Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
As the oil would not be earmarked for the US, I fail to see the reasoning behind the pipeline to be truthful. As a matter of fact, the pipeline would actually increase gas pricing in the mid-west.
But, given the price of oil, I don't see this as a significant point of discussion.
"I fail to see the reasoning behind the pipeline". Yes, the current situation in the oil industry has really put the economics of that pipeline into question.
@Derf- You just made me into an oracle! How about this, in the best tradition of the Greek oracle of Delphi: "the price for play may be more than you expect."
Seriously, I was just quickly remembering the gist of an article that I read some time ago about that- don't remember where, though. Most likely either WSJ or the Economist. Sorry if I came across as an expert on this.
Oil is fungible. As an end user, I really don’t much care about where the drilling was done. What I do care about is the price. I will likely use more if the price is lowered.
The economists’ universal tool is the composite supply-demand curves. Like most products, oil prices obey the laws of supply and demand in a normal fashion. Lower the total costs (like those of transportation), prices will fall, and demand will increase, ceretis paribus.
Completing the final section of the Keystone pipeline will generate that end result. It will do good for our economy, and will likewise do good for the world economy. I’m not so much worried over total quantity extracted. That is self-adjusting. I’m more committed to a minimizing cost program. Transportation costs will be measurably reduced with a more direct delivery route.
Transporting crude has always been a problematic issue. The historical record supports the conclusion that sea shipping is superior to pipelines from a damage limiting perspective, which is superior to railroads, which is superior to trucking. But in this instance, sea shipping is not an option. Pipelines will get the job done in an efficient manner.
Are there risks? Of course there are. Crude is a corrosive product. But over the years, engineers have learned to control those risks to minimize their frequency and the damage that spillage causes.
The Alaskan pipeline history serves as an example of the accrued learning experience. In its early history, some tragic missteps indeed happened. But over its most recent history, those gaffes have approached zero. Hooray!
The number one instrument in the economist’s toolbox (supply-demand curves) nicely tells the story. Increasing supply at a lower cost will overall decrease prices and simultaneously increase quantity consumed. That’s goodness for everyone’s GDP.
Is it possible that my understanding is off-target. Indeed, yes. I am not an economist, and besides, economists often get it wrong too.
To honor Yogi Berra on this sad day, I’ll quote him: “You can’t win all the time. There are guys out there who are better than you”. That’s true in baseball, and is equally true in investing if your standard is to beat market returns.
I take your point, but there might be incremental decisions made depending on the price: cost of flying vs driving, at least on relatively short hops, say from Bay Area to San Diego or to neighboring states, for instance.
Agree with respect to friends vs enemies, but one of the supply factors is the relatively high cost of producing and processing the thick Canadian tar sand oils. Many of our enemies (or at least, those who are not really our friends) can produce well below the costs of the tar sand fields, so will drive that source to "last resort" status for the foreseeable future.
Increasing use of natural gas and "renewables" will also suppress the market for the more expensive oil fuels.
If price drops, the economics wizards project that demand will increase. They draw the demand curve for an individual just like it's assembled for the composite group. In the price and quantity coordinates, the curve slopes downward as price drops; quantity demand increases.
I suppose I would react like the nominal individual.
Tar sands oil is tough stuff. It takes extraordinary work to convert it into useful products. I read somewhere that the required input energy is nearly equal to net output yield. It's a tight balance, hence small efficiencies are needed to make the project profitable.
Since the Canadian firm is pushing the project, I assume they have done a careful analyses to justify it, at least for anticipated consumption and prices.
Jeez, you made a simple assertion about using more, and I asked a simple, curious question. No need to pontificate again, about price and demand! Just answer the damn question. How would you react like the nominal individual? In what ways? Specifically. Just askin'. You have this habit of evasiveness wind even in the face of simple query and merest curiosity. I am not challenging you. Gah.
"Since the Canadian firm is pushing the project, I assume they have done a careful analyses to justify it"
But that's really the main question at this time: their analysis for this project occurred well before the current deterioration in world oil prices, and also before the major surge in US production in the "fracking fields". It's not at all clear if the pipeline still makes economic sense at this time, from what I've read lately.
"I fail to see the reasoning behind the pipeline". Yes, the current situation in the oil industry has really put the economics of that pipeline into question.
this is the problem isn't it. it would seem sane people cannot opine unless they have Masters in Bulls*** Artistry from Hogwart. People will still sell the Pipeline as a "job creator" tool which will help (cough, cough, rich people in) the economy.
Yes, I purposely expanded my reply to your question to a less personal level. No evasion or obfuscation was intended. Sorry that it did not satisfy your standards. I did have reasons to do so.
