TOD POLL: Where will crude oil close 1 year from now (12/31/2008)?

2007 witnessed a rally from $67 to $99 - we have one more day to kiss $100 on the price of front month crude - it may be close. Here is a POLL, open until Jan 1, where you can post your prediction for oils closing price for year end 2008. As previously discussed, sometimes the shape of the chart, chronological movement, and volatility can tell more of the underlying story than a closing price. Here we are asking just for the price, 12/31/2008.

Click to Enlarge

Here is the POLL. Here are the choices:
1) Below $50
2) $50-$65
3) $65-$80
4) $80-$95
5) $95-$110
8)Above $180
9)I have no freakin' idea. Futures distribution centers on $90, so thats more likely than anything else.

Discuss, debate, predict, and happy new year!

I think it's really difficult to make this prediction. On the one hand, increasing scarcity should push oil prices up. The declining US dollar also tends to inflate oil prices. A steep rise in oil prices seems like a no brainer.

However, the collapsing US economy could push oil prices down. Furthermore, the European and Asian economies could also follow the same path, because European and Asian central banks bought so much bad debt from the USA. We could be looking at at 1930s style worldwide depression. That should be bearish for oil prices.

But then again, it depends on how much the countries around the world are willing to crank up the printing presses in a desperate attempt to print their way out of a debt crisis. Look at some of the recent currency collapses we've seen: the 1994 Mexican peso crisis, the 1997 Asian financial crisis, and the 1999-2002 Argentina economic crisis. In these three cases, we saw currencies collapse, which inflated other prices (like oil and gold) if priced in pesos or Korean won, for example.

So, I hate to say it, but I just don't know what oil will cost a year from now. I can't even say if it will be more ore less than it is now. I hope that gold goes up, since I'm heavily invested in it, but I'm not even certain about that.


Ditto Oz, The variables seem to get greater each year. I think the printing presses will win out, however, and desperation to keep the status quo will push prices of everything much higher before depression reins in. I vote for over $150.

This is going to be a tough call. Economic slowdown in the US seems almost guaranteed. But supplies are so tight and geopolitical events so numerous I have to think it's going to stay fairly flat if not go up a little.

What Oz said, seasoned with a fear that we're due for one of the potential disasters itemized by shargash, puts me in the $130-$180 camp. Absent a disaster $90 sounds about right for recessionary 2008.

My guess is that we'll end the year with $150 oil. There will be more dollar depreciation. Right now, the only one's financing the US 600B current account deficit is central bankers. A good chunk of that is for oil and it isn't going away without a much lower dollar. There really isn't any resolution to this crisis without a lower dollar.

Add to that the idea that total liquids could be down again this year and you have an environment for higher prices worldwide not just in the dollar zone.

So, for me the instability in the US economy will serve to increase prices not decrease them. So, people walk away from their McMansion and default on their mortgage. They still have to drive to work. Sure, 25% unemployment a la the Great Depression would reduce crude demand a little but Ben Bernanke has stated that he is not going to allow that. One million USD in each home debtor's bank account and all problems are solved--to the detriment of dollar holders worldwide.

So, $150 would be my guess.

Can't tell if you're joking. How exactly will Bernanke transfer dollars into the average home owner's bank account? As the dollar drops in value 50%, my estimate would be the ave union member might get a 4% raise (published CPI)-non union members might be a nominal decrease (down more than 50% in real dollars).

I don't think it will work out that way. The problem is that as defaults start rippling through the financial system, the amount of economically effective money is going to decline. With fractional reserve, new lending means new money created---and hence defaults on loans means money is destroyed.

The central banks will attempt to counteract that effect, but they will not be able to fully do so because the private banks themselves will be unwilling to use their new reserves to lend since their own situations will be so dire.

I don't see gold going up in this environment.

Previous currency crises (Mexico, Argentina) occurred when debt was issued in different currency than the home currency, and with Argentina, they tried to keep a farcical currency peg.

This isn't likely to happen in the developed world: US banks made loans in USD, UK banks made loans in GBP and Euro banks in Euros.

I agree. This is going to be a tough year to make a guess. To many conflicting forces. I opened the link to say that, and everyone had beat me to it.

So I decided to use my amazing psychic gut! It works kind of like Socrates daemon.

My gut says wild volatility with it plunging as low as 80 and as high as 130, but settling back to about 100.

So I guess my guess is: 5) $95-$110

I voted yesterday. Today I wanted to see what the totals are since then, but the poll won't let me look unless I vote again. Won't this skew the results?

It seems I remember there being discussions of 2008 seeing quite a bit of oil come on line compared to recent years. Also, the recession should be kicking in good by mid-year, and OPEC is supposedly picking up production.

All that is balanced by decline rates and growth in China, India and oil producing nations.

I voted for 80 - 95, or whatever it was, but I'd not be surprised by any range. Volatility should be the hallmark of peak, so anything goes.


PS. Happy New Year! We just had ours here in East Asia.


your comment reminds me so much of the following:

Man in Black: The battle of wits has begun. It ends when you decide and we both drink, and find out who is right, and who is dead.
Vizzini: But it's so simple! All I have to do is divine from what I know of you. Are you the sort of man who would put the poison into his own goblet, or his enemy's? Now, a clever man would put the poison into his own goblet, because he would know that only a great fool would reach for what he was given. I'm not a great fool, so I can clearly not choose the wine in front of you. But you must have known I was not a great fool; you would have counted on it, so I can clearly not choose the wine in front of me.
Man in Black: You've made your decision then?
Vizzini: Not remotely. Because iocane comes from Australia, as everyone knows. And Australia is entirely peopled with criminals. And criminals are used to having people not trust them, as you are not trusted by me. So I can clearly not choose the wine in front of you.
Man in Black: Truly you have a dizzying intellect.
Vizzini: Wait 'til I get going... where was I?
Man in Black: Australia.
Vizzini: Yes, Australia, and you must have suspected I would have known the powder's origin, so I can clearly not choose the wine in front of me.
Man in Black: You're just stalling now.
Vizzini: You'd like to think that wouldn't you? You've beaten my giant, which means you're exceptionally strong. So, you could have put the poison in your own goblet, trusting on your strength to save you. So I can clearly not choose the wine in front of you. But, you've also bested my Spaniard which means you must have studied. And in studying, you must have learned that man is mortal so you would have put the poison as far from yourself as possible, so I can clearly not choose the wine in front of me.
Man in Black: You're trying to trick me into giving away something — it won't work.

(From 'The Princess Bride', in case you hadn't guessed :-) )



From here:

I personally believe that we will have massive inflation in prices of everything essential and massive deflation in everything discretionary.

I think that is the best one-line summary I've seen yet for what to expect.

Energy is essential. McMansions are not.

I would have liked to have one more category in the poll. The $130 to $180 bucket is a bit broad, so you will pick up quite a few folks in it. I'm guessing around $150 at end of year (but that depends on so very many things). I'm expecting an average of $110, with perhaps a spike to near $200 and a dip to perhaps $75. LOTS of volatility.

#7 $130 to $180. Nice broad range. Since production has been flat in the face of growing demand for 3 years now, some thing has to give. Stocks are being drawn down, and the poor have already tightened their belts. Now the big guys get to bid against each other, and since we have outsourced most of our heavy industry, a US recession will not cut demand very much. After all, we need to feed those big screen TVs and our internet servers.


Like Oz, I'm all over the place on this one. I do think there will be a world-wide recession, but I don't think it will have a dramatic downward effect on oil prices, because the decline in consumption will be roughly the same as the decline in production caused by depletion. And if prices decline much from where they are, some of the more expensive production will come offline, and the capital investment needed to bring new production online will be delayed.

On the other hand, there are some possible events that could push prices very much higher than $130. Taken individually, none of them are likely to happen in 2008, but taken in the aggregate, I think there is a pretty good chance one or more will happen:

-- War in the Middle East (beyond what we have currently)
-- Civil war in an oil producing country
-- Pakistan losing one or more nukes
-- Natural disaster(s) in oil producing regions (e.g. bad hurricane season
-- Saudis admit (or cannot hide) that Gahwar is in decline

I think if I'm wrong, I'm likely to be wrong on the low side.

#6 $110 - $130...oil prices seem to have dipped during the last quarter of last year and this year, due to mild winters and thus lower demand. So, looking into my crystal ball, I anticipate dollar depreciation and firm summer demand spiking oil up over $130 sometime during the year, then a seasonal dip down less than $130 by the end of the year.

$92.50 is my bet for this time next year, but we may see $120 before then.

Any particular reason for forecasting a closing price lower than today's? As stocks have been drawn down for two years (according to EIA numbers), if this continues the only way for prices is up. Unless there is significant new production, above depletion, or unless there is significant lowering of demand. If these factors are not spot on, in terms of moderating demand or increasing supply just enough, I can't see prices being roughly where they are now, except as a point on a wildly fluctuating curve.

Prices have risen 60% this year, when there hasn't been any really bad geopolitical news, though the US dollar has slumped somewhat. I can't imagine next year will be any more supportive of a stable oil price.

In terms of effects on people, I think only significant new production, that is, an increase over today's production of around 2 mbpd, would keep the world stumbing along as "normal". I don't expect that, but who knows?

2007 is ending on a price high and so I'm guessing 2008 may not. I think the price trend will stay intact but am simply guessing that the end of 2008 will see prices off highs reached during the year.

Well Euan, last time I won a bet I had a lot more hair and a lot less wasteline...

But 90- 110 seems fair. So 100.01 USD / bbl on 31/12/08


If the Western Industrial economies tank, the usual madness in the middle east will offset it, keeping prices high.

And of course Russia has learnt that a) high oil prices mean luxury goods and b) oil is a potent weapon.

I reckon on about 2 years of plateau pricing as western industrial economies try to cope and mitigate, cooling down, belt tightening,etc. But before the markets finally realise that Oil output cannot grow.

Then the shit hits the fan ultimately when we wonder where all the rich tourists are for the Olympics in 2012.

Mudlogger - I too suffer from expanding waistline syndrome. I can't wait for the 2012 Olympics. I suspect that infrastructure may be the first ever built on hot air power.

Have a good one Mudlogger!

You too Euan, have a good one.

best wishes to you and to all at TOD in 2008.

Decline in housing sector of economy plus high energy prices will sap spending power of the consumer and send US into severe recession by year's end.

Inflation of 8 to 10 percent will add to this straining of personal and business budgets to make recovery difficult for the next two years. As unemployment grows to around 8 percent or slightly higher, transportation fuel use will decline by the same percentage. This will cause oil use in the US to decline by at least 6 percent by year end (75% of oil is for transport in US). The balance of the world's developed economies will not feel as much pain, but they will not be growing much either. So world demand for oil will remain in balance (barely) with supply and price at year end will be below or near what it is now.

If a major political or military event occurs in the Mid East, price will be higher than now.

"as unemployment grows to around 8%" I got a thought on that I maybe wrong but there are already stories about illegals headed home from lack of jobs to cost of living increasing in the US with the weak dollar.And with a weak dollar less spending power for the money sent home.But as US citizens lose jobs TPTB will really crack down on illegals to open up jobs for US citizens.Along with a hostile view by those that employee illegals.

