[Marxism] Oil surprises

[Louis Proyect <lnp3@xxxxxxxxx>]

Tomgram: Marshall Auerback on oil surprises

Among the early goals of the Bush administration, controlling global 
energy flows was certainly right at the top of the list; so imagine the 
irony (not that Bush's men are much into irony) -- this administration 
might, in part, be sunk by soaring domestic gas prices. The precipitous 
rise in the price of a barrel of oil over recent months has been linked 
to the war in Iraq and to the instability it has brought to the oil 
heartlands of our planet, and here's the essential irony for an 
administration of energy-control freaks -- what happens at the pump 
between now and November may be beyond their powers to control.

The U.S. hasn't even been able to stop the escalating attacks on and 
sabotage of Iraq's oil pipelines -- now practically an everyday event. 
In the meantime, the threat to oil supplies has been seeping across the 
border into Saudi Arabia. Oil prices, which had dipped from recent 
highs, are again inching up toward the $40 a barrel mark. Throw in chaos 
in Russia's oil industry; stir in a Middle East guaranteed to be ever 
more in turmoil (just wait until the first Saudi oil facility goes up in 
flames), add in the skyrocketing global desire for ever more oil, and 
you're beginning to deal with the realities of a business which could 
provide a distinct October surprise for the Bush administration and many 
more surprises in future years for the rest of us. Only yesterday, 
according to the British Financial Times, "Strong global demand for oil, 
limited supply increases and continuing security fears led the US 
government… to raise its central price forecast for US crude over the 
next 18 months to $37 a barrel… As recently as April it forecast crude 
falling below $30."

Marshall Auerback, an international money manager who has written on oil 
matters for Tomdispatch before, digs into the many surprises our oil 
future holds for us. His piece is a bit more technical than the 
Tomdispatch norm, but don't let it throw you. The payoff is worth it. 
And for those of you who want to know something more about "Hubbert's 
Peak," which Auerback brings up, check out Mike Davis's The View from 
Hubbert's Peak. Tom


Surprised in October?
A New World of Oil
By Marshall Auerback

"The Saudis are out of capacity. That's my opinion… They have no 
infrastructure or extra pipes or gas, oil, and water separators [very 
expensive large globes used to separate what comes out of a water 
injection well]. They have very heavy oil which, through a conventional 
refinery, produces asphalt. We don't need asphalt. We need gasoline. It 
takes a complex refinery to make gasoline and it only takes 7-10 years 
to build one." -- Matt Simmons, Simmons & Co., a leading independent oil 
analyst

As July began, Saudi Arabian officials announced that they were 
satisfied with the current level of world oil prices, around $35 a 
barrel -- the clearest indication yet that the kingdom has abandoned 
support for the old OPEC price range of $22-$28 per barrel. Saudi 
Arabia's oil minister Ali al-Naimi indicated that, at current levels, 
oil prices were "fair." Two implications flow from this:

*The Saudis have now lined up with the rest of the OPEC cartel in 
implicitly suggesting that the old reference benchmark of $22-$28 was 
less than fair. From this flows a simple but dramatic conclusion: It is 
highly unlikely that we shall see an "October surprise" in which the 
Saudis flood the crude oil market in order to bring prices down sharply 
and thereby help ensure a Bush re-election. Faced with rising welfare 
costs and escalating political tensions, the kingdom has a corresponding 
need for additional capital expenditure for increased oil capacity. 
Goldman Sachs estimates that the Saudis require an average price of at 
least $30 a barrel over the next 5 years just to maintain real per 
capita expenditure.

*Perhaps more significant, the Saudi statement speaks volumes about the 
true state of supply/demand in the oil market. The kingdom's actions may 
in fact constitute an implicit fait accompli, an acceptance of their 
inability to increase production substantially beyond current levels, 
bringing the days of peak oil production ominously closer.

full: http://www.tomdispatch.com/index.mhtml?pid=1534

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