ARE WE RUNNING OUT OF OIL?

by Jean Statler
SVP and Leader of Harris Interactives Public Affairs,
Government and Youth Research Practice
The Harris Report, Volume I, Issue I, May 2006
Americas Love/Hate Relationship with Energy
Courtesy of Harris Interactive Inc. All rights reserved.

Americas Love/Hate Relationship with Energy

Introduction
There is a high degree of controversy surrounding Americas use of energy to provide transportation, heat and cool
homes and businesses, and spur economic activity and job creation. There are some facts which are largely
misunderstood by the American people. In fact, fewer than one in three US adults surveyed consider themselves
informed (20%) or very informed (11%) about energy issues. As a result, public opinion about the energy industry
often tends to be based on inaccurate or incomplete information.
This report, based on the results from the January, 2006 edition of The Harris Poll, is designed to explore what
drives consumer opinion about energy broadly, highlight gaps in knowledge among the general population, and
provide a baseline against which attitudes over time.
It also includes a short essay called So What? The Implications of This Research on what we believe these survey
data mean for the future.

Do Consumers Have it Right?

In recent months, the US energy industry has been the subject of much media attention, mainly due to rising energy
prices. Industries in the energy sector, including coal, nuclear, electric, natural gas and especially oil, are under the
microscope.
This increased scrutiny has led to the widespread public perception that the main driving force in energy prices is
increasing energy company profits. When asked what factors have the greatest influence in determining energy
prices, the majority of American adults (55%) cite profits to the energy companies. At the same time, many people
are aware that demand for energy also plays a critical role in determining price. More than one-third (38%) of the
general adult public cites demand as one of the three most influential factors in determining energy prices.
Interesting differences in perceptions emerge among different demographic groups. For example, younger
Americans do not place as much emphasis on company profits as do older Americans. About one-third (34%) of
Echo Boomers (ages 18 to 27) believe profits are a major influencing factor, while older age groups such as Baby
Boomers (ages 45 to 58) and Matures (ages 59 and over) are much more likely (63% and 65%, respectively) to
believe company profits play a role in dictating price. Another interesting demographic difference is found in
education. College graduates are more likely (49%) to assign weight to the demand for energy as a factor in price
than those whove attained lower levels of eduction (35%).
Although our question asked about energy in general, the public appears to be focused on the price of gasoline when
asked what factors influence energy prices. Rounding out the top five factors mentioned, after profits and demand,
are OPEC (33%), crude oil prices (32%) and political instability in oil rich nations (29%).

To further examine attitudes toward oil company profits, we asked respondents how much they believe the cost of a
gallon of gas would decrease if the company mark-up for profit was eliminated. One-third (33%) say the price of a
gallon would decrease between 16 and 30 percent, while another third (34%) think it would go down by 31 to 60
percent. The median guess was a decrease of 31 percent.

So Whos Right?
According to the Energy Information Administration (EIA), the price at the pump is a function of four factors: 1) the
price of crude oil determined on the open global market, 2) federal and state taxes, 3) refining costs and profits, and
4) distribution and retailing. While some members of the American public recognize the influence of the price of
crude oil (32% cite this as a major factor in determining price) and federal state and local taxes (24% name taxes as
a major component of price), fewer are aware of the impact the cost of harvesting and preparing fuel for our
consumption has on prices at the pump.
The graphic below details the components of gasoline prices, and how those changed from 2004 to 2005. The cost of
crude oil is, by a large margin, the biggest factor in determining price at the pump. On the other hand, profits, even
when combined with refining costs, play a much smaller role in determining gasoline prices.

