naked capitalism

Dean says:

Yves,

I will consider continued reliance on oil to actually bad news. Whether wealth is transferred at $100 or $150 per barrel, it is still a wealth transfer.
The smart thing to do is to disengage from oil as the predominant energy source as soon as possible.

Further consider the Marc Faber commentary you posted , identifying low oil prices as a sure indicator of global economic weakness rather than economic strength.

Yves Smith says:

Dean,

I don’t disagree. We ought to have a carbon tax, period. Even a dyed-in-the-wool Republican like Greg Makiw favors carbon taxes. The FT’s editorial page has advocated having a stable price for carbon to encourage conservation and transition to cleaner sources. And that is consistent with reducing dependence on foreign oil.

But OPEC is smart enough to extract the tax “rent” themselves…..although with the economy so wobbly, that sort of thinking is on ice for now.

Although, if you really want to discourage investment, price volatility will do the trick.

Anonymous says:

> there is the time-value of money now vs money later to consider, and the eventuality of gradual or breakthru progress in alternative energy destroying value

So what replaces petrochemicals?

Juan says:

Just in case it has been missed, production has been on a rise:

In July world production of total liquids increased by 890,000 barrels per day from June according to the latest figures of the International Energy Agency (IEA). Resulting in total world liquids production of 87.84 million b/d. Average global production in 2007 was 85.41 million b/d according to the IEA. In 2008 an average of 87.08 million b/d has been produced from January to July. The US Energy Information Administration (EIA) in their International Petroleum Monthly puts average global 2007 production at 84.44 million b/d and average production in the first five months of 2008 at 85.49 million b/d.
(Oilwatch Monthly, August 2008)

and premiums have been disappearing:

Ekofisk, a typical, nicely fungible North Sea grade was assessed at Dated Brent minus $0.10/b in Platts assessments for August 27, the lowest level since May last year. Five weeks ago the grade hit Dated Brent plus $3.65/b, an all-time high.

Some players have found themselves very long indeed. StatoilHydro, the owner of Mongstad and many cargoes of Norwegian crude that feed it, have been offering their cargoes more and more aggressively in recent days, as Statfjord crude has fallen from its record high of Dated Brent plus $4.50/b on July 1 to plus $1.15 in the most recent assessment.
(Platts, 28 August 2008)

MXQ,

Right, OPEC, as a weak cartel, has a history of quota enforcement difficulties.

Cash Mundy says:

Dean,

I fully expect oil to move higher long-term. PBR, PBD and PWND are my long positions at present.
I agree that, barring something like cheap and easy fusion, ‘demand destruction’ is really postponement and reallocation from the US to the emerging powers.

Regarding petrochemicals: if I was World Dictator, I would keep as much oil in reserve for that purpose as possible, imposing draconian taxes on fossil fuel for combustion and very generous subsidies for conservation and alternative energy. This would incidentally be the right policy vis-a-vis global warming. Being the only sensible policy, it is politically impossible, failing an enlightened World Despot to implement it.

I am informed that the Republicans (frightful, awful people with few notable exceptions) had some sort of prayer service or mating ritual at their current Bacchanalia involving the frenzied chanting of some sort of “Drill Now” mantra, no doubt followed by the ritual sacrifice of a vegetarian and a Prius. In fact, a search for “drill now” reveals some sort of Republican “Drill Now. Pay Less” advertising campaign.

Let’s hope that as China emerges as the next major power, they have a greater strategic depth of ideas to offer than “Drill Now. Pay Less”.

Freude Bud says:

Actually, there’s quite a lot of new sophisticated refining capacity online (and coming online) in the Asia Pacific right now, which means that the heavy icky stuff is in greater demand just now. We are beginning to see the crack spread between heavy and light products in Singapore narrow, as more light stuff is being produced from said sophisticated refinery capacity additions.

It is interesting, for example, that Ecuador, which tends to be very close to Venezuela politically, stating yesterday that they are against production quota cuts. Given their share of net exports, that doesn’t make a lot of sense, economically-speaking, given rational actors.

I suspect that Iran and Venezuela are not especially interested in $100+/b oil either:

Iran is a net importer of food (about 75%) … this hurts. They are also an importer of gasoline, though this is set to change as new refining capacity comes online in the next few years. Venezuela’s international political strategy is based on creating allies of the “dispossessed” countries, where slightly higher food prices actually cause people to starve.

However, both countries fear foreign intervention (reasonably in Iran’s case, not so rationally in Venezuela’s) … thus rhetoric railing against the colonizing powers is politically effective at home and rattles the industrial world by helping make for a volatile price environment in oil.

Though I share Cash’s distaste for the fascistic elements of the GOP convention, I’d point out that he must make much more money than most of those people he looks down upon to be so sanguine about the price of oil. I guess if he doesn’t hurt, he doesn’t understand if someone else does. Even ironically-speaking, yearning for the enlightened despotism of the Chinese is fairly spineless.

Anonymous says:

FB,

Sure enough on Asian refining and heavies, a fact that’s not captured much attention no matter the earlier announcements. Guess the story didn’t play well as it contradicted too many others.

Anon 12;43,

Enron may have gone under but the financial deregs which it helped bring about did not while other trading platforms acquired global reach.
Not all so fundamental that run from 30s to 140s.