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The Real Cause of High Oil Prices
Oilprice.com ^ | 08/28/2012 | James Stafford

Posted on 08/28/2012 6:33:16 PM PDT by bananaman22

Nowadays the energy picture is confusing at best as the more information we are shown the murkier the picture seems to become. Mixed messages, poor reporting and a media hungry to sensationalize anything it thinks can grab a headline have led to many wondering what the true energy situation is. We hear numerous reports on how the shale revolution will transform the energy sector, why alternatives are just around the corner, why advances in oilfield extraction techniques and new finds will help to lower oil prices. Yet no sooner have we read these rosy reports than we are bombarded with negative news on the Middle East, on why alternatives will never compete, on peak oil and declining oil production.

So where do we really stand? Is our energy future one of falling prices and plentiful supply or should we prepare for declining supply and sky high prices?

To give readers a real understanding of where we are we were fortunate enough to speak with the world’s leading energy economist, Professor James Hamilton. James is a professor in the Economics Department at the University of California, San Diego. He has been a visiting scholar at the Federal Reserve Board in Washington, DC as well as many of the Federal Reserve Banks; and has also been a consultant for the National Academy of Sciences, Commodity Futures Trading Commission and the European Central Bank and has testified before the United States Congress.

You can find more of his work on his website Econbrowser

In the interview, James discusses:

• Why we shouldn’t get too excited with the shale revolution • The “Real” cause of high oil prices • The incredible opportunity presented by natural gas • Why long term oil prices will creep upwards • The geopolitical hotspots that could cause an oil price spike • Why sanctions could cause Iran to lash out • Why speculators and oil companies are not to blame for high oil prices. • Changes we can expect to see under a Romney Administration • Why Short term oil price forecasts are worthless • Peak oil & Daniel Yergin

Interview conducted by James Stafford of Oilprice.com

Oilprice.com: Oil prices have shot up in the last month. What range do you see oil prices trading in over the next 12 months?

James Hamilton: Oil prices have always been very volatile. If you look at 12-month logarithmic changes in WTI going back to 1947, you come up with a standard deviation of 0.27. In other words, 25% moves up or down within a year are fairly common, and 50% moves or greater have also been seen on a number of occasions.

If you look at options prices at the moment, they imply the same level of uncertainty looking forward. For example, somebody today is willing to pay $2.90/barrel for a NYMEX option to buy oil in September 2013 at $120/barrel, consistent with a standard deviation of annual log changes of 0.26. The market is saying that prices that high or higher are not that remote a possibility.

And if you look at current fundamentals, it’s not hard to imagine big moves in either direction coming fairly quickly. The price of oil would surely collapse if we saw a significant economic downturn in China (something nobody can rule out) or if Iraq succeeds in producing even half of its ambitious production targets (though I personally consider the latter unlikely). On the other hand, a military confrontation with Iran could produce a pretty spectacular price spike. If the Strait of Hormuz were to close, for example, it would represent a shock to world production that in percentage terms would be 3 times as big as the 1973-74 OPEC embargo.

Because the demand for oil is so insensitive to the price over the short run, and because there is little excess capacity in the world at the moment, even small disruptions or additions could produce big price changes. For this reason, I do not have a lot of confidence in anybody’s near-term oil-price forecasts.

On the other hand, I think we understand pretty clearly the main factors behind the overall increase in oil prices since 2005. Demand for oil, particularly from the emerging economies, has grown significantly, and we have had a hard time increasing global production. The single most likely outcome is that both conditions will continue to be with us. The most likely scenario is that the next decade will look something like the last, with oil prices volatile but exhibiting an upward trend.

