For Motorists, 2008 Starts Out With Bad Omen

For motorists, the good news could be if former Treasury Secretary Larry Summers is right and we're headed for a huge, deep, global recession. Otherwise, 2008 looks like another expensive year on the road.

An uptick in violence in distant Nigeria helped to send crude oil prices through the roof today. A couple of crudes meant for delivery next month are at or near triple digits -- West Texas Intermediate rose to $100 a barrel, and Brent to $99.35. (Wall Street Journal piece)

This again highlights the global shortage of the types of light crude that most refineries can process into gasoline, something that won’t change until more flexible refineries come on line in three or four years. Unless demand drops -- the Summers scenario -- we're going to continue to have the tight supplies that are keeping gasoline prices high at the pump.

Meanwhile, an article in a journal published by OPEC says the world shouldn’t expect long-term relief from the Middle East. Ayoub Kazim, executive director of Dubai Knowledge Village, a government-run education center, wrote the article in the December issue of the OPEC Review. (abstract)

Carbon fuel optimists usually point to Middle East reserves as evidence that the world needn't worry about declining production in other leading petro-states, including Russia. But Kazim says that, between 2024 and 2048, OPEC countries like Saudi Arabia, Kuwait and others will be unable to satisfy their part of global demand.

If true, Kazim’s analysis would conform with the notion of an “oil plateau,” in which various constraints on production, such as equipment, manpower and expense, put an effective ceiling on total daily supply.

I’ve spoken with a number of plateau advocates, and their arguments are rational.

Photo: gothick matt
Rights: Creative Commons

Saudis: Back from the Precipice

The Saudis are acting to keep oil from crossing the $100-a-barrel line. They are clearly apprehensive about the political hullabaloo in the U.S., Europe and even China over the steep price increase for crude oil this year.

Why are the Saudis worried? The stink over the 30% rise in crude prices since September -- not to mention increasing concern over short- and medium-term oil supplies -- could mean conservation, higher efficiency and hence less demand for OPEC's oil. And that could put a damper on the Saudis' bankroll.

Hence, according to a story in tomorrow's Wall Street Journal, OPEC -- led by the Saudis -- are in the middle of adding some 720,000 barrels a day to world exports. The story, by my former colleagues Spencer Swartz and Lananh Ngyuyen, reports that the fresh supplies appear to be headed West.

I've exchange a couple of messages this evening with Michael, who points out that according to U.S. government figures there's no supply problem right now. In my own opinion, we are in an intensely erratic time, when at one moment we are in crisis because of the supply impact of a hurricane or a war, and a little while later we are swimming in oil because of other factors.

There's no doubt that conservation would be the prudent thing; but we also don't quite need to move to the forest quite yet.

Photo: ArtBrom
Rights: Creative Commons