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Libya crisis causes oil prices to soar

Monday, March 7, 2011 | 1:37 p.m. CST; updated 9:40 p.m. CST, Monday, March 7, 2011

NEW YORK — The crisis in Libya is again pushing oil higher as the New York Mercantile Exchange opens for trading.

Benchmark West Texas Intermediate crude for April delivery gained 83 cents Monday at $105.25 per barrel on the New York Mercantile Exchange. The price almost hit $107 per barrel earlier in electronic trading, the highest since Sept. 26, 2008.

In London, Brent crude added 64 cents at $116.61 per barrel.

The rise in oil is driving gasoline prices to levels that weren't expected for at least another month. Pump prices have jumped an average of 39 cents per gallon since the Libyan uprising began in mid-February. The national average hit $3.509 per gallon overnight, according to AAA, Wright Express and Oil Price Information Service.

Libya, which sits on the largest oil reserves in Africa, has been engulfed in a four-week rebellion as militants try to oust Moammar Gadhafi after 41 years in power. Officials in the country say the country's oil fields continue to operate, but experts say that the Libya's daily shipments of more than 1 million barrels will likely be cut off for some time to come.

The fighting could last for weeks, or months, and international oil companies have pulled their workers to safer locations. With no clear leader in charge of the country, analysts say the world cannot depend on Libya's exports. Saudi Arabia has increased production to make up for the loss of Libyan crude, which goes mainly to Europe, but that puts a tighter squeeze oil supplies as the global economy recovers and consumption rises.

The Energy Information Administration estimates OPEC can crank up production by another 4-5 million barrels per day. An extended shut down of Libya's exports would slice that capacity by about 20 percent.

In other NYMEX trading on Monday for April contracts, heating oil picked up a penny at $3.0953 per gallon, while gasoline futures lost a penny at $3.0391 per gallon. Natural gas rose 6 cents to $3.867 per 1,000 cubic feet.

 


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Comments

Corey Parks March 7, 2011 | 6:26 p.m.

They are just using Libya as leverage to make money while they can. When a country that produces less then 2% of the world production can cause world problems you know we are lucky it is not someone that actually contributes.

(Report Comment)
Derrick Fogle March 7, 2011 | 8:08 p.m.

@Corey: True dat. Worldwide supply vs. demand hasn't changed in the last month. Price spikes like this are all just "hot" money. This is the money in your 401K for the future, being used by traders to take money out of your pocket now.

(Report Comment)
Michael Williams March 7, 2011 | 8:50 p.m.

Perhaps your 401K should own a bunch of oil stocks.......

(Report Comment)
Derrick Fogle March 7, 2011 | 9:16 p.m.

Yep, like a hamster running on the wheel in it's cage.

(Report Comment)
frank christian March 7, 2011 | 9:17 p.m.

"Perhaps your 401K should own a bunch of oil stocks......."

My understanding is. most of them do.

(Report Comment)
Derrick Fogle March 7, 2011 | 9:36 p.m.

Do you trust in the market, Frank? If so, maybe you should listen to them. They're telling you they think oil supplies are, or will soon be, getting tight.

Either that, or the traders really are just a bunch of greedy thieves.

(Report Comment)
Michael Williams March 7, 2011 | 10:18 p.m.

Hamsters inna wheel?
I dunno, Derrick.

100 shares of Exxon stock generates, right now, $176 in dividends each year. 100 shares is about $8400, which your IRA probably has.

That would mean: for every 176 gallons you buy, you are really buying it for $1.00/gallon less than the rest of us. Gas for $2.39/gallon rather than $3.39.

Not bad......not bad at all.

(PS: 176 bucks probably buys a few bicycle parts, too.)

(Report Comment)
Michael Williams March 7, 2011 | 10:27 p.m.

Also, Derrick: take a look at this chart.

http://stockcharts.com/h-sc/ui?s=XOM

Only thing bad about the chart is a slowly decreasing trading volume versus time.

It's not "hamsters in a wheel". It's smart use of an asset. Owning 100 shares of XOM stock over the last 6 months would have bought ca. 700 gallons of FREE gas, NOT including the dividends.

