Thursday, September 13, 2007

The oil price paradox

By the estimable Andrew Leonard.
Rex Tillerson, the CEO of Exxon Mobil, is confused. At a business roundtable in Calgary, Canada, last Friday, he said he just doesn't understand why the price of oil is so high.

"I cannot explain why we have $70 oil. The fundamentals behind supply and demand do not support $70 oil. The fundamentals support something much less... There's something else going on there that I don't get."

By midday Wednesday, crude oil futures hit a new "intraday" high of over $79 a barrel, (albeit not historically adjusted for inflation) so one imagines Tillerson is even more befuddled this week.

Peak oilers think they know why the price of oil keeps going up, up, up. Because we're running out. Every time new crude oil inventory statistics reveal surprisingly large draw downs, they feel freshly ratified. Others blame speculators, who keep prices propped up by continually laying bets that prices will rise -- a terrifically powerful self-fulfilling prophecy that works until it doesn't. Still others say all you need to do is look at China, which registered a phenomenal GDP growth rate of 11.9 percent in the second quarter of 2007, leading the World Bank to raise its prediction for Chinese economic growth in 2008 from 10.4 percent to 11.3 percent. When a country whose economy is already the fourth largest in the world continues to grow at a rate of 11 percent a year, it is almost inconceivable to grasp how fast its appetite for everything is surging.

Everybody's got a different explanation....MORE>
from Salon.com's How the World Works

Update: As I was looking for this link, the equally estimable Matt Chambers was being posted at the WSJ.com's Energy Roundup:

Crude Crosses $80 Again

Matt Chambers has the latest on crude futures:

Crude-oil futures were steady after touching a new intraday record as Hurricane Humberto caused a power outage in a Texas refinery hub, which boosted gasoline prices.

Expectations of tightening crude inventories and growing demand in the fourth quarter is supporting crude prices. Valero, Total and Motiva all shut down Port Arthur, Texas, refineries after the passage of Hurricane Humberto, which made landfall this morning, resulted in a power outage in the area. Power utility Entergy Texas called the outage a “major event” and said it could take days to restore.

The front-month October light, sweet crude contract on the New York Mercantile Exchange was recently down 14 cents, or 0.2%, at $79.77 a barrel, after earlier rising as high as $80.20, beating a record set Wednesday by 2 cents. Brent crude on the ICE futures exchange fell 14 cents to $77.54 a barrel....

Go read it and look at the two quotes Matt gives us.
Which guy would you rather have running your money?