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Crude Oil Price Surge and Supply, There Are No Good Outcomes

Commodities / Crude Oil Mar 06, 2011 - 08:04 AM GMT

By: James_Quinn

Commodities

Diamond Rated - Best Financial Markets Analysis ArticleThe political class and their mouthpieces in the corporate controlled mainstream media are desperately trying to spin the oil price surge as a temporary inconvenience that will not derail their phony recovery story. Brent crude closed at $116 per barrel yesterday. West Texas crude closed at $104 per barrel. Unleaded gas has risen by 22% in the last month and 60% since September 1, 2010. I’m sure this slight increase hasn’t impacted Ben Bernanke or Lloyd Blankfein. Their limo drivers just charge it to their unlimited expense accounts. Joe Sixpack, driving his 15 mpg Dodge RAM pickup, is now forking over an extra $1,200 per year in gas expenditures, not to mention more for everything impacted by oil such as food, utilities, and anything transported to their local Wal-Mart by truck (everything). Luckily, the Federal Reserve and crooked politicians only care about their comrades in the top 1% elitist society, for whom oil is an investment, not an expense.  


The “experts” speak as if they know what will happen, even though they never saw the rebellions coming in Tunisia, Egypt or Libya. They assure the masses that Libya doesn’t really have an impact on U.S. oil supply. It’s as if these shills never took Econ 101 in college. World oil demand is 88 million barrels per day. Oil supply is 88 million barrels per day. If 1 million barrels of oil supply are taken off-line, it doesn’t matter that the U.S. doesn’t get their oil from Libya. The Italians need their oil. Do the talking heads understand that oil is fungible? The supplier will ship the oil to the highest bidder. Presto!!! – $116 a barrel oil.

With Friends Like This, Who Needs Enemies

Let’s assess the probability of things getting better in the near, medium, long term or ever term. Take a gander at the chart below. These countries account for 29% of the daily world oil supply. Does it strike you as a list of stable countries with happy populations of employed young men?  Egypt, Libya, Yemen, Syria and Iran have already experienced revolution or are on the verge of revolution. Algeria is dead man walking. The Saudi royal family is trying to buy off the masses to stay in power. The revolution genie is out of the bottle. It can’t be put back. Mix 40% unemployment, with millions of young men, no hope, and some Muslim fundamentalism and you’ve got yourself an out of control situation. No amount of public relations spin will create a positive outcome for the United States. The existing world order of despots, kings, and military juntas was just fine for Washington DC. They poured hundreds of billions of “aid”, tanks, helicopters and missiles to these “freedom fighter” despots who diverted the billions to their Swiss bank accounts and fell into line with U.S. policy. No matter who takes power when these revolutions succeed in toppling our puppets, the new regimes will not be friendlier toward America. And they still have the oil. 

One look at the chart of self reported world oil reserves paints a picture of woe for the United States. Countries in the tinderbox of the Middle East and Africa control 65% of the world’s oil reserves. Saudi Arabia controls 20%, Iran and Iraq control 11% each, Venezuela controls 7%, Russia 5%, and Libya 3%. So, countries that can barely stomach our existence, hate us, or just despise us, control 57% of the world’s remaining oil. Sounds like a recipe for lower oil prices in the future. The two countries on our border are the only dependable suppliers for the U.S. Canada controls 13% of the world oil reserves, mostly in its tar sands. Mexico controls just over 1% of the world’s oil reserves, but supplies 13% of the U.S. daily oil supply.

Drill, Baby, Drill

Now for a reality check on the “Drill Baby Drill” propagandists like Larry Kudlow and the other dishonest Republican shills. The United States controls a full 1.58% of the remaining oil reserves in the world. We have 21.3 billion barrels of reserves versus 264 billion barrels in Saudi Arabia. We are currently producing 9 million barrels per day. At that production rate, the U.S. will deplete its proven reserves in the next 6 to 10 years. New discoveries will not be able to keep up with depletion of existing wells. The good news just keeps coming. Mexico’s oil production has been dependent upon one giant oil field since 1976. The Cantarell oil field produced 2.1 million barrels per day in 2003 at its peak. It is currently producing 464,000 barrels per day. Peak oil has arrived in Mexico. By 2015, the country that currently supplies 13% of our daily oil supply will become a net importer of oil. Drill Baby Drill. 

Based upon the monthly import data below from the IEA, it would appear that, to paraphrase Chief Brody in Jaws, we’re going to need more corn. As the Obama administration operates in denial of these simple facts, they will continue to push ethanol and Chevy Volts to save us from dirty oil. We are already diverting 40% of our corn crop to the ethanol boondoggle. I’m sure that has nothing to do with the 98% increase in corn prices in the last year. Maybe tax credits for solar panels on SUVs and rubber band propeller cars will save the day.

We know for a fact that Mexico’s 1.2 million barrels per day will evaporate in the next few years. But, at least we have that solid dependable 2.7 million barrels per day (30% of our daily imports) from those stable bastions of democracy Nigeria, Venezuela, Iraq, Angola, and Algeria. Makes you want to go out and buy a Hummer. The storyline being sold to the American people is that there is no need to worry. Saudi Arabia will step to the plate and make up for any shortfalls throughout the world. Just one problem. Saudi Arabia is lying about their reserves and their ability to increase production. They’d fit in very well in Congress and on Wall Street.

Lies, Obfuscation, Misinformation & Denial

The late Matt Simmons made the strong case In his book Twilight in the Desert that Saudi Arabia has been lying about their reserves for years. Documents released by Wikileaks give support to this contention. Cables from the U.S. Embassy in Riyadh , released by WikiLeaks, urge Washington to take seriously a warning from senior Saudi government oil executive Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, that the kingdom’s crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

The UK Guardian reported:

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as “peak oil”.

