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Zarefsky Juniors Oil EconomicsMG, KN, SS page 1 of 38

Oil EconomicsOil Economics ................................................................................................................................................................................................Backstopping Shell ..........................................................................................................................................................................................Backstopping Uniqueness ................................................................................................................................................................................Backstopping Link Extensions ........................................................................................................................................................................

Backstopping Link Extensions ........................................................................................................................................................................Backstopping Link Extensions ........................................................................................................................................................................AT: Backstopping ............................................................................................................................................................................................High Oil Price Good Links: AE .......................................................................................................................................................................High Oil Price Good Links: RPS .....................................................................................................................................................................High Oil Price Good Links: Wind Power ........................................................................................................................................................High Oil Price Good Links: Solar Power ......................................................................................................................................... ...... ...... ...High Oil Price Good Links: Solar Power ......................................................................................................................................... ...... ...... ...Oil Prices Dictated by Supply/Demand ...................................................................................................................................................... .....Futures Market Timeframe/Internals ...............................................................................................................................................................a/t speculation causes volatility ....................................................................................................................................................................a/t Speculation Drives Market .........................................................................................................................................................................a/t Speculators Drive the Market .....................................................................................................................................................................

a/t Speculators Drive the Market .....................................................................................................................................................................a/t Oil Companies Drive Prices ............................................................................................................................................................ ...... .....a/t OPEC drives prices .....................................................................................................................................................................................a/t OPEC drives prices .....................................................................................................................................................................................a/t OPEC drives prices .....................................................................................................................................................................................a/t OPEC drives prices .....................................................................................................................................................................................a/t dutch disease ...............................................................................................................................................................................................a/t Dutch disease: Russia .............................................................................................................................................................................. ...a/t High Oil Prices kill the economy ......................................................................................................................................... ......................Market Solves Oil Consumption .................................................................................................................................................... ...... ...... .....Market pushes alt transition .............................................................................................................................................................................Oil prices high ........................................................................................................................................................................................ ...... ...Oil Prices will Stay high ..................................................................................................................................................................................Price Crash Inevitable ................................................................................................................................................................................... ...Price Crash inevitable ......................................................................................................................................................................................Demand Collapse Now ....................................................................................................................................................................................Price Fixing causes spikes, not supply/demand ...............................................................................................................................................Price Fixing causes spikes, not supply/demand ...............................................................................................................................................


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Alternative energy makes oil producers flood the market this destroys the market and makes the

transition harder

Longmuir and Alhajji 07(Dr. Gavin Longmuir, consulting petroleum engineer, petroleum appraiser, and Dr. A.F. Alhajji, associate professor of economics, Wes

should consider ramifications of its off-oil rhetoric, Oil and Gas Journal, 2/12/07, l/n)Environmental and political enthusiasm in the West for getting rid of oil as an energy source may have major unintended consequencesthrough its impact on decisions by a handful of key oil exporters. Such consequences could paradoxically include increased Western dependence on oil and higher energy prices.An energy crisis is imminent if oil-exporting countries believe Western rhetoric and decide to reduce their investment in capacity expansions at a t ime when the West is failing to find a suitable substitute. In this case, consumers will pay a dear price for t he ill-consideredstatements of their leaders.If, by contrast, oil producers attempt to counter a policy-induced decline in demand and kill oil substitutes by raising production to lower crude oil prices, or i f demand actually declines, a different set of problems might emerge. Either scenario could wreak havoc on theeconomies in the Middle East, supposedly one of the least stable areas in t he world. The cost of such political instability in terms of lives, money, and pollution will render all the positive results from weaning consuming countries off oil negligible.If oil-consuming countries wish to lead the world safely to a future without fossil fuels, they will have to consider energy-market realities and how to meet the revenue needs of current oil exporters, as well as how to ensure adequate oil supplies during the transition andinvestment sufficient to develop new energy-supply technologies. The new energy vision must adhere t o market realities. Otherwise, market forces will soon defeat these efforts.Market realitiesThe main threat to sustainability of energy supplies is not a terrorist attack on energy facilities or the imposition of an oil embargo by an oil producing country. These threats are short-term events that can be dealt with quickly and effectively through various measures thatinclude the use of the Strategic Petroleum Reserve, increased production, and diversion of oil shipments.The main threat to sustainability of energy supplies in the medium term is the mismatch between investment in production capacity and energy infrastructure, on one hand, and growth in demand for energy, on the other. One of the most p lausible scenarios is a relative declin investment supporting additional production capacity in the oil-producing countries in response to calls around the world to r educe or even eliminate dependence on oil.

An energy crisis in this case is imminent if those who are calling for eliminating dependence on oil fail to provide the ultimate replacement in a timely manner. Mostlikely, these efforts will fail to replace oil within a reasonable time. Most of the efforts to replace oil are not market-driven and are heavily subsidized. They cannot sustain the pressure of markets in the longrun.Oil is still abundant. But much remaining conventional oil is in the hands of a very small number of governments, primarily in the Mi ddle East. Will all the talk about reducing dependence on oil have an impact on the behavior of those governments?Major oil exporters have tended to view t heir remaining oil in the ground as an appreciating asset, one which should be exploited at a measured pace so that some is left for future generations. To them, the call for security of demand becomes very attractive when the other sis exerting pressure on the producing countries to i nsure security of supply.Talk about moving away from oil through coercive policies seriously challenges the sustainability of oil producers' societies. To add insult to i njury (or injury to insult), much of this kind o f talk comes from European governments that take a high share of the economic rentthe exporters' oil through extremely high taxes on end-consumers. Those consumer-country governments are thus claiming much of the current revenue stream from the oil producers' major asset while simultaneously planning to eliminate the demand for it.

Even hopes for a peaceful, democratic Iraq cannot come to fruition without oil revenues. Major oil exporters treat talk of eliminating dependence on fossil fuels as an existential threat to their societies, especially when the talk is based on hostile ideological agendas rather tmarket principles.Possible responsesTo these apparently hostile statements from across the political spectrum in oil-consuming countries, oil producers might react in a number of ways:* Their simplest response would be to ignore escalating Western claims about weaning themselves off oil as some bizarre form of liar's poker among Western political classes. Oil exporters might look at the actual continuing growth in oil demand and conclude that oilconsumers do not intend to follow through with the necessary hard choices. Additionally, oil exporters could sit and watch Western developments, comfortable in the knowledge that currently popular carbon capture and storage is very energy-intensive and, if implementedsubstantially increase the demand for fossil fuels, thus rendering their oil resources even more valuable.

* Oil exporters could take Western commentators seriously and assume that oil importers will indeed reduce their demand for oil, leaving them with then-unmarketable oil in the ground. Their logical response to this threat would bto accelerate production of oil while their resources still have value. This would of course drive down the price of oil and undermine theeconomic feasibility of alternative energies. A collapse in the price of oil would kill several new energy technologies and ultimatelyincrease demand for oil. In fact, the oil-producing countries might view increasing oil production and lowering prices as a logical policyto counter the antioil policies of the governments of consuming countries. Historical data from periods of oil price collapses support thispoint: Low oil prices increase oil demand, decrease efficiency improvements, choke alternative energy resources, and increase waste.* Alternatively, expecting a decline in demand for their oil, oil-producing countries might decide to reduce their planned investments inproduction capacity expansion and maintenance and mothball some planned projects, which would shortly lead to declining oil suppliesIf new technologies do not come on line by the time oil production starts declining, the world will face a serious energy crisis, probablyunparalleled in history. Reversing such a trend of declining investments would take years, despite massive increases in oil prices. This alternative is not a mere possibility: Several major projects have been mothballed in the past when the oi l-producigovernments deemed these projects not needed.* If oil-consuming countries do begin to reduce their dependence on oil, major oil exporters could seek to use their now less-valuable oil within their own borders as cheap fuel with which to expand heavy industries. Instead of exporting oil directly, they could export the

energy from that oil embedded in metals, chemicals, and manufactured products at prices that far undercut Western products, constrained as Western manufacturers would be by having to use higher-cost alternative energy sources. The net result wouldbe a loss of jobs and economic strength by the West without having any impact on the overall global consumption of fossil fuels.Even if Western countries successfully replaced imported oil with indigenous alternative energy sources, they would still have to live onthe same planet as oil-exporting countries, whose fragile societies would then face the loss of their main source of revenue. Energyindependence for current oil importers, if somehow achieved, would aggravate political instability in oil-exporting countries.In addition, it is unclear what will happen to the world monetary system without trade in oil and the associated recycling of petrodollars.change to a world where most industrial countries depend on their own domestic energy resources would require a major change in theglobal financial system. Such a change would create its own difficulties, impacting even the industrial countries.