My personal response to a fuel price change is likely to be non-representative of the more typical, general public response. I thought that the general reaction as characterized by economists’ modeling and data would be more productive towards a better understanding of the tradeoffs.
I suspect that I am much less sensitive to fuel price changes than the average consumer. My greatly above average income, wealth, and location promote that insensitivity.
To illustrate, I live very close to the Pacific Ocean. Consequently, since a huge body of nearby water greatly attenuates temperature fluctuations, I don’t own a home air conditioning unit; opening the windows serve that purpose for most of the year. My nearly invisible heating bill in the short Winter months would shock most folks.
I am conservation and efficiency inclined. Old necessary habits are sticky residuals. Consequently, we only operate a single, fuel efficient auto. We plan trips to make multiple needed stops in a circular route. Like most folks (surveys suggest 71%) we shop for the least expensive gasoline; Cost Co is a constant winner.
Although many factors enter into the auto buy decision equation, gasoline price is one of those factors. Since fuel prices are consistently a subject commonly discussed, its level influences other economic decisions beyond the direct fuel purchase. Our general perception of the overall economy is somewhat tied to fuel costs.
I do not believe that my personal fuel habits are especially meaningful or useful for most MFO Members. That’s primarily the reason I redirected your personal question to a more generic response.
That’s why, as a matter of personal policy, I don’t recommend specific mutual funds or a specific portfolio asset allocation. Wants and capabilities are all over the map. My personal commitments on these matters should not impact MFO Members. My preferences are not likely practical for others.
I hope I am more successful in my second attempt to answer your question.
"As the oil would not be earmarked for the US........"
What makes you say this PmU? Surely you are aware that the US is still a net importer of oil......
We are an importer of crude by a small margin, but an exporter of refined product.
Whether the oil will for certain be used here, or sold abroad is frankly unclear. I can only make a supposition as a result of TransCanada’s President, Alex Pourbaix, being asked to support a condition that would require the oil on Keystone XL to be used in the United States. Mr. Pourbaix refused.
Wow, you should run for office, with redirection like that.
>> I will likely use more if the price is lowered.
I wonder why you wrote that if you cannot tell how, specifically. So, again, in what way would you 'likely use more'? From your ramble and description of needs and habits, it sounds as though you misspoke. Is that it?
If not and you will likely use more, tell details, 20 words max. Curious minds etc.
"Whether the oil will for certain be used here, or sold abroad is frankly unclear"
PmU: the main point is that we (the US) do not produce nearly enough oil to meet our needs, so we import oil for our use. That's been the case for as long as I can remember, and will continue to be the case.
It benefits the US to purchase oil from a friendly nation, Canada......rather than having to buy it from those who do not like us......And there are times when those who don't like us have conspired together to raise the price that they sell it to us for....I'm sure you know about this.
And in times of military conflict, it can be essential to have supplies of oil from our friends and allies
The fact that we have companies that sell refinery products is a different issue entirely
>> PmU: the main point is that we (the US) do not produce nearly enough oil to meet our needs, so we import oil for our use. That's been the case for as long as I can remember, and will continue to be the case.
rjb112...your point appears to infer that if the pipeline weren't built, then the oil would not end up in the US. I don't believe this is accurate. The oil already is directed to the US via the existing Keystone pipeline. The Keystone XL is simply an add-on to current structure which would add to that capacity.
>> the main point is that we (the US) do not produce nearly enough oil to meet our needs, so we import oil for our use. That's been the case for as long as I can remember, and will continue to be the case.
davidmoran, if you study oil, you will see that the US is a net importer of oil. As I said, we do not produce nearly enough oil to meet our needs, so we import oil for our use.......that has been the case in the past, and will continue to be the case
surely you have been aware of our past history regarding oil, and how OPEC has had us 'over a barrel' with respect to oil in the past
you might want to read some of the things that oil analysts have said.....many Wall Street firms, and other firms, have oil analysts on staff....and energy analysts on staff
Although surely not like your own expertise, actually I do a little bit of work in this area, as an irregular editor of international trade papers since OPEC's rise to prominence 40y ago. Which is why I posted that particular link for you to study and comment on.
>> As I said, we do not produce nearly enough oil to meet our needs,
Not nearly enough, huh. This seems sort of a 'because I say so' assertion, plus those analysts, which, again, is why your reading of http://www.eia.gov/tools/faqs/faq.cfm?id=268&t=6 might be of real interest.
