Re: oil crises
Doug Henwood wrote: My guess is that there is a Marxian/Ricardian central tendency, a la Bina, but that once oil began trading on the futures markets, its day-to-day (and even year-to-yaer) price fluctuations are now dominated by short-term trading considerations, like any other financial or real commodity. OPEC is an influence, but hardly the last word. ___ Fabian: Regarding the influence of futures market on the price of oil Horsnell and Mabro in their 1993 book "Oil Markets and Prices" write: "There is a widely held view that volatility in oil prices has been created by the greater reliance by the oil industry on forward and futures markets for price discovery over recent years. In fact oil prices have a long history of volatility...The period of control of prices by the seven sisters durin gthe 1950s and 1960s was the only period of stability in prices in an industry that has been prone to sharp fluctuations since its birth. In fact the debate as to whether the presence of speculators in forward and futures markets leads to increased volatility is an old one, and there is no empirical evidence that it is the case." (pg. 171). ___ I had my researcher look into the oil pricing literature and was amazed to find that little has been published on the topic in the last 10-15 years (unless she was looking in the wrong places, which I doubt, because she's very good). Doug ___ Fabian: The book cited above, by Mabro and Horsnell has in part estimulated a new literature on oil prices beginning in the early 1990s, one which concentrates on market efficiency and most importantly on price discovery. Using time series techniques, which can be considered an advance since it "frees" analysts (to a large extent) of the dominant cartel paradigm, these authors began to investigate the causal relationships between spot and future price in the most important markets like NYMEX and London's IPE. Another agenda of this new literature is the analysis of the comovements of different crudes' prices or markers, the crudes used as benchmarks for pricing other crudes in New York, London and Singapore. Results so far are encouraging, providing evidence for the Marx/Ricardo's model since it has been found that spot prices determine future prices and the US marker, WTI, determines the pricing of Middle East crudes. Of course that these results are not indentified with Marx/Ricardo's model but rather presented as simply an empirical exercise on conintegration analysis and time-series Granger-causality tests.
Re: oil crises
Aldo Balardini wrote: My take: Let's break with the cartel paradigm syndrome and try something new. Let's try to explain the workings of the oil industry within a competitive framework a la Marx, something different than perfect competition. Since all economists accept that the US oil industry is competitive, let's try to understand the determinants of the price of oil in the US and only then open the analysis to OPEC and the rest of the international industry. OPEC does have an impact on prices but empirically and theoretically more and more analysts are agreeing that its influence is decreasing. What do you think should be the best way to go about it? My guess is that there is a Marxian/Ricardian central tendency, a la Bina, but that once oil began trading on the futures markets, its day-to-day (and even year-to-yaer) price fluctuations are now dominated by short-term trading considerations, like any other financial or real commodity. OPEC is an influence, but hardly the last word. I had my researcher look into the oil pricing literature and was amazed to find that little has been published on the topic in the last 10-15 years (unless she was looking in the wrong places, which I doubt, because she's very good). Doug
Re: oil crises
Doug Henwood wrote: Over the last 15 years or so, the price of oil has varied from under $10 to over $30. It may be that the Ricardian/Marxian mechanisms you and Bina point to determine the center of gravity around which the market price fluctuates, but what accounts for this 300%+ range? Fabian: This is the million dollar question!!! Neoclassicals are locked into these dead-end OPEC based models of oil price volatility with a record of more than 30 years of failure. Heterodox economists do not even attempt at a possible answer. Bina's framework is one of the few (the only one probably) exceptions but the model still is to be applied to the experince of the 1970-present period. A major problem to deal with in the theorizing of any oil model is to explain oil price declines rather than oil price increases. If we agree with Jim that OPEC determines the price of oil during contractions when demand is low, then how do we explain the way OPEC countries lost complety control of the international price of oil during 1984-85 and again in 1998 when they were suppossed to be in more control than ever. A similar critique applies to heterodox models like Bina's, how do we reconcile the fact that during oil price declines, regulating capitals in the US not only stop regulating but they get wiped out altogether! Hard questions and not many alternatives. My take: Let's break with the cartel paradigm syndrome and try something new. Let's try to explain the workings of the oil industry within a competitive framework a la Marx, something different than perfect competition. Since all economists accept that the US oil industry is competitive, let's try to understand the determinants of the price of oil in the US and only then open the analysis to OPEC and the rest of the international industry. OPEC does have an impact on prices but empirically and theoretically more and more analysts are agreeing that its influence is decreasing. What do you think should be the best way to go about it?
