Wednesday, December 28, 2005 - U.S. Resists Building Refineries As Overseas Firms Move Ahead

The WSJ has finally caught up with me and Google.

For several weeks, I have written about the many refineries that are planned or under construction around the world. One point I have made that is not in the WSJ piece is that when 3 Billion Dollars is used to build an oil refinery in Viet-Nam, that is 3 Billion fewer Dollars available for other purposes. Using the US housing market as an alternative one can easily appreciate that the mortgage rate on 3 Billion Dollars of housing might go up just a little.

Using an average house price of $300,000 (higher than the actual average in America), 3 Billion Dollars is enough money to finance at least 20% more than 1000 of these houses.

In regard to oil, I have stated that crude is likely to dance around $55 to $58 for a while before breaking to the down side. I am confident that the price will be below $45 in the next two to three years but cannot guess what will happen between now and when more production comes on line. It seems that demand destruction is rapid when the price gets above $60. It seems that demand destruction also is happening daily at $55 to $58.

The WSJ reports 100 oil projects that could add 12 million dollars per day of "new" oil. It is just a matter of time before prices go down.