Just another nerd.
I was going to write a gratuitous slam on Pray At The Pump’s efforts to pray for lower gasoline prices in the United States. Then I realized that Pray at the Pump’s understanding of how oil markets work is no less irrational than either John McCain or Barack Obama’s apparent understanding of oil markets, so what’s the point?
It’s really sad — but so typical — to see the US election boil down to a battle of The Moron vs. The Messiah.
Sigh.
Watching and reading excerpts of the hearings today on high oil prices, it amazes me that hundreds of years after the publication of the works of Adam Smith and other classical economists that the workings of markets remain such a mystery to so many people. This is especially egregious a sin among lawmakers who stop at nothing in the relentless pursuit of demagoguery.
It is especially bizarre to watch Democrats propose solutions that are diametrically opposed to their stated goals and not even realize that such a conflict exists.
For example, Democrats typically tale the lead in harping about the horrors of the United States purchasing a large percentage of its oil from foreign companies and markets. But what do they propose to do when domestic oil companies, after decades of weak performance, actually achieve high profits? A windfall profit tax. Yeah, that’s certainly the best way to promote domestic rather than foreign production.
Jimmy Carter signed such an measure in 1980, and the result was the U.S. government took in an additional $80 billion over the seven years the measure remained law, and domestic oil production fell by up to 1.6 billion barrels.
It is also a bit odd to see Democrats outraged over the price of oil and gasoline given their constant whining about global warming and other environmental concerns. How can anyone take these people seriously about the need to implement something along the lines of the Kyoto Protocol when they act like $3/gallon gasoline is the end of the world? As the U.S. Department of Energy noted in a 1998 study of the likely impacts of Kyoto,
The carbon price required to reduce U.S. energy-related carbon emissions ranges from $67 to $348 per metric ton in 2010 (1996 dollars) (Figure 2). In the more stringent reduction cases, the carbon price will decline by 2020 as more efficient and lower-carbon technologies become economically available and penetrate later in the forecast horizon. Due to the carbon price, the average price of gasoline could be between $0.14 and $0.66 per gallon higher in 2010 than it would be otherwise, and electricity prices could increase by 20 to 86 percent.
So even if you assume very optimistic increases in energy efficiency, Kyoto would cause huge permanent (since they are not, like the current increases, the result of temporary market fluctuations) increases in energy prices. Democrats who believe implementing Kyoto should be a major priority should openly welcome high gasoline and energy prices, as they are a de facto way of slowing U.S. carbon emissions. But when the rubber hits the road, Democrats are horrified at the thought of even temporary hikes in energy prices.
Personally, I’m hoping for a return to 1998 when oil was $10/barrel, gas hit an all-time record low price in real terms, and oil stocks made the dot.com implosion look like a bull market. But I’m not sure why those ostensibly worried about global warming wouldn’t want even higher energy prices (this guy’s got the right idea if you’re serious about reducing carbon emissions).
Finally, I always wonder why there aren’t these silly Congressional investigations during periods like the late 1990s when oil and gas prices were at record lows. Grab a few drivers and subpoena them to testify. Then grill them about receiving windfall savings and taking advantage of the international glut of oil. Perhaps even propose stupid federal gas taxes that would punish consumers for daring to trade freely in gasoline and for conspiring with other consumers to find the lowest possible prices.
Just how much oil is there, and when will the world begin to run out of it (if ever)? Part of the problem answering that question is the amount of known oil in the world keeps increasing, especially in the face of market demand such as the recently relatively high prices for oil.
On December 26, for example, Saudi Arabian oil minister Ali Naimi claimed that his nation could come close to doubling its proven oil reserves over the next few years. Naimi issued a press releasing saying,
There are big chances to increase the kingdom’s produceable oil reserves by 200 billion barrels. This will come either through new discoveries or through increasing production from known deposits.
Currently Saudi Arabia’s proven oil reserves sits at 261 billion barrels. Naimi’s comments came as the country opened new oil fields in eastern Saudi Arabia which Naimi says will allow Saudi Arabia to increase its daily oil production from 11 million barrels/day currently to 12.5 million barrels/day over the next few years.
Sources:
Kingdom Will Meet Oil Needs of Asian Economies: Naimi. ArabNews.Com, January 7, 2005.
Saudi Oil Reserves Could Increase by 77%. Associated Press, December 27, 2004.
According to a report by Human Rights Watch, more than $4 billion in oil revenue collected by the government of Angola simply disappeared between 1997 and 2002. That is an amount equal to the same amount Angola spent on all state-funded social programs during the same period of time and is equivalent to 9.2 percent of the country’s annual GDP.
The Angolan government denied the Human Rights Watch claims, saying that the charges were based on “fantasy and imagination.”
The Angolan government itself, however, made it difficult to distinguish between fantasy and reality with the passage of three laws intended to restrict the flow of information about government activities, including provisions that allow the state to define information about economic activities as state secrets. It also threatened companies that publicly discussed the extent of their oil activities in Angola.
Angola, of course, experience chronic food shortages which require international aid to alleviate.
Sources:
Some Transparency, No Accountability: The Use of Oil Revenue in Angola and Its Impact on Human Rights. Human Rights Watch, 2004.
$4.2 Billion In Oil Revenue Missing In Angola, Rights Group Says. U.N. Wire, January 14, 2004.
Reuters reports that Iran recently made a major oil discovery, finding an oil field that has estimated reserves of 38 billion barrels of oil. If true, that would make it one of the world’s largest undeveloped oil fields.
Reuters quoted Iran’s Oil Development and Engineering Company general director Abolhasan Khamoushi as saying that the vast oil reserves were discovered in three neighboring oil fields near the southern port city of Bushehr.
Work is currently underway to determine how much of that oil is commercially obtainable.
Source:
Report: Iran makes giant oil find. Reuters, July 14, 2003.
After the 9/11 terrorist attacks in the United States, demand for oil dropped causing the price of oil to bottom out. In late November, the price for a barrel of oil reached a two-year low of only $16.65 per barrel. Despite its best efforts, however, the Organization of Petroleum Exporting Countries has had little luck raising the price of oil — today a barrel of crude oil goes for $18.40.
OPEC called a special meeting of both OPEC and non-OPEC countries to try to hammer together an arrangement to reduce oil production to boost the price of oil. OPEC’s leaders think they might have enough countries on board to cut oil production, but whether those countries will follow through on their pledges (and for how long) remains to be seen.
In November, for example, OPEC nations agreed to cut oil production by 1.5 million barrels per day beginning in January 2002, but oil prices were barely affected. And that is on top of a 3.5 million barrels per day cut in production that OPEC nations had already agreed to earlier in the year.
At some point, the advantage of higher prices will be offset for some member countries by the marked decrease in production. Given the current soft demand for oil, it is highly doubtful that OPEC will be able to prop up oil prices.
Sources:
OPEC calls special oil price talks. The BBC, December 16, 2001.
Oil’s tumultuous week. The BBC, November 23, 2001.