Oil extraction and consumption is a very complex issue, and
I am not this diary is not intended to be that deep. This is not to say that peak oil is not a worthy topic for discussion, or that our love/hate relationship with the Revolutionary Dictator Legally Elected President of Venezuela Chavez should not be debated, nor that any dependence upon Iran, another nation we love to hate, should not be given long and hard consideration.
Global climate change is real, and clearly we need to take action now - including the reduction of our dependence on petroleum - assuming it is not already too late.
But this diary isn't about that either, it is simply about the greed and hypocrisy of the oil producers, a rant by any name, and there is more over the fold...
CBS News is reporting this morning that Iran's Oil Minister is supporting a production cut at the upcoming OPEC meeting. The reason? Simply that excess oil supply is forcing prices down.
"There is too much oil on the market," Gholam Hossein Nozari told reporters on the eve of a ministerial meeting of the 12-nation Organization of the Petroleum Exporting Countries.
Other influential OPEC members have also said the group should reduce production.
Too much oil in the market? And they rationalize that how, exactly?
There is no question the ministers want to bolster prices. While prices are off their low of around $30 just a few weeks ago, a barrel of crude still fetches less than a third of what it did over the summer. That is well below the break-even point for producing nations, which could affect not only their national budgets, but oil production as well.
with emphasis mine. Most recent quote for oil on CNN Money: $46.25 / bbl.
Below their break-even point? WTF?? The poor oil producing states are not making enough money, because the marginal cost of pumping 42 gallons of oil out of the ground is more than $40? In whose fucking world?
"In the short term, we need to reach a base price of $70 a barrel," Venezuela's Rafael Ramirez said on arrival Friday to Vienna, adding OPEC will look at depressed demand, growing inventories and compliance with previous production cuts.
In an even more direct call for cuts, Algerian Energy and Mining Minister Chakib Khelil said OPEC viewed $75 a barrel as a fair price both for consumers and producers.
Now, I do understand that break-even calculations involve much more than the marginal cost of production, and in the case of oil we need to include the costs of infrastructure, transport, exploration, security, and a few other odds and ends, even if excluding the cost of the opulent lifestyles of several thousand Saudi Princes and a new group of Russian Oligarchs. And while I make no claim to expertise in costing oil production, the thing is, I don't need to. All I need do is refer to their own history, their own statements, and their own hypocritical posturing on the subject.
Nine years ago, nearly to the day, the BBC published a piece (which I remembered, making today's CBS report all the more galling) in which the OPEC ministers were quoted as wanting to maintain lower crude prices 'for the good of all':
The price for crude oil should stabilise at about $25 per barrel, according to Rilwanu Lukman, the outgoing secretary-general of the Organisation of Petroleum Exporting Countries (Opec).
A barrel of Brent crude oil - the market's benchmark - currently sells at just under $30 - its highest level for nearly 10 years. One year ago it cost as little as $10.
In a BBC interview Mr Lukman said recent production cuts had pushed up oil prices too much. He argued that it would be in the interest of both producers and consumers to stabilise the price at a "correct level".
So. If I correctly follow the line of logic, in March 2000, $25 per barrel was, according to Goldilocks apparently, 'Just Right'. Now just 9 years (including eight of suffering under the repressive leadership of two Texas Oilmen) later, $40 barrel pricing is "not enough to break even"? Again, WTF? What, exactly, happened in that time to raise production costs by over 200%. Are the oil producers simply that inept at running their businesses?
Why, it seems that just over a year ago, OPEC was pleadingwith us to "not blame them for higher oil prices":
Mohammed bin Dhaen al-Hamli, president of Opec, told a conference in London yesterday that record oil prices are the result of speculative investment and international political tensions. "We are of course concerned about high oil prices," he said. But "the market is increasingly driven by forces beyond Opec's control".
Another oil minister, Qatar's Abdullah al-Attiyah, pleaded: "Please don't blame us for $93 oil... The market is out of control." He said that the oil market is "very confused", but added that this had nothing to do with an imbalance between supply and demand, but to factors outside Opec's control.
Makes you almost feel sorry for them, doesn't it? Or is it just me who smells something like hypocrisy here? There's a much simpler answer, something called greed. Refer to Monday's diaryby Crashing Vor about the backlash against taxing domestic oil producers. But here's a quote, filed under "Cry me a river":
"The impact of this is potentially very, very serious," said Don Briggs, the association's president. "The industry is on its knees right now, and it's getting worse every day."
So the industry that is earning almost twice as much for pumping less oil
An OPEC report, meanwhile, noted that demand for oil produced by the cartel - which can supply more than a third of total world output - was expected to fall this year to 29.1 million barrels. That would be a substantial decline of 1.8 million barrels a day compared to 2008.
is veritably on its knees fighting to stave off bankruptcy? Right.
Such bullshit. There's an old story about killing the goose that's laying gold eggs, and it seems to me that the oil producers might want to spend some time pondering the moral of the story. Here is the reality: the global economy is in deep shit and everyone, oil producing states included, need to reassess their position. This market manipulation has real potential for two distinct outcomes - prolonging or worsening the global recession, and fomenting the push for alternate energy resources. Neither of those have good outcomes for the producers. And it's not like they are unaware:
"It would be unthinkable that anything can happen at this meeting that would lead to major sort of (upward) move in fuel prices, at least the kind of jolts we became accustomed to from 2005 to 2008," Kloza said. "This isn't the year for it. The world is broke and it's not using energy."
I'll stop here to make a couple of points. One, this diary is purely a rant, because despite any arguments to the contrary, the oil industry isn't looking at 'break even' scenarios, they're working a profit maximization equation. They've seen demonstrated the inelasticity of the supply and demand system for crude oil, and they simply see no downside to keeping prices as high as possible. We can do exactly jack shit about it, other than reducing our own consumption.
Second, in the long view, this is actually a good thing. Painful, but helpful. Because as long as gasoline was priced at $.98 or $1.35, nothing was going to change. Gas at $4? Now that has a way of getting people's attention.
But what pisses me is the blatant, galling hypocrisy of these people. Crying about how they want to help us, to please not blame them for price spikes, and then using any means to force prices up.
But as the world grapples with the worst recession in decades, OPEC ministers realize they have to tread lightly.
While a substantial output cut could cause prices to spike and increase OPEC revenues, it could prolong economic woes in the U.S. and other major oil consumers.
And such a reduction could not only deepen the perception that OPEC is out for profits, whatever the global costs. It could ultimately backfire in real terms, by further depressing demand and driving down prices.
Deepen the perception? Deepen the perception?!? Like, there was ever a question in the matter? Mother fuckers, every one!