Re: Rising oil prices. Peak Oil Conference.


hummingbird wrote:
> On 11 Aug 2005 11:19:39 -0700, "Mel Rowing"
> <mel.rowing@xxxxxxxxxxxxxx>
> mysteriously appeared thru the usenet mist to inform us thus...
>
> >Mike Granby wrote:
> >> > Bear in mind what peak oil is: it's where the
> >> > global oil output cannot meet the (growing)
> >> > demand, so you get a supply constraint.
> >>
> >> Yet another definition, and yet another economically illiterate
> >> statement...... There is no such thing as "supply" or "demand" per se.
> >> There are only the levels of supply and demand that exist at a given
> >> price level.
> >
> >Exactly! Stole my thunder!
>
> Then you're as dumb as he is.
>
> >The intersection of supply and demand curves.
>
> What are you blathering about.

Ah! No training in simple economic theory I see!

I have reproduced the classic curves for you.

http://www.btinternet.com/~mel.rowing/pics

The first curve represents how the supply of a good/commodity/service
is related to price. Any variation in supply costs simply shifts the
curve up or down as appropriate.

The second how demand is related to price. Any variation in demand
shifts the curve up or down as appropriate.

The third is a superimposition of the two at a particular point in
time.

The intersect of the two curves represnts the market price.

> >The present price of a
> >barrel of oil is ~$60. The average production cost is on average <$10
> >so between the two there is an overall profit of ~$50.
> >
> >~$60 therefore represents the lowest price necessary to buy up every
> >barrel of oil immediately available. ~$50 pbl represents the incentive
> >to invest so as to pump more barrels.
>
> Perhaps you have some good explanations as to why this $50pb profit
> is not being spent on new exploration or additional refining capacity?

Some of it is. Some of it goes to shareholders as dividends. Some will
go into R & D. etc. Just like any other business.

> And why the Chinese and French oil corps are doing deals with Canada
> for access to their tar sands which will cost much more to extract and
> get to the pump? And maybe you disagree with Exxon-Mobil?

It means they have eventual plans to exploit this resource. The cost of
this exploitation will have to come out of the $50 that you say is not
being spent.

What is it to be?

> When you've finished, perhaps you would like to explain why the oil
> companies are sitting on cash mountains and refuse to invest it and
> why Shell has announced a share buy-back scheme?

Just like 3i and National Grid. They are sitting on a cash mountain and
the best return on the money would be to return some of it to
shareholders thus concentrating the capital assets of the company (i.e
spreading them less thinly) with a view to increasing the profit per
share.. The $50 pBl represents a good profit that will more than
provide for the company's cash needs over the coming accounting period.

> Also, don't forget to explain why Japan announced poor economic
> figures today which according to analysts is largely due to high oil
> prices. BBC: "Japan is the first major economy to show the effects
> of high oil prices".

Japan is totally dependent upon oil imports and so the extra resources
needed to buy oil have to be diverted from elsewhere. This will result
in a reduction in the demand for oil and a downwards shift of the
demand curve and consequent pressure on the market price.

> Maybe you could explain why in Britain, inflation pressures are rising
> at the same time as the economy is drifting into recession? High oil
> prices perhaps?

Similar to Japan that extra which is spent on oil products is
unavailable to be spent elsewhere.

> Why is all this happening if there is no shortage of easy oil as you
> continue to assert?

Do I? Read it again!

> BTW - how are your new oilfields coming along Mel ...you know
> ...those new fields you mentioned that run right across Latin America
> which have enough new oil for two centuries or summat?

Was that me? When?

> >Production only stops when that $50 difference is eroded.
>
> It hasn't started and there's little sign of it doing so. Why?
> We know the answer but I'll let you cook up some fantasy....

It? What?

Mel Rowing

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