<Why are gasoline (and oil) prices so low -- and where are they headed? The Oil Drum DrumBeat: December 9, 2008>

111 comments on Saudi Aramco on 60 Minutes

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Darwinian on December 9, 2008 - 12:30pm Permalink | Subthread | Parent | Comments top

Which is just what happened the last time.

What time was that? I hope you are not talking about the early 80's. There was never a doubt what caused that very short plateau and then a retreat of 15% of production. We had the Iranian Revolution, the Iran-Iraqi war and the subsequent "Tanker Wars". All this reduced OPEC production to about half and world production by 15%.

I get tired of people pointing to this period and saying, "Yeah, we thought oil had peaked then also." No we did not! We all knew exactly what caused that fall in production. But because non-OPEC nations could not take up the slack, some speculated that the world may be facing production restrictions. Which was also the truth.

And by the way, in 2008 non-OPEC oil production fell off it's five year plateau that began in July of 2003 and ended in July of 2008.

Ron Patterson

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Positive_Phototaxis on December 9, 2008 - 12:36pm Permalink | Subthread | Parent | Comments top

LoL!

So "we know", do we? You just saw the same thing happen again and interpreted it as different because you wanted to.

In the 80s, production declined because there was no demand as economies contracted. Now you see a five year plateau that just coincidentally ends just as demand is falling off the table and you somehow see it as different?

I never had any doubt about how the 80s went down (though yes, there were people who thought we were close to using up cheap energy)... you're the one stuck having to demonstrate that "this time is different".

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Darwinian on December 9, 2008 - 2:00pm Permalink | Subthread | Parent | Comments top

LoL! So "we know", do we? You just saw the same thing happen again and interpreted it as different because you wanted to.

Yes we knew! I take it you are too young to remember those days. I am not and remember very well what was going on.

In the 80s, production declined because there was no demand as economies contracted. Now you see a five year plateau that just coincidentally ends just as demand is falling off the table and you somehow see it as different?

That is the most absurd thing I have read on TOD in weeks. High oil prices, brought on by the decline in OPEC production, caused the recession. If what you say is true, then why did only OPEC production decline. In 1979 OPEC C+C production averaged 30.942 mb/d, according to the EIA. in 1985 their production was 16.693 mb/d, a decline of 46.05%. Over the same period non-OPEC production went from 31.732 mb/d in 1979 to 37.273 mb/d in 1985, an increase of 17.46%. So why did economic contraction cause only OPEC to cut production by almost half while non-OPEC production kept right on increasing as usual?

And between 1978 and 1980, oil prices increased by 150%. And oil prices stayed extremely high through 1985. That is really strange behavior for prices if the decline in production during that period was caused by falling demand! Historical Crude Oil Prices (Table)

As I said above, we all knew very well what was happening because it was on the frigging news daily! I would suggest PP, that you get your facts straight next time before you go spouting off stuff about which you are obviously totally ignorant of.

Ron Patterson

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Positive_Phototaxis on December 9, 2008 - 2:20pm Permalink | Subthread | Parent | Comments top

Yes we knew! I take it you are too young to remember those days.

And I take it you didn't read what you responded to. And yes, I remember reasonably well... I lived in the ME around that time.

That is the most absurd thing I have read on TOD in weeks. High oil prices, brought on by the decline in OPEC production, caused the recession. If what you say is true, then why did only OPEC production decline.

Yes... artificial tightening of supply caused economic weakness which in turn clobbered demand... that reduced demand (combined with new sources of energy) caused oil prices to collapse. Even with OPEC (again intentionally) curtailing production, prices continued to fall.

Pretty much just as is happening today.

If what you say is true, then why did only OPEC production decline.

For the same reason it's falling today. They're desperate to prop up prices but have trouble enforcing discipline on their wn producers, let alone the rest of the world.

So why did economic contraction cause only OPEC to cut production by almost half while non-OPEC production kept right on increasing as usual?

You're kidding, right? Other nations don't allow price-fixing and cartel behavior. Nations who had discovered new supplies while prices were out-of-whack kept pumping. Then OPEC not only had to cut a bbl to prop up prices but had to cut another one for every bbl produced outside of OPEC.

This is why the Saudis (and a few others) fought against Iran/Venezuela/etc to raise quotas several months back. They were terrified that the high prices would cause another worldwide slide which would end up hurting far more than letting prices go back down.

And between 1978 and 1980, oil prices increased by 150%. And oil prices stayed extremely high through 1985. That is really strange behavior for prices if the decline in production during that period was caused by falling demand!

It would be... if your characterization was accurate. It isn't. You accepted annual averages and ignored inflation (if you do remember the 80s...)

From 1975 (no idea why you selected 78) to 1980, prices were up (inflation adjusted) more like 500% and fell fairly consistently (and significantly) for over five years.

I would suggest RP, that you get your facts straight next time before you go spouting off stuff about which you are obviously totally ignorant of.

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Darwinian on December 9, 2008 - 3:30pm Permalink | Subthread | Parent | Comments top

PP, you are engaging in double talk, trying to get out of the really stupid thing you said:

In the 80s, production declined because there was no demand as economies contracted.

