The Why’s of Rising Oil Prices

As prices at the gas pumps rise almost daily questions about the role of oil companies start to float on TV and radio. Each night I watch the local TV news where a reporter stands in front of a gas station with the price prominently displayed in the background. This is usually followed by an enlightening man-on-the-street interview where people who are filling their tanks and emptying their wallets are asked why they think prices are increasing (as if they’re experts on the subject). The usual reply is that the oil companies are colluding to drive up prices simply to build up their bottom line. (A clip just like this aired while I was writing this.)

To shed some light on the forces at work here are several links that address what is happening in the global oil market.

http://www.physorg.com/printnews.php?newsid=128264775

In summary, this article lists the following factors:

1. Rising demand, primarily from China
2. Stagnant oil production
3. Falling U.S. dollar
4. Insufficient U.S. Refinery Capacity

This link - http://www.globalenvision.org/library/3/1652 - has a nice explanation, some of which is provided below.

The Organization of Petroleum Exporting Countries (OPEC), a group of 11 countries,¹ produces close to 40 percent of total world oil production² and owns about 70 percent of proven oil reserves. Other major oil producers in decreasing order of production are the U.S., Russia, Mexico, China, Canada, and Norway.³ Overall, the Middle East, especially the Persian Gulf, remains the major oil-producing region, and holds around 60 percent of the proven global oil reserves.⁴

How Oil Prices Are Determined

Forces of supply and demand determine global oil prices. OPEC's primary goal is to manage market supply by limiting oil production among its members. The objective is to maintain prices that are high enough so that OPEC members make a healthy profit, but not so high that consumers significantly reduce their consumption of petroleum. Because of its production capacity and oil reserves, OPEC's decisions significantly influence world oil prices. However, the power of OPEC to manage world oil prices has diminished in recent years because of increased production from non-OPEC oil producers, such as Russia, Norway and Mexico.

¹ OPEC countries include Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

² International Energy Agency, Oil Market Report, May 11, 2005. For the most recent issue of the Oil Market Report, available free of charge, please go to http://omrpublic.iea.org/.

³ Department of Energy, Energy Information Administration, "Non-OPEC Fact Sheet." Available online at http://www.eia.doe.gov/emeu/cabs/topworldtables1_2.html.

⁴ For more information on oil and oil markets please see the Department of Energy, Office of Oil, Gas, Energy Information Administration's "Oil Market Basics"

This document by Global Oil Watch - http://www.globaloilwatch.com/reports/Oil%20Primer.pdf - lists the world’s largest oil companies based on oil reserves.

A couple of interesting things can be taken from this list. First, the top 11 companies are government owned. Exxon Mobil, the first privately owned company on this list, controls only 1.08% of oil reserves. The UK’s BP comes in at number 17 with 0.85% of reserves. Second, the Middle East countries of Saudi Arabia, Iran, Iraq, and Kuwait possess more than half of the oil reserves. From this we can conclude that private oil companies who are the favorite whipping boys of the media and posturing politicians control literally a drop in the oil bucket and have little ability to influence the global market price of oil.

Gore on 60 Minutes

Al Gore, the guru of global warming gloom, appeared on 60 Minutes this week for an interview. Note that I didn’t say for a hard-hitting interview. Below is an except for the transcript followed by some comments to explain why I think this was a puff piece.

From 60 Minutes

"There's still a lot of skepticism about whether global warming is man made," Stahl remarked.

"I don't think there's a lot. I think there’s…" Gore said.

"Well, there's pretty impressive people like the vice president," Stahl pointed out. "He said, 'We don't know what causes it.'"

"You’re talking about Dick Cheney," Gore replied.

"Yeah, but others. And they say: we don’t know what causes it and why spend all this money till we really know," Stahl said.

"I think that those people are in such a tiny, tiny minority now with their point of view. They’re almost like the ones who still believe that the moon landing was staged in a movie lot in Arizona and those who believe the earth is flat. That demeans them a little bit, but it’s not that far off," Gore said.

There are so many issues packed in this I’ve used bullet points to highlight them.

1. Of all of the people Stahl could have cited as skeptics she picks Dick Cheney! ?? I suspect Cheney was chosen as the sole example to take advantage of Bush’s low approval ratings (guilt by association). It also creates the impression that only Republicans deny man-made global warming and therefore this is merely a partisan political issue. I’d like to note that this is the typical ploy I get when I reveal to a liberal friend that I question Gore’s position. They automatically assume my disagreement means that I am just blindly following Bush’s lead and therefore can be summarily dismissed as his lackey. (Now that is an insult!) This immediately puts the issue into the political arena instead of addressing the scientific merits (or lack thereof) of Gore’s cause.
2. Gore demeans scientists who don’t agree with his pet cause. I recall a 1992 Boston Globe interview when Gore stated he wished he could find a way to “shut up” those who challenged his global warming position. When his book came out Gore’s method of squelching dissent was to repeatedly claim, like a mantra, that the vast majority of scientists agree with him. (Where are they, by the way? Why doesn’t he trot them out as expert witnesses?) Still, this leaves the possibility for a significant minority of dissenters. Now he claims people who disagree with him are an insignificant minority of crackpots. Is this a sign of arrogance, desperation or delusion? (Or a combination of all three?)
3. The Nobel Peace Prize is a political, not a scientific, award. To quote the Peace Prize web site, the prize is “awarded by a committee of five, appointed by the Storting (the Norwegian parliament).” Their charge? “To decide who has done the most to promote peace is a highly political matter, and scarcely a matter of cool scholarly judgement.” In other words, the committee has given themselves free reign to allow their political motives to override objectivity, the exact opposite approach scientists should take. At least they got it right in one way. Gore is indeed pushing his highly political global warming agenda in a highly political manner. (Plus, it’s not clear to me how pushing global warming is related to peace.)
4. 60 Minutes didn’t ask the tough questions. I’m sure the lack of hard hitting questions (and 60 Minute trademark cutaways to those with disagreeing opinions) was a precondition Gore stipulated before agreeing to the interview. Even if Gore didn’t demand a softball-questions-only policy, I’d say CSB was predisposed not to push Gore too far because ultimately they agree with him. Examples:

· Stahl doesn’t press on for details on all of the sources of the $300M. Gore doesn’t volunteer any additional information. He makes it sound like it all came from proceeds of his book and movie along with the Peace Prize money.

· Stahl doesn’t specifically mention the skeptical scientists by name. There are plenty to choose from. (See my posts dated December 21, 2007 and March 5, 2008)

· Stahl cites no contrary evidence that shows why some scientists challenge Gore’s theory. (See earlier entries in this blog and in the blog links for ample examples.)

5. The piece mentions Gore’s gargantuan house with its huge energy use then tries to defuse it by saying he has mounted solar panels. There is no mention whether the house can now sustain its own energy use. I suspect it’s not even close.

There is more at Glenn Beck’s web site.

It is also interesting to see how much money Gore has made from his campaign. The 60 Minutes introduction reports that Gore was less than $2 million in 2000 yet now has enough to invest $35 million in hedge funds and other investments. Appears that scare mongering is a lucrative business!