[dolanbaker]

I wouldn't call it "starvation mode" more like a calorie controlled diet to stop it getting any fatter.

[ROCKMAN]

Dolan - "...Kopits basically saying the world is in starvation mode," Starving for oil??? The world is consuming more oil today then ever before. The world was consuming about 25% less oil in 1986 when oil was selling for about 10% of current prices. So if it's starving for oil today it must have been fat and happy in 1986 given the huge oil production surplus the world had available. Funny...I don't recall big global celebrations over the recession at the time. But today many of the oil buying economies, such as China, are recording handsome if not exuberant GPD growth. And that defines starvation...or at least a reduced calorie intake? Of course there are struggling economies such as the PIIGS. But their starvation is a result of the oil price and not availability. Like someone with empty pockets looking at the all you can eat shrimp buffet at the Mirage.

Maybe the problem is trying to color the entire world's appetite for oil with one brush. Or maybe I just can't follow the logic of great economists.

[dolanbaker]

RM yes one size doesn't fit all, as I live in one of the "I" in PIIGS, we have seen a drop in oil consumption of nearly 25% since the economic meltdown, no starvation just more careful use of the oil that is still being imported. That's why I see it as more a calorie controlled diet than "starvation", but I think I should modify that to say it's a group calorie controlled diet and some members are helping themselves to the leftovers or are swiping extra at the buffet table onto their plates.

The fat PIIGS can diet without causing any real hardship (not really but we have been forced to, and the results are record levels of unemployment or emigration (the Irish chose emigration) ) and on the other hand countries like China can easily grow two or three (may be more) times their current size and still be smaller than the US (per capita).

[Pops]

Dolan - "...Kopits basically saying the world is in starvation mode," Starving for oil??? The world is consuming more oil today then ever before. The world was consuming about 25% less oil in 1986 when oil was selling for about 10% of current prices.

Interesting, you address Dolan yet quote and seem to be arguing with me, LOL

So we are consuming more than ever now is your point? You left out one important metric, we're consuming 25% more oil in a world with 50% more people. Considering that there are way more than 50% more people rich enough to want to buy oil products now I'd say yeah, the market is supply constrained.

Of course the price is high, LOL, how else would you expect a supply constraint to manifest?

As for China GDP you are again overlooking some metrics, such as labor arbitrage and socialization of costs such as pollution and people jumping of the roof of Apple's factory/internment camp.

--
I goofed up the link earlier, sorry, try this for a better glimpse at the arguments made:
http://www.econbrowser.com/archives/201 ... il_pr.html

[Tanada]

A partial definition of a glut is when you have so much of something (anything really) that the price in the location of the glut is significantly lower than the price somewhere nearby. For example, the down town J.C. Penny's has a glut of a certain handbag so they offer it at a deep discount while the same company store 20 miles away has a shortage and sells out at regular full price.

For WTI at Cushing a glut is when the buyers offer a much lower price because storage tanks are well filled while at the same time buyers in Louisiana or Pennsylvania will pay a high premium for the same crude oil.

Just my personal way of looking at things, undoubtedly others will see things differently.

[Pops]

Part of the link I referred talked about marginal cost that's why I linked it. The equation is price=marginal cost or commonly, price is set "at the margin" - in an actual glut the price will be below the marginal cost to produce the last unit at a particular volume, the price must rise.

Obviously this isn't a glut because production isn't falling and prices only rise to a point (Kopits calls it the carrying capacity price) before they themselves kill demand since price can't exceed the value set by consumers. The only way for price to rise is to wait for GDP growth or efficiency to increase utility. (I think)

That is Kopit's whole point

Jim, most of the world still uses a demand-constrained oil supply model. In a demand-constrained model, P=MC, thus if P is less than MC, then P will rise. Ergo, you have a transient problem which ordinary supply and demand movements will resolve. This is, in fact, what Shell CEO Voser has implied..."we've been here before..."

In a supply-constrained model, once you are at the carrying capacity price, then price will not increase to marginal cost, rather it will increase by GDP growth plus efficiency gains.

[Tanada]

Well, typically glut is defined as an excess of supply, and typically when there is an excess of supply the price falls. It can't be a glut if there isn't an excess and the price doesn't fall.

I think in the third quarter the wti spread with brent was less than $10 and earlier in the year it was $0. There is lots of refinery maintenance going on now so maybe its higher temporarily. But looking just now, september refiner acquisition cost (cost of oil plus transport) for domestic crude was $108/bbl vs $102 for imported oil, acquisition cost for domestic has been about $5 a barrel more than imported all year . . . oh and of course we're still at the highest yearly average price ever for almost 3 years now.

I was reading back through this thread looking for data and found this post from Pops. Pops do you have the link for the report where the image originally appeared? I think it might be a good idea to read it and see what the thinking is now that the pipelines are drawing much more oil out of Cushing than a couple of years ago.. The dip in fall of 2013 was pretty deep, but storage levels are still almost double what they were in 2007-08 when prices were shooting upward to the stratosphere.

[Pops]

It's here:
http://www.eia.gov/dnav/pet/hist/LeafHa ... ESTUS1&f=W



One thing to consider is the capacity has increased dramatically at Cushing, maybe 50% over the last 5 years, I don't know for sure.

[ROCKMAN]

Pops - I haven't tracked it either. But the demand for storage in Cushing must have declined given the reversal of the Seaway pipeline that now moves 400,000 bopd to the Gulf Coast (expanding to 850,000 bopd with the completion of a parallel line this year) and the completion of the 600,000 bopd capacity of the southern leg of Keystone XL. That's almost 1.5 million bopd capacity to move oil sands production quickly to the refiners...refiners that have there own storage capacity. I wonder if the folks who invested in the storage capacity increase at Cushing are seeing the returns they were expecting? I'm too far removed from that end so I couldn't guess.