$100 Oil - Open thread

Today, someone in the NYMEX pit session paid $100.00 per barrel for front month crude oil. (Logical for it to happen during a TOD holiday short staff period). Despite the talking head rationale for today's $4 rally, the underlying reasons for the 8 year+ climb in crude are geologic in nature. $100 oil in itself is no big deal - its 1% higher than $99 oil. But it serves as a milestone reminder that the future is likely to be less 'easy', and perhaps dictated by new rules. Questions abound: will high prices bring about more production? Will high prices begin a "hoarding" phenomenon among exporters and producers? Will $100+ oil spur energy alternatives with the scale and quality of energy dense crude oil? Is this even possible? Will society start to realize the dichotomy between natural capital and financial capital? Will $100 oil reduce demand in developing countries? Will OECD oil-importing countries (like the US) take the lead on changing the cultural carrot of consumption that drives energy use?

What does $100 oil mean to you? Please add your thoughts, links and suggestions.

Neat - 100 is 1.01% higher than 99.

And did you see this article on nat gas prices.


In the UK, nat gas spot prices have been running about double last year's prices. I find it difficult to understand why nat gas prices else where are not going through the roof.


Thanks Yoon - Im often imprecise on my maths.

I did not see that article but thanks - NG was up 5% in US today, actually more than crude oil. I am curious as to the price elasticity of these two major fossil fuels in the event of a recession/depression. At least in the US, low NG prices in last couple years have caused complacency, as one might expect, and more electricity generation is from gas than 2 years ago - we have a cold pig of lows running across US now and there are rumours of a record weekly withdrawal of NG from the system (300 bcf?) might be in the cards.

I assume Aberdeen has fewer 'degree heating days' than Midwest, USA. FYI - the back months of the NYMEX strip have been making daily life of contract highs since early December.

We have snow on the way tonight and interesting times ahead. I gotta say I love the snow.

What it means to me is that my mfglobalfutures screen was covered with big green numbers at the close. HUZZAH!!! It might be TEOTWAWKI but I'll be drinking champagne in the microhydro bunker.

also green were:
natural gas

don't spend it all on one sling pump.

Don't forget gold's all time closing high. (The legendary Jan 1980 $875 gold record was intraday.) Of note in 1980 the gold price peaked immediately prior to the proclamation of the Carter Doctrine which restored confidence in the petrodollar - backed by military threats. What can be said now that would restore confidence in the US dollar?

"We were just kidding - heres all your oil back" ?

Nate, according to Bloomberg the NYC gate spot for natural gas went up $7.47 to $16.61 per MMBtu today. That's over 81% increase in a single day! What's your source for the 5% increase?
I hope I'm not missing something obvious here :-)

Spot prices in northeast spiked for some reason, but I didnt know they got that high? Is that right -anyone? I referred to Nymex website.

This might explain it: http://icons.wunderground.com/data/640x480/2xus_st_anim.gif We're probably seeing a sudden spike of the demand in the midwest and to a lesser extent the northeast that can't be met by the limited supply. My plan to replace my 30 year old 60% AFUE gas furnace with a more efficient one might have to change in favor of a electric furnace or a heat pump.

I love the heat pump at our house. However, in sub-freezing temperatures, the heat pump can do very little unless it's a ground loop heat pump. Under 0*C, it's using the resistance heating coils which are substantially less efficient than the heat pump. I didn't design the house I live in, but the next one I will, which will contain many south-facing windows with an overhang to prevent solar gain during the summer. (Also triple-paned to boot!)

Bloomberg has natural gas (as well as oil and gold) on its front page. It showed it closing at 7.85, which I think was close to its high for the day. I hadn't heard anything about it more than doubling to $16+.

I remember reading somewhere (yeah, hearsay, I know) that during the CA energy crisis a 2% shortfall in natural gas supplies resulted in a quadrupling of the spot price.

Hi Nate

Bloomberg had NY city gate spot at over $18 earlier. It caught my eye for sure, but I cannot remember the exact number. They are showing $16.61 now.