Please take a moment to review the Best of The Oil Drum Index and reply here with your favorite articles that I've missed.

Peak Oil, Climate Change and Business
Free, Bi-Weekly Executive Briefing

In current US$ the price will be down a lot as I believe the world econmy is going to turn down a lot this year and sooner too. Before that the price will shoot up. On the volatility poll I called for max 130 and low around 70. If it is only WTI on NYMEX then it will stay much higher in inflated dollars but the world wide justified price will drop.
Does anyone have the data (and a graph) relating price to cost of production. I can't recall where and when I last saw that but think it will be a more important issue when the global economy goes.

The only question in my mind is "exponential or asymtotic?".

Up. It will go up.

Ultimately you're probably right (that it will only go up), but a worldwide depression will lower prices and could lull us into thinking we don't have a problem.

A worldwide depression will also remove much of the cash that could be used for the transition.

Peak Oil, Climate Change and Business
Free, Bi-Weekly Executive Briefing

I expect a price increase of 25% by the end of 2008, but other measures are important. Oil will end the year at $125/bbl, 79 euros/bbl, 10bbl/gold oz. US headline inflation will have run at 18% from today to the end of next year.

I expect the coming year will be one of the most tumultuous we have experienced, and the following scenario is how I reached my conclusion on the price of oil. Sorry for the lack of links, but this is a compendium of thoughts found throughout TOD and Calculated Risk.

Oil begins 2008 at $100/bbl, 69 euros/bbl, 8.5bbl/gold oz. By mid-spring major banks, insurers, and lenders will race each other to bankruptcy. Gasoline will cost an average of $4.49 at the pump, and housing prices will have fallen an average of 22% around the country, 40% in California and Florida. Headline inflation will run at least 12% while the government claims core inflation is only 4.0%.

Durham, NC, will officially run out of water. Other municipalities throughout Alabama, Georgia, and the Carolinas will suffer similar fates. Fires will spread throughout the bone-dry forests and into the suburbs, and the firemen will have no water with which to fight. A mass migration will begin from the smoke-covered drought-stricken area to the rest of the country. Tent cities and soup kitchens will appear in open land from Florida to Maine and throughout the Mississippi River Valley, and local authorities will have difficulty coping with the load. FEMA and the military will be hard-pressed to provide rations and water for the refugees.

By mid-year the equity markets will have fallen 50%. Debt write-downs in the US at this point will total over $1.2 trillion, and credit will be mostly unavailable. The tech sector will see their orders dry up. The southern half of the country will continue to suffer through severe droughts, and dust bowl conditions will develop in New Mexico and the Texas panhandle.

In August the party conventions will select their candidates, but neither party will have a strong plank advocating direct action about the climate or energy crisis, focusing instead on impeachment issues, how to handle the situation in the Middle East, control of immigration, and most importantly what must be done to maintain the US good way of life. The Republican convention will be especially contentious, and the Social Conservatives may well join the Neo-Cons to form a hard-right coalition and splinter the party.

A category 5 hurricane will form in the Gulf of Mexico south of Houston and rip through the US oil and gas production fields in the Gulf. The eye will wrap around to head northeast across New Orleans and stall over Alabama and Georgia, ending the widespread drought with drenching rains that fill the reservoirs to over-flowing and flood the rivers throughout the South-East. Casualties will be low because 70% of the population have left the area.

Unemployment in the US will reach 7.5% in the fall, and the GDP growth will be negative. The rest of the world will suffer more and more of an economic downturn as US imports fall to 70% of their previous levels. Energy demand destruction around the world will take hold but not enough to match the drop in supplies, and the oil price will not drop. As food prices climb the number of starving people in the world will treble to 2.4 billion by the end of 2008.

After the Democrats win a landslide in the elections, the lame-duck President will order the withdrawal of troops from Iraq. Iraq's national government will divide itself into three regions, and those regions will begin to mobilize troops and weapons. The Saudis will send troops to Sunni-Land, and Iran will send troops to Basra and Shia-Land. The Kurds will ask Turkey and the US for protection in return for access to their oil, but the Saudis will move into the area and take both Turkey and the Kurds under their “wing.”

Oil will end the year at $125/bbl, 79 euros/bbl, 10bbl/gold oz. US headline inflation will have run at 18% year to year.

I surely hope I am wrong and am blowing smoke with no fire. But there are so many things that are near tipping points, and I just don't see the leadership available to address all these problems.

That's why I am keeping my footprint small and my profile low.

Sam Penny
the Prudent RVer

Worst case scenario - it would take several years to play out. Events seem to unfold in slow motion. I've been bugging friends about the subprime mess for at least a year.

Come on now, Sam. Don't hedge your bets. Tell us what you really think...

SubKommander Dred forgot to add the bit where Superman comes and mends it all...

I'm not saying some of this stuff won't happen but I'm with the poster above, the timeframe is wrong.

5) $95-$110 (a battle between recessionary forces and dwindling supply: we are still in Phase1 of this so not a huge impact)


I have a feeling this thread may get quite interesting, hehe.

EOY 2008? Front month close $130 to $140 I believe. We may well see that $140 by May or June. Refiners are about as tight as they can be on margins already, they will have to pass costs on, if for no other reason than to keep throughput at a level they can keep up with. Gas will probably be near $4/gallon I would think.

At the risk of being repetitive, I do not believe this is a refinery capacity problem, but one of supply.

Assuming the system holds together the rest of the year should be similar chart-wise to this year. Dip then Consolidation phase followed by return to highs near EOY.

An earmark of a tight resource situation is increased volitility. This is totally hidden by the headline chart, but nevertheless it should worsen as supply tightens further.

The only way I see to avert this is to have a bigger player have some problems and drastically curtail demand. So far only small players have dropped out of the demand side.

Of course if something happens like an excessive water carry-over in Ghawar that the Saudis can't hide then forget this low-ball estimate, lol.

I agree a U.S. slowdown seems more and more certain and should affect demand. But I don't think it will happen fast enough to hurt demand to the point where it will ease the crude price substantially. World demand vs. probable failure to keep ahead of production slippage should keep the pressure on price.

So many factors, assuming the big ones stay on their present course, the price will have to go up considerably to maintain balance.

Hmmm. How about exactly $100.00 for all US domestic oil, legislatively capped at that level after a fast rise towards $200, to discourage 'speculation' and 'keep gasoline affordable'. This is the sort of bonehead move which might pass for action in the USA, and it is supported by the fact that it would make all my call options worthless. Black market rates a good deal higher. Subsidies and tax breaks for oil exploration significant but too complicated for anyone but posters to this website to calculate actual price.

International exported oil increasingly price-irrelevant as buyer and seller trade more in geopolitical extortion/exchange of leverage than pure fiscal terms. Real terms increasingly kept secret.

I don't BELIEVE this, just goofin' around. we shall see.

I think you got it right. And after that, we'll start to use the Carter gas coupons that are currently sitting in the salt caverns in Kansas.

The dark green arrow. That is, 120 or a bit more, 130, which inches into the top category.

Producers will keep up their stuff, they like to be paid and reassure. The recession will hit the poor; demand destruction so-called will not occur. So barring wild movements in the month/weeks at end 2008, slowly rising price, set to continue. About 130 or a bit less or more.

$130-$180, based purely on how much oil has risen in a fairly quiet geopolitical and weather year (as regards oil production and processing). A 35% rise next year would be modest by this year's standards.

Could not agree more. I can recall just this year how we saw the floor go from $60, $70 to $80 and it now it appears to be pretty well stuck at $90.

IMO the only thing holding it back is the dreaded $100 psychological barrier as soon as we puncture — sometime in the next couple of months — that it's off to the races.

I wouldn't be a bit surprised to see $130-150 come mid May or June. People are waking up to the fact that we are at peak. Meaning we will be pricing for the first time at the margin. God forbid we start pricing oil for what it's worth. ;)

And don't get me going about demand destruction. If we aren't buying oil ChinaIndia will have no problem soaking up the extra barrels nevermind the fact that there is plenty of inelastic use here in the US.

IMO the only thing holding it back is the dreaded $100 psychological barrier as soon as we puncture — sometime in the next couple of months — that it's off to the races.

those "couple of months" sure passed quickly ...

I have to say #9

A lot depends on what the U$S does and how the elections go.

"A lot depends on what the U$S does..."
This is a really good point as more and more countries and other entities are switching to the Euro, a collapse of the dollar is becoming a real threat. Probability of this is growing by the day. Oil in dollars would then go through the roof. How far are we from that ?


I have no rational reason other then the news has been slowly bad for a long time and I "feel" it will get much worse very quickly

The US dollar is likely to fall in value at least 10%. Too many dollars in China and Japan to allow a precipitous fall, and the dollar has a good US, Canadian, and Iraqi oil asset backing. Paradoxically, the falling US dollar increases the value of the asset backing of the dollar. There is a fundemental asset value behind the dollar.

Q1, the "reef fish" of the financial markets flash this way and that as the US debt debacle is exposed to public view, and the adjusting dollar result in oil price adjusting to $US110.

Gold commences a rapid return to its longer term average of around 15 barrels of oil (about $US1500).

Q2, life goes on as normal, panic abates, oil prices fall to $90 +/-

Q3, Olympic mania, positive 'sentiment' regional fuel shortfalls in Eurasia (especially diesel), better 'other liquids supply', then, on historical precedent a hurricane in the Gulf of Mexico locking in a Mexican or US oil for anything from several weeks to several months.

Q4, Following the oil 'shut in' price peaks, Eurasian demand, Southeast Asian sweet hitting $120 due to demand/shipping costs, Saudi bilateral 'close-ins' with preferred partners with gold backed currencies (Russia, Germany, China starting) steep declines in Canterell production, Saudis drop production to 'milk' the price, USA decimated service sector drops consumption, USA manufacturers start to get legs, China manufacturing in dire straits and demand growth cut off at the knees, year ends around $US115.

Q1 2009 - genuine demand destruction across the globe due to recession and price, oil starts to slide toward $US85. (soon to be reversed).


My guess is $110-$130 at y.e. '08.

We should note that Zimbabwe, for all the wrong reasons, has probably achieved Kyoto and way beyond in CO2 reduction already. Is this demand destruction?, or just a blip before a return to 'normality' in oil consumption when democracy returns to that troubled country?

But Zimbabwe's population is only 7m, so its effect on world oil consumption is minimal. My feeling is that high energy prices will permanently stifle its economy,as they will ultimately the economies all the poorer nations. I don't know how far this has yet to go, or how much demand loss this will cause.

OK, on 20 November WTI set a high of $99. Since then a floor has been established at $87, on 10 December. Today we have $96. Looking ahead to the end of 2008, in attempting to predict the price one must take into account the forecast demand growth.

The IEA, adviser to 27 industrialized countries, earlier on Friday was more upbeat, saying global demand will rise by 2.1 million barrels per day (bpd) next year, up 200,000 bpd from its previous forecast.

"A lot of this demand is in the non-OECD countries, where we don't have any downgrades in economic growth forecasts," said Lawrence Eagles, head of the IEA's Oil Industry and Markets division.

