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Hofmeister: Oil companies actually hate high prices

When it comes to oil companies and how they think, John Hofmeister knows of what he speaks. So when the former president of Shell Oil took to the lectern at the Hudson Institute’s “Fueling American Growth” conference in Washington, D.C., on Thursday and told the assembled that Big Oil actually doesn’t like high oil prices, it shouldn’t have come as a surprise.

And yet … let us gather that in: Companies like BP and ExxonMobil that post billions in earnings (or slightly less, as the price of oil slipped late in 2014 and into 2015) actually prefer a world in which a barrel of oil trades at a safe, predictable, boring price.

Here’s an excerpt from Hofmeister’s remarks:

Contrary to some popular belief, oil companies don’t actually like high oil prices. They like predictable, rational prices that deliver a return on investment over time. Companies do not like spiking, ever-higher prices, because of what happens as a consequence: The cure to high oil prices is high oil prices. People stop buying. Surpluses develop and prices collapse.

What’s the cure to low prices? Low prices. Because people stop producing and, sure enough, we run into shortages, and prices rise. This ever-continuing volatility is not good for the industry, it’s not good for national security, and it is horrific for the economy. And oil companies have been around for a long time. They see beyond the advantages of volatility either way, and look for those predictable price spots – they call them sweet spots, actually – where you can achieve an attractive investor return on investment, and you can maintain a stable workforce, and you can invest in R&D, and you can produce just enough energy to keep the nation well-supplied.

Hofmeister, who’s on the board of advisors with Fuel Freedom Foundation and is one of the stars of the foundation’s documentary, PUMP, has predicted that oil prices will continue to surge upward over the next year because U.S. drillers won’t be able to simply ramp up production quickly again after the recent downturn in prices forced many of them to suspend operations.

The foundation has argued that the best way to reduce oil consumption, end oil-market volatility and make prices gasoline permanently low for consumers is to open the transportation-fuel market to cheaper, cleaner alternatives like ethanol and methanol.

Hofmeister said: “We will never get past the volatility of oil until we get to alternatives to oil.”

The primary reason that I care so much about alternatives and future fuels is, as a person from the oil patch, I know the limitations. I know what’s possible and what’s not, and the appetite for oil worldwide will never, ever be satisfied from the oil patch. It can’t be. The risks, the costs, the geopolitics, really cannot begin to address the 2 billion people on this earth who really don’t have access to oil-based petroleum fuels, and most of them never will. There just isn’t enough.

You can watch the whole video clip here:


Broadcast live streaming video on Ustream

PUMP debuts on Netflix, so stream at your leisure

PUMP the Movie is now available on Netflix, giving millions of Americans the chance to watch an important film that shows the patch forward to ending our dependence on oil.

The documentary, produced by Fuel Freedom Foundation and narrated by Jason Bateman, was originally released in theaters last September. In fact, it’s still showing on big screens around the country, as the foundation has worked with partners to host screenings on college campuses and for nonprofits.

(For a full schedule of showings, as well as movie reviews and other content, check out PUMPtheMovie.com.)

But Netflix is a whole new level. The video-on-demand service is now available in 36 percent of U.S. homes, compared with 13.5 percent for Amazon Prime and 6.5 percent for Hulu Plus. Thirty-five million people watch movies and TV shows using Netflix’s streaming service, while another 5 million still get DVDs by mail. (We have DVDs for sale too, in an attractive blue case, on our website).

PUMP charts the century-long story of oil and how it built its monopoly on the U.S. transportation-fuel industry. There are interviews with major energy and auto-industry players like John Hofmeister, former president of Shell Oil Company, and Tesla Motors founder Elon Musk.

Much of the film is dedicated to solutions to our oil addiction: For example, ethanol, which is cheaper than gasoline and burns cleaner, with fewer toxic emissions, can be made from plenty of “feedstocks” besides corn.

Here’s a clip from the film featuring alcohol-fuels expert David Blume, telling us about the possibilities:

Another voice in that snippet belongs to Marc Rauch, editor of the Auto Channel website, who says: “Ethanol is not just any competitor [to gasoline]. It is the better fuel. It has always been the better fuel.”

The point is choice: American drivers deserve more than just one. To learn how we can achieve it, in the cars, trucks and SUVs we drive today, pick up the remote and watch PUMP.