Unfortunately, most people don't know their assets from a hole in the ground.

(Report Comment)
Derrick Fogle March 7, 2011 | 10:31 p.m.

Obama considers tapping Strategic Oil Reserves: http://www.nytimes.com/2011/03/07/busine...

At 700 million barrels, it's about 5 weeks worth of domestic consumption, or about 2 months of the difference between domestic consumption and production. Strategically, it can't make that much of a difference. Emotionally, it can.

Regardless, the current administration would be really stupid to do that. This is not an emergency. Yet. At least Steve Chu is aware of that. He's probably got as much intelligence as half of the rest of Obama and his entire cabinet.

(Report Comment)
Corey Parks March 8, 2011 | 9:10 a.m.

Does anyone remember what the price of a gallon of gas was the last time a barrel of oil hit $140?

On July 11, 2008, oil prices rose to a new record of $147.27. On December 23, 2008, WTI crude oil spot price fell to US$30.28 a barrel, ...

In July 11, 2008 gas prices averaged $4.15 and in December 2008 gas prices averaged $1.61.

As far as oil supplies. I personally do not believe oil is a finite resource but I do believe in peak oil. If a product is being produced as a constant rate but the pumps take it out faster then it is made you will run low. Problem is the way oil production is in this country. In oil producing countries they pump the oil and sell it. In the US it is pumped out and put on the world market. I am all for open business but I am also for taking care of the country first. I find it interesting that we purchase oil from the world market to refill our Strategic Oil Reserves as Market value. One would think that since it is run by the Dept of Energy that it would have a specific goal of running oil rigs on govt land specifically to pump into the reserve for easy access when needed.

I think when the time comes the US would be the laughing stock of the world when the US collapses due to debt and limited resources simply due to the fact that we did not use our own. We have all heard the story of men being found in the desert dead of dehydration carrying a half filled canteen. Apparently saving it.

(Report Comment)
frank christian March 8, 2011 | 10:03 a.m.

Note: when Derrick doesn't have the answer, he simply changes the question. Don't blame him too much. It's really hard, fighting those windmills.

(Report Comment)
frank christian March 8, 2011 | 10:18 a.m.

Cory P. - "In July 11, 2008 gas prices averaged $4.15 and in December 2008 gas prices averaged $1.61."

And on July 14th, 2008, W Bush lifted the Executive ban on domestic drilling, then asked Congress to lift theirs. Spikes in oil prices are often (as in this case) based on fear of a shortage, as well, of course, as the GReed of the traders. Right Derrick?

(Report Comment)
Mark Foecking March 8, 2011 | 10:49 a.m.

Corey Parks wrote:

"...US collapses due to debt and limited resources simply due to the fact that we did not use our own."

We do use our own. The US is the world's third largest oil producers, at a bit over 6 million barrels/day. That's more than any Middle Eastern country except Saudi Arabia (Russia is the other top producer).

Those offshore areas that are currently off limits are only about 18 billion barrels out of about 70 billion total offshore. Drilling those areas (and we will someday) won't make a big difference in our total supply.

We have huge unconventional reserves, but market uncertainty, and technical and legal issues have make production of these reserves a slow, stop-and-start process. We won't see a lot (meaning millions of barrels/day) of production from these resources for decades under the best of circumstances.

DK

(Report Comment)
frank christian March 8, 2011 | 11:59 a.m.

Mark Foecking - "For instance, oil and gas producers are teaming with western ranchers to fight the Interior Department's new "wild lands" policy that allows the government to protect public lands as if they were designated wilderness areas. Energy producers say the policy could be used to block drilling on public lands throughout the West.

The Interior Department insists the policy will ensure America's iconic western lands are protected for future".

"Meanwhile, Salazar’s agency on Wednesday released offshore petroleum exploration plans that continue to exclude the Atlantic coast and eastern Gulf of Mexico for five years — a reversal of earlier Obama administration moves to consider opening those areas for oil and natural gas production."

