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This Week in Petroleum 10-24-07
Posted by Robert Rapier on October 24, 2007 - 6:00pm
Whoa! The analysts missed this one by a mile. Here were the predictions, prior to the release of the report:
Analysts surveyed by Dow Jones Newswires on average predict crude inventories rose 300,000 barrels during the week ended Oct. 19, and Vienna's PVM Oil Associates also noted that "expectations for this week's U.S. oil inventory data are for a rise in crude oil stocks."
However, some analysts predict a decrease of up to 2 million barrels. Analysts also predict the EIA report will show refinery utilization rose 0.3 percentage point; gasoline supplies, still near record lows, rose 1.1 million barrels; and distillate stockpiles, which include heating oil and diesel, rose 200,000 barrels.
U.S. commercial crude oil inventories fell by 5.3 million barrels compared to the previous week. At 316.6 million barrels, U.S. crude oil inventories are near the upper end of the average range for this time of year. Total motor gasoline inventories decreased by 2.0 million barrels last week, and are at the lower end of the average range.
Both finished gasoline inventories and gasoline blending components fell last week. Distillate fuel inventories decreased by 1.8 million barrels, and are at the upper limit of the average range for this time of year. Propane/propylene inventories increased 0.6 million barrels last week. Total commercial petroleum inventories decreased by 7.9 million barrels last week, but are in the upper half of the average range for this time of year.
I suspect crude will be off to the races again. I had called a (short-term) top on front-month WTI a week ago at $89, and in fact oil was down almost every day since then. But this inventory report will provide a lot of fuel for the bulls for another week.
Here is the rest of the report:
U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending October 19, down 183,000 barrels per day from the previous week's average. Refineries operated at 87.1 percent of their operable capacity last week. Gasoline production rose compared to the previous week, averaging nearly 9.0 million barrels per day. Distillate fuel production fell last week, averaging 3.9 million barrels per day.
U.S. crude oil imports averaged 9.1 million barrels per day last week, down 1,305,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 9.9 million barrels per day, or 414,000 barrels per day less than averaged over the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 838,000 barrels per day. Distillate fuel imports averaged 235,000 barrels per day last week.
Total products supplied over the last four-week period has averaged nearly 20.8 million barrels per day, up by 0.4 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.2 million barrels per day, or 0.2 percent below the same period last year. Distillate fuel demand has averaged nearly 4.3 million barrels per day over the last four weeks, up 1.0 percent compared to the same period last year. Jet fuel demand is down 3.3 percent over the last four weeks compared to the same four-week period last year.
It is going to be a close call on the $1,000 bet. (The real irony is that the primary risk factor I saw with respect to the bet - the potential for falling Saudi production - has not been an issue. Saudi production has been steady all year, and is now set to rise). I do believe the fundamentals for higher oil prices are generally worse now than they were 3 months ago. Peak driving season has passed, OPEC is already pumping more crude, and prices have had a dramatic run-up. On the other hand crude inventories, while still high, have been pulled down (although they are at about the same level they started the year at), and gasoline inventories continue to hover near record-low levels. But, the sentiment has certainly turned in favor of higher oil prices. And the sentiment of the market can move it quite a bit in a short period of time. You can see some of the analysts on CNBC - after having missed out on most of the run-up - have now moved their clients into oil and so are talking up the price.
But the recent fast run-up in prices, followed by OPEC’s decision to pump more crude, would make me very cautious about buying oil at this level. You might make some money, but it is a much bigger risk than it was earlier in the year when the fundamentals for higher oil prices looked better (at least to me). Of course over the long haul, I am bullish on oil prices and have been for 5 years. I thought $100 oil in 2008 was likely, but a move from $60.77 (the crude price the first week of January) to $100 in a single year would be unprecedented.
I would also add just a bit on refinery utilization. Analysts had predicted utilization to come up this week. Generally, refineries are coming out of their turnarounds now, and you would expect to see utilization at a higher level at the end of October. But you have to take the current crack spreads into account. When crack spreads are at $30/bbl, as they were earlier in the year, you do everything you can to maximize your utilization rate. If that means paying overtime, or paying extra to have equipment fabricated and delivered quickly, you do it. Money is not an object; you get your refinery up and running as quickly as possible.
But when crack spreads are $5/bbl, as they are now, you don't do those things. You still want to have your refinery up and running, but it doesn't make economic sense to go all out to boost your utilization. That $5/bbl margin will disappear pretty quickly if you throw money around. So, utilization rates will be less robust in times of low margins. It has absolutely nothing to do with inability to secure crude - as some have suggested. It has everything to do with economics. But given where gasoline inventories are currently setting, I don't expect margins to stay soft for long.
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http://science.reddit.com/info/5z1pc/comments/
thanks! :)
Q. Why, given that crude has been in 'surplus' for some time now, and gas has been in 'short supply' is the crack spread so low?
Is there a graph showing crack spread over time? I'm sure it's been declining, and staying low, for far longer than what I'd have thought the market would establish.
What forces am I missing from my understanding?
Cheers...
--
Jaymax (cornucomer-doomopian)
1 reason is that the 'perception' of scarcity may cause a permanent increase in desired stockpiles.
Another reason is that there may be plenty of crude but the highest quality, light sweet is making up a smaller % of the total inventory than it used to
I wouldn't call it a "perception" of scarcity: oil stocks are at their lowest level since January 5. (http://www.bloomberg.com/apps/news?pid=20602013&sid=a5u8mxvWrbWI&refer=c...)
Gasoline stocks are at their lowest level since March.
In the meantime, China's been delaying filling its strategic reserves, waiting until the price fell for the season. And Asian airlines have been delaying hedging their fuel supplies, waiting for the price to fall.
So, there is plenty of pent-up demand to keep prices high.
In addition, Bodman is still filling the SPR in November, and reservations for tankers for November are still way below normal.
WTI spot was over $89 this afternoon.
Right, for the first three trading days following the experation of the old front month contract, the WTI Cushing spot and the WTI NYMEX front month furures are disconnected. The November contract expired Monday the 22nd. That means that Tuesday, Wednesday and Thursday (tomorrow) the futures close and the spot close is disconnected. But Friday, the futures must close at the closing spot price. (Don't ask me how the Cushing spot market and the NYMEX work this out because I haven't a clue. But those are the rules.)
At any rate today the Cushing spot closed $2.00 above the NYMEX December contract. Friday they will close at the same price. Anyone willing to guess at what that price will be?
That being said, this is the "off season." That is this is the lull between the hot summer and the cold wintea and also a lull in the driving season. This is a time when the demand should be lowest and supply should have no trouble keeping up. Yet this does not seem to be the case. Supply is falling way behind. There seems to be something going on here.
Ron Patterson
You have no idea what demand is. Nobody does. Supply is falling way behind?
Falling way behind what? How far is "way behind?"
Yes, let me help you with that. You don't have any idea what is going on, but you are attempting to enlighten us anyway.
Start by admitting that there is no imaginable way to accurately/meaningfully measure current oil demand. That even in retrospect it is a guess based on estimates of available supply.
Just a suggestion...you're coming off as arrogant and contemptuous. If you have legitimate argument with methodologies, premises, or conclusions reached here, there are plenty of big brains that visit this site who would be willing to consider and engage your ideas. Leading off with abuse just makes you look like an ass.
I thought Darwinian was a Big Brain. I assumed his usual arrogance, contempt for those who disagree with him, and abuse of anything that he doesn't understand were proof of that.
I have a very legitimate argument. I have several. Which one were you interested in? And pertaining to what?
Did you want to know the price of crude tomorrow? The chance of War with Iran? What color to shade your perfectly symmetrical bell-curve showing oil-production dropping to zero within a few years?
Thanks for the advice. You know what would be cool? If you could write a few sentences admonishing this "Slippery Slope" fellow who responded to me just below, calling me a troll. Abuse? right?
For some reason, although, I can't forecast the price of oil tomorrow, I'll forecast that you won't be able to manage that.
troll, please go away
I agree, I think there's something going on here. OPEC thinks there is something going on here.
click to enlarge
The chart above is from OPEC's feature article "Oil price developments challenge market expectations" on page 3 of their Monthly Oil Market Report - October 2007
http://www.opec.org/home/Monthly%20Oil%20Market%20Reports/2007/pdf/MR102... (49 pages)
Quotes below are from page 3 of OPEC's report
OPEC acknowledged strong prices, but it can't possibly be due to their inability to supply oil to meet demand, instead the high oil price is due to these factors
Next, OPEC says that it is able to supply oil to the market if required
I think OPEC is genuinely concerned about the oil price and that their inability to increase supply to meet demand could be exposed soon, especially if this winter is cold.
The last sentence is interesting "performance of non-OPEC supply". OPEC forecasts non-OPEC supply of oil (all liquids) to increase from 49.85 mbd in 3Q07 to 52.12 mbd in 4Q08. This is unlikely to happen and OPEC will say that our planned capacity was based on non-OPEC supply forecasts and the oil price went up because non-OPEC supply increases failed.
The other reason for the price increase in the chart above is that it more closely reflects the supply and demand pressures from crude oil and lease condensate production, not total liquids. OPEC, like the IEA, forecasts supply and demand using total liquids (includes NGPLs and ethanol). If the forecast supply and demand for crude oil and lease condensate (C&C) was used, the price increase, in the chart above, might well be justified by an increasing supply demand gap for C&C, even though there might be a much smaller supply demand gap for oil (total liquids).
Do you still stick by your Saudi Arabia 8.2mbpd forecast for this coming spring? Or did you want to take this as an opportunity to either remain silent or "adjust" that?
I'm pretty sure that the general consensus is that Saudi production is being constrained by Aramco in order to enhance the longer-term productivity. Likewise there's no reason not to believe that they can add 500 kbpd production this November and crank things up to around 9.1 mbpd for an extended period (my guesstimate). But do you really believe that they can push production up towards, say, 12 mbpd and hold that production level for perhaps half a year? Do you really believe that there is not a demand/supply imbalance that has a geological component?
So what's your point?
the point of a troll is to upset the community
Sort of looks suspiciously like Ace's predicted Q407 price shock, as predicted many moons ago...
Will the Saudis boost production substantially to bring prices down? That depends on two things :
* the Saudis deciding that $100 oil is not in their long-term interest
* their capacity to do so.
It seems they are determined to remain inscrutable. If they do not substantially increase exports, and announce that they are comfortable with $100 oil, we're no further forward with knowing their true capacities. But the circumstantial evidence that they are past peak would be stronger...
I still believe that the price declines right into November of both 2004 and 2006 had more to do with the interests of the House of Saud in keeping the GOP in power in DC than in market fundamentals. In line with that theory, I would expect Saudi production to being to ramp up again in march 2008, just like in March 2004 and march 2006, to bring down the price in WTI by November 2008.
There is nothing to demonstrate the truth of this theory, beyond the Saudi production statistics and the asynchronous movement of oil prices in the Spring and Fall shoulder seasons.
You really think the Saudis are Republicans? Do you think they have been well-served by the GWB administrations?
I rather think the umbilical cord between Riyad and Washington has been cut, and the house of Saud is looking after number one, from now on.
If they are interested in maximising exports to the USA (in the hypothesis that they have spare capacity), then they might back the candidate who is most hostile to America's energy independence, probably the Republican. On the other hand, if the continuing solvency of the USA as a client is their main concern, they may take the opposite course and favour a Democrat.
I would direct your first question to Bandar Bush. Perhaps it might be asked the other way round. I think at this point the Saudis have no choice but to be Republicans. Any American pullout from Iraq would leave the Shi'a in charge, which would mean Iran ascendant, which would trouble the preodminately Shi'a eastern provinces of KSA, which would threaten Ghawar, Abqaiq, et al., which would ... I think you get the idea by now.
For a short experiment, compare and contrast the conduct of the Bush administration with what a Gore administration would have done, not just in energy and environmental policy, but in digging into the backgrounds of 15 of the 19 highjackers on 9/11.
No, the umbilical cord between DC and KSA is tighter than ever.
Not even hardly. KSA remains the top customer of US defense weaponry, and just three weeks ago they announced a new $631 million purchase of US weapons. Sounds like the same old deadly embrace to me.
--C
I suspect that China's 11.5% annual growth together with its approach to being the third largest economy, surpassing Germany, explains the emergence of a demand curve that does not have the seasonal shape of prior years.
Chris
Let's read between the lines here:
1. Refiners can't PROCESS any more oil right now - so they won't buy any more. In the near term, DEMAND is fixed - not supply! So OPEC can't sell anymore; excess capacity is truly excess. If Saudi flooded the market, crude prices would drop but refineries would still be at capacity - so end prices to consumers wouldn't change. All that would change is profits would end up in the refiners' pockets, not the producers'.
What OPEC's statement means is that the markets should not be responding to fears of a crude oil interruption. IF the world's refiners need 80 bbd (or whatever), and Nigeria shuts down, OPEC (Saudi) will respond by moving us back to 80 bbd. That's stability of supply.
2. OPEC expects that the Majors and non-OPEC NOCs may continue to expand output, taking profits on the high prices. This expansion of non-OPEC production will be faster than any coming expansions of refinery capacity. This will therefore require OPEC to reduce its own production in order to avoid a glut and keep prices high - and OPEC recognizes this. That's stability of price.
Good luck if heliBen lowers rates again at the end of the month.
With crack spreads narrowing how long until oil companies start losing money even with record crude prices? Even a small drop in demand in the US could create a price war and start putting Big Oil in the red.
Remember, oil companies sell oil as well. The crack spreads are a drag on earnings, but with oil near $90 upstream will be pulling in big dollars. Oil companies aren't in danger of losing money any time soon. ConocoPhillips just announced earnings yesterday. Margins had dragged down earnings. They came in 5% below a year ago, but still managed $3.7 billion for the quarter.
Well said. But, at the same time (and I don't expect this to remain the case), if crack spreads were to remain at sub-$5 for let's say three years, how would this effect things?
Would the majors attempt to leave the refining business? I'm just throwing stuff out there. I guess what I'm trying to ask is - do low crack spreads really mean anything at all?
Could they actually go negative? I think not.
Or at least I used to. I read a book recently on derivatives trading that discussed the interest rate schemes in Japan. Apparently, there was a time where certain rates turned negative. Believe it or not. Based on deals cut with structures trading banks.
The lender was paying people to borrow their money.
Yes, this seems crazy when we talk about oil refining, but that is exactly what is happening in the oil shipping business right now. It has been going on for close to six months. And tanker stocks have still not turned south.
Most of the big publically traded players have been losing money shipping oil for the last quarter. Up to $15,000 per day per ship.
The situation is so bad, it can't even be covered up. And believe me, they've been trying.
Thank you for your frank recognition that you do not know what is going on, and thank you again for trying to enlighten us. Brainstorming is always worthwhile.
