What About The Price Of Oil Per Barrel?

The price of oil per barrel is one of those odd things I note daily in the paper.   Some check box scores….I follow the price of oil on the world market.  (It is $68 as I write this post.)  And the pressure on prices, will of coarse, have an impact on many different levels.

First, oil prices are rising, in part, because demand is so strong, not just because OPEC is keeping barrels off the market. Oil at $100 would essentially amount to a doubling of the price from the past few years, which would quickly put an end to high demand growth rates.

A corollary to this is that $100 oil would likely impact economic growth. The economic recovery from the financial crisis in 2008 is almost a decade old at this point, much longer than the average upswing. History suggests that we are due for a recession at some point in the not-so-distant future. A spike in fuel prices around the world could help bring that on.

“Oil prices are high because the dollar is low,” Daniel Lacalle, chief economist at Tressis Gestion, told CNBC on Thursday. Taking too much oil off to the market for too long could send prices “artificially” high he said. “That is a big concern…Because oil prices don’t generate crises; the abrupt and unexpected rise of oil prices creates crises,” Lacalle said.

Second, $100 oil would set off yet another round of frenzied drilling, likely resulting in an even stronger wave of new shale supply. Several years of triple-digit oil prices led to a near doubling of shale production in the U.S., a volume that helped crash the market in 2014. A spike in oil prices could result in history repeating itself.

What Is The Game Plan By Saudi Arabia With Oil Production And Prices?

There is going to be a most interesting OPEC meeting on November 27 that many economists around the world will be watching.

Oil prices fell to a three-year low Tuesday as Saudi Arabia cut prices of crude exported to the U.S., raising the threat of a bruising battle for market share that threatens the U.S. energy boom even while it could bring ultra-low gasoline prices.   Moves of this type also strongly impact Russia where any revenue they can create is much needed.

A barrel of U.S. crude fell as low as $75.84 Tuesday before rebounding to $77.19, down 2% for the day and the lowest closing price since Oct. 4, 2011.

I am certainly no economist but from this blogger’s perspective it is most clear the moves by the Saudis over the past weeks is all aimed at the desert kingdom cutting prices to the U.S. to contend with upstart shale producers who have not yet found reason to meet on common ground with the major producers.   To win the showdown the Saudis are trying to bring OPEC’s weaker members in line before the Nov. 27 meeting.

Two events are taking place at the same time.

First, OPEC is feeling the power of  the historic expansion of U.S. production from hydraulic fracturing and horizontal drilling. U.S. fields are pumping 8.97 million barrels a day, the most since the 1980s.  Make no mistake the concerns is real for the OPEC as our shale boom sets up a direct challenge as we position ourselves to replace Saudi Arabia and Russia as the world’s largest oil producer.

Second, global consumption for oil will increase the least since 2009 as economic growth slows in Europe and Asia.

All which is making the November 27th meeting a most interesting one, indeed.

Stay tuned.

Donald Trump Is Dangerous, Unstable, Wants To Take Over Middle East Oil Fields With Military Force

If this story does not make you embarrassed to be an American tonight….

I stated last night that Donald Trump is not prepared to be President of the United States.

I offer this as Exhibit 1…2…and 3 to make my case.

I am sure that if we followed the outrageous proposal offered by Donald Trump the nations in question would greet us as liberators…right?!!

Let us understand one thing before we go further.

There is a sick perception within the minds of people like Trump that America somehow is at the center of the world, and whatever is good for us should be fine for everyone else.  Well NUTS to that!

We do not own the oil fields, and if those nations want to ratchet the price up to the heavens, so be it.  That the oil-producing nations have no interest in world-wide economic decline means they also have no desire to make the price of oil beyond the world’s ability to purchase.    OPEC is not crazy, or out-of-line.  They are no different from the corporate types that Republicans love to defend in America. 

America has had more than one chance to make a serious move away from oil but chose each time to duck the hard choices and take the easy route.  Now things are getting more dicey and Trump wants to take over oil field in the Middle East.

Trump tries to somehow make it seem the oil fields would just be in America’s hands by magic.  There is no way the oil fields could be taken and safeguarded without U.S. military force, and Trump knows that. 

There is no way to paint this whole story as anything but a very sick attempt at making a headline for Donald Trump.

I had a feisty 35 minute sit-down with Donald Trump today in which he dug in on the “birther” controversy, answered Club for Growth’s charge that he is a “liberal,” talked about a possible independent run and answered your questions.

