OPEC and the Price of Oil – March 15, 2009

OPEC and the Price of Oil – March 15, 2009

OPEC, at its meeting Sunday (March 15, 2009) in Vienna decided not to ask members to cut output any further. This decision will hold off any official changes until the next meeting in May.

As is normal for this group of market manipulators, they cannot agree on what to do or how to do it, so they create a press release that tries to convince the not too bright, that they are maintaining production levels to “help” with the worlds current economic problems.

Nothing could be further from reality or the truth. They did not cut production for a host of reasons, first and foremost is that many of their members are ignoring the previous reduction of 2.2 million barrels per day that supposedly took effect in December. Even by their numbers (which are far too generous) they are only getting 80% compliance from their members on those production limits.

Why you may ask are they unable to control production and force up prices? Well the biggest issue is that many of these OPEC Countries (Note: OPEC Countries theoretically control about 40% of the world’s oil) spend their petro-dollars as fast or even faster than they take them in. Venezuela needs oil to be about US$80.00 per barrel just to pay the bills.

Many of the Middle Eastern countries have gone on staggering spending sprees basically acting as socialist entities.

These countries temporarily import workers to do their dirty work, while their own citizens do less and less but keep getting ever growing government handouts to live on (this sounds vaguely like some western country I may have heard of).

They have spent hundreds of billions on infrastructure projects and other enticements to try and bring foreign businesses to their countries before the oil runs out (yes, it will run out).

However all of this has been based on cheap capital and the idea that oil would keep going up in price forever.

Well fast forward to today, There is more crude oil sitting in storage than at any time in history, the demand is off by more than 1 million barrels per day (Note: this is another manipulated number and the reality is that demand is off by two or even three times this number), the economy in the US and now the rest of the industrialized world is contracting and will likely do so for a year or more, before starting a slow, painful, and just plain ugly recovery, and it appears that there is at least a glimmer of hope that the world including the US will finally wake up and recognize that the way we have been using energy for the last 100 years is unsustainable and that we need to do things now, not is 20 years to fix the problems.

All of this leads me to some oversimplified conclusions on oil pricing over the next year or two. If there is reduced economic activity worldwide there will be less demand for oil. The oil inventories will likely continue to grow as OPEC and Russia will need to pump more and more to make up for the lower per barrel prices.

Right now there is a concerted effort to hold and try to push crude prices up. However to keep oil in storage costs a lot of money every day. At some point traders and speculators will decide that they cannot afford to pay $100,000.00 a day to park crude in a tanker because the price is not going up enough make it profitable. When this happens, we could see oil flood the markets at levels not seen since the 1970’s. This will then further exacerbate the problems of the oil producing countries who will try to pump even more.

Short of a war (not out of the question) or a cataclysmic natural disaster, it is hard to see crude oil going up significantly anytime soon.

Refiners and some marketers are likely to benefit as crude prices decline and more finished product becomes available. In some areas where there is tightly controlled distribution there may months or even years of high profitability due to reduction in cost followed more slowly by reduction in retail prices.

I have regrettably spent my life creating a carbon footprint of embarrassing proportions. I am now working on reducing not only my negative impact on the world, but on creating new and better ways for everyone to do the same without destroying their livelihoods or lifestyles.

Please join us in our efforts.

To read this and other articles on fuels, alternative fuels, oils, lubricants, and coolants, please go to: http://www.lcbamarketing.com/ and click on technical articles.

Please post your comments, thoughts, ideas, and suggestions here.

Diesel Doctor

Copyright 2009© - William Richards

Relying on Reliance – Rather than Relying on Ourselves

Relying on Reliance – Rather than Relying on Ourselves

Reliance Industries Ltd. an Indian company is preparing to startup its second huge refinery in Jamnagar in Western India. Reliance is already operating a 660,000 barrel per day (bpd) refinery there that together with the new 580,000 bpd unit creates the world’s largest refining complex, a 1.24 million barrel per day monster that is going to have a major effect on refined fuel prices around the world.

The new unit has been built strictly for exporting finished product, primarily gasoline, diesel and Jet A. This unit has been built specifically to produce fuel for the US market. It can meet all of the current and proposed fuel standards that the EPA has created.
Reliance has leased 935,000 barrels of storage space at Hess’s Port Reading terminal and has opened a trading office in Houston.