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.

One cable said: “According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray.”

The US consul then told Washington: “While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered.”

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. “Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018,” it said.

It also reported major project delays and accidents as “evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production.” While fears of premature “peak oil” and Saudi production problems had been expressed before, no US official has come close to saying this in public.

The overstatement of reserves by Saudi Arabia and most of the OPEC countries should be abundantly clear to anyone with a smattering of critical thinking skills. This eliminates just about everyone on CNBC or Fox News. Essentially, the self reported, unaudited declared oil reserves from OPEC members are a fraud. Production quotas for each member of OPEC are dependent upon their oil reserve amount. When this was instituted in the early 1980s, shockingly OPEC countries miraculously added nearly 300 billion barrels to proven reserves in a six year period with NO NEW DISCOVERIES of oil. The chart below shows the unexplained jumps in reserves in red. Do you honestly believe any self reported number from Iran or Venezuela? Dr. Ali Samsam Bakhtiari, a former senior expert of the National Iranian Oil Company, has estimated that Iran, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates have overstated reserves by a combined 320–390 billion barrels and has said, “As for Iran, the usually accepted official 132 billion barrels is almost one hundred billion over any realistic estimate.”

Using some common sense, someone might ask, “How could Saudi Arabia’s oil reserves remain above 260 million for the last 22 years despite pumping over 60 billion barrels during this time frame, and not making any major new discoveries?” Maybe their statisticians did their training at Goldman Sachs or the Federal Reserve. The monster Saudi oil fields are over 40 years old. They will deplete. Oil is finite. They will not refill abiotically like some crackpots contend. Saudi Arabia’s production peaked in 2005 and it has been unable to reach that level since. The spin sheiks in Riyadh and spin doctors in Washington DC cannot spin oil out of sand. Peak oil is about to choke the American way of life.    

The denial, accusations and misinformation have already begun. Congressional hearings will be called to blame Big Oil and the dreaded speculators. Americans always need a bogeyman to blame for their mindless decisions and willingness to be led to slaughter by corrupt politicians. Big oil companies do benefit from higher oil prices. Big oil companies spend millions buying off Congressmen. Big oil companies cut corners, ignore safety procedures, and seek profits by any means possible. But, they do not control the oil. Nations control the oil. Many of these nations are led by lying, corrupt, evil despots. That is a fact. Blustering moronic Congressmen going after oil executives and phantom speculators is just a sideshow. It will divert the non-thinking masses from the truth that our leaders haven’t allowed a refinery or nuclear power plant to be built since 1977. These leaders have promoted and subsidized corn based ethanol that requires more energy to produce than it creates and has driven the cost of our food sky high. We are more dependent on foreign oil than any time in our history.

The real speculators are the Americans who clog our highways every morning driving monster SUVs, turbocharged sports cars, gas guzzling minivans, and pickup trucks that make them feel like salt of the earth tough guys despite living in their 6,000 square foot energy sucking McMansions in suburban tracts 30 miles from their jobs, if they have one. The ignorance of the average American car buyer knows no bounds. The recent bounce back in auto sales was led by SUVs and pickups. The green clean cars are nothing but hype and bullshit. GM expects to sell about 10,000 Volts this year, and Nissan expects to sell about 25,000 Leafs in the United States, a piss in the ocean compared with the millions of sport wagons and SUVs purchased by Americans annually. Americans have the attention span of a gnat and are already dazed and confused by the surge in gas prices to $3.50 per gallon.

When oil prices spiked to $147 barrel in 2008, Americans were spending $467 billion per year for fuel. By early 2009, the collapse in energy prices due to the worldwide recession reduced the annual expenditure to $265 billion, freeing up over $200 billion for consumers to spend on other items, pay down debt, or save. Expenditures for fuel had already surged back to $400 billion before the recent spike in oil prices. Next stop $500 billion. That should do wonders for the faux economic recovery that has been touted by Obama and the MSM for the last year. The years of denial, lies, indecision, bad decisions, and inertia have left the country vulnerable and at the mercy of countries in far off lands that despise our way of life.

There are no good outcomes, only bad, really bad, and catastrophic. Take your pick. Could gas prices drop below $3.00 per gallon if the world sinks back into recession? Yes. But it would only be momentary. The easy to access supply is dwindling. The medium and long term direction of gas at the pump is up. There is nothing that can be done in the next five years to prevent significantly higher oil prices. A full court press of realistic ideas like converting our truck fleets to natural gas, a major effort to build nuclear power plants, more drilling, greater use of wind, geothermal, and solar would take at least a decade to have an impact. There is no consensus or resolve to undertake such an effort. Therefore, Americans will suffer the consequences. Be a good American and take advantage of GM’s no interest for 7 years deal on their biggest baddest SUVs and buy two. What could go wrong?

Join me at www.TheBurningPlatform.com to discuss truth and the future of our country.

By James Quinn

quinnadvisors@comcast.net

James Quinn is a senior director of strategic planning for a major university. James has held financial positions with a retailer, homebuilder and university in his 22-year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and is writing these articles because he cares about their future. He earned a BS in accounting from Drexel University and an MBA from Villanova University. He is a certified public accountant and a certified cash manager.

These articles reflect the personal views of James Quinn. They do not necessarily represent the views of his employer, and are not sponsored or endorsed by his employer.

© 2011 Copyright James Quinn - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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Comments

daddy warbucks
07 Mar 11, 05:30
peak oil

google 'peak oil lie'


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