I presume there is some local shortfall factor (-9C maybe?). Luckily here in Oz it is T shirts and the beach all round.


here is a link for spot prices to all of the various gas trading points


"Peepers" at PO.com linked to this graph as an explanation of why prices are spiking;


Documentaries on energy scarcity in the first category - enjoy

ruizscar, thanks a mint for that link. There's a wonderful documentary there I hadn't seen.

Everyone stop what you're doing right now and watch Africa: America's New Oil Target.

It is remarkable.

It's even quaint: released in Nov of 2006, this film shows the worldwide reaction to oil hitting $50/barrel in 2005. Horrors!

A good quote:

"The problem with these oil companies is, they have more cash coming but no place to drill."

Thanks -that is a Johnson Rice graph from last weeks TOD TWIP

A good example of rate of change being more important than the absolute number (dy/dx)

So prices are spiking in order to attract more exports to the USA? But how does this work? I mean if Brent and all the rest go up proportionally too? Will it work.....will imports to the USA soon increase now?

Another question: Can someone please tell me what world oil consumption actually is for the last 3 years? That is monthly world production +/- monthly changes in OECD inventory. Can't numbers be produced very easily this way showing how world oil production is incapable of meeting demand without drawing down inventories (since early 2007 I think), and thus making OPECs decisions look weak? Or are the drawdowns in OECD crude inventories just not that significant yet?

I will repeat my posting from the older thread since this one just opened up:

$100 oil is interesting, but like Y2K and the alignment of the planets/end of the Aztec calendar in 2012 it only has psychological significance in and of itself. I think the actual price of oil is not as important as the reaction to it. For example, $100 oil inflation adjusted was a much bigger deal in '80 after the Iranian revolution when it caused a pretty severe recession. Now, it is just a news story, much less important than the current election coverage. It will be interesting to see at what price we (the American people) feel the impact full force.

Although this is not the proper place to post the following, I must comment on the irony of the fact that I happen to be in Houston on the day oil first hit 100. I am here for business, but have about 1 free day, and was wondering if anyone knew of any "must-see" attractions here besides the NASA center? Thanks.

The M. King Hubbert museum is a must see. Oh wait - its not built yet..

where do I send my donations?

They are to go to Daniel Yergin, that is if he can be found.

Sina your hotel will have a sort of rack holding little brochures for local sights. Cities always have hidden things about them that are really neat, and those brochures are often the best, by far, way to find out what local attractions there are.

The Chamber of Commerce is a good place too - it generally has a wider selection of the brochures lol, and some maps and stuff.

You could also check ahead on-line, too.

The reason we don't react to it is that our economy is distorted by false statistics and many new tricks for creating a cornucopia of personal debt. If we'd told big enough lies we could have gotten through the Stock Market Crash of 1929, for a while.

And whether expensive oil causes a recession or an inflation depends on what policymakers do. The first moves after the Iranian revolution were to let inflation go into double digits without covering it up. Bad move. The recession was the severe consequence of having to get the inflation down. But no politician in his right mind will prefer recession to inflation until after he is safely elected. Since this is an election year, it will be an inflation year whether the stats are rigged or not.

Any chance of seeing the words net oil exports in any of the msm reports on $100 barrel oil?

We've been waiting to finalize our Top Five Net Oil Exporter article until WTI hit the $100 mark. Khebab is toiling away right now on the final graphics.

Well here IS a piece in the MSM on oil.


It starts out ok

"It's getting harder and more expensive to find new oil deposits, and global demand is growing"

but then goes to this:

Others believe the speculative fever is so out of control that a bust could occur like the 1986 and 1998 busts that saw crude collapse to around $10 a barrel each time.
For one thing, says Fadel Gheit, senior energy analyst at Oppenheimer & Co. in New York, OPEC has increased production despite the opposition from Iran and Venezuela. "All in all, there hasn’t been any significant change in supply or demand to justify a 50% jump in oil prices since August."


"There hasn’t been any significant change in supply or demand to justify a 50% jump in oil prices since August."

This is not altogether wrong. I think what accounts for at least some of the price runup is growing understanding that increasing production of cheap oil in perpetuity was never guaranteed.