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The renewable signal trigger a deliberate price collapse that destroy host economies, our competitiveness

and turns the case.

Longmuir and Alhajji 07 (Gavin Longmuir, Stanley, NM-based consulting pertroleum engineer, and AF Alhajji, Energy economand associate professor at Ohio Northern University, "Need for a Balancing Act: Reducing Oil dependence Without triggering A GlobCrisis", Middle East Economic Survey, 2/26/07,How Might Major Oil Exporters React?

Activists and politicians in oil-consuming industrialized countries may not intend their remarks to be seen as hostile by oilexporters. The sad reality is that Western advocates have likely not given even a moment's thought to the implications of their anti-oil stance for oil exporters. Nevertheless, oil exporters can be forgiven for finding such statements quite threatening. In the face ofsuch apparently hostile statements from across the political spectrum in oil-consuming countries, oil producers might react in anumber of ways - depending on their perception of the seriousness of the threat. Their simplest response would be to ignoreescalating Western claims about weaning themselves off oil as some bizarre form of Liar's Poker among Western political classes.Oil exporters might look at the actual continuing growth in oil demand and conclude that consumers do not intend to followthrough with the necessary hard choices. Additionally, oil exporters could sit and watch Western developments, comfortable in theknowledge that currently-popular Carbon Capture & Storage (CO2 sequestration) is very energy intensive and (if implemented)will substantially increase the demand for fossil fuels, thus rendering their oil resources even more valuable. Oil exporters couldtake Western commentators seriously and assume that oil importers will indeed reduce their demand for oil, leaving them withthen-unmarketable oil sitting in the ground. Their logical response to this threat would be to accelerate production of their oilresources while they still have some value. This would of course drive down the price of oil and undermine the economic

feasibility of alternative sources of energy. A collapse in the price of oil would be a death sentence for several new energytechnologies, which would consequently increase the demand for oil. In fact, the oil-producing countries might view increasing oilproduction and lowering prices as a logical interventionist policy to counter the anti-oil interventionist policies of the governmentsof the consuming countries. Historical data from periods of oil price collapses support this point: low oil prices increase oildemand, decrease efficiency improvements, choke alternative energy resources, and increase wastage.8 Alternatively, expecting adecline in demand for their oil, producing countries might decide to reduce planned investments in production capacity expansionand maintenance and mothball some planned projects, which would quickly lead to declining oil supplies. If new technologies donot come on-line by the time oil production starts declining, the world will face a serious energy crisis, probably unparalleled inhistory. Reversing such a trend of declining investments would take years, despite a massive increase in oil prices. This alternativeis not a mere possibility: several major projects have been mothballed in the past when the oil producing governments deemedthese as not needed, given perceived future demand and prices. As yet another alternative, if oil-consuming countries begin toreduce their dependence on oil, major oil exporters could seek to use their now less-valuable oil within their own borders as cheapfuel for a greatly expanded heavy industrial sector. Instead of exporting oil directly, they could export the energy from it

embedded in metals, chemicals, and manufactured products at prices that far undercut anything Western producers could match,constrained as they would be by using higher-cost alternative energy sources. In fact, cheap energy in those countries might maketheir new industries completive with cheap labor industries in China, India, and south Asia. The net result would be a loss of jobsand economic strength, by West and East, without having any impact on the overall global consumption of fossil fuels. Thus,Western posturing over reducing the demand for oil could cause major oil exporters to react in a variety of ways, most of whichwould exacerbate rather than help the global energy situation. Even in a scenario where Western countries successfully replacedtheir demand for oil from alternative indigenous energy sources, they would still have to live on the same planet as former majoroil-exporting countries whose fragile societies would then be faced with the additional economic strain of the loss of their maincurrent source of revenue. Energy independence for current oil-importers may carry a high moral price. If a sharp decline in oilrevenues leads to instability in the oil producing areas, the West will not be able to turn a blind eye to such conflicts. In the age ofglobalization, these countries are economic and political partners of the West. Political instability that results from declining oilrevenues must be added as a potential cost of oil independence.


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OPEC is reserving some production capacity"World Oil Demand Up, Says IEA; OPEC Unwilling to Ease the Pressure"by Kerry Laird

Rigzone 1/16/2008

URL: http://www.rigzone.com/news/article.asp?a_id=55410The International Energy Agency (IEA) has revised the 2007 world oil demand, increasing the estimate by 150 kb/d to 85.8 mb/d. TheIEA states that demand forecasts for 2008 are slightly higher, yet the Organization of Petroleum Exporting Countries (OPEC) has refuseto increase oil outputs despite pleas from IEA and world leaders. According to the IEA report issued Jan. 16, 2008, the hike in demand isbased on stronger-than-expected deliveries in Asia and the Middle East, as well as poor developments in the globalization of the economThe report indicates that the 2008 demand remains "virtually unchanged" at 87.8 mb/d. The report shows that for December world oilsupply averaged 87.0 mb/d, up 870 kb/d from November on increases in OPEC-10, North America, the FSU, Brazil, and China. U.S.President George Bush made a plea to OPEC for an increase in oil output during his trip to the Middle East in mid-January. Last summethe IEA made a similar request, as did the Energy Information Administration. At the time, long before Bush's trip to Saudi Arabia wherhis plea was made, the head of the IEA said that "OPEC needs to raise its crude oil output in the coming months to ensure an adequatesupply." OPEC responded by claiming that the oil market remains "well supplied" and an additonal supply is not needed. The OPECstatement released last summer is much the same as the one Bush received in January 2008. OPEC Secretary General Abdullah al-Badrisaid Jan. 16, 2008 that there is no need for OPEC to increase oil output. He said in a statement issued to AFP that high oil prices have lit

to do with demand and more to do with political tensions in non-OPEC countries and the plummeting value of the U.S. dollar, amongother things. "OPEC is constantly monitoring the oil market and if at any time fundamentals justified such a move, the Organizationstands ready to raise production," said al-Badri. "I would like to reiterate that this price trend is a consequence of persistent geopoliticaltensions, the weakening of the U.S. dollar, ongoing limitations and restraints in the U.S. refining system, and the increasing role ofspeculators in the oil market." In a phone interview with Dow Jones, Libya's top oil official agreed with OPEC, saying that consumershave enough supply and that the price of crude is already dropping. As if to corroborate that statement, the IEA report shows that theglobal supply in the fourth quarter was indeed more than 1.0 mb/d higher than a year earlier, though it averaged at or below levels of ayear ago in the previous three quarters. All eyes will be on OPEC Feb. 1 when the group will meet in Vienna to review its productionpolicy.

Saudis havent decided on overpumping because alternative energy signals are still unclearDourian, King, Kumagai, and Amie 07 (Kate Dourian, Geoff King, Takeo Kumagai, and Miriam Amie, Platts Oilgram News, Saudishold to 12.5 million b/d capacity plan; Post-2009 target depends on conservation, efficiency, alternative fuels effects, 5/3/07, l/n)

Saudi Arabia sees no need for now to increase capacity beyond the targeted 12.5 million b/d in 2009 because the impact of energyconservation and efficiency measures and use of alternative energy sources on future demand is still unclear, oil minister Ali Naimi saidMay 2. Asked whether the Kingdom, the world's leading oil exporter, needed to boost capacity beyond its 2009 target of 12.5 million b/dNaimi said: "This is a dynamic process. We thought reaching 12.5 million b/d by 2009 is what is needed to give us spare capacity of 1.5-million b/d. As we approach 2009 we will look at our plans and see if demand warrants an additional increase in capacity." However,Naimi said, "our feeling now, with the thrusts and push for conservation, for efficiency of use, for use of alternative sources of energy, wprobably need not go beyond 12.5 million b/d. But that is guessing right now, not a reality, because we don't know what the impact ofconservation of alternative fuels ... will do for total demand." The Saudi minister was speaking at a news conference after talks in Riyadhbetween leading oil producers and key Asian consuming countries. Capacity in Saudi Arabia, which holds a quarter of global reserves at259.9 billion barrels, stands at 11.3 million b/d. It is investing more than $70 billion to expand capacity to 12.5 million b/d by the end ofthe decade. Naimi has said in the past that state-owned monopoly Saudi Aramco has identified the fields from which to raise capacityfurther to 15 million b/d if there was demand. The Saudi minister, now serving a fourth term in office, also said that current supply wasenough to meet demand and there was no shortage of spare capacity. But he did not say what it would take for the Saudis to engineer anOPEC production increase before the end of the year, which the International Energy Agency suggested may be needed to cool oil pricesOPEC Secretary-General Abdulla al-Badri said on the sidelines of the same conference that he did not see a need to increase the OPECproduction target of 25.8 million b/d for the 10 members bound by output curbs until the end of 2007. OPEC has cut production by a totof 1.7 million b/d since last October.
http://www.rigzone.com/news/article.asp?a_id=55410http://www.rigzone.com/news/article.asp?a_id=55410http://www.rigzone.com/news/article.asp?a_id=55410


