is very conservative in its forecasts and it gives very high prices only a 10-percent chance of coming about.

Adding to the confusion is a nasty little spat between the International Energy Agency in Paris and the Organization of Petroleum Exporting Countries over price, inventory and what OPEC calls “technical factors,” such as pipelines down for repair or the loss of the Deep Water Horizon rig in the Gulf of Mexico last year. IEA is saying that OPEC is keeping its production quotas low to jack up the price—currently just over $90 a barrel and the highest grade Brent crude from the North Sea as high as $99 a barrel—and it is endangering the global recovery with its actions.

But OPEC Secretary General Abdalla Salem el-Badri has taken issue with the IEA for roiling the markets with weak data and speculation. “Supplying the world’s media with unrealistic assumptions and forecasts will serve only to confuse matters and create unnecessary fear in the markets,” he said.

OPEC, which drastically cut back its targets for production in 2008 with the collapse of the global economy, has, in fact, increased its production by 2.3 million barrels a day while formally not changing its declared targets. OPEC controls about 42 percent of the world’s oil production.

What is certain is that world is slurping up more oil than ever. The latest IEA prediction is that daily consumption is increasing and will reach 89.1 million barrels a day as the recovery proceeds. Emerging markets and China in particular are held responsible for the surge.

With the exception of two of the savants of the oil industry, the legendary T. Boone Pickens and former Shell Oil Company chief John Hofmeister, comment in the United States has been muted. When asked why the price of oil was so high despite the recession, White House Press Secretary Robert Gibbs brushed aside the question, recommending the reporter ask the secretary of Energy, a physicist who has not spoken on oil pricing.

Jack Gerard, president of the American Petroleum Institute, did not offer an explanation when he was asked the same question at a meeting in Washington.

The fact is that the price of oil is not determined only by simple supply and demand but by complex premiums and market sensitivities. It is a market that is roiled by wars and rumors of wars and, because oil was the first truly globalized commodity, the premiums can have their genesis far from the futures markets of New York and London.

Uncertainty in Russia, turmoil in Central Asia, the ongoing suspense of Iran’s nuclear plans and even corrosion in the Trans Alaska Pipeline System are cranked into the price. No wonder so many hedge funds are involved in oil. Instability is mothers’ milk to hedge funds.

There are left-wing blogs that maintain that the price of oil and its occasional spikes are created by elaborate speculative plays on the futures markets in New York and London. The left is traditionally paranoid about oil and oil companies, but who is to say they are not right this time? The memory of Enron is still fresh.

One way or another, two things stand out: The chances are that the summer driving season will put pressure on gasoline prices this year, after an extremely cold winter all over the Northern Hemisphere. The conservative (10-percent chance of happening) scenario by the Energy Information Administration says $4-a-gallon gas would come at the end of the summer.

The second reality is that the world thirst for oil has not been slaked; as the world prospers, the greater that thirst.

In 1974, the heads of 23 democracies lost their jobs because of surging energy prices. Obama, beware.

Source: http://oilprice.com/Energy/Oil-Prices/Oil-Price-Could-Doom-Obama.html

By Llewellyn King for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com

  1. By Wendell Mercantile on February 3, 2011 at 12:42 pm

    Among forecasters, there is a sharp division between those who see an inexorable rise in the price of oil and those who believe it will stabilize about where it is now.

    It’s difficult to see the price of oil stabilizing when there are more than 2.3 billion people in India and China who aspire to climb into the middle class and enjoy the same lifestyle that burning fossil fuels has given us.

    Unless someone figures out how to make them reduce their expectations and accept a lower quality of life than they see glorified in the media, there is no way to stop a continuing increase in the demand for oil.

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  2. By sameer-kulkarni on February 3, 2011 at 1:07 pm

    Wendell Mercantile said:

    Among forecasters, there is a sharp division between those who see an inexorable rise in the price of oil and those who believe it will stabilize about where it is now.

    It’s difficult to see the price of oil stabilizing when there are more than 2.3 billion people in India and China who aspire to climb into the middle class and enjoy the same lifestyle that burning fossil fuels has given us.

    Unless someone figures out how to make them reduce their expectations and accept a lower quality of life than they see glorified in the media, there is no way to stop a continuing increase in the demand for oil.


     

    O’ Gimme a break. And wat do you mean by lower quality of life?/ travel by bullock carts or horse carriages. The majority of people in India transit using public transport/mass transit. And speaking of oil demand read the following article http://www.wired.com/wiredscie…..g-stat-ca/ & http://seekingalpha.com/articl…..california. The per capita consumption of gas is highest in US.