Echelon, I will be ignoring you from now on. Please go away.
Echelon appears to be OilCEO, who has been banned multiple times under multiple nicknames. This will be another one, I suppose.
The oil companies can't do that badly. The US imports gasoline from Europe, and until US gasoline imports fall below zero (forcing US refineries to pay the cost of exporting refined fuel) the essential price of US gas will always be at a premium.
Are there any estimates out there of the delta increase in finished oil and/or gas product usage (all the fire trucks, helicopters, air tanker support, etc.) in battling the Southern California wildfires? I am just wondering if there will be a meaningful reduction in currently published inventory estimates by this form of concentrated usage of product in a short span of 3-4 days.
CrucialTaunt
There will probably be a general decrease in usage. Many people are staying home from work, e.g. myself.
My office (in the edge of evacuation zone) was closed M,T,W, and will reopen tomorrow (Th).
All city schools, as well as major universities were shut for the whole week, presumably because of bad air quality.
Traffic has been quite light.
There will be a sharp spike in apparent gasoline use as everybody filled up their tanks, worried they'd have to go.
Are Governments still adding to their strategy reserves?
USA, not at the moment. China, Yes. Europe - don't know(maybe someone else does)
In general your $1000 would be safe. It should take until the new year for oil to crest $100 a barrel.
However, I recognise an increased pace of peak oil stories in the mainstream press. If we reach the critical turning point in coverage in the next two months then the price could bust through $100 in a self fulfilling prophesy - the switch from demand-led to supply-led pricing. Reporters love to break their story at a time when they can look prescient.
There is the feel of a shoe waiting to fall. If it drops before Christmas, your money is lost.
Oil has gone up almost 900% in 7 years. A 10% move in 2 months is certainly within the realm of mathematical possibilities. The january 100 calls (expiring in December) traded at $.46 today. If I still had a Bloomberg machine I could tell you what implied volatility that is - anyone?
I can get to a Bloomberg terminal, but don't know what to key in. I will try anyways, but let me know if you see this.
The points about a 900% price increase and touching $100/bbl are really just numbers games.
Using a three month running average would present a smoother and more realistic picture. It would also make the current price levels look higher relative to the 1970s since that peak was fairly sharp.
Do Bloomberg terminals get Imarex tanker futures? If so I'd be curious what the TD3 rate is for November or December.
The iVol on the call series would be ~28% on the CLF8s this morning. 50 day historical vol is running ~20%. Looks like RR is still safe.
Robert, I have a feeling the feds are going to cost you your $1000 dollars with their stupid actions to try and keep the debt bubble inflated. I am betting on another half point cut at the end of the month. We are likely to be at 100 oil and 900 gold by the end of the year, just because of the crash of the dollar.
Political View:
Oil industry is trying to hold the line on gas prices while energy legislation is debated in Congress. So refiners and marketers/retailers have lowered their profit margins on gas in hopes Congress does not penalize them with legislation that imposes windfall profit tax or restricts drilling or revamps previous federal lease agreements. Worst thing from the oil Co. persective is to have the public screaming about how the "oil companies are gouging the driving public", which is generally not true but the media portrays gas prices that way, especially at times of quarterly earnings reports
Once an energy bill is passed the consortium of oil producers and marketers/retailers (often the same bunch) will start pricing gas higher and it will come closer to parity with distilate fuels which is normally the case. Remember, a lot of gas is not sold on futures market but prices to marketers/retailers by the refiners/distributers (pipeline Co./refiner and the like).
A few years ago I worked for a small oil producer and also a small marketer/retailer (around 20 million gallons a month sold in a hand full of markets) and we talked about gas prices versus oil prices. This is just IMHO based on knowing the presidents of these two small players in the oil industry.
Mark in St Louis, USA
I have thought this might be the case, as the price of gasoline in my neck of the woods (East Tennessee) has been holding steady for at least the last month, even with the recent run up in oil prices.
In the past, any bump in the price of crude resulted in an immediate bump in price at the pump. Recently, however, the two prices seem to have been disconnected.
My layman's understanding of the market led me to suspect that the cost at the pump is being held down artificially somewhere, despite the rise in crude prices. I guess it is only good business to absorb a hit now, if it precludes a greater hit through legislation by those in power who happen to have little to no understanding of the underlying issues.
Agree. The crack spread is artificially low. They are holding the prices low at the expense of profits for political reasons.
I suspect they cannot and will not keep it up for that long.
Mark, that's my unpopular view also. I recently (September 26, 2007) attended a presentation by Dr. Fereidun Fesharaki, Chairman and CEO, FACTS Global Energy and 1993 President of the IAEE, on Emerging Oil Supply Bottlenecks.
Dr. Fesharaki discounted the suggestion that the refiners were holding down gas prices even with record low inventories because of the pending Energy Bill. On the other hand he seemed comfortable with the thought that an as yet unrecognized downturn in the economy was responsible for low gas prices.
It is hard to imagine that a two-tenths of a percent drop in motor gasoline demand can account for such relatively low gasoline prices compared with May 07.
He also stated that the recent run up in crude would be reflected in prices at the pump in a few weeks. He was right about that, at least where I fill up.
For 87 octane:
14 Sept 07 - 2.839/gal
07 Oct 07 - 2.959/gal
24 Oct 07 - 3.139/gal
That's a 10.5% increase, which parallels the increased price of crude, but leaves the crack spread unchanged. The few weeks delay would indicate that gas price will continue to rise. The recent gas price rise indicates that there is a margin below which refiners are unwilling to go.
It is interesting that these experts don't have any problem in believing that a crude oil price increase can be passed along, but that the gas price at the pump can't be held down artificially. Maybe it is a reflection of that quality of human nature that there is no urgency to fill up when prices are low or trending lower, but if they're going up you don't hesitate, because they will be higher if you do.
I am going to “delurk” for a couple of comments. I almost pre-empted this line of argumentation, because I anticipated it. The notion that oil companies are the masters of their margins is still very popular, and people have a hard time understanding that they are at the mercy of the market.
I will make 3 points as to why the political argument is wrong. First, the administration has already indicated that a veto awaits this energy bill. There is zero chance that it will pass unless it has major modifications. There are punitive measures in there toward oil companies that some have described as vindictive. So there isn’t even an overwhelming need to keep margins low from that perspective. This energy bill is doomed.
Second, keeping margins low across the industry would require massive collusion. If Shell and BP decided to lower their prices, but ExxonMobil decided not to, what would happen? If the demand was there, they could get away with it because the others don’t have enough spare capacity to take XOM’s customers. Ultimately the CEO is accountable to the shareholders, and you would see some who simply refused to play along with this game of lowering prices.
But the third point is one that that you really need to take home. We seem to have no problem accepting that oil prices are set by what traders are willing to pay for oil. Why has oil raced to $90? Was it because the oil companies all decided to raise prices? No, it’s because those prices were bid up in the market. This occurred in Europe, it occurred in Asia, and it occurred in the U.S. We accept that. But when it comes to gasoline, there is a disconnect. Despite the fact that gasoline trades in the market in exactly the same way that oil does, there is this widespread perception that gasoline price is actually set by the whims of the oil companies. No. Look at the NYMEX. What is happening to gasoline cracks there is the same thing that is happening internally within the oil companies. The price of gasoline is set by what traders are willing to pay.
I have said before that I have set in on hundreds of these pricing meetings. Never once have any political considerations come into play regarding the decisions on pricing. I can tell you that oil companies do not like where cracks are right now. They are a drag on earnings. If they actually controlled cracks, they would still be at $30 and the price of gasoline would have just risen along with the price of oil. But it is harder to hold those cracks when peak driving season has passed. They will be back. But the oil companies are at the mercy of what the market will pay, and not vice-versa.
I tend to agree with RR on this. There are also those who attribute high crude prices to 'speculation,' a charge I believe is also largely spurious. Remember the so-called 'oil glut' of ~1998 when crude dropped to almost $10/bbl? Turned out not to have been a glut at all. It seems to me that speculators are able to drive down a given commodity's price much easier than they can drive it up. In 1998 there was the crazy idea floating around that there must be some large tank farms somewhere whose crude volume was driving down the price (even though nobody knew where these farms were or how much they held). Maybe a similar disconnect between reality and trader price judgment is happening now and this may be part of why gasoline is relatively low. It is becoming clear that relative inventory levels don't have that much effect in this case, or at least the effect on traders is counter-balanced by stronger effects. As I understand, usage is dropping some and there is very much the specter of recession hanging over everything.
If a similar course follows that occurred with crude in 1998-99 gasoline stocks will get so critically low that noticeable shortages will develop and then we will have a gasoline price shock.
If I understand this, we can conclude that demand for non-gasoline refined products is rising faster than demand for gasoline. That is why the spread between gasoline and other products is widening - we're actually experiencing a relative "glut" of gasoline compared to other refined products!
That suggests that, interestingly, gasoline consumption is responding to high prices FASTER than other refined products.
1) What are those other products? What is driving their demand?
2) Is the drop in crack spreads a result of ethanol and hybrids? Is it a product of lower-quality oil?
3) What happens if gasoline demand is more elastic than all other refined products, and it keeps dropping? Can gasoline production be converted into other higher-value products?
Mark,
You have it correctly pegged but the oil industry lovers here won't admit it. It's clear that the market is totally controlled by a few players but the people on this board just won't admit that. Right now the big oil guys realized they got too greedy last spring and it showed. We had a thread here where I argued with RR about the lack of competition leading to price fixing. He argued that low refinery utilization coupled with low inventory was the reason for the high prices. Well here we are with oil 30% higher now and the same utilization and inventory figures and gasoline is cheaper.
What's the difference? Crack spreads have fallen by 90%. It's pretty clear to me that last spring they gouged us so badly we screamed and the politicos threatened to do something if they didn't back off. Now they have backed off and we see what they can live with.
This thread is really funny to me because the enablers are busy trying to pretend there is some missing variable that they cannot see in order to justify the completely crazy oil price/gasoline price situation we have right now. The missing variable is the one they won't admit to, collusion.
Right now the big oil guys realized they got too greedy last spring and it showed.
Of course the absolute stupidity of your argument is failure to recognize that the money just moved from downstream to upstream. But what do you expect from a guy who thinks oil production and refining is akin to ladies apparel?
The missing variable is the one they won't admit to, collusion.
Says the guy with the serious substance abuse problem. My evidence? On the shelf right next to your evidence of collusion. The only difference is that you haven't been investigated and exonerated numerous times of that charge, as is the case with collusion charges. So the case for your substance abuse problem is much stronger in light of that.
I mean, collusion may be obvious to you, but your substance abuse problem is obvious to me. Do I really need any more evidence than that before throwing around accusations?
I never denied that, in fact that is what makes the collusion so obvious. The largest refiners are also oil producers, they control the market and that is a substantial component in why oil prices are as high as they are right now. The big oil companies make money coming and going. You keep on making my arguments for me, you must cut your nose shaving all the time.....
The big oil companies make money coming and going. You keep on making my arguments for me...
Really? You must have forgotten what you wrote, so perhaps you should review. You were arguing that margins came down because 1). They realized they got too greedy and backed off; and 2). They feared that the politicians were going to act. Given that gas prices are where they were in the spring, and the only differenc is that the margins moved from downstream to upstream, can you see the fallacy of your argument? Do you want some hints?
Maybe peak US gasoline imports has passed at 1.57 mbd on May 2006?
click to enlarge - source EIA
ace...this is great data to keep track of...especially with WT's export predictions in mind.
If a reduction in net exports of oil is partially caused by the relocation of higher value processes (such as refining) to oil producing countries, then one would expect it would lead to an increase in products exported, not a decrease.
I think it rather important to eliminate any of the yearly cycles from this kind of data. This just adds noise to the curves. Stuart S. had a great post on this kind of filtering recently.
WHT,
Here you are - a 52 week moving average showing peak gasoline imports 2006
click to enlarge - source EIA
Interesting but I'm not sure gasoline imports should be analyzed in isolation, you need to look also at total product imports. Crude stocks are down maybe because refinery utilization is up (haven't check the numbers yet).
You posted an excellent oil price chart about a year ago, showing the projected upward trend in oil prices, within a confidence interval.
Could you update the chart, showing the new price data color coded differently from the historical data?
is it this one?
It looks like we are back in the confidence interval.
Bingo.
BTW, WTI spot is over $92. I would assume that there must be some short covering action going on, but it is interesting that your model shows the middle case going over $100 before year end.
Khebab, thanks for posting, WT thanks for asking, I'd been digging around trying to find that graph today.
However, that line must have gone way outside 99.999% confidence for some time?
So doesn't that kind of invalidate the trend, at least from that point forward? Alternatively, there was some temporary 'external' force at play for a limited period, which has now gone away.
You want the really scary possibility? That drop outside the predictable range represents a disconnect, an upset in something fundamental (eg: a peak???) and the old trend no longer applies. Problem is that the period since also looks a bit scarily like a new growth curve... only MUCH steeper!
--
Jaymax (cornucomer-doomopian)
Great chart Khebab. Could you do one like that with Brent? There was a large issue with the price inversion between Brent and WTI this year and the WTI price was unexpectedly low. $100.00 here we come!
Jon Freise
Analyze Not Fantasize -D. Meadows
followed by OPEC’s decision to pump more crude, would make me very cautious about buying oil at this level
But, isn't somebody, maybe uae, still scheduled to cut 600k/d even as rest of opec manages an extra 500k on account of sa new project?
UAE plans to cut production by 0.6 mbd for November's maintenance.
http://uaeinteract.com/docs/ADNOC_to_cut_oil_output_for_maintenance_in_N...
Kuwait also signed an MOU with ExxonMobil to produce 0.75 mbd extra crude by 2020. The intermediate target is only 0.05 mbd by 2011.
http://www.canada.com/edmontonjournal/news/story.html?id=d4201700-95af-4...
It will be interesting to see if either the UAE or Kuwait can increase production above current levels next year.
Ace,
I wonder if the UAE are having to increase their ability to handle rising volumes of saltwater?
Westexas,
The UAE might be increasing gas injection in addition to water injection.
http://www.ifp.fr/IFP/en/events/Oapec2007/Files/Bindaaer-Abstract-S2.pdf
Abu Dhabi, UAE Experiences in Gas Injection
IFP - OAPEC Joint Seminar "Improved Oil Recovery (IOR) Techniques and Their Role In Boosting The Recovery Factor" Rueil-Malmaison, France, 26-28 June 2007
Conclusion of paper
Oil recovery to over 60% - that’s optimistic!
I'm beginning to think I'm a heretic here in the peak oil crowd. For over a year I've been waiting for the shoe to drop in the Kingdom of Saudi Arabia and production to start dropping precipitously because of the tertiary development technique accelerating the drop in production after the peak. Not only has it not happened, but the Saudi's appear to be adding more production. Its not enough to cover the new Chinese and Indian demand, but it is an addition to their daily total.