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Alternative energy signals make the Saudis overpump to drop pricesPosted byStar-Ledger editorial board June 16, 2008 10:30PM("A Downside to low oil prices" http://blog.nj.com/njv_editorial_page/2008/06/a_downside_to_low_oil_prices.html)

The Saudis have indicated that they'll increase petroleum production by 200,000 barrels a day in July -- on top of an increase of300,000 barrels a day this month -- a move that may moderate the rising price of gas. Mind you, no one is predicting gas pricesfalling back to $1 a gallon. Good thing, too. Perversely, the long-term problems that stem from seductively low oil prices are as serious those from freakishly high ones. Drivers flock back to gas-guzzling big cars, trucks and SUVs. They move farther away from work, socommutes lengthen. Businesses and ordinary citizens don't bother turning down the heat or dialing back the AC. The impetus for moremass transit disappears. Dependence on oil from the Mideast and other unfriendly places grows. Worst of all, research into the alternativenergy that could get us out of the oil mess evaporates. Americans proved all this and more between 1973 and the mid-1980s. Remembthe vows of energy self-sufficiency? Cars that would get 50 miles a gallon? Advanced solar technology? Major efforts were made andsignificant progress was achieved (including a near-doubling of average gas mileage), but it all stalled, even reversed, when the price of barrel of crude fell to the teens and stayed there for a decade. The Saudis aren't planning to increase production because they sympathizwith the average American -- or any other oil consumers around the world, for that matter. They understand that oil at current levels wifuel an international economic slowdown. That's bad for their business. But Americans should remember that the Saudis and other oilproducers also fear that record-high prices will refocus the U.S. and other nations on the need to cut petroleum use. That would be even

worse for their business. It also would cause instability at home, where oil is the only thing fueling the economy as a source of jobs andrevenue. The Saudis would love to bring prices down just enough to lull Americans into forgetting about gas costs again. The falling-prices part would be a wonderful economic boost. Forgetting would not. We did that once, and it is costing us dearly. We cannot afford tlose focus again.

Moves to promote alternative energy cause OPEC to flood the market and collapse the price

Brandon, 2001 (Hembree, OPEC as the Cheshire cat, Delta Farm Press, 11/16,http://deltafarmpress.com/mag/farming_opec_cheshire_cat/)

But just when it appears something will in fact be done toward increasing domestic energy supplies, getting serious about alternatisources, and making a long-term commitment toward reducing our dependence on foreign oil well, miraculously, prices go dowOPEC magnanimously increases supply, refineries begin humming, and once again thoughts of a national energy policy fade like thCheshire cat. Only the cat's grin is left. And the cat is OPEC and the energy industry. They've seen it all before. They know they have on

to wait; that we in the United States have a short memory, and that as long as they toss us a sop of energy bargains from time to timwe'll moan and groan and pay their price the rest of the time.

OPEC will flood the market in response to competition with oil

Campbell, 2002 - Oil Depletion Analysis Centre, London, (Colin, Population and Environment, November, proquest)

Oil is traded on international markets at a price set by the marginal barrel, giving rise to an unpredictable volatility that obscures theunderlying trends of supply and demand. Prices collapsed in 1998 from a combination of unseasonably warm weather; an Asianrecession that reduced the demand for swing Middle East production; the devaluation of the Russian ruble, encouraging Russianexports; and under-estimation of supply by the International Energy Agency, which misled OPEC. Furthermore, there were moresinister motives to talk down the long-term price of oil, as oil companies and their financial advisers planned acquisitions and mergers,which successfully concealed their real predicament from the stock market. Budgets were slashed and staffs purged in a climate ofuncertainty. There was an improvident draw on stocks as demand overtook supply. The OPEC countries, for their part, did everything

possible to foster the notion that they could flood the world with cheap oil at the flick of a switch. It was a strategy aimed to inhibitinvestments in gas, non-conventional oil, renewable energy or energy saving that they feared might undermine the market for their oil,on which they utterly depend. Their populations are growing fast in an economy dominated by oil.
http://blog.nj.com/njv_editorial_page/about.htmlhttp://blog.nj.com/njv_editorial_page/about.htmlhttp://blog.nj.com/njv_editorial_page/about.htmlhttp://blog.nj.com/njv_editorial_page/2008/06/a_downside_to_low_oil_prices.htmlhttp://deltafarmpress.com/mag/farming_opec_cheshire_cat/http://blog.nj.com/njv_editorial_page/about.htmlhttp://blog.nj.com/njv_editorial_page/2008/06/a_downside_to_low_oil_prices.htmlhttp://deltafarmpress.com/mag/farming_opec_cheshire_cat/


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Backstopping Link ExtensionsSaudis empirically overpump to stave off renewablesInternational Herald TribuneSaudis plan to increase oil outputBy Jad MouawadSunday, June 15, 2008

http://www.iht.com/bin/printfriendly.php?id=13723782

Saudi Arabia, the world's biggest oil exporter, is planning to increase its output next month by about a half-million barrels a day, anincrease of nearly 6 percent, according to analysts and oil traders briefed by Saudi officials. The increase could raise Saudi output to aproduction level of 10 million barrels a day, which, if sustained, would be the highest ever by the kingdom. The move was seen as a signthat the Saudis are becoming increasingly nervous about both the political and economic effects of high oil prices. In recent weeks,soaring fuel costs have incited demonstrations and protests from Italy to Indonesia. Saudi Arabia is now pumping 9.45 million barrels aday, which is an increase of about 300,000 barrels from last month. While they are reaping record profits, the Saudis are concerned thatthe record prices reached this month might eventually dampen global economic growth and lead to lower oil demand, as is alreadyhappening in the United States and other developed countries. The current prices are also making alternative fuels more viable,threatening the long-term prospects of the oil-based economy. President George W. Bush visited Saudi Arabia twice this year, pleadingwith King Abdullah to step up production. While the Saudis resisted the calls then, saying the markets were well supplied, they seem to

have since concluded that they needed to disrupt the momentum that has been building in commodity markets, sending prices higher.Abdullah has also taken the unprecedented step of arranging on short notice a major gathering of oil producers and consumers to addresthe causes of the price increase. The meeting will be next Sunday in the Red Sea town of Jidda.

On Sunday, Saudi state-owned Al Arabiya Television said that the country had yet to determine the size of the planned oil output increasand that doing so would be premature "before the meeting of consumers and producers" on Sunday.

Oil prices have gained 40 percent this year, rising to nearly $140 a barrel in recent days and driving gasoline costs in the United Statesabove $4 a gallon, or $1.06 a liter. Some analysts have predicted that prices could reach $200 a barrel this year as oil consumptioncontinues to rise rapidly while supplies lag. The growing volatility of the markets, including a record one-day gain of $10.75 a barrel onJune 6, has persuaded the Saudis that they need to step in, analysts said. Tony Fratto, a White House spokesman, said, "We wouldwelcome any and all increases in oil production, including from Saudi Arabia."

But the measure carries some risks to the kingdom and is not guaranteed to bring down prices, analysts said. Some investors doubt thatSaudi Arabia has the capacity to increase its production beyond current levels. "This clearly represents the biggest test for them," JohnKilduff, a senior vice president of the brokerage firm MF Global, said. He added that the move could backfire if investors failed torespond to the extra Saudi supplies. No other producer has the capacity to quickly expand production. "They see these prices as a threat,he said. By increasing production now, they are using their "last bullet to fight high prices."
http://www.iht.com/bin/printfriendly.php?id=13723782http://www.iht.com/bin/printfriendly.php?id=13723782


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OPEC will manipulate prices to make alternative energy not competitive.AFP, 11/1/2007. Future demand at risk because of high oil prices: Ecuador minister, Agence France Presse, Lexis.

Record high oil prices risk hurting future demand and OPEC must find a "price equilibrium", Ecuador's oil minister said in interview published Thursday. Speaking to the Financial Times via telephone, Galo Chiriboga, whose country will re-join OPEC ne

month, said that crude oil prices topping 94 dollars a barrel could spark increased investment in alternative energy sources. Hsaid that the biggest challenge forthe Organisation ofPetroleum Exporting Countries in the coming years would be to "preserveprice equilibrium that keeps crude oil positioned favourably against other alternative energy sources."