     

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  3. By Wendell Mercantile on February 3, 2011 at 1:26 pm

    This of course is a big part of the calculus. The price of oil, food, and the cost of using food to make fuel are all interrelated: World food prices hit record high

    Oxfam blamed the price rises on reduced production due to bad weather, increased oil prices making fertilizer and transport more expensive, increased demand for biofuels, export restrictions and financial speculation.

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  4. By Rufus on February 3, 2011 at 1:37 pm

    No, Wendell is right on this one. (It’s about time.) :)

    China consumed 7.7 million bbls of oil/day in Nov of ’09.

    China consumed 10.4 million bbls/day in Nov of 2010.

    We’re just lucky that that oil has gotten bottlenecked in Cushing. That’s helping hold “our” prices down, temporarily.

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  5. By Benny BND Cole on February 3, 2011 at 2:01 pm

    Actually, I think we see several good years of global economic growth coming, and steady oil prices. $100 a barrel is very high, enough to spur conservation and production.

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  6. By Rufus on February 3, 2011 at 3:23 pm

    OT, but, I think it’s pretty interesting. Here’s an algae project that just might work. It’s GPRE (they are a very good company,) and it’s progressing to its “second” phase.

    This is the second phase of a project designed to utilize waste products at ethanol facilities such as waste water, CO2 and waste heat along with sunlight and nutrients to produce algae that can in turn be used to produce saleable coproducts such as biodiesel and animal feed.

    http://ethanolproducer.com/art…..gpre-plant

    What I like about this is: it’s an “add-on” to an existing ethanol plant, and all of the necessary ingredients are already assembled in one place.

    I know Algae has been looking problematic, but these are pretty competent folks, and they are starting out with important advantages. Also, they’re a solid, profitable company that doesn’t have to run around “hyping” a trial balloon, looking for financing.

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  7. By Wendell Mercantile on February 4, 2011 at 9:57 am

    Here is a company that claims to be able to make hydrocarbon aviation fuel from biomass. I read about them in a aviation journal. For those unaware, most general aviation (GA) airplanes with piston engines use 100 octane low-lead (100LL) AvGas — something that is quickly disappearing from the market. (And no Rufus, ethanol is not a way to raise the octane of AvGas. Airplane engines are notoriously incompatible with fuel containing ethanol.)

    Robert, do you know anything about Joule and their process? I have not heard anything about them or their process — other than in aviation journals and blogs.

    Joule ~ Hydrocarbons from the Sun and Biomass

    Joule has an answer that we believe surpasses biomass-derived fuels, channeling the sun’s energy into a new, industry-changing category of direct solar fuels.

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  8. By Kit P on February 4, 2011 at 10:40 am

    “I would also add that I predicted several times before the last presidential election that whichever party won would have a hard time getting reelected, because I thought the U.S. was in for several difficult years no matter which party won.”

     

    That is because both Obama and McCain are inept when it comes to solving problems.

    “he has disappointed many in his own party who thought he would completely revolutionize the way the U.S. government does business.”

     

    Obama set himself up for failure running on an undefined ‘change’ platform. Get rid of Bush and all of our problems will go away. The first step to solving problems is to clearly define them and prioritize them. In May 2001, we got the NATIONAL ENERGY POLICY that did exactly that.

    Looking at oil and jobs, we should be producing more oil now in Alaska and off shore. Who are the people who fought that? POTUS in the State of the Union speech proposed the some of the same lame ideas that Carter did. Somebody explain to me how increasing taxes on oil companies and giving to making building more efficient will help us with oil.

     

    Last year there was a very good $1500rebate on replacing home HVAC systems. I would like to know how many oil heating systems got replaced compared how many would have been replaced anyhow. In my case, I replaced my system several years ago without a rebate but since I have an all electric house; it will not replace oil.

    So if POTUS had proposed legislation mandating oil heating systems be replaced with gas or electric, then I would have seen evidence of systematic approach to solving problems. Instead he talked about electric cars and China’s leadership (?) in solar.

    There are solutions and silly ideas. I spent some time in government buildings this week. I was uncomfortable warm as was everyone else. A government employee explained that there were no thermostats in the room because the temperature was maintained by a computer 100 miles away. Since load demand was very high due to the cold weather, that the computer should be reducing room temperature.