But we began with his get tough approach on gas prices:

Trump: Look at what’s going on with your gasoline prices. They’re going to go to $5, $6, $7 and we don’t have anybody in Washington that calls OPEC and says, “Fellas, it’s time.  It’s over.  You’re not going to do it anymore.”  I don’t know if you saw yesterday, Saudi Arabia came out and said very strongly there’s plenty of oil.  “We’re going to cut back.”  You know what cutting back means?  They’re going to drive up the price even further.

Stephanopoulos: So, what would you do to back up that threat?

Trump: Oh, it’s so easy George.  It’s so easy.  It’s all about the messenger.  They wouldn’t even be there if it wasn’t for us.  If it weren’t for us, they wouldn’t be there.  These 12 guys sit around a table and they say, “Let’s just screw the United States.”  And frankly, the rest of the world.

Stephanopoulos: And so finish this sentence.  “If you don’t produce more oil…”

Trump: Look. I’m going to look ‘em in the eye and say, “Fellas, you’ve had your fun.  Your fun is over.”

Stephanopoulos: So, you would threaten to take away that [security] protection?

Trump: Oh, absolutely.  Absolutely.  Let’s– let me tell you something.  Oil prices might go down.  Because there’s plenty of oil, all over the world.  Ships at sea.  They don’t know where to dump it.  I saw a report yesterday.  There’s so much oil, all over the world, they don’t know where to dump it.  And Saudi Arabia says, “Oh, there’s too much oil.”  They– they came back yesterday.  Did you see the report?  They want to reduce oil production.  Do you think they’re our friends?  They’re not our friends.

And Trump was even more specific on what he would do with the Iraq oil fields: seize them.

Trump: George, let me explain something to you.  We go into Iraq.  We have spent thus far, $1.5 trillion.  We could have rebuilt half of the United States.  $1.5 trillion.  And we’re going to then leave.  So, in the old days, you know when you had a war, to the victor belong the spoils.  You go in.  You win the war and you take it.

Stephanopoulos: It would take hundreds of thousands of troops to secure the oil fields.

Trump: Excuse me.  No, it wouldn’t at all.

Stephanopoulos: So, we steal an oil field?

Trump: Excuse me.  You’re not stealing.  Excuse me.  You’re not stealing anything.  You’re taking– we’re reimbursing ourselves– at least, at a minimum, and I say more.  We’re taking back $1.5 trillion to reimburse ourselves

Don’t Blame OPEC, Blame Americans

There seems to be gathering disgust against OPEC for the rising price of oil.   As the barrel price nears $100, gas pumps reflect the climb.  Soon the cost of other products that rely on oil and its byproducts will also follow suit.

That there is growing resentment against the oil-producing nations that make up OPEC is not justified.  That Americans have been content to allow for no new innovative means to replace our reliance on oil should be the focus of the ire that it now percolating.  If we want to find someone to grouse about when it comes to the effect oil prices have on this nation take a look in the mirror.

We are all responsible.

For too long American lawmakers of both parties have not engaged the energy issues in the manner they need to be addressed.  Voters have to share the blame as we did not force lawmakers to find solutions, and sadly were in no mood to be inconvenienced with new ideas or higher taxes. 

The solution lies not in opening the arctic for careless large business interests, or planting ever more environmental disasters in the  form of oil rigs in the Gulf Of Mexico.  To pretend that there is not a limited supply of oil, or that the whole idea of replacing our reliance on oil can be stalled for another decade or so is pure folly.

To pretend in that fashion only pushes the day of reckoning further down the road.  That thinking is why once again there is a growing level of angst against OPEC as oil prices climb.

Instead we need to break the mold of old thinking and aim for new means of transportation, seek better and more efficient motors in cars, demand higher standards from auto makers, and help create a new way of thinking about social needs.

Instead of buying fuel-efficient cars the idea of bigger and more costly SUV type of sales lured customers to auto dealers for years.    At the same time there was no real incentive from Washington to force car makers to increase mpg in any meaningful way.  Instead of fostering high-speed and commuter trains short-sighted political interests worked feverishly to undermine new modes of transportation.

So as oil prices surge on the open market, and economic growth creates more demand for oil making even more pressure for higher prices, think about what we might have done in America over the past decades to blunt OPEC.

The problem is not OPEC.

The problem lies at what reflects back from your mirror each morning.