Oil Price I Told You So

Last April, as the country was going through another fit over rising gasoline prices I cited a couple of experts in my column, Whither Gasoline Prices?, who suggested that oil prices would likely fall to around $80 per barrel later this year. From the column:

While both Evans and Lynch acknowledge that oil markets experience big price swings, they believe that oil will settle for the foreseeable future at around $80 to $85 per barrel. From their point of view, this price encourages adequate investment in exploration and production, while not dramatically discouraging consumption.

Well, guess what? It's around $80 per barrel now. But before I get too smug about my perspicacity in selecting which experts to quote, I note that I ended the April column thusly:

A final note: When contemplating the future of oil prices, one should always keep in mind U.S. foreign service officer James Akins' observation, "Oil experts, economists, and government officials who have attempted in recent years to predict the future demand and the prices of oil have had only marginally better success than those who foretell the advent of earthquakes or the second coming of the Messiah." Akins wrote that in 1973.

Indeed.

Comments

[Mike]

Why does nobody see fit to mention the other half of the equation when it comes to gas prices: refineries?

The choke-point is at the refining stage, and environmentalists (along with the EPA) are working hard to ensure that few new ones are built. You could have $15 oil, and $10.00 gas at the pump if you only have two or three refineries doing all of the work.

[the real O2]

move closer to work moron.

[Matrix]

Stand in the center lane of the interstate, moron.

[OO]

yea i know, reducing commutes doesnt make sense ?!

[Daniel]

Because, of course, no one ever travels anywhere, and it's not like fuel prices affect the cost of anything else.

[OO]

living out in the burbs in what should be a productive cornfield forces (unneccessary) travel.

[cynical]

But it puts you farther away from progressives and potential looters, so there's that.

[PIRS]

Environmentalists want to make sure all there are good refinery jobs in Africa where there are not as stringent environmental regulations.

Refined gasoline can then be shipped to the United States.

http://www.mbendi.com/indy/oilg/ogrf/af/p0005.htm

[OO]

u mean like these kinda clean-up [JOBZ]?
Africa's oil spills are far from U.S. media glare

The most recent damage in Nigeria, which has not been attributed to militant attacks that have preyed on Nigerian oil infrastructure for years, forced U.S. operator ExxonMobil to relieve itself of contractual obligations by declaring force majeure on its exports of Nigerian benchmark crude.

The light sweet crude is particularly well-suited for refining into gasoline and is regularly supplied to the United States, the world's biggest oil burner.

Exxon declined the opportunity to give details of the damage, clean-up or repair work.

An industry source, who declined to be named, said 100,000 bpd of oil had leaked for a week from a pipeline that has since been mended.

"If this (the BP spill) were in the Niger Delta, no one would be batting an eyelid," said Holly Pattenden, African oil analyst at consultants Business Monitor International. "They have these kind of oil spills in Nigeria all the time."
http://www.reuters.com/article.....6O20100518

[Ron Bailey]

Mike: Well actually, I did mention the refinery problem in my column, Gasoline Prices: Conspiracy or Plot? back in 2007:

But the question still nags: Why haven't some refiners expanded their production capacity in order to take market share from their lagging competitors and smooth out these predictable fluctuations?

No new refineries have been built in the U.S. since the 1970s. Why? NIMBY, nobody wants an oil refinery in their neighborhood. Also, environmental regulations are much tighter than they used to be. Ritterbusch estimates that it would cost $5 to $7 billion and take 7 years to build a new refinery in the U.S. Routt says oil company executives who vividly recall the oil crash of the 1980s when refineries hemorrhaged money are reluctant to make such huge investments in a volatile energy market. Nevertheless, refining capacity at existing facilities increases at rate of about 1.5 percent per year.

[Brett L]

Ron. Do you see this changing now as economic pressure rearranges priorities?

[Tim]

I hear Mexico is building refineries on the border.

[Jason]

I'll lease my backyard for a refinery?

[JW]

OT: I think this may have been posted before, but it's rant-o-riffic. Double-plus good that it was on MSDNC.

MSNBC's Dylan Ratigan Goes On A Rant

[Sy]

Did you get the same Bloomberg "Beyond Coal" propaganda before the start of the video?

[JW]

Nope. I got Eva Mendes rubbing herself all over.

[BakedPenguin]

Well, he's right about the deficit, but if he's so pissed, maybe he should get that limiting government growth to under 5% isn't "burning" anything "to the ground".

[JW]

Yeah, I didn't go with everything that he was saying, but he got the gist of it. I didn't bother to listen what the taking-headettes had to say.

[Tank]

Congratulations on all that money you made by shorting oil!

[Jennifer]

Peak Oil!

 
Oh.
Too soon?

[yonemoto]

it's deleveraging because the currency is deflating, people are defaulting or paying down debt. why don't I make a prediction: Next summer it will be up to the $170/barrel.

[Lost_In_Translation]

you mistake is in assuming we'll still be pricing oil in dollars next summer.

[yonemoto]

I don't see how that matters.

[Tim]

No blood for (Canadian) soil!

[Warty]

The correct headline was "Oil Say I Told You So." What a waste, Ron.

[Jerry]

At this price, would it not make Canadian oil very expensive?

[Tulpa]

Not so fast, Ron. Oil's back up above $100 a barrel in early trading this morning (currently $104.77).

[Tman]

That's Euro ICE's Tulpa, not the US.

US oil did go up today, but only around $2.

[Ron Bailey]

Tulpa: What Tman said - the original article referred to WTI and I did helpfully link to the AP article from this morning with that price. You could have checked.

[Tulpa]

Reading the article is for wimps and communists.

[fresno dan]

The price of oil will rise.
The price of oil will fall.
Not in that particular order...

[Lost_In_Translation]

Its hard to buy oil without an income and the economy's headed back down. Its a mistake to think oil is down because supply increased. Its the continued prediction that demand will decrease again that drops oil prices.

[GSYSDTL]

Reaching $80s per barrel is not the same as settling in for the foreseeable future at around $80 to $85.

[James J.B.]

Think of a tipping point - we haven't hit it yet.

Right now the companies are making profits and have been for some time. The oil companies have no motivation to build more refineries or lower their price. They, along with their allies in Congress, have written the laws so that competition is severely limited.

Though nimby has played a role - the oil co.'s have shut down or reduced production of gas.

Gas is at 3.50+ and everyone is sill driving and going to work. When there is an actual shortage of gas, a day where we cant buy it, NIMBY will abate, and the execs will look to build more refineries. Until then - enjoy the 3.50+ price point.