Re: oil crises
> Jim, > My complete name is Aldo Fabian Balardini. > I go by Fabian, I never use Aldo unless I fill out paperwork > where they request my first name like the name you see in my > e-mail address. Sorry for the confusion. Ciao, Fabian! I wrote: > There is an oil cartel, but like any cartel, it is limited > by supply & demand -- and their ability to unify to restrain > output levels. Oil pricing is thus partly dependent on OPEC. > It can take advantage of abundant demand -- but might fail to do so. Fabian: > so you're theory of oil price is basically the dominant > cartel theory used by neoclassicals unless it is different in > some other way? Which way? It may be the same as the neoclassical theory, but I don't see that as automatically wrong with that. The problem with neoclassicals are many, such as missing the role of class and social relations of production (the holistic dimension) and the dynamic nature of a capitalist economy. But that doesn't mean that they're automatically wrong on purely microeconomic issues. It's important to remember that just as with Marxists, there are differences amongst the neoclassicals. Some Chicago-type economists deny that OPEC played any role in the 1970s-era oil-price surges. Others see OPEC as playing a bigger role. Some Marxians agree with the former neoclassical view, others agree with the latter. It's not as if Marxists have gotten together to have a World Congress to democratically decide on the "correct" position on this issue (or to decide once and for all about the meaning of Marx's unfinished theories). I wrote: > me again: as I see Marx's theory, the _identity_ of the > high-cost producer changes with the amount of demand. With > high demand, the highest-cost producer has higher costs than > the one when demand is low. Fabian: > The high cost producer in the oil industry since the 1970's > has remained the US no matter what happens to demand. So > according to Marxian theory, the US should determine the > price of oil throughout this period. Agree? if the US has always been the high-cost producer, then we have to face Doug's question: since the 1970s, why did the price of oil fluctuate so much relative to the cost of production in the US? I wrote: > BTW, on the level of price determination, I don't see a big > difference between Marx's rent theory and that of Ricardo or > modern neoclassical economics. The big difference is that for > Marx, rent was a form of surplus-value (produced by labor), > so that increasing rent reduced other kinds of surplus-value > (assuming that the value of labor power is constant). Fabian: > When it comes to price determination of agricultural goods > (Marx uses coal in his tables in TSV) the dominant > interpretation says that there is no difference between > Ricardo, Marx and even Smith. However, a closer reading of > Marx in TSV points to a different theory of price > determination as Marx criticizes Ricardo for insisting > INCORRECTLY that price of coal is ALWAYS determined by the > least productive mine. This, if I remember correctly, is saying that absolute rent plays a role. I think this debate between Marx and Ricardo is more a disagreement about the nature of costs than anything else. > The other difference is on the definition of absolute rent. > The standard reading of Marx, including Bina's, says that > absolute rent is a function of value transfers among > different sectors according to their organic composition of > capital. The outcome of this interpretation is the inability > to explain rent in oil since it is a sector with high organic > composition. The implication of this is that some of the > least productive wells in the US can be rented for free. this fits with what I said above, i.e., that the difference between Marx and Ricardo (and neoclassicals) is that the former saw rent as involving a redistribution of surplus-value from the industrial sector (some of which is in the oil sector). Beyond that, I don't want to get into a discussion of the theory of absolute rent. Suffice it to say that other Marxists reject that theory and see absolute rent as a monopoly rent rather than a matter of differentials of the organic composition between sectors. Among other things, I think that arguments about who's truest to Marx are pointless. FWIW, the oil wells near here in Los Angeles are currently in the process of being shut down. That seems like close to being "rented for free." > There is a major difference between Ricardo and Marx (as > interpreted by the traditional theory) on the price of oil > being determined by the marginal producer. In neoclassical > theory, OPEC is the marginal producer, in Ricardian/Marxian > theories the marginal producer should always be the highest > cost producer (US) since the oil produced by US wells are > necessary to satisfy demand. I don't think anyone sees OPEC as the "marginal p
Re: oil crises
On Tue, 9 Mar 2004 09:46:12 -0500, Doug Henwood wrote: > > Over the last 15 years or so, the price of oil has > varied from under > $10 to over $30. It may be that the Ricardian/Marxian > mechanisms you > and Bina point to determine the center of gravity > around which the > market price fluctuates, but what accounts for this > 300%+ range? > > Doug Fischer Black used to call the stock market "efficient" because in his view it was almost always between 50% and 200% of fair value (he wasn't joking either; this was seriously his view and he nevertheless believed that the stock market was informative and regarded himself as an efficient markets/rational expectations believer). A range of 10-30 would be small compared to this and if one took the view, one wouldn't need a model of the fluctuation other than an anchor price around $20 plus "noise". Black's views on this subject were not exactly mainstream, however ... dd
Re: oil crises.
