Saudis/OPEC don’t control the price of oil any more
With Bush going to Saudi Arabia to beg — again — for lower prices, the media is gaga over a confrontation that has about as much significance as a Rocky Balboa fight.
Even the venerable NYT just published an article, “Bush Rebuffed on Oil Plea in Saudi Arabia,” that opens, “With the price of oil hitting record highs, President Bush used a private visit with King Abdullah to make a second attempt to persuade the Saudis to increase oil production and was rejected yet again.”
Unlike the 1970s and 1980s and even much of the 1990s, neither OPEC nor the Saudis any longer control the price of oil.
If any country had a million barrels a day of (sellable) spare oil capacity, they could make more than $100 million a day selling it, even if that much new oil dropped prices 20%, which it probably wouldn’t.
Who would sit on that kind of money? Yes, the Saudis are selling over 8 million barrels a day, so they don’t really need the money. But if they have any significant excess capacity, it is sour or high-sulfur crude (see the other experts on the full CNBC interview here). Such crude is not currently in demand: “Many refineries are not set up to process such crude because it is more difficult and expensive to refine into products.”
By the way, the Saudis are much slier than Bush, national security adviser Stephen J. Hadley, and most of the press [okay, that’s not saying much]. As the NYT and AP reported, Hadley told reporters:
“What they’re saying to us is” that “Saudi Arabia does not have customers that are making requests for oil that they are not able to satisfy.”
What a clever way of sounding to those not in the know [this means you — Bush, Hadley, and the media] like they are sitting on extra capacity that they could sell, when in fact what they are really saying is that they have no customers for any extra capacity they have.
The situation is not going to get any better soon until the nation and the world develop and deploy at scale a high-volume, low-cost, carbon free alternative fuel.
As I said:
In January, Jeroen van der Veer, chief executive officer of Royal Dutch/Shell, e-mailed his staff that the world will peak in conventional oil and gas within the decade. He wrote: “Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand.” It used to be unheard of for oil executives to talk about limits to oil production. Now it happens all the time.
John Hess, chairman of Hess Corp., a global oil and mineral exploration company, said recently, “An oil crisis is coming in the next 10 years. It’s not a matter of demand. It’s not a matter of supplies. It’s both.”
We could solve this problem in the medium-term (i.e. by the 2020s) if the next president were not John McCain and if he or she aggressively pursued the transition to electric-powered cars (see here and here) — but this would probably not be fast enough to avoid 50% to 100% higher oil and gasoline prices in the next decade.
Could we lower prices in the short term? That, I’m afraid, will have to be the subject of another, longer blog post.
- Goldman says oil ‘likely’ to hit $150-$200 by 2010. That means $5+ gasoline.
- Note to Bush, media: Opening ANWR cuts gas prices one penny in 2025
- Peak Oil? Bring it on!
- Thirsty oil-rich nations reduce exports
- Why I don’t agree with James Kunstler about peak oil and the “end of suburbia”
- My 1996 warnings and predictions: “MidEast Oil Forever?” — Part I: Drifting Toward Disaster