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Wednesday, May 03, 2006

Oil World Markets

A number of bloggers participated in a conference call with a public relations man named Ken Cohen at ExxonMobil. Mary Katherine Ham sketches the call out at Hugh Hewitt's. One thing that seems to struck the bloggers as astonishing is that ExxonMobil's US taxes were more than its US net profit. But US companies pay US taxes at a lower rate on their non-US business revenues, I believe.
On the refinery shortage:

"Bringing an oil refinery online...is a Herculean process...you're looking at 5 to 6 years in the construction of a grassroots refinery... Assuming we could get the approvals, heroically, in 5 years... We've been expanding our existing capacity...we've been able to do the equivalent of building two new refineries in the U.S."
Later in the post Ken Cohen remarks:
Folks need to understand that things aren't done with the flip of a switch in the oil industry. It is not strange for a project to take a decade to get started and 30 years to complete. It's a long-term business. Oil executives are not capriciously messing with prices at the pump.
It's extremely interesting that they decided to go to the top bloggers with this information. Some of the others are listed at the post linked above. Captain's Quarters has a very comprehensive account:
We know about supply & demand, but why the big price spikes in the span of a few weeks?

If I knew that, I’d be on a resort island relaxing. The spikes come from speculators in the commodities market. EM does not participate in speculation – they only buy real barrels at market price. Unanticipated for the past two years was the rapid pace of growth in Asia, and the energy needs for that growth did not get forecast. Political risk in exporting countries also plays into the psychology of the commodities traders. Gasoline also is a commodity (not just oil), which is why the prices at the station can change so quickly. The prices reflect the expected cost of the next shipment, not the current one.
OMR tables showing China and other Asian demand in millions of barrels per day since 2002. Other Asian demand rose from 8.0 in 2002 to 8.8 in 2005 or .8 million barrels per day. Chinese demand rose from 5.0 in 2002 to 6.6 in 2005 or 1.6 million barrels per day.

US demand stayed flat from 2004-2005 (25.3 - 25.4), but increased from 24.1 in 2002 - 1.3 million barrels per day. This chart shows US refinery processing - and it's obvious that we took a hit with Katrina. This chart shows refinery processing compared with the five year average. Hmmm. Maybe we want to speed up the approval process?

Last, but not least, this chart shows world demand. Comparing this to the US figures makes it obvious that US conservation alone won't be able to accomplish much. World oil demand increased by 5.8 million barrels per day from 2002 through 2005. US oil demand increased by 1.3 million barrels per day from 2002 through 2005, which is less than China's absolute increase.
Increase by percentage of use since 2002: US: 5.4%. Other Asian: 10%. Chinese: 32%.
World Oil Demand:
In 2002, 77.8.
In 2003, 79.4
In 2004, 82.5
In 2005, 83.6
The developing world requires more energy. Certainly the US could conserve and produce more oil and other energy sources, but it seems unlikely to stem the drag of energy prices on the developing world. This explains why many world leaders privately agree with Bush's idea to put funds into alternative energy production as a better tactic than Kyoto's approach. Whether CO2 levels have anything to do with current world temperatures is extremely scientifically questionable, but what's not questionable is that an energy shortage is hurting some of the world's promising developing countries and causing international tension.


Based on the numbers you present re demand, the numbers go up less than 10%.
Also, 70% of profit comes from overseas. Here's a good article that sheds additional light on the subject: http://www.pittsburghlive.com/x/tribunereview/opinion/columnists/mcnickle/s_448525.html
SC&A, yes, and that's why I was saying that the current spasm in pricing is largely political. It's based on speculation, in a way. But it is wildly unrealistic to blame ExxonMobil for the pricing.

GreenGop, thank you very much for the article.:
All of this -- even scratching the surface as it does -- is not meant as a defense of Big Oil, per se (though the facts, sans any evidence of domestic collusion to keep gasoline from consumers, do work to defend the oil industry).

Rather it is a call for something that historically has been lacking for decades in this and most other debates economic -- reasoned, critical and independent thinking that's free of group- and mob-think.

Repeatedly saying something doesn't make it so. And mistaking perceptions for reality -- perceptions conceived in ignorance, in error or intentionally for political gain -- then basing some shortsighted policy "reform" on them, will result in far greater harm than the current spike in the price of a gallon of gas.

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