Oilprice.com: For the past century or so, economies have generally been built upon energy. The economies with access to plentiful, cheap energy have developed the most. With the stagnation of oil production growth, how do you suggest economies could continue to grow from here? Should we stop expecting to see constant economic growth as the norm? Full article at: The Real Reason Behind Oil Price Rises – An Interview with James Hamilton


TOPICS: Business/Economy; Miscellaneous
KEYWORDS: anwr; energy; keystonexl; mediawingofthednc; middleeast; mittromney; obamadeficit; obamarecession; oilprices; opec; partisanmediashills; shalegas

1 posted on 08/28/2012 6:33:20 PM PDT by bananaman22
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To: bananaman22

bump


2 posted on 08/28/2012 6:35:56 PM PDT by bcsco (Bourbon gets better with age...I age better with Bourbon.)
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Obama bows down to Saudi King | American Thinker | April 02, 2009 | Clarice Feldman | Posted on 04/02/2009 8:19:47 AM PDT by rdb3
Obama bows down to Saudi King | American Thinker | April 02, 2009 | Clarice Feldman | Posted on 04/02/2009 8:19:47 AM PDT by rdb3

3 posted on 08/28/2012 6:35:57 PM PDT by SunkenCiv (Play us a song, you're bananaman, play us a song tonight...)
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To: AdmSmith; AnonymousConservative; Berosus; bigheadfred; Bockscar; ColdOne; Convert from ECUSA; ...

Thanks bananaman22.


4 posted on 08/28/2012 6:36:01 PM PDT by SunkenCiv (https://secure.freerepublic.com/donate/)
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To: bananaman22

Yeah really want to take advice from the advocate of “peak oil” scam at Oilprice.com

You might as well post from the National Inquire, they at least occasional are right unlike Oil Price.com


5 posted on 08/28/2012 6:36:22 PM PDT by MNJohnnie (Giving more money to DC to fix the Debt is like giving free drugs to addicts think it will cure them)
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To: bananaman22

Oilprice is not supporting Gasprice? Why is the cost of refining suddenly be so high? Can’t be the Federal Government. Oh No.


6 posted on 08/28/2012 6:48:48 PM PDT by oyez ( .Apparently The U.S. CONSTITUTION has been reduced to the consistency of quicksand.)
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To: oyez

Here in Indiana, we went from 3.56 to 4 bucks per gallon today.

Local news said Cheney is controlling all the gas pumps from Wyoming to kill Baraq’s re-election chances.


7 posted on 08/28/2012 6:52:57 PM PDT by nascarnation (Defeat Baraq 2012. Deport Baraq 2013)
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To: bananaman22

I got hired by Big Oil last week. I started yesterday working for an inspection contractor at the Phillips 66 Refinery in Wood River, Il. Today was the first time I have ever been to a Refinery and is completely different than anything I have ever done. Im looking forward to being part of the industry..


8 posted on 08/28/2012 6:55:29 PM PDT by cardinal4 (Do I really need a /s tag?)
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To: cardinal4

Welcome and don’t forget your PPE.


9 posted on 08/28/2012 7:01:16 PM PDT by razorback-bert (I'm in shape. Round is a shape isn't it?)
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To: nascarnation
Bush and Cheney got more powerful once they got out of office. Four years ago, the talk was about how inept they were.
10 posted on 08/28/2012 7:02:33 PM PDT by oyez ( .Apparently The U.S. CONSTITUTION has been reduced to the consistency of quicksand.)
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To: cardinal4
Congratulations on you new position. You should have an interesting future. Who knows? You could make a difference.
11 posted on 08/28/2012 7:06:51 PM PDT by oyez ( .Apparently The U.S. CONSTITUTION has been reduced to the consistency of quicksand.)
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To: razorback-bert

Thank you. I will be a radiographer just in time for the October turn around. They said 14 hour days, seven days a week for a month. I’ll take it, it could put me back on a paying basis..


12 posted on 08/28/2012 7:09:39 PM PDT by cardinal4 (Do I really need a /s tag?)
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To: bananaman22
I'm surprised the Democrats haven't made some claim that this is a “conspiracy by the oil companies against Obama” in this election year.

Supply and demand, and while this issue is far larger than Obama’s policies, he has nationally only fueled the fire with off shore drilling moratoriums, no ANWR, no to a pipeline, and his EPA that is now looking at CO2 as if it's a hazardous chemical.

I'm sure many pundits and the media will attempt to obfuscate this issue. Their president with his green pixy dust energy policies where all we need to do is inflate our tires to their recommended pressure is delivering this nation a nonexistent energy policy. It is obvious that the headlines of the day followed by a good dose of idealism and leftist ideology dictate what is done. God help us if he's reelected, because not to far behind fuel/oil prices will be electricity. CO2 regulation, mandatory green power mandates, a big “no” to nuclear... In a few years we will reap the harvest of what was planted by this administration in this respect as well.

