Remember all those Green arguments a few months back about us not needing to build anymore roads as we could not afford to run vehicles on them any more?
This is an interesting perspective from Dominick T. Armentano that a reader just sent through. The source is here.
When LewRockwell.com published my article, “The Coming Collapse of Oil Prices” back in May, crude oil was selling for roughly $135 per barrel. Almost every oil pundit was then predicting that prices would soar even higher. I strongly suggested, however, that prices would likely fall sharply, probably into the $80 dollar range. Well, since then the price of crude oil has declined sharply and (absent some new Mid-east war) they are likely headed even lower in the weeks and months ahead.
My thesis about the near-term direction of oil prices was that declining world demand (due to near recessions in several national economies) and generous profits associated with oil production would inevitably lead to sharply falling prices. The long 150-year history of oil prices is that short-run increases in price are (almost) ALWAYS followed by just as dramatic reductions in price. This scenario has played out in the late 19th century, during and after World War 1, World War 2, and most dramatically after the price hikes of late 1970’s and early 1990’s. Oil prices first increase sharply, then the tumble.
The only apparent exception to this almost Iron Law of Oil Prices is the period 1933–1941, when real oil prices (adjusted for inflation) increased sharply and stayed uncharacteristically stable for years. Yet the proximate cause of that period of sustained high prices was government regulation, not the free market. During the Great Depression, several oil producing states (led by Texas) placed quotas on oil production (pro-rationing) and the federal government cooperated by initiating tariffs and quotas on imported foreign oil. In short, government regulation subverted normal market forces and politically savvy producers benefited artificially at the expense of consumers. Thus, this episode became the exception that proves the rule.
Current oil market pundits, of course, were convinced that this time around the oil barrel, things would be very different. We were told repeatedly that the world was “running out” of oil; that oil production had “peaked” and future supplies must fall; that we were hopelessly “addicted” to oil (our President and both presidential candidates asserted this); that higher prices would not curb consumption substantially; and that the oil industry was not “competitive” anyway and would simply not allow prices and profits to fall...ever. All of this, of course, was (and is) dangerous nonsense, belied over and over again by economic theory and the facts of history. Yet these notions have now become “conventional wisdom” and policy makers employ them in order to subsidize and regulate energy markets regardless of common sense or cost.
I experienced some of this nonsense first-hand shortly after my op/ed appeared. I’ve written hundreds of op/eds over the years but few sparked more of an email assault than that one. Letters came from here in the U.S. and abroad, from businessmen, teachers, financial analysts, and even from local legislators, instructing me that I was either an idiot, a shill for the oil industry, or likely both. I was told on the best authority that oil prices were going straight to $200 per barrel, and then even higher, and that any talk of lower prices was, well, idiotic. Yet when I challenged one alleged oil expert to a Julian Simon-style wager that oil prices would be lower (in real terms) ten years from now, he never replied. My guess is that he is currently risking his clients’ money, not his own, on the near-term prospect of $250 oil. Good luck.
Could currently falling oil prices increase again? Of course. And one of the new reasons, ironically, might be that the “alternative energy” crowd now requires higher and stable oil prices in order to make energy alternatives economically viable. So I’ll be interested to see whether Nancy Pelosi and Harry Reid (or even Sen. Obama and John McCain) might be willing to support a government “floor” on crude oil prices in order to promote the development of solar and wind energy. Stay tuned.
Showing posts with label energy. Show all posts
Showing posts with label energy. Show all posts
Oct 24, 2008
Oct 3, 2008
Happy Birthday Big Oil
Fellow VRWC member Big Oil celebrated a birthday today. Look forward to the lunch.
Oct 1, 2008
Ministers Panic Over News THat Power Prices Are To Rise 12%
1 October was meant to be the day the Government started winning back votes as people started seeing the effects of a tax cut. Instead people now face the prospect of their tax cut being more than gobbled up by higher power prices. So the reaction from Ministers has been quick. We share Gerry Brownlie's scepticism. At the start of the year we predicted that David Parker will be responsible for Labour losing this election. Recent developments are making this increasingly likely. (And these power hikes have nothing to do with the ETS which will increase prices even further.) This from Tracy Watkins in the Dominion Post.