They will very quickly become a major force in the US marketplace. While in the short term this will likely drive prices at the pump down, the long term effect while be negative.
Over the last few years we have heard time and time again how much the major oil companies have been earning in profits, billions every quarter. However they have invested precious little of this windfall in infrastructure here or abroad.

The US cannot refine all the fuel we use, so others are doing it for us. In every way this is a bad idea and we will suffer for it later. The irresponsibility of not investing in refinery capacity, storage, pipelines, and other required projects is leading us into a mess our children and grandchildren will suffer for.

In eastern Canada, Irving Oil is making a 300,000 bpd expansion to its Saint John’s New Brunswick refinery to provide finished product for the northeastern US markets and now India will add 580,000 bpd to this amount. Again while this may temporarily lower pump prices, it is a strategic mistake to outsource the refining of our fuels.

We are sending more money overseas for no other reason than it is easier than dealing with our problems here.

Another part of the problem is the whole NIMBY (Not In My Back Yard) theory. We don’t build refineries because we don’t want to see or smell them.

Well it is time that we grow up, and either put new refineries where they won’t bother anyone or we need to figure out how to clean them up enough that we can live with them.

It is not bad enough that we have to import 2/3’s of our crude oil to support our addiction, and then we import another 10% of our total usage in the form of finished product. Apparently we don’t even want to make the money and have the jobs that we should get from refining it.

The idea that we in the US have so much money that we can afford to simply let someone else deal with our problems while sending them boatloads of money is shortsighted and frankly, stupid!

For more on this and other fuel related subjects go to: http://www.lcbamarketing.com and click on Fuel School Articles

Diesel Doctor

Copyright 2009© - William Richards

Parking Crude Oil

Parking Crude Oil

Here is a bit of information that is hard to digest.


Speculators are leasing Super Tankers called Very Large Crude Carriers (VLCC’s) (tankers holding 2 million barrels or 84,000,000 gallons each.) to store crude oil. There are currently between 35 and 45 of these behemoths sitting, many in the Gulf of Mexico and Persian Gulf holding approximately 80,000,000 (80 million) barrels or 3,360,000,000 (3.36 billion) gallons of crude.


This is almost one day’s worldwide consumption. The speculators are and have been paying $60,000.00 to $75,000.00 dollars per day to lease each of these tankers to sit holding this oil.


Factoid: If you lined 35 VLCC tankers end to end, the total length would be about 7 miles.


Why would someone pay this huge amount of money to park oil in the ocean? Well look at it this way, using the $60,000.00 per day figure to store 2,000,000 gallons of crude works out to approximately $.03 (three cents) per barrel per day. If it sits there 100 days that’s only $3.00 per barrel.


Now let’s say that you purchased crude that was $35.00 per barrel and today (02/26/2009) it is $45.00 per barrel. Even if you have stored it for 100 days at $3.00 per barrel or $6,000,000.00 ($60,000 X 100 days) you will still profit $7.00 per barrel or $14,000,000.00.


So this might us to conclude that the current rise in crude oil prices is a manipulation of the market rather than the result of supply and demand.
Right now the market is off by about 1,000,000 barrels per day, there are at least 80,000,000 barrels floating around, every land storage tank in the world is full, all waiting for the price to go up.


OPEC would have us believe they are reducing production to stabilize (this means “drive up”) the price of crude oil. In reality they are reducing production only because they have no where left to put it.


In a true supply and demand world, prices should be going down, not up.

One thought is that our government should be filling the national Strategic Petroleum Reserve (SPR) as fast as they can get it in the ground. If all of these speculators believe crude will go up in the future then this a worthwhile investment to make.


In spite of the fact the current price is based on market manipulation, I doubt that the government will ever be able to police it. The ability to move staggering amounts of oil around the world with little or no regulation or accountability makes tracing it virtually impossible.The best things we can do are to reduce consumption through more efficient vehicles, equipment and practices and to work on alternative fuels to reach a point where we are able to produce most if not all of our fuel domestically.



Diesel Doctor



Copyright 2009© - William Richards