Am certainly glad to hear that, "market uncertainty, and technical and legal issues" are slowing our production of our oil and NOT our Government.

"We won't see a lot (meaning millions of barrels/day) of production from these resources for decades under the best of circumstances." If Clinton had not vetoed Congressional energy plan we'd have had the ANWR + up and running now.

Wonder why Republicans are the ones that want us to access Our oil and gas? Because they are the ones that do not accept idea that our economy should be in decline?

(Report Comment)
Derrick Fogle March 8, 2011 | 12:50 p.m.

Graph of crude oil prices, 1947-2009: http://www.wtrg.com/oil_graphs/oilprice1...

The graph ends in 2009. Today, the price of oil is back up to just below the peak shown in the graph. Mentally draw that line up and out.

I don't really have a problem with Exxon Mobil, besides it being an "evil oil company." Their raw profit figures seem obscene, but their actual profit margin isn't that big. It's just an incredibly massive corporation, to match the massive business of oil energy. They employ thousands of US workers with good paying jobs. The "evil" moniker is a great liberal smear, but it's not reality.

I'm not accusing Exxon Mobil of running up oil prices anyway. Exxon Mobil's stock price actually has very little correlation to oil prices. I'm accusing speculators (that Uber-Evil entity called Wall Street / Big Banks) of running up oil prices. That's what I mean by "hot" money.

It's a facet of wealth concentration. Too much money concentrated in too few hands distorts markets, often flooding any potential "quick profit" market - usually commodities - with money, and driving up prices. I've drawn correlations between wealth concentration and economic volatility before. I'm doing it again.

The question is how much of the stampede of hot money into the oil speculation market is baseless bootstrapping, and how much of it is based in fundamental probabilities of future supply vs. demand.

And, no, I don't think US regulations, which affect 2-3% of proven worldwide reserves, and ~10% of current worldwide production, has a huge impact on the global price of oil. There's just not much correlation between US regulations and the price of oil.

The push to tap the SPR is a response to rising oil prices, which happens to be the subject of this article. It's not changing the subject; it's broadening the information horizon.

It only looks like changing the subject to people with tunnel vision.

(Report Comment)
Derrick Fogle March 8, 2011 | 1:27 p.m.

MOAR OIL NEWZ! A quote from Saudi Oil Minister Ali Naimi: "Recent crude prices do not reflect the fundamentals of supply and demand in the oil market as much as they are caused by financial speculation and a negative and unrealistic take on supplies."

From an article in RTE News: Oil slides as Saudi downplays supply fears: http://www.rte.ie/news/2011/0308/oil-bus...

(Report Comment)
Michael Williams March 8, 2011 | 2:07 p.m.

Derrick:

I agree with you that speculators are driving this current oil bubble.

I also agree with your general synopsis of XOM. My use of the company was simply one example of how individual folks can amortize some of their increased gas costs; i.e., if costs in a commodity are going up and you expect them to stay up for a while, it stands to reason well-run companies will benefit from those prices; if a company pays a decent dividend, then that company may indeed be a good investment where you can recoup some of your own increased personal expenses + participate in the run-up.

Personally, I've often thought, "Why not limit the purchase of raw goods/commodities/foods ONLY to those who are directly within the pipeline of manufacture/modification/distribution?" INO, only those involved with the ultimate distribution of bacon to folks like you and me can participate in the setting of prices for raw pork bellies. I haven't resolved this question to my satisfaction. Gut feeling says, "Don't do it!", but I don't know why. It would help me if someone could jump in and provide an enlightenment seminar in 3000 characters or less.

(PS: I once heard, but have not followed up on, that most of the Alaska crude goes to Asia. Gut reaction? Not good. Further reaction? Do we really want to nationalize our commodities...which is what such an action would really be?)

(Report Comment)
Derrick Fogle March 8, 2011 | 3:29 p.m.

@Mike: The worldwide oil market is... worldwide. The oil companies themselves are all multinational. The US participates in the market as both a supplier and consumer. Whose specific production goes where doesn't seem that important to me. Like Mark said, we do use our own, quite a bit of it. The problem is that we currently can only produce 40% of what we consume. With only 2-3% of proven reserves, this is likely to get worse, not better, without conservation.