The Saudis are very conservative in their production management. I'm sure they know that when the oil is gone, the jig is up. They have no water to farm and I'm not aware of a big market in rocks, sand or goats. If there is any place in population overshoot, its Saudi Arabia. They have religeous pilgrimages and oil.
So, they have hired the production personel who are the best in the world. They have invested in the best monitoring and sensing techniques. If any company is really going to get out 80% of the priginal oil in place, its going to be ARAMCO.They are frustrating in how they share information, but its also easy to understand why they keep their info tight.
The basin that we most commonly compare the Persian Gulf production to is the North Sea. It was discovered 30 years after Ghawar, and has been developed using the new imaging techniques and horizontal drilling, but has now peaked and crashed because the reservoirs were so much smaller in size. Saudi Arabia has had unified ownership since they nationalized their production about 25 years ago, but the North Sea has been developed using both multinational oil companies and national oil companies in competition with each other. The lifting costs and production costs are a whole order of magnitude greater than the Saudi and Kuwaiti production which is predominately onshore. The persian Gulf climate is completely predictable, while the North Sea has massive storms. And a whole layer of bureaucracy is removed when you are the government. They have either a 100% level of taxation at ARAMCO, or no taxation, depending on the attitude of the accountant that day, but they have no lobbying expense. They have the home country advantage in everything. With about 50% of the world production coming from that area, they get the cheapest shipping rates possible and have purchasing agents in Houston and I'm sure any other major world oilfield manufacturing center.
In contrast in the North Sea, all the companies operating have royalties . They pay taxes in their home country plus the country where the prodution is located, and must maintain lobbyists and offices inthe country where the production is located as well as at home. What it all comes down to is that a platform in the North Sea must produce at least 20,000 or 30,000 barrels per month just to pay saleries and overhead. And when the platform falls below that level it must be abandoned.
There's only a certain number of wells that can be operated from any platform at once, just from space limitations. And when wells are taken from production to inject water, the other wells must produce more to make up for them.
Workovers must commonly pay out within 2 years from production that is increased or would otherwise have to be abandoned. So if a well falls below some figure, say 100 barrels a day, it must either be worked over to increase production or abandoned.
The result as a practical matter is that reservoirs are abandoned much earlier offshore in the North Sea than they will have to be in Ghawar or Burgan. I don't think that there will be the sudden death drop off that there is in the North Sea, instead they will be more like the horizontal wells at Giddings and Luling that are still profitable at 5 barrels per day. In other words, I put the blame on the fantastic overhead inefficencies of multinationals rather than the tertiary development methodology causing the reservoirs to crash.
I'm just guestimating on the North Sea base overhead costs, but I'm hoping there's someone reading this that can correct my figures and give us some real figures to work with. But the gist of the idea I'm thinking about is that certain size companies are suited for working on certain size prospects only. That big multinationals will be finished with exploration when suitable offshore prospects are finished, but that good sized private companies may be fixing to come into a real heyday-outfits like Tullow Oil in Tanzania and then African Great Lakes region, and even national oil companies may hire independent production companies for a fixed fee rather than having a production sharing agreement like a standard oil leasing agreement. The oil patch is changing very rapidly. Bob Ebersole
Perhaps obsessing over S.A. is like watching Brownian motion of a single particle. It dances all over the place but only until you can get an ensemble of particles can you tell what the average motion tends toward. IOW, lets keep our eyes on the global ensemble of oil production.
Bob, are you sure about all this? I think that injection wells and oil wells are two entirely different things, and one is never used for the other. Water is injected on the periphery of the field and well below the oil column. I don't think you would ever want to inject water into the center of the field nor would you inject it near the top of the oil column. Also water injection is constant since the oil wells are always releaving the pressure, the injection wells must always be constantly injecting to keep up the pressure.
In deepwater areas like the Gulf of Mexico and most of the North Sea, they must get as many wells as possible on a given platform. But with Saudi's offshore wells that is not a problem because the water is so shallow. There are far more platforms with far fewer wells on each in Saudi. The platforms in Safaniya are really quite tiny and are not manned like the platforms in the North Sea or the GOM. Workers are helicoptered out to the platforms only when something needs to be done. The trip only takes a few minutes. Saudi does have some larger platforms further out in the Gulf but I have never visited any of them. I worked only in Safaniya.
Also on a pressurized field like all fields in Saudi, all the wells in any given area would produce approximately the same amount of liquid since the pressure would be the same on all of them. What would vary would be the water to oil mix. If you want more oil they can just inject more water, increasing the pressure and more oil comes out.
Of course there is an optimum pressure which they try to maintain. Too much pressure would force more water away from the reservoir and perhaps carry some oil with it. That is why the water is injected all around the periphery. It forces the oil inward and upward. But there are always a few faults in the reservoir rock. This sometimes channels the water and causes some wells to water out before others even though they may be higher on the anticline. But faults could channel some water/oil away from the reservoir if the pressure is too high.
I have read that there are hundreds of wells in Texas that produce fewer than 10 barrels per day. But those are vertical wells with donkey head pumps on them. I have heard that Saudi has gone to downhole electric pumps on some of their wells. Simmons talks about this in "Twilight."
Ron Patterson
Ron,
I'm not sure about the wells in Saudi, that's why I'm sending up a trial balloon. But, mechanics right or not, I do know that I'm right that the overhead expenses are much less with ARAMCO being a local company and most of the production being on land.
The geology is also a lot different than what I'm used to working with on the Gulf Coast. Most of our oil production here is associated with salt domes, Michael Halbouty said 95%, while in Arabia its in huge anticlines with very little faulting-East Texas field is like that, and most of the Permian Basin fields, big anticlines. But in Saudi they also have a lot of permiability barriers, places where the oil seperates into different field reservoirs by barriers made of asphalt or tar.
According to the Rairoad Commission of Texas website, the average production in Texas is 6.6 barrels of oil per day. There are literally thousands of old wells making less than 10 barrels a day. Mostly submersible pumps are used on depleted pressure horizontal wells, or on very shallow wells. Bob Ebersole
Patience please...remember a few months ago what FF said. They will hit the brick wall abrutly and then the production will crater. Laws of physics and all.
Why do you marvel that they are keeping up production? I marvel that they are not increasind prod significantly! Look how many drilling rigs they have imported over the last 3 yrs, a record number for them.
So here's my take on it: KSA has only one card to play, the OIL ACE. It has been used for 35yrs to rule the oil world. Their secrecy is impregnable, why?? If or when, it gets out that they are not superhuman and their oilfields decline just like ALL fields do then the game is up. Internal unrest,revolution will follow. They are godamn close now. If they are seen as weak (with regard to production) then someone will move in to grab the oilfields. China,US,Europe will not let the fields be damaged by internal unrest or any other thing, period. They are WAY to valuable.
And when the great powers finally have to sieze the fields it will not be another IRAQ. THe fields are remote, easily defensible and possibly the most valuable thing in the world. No force will be spared, no fucking around this time.
So no wonder KSA doesn't want anyone to know what the state of their fields are!
"So here's my take on it: KSA has only one card to play, the OIL ACE. It has been used for 35yrs to rule the oil world. Their secrecy is impregnable, why?? If or when, it gets out that they are not superhuman and their oilfields decline just like ALL fields do then the game is up. Internal unrest,revolution will follow. They are godamn close now. If they are seen as weak (with regard to production) then someone will move in to grab the oilfields. China,US,Europe will not let the fields be damaged by internal unrest or any other thing, period. They are WAY to valuable.
And when the great powers finally have to sieze the fields it will not be another IRAQ. THe fields are remote, easily defensible and possibly the most valuable thing in the world. No force will be spared, no fucking around this time."
Actually, the Saudis have got TWO cards, although the second was only brushed on earlier. As someone said, they've got Reilgious Pilgrimages, which may not sound very important, but pilgrimages to what and where...? Mecca and Medina are the two Holiest sites in the whole of Islam, and how long do you think the time difference will be between a foreign army invading Saudi and every Mosque and preacher around the world calling for global jihad against the unbelievers who are attacking the Holy sites? The idea that it's just to secure the oilfields won't get a look-in. I agree with Korg that it won't be another Iraq. Forget demos and random terrorist acts, you'll have 20-25% of the world up in arms against you. This is something I've been thinking on for a while, and if/when it does happen, I think we can all kiss our backsides goodbye.
Waraqah
I'm beginning to think I'm a heretic here in the peak oil crowd. For over a year I've been waiting for the shoe to drop in the Kingdom of Saudi Arabia and production to start dropping precipitously because of the tertiary development technique accelerating the drop in production after the peak. Not only has it not happened, but the Saudi's appear to be adding more production. Its not enough to cover the new Chinese and Indian demand, but it is an addition to their daily total.
Bob,
It has been quite interesting for me to watch the responses to Saudi’s actions this year. As I have long argued, I believe they have managed their production. I argued that production would stop falling by summer, and would rise if inventories started to fall or prices started to climb. This is exactly what happened.
On the other side is the involuntary decline camp. They have been terribly quiet regarding Saudi’s moves. It is as if they are in complete denial; that they are certain the decline is going to start back up right away. I am working on a post in which I pulled out some of those old predictions based on an involuntary decline. Despite the fact that those predictions have so far failed miserably, those making the predictions just continue making more predictions based on the same scenario. They can’t seem to say “Well, maybe the declines were voluntary.” There is such an incredible disconnect between some of the comments I have seen recently on Saudi and what their production has actually been this year. And yet people continue to be absolutely married to certain explanations; explanations that don’t fit and have resulted in erroneous predictions. I sometimes ask myself what people learned from their erroneous predictions about Saudi. As far as I can tell, the answer is for the most part “nothing.”
Any way you slice it, what Saudi has done this year flies in the face of the involuntary decline camp. I know that some are busy conjuring up these scenarios where Saudi has pulled out all the stops to keep their declines in check. But now they are faced with explaining away increases in production. The voluntary decline explanation fits what they have done. The involuntary decline is requiring an ever greater level of mental gymnastics.
I think it is very clear that what the Saudi's have done is 'manage' their production (something which they have shown themselves to be masters at in the past). I guess the real question is how big the declining pool is that they are managing not whether they have as yet lost control of their ability to actually do the managing. Personally should oil go over $100 for an extended period I would not be that surprised to see them reprise 9mbpd. As usual my thanks to the illumination provided by Robert, Euan etc......
You've fallen in love with your own thoughts. You should check mine out in February or March. Just when that hottie, Stuart Staniford started to post. I think it is obvious who has been spot on when it comes to Saudi. So how do I git me an Oil Drum badge?
troll
Err, just to point up. Its not a binary choice. In general the world is never a binary choice, despite what some tell you.
I'm in a third camp, the 'managed plateau' camp. Sure its not as well appointed as the other camps, but its better situated to take in the wide open views of real world behaviours.
As I see it, any theory has to take into account a few key factors:
Can involuntary or voluntary decline address them all with that authentic real world tang?
I think all of the factors you mentioned are consistent with a managed decline, with the exception of the one that I believe people have wildly misinterpreted: The OPEC statements on "we've done what we can" These are the sorts of things that cause people to come to erroneous conclusions. What was the context of that statement? They made that statement in the context of “The price of oil is currently rising due to factors other than supply and demand. There is nothing we can do about that.” Of course technically, they could do something about it. They could flood the market with more crude, crash the price, and demolish the speculators. But I don’t think that’s in their best interest. Regarding the other factors, perhaps you can elaborate on which are inconsistent with voluntarily reducing production. Try to put yourself in charge of managing Saudi’s reserves, and ask yourself what you would do differently. I think that’s the mistake many make: Expecting Saudi to do what is best for us, and not what is in their long-term best interest.
What I see with Saudi is a long history of bringing production online to meet demand. It is possible (nay, likely) that there have been times where they have misjudged demand growth and not timed their projects appropriately. They may certainly have found themselves short at one time or another. But that’s vastly different than a country-wide, involuntary decline.
Ghawar is an interesting case as well. We hear these anecdotal reports of how Ghawar is crashing, and despite that Saudi production is not crashing. What does that imply? Either Ghawar is not yet crashing (although I do think it is 50% depleted) or they have plenty of other fields to compensate. As I have pointed out before, peaking of the previous 13 mega-fields was accompanied by a 20 million bpd increase in world production. Yet some can’t learn from history, and insist that Ghawar peaking must be accompanied by a sharp decrease in overall production. There is no historical basis for that claim.
If you make the case for a voluntary reduction then you need to explain:
If you compare the current situation with past times in the voluntary case all Saudi would appear to be doing is proving they no longer can act as the world's swing producer. Why would they do that?
Now I don't think its entirely voluntary, or that its entirely involuntary. I think its managed and planned to bring Saudi production to a plateau, keep it there with new field additions, as well as maintain a short term surge capacity that keeps SA's political position - while not being something that can be squandered just because americans won't stop buying SUVs.
To answer your question, much of this comes from me putting myself in the position of the Aramco manager. Picture him, somewhere around 2001 trying to think what I would do if I knew my best fields were reaching their end of life and 2-3 Mbpd was going to disappear in the decade. How would I manage it and what is the best position I could get myself in to exploit and survive it?
why it was done originally
Why it was done originally is easy, and I have shown the data numerous times. When they first started cutting production, worldwide crude inventories were very high, and on an upward trend. They even mentioned this as the reason they were cutting. They made a preemptive move to avoid inventories filling up and demand dropping. And I would point out that after a year of cuts, the price was the same as it was when they started the cuts. What does that say about those cuts? To me it says that they correctly forecast demand.
why it persists even when prices are at their highest and there are cries for more oil,
But it isn't persisting, is it? I have maintained that as inventories came down and/or the price of crude started to climb, they would be called upon to pump more crude. (Well, they are called upon to all the time, but you can look at inventories/prices and see whether the market actually needs it). Now, the market needs it, and lo and behold they are increasing production.
how N Ghawar can continue to avoid gravity and its decline despite being exploited for 50 years.
I never said that Ghawar wasn't in decline. It may be. But they clearly have other fields to compensate; otherwise their production would continue to fall.
To be honest, I don't see much difference in our positions. I think the managed plateau has always been the history of how they have operated their business. But a managed plateau is consistent with a voluntary decline. They lower production when they need to, and raise it when they need to. That doesn't mean they can raise it to 12 mbpd, but I think there is clearly spare capacity that many did not give them credit for earlier in the year.
I think the difference between out position is that I think they saw Ghawar losing xMbpd of production in the foreseeable future as the Northern Ghawar fields come to the end of life (eg facing involuntary decline). Instead what I think they are doing is setting a lower plateau level 8-9Mbpd and purposely taking those fields off line, while bringing other lower quality field online to keep that plateau level.