Soaring power price rises are to be put under the spotlight, but scepticism has greeted suggestions of a Government inquiry.
Commerce and energy ministers Lianne Dalziel and David Parker hit out at "alarming" rises of up to 12 per cent in Wellington and parts of the South Island, and said they would seek Cabinet approval for an inquiry.
But National's energy spokesman, Gerry Brownlee, said the promise of an inquiry was too little, too late, after a 48 per cent rise in domestic power prices in the past five years.
"Suddenly, on the eve of an election, they announce a review ... After nine long years and regular complaints about the state of transmission and generation, they are trying to pretend they will do something about it."
Soaring power price rises are to be put under the spotlight, but scepticism has greeted suggestions of a Government inquiry.
Commerce and energy ministers Lianne Dalziel and David Parker hit out at "alarming" rises of up to 12 per cent in Wellington and parts of the South Island, and said they would seek Cabinet approval for an inquiry.
But National's energy spokesman, Gerry Brownlee, said the promise of an inquiry was too little, too late, after a 48 per cent rise in domestic power prices in the past five years.
"Suddenly, on the eve of an election, they announce a review ... After nine long years and regular complaints about the state of transmission and generation, they are trying to pretend they will do something about it."
Sep 30, 2008
Oil Down 10%
The shock rejection of the Administration's proposed financial market bail out is flowing through to other markets including to commonities. Oil is back 10%. This from Reuters
Oil prices dropped nearly 10 percent overnight after the US House of Representatives rejected the US$700 billion rescue package for the financial sector.
US stocks plunged after lawmakers voted against the bailout and major US and European banks needed emergency deals to stave off collapse, sending investors fleeing to the safety of gold and debt.
US November crude settled down $10.52 to $96.37 a barrel, after touching a session low of $95.04, in the second biggest drop since April 23, 2003. November crude dropped 11.8 percent last Tuesday following a spike in the expiring October crude contract in the previous session.
London Brent crude traded down $9.56 to settle at $93.98 a barrel.
The House voted 228-205 to reject the bailout bill, which would have authorized the Treasury Department to purchase broken mortgage-backed bonds from banks with the goal of jump-starting stalled capital markets.
"The bailout package being defeated sent stock markets tumbling, weighing on petroleum as well," said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc.
The mounting economic crisis has stirred concerns about oil demand, helping drag prices from a record high above $147 a barrel in July.
In addition, investors who had rushed into commodities earlier this year as a hedge against inflation and the weak dollar have sold crude for safer havens.
"This decision is a shock to the system," said Sarah Emerson, director of Energy Security Analysis Inc. "The oil market is reacting strongly in part because of the implications of a weak economy on demand."
Oil prices dropped nearly 10 percent overnight after the US House of Representatives rejected the US$700 billion rescue package for the financial sector.
US stocks plunged after lawmakers voted against the bailout and major US and European banks needed emergency deals to stave off collapse, sending investors fleeing to the safety of gold and debt.
US November crude settled down $10.52 to $96.37 a barrel, after touching a session low of $95.04, in the second biggest drop since April 23, 2003. November crude dropped 11.8 percent last Tuesday following a spike in the expiring October crude contract in the previous session.
London Brent crude traded down $9.56 to settle at $93.98 a barrel.
The House voted 228-205 to reject the bailout bill, which would have authorized the Treasury Department to purchase broken mortgage-backed bonds from banks with the goal of jump-starting stalled capital markets.
"The bailout package being defeated sent stock markets tumbling, weighing on petroleum as well," said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc.
The mounting economic crisis has stirred concerns about oil demand, helping drag prices from a record high above $147 a barrel in July.
In addition, investors who had rushed into commodities earlier this year as a hedge against inflation and the weak dollar have sold crude for safer havens.