As to why we might not want to completely kick Wall Street speculators out of the energy market, my understanding is that they provide capital that tends to buffer suppliers from consumers. It helps free up the suppliers and consumers to use their capital on their own operations, instead of having it tied up in commodities contracts.

The traders usually make a profit for this. Sometimes they make a rather obscene profit, and sometimes they create irrational and even economically damaging price spikes. But they also assume the risk of the market turning sour. Of course in the case of severe implosions( July-Dec 2008), the risk is socialized by government bailouts and the speculators get to walk away from the wreck they caused. But if oil prices merely dip $10-$15 a barrel, the supplier and consumer don't lose their operating capital. It's the speculator that takes it in the shorts.

The reason we don't want to completely bar the speculators is because they allow the businesses on either end to preserve their capital and focus it on their business. We just need to keep speculators from getting out of control, even if that means using the evil word, "Regulation."

How's that for a sub-3000 character seminar?

(Report Comment)
Michael Williams March 8, 2011 | 3:56 p.m.

derrick: works for me.

Now, for the regulation part. Set limits on profits? Set limits on the number/amount of contracts that can be purchased? Set a "limit up" or "limit down" on all raw materials?

Solutions?

(Report Comment)
Mark Foecking March 8, 2011 | 4:03 p.m.

frank christian wrote:

"The Interior Department insists the policy will ensure America's iconic western lands are protected for future"

Historically, the lands you're talking about haven't been of interest for oil or gas production. A lot of oil and gas production takes place on public land. Companies wishing to procure leases simply have to apply to MMS for them, and they're considered case by case. I wouldn't worry about that - besides, there isn't enough conventional oil under western lands any more to matter. I've already gone into the problems with the unconventional oil.

"If Clinton had not vetoed Congressional energy plan we'd have had the ANWR + up and running now."

I've seen a recent revised estimate for ANWR that reduces the likely oil reserves from 10 billion barrels to less than one. It's felt, due to its geology and age, that the hydrocarbons there are likely to be more natural gas (which we also need, of course). But even if it had the full 10 billion barrels (making it somewhat smaller than Prudhoe Bay), you're talking about production rates of perhaps 1.5 million barrels/day for a decade, with lower production before and after that. That's about 10% of our imports, and about 2% of world oil production. It's not much when you consider our thirst for oil, and it's not much as far as controlling oil prices.

I have no objection to drilling ANWR, BTW. Neither do most Alaskans. It's just not that much, like every other conventional oil prospect we have. And under those circumstances, I feel it's necessary to also take steps to curtail demand, to avoid worsening our already poor balance of trade, and to soften the impact of price shocks like this one.

DK

(Report Comment)
Derrick Fogle March 8, 2011 | 5:30 p.m.

@Mike: It would probably have to be some combination of everything to be effective. Any single-point regulation will be worked around. But then... regulation complexity. IIRC, the Bush admin limited the total number of contracts a speculator could hold at any time back in 2008. That seemed to have halted the run-up in prices, but it's really hard to tell because it was so close to the financial meltdown anyway.

We do know that when the financial meltdown hit, credit seized up, and speculators no longer had the capital to speculate, oil prices plunged 70%, even though demand only dropped about 10%. Furthermore, because of TARP and other Fed QE measures, banks and financial markets recovered very quickly, and the resumption of increasing oil prices did, too, despite the fact that demand has been slower to ramp back up.

That's rather telling about the effect of speculation on the market.

Despite the investment money glut looking for a quick profit, the question remains whether or not the speculators are, in essence, correct when they keep going to oil futures for a profit. Almost everything I see in terms of worldwide discoveries, reserves, production, and demand says, "Yes."

Whether or not the Drill Baby Drill crowd believes in peak oil and tightening supply vs. demand, market speculators certainly do. Worldwide oil prices have remained fairly stable (in constant dollars) since the 1940's, with a sizable bump during the OPEC Oil Embargo. But over the last 10 years, oil prices have increased about 500%, setting new price records.