But OPEC, source of more than a third of the world's oil, predicted growth of just 1.3 million bpd, unchanged from the previous forecast, said there were "considerable downside risks" to the economic outlook.

So for prices to fall below the current floor and stay down, all of this demand growth must be destroyed. And even OPEC who are worried about lower growth due to the poor "economic outlook" still see demand increasing 1.3mbpd.

There are 2 ways to lower the price. The first involves lower demand. Markedly increased unemployment, reducing driving and spending (and hence demand for goods) would lower the demand for gasoline and hence oil. How quickly can you see demand reducing due to this, and by how much during 2008? I can't really see a credit crunch induced recession getting that bad that fast to kill off all that forecast new demand, and then some of the existing demand, in order to get the price of oil down.
The other ways to lower the price is to increase supply well above demand. It seems to me that a key aspect controlling the price of oil is the amount of surplus supply available in the world. The bigger the supply overhang, the lower the price. Currently, surplus capacity appears to be minimal. Hence oil at $90+. It seems more likely to me that a hurricane/terrorist attack/infrastructure failure/you name it/ will occur, reducing supply and leading to higher prices in order to keep demand and supply in balance.

For oil prices to drop, supply must increase dramatically (unlikely), or else demand must decrease significantly, without the price of oil increasing to cause this(possible but less likely).
For oil prices to rise, supply problems occur (very possible), or demand growth occurs (still likely).

I just cannot see major oil demand destruction happening during 2008 without high oil prices being a major cause.

Watching the demand/supply/price dynamic of oil over the past few years has been fascinating. And I expect 2008 to be even more interesting, as the volatility that exemplifies peak oil continues. I am picking a end of 2008 price of $130 - $180. Only massive unemployment can take the price down significantly from where we are today, and I can't see that happening rapidly enough over the next 12 months for that to occur. And that is one prediction I do not want to be wrong about!

Hello all TODers,
First of all I wish you all a Happy and a Safe 2008. Thank you all for your great contribution. I have been reading TOD religiously everyday for almost two years with amazement.
I have been waiting for oil to break $100 to make my first post but it hasn’t (yet). However, I do feel guilty of not contributing whilst reading information from TOD.
I do hope you find the following oil price forecast from the biggest (not necessary the brightest) brokers useful for further discussion. They are the latest forecasts:

2008 2009 2010
Credit Suisse $80 $75 $75
CitiGroup $80 $70 $70
Deutsche Bank $80 $75 $65
Goldman Sachs $80 $90 $80
Merrill Lynch $82 $70 $70
Morgan Stanley $80 $83 $85
UBS $74 $73 $76

These are all prices lower than today, and accounting for falling dollar in forward years, way lower.

Two or three of these investment houses are experiencing huge losses in SIV,derivatives, phoney money schemes. And I will guess few if any of the energy analysts at these outfits read the Oil Drum! But maybe they know something we don't.

At least they are all more realistic than the dart throwers at CERA (Daniel Yergin, Michael Lynch, etc.)

Welcome to TOD Mudbucket. All sorts of opinion here as you no doubt have seen. No matter what you say there will be someone disagree with you. Best accept that and move on.

I have seen the predictions from the august heights such as Citigroup. Have you noticed how prescient they were making all those subprime loans and creating the derivaities. Excellent reading of the sheep entrails if I do say so.

If you are reading TOD you at least think that we are going to have some difficulty concerning the price of pertoleum fuel. I doubt there are more than a percent or two of the readers who think supply/demand is suddely going turn around and prices of crude are going to drop 10 - 15 percent for the next 3 years.

Best Wishes for the New Year

Don't forget CERA's forecasts:
$100 Oil

"World oil prices will drop to the low $60 range as long as the security premium in the world oil market does not rise," said Daniel Yergin, chairman of Cambridge Energy Research Associates.

Peak Oil, Climate Change and Business
Free, Bi-Weekly Executive Briefing

"World oil prices will drop to the low $60 range as long as the security premium in the world oil market does not rise," said Daniel Yergin, chairman of Cambridge Energy Research Associates.

What does Yergin mean by "the security premium in the world oil market"?

Answer that and I suspect you'll know how he'll hedge on being wrong yet again.

The big banks just want to keep the system chugging along and their clients going hoo haah! You must know!

They are dependent on business as usual and cannot possibly change, their whole mindset, pointedly, as individuals, their own jobs and profits, are built on returns from resource extraction (indirectly to be sure, not detailed) so they talk the *talk.*

Many employees understand, realize what the real scene is - they are well placed to do so - but they have children and mortgages and figure they need to hold on till they are fired and the whole system falls apart.

After all, as an UBS employee said to me, if I can earn half a million in the next year, I can use that cash, etc. After that, like, duh, my son won’t get tennis lessons. *!!*

In the past year, I have seen 4 advisors from the UBS. 3 have been let go or fired, and the 4th calls me up to moan. He has ‘survivor guilt’ and sits in his cubicle..complete with security guards and leather chairs ;)

Hi Noizette,

Interesting post, as always.

re: "Many employees understand, realize what the real scene is - they are well placed to do so - but they have children and mortgages and figure they need to hold on till they are fired and the whole system falls apart."

What is going on?

Do they lack any sense of security in themselves, or ability to make moves or talk to (and/or confide in) anyone else?

Do they really believe they are doing well by their children?

"Survivor guilt" is tough. I know it best from my own childhood - but children are fundamentally trapped in their helpless position of being unable to protect others.

The point of growing up is to learn something different, isn't it? (?)

Agree that volatility is the name of the game in 2008! Which means the floor is open to wild speculation and that no matter how wild, there is a possibility that even extremes may be right.

Who would have thunk it, a 60% price range in 2007?

Reminds me of that guessing game used by charities where one estimates how many marbles or jelly beans are in a bottle. I'm feeling particularly lucky this year since I won such a contest just before Christmas.

I find I do better with such games if I throw out a number rather than pondering deep calculations about variables.

So, in the spirit of unscientific guesswork where all possibilities are open and no evidence is weighed, I'll up the ante and say, $200/barrel on 31st December 2008. A straightforward doubling.

And no, I don't want to bet on that. I could have very well said, $10/barrel, although I think that would mean one horrific depression with massive demand destruction. Even if things go belly up, I am anticipating price rises rather than falls.

Here ends my analysis.

Happy New Year!

We have our own betting pool going on at The 2008 Oil Price Challenge. I'm for a low of $120 - reached on Jan 1! OMG WTF!

Price obtained by adding $100 to Yergin's old calls. Recycling, you know.

Things are bad. I predict they will become worse.

How about bets on how much Arctic sea ice there will be?

This one is a lot easier than the oil question: we know there is only 20% left, so it doe not really matter :) Ask the same question about Greenland...

I had a quick look at the Oil Price Challenge. When money is on the table it seems the speculation becomes far more conservative and less proned to risky highs and lows. Fair enough. One of the reasons I rarely gamble.

A few summers back, my wife and I were staying at an old farm house in rural Nova Scotia. We brought with us our house cat, a trusty mouser. One morning, a mouse ran from the cupboard and under the stove to escape capture. For two whole days our cat sat beside the stove fully awake and nary moving a whisker. Eventually the mouse made its move. It was a brilliant illustration of alertness and patience.

Watching PO unfold is a bit like that. One hears rumbles of movement, but nothing springs forth YET. Whether it is sea ice or clear signs of production or export decline with price spikes, I have an uneasy sense that someday the bottom will fall out.

Unlike our cat which knew what to do with the mouse, I'm not sure how I or anyone else will react once the evidence of PO comes to pass: not unlike Wile Coyote when he catches the Roadrunner. It's just that $200/barrel oil would not come as any great surprise to me.

I hope I'm wrong. $200/barrel oil would hurt the most vulnerable first. But I do see it as a real possibility, especially if Old Man Murphy of Murphy's Law fame (what can go wrong will go wrong at the worst possible moment) shows his hand.

There are just too many variables at work to see Murphy idle for much longer.


Dead center in #6, $120/barrel. Growing $40/barrel per year for the three or four years following. Since we seem to be providing reasoning...

I believe the price is set by exports, and that we'll be flat (at best) in exports over that period. $40/year is my estimate of the annual increase needed to keep demand at the current level in the face of increasing population and modest economic growth. I think we're overpriced right now, from a variety of causes, so use $80/barrel as the starting point. Reality is less regular than that, so say that I expect the actual price to fluctuate within about plus-or-minus $20 of that line.

6) 130-180 is a fair range for that time frame (post election, neglecting any wandering into WWIII)

For the rest of the year, key word is VOLATILITY. Average price for the year - around $100.

First quarter will be highly volatile, most due from economic unrest, and the balance due to demand shortfalls.
Still holding the $114(triple yergin) prediction for Jan 31(at 60% prob).

I put the QUAD yergin ($152) at a 75% probability for the year.

Things will likely calm for a bit at the beginning of 2Q08, with a short rest, and then a spike on Summer supplies in May and June.

Just like 2007 price may ease a bit (key word - 'may') over the summer, and expect demand to actually reduce (not - reduce expectation - actually be less)

After July, I expect some very weird manipulations as they start to prepare for the election ramp up.

After the election, win/lose/draw - we can expect some normality to resume in the markets and the world to end (just joking)...but a price spike is not out of the question.

BTW, as of Dec 20th(LI), we are essentially in a recession...will they actually call it in figure...probably not.

110-130 with a range of 80-140+. I think we may also see a spike in Nat gas prices as well since there will be some fuel switching going on with high price of oil. I'd be very surprised if oil ever dips below 80 again barring a punishing, worldwide recession.

re prudentdriver

Good analysis. The one thing wrong is Saudi taking Turkey under its wing when it moves in to Kurdistan. Turkey is the dominant military power in the region. It has the biggest and by far the best army. They could march on Rydah if they wanted to, though they would probably be happy with occupying the oil producing regions of Iraq. Not the worst outcome.

After contemplating my navel for a few hours:

Oil is currently at 8 barrels per ounce of gold (the only true currency). Both oil and gold are subject to massive derivative trading volumes, so neither is trading at their "market discovery" price. (Since many traders do not take delivery, less physical is needed to satisfy the market).

Predicting the price then means predicting the continued success and motives of the future traders (which includes the central bankers not trading with a profit motive).

1. I think 2008 is the year in which gold breaks loose, and trades towards $2000 ounce, implying an oil price of >$200.00 per barrel, but...
2. Oil, despite massive demand destruction, stops being fungible (in the sense that you can not buy it on the free market).

My predictions:

1. Oil price ceases to have any meaning since it is not freely traded any more
2. Gasoline prices are allowed to find their true level - say $5.00 per gallon at the end of 2008
3. Diesel is rationed at $4.00 per gallon, if you can get it.


I have long been navel gazing what I should do with my tiny saving. A gold coin I purchased in the spring has made me over 200 dollars now, which is pretty good considering my investment goal is to make up for inflation.

Trouble is, if one puts ones money in gold, then when very bad things start to happen, in the worst case scenario, you can have a hard time using gold to buy anything. Many times in history the selling and even possession of gold was restricted or banned by the government in order to protect the 'economy'.