Then when they need a short term surge, they have the capability from the N Ghawar fields, but only for one or two shots.
Thus the 'voluntary' decline isn't really; its there because they face an involuntary decline and would rather use the last dregs of high quality production to their national advantage (we can reach 12Mbpd honest, look).
Its a smart move since it extends the myth of their control probably a decade longer than is real. We will only see if I'm right over time, and if the ruse will work.
It is true that SA production hasn't been crashing, but I also think there are several possible explanations. It seems to me most of us felt SA had retained some at least modest excess capacity, especially if they were willing to overproduce their fields. I think you are making too much of the "OPEC already increasing production" report, that shows SA with only a 70,000 bpd increase. This is less than a drop in the bucket, and less than what the precision of measurement is, really. As to November and December, we have to wait and see what actually happens. Given the price of oil, the very modest increases proposed from SA specifically should raise some eyebrows.In the past they would be leading the increases instead of relinquishing it to the African or other nations.
I certainly believe new projects are coming on for SA, but as with all other regions battling decline, I don't believe they themselves know exactly how the decline vs addition ratio will play out. If US, Norway, Great Britain and their associated companies couldn't and didn't accurately predict decline, how can we expect SA too?
I think you are making too much of the "OPEC already increasing production" report, that shows SA with only a 70,000 bpd increase.
No, more significant to me is that if the decline had been involuntary - as many here argued - Saudi production would have been down by several hundred thousand more barrels by now. After all, several posters here - including some very prominent ones - predicted steadily falling Saudi production on the basis of their involuntary decline argument. We now know, as I have argued for at least a year now, that this argument was not accurate. But I have yet to see anyone step up and own it. All I see are excuses and conspiracy theories.
Well, since I just presented a paper to over 500 people showing a continuing decline in Saudi production, I'm not sure that I would be in the "terribly quiet" category.
Fourth quarter Saudi production will determine what the annual decline rate will be for Saudi Arabia. If they are able to bring production up to 9.0 mbpd (C+C) in the fourth quarter, their average annual production for 2007 would be 8.7 mbpd, a 2006 to 2007 decline rate of -5.6%/year versus a -4.3%/year decline rate for 2005 to 2006.
In any case, since Texas and Lower 48 have shown post-peak annual increases in production, a temporary increase in production does not mean that the decline has been reversed. To refute the 2005 Saudi peak argument, we would have to see an annual C+C production rate of 9.6 mbpd or more.
Meanwhile increasing consumption marches on, with Rembrandt estimating that Saudi consumption is currently going up at +9%/year. At ASPO-USA, I showed that even if Saudi Arabia were able to maintain 11 mbpd (Total Liquids) for 70 years, at just the 2005 to 2006 rate of increase in consumption (+5.7%/year), they would go to zero net exports in 2036, a long term net export decline rate of about -4.8%/year.
Just as we have been able, and are currently able, to find new oil fields in Texas, Saudi Arabia can and will put new fields on line, but what post-peak regions generally can't do is offset the declines from the old, large oil fields.
http://www.worldtribune.com/worldtribune/WTARC/2007/me_oil_10_24.asp
Wednesday, October 24, 2007
Analyst: Saudis can't meet oil productions goals
Well, since I just presented a paper to over 500 people showing a continuing decline in Saudi production, I'm not sure that I would be in the "terribly quiet" category.
If you showed a continuing decline, then you showed them something that we have yet to see. It's something you believe, but not something presently supported by the evidence. Let's face it. Whether you will admit it or not, Saudi production is not where you thought it would be right now. And it isn't bouncing around - it has been drawing a flat line. You can look back now with perfect hindsight and say "Well, yeah, they could have found new fields and such." But the fact is that you were predicting falling production earlier in the year, and that's not what we are seeing. And I will make a prediction right now: We will see a year on year increase from Saudi from 2007 to 2008, and you will still not admit that the involuntary decline argument may not be correct.
To refute the 2005 Saudi peak argument, we would have to see an annual C+C production rate of 9.6 mbpd or more.
There are 2 parts to that argument, but proponents conveniently forget about one of them. The one that they forget about is the claim that the decline is involuntary, and therefore production will continue to slide. Nine months of flat production that is now trending upward is what has caused amnesia around this part of the argument, and a focus on only the peak part. That allows the claims to continue for a while longer, as even if they can bring production back up to 9.6 mbpd, it is unlikely to happen soon.
Analyst: Saudis can't meet oil productions goals
Let me get this straight. You quote the father of the Saudi involuntary decline argument to prove that the decline is involuntary? Why don't I just quote OPEC as support that it isn't?
Actually, I think that historical models are important. And if memory serves, I pointed out several times that the initial Texas decline was fairly low.
And as I have repeatedly said, to refute the 2005 peak argument, we have to see annual Saudi production of 9.6 mbpd or more. Temporary production increases in post-peak regions, especially for a few months at a time, are not at all rare.
Regarding Matt Simmons' comments, I believe that you said some prominent involuntary peakers were being quiet.
So, where do you think that 2007 Saudi Arabia production data will end up on the following graph?
Texas and the Lower 48 as a Model for Saudi Arabia and the World (May,2006)
http://www.energybulletin.net/16459.html
Actually, I think that historical models are important. And if memory serves, I pointed out several times that the initial Texas decline was fairly low.
It was generally 3-5%. Sometimes a bit more, sometimes a bit less. But production declined for almost 20 years before there was a year on year increase in production. Personally, I think you are going to see Saudi once again fail to follow the Texas example in 2008 when I think you will see a year on year increase.
Speaking of Texas, I was looking at the HLs tonight that I did before. I had read something you wrote recently that discounting the dogleg from Texas would give an answer closest to the URR (which was an argument for discounting Saudi's dogleg). Could you elaborate? I can't see it. Through 1960, the URR was predicted to be 45 million barrels. Through 1970 – with the dogleg – the URR was predicted to be 47 million. Discounting it would put the URR closer to 40 million barrels. By 1980, URR was pointing to 55 million, and of course through 2006 it is pointing above 60 million. And this year will add to the trend of Saudi showing an ever increasing URR. That's only one reason I say the HL for Saudi is useless at predicting. You have no idea at what % of Qt we are actually at, because it is a moving target. And it has moved an awful lot in just the past 5 years.
Regarding Matt Simmons' comments, I believe that you said some prominent involuntary peakers were being quiet.
Quiet about the fact that Saudi production has not continued to decline as predicted. You can't acknowledge that, can you? That perhaps they were actually trying to match supply to demand while keeping prices up.
So, where do you think that 2007 Saudi Arabia production data will end up on the following graph?
My guess is that Saudi production in 2008 will average > 9.0 mbpd, which will be a step up from 2007. But look at the graph, and give some serious thought to this question. If you had applied the HL in 2000, would you have been correct to suggest that the Qt range was consistent with peak? And then you would have been correct until 2003. This has got to sink in. You would have been wrong in 2000 by relying on the HL, yet it would have given you the same information that it is giving you now. So, on that basis, why do you feel such certainty in your arguments?
That we need to act is not up for debate. We need to act. But I am concerned, and will continue to be concerned, with a huge loss of credibility if world crude production creeps above that record next year. In that case, we will be less likely to act, not more. I would caution you to be much more guarded with your claims, as I don't think the high level of confidence you have placed in them is warranted.
Regarding Texas, in the Lower 48/Texas paper I never argued that the pre-peak Texas data set was stable. I did argue that the total data set gave us a good idea of what stage of depletion that Texas peaked. And I argued that the Saudi HL data set was much more stable.
After you posted your long discussion of the Texas HL data set, which argued against a fabricated position that I never took, I did subsequently take a hard look at the pre-peak Texas data set, which I addressed in this article:
http://graphoilogy.blogspot.com/2007/03/could-saudi-arabia-be-more-than-...
In any event, the Texas/Lower 48 article that Khebab and I did was based on the 1991 to 2005 Saudi production data, inclusive. And the two recent data points, 2006 and 2007, are falling along the slope that Khebab showed in this article.
In any case, since you don't believe that Saudi Arabia has peaked, and I do, how about a wager?
If Saudi Arabia averages 9.6 mbpd or more (EIA, C+C) for 2008, I will pay you $10,000. If they average less than 9.6 mbpd, you pay me $10,000. Said payment to be made within 30 days of release of December, 2008 EIA production data.
I did argue that the total data set gave us a good idea of what stage of depletion that Texas peaked. And I argued that the Saudi HL data set was much more stable.
You have an interesting definition of stable. The Saudi HL has moved quite a bit – in the wrong direction – and will do so again this year. Maybe I should just quote Stuart:
After you posted your long discussion of the Texas HL data set, which argued against a fabricated position that I never took
Now, now. You have argued that Texas is a good model for Saudi. What I did was show that when Texas peaked, it was nowhere near where Saudi is right now. I also showed that the Texas HL showed an ever growing URR, just as Saudi is showing now. It is hard for me to believe that you can still suggest that Texas can tell you anything about Saudi, given that the two have such huge differences.
If Saudi Arabia averages 9.6 mbpd or more (EIA, C+C) for 2008, I will pay you $10,000.
That would be a rather odd bet for me to make, given that I have already said that I think it will take them some time to get back to that level. Historically, they have not jacked up their production dramatically like that. And we already know that they won't start 2008 at 9.6. So that's a fool's bet.
But I will make you a more interesting one. If you are confident in the involuntary decline model, then this should be a safe bet for you. I bet Saudi shows higher production in 2008 than they did in 2007. If they are involuntarily declining, it is unlikely. So, what do you say? As I have already pointed out, that's certainly not what happened in Texas – they had about 18 years of declines following peak.
I also want to ask you again: Could you have made the same argument in 2000-2002, using the same data to support you, that you are making now? If not, why not? I maintain that you would have gotten the same results then that you are getting today, and of course we saw a couple of years of steep declines.
And if we were off by a couple of years, we would have been wrong?
I have acknowledged that there was a degree of luck in publishing a graph that predicted, based on production data through 2005, a 2006 Saudi production decline.
As I have noted ad infinitum, Saudi Arabia can and will bring new production on line, which will partially offset production declines, or even result in rising production for a few months or a couple of years. But what refutes a peak is a new peak.
The problem the Saudis face is sufficiently offsetting the declines from the old large oil fields like Ghawar enough to cause production to exceed the 2005 annual rate.
And in regard to the Texas/Lower 48 article, you guys can continue to nitpick it to your heart's content. IMO, I think that our work speaks for itself. The bottom line is that the two recent production data points (2006 & 2007) fall along the line shown on Khebab's Saudi HL plot. I expect the remainder of the data points to more or less fall along the same slope. Time will tell.
Even if Saudi is successful in increasing their production to their allotted quota set on September 11, 2007, they will be producing about 8.94 million barrels per day. That is a full 660 thousand barrels per day below their peak of 2005. To say that this is proof that their decline, of over 600 thousand barrels per day from September 0f 05 until October of 06 was voluntary is stretching credibility to the breaking point.
Remember, they "could not find buyers" for their oil. Well, at over $90 a barrel there are plenty of buyers out there now. China is begging for more oil.
Saudi is aware of the fact that high oil prices could wreck the world economy and cause demand to drop. They also believe, very erroneously, that high oil prices will cause "alternatives" to be developed leaving them with a lot of useless black goo on their hands. Yet they do not cease those "voluntary" cutbacks from their former peak of 9.6 million barrels per day.
Wonder why?
Ron Patterson
To say that this is proof that their decline, of over 600 thousand barrels per day from September 0f 05 until October of 06 was voluntary is stretching credibility to the breaking point.
No it isn't, Ron. Here is what we can say with certainty. It could have been completely voluntary, but a minimum, we know that their decline wasn't all involuntary. If it had been, it wouldn't have suddenly ceased in February. So, at a minimum some of that 2006 decline rate was artificial. That's clear. And if you need more evidence, you will soon have it, because a lot of people are on record making predictions about Saudi production based on the involuntary decline scenario. Those predictions turned out to be wrong, because their assumptions were wrong. But we will get to that soon enough.
Yet they do not cease those "voluntary" cutbacks from their former peak of 9.6 million barrels per day.
Ron, you well know that their history is to phase cuts in and out in an effort to avoid shaking prices up. Now, one could argue that prices have already been shaken up, and therefore a faster move is warranted. But that hasn't been their history. That's why they won't immediately move to 9.6 million barrels, even if they can. Their history suggests that would make that move over several months.
The Mexican decline suddenly ceased Jan 07 and production has been flat for all of 2007 (excluding August and the hurricanes).
So I guess my assumptions were wrong and Mexico didn't peak. Their decline must have been voluntary. Silly me.
Strawman, or a serious comprehension problem. We don't know, based on the sudden cessation in Saudi's decline, enough to say anything about whether they peaked - and that's not what I wrote to Ron. So, yes, "silly you."
What we do know is that production stopped falling according to their OPEC quota, even as many people on this board were predicting that it would continue to decline. What that says - and it is hard for me to believe that some people continue to deny this - is that they were definitely setting on some spare capacity that they could bring online as fields declined. And if they were setting on spare capacity, at least some of their decline was managed. We can't say all of it, but it is delusional not to admit that the data show that at least some of it was.
I have to tell you, these arguments would have a bit more punch if we didn't have so many on the record making wrong predictions about Saudi production - based on this involuntary decline argument. As I said, I will drag those out soon, and I expect the excuses and conspiracy theories (they were getting oil in a secret pipeline from Iraq!) to fly. What we have right now are a bunch of people who said "Saudi is declining involuntarily, and this is what we will see." Yet we didn't see that, so instead of admitting they may have been wrong, they say "Saudi's decline was still involuntary." The evidence that came in had no bearing at all on their opinion. For all practical purposes, it didn't exist.
It must be a comprehension problem cause as far as I can tell that's exactly what you wrote to Ron.
I'm not sure I understand you. You wrote "but a minimum, we know that their decline wasn't all involuntary."
How do you know this? People have made a very strong case that it wasn't voluntary at all. And the fact that SA arrested this decline is no evidence at all that the decline was voluntary.
You're argument seems to be, because SA has stopped their decline it was (at least partially) a voluntary decline.
The mexico bit was to show how absurd that reasoning is. But then you say I just don't comprehend you. So please, could you clarify what you mean when you responded to ron?
You're argument seems to be, because SA has stopped their decline it was (at least partially) a voluntary decline.
There is quite a bit more to it than that. Not only did they stop the decline, but it stopped just when the agreed upon new OPEC quotas came into effect. Furthermore, there were no announced new projects at that time that would explain why the decline stopped. Finally, the decline didn't stop and bounce around. It stopped and drew a flat-line all year long. That is not the sign of production that is at the mercy of new fields coming online to stem an involuntary decline.