There hasn't been any significant change to the overall environment, in that quite a few people have known for years, and insiders have known for decades in some cases, that the peaking of oil production was an eventual certainty. That tidbit of critical information hasn't changed since August, but has been kept obfuscated and obscured until just recently.

I LOVE the excuses:

"ports closed due to bad weather in Mexico..."

Apparently, Oil Tankers cannot load when it rains...

fighting in Nigeria

Heck, haven't they been fighting in Nigeria for a while?

Or is it really due to the fact that those Oil Tanks at Cushing are a bit emptier..?

The Peak That Dare Not Speak it's Name, p'raps?

$100 oil= $.1488095 per 8oz. cup. Still a LOT cheaper than bottled water or sodapop. It's a marker of sorts. But with EU gasoline priced at about $300, I think $200 will have more meaning. In the realm of psychological expectations, there may be some impact as most folks understand this means petroleum products will become more expensive and might alter their behavior; this will be especially true for those on fixed incomes or already up against a financial wall. Otherwise, I expect $100 oil to have exactly zero impact on BAU.

$100 oil= $.1488095 per 8oz. cup. Still a LOT cheaper than bottled water or sodapop. It's a marker of sorts.

I don't like that comparison. you don't buy oil by the cup. you buy it buy the gallon. you can't even compare oil to milk because you buy more oil per month than you do milk.

I've always thought that pricing oil by the barrel, then buying all the products by the gallon is misleading. $100/barrel oil is only $2.38/gallon. IMO, that's ridiculously cheap! I don't see why oil prices won't keep increasing to $3, $4, $5/gallon and more.

Matt Simmons makes an important point in his Bloomberg interview today: demand responses will moderate the price now, not supply responses. Up until recently, the price of a marginal barrel of new production has been the main factor driving prices. The price of the marginal barrel of demand destruction; that's an entirely different matter, and much, much higher.

One way to look at it is oil will increase in price until substitution is competitive. Substitution means not oil. This could be less oil or alternatives.

I always use vegetable oil as a metric since its comparable to crude.

So salad vegetable oil goes for 5.49 a gallon.


Now the other problem is their is simply not enough vegetable oil to substitute for all uses
of oil or even most so it would still go up in price as a fuel.

This puts it say aroung 10-15 dollars a gallon.

Or in a thread that went on at peakoil.com the MAXIMUM price for gasoline per gallon is less than
10-15 dollars a gallon which equates to 500-800 dollars a barrel.

That may sound alarming but gasoline is already close to 10 dollars a gallon in Britain.

Anyway thats what I came up with for was probably a pretty good ceiling.

Back to vegetable oil you can see that substitution becomes viable at around 200-275.

So the "lower" maximum bound when alternatives become viable looks like about 200.
I'm guessing we will push this by the end of the year so this means by this time next year Peak Oil could well be mainstream and alternatives to oil reasonable investments.

Gas in Britain pays for various social programs and governmental hijinks through taxes. Same in the US. Other governments subsidize gas use below the market price. Nymex gasoline is currently $2.5594/gal. That's roughly $7.40/gal in the UK that goes via taxes to pay for things that Americans have to pay for directly out of their own pockets.

If the islanders would be willing to forgo what their petrol taxes fund via the VAT and fuel duty, I'm sure prices in the UK could be reduced to US levels.

A government will figure out a balance between what it wants to spend and one of various breakdowns into individual taxes to raise that money. The stated rationale for the current tax level on petrol is to provide a strong incentive to find alternatives to driving. (Whether the government really wants the revenue instead, cutting petrol tax would mean other taxes rise.) In contrast, heating fuel is taxed less than standard goods, let alone petrol. (Whether this is seen as socially positive depends on your views about driving.) The disturbing thing is that I've been told by several people that even 2GBP per litre (which I think is 15 dollars/US gallon) wouldn't actually change behaviour. (They'd moan like hell, feel hard-done-by, protest, but they'd still drive.)

The other political issue is that, being a small island, it's just about possible for continental truck drivers to fill their tanks at cheaper French prices before getting on the ferry and deliver their loads and get back to the ferry, thus putting the native haulage industry at a disadvantage.