Rather than wait again for your take on that gov page, I emailed a working oil broker, who explained:
\\\ We export more refined products (gasoline, kerosene, raw materials used for plastic, etc) than we import. It's still against the law to export crude, although an exception was recently made for Mexico. \\\ We have plenty of domestic production of crude oil for our own use. The USA has plants that also refine heavy crude from places like Venezuela and Mexico. Some is sold here (Citgo) and some gets exported. \\\ Not sure if we're technically energy-independent, but getting closer.
davidmoran, as I mentioned, we do refine oil products, and that is a separate topic entirely.
I thought it was common knowledge that the US needs to import oil for our own use! We do a good job of finding and extracting oil, but it's not enough to meet our needs. So we are dependent on foreign sources. You seem to want proof of that.....let's see what can be found on the topic: ++++++++++ OK, the U.S. Energy Information Administration, in April 2015 said:
"The United States has been a net importer of energy since the 1950s."
"The United States is currently an exporter of petroleum products and coal, but an importer of natural gas and crude oil. When the energy content of these fuels is combined, the United States in 2014 imported 23.3 quadrillion British thermal units (Btu) of energy and exported 12.2 quadrillion Btu"
However, hopefully we will one day come into energy balance, and I hope that one day we meet all of our crude oil needs. It just could happen.
Here's a prediction below that it could happen in 2028:
"In the AEO2015 Reference case, imports and exports are balanced starting in 2028"
"In other cases, such as the High Oil Price and High Oil and Gas Resource cases, the United States becomes a net exporter of energy in 2019. However, in the Low Oil Price case, the United States remains a net energy importer through 2040."
"These changes in energy trade are anticipated based on both increases in domestic production—especially crude oil and natural gas—and more moderate expectations of demand growth. Subsequent articles will provide more information on these supply and demand projections."
I'd much rather import crude oil from Canada than have to rely on Venezuela, Russia, and countries in the Middle East
And we do get plenty from Canada.....it's just nice to rely on friendly countries for the maximum amount of our oil, and less on those countries that don't like us
"And in times of military conflict, it can be essential to have supplies of oil from our friends and allies"
It might be even more essential to be able to draw upon our so-called "strategic reserve". And what better time to fill that to the brim than when oil is $40ish? Are we doing that? I doubt it... I think that I would have read something someplace if we were.
"And in times of military conflict, it can be essential to have supplies of oil from our friends and allies"
It might be even more essential to be able to draw upon our so-called "strategic reserve". And what better time to fill that to the brim than when oil is $40ish? Are we doing that? I doubt it... I think that I would have read something someplace if we were.
I concur 100% with that Old_Joe That's a no brainer.....
"We export more refined products (gasoline, kerosene, raw materials used for plastic, etc) than we import. It's still against the law to export crude, although an exception was recently made for Mexico. We have plenty of domestic production of crude oil for our own use. The USA has plants that also refine heavy crude from places like Venezuela and Mexico."
If I recall correctly, all of these points are interrelated. Evidently the majority of US refineries are currently configured to process heavier grades of crude, such as we import from Mexico and other sources. Oddly enough, our refineries aren't capable of efficiently processing the lighter grades of crude presently being supplied from North Dakota and other fracking fields. That is why the decision was made to allow export of those lighter grades. Mexico wants that stuff, and we want heavier stuff from Mexico.
"And in times of military conflict, it can be essential to have supplies of oil from our friends and allies"
It might be even more essential to be able to draw upon our so-called "strategic reserve". And what better time to fill that to the brim than when oil is $40ish? Are we doing that? I doubt it... I think that I would have read something someplace if we were.
I concur 100% with that Old_Joe That's a no brainer.....
So that most likely won't happen.
I also thought that the time to work on infrastructure such as roads, bridges, tunnels, water and sewer pipes, electric grids, et.al. was when interest rates and borrowing costs were at their lowest point in generations. That's not even mentioning the jobs involved in the work.
That didn't happen though....as much as a no-brainer that might be as well.
Comments
But, given the price of oil, I don't see this as a significant point of discussion.
Derf
What makes you say this PmU?
Surely you are aware that the US is still a net importer of oil......
Seriously, I was just quickly remembering the gist of an article that I read some time ago about that- don't remember where, though. Most likely either WSJ or the Economist. Sorry if I came across as an expert on this.
Oil is fungible. As an end user, I really don’t much care about where the drilling was done. What I do care about is the price. I will likely use more if the price is lowered.
The economists’ universal tool is the composite supply-demand curves. Like most products, oil prices obey the laws of supply and demand in a normal fashion. Lower the total costs (like those of transportation), prices will fall, and demand will increase, ceretis paribus.
