Industrialized Cyclist Notepad

Oil Companies Spending More, Producing Less

via James Hamilton via WSJ:

click to enlarge

Declining U.S. carbon dioxide emissions


And it’s worth remembering why that happened– we didn’t have a choice. Global field production of crude oil (excluding natural gas liquids, which are not used as transportation fuel) stagnated at about 74 million barrels/day between 2005 and 2008. It is up a couple of million barrels since then, but more than 100% of this increase has been consumed by China alone, forcing the U.S. and other countries to reduce our oil consumption.

via James Hamilton: Econbrowser: Declining U.S. carbon dioxide emissions.

The Spread
February 13, 2013, 18:10
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click to enlarge

Blue is Brent, black is WTI, green is the spread between them.

A relatively recent phenomenon explained by James Hamilton:

West Texas Intermediate is a particular grade of crude oil whose price is usually quoted in terms of delivery in Cushing, Oklahoma. Brent is a very similar crude from Europe’s North Sea. As similar products, you’d expect them to sell for close to the same price, and up until 2010 they usually did. But an increase in production in Canada and the central U.S. combined with a decrease in U.S. consumption has led to a surplus of oil in the central U.S. This overwhelmed existing infrastructure for cheap transportation of crude from Cushing to the coast, causing a big spread to develop between the prices of WTI and Brent.

via Econbrowser: Prices of gasoline and crude oil.

Technology versus Luck

What if our technology had more to do with luck than our luck had to do with technology?

James Hamilton:

My view is that with these new fields and new technology, we’ll see further increases in U.S. and world production of oil for the next several years. But, unlike many other economists, I do not expect that to continue for much beyond the next decade. We like to think that the reason we enjoy our high standard of living is because we have been so clever at figuring out how to use the world’s available resources. But we should not dismiss the possibility that there may also have been a nontrivial contribution of simply having been quite lucky to have found an incredibly valuable raw material that was relatively easy to obtain for about a century and a half.

via Economics in Action : Issue 7 : November 15, 2012 : Exhaustible Resources and Economic Growth.

Yeah.. Don’t dismiss that possibility.

U.S. Oil Production by Region

A historical perspective.

via Econbrowser and James Hamilton:

Hamilton on the future of U.S. shale oil

Throwing a little cold water on some recent, loudly reported unscientific predictions. When you read Hamilton, always be sure to read the comments by Jeffrey Brown for an important Big Picture view.

In addition to the uncertainties noted above about extrapolating historical production rates, the rate at which production declines from a given well over time is another big unknown. Another key point to recognize is the added cost of extracting oil from tight formations. West Texas Intermediate is currently around $85/barrel. With the huge discount for Canadian and north-central U.S. producers, that means that producers of North Dakota sweet are only offered $61 a barrel. Tight oil is not going to be the reason that we return to an era of cheap oil, for the simple reason that if oil again fell below $50/barrel, it wouldn’t be profitable to produce with these methods. Nor is tight oil likely to get the U.S. back to the levels of field production that we saw in 1970. But tight oil will likely provide a source of significant new production over the next decade as long as the price does not fall too much.

via Econbrowser: Shale oil and tight oil.

James Hamilton: A rational reason for high oil prices

“There is no rational reason for high oil prices,” writes Ali Naimi, Saudi Arabian Minister of Petroleum and Mineral Resources, in today’s Financial Times. Well, I can think of one– if oil prices were lower, the world would want to consume more than is currently being produced.

via Econbrowser: A rational reason for high oil prices.

The Role of Speculation in Oil Markets

What have we learned so far?

A paper by Fatthouh, Kilian and Mahadeva (pdf)

Abstract: A popular view is that the surge in the price of oil during 2003-08 cannot be explained by economic fundamentals, but was caused by the increased financialization of oil futures markets, which in turn allowed speculation to become a major determinant of the spot price of oil. This interpretation has been driving policy efforts to regulate oil futures markets. This survey reviews the evidence supporting this view. We identify six strands in the literature corresponding to different empirical methodologies and discuss to what extent each approach sheds light on the role of speculation. We find that the existing evidence is not supportive of an important role of speculation in driving the spot price of oil after 2003. Instead, there is strong evidence that the co-movement between spot and futures prices reflects common economic fundamentals rather than the financialization of oil futures markets.

James Hamilton on crude oil and gas prices

My rule of thumb has been that for every $1 increase in the price of a barrel of crude oil, U.S. consumers are likely to pay 2-1/2 more cents for a gallon of gasoline.

Hamilton points to the lack of adequate pipeline infrastructure in the US to explain the gap between Brent and WTI.


James Hamilton on Iranian oil embargo
January 15, 2012, 17:46
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The most likely outcome of an embargo on oil purchased from Iran is that the countries participating in the embargo buy less oil from Iran while other countries not participating in the embargo by more oil from Iran ([1], [2]). While this would produce some dislocations, if total world oil production doesn’t change, it would have little effect on either Iran or oil-consuming countries, and would basically be a symbolic gesture.

via Econbrowser: Iranian oil embargo.

But, Hamilton reminds us, if the embargo is successful, it will have a profound effect on the oil market.

Gas taxes in different countries

Via Econbrowser, writing about Knittel’s new paper.

Another Pipeline Map

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The blue lines are product pipelines. Greens are oil and reds are gas.

From this James Hamilton post on the petroleum product net export situation.

James Hamilton on Costs and benefits of the Keystone XL pipeline
December 19, 2011, 05:16
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Econbrowser: Costs and benefits of the Keystone XL pipeline.

James Hamilton on WTI, Brent and American pipelines
November 22, 2011, 21:26
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Econbrowser: Implications of the recent rise in oil prices.

The discrepancy between Brent and WTI resulted from the increase in supply in N. America, from shale oil and Canadian tar sands.