[CrashList] FW: [Marxism-Thaxis] Why 'alternatives' are no alternative
jones118 at lineone.net
Wed Sep 20 09:46:06 MDT 2000
So the price of oil has risen because of big oil profiteering by withholding
supplies? [see original message below]
But only the other day, Doug Henwood was posting about how the world was
awash with oil which apparently no-one wants to buy.
So which is the truth? It would be nice if people followed a line for more
than a few days at a time; on the other hand, if all that is required by way
of refutation is to repost what Doug said three days ago, it does make
things easier I suppose.
Doug Henwood (an economist) thinks 'there is plenty of oil' and it's just a
question of supply and demand. The truth is that there is plenty of oil but
not plenty of CHEAP oil. $11/bbl wellhead price is NOT cheap by historical
standards. If that is the marker price for what the oil patch now calls
'conventional oil' then it is a sign of coming economic distress.
I am seriously glad if Doug Henwood is researching the subject (at last!)
but it is no good just reading economists (although reading Daniel Yergin's
or even Greg Nowell's books is a useful beginning). 'Avoiding boom-bust' has
been the precise definition of the oil industry ever since the 1860s when
John D Rockefeller drove the Pennsylvanian wildcatters from the market by
cornering the railroad supply system. But the question of supply is
fundamentally determined by GEOLOGY not by economic cycles or market-actor
I am posting extensively about this on the Crashlist, and the Crashlist
archive is open. The url is:
> -----Original Message-----
> From: marxism-thaxis-admin at lists.wwpublish.com
> [mailto:marxism-thaxis-admin at lists.wwpublish.com]On Behalf Of Rob Schaap
> Sent: 19 September 2000 09:33
> To: marxism-thaxis at lists.wwpublish.com
> Subject: Re: [Marxism-Thaxis] Why 'alternatives' are no alternative
> G'day Thaxists,
> In the interests of balance, I've pinched this from Doug. The depletion
> emergency / technological replacement crisis angle has been well put
> already. Here's the dominance-of-finance angle. Itself pretty damned
> scary, I reckon ...
> Business Week - September 25, 2000
> Commentary: Big Oil's Priority: Pump Up the Stock Price
> By Christopher Palmeri
> It has been the problem that won't go away: the skyrocketing price of
> oil. Already three times this year, OPEC has increased its oil
> production quotas in an effort to alleviate the pressure.
> So what about the major non-OPEC oil companies, who, along with a
> number of non-OPEC nations, collectively produce more than half of
> the world's crude? Surprisingly, while OPEC is pumping harder than it
> has in decades, some of the world's largest oil companies are
> actually producing less. BP (BPA) slashed its production by 4% and
> midsize producers such as Texaco Inc. (TX) and Occidental Petroleum
> Corp. (OXY) have been even less active. Both saw their worldwide oil
> output slide 7% in the first half of this year. Together, ten of the
> largest reduced their output by 0.4% in the first half of this year,
> according to a recent report from Merrill Lynch & Co. ''The lack of a
> production increase from non-OPEC sources is a big reason why prices
> remain high,'' says Merrill Lynch analyst Steven A. Pfeifer.
> Many longtime industry watchers say that's because a new reality has
> set in among the world's oil titans. Wall Street has demanded that
> companies like ExxonMobil Corp. (XOM) and the Royal Dutch/Shell Group
> (RD) increase profits to buttress their long-languishing stock prices
> and avoid the boom-and-bust cycles that once defined the industry.
> Daniel J. Rice, manager of the $800 million State Street Global
> Natural Resources fund, is one of many money managers who, under
> threat of selling off shares, has continually pressured oil company
> executives not to overspend in the pursuit of production increases.
> ''We give them money, they produce a lot more, and the price goes
> down,'' he says.
> The focus on profits has only been excacerbated as oil companies on
> Wall Street have had to compete for capital with technology companies
> and other outperforming stocks. As a result, the majors have reacted
> to the current crude price runup by being ultraconservative in
> pursuing new fields. ''The major oil companies are not responding to
> the high prices with significantly increased exploration and
> production spending,'' explains Pfeifer.
> Consequently, last year, while prices were on the rise, oil companies
> replaced just 92% of their production through new discoveries. That
> was below their three-year average replacement rate of 95%, according
> to Arthur Andersen.
> To be sure, the world's oil companies are not asleep at the well.
> This year, Merrill Lynch is expecting exploration and production
> spending at the companies it follows to rebound by 16% to nearly $34
> billion. Unfortunately for the world's energy consumers, most of that
> spending is coming in the second half of the year and won't translate
> into new oil supplies for many months.
> And not everyone is opening their spigots. Exxon and Royal Dutch
> slashed their oil exploration and production budgets by more than 30%
> in the first half of this year. At Chevron Corp. (CHV), the cuts were
> less severe, but a still hefty 8% drop.
> But with oil now bouncing around the mid-$30s, how do these producers
> continue to rationalize such tightfistedness? Many cite the fact that
> it was a scant two years ago that overproduction in the face of
> weakening demand from Asia caused the price of oil to fall to a
> meager $10 a barrel. Producers are naturally wary of a repeat. ''We
> take the long view of oil and gas prices,'' says Chevron Corp.
> Chairman and Chief Executive David J. O'Reilly. ''It's
> counterproductive to overreact to prices that are either atypically
> low or high.''
> STIFF CRITERIA. Recent statements by some of the men who run the
> major oil companies reveal just how conservative they have become
> regarding their pricing forecasts and their production investment
> decisions. The key in determining new spending these days is not how
> high oil is--it's how far it could fall. BP Amoco PLC Chairman John
> Browne put out a press release in July that said his company only
> invests in projects that will be profitable at prices as low as $11 a
> barrel. ExxonMobil Chairman Lee Raymond told analysts much the same
> thing in August: ''All projects must meet our return-on-capital
> requirements in a low-price environment.''
> Given such stringent investment criteria for new wells, it's no
> wonder that high prices have left the major oil companies gushing
> profits. At the ten large companies tracked by Merrill Lynch, net
> income more than doubled in the first half of this year, to $26.4
> billion. ''The new mantra at the oil giants is conservative and
> cynical,'' says Arthur L. Smith, chairman of oil company researcher
> John S. Herold Inc. ''After years of being bludgeoned by
> institutional investors about their low returns on capital, they are
> out to prove they can make money.'' Faced with a choice between
> making Wall Street happy or pleasing the world's energy consumers,
> the major oil companies have clearly chosen sides.
> Palmeri covers the oil industry from Los Angeles.
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