In September 2005, crude oil prices soared to over US $70 per barrel, driving up the price at the pump significantly.
As the graph shows, crude oil prices made up an even larger percentage of pump prices last year, while refining and
profits stayed the same in percentage terms. So while the profit slice of the pie is the same as before, the pie has
gotten bigger, resulting in the record-high oil company profits that have been widely reported.
In late 2005, the Federal Trade Commission (FTC) released its report: Gasoline Price Changes: The Dynamics of
Supply, Demand and Competition, which supports the EIA analysis. One of the reports conclusions is that over the
past 20 years, changes in the price of crude oil have led to 85 percent of the changes in the retail price of gasoline in
the United States, while other important factors have included increasing demand, supply restrictions, and federal,
state and local regulations such as clean fuel requirements and taxes. (This report is available at the FTC website,
www.ftc.gov.)
Since retail gasoline prices are driven mostly by the cost of crude oil, we cant fully understand gas prices without
understanding the dynamics of crude oil pricing. That is clearly beyond the scope of this article, but we can point to
a couple of factors affecting those prices that are not commonly understood by the public:

First, world energy markets are being radically reshaped by the substantial and growing energy demand of
developing nations. The US Energy Information Agency has tracked how world consumption of energy is beginning
to shift from established industrialized countries to fuel emerging countries, such as China and India. Increasing
demand around the globe affects the price of crude oil for everybody, including US refiners.
Another thing most people do not realize is that only a fraction of the worlds crude oil production is controlled by
investor-owned public companies. After the oil embargo and supply disruptions of the 1970s and early 1980s, most
foreign governments nationalized their oil industries, including their reserves. Today, 77 percent of world oil
reserves are owned by national oil companies and only six percent are held by investor-owned oil and natural gas
companies. That means that US and other oil companies have virtually no control of crude oil prices.
In a recent speech, Red Cavaney, President and CEO of the American Petroleum Institute, a trade association, talked
about the implications of the phenomenon of nationalization in this critical global and commodity market. He said
investor-owned oil and natural gas companies (the five largest known to Americans as ExxonMobil, Chevron,
ConocoPhillips, BP, and Shell) scaled up to better compete within this new world by creating large scale
efficiencies, greater technological prowess and substantially broader competitive access to capital markets in order
to address the competition from these national oil companies, such as those of Saudi Arabia, Russia, Venezuela,
China, and others. The rationale for this scaling up, Cavaney went on to say, was missed by most observersboth
in and out of government. Some observers, still in the dark on this necessary evolution, now view the industry in
exaggerated, negative terms; as too large, too powerful, and not deserving of its earnings.
Many people in the public and the media believe that oil companies have gotten too big and they are making too
much money. Industry critics claim it all boils down to greed. But oil companies counter that they are big for a
reason, namely, to survive in the global economy, and that rising profits are the result, rather than the cause of higher
gasoline prices.

Are We Running Out of Oil?

Americans feeling the pinch of high gasoline prices cant be blamed for having a sky is falling mentality. The
notion that the world is running out of oil is a widely held belief that affects how consumers feel about a host of
energy related issues, from confidence in the industry to perceptions about prices. Is this yet another misperception?
David Deming of the National Center for Policy Analysis writes 1, the history of the petroleum industry is
punctuated by periodic claims that the supply will be exhausted, followed by the discovery of new oil fields and the
development of technologies for recovering additional supplies. Even if no new oil supplies were discovered
beyond those known today, Deming calculates based on projected growth in petroleum demand that supplies would
not be exhausted until 2056. But he reviews historical data that show how estimates of the worlds oil endowment
have increased faster than oil has been taken from the ground, concluding that the earth has enough petroleum
resources to last at least until the year 2100.
However, not all experts agree with Deming and, of course, nobody denies that petroleum is a non-renewable
resource, in finite supply. But some people believe that long before humanity needs to worry about running out of
oil, people will have devised better and more efficient energy technologies, including more renewable energy
sources.
1. Deming, David, Are We Running Out of Oil?, NCPA Policy Backgrounder #159, January 28, 2003.
http://www.ncpa.org/pub/bg/bg159/

Consumer Confidence is Lacking

One of the big picture stories to emerge from our research is that US consumers lack confidence in nearly every
part of the energy industry. That lack of confidence may be driven by the misperceptions already discussed, by
media coverage, and by price fluctuations that hit consumers in the pocketbook. Lets look at some of the specific
areas where the American people lack confidence

In Energy Industries
While the five major energy industries all appear very different, there is one thing they all have in common. As the
following graph shows, most evoke more negative than positive feelings.

How positive or negative do you feel about each of the following industries?