"This decision is a shock to the system," said Sarah Emerson, director of Energy Security Analysis Inc. "The oil market is reacting strongly in part because of the implications of a weak economy on demand."
Aug 10, 2008
The Next Saudi Arabia?
If you have not done so, you should read page 17 of Friday's National Business Review. It contains a fascinating article by Doug Gordon of the New Zealand Mineral Industry Association.
Gordon says that New Zealand's gold and low-rank coal resources are worth more than $250 billion. If you add our oil and gas resources we would be second only to Saudi Arabia in terms of natural capital per capita. The trouble is that "the court of public opinion appears to be saying we cannot afford to use our own natural resources because it will damage the planet."
Gordon references a publication The Natural Resource Potential of New Zealand (March 2008), which he says is available at www.minerals.co.nz - July issue of e-news. We will certainly be giving this a good read.
Gordon says that New Zealand's gold and low-rank coal resources are worth more than $250 billion. If you add our oil and gas resources we would be second only to Saudi Arabia in terms of natural capital per capita. The trouble is that "the court of public opinion appears to be saying we cannot afford to use our own natural resources because it will damage the planet."
Gordon references a publication The Natural Resource Potential of New Zealand (March 2008), which he says is available at www.minerals.co.nz - July issue of e-news. We will certainly be giving this a good read.
Aug 9, 2008
Is Anyone Aware Of Any NZ Statement On The Situation In Georgia?
We can't find any statements on the Internet or on Official Websites from the New Zealand Government on the situation in Georgia. The most recent entry for Foreign Minister Peters is a speech on the role of the Foreign Minister. We have not read this speech, but one role is to communicate to the world our views on a big country going to war against a small country. Aside from the international law and moral arguments this war isn't going to do much good for the price of oil....
The MFAT website leads with a competition for year 12 and 13 students on the UN Declaration on Human Rights (tip - you won't win if you comment on the electoral finance act and freedom of expression). But we would have thought that the residents of Tiblisi have the right to expect not to have Russian bombers drop bombs on them and when they have this happen, they would expect countries like New Zealand to ask the Russians to stop doing this.
Have any readers heard or read any statements?
The MFAT website leads with a competition for year 12 and 13 students on the UN Declaration on Human Rights (tip - you won't win if you comment on the electoral finance act and freedom of expression). But we would have thought that the residents of Tiblisi have the right to expect not to have Russian bombers drop bombs on them and when they have this happen, they would expect countries like New Zealand to ask the Russians to stop doing this.
Have any readers heard or read any statements?
Georgia: Could This Be About Energy Independence?
This also from The Times
The biggest threat Russia poses to Europe is the Kremlin's monopoly on energy export routes to the West from the former Soviet Union. The one breach in that is the oil and gas pipeline that leads from energy-rich Azerbaijan to Turkey, across Georgia. If Georgia falls, Europe's hopes of energy independence from Russia fall too.
The biggest threat Russia poses to Europe is the Kremlin's monopoly on energy export routes to the West from the former Soviet Union. The one breach in that is the oil and gas pipeline that leads from energy-rich Azerbaijan to Turkey, across Georgia. If Georgia falls, Europe's hopes of energy independence from Russia fall too.
Jul 10, 2008
Iran Tensions Reverse Oil Price Fall
As we warned a day or so ago - Iran, and possible military confrontation with Iran, will keep oil prices up. After two great days of falls, concern over Iran has seen prices move upward.
LONDON (Reuters) - Oil prices rose more than $1.50 a barrel on Wednesday after Iran tested long- and medium-range missiles, but crude remained far from its recent record highs, boosting global equities.
Iran's test-firing of missiles, including one which it has previously said could reach Israel and U.S. bases in the region according to state media, weighed on the dollar, raising the heat in a region already beset by tension over Tehran's nuclear programme.
The rise in oil followed a $5 fall on Tuesday that lifted investor spirits and helped trigger a rally on Wall Street overnight.