OPEC has increased production before to combat alternative fuelsHerrick 04 (Thaddeus Herrick, OPEC raising output target, 9/14/04, The Globe and Mail, l/n)OPEC agreed to raise its oil-output target by one million barrels a day, a largely symbolic gesture since the cartel is pumping flat out, but one that indicates a growing concern among members petroleum prices are too high. Yesterday's decision, effective Nov. 1, is a victory for Saudi Arabia, the largest and most influential producer in the Organization of Petroleum Exporting Countries. The Saudis, who are trying to reassert control of o il markets after prices ne$50 (U.S.) a barrel last month, faced opposition from Indonesia and Venezuela, among others. Unable to boost their production capacity, some OPEC producers fear they won't be able t o take advantage of higher output ceilings. The move, coming at the last meeting beforeU.S. presidential election in November, follows Saudi Arabia's pledge this week that it would increase its oil-pumping capacity nearly 8 per cent. In the meeting yesterday, the kingdom also delayed a move to raise OPEC's target oil price, in another rebuke to the cartel's p

hawks. In recent years, OPEC's price target helped keep a basket of crude oil types at around $25 a barrel. "There are concerns that high prices will slow demand," said Ali Naimi, Saudi Arabia's Oil Minister and the cade facto leader. Mr. Naimi added, "We haven't seen that yet." OPEC has been pumping oil flat out to meet surging demand and has been enjoying a huge windfall, with members' oil revenue likely to top $320-billion this year, up from $240-billion last year. In pulling oustops to sate markets, the cartel is t aking a small risk. Kuwait, in addition t o Saudi Arabia, is moving to bring some new production capacity on-line. If oil inventories continue a recent trend of building in the industrialized world above year-ago levels, according to the Pabased International Energy Agency, any weakening in demand could force prices down faster than the cartel wants them to go. "We are worried about that," said Obaid bin Saif al Nasseri, Oil Minister of the United Arab Emirates. "Nobody wants to see a price collapse."far, such a crash seems remote. Supply constraints and rising demand could just as easily send prices rising even further out of the control of OPEC, which is producing 27.5 million barrels of oil a day, well over its official output ceiling of 26 mil lion barrels. That ceiling

rise 4 per cent under the new arrangement to 27 million barrels a day. Oil prices rose yesterday, after the U.S. Energy Information Administration reported a decline in U.S. commercial oil inventories, but later retreated. In New York, October crude oil futures fell 81 cen

$43.58. Adjusted for inflation, oil still is much less expensive than it was in the early 1980s. OPEC is aiming to bring the oil price down to a range that will allow for robust revenubut that will neither push the world economy into recession nor cultivate competition from alternative energy sources. "OPEC wants get prices down," said Gary Ross, chief executive of PIRA Energy, a New York consulting firm. "That's not to say they are going succeed."

OPEC will flood the market to prevent alternative energy developmentMilwaukee Journal Sentinel, 2000 (11/15, lexis)

OPEC generally wants lower prices to encourage long-term growth in demand, discourage development ofalternative energysources and limit investment in non-OPEC oil fields. The group is concerned, however, that prices will sink if they produce toomuch oil, as they did in 1998 and sent the market to around $10 a barrel.


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Empirically disproven the Saudis are ALREADY pumping at capacity, but they cant control the marketThe Economist 08

(The Economist, U.S. Edition 6/21/08, The puzzle of oil production; Saudi Arabia, l/n)

With oil prices nudging $140 a barrel, Saudi Arabia stands to receive a windfall this year of up to $400 billion, double what it earned froselling oil last year. Gloom at the world's petrol pumps, it may be assumed, can only mean hand-rubbing glee for their biggest supplier.Such is the case with some of the kingdom's rivals in the Organisation of the Petroleum Exporting Countries (OPEC), the cartel thatsupplies over one-third of the world's crude. Iran, for instance, has consistently argued against doing anything to bring down prices. Whythen, have the Saudis mounted a risky bid to do just that, by boosting oil output and summoning the world's top energy officials to anemergency meeting in Jeddah on June 22nd? The reasons span history, economics and geopolitics. No one in the Saudi oil ministry hasforgotten what happened after the oil shock in the 1970s. The Arab boycott called in 1973 to protest against Western backing for Israeltripled oil prices. But it also prompted oil exploration in tricky places such as the North Sea and conservation measures that reduceddemand. The result was a long-term slump in crude prices and a drop in the Saudis' market share. The Saudis fear that the intensifiedsearch by the West for alternative energy will result in the same thing happening again. But the more immediate worry is that high oilprices may slow not just America's but the whole world's economy. That would trigger a sharp fall in demand for Saudi oil. Just as bad, asharp global slowdown would slash the value of the kingdom's hundreds of billions of dollars in overseas holdings. No wonder Ali al-Nuaimi, like his predecessors as Saudi oil minister, often cites "customer satisfaction" and "market stability". Saudis retain another nasty

memory from the 1970s. Branded as gluttons, they became a stock figure of ridicule in Western cartoons. And sudden wealth broughtsocial strains at home that helped create a fundamentalist backlash that produced, among other things, al-Qaeda. The Saudi desire not tobe stigmatised for the world's woes, this time, may be gauged by their donation, last month, of a generous $500m to the UN's World FooProgramme. Today's sky-high oil price carries another political risk. It empowers Iran, the revolutionary Shia state that the conservativeSunni Saudis view as their main rival for regional influence. Even as the world has ratcheted up sanctions to punish Iran for its suspectednuclear ambitions, the Islamic Republic has cashed in the rewards from soaring fuel prices. The tightness of the oil market has become, effect, a line of defence for Iran, letting its radical leadership hint, truthfully, that any hostile act that may impede the flow of Iranian oilwould risk a global economic decline. So Saudi Arabia's motives for wanting to lower prices are clear. The trouble is that it cannotmanipulate markets as before. The kingdom has a fifth of known reserves. It supplies an eighth of the world's oil and remains, crucially,the only producer with at least some spare capacity. A huge investment plan under way should raise its capacity from 11.3m barrels a dayin 2007 to 12.5m by next year. Noting pleas from George Bush and Ban Ki-moon, the UN's secretary-general, the Saudis have uppedactual production twice in the past month, raising it by 500,000 barrels a day to its present level of 9.5m. But much of that new output,and most of the reserve capacity, is in the form of heavier oils that are costlier to refine and for which there is less thirst. The Saudis are

unlikely to bring new, lighter crude, or bigger refining capacity for their heavier oils, onto world markets until next year. Even then theincremental rise may not offset demand. So energy watchers hope the Jeddah conference will reveal something bolder than promises ofmore oil.


9/38


High Oil Price Good Links: AE

SHELL EVIDENCE

Even small scale alternative energy shift is sufficient to collapse rpicesChris Isidore, 2008 (CNN Staff Writer, "Is OPEC becoming irrelevant?",

http://money.cnn.com/2005/09/19/news/economy/opec_future/index.htm)

Chris Isidore is a CNN/Money senior staff writer.

The current oil prices are enough to cause some nations, particularly in Europe, to be looking at oil price regulation and other controls, awell as more significant government investment in alternative energy, said Fadel Gheit, oil analyst at Oppenheimer. That's got thepotential to hurt some OPEC countries more than the current prices are helping, he said. "They don't want to trigger projects that takeeven 1 or 2 percent off of demand," he said. He and Alhajji said even that small percentage of current oil usage being by alternativeenergy can have a serious effect on long-term oil prices. "Prices are determined at the margin. We don't need a lot of alternative energy tdepress prices," he said. While some economists and traders now believe that $40 a barrel is the new floor for oil prices, Gheit said pricstill have the potential to fall below those levels, and that could cause some regimes to fall. "These governments are totally unpopular arepressive. The only thing they have going for them is buying stability, throwing money at their friends and enemies," said Gheit.

