Monday morning speculation

Hey there gang. Just got back from a relaxing vacation in Mexico, but I'm glad to see that TOD had an excellent week while I was away (although, I have to say that it was nice to not think too much about peak oil for a week.) Well, I've come back to a lot of "real" work, but I wanted to say hi again and kick off the week with a little idle speculation.

Today's NY Times article about gas prices contains the following paragraph. According to the Lundberg Survey*:
Demand for gas will remain high through August, but should drop after Labor Day. Prices should soften after that assuming underlying crude oil prices hold stable and refinery activity and shipments aren't interrupted by natural disasters, such as major hurricanes, Lundberg said.
So, what do you think? Are gas prices going to "soften" after Labor Day? I'm going to guess no, not really. I got scared yesterday when I saw, for the first time ever, $3.03/gallon. Granted, it was for the highest grade of gasoline, but it was at a station outside the Holland Tunnel—in New Jersey.

*From the Lundberg Survey's website: "Lundberg Survey, Incorporated (LSI) is an independent market research company specialized in the U.S. petroleum marketing and related industries. For over half a century it has provided statistical reports and publications to the oil industry and other users. Born in the 1950s when self-service was being invented, LSI is the local and national source of fuel prices, fuel taxes, station population studies, and market shares. It is often quoted in the news media for retail prices and interpretation of trends affecting consumers."

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That statement from LSI doesn't really say all that much. Basically, gas prices will "drop" and then "soften" unless something bad happens. This undoubtedly comes from looking at past seasonal demand history.

I think they're probably right, but it's such a loose prediction that it could have come from a deck of tarot cards.

I'd like to see some supporting reasons. I know that the official "driving season" ends at labor day, but here in Texas school has already started (last week in North Texas, this week here, not sure about the other counties) and most but not all of the people I know take their vacations in July or the first week of August. I mention this because here it is common to drive and if you are going anywhere far (it takes me several hours just to get to the state line, for example) that's when you will use some gas.

HOWEVER there are many many folks that commute 90 miles just to work, so taking a vacation might actually reduce the mileage they are driving (that would be 900 miles a week, btw) so I think the whole 'end of driving season' might just be a wash.

As long as we're speculating...

Oh, I meant to say that prices are higher now than ever before this summer ($2.49 / gallon for cheapest unleaded grade), in spite of everyone going back to school and living spitting distance from the Houston refineries...

Gas _has_ jumped dramatically in the last few weeks, but I really think that price won't be the catalyst to stir people out of their stupor. Availability will be. When the local station posts a sign that says "No Gas", and people can't fill up their SUV or Prius, then we'll see something. I wonder what ...

Refineries are presumably refining everything they can and OPEC is producing as much as it can, and if they can't increase it prices will go ever higher. More people drive every year here in the US and across the world, and economic growth means more oil use. So unless we enter a deep recession, my guess would be oil prices go higher.

As long as we're speculating, I'd say gas prices will probably "soften" some. That's usually the case going into the fall, though it's possible that -- given something "bad" happening -- the softening could take the form of prices merely rising less quickly.

We'll see soon enough.

My gues is that prices will drop. But the question is how much?
As all the readers of TOD have noticed, there is not al lot of new oil coming online in the near future, so the "drop" will probably be around 55 dpb, ony to rise again to new higher grounds. This temporaly drop will be the speculation factor that is causing the on-going up an down movements in the oil price.
Ofcourse, it won't offset the steady upgoing trend of the last few years.
This is seen nicely in the following graph:

The market is tighter than a piano wire, but NO ONE KNOWS for sure if this is a temporary phenomenon or the onset of permanent oil scarcity, i.e. the arrival of the peak.

The worldwide energy infrastructure is very complex, and it's quite possible that the current market situation is the fallout from decades of underinvestment, with the actual peak several years out. (I realize that some of the apocalypticons (not a reference to anyone in this conversation) don't like that view, because they're hopelessly wedded to their revenge fantasy in which the Western industrialized nations get their comeuppance.)

For the record, I still side with ASPO and think that the peak will come in 2007, meaning the current bottleneck situation won't be relieved before the real peak hits. I also agree with the experts who say that we're more likely to see a bumpy plateau than a true peak, for econimic reasons.

Tanker shipments are back up to last years levels - though it takes a while for a tanker to get to Houston from Ras Tanura. But the refineries are switching over to fuel oil for the winter, so it depends on how they see relative demand and adapt accordingly.

Y'know I saw 'anti-Econs' cited on EconBrowser, and now 'apocalypticons' here. Let's not set up straw men. I am worried about this, and don't find the market forces argument reassuring. Does that make me an anti-Econ? And I have no desire to see Western civilization destroyed, because my children, nieces, nephews and grandchildren will suffer the consequences. I am simply worried that this is all too true, and find the various reassurances less than compelling. I don't want it to happen, but I'll do my best to adapt.

IMHO, we as a community spend way too much time and energy worshipping "The Peak" and it's moment of arrival.

The real problem is that of the energy scaffolding collapsing out from under our economic feet.