Take care of essentials first - only excess wealth to gold!


Hi Francois,

Could you possibly elaborate on the reasons for:

"2. Oil, despite massive demand destruction, stops being fungible (in the sense that you can not buy it on the free market)."

A topic which was discussed here some time ago.

Still, wondering what your thinking is and why you see this happening in 2008, as opposed to, say 2012 or something.

5) $95-$110

A quick look didn't find anybody below 4... well, this is tod, after all.
3, and OPEC imo will be cutting production to hold this price sometime this year. Recessions are always deflationary... even in the seventies, when oil never fell y/y, oil price did not rise much when recessions were biting... so, with avg price in 2007 around 72, I pick 75 for end 08.

your stratergy is similar to mine (averaging '07). decline in the giants may be made up for with reduced demand (r-word or conservation). i dont hold much hope for additional "net" production in '08. i really wanted to pick 4) but when i did, i felt a tightness in the groin.

China added 8.5M net new cars this year, far more than the US, and this will be above 10M next year. This alone will add
1M barrels a day to Chinese consumption each year - so they have to bid up prices in USDs to force others out. They can speed up the currency appreciation to keep local prices from getting out of hand. My bet is that the US F150 truck owner with an Option Arm mortgage and 29% APR credit cards gets squeezed in 2008, to make room for 3 Chinese business owners with new Brilliance sedans, paid for with cash.

For my very first post:

Somebody linked yesterday to a story about GWB's Crawford ranch being off the grid. I can't find the original post but the link was wrong. Although the house is eco-friendly, it's still connected to the grid:

Interesting link.

I don't think I would want to eat any of the vegetables coming from the Bush family garden as it is watered with filtered toilet discharge water.

Welcome to TOD. Good to have you on board, offGridInVT.

I didn't know that GWB's Texas Ranch was touted as "off-the-grid", but such speculation very well could have appeared somewhere, sometime back in the TOD blog. I remember reading before, here or elsewhere I can't remember now, how the Crawford ranch was noted for green self-sufficiency.

The article you quote states,... snip "How can this man, whose administration has gutted environmental protection as though it were a trout, care enough to recycle toilet water in his home? Who knows..." I suspect he does know how precarious the energy situation and environmental equilibrium is for the U.S.A. I would be more worried (and I don't have much faith in GWB's ability to do right) if he was showing signs of being absolutely clueless. As my family says, "It is better to be a half-wit than witless."

"In the land of the blind, the one-eyed man is king." Except in this case, in the land where Paris Hilton is newsworthy, the neo-cons look positively intelligent. (Being an outsider from the Great American Republic, this is what really worries me!)

This is a tough one Nate,

As many of the other readers here, I think there will be a lot of conflicting drivers to the oil price next year. For 2007 it seems like the annual arithmetic average will be around $75/bbl (even if it is close to $100/bbl) at year end.

A back of the envelope estimate some time ago came out with approximately ZERO economical growth in the world economy if oil prices gained more than $30/bbl year on year (assuming oil prices pulled other energy prices with it).

It looks like the US economy is headed for a recession, but on the other hand this may not impact growth in Chindia.

The oil price will certainly be subject to much more volatility the coming year, and could be all over the span during 2008 (could even make Yergin’s prediction for $38/bbl spot on …for some tiny time and make Mike Lynch correct for perhaps more than……….30 seconds during 2008), but I voted for the range $95 - $110/bbl at year end 2008 based on what I think will happen within the economy and how much price increases the global economy can take year on year.

IT’S THE SUPPRIME, CDO, SIV,RMB, LBO, ARM, BOR/OIS spreads, that makes this such a hard call.

Regards and a Happy New (volatile oil price) Year to all TOD contributors and commenters,


My guess is $150. I don't have data on oil, but do on gold and silver which generally move with oil and against the US dollar; I my statistical analysis shows gold at $1,200 and silver at $30 at the end of 2008.



Happy New Year to everyone!


What makes this expecially hard is that we'll be right in the middle of an elections cycle and it's impossible to know what the folks in our beloved Congress will be doing to save us, but probably not much.

$145 if world events are similar to 2k7, $250 minimum if the ME stops playing nice and starts throwing fiery rocks at each other.

The Big Players have been pleasantly surprised that $90+ oil hasn't caused major hand-wringing, they intend to find out how high it can go, it's all extra unexpected billions to build up infrastructure at home.

Remember the attitude of the oil companies to our predicament:

'F**k 'em, let 'em freeze in the dark'.

8) of course :)

I think we are going to see surprising significant declines in production in th US, Mexico and Canada and the North Sea, along with production problems in Venezuela and Iran. Along with extreme volatility in Iraq and Pakistan. Also this is Bush's last chance to start a war with Iran. Next I'm betting on accelerated declines starting to become obvious by the end of the year outside of the "high tech producers". By September or October I expect serious questions about KSA capacity and at least on terrorist incident or unrest in the Emirates or KSA itself.

Finally we are due for at least one or two decent hurricanes in the gulf next year.

On the financial side I actually expect things to hold together longer than most people would imagine and although problems in banking will continue to spill over into a slowing economy I expect the brunt of the recession to really start near the end of 2008. This is a big train wreck but we can expect the central banks and China ( Olympics ) to dance till the bitter end.

So given all the above I really think we will see peak oil awareness go mainstream by the end of 2008 at the latest and in a sense the gloves come off as countries are emboldened to position themselves for a world short on oil.

On the price size I actually expect most of the price increases near the end of the year after august potentially over 200 plus including a weakening dollar. Before August we will probably be in the 90-130 range.

In 2009 economic/political/military issues makes it difficult to guess since little oil will probably not be freely traded with most exports tied into extensive coop agreements. So pricing may be high but the comprehensive agreements probably make it difficult to understand the real prices. This will be a sort of power down protocol but I doubt it will be fair. Europe for example will be forced to take a military stance and probably will fence with the Chinese in Africa. If the US has not invaded Iran it may target Venezuela along with a increasing action in Mexico.
The only reason we are not in Venezuela now is I suspect the plan was to start a war with Iran use that to restart the draft then expand later into Venezuela if the seriously reduce exports to the US. Also I think the US was hoping that Venezuela Chinese exports would increase thus in effect killing two birds with one stone once we decide to invade.

In 2010-2011 I expect this to start breaking down as parties renege on their parts of the agreements resulting in at least some open warfare. Also expect free trade to break down with high tariffs on Chinese goods if this does not happen earlier in 2009. The Chinese will be the bogey man of the post peak world.

More than 2008 but the point was I see a set of conditions being met at some point in the future that will permanently transition us into a very tense post peak future. 2008 will I believe be the transition year. But for the most part I don't think the problems will hit till near the end of the year so I'm not 100% doomer :)

Memmel: I wouldn't hold my breath waiting for a trade war with China. They are handing a whole lot of money to Wall Street (and that's just what the MSM has told us about).

Well once the recession turns into a depression and gasoline is still expensive the game will change. Note I don't expect to happen until after the status quo is disrupted and the world backs away from world trade. This return to high import taxes is in my opinion pretty much unavoidable.

Also this probably means the US dollar will be replaced at least inside the US. Most people say fiat currencies are not backed by anything but they are in my opinion backed by the faith that debts denominated in those currencies will be paid back in the same currency with reasonable inflation expectations. Thus widespread debt defaults seem to me at least to effectively destroy a fiat currency.

The greatest power the US has now is to default on the US dollar and when it becomes necessary to exercise this power the US will.

I guess I just don't feel that this game will be played forever with the gloves on so to speak. And China for a whole host of reasons is a easy target.

I think by 2010-2011 the concept of a "local" American/North American Union only currency will be very viable.

I just don't see how a fiat currency can survive when the creators of the currency only have debt in that currency they cannot pay and all their creditors hold the cash.
I mean at that point your either hyperinflate default etc but the currency itself is toast.

These concepts come from simply expanding ELP out to the national and international scale. The most critical factors in the next 5-10 years will be restarting local and regional then national economies. I think you will be surprised how fast a lot of fiat currencies and international trade will be unraveled and destroyed during the process. What survives will be critical trade and this will probably be subject to military political control sort of a return to the 1800's.

China at least as it exists today really has little to offer a world turning its back on globalization and the rest of the world needs the resources to rebuild local economies.

The real problem is China did not build itself up for the Chinese people they have really not benefited from the recent growth. China basically followed Reagonomics and the trickle down theory. It gutted America and it will gut China. What are Chines factories worth if no one will sell them steel except at inflated prices ? And they pay outrageous export taxes ?

The bottom line is we don't need global trade for wage arbitration once the western middle classes collapse.
We will have plenty of poor people local willing to work for meager wages.

And don't underestimate the need for a scapegoat over the coming years.

Certainly when is a big question but I don't see that whats going to transpire is all that difficult to figure out.
ELP must happen for better or worse.

By September or October I expect serious questions about KSA capacity and at least on terrorist incident or unrest in the Emirates or KSA itself.

If there was to be an attack on Saudi facilities which say dropped production by maybe a couple million barrels/day would that not help hide evidence of any actual physical decline in Saudi fields for some time?

Ok there would be a massive immediate surge in oil prices if this occurred but clearly the price increases wouldn't be blamed on peak oil.

Just wondering.

Hmmm, you've predicted all the nastiest things to happen right before the elections. Did you consider that when you wrote this?

I don't know where the oil price will be, but I want to vote this chart the absolute most honest chart posted on TOD this year...

O.K., so it wasn't as artistic and mathematically challenging as many of the masterpieces of chart making we see on TOD, and it had to be very easy to make, but I am grading on HONESTY! This is the chart to use as a guide!
Prepare for all the scenarios shown as best as possible and you should be o.k.! :-)



Heres my vote.

Most of the analysis here on TOD is focused on the supply side, which indeed is going to have problems going forward, (and eventually serious problems). But the other half of the 'price predicting equation' is demand. I think we are in for a period of enormous volatility in financial and commodity markets as the early skirmishes of the battle between a financial and a biophysical economy get underway. At the date of Peak Oil, which we may or may not yet be, we are still producing more oil on the planet than ever before (though on a 'net' basis this may not be true). This means that any serious demand change due to lack of money or 'credit' could trump the variables that have resulted in greater depletion and higher prices thus far - plus there are some megaprojects coming online next year. But at some point, there will be a paradigm shift when the 'hoarding' behavior begins, which might coincide with watering out of some of the larger wells, and geopolitical conflict. I most certainly believe the rules of the second half of oil will be dramatically different than the first, where economists plotted out next years production and could be reasonably certain they'd be within a couple %. This certainty will become a thing of the past. But these things will not likely occur in 2008...

As Matt Simmons showed a graph once, (which I can't find), we are in for a period of higher highs and higher lows - 2008 will a period of higher lows due to the global OECD economy moving into steep recession. I think we could see $120-$140 in the first quarter, but will have a whiff of deflation later in the year due to economic contraction. Since oil is still priced at the marginal barrel, and in my opinion, the futures market does not give balanced view of future dearth or surplus, we will overshoot on the downside, kissing $65 again before closing the year at $75, down 25% from here.