Alternative Energy drastically decreases the demand for oil, collapsing prices

Byrd 08(Jim Byrd, Why Oil is Not Trading at $70 per Barrel, 7/15/08, The Conservative Voice,http://www.theconservativevoice.com/article/33265.html)

Oil prices that are sustained at the current prices are something that OPEC would rather not see perpetuated. Saudi Arabian Oil MinisterAli al-Nuaimi stated, "We are concerned about high prices. The market has no shortage of physical crude." Each county has a vestedinterest in reasonable oil prices and subsequently cheaper gasoline prices. Alternative sources of energy are starting to achieve the type omomentum that is sustainable and will only pick up speed and garner a solid foot hold, if oil prices stay at their current levels. Theconsequences of a mass produced, viable alternative energy source would be a dramatic drop in demand for oil, and the subsequent dropin the price per barrel. Once enough capital, energy, and success have been demonstrated in alternate energy sources, the process will nobe reversed, and OPEC is acutely aware of this.
http://money.cnn.com/2005/09/19/news/economy/opec_future/index.htmhttp://www.theconservativevoice.com/article/33265.htmlhttp://money.cnn.com/2005/09/19/news/economy/opec_future/index.htmhttp://www.theconservativevoice.com/article/33265.html


10/38


High Oil Price Good Links: RPS

RPS drops the price of oilToman et al. 08 (Michael Toman, PhD. in Economics, Senior economist, Environment Division, Sustainable Development, Inter-American Development Bank; Senior Fellow, Resources for the Future; Senior Staff Economist, Council of Economic Advisers,Executive Office of the President, James Griffin, Robert J. Lempert, Ph.D. in applied physics, S.M. in applied physics and science policy

Harvard University; B.A.S. in physics and political science, Stanford University Impacts on U.S. Energy Expenditures and Greehous-Gas Emissions of Increasing Renewable-Energy Use, RAND Corporation, 2008,http://rand.org/pubs/technical_reports/2008/RAND_TR384-1.pdf)

A renewable-fuel requirement reduces demand for petroleum and lowers the international price of crude oil. This oil price impact fromfuel diversification can be seen as enhancing energy security through increased competition with petroleum exporting countries in aposition to exercise market power.


11/38


High Oil Price Good Links: Wind Power

Shift to wind power frees up natural gas supplies, pushing an oil transition alsoAnderson 08 (, Emily, CNN Staff writer, Oil billionaire Pickens puts his money on wind power, May 2008,http://www.cnn.com/2008/TECH/science/07/08/pickens.plan/index.html)

Billionaire oilman T. Boone Pickens is putting his clout behind renewable energy sources like wind power. The legendary entrepreneuand philanthropist on Tuesday unveiled a new energy plan he says will decrease the United States' dependency on foreign oil by morethan one-third and help shift American energy production toward renewable natural resources. "The Pickens Plan" calls for investing indomestic renewable resources such as wind, and switching from oil to natural gas as a transportation fuel. In a news conference outlininhis proposal,Pickenssaid his impetus for the plan is the country's dangerous reliance on foreign oil. "Our dependence on imported oil ikilling our economy. It is the single biggest problem facing America today," he said. "Wind power is ... clean, it's renewable. It'severything you want. And it's a stable supply of energy," Pickens told CNN in May. "It's unbelievable that we have not done more withwind." Pickens' company, Mesa Power, recently announced a $2 billion investment as the first step in a multibillion-dollar plan to buildthe world's largest wind farm in Pampa, Texas. Pickens said Tuesday that if the United States takes advantage of the so-called "windcorridor," stretching from the Canadian border to West Texas, energy from wind turbines built there could supply 20 percent or more ofthe nation's power. He suggested the project could be funded by private investors. Power from thousands of wind turbines that would linthe corridor could be distributed throughout the country via electric power transmission lines and could fuel power plants in largepopulation hubs, the oil baron said. Fueling these plants with wind power would then free up the natural gas historically used to power

them, and would mean that natural gas could replace foreign oil as fuel for motor vehicles, he said. Using natural gas for transportationneeds could replace one-third of the United States' imported oil and would save more than $230 billion a year, Pickens said. "We aregoing to have to do something different in America," Pickens told CNN. "You can't keep paying out $600 billion a year for oil.

Wind power supplants natural gas, which in turn can fuel carsTimothy Gardner, 2008 (Pickens says gas and wind would slash oil imports)http://news.yahoo.com/s/nm/20080708/bs_nm/energy_pickens_plan_dc

Texas energy tycoon T. Boone Pickens on Tuesday called for a massive switch to natural gas as a transportation fuel and a boost in windpower in a plan aimed at reducing U.S. foreign oil dependence by a more than a third. The Pickens Plan, which includes exploitingdomestic natural gas supplies in new areas like East Texas and Appalachia, could replace 38 percent of U.S. oil imports, he said. "U.S.natural gas can replace foreign oil. It's the only natural resource we have that can do that," Pickens said during a press event for his energplan. The 10-year plan would reduce the annual U.S. oil import bill of $700 billion, at oil prices of $140 a barrel, by hundreds of billions

of dollars, he said. The country imports about 70 percent of its crude. His plan comes as U.S. consumers who have already been hit by thcredit and housing crunches are now facing record gasoline prices as oil prices rally on rising demand from developing countries andviolence in the Middle East. Pickens, a life-long Republican, hopes to discuss the plan with both U.S. presidential candidates. He islaunching a television advertising campaign, to cost tens of millions of dollars, for the plan. Earlier this year, Pickens announced he wouspend $10 billion to build the world's biggest wind farm in Texas that should start generating power by 2011. When asked if his plan is away to ensure his investments would make him even richer, the 80-year-old billionaire said he's not concerned about making still moremoney. Pickens' vision has two steps. First, investors would boost development of wind farms, particularly in what he called the U.S.wind corridor, a slice of the country from Texas to North Dakota. It's an "unbelievable asset that's not been touched," he said. The extrawind power, according to the plan, would replace the natural gas the country burns to generate power. Currently the country gets 22percent of its power from natural gas. Then, the freed-up natural gas could be used to power vehicles, but the country would have toconvert a large share of its vehicles to run on compressed natural gas. Pickens said the cost savings would reduce oil prices"substantially."
http://www.cnn.com/2008/TECH/science/07/08/pickens.plan/index.htmlhttp://topics.cnn.com/topics/T_Boone_Pickenshttp://topics.cnn.com/topics/T_Boone_Pickenshttp://topics.cnn.com/topics/T_Boone_Pickenshttp://news.yahoo.com/s/nm/20080708/bs_nm/energy_pickens_plan_dchttp://www.cnn.com/2008/TECH/science/07/08/pickens.plan/index.htmlhttp://topics.cnn.com/topics/T_Boone_Pickenshttp://news.yahoo.com/s/nm/20080708/bs_nm/energy_pickens_plan_dc


12/38


High Oil Price Good Links: Solar Power

Solar conversion spurs plug-in hybrids carsZweibel, Mason, and Fthenakis, 08 (Ken Zweibel, James Mason and Vasilis Fthenakis, scientists, A Solar Grand Plan,Scientific American, Jan 2008,http://www.sciam.com/article.cfm?id=a-solar-grand-plan&sc=WR_20071225)

By 2050 solar power could end U.S. dependence on foreign oil and slash greenhouse gas emissions High prices for gasoline and homeheating oil are here to stay. The U.S. is at war in the Middle East at least in part to protect its foreign oil interests. And as China, India another nations rapidly increase their demand for fossil fuels, future fighting over energy looms large. In the meantime, power plants thatburn coal, oil and natural gas, as well as vehicles everywhere, continue to pour millions of tons of pollutants and greenhouse gases intothe atmosphere annually, threatening the planet. Well-meaning scientists, engineers, economists and politicians have proposed varioussteps that could slightly reduce fossil-fuel use and emissions. These steps are not enough. The U.S. needs a bold plan to free itself fromfossil fuels. Our analysis convinces us that a massive switch to solar power is the logical answer. Solar energys potential is off the chartThe energy in sunlight striking the earth for 40 minutes is equivalent to global energy consumption for a year.The U.S. is lucky tbe endowed with a vast resource; at least 250,000 square miles of land in the Southwest alone are suitable for constructing solar powerplants, and that land receives more than 4,500 quadrillion British thermal units (Btu) of solar radiation a year. Converting only 2.5 perceof that radiation into electricity would match the nations total energy consumption in 2006. To convert the country to solar power, hugetracts of land would have to be covered with photovoltaic panels and solar heating troughs. A direct-current (DC) transmission backbonewould also have to be erected to send that energy efficiently across the nation. The technology is ready. On the following pages we

present a grand plan that could provide 69 percent of the U.S.s electricity and 35 percent of its total energy (which includestransportation) with solar power by 2050. We project that this energy could be sold to consumers at rates equivalent to todays rates forconventional power sources, about five cents per kilowatt-hour (kWh). If wind, biomass and geothermal sources were also developed,renewable energy could provide 100 percent of the nations electricity and 90 percent of its energy by 2100. The federal governmentwould have to invest more than $400 billion over the next 40 years to complete the 2050 plan. That investment is substantial, but thepayoff is greater. Solar plants consume little or no fuel, saving billions of dollars year after year. The infrastructure would displace 300large coal-fired power plants and 300 more large natural gas plants and all the fuels they consume. The plan would effectively eliminateall imported oil, fundamentally cutting U.S. trade deficits and easing political tension in the Middle East and elsewhere. Because solartechnologies are almost pollution-free, the plan would also reduce greenhouse gas emissions from power plants by 1.7 billion tons a yearand another 1.9 billion tons from gasoline vehicles would be displaced by plug-in hybrids refueled by the solar power grid. In 2050 U.S.carbon dioxide emissions would be 62 percent below 2005 levels, putting a major brake on global warming {and that is with a more thadoubling of our population by thenjk}.
http://www.sciam.com/article.cfm?id=a-solar-grand-plan&sc=WR_20071225http://www.sciam.com/article.cfm?id=a-solar-grand-plan&sc=WR_20071225http://www.sciam.com/article.cfm?id=a-solar-grand-plan&sc=WR_20071225


13/38


High Oil Price Good Links: Solar PowerHigh oil prices boost demand for solar energy, which has a potential to decrease oil demand worldwide.