Aren't some rises in oil prices actually due to OPEC restricting production rather than short term inability of producers to supply the market? At least OPEC is a factor in the rise of prices. Isnt that the case at present? Perhaps the situation in Venezuela and the slow pace of restoration of oil production in Iraq are also relevant. But it O:PEC did not restrict production these factors would not themselves raise prices. Also I thought Iraq was a low cost oil producer. Its invasion of Kuwait was based upon claims that Kuwait was extracting oil from Iraqi fields over the border and simply to extend Iraqi influence when Hussein wrongly thought the US didnt much care. Cheers, Ken Hanly - Original Message - From: "Devine, James" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Monday, March 08, 2004 3:44 PM Subject: oil crises. FWIW, I have a very simple Marxian-flavored theory of "energy crises" that alas I haven't filled out or illustrated with lotza data. (I'm not an energy expert. The theory is part of my Marxian-style crisis theory.) But it helps get us beyond "natural scarcity"/"overproduction" dichotomies. Here, talk about oil rather than energy in general. The idea is that capitalism is a system that tends to over-accumulate capital, where "over-accumulation" means going beyond the (hypothetical) "optimal" rate of accumulation that allows steady capitalist growth at the highest possible profit rate given objective conditions (such as the state of class relations). In the context of "energy crises," accumulation goes too far to preserve the (hypothetical) oil price that preserves systemic stability. (That this price is unknown is part of the problem. Elites in favor of stabilizing the system seek to find it. Then they have to figure how to achieve it politically. Maybe this contributed to the BushMasters' attempt to take over the Oil World via Iraq.) Accumulation pulls up demand for energy and thus oil prices, as in the 1970s. This is not due to OPEC, etc., except to the extent that OPEC and the like take advantage of high demand conditions to try to grab a bigger chunk of the scarcity rents. This is not due to long-term "natural" scarcity of oil as much as due to the short-term inability to expand the quantity of oil supplied, given existing wells, pipelines, etc. and the short-term inability to conserve on oil use. (In jargon, both supply and demand are inelastic.) All else constant, an oil crisis hurts the profits of manufacturing and similar industries, which are largely based in the richest capitalist countries. The division between oil-producing and oil-using countries encourages the main reactions to the crisis. This crisis doesn't simply encourage longer-term exploration of new oil fields and a move toward greater conservation (as in neoclassical stories). It also encourages recession and other attacks on the working class in order to restore profitability. The problem with the latter is that it prevents full adjustment of the oil market, i.e. adjustment of supply and demand. The defense of old wasteful ways of using oil -- as personified by the Bush administration -- also prevents demand-side adjustment (conservation). In the period after an oil crisis, the various reactions combine to create over-production of oil, of the sort that encouraged the oil "un-crisis" of 1986 (rapid fall in the real price of energy). This is encouraged by the coming on-line of oil that was discovered and/or exploited starting during the "crisis" period. (There's a bit of a corn/hogs cycle here.) As noted, low oil prices discourage conservation (as with the renaissance of gas-guzzling cars in the US). It also encourages the high-cost producers of oil to seek ways of restoring their fortunes (e.g, Iraq's invasion of Kuwait). It also encourages the eventual recovery of accumulation, which sends the system into another "energy crisis." BTW, I don't believe in a long-term "oil crisis" as a result of natural limits. Instead, the natural limit comes from the pollution associated with the use of oil and other hydrocarbons. Capitalism has a strong tendency to encourage the dumping of costs on the environment and the avoidance of conservation. This is encouraged by the cyclical crisis theory sketched above. Jim Devine
Re: oil crises
Jim, My complete name is Aldo Fabian Balardini. I go by Fabian, I never use Aldo unless I fill out paperwork where they request my first name like the name you see in my e-mail address. Sorry for the confusion. ___ >>> [EMAIL PROTECTED] 03/09/04 09:59 AM >>> >>> [EMAIL PROTECTED] 03/08/04 23:56 PM >>> There is an oil cartel, but like any cartel, it is limited by supply & demand -- and their ability to unify to restrain output levels. Oil pricing is thus partly dependent on OPEC. It can take advantage of abundant demand -- but might fail to do so. ___ Fabian: so you're theory of oil price is basically the dominant cartel theory used by neoclassicals unless it is different in some other way? Which way? ___ JD: me again: as I see Marx's theory, the _identity_ of the high-cost producer changes with the amount of demand. With high demand, the highest-cost producer has higher costs than the one when demand is low. ___ Fabian: The high cost producer in the oil industry since the 1970's has remained the US no matter what happens to demand. So according to Marxian theory, the US should determine the price of oil throughout this period. Agree? ___ JD: BTW, on the level of price determination, I don't see a big difference between Marx's rent theory and that of Ricardo or modern neoclassical economics. The big difference is that for Marx, rent was a form of surplus-value (produced by labor), so that increasing rent reduced other kinds of surplus-value (assuming that the value of labor power is constant). ___ Fabian: When it comes to price determination of agricultural goods (Marx uses coal in his tables in TSV) the dominant interpretation says that there is no difference between Ricardo, Marx and even Smith. However, a closer reading of Marx in TSV points to a different theory of price determination as Marx criticizes Ricardo for insisting INCORRECTLY that price of coal is ALWAYS determined by the least productive mine. The other difference is on the definition of absolute rent. The standard reading of Marx, including Bina's, says that absolute rent is a function of value transfers among different sectors according to their organic composition of capital. The outcome of this interpretation is the inability to explain rent in oil since it is a sector with high organic composition. The implication of this is that some of the least productive wells in the US can be rented for free. There is a major difference between Ricardo and Marx (as interpreted by the traditional theory) on the price of oil being determined by the marginal producer. In neoclassical theory, OPEC is the marginal producer, in Ricardian/Marxian theories the marginal producer should always be the highest cost producer (US) since the oil produced by US wells are necessary to satisfy demand. Neoclassicals argue that somehow OPEC can calculate the difference between world demand and the competitive fringe supply and provide the letover supply needed to meet current demand, all this has to do with the assumptions of market power underlying their cartel models. BTW, the cartel theory of OPEC has no empirical support as shown in Alhajji and Huetner.
