...of oil prices:
...In a competitive market, the price of oil would be linked to the marginal cost of the next barrel. In other words, the price for the first 88 barrels would be affected by the cost of producing the 89th barrel, in effect the cost of replacing each barrel used.
But in the world of oil, it’s hard to say what that replacement cost is. Producing oil is not like churning out computer chips, where costs are similar everywhere.
In Canada, it costs somewhere between $40 and $60 a barrel to mine and melt the viscous goo known as tar sands that environmentalists would rather leave in the ground. Yet in the Gulf of Mexico, where giant drilling rigs plumb deep waters, the cost of finding and developing oilfields can be relatively modest. Chevron, for example, has a $7.5 billion platform that will tap into a half-billion-barrel field at an average cost of about $15 a barrel. In Iraq, it’s even cheaper...
...There is no free market. There are obstacles everywhere. Pipelines. Politics. Oil spills. Warfare. They make it hard to figure out a marginal price for the next barrel of oil because it’s not clear whether the cheapest barrel can get anywhere near a tanker, refinery or consumer.
Then there’s the demand side, where needs and habits are so ingrained that we don’t respond quickly to rising prices...
The Organization of the Petroleum Exporting Countries is devoted to the idea of managing — or manipulating — oil markets.
Though Saudi Oil Minister Ali al-Naimi emerged from the cartel’s cantankerous June meeting and declared it the worst one ever, when it comes to oil prices, OPEC is having its best year ever...
Some argue that an era of limits has begun. Yes, there is a peak to world oil production out there somewhere, because we’re gobbling up the plants and plankton that have been simmering for millions of years in the sedimentary cooker faster than the Earth can replace them. But we keep postponing that peak — by finding new fields, getting more oil out of old ones or clamping down on consumption.
Still, supplies could remain tight because of fast consumption growth in China, where every year it’s increasing by more than half a million barrels a day, and in India. The world has about 3 million to 4 million barrels a day of spare capacity right now, but prices edge up when that cushion shrinks.
The only way to restore balance in coming years will be through higher prices...
Basically, this boils down to assessing political risks, and the opportunity cost of tying down an army to ensure supply versus satisfying domestic supply concerns through more localized production.
Bull! Peak oil theory which attemps to pin the so-called supply of oil on a date specific, has been proven wrong so often, I'm surprised any one alludes to it. Currently,oil fracking - yes oil, not just natural gas is, and will unleash vast new elephants. Bakken is one, several are in the U.S. especially s.w. texas.
Mikewa,
Tell me if I'm wrong here, but doesn't "peak oil" mean the point at which demand exceeds the capacity of production; having absolutely nothing to do with what's in the ground?
Bah Humbug - the price of Oil is driven by Wall Street and Speculators that try and guess what the next crisis might be. See this:
http://www.todaystmj4.com/news/local/124852039.html
So next will be a fear of Aliens and Zombies and the possibilty of meterorites hitting us?
Part of the other side is that the price is tied to the $$$US and it has not been performing well at all. Why Canada allows it's price to be pegged to it is beyond me especially now that the $$$Canadian is trading in the $1.04 range.
Exactly right, Wingwalker. The peak of oil is not likely to come because of an absolute shortage of oil. It will come because transportation infrastructure cannot accommodate the demand. This has happened successively to wood and coal, and sooner or later it will happen to oil, simply because of its energy density. That is, there's a limit to how many tankers can squeeze through the Straits of Hormuz on any given day.
It's the key reason why France chose nuclear instead of coal for its electricity supply in the early 1970s. It simply couldn't move enough coal by rail from southern French sea ports. Coal at the time was theoretically cheaper, but could not be moved in the volumes required. It's why China and India are building nuclear when they have lots of coal. In both cases, the coal is in the north and the electricity demand is in the south.
LS, I don't think that link says what you want it to say. What part of "OPEC nations cutting production" don't you understand? Second, crude oil prices are only a part of the cost of gasoline. Much larger constraints are refining costs and government taxes and additives regulations. And futures buyers and sellers have nothing to do with that. Nor do they have anything to do with possible price fixing by local distributors, which is what seems to be the accusation in the article you referenced.
As for currency rates, do try to remember that Canada benefited heavily when the dollar was at 70 cents US. So here you seem to want a universal price when it benefits us, and dump it when it doesn't. Yes, I know, consistency is for small minds.
What's a 'tar sands'?
Not to forget environmental regulations that intend to drive production cost up to make so called alternatives more competitive. Years can go by where rent seeking environmentalists "study" the impact of a project only to prevent production under the arbitrary argument of "sustainability".
Thanks chg - "Yes, I know, consistency is for small minds".
Are you a dipper or a lieberal trying to make an obscure point aka rabble or babble?
The higher the cost the more "balanced" it is .
Got it!
I found this:
"But Eagle Ford is only one of 20 hot new shale oil fields, and not even the largest. The larger Bakken oil field in North Dakota, long known but considered uneconomic until a few years ago, already produces 400,000 barrels a day and is expected to reach one million barrels a day by 2020. And the Green River formation, located within Colorado, Wyoming and Utah, contains some six trillion barrels of oil, of which, according to the U.S. Department of Energy, approximately 1.38 trillion barrels -or five Saudi Arabias -are potentially recoverable."
http://www.nationalpost.com/todays-paper/Liberate/5038365/story.html
Shale oil was being produced near Collingewood Ontario (south shore of Georgian bay to you out of towners)a hundred years ago. I don't know the Chemistry of it, but hey mined the rock and put it in pits full of wood and burnt the rock and oil came out. The practice ended with the discovery of much cheaper to produce oil pumped from wells.
I am sure it could be done again if we needed to.
LS, do I take it then that since you had nothing of substance to say, you were just blowing smoke about things you know nothing about?
"Are you a dipper or a lieberal..."
You really have no idea what you're talking about, do you?
Generally, I support developing shale oil. But I draw the line at Burgess shale oil. That shit's just way too weird...
Garbage column.
Peak oil is a myth. there is plenty and the straits of homuz could see several times more traffic if need be to meet demand.
Shale gas is already beginning to displace oil in transportation and there is practically speaking an unlimited cheap supply
Fracking for oil is undergoing a revolution that will have a similar effect on supply that it already has had on gas. Already some analysts are saying that oil fracking is essentially creating a venezueala-sized reserve and production level in the continental US over the next five years.
There is planty of oil and cheap reserves. what is the main cause of the high oil price regime we are now in is Political, regulatory and environmental barriers to more plentiful supply. But the coming onslaught of new cheap reserves and supply may overwhelm these artificial barriers within the next decade.
Polemic columns like this will make for amusing reading when that happens.