Based on everything you have read, seen or heard, how confident are you in the safe operations of the following
industries?

Petroleum based industries, whether the home heating oil or the oil and natural gas industry, have the highest
negatives. The oil and natural gas industry has one other distinction; it has the lowest proportion of neutral
responses (23%). It appears that people have made up their minds, for good or bad, about this industry. As
previously discussed, the perception of price gouging by big oil is undoubtedly driving negative attitudes toward
the oil and natural gas industry.
In Energy Safety
We also examined how each of these industries appears to the public in terms of safety issues. With the recent
tragedies in the coal mines of West Virginia, it is not surprising to find that almost two-thirds (65%) of adults are
somewhat or not at all confident in the safe operation of the coal industry, with only 27 percent saying they are
confident and eight percent saying they are very or extremely confident. However, safety concerns are focused on
other industries as well.

The sector that seems to do the best in relation to safety is the electric utility industry. Nearly one in four (23%) are
extremely or very confident in their safe operations, 40 percent are right in the middle, saying they are
confident, while 37 percent are somewhat or not at all confident. While these differences are instructive, the
overall conclusion is that the American public does not place a great deal of confidence in the safety of any energy
industry.
In Energy Supply Resilience After Natural Disasters
In light of last years hurricanes, Katrina, Rita, Wilma and others, we also asked US adults how confident they are
that these industries would be able to restore services after a natural disaster. Majorities have low or no confidence
in all five industries. Electric utilities, however, may be again viewed as the lesser of five evils, with a somewhat
lower (55%) rating of somewhat/ not at all confident than the coal (58%), nuclear (60%), home heating oil (60%)
and the oil and natural gas (62%) industries.

How would you rate your feelings about the following types of energy sources?
In Energy Sources
Attitudes toward the 13 most prevalent energy sources vary greatly. They divide into three main categories. First,
there are five energy sources toward which about half or more of the adult public feel positively. They are: solar,
wind power, hydroelectric power, electricity, and ethanol/bio-fuel.
The second group is made up of energy sources in the middle of the feeling scale where people may not have strong
positive feelings toward them, but they also do not have strong negative feelings. This group includes natural gas,
hydrogen, nuclear power, and propane. Among this group, hydrogen and propane tend to be viewed more with
neutral feelings than with negativity; almost half (46%) are ambivalent, probably because they know very little
about these two alternative fuels.

Nearly half (47%) of Americans have a negative feeling toward

gasoline as an energy source while 4 out of 10 (40%)
feel negatively toward home heating oil.

The final group is comprised of energy sources which have the least support among the American public, which also
happen to be sources on which the United States is most heavily dependent. About one in four (23%) Americans
have a positive feeling toward gasoline, while almost half (47%) have a negative feeling. Coal follows closely in
terms of positive feelings (22%), but has fewer negatives as just over one-third (36%) of adults say they have a
negative feeling toward coal. Finally, home heating oil receives the lowest positive rating at 16 percent with four out
of 10 (40%) having a negative attitude toward this energy source.
Theres a sort of love/hate relationship going on. While these ratings imply that Americans cant live with these
fuels, they clearly cant live without them. It is interesting that electricity finds itself in the company of the highly
rated safe/clean/renewable sources (solar, wind, hydro and ethanol), given that 70 percent of US electricity is
generated by burning coal, oil or natural gas, and another 20 percent comes from nuclear power plants. Given their
negative views toward these latter sources, it seems that most Americans are not aware, or they dont stop to think,
where electricity comes from. This points to yet another gap in public knowledge and understanding of energy
issues.

