Monday, June 14, 2004

Excellent interview in Mother Jones about the oil situation. Paul Roberts discusses how we're likely to see even higher prices at the pump over the next several years if we don't take notice and begin to aggressively deal with the problem now. Look for the popularity of SUVs to wane. An urgent read.

Here's a revealing segment:

MJ.com: With the occupation and the insurgency, there have been attacks on oil terminals. You can make the argument that the Iraq war hasn't stabilized the Middle East.

PR: No, I think it has done just the opposite. Right now we have attacks on oil installations in Saudi Arabia, attacks on oil tankers, and oil-loading ports, such that the oil market now assigns what it calls a “war premium” to the price of oil. It’s between $5 and $10 dollars a barrel. So the market thinks that it hasn’t worked. I happen to think that this war premium is overstated. The contention there is that were it not for the instability in the Middle East, the price of oil would be much, much lower. And I think that although it would be somewhat lower, there is a fundamental tightness in the oil market -- it’s not simply driven by politics. The market is aware that we use 80 million barrels of oil everyday and that our maximum production at this point is 82.5 million barrels of oil a day. So it’s two and a half million barrels of margin -- that’s our cushion, what we call our spare capacity. Most of that margin is in the Middle East, particularly in Saudi Arabia and Kuwait. What that means is that if Venezuela -- which produces two and a half million barrels of oil a day -- were to fall into civil unrest, as it did a year and a half ago and let’s say it took off its oil production, which happened -- Venezuela basically shut down its exports a year and half ago. The market simply lost that oil. Saudi Arabia and Kuwait were able to pump up their production and fill that gap before the prices went too high. Now if that happened, that would pretty much tap out all the spare capacity we’ve been talking about. There would no more room for accidents. There would be no more room for disruptions. What if production in Iraq fell because the chaos continued to grow and oil companies stopped wanting to send their people there? What if Saudi Arabia has some sort of political upheaval?

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