As oil futures hit $115 per barrel late this past week, The Economist ran this article on the questions surrounding the recent announcement regarding the discovery of Brazil’s Carioca-Sugar Loaf Field, which could be one of the largest oil discoveries in history. Given the time, expense and risk involved in extracting the oil, the announcement of the discovery didn’t affect oil markets much, but The Economist article nevertheless concludes as follows:

The discoveries do suggest that the gloomiest pundits are wrong to predict that the world will soon run out of oil. It is not that there are still lots of huge oil fields out there: the number of mammoth discoveries is declining, Tupi (and perhaps Carioca-Sugar Loaf and Jupiter) notwithstanding. But the new finds do illustrate how the technology with which oil firms hunt for, extract and process fossil fuels is constantly improving. Petrobras’s recent success is only possible thanks to recent advancements in seismic surveys, drilling, and offshore platforms. Other technological developments are allowing a greater proportion of the oil found around the world to be recovered and are even expanding the definition of oil, as firms conjure liquid fuel from the solid tar-sands of Canada, for example, or from coal and natural gas.

As noted recently here, the recent increases in oil prices are making alternative energy sources economically viable. Thus, take note of what former ExxonMobil CEO Lee Raymond noted years ago in response to a question on oil prices:

Interviewer: "Some people think prices will keep going up?"

Raymond: "Maybe. I’ll bet they’ll be lower at some point."

This Examiner.com article picks up on something that this previous post noted over a year ago — the economic absurdity of Joe “Che” Kennedy’s deal with Venezuelan strongman Hugo Chavez under which Kennedy’s non-profit Citizens Oil Corp buys discounted oil from Venequela to provide low-income American customers with a 40 percent discount on a one-time delivery of up to 200 gallons of heating oil. Kennedy rationalizes this program despite the fact that the poorest of Citizen’s customers are relatively wealthy in comparison to the 40% of Venezuelans who subsist on about $2 a day. The Examiner concludes its story with the following observation:

Curiously, despite his wealth, Kennedy receives a $400,000 annual salary [from Citizens, which is a non-profit]. Instead of embracing his uncle’s [the late John F. Kennedy] courageous anti-communist legacy, he has become just another smarmy celebrity who yammers on about having compassion for the poor from the doorways of multimillion-dollar mansions and private jets, all the while accepting oil stolen by a dictator. Lenin had a name for Western liberals who did this kind of thing ñ “useful idiots.”

I’ve been meaning to pass along a couple of interesting items regarding oil production and prices.
First, several of the bloggers over at the Oil Drum have launched an intriguing new project — a Wikipedia project in which they and a number of other contributors are accumulating data on all the major, new oil projects around the world and contributing the data to a single database that can be used to document historical trends and attempt to forecast future trends in oil production. The contributors are focusing on basic data for all of the major projects that would add new oil production capacity, including estimates of the peak flow when such information is available. My compliments to the creators of this excellent information resource.
Meanwhile, this John Cassidy column predicts that the price of oil has peaked for the time being and that prices will begin falling to the $50 a barrel range:

. . . the experts who are predicting the worst, based on geology and geopolitics, are missing the crucial role that economic incentives play in determining the price of crude. The tripling of oil prices since the summer of 2003 has unleashed forces that within the next two or three years will bring oil prices tumbling back down to below $50 a barrel. Looking even further ahead, prices could easily fall to $30 a barrel or even lower. So before you trade in your Cadillac Escalade for a Toyota Prius, think twice: $1.50-a-gallon gas might not be gone forever.

In fact, Clear Thinkers favorite James Hamilton also thinks that oil prices have peaked.

The BBC’s Evan Davis provides a short article on how to keep the recent spike in oil prices in perspective:

It’s clear that $100 a barrel is very high. Although it’s worth saying, it’s still not a record.
1864 was in fact the most expensive year for oil. It was over $104 in today’s money. Notwithstanding that record (and most of us in the media will ignore it when talking of record highs in the next few weeks – we’ll be using the high of $104.7 reached in 1980 after the Iranian revolution) we can at least say an impending $100 barrel is getting historically significant.

And Davis provides the following observation about the market for oil that echos that of former Exxon chairman, Lee Raymond:

But the point of volatile market is that it swings both ways.
The longer we have higher oil prices, the more we can economise on oil – by switching to smaller cars for example. And the more oil that gets produced ñ a small excess of supply over demand – and the price can plummet.
The lesson of history, is that when oil prices soar up to record levels, they usually then fall back down.

And here’s one final price of oil thought for the day, courtesy of Shai Agassi:

The cost of the average used car in Europe is now cheaper than the cost of gasoline to drive it for a year . . .

If you thought that Bill O’Reilly’s ideas about gasoline prices were screwy, Bryan Caplan surveys the debate responses of the Democratic Party presidential candidates on the subject.
I don’t know what’s more troubling. The candidates’ answers or the fact that those inane answers are formulated because they help get the candidates elected to office?

George Will brilliantly explains the folly of governmental initiatives to control the price of gasoline and, in so doing, exposes the true price gougers:

[House Speaker Nancy] Pelosi announced herself “particularly concerned” that the highest price of gasoline recently was in her San Francisco district — $3.49. So she endorses HR 1252 to protect consumers from “price gouging,” defined, not altogether helpfully, by a blizzard of adjectives and adverbs. Gouging occurs when gasoline prices are “unconscionably” excessive, or sellers raise prices “unreasonably” by taking “unfair” advantage of “unusual” market conditions, or when the price charged represents a “gross” disparity from the price of crude oil, or when the amount charged “grossly” exceeds the price at which gasoline is obtainable in the same area. The bill does not explain how a gouger can gouge when his product is obtainable more cheaply nearby. Actually, Pelosi’s constituents are being gouged by people like Pelosi — by government. While oil companies make about 13 cents on a gallon of gasoline, the federal government makes 18.4 cents (the federal tax) and California’s various governments make 40.2 cents (the nation’s third-highest gasoline tax). Pelosi’s San Francisco collects a local sales tax of 8.5 percent — higher than the state’s average for local sales taxes.

To understand how gasoline prices are set, read this.