Thinking about the following energy sources, what two sources do

you believe are the best/worst for the environment?
Battleground Alaska
Most of the negative or positive feelings toward different energy sources can probably be attributed to their
perceived environmental impact. Only two energy sources, solar and wind power, are named by a majority of
respondents as best for the environment, while coal is cited by a majority as one of the worst, followed by oil and
natural gas.
It is noteworthy that in a nation where 85 percent of energy comes from conventional fossil fuels (oil, coal and
natural gas), most people are highly critical of these same sources on the grounds of environmental concern. Nothing
illustrates this incongruity more dramatically than the debate over the Arctic National Wildlife Refuge (ANWR). For
the past decade, and most sharply over the last two years, there has been an intense debate over whether to open up
this large tract of land in Alaska to allow for the drilling of oil, or whether to preserve it as a wildlife refuge.
Almost three-quarters (72%) of American adults say they have heard about the ANWR debate. Among these, we see
an equal split between support for oil drilling (45%) and opposition to it (45%), with the other 10 percent saying
they are not sure.
This national rift has a number of dimensions:

There is a gender gap with over half of men (53%) supporting drilling as
compared to only a third (34%) of women.

 There is a generational gap, widest between the Echo Boomers (only 18% of 18to 27 year-olds support drilling) and the oldest respondents (52% of those aged 65
and over want to allow drilling). Those between the ages of 28 and 64 tend to be
more evenly divided.

There is also the expected partisan gap. Almost three-quarters of Republicans

(72%) support drilling, compared to just one in four (25%) Democrats. But while
two-thirds (66%) of Democrats support keeping ANWR a wildlife refuge, they
are slightly more likely to stray from their partys line than Republicans, as 25
percent of Democrats would support drilling, compared to the 17 percent of
Republicans who would support keeping it a wildlife refuge. Independents are
more divided; about half (51%) support keeping it a refuge while 40 percent
support drilling for oil in ANWR.

The most relevant argument for opening ANWR to energy development is to lessen Americas dependence on
foreign oil. This dependence is very real, of course, but it is not as great as most Americans think. According to our
survey, half (51%) of US adults believe that more than two-thirds of the oil used in the United States is imported. In
fact, the actual figure is close to 55 percent.

The Quest for Renewable Energy Sources

For decades, Americans and their leaders have talked about the need to replace conventional energy with renewable
sources of energy. This is not a new phenomenon; when oil prices rise to record levels, calls for renewable energy
sources grow stronger. It happened in the mid 1970s and the early 1980s. Only a few months ago, President George
Bush made it a major focus of his State of the Union address.
It is clear from our research that Americans share the dream of lessening dependence on foreign oil, and on fossil
fuels in general, as reflected in their attitudes toward a variety of energy sources. Four of the five most positively
rated energy sources are renewables (see "Feelings Toward Energy Sources" chart on above). Three-quarters of the
adult public (75%) have a positive attitude toward solar energy, 69 percent feel positively about wind power, 64
percent feel good about hydroelectric power, and 48 percent feel positively about ethanol/biofuel, which is made
from either corn or sugar cane.

Source: U.S. Energy Information Agency

As the chart above shows, these and other renewable sources currently account for only a very small percentage of
Americas energy consumption (6%).

Several administrations, including the most recent call to action by President Bush, have set up investment
incentives in hopes of jump starting the technology improvements needed to make renewable fuels more
economically viable. For example:

The Energy Policy Act of 2005 calls for an increase in usage of ethanol and
sweetens the pot by exempting federal excise taxes at the pump. The same
legislation includes tax incentives for biodiesel.

California recently approved a program to subsidize solar energy.

The European Union set a goal to reach 12 percent of their energy generated from
renewable sources by 2010.

Partly as a result of government subsidies, there has been progress. Wind power has been in the news a lot lately.
Other, less visible advancements include an increase in the number of government vehicle fleets powered by biodiesel (a renewable fuel manufactured from vegetable oils and animal fats), and long-term research on hydrogen as a
vehicle fuel.
Ethanol shows some promise. Over five million of the 133 million cars on the road today are FlexFuel vehicles
(FFVs) capable of running on E85 (85% ethanol, 15% gasoline). General Motors recently launched a high-profile
FFV marketing campaign called Live Green, Go Yellow, and Chrysler announced last week that it will begin
selling two flex fuel Jeeps this fall. But the limited availability of E85 only about 600 service stations (out of about
169,000) in the United States currently sell E85 fuel means most of these cars are still running on gasoline. While
availability is expected to grow, clearly it is just a beginning.
Development of renewable energy technologies is more intense now than it has ever been. But it will probably be a
long time before renewable sources make a significant dent in the overall US energy picture. In the meantime,
Americans will continue to rely on traditional energy sources to fuel their everyday lives.