Completing the final section of the Keystone pipeline will generate that end result. It will do good for our economy, and will likewise do good for the world economy. I’m not so much worried over total quantity extracted. That is self-adjusting. I’m more committed to a minimizing cost program. Transportation costs will be measurably reduced with a more direct delivery route.
Transporting crude has always been a problematic issue. The historical record supports the conclusion that sea shipping is superior to pipelines from a damage limiting perspective, which is superior to railroads, which is superior to trucking. But in this instance, sea shipping is not an option. Pipelines will get the job done in an efficient manner.
Are there risks? Of course there are. Crude is a corrosive product. But over the years, engineers have learned to control those risks to minimize their frequency and the damage that spillage causes.
The Alaskan pipeline history serves as an example of the accrued learning experience. In its early history, some tragic missteps indeed happened. But over its most recent history, those gaffes have approached zero. Hooray!
The number one instrument in the economist’s toolbox (supply-demand curves) nicely tells the story. Increasing supply at a lower cost will overall decrease prices and simultaneously increase quantity consumed. That’s goodness for everyone’s GDP.
Is it possible that my understanding is off-target. Indeed, yes. I am not an economist, and besides, economists often get it wrong too.
To honor Yogi Berra on this sad day, I’ll quote him: “You can’t win all the time. There are guys out there who are better than you”. That’s true in baseball, and is equally true in investing if your standard is to beat market returns.
Best Regards.
How so? Drive more, or less constrainedly? House temp higher?
We can either import that oil from our friends, or from our enemies.
I'd rather get it from Canada than from some not so nice people elsewhere......
Increasing use of natural gas and "renewables" will also suppress the market for the more expensive oil fuels.
If price drops, the economics wizards project that demand will increase. They draw the demand curve for an individual just like it's assembled for the composite group. In the price and quantity coordinates, the curve slopes downward as price drops; quantity demand increases.
I suppose I would react like the nominal individual.
Best Wishes.
We're on the same page.
Tar sands oil is tough stuff. It takes extraordinary work to convert it into useful products. I read somewhere that the required input energy is nearly equal to net output yield. It's a tight balance, hence small efficiencies are needed to make the project profitable.
Since the Canadian firm is pushing the project, I assume they have done a careful analyses to justify it, at least for anticipated consumption and prices.
Thanks for your insightful comments.
Best Wshes.
But that's really the main question at this time: their analysis for this project occurred well before the current deterioration in world oil prices, and also before the major surge in US production in the "fracking fields". It's not at all clear if the pipeline still makes economic sense at this time, from what I've read lately.
Yes, I purposely expanded my reply to your question to a less personal level. No evasion or obfuscation was intended. Sorry that it did not satisfy your standards. I did have reasons to do so.
My personal response to a fuel price change is likely to be non-representative of the more typical, general public response. I thought that the general reaction as characterized by economists’ modeling and data would be more productive towards a better understanding of the tradeoffs.
I suspect that I am much less sensitive to fuel price changes than the average consumer. My greatly above average income, wealth, and location promote that insensitivity.
To illustrate, I live very close to the Pacific Ocean. Consequently, since a huge body of nearby water greatly attenuates temperature fluctuations, I don’t own a home air conditioning unit; opening the windows serve that purpose for most of the year. My nearly invisible heating bill in the short Winter months would shock most folks.
I am conservation and efficiency inclined. Old necessary habits are sticky residuals. Consequently, we only operate a single, fuel efficient auto. We plan trips to make multiple needed stops in a circular route. Like most folks (surveys suggest 71%) we shop for the least expensive gasoline; Cost Co is a constant winner.
Although many factors enter into the auto buy decision equation, gasoline price is one of those factors. Since fuel prices are consistently a subject commonly discussed, its level influences other economic decisions beyond the direct fuel purchase. Our general perception of the overall economy is somewhat tied to fuel costs.
I do not believe that my personal fuel habits are especially meaningful or useful for most MFO Members. That’s primarily the reason I redirected your personal question to a more generic response.
That’s why, as a matter of personal policy, I don’t recommend specific mutual funds or a specific portfolio asset allocation. Wants and capabilities are all over the map. My personal commitments on these matters should not impact MFO Members. My preferences are not likely practical for others.
I hope I am more successful in my second attempt to answer your question.
Best Wishes.
Whether the oil will for certain be used here, or sold abroad is frankly unclear. I can only make a supposition as a result of TransCanada’s President, Alex Pourbaix, being asked to support a condition that would require the oil on Keystone XL to be used in the United States. Mr. Pourbaix refused.