I am more sure of volatility than I am sure of direction, though I certainly lean towards a lower number in 2008, unless the dollar really sells off. 2009 and beyond though I expect much higher crude prices. Unlike some on this board, I don't believe we will ever see $300,400+ per barrel, as that would be so disruptive to the just in time system we have in place that normal market mechanisms will be superceded by state control and rationing of energy. Given the economic situation, this may be some years in coming.

I am rooting for higher prices in perpetuity because other than education, which seems to work only once established, price signals are all that people respond to. I hope that wind, solar, tidal, wave, geothermal, and other 'interest' paying energy sources are continually pursued even if fossil fuels take a short term drop in nominal pricing.

Stay tuned.


My personal guess for 2008 would be of a severe slowdown( not a clear ressesion). The Fed will continue to bow to wallstreet and the white house by aggresively cutting rates and plowing piles of new cash through the discount window. there may be even more co-operation between world bankers to avert slowdown.

this will stoke demand for oil while devalueing the dollar by at least 15%-20% against the euro. by summer $4 gas will seem 'normal' and $3.50 would be seen as a bargain.

CPI will be setting at 5%, with real inflation at 8%-12%. This will cause ben bernake to come to his senses (I hope) oil will be at $130-$150 by mid-summer.

Then the real slowdown will start in ernest without fed intervention with stagflation being part of everyones vocabulary again, along with the misery index.

The second half of the year will be touch and go. The credit markets will seize (again) and the feds hands will be tied(china and eu will probably threaten to dump dollars if we continue injecting liquidity). if mexicos feilds continue to dry up then even with demand destruction oil will hang out at between $130-$150 per barrel.

the only other senario I see is if fed stops intervention now then the ressesion becomes full blown by summer. the latest rate cuts will work through the system and $130-$150 with $4-$5 per gallon of gas by summer anyhow.

after summer there may be a momentary glut as demand pulls back. possibly dropping oil below$90 toward $70 later as the world economy slows as well. But again if mexico or saudis or anouther major producer exports drop off then $150 per barrel could be reached in weeks if not days.

either way 2009 will bring more price stability as more mega projects are brought on-line and the world economy reels from a severe downturn.

but this is just a guess.

Nate why do you think a recession in 2008 ? I think at best towards the end of 2008. Although we are aware of the current problems almost all of them are related to debt. Its a banking crisis. We are still a long way from having sane lending even as this crisis trundles forward. Also a lot of the problems are related to illiquid assets such as real estate. It takes six months to process a home through foreclosure and banks for whatever reason are allowed to hide losses for unreasonable periods of time. And the central banks are working hard to keep things from unraveling. Also direct intervention in the stock markets is not impossible. I'm not saying we won't enter a recession but I'm now wondering how fast this will play out. We have a lot of reason to believe that the central banks can keep plugging holes in the dike for a while.

If you look at the Great Depression the economy was on borrowed time from the 1926 Florida housing crash. The market did not crash till 1929. Taking 2007 as the first year of crash puts a deep recession in 2010. I think we are already in a mild recession thats deepening. But we still have a ways to go before this really gets rolling. We are probably at the beginning of the Greatest Depression and it simply takes time for this thing to pick up. Also since the financial world is so screwed up for example housing prices in California need to drop by 50% just to become sane much less cheap as in a real recession. And we have more games we can play now.

I'm not saying we won't continue down through 2008 but we are coming of a massive bubble and headed for the deepest depression we are still a long way from anything close to normal. I just think its going to take time for all this to unfold.


I wholeheartedly agree except that the crash started in 2006. 2007 was the year bankers could no longer hide the problem and the wheels came off(credit crunches) the housing market.

I'd put the severe part of the recession at late 2008 at soonest with 2009 being 1929 all over again. the only benifit being demand for oil will drop off just as new resources/ technologies come online.

I guess it's all a matter of how long the fed can continue delaying the inevitable and making it worse. I just don't see our lenders around the world (china, japan, EU) continueing to put up with it.

Well memmel, personally I think the 'banking crisis' is nothing more than a symptom of the energy crisis. If there was some way in the world to totally avoid further energy problems, there would be ways to chopper right out of the bank situation. Especially given that so many of the big players are totally immersed in the system.

Look at what is going on, Citi throws a couple billion at Countrywide, knowing full well they have liquidity problems of their own they will shortly have to own up to. Not 2 months later, yup, they take a big write down, then another month later announce $7 billion of foreign capital investment. Phew, that was close, lol.

I can only imagine what total Citi write-downs might be by the time they are out of the woods. Meanwhile their stock in Countrywide has done nothing but lost them money and refuses to show signs of an upturn. So much for that gambit for now.

This is just one little sign of course but it does indicate how willing the big players are to work with one another to avoid total catastrophe. Given stability in oil they could probably work it out.

But turn the wayback machine back to Summer 2005. The peak of the housing boom was reached and the peak/reversal just happens to coincide with the summer crude peak.

Coincidence? I don't believe in them in situations like this...

Sure, I agree fully that the banking situation was ripe for disaster and has been for quite some time. It took an oil spike to trigger though, in the context of a multi year bull run, both in production and price.

I don't think we'll ever see sub-$75 again, a very firm chart floor has been put in. Even getting back down below $80 at this point would be very short-lived probably. I didn't think we'd be quite this high this fast, so much for that. Just an Extreme bullish indicator.

The behind the scenes diplomatic scurrying around to help aid deliveries has to be a sight to behold at this point. It's all there in the price to see. Every barrel is being bid for at this point.

I agree with you that it's probably only getting worse next year. Too bad about those pesky userers, er bankers, getting it in the shorts, hehe.

I agree that the two will become closely tied. We have not yet had a oil emergency and given all thats going on I can't see us making it through 2008 with out a event that will effect oil output. Esp given global warming and hurricanes. Basically in watching that the storms are forming like crazy its just the tops are being ripped off by high altitude winds. We have been lucky.

But going back to the S&L crises the banks can cook the books until they are forced into insolvency that the advantage of creating money out of thin air. The problem is they can't easily make new loans with so many bad loans and deprecated collateral on the books. The game seems to be to try and meter out the bad news with a series of writedowns.
This can go on for a while. But the REAL economy has to start heading south near the end of 2008 and this will force the bankers hand.

The real problems for them is not profit loss but revenue when their revenue stream dries up as the real economy slows they can no longer play games with the books. And they will by the end of 2008 have to start unloading all the REO's.

I think they will try and hold prices through the spring and early summer but by fall they will have no choice but to capitulate and slash prices. Once they finally reach a price point that starts selling they will be forced to revalue their assets. So the BIG write downs are actually first second quarter of 2009.

This is when bank lending for business is dead and only then do we see weak businesses fail as the defaults.

The role oil plays is huge see above right when the financial are on the ropes the consumer will be gutted by high oil prices sending car purchases into and abyss and consumer spending down the tubes. Christmas 2008 will be the worst since the great depression.

But in the summer we have a safety valve because the historic driving season will turn anemic as gas approach 4-5 dollars a gallon. So we will see demand destruction during this discretionary season. Think of it as the lull before the storm. If gas prices drop it will pick up so we have a tug of war between discretionary driving and oil prices. For a lot of consumers it will be the last summer fling. Others will be busy moving out of their repossessed home. I think summer 2008 will be repo season instead of buying season as people use the time to move out of their homes.
UHAUL and the like should have a fantastic summer so I rate them a strong buy.

I'm assuming we get a build in oil inventory in the early spring so we should actually go above average and this will take months to draw down. If we hit summer with below average oil inventory then no problem gas is 5 bucks a gallon and people cut back. So you see how we can balance peak oil monetary issues etc etc into the late summer and fall.

Now because of my assertion of a technical effect I think that oil production in the US and GOM etc will drop steeply first half of next year but this won't begin to effect inventories till mid summer. By fall assuming one external event we go to the moon in effect on prices probably touching 200 a barrel or more.

Fast forward into the winter with the recession finally in full swing and we have some price drop back down to lows of 120-150 range.

In 2009 its a tag team between economic problems and depletion. At this point high gas prices might actually be the least of our problems. What a lot of people are not realizing is we should have at least one major car manufacture bankrupt at this point and a number of oil refiners close to bankruptcy as they have excess capacity.
The majors will be forced to downgrade reserves sending stock prices lower even though oil is expensive.

West Texas's Iron triangle will be breaking apart in 2009.
Trade wars will erupt etc etc.

And finally and don't forget a lot of state and local goverments will be going bankrupt at this point. Understanding this issue is what keeps me from moving now.
I lot of "cool" places will have dysfunctional police and fire departments. I'm eying Oregon but I really think the governments their will get hammered and hosed from all this.
They are similar to California. I want to see who is fsck'd.

So I plan to buy my retreat fall 2009 :)

Or move in with mom and dad :(

I have often agreed with almost all of what you post memmel. We seem to things in similar ways.

One little difference this time however. Timing...

3 years ago I didn't think there was a way in hades that production could stay this high this long. I stand corrected, lol. At that point it had been easy to see how screwed up the housing market was becoming for some time. The triad of unscrupulous lenders, ditto real estate agents and home builders put the screws to buyers that should have given more thought to the biggest purchase in their lives.

It created a huge surplus of homes that were unheatable as soon as energy prices ticked up even a little. All it took was a little surge in oil to trigger the entire house of cards into collapse.

Began July/August 2005. It was quite interesting to watch the whole thing unfold as MSM and vested interests denied the underlying problem with more and more creative rationalizations.

It has held up as well as it has for a couple of reasons imo- 1; Oil has remained, uhm, affordable for the bulk of the developed world, so far, and this fact has given the big boys time to try to unwind positions and 2; support the market while doing so, escaping with as much of their wealth intact as possible.

It is my belief that it will be possible for the big boys to support the market somewhat long enough to largely escape to safer financial havens. As long as oil remains available in sufficient quantities and at prices that won't make it unobtainable for the masses.

We're only quibling about a year or two here imo. Next year is going to be interesting no matter what probably. But I have been thinking recently that it will hold together through next year, much the way it did this year.

Gas will probably have to hit $4 in May or so but watch the refiners as they desperately dance the number around to balance throughput at a manageable level without killing the golden goose (consumer).

Yes, the economy should show more signs of slowing, but I just think it takes more time for things to break apart. The big boys have seen this coming, some for a looong time, others not so long maybe, but surely they ALL do by now. They are playing defense in a big way, and still have cards to play (or moves to make on the Chess board).

The new Prez won't be inaugurated until early 09. As long as oil production can stumble along near this level, I expect the current admin to stay their present course. The day after the inauguration the new Prez will be taken aside and brought up to date on things he/she probably never expected to be going on. Expect some waffling on positions soon after, lol.

Yes, next year a major home builder or three will BK, one of the big banks or two ditto. But the King has been Castled into a position that is safe, for now. It will take some time for the next round of maneuvering to weaken his position further.

So far only a few pawns and minor pieces have been exchanged. Plenty of pieces still on the board. I would call this early mid-game.

Thanks, Relayer,


re: " largely escape to safer financial havens."

What might those be?

And then...what?

Good morning and Happy New year Aniya!