U.S. light crude was up about $1.50 on the day, but its price of just over $137.50 a barrel was a far cry from last Thursday's record high of $145.85.
LONDON (Reuters) - Oil prices rose more than $1.50 a barrel on Wednesday after Iran tested long- and medium-range missiles, but crude remained far from its recent record highs, boosting global equities.
Iran's test-firing of missiles, including one which it has previously said could reach Israel and U.S. bases in the region according to state media, weighed on the dollar, raising the heat in a region already beset by tension over Tehran's nuclear programme.
The rise in oil followed a $5 fall on Tuesday that lifted investor spirits and helped trigger a rally on Wall Street overnight.
U.S. light crude was up about $1.50 on the day, but its price of just over $137.50 a barrel was a far cry from last Thursday's record high of $145.85.
Jun 22, 2008
Political Interference In SOEs
There is a very disturbing article in today's Herald on Sunday by Fran O'Sullivan. She reports that Genesis Energy CEO Murray Jackson was forced out because the Government regarded him as "pro-thermal". This is disturbing at several levels. First, as Fran points out, if Minister Parker had been following Jackson's sensible advice he would not be in the pickle that he is right now. Second, we have a talent shortage in New Zealand and Jackson was a good operator. Third, if true, we have a breach of the Companies Act. The roll of the board is to act in the best interest of the company, not the shareholder, in this case the Government.
Fran compares the situation at Genesis with Air New Zealand and Solid Energy where the Chairman is John Palmer. Palmer is well prepared to stand by his CEOs in the face of strong political pressure.
Who is on the Genesis Board? There are some pretty good people there who should know their responsibilities as Directors well (one if the CEO of the Institute of Directors). But there is this fellow. Interesting that he is wearing his Green hat for the photo.
Fran compares the situation at Genesis with Air New Zealand and Solid Energy where the Chairman is John Palmer. Palmer is well prepared to stand by his CEOs in the face of strong political pressure.
Who is on the Genesis Board? There are some pretty good people there who should know their responsibilities as Directors well (one if the CEO of the Institute of Directors). But there is this fellow. Interesting that he is wearing his Green hat for the photo.
Jun 21, 2008
More Financial Turbulence Ahead?
We were in New York a couple of weeks back and have to say were a bit worried by how worried a number of our contacts were about several large banks/finance houses. So we were not surprised at the news overnight that further profit writedowns are pending and that dividends are not going to be that great this year. (Things are so bad that weekend trips and holidays to the Hamptons are being cancelled!!!) Add to this the weakening US dollar and more instability in the Middle East (=jump in oil prices) and we have more serious jitters. Luckily NZ was finished for the week. Maybe cooler heads will prevail here on Monday once a full assessment of the market conditions has been completed over the next 48 hours. We will report further on the international analysis of what is going on.
Jun 17, 2008
Is This Election Year: More Populist Politics
So they are proposing to compensate households for the extra costs associated with the ETS. Does this not undermine the integrity of the scheme, which is all about incentivising changed behavior? And who is going to pay for this (the windfall profits from the SOE generators is what Parker is suggesting as a possibility - ie he doesn't, nor does he know what the cost is going to be as we don't know the cost of carbon)? How much will this cost to administer? Who will administer it? Was this costed in the budget? This is bad policy. And bad politics. How are they going to compensate the 50,000 who lose their jobs? Labour are going to be lucky to get 20% of the vote this time around.
Jun 16, 2008
Populist Politics: Government Calls Enquiry Into Fuel Prices
Is Lianne Canute trying to hold back the tide?? Who cares it might win some votes.
Oil companies will have their pricing structures scrutinised by a Government-ordered inquiry.
The move comes after fuel prices reached record highs, sending the price of petrol to more than $2.10 a litre.
Commerce Minister Lianne Dalziel said last night that she was looking forward to the oil industry explaining to the public, through the inquiry, "why it takes so long for price decreases in crude oil to come through to the New Zealand petrol pump and why it is so quick to get the price increases through".