Nuclear Energy: Problem or Solution?

Of all the industries and energy sources, the one that seems to inspire the greatest confusion is nuclear power.
Negative attitudes toward the nuclear industry peaked after the 1979 accident at Three Mile Island and the hit movie
The China Syndrome that same year. However, public perceptions about nuclear energy have clearly evolved over
the past 25 years.
As an industry, nuclear energy inspires positive attitudes among only 30 percent of the adult public, yet that is the
highest positive rating of all the industries measured. As an energy source, four out of 10 have positive feelings
toward nuclear; while that is not at the top, it is also not at the bottom of the scale. Concerning nuclear energys
impact on the environment, attitudes are polarized. While one-third (34%) say it is one of the worst for the
environment (behind coal and oil and natural gas), it is also rated fourth best for the environment.
The area where people appear to have the greatest concern is over safety issues, as more than half (58%) are
somewhat or not at all confident in the safety of the nuclear industry. Only the coal industry is rated worse. Men are
more likely than women to be highly confident (28% very or extremely confident vs. 5%, respectively). On the flip
side, 70 percent of women say they are somewhat or not at all confident in the safety of the nuclear industrys
operation as compared to under half (45%) of men who have that same attitude. Its interesting to note that no

nuclear workers or members of the public have ever died as a result of exposure to radiation due to a commercial
nuclear reactor incident in the United States, including Three Mile Island. But the possibility is apparently never far
from many peoples minds.

Currently, there are 104 operational nuclear power plants in the United States, which provide 20 percent of the total
electricity generated in the country. However, the nations nuclear generating infrastructure is aging. The last time a
new nuclear reactor came on line was in 1996. With demand for electricity in the United States projected to increase
40 percent by the year 2025, and in light of the clean air benefits of nuclear when compared with gas-fired and coalfired electrical generation, there is growing bipartisan support in Washington for taking a new look at nuclear power.
Recent developments suggest that the time for the construction of new nuclear power plants may come sooner than
later:

The Energy Policy Act of 2005 included tax credits worth $3.1 billion for
production of advanced nuclear facilities, along with liability protection and
compensation for legislative delays.

On December 30, 2005, the Nuclear Regulatory Commission (NRC) certified the
design of a new reactor the first in many years.

President Bush, in his 2006 State of the Union speech, pledged to increase
investment in nuclear energy.
According to a recent article in Physics Today (February 2006) six US
powerplant operators are preparing combined construction and operating license
(COL) requests to be submitted to the NRC that could restart construction of
nuclear powered generation facilities in the United States within the next five
years.

Given the dynamics of this high profile issue, we can expect public attitudes about nuclear power to remain divided
for some time to come.

So What? The Implications of this Research

1. Energy Will Remain Top Concern. So long as energy prices remain high (or unreasonably high in the eye of the
consumer) most major energy industries, will be in the public spotlight.

In part, the consumers view seems to be based on misinformation, as most people overestimate the contribution of
corporate profits to prices. Another problem, for the oil industry especially, is American distrust of big companies
generally (not just big oil but big government, big business and, most recently, big pharma). That will be
difficult to change, even if good arguments can be made as to why energy companies need to be big.
The data suggest that while it would be very difficult for energy companies to become less unpopular unless prices
come down, (or, possibly, are stable so people get used to them) there are some areas where, as we have shown, the
energy industry is hurt by misperceptions which might be changed (albeit not easily).
What is clear is that many Americans have a love/hate relationship with energy. They love to consume it and want
access to inexpensive gasoline, oil, natural gas, electricity and other energy sources. On the other hand, they react
angrily to higher prices and to big companies.
They favor energy conservation, and are deeply suspicious of new drilling that might endanger the environment.
However, they react strongly against proposals for higher energy taxes that would encourage conservation.
Additionally, they tend to favor government legislation to mandate higher gas mileage.
In other words most people are human, if not rational. They want the gain without the pain.
2. The Popularity of Alternative, Renewable Energy Sources.
The contrast between the positive public attitudes to solar, wind and hydro energy on the one hand and the negative
attitudes to oil and coal on the other is very striking. To the extent that they can, energy companies which are seen to
be advocates for, and investors in, popular energy sources are likely to benefit.
It is interesting that foreign-owned oil companies (BP and to a lesser extent Shell) adopted this strategy earlier, and
with much greater enthusiasm, than American-owned companies.