Re: oil crises
Doug Henwood wrote: > > > > Over the last 15 years or so, the price of oil has varied from under > $10 to over $30. It may be that the Ricardian/Marxian mechanisms you > and Bina point to determine the center of gravity around which the > market price fluctuates, but what accounts for this 300%+ range? > Isn't fluctuation in almost _all_ orders of existence (from the density per cubic inch of microbes to the evolution of elephants et cet a matter of contingency, with no general rule (account) possible? We still don't possess a TOE. Carrol > Doug
Re: oil crises
>>> [EMAIL PROTECTED] 03/08/04 23:56 PM >>> Aldo Balardini asks me several questions: >How do you define the price of oil? < the same way most people do. ___ Fabian: Most people define the price of oil as the result of OPEC's cartel power. In your first message you said oil crises happened independent of OPEC, from which I assume that oil pricing is also independent of OPEC. If you agree with Bina then you are not defining the price of oil as most people do. Explain please. Me: I don't know who Fabian is, since I was talking to Aldo, but here goes. There is an oil cartel, but like any cartel, it is limited by supply & demand -- and their ability to unify to restrain output levels. Oil pricing is thus partly dependent on OPEC. It can take advantage of abundant demand -- but might fail to do so. ___ >Cyrus Bina is the only one so far to have attempted to explain the 1970's oil crisis >using the standard interpretation of Marx's theory of rent. < I was thinking of his analysis (though I haven't read it in awhile), since Marx's rent theory suggests that the price of oil is determined partly by demand (unlike, say, in manufacturing). >Do you agree with Bina that cost conditions in the US, the highest cost region in the >international oil, determine the the "world" price of oil? < it depends on demand. If demand is sufficiently low, cost conditions in the US are irrelevant. If it's high, then we might see a higher-cost producer as determining. Jim D. ___ Fabian: Correct me if I'm wrong - You're saying that the determination of the price of oil is procyclical; determined by OPEC during throughs and by US wells during booms. If this is the case how can this be reconciled with the standard interpretation of Marx's theory of rent that the price of oil (or agriculture goods) is ALWAYS determined by the high cost producer (least productive land)? me again: as I see Marx's theory, the _identity_ of the high-cost producer changes with the amount of demand. With high demand, the highest-cost producer has higher costs than the one when demand is low. BTW, on the level of price determination, I don't see a big difference between Marx's rent theory and that of Ricardo or modern neoclassical economics. The big difference is that for Marx, rent was a form of surplus-value (produced by labor), so that increasing rent reduced other kinds of surplus-value (assuming that the value of labor power is constant). Jim D.
Re: oil crises
Aldo Balardini wrote: Fabian: Correct me if I'm wrong - You're saying that the determination of the price of oil is procyclical; determined by OPEC during throughs and by US wells during booms. If this is the case how can this be reconciled with the standard interpretation of Marx's theory of rent that the price of oil (or agriculture goods) is ALWAYS determined by the high cost producer (least productive land)? Over the last 15 years or so, the price of oil has varied from under $10 to over $30. It may be that the Ricardian/Marxian mechanisms you and Bina point to determine the center of gravity around which the market price fluctuates, but what accounts for this 300%+ range? Doug
Re: oil crises
>>> [EMAIL PROTECTED] 03/08/04 23:56 PM >>> Aldo Balardini asks me several questions: >How do you define the price of oil? < the same way most people do. ___ Fabian: Most people define the price of oil as the result of OPEC's cartel power. In your first message you said oil crises happened independent of OPEC, from which I assume that oil pricing is also independent of OPEC. If you agree with Bina then you are not defining the price of oil as most people do. Explain please. ___ >Cyrus Bina is the only one so far to have attempted to explain the 1970's oil crisis >using the standard interpretation of Marx's theory of rent. < I was thinking of his analysis (though I haven't read it in awhile), since Marx's rent theory suggests that the price of oil is determined partly by demand (unlike, say, in manufacturing). >Do you agree with Bina that cost conditions in the US, the highest cost region in the >international oil, determine the the "world" price of oil? < it depends on demand. If demand is sufficiently low, cost conditions in the US are irrelevant. If it's high, then we might see a higher-cost producer as determining. Jim D. ___ Fabian: Correct me if I'm wrong - You're saying that the determination of the price of oil is procyclical; determined by OPEC during throughs and by US wells during booms. If this is the case how can this be reconciled with the standard interpretation of Marx's theory of rent that the price of oil (or agriculture goods) is ALWAYS determined by the high cost producer (least productive land)?