She said independent consultants would also examine similarities and differences between fuel markets in New Zealand and Australia, which is about to extend the geographic reach of a scheme requiring oil companies to give motorists advance notice of price rises.
The NZ Herald reports in more detail.
Oil companies will have their pricing structures scrutinised by a Government-ordered inquiry.
The move comes after fuel prices reached record highs, sending the price of petrol to more than $2.10 a litre.
Commerce Minister Lianne Dalziel said last night that she was looking forward to the oil industry explaining to the public, through the inquiry, "why it takes so long for price decreases in crude oil to come through to the New Zealand petrol pump and why it is so quick to get the price increases through".
She said independent consultants would also examine similarities and differences between fuel markets in New Zealand and Australia, which is about to extend the geographic reach of a scheme requiring oil companies to give motorists advance notice of price rises.
The NZ Herald reports in more detail.
Jun 15, 2008
Oil Price: Correction On The Cards
This opinion piece in The Hindu would suggest that a correction could be just around the corner. We don't know anything about the author but this seems a balanced and thorough assessment.
An evaluation of the oil and gas futures and options markets seems to be indicating that supply is sufficient to meet current demand and the oil price increase seems to be overdone with speculative interests in abundance. I believe we are nearing a steep correction in oil prices.
We recommend that you read the full article.
An evaluation of the oil and gas futures and options markets seems to be indicating that supply is sufficient to meet current demand and the oil price increase seems to be overdone with speculative interests in abundance. I believe we are nearing a steep correction in oil prices.
We recommend that you read the full article.
Power Crisis: Why Blame The Government?
Fran O'Sullivan hits the nail on the head today
But that's as good as it gets. The reality, and the negative element, is that New Zealand does not have sufficient reserve supply to cope with the years when drought affects southern lake levels.
The Government must take the blame for this predicament.
It needs to let the power industry respond appropriately by building new generators. It needs to remove the ban on new baseload thermal generation so that Genesis Energy can build another plant.
It needs to amend planning laws to put national interests first. So far, it is not heeding the message.
And it needs to adopt a more realistic policy response to controlling greenhouse gas emissions....
But that's as good as it gets. The reality, and the negative element, is that New Zealand does not have sufficient reserve supply to cope with the years when drought affects southern lake levels.
The Government must take the blame for this predicament.
It needs to let the power industry respond appropriately by building new generators. It needs to remove the ban on new baseload thermal generation so that Genesis Energy can build another plant.
It needs to amend planning laws to put national interests first. So far, it is not heeding the message.
And it needs to adopt a more realistic policy response to controlling greenhouse gas emissions....
Jun 14, 2008
New Idea For The Green Party - Cap And Trade For Liquid Fuels
Now this idea, which we have stolen in full from the Wall Street Journal will not do much for the price as a fall in New Zealand demand will have zero impact on a global market we should not let this worry us. The emissions trading scheme proposed by the Government will probably result in an increase in global emissions thanks to business choosing to leave carbon efficient New Zealand to less efficient countries. But if it increases the pace of introduction of electric cars and a better public transport system in Auckland then we are all for it.
Although the Senate's recent attempt to introduce a cap-and-trade system for carbon crashed and burned when it collided with $4 per gallon gasoline, fear not. Some in Congress are fearlessly tilting at another windmill: the "windfall" profits earned by oil companies.
Unfortunately, by reducing supplies, a windfall profits tax will only lead to even higher prices. Still, if Congress really wants to "do something" about high gasoline prices and global warming, it can always try rationing.
To lower gasoline prices permanently, you can reduce demand, increase supply, or do both. Congress long ago capped supplies by proclaiming from on high: Drillest thou not offshore, nor in ANWR. The next obvious step for our solons is to cap demand by rationing gasoline, and then gradually reduce the quantity of ration coupons.