Not being highly educated on international monetary affairs leaves me poorly equipped to answer that first one, hehe. I had thought the traditional haven of gold would surge earlier than it has. Other precious metals with more industrial uses have done much better, probably some of those moves are positioning.

It seems to me that a decent percentage of the repositioning has been into privatizing businesses. There has been a marked upswing of private capital moving into this arena. When TSHTF it will leave the new owners in control of actual assets instead of paper money that may very well inflate into worthlessness anyway. It has the advantage also of enabling big leverage with the houses money to gain this asset ownership. Payments towards use of such money should become increasing irrelevant also as inflation kicks in.

And of course this line of reasoning helps settle a discussion issue- Stagflation or Inflation? Well gee, which way do you think it goes when you see how much of our money has been used by the big boys in an asset grab? Yea, inflation looks like a pretty darn safe bet, eh?

Accounts in Switzerland, Caymans, etc? What currency would you store it in? Actually, the case could be made for developed countries currencies having a better shot at surviving the coming storm better than any other, it would
be a crap-shoot picking a storage currency for me. Far more learned people than myself suggest gold coins, even get specific on which ones. So far I have stuck with equities in energy related areas. I can be very mobile that way, up to a point anyway.

And then what? Wow, even up to this point it's all speculation. But... I doubt that the hard crash boys are going to be very pleased. The lords up on top of the food chain can not afford to totally ignore the masses imo. If they do their support structure disappears and they end up actually having to do some work just in order to survive, lol. I'm sure that just wouldn't do.

One thing that is for sure- they will use this to their best advantage, sigh. I just hope that the strategies of the rich and famous leave room for a comfortable existence for some of us proles.

This whole thing is just fascinating to ponder. My poor ruminations have been improved considerably by crawling the web and I consider this site a priority and visit it as often as time allows.

Thank you all very, very much for all the insight into a situation which remains shrouded in the fog of war...

Have you Castled yet Aniya?

Happy New Year!

And Nate if I say things might be better then you predict By God you better listen :)

I still believe oil is going much higher over time - Ive lightened up on my futures position. And in fact, Im starting to focus more on 'real' goods and knowledge than the market, though this is going to be a long transition (for me....;)

Like a lot of posters I am up in air the about closing price 2008. I'm really waiting for Kunstler to post his 2008 prediction. He was pretty close on most of his predictions for 2007.

One thing most of the posts seem to overlook is that as the Oil producing countries rake in the wealth of tightening supplies and their own economies grow they will need to hold back more production for domestic use which will tighten even more world supplies.

I am expecting some pretty wild swings this year as oil supplies tighten prices go up and economic growth then slows, followed by falling oil prices and economies start to recover and the cycle repeating itself over and over.

A stab in the dark $150 at the end of 2008 (assuming the bottom hasn't fallen out of everything).

I read TOD frequently though this is my first post.

It's tough (& getting tougher every year), but this time I'm putting my vote in for 4). My guess is about $US85, with events moving somewhat more slowly than the doomers are predicting. And here's why:

1. Recession in US will bring about demand destruction, mainly through reduction in commercial activity (fewer goods criss-crossing the country, fewer commercial vehicles running around town). The recession in the US won't start out real bad, but it will just keep getting worse. The Fed will have interest rates back down to 1% by year end.

2. Europe & Japan will slow down, but not get into a deep recession. European interest rates will be cut, but not as drastically as in the US. Japan will keep them on hold and abandon plans to raise them.

3. Recent price rises will continue to price low-value uses of oil out of the market. Henry Groppe says that China & many other Third World countries still use a lot of fuel oil:

Demand destruction in this area is what has caused price rises to stay rational while we are at a plateau in production & it still has a way to run. I don't buy Groppe's line on Saudi Arabia, though. The water line on Ghawar just keeps shifting. I think he's a victim of the very phenomenon he describes the IEA as having - if he calls them liars, they cut off his data & he loses his living.

4. China & India will not go into recession. There's an increasing amount of domestic demand being built into their economies, but there's also another factor entering the equation. In the past, recessions caused a greater than proportionate drop in imports, as the productive capacity of the local economy was all that was needed for most sectors. Now, production is increasingly globalised. Businesses will react to falling demand & (especially) profits by cutting costs - and the obvious way to cut costs is to outsource manufacturing to China & IT to India. This will mean that the impact on the US economy will be felt almost entirely in the domestic sector. That's the reason I say above that the US recession will keep getting worse.

5. The Fed won't give up on interest rates & resort to printing money until '09, so the drop in the $US will be kept reasonable till then. There will be no recovery of the US manufacturing sector based on lower currency values, since the Chinese currency won't be revalued far against the greenback - and that sort of thing works over a lot longer time-frame than the 12 months we're talking about, anyway.

6. The Chinese currency won't be significanly revalued until a Democrat is in the White House (i.e. after the relevant time-frame). The Dems are more anti-Chinese than the Republicans and will decide their China policy is more important than the phoney War "on" Terror. Since the Chinese regime are looking for an edge, not a stoush, they'll give ground on the exchange rate if they're pushed hard. The US China policy will backfire, though, setting off inflation, even in the midst of recession.

7. Apparently a lot of mega-projects are scheduled to come on line in '08. This will also keep a lid on prices for a while. The real action won't start till '09 or '10, when depletion can't be covered up and there are bugger-all mega-projects in the pipeline.

8. Meanwhile, down here in Australia, the boom will continue, since "dig stuff out of the ground & ship it to China" will still look like a winning strategy in 12 months time. Probably 24 & maybe even 36.

9. My price prediction is based on no major negative geo-political events occurring. The US won't attack Iran - the bombing threats are just a Plan B & sound-effects to back up the diplomacy. Talking has got Uncle Sam further with North Korea & Libya than shock & awe has with Iraq, so Condi has neutralised Cheney. The two most likely negative events are a Turkish invasion of Iraqi Kurdistan (as distinct from the present limited raids) and an Islamic revolution in Pakistan. I'd put both of them at less than 10% probability, at least for '08. Islamic revolution in Saudi Arabia will follow the complete watering out of Ghawar, which won't be in '08.

Hi Ablokeimet,

An interesting and significant point, about US manufacturing.

re: "Now, production is increasingly globalised. Businesses will react to falling demand & (especially) profits by cutting costs - and the obvious way to cut costs is to outsource manufacturing to China & IT to India. This will mean that the impact on the US economy will be felt almost entirely in the domestic sector. That's the reason I say above that the US recession will keep getting worse."

So, a hypothetical business will...continue to outsource...even though, the underlying problem is really... the beginning of FF decline.

I wonder if this business would make different choices if "it" knew?

Yet, how many of the multi-nationals "know", do you suppose?

Taken together w. your next point:

"There will be no recovery of the US manufacturing sector based on lower currency values,"

This is sad, sad (for the US, anyway). Because, to quote memmel, ELP has to happen...will it (resuming a somewhat localized production) ever really happen, or will the whole thing just simply collapse?

re: "The US China policy will backfire, though, setting off inflation, even in the midst of recession."

Could you possibly expand on this and explain further?

Aniya's asked a couple of questions, so here are my replies:

1. Business choices with foreknowledge. Unfortunately, businesses will still go for outsourcing & cost-cutting, even if they see it will only aggravate the recession. It's because of the difference between micro-economics & macro-economics. Cutting costs makes sense for an individual firm (i.e. on the micro level), but the aggregate outcome (i.e. on the macro level) makes no sense at all. The problem is that a single firm can't affect the decisions of other firms, so the greatest pain for businesses will be felt by those who don't cut costs to the same extent as their competitors.

2. Re-localisation. Yes, re-localisation will occur, but not for quite a while - at least to any great extent. The transport infrastructure represents a lot of sunk costs and re-localisation will only happen when there's a significant difference between the marginal costs of local sourcing & global sourcing. Of course, strong public policy to adapt to the new energy realities could greatly cut the marginal cost of local sourcing quite quickly, but as long as Uncle Sam takes his orders from Big Oil, we can expect precisely the opposite to occur. Substantial change in this department will require a massive political movement - of a similiar size or greater than the one that built the CIO in the '30s & '40s.

3. US policy setting off inflation. A substantial revaluation of the Chinese currency against the greenback would set off inflation in the US because, firstly, imports would get more expensive. Secondly, US firms would have to decide how to react to that - either by increasing prices themselves or sell at the same price and undercut the competition, or a combination of the two. Because oil prices have been pushing costs up throughout the production chain, though, only Chinese imports have been keeping a lid on inflation. If that goes as a limiting factor, expect a return to the stagflation of the 70s as firms recoup their own rising costs through price rises. In a few years' time, when Peak Oil really starts biting, the situation will intensify greatly.

Here's what Saxo Bank is saying - oil $175, among other things.Bit long I know but interesting nonetheless.