Re: oil crises
Aldo Balardini asks me several questions: >How do you define the price of oil? < the same way most people do. >Cyrus Bina is the only one so far to have attempted to explain the 1970's oil crisis >using the standard interpretation of Marx's theory of rent. < I was thinking of his analysis (though I haven't read it in awhile), since Marx's rent theory suggests that the price of oil is determined partly by demand (unlike, say, in manufacturing). >Do you agree with Bina that cost conditions in the US, the highest cost region in the >international oil, determine the the "world" price of oil? < it depends on demand. If demand is sufficiently low, cost conditions in the US are irrelevant. If it's high, then we might see a higher-cost producer as determining. Jim D.
Re: oil crises.
so we're both right. What I was saying was that _given its current technology, etc._
Iraq was a high-cost producer in 1990 (before it moved into Kuwait). What you are
saying is tht it _could be_ a lower-cost producer if modern methods were introduced,
etc. (This, it seems, is a motivation of the Bushwackers' unfriendly take-over bid
there.)
Jim D.
-Original Message-
From: dmschanoes [mailto:[EMAIL PROTECTED]
Sent: Mon 3/8/2004 6:33 PM
To: [EMAIL PROTECTED]
Cc:
Subject: Re: [PEN-L] oil crises.
- Original Message -
From: "Devine, James" <[EMAIL PROTECTED]>
To: <[EMAIL PROTECTED]>
Sent: Monday, March 08, 2004 8:14 PM
Subject: Re: [PEN-L] oil crises.
(a civil conversation)
> DMS: But Iraq is not a high cost producer of oil, having a
> cost of production approximately
> equal to Saudi Arabia, the low-cost producer.
JD: I have heard otherwise from other sources.
From the US Energy Information Agency
http://www.eia.doe.gov/emeu/cabs/iraq.html
Iraq's oil development and production costs are amongst the lowest in the
world (perhaps $3-$5 billion for each million barrels per day), making it a
highly attractive oil prospect. However, only 17 of 80 discovered fields
have been developed, while few deep wells have been drilled compared to
Iraq's neighbors. Overall, only about 2,300 wells reportedly have been
drilled in Iraq (of which about 1,600 are actually producing oil), compared
to around 1 million wells in Texas for instance. In addition, Iraq generally
has not had access to the latest, state-of-the-art oil industry technology
(i.e., 3D seismic, directional or deep drilling, gas injection), sufficient
spare parts, and investment in general throughout most of the 1990s.
Instead, Iraq reportedly utilized sub-standard engineering techniques (i.e.,
overpumping, water injection/"flooding"), obsolete technology, and systems
in various states of decay (i.e., corroded well casings) in order to sustain
production. In the long run, reversal of all these practices and utilization
of the most modern techniques, combined with development of both discovered
fields as well as new ones, could result in Iraq's oil output increasing by
several million barrels per day
Re: oil crises.
I think the idea is that if there's overproduction and prices collapse so that scarcity rents go toward zero, it creates an incentive to get together to fix prices upward. (Inside a country, the price collapse would drive many out of business, so that a small number of companies take over.) JD -Original Message- From: joanna bujes [mailto:[EMAIL PROTECTED] Sent: Mon 3/8/2004 7:49 PM To: [EMAIL PROTECTED] Cc: Subject: Re: [PEN-L] oil crises. I'm sorry, but I don't understand the argument that higher prices are the result of overaccumulation. What happens to supply/demand idea? This is not a rhetorical "I don't understand." Please explain, Thanks, Joanna dmschanoes wrote: >- Original Message - >From: "Devine, James" <[EMAIL PROTECTED]> >To: <[EMAIL PROTECTED]> >Sent: Monday, March 08, 2004 8:14 PM >Subject: Re: [PEN-L] oil crises. > > >(a civil conversation) > > > >>DMS: But Iraq is not a high cost producer of oil, having a >>cost of production approximately >>equal to Saudi Arabia, the low-cost producer. >> >> > >JD: I have heard otherwise from other sources. > >>From the US Energy Information Agency > >http://www.eia.doe.gov/emeu/cabs/iraq.html > >Iraq's oil development and production costs are amongst the lowest in the >world (perhaps $3-$5 billion for each million barrels per day), making it a >highly attractive oil prospect. However, only 17 of 80 discovered fields >have been developed, while few deep wells have been drilled compared to >Iraq's neighbors. Overall, only about 2,300 wells reportedly have been >drilled in Iraq (of which about 1,600 are actually producing oil), compared >to around 1 million wells in Texas for instance. In addition, Iraq generally >has not had access to the latest, state-of-the-art oil industry technology >(i.e., 3D seismic, directional or deep drilling, gas injection), sufficient >spare parts, and investment in general throughout most of the 1990s. >Instead, Iraq reportedly utilized sub-standard engineering techniques (i.e., >overpumping, water injection/"flooding"), obsolete technology, and systems >in various states of decay (i.e., corroded well casings) in order to sustain >production. In the long run, reversal of all these practices and utilization >of the most modern techniques, combined with development of both discovered >fields as well as new ones, could result in Iraq's oil output increasing by >several million barrels per day > > > >
Re: oil crises.