"Trading" in coupons would be encouraged to ensure gasoline is allocated to uses of only the highest value. So Congress could reserve quantities of ration coupons for key lobbyists and their clients. Environmentalists could buy up coupons and "retire" them, lowering gasoline sales even more. Refineries could continue to produce gasoline, but as consumer demand would be sharply limited (and declining), oil companies would be forced to reduce the prices they charge. No more windfall profits! And lower carbon emissions!
For legislators and environmentalists – if not average citizens – this plan has other virtues: As ration coupons are reduced, consumers would increasingly clamor for more electric cars, cars that ran on French-fry oil, and "flex-fuel" cars that burn everything from gasoline to garbage. Eventually, gasoline could just be banned, reducing prices to zero and eliminating all ill-gotten profits.
And if Congress then had to tackle French-fry oil speculators and impose a windfall profits tax on Big Spud, well why not?
Although the Senate's recent attempt to introduce a cap-and-trade system for carbon crashed and burned when it collided with $4 per gallon gasoline, fear not. Some in Congress are fearlessly tilting at another windmill: the "windfall" profits earned by oil companies.
Unfortunately, by reducing supplies, a windfall profits tax will only lead to even higher prices. Still, if Congress really wants to "do something" about high gasoline prices and global warming, it can always try rationing.
To lower gasoline prices permanently, you can reduce demand, increase supply, or do both. Congress long ago capped supplies by proclaiming from on high: Drillest thou not offshore, nor in ANWR. The next obvious step for our solons is to cap demand by rationing gasoline, and then gradually reduce the quantity of ration coupons.
"Trading" in coupons would be encouraged to ensure gasoline is allocated to uses of only the highest value. So Congress could reserve quantities of ration coupons for key lobbyists and their clients. Environmentalists could buy up coupons and "retire" them, lowering gasoline sales even more. Refineries could continue to produce gasoline, but as consumer demand would be sharply limited (and declining), oil companies would be forced to reduce the prices they charge. No more windfall profits! And lower carbon emissions!
For legislators and environmentalists – if not average citizens – this plan has other virtues: As ration coupons are reduced, consumers would increasingly clamor for more electric cars, cars that ran on French-fry oil, and "flex-fuel" cars that burn everything from gasoline to garbage. Eventually, gasoline could just be banned, reducing prices to zero and eliminating all ill-gotten profits.
And if Congress then had to tackle French-fry oil speculators and impose a windfall profits tax on Big Spud, well why not?
The Power Of Competition
It was good to see Shell forcing the competition to drop their prices back.
When Is The Oil Bubble Going To Burst?
Liam Dann has an interesting look at the reasons for the current ridiculously high price for oil. He concludes that part of the problem is speculation, and that a bubble has formed. Bubbles always burst. We just don't know when.
What happened to oil prices as the US Markets closed for the week?
Nymex Crude Future
134.86
-$1.88
-1.37%
Brent Spot
134.38
-$2.14
-1.57%
WTI Cushing Spot
134.86
-$1.88
-1.37%
Not a bubble bursting unfortunately, but moving the right way.
What happened to oil prices as the US Markets closed for the week?
Nymex Crude Future
134.86
-$1.88
-1.37%
Brent Spot
134.38
-$2.14
-1.57%
WTI Cushing Spot
134.86
-$1.88
-1.37%
Not a bubble bursting unfortunately, but moving the right way.
Jun 13, 2008
Good On You Shell
We are great fans of competition at The Hive so we appreciate Shell only increasing by 4cents a litre. Of course no increase would have been even better......
Record Jump in Fuel Prices
Why the second jump? We understand the first jump but prices have not jumped that much since last Friday. Last time we looked it was still below last Friday's high.
Jun 10, 2008
Why Do We Need To Save Power If There Is No Crisis?
Can you believe this??? A Government that loses credibility soon loses the confidence of the electorate. We are beginning to think our prediction of 29 Labour seats on 19 October (2 November or 16 November) might be optimistic. We believe in a strong opposition so will not welcome a complete rout. When is the re-shuffle going to take place?
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