Nuclear energy, as an energy source, is more popular than propane, gasoline, coal or home heating oil.
3. Nuclear Power.
Most people are still concerned about the safety of nuclear power (even if they are more concerned, currently, about
the safety of the coal industry).

However, people now are less likely to feel negatively toward the nuclear power industry than toward other energy
industries. And, as an energy source, nuclear energy is more popular than propane, gasoline, coal or home heating
oil.
Two important things have happened since The Three Mile Island accident put a stop to nearly all nuclear power
plant construction. One is the dog that didnt bark. While Chernobyl was a very big deal, the absence of any
significant nuclear accidents in the United States has probably had some effect.
However, the big new issue is global warming. The polls have shown that most people see global warming as a big
concern, and that they believe man-made greenhouse gases are a major contributor. The greater these concerns
become, the stronger the arguments for nuclear power become.
Energy is among the top issues affecting our day-to-day lives in direct and sometimes dramatic ways. Its also one of
the more complicated, shaped by global economic forces, political agendas, consumer behavior, changing
technologyeven the weather. Clearly, the public does not always understand or appreciate that complexity. People
just want the light to turn on, the house to stay warm, and the car to accelerate when they step on the gas pedal. As
energy-related companies deal with consumers, and as policy makers reach out to voters, they should keep in mind
the need to educate as well as persuade.
Methodology
The Harris Poll was conducted online within the United States between January 12 and 17, 2006 among 1,467
adults (aged 18 and over). Figures for age, sex, race, education, region and household income were weighted where
necessary to bring them into line with their actual proportions in the population. Propensity score weighting was also
used to adjust for respondents propensity to be online.
In theory, with probability samples of this size, one could say with 95 percent certainty that the overall results have a
sampling error of plus or minus 3 percentage points of what they would be if the entire US adult population had
been polled with complete accuracy. Sampling error for subsamples such as age, gender, and political party ID
breakouts is higher and varies. Unfortunately, there are several other possible sources of error in all polls or surveys
that are probably more serious than theoretical calculations of sampling error. They include refusals to be
interviewed (nonresponse), question wording and question order, and weighting. It is impossible to quantify the
errors that may result from these factors. This online sample was not a probability sample.
Note: Percentages may not add up to exactly 100% due to rounding.
These statements conform to the principles of disclosure of the National Council on Public Polls.
About Harris Interactive
Harris Interactive Inc. (www.harrisinteractive. com), based in Rochester, New York, is the 13th largest and the
fastest growing market research firm in the world, widely known for The Harris Poll and for its pioneering
leadership in the online market research industry.
In an increasingly chaotic and competitive world, Harris Interactive provides researchdriven insights and strategic
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of affiliate market research companies.
by Jean Statler
SVP and Leader of Harris Interactives Public Affairs,
Government and Youth Research Practice

The Harris Report, Volume I, Issue I, May 2006

Americas Love/Hate Relationship with Energy
Courtesy of Harris Interactive Inc. All rights reserved.

SOURCE : NRC HANDELSBLAD ; THE OIL STREET JOURNAL ; THE

PEAK OIL TIMES
OIL IN THE NEWS WE CONSTANTLY HEAR THEAT THE WORLD IS
RUNNING OUT OF OIL.
This should mean that the world wide supply will be smaller and the
price of oil would be higher .How ever the opposite is happening .
Oil prices have dropped significantly making oil relatively cheaper
then ever. How is this possible.
The price of oil gas and coal are formed by supply and demand.
Until recently 3 forces influenced this. Which force are these ?
1st force is the growing importance of oil in our economy. We need
oil for heating transportation electricity and it is a prime
reamaterial for chemicals ,fertilisers and plastics. Because we use
so much oil the demand continue to increase
2nd force is the emergence of monopoly positions .When capitalism
rains multinational oil companies , merchants and individual
investors cannot take monopoly positions in various parts of the
production process.This allows them to set a price for their part
process and impacts the over all price of the oil.

