[Marxism] Fairy tales -- and get ready for $100/barrel oil

["Joaquin Bustelo" <jbustelo@xxxxxxxxx>]

Since fairy tales from the bourgeois press seem to be in fashion on the
list, let me offer this "What, me worry?" headline on oil prices from the AP
courtesy of the Nov. 1 International Herald Tribune: 

"Average price of oil so far in 2007 is just 1 percent higher than last year
as economy adjusts"

The whole article is here, in case Walter, who seems to be a fan of this
sort of journalism, wants to read it: 

http://www.iht.com/articles/ap/2007/11/01/business/NA-FIN-US-Oil-Prices-Conu
ndrum.php

For the rest of us, I offer the following from the web site of the U.S.
Government Energy Information Administration:


CRUDE SPOT PRICE 11/1/2007 
$93.53/bbl wk chg: +1.44 yr chg: +34.89

The spot price on 11/1/2006 was $58.64 a barrel.

Doing the math, that's an increase of 68% over the spot price a year ago.

SOME of that increase is due to plain old speculation, which has been
redoubled by the collapse of the housing credit bubble, and the turmoil in
credit markets generally. For example, the amount of so-called commercial
paper outstanding has plummeted both here and in Britain, so the hot money
is searching for new pump and dump opportunities. Gold has also shot up. 

And SOME of it is due to hedging, for example protecting against the decline
in the dollar's value against other currencies, allowing you to keep your
money in dollar-denominated assets.

But the reality is also that petroleum production has been at a plateau of
84-85 million barrels a day, going on the third year, despite increasing
demand. And since even at this price level demand seems little influenced by
cost, there's likely to be a persistent pressure on the market towards
higher prices.

Here are the average daily production figures showing the current plateau,
in millions of barrels:

year 2005 - 84.16 mbd; 
year 2006 - 84.89 mbd; 
July 2007 - 84.71 mbd; 
Aug. 2007 - 84.28 mbd) 

These figures are from the International Energy Agency. There are a variety
of ways to define total production so those figures aren't necessarily
strictly comparable to the following from the US EIA, but I'll give the 2005
figure for the following series as well, to sort of bridge the two sets of
numbers:

1990 - 66.4 mbd
1995 - 70.3 mbd
2000 - 77.8 mbd
2001 - 77.7 mbd
2002 - 77.0 mbd
2003 - 79.6 mbd
2004 - 83.l mbd
2005 - 84.6 mbd

It is impossible to say with a high degree of confidence, much less absolute
certainty, that we've hit peak oil, but the case grows stronger with every
month that goes by without a clear upward trend in production. But the case
will only be really overwhelming when a downward trend in production has
been clearly established. 

Thus it may be true that production still has some more to climb, but only
at these or even higher price levels. 

Something notable is that thus far there's been no noticeable reduction in
demand. In fact, it continues to grow. Exploiting the deep water deposits in
the Gulf of Mexico that were supposed to be the most significant find of
recent years appears to be on hold -- it seems getting oil up through a mile
of water ain't as easy as it looked.

This suggests that even if this isn't the absolute peak yet, bringing
additional production online will grow increasingly difficult and therefore
expensive

Some analysts think the Saudis or OPEC could deliver an additional 3 million
barrels a day. And an OPEC decision to increase its production quotas by
500,000 barrels a day is just coming into effect, which should tell us
whether there is in fact any additional capacity available.

But even if that extra capacity exists, it can only postpone the inevitable
for a couple of years the way demand has been growing.

Joaquín



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