Seager 08 (Ashley, staff writer, Solar future brightens as oil soars, The Guardian, 6/12/08,http://www.guardian.co.uk/environment/2008/jun/16/renewableenergy.energy)

Soaring oil prices have led to such a boom for solar power that the industry could operate without subsidies in just a few years,according to industry leaders. At the solar industry trade fair in Munich over the weekend, there was growing confidence that the holygrail known as "grid parity" - whereby electricity from the sun can be produced as cheaply as it can be bought from the grid - is now justfew years away. Solar photovoltaics (PV), which convert sunlight into electrical power, have long been dismissed as too expensive tomake a meaningful contribution to the battle against climate change. But costs are falling as PV production booms, and with electricityprices rising rapidly in line with soaring oil and gas prices, demand for solar panels is increasing sharply. Germany, the world leader in Pthanks to its "feed-in tariff" support, installed 1.1 gigawatts of capacity last year - the equivalent of a large power station. It now hasnearly half a million houses fitted with PV panels. The feed-in tariff pays people with solar panels above-market rates for sellingpower back to the grid. "High oil prices have boosted demand even more. The market will probably expand another 40% this year,"said Carsten Krnig, of the German solar industry association, referring to both PV and solar thermal systems, which produce hot water.He said his previous assumption - that grid parity would be reached in Germany in five to seven years - now looked very conservativesince it allowed for only a 3% rise in electricity prices each year. In many countries increases of 20% a year are becoming the norm. Allthe companies at the Intersolar fair are planning large increases in production of solar panels. The China-based Suntech, the world's

biggest maker of PV panels, plans to double production from 540MW this year to 1GW in 2009. Jerry Stokes, head of Suntech Europe,thinks grid parity in Germany can be reached within five years. In California and Italy, where there is lots of sun and high electricityprices, he said grid parity for PV systems had already been achieved. "The great thing about solar power is that although you have aupfront cost, the fuel is free and is not controlled by another country," he said. PV costs were falling rapidly and would continue todo so as the efficiency of panels improved and installation costs dropped, Stokes said. Moreover, the price of silicon - which can be 70%of panel costs - is also likely to fall as new production comes onstream. Although spot silicon prices have passed $400 (200) a kilogramup from $25 five years ago - many firms have secured long-term supplies at about $50-$70 a kilogram. Nitol, a Russian chemicalscompany, is building a new silicon production plant in Siberia that will take its output from 300 tonnes this year to 3,700 by 2009. DmitrKotenko, chief executive, said: "We expect to build five times that capacity in the coming years." Q Cells, the world's largest maker ofPV cells from which panels are made, is relaxed about silicon supply. "By 2010 there will be easily enough silicon, maybe even toomuch," said spokesman Stefan Dietrich. Q Cells plans to increase production of cells from around 600 MegaWatts this year to 2GW by2010. The company now employs 2,000 people and is based in eastern Germany. Eight years ago it did not even exist. Like othercompanies, Q Cells are also investing heavily in a newer technology called "thin film" PV which which is cheaper to make thanconventional panels but less efficient. The Norwegian company REC, which produces silicon, cells and solar panels, plans a 10-fold risein production. REC's Jon Andr Lkke said new plants were much more efficient than older ones and cut costs by at least 30%. RECpredicts that several countries would reach grid parity for PV by 2012, although rising oil prices could mean those targets are met earlierREC also expects panel costs to fall by 30% to 40% by 2012. But rising demand could mean panel prices remain high even as costs fall."It all depends on demand and that could remain high for a long, long time," Lkke said. Suntech's Stokes agrees: "When we reach gridparity the demand could well be infinite.


14/38



15/38


Oil Prices Dictated by Supply/Demand

Consensus proves supply/Demand balance sets the current price of petroleumInvestment Adviser, 2008 (Is the world on the tipping point for oil demand? Lexis Nexis)

The tight supply and demand balance has contributed to the huge rise in oil prices, but there is growing evidence that consumer

are cutting backEfforts to explain the breathtaking rise in oil prices to a recent high of $135 on the July West Texas Intermediate futurecontract have touched off a flood of commentary and written work from Wall Street analysts, oil industry executives, politicians,economists, academics, traders, market pundits, television commentators and the major news and print media. Unlike the Arab OilEmbargo of 1973-1974, the Iranian Revolution of 1979 and the Gulf War of 1990-91, the rise in oil prices from 2002 to the present haprimarily been driven at least in its initial stages by the inexorable growth in world demand, turbocharged by demand growth i

emerging market nations, especially China and India. There is not much debate about whether the relatively tight supply and demandbalance for crude oil that has developed in recent years has been an important contributor to the rise in oil prices.


16/38


Futures Market Timeframe/InternalsA perception that oil prices are falling causes the futures market to collapseLeonard 06 (Andrew, The oil bubble- How the World Works, Salon, 8/21/06,http://www.salon.com/tech/htww/2006/08/21/oil_bubble/index.html)First, there's the supposition that some portion of the spike in oil prices over the last couple of years is speculator driven. Traders arestockpiling oil for sale to buyers at some later date, hoping that in the intervening period prices will continue to rise. Such speculation

naturally pushes the price of oil even higher. This is a classic pattern in markets, going back at least as far as the great tulip mania of the17th century, and there's no reason why oil should be any different from any other traded commodity. And as with all bubbles, oncetraders start thinking that the price might fall, whoooosh -- the air rushes out.In the last week, while How the World Works was pretending that the spot market price for crude had no relevance to life in the woods osouthern New Hampshire, much has been made in the press of a report by Sanford Bernstein oil expert Ben Dell that an oil price shiftdownwards is imminent, in part because the global storage capacity for oil is getting tight. So many traders (and governments) arehoarding oil that we are rapidly approaching a point where there is no more room to put it -- one estimate predicts that date could arrivewithin four to six months. In that scenario, the cost of storage will naturally begin its own rise, encouraging traders to unload theirholdings, and thus depressing the price of oil as the market gets glutted with supply.

Speculation means the oil bubble can pop overnight

By John W. Schoen, 2008Senior Producer

MSNBCWhat's pushing oil prices higher?7 reasons why crude has soared to record levelsCOMMENTARYURL: http://www.msnbc.msn.com/id/13862677/

Investor demand. Oil prices also are being stoked by investors in the futures market who have no intention of ever taking delivery ofbarrel of crude. The rapid run-up in prices over the past two years has drawn billions of dollars worth of bets that prices will move higheIf the other forces driving prices higher persist, expect investors to continue bidding up futures contracts. The flip side is that with all thextra capital sloshing around the oil markets, a pullback in prices could be amplified as speculators bail out. Instead of going crafretting over high gasoline prices, why shouldn't we invest enough in oil companies to hedge like the big boys do? If oil rises, we proenough to fill our tanks.

Futures speculation drives massive oil volatilityKepple July 13 (Benjamin Kepple, Writer, Union Leader, Oil options weighed as prices skyrocket,http://www.unionleader.com/article.aspx?headline=Oil+options+weighed+as+prices+skyrocket&articleId=0ab87473-2e81-49c9-8c83-1b2b5bdd4f35)But the major driver behind the higher cost of heating oil is the underlying cost of crude oil, which is now trading in the $130- to $140-per-barrel range. Speculation has been a big part of that increase, as evidenced by volatility in the market. High prices hike the price fordealers to hedge their oil commitments to their pre-buy customers. Dealers hedge in a variety of ways, such as buying futures contracts ofutures options, to protect themselves against prices rising or falling. But these strategies take cash. With prices higher, it takes more casto implement them. "In the crude markets, I know the margin requirements have increased," said Chris Barber, another oil market analyfor ESAI. "They try to keep it close to a percentage (of the contract's value). As the price has gone up so far, they just keep increasing."Also, high prices and volatility have increased the risks for those underwriting the dealers' hedging strategies -- meaning higher dealercosts. "Last year, the downside protection was a lot less. This year it's considerably higher," said Donna Buxton, the owner of Buxton OCo. in Epping. "There's a lot more risk involved for the big suppliers as well. Nobody wants to take that risk on."
http://select.nytimes.com/search/restricted/article?res=F20E1FFA3D5A0C708DDDA10894DE404482https://www.bernstein.com/public/home.aspxhttp://www.unionleader.com/article.aspx?headline=Oil+options+weighed+as+prices+skyrocket&articleId=0ab87473-2e81-49c9-8c83-1b2b5bdd4f35http://www.unionleader.com/article.aspx?headline=Oil+options+weighed+as+prices+skyrocket&articleId=0ab87473-2e81-49c9-8c83-1b2b5bdd4f35http://select.nytimes.com/search/restricted/article?res=F20E1FFA3D5A0C708DDDA10894DE404482https://www.bernstein.com/public/home.aspxhttp://www.unionleader.com/article.aspx?headline=Oil+options+weighed+as+prices+skyrocket&articleId=0ab87473-2e81-49c9-8c83-1b2b5bdd4f35http://www.unionleader.com/article.aspx?headline=Oil+options+weighed+as+prices+skyrocket&articleId=0ab87473-2e81-49c9-8c83-1b2b5bdd4f35