3rfd force is the collection to achieve political games being played

in order to gain political power. And the example is the
nationalization of oil companies in the country allowing the Govt to
control procuction supply and impacts the price of the oil.
So these three forces have always determine the price of the oil . At
the end of the 20 th century a 4th force has entered the scene.
Burning oil is one of the main causes of global warming . Therefore
alternative forms of self renewing energy must replace oil as soon
as possible. For this to happen the price of the oil should be higher
and therefore fairer than it is now. This would make the renewable
sources more attractive to use . However the price of oil still seems
to be controlled by monopoly positions. And geo political games. So
who is playing these games keeping the price so low . You might
think that multinational oil companies like BP and SHELL are
incharge. In reality there are many more national and international
players in the oil game.
One of these players is the OPEC . forming this alliance of 12 already
influential oil producing countries made them powerful enough to
determine the world wide supply and hence control the price in the
past decades. How ever in recent years other players have also
become powerful .To try to swiftly defeat this competition OPEC has
Opened its oil taps completely greately increasing its supply . This
cause the price to have fallen so dramatically ,lately. such a low
price is not favourable to any oil producing countries. So even the
countries within OPEC are suffering . Yet founder Saudi Arabia
persists in hopefully defeating competetors and securing OPCE
dominance in the world wide oil Trade.
One of the powerful new players is RUSSIA. Whenever OPEC
carefully decrease production to stabilize price of oil RUSSIA
gradually increase its market share . This has resulted in RUSSIA
becoming one of the leading exporters of oil .
Another major player is CHINA uses different tactics. Instead of
taking on the competition they economically stimulate several poor
countries , mostly in AFRICA in exchange for the ********
and import the oil directly to china. This allows china to keep most
of their oil trade away from world market . The U S was always
highly dependent of OPEC for their oil. In recent years they have
made great strides in extracting Shale Oil and GAS which is
expensive and potentially harmful for the environment. Taking these
risks made the U S less dependent on the other parties .

With all these new players in the oil game it seems that the OPEC is
loosing the power to determine the oil price .
So what will happen now.
One Scenario is that the OPEC will succeed in crushing the new
competition and have the power again or will all oil producing
parties will survive with this low price or will there be a new
dominant procucer.All these scenarios rely on Geo political games
being able to keep oil an attractive source of energy . So that
renewable energy sources dont stand a chance . but may be the
damage of oil on the environment will force oil to get a higher price
which would allow renewable energy sources to enter the market
more rapidly .
Is this just wishful thinking , only time will tell

Oil Prices: The Perils of Bottom Feeding ( source : Bloomberg business )

Over the past six months, oil prices have plunged more than 50 percent to
below $50 a barrel, their lowest level since before the recession ended in
2009. Thats slashed gasoline prices, triggered thousands of layoffs in the oil
patchand spurred a flurry of bargain hunting among investors who see this
as a rare opportunity to buy before prices begin their inevitable way back up.
There is a lot of bottom fishing going on right now, says Dan Dicker, a

former oil trader and president of MercBloc, a wealth management firm in

New York. Everybody in the industry realizes that prices arent going to stay
this low forever. The question isnt whether theyll rise, but when.
For those betting on a quick rebound, the most direct way to profit would be to
buy some physical crude, store it, then sell it at a higher price down the road.
Unless youre a big energy-trading company that can afford to lease an oil
tanker for a few months, though, thats not really a practical move.
Thats where the futures market comes in. Speculators have been trading oil
futures on the New York Mercantile Exchange since 1983. Buying a futures
contract allows an investor to bet on the price of oil without having to take
delivery of the stuff. This is typically how hedge funds invest in oil. In June,
when prices were above $100 a barrel, speculators had accumulated a record
long position in oil futures, hoping to profit from rising prices. As oil tumbled,
money managers sold out of their positions, adding momentum to the decline.
Now speculators are again wagering that prices will climb. During the week
ending Jan. 13, hedge funds and other big money managers bought the
equivalent of 24.6 million barrels on the Nymex, accumulating their biggest
bullish position since August.
The futures market, however, can be a dangerous place for even the most
sophisticated of individual investors. For one thing, its volatile. Oil prices
regularly swing 3 percent to 5 percent in a daythe kind of moves that make
headlines in the stock market. The most aggressive energy hedge funds
typically put only 10 percent to 25 percent of their total assets at risk in the
futures market. Even the pros are super cautious, says John Kilduff, a
partner at Again Capital, a hedge fund that focuses on energy. Although they
think they might be getting a deal with prices this low, Kilduff says, trading oil
futures is not at all what your average mom-and-pop investors should be
doing right now.

