Here we go again. If you want cheaper gasoline in Nevada head to Elko where you might find it for about $3.10 per gallon, if you are stuck in the Kingsbury Grade area it’s likely to cost you $4.50. [NVgas] One of the problems with discussing gasoline prices is a matter of perspective. If we look at a short term graph the results are depressing.
Please climb back down from the barricades? Yes, speculation in oil prices contributes to price increases. However, as Ezra Klein explains in his Washington Post column, this may not be the entire picture — no matter how tidy the graphs. Klein urges us to remember that the oil prices are a matter of supply (Saudi Arabia) and demand (China). And, it’s hard to get a grip right now on the scale of the demand.
There’s this prediction from Reuters: “The China Petroleum and Chemical Industry Federation estimated that apparent crude consumption will increase 5.3 percent year on year to 480 million tonnes in 2012, or 9.6 million barrels per day, compared with its forecast of a rise of around 3.5 percent in 2011.” (January 2012)
And then there’s this prediction from Reuters:
China’s implied oil demand is likely to grow by a less-than-average 5 percent this year to 9.9 million barrels per day, an industry research group said on Thursday, as a slowdown in economic growth caps fuel consumption.
China is the world’s second largest oil consumer and the Institute of Economics and Technology, the research arm of top state energy group CNPC, said average implied oil demand over the last decade was 7.1 percent.
The institute also forecast net imports of crude oil to amount to 266 million tonnes this year, or 5.3 million bpd, the institute said, which would be an increase of 5.9 percent over the official 2011 import figure. (February 2012)
We can’t leave ourselves out of the picture because as the following graph indicates, the U.S. is the world’s top consumer of oil.
Either way these reports are read, there will be an increase in the demand for oil in China. The question appears to be the level of that demand, and how their demand clashes with our demand. On the supply side things are even less clear.
JODI graphs the production:
Saudi Arabia has 1/5th of the entire planet’s proven oil reserves, and has the world’s largest production capacity. [USEI] So, three days ago Bloomberg News reports that the Saudis have reduced crude oil production:
“The country reduced output by 237,000 barrels a day or 2.4 percent to 9.81 million barrels a day of crude compared with 10.047 million in November, statistics posted today on JODI’s website show. The kingdom’s exports were cut 7.36 million barrels a day from 7.8 million barrels, according to the figures, which include condensates and exclude natural-gas liquids.”
To make matters all that more confusing, the Saudi numbers don’t appear to be “adding up,” as explained by the Wall Street Journal:
Recent oil production figures from Saudi Arabia, the world’s largest oil exporter, simply don’t add up.
“There are competing explanations for this inconsistency. Some analysts claim that the increase in oil production Saudi officials promised in late February to compensate for lost Libyan supplies was fictitious. Statements from the Saudis themselves imply that the kingdom cut its production several weeks later much more sharply than reported. But either scenario contradicts previous statements from Saudi officials.”
Climbing demand and decreased production (spiced with some confusion) usually do cause price increases. Granted that speculation isn’t helpful, but it may not be the sole cause of the current Pump Pain we are now experiencing. So, what if we Drill Baby Drilled? Would that yield enough barrels of oil to bring down the prices?
Independence in FantasyLand It was 1973 and President Richard M. Nixon was telling us that we could be “energy independent,” a term used and misused by nearly every administration since Carly Simon was singing “You’re So Vain.” And, it is theoretically possible for the U.S and Canada to double their production — however some of that drilling would require technology we do not yet possess. Would it be possible for us to double our production and sing “Take Your Oil And Shove It” to the Saudis? Sadly, no.
“…let’s not be realistic for a moment. Let’s assume the U.S. and Canada did manage to drill enough oil that we could tell Saudi Arabia to take it’s light sweet crude and shove it. What then? Well, we’d still be exposed to all the ugliness of the global oil market. American and Canadian crude would be priced just like everywhere else — based on what the world’s highest bidders are willing to pay for it. Americans would continue to pain at the pump whenever there was another war in the Middle East or African militants blew up a pipeline.” [Atlantic] (emphasis added)
And if those “world’s highest bidders” happened to be from China, Japan, India, Korea, Canada, and Brazil… our prices would still be UP. We’d drill and drill and drill and drill and the price of oil would still be determined by the global market.
President Obama is no more in control of what OPEC, the Saudis, the Russians, and the Iranians decide to pump into the global oil market than yours truly and my next door neighbors. No more than former President George W. Bush was empowered when gasoline prices soared in the summer of 2008. The oil will go to the highest bidder, wherever that bidder might be. That’s the way oil markets work.
There are some things we can do, but they would require some fundamental changes in the way we perceive our infrastructure.
# We could, for example, improve our electricity production and use such that we aren’t losing 60 units in inefficient generation and waste heat, plus the 10 units we lose in transmission, and the next 10 units we lose because of inefficient grounding in our own homes. Of the 100 units in the fossil fuels we’re actually utilizing about 20. [FERC]
# Developing the infrastructure to support hybrid automobiles could reduce our need for some 6.5 million barrels of oil per day. [FERC]
# Industry adoption of federal standards for vehicles sold from now until 2016 could save 1.8 billion barrels of oil over the lifetime of the cars and trucks. [CCES]
# We could also continue to support more fuel efficient public transportation. Ask any commuter from San Francisco to St. Louis to Washington D.C. if they’d rather drive into work or take the Park ‘n Ride Route?
However, when all is said and said and said what would be most useful for us to reduce the Pain at the Pump by taking a wider view of our circumstances, and seeing our transportation needs as part of a comprehensive picture of how we move ourselves and our goods in a network that promotes the most efficient use of energy resources.