Quote:
Originally posted by speedkillz
Artifical shortages create higher prices. do any of you remember the 70's. once the price doubled...there was plenty of oil. BG is right we put all our eggs in one basket, this is what happens. plan on prices for regular at 2.50 a gal.
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Yes, most people are not aware that the oil 'shortage' of the 70s was only a 5% decrease in supply. Think about that. Only 5%.
The current problem has been a long time coming. Over the past several years worldwide excess capacity has dwindled to somewhere between 0 and 1%, depending on who you believe. Part of the problem is we don't really know anything about the Saudi supply, because our data is 30 years old. After the Saudi's nationalized all the oil companies, they stopped releasing data. So we don't really know how much oil is left in Saudi, and we don't know what their capacity really is.
The Saudis started shipping sour heavy crude last year in response to the high prices. This freaked everybody out because the realization was made that the Ghawar field, the primary sweet light field in Saudi, had probably hit peak production. Combine that with rapid demand growth in Asia, general demand growth worldwide vs. stagnant production growth, plus possible political problems in Venezuela and Nigeria, and we have a perfect storm for high oil prices.
I work for a DOE lab, so I tend to keep up with the oil markets. It appears the the current marginal production cost is around $42/bl, so we'll never see anything less than $50/bl again. Get used to it.
A few years ago I dug up a plot of oil prices vs unemployment in an attempt to show how the oil market can impact our economy. Note that these data are a few years old, and the price is not adjusted for inflation.
Note that each period of high unemployment was preceded by high oil prices. Think about where we stand today.
But here's the real problem. Our high demand coupled with low stocks has put us into a very delicate position. Here's a chart (also a few years old) showing how our "days cover", that is our stocks divided by usage rate = how many days we can go without imports, has declined to where it was when the oil embargo hit.
So we are in a position of high prices and low stocks with little or no world excess capacity. One major hit on a supplier could potentially bring us to our knees.
Sorry if I ruined your day.