As far as your Mexico example, production has bounced up and down a fair amount this year:
http://www.pemex.com/files/dcpe/petro/eprohidro_ing.pdf
That looks more like fields coming on to compensate for losses. But I don't know whether Mexico had projects in the pipeline that they were bringing on to compensate for declines. That is possible. What we do know is that there were no announced Saudi projects to explain the sudden cessation of the decline - which was the reason for all of the failed predictions. I maintain that it requires more mental gymnastics to still believe that Saudi's decline was completely involuntary. That doesn't mean people won't perform those gymnastics.
In your response, you confused the peaking issue with the voluntary decline issue. They are separate issues. We can't make any determinations on peak based on the data from Saudi this year. So, that was the strawman. What we can say is that the decline was at a minimum partially voluntary. And I can tell you that SS - one of those who "made a very strong case that it wasn't voluntary at all" - agrees with me on that. Those who made those strong cases saw their predictions fail to materialize. Why?
I'm not sure I can agree to that bit about SA production being a flat line and Mexico's being bouncy.
I think you are jumping the gun here. Just because SA arrest their decline for for now doesn't mean they aren't in decline. Considering the size of their fields I'd be shocked if they couldn't (especially with all the rigs they go going now).
Every post peak region has had years of flat production (or even a year or two of growth). Especially near the peak.
Hit that zoom out button once or twice and take a look at the big picture. They are still down year over year. What really scares me is their failure to raise production at all with the market the way it is.
You'd have been better off waiting a few weeks and seeing if their Nov increase materializes as claimed.
Just because SA arrest their decline for for now doesn't mean they aren't in decline. Considering the size of their fields I'd be shocked if they couldn't (especially with all the rigs they go going now).
Funny then about all of those failed predictions. Funny how this is clear in hindsight, but wasn't clear back in March. And of course that just demonstrates the point that I kept making back then - I think they are withholding capacity.
Every post peak region has had years of flat production (or even a year or two of growth). Especially near the peak.
Every? To that assertion, I refer you to Texas. You know, WT's proxy for Saudi. Following peak they had 18 straight years of declines. So, is Saudi like Texas (as has been asserted) or is Saudi like the Lower 48 (also asserted, depending on the issue)? If you open your eyes, you will see that the evidence is selected based on the conclusion, when the evidence should be driving the conclusion. There is no objectivity here, which has been a long-standing objection of mine. Some people can only see the data that confirms; not that which contradicts or doesn't fit.
You'd have been better off waiting a few weeks and seeing if their Nov increase materializes as claimed.
Why? How does that have any influence on the grossly failed predictions on where Saudi would be right now? If Saudi starts to decline from here, then I will have been wrong. But so far, what I said was going to happen back in March did happen. Bottom line, no matter how anyone wants to spin it.
You open your eyes. SA is down year on year just like Texas.
Yet you won't take the bet that SA will ever show a year on year increase.
It seems to me you are the one without the objectivity here. You are so hung up on the monthly data. You can only see the data that confirms, not that which contradicts or doesn't fit.
Yet you won't take the bet that SA will ever show a year on year increase.
Um, what? That is the bet I offered - that Saudi production would be up next year.
You can only see the data that confirms, not that which contradicts or doesn't fit.
I address all data. All of it. Not just the pieces I like.
Sorry, poorly phrased. I meant a year on year increase from their peak.
That wasn't the bet offered, was it? The bet offered was that they would average over 9.6 mbpd in 2008. For them to ramp up production that fast would not be historically consistent with how they have operated their fields. But I think we have covered this ground already, haven't we?
Here is something that Khebab sent to me last night. The same Khebab that Jeff keeps using for cover, but the same Khebab who disagrees sharply with Jeff's use of the HL:
The source is Crude oil price fluctuations and Saudi Arabia’s behaviour, a 2003 paper by Roberto A. De Santis
Khebab, unlike Jeff, believes Saudi could produce up to 10 mbpd through 2012. And Khebab has certainly studied the issue as much as Jeff has. So, that should make you wonder - given that all of these people who have looked at Saudi and come to sharply different conclusions from Jeff - whether Jeff is really being objective.
Its clear that this is really personal for you. And it seems to be clouding your objectivity as well.
That's it? That's all you have? Challenge me, get the challenge answered, and close with an ad hom? Nice. Do I really need to review the discussion that's just gone on between us?
As far as it being personal, you should have seen all the responses to the chain of e-mails Jeff started last night. I can tell you that it wasn't me who was seen as taking this personally (even though Jeff chose the e-mail distribution list). It wasn't me who wrote (on objectivity) "Jeff seems to have a severe case of confirmation bias" or "the cherry picking of a particular set of years has always made me uncomfortable." And I wasn't the only one who wrote "Jeff, why do you take these things so personally? This is a part of scientific discourse."
So given your one-way goading ("why don't you take his bet?") instead of actually acknowledging my arguments or challenging Jeff on a single point, I think you have enough objectivity concerns without worrying about mine.
I presume we are done.
One more thing, if the decline was voluntary then they didn't peak right? I mean if they voluntarily took all that production off line, then they could voluntarily put that production back on line and be back up to 9.8mbd any time they wanted.
Why don't you take WT's bet?
Why don't you take WT's bet?
That's a dumb bet. Historically, Saudi has never jacked up production that fast. Even if they are setting on 10 mbpd of production, they aren't going to ramp it up fast enough to average 9.6 mbpd in 2008. So I am being asked to bet on something that I don't believe will happen, and would be highly atypical of how Saudi has historically operated. I can't think of a much dumber bet.
But I wonder why he doesn't take mine. After all, with an involuntary decline and Ghawar crashing, it should be a safe bet that production in 2008 will be lower than in 2007. But I am willing to bet that it will be higher. Now that's a bet that should test your confidence in the voluntary versus involuntary scenario.
I'm not so sure its a dumb bet (if you believe the SA decline was voluntary).
What's oil trading at now? 93 bucks a barrels?
There doesn't seem to be any more oil coming from Non-Opec.
Outside of SA (and possibly Kuwait) Opec seems to be producing flat out.
If there is going to be any sort of balance restored to the market, SA is going to have to pump a lot very soon.
And if SA hasn't peaked, and that decline was voluntary as you claim you are practically stealing WT's money.
"Historically, Saudi has never jacked up production that fast".
I'm having another failure of comprehension here. What do you mean "fast"? All SA has to do is bring back on line what they "voluntarily" took offline. They claim to have 12mbd of productive capacity. 9.6 should be a cakewalk. Especially since by definition they are able to bring it online within 30 days and keep it online for 90 (if I recall correctly).
They have ramped production like this many times in the past.
Like I said, you'll be stealing WT's money.
BTW, I don't think WT has ever claimed they are involuntarily crashing. He's claimed they are post peak and declining. Big difference. If you can quote him to the contrary then please do. But I think you are putting words in his mouth here.
And if SA hasn't peaked, and that decline was voluntary as you claim you are practically stealing WT's money.
Given that you ignored my previous post, here is the reasoning one more time. Historically, Saudi has tended to move production in 100,000 to 200,000 bpd increments. There are exceptions, but they tend to move slowly. I think a faster move is warranted, but their history suggests they will move slow. So, given their history of typically slow moves, why is it again that you think this would be a good bet?
I'm having another failure of comprehension here. What do you mean "fast"?
I think I have been crystal clear on this. Look at their production history. Up and down, the moves tended to be moderate. If history is a guide, then IF they are headed back to 9.6 mbpd, they won't be there before late spring, which means the yearly average will not be 9.6 mbpd. Personally, I don't think this is difficult to understand. There are some exceptions, but I wouldn't make a bet based on exceptions.
BTW, I don't think WT has ever claimed they are involuntarily crashing. He's claimed they are post peak and declining. Big difference. If you can quote him to the contrary then please do. But I think you are putting words in his mouth here.
You won't have long to wait. I am working on an essay. Just be sure to stick your head in and say "Oops, I stand corrected."
But I am curious as to why you don't think my bet is reasonable. Ghawar crashing and all that. And they will increase production next year? Jeffrey would be stealing my money. Unless he (now) suspects that Saudi does have a bit up their sleeves.
Pish Posh, I ignored no such thing. I understand your reasoning clearly.
Now, if you will read my post in its entirety you'll see why I think this time SA will/can/should not move slowly.
Basically right now the market is out of balance. If the oil doesn't come from SA then where does it come from? If it does come from SA they will have to move quickly. Which should be easy considering they have done it in the past and they have 12mbd of productive capacity. All they have to do is bring back online that voluntarily decline. Piece of cake right?
So when exactly are they going to break 9.6mbd?
edit:
After the Nov quota increases SA will be producing at 9mbd a day right? So that's only 600k back to peak levels. This is nothing for a country with 12mbd of productive capacity and is voluntarily throttling their oil production. WT is throwing his money away.
Following are two of my comments regarding Stuart's posts on Saudi Arabia. As noted in the first, one I raised the possibility of a rebound in production following an initial sharp decline, albeit to a production level below the 2005 peak.
However, you have asserted that 2005 was not Saudi Arabia's peak production rate. If they will not exceed 9.6 mbpd in response to oil close to $100 and in response to pleas from the IEA for more oil, when will they exceed 9.6 mbpd? $200? $300?
My comments on Stuart's March, 2007 posts on Saudi Arabia:
March 2, 2007:
March 8, 2007:
When will Saudi (OPEC) pump more? $100?
A) When American refinery utilization rates exceed 95% for more than three months, look for more OPEC oil. Of course, that will take a substantial increase in refining margins at the current price, coupled with sustained demand and higher gas prices.
b) When global refining capacity rises more than 2%.
Otherwise, there's simply no capacity or demand from the refiners. Demand has been successfully destroyed!
As I noted over the open thread, the Lower 48 showed two years of flat production (1971 and 1972) following the 1970 peak. Based on Robert's theory, the Lower 48 did not peak.
Same strawman that Rethin posed above.
But I like how you cherry-pick your data points. In this case, Saudi is like Texas. In that case, it is like the Lower 48. One come come to all kinds of conclusions when they choose their data cafeteria-style, and simply ignore what they don't like.
Well, I was just trying to support your contention that flat production means a voluntary decline. A copy of the Lower 48 post:
Minor quibble--rounding off to the nearest 0.1 mbpd, Saudi production was 9.6 mbpd in 2005, 9.2 mbpd in 2006 and to date 8.6 mbpd in 2007 (EIA, C+C). Fourth quarter Saudi production will determine how sharp the decline is for 2007.
However, in further support of Robert's overall point (flat production means no peak), I present the Lower 48 C+C production numbers for 1970, 1971 and 1972:
1970: 9.408 mbpd 1971: 9.245 1972: 9.243
As you can see, 1972 production was basically flat with 1971, conclusively supporting Robert's view that flat post-peak production means that a region has not peaked. For further data showing the non-decline Lower 48 decline, you can review it at the following website:
http://www.eia.doe.gov/emeu/aer/pdf/pages/sec5_5.pdf
"Minor quibble..."
It wasn't a minor quibble. It was a Red Herring, designed to ignore the fact that Saudi - despite all of this talk about Ghawar crashing - ceased declining according to their OPEC quotas - and without any new projects coming online. Can you show that this was the case with the Lower 48? And of course you called for continuing declines (with some "bumps", as you said). But that's not what happened. There were no declines interspersed with bumps. So now we try to revise history and explain away those failed predictions. I suspect that we haven't seen the last of that.
conclusively supporting Robert's view that flat post-peak production means that a region has not peaked..
I almost said - even as I pointed out your strawman - that I didn't expect that to keep you from using it again. That shows that you are really more interested in the spin; misrepresent my position and then attack it. This is the same character trait that leads you to choose whether Saudi is like Texas or the Lower 48, depending on what it is that you are trying to prove. You let the conclusions guide you to the evidence, instead of vice-versa.
Okay, thanks for the clarification.
If the Lower 48 showed flat production for two years following a decline, the production decline was involuntary.
If Saudi Arabia shows flat production for a few months following a decline, the production decline was voluntary.
Got it.
RR won't take WT's bet because there's no reason to suppose that the Saudis want to produce an average of 9.6 mbpd or more (EIA, C+C) for 2008. Looking at history, that would be a very unusual move on their part. Such a sudden, massive and sustained increase in production (assuming that they are capable of it), based on past behaviour, would require another major producer to go offline : e.g. if the US attacked Iran...
So why won't WT take RR's bet? 2008 production higher than 2007 : surely that can't possibly happen if the recent declines are involuntary...
This stalemate indicates to me that their true respective positions are less far apart than they seem.
This stalemate indicates to me that their true respective positions are less far apart than they seem.
There is some truth to that, and in fact it hasn't ever been the conclusion that bothered me so much as the methodology. If you use a shoddy methodology in which you cherry-pick data, and you end up being wrong, a lot of credibility is going to go up in smoke. If you turn out to be right, then it ultimately won't matter much, but that's the question, isn't it? But WT is so convinced that he is correct, that he spends absolutely zero time and effort examining contradictory or inconvenient data.
My standard is: Could this pass peer review? And I can tell you without a doubt that peer review would eat WT's arguments alive. But that's the kind of consistency you need to avoid what I fear may end up being a massive loss of credibilty - and along with it a huge missed opportunity. If he ended up being wrong, but had really built a good case (which I believe Stuart did earlier in the year), nobody is going to fault that. If he is wrong and had a shoddy case, they will.
Anyway, this isn't going to be decided until we have some more data in, so I am going to go back and lurk for a while. I have spent several hours answering responses since yesterday, and that time-drain was the reason I quit responding in the first place. I will have something else to say by year-end, or prior to that if I lose the $1,000 bet. I am working on a "What Do We Know Now?" post that I hope to be able to wait until December to post. A lot of things should come into better focus by then.
A copy of a portion of my post up the thread follows. As I have noted many times, we used all available data, through 2005, when we warned of a near term Saudi production decline. We were using a method described by Hubbert, and later publicized by Deffeyes, using the prior swing producer as a model.
What's really ironic about this accusation is that we are basing our work on quantitative models and we are presenting our work for all to review, while Robert has basically expressed his opinions--and Khebab and I are accused of "shoddy methodology?"
What's really ironic about this accusation is that we are basing our work on quantitative models and we are presenting our work for all to review, while Robert has basically expressed his opinions--and Khebab and I are accused of "shoddy methodology?"
Come on now, let's get real. I have showed numerous graphs and data to support my position. I have tracked the inventory graphs that supported Saudi's claim that this is why they cut production; I showed that your frequent claims about the Texas HL were wrong; I have showed that the Saudi HL is moving backwards. I showed that if we merely go back to when the books were open on Saudis reserves and just subtract off production since then, we get a higher URR than what the HL indicates. And that's an opinion? If I had to guess, I bet that I have showed more original data than you have. Most of yours consists of posting the same thing over and over.
