The danger of coal - need SPS

--- In ssi_list@... "Valens Agnitio"
> Here's an interesting look at the world oil scene from a very
qualified
> individual:
>
> http://www.nationalreview.com/nrof_leuffer/leuffer200403230848.asp

Frederick P. Leuffer sure makes it difficult to pull useful nuggets
from his article. He's throwing the kitchen sink and everything else
into the mix in order to reassure his audience but there are
internal contradictions and his time analysis is too short.

He concludes that "the decline in the dollar has had no impact on
oil supply, demand, or inventories," while earlier noting "China's
accelerated oil demand is at least partially offset by a *slowdown
in demand growth* rates in Japan, Europe, Russia, Latin America,
Africa, and the United States."

In economics, at the margin there is always a reaction to higher
prices if the demand curve is not inelastic. Oil is an elastic good.

If you go back 18 months and chart the price of oil in Europe
against that in the US, you'll see that prices have been rising much
faster in the US than in Europe. Coincidentally the dollar has also
been dropping. This increases the US inflation rate vis a vis Europe.

To factor in SPR is invalid unless it is a standard historical
procedure. Further, the market has no input on whether to release
the reserves, that is a national strategic decision made by the
President. SPR is not included in inventory calculations and for
Leuffer to imply that it is is dishonest.

It is worthless to conclude "For example, no producer has cut oil
production because the dollar value has declined." Why on Earth
would a producer cut production when they can raise prices?

He writes that the SPR "fill rate has averaged over 1 million
barrels a week, or about 1 percent of U.S. crude oil demand" and
then concludes that if "the administration should cease purchases
sometime in the first half of the year which would have the same
impact as a sudden 1 percent drop in crude oil demand." This is
schoolyard math at work for the market for oil, which is a
commodity, is global, and total global demand must be considered,
not just US demand. The 1% drop in US demand would translate into
about a 1/5 of 1% of global demand. This is too small to have much
noticable impact on oil prices.

He's asked if we're running out of oil and answers that we're not.
Of course we are because oil is a finite resource. Perhaps he meant
that supply is coming on stream faster than demand. Perhaps he meant
that proven reserves are increasing faster than field depletion. But
he offers nothing in the way of further explanation.

http://www.economist.com/agenda/displayStory.cfm?story_id$22858

Saudi Oil Fields
http://www.nytimes.com/2004/02/24/business/24OIL.html?
ex92958800&en=dc727c73cd688914&ei=5007&partner=USERLAND

Saudi Oil Fields
http://www.iht.com/articles/131016.html

Oil Producers responding to price signals
http://www.nytimes.com/2004/03/24/business/worldbusiness/24deep.html?
ex80709200&en=a3a4820685357860&ei=5062&partner=GOOGLE

More on Saudi
http://www.nytimes.com/2004/02/25/business/worldbusiness/25oil.html?
ex93131600&en9f1411775fbe13&ei=5007&partner=USERLAND

This guy's whole analysis is shoddy and is certainly one of the
reason's I gave up on National Review a long time ago. It provides
good talking points but never offers analysis that deviates from the
party line. In this respect it is just as bad as its leftist
counterparts. Each needs to reassure its audience that their version
of the world is the right one, damn the facts.

The only way to parse accurate information from the disparate
sources is to be an analytical reader and apply a rigorous bullshit
detector. Hold the claims of doom and global climatic catastrophe to
a hard standard but also hold the claims of vested interests to the
same standards.

Here's my take: China's growth, not to mention India's, are going to
significantly increase the demand curves for oil. We've already run
into a slowdown in new field discovery and introduction of new
sources. Russia, the Caspian basin and Africa are probably the last
new fields to come online. Prices will increase and this will make
marginal fields profitable. The clear fact is that growth of demand
will grow faster than the growth of supply. We're behind the curve.
The increased oil prices will ripple through the economy and
decrease economic growth marginally.

Environmental regulations that limit the number of domestic oil
refineries have a severe impact on oil supply resilience. Further,
laws which mandate gas reformulation for the different seasons also
increase the price of gas and stockpiling. All of these regulations
are not cost free. If we want them we have to be prepared to pay for
them - that's what many leftists aren't understanding - there's no
free lunch. There will be market distortions when mandated
reformulations are seasonally implemented or when refineries break
down.

Dollar weakness has to be abated eventually or the dollar will lose
its status as an international currency. The Chinese and Japanese
have lost a boatload of money by holding dollar reserves in the
hundreds of billions while the dollar has been plummeting in value.
Because oil is priced in dollars we can buy many things in exchange
for greenpaper and not an exchange of value. If the fiscal situation
of the US isn't remedied soon, the dollar will lose it's appeal
versus the Euro and if oil is switched to being priced in Euros then
Europe will be able to exchange colored pieces of paper for goods
while the US will have to exchange value to get those Euros in order
to buy oil.

Also, for the conspiracy minded, here's a tidbit for you. Iraq was
going to switch from dollar pricing to Euro pricing in its sale of
oil to the UN Food-For-Oil program before the war. What the US
absolutely does not want to happen is to have the Euro become the
currency for oil transactions.

Lastly, I don't want to come off as too harsh on the National
Review. It is a good source for talking points and ideological
inspiratiion or insight, but I'd be leary of referring to it as an
authoritative source. I referenced them in the Law of the Sea post I
put up a few days ago in order to point out their view of things,
not as an unbiased source of information.

TangoMan