Peak Oil Chat

Oil prices fluctuate, like all commodities, because demand for petroleum is linked to the overall business cycle. When oil demand outstrips capacity, the price rises quickly. Consumers react to the higher prices by adjusting habits, such as decreasing consumption and increasing efficiency. However, these measures take time to accomplish, so demand does not drop immediately. Conversely, on the production side, especially when production is at its maximum capacity, increasing production is very costly and slow, thus it is generally not embarked upon due to the expectation that the high prices will not last. However, as the supply from the current mega-oil fields is reduced, more oil from the costlier oil fields will come online due to the production costs being offset by the higher price demanded for the petroleum. Such sources currently include deepwater drilling, oil shale, tar sands, etc. These sources are the most expensive to extract oil from, because of the unconventional methods used to obtain the crude.

The price of a barrel of petroleum is largely dependent on its grade, where such factors as it’s specific gravity (how thick it is) and it’s sulfur content (sulfur needs to be removed to meet pollution standards). There are many grades of oil available, but the most commonly quoted prices on the news are referring to the market-driven spot price per barrel of Brent crude and West Texas Intermediate crude. Most oil sold is not sold on an exchange where prices are set, but rather sold directly to refiners at the current market price (over the counter). Oil demand is largely dependent on global economic conditions. The International Energy Agency’s position is that high oil prices dampen global economic growth.

OPEC, the Organization of the Petroleum Exporting Countries was created to manipulate the oil price. It is made up of twelve countries , Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. It’s members hold regular meetings, to ensure the member’s interests as oil exporters are protected, mainly keeping a steady flow of petroleum to consumer countries, and keeping prices in check. OPEC is criticized because of its ability to manipulate prices, by way of oil embargoes, flooding the market with oil, or simply threat thereof. OPEC nations account for two-thirds of the world’s oil supplies, and one-third of the world’s oil production. Concerns have risen that the cartel has little capacity to supply more oil, and speculation has arisen that their control on oil prices would be diminished.