Ben Lefebvre and Josh Siegel’s piece at Politico is a pretty fair examination of the options for energy policy:
U.S. oil production is rebounding fast from the cuts during the first year of the pandemic, adding an average of 630,000 barrels per day last year, and it is expected to grow at least by that amount again this year, according to Reuters energy analyst John Kemp and others. DWS Group, an asset management firm, sees U.S. production growing by 800,000 barrels a day by the end of this year, enough to send the price the of international benchmark Brent crude down significantly.
“American producers have demonstrated they will respond to an international crisis and the price environment,†Mike Sommers, CEO of the American Petroleum Institute, told POLITICO.
But the United States would need to raise its production rate of 12 million barrels a day by nearly 50 percent to replace what’s coming out of Russia, a massive jump. Even if it was possible, it would take years, Republican Sen. Bill Cassidy of Louisiana concedes.
The TL;DR version of it is that it’s a long-term thing as increasing solar/wind would be.
What’s the conclusion to be drawn from that? I would think it tells us that any moves to decrease our energy production increase our vulnerability to disruptions, no?
Fracking has been the major contributor to increased American oil and gas production, but the wells are very expensive, and the yields fall rapidly. Frackers were losing money at $40/bbl.
Everyone is making money at $95/bbl, and none of the producers wants to see prices fall. If Russia would only ban oil, gas, and coal exports to Europe, all the other producers would get wind-fall profits of unimaginable proportions. Michael Hudson refers to the oil, gas, and mining industry as rentiers, and they are.
I think the numbers are wrong. Drew informed us that oil production is down, hugely, because of Biden, or something. My take would be that with the costs of fracking being higher costs will need to stay pretty high to keep up production. People seem to want production to always increase even when prices are not high enough. We will just wave a magic wand and the US will double oil production and put everyone else out of business. If you want to keep production high you need to keep prices there also (barring tech advances).
Steve
There are two types of oil based upon sulphur content – high sulphur (sour crude) and low sulphur (sweet crude). Sweet crude is used for gasoline, diesel, jet fuel, heating oil, etc., and sour oil is used for chemicals and plastics.
The US produces mostly sweet crude and imports sour crude. Usually, the quoted price per barrel of oil is Brent for sour crude. West Texas Intermediate (WTI) is the price of sweet crude.
The supply of gasoline, heating oil, etc. is constrained by refining capacity, and there is barely enough. The price of oil is a factor, but it is the price of WTI. (Brent and WTI prices probably influence each other.) Also, oil is mostly bought and sold as future contracts in the commodity market.
The price of oil is affected by the delivery date vs. the demand on that date. New York oil traders do not have enough apartment space to take delivery of a super tanker full of oil. The oil can be stored or sold at a discount.
The result is increased storage fees and/or price crashes. As storage fees increase, more oil is dumped, and when oil prices crash, it takes a long time to increase. Since there is a lot of speculation, the price rises fast but drops faster.
When we depopulate the flood prone areas, what is going to happen to the refineries? Yeah, that’s what I thought.
Anyway, New Orleans has more pressing matters.
Go To The Mardi Gras
Sigh.
I see a lot of down in the weeds contortions. But no one is looking at the obvious: prices are dramatically up.
Once again, the key stat: US Refining Capacity early 2021 – 19 (well, 18.976) MMbpd. Right now, 18.1. Not much was idled capacity, although covid (there we go again) did idle some capacity in 2020. (BTW – different sources measure in slightly different ways, but its always 4-5% down)
We should note that we had a supply and demand imbalance pre-Ukraine. This is not all about Ukraine. The steves of the world can try to waive it away, but Biden stopped approvals to drill on federal lands as one of his initial acts. Bernie and AOC were pleased. We can refine it. Current capacity utilization is 85%. We can run at 90%, depending on mix. We just don’t have it to refine, and if we wanted we could refine more sour mixes or let foreign refineries do it.
And as we speak European countries are reacting to events by increasing imports of US LNG while reducing Russian LNG purchases. That should be an unalloyed good, for us and for Europe. But what is Team Biden doing? Holding up approvals in the DOE. You can’t make this shit up.
As for idiotic comments like this:
“I think the numbers are wrong. Drew informed us that oil production is down, hugely, because of Biden, or something.”
Apparently steve is unaware that in these markets price changes can occur with changes in variables like inventories/production/shipping delays as small as .1% to 2%. It doesn’t take hugely. Stick to gall bladders steve.
Sweet crude is used for gasoline, diesel, jet fuel, heating oil, etc., and sour oil is used for chemicals and plastics.
[Basically lighter distillates vs heavier products. Diesel can go either way.]
The US produces mostly sweet crude and imports sour crude. [From S America, but also some Alaskan.]
The supply of gasoline, heating oil, etc. is constrained by refining capacity, and there is barely enough. [In a world where capacity may only grow 1-1.5% a year, we have the capacity. Also, did you look at midwest refining in addition to Gulf?] The price of oil is a factor, but it is the price of WTI. [Oil is about 55%, refining 16%]
Also, oil is mostly bought and sold as future contracts in the commodity market.
The [futures] price of oil is affected by the [expected supply at the] delivery date vs. the [expected] demand on that date, and storage costs. {Storage facilities] New York oil traders do not have enough apartment space to take delivery of a super tanker full of oil. The oil can be stored or sold at a discount.
The result is increased storage fees and/or price crashes. As storage fees increase, more oil is dumped, and when oil prices crash, it takes a long time to increase. Since there is a lot of speculation, the price rises fast but drops faster. [its all speculation. The much hated “financialization of the economy. And its just as true of corn, pork bellies, soybeans, lumber…….]
Might as well be carpet bombing.
https://www.youtube.com/watch?v=OpvoLjibmqw&t=16s