The Truth about Oil

[Poli]

http://www.energybulletin.net/8994.html

I'm writing a paper that revolves around this article and the effect rising gas prices are having on the electronics industry.

I just figured I would see what the FOFC bunch thought about the topic.

[kcchief19]

I generally agree with most of his conclusions, but I'm not entirely solid on some of his takes. I think that fear and "irrational exuberance" have played a role in oil prices going up. It may not be a case of hedge funds that drove prices up, but too many dollars chasing too little supply is certainly a key part of the run-up in oil prices, and that is certainly due in large part to investors banking on oil for a money maker. My 401(k) accout is doing quite nicely largely because of my energy funds -- they have done quite nicely.

That said, you can come up with a reasonable explanation for rising oil prices, but I have yet to encounter a reasonable explanation for changing gasoline prices. Following Katrina we all paid the prices we were charged and was told that it was due to refineries being shut down and oil platforms damaged ... and oil companies again posted record profits during the quarter. They inceased profits despite -- in theory -- lower supplies, lower output, lower inventory and higher costs due to repairs and damages. That's nice work in you can get it.

[GabeRivers]

I've been in the oil and gas business for many years, and in my view, that's a very well written article.

One matter it does not discuss that is critical to the industry regarding its ability to ramp up exploration efforts is the shortage of labor -- both white collar and blue collar. The number of students choosing petroleum engineering or geology studies has been very low for a number of years, creating a severe shortage of professionals. Most of the remaining oilfield knowledge rests with the baby boomers, many of whom are nearing retirement.

And blue collar labor needed to work the rigs and equipment is very hard to come by. I used to be able to secure workover rigs with a day's notice to the contractors. Now I'm having to wait up to 3 or 4 months in some cases, leaving otherwise productive wells idle and shut-in for the interim period.

[sachmo71]

it's black.

[ISiddiqui]

it's black.

:eek: RACIST!

[IwasHere]

If someone with a bigger brain than me can please explain why Natural Gas prices have kept up with rising oil prices I would love to know. While the price of gas has doubled in the last 4 years so has the cost to heat my home.

I am pretty sure there has not been any major Wars in Wyoming or Colorado to effect my supply of Natural Gas here, so I am curious as to why the price of this US based product have just gone through the roof recently.

While oil companies are trying to defend their recent profits, I would be very interested to hear someone ask about their Natural Gas profit margins.

[GabeRivers]

I'm sure it's not from extra brainpower, but I can address it from industry experience. It is really a simple matter of supply and demand.

Demand for natural gas and its byproducts has been on a continual and sometimes rapid climb for years. It is very difficult to import gas except by land (Canada and Mexico), and our domestic supply is insufficient to meet the demand. To be imported by sea, natural gas has to be liquified (cryogenics). This is commonly referred to as LNG (liquified natural gas). It is a very costly process that has not been cost efficient until recently (although it has been done for years through a limited number of terminals; mostly eastern seaboard).

Keep in mind also that there are significant areas of demand for hydrocarbons that are interchangeable between crude oil derivatives and natural gas, so that the markets for the two tend to walk in a loose tandem.

[Buccaneer]

GabeRivers, glad to have your insights here. I've been in the utilities industry (electric, gas, water) for many years and have followed the volatile energy markets. I remember the outrage from some ignorant customers saying we were building (actually, partnering) a new power plant relying on NG when it was so high (this was about 5 years ago). It has paid off because that's the only part of rates structure that have not gone up the past couple of years and the foreseeable future looks pretty good as well. I believe most people can only think in the immediate without any thought to past trends or future changes.