You, on the other hand, ignore and cherry-pick data. And I am certainly not alone in that opinion. In fact, some very regular/prominent posters here have noted the same. Khebab doesn't do that, and I have never said anything about his work. You and he operate very differently. He is more like a scientist; careful with his methodology and tentative with his conclusions. In fact, I have heard him say lots of times that there was a problem with this or that, even as you were saying "It's all good."
Precisely what did we ignore on the Saudi HL plot, in the Texas/Lower 48 article that Khebab and I coauthored? If you are going to hurl accusations of misconduct, you should at least document your claims.
As I have said countless times now, the 2006 and 2007 data points are falling back along the slope of the line that we showed on the Saudi HL plot in the May, 2006 paper.
If you are going to hurl accusations of misconduct, you should at least document your claims.
My gosh, man, are you serious? Every time you flip back and forth from the Lower 48 to Texas when trying to demonstrate a point, you are cherry-picking data. When you want to discount a dogleg, or only focus on a part of the HL that supports your point, you are cherry-picking. Last winter, for instance, you put a lot of significance into the fact that crude inventories dropped by 20 million barrels, but then you placed no significance when they rebounded by 20 million barrels. Cherry-picking. See more examples from Stuart, quoted below.
Here are just a few examples of what Jeffrey considers my "opinion." See if you can spot the data:
A Debate on the Substance and Timing of the Peak of Oil Production and Consumption, Part II
A Different Approach to Calculating Saudi Arabia's Oil Reserves
Predicting the Past: The Hubbert Linearization
Does the Hubbert Linearization Ever Work?
My opinion, eh? Piffle. Those posts contain actual data that contradicted a number of claims that you are, or had been making. Like "If you discount the Texas dogleg, you get a better estimate of URR. So let's do that with Saudi." Not true. All one had to do is check the data. And that's what I did. I did things you never did - like go back and backcast the HL for accuracy. I showed the tendency of these HLs to creep to larger URR over time. I showed how inaccurate the HL would have been in calling the Texas peak. And many people - Stuart - for instance, recognized the value of that work.
But instead of addressing those criticisms, you are prone to merely repeating yourself, or asking "Is Saudi production down or not?" In your mind, the criticisms are not valid, because you have convinced yourself that you are right. So you don't feel like they need to be addressed. Unlike Khebab. And unlike Stuart, who also recently noted your penchant for cherry-picking data:
So it isn't just me. And that's why I say that your methodology is shoddy. You take the data you get, you don't pick and choose which parts you want to accept.
I repeat, what part of the Saudi production data set did Khebab and I ignore in the Texas/Lower 48 paper?
Cherry-picking again, Jeffrey. You asked for examples. I gave them to you. Now you want a different one, and ignore the ones I gave you. Regarding that specific paper, most of the cherry-picking to which I refer came in the defense to that paper. Like this:
http://www.theoildrum.com/node/3050#comment-248231
Also is the fact that you used Texas as your Saudi proxy in that paper, but you retreat to the Lower 48 as your proxy when the Texas data don't behave.
Now, I truly don't believe there is more to be said at this point. I have spent way too many hours on this today and yesterday, and my wife and kids are reminding me that I gave this up. So, last post from me.
But I do want to say that it isn't personal. It never has been. It might seem that way sometimes, because I can go after people pretty hard. But at the end of the day, we are on the same side of the overall argument, and probably agree on 80% of the details. So I apologize if I have come on strongly. I haven't had a good scrap in months, so I got it all out of my system in 2 days. :-)
Cheers, Robert
I don't think you answered my questions.
Check your e-mail. Your questions were answered, just not in the way you liked. Also, carefully take time to consider Khebab's response to you. Despite the fact that you have consistently mentioned this as a joint effort between the two of you, he is clearly of a different opinion on this subject. And I already knew that he was. As I said, he is very cautious with the data, and does not jump to unwarranted conclusions.
If you want to take it personally, then so be it. As I told you, I wouldn't care if I didn't think you could potentially do some major damage if you turn out to be wrong.
And as I noted in the e-mail, you seem to be mysteriously unable to admit that we used all of the post-1990 Saudi production data to generate the Saudi HL plot in the Texas/Lower 48 paper.
Note that the production data points that we used are highlighted green, if that would help you:
http://static.flickr.com/52/145149302_924470eaa7_o.png
As I also noted in the e-mail, the 2006 and 2007 production declines do not prove a 2005 peak. But what refutes a peak is a higher peak.
And as I noted in the e-mail, you seem to be mysteriously unable to admit that we used all of the post-1990 Saudi production data to generate the Saudi HL plot in the Texas/Lower 48 paper.
For the 4th time now - as I just told you in another e-mail - you seem quite happy to put words in my mouth. So again, as it doesn't seem to be sinking in, here is what I wrote:
Now, I truly don't know what else there is to be said. I suspect you will once more ask me where you cherry-picked data in that specific Saudi paper. Each time you ask that question, just refer back to this post, because I promised my wife earlier I would disengage today. And today in Scotland is over, and I don't intend to pick this back up tomorrow.
A big part of the stalemate is that WT very consistently wants to stick to a long-term perspective, and his critics consistently want to pin him down to some shorter term predictions.
Let's do a quick review.
You have asserted that 2005 was not the world peak, but the cumulative shortfall between what we would have produced at the May, 2005 production rate and what we actually produced is on the order of 660 mb (EIA, C+C), despite the highest nominal crude oil prices in history.
You have asserted that 2005 was not the final Saudi peak, but even you are conceding that we will see at least three years of production lower than the 2005 level.
You have asserted that we would not hit $100 oil in 2007, but we are only a few dollars away.
Got this right so far?
Now, the 2007 debate regarding Saudi Arabia is what will they do in the fourth quarter, in other words the debate is whether 2007 Saudi production will be down by about 6% versus 2006, or down by about 5%.
This is your basis for "Those predictions turned out to be wrong?"
You have asserted that 2005 was not the world peak, but the cumulative shortfall between what we would have produced at the May, 2005 production rate and what we actually produced is on the order of 660 mb (EIA, C+C), despite the highest nominal crude oil prices in history.
Yet after one year of these cuts, the crude price was right where it was when the cuts started. What does that say about whether the cuts were warranted? As I have said before, if they peaked, they did it at a convenient time: Just when demand fell off. Now, I agree that the market is calling for more crude. And we now find out whether they are capable of responding. I think this will all be settled in less than 6 months.
You have asserted that 2005 was not the final Saudi peak, but even you are conceding that we will see at least three years of production lower than the 2005 level.
Quick question. Did we ever see that prior to 2005? On multiple occasions? And was it the peak?
This is your basis for "Those predictions turned out to be wrong?"
Um, no. It was the actual predictions, like: "Saudi production will be below 8 mbpd by the end of 2007", or "I expect to see a sharp decline from here." Those kinds of things. Actual predictions that were made on the basis of the involuntary decline scenario. Predictions we can now go back and check.
And you conveniently ignore the discussions of a rebound in Saudi production, following a decline.
I might be wrong but this is the first time I have seen every single one of the indicator crudes followed by upstreamonline trading above $80 (another small milestone):
http://www.upstreamonline.com/market_data/?id=markets_crude
Tapis is over $US90/barrel again but then the value of the USD keeps falling
http://quotes.ino.com/chart/?s=NYBOT_DX
Tapis and WTI spot are currently 1¢ apart. $90.85 for Tapis, $90.84 for WTI.
It sure does look like the physical market is screaming for light, sweet crude. An oil trader friend of mine told me at ASPO that India is trying to buy light, sweet cargoes anywhere in the world, regardless of the transportation cost.
While the inventory numbers are pretty shocking they tend to be pretty volatile. The overlooked element of recent reports is that US gasoline demand is falling (peak oil demand?).
For the week gasoline demand is down 138k barrels from the prior year and on 4 week average both gasoline and distilate demand are both down.
Take into account the increase ethanol used in the gasoline mix and the fall in energy consumed driving is even greater.
This could point to the start of a decline in US oil demand through a combination of lighter and more fuel efficient vehicles, changing driving habits and the economy. Combined with 350k barrels a day of ethanol production capacity under construction and the race to produce a PHEV the outlook for oil prices may not be so bullish.
It would be surprising if the price increase has had no increase in demand. However, theincrease in ethanol is only 230k/d gasoline even if all come on line... and china increase will overwhelm our ethanol production. Meanwhile, food will go up sharply if all those plants are fed with corn.
Trying to associate price to supply and demand in a tight market is a fools game. As Platts has pointed out ad nauseum for two years, the hub's are running out of oil. Last month Shell bought more oil in Dubai than Dubai produces.
When ever oil supply is tight, spot markets become easier to manipulate. Today we have a shortage in oil that can be used in futures contracts and a glut of dollars. IMO, we could (and should) get $100 oil regardless of supply and demand. People who think oil is rising are simply not paying attention to milk, butter, rice and wheat.
I noticed in the EIA report that consumption is down 0.2 percent over last year. Does that mean that Americans drove less or has the number of hybrids on the road had an impact? I replaced a V6 Accord with a Prius in mid-2005. My annual consumption of gasoline went from 800 gallons to 400 gallons. Does anyone know what impact hybrids are having on consumption figures?
I am just going to point out in passing that when we had our nice little argument last spring about gasoline price gouging that oil was 30% cheaper and gasoline was more expensive than it is right now. Granted, crack spreads have fallen by 90% but those spreads were vehemently justified on your part by high demand and low supply. Well here we are with the same level of demand in terms of gallons needed to supply the drivers of the US and the same lousy inventory levels as well as low refining utilization and yet amazingly, gasoline is not $4/gallon.
Clearly we were being gouged last spring and there was such an outcry that they are not going to try again. Not at least until they can justify higher prices due to higher oil. It's just amazing that oil has risen all summer long and yet I have paid $2.97/gal for premium at my station for THE LAST THREE MONTHS. The price has been fixed at that value without budging since July. How is that possible in such a COMPETITIVE BUSINESS?
Too funny, the same set of supply/demand facts from last spring are coupled with a 30% higher oil price and we have lower gasoline prices. That just cannot happen in a COMPETITIVE MARKET. It's pretty clear the oil business is not competitive and that we were gouged last spring. No one around here would dare admit it though. Now I am sure that I will get a wall of spin and justifications for why things are the way they are now. Course it doesn't have to make sense, it just has to sound good for the adoring fans.
I just thought I would drop by and say I told you so though.
Now I am sure that I will get a wall of spin and justifications for why things are the way they are now.
Hello William. How's George Michael these days?
You think too highly of yourself to think you warrant justifications. I never "justified" anything to you, I just explained why it was what it was. I don't have to justify something that is beyond a refiner's control. Justifying margins is like justifying the weather; you don't justify it, but you try to position yourself to take advantage of what the market gives you. But I learned the last time that not only are you completely ignorant about the oil markets, but you insist on sharing that ignorance. Never mind that your fairy tale is completely contradicted by what goes on in the markets around the world, such as the NYMEX (they must all be in on the conspiracy); no, you are one of those ignorant rubes who think oil companies can just set prices willy-nilly. I mean honestly, I know that you have convinced yourself that you are knowledgeable about these things, but that only makes one of you. Ah, your wife probably thinks you are all that as well, so maybe there are two of you.
Needless to say, I won’t be telling you why things are the way they are. I explained some of that up the thread for others – perhaps you could learn from those exchanges. (Demand is not the same, and we are passed high driving season; oops, I hadn’t intended to give you any more freebies). But if you think oil companies can control their margins, and just let them slide from $30 to $5, you are as much an idiot as you previously proved yourself to be. And I no longer waste my time on idiots, so that’s the end of our conversation. But feel free to continue flailing away. I have actual work to do.
Have a nice day.
George Michael's band is often confused with my company but that isn't what the name means nor does it have a thing to do with him. Only an idiot imagines that margins can be that volatile in a highly competitive business. As I showed you before in the retail business which is highly competitive, margins are razor thin and they stay that way.
If you had actual work to do you wouldn't spend so much time here trying to tell everyone what an expert you are. Unfortunately for you, the oil companies have made a complete monkey of you and it's funny watching you and the other shills defend them yet again. It's not unlike an abusive spouse, you will defend the abuser until he kills you.
hmmmmmm.....
TOD'ers oil company shrills?
What's the motivation?
There is no doubt that KSA has managed their oil output very carefully. Part of the reason that many started considering a Saudi decline was a decrease in output in the face of high oil prices. Another reason people started thinking about this was because of Matthew Simmons work. Saudi C+C output decreased gradually from 9.6 to 8.6 mbpd and then remained there for at least 6 months (I only have EIA data through July), probably it will be 8 months all together. Now it is set to increase to maybe 9.1 mbpd. A simple explanation is that there is no constraint on oil output in KSA and they are simply producing what the market requires. An alternative explanation is that 9.6 mbpd was not a sustainable level of output, but that some lower level could be sustained for a number of years. We know that 8.6 mbpd can be sustained (perhaps for many years). It remains to be seen if 9.1 mbpd can be sustained for a year or more. If KSA can still push output back to 9.6 mbpd, I would be very surprised if they maintain that level for more than a few months.
George Michael's band is often confused with my company...
Is it the gay thing? Don't worry, Bill. I don't judge people like that. You swing whichever way suits you.
Your problem is clear. You have confused the highly volatile commodities business with retail. That's why you keep saying dumb things. People in commodities business live and die by what the market is willing to pay. Scarcity, implied scarcity, and geopolitical events can all have a major impact on the bottom line (and who is making it). You confusion was clear the last time around when you kept comparing the retail gold market to refining. If you want to compare retail, compare it to the retail gas market. Or compare gold mining and refining to oil extraction and refining. You keep mixing apples and oranges and wondering why you keep saying things that nobody else is supporting. Doh, there I am giving you freebies again. Must resist the urge to educate.
As far as actual work, again, your mistake. Check my profile, and you will see that until today, I hadn't commented here since August, and it is quite possible I won't comment again until January. I have been too busy making sure folks like you can get to work and heat your homes. And if it makes you feel better to call me a shill or an idiot, or say that I am not an expert, more power to you. I suspect self-esteem issues on your part, but I have to admit that my credentials in psychology are probably similar to yours in energy: I once took a class. I will just have to console myself with the fact that I get paid for what I know in the energy business, but I appreciate that you have an opinion on the matter as well. An uninformed opinion, but that has never seemed to bother you.
Just a piece of advice for the future. Arrogance is annoying. Arrogance combined with incompetence is just sad. If you don't know much about a subject, try not to pontificate too much on it. And for crying out loud, don't be arrogant about it.
'I have been too busy making sure folks like you can get to work and heat your homes.'