So what does that lead you to believe?
Wow, you should run for office, with redirection like that.
>> I will likely use more if the price is lowered.
I wonder why you wrote that if you cannot tell how, specifically. So, again, in what way would you 'likely use more'? From your ramble and description of needs and habits, it sounds as though you misspoke. Is that it?
If not and you will likely use more, tell details, 20 words max. Curious minds etc.
PmU: the main point is that we (the US) do not produce nearly enough oil to meet our needs, so we import oil for our use. That's been the case for as long as I can remember, and will continue to be the case.
It benefits the US to purchase oil from a friendly nation, Canada......rather than having to buy it from those who do not like us......And there are times when those who don't like us have conspired together to raise the price that they sell it to us for....I'm sure you know about this.
And in times of military conflict, it can be essential to have supplies of oil from our friends and allies
The fact that we have companies that sell refinery products is a different issue entirely
>> PmU: the main point is that we (the US) do not produce nearly enough oil to meet our needs, so we import oil for our use. That's been the case for as long as I can remember, and will continue to be the case.
See http://www.eia.gov/tools/faqs/faq.cfm?id=268&t=6
press
surely you have been aware of our past history regarding oil, and how OPEC has had us 'over a barrel' with respect to oil in the past
you might want to read some of the things that oil analysts have said.....many Wall Street firms, and other firms, have oil analysts on staff....and energy analysts on staff
>> As I said, we do not produce nearly enough oil to meet our needs,
Not nearly enough, huh. This seems sort of a 'because I say so' assertion, plus those analysts, which, again, is why your reading of http://www.eia.gov/tools/faqs/faq.cfm?id=268&t=6 might be of real interest.
\\\ We export more refined products (gasoline, kerosene, raw materials used for plastic, etc) than we import. It's still against the law to export crude, although an exception was recently made for Mexico.
\\\ We have plenty of domestic production of crude oil for our own use. The USA has plants that also refine heavy crude from places like Venezuela and Mexico. Some is sold here (Citgo) and some gets exported.
\\\ Not sure if we're technically energy-independent, but getting closer.
So maybe check your information.
I thought it was common knowledge that the US needs to import oil for our own use!
We do a good job of finding and extracting oil, but it's not enough to meet our needs. So we are dependent on foreign sources.
You seem to want proof of that.....let's see what can be found on the topic:
++++++++++
OK, the U.S. Energy Information Administration, in April 2015 said:
"The United States has been a net importer of energy since the 1950s."
"The United States is currently an exporter of petroleum products and coal, but an importer of natural gas and crude oil. When the energy content of these fuels is combined, the United States in 2014 imported 23.3 quadrillion British thermal units (Btu) of energy and exported 12.2 quadrillion Btu"
However, hopefully we will one day come into energy balance, and I hope that one day we meet all of our crude oil needs. It just could happen.
Here's a prediction below that it could happen in 2028:
"In the AEO2015 Reference case, imports and exports are balanced starting in 2028"
"In other cases, such as the High Oil Price and High Oil and Gas Resource cases, the United States becomes a net exporter of energy in 2019. However, in the Low Oil Price case, the United States remains a net energy importer through 2040."
"These changes in energy trade are anticipated based on both increases in domestic production—especially crude oil and natural gas—and more moderate expectations of demand growth. Subsequent articles will provide more information on these supply and demand projections."
I'd much rather import crude oil from Canada than have to rely on Venezuela, Russia, and countries in the Middle East
And we do get plenty from Canada.....it's just nice to rely on friendly countries for the maximum amount of our oil, and less on those countries that don't like us
Cheers
It might be even more essential to be able to draw upon our so-called "strategic reserve". And what better time to fill that to the brim than when oil is $40ish? Are we doing that? I doubt it... I think that I would have read something someplace if we were.
That's a no brainer.....
If I recall correctly, all of these points are interrelated. Evidently the majority of US refineries are currently configured to process heavier grades of crude, such as we import from Mexico and other sources. Oddly enough, our refineries aren't capable of efficiently processing the lighter grades of crude presently being supplied from North Dakota and other fracking fields. That is why the decision was made to allow export of those lighter grades. Mexico wants that stuff, and we want heavier stuff from Mexico.
I also thought that the time to work on infrastructure such as roads, bridges, tunnels, water and sewer pipes, electric grids, et.al. was when interest rates and borrowing costs were at their lowest point in generations. That's not even mentioning the jobs involved in the work.
That didn't happen though....as much as a no-brainer that might be as well.
Yes, you might hope that even our no-brain Congress would have seen that, but no...