11/01/2004

Check This Out

Unbelievable!

Oil dipped today below $50 a barrel. Oil closed just above $50 which is remarkable do to the fact that just a week ago the price per barrel was just over $55 with no ceiling in sight. After prices reached $55 a barrel pressure was put on world suppliers to bolster the oil supply. The next day supply increased dropping prices. The reaction in the markets today was a mass “short covering”. What this means is people who sold oil to people at a specified price at a specified time in the future bought oil today at or around $50 a barrel. The significance of this transaction is that analysts feel that the price of $50 a barrel is highly discounted and the price of oil will more then likely increase substantially.


The information that analysts are using to calculate possible oil increases are alarming. In Nigeria the average worker gets paid just over a dollar a day, while Royal Dutch/Shell is reaping record breaking profits off of Nigeria’s rich oil fields. The largest workers union in Nigeria has threatened to walk out and go on Strike. Nigeria is the US’s fifth largest supplier of oil.

Argentina is another large provider of oil to the US. The Argentines labor force historically has been less then spectacular. And with the turmoil in the middleast and a lack of overall supply to boot the outlook for oil is very unstable.

One potential temporary solution as mentioned by many analysts is the supply of the U.S Strategic Petroleum Reserves to provide some easement of oil prices. The SPR consists of 727 million gallons that are only to be tapped when a major interruption such as war has occurred. The Bush administration has made a strict policy regarding the use of the SPR denying access to the public.

Kerry on the other hand has considered some moderate usage or at least retention of supplying the SRP.

The fact is that oil is fast on its way to becoming a scarce resource and the world’s excess capacity is currently one percent of the world’s daily consumption of 82.4 million barrels.

www.msnbc.msn.com/id/5612507/

8 comments:

Biancca said...

Wow...a dollar a day sounds miserable. But I would be interested to see what the cost of living is for those workers, and what that dollar salary would compare to in the U.S. It doesn't appear as though the oil problems will be solved in our lifetimes.

John West said...

I think that the price per barrel of oil will eventually go down drastically. Unless of course, consumers just get used to paying high prices. Gas is something that you can't really avoid too much of. Everyone has places to go and people to see.

Rufio said...

Gas is a very inelastic good and we are going to just keep buying it until we run out. Sellers of gasoline know this and that is why I don't think the price of fuel will go down. Yes, we will see fluctuations in the market, but the fluctuations won't be big. If you look to the past you can see that the trend of fuel prices is that the price is rising. I don't see any hope of it going down, especially if it becomes a scarce resource. Once fuel is a scarce resource the demand will be high, and sellers will know that they can get away with high prices. It's really a big problem.

Bryce Larkin said...

This is how oil companies are making a huge profit, paying their workers $1 per day and selling oil for as high as $50 barrel. I'm really not worried about the oil supply because either companies will find more oil or the price will go up and there will be new substitutes.

Bryce Larkin said...

I also agree with Bush that we shouldn't use the oil reserve of 727 million gallons of help the price go down. That oil should be used in case of an emergency. Pricing gas at $2.50 a gallon is not an emergency.

Dr. Tufte said...

I prefer that Middle-East be capitalized and hyphenated, but there isn't an accepted spelling of that word (since it really isn't "official" in any way).

I think StephenPadilla2 means Venezuela, not Argentina.

There is mixing of some ideas here that don't go together. There are political problems causing oil prices to be high. There may also be some scarcity issues. But they are separate ideas that don't tend to cause each other.

The $1 a day figure is taken out of context. There isn't anything in that statement that indicates that those workers are producing a lot more than $1 per day.

And, oil companies get a bad rap. Yes, they can and do make a lot of money, but this is because they are big. If they were actually doing well the prices of their stock would be going through the roof ... but it isn't. The absence of that sort of information should be a tipoff to you that the media is not feeding you the full story here.

Maudi said...

I agree that the two main issues that we are facing is that of the politcal unrest in the Middle-East, and the fact that the oil is become more and more scarce. The only way to really relieve some of this pressure is to find our own oil source. America is rich in oil, however we need to stand up to the enviromentalists and let them know who is boss.

Maudi said...

I agree that the two main issues that we are facing is that of the politcal unrest in the Middle-East, and the fact that the oil is become more and more scarce. The only way to really relieve some of this pressure is to find our own oil source. America is rich in oil, however we need to stand up to the enviromentalists and let them know who is boss.