13 posted on 08/28/2012 7:12:42 PM PDT by Red6
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To: bananaman22

Isn’t it possible the reason oil never goes below $75/barrel anymore is the inflated money supply?

Oil peaked at $70/barrel after Katrina in ‘05. Already that peak is a floor.


14 posted on 08/28/2012 7:13:27 PM PDT by ReaganGeneration2
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To: cardinal4

Congratulations.


15 posted on 08/28/2012 7:16:27 PM PDT by Red6
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To: All

It is said that the US has access to at least 300 years worth of oil even with accelerated growth...This oil and gas is available and doesn’t have to be imported or purchased from a foreign supplier...If this true and we consider that in the last 125 years, man has gone from the horse and buggy to walking on the moon, Why is it not feasible to expect another fuel source such as nuclear or something yet discovered in the next 125 to 250 years????

Use our OWN gas and oil..Quit supporting the ridiculous prices from overseas....


16 posted on 08/28/2012 7:30:23 PM PDT by JW1949
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To: ReaganGeneration2
“Isn’t it possible the reason oil never goes below $75/barrel anymore is the inflated money supply?

Oil peaked at $70/barrel after Katrina in ‘05. Already that peak is a floor.”

Bing, we have pumped 5 trillion dollars into banks in the last 3 years, that inflated the dollar or in other words made it about 25% less valuable in the world market. If Europe had not been run by Socialist and the Euro had not gone into the tank we would see Oil much higher.

17 posted on 08/28/2012 8:17:51 PM PDT by pwatson
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To: ReaganGeneration2
“Isn’t it possible the reason oil never goes below $75/barrel anymore is the inflated money supply?

Oil peaked at $70/barrel after Katrina in ‘05. Already that peak is a floor.”

Bing, we have pumped 5 trillion dollars into banks in the last 3 years, that inflated the dollar or in other words made it about 25% less valuable in the world market. If Europe had not been run by Socialist and the Euro had not gone into the tank we would see Oil much higher.

18 posted on 08/28/2012 8:17:55 PM PDT by pwatson
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To: oyez

And they still have that weather machine just where it always was - in the basement of Walmart headquarters. Just look how Isaac missed Tampa and the RNC and instead headed for New Orleans. We all know Bush hates everyone in New Orleans.


19 posted on 08/28/2012 8:20:40 PM PDT by Henry Hnyellar
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To: bananaman22

These are just some of the reasons/excuses why gas prices burning up your income.

_________________________________________

Iran is going to take over the world.

The refineries need maintenance

The speculators are doing it

We’re running out of oil

We have plenty

Americans are driving less, so we need to raise prices

The Chinese have millions of mopeds to fuel

There is a leak in a pipe in Moose Jaw Alaska

A rodent chewed through a line at the main pump station in Texas.

Demand is down but we are producing more however, our refineries have been and are being shut down

Prices will go to 6.75, but 3 days before the election, Obama will lower prices to 1.40 to ensure reelection

A school of endangered blowfish have been sucked into a pipe, and it takes time to get them out.

Iran has nukes

Unstable markets worldwide.

A big refinery fire

A small refinery fire

A refinery fire could possibly happen

New gas additives are being developed to make Americans even more stupid

They forgot to build a pipe

They don’t like pipes

Rich liberals want the price even higher.

Obama hates the oil industry

The oil industry hates Obama and are hoping this kills his reelection

Liberals want everyone ridding donkeys and bicycles to work as a sacrifice for the planet

We moved more armaments to the gulf because Iran is taking over the world

Wild money printing and massive deficits

Americans love high gas prices

Refinery margins are tight…They hardly make any money at all.


20 posted on 08/28/2012 8:31:43 PM PDT by dragnet2 (Diversion and evasion are tools of deceit)
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To: JW1949

All we have to do is nationalize the oil industry and keep all that oil for ourselves.

Right?


21 posted on 08/28/2012 8:32:34 PM PDT by Lorianne (fedgov, taxporkmoney)
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