17/38


a/t speculation causes volatility

Speculation hasnt increased price swings their overnight timeframe assertions ludicrousInvestors Chronicle 08 (Investors Chronicle, Oils worrying Stability, 6/24/08, l/n)

Oil prices are more stable now than in previous years - just at a higher level The widespread belief that oil prices have become more

volatile is wrong. According to one reasonable measure, the market has recently been more stable than usual. In the last six months, theannualised volatility of weekly changes in Brent crude has been 27 percentage points - less than the 36.2 per cent average volatility wehave had since 1988*. The notion that oil prices are volatile is a statistical illusion caused by the high price. People forget that a $5 perbarrel price move today is, in percentage terms, equivalent to only a 75 cent move in the 1990s. And no one worried much about moves that size. This stability implies that speculation in the commodity has not had a significant destabilising influence upon the market; itmight have raised prices, but not volatility. It also implies that strong demand has been a bigger force behind high prices than supplyrestrictions. Traditionally, the latter have been associated with high volatility; the most volatile prices in the last 20 years come around thtime of the supply disruptions in 1990 as a result of Iraq's invasion of Kuwait. Demand growth, being more stable, is associated withlower volatility. A third implication is that high prices might be here to stay, as producers have little incentive to boost supply. To sell oilto convert reserves into cash. But with expected returns on safe financial assets so low - inflation-proofed bonds yield less than 1 per cen- producers have little incentive to do this. Ordinarily, one counterweight to this is that cash is at least a safe asset while reserves, becausof the volatile oil price, are a risky one. But with oil prices now less unstable than usual, this argument for pumping more carries lessweight than usual. Until oil price volatility or interest rates rise, hopes of a big rise in supply are ill-founded. * Another measure tells the

same story. In the last 26 weeks, the average weekly change in the oil price (regardless of sign) has been 3.2 per cent. That compares to apost-1988 average of 3.7 per cent.


18/38


a/t Speculation Drives Market

Speculators have minimal impact on oil Prices.Jul 14, 2008

By Madhu Unnikrishnan/Aviation Dailyhttp://www.aviationweek.com/aw/generic/story_channel.jsp?channel=comm&id=news/SPEC07118.xml

AVIATION WEEK Copyright 2008, The McGraw-Hill Companies

The role of speculative investors in high oil prices is dividing the U.S. airline industry from economists, who say targeting institutioninvestors is more politically expedient than economically sound. The U.S. Air Transport Association last week launched a Web site prevent speculative institutional investors pension, index and hedge funds and investment banks from buying and selling larnumbers of oil contracts. As part of the outreach program, the CEOs of several U.S. carriers sent letters last week to frequent flyeimploring them to write Congress to crack down on speculators. "A barrel of oil may trade 20-plus times before it is delivered and usethe price goes up with each trade, and consumers pay the final tab," the letter said. Sen. Byron Dorgan (D-N.D.) has introduced legislatithat would order the Commodities Futures Trading Commission to put an end to excessive speculation in the oil markets (DAILY, Ju11). "Oil has become a financial instrument," ATA President James May told reporters on Friday. Speculative investors are eclipsing oconsumers on the oil markets, May explained. This is driving the price of a barrel of oil up by anywhere between "$20 and $60 pbarrel," May noted, citing industry experts. "If Congress would pass meaningful speculation reform, oil prices would drop significantwithin a matter of days or weeks," said Michael Masters, founder of Masters Capital Management, who also spoke at the meeting. Th

cost of extraction of a barrel of oil is between $65 and $75, May and Masters noted, and much of the difference between that cost and th$140-plus that oil is selling for now is due to speculation. But when asked for a precise percentage of the difference due to speculatioMasters said, "Nobody really knows." Economists say speculation plays only a little role in the price of oil. "Trying to pin down an exanumber for how much of the price of oil is due to speculation involves a lot of speculation," said Adam Sieminski, chief energy economfor Deutsche Bank. Tight supplies and ever-increasing demand economic fundamentals are the primary reason behind tstratospheric price of oil, he said. OPEC and non-OPEC production is down. "OPEC cut production in 2007 because it overestimated noOPEC production," Sieminski said, adding that oil production in Russia is down 500,000 barrels per day from last year's forecaGeopolitics also plays a role. "Resource nationalism" and political tensions in Nigeria, Venezuela, Iran and even Mexico are furthconstraining supply, Sieminski said. Demand in China and other large developing economies continues to grow beyond all forecastSieminski said. Many countries in Asia and the Middle East also are facing an electricity shortage, and these regions are turning to oifired generators to make up the shortfall. This is adding to already torrid demand, he said. Given this, going after speculative investomakes little sense. "Blaming speculators is convenient," Sieminski said. "Politicians are looking for someone to blame." Sieminski's viewmesh with those of the International Energy Agency, the energy watchdog for the Organization for Economic Cooperation an

Development. In its Medium-Term Oil Market Report, the IEA said it is "a case of political expediency" to blame speculators for the ruup in oil prices.
http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=comm&id=news/SPEC07118.xmlhttp://www.aviationweek.com/aw/generic/story_channel.jsp?channel=comm&id=news/SPEC07118.xml


19/38


a/t Speculators Drive the Market

Speculation follows supply and demand fundamentals its a link amplifier not a linkt akeoutAssociated Press 08 (US Energy chief: Low oil production drives price, 6/21/2008, http://news.aol.com/story/_a/us-energy-chief-lowoil-production/n20080621151709990001)JIDDAH, Saudi Arabia (AP) - The U.S. energy secretary said Saturday that insufficient oil production, not financial speculation, was

driving soaring crude prices. Secretary Samuel Bodman's comments on the eve of an energy summit in the Saudi port city of Jiddah setthe stage for a showdown between the U.S. and conference host Saudi Arabia, which has largely blamed speculation in the oil markets forecord prices. The U.S. and many other Western nations have put increasing pressure on Saudi Arabia, the world's top oil exporter, toincrease production. Saudi officials have been hesitant to do so, arguing that soaring prices have not been caused by a shortage of supplyBodman disputed that assertion Saturday, saying oil production has not kept pace with growing demand, especially from developingcountries like China and India. "Market fundamentals show us that production has not kept pace with growing demand foroil, resulting increasing prices and increasingly volatile prices," Bodman told reporters. "There is no evidence that we can find that speculators aredriving futures prices" foroil. He said commodities markets have experienced a huge influx of money from financial investors in recentyears, but they have been following the market upward rather than driving the increase in the price of oil. Saudi Arabia called the unusuameeting in Jiddah between oil producing and consuming nations as a way to show that it was not deaf to international cries that high oilprices have caused social and economic turmoil. The Gulf nation has also become increasingly concerned that record oilprices couldhinder growth in the U.S. and other major industrialized economies, potentially leading to a decline in oil demand and a sharp drop-off iprices. While Saudi Arabia has been reluctant to drastically increase production, it has announced several small increases recently that it

says were made to satisfy increased customer demand. The country has consistently said that it will produce enough oil to ensure themarket is supplied. The kingdom increased oil production by 300,000 barrels a day in May, and a Saudi official confirmed Saturday thatthe country would add another 200,000 barrels a day in July. The official spoke on condition of anonymity because of the sensitivity ofthe information. Saudi Oil Minister Ali al-Naimi also confirmed the increase ahead of the conference. But neither announcement has donmuch to stem the run-up in the price ofoil, which closed near $135 on Friday. Saudi assistant oil minister, Prince Abdulaziz bin Salman,told a news conference Saturday that the delegates were "congregating to achieveresults" and try to draw "a collective way forward for how to attend to this situation." "This situation as we see it today as it exists needseverybody's attention simply because it no longer is a luxury to talk about it or ... to keep bouncing back and forth blame," he added. Theprince said that Saudi Arabia has been working with several international organizations to puttogether a background paper to focus Sunday's discussions and reiterated that the kingdom was ready to meet demand from its customerand foster stable prices. He said it would be "wrong" to judge the success of the meeting by oilprices the day after it ends. Manycountries around the world have experienced social unrest by populations angry that rising fuel prices have driven significant increases the cost of food and other basic goods. Bodman said that every 1 percent increase in the demand foroil requires a 20 percent rise in pric