Saxo Bank’s Outrageous Predictions 2008
If you’ve read Saxo Bank’s yearly Outlooks over the last few years, you’ll know we don’t hold back in our
annual attempt to predict the black swan sightings in global markets for the year ahead.
Remember though, these predictions are made more in an attempt to provoke thought than at accuracy!
This year, we have to mention our predictions are a bit on the pessimistic side – so let’s hope that we’re
very wrong with the gloomiest of them.
1) Ron Paul elected President of the United States
We’re starting with the most outrageous first! One would imagine that a party with the least popular
president to inhabit the White House – ever – wouldn’t stand a snowball’s chance in Texas of getting a
new candidate elected to the presidency. But Ron Paul is no George Bush Jr., even if he is a Republican like
Bush and is from Texas like Bush. His libertarian, anti-war platform is about three standard deviations away
from the platform of any other Republican candidate — or even Hilary Clinton, for that matter. Paul’s share
in the Republican candidate polls has rocketed from 1 % to 6% in the space of a few months and there
is the best part of a year to go until the election. As should be clear from this year’s Outlook, we are quite
negative on the US economy in 2008. A general slowdown and stock market turmoil should increase the
odds of a Ron Paul nomination as he has been the only candidate to speak frankly about the budget and
current account deficits and the dollar crisis.
2) S&P500 falls 25% from its 2007 high to 1182
Why 1182? That would be an exact 25% drop from the 1576 high the S&P500 index reached in mid-
October of this year. History shows that a stock market drops 15-30% when housing markets fail. “Easy
Al Greenspan” and “the slice and dice any manner of junk and pass on the risk to your clients” investment
banking paradigm triggered the biggest housing bubble in US history. The unwind from the height has
already been severe – by some measures the most severe since the Great Depression – but it has further
to go. So we are daring to forecast that the fall in the major US index would lie at the extreme end of the
scale before we see the light at the end of the tunnel.
3) EURSEK falls to 8.8000 (now 9.4000)
In 2007, the SEK was a currency of many stripes. First, it was on a weak footing as the carry trade was in
focus, and its low interest rate attracted interest in selling SEK as a funding currency. Then the Riksbank
moved rates onto parity with the ECB for the first time in over two years and many speculated that it
could become an even higher yielder. But then a few weakish numbers from Sweden and a bout of risk
aversion have put the SEK on a weak footing as 2007 draws to a close. But we believe that 2008 could
be a stellar year for the currency as the still new government’s continued, more liberal-minded policy
initiatives support capital inflows and also because rate differentials offer relative support for SEK. As
an added bonus, the country sports one of Europe’s largest current account surpluses as measured by
percentage of GDP.
4) USDSGD falls to 1.4000, but then rises back to 1.6000 (now 1.6000)
The beginning of the righting of global imbalances has meant a stronger Singapore dollar over the last
year. The Monetary Authority of Singapore (MAS) has allowed SGD to strengthen to help ease the pressure
caused by strong capital inflows and inflation and as the country registered robust growth rates. This
process could continue for a while into 2008 and take USDSGD toward 1.4000, but eventually the pair
could rise sharply as Singapore has already taken a large share of the necessary adjustment to reflect
global imbalances. SGD could also weaken as capital flows ease sharply and possibly even reverse when
the market looks at the odds for a global growth slowdown and as Singapore’s own sovereign wealth fund
continues to look for overseas investments as a way to recycle its massive reserves.
— 3 —
5) EURHU F rises to 275
The Hungarian Forint is on our watchlist of currencies that could really suffer if we see a slowdown in
global growth and a move to risk aversion in 2008. Some analysts are looking for a stronger Forint if the
Hungarian central bank is forced to ditch the band it allows the HUF to trade in against the EUR (this
may happen as EUR HUF has declined close to the lower margin of the band and because risk appetite
in emerging markets has remained relatively high while FX volatility has spiked in 2008). A slowdown in
global growth could punish Hungary’s export-driven growth, while a lack of risk appetite could force the
HUF to weaken in light of the country’s massive budget deficit. These factors could see EUR HUF rise some
10% from current levels to 275 in a hurry.
6) At least three of the largest 10 US homebuilders will go bankrupt
As 2007 draws to a close, many of the stocks for the largest home construction outfits in the US are rallying
after Bush rolled out his desperate attempt to stem the subprime tidal wave by fiddling with rate reset
mechanisms and implementing other measures that all seem like pumping medicine into a dead horse.
These measures are too little and too late, as the last phases of the US housing boom were one of the worst
examples of overextension by any industry ever – driven by excess liquidity (see S&P500 prediction above).
Why is it that we think we need to abolish the economic cycle? The unwind of this bubble will continue
and we think at least three of the largest US homebuilders could go bankrupt in 2008. If you are reluctant
to go short stocks on this story, find companies that specialise in legal services. Why? This situation has the
potential for endless lawsuits as this legal precedent-setting legislative proposal is guaranteed to produce
a feeding frenzy for lawyers if no one else… To save you a bit of time, the tickers for the largest ten US
home builders, as of this writing, are DHI, TOL, CTX, PHM, NVR, LEN, KBH, RYL, BHS, and MTH.
7) Chinese stock market falls 40% by late summer
The Chinese stock market bubble in 2007 saw one of the most remarkable accumulations of paper wealth
in financial market history. The rise in Chinese equities is certainly due in part to solid fundamental
underpinnings, including a liberalisation of markets and remarkable economic growth. But there are a
number of factors that we believe may have resulted in an unhealthy overextension in equity prices that
could mean an ugly correction in 2008 – possibly around the psychologically important 2008 Summer
Olympics in Beijing. So what will provide the trigger for a sell-off? First, Chinese officialdom is showing
an increasing willingness to clamp down on excessive growth with liquidity tightening. Second, some of
the “fundamentals” in earnings are really a pyramiding of stock market gains as companies have booked
profits stemming from stock market gains! Also, much of the bubble has been caused by capital controls
that have kept too much liquidity bottled up in the domestic market. Signs are that those controls may
be eased significantly to allow domestic capital to flow abroad and ease this pressure. So the Shanghai
composite could fall as much as 40% or more in 2008. Look to buy any excessive fallout, however!
8) Grain Prices to double – again!
2007 saw the most spectacular gains in the grains complex in recent memory as wheat prices doubled
and soybean prices rose to levels not seen since the wild grain markets of the 1970s. The story of grains is
a simple one of supply and demand. Human population growth has slowed on a percentage basis, but per
capita consumption of grain is accelerating as emerging markets switch to higher protein diets, which have
a multiplier effect on the grain market. Every kilogram of beef requires 7 kilos of feed, for example. Chinese
meat consumption has doubled per capita since 1990 and milk consumption has tripled since 2000. Most
of the world that can be put to the till has been – this means that only pricing can stem demand in this
most inelastic of all markets. Add to this the ethanol phenomenon, which many view as stealing food from
people and putting into petrol tanks (watch for a growing ethics crisis in 2008 as the “starving stomachs
vs. SUVs” debate grabs headlines). In short, the average price for the grains complex (Corn, Wheat and
Soybeans) could double after having already doubled in the last 15 months. For those who would rather not
trade grain futures, have a look at the ETF called the PowerShares DB Agriculture Fund.
— 4 —
9) World oil prices accelerate to $175
Much of the conventional wisdom on oil has been proven wrong over the past few years, as previously
unimaginable new highs in the price of oil have only been a reflection of the strength of global growth,
rather than an obstruction in its path. And with the weak USD and shrinking profit margins for refiners,
the end consumer in many places throughout the world hasn’t noticed a difference between oil prices
at 99 dollars compared to oil prices at 75 dollars. Even if global growth slows in 2008, it will continue to
move ahead in the emerging markets of the world where marginal energy demand is growing the most.
As “peak oil” becomes a widely accepted principle and supply and demand do a nervous dance, the price
risk in energy remains firmly to the upside.
10) UK growth turns negative
The UK economy may go into a nosedive in 2008, weighed down by some of the same factors that have
toppled the US. The UK housing bubble is possibly worse than the US bubble and has only begun to
unwind. The Bank of England (BOE) has dragged its feet as the credit crisis has unfolded, which could
worsen the situation compared with the Fed, where “Helicopter Ben” has replaced “Easy Al”. The UK
consumer is even more overextended in terms of all forms of debt than his US counterpart. Need we say
more? Okay, we will: the UK terms of trade are awful and getting worse and its most important industry
– financial services – is likely to see its worst recession since the internet/telco blowup of 2000-1. By Q3,
UK GDP growth may flop into the negative column.

I wonder how much we can derive from historical examples. Compare crude oil prices to whale oil prices:

(The crude price chart is not quite up to date)

Around the peak, the price shoots up to way above it's long term trend pre-peak. This is the first spike. Then price drops, and a second spike occurs.

If the comparison holds, we are at the second spike. On this basis, the price will not go much higher, but stay around this level for about 10 years. The price will then drop to a lower but volatile range.

My interpretation is that after the second spike, permanent demand destruction occurs. People simply stop buying, or use alternatives which are inferior but cheaper.

Therefore I choose option 5), 95-110.

It is also easy to predict the big energy story of 2008: oil price goes above $100 and stays there. I expect there are thousands of news reports around the world waiting to be launched at this psychological point.

The problem with this is that whale oil was replaced by rock oil, and more coal. As much as I advocate for solar, wind, etc. th'ain't never gonna replace rock oil on the scale we've become addicted to...

Obviously that statement is nonsense. The amount of energy available to us far exceeds that provided by rock oil, scale is not the problem.

When you look at oil's % of total world energy it is about the same as it was 35 years ago (when the same predictions of a bountiful solar/wind future were being made). So far it looks like we are riding this one down, not jumping to a new and better one. Things could change, but it doesn't look likely.

can't that be chaulked up as free market ? i.e. oil HAS been priced competitively with solar/wind.

6) $110-$130

Why? Nothing more than gut instinct.
What drives the instinct?

* Strong inelastic demand.
* Growing depencence upon automobiles in India and China.
* Oil infrastructure worldwide is a huge difficult to protect terrorist target. Were a missle to hit the huge Saudi refinery, the price shock would be immediate and lasting.
* Inability or unwillingness of economies and individuals to quickly change to more energy conserving equipment and behaviors.
* Because price trends tend to continue beyond the point of demand or supply support.

Kevin Gardiner

I think oil prices will stabilize at 20% increase YoY( equivalent to money supply growth) and if brazilian real does not rise fast there is enough ethanol substitution to fill the oil demand gap in future

If we must pick one of the ranges, then I pick range (6) $110 to $130. Probably more at the lower end, though.

But I say, let's stop with the ranges and really go out on a limb! I say US $116.72 dammit!

A-and I want a pony if I'm the closest or I'm dead-on!

$146.35 My reasoning posted for the last poll remains the same. One point, in the US demand has increased despite many professed reasons for it to be reduced IMO because driving habits will remain fundamentally unchanged until we see $4 gas in the South and Southeast, and the other areas colored green and yellow on this map, What happens to diesel prices IMO is more important because this is the greater driver of cost-push inflation.

Although not in the US, I find the gasbuddy temperature map a useful barometer of trends.

One thing I find odd, though, is that from time to time, they change the bands used for each colour, so that instead of a range (from green to red), most of the country shows up as yellow-orange. This only seems to last a day (30th December being the last time I saw it), and then it reverts to a more "normal" band range.

Is there any agenda behind it, or is it one of these "funny division" computer generated errors?


US GDP as a % of World GDP continues to decrease. So a total focus on the US is not as productive as in the past. A falling dollar has made our exports boom, and that should continue because of the lag effect. It appears that energy will be driven by an increasing world demand, and increasingly affected by increasing use among exporting nations. But, why base a guess on an extreme during the year - perhaps during peak driving season. So, I will go with a $120 at year end - a respectible 20+% increase.

I think we need to think seriously about Mudbucket’s posting. According to this, the top financial brains in the world think oil is going to be in the range $70-80 in 2008. It is not as if these were stupid people. Some of them - or at least the people who employ them to produce these views – probably earn as much per year as I did in my whole professional working life. So it would be useful to know why they think the way they do.
I was chair of a meeting of energy economists and others at the University of Surrey in England back in the early 1980s. Oil was $36 and heading north and some of us were talking of $100. We were concerned about the “energy gap” – the precursor to the peak, when oil demand rises more quickly than the ability to provide the supply (we were simpler folks back then). The purpose of the meeting was to discuss the implications of rising oil prices on the prospects for renewables.
Peter Odell, professor of oil economics at Rotterdam University, was at the meeting. He was a well-known sceptic about oil peaks and such. I vividly remember him saying that perhaps we should be looking at the implications for the then current tar sands, oil shale and renewables programmes of a fall in the oil price to $15 or even $10. I vividly remember my amused, and I hope gracious, dismissal of this in favour of getting on with the real business of the meeting. Peter was right for the next twenty years.
As for future, I am a lot more optimistic about the resilience of societies than some posters. Being born before the outbreak of World War II provides a different perspective. So I do not envisage the societal collapse envisaged by some – though I admit I thought that way back in 1970 when I first got into this stuff.
I therefore think demand will hold up. As recent posters have pointed out, oil is worth so much more than its present market price that people will continue to use it; though some current users will tend to economise somewhat there are plenty of new consumers to take up any slack.
I also think peak is upon us or nearly so. So, my guess is that the end of year 2008 price will be in the $130-180 range. But I do wish I knew why Goldman Sachs think it will be half that.
Gerald Foley

This comment pertains to (U.S.) gasoline prices rather than crude oil but it's the last day of the year so I'm posting it.