     

    Thanks to ‘innovation’ the occupants of the room no longer have the ability to control their comfort defeating the purpose of HVAC. In any case, I predict that 30 years from now POTUS will still be taking about more efficient building to save oil. If you vote for that POTUS a second time it may be because the choice was not good.

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  9. By rrapier on February 4, 2011 at 12:12 pm

    Wendell Mercantile said:

    Robert, do you know anything about Joule and their process? I have not heard anything about them or their process — other than in aviation journals and blogs.

    Joule ~ Hydrocarbons from the Sun and Biomass

    Joule has an answer that we believe surpasses biomass-derived fuels, channeling the sun’s energy into a new, industry-changing category of direct solar fuels.


     

    Wendell, at some point I need to wade through any of the scientific literature Joule has in the public domain (patent applications, for instance) to better understand their claims. I have gotten a lot of queries on this; they are definitely out their hyping themselves. At some point someone will be worthy of the hype. Will they go on to deliver on their grand claims, or will they be like so many who came before? Odds are they will be like the latter, but I will give them the benefit of the doubt until I see data. Here is what I have been telling people who ask about them:

    “I was at the Pacific Rim Summit a year ago when Joule announced what they were doing. I was sitting with a number of algae experts, and they were very skeptical. I would also say that they are at a very early stage — still in the lab. Most technologies don’t progress out of the lab, so the best I could say is that it is premature to count on much of anything from them. I look at it as a research project, and most of those do not pan out.”

    RR

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  10. By mac on February 4, 2011 at 12:29 pm

    Wendell

    January 27, 2011
    Joule Patents Organism That Makes Jet A?
    By Glenn Pew, Contributing Editor, Video Editor

    “Joule Unlimited, a U.S. biotech company, has earned a patent for a “proprietary organism” that it says takes in carbon dioxide, sunshine and (dirty, salt, or clear) water, and puts out liquid hydrocarbons. The four-year-old Massachusetts-based company describes its organism as a genetically engineered cyanobacterium that will deliver “fossil fuels on demand” in “virtually unlimited quantities.” It claims the organism’s process mimics photosynthesis in producing diesel fuel, and is 50 times more efficient than current biofuel production methods. Claims aside, the company has attracted former White House Chief of Staff John Podesta to its board of directors and lists George Church, who helped pioneer the sequencing of the human genome, on its scientific advisory board. Of course, that doesn’t prove that the process actually works.

    As for performance, what Joule CEO Bill Sims has said is that, “Sometime soon, what we are doing will become clear.” And, for now, the company offers a “frequently asked questions” page on its website. Joule’s process relies in part a “solar converter” system outside of which its proprietary organism cannot survive. In Joule’s own wording, “The SolarConverter system houses a circulating medium, comprised of proprietary organisms, brackish water and micro nutrients, and facilitates CO2 conversion to fuels and chemicals in a direct, continuous process.” Importantly, Joule’s system claims no need for a biomass like corn or camelina. The company says the system’s efficiency could lead to commercially available diesel fuel at the equivalent of $30 per barrel. Joule says its pilot programs are currently under way.”
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    Here we go again with yet another “proprietary organism” that no one has any access to except a few company insiders. This eliminates the problem of peer review, reproducing experimental lab results, etc.

    One day, a used car salesman and a battery salesman got into an argument at a cocktail party over which one told their customers the biggest lies. The battery salesman won easily.

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  11. By rrapier on February 4, 2011 at 12:34 pm

    mac said:

    Joule says its pilot programs are currently under way.


     

    And there is the reason that they shouldn’t hype the way they have. They are just now in the process of piloting. Of course as we know nothing ever goes wrong at that stage. Lab results always equal piloting results which equal commercial results.

    RR

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  12. By Optimist on February 8, 2011 at 6:26 pm

    It’s difficult to see the price of oil stabilizing when there are more than 2.3 billion people in India and China who aspire to climb into the middle class and enjoy the same lifestyle that burning fossil fuels has given us. Unless someone figures out how to make them reduce their expectations and accept a lower quality of life than they see glorified in the media, there is no way to stop a continuing increase in the demand for oil.

    No, it’s really very simple: introduce them to $200/bbl and watch them spend their new riches on something else.

    We can debate whether it is a strength or a weakness, but in a capitalist system demand is a function of price.

    So, chill Wendell, there is no inevitable Chinese and Indian demand, just waiting to swamp US demand and make OPEC rich. There is just a new pricing system for energy under development.

    And if the prostitutians can keep their dirty hands off it, the entrepreneurs will soon notice the opportunity and start offering the solutions.

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