That hasnt stopped plain folks from trying. One of the most popular ways for
ordinary investors to get into the oil market is through exchange-traded funds.
ETFs are bought and sold on exchanges like stocks and track commodity,
bond, and stock indexes. Since the end of November, investors have put about
$7.3 billion into oil-related ETFs. About $1.3 billion of that has gone into the
United States Oil Fund (USO), which invests in soon-to-expire oil futures.
Thats as much as USO took in during all of 2013 and is by far the most cash
attracted by any of the oil ETFs.
Part of what makes USO attractive is its sensitivity to short-term movements
in oil prices. But as Bloomberg Intelligence analyst Eric Balchunas wrote in a
recent report, the benefits of USO pretty much end there. Over the long term,
its correlation with oil prices falls apart because of the high costs associated
with managing positions in the futures market and having to continually roll
over contracts that are set to expire.
Since it began trading in April 2006, USO has lost almost 75 percent of its
value as of mid-January, while the spot price of oil is down 26 percent. In
2009, when oil prices jumped 78 percent, USO returned just 14 percent. John
Hyland, chief investment officer of USO, says the fund is a tactical trading
vehicle predominately used by professional traders, and not meant to be a
buy-and-hold investment.

Kilduff says USO is a worse idea when prices are expected to rise, as they are
now, and short-term prices are lower than long-term prices. Under those
conditions, when USO closes out the contracts it owns each month and buys
new ones, it ends up selling lower-priced oil and buying more expensive oil. As
of Jan. 20, crude for delivery in March was trading about 40 a barrel higher
than crude for delivery in February. Right now its a particularly difficult
situation to be invested in oil ETFs, says Harry Tchilinguirian, head of
commodity markets strategy at BNP Paribas.
ETFs that buy shares of energy companies often have lower costs because they
avoid dealing with complex derivatives. They also tend to capture a larger
share of the increase when oil prices rise. The Energy Select Sector SPDR
Fund tracks large oil and gas companies such as ExxonMobil and Chevron. In
2009, when oil prices jumped 78 percent, the fund gained 22 percent.
Bobbie Munroe, a financial planner in Havana, Fla., says shes directing
clients to a Vanguard Energy ETF that buys shares of oil and gas producers, as
well as pipeline operators and refiners. Its annual dividend was almost
2 percent over the past 12 months, so investors get at least some return. Her
clients have asked her about commodity ETFs, but she cautions against them.
Those are just fancier ways to lose more money, she says.
Another strategy is to invest in the bonds of oil companies rather than their
stocks. The U.S. shale boom has been funded by large amounts of debt, much
of it rated below investment grade. Over the past three years, junk-rated
energy companies have issued about $90 billion in debt. A lot of those
companies were spending more money than they were bringing in even when
oil prices were high. Cheap oil only makes that problem worse. Not all of
those companies will make it, says Chad Mabry, an oil analyst at the
investment bank MLV & Co.

Some will. Timothy Parker, a partner at Regency Wealth Management in

Ramsey, N.J., has spent the past few months poring over the bonds of some of
the most indebted U.S. oil producers. Hes getting ready to buy. Theres a lot
of ugly stuff out there, but I was surprised by how well some of those bonds
have held up, he says.
With Moming Zhou
The bottom line: With oil prices down more than 50 percent over the past
six months, bargain hunting is temptingand as risky as ever.