NO, that is dead wrong! In the 80's production declined because of the Iranian Revolution, because of the Iran-Iraqi War and because of the Tanker War that started in 1984. Prices skyrocketed. There were long lines at service stations. In some places you could only get gas on alternate days, based on whether your tag number was even or odd.

PP, to say, as you did, that "In the 80s, production declined because there was no demand as economies contracted," is just down in the dirt stupid!

Ron Patterson

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Positive_Phototaxis on December 9, 2008 - 4:18pm Permalink | Subthread | Parent | Comments top

PP, you are engaging in double talk, trying to get out of the really stupid thing you said:

Nope. Just pointing out that your strawman is a strawman.

NO, that is dead wrong! In the 80's production declined because of the Iranian Revolution, because of the Iran-Iraqi War and because of the Tanker War that started in 1984.

Production did decline for those reasons. It also (and primarily) declined due to economic contraction. There was the ability to export more oil... but no demand for it.

PP, to say, as you did, that "In the 80s, production declined because there was no demand as economies contracted," is just down in the dirt stupid!

"Stupid" perhaps to try to pound the truth through a thickened head... but not wrong. Sorry. What would be "stupid" would be to pretend that you remember skyrocketing prices and economic contraction but that it didn't impact demand for oil.

Note, BTW, that the embargo was in '74 and supply continued to climb. Iran was 78-79 and supply only dropped 4%. Economic weakness was well in place by that point.

A simple exercise for you. Google "oil glut" and see what you get. If prices were falling because there was too much oil on the market even though less was being produced than before... you have to know it was a demand-side problem. Right?

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Darwinian on December 9, 2008 - 5:21pm Permalink | Subthread | Parent | Comments top

Production did decline for those reasons. It also (and primarily) declined due to economic contraction. There was the ability to export more oil... but no demand for it.

The price did not collapse until 1986, the year that production began to increase. Production jumped by over 2.2 million barrels per day in 1986, then prices collapsed! The proceeding seven years, 1979 thru 1985 saw deep cuts by OPEC causing prices to skyrocket. Then in 1986 they opened the spigot again and prices collapsed.

You are putting the cart before the horse. The very high oil prices, and very low oil production, caused the recession. Demand did not collapse until 1986, (or late 85) the exact same year that prices collapsed. How could you possibly have excessive production, a glut of oil, and still have extremely high prices? And remember there was no NYMEX speculators in those years to drive prices up.

Obviously there was much less oil sold during the early 80's, because there was much less oil produced. That is why prices stayed high! Then when OPEC opeaned the spigot prices collapsed. What else would one expect?

However as Will Stewart said:

You are obviously not interested in rational debate; good day...

Ron Patterson

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Positive_Phototaxis on December 9, 2008 - 5:26pm Permalink | Subthread | Parent | Comments top

The price did not collapse until 1986,

You're absolutely immune to facts, aren't you? Did you not even look at the graph I provided? I can give you another one from the site you linked.

How can you expect anyone to look at that and then read you saying "price did not collapse until 1986" without laughing?

The CEO of Exxon was talking about an oil glut in 1981 (saying that the main cause was declining consumption).

You are putting the cart before the horse. The very high oil prices, and very low oil production, caused the recession.

Since I've now said that more than once... one must wonder what point you think you're making.

Demand did not collapse until 1986,

Simply (and ridiculously) wrong. So you position is that supply collapsed but people kept consuming the same amount? Was it magic pixie oil?

How could you possibly have excessive production, a glut of oil, and still have extremely high prices?

You can't... which is why prices declined by more than half in real terms during the period you claim there was no decline. You've entitled to your own opinion, not your own facts.

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WebHubbleTelescope on December 9, 2008 - 11:11pm Permalink | Subthread | Parent | Comments top

PP, The only thing that happened in the 70's and early 80's was a huge effort to make processes more energy efficient. Before that time, oil flowed like water. Afterward, it didn't. This could look like a reduction in demand, as people realized they shouldn't treat it like a sieve anymore. From this resetting of the baseline, productivity kept on increasing and demand once again started to creep upwards again.

It's happened again and we have immediate reductions in energy use, unfortunately the gains in reduction are not what we saw back then since that was an "awakening" kind of event that will never be duplicated.

The Oil Shock model is designed to handled these changes in production rates.

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Nick on December 10, 2008 - 2:27am Permalink | Subthread | Parent | Comments top

"the gains in reduction are not what we saw back then since that was an "awakening" kind of event that will never be duplicated."

One of the largest events was substitution of Nat Gas and nuclear for oil electrical generation. We can do the same thing, on a larger scale, with the electrification of ground (and, surprisingly, water) transportation.

This kind of large-scale substitution isn't unique to the 21st or even the 20th century - it happened in the late 19th century with the substitution of electricity for kerosene illumination. If gasoline powered ICE vehicles hadn't come along in the early 20th century, oil would have had no large markets at all.

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111 comments on Saudi Aramco on 60 Minutes

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