The increase barely correlates at all with oil industry regulations. It correlates somewhat with increasing wealth disparity. It correlates fairly well with intense growth in demand from China and India (and a corresponding lack of new discoveries and new production capacity).

Draw your own conclusions about where prices are going to be in another 10 years.

I'm not selling my bicycles just yet.

The h4x354x0r

(Report Comment)
frank christian March 8, 2011 | 8:40 p.m.

Mark Foecking - Haven't you given us your consistent reasons for the lack of oil and gas exploration in continental U.S., not enough volume to bother with? Why not touch on the fact that many energy producing CORPS., are quite willing to waste their money (not yours and mine as in "gov't" waste") to find out what is there?

frank christian wrote, ""For instance, oil and gas producers are teaming with western ranchers to fight the Interior Department's new "wild lands" policy that allows the government to protect public lands as if they were designated wilderness areas. Why, I wonder would these seekers of energy to produce for profit or whatever, be joining others, against our Gov't for the use of land if there is little or nothing there for them to produce and sell? And why would an Administration, confronted with our great recession, concern themselves with putting out of reach a means producing a volume of essential, private sector, good paying jobs whether available now or in the distant future? ANWR? The same. If there is nothing there, why the tooth and nail battle (mostly D's against R's, mostly in our Congress) to prohibit anyone from exposing 5000 acres of (how many million?)to the investigation. You are the scientist, could your new reduced estimates be due to long ongoing Canadian recovery of the same reserve, just on their side of the border? The oil interests state, tho they have always worked with Interior Dept. on rules etc.,in the past, they now are joining with ranchers etc, because it has become increasingly difficult to meet with (Salazars) Dept. Wonder why on earth that might be true?

(Report Comment)
Mark Foecking March 10, 2011 | 9:25 a.m.

frank christian wrote:

"Haven't you given us your consistent reasons for the lack of oil and gas exploration in continental U.S., not enough volume to bother with?"

It not that it's not enough volume to bother with, it's that it's not enough volume to make a difference in our domestic supply.

It's quite economic right now to invest in developing a conventional oil field that might yield 10,000 barrels/day at peak production. 10,000 barrels/day isn't squat compared to what we import (12 million barrels/day). The fact that oil companies want to invest in these fields doesn't mean they'll do anything for our oil import predicament.

I also made a mistake - it's not ANWR that was recently revised, it's a similar reserve called the National Petroleum Reserve Alaska that was revised. Estimates for ANWR have not changed. However, my previous point still stands - we simply don't have the reserves (or the capacity to exploit them) to do much more than keep the price down, and push the problem off to when it will be harder to deal with. We cannot drill our way to energy independence as things stand, and as such, need to do something about demand before we go squandering what domestic oil we have left.

DK

(Report Comment)
frank christian March 10, 2011 | 10:14 a.m.

DK - Yes, all should follow your oft stated "plan" for coming oil shortage.

Stay at home. If you can't get there on a bicycle, don't go!

(Report Comment)
Ellis Smith March 10, 2011 | 11:27 a.m.

The United States of America is sitting atop a huge reserve of fossil fuel. It just doesn't happen to be liquid petroleum. Damn!

(Report Comment)
missy Ferrin May 5, 2011 | 3:57 a.m.

Higher gasoline prices are causing many U.S. citizens to feel the pinch in their personal finances. People have to pay more at the pump, and recent economic data suggests that it has brought on personal earnings and economic growth to grow. Gasoline prices are getting closer to record highs. People are taking out personal financing just to fill their gas tanks.

(Report Comment)
Jimmy Bearfield May 5, 2011 | 9:35 a.m.

If you think owning a car is expensive now, wait until a few years from now when you're paying the same or even more for gas, plus a tax based on how many miles you drive. Such proposals have been kicking around for years, but now there's a renewed push: http://thehill.com/blogs/floor-action/ho.... Like a VAT, these taxes would be in addition to -- not in lieu of, regardless of what politicians claim -- existing taxes.

(Report Comment)

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