I'm sorry, but I don't understand the argument that higher prices are the result of overaccumulation. What happens to supply/demand idea? This is not a rhetorical "I don't understand." Please explain, Thanks, Joanna dmschanoes wrote: - Original Message - From: "Devine, James" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Monday, March 08, 2004 8:14 PM Subject: Re: [PEN-L] oil crises. (a civil conversation) DMS: But Iraq is not a high cost producer of oil, having a cost of production approximately equal to Saudi Arabia, the low-cost producer. JD: I have heard otherwise from other sources. From the US Energy Information Agency http://www.eia.doe.gov/emeu/cabs/iraq.html Iraq's oil development and production costs are amongst the lowest in the world (perhaps $3-$5 billion for each million barrels per day), making it a highly attractive oil prospect. However, only 17 of 80 discovered fields have been developed, while few deep wells have been drilled compared to Iraq's neighbors. Overall, only about 2,300 wells reportedly have been drilled in Iraq (of which about 1,600 are actually producing oil), compared to around 1 million wells in Texas for instance. In addition, Iraq generally has not had access to the latest, state-of-the-art oil industry technology (i.e., 3D seismic, directional or deep drilling, gas injection), sufficient spare parts, and investment in general throughout most of the 1990s. Instead, Iraq reportedly utilized sub-standard engineering techniques (i.e., overpumping, water injection/"flooding"), obsolete technology, and systems in various states of decay (i.e., corroded well casings) in order to sustain production. In the long run, reversal of all these practices and utilization of the most modern techniques, combined with development of both discovered fields as well as new ones, could result in Iraq's oil output increasing by several million barrels per day
Re: oil crises.
- Original Message - From: "Devine, James" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Monday, March 08, 2004 8:14 PM Subject: Re: [PEN-L] oil crises. (a civil conversation) > DMS: But Iraq is not a high cost producer of oil, having a > cost of production approximately > equal to Saudi Arabia, the low-cost producer. JD: I have heard otherwise from other sources. >From the US Energy Information Agency http://www.eia.doe.gov/emeu/cabs/iraq.html Iraq's oil development and production costs are amongst the lowest in the world (perhaps $3-$5 billion for each million barrels per day), making it a highly attractive oil prospect. However, only 17 of 80 discovered fields have been developed, while few deep wells have been drilled compared to Iraq's neighbors. Overall, only about 2,300 wells reportedly have been drilled in Iraq (of which about 1,600 are actually producing oil), compared to around 1 million wells in Texas for instance. In addition, Iraq generally has not had access to the latest, state-of-the-art oil industry technology (i.e., 3D seismic, directional or deep drilling, gas injection), sufficient spare parts, and investment in general throughout most of the 1990s. Instead, Iraq reportedly utilized sub-standard engineering techniques (i.e., overpumping, water injection/"flooding"), obsolete technology, and systems in various states of decay (i.e., corroded well casings) in order to sustain production. In the long run, reversal of all these practices and utilization of the most modern techniques, combined with development of both discovered fields as well as new ones, could result in Iraq's oil output increasing by several million barrels per day
Re: oil crises
Devine: How do you define the price of oil? Cyrus Bina is the only one so far to have attempted to explain the 1970's oil crisis using the standard interpretation of Marx's theory of rent. Do you agree with Bina that cost conditions in the US, the highest cost region in the international oil, determine the the "world" price of oil?
Re: oil crises.
