Re: How high will oil prices go?

From: Dez Akin (dezakin_at_usa.net)
Date: 10/13/04 

Date: 13 Oct 2004 12:22:19 -0700

"Fred B. McGalliard" <frederick.b.mcgalliard@boeing.com> wrote in message news:<I5FtwF.Cup@news.boeing.com>...
> <retrogrouch@comcast.net> wrote in message
> news:a8flm0h49359of38a4ecu5vc5r9kb7k558@4ax.com...
> ...
> > The notion that conservation, alternative fuels etc. will do anything
> > significant short term is absurd. And your idea that increased
> > production is possible ignores the facts that the bottle neck is in
> > refining capacity not pumping.

Oh boy, a right and a wrong. There is a real bottlneck in pumping, not
just refining, otherwise the oil price would crash.

> Well, conservation can make a big dent in a few weeks, but it would normally
> have a 2-5 year flow, where the consumers have a chance to change their
> vehicle mix and such. And the coal to fuel plants are probably 3-5 years in
> the building, although a country with a real strong interest might be able
> to dash into production sooner than that with enough plant capacity to have
> a real impact. I thought the price of oil took into consideration avoiding
> making gas expensive enough that American consumers buy economy compacts
> instead of SUVs, and the projected future price has to remain low enough to
> keep major coal producing countries from putting out the money to become
> competitors.

Not exactly. Price has to be high enough to take profits. OPEC doesnt
strictly care what we do with it. But yes, low enough to ensure market
domination. Standard cartel game theory.

> Of course we should see the precursors to this. China puts a
> high tax on imported oil and starts a coal oil pilot plant with options.
> Then suddenly the price drops, and the plans go on hold. I imagined that the
> price would drop to prevent the Chinese, and the Americans, from quite
> reaching the stage where they negotiate the pilot plant. If you were looking
> to sell trillions of dollars of oil to the two largest coal countries on
> earth, would you want them to think too much on what a bundle they could
> make if they made their own? So you are right about what you said, but I
> still expect the price to drop dramatically in a few months. Wouldn't be the
> first time I got it wrong.

I'm afraid you're wrong on this. Theres no extra pumping capacity, no
matter what the Saudi's are saying, and global oil demand keeps rising
with the growth of China and India into industrial economies. Now its
plausible that the Saudi's and other OPEC nations could ramp up
pumping infrastructure, but thats quite capital intensive and also
takes many months to years. We haven't seen that sort of movement of
capital to spend on infrastructure.

The reason they aren't spending money on infrastructure is the same
reason we arent spending more money on avaliable if expensive reserves
here: Everyone remembers 1998, not so long ago, when the asian
financial crisis hit and OPEC pumped the price down below 15 dollars
per barrel. So it will continue to rise until people realize that the
price is going to stay above 30 for a long long time, and start
building infrastructure.

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