# Oil \<$80/BBL: SO;the big run-Up WAS speculation? **URL:** \ **Category:** Great Debates\ **Created:** [October 17, 2008, 11:39am UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360 "2008-10-17T11:39:19Z")\ **Posts on this page:** 11\ **Page:** 3
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 19, 2008, 10:34pm UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/41 "2008-10-19T22:34:28Z")
> [@T\_SQUARE](#): > > Do you have a rig you want to sell? The companies are adding capacity, but it takes a while. Baker Hughs provides good rig count info for free, there are 318 more rigs turning in the US and Canada than there were a year ago at this time. You can’t build a rig overnight though. > > Skilled workers are a very real issue. The United States turns out a handful of petroleum engineers a year. Texas A&M, the largest program in the country graduates about 40 people a year, and I would guess as many as half are international students who won’t be working in the United States. That’s why you can make 6 figures right out of undergrad. This is a big concern for the industry. Big time unemployment and they can not hire workers. I worked with a petroleum engineer who left the field because he could not get steady work. That was a few years ago. Rigs can be built. I bet the prices are going down due to the economy too. ---
**Author:** ![ASAKMOTSD](https://avatars.discourse-cdn.com/v4/letter/a/919ad9/32.png) [@ASAKMOTSD](https://boards.straightdope.com/u/ASAKMOTSD)\ **Post date:** [October 19, 2008, 10:39pm UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/42 "2008-10-19T22:39:35Z")
> [@T\_SQUARE](#): > > Do you have a rig you want to sell? The companies are adding capacity, but it takes a while. Baker Hughs provides good rig count info for free, there are 318 more rigs turning in the US and Canada than there were a year ago at this time. You can’t build a rig overnight though. > > Skilled workers are a very real issue. The United States turns out a handful of petroleum engineers a year. Texas A&M, the largest program in the country graduates about 40 people a year, and I would guess as many as half are international students who won’t be working in the United States. That’s why you can make 6 figures right out of undergrad. This is a big concern for the industry. So you are saying that “drill, baby, drill” != “short term solution”, eh? ---
**Author:** ![Precambrianmollusc](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/precambrianmollusc/32/63_2.png) [@Precambrianmollusc](https://boards.straightdope.com/u/Precambrianmollusc)\ **Post date:** [October 20, 2008, 9:23am UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/43 "2008-10-20T09:23:38Z")
> [@gonzomax](#): > > They do not want the land to drill. They want to have leases on their books ,which makes the corporation more valuable. Oil companies have 48 million acres of oil land rights to drill on. They will when they need to. Not drilling maintains a price structure. They control the supplies. > The argument that they do not have enough rigs is silly. They have made record profits quarter after quarter. They have billions in the bank. Buy the damn things. But if they do not ,it is not because they can not afford to. It is because they will drill when they are ready. > There are a lot of oil refineries all over the country. When the hurricane hit in New Orleans the price went up in Michigan. Our refineries were in tact. Fist off a lease does not do the company any good so far as value. The investors look at booked reserves. Owenership of a lease without having a hole in the ground, some formation evaluation and pressure data is not in proved, probable or possible. So holding leases does not affect the reserves, and so does not affect the company more valuable. As for you comment of having lots of money so they can just buy a new rig, I am sure you are aware that oil companies do not own rigs. The service companies buy and operate them (Pride, Transocean, Nabors etc). They are making profits, but they are not in business of having several hundred million in the bank to buy one flat out. The money comes from banks, and the loans is backed by a contract signed by an oil company. Regardless of how much money one has, it is still very difficult to build a new rig, let me quote from National Oilwell Varco (NOV) who are one of the largest drill rig and equipment manufactures (they sell to the service companies) NOV Q2 Earnies backlog comment Backlog for capital equipment orders for the Company’s Rig Technology segment at June 30, 2008 increased to $10.8 billion, compared to $9.9 billion at March 31, 2008, with record new orders during the quarter of $2.2 billion. The increase in the Company’s backlog for capital equipment reflected the strong demand for its drilling equipment products, particularly for international