(a civil conversation) >From me: > Accumulation pulls up demand for energy and thus oil prices, > as in the 1970s. This > is not due to OPEC, etc., except to the extent that OPEC and > the like take advantage > of high demand conditions to try to grab a bigger chunk of > the scarcity rents. This > is not due to long-term "natural" scarcity of oil as much as > due to the > short-term inability to expand the quantity of oil supplied, > given existing wells, > pipelines, etc. and the short-term inability to conserve on > oil use. (In jargon, > both supply and demand are inelastic.) > ___ > DMS: But this is not what actually took place in 1973, 1979, > 1990, 1999. In 1973 the > price rise engineered after the Yom Kippur war also occurred > after the absolute expansion > of the productive apparatus with the subsequent decline in > the rate of return on investment > in the oil industry. There was no shortage of extractable > supplies. On the contrary, it was > exactly the development of the means of extraction, > depressing the rate of return, that created > the basis for the price rise. Similarly in 1979, the price > rise followed hard upon a period > of growth of fixed assets, and the price rise triggered the > drastic, draconian, > liquidation of those assets, across the board in oil, steel, > etc. The price jump in 1999 comes directly > after the price collapse brought forth by increased > production and the drop in production costs > below the historic low of 1949. The jump likewise occurs > after the rate of return in the oil industry > returned to low single digits. If OPEC didn't exist, the US > would have invented it. OPEC did exist > and the US still invented it, 3 times. > ___ I don't know enough about the emprical data to agree or disagree. On the abstract level, however, it is quite possible that over-investment in oil would lead to over-production and cartelization. me: > All else constant, an oil crisis hurts the > profits of manufacturing and similar industries, which are > largely based in the > richest capitalist countries. The division between > oil-producing and oil-using countries > encourages the main reactions to the crisis. > ___ > > DMS: Oil prices rearrange profits and price increases have > strengthened the US at the > expense of Japan and Europe. In addition, significant > portions of developing country debt are > secured with oil revenues. Citibank hit some big skids when > oil prices declined after 1986 (but > not for that reason alone, the lost decade in Latin America > had finally taken a little toll on > the bankers who destroyed the decade to begin with). > ___ this seems a different topic. me: > This crisis doesn't simply encourage longer-term exploration > of new oil fields and > a move toward greater conservation (as in neoclassical > stories). It also encourages > recession and other attacks on the working class in order to > restore profitability. > The problem with the latter is that it prevents full > adjustment of the oil market, > i.e. adjustment of supply and demand. The defense of old > wasteful ways of using > oil -- as personified by the Bush administration -- also > prevents demand-side adjustment > (conservation). > ___ > > DMS: Actually, conservation had occurred. The amount of > energy, the amount of oil required > for each dollar of GDP had declined by approximately 30% from > the 1973 mark (I think, don't > have my notes with me right now). The proportion of IMPORTED > oil used in that total energy > reduction INCREASED dramatically. I agree that conservation occurred. (I once had a fruitless discussion with Mark Jones on this matter.) The problem is that not enough occurred. The US, for example, could emulate Europe and impose bigger taxes on oil. But that hasn't happened. me: > In the period after an oil crisis, the various reactions > combine to create over-production > of oil, of the sort that encouraged the oil "un-crisis" of 1986 (rapid > fall in the real price of energy). This is encouraged by the > coming on-line of oil > that was discovered and/or exploited starting during the > "crisis" period. > (There's a bit of a corn/hogs cycle here.) As noted, low oil > prices discourage > conservation (as with the renaissance of gas-guzzling cars in > the US). It also encourages > the high-cost producers of oil to seek ways of restoring > their fortunes (e.g, Iraq's > invasion of Kuwait). It also encourages the eventual recovery > of accumulation, which > sends the system into another "energy crisis." > ___ > > DMS: But Iraq is not a high cost producer of oil, having a > cost of production approximately > equal to Saudi Arabia, the low-cost producer. I have heard otherwise from other sources. >Iraq's
Re: oil crises.
Guess what? I miscounted. Only used 4, so I have one more, you lucky stiffs.. >From JD: Accumulation pulls up demand for energy and thus oil prices, as in the 1970s. This is not due to OPEC, etc., except to the extent that OPEC and the like take advantage of high demand conditions to try to grab a bigger chunk of the scarcity rents. This is not due to long-term "natural" scarcity of oil as much as due to the short-term inability to expand the quantity of oil supplied, given existing wells, pipelines, etc. and the short-term inability to conserve on oil use. (In jargon, both supply and demand are inelastic.) ___ DMS: But this is not what actually took place in 1973, 1979, 1990, 1999. In 1973 the price rise engineered after the Yom Kippur war also occurred after the absolute expansion of the productive apparatus with the subsequent decline in the rate of return on investment in the oil industry. There was no shortage of extractable supplies. On the contrary, it was exactly the development of the means of extraction, depressing the rate of return, that created the basis for the price rise. Similarly in 1979, the price rise followed hard upon a period of growth of fixed assets, and the price rise triggered the drastic, draconian, liquidation of those assets, across the board in oil, steel, etc. The price jump in 1999 comes directly after the price collapse brought forth by increased production and the drop in production costs below the historic low of 1949. The jump likewise occurs after the rate of return in the oil industry returned to low single digits. If OPEC didn't exist, the US would have invented it. OPEC did exist and the US still invented it, 3 times. ___ JD: All else