That is a pretty far reaching assumption, even if in many cases accurate.
And I realize this is a pretty heated discussion, but this is a point which may illustrate something about this entire discussion.
You have little to do with the train I take to work (a bicycle would also function), or the European/Russian natural gas which we use mainly for hot water, or the wood I generally handcut.
To an extent, I would be thrilled if you would stop providing all that fuel for driving to work, and also make it more expensive to heat a poorly insulated and oversized house.
You are not necessarily doing anyone a favor, and you are certainly doing a job - and sure, the van I used to carry the wood used gasoline, but if I had been a bit more interested in the future myself, I could have asked a neighbor with a diesel tractor, and fueled it with raps.
And much of this region's economy is based on vehicle building - obviously, many of my neighbors hope you will keep providing the fuel to keep their jobs secure. We do not live in a pure world, by any measure.
Making things easy is why we don't change, regardless of the effects over the long term.
You have little to do with the train I take to work (a bicycle would also function), or the European/Russian natural gas which we use mainly for hot water...
One of my Russian counterparts did. What I am involved with mostly right now are natural gas projects, so I am helping provide natural gas for your counterparts in the UK.
To an extent, I would be thrilled if you would stop providing all that fuel for driving to work, and also make it more expensive to heat a poorly insulated and oversized house.
Believe me, I don't want energy to be cheap. I want it to be expensive, so people will use it sparingly. I have long been on record as advocating high carbon taxes to make energy artificially expensive so we can move away from fossil fuels. But what I hate to see is for energy to become much more expensive when most people are not prepared for it. I want higher energy prices, but with a warning for people that they are coming.
Well, to keep on the moral purity bit - though the house is rented, and my wife opposed, it would be practical enough to have a solar water heater installed, but it seems as if in this part of Germany, such responsibilities will be
As for Britain - I don't believe they export natural gas (which is why there pipeline structure was inadequate for imports), and from what I have seen in England, at least, they could cut significantly reduce their natural gas consumption by installing double pane German style windows from the 1970s and 1980s - no need to use the latest German triple pane designs. But then, it seems as if the British government has decided that following Germany's example of trying to at least reduce consumption of resources which are finite and damaging is something they need to actively oppose.
To an extent, the disagreement is about how we live - if you wish to argue that an industrial economy needs industrial amounts of energy, no disagreement. Trains are certainly industrial in scale, requiring an industrial infrastructure. However, moving two tons of metal to move a single person alone is truly stupid - and that is a social choice, in the end, not merely a personal one. As for heating - well, insulation helps, as does dressing warmly. But certainly there is a baseline need for heating, and it will not go away any time soon.
Nonetheless, the warnings have been clear enough for decades, except in the eyes of the various industries which depend on growth for profit - we could have changed how we lived in the past decades, but now, the only warning is likely to be heeded is reality hitting millions in the face.
At this point, not being hit is about the best one can hope for. Some places seem to understand this point better than others.
Not sure where you got your view of Britain from, but virtually everyone who can has double glazing, roof insulation, cavity wall insulation, etc.
With all the unwanted telephone marketing of such, how could it be anything else.
The various places seen and spent in around the Isle of Wight / Portsmouth, 2001. Ireland (Cork, Wicklow, Killarney) 2005 was not different, except for being a different country, of course.
I do realize that this is a warm/vacation area, and may not be typical, in the same way that Portsmouth, a naval base, is not typical. It was still striking, however.
Indeed and you are the perfect example of it. As soon as I made my initial comment you came out with the name calling. You first called me an idiot and then you switched from calling me William to calling me Bill as though somehow you thought that would bother me, then you accused me of being gay. Hmmmm, seems to me that I got under your skin and not because I am an idiot or gay or wrong but because I am right and the facts back me up. You really do look pretty inept on this thread, more than one person has poked lots of holes in your spin. Too bad you don't take your own advice. Ciao.......
Bill, you are truly a twit. Look back at your first post. It was chock full of insults. Now you want to cry because you were called names in response? Don't be such a hypocrite, you big wuss. If you can't take it, don't dish it out.
Each time we have a discussion, I feel like I am picking on the handicapped. It makes me feel dirty. And the worst part of it all is that you can't even see how completely outmanned you are. I used to see this all the time with Creationists – that pompous, confident certainty, never recognizing their own scientific illiteracy. I guess ignorance is truly bliss. Enjoy your bliss.
Man you just can't quit with the name calling and insults can you?
Better check that post again, there were no insults in it at all. If you call me telling you I told you so an insult then so be it. However, you were wrong last spring and you won't admit it now. Everyone else can see that the big oil companies don't want a price gouging law passed against them and thus they are behaving. It's just so plain, like that nose on your face that you can't see. Anyway, I am not crying about insults, just pointing out that they are all you have to offer because your spin is null and void, the facts are just blowing you away.
Better check that post again, there were no insults in it at all.
Really?
So, a wall of spin and justifications that doesn't have to make sense, but just has to fool the adoring fans? And that's not insulting? I bet you don't have many friends.
However, you were wrong last spring and you won't admit it now.
I told you then, as I will tell you now. Gas and oil are commodities traded on the world market. The price for those commodities is set on those markets, by the prices traders are willing to pay. Crack spreads follow those markets. I understand you do things differently in the world of retail, but your fixation on retail has been a constant stumbling block for you in the world of commodities. I have tried to help, but I don't think there is any more that I can do. You have a stuck pardigm. But you are in a very tiny minority, as the majority of the people on this board - even those who vehemently disagree with me on other issues - know a bit about the oil and gas markets, and can tell how clueless you are in that arena.
Anyway, I am not crying about insults, just pointing out that they are all you have to offer because your spin is null and void, the facts are just blowing you away.
Are you a 12-year-old? My kids have better retorts than that.
RR maybe you should take some more time off.
Oh, this wasn't intended to be long-term. There have just been a lot of statements that needed addressing, and I could see group-think setting in. I thought it was time for an infusion of an alternate opinion. And I was in the mood for a scrap. But, that's about all from me. I have said my piece.
I am having trouble reconciling the fact (from the report):
And Robert's statement:
It seems imports dropped like a stone last week, and are down overall from last year. That, to me, sounds like difficulty "to secure crude". Is there an explanation?
Look at inventories. They are still historically very high. Trending down, but still high. There is a lot of crude there with which to run the refineries.
I have connections in over a dozen refineries. I can tell you that in no case has there been a problem with getting crude. They are paying more than they like, but refinery runs are not down because of an inability to secure crude.
OPIS had a long section yesterday that stated that many are skeptical of yesterday's inventory drop; that they expect there to be a reconciliation next week. The drop was a big surprise considering the fact that utilization is still low. The numbers yesterday did not all make sense.
This sounds like a likely explanation - they didn't want to pay the current price, so imports fell due to lack of demand from the refineries and inventories fell by choice. Clearly something will have to give - the price hasn't come down and they can't run negative 5.3mb per week for long.
I enjoy listening to Oil analysts, saying that there is a ten dollar on the price of a barrel, from speculators. This has been said weekly ar every dollar above fifty.
Eric
Memorial gifts
I have plotted the salient weekly gasoline statistics for this year. Price is in cents, demand is in 10k barrels per day and stocks are in millions of barrels. This chart makes it clear that prices dropped substantially with no decrease in demand or increase in supply. In fact, demand was increasing while the price was dropping. That defies the basic economics you learned in college does it not? In addition you can clearly see that demand is marginally lower now than last spring but prices are much lower. However, supplies are just as low now as they were last spring.
Please try to address the data Robert, if you can, and try not to be insulting if that is possible.
Bill, did you not get the memo? As I have explained now at least a dozen times, prices are set in worldwide markets, not by fat cats in smoke-filled rooms. You can see that the cracks evaporated on the NYMEX and in countries around the world, just like they did in individual refineries. It is unfortunate for you that this doesn't fit the picture you have painted in your head, and I don't expect that to change your world view on these matters, but I do feel obligated one more time to point it out. Oh, and not to be insulting, but that graph sucks. I can't even tell what the X-axis is supposed to represent, and the right side is completely chopped off.
That is all. I have grown bored of arguing the point. If you want to continue to argue it, here are comments from someone who read our exchange, and had a few things to say about it:
http://i-r-squared.blogspot.com/2007/10/nothing-left-to-give.html#136689...
Well I knew they didn't teach much over at the agriculture and mechanics school i.e. farming and fixing tractors, but I thought if you had to be able to read. Clearly you didn't even read my explanation of the plot. As I said this is the weekly data for this year.
But I didn't expect much from you when confronted with real data. You plotted this same data earlier in the year where supply was falling and prices were rising right up to the point that relationship failed to hold, i.e. Mid May. Then you made the mistake of extrapolating the trend assuming you were dealing with real markets. Now the data show what a sucker you were. Supply flattened out, demand rose and prices fell. Your hypothesis was wrong yet you cannot admit it. This is a really pathetic response, try harder.
So you are telling me that when the public is crying out for their necks because everyone but the few people on this board and the oil companies themselves believe that they are gouging, that they don't think about the fact they might be making too much money? Really? What exactly is it then that senior management is worried about? They don't worry that congress might pass a windfall profits tax or anti-gouging legislation? Seems to me this comment ignores political reality just as much as you ignore economic reality i.e. when companies can get away with price fixing, they do it.
I am still waiting for an explanation of this data but I suspect hell will freeze over first.
Well I knew they didn't teach much over at the agriculture and mechanics school i.e. farming and fixing tractors, but I thought if you had to be able to read.
What was it you were saying about insults, Bill? I have to tell you that few things are as funny as seeing someone make grammatical errors in the process of insulting someone else's intelligence. Combined with your haughty arrogance, it makes you seem like even more of a bumbling nitwit. It's sometimes hard to believe you are for real, and not someone just clowning around. You are wasting my time, but at least you provided a laugh at your expense.
I am still waiting for an explanation of this data but I suspect hell will freeze over first.
You have had your explanation a dozen times now. At this point, you are coming off as mentally challenged. If you can't understand it, get someone else to explain to you how commodities are priced, and how that affects profits. I understand that you are desperate to convince people you aren't outmanned in this discussion, but we passed that point a long time back. Shame you couldn't see it.
Oops, I made a typo when I edited my post and left the word if in the sentence. Nonetheless that doesn't exonerate you from your failure to even bother to read the explanation of the EIA data I plotted. The only person mentally challenged here is you. It's pretty clear that you aren't going to admit your gross error.
You have explained nothing yet. According to your claims from last May, prices for gasoline should be well over $3.25 right now. You claimed it was all supply and demand last May. You claimed the retail gasoline business was highly competitive. You claimed the refining business was highly competitive. The data I am showing here do not correspond to a competitive market. They correspond very well to a monopolist trying to determine how much demand elasticity there is in his pricing and then backing off.
These data show that neither supply nor demand react properly to an increase in price in the gasoline business. So your contention that it is a competitive business is incorrect. Now if it's not competitive, then what is it?
Oops, I made a typo when I edited my post and left the word if in the sentence.
Right. Which is why it was so funny, given that you were insulting my intelligence. Do I have to spell everything out for you? Next time you do that, double-check your sentences, and we won't have a laugh at your expense.
According to your claims from last May, prices for gasoline should be well over $3.25 right now.
Certainly should be, Bill. The situation at present is very atypical. Refiners do not want margins to be where they are, and if they could actually control them they wouldn't be where they are. And I can tell you that any refiner in the world would read what you have written and immediately conclude that you are an idiot. Gasoline demand has been soft, and has kept prices soft, and that has squeezed margins. It may have escaped your attention that we are past peak driving season, but I can assure you that if we still have this oil price/inventory situation in the spring, $4 gasoline is a reasonable bet.
Here are a couple of blurbs from CNN today. They are credible in your eyes, no?
http://money.cnn.com/2007/10/26/news/economy/gas_oil/index.htm?postversi...
But they are in on it too, eh? And I don't know how many times I have to ask you why - if prices are being set by a monopoly - you see the same prices on the NYMEX, where prices are set by what the buyer is willing to pay. Your entire understanding of this business is fundamentally flawed. You do not comprehend how commodity prices are set, and that leaves you chasing your tail. You are demanding explanations based on a nonsensical model you have erected. It's like demanding to know why a circle has 4-sides, or trying to play chess when you only know the rules for checkers. You can't even speak the language, and it has gone way past being annoying. And I really, really can't afford to continue trying to spoon feed you. You are simply wasting my time, as well as bandwidth.
Robert you really need to quit embarrassing yourself by making outlandishly unfounded and incorrect statements.
Well Robert, here is the NYMEX front month contract for RBOB gasoline.
Now I hate to break it to you but this chart corresponds to my chart starting at week 19. In my chart of the EIA RETAIL PRICE DATA, prices reach a peak in mid-May and decline from therein. What was it you were saying about retail and the NYMEX? Would you care to repeat it and would you like some mustard and mayonaise on your shoe to make it taste a little better?
Now who is arrogant? I guess you just imagined that the data would bear you out because you are the "expert". Well mr. expert, you don't look so smart now do you? Retail prices trended down while NYMEX prices trended up. What buyers were willing to pay more on the NYMEX and what buyers were paying less at the pump? Who ate the difference and why mr. expert?
For the sake of society, if you have kids, I hope they don't get the combination of both your stupid gene and your arrogant gene. Let's hope that your wife contributes either a smart gene or a humble gene (or both). You continue to post one embarrassing reminder after another that you simply have zero clue as to what you are talking about. Again, maybe you should stick to your understanding of ladies apparel instead of constantly applying it to the commodities markets – where your lack of understanding is glaring.
For anyone else who may still be following along, here is Bill's arrogance, followed by his mistakes:
This is reminiscent of Bill making grammatical errors while insulting my intelligence. He apparently can't read a futures chart, nor can he see several amateur mistakes he has made. What retail prices have done this year is peak in May, decline over the summer, and just recently started to tick back up. Retail prices in PADD I (where NYMEX gasoline will be most predominant) peaked on 5/28, and fell $0.17 over the course of 2 months before bouncing up and down a bit. NYMEX futures peaked in May, drifted down just as retail did (Bill conveniently left this off of his graph), bounced up (that bounce is what Bill is trying to hang his hat on, but Bill obviously does not understand the nature of "futures" versus spot), and then fell by about $0.20 more. The same $0.20 drop happened with retail, and the same happened with spot. Now, as the market anticipates higher gasoline prices, they are all heading back up. Look at your own chart, Bill! Here are the PADD I retail prices so you can see for yourself:
http://tonto.eia.doe.gov/dnav/pet/hist/mg_rt_p1w.htm
After demonstrating that he can't read or comprehend a futures graph, Bill once again plays the clown:
This happens when someone thinks they know more than they do. Most of the time, they soon recognize that they are out of their depth. Bill has never realized this, so he digs a deeper and deeper hole. Occasionally he realizes that he screwed up, and then desperately throws out more data and insults, demanding an explanation for something he doesn't understand.