Oil closes down again, lands just above $50 mark

Whatever the floor is for oil, $50 doesn’t seem to be it.

Brent crude closed just a few barrel-drops within that threshold Friday, down 85 cents to $50.11. U.S. crude fell 43 cents to $48.36. The marks are the lowest for crude since April 2009, and represented the seventh straight week of losses.

However, prices recovered from even steeper losses during the day after Baker Hughes, the U.S. oilfield-services company, announced that the number of rigs drilling for oil domestically had fallen by 61 this week, the most during a week since 1991.

Read more in Reuters.

That contraction in supply has many observers believing that prices will find the bottom soon. Former Shell Oil President John Hofmeister, one of the experts quoted in PUMP the Movie, notes that the surplus of oil we keep hearing about only amounts to roughly 1 percent of global consumption, which is about 90 million barrels a day (The U.S. uses about 18 mbd). He thinks the current slide is an “anomaly,” and that prices will begin climbing again in the spring.

Here’s what he said on Bloomberg:

At some point … we have to reassess where are we, in terms of the supply-demand equilibrium. … I call this an anomaly, in terms of oil price, but I wouldn’t be surprised to see it bottoming out … and starting to go up again late in the spring. … It doesn’t take much to wipe out this anomaly.

Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York, told Reuters:

“In my opinion we have not stabilized out yet. I do think that after seven weeks of losses, you will see a bounceback at some point, and people are waiting for that to short into. I am.”

Hofmeister interviewed on NBC’s ‘Meet The Press’

John Hofmeister, a Fuel Freedom board advisor and the former president of Shell Oil Co., appeared on NBC’s “Meet the Press” on Nov. 23 to discuss the falling price of oil.

Watch a clip here:

Watch the entire “MTP” program here (Hofmeister comes on about the 35:20 mark), and read the transcript here.

Hofmeister, appearing along with author Daniel Yergin, was asked by host Chuck Todd whether lower-priced oil amounted to an extra sanction against Russia and Iran, which already are burdened by sanctions — Russia for its actions in Ukraine and Iran for its pursuit of a nuclear program.

Hofmeister replied:

It is. It’s an extra sanction because it reduces their economic clout. Well, we’ve seen what happened to the Russian ruble. Iran is not able to subsidize many of its programs.

CHUCK TODD:

They need to have oil to be at $100 or more a barrel for them to balance their budget.

JOHN HOFMEISTER:

Yeah, the estimates are Russia needs well over $100, Iran even more. And the consequence of that is the people of Russia, the people of Iran will suffer as a consequence of the low oil price. That’s why the panicked feeling within the OPEC meeting coming up on Thursday.

As we know, at that meeting, OPEC decided not to cut production quotas, effectively ensuring that oil prices would not stabilize in the near future.

As The Wall Street Journal reports, Saudi Arabia, OPEC’s largest producer, now believes that oil will settle at about $60, down from about $110 over the summer.

Hofmeister said that, despite the worldwide surplus of oil, the U.S. should keep pumping, in anticipation of demand coming back:

… the reality is, we will be short of oil in the world over the next several years as global growth exceeds oil production. So we need all the production we can have. We need all the infrastructure we can build to make sure the U.S. is taken care of.

Hofmeister, author of the book Why We Hate the Oil Companies, has much more to say about oil in the Fuel Freedom-produced documentary PUMP. The film is now available for pre-order on iTunes. Visit PumpTheMovie.com to watch a trailer and learn more.

Former Shell Exec: American Energy Could Save the Economy

Town Hall

From 2005 to 2008, John Hofmeister ran the U.S. operations for Royal Dutch Shell. Then he turned 60. The Dutch have a cultural thing about 60. John said it roots back to post-WWII, when too many “older” folk were clinging to their jobs, so the unemployment rate among the youth was unacceptably high. So, many companies mandate retirement at 60. Fortunately, John didn’t drift off-stage. In fact, he’s more visible and viable now than ever. Frequently on CNBC, CNN, Fox and many others, he stopped by our Dallas studios to join Chris Faulkner of Breitling Energy and me for Powering America this week. (It’s the October 6 broadcast here).

 

Image courtesy of TownHall.com