constant, an oil crisis hurts the profits of manufacturing and similar industries, which are largely based in the richest capitalist countries. The division between oil-producing and oil-using countries encourages the main reactions to the crisis. ___ DMS: Oil prices rearrange profits and price increases have strengthened the US at the expense of Japan and Europe. In addition, significant portions of developing country debt are secured with oil revenues. Citibank hit some big skids when oil prices declined after 1986 (but not for that reason alone, the lost decade in Latin America had finally taken a little toll on the bankers who destroyed the decade to begin with). ___ JD This crisis doesn't simply encourage longer-term exploration of new oil fields and a move toward greater conservation (as in neoclassical stories). It also encourages recession and other attacks on the working class in order to restore profitability. The problem with the latter is that it prevents full adjustment of the oil market, i.e. adjustment of supply and demand. The defense of old wasteful ways of using oil -- as personified by the Bush administration -- also prevents demand-side adjustment (conservation). ___ DMS: Actually, conservation had occurred. The amount of energy, the amount of oil required for each dollar of GDP had declined by approximately 30% from the 1973 mark (I think, don't have my notes with me right now). The proportion of IMPORTED oil used in that total energy reduction INCREASED dramatically. ___ JD In the period after an oil crisis, the various reactions combine to create over-production of oil, of the sort that encouraged the oil "un-crisis" of 1986 (rapid fall in the real price of energy). This is encouraged by the coming on-line of oil that was discovered and/or exploited starting during the "crisis" period. (There's a bit of a corn/hogs cycle here.) As noted, low oil prices discourage conservation (as with the renaissance of gas-guzzling cars in the US). It also encourages the high-cost producers of oil to seek ways of restoring their fortunes (e.g, Iraq's invasion of Kuwait). It also encourages the eventual recovery of accumulation, which sends the system into another "energy crisis." ___ DMS: But Iraq is not a high cost producer of oil, having a cost of production approximately equal to Saudi Arabia, the low-cost producer. Iraq's costs are well below Russia's, offshore deep and shallow water, North Sea, Brunei, etc.Iraq's invasion of Kuwait was based primarily on Kuwait's refusal to abide by its quota, and other actions taken regarding transportation that damaged Iraqi revenues. _ BTW, I don't believe in a long-term "oil crisis" as a result of natural limits. Instead, the natural limit comes from the pollution associated with the use of oil and other hydrocarbons. Capitalism has a strong tendency to encourage the dumping of costs on the environment and the avoidance of conservation. This is encouraged by the cyclical crisis theory sketched above. Jim
oil crises.
FWIW, I have a very simple Marxian-flavored theory of "energy crises" that alas I haven't filled out or illustrated with lotza data. (I'm not an energy expert. The theory is part of my Marxian-style crisis theory.) But it helps get us beyond "natural scarcity"/"overproduction" dichotomies. Here, talk about oil rather than energy in general. The idea is that capitalism is a system that tends to over-accumulate capital, where "over-accumulation" means going beyond the (hypothetical) "optimal" rate of accumulation that allows steady capitalist growth at the highest possible profit rate given objective conditions (such as the state of class relations). In the context of "energy crises," accumulation goes too far to preserve the (hypothetical) oil price that preserves systemic stability. (That this price is unknown is part of the problem. Elites in favor of stabilizing the system seek to find it. Then they have to figure how to achieve it politically. Maybe this contributed to the BushMasters' attempt to take over the Oil World via Iraq.) Accumulation pulls up demand for energy and thus oil prices, as in the 1970s. This is not due to OPEC, etc., except to the extent that OPEC and the like take advantage of high demand conditions to try to grab a bigger chunk of the scarcity rents. This is not due to long-term "natural" scarcity of oil as much as due to the short-term inability to expand the quantity of oil supplied, given existing wells, pipelines, etc. and the short-term inability to conserve on oil use. (In jargon, both supply and demand are inelastic.) All else constant, an oil crisis hurts the profits of manufacturing and similar industries, which are largely based in the richest capitalist countries. The division between oil-producing and oil-using countries encourages the main reactions to the crisis. This crisis doesn't simply encourage longer-term exploration of new oil fields and a move toward greater conservation (as in neoclassical stories). It also encourages recession and other attacks on the working class in order to restore profitability. The problem with the latter is that it prevents full adjustment of the oil market, i.e. adjustment of supply and demand. The defense of old wasteful ways of using oil -- as personified by the Bush administration -- also prevents demand-side adjustment (conservation). In the period after an oil crisis, the various reactions combine to create over-production of oil, of the sort that encouraged the oil "un-crisis" of 1986 (rapid fall in the real price of energy). This is encouraged by the coming on-line of oil that was discovered and/or exploited starting during the "crisis" period. (There's a bit of a corn/hogs cycle here.) As noted, low oil prices discourage conservation (as with the renaissance of gas-guzzling cars in the US). It also encourages the high-cost producers of oil to seek ways of restoring their fortunes (e.g, Iraq's invasion of Kuwait). It also encourages the eventual recovery of accumulation, which sends the system into another "energy crisis." BTW, I don't believe in a long-term "oil crisis" as a result of natural limits. Instead, the natural limit comes from the pollution associated with the use of oil and other hydrocarbons. Capitalism has a strong tendency to encourage the dumping of costs on the environment and the avoidance of conservation. This is encouraged by the cyclical crisis theory sketched above. Jim Devine