offshore rigs. Backlog for drill pipe orders in the Company’s Petroleum Services & Supplies segment increased 19 percent during the second quarter. So there is a backlog, and it isn’t getting smaller. Wild profits do not translate into easily available new equipment. With regards to people, yes a lot of trained people left the industry, due to the boom bust cycle. As for unemployment, well sorry, but trained people are required, a 15 year telecoms engineer or an ex investment banker is not going to be much use. There are massive shortages in the rig crew side, an increase in unemployment in manufacturing and construction may help that shortage. again trained people is the issue. So yes to reiterate, ONE (there are others) of the reasons that leases are not being drilled is due to equipment and people shortages. The equipment and people that are available are targeted to the best prospects. The more marginal ones are not drilled. If we see a drop in service prices and particularly and increase in availability of well bore hardware such as the steel casing, and rig capacity increases, these undeveloped prospects may see some action. Take it from a drilling engineer, the shortages are real, they are affecting the ability of companies to expand production and money can’t fix everything. ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [October 20, 2008, 6:35pm UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/44 "2008-10-20T18:35:59Z")
You obviously know your stuff. tell me: how many wildcat wells get drilled today? Is the state of oil exploration such that you have a 90+% chance of hitting oil when you drill? Lastly, i remember seeing a show about Norway’s North Sea oilfields-they had a completely automated drilling rig-no guys in hard hats-just robot arms moving the drillpipe. are these common today? ---
**Author:** ![ShibbOleth](https://avatars.discourse-cdn.com/v4/letter/s/848f3c/32.png) [@ShibbOleth](https://boards.straightdope.com/u/ShibbOleth)\ **Post date:** [October 20, 2008, 6:55pm UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/45 "2008-10-20T18:55:43Z")
> [@Bear\_Nenno](#): > > Gas prices have decreased drastically? How much per gallon are we talking?? I haven’t heard anything about it. Pump prices here are down to about $2.95/gallon of regular, from a high of just over $4.00. Would love to see a chart that correlates the rise in oil cost/barrel and pump cost/gallon. It does seem to go up a lot more quickly than it comes down. ---
**Author:** ![Precambrianmollusc](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/precambrianmollusc/32/63_2.png) [@Precambrianmollusc](https://boards.straightdope.com/u/Precambrianmollusc)\ **Post date:** [October 21, 2008, 3:45am UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/46 "2008-10-21T03:45:23Z")
> [@ShibbOleth](#): > > Pump prices here are down to about $2.95/gallon of regular, from a high of just over $4.00. Would love to see a chart that correlates the rise in oil cost/barrel and pump cost/gallon. It does seem to go up a lot more quickly than it comes down. If you are willing to do a little excel work you can go to [www.eia.doe.gov](http://www.eia.doe.gov) and click on the tab that says latest data This should be a direct link for the retail gasoline data [http://tonto.eia.doe.gov/dnav/pet/pet\_pri\_gnd\_a\_epmr\_pte\_cpgal\_w.htm](http://tonto.eia.doe.gov/dnav/pet/pet_pri_gnd_a_epmr_pte_cpgal_w.htm) The look here for the crude and the spot market for gasoline [http://tonto.eia.doe.gov/dnav/pet/pet\_pri\_spt\_s1\_d.htm](http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm) and plot away. I think you may want to look at the retail price to the spot price of gasoline products on the market and see if there is a lag , and also be careful what spot market you pick , LA delivery is a lot more expensive than NY harbour or Rotterdam. It is important to remember that there are two markets involved the spot/futures for crude, then the spot/futures for refined products. Whilst they are all obviously interlinked with crude demand linked to gasoline demand etc comparing the crude market price with the retail price may miss out significant factors such as refinery outages and refined product stocks that may not be reflected in the crude price. ---
