"Weapons of Mass Deception"


Oil facts

Oil facts
by Matt Giwer, © 2004 [April]

What does the price of oil matter? Why do we care? Who cares and why do they care?

Fact 1:
European countries earn more from taxing oil than Mideast countries earn from producing it. Obviously Saudi is not impressed with European whines about the price of oil.

Fact 2:
Production costs only affect the base price not the cost plus tax.

Those are the rules the posturing politicians do not want you do know. And there is a third fact.

Fact 3:
Proven reserves are determined by what can be produced affordably at current prices.

If you are quick you now know all there is to know about oil. But let me walk you through it.

In Europe taxes are 80% of the price of gasoline. If the cost of oil doubles and taxes remain the same, the price in Europe will increase 20%. If the selling price for oil doubles the economically proven reserves will quadruple. That takes a bit of math understanding to deal with but it means essentially the cost cannot double and the higher the price the more oil there is to pump.

Americans would have a serious problem with doubled oil prices as it taxes oil products on the basis of its costs. So oil taxes are about 40 cents on the gallon and directed to highway maintenance. It is a pure user tax rather than a revenue raising tax as in Europe.

That is because proven reserves is not a fixed number. It is really proven reserves at the current selling price. There are many oil fields in the world which have been shut down because they are not economical to pump at the current price. If the price increases they will become profitable to pump.

We are not running out of oil. We are running out of the cheapest oil. In fact we ran out of cheap oil when OPEC was created to regulate the world price of oil. Before OPEC, Standard Oil, British Petroleum and Dutch Shell regulated world prices. This is not the fault of OPEC nor created by it.

There are vast fields of oil in the US which could produce at double the current price. There are even vaster fields at three times the price. But the point is not doubling but that for each 10% price increase there are 20% more supplies. That means there is no catastrophic end to oil at any time in the future. It means sources tail off in an exponential curve. And only the people deep inside the oil industry can put dates on that curve.

Every curve you have seen is based upon the current price. But as the current price increases causing an increase in proven reserves at the higher price the curve extends farther into the future. At some point an increased price will make further drilling at Titusville profitable and that is where it all began.

Fact 4:
If there is a need for a fact four, correcting for inflation, the current price of gasoline is lower than it was at the height of the late 1970's so called oil crisis. What does this mean? It is not low enough. We expect the price of things to decrease over as it always has. Oil has not decreased as fast as everything else.

And if there are any gluttons for punishment here is one more.

Fact 5:
For decades OPEC has insisted upon payment in US dollars which creates an artificial demand for them. If it simply chooses to accept either dollars or Euros the dollar will decline to its real value. Japan and Taiwan and others must sell to the US to get dollars to buy oil. They are accused of dumping but they need the dollars to buy oil. If they take Euros also there are two open markets.

And if OPEC decides to take only Euros the dollar will collapse on the world market. That is a fact.

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Milton Frihetsson, 20:04


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