So here it is Bill, just as dumbed down as I can make it. That upward trend in the NYMEX is for the future. That's why they call them futures (but for the comparison you are making, you should be comparing PADD I retail to New York Harbor spot). And the futures have trended with the retail prices. But you should understand that futures are bets – on the future - and there will be times when the bets were wrong. Both retail and futures drifted downward, but there were certain times that futures spiked up. When? For one, when the interest spiked up, because people were betting on hurricane activity, or something else that would disrupt supply. So, there's another freebie for you Bill. If the supply disruption doesn't come as anticipated, the retail price won't necessarily follow the futures price for a short period of time, but it will correct itself. Who ate the difference? Speculators who lost money when the bet turned out to be wrong.
Here is another graph of futures closing prices this year:
http://www.wtrg.com/daily/rbobgasolineprice.html
If Bill warranted the time, I would overlay retail with futures, and show him exactly when divergences happened, and why. In Bill's own graph, you can see the greatest divergence just as the speculators piled in (note the spike in open interest that starts about the time of the anniversary of Hurricane Katrina). And now you can see that when hurricane activity didn't materialize, prices headed back down. But now, they are trending back up, as investors anticipate that prices are headed up (as do I, and I have been saying for a month now that prices have to head up).
The final thing I would point out for Bill's benefit is that RBOB is a blending component, and that the component it is generally blended with, ethanol, has had a price collapse. So, Bill is only looking at a partial picture when he compares RBOB to retail. If RBOB is constant, retail is constant, and oil prices are rising, money can still be made if ethanol is collapsing. It all depends on the magnitude of the price moves. These are the sorts of things that an amateur like Bill will miss in his superficial analysis. So again, Bill has shot an airball when he thought he sank a 30-foot jumper. Worse, everyone but him sees the airball, and he still thinks he sank the jumper. That's why you are providing so much comic relief, Bill.
Now, I have no doubt that Bill, once again recognizing that his superficial understanding has been exposed, will come right back with one or more additional superficial arguments and demand an explanation. He will want to know why NYMEX and retail diverged on July 1, or some other nonsense. As I have mentioned for several posts now, this has become tiresome. My wife just stormed out of here because I was spending time on Bill and not her. I can assure you that she is much prettier than you, Bill, and you don't warrant the attention I have given to you. Furthermore, this really has the feel of picking on the handicapped. Go argue your points with someone still in high school, and you might get the upper hand. Your feeble attempts bore me.
Now, in Bill's own words: Would you care to repeat it and would you like some mustard and mayonaise [again, the genius can't spell] on your shoe to make it taste a little better? Now who is arrogant? I guess you just imagined that the data would bear you out because you are the "expert". Well mr. expert, you don't look so smart now do you?
Airball! Airball! Airball!
Gee I hate to get you in trouble with your wife Robert. You would have been better off not getting into the whole NYMEX issue though. As a point of obfuscation it's not going to work and it has just made you expose your colossal ingorance even more. Here is your original comment on the NYMEX
Note that you are not specific about what NYMEX price you are referring to so I used the latest front month contract which at the current time is a perfect proxy for spot. However, here is where you have blundered and blundered big.
You are more ignorant of markets than I thought. This is one of the most ignorant comments I have ever seen regarding commodities markets. Of course if you know nothing about futures markets you would expect that it has something to do with future prices but you would be wrong. All that shows is that you know nothing about commodity markets (while arrogantly claiming you do). The futures market is not intended to predict prices in the future. The futures market is there for suppliers to hedge future production by selling at todays prices. Gee talk about opening wide and shoving your foot deep down your throat. I do hope you put mayonaise and mustard on it so it didn't taste so bad.
Let me give you a little lesson so you don't make the same uninformed, ignorant mistake in the future. The normal difference between futures and spot prices usually represents what is called a contango where futures prices are usually a few cents higher than spot. The contango represents the cost of storage and delivery. As a result the futures and spot charts should have the same shape for the most part. There is no way they don't have the same shape when there is contango because any substantial price difference creates an arbitrage opportunity. You know what that means mr. expert? Obviously you don't understand why futures and spot prices don't normally diverge by more than the contango. In a word the answer is arbitrage.
Let me give you a short example of arbitrage. If the futures prices are bid up above spot in excess of the cost of storage and delivery, then it is clearly a profit opportunity for a trader to sell the futures and buy the spot. You sell at the futures price and buy at the lower spot price and voila, you have a guaranteed profit. When that difference in the futures and spot exceeds the storage and delivery price that is your profit. Traders are into that and they will make sure that the difference between futures and spot is minimized to the storage and delivery differential.
Now that I have educated you on commodities trading markets lets have a look at spot prices so you can see how they have the same shape as the futures. Here is a longer view of spot prices that shows the same pattern as the front month futures price that I posted earlier. If you look at the prices since June which is what my original plot shows, you see they rise, fall and rise again in the same places on both charts. Prices on the NYMEX have been on the rise since early August and yet the retail price has remained flat.
So again, I ask you mr. expert, why is there a divergence in the retail and spot prices? Why are spot prices rising by 20% in the last three months without any significant change at the pump? That couldn't have anything to do with the energy bill in congress could it?
Furthermore, you are not going to succeed in obfuscating my main point which is that you claimed last May that the retail gasoline business was competitive. You need to look at the way supply, demand and price react in competitive markets and tell me if that is the way they are reacting in the gasoline market. That was the real reason for my posting the EIA data in the first place. Your claim that the NYMEX represents a competitive market avoids the fact that the NYMEX doesn't represent the final buyer in the market for retail gasoline. So trying to claim that the NYMEX sets the retail price is contrary to your claims that retail prices are based on a competitive market where the consumer determines price by their reaction to supply and demand factors.
The supplier to the NYMEX would be the refiners. They are simply using NYMEX to hedge future production so they really do determine the price there. Who buys in the NYMEX? Is it the majority of retail stations or is it a much smaller market? I would say that it is a much smaller market. The big refiners do not supply their franchisees from the NYMEX, they supply them from their own refineries. So your attempt at obfuscation isn't going to work here. Furthermore, it doesn't matter, it just provided one more data point that puts egg on your face. You cannot explain the divergence between spot and retail since August and you cannot claim that the retail price of gasoline is based on supply and demand factors in a competitive market since clearly they aren't reacting that way.
You probably should just spend more time with your wife instead of trying to pretend you are an expert on the web because you just going to continue to make a fool of yourself here on the web. At least your wife probably thinks you are a smart guy but you have proven otherwise here. I am taking my wife to the Texas game so I have to sign off now. I am interested to see the ensuing wall of obfuscation, sputtering and spin that ensues from this little lesson.
Jesus, I wish you would learn to scale your graphs. You do understand that the right side of your graphs isn't viewable by a large portion of the readers, right? Of course I have mentioned it a couple of times, so you must just be too stupid to figure it out.
There is so much BS to wade through, and Bill has ignored numerous points that he can't address. But as I said, for several posts now, I am bored with his nonsense. I can see that you have spent most of your day on Wikipedia, trying to learn the difference between the spot and futures markets, and then trying to deflect the attention away from the monumental ignorance you have displayed to this point by hand-waving about arbitrage. It's been a constant pattern from you: Get owned, and then try to come back and show everyone that you really are, despite that previous post, a smart guy.
So let's make this quick. First, just in case anyone missed it, Bill wrote:
No Bill, it has to do with the expectation of where prices will be at the time of delivery. That's why the April RBOB contract, for instance, is signficantly greater than the front-month contract.
Now, if that weren't funny enough, Bill still has a retail fetish:
That's his main point? Bill is very, very confused. I have been talking about refining margins and oil company profits. And Bill has been whining about oil company profits and refining margins, but for some reason that pea brain of his is still fixated on the retail gasoline business. LOL! The depths of his stupidity just hit me.
All this time, it had never occurred to me that he didn't realize that retail gasoline margins are completely different from refining margins. I can't stop laughing. Are you really this stupid? Retail gas businesses are overwhelmingly owned by small business owners. Major oil companies own something like 5% of them, so retail profits contribute next to nothing to oil company profits. And in fact, in the retail gasoline business, profit margins are razor thin. Gas station owners earn higher profit margins from candy sales than they do from gasoline. But all this time - wait, let me catch my breath - all this time you have thought retail margins and pricing contributed to oil company profits, and that's why you have been fixated on retail. It just doesn't get better than that. I guess what they say is true: If all you have is a hammer, every problem is a nail.
OK, just one more. Apparently Bill is also mathematically challenged:
The spot price in New York for regular gasoline the week of July 20 was $2.09. The spot price in New York three months later, the week ending October 19 was $2.22. The spot price rose by a modest $0.13, or 6%. Bill's calculator told him the rise was more than 3 times that.
http://tonto.eia.doe.gov/dnav/pet/hist/rrunyhW.htm
Yeah, we know Bill. We have heard the story before. You forgot to carry, or you hit the wrong digit on your calculator, or you forgot to run spell check or you edited and forgot to take out the extra words. It's always something like that, but we still trust that you are the genius you appear to be.
Of course we could go in and have lots of fun with numbers, and do things like correlations, but I don't think Bill would understand when I showed him that the correlation coefficient between retail and spot is pretty close to 1. After all, he can't even compute percentages.
And for the last time, it's mayonnaise, you dumbass. Two n's.
Just for fun, why don't you tell us another story about retail margins? That is priceless. And tell us again what 20% of $2.09 is. Actually, just tell me, because I suspect we are all alone in this thread now. Your shining brilliance is being wasted on just me.
Who would have thought that a Longhorn would have a superiority complex? As a native of Oklahoma, longtime Sooner fan, and graduate of Texas A&M, this is just something I have never seen from a whorn. I bet getting intellectually dominated by an Aggie – and one from Oklahoma no less - must be a Longhorn's worst nightmare. Well, I hope you enjoyed the game. I am watching it on my Slingbox. Was that you booing in the 3rd quarter when the horns were floundering? I hate the Longhorns, but I actually root for them to win, as it helps OU's strength of schedule. I feel so dirty when I do it.
Robert it is pretty clear you have made a fool of yourself and are reduced to studying my post for spelling and arithmetic errors. First of all let me apologize for the spelling error in mayonnaise, my bad. However, as to the arithmetic, if you look at the chart I posted for Spot Unleaded and you take the first low point in August which was $1.90 and look at the most recent price which is $2.29 you get 20.5%. Nothing wrong with that (the last three months are August September and October), you must have used some different set of data to compute your number. But you are so desperate to redeem any shred of credibility you are doing what you can in an attempt to discredit me. It's understandable when you expose your gross ignorance on futures markets that you would come back with this kind of vacuous nonsense. Worse still you persist in this erroneous notion
Wrong Robert, the future in futures market refers to future delivery, not future prices. You really are dense. The price of the contract to deliver in the future is determined on the day the contract is entered into. That is not a future price, it is a present price, it is the agreed upon price the buyer pays today for delivery in the future, ergo the name futures. I could give you another lesson on the futures markets but I can see it's a worthless endeavor since you still cling to the mistaken idea that future prices are what is being determined in the futures markets.
Now back to the retail business. I have not focused on margins in this discusssion, that is just more obfuscation. What I have done is present you with retail price, demand and supply data that clearly do not conform with the behavior of a competitive market as defined in an economic sense. Furthermore, I have provided data that show the same supply and demand characteristics that produced high prices last spring resulted in substantially lower prices during the last three months. You claimed last spring that prices for gasoline were set by supply and demand factors. You justified last springs high prices by the low inventory, low refinery output and strong demand. If as you say, the price of gasoline is deterministic and not abritrarily fixed, then we should have a single valued price function that produces the same price with the same inputs. If not, then the price is arbitrary and yet what we have is the same inputs producing two vastly different prices within just a few months time. That was the point of my original post and the point of my charts.
Finally, as to the scaling of my charts, I can see them just fine. In fact they are the same size or smaller than all of the other charts in this thread. I have no idea why you cannot see them, buy a more up to date computer if you cannot. Your obfuscatoin cannot hide the fact that you were wrong last spring and the data prove it. Furthermore you have exposed your ignorance of futures markets twice now, it's amusing.
With regard to the Sooners, it's too bad they have such good teams but can't win the big games. Instead they end up humiliated in a blow out or losing to second rate competition. Stoops is a good coach but he doesn't seem to be able to win the big one since that one time in 2000.
Texas won yesterday, for that I am glad and the fourth quarter was all you could as for. Too bad about the Aggies.
I didn't even bother reading this, Bill. Too bored with you. You see, unlike your theoretical musings about how prices get set, I sat in on gasoline/diesel pricing meetings 3 times a week for 3 years. I know exactly how they are set, so your conspiracy spiel about gouging has been a knee-slapper. I mean, you may not know how stupid your arguments are, but I do. Your confusion over retail gasoline and oil company profits was one for the ages.
While I didn't read the rest of the post, I can see the bottom 2 paragraphs. Perhaps you don't recall recent history, as in OU 63, Texas 14 and OU 65, Texas 13. Or 7 National Championships. And a horn has the nerve to talk about OU losing to 2nd rate competition? My gosh man, Texas wrote the book on that. I bet in the dictionary, next to the definition of overrated, there is a picture of Rodrique Wright (whom delusional horn fans claimed for 4 years was better than Tommie Harris). I still remember the debates amongst the horns about whether that #1 recruiting class with Chris Simms and Cory Redding was going to win 4, or just 3 NCs. LOL! The phrase "UT - where talent goes to die" wasn't coined by a Sooner. Horns can thank God for Vincent Young, who single-handedly broke that 35 year NC drought. I bet you are glad the Wonderlic intelligence test wasn't a condition of admission. (For those who don't know, UT QB phenom Vincent Young scored at about a 4th grade level on the IQ test given to prospective NFL players.) Thank goodness UT has standards; the kind of standards that admitted a man like Bill. The arrogance of many UT grads – and Bill is a perfect example – is just rich.
But I don't watch all that much Aggie football. I went there for graduate school (turned down UT's offer - not because of the school, but I just didn't like how crowded Austin was). While I watch the Aggies occasionally, I don't keep up with them much.
Ta-ta, and thanks for the laughs. Sorry I didn't bother to read your latest entry, but I have wasted enough time on you. If I thought there was anything new, or that anyone was still reading this thread, I might have bothered.
You sound more and more delusional with every post, Bill.
Wow...this was all a very painful thread to read through...all I know is that crude keeps setting records and that my gasoline prices are scheduled to start shooting up here in the near future.
Is all this due to speculators...traders looking for a commodity to invest in...politics...credit/mortgage...falling value of the dollar?