**Author:** ![Precambrianmollusc](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/precambrianmollusc/32/63_2.png) [@Precambrianmollusc](https://boards.straightdope.com/u/Precambrianmollusc)\ **Post date:** [October 21, 2008, 4:09am UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/47 "2008-10-21T04:09:41Z")
> [@ralph124c](#): > > You obviously know your stuff. tell me: how many wildcat wells get drilled today? Is the state of oil exploration such that you have a 90+% chance of hitting oil when you drill? > Lastly, i remember seeing a show about Norway’s North Sea oilfields-they had a completely automated drilling rig-no guys in hard hats-just robot arms moving the drillpipe. are these common today? Numbers for rank wildcats are difficult to come by, and success rates are also not widely published. If you look at [www.rigzone.com](http://www.rigzone.com) you can see under exploration news any number of reports on exploration activity. A lot of small companies will release a lot of news reports, mainly as a investment effort, it pays to keep your name in the spot light so the private money will keep flowing. The bigger boys are a little more reticent about releasing information. Yes drill floor automation is here and all new builds have pretty much fully automated pipe handling systems, and everything is fly by wire. There are still people controlling the systems, they just are not on the floor. IF you are on a deep water or harsh environment rig, it will almost certainly have some degree of automated pipe handling and maybe a dual activity derrick. This is making a huge impact on safety (along with a change in mentality) as working on the drill floor and tubular handling is a dangerous activity. Drill floor automation has moved people out of the danger zones and made a change in the skills of the people. The roughnecks now spend less time lift heavy stuff and need to spend more time maintaining complex AC electric/hydraulic systems. The old manual style kit really did not need much maintenance. The automation is also coming to the land market. Canada has a lot more automation on land, which was traditionally the low end of the market, a big independent just made a huge investment in taking modern automated land rigs down to south America, so things are changing. Unfortunately there is a lot of manual junk on US land and elsewhere out there, which, more often than not is operated with a ‘rougher and tougher than you’ attitude, which is still killing people. OK, I’ll get off my soap box on that one and return your to your regularly scheduled debate. ---
**Author:** ![Bear\_Nenno](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bear_nenno/32/3358_2.png) [@Bear\_Nenno](https://boards.straightdope.com/u/Bear_Nenno)\ **Post date:** [October 23, 2008, 3:48am UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/48 "2008-10-23T03:48:39Z")
> [@ShibbOleth](#): > > Pump prices here are down to about $2.95/gallon of regular, from a high of just over $4.00. Would love to see a chart that correlates the rise in oil cost/barrel and pump cost/gallon. It does seem to go up a lot more quickly than it comes down. Sweet. I will be back in Tampa around Christmas. Been wondering how much money I’ll waste in gas while I’m there. > [@xtisme](#): > > Seriously? Where do you live? Well… I currently live in Iraq, I have a barracks room in Germany, an apartment in Korea and my home–in Tampa. ---
**Author:** ![FoieGrasIsEvil](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foiegrasisevil/32/16638_2.png) [@FoieGrasIsEvil](https://boards.straightdope.com/u/FoieGrasIsEvil)\ **Post date:** [October 23, 2008, 4:21am UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/49 "2008-10-23T04:21:22Z")
> [@Kendall Jackson](#): > > [The Wall Street Journal:](http://online.wsj.com/article/SB122418052416641331.html?mod=googlenews_wsj)[Financial Times:](http://www.ft.com/cms/s/0/234fc614-6843-11dd-a4e5-0000779fd18c,dwp_uuid=f2b40164-cfea-11dc-9309-0000779fd2ac.html)[The New York Times:](http://www.nytimes.com/2008/10/11/business/worldbusiness/11oil.html?partner=rssnyt&emc=rss)If you haven’t noticed the drop in demand, it’s because you haven’t glanced in a business paper recently. The coming recession has been pretty big news lately, at least for the people who like to follow that sort of thing. Yeah, but Kendall Jackson wines suck! 😃 ---
**Author:** ![Santo\_Rugger](https://avatars.discourse-cdn.com/v4/letter/s/e95f7d/32.png) [@Santo\_Rugger](https://boards.straightdope.com/u/Santo_Rugger)\ **Post date:** [October 23, 2008, 4:42am UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/50 "2008-10-23T04:42:24Z")
> [@Bear\_Nenno](#): > > Well… I currently live in Iraq… Did you experience the 33%+ price increases there that have allowed us to think that a 25% drop is a Good Thing? ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [October 23, 2008, 6:27am UTC](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360/51 "2008-10-23T06:27:06Z")
> [@Santo\_Rugger](#): > > Did you experience the 33%+ price increases there that have allowed us to think that a 25% drop is a Good Thing? That was extremely clever. Did you mean that to be the case? Because of course, X \* 1.33 \* 0.75 = X A 33% increase, followed by a 25% decrease, yields the original number. [Previous page](https://boards.straightdope.com/t/oil-80-bbl-so-the-big-run-up-was-speculation/468360.md?page=2)