Our economy requires a stable, predictable platform on which it can comfortably rest its plans and move forward. Without such a predictable support, many deals will simply become no go's due to uncertainty. "The Economy" will stop moving forward due to instability in energy pricing.

Let's take a "concrete example". Suppose I'm Donald Trump's Apprentice and my boss wants me to put up a new skyscraper with spectacular ocean views off of Florida's golden Western Coast (--best seats in the house for watching the hurricanes coming in).

Somewhere in the construction plans, I have to account for energy costs in getting all the cement and steel to the construction site and lifted up to the floor height. In the old days, that was not a big headache because gasoline, diesel and other energy costs were fairly "stable". I could safely predict what they were going to be with some margin for error.

But now, with oil and gas prices fluctuating wildly up and down the way they have been lately --well I don't know anymore. I'm starting to take uncomfortable gambles. The instability of energy prices can be a deal killer for the whole project. Our economy no longer has a stable platform on which to predict future costs. Our scaffolding is no longer stable --and it's threatening to collapse out from under our feet. The exact holy moment when "The Peak" arrives becomes less and less important as we get closer and closer to that fuzzy Peak.

I love the words news people use:

Oil prices fell sharply Monday as fears over refinery breakdowns eased after an uneventful weekend, though crude futures remained above $65 US per barrel.

Light, sweet crude for September delivery dropped $1.21 to $65.65 per barrel in midday trading on the New York Mercantile Exchange. On Friday, the contract had peaked at $67.10 before settling at $66.86, up $1.06 from Thursday's close.

linky linky

That's a "sharp" drop? 2%?

linky linky - u got it, u got it

Good people of The Island, please remain calm. Everything is returning to "normal".

I did a quick look at tanker prices. They say some carriers are getting several times break-even for their VLCC's ($250,000 / day to move oil from persian gulf to Japan was cited)

Question for y'all that know this bidness much better than some of us: How much can the price for delivery affect downstream prices? Example: the price I gave above is said to be 10X their breakeven price, but what I'm not sure of is what were the rates a year ago, or two years ago, and is this having an impact on gasoline prices?

If crude prices drop (let's say to $50/bbl) but there is still a huge premium on transport due to lack of availability, will this price get passed on to consumers (of gasoline or heating oil, for example)

Sorry, if this belongs in it's own topic feel free to delete this mssg.

stepback: Funny that you use construction as an example. I have three projects on the boards, and I struggle because they're all planned as if energy is "no hay problema," business as usual. Two are retrofits. One is just finish work, but in the other one I'm trying to work in more insulation than usual.

And I was just handed a new, 1000-seat church, a vast space with all the usual forced-air ductwork, cooling towers, lighting, etc. They think 1.5" of wall insulation is just fine.

So I sit here and think: Rising prices are bound to affect both the operating costs and the construction costs. If prices hold, the real bids should already exceed the interim estimate of almost a month ago. The client should be told. If prices skyrocket, the project could be canceled, in which case, "someone will be fired" or laid off, anyway. If I start preaching to the office about energy depletion, will they listen, or will they get rid of the squeaky wheel?

Is a puzzlement.


And think about our poor Apprentice (D. Trump's for example) trying to project long term operating costs for running that luxury elevator up and down the 50 story tower over the next 10 years, air conditioning the tower, and providing other energy intensive services (garabage hauling, constant lighting in the hallways, hot water for the spa, for the laundry, dish washing, etc. etc.). What is he going to tell prospective condo purchasers about expected building maintenance costs over the next 10 years? Is he going to be legally liable for not warning them about Peak Oil and its consequences --if he represents himself as a "professional"? Hmmm.

Lou said -- "For the record, I still side with ASPO and think that the peak will come in 2007, meaning the current bottleneck situation won't be relieved before the real peak hits. I also agree with the experts who say that we're more likely to see a bumpy plateau than a true peak, for econimic reasons."

Absolutely, stick to your guns, Lou, I'm with you. About this "bumpy plateau", how long will that last? I don't think any of us here really believe that the peak happens rapidly in a very short period of time. Reasonably, we could be in the beginning stages of the peak right now and it will play out (the plateau) over the next couple of years. At that point -- 2008? -- depletion ourstrips new supply and we're over the hump.

I think oil prices will go down maybe $5 a barrel between Labor Day and November but this is complicated by the fact that refineries running at full capacity now will have to switch over to heating oils. Therefore, maybe there won't be any significant drop off in gasoline prices at all as supply and demand remain tight.

We should be building domes. They are an efficient shape. I would reccommend studying the work of Buckminster Fuller and others, about doing more with less.

Geodesic domes, zomes, passive solar, earth-sheltered homes and all that stuff will get another look. My wife and I have been talking about building a hay bale house or a yert on some family-owned land.

Today in the Wash Post, they say: "Consumer prices shot up in July, reflecting sharply higher prices for gasoline and other energy products. But new car prices fell by the biggest amount in 30 years, helping to keep underlying inflation pressures tame."

Sorry kids, pancakes for dinner again, but doesn't our Hummer look fine, sittin' in the driveway?