A New World of Oil

Marshall Auerback on oil surprises

Among the early goals of the Bush administration, controlling global energy flows was certainly right at the top of the list; so imagine the irony (not that Bush's men are much into irony) -- this administration might, in part, be sunk by soaring domestic gas prices. The precipitous rise in the price of a barrel of oil over recent months has been linked to the war in Iraq and to the instability it has brought to the oil heartlands of our planet, and here's the essential irony for an administration of energy-control freaks -- what happens at the pump between now and November may be beyond their powers to control.

The U.S. hasn't even been able to stop the escalating attacks on and sabotage of Iraq's oil pipelines -- now practically an everyday event. In the meantime, the threat to oil supplies has been seeping across the border into Saudi Arabia. Oil prices, which had dipped from recent highs, are again inching up toward the $40 a barrel mark. Throw in chaos in Russia's oil industry; stir in a Middle East guaranteed to be ever more in turmoil (just wait until the first Saudi oil facility goes up in flames), add in the skyrocketing global desire for ever more oil, and you're beginning to deal with the realities of a business which could provide a distinct October surprise for the Bush administration and many more surprises in future years for the rest of us. Only yesterday, according to the British Financial Times, "Strong global demand for oil, limited supply increases and continuing security fears led the US government… to raise its central price forecast for US crude over the next 18 months to $37 a barrel… As recently as April it forecast crude falling below $30."

Marshall Auerback, an international money manager who has written on oil matters for Tomdispatch before, digs into the many surprises our oil future holds for us. His piece is a bit more technical than the Tomdispatch norm, but don't let it throw you. The payoff is worth it. And for those of you who want to know something more about "Hubbert's Peak," which Auerback brings up, check out Mike Davis's The View from Hubbert's Peak. Tom

Surprised in October?

A New World of OilBy Marshall Auerback

"The Saudis are out of capacity. That's my opinion… They have no infrastructure or extra pipes or gas, oil, and water separators [very expensive large globes used to separate what comes out of a water injection well]. They have very heavy oil which, through a conventional refinery, produces asphalt. We don't need asphalt. We need gasoline. It takes a complex refinery to make gasoline and it only takes 7-10 years to build one." -- Matt Simmons, Simmons & Co., a leading independent oil analyst (from Michael C. Ruppert, Peak Oil Revisited)