to balance the market. Demand in China, India and the Middle East has been soaring in recent years as the countries consume moreenergy to fuel economic growth. Rising demand in the developing world has coincided with historically low levels of spare oil productiocapacity, which fell below two million barrels per day among OPEC countries in May for the first time since the third quarter of 2006,according to the International Energy Agency. Bodman made clear that the responsibility for reducing oil prices did not simply fall on thshoulders of producing nations, saying consuming countries must increase energy efficiency and invest in the development of alternativefuels. But he saved his strongest words foroil producers like Saudi Arabia, who he said must step up long-term investment in productionand spare capacity. "The incentive (for investing) is simply reasonable prices so that we're not faced with having to drop everything andrace to Jiddah for a meeting that was called on a week's notice," said Bodman. Saudi Arabia is completing a $50 billion plan to increasecapacity to 12.5 million barrels a day but has signaled it would not go beyond that. CNBC said Saturday that Saudi Arabia's currentcapacity is 11.3 million barrels per day, quoting al-Naimi's adviser, Ibrahim al-Muhanna. Previous estimates by the International EnergyAgency put current Saudi capacity at about 10.7 million barrels per day. The kingdom currently produces about 9.5 million barrels perday.
http://news.aol.com/story/_a/us-energy-chief-low-oil-production/n20080621151709990001http://news.aol.com/story/_a/us-energy-chief-low-oil-production/n20080621151709990001http://news.aol.com/story/_a/us-energy-chief-low-oil-production/n20080621151709990001http://news.aol.com/story/_a/us-energy-chief-low-oil-production/n20080621151709990001


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a/t Speculators Drive the Market

Best available data proves speculation is the root cause of price runupsMouawad and Henriques 08 (Speculators aren't driving up oil prices, report finds By Jad Mouawad and Diana Henriques ,WednesdaJuly 23, 2008 ,http://www.iht.com/bin/printfriendly.php?id=14705356)As Congress debates how to curtail the role of speculators and rein in rising oil prices, a U.S. government task force said Tuesday that it

had so far found no evidence that those investors are systematically pushing up the cost of energy. Instead, in an interim report madepublic on Tuesday, the task force said that its research "does not support the hypothesis that the activity of these groups is driving priceshigher." The preliminary study concluded that the rise in oil prices over the last five years was "largely due" to fundamental factors likerapidly rising consumption and sluggish growth in energy supplies worldwide. The analysis was spearheaded by the Commodity FuturesTrading Commission with help from six other agencies, including the Federal Reserve and the Treasury. It offers the government's mostauthoritative view to date on whether investors, using specialized instruments known as index funds and commodity swaps, havecontributed to the sharp run-up in oil prices since 2002. The issue has been hotly debated as oil surged above $140 a barrel and gasolinerose above $4 a gallon, prompting consumer groups to put fierce pressure on lawmakers and regulators. Congress has held dozens ofhearings since January to explore proposals that range from expanding offshore drilling to expelling institutional investors from thecommodity markets. But the notion with the most political traction so far is a proposal from the Senate Democratic leadership that wouldrestrict speculators' role in futures markets, apply those restrictions to any foreign exchange open to traders in the United States, andextend the CFTC's authority to cover swaps trading that does not occur on public exchanges. In debate on that bill this week, itssupporters have repeatedly predicted that reducing the growing role of speculators would allow energy prices to fall. In its report, the

federal task force acknowledged that investors had flocked to the energy futures markets in recent years, attracted by high returns. But thtask force said that a review of both public and non-public data shows that speculators could not befairly blamed for rising prices. For example, swap dealers, who privately offer investors a future return linked to commodity markets,were roughly balanced between purchases and sales of energy futures contracts. And in the first five months of 2008, more of these swappositions were selling than buying. In that same period, oil prices rose 28 percent. The report's key finding was that speculative investorsmore often changed their positions after prices had moved, not before. That suggests that these traders "are responding to new informatio just as one would expect in an efficiently operating market," the report said. The task force, led by the CFTC, includes staffers from tdepartments of Agriculture and Energy, the Treasury, the Federal Reserve, the Federal Trade Commission, and the Securities andExchange Commission. It will release a complete study in September.In identifying the drivers of energy prices, the report noted that oilconsumption grew 3.9 percent between 2004 and 2007. At the same time, oil supplies lagged that demand, with production growth fromnations outside the Organization of the Petroleum Exporting Countries slowing to levels far well below the historic averages. After arecord close of $145.29 a barrel on July 3, oil futures on the New York Mercantile Exchange have been sliding in recent weeks. OnTuesday, oil fell $3.09 to $127.95 a barrel. Average gasoline prices have also been declining recently, from a record of $4.11 a gallon on

July 17 to $4.05 a gallon on Tuesday.
http://www.iht.com/bin/printfriendly.php?id=14705356http://www.iht.com/bin/printfriendly.php?id=14705356http://www.iht.com/bin/printfriendly.php?id=14705356


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a/t Oil Companies Drive Prices

Oil companies don't manipulate prices, they just reflect spot marketsFelix Salmon 2008arrived in the United States in 1997 from England, where he worked at Euromoney magazine. He also wrote dailcommentary on Latin American markets for the former news service Bridge News, freelanced for a variety of publications, helped set upthe New York bureau of a financial website, and created the Economonitor blog for Roubini Global Economics. He has been blogging

since 1999 and now writes the Market Movers blog for Portfolio.com. Salmon is a graduate of the University of Glasgow.Howell Raines was the executive editor of The New York Times from 2001 to 2003. Under his stewardship, the paper won an unprecedented seven Pulitzers in a singleyear. Prior to becoming executive editor, Raines served in a variety of roles at The Times, including editorial page editor, White House correspondent, deputy Washingtoneditor, London bureau chief, Washington bureau chief, and Atlanta bureau chief.

posted on: July 17, , http://seekingalpha.com/article/85458-oil-company-economics?source=bnet, Seekingalpha, Seeking Alpha's editors aretasked with selecting outstanding articles from credible authors and editing them for clarity, consistency and impact.

What would constitute price manipulation in the oil industry? Howell Raines doesn't blame speculators for high prices in his latestcolumn; instead, he blames the oil companies themselves. Supply and demand? Sure, but as John Lee, a business journalist at the WallStreet Journal and the New York Times for many years, reminds me, supply and demand in oil are not just "two pie charts-- where itcomes from, where it goes, measured maybe five years ago." There are more complex reasons for pain at the pump. "American gasolineprices have always reflected the latest spot price, namely what you have to pay to buy bulk gasoline on the open market. This is last-inpricing, rather than pricing based on inventory costs." Now, let's say you're an oil company selling bulk gasoline, and suppose yourinventory contains some gasoline made from $140-a-barrel oil and some that was purchased for $75 a barrel. That leaves a lot of room f

price manipulation.It seems that Raines thinks the oil companies should sell gasoline according to what they paid for it, rather than what they could sell it foon the wholesale market. But they're privately-owned companies: they have an obligation to their shareholders to sell at the market pricewhen prices are rising. Gasoline prices are always determined primarily by the latest spot price for oil, rather than inventory costs, just ayou'd expect: there's nothing new going on here.
http://seekingalpha.com/article/85458-oil-company-economics?source=bnethttp://seekingalpha.com/article/85458-oil-company-economics?source=bnethttp://seekingalpha.com/article/85458-oil-company-economics?source=bnet


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a/t OPEC drives prices

OPEC cant manipulate prices its pumping at capacity to meet demandSchoen 05 OPEC says it has lost control of oil prices, Cartel producers say they can't keep up with strong global demand ,By John W.Schoen, Senior Producer , MSNBC ,updated 4:13 p.m. CT, Wed., March. 16, 2005, URL: http://www.msnbc.msn.com/id/7190109/

Despite a pledge by OPEC ministers to increase oil production, don't expect much of a break on oil prices. With crude oil prices hitting arecord $56 a barrel Wednesday, OPEC ministers meeting in Iran have been grappling with a problem they havent confronted in thecartels 45-year history. In the past, OPEC tried to cool overheated prices by pumping more when supplies got too tight. But most OPECproducers say theyre already pumping as fast as they c

da oil back stopping

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