Some time back I noticed that the year over year price of gasoline had been positive for a while (a trend which held until late summer 2006). I decided to overlay them going back a few years and it kind of looked like mountains or waves. So I turned it into, for lack of a better term, a "concept graph" I call Gasoline Mountain:

To keep this on-topic for the original post -- predictions for 2008 -- I will just say, "Git yer climbin' gear." Or, if you prefer the water metaphor, "Those are some gnarly waves."

The beauty of your graph is it makes it that the recent runnup in prices is not normal and that things changed in the 4th quarter of 2007. A lot of Peak Oil advocates predicted this well in advance.

On thing to watch going forward is a lot of people including me expect price to dip back towards 80 before next spring using traditional peak oil models.

But if we add in a combination of export land and accelerated depletion then prices will increase until real demand destruction starts taking place.

This is in the 150-200 dollar a barrel range.
A combination of both export land and accelerated depletion is required to ensure that oil production issues overcome any economic slow down.

I think the best outcome is that the economy contracts slowly and oil prices stay bounded at less then 300 a barrel. This in general means we will lose a lot of discretionary spending but thats ok since the core economy should be able to convert to a more ELP like economy.

This slow change is still quite viable and we have a lot of wasteful oil usage that can be removed if people start making lifestyle changes.

Time will tell.

2 things: The first is Wow - that graph sure is worth a million words!!! Look at the trend people!! The second is: I wish people on here obsessed over Gas prices more than Oil price, I mean, 99% of people couldn't even tell you the current price of a barrel, yet most of them would know the current price of gas where they live. And at the end of the day it is the price of gas, that, whilst proportional to the price of oil, that is gonna be the "poster child" of the bad times when they come. People won't be saying "Shit oil is $200 per barrel", they will be saying "Shit gas is $5 a gallon" It is only when the price of gasoline is rising that the MSM get involved, have you noticed? No one cares about the price of oil really, cos no one buys it!

Thank you for this amazing graph Bench! I have it bookmarked and will undoubtedly return to it many times in the future.

It would be illuminating to to do the same with the crude price and compare the two.

I agree with memmel that 4th quarter price strength this year is an indicator of a marked change in the situation. And yes it could be foreseen as inevitable at some point.

I do not have the time to visit here as often as I would like during the week normally and may have missed it. But I had thought that this would trigger no end of discussion when it happened.

To my way of thought it indicates an extreme tightness in supply/demand. I do not believe we will see anywhere near the normal retreat in price that we have in the past, continuing development of a U.S. recession notwithstanding.

All this in the face of a reputed increase in OPEC quotas, a subject unto itself, lol.

I suspect that the scale will need to be expanded somewhat for a similar graph next year, lol.

My guess is for a decrease in USD$ price. The megapoject megaproject predicts a substantial increase of new oil coming online in 2008 this plus decreased economic activity in the USA makes my gut call a decrease. I'll vote for $60 at the end of 2008

You and Danny boy

Your mixing better accounting with higher returns.

The scary part is we probably missed similar increases in the past yet production staid flat pointing to accelerated declines.

Before you dismiss the idea understand that as the price increased post 2000 a lot of extra capacity was brought online yet overall production did not change much. I'd suggest that turning on existing wells and infield drilling should have prevented a plateau yet it did not. This new production is far more problematic then previous source of oil that did not prevent a plateau.

I've been luring here for about 10 months and have been astounded by what I've learned about the issues with oil production, above ground politics and the export land model. Having a background in biology and an interest in many scientific fields, I tend to be a fast-crash doomer. However, there are many things about economics and human behavior which I don't pretend to understand.
That said, I predict that the price of oil will continue to rise until the end of the olympics in China at which point all bets are off about how the Chinese will deal with their glut of US$. Oil at $150 by end of olympics and after that, comparisons between US$ and oil much more difficult to predict. The only option other than collapse is American military intervention.
By the end of 2008, oil at $215.
Now, I have a question about the real price of oil. There was an article in yesterday's oil drum that Iraq got $83.87 for the oil they sold in November. What does the US really pay for oil compared to others in the world and does our intimidating milirary presence have an effect on the price we pay for oil? I think that may have an effect on what the price of oil may be at the end of 2008.
And, Like many, I want to express my appreciation for the work of so many on the Oil Drum especially Leanan.

Greetings to all and happy new year

About the poll I think the oil scarcity and devaluation of dollar would have far more effect on oil prices in 2008 than falling usa economy. This is because of two reasons: (1) Given the size of usa economy it would take some years for it to sink considerably (2) The decrease in usa economy can be compensated by rising chinese and indian economies. Remember that a rise in usa economy would have a lesser rise in energy consumption because usa economy is more on services side than on industry and agriculture as compare to chinese and indian economies. So, I would say that oil prices would be in range of $150 to $200 by end of 2008. I do not think that american govt would go for hyperinflation, instead it would continue with 'slow' devaluation to get more years of world keep on using dollar as medium of foreign exchange.

Sorry for my absence recently from oildrum, my father died on 14th dec, may Allah give him a good place in paradise, ameen. I do got some of his inheritance and already trying out agriculture part time, will inshallah shift to it totally by end of this year. I do have some real figures now regarding wheat plantation EROEI in rain-fed region of pakistan.



Hi WisdomfromPakistan,

Sympathies regarding your father.

My guess would be:


However, it is an election year in the U.S. and the money power people usually dress it up to look good in order to get their candidates in there, so it could be below $130.

Checking in for the new year after a long hiatus. And as a general comment, keep up the good work TOD, this site continues to do top notch work concerning an important topic.

I am a little surprised how tame many of the oil price predictions are, especially considering the often over the top doomer scenarios painted so well here. I'm actually more aggressive than most here on TOD for 2008 - is that scary;)

I commented sometime in March of 2007, (yes, I'll try and dig up the comment if called on it, spent 10 minutes going through old comments and didn't see it and didn't want to spend 2 hours combing old comments) that 2007 would end with oil in the 90/barrel range and economic growth at 2%. I fell vindicated on that and TOD should feel vindicated on supplying great data and discussion on which to base guesses about the future. Surprisingly, if I recall my predictions were way benign in the context of many posters at that time.
I also at that time said that 2008 was the more worrisome year. I also still stand by that assessment.

Alright as regards oil prices at the end of 2008.
I don't have the charts in front of me but I bet if you just drew a trend line for the past year or the past four years extrapolated to end of 2008 you end up between 130 and 180. Have there been significant developments to indicate this historical trend is changing? If anything I would worry about it accelerating (a la WT's Land Export FUBAR). Does the current economic condition point towards a significant strengthening of the dollar?

Here's a good question for someone here who might have time to research it. It is accepted as conventional wisdom (just as PO types were conventionally "kooks" 12 mos ago) that modest economic recession (not death throes crash) would lead to significant demand destruction in developed nations, is there good reason to think this is so? What has happened historically? I am not being rhetorical, does anyone know this? Certainly one's commute doesn't get shorter in a recession, staying with an old microwave won't save energy and I imagine Starbuck's would go before the furnace. I suspect recession, especially if not worldwide, would have a negligible effect on oil demand and price.

Anywho, I won't make an economic prediction for 2008 except to say it doesn't look good. If we were to stop spending a trillion dollars a year on unnecessary foreign wars, decrease the governments size and fascistic inclinations, and balance the budget we would likely be in a good position to handle the increasing pressure brought from PO. Really, why the hell shouldn't the government tighten its belt before the American people do theirs? Of course we also now have to survive the credit crisis - thank goodness we have a genius and statesman in the oval office /sarcasm

Oh yes and of course as I hope you already know

Vote Ron Paul 2008.

So in summary oil prices will continue their current trend upward, that's as far as my foggy crystal ball goes. I am a bit embarrassed, though, that as TOD'rs are being proved right they are backing off their doom and gloom, I would have expected a good third to say over 180, and with a couple well placed hurricanes that doesn't seem unreasonable at all. Best of luck to all in the New Year. May it be filled with positive developments.

ZPDM123: What has happened historically? I am not being rhetorical, does anyone know this?

Not having figures handy, I have to go on memories, but I'm fairly sure that consumption declines during recessions:

1. The commute doesn't get shorter, but people without jobs don't commute. And when people replace their cars (which admittedly fewer people will do, since you need a job to afford it), they'll choose a smaller & cheaper one. Most people who still have a job will probably want to "play it safe" with their finances. The second car probably won't get replaced, either.

2. Economic recession means fewer goods being trucked across the country & fewer commercial vehicles running around town. It will probably also cut into both business & personal plane travel, though these are still minor uses.

ZPDM123: If we were to stop spending a trillion dollars a year on unnecessary foreign wars, decrease the governments size and fascistic inclinations, and balance the budget we would likely be in a good position to handle the increasing pressure brought from PO.

John Maynard Keynes would have ZPDM123 for breakfast with that remark. I'm all for stopping Uncle Sam's wars & restoring civil liberties (back here in Australia we've just had the release of David Hicks, the only prisoner from Guantanamo Bay who had been convicted in their kangaroo court), but balancing the budget is something that is just plain criminal in a recession. You need to run big deficits if demand has collapsed. And then run surpluses (instead of cutting taxes) after the recovery has got going.

The problem is that Dubya & co have stuffed Uncle Sam's credit through military spending in general & foreign adventures in particular. It is well-established (though not as well-known) that the multiplier effect of military spending is the lowest of all types of government spending when it comes to creating jobs & economic activity. The best solution would be to close down the Pentagon and divert its budget into a massive infrastructure program to address the twin problems of Peak Oil & climate change. No US government will do that, though, since it would go directly against the interests of what many (after Ike) call the military-industrial complex. I'd prefer to call it the dominant sector of the US capitalist class, but I don't talk in these terms much on TOD because I'd be mistaken for a Marxist.

Thanks for the comments Ab

The tread is getting stale, but I'll just point out a graph from IEA of energy consumption in recent decades.

The last recession was, what in 2000, there is not a significant decrease in petroleum usage. There was perhaps a more serious recession in 1989 and also in 90-91. There was a slight decrease in petroleum use but nothing overwhelming. My point is that if geological constraints are causing peak oil, a recession (not depression) will only have a moderating influence on price and not reverse the overall trend. Also consider whether oil exporting countries and China and India will simultaneously be in recession. I suspect I am more optimistic than many if not most on this board about the ramification of PO but a recession is not going to change physical reality.

ZPDM123 wanted Figure 1.3 rather than 1.2, but I found it by going to the full Annual Energy Review (and which, at 441 pages, I won't be printing). Anyway, it's quite correct to note that the consumption declines for the 2001 & 1990-91 recessions were quite modest.

On the other hand, both those recessions were quite mild - especially the one in 2001. The coming recession in the US is likely to be savage, though in the form of a slow-motion cascade through 2008 rather than a sudden crunch in one quarter. Given that people are already finding petrol prices a squeeze (they're much higher than in the last two US recessions), the effects on oil consumption are likely to be a lot more pronounced.