I agree. This is an apples and oranges comparison. You can't run an energy economy on water. At least not yet.

Funny the todo; it's a comparison Simmons always makes at his presentations, which I simply echoed; so your complaints are with him. On a TOD thread several years back, I made the point that US gas demand wouldn't drop significantly until it started to cost drivers about 30 cents per mile to operate their vehicles, which is $6/gal @ 20mpg; by significant, I mean 15%+ reduction in demand. The opposite has been true so far with gas rising to over $4 in more remote US locales this year with demand contining to rise @ .2% y/y. This is what I had in mind when observing that $100 oil is just a roadsign on the march to higher and more meaningful prices.

I respect Simmons, but I don't like this particular comparison. The relative value of oil to an economy is much higher when it is cheaper. When oil becomes expensive, alternatives/efficiencies become viable.

As for demand, I think you're probably right from a sudden change perspective. But, even now, it looks like we might be priced in for long-term, slow change at 3.00 + gas.

"You can't run an energy economy on water."

True. But you can't run any kind of economy at all without water, because you die in about 3-4 days.

Hmm. Maybe water is underpriced...

apples and oranges.
Howbout retail and wholesale? Who said you can't get not-yet-bottled water for $0.15 per cup? Probably even cheaper. Try buying a tankload sometime - *before* it's processed...

Sorry, just couldn't let it be.
Cheers, Dom

Cheers! Actually, I appreciate the good humor.

For my part, I buy my water by the gallon jug for 99 cents. Of course, this is before any net refining gains in the kitchen...

Nate: Here's what it means to me: Profits. Sorry I know it sounds crass. But what can you do? Demand has crossed production and it will not likely be going back, ever. That means Oil and Gas are going UP! I continue to bang the drum: Any pullbacks on crude oil are huge opportunities to add or to establish new positions. Yes, I have my money and my client money where my mouth is and I will keep doing so! Look for crude going to $120 then $150 and $5.00 at the pump will become the new reality for americans (my guess sooner, not later). All the energy alternatives need to be agressively pursued...with rationing already happening in China and growth and urbanization exploding over there...

I expect you are right and will make a lot of money if you stay long for next 5 years - but a)oil is priced at the marginal barrel and b) a few large hedge funds have the ability to leverage the entire global yearly supply. We will have massive swings in the future - higher highs and higher lows, but lows there will be, especially if money/credit economy tanks. Good luck. At some point remember to diversify your financial capital into real capital, and hug a tree.

Question: What is the gas pump price for $100./bbl if the refinery margin is the same as it was last summer?

I am on a slow connection at the moment, so this is from memory. The price would definitely be over $4/gallon, and probably closer to $4.50 at last summer's margins and today's crude price. I think this is what we will be facing later in the spring.

Last 2 years the prices rises started in FEBRUARY people! Buckle your seatbelts!!!!

Gasoline inventories are gonna start their annual decline in only 5 weeks!

Currently gasoline inventory is 205 MB, last Feb it peaked at about 227 MB. Can gasoline inventories rise 22 Million barrels in 5 weeks ?!?!?!?! If it doesn't, TSWHTF in 2008 IMO, cause a gasoline panic will very possibly happen.

Gasoline is everything!!

"Gasoline is everything!!"

Humm, no. Gasoline is automobiles' fuel. Lots of things are more important, like winter heating for most of you that live on temperate climates.

If there is a big shock, I expect it at north's winter. Gasoline can lead only to slow crisis.

Gasoline is the most easily identifiable Leibig constraint for our current way of life. But certainly not the only constraint.

Even though gasoline stocks have been moving higher from our lows, I think 4 dollars by summer is a foregone conclusion now. Hopefully we get warmer after this week, if we stay cold like we are now, and refiners are building stocks back at over 105, 5 dollars in some places. People won't buy as much even during a panic- if they do a rise to 6 or 7 dollars will help slow demand. The good news is 5 is still cheap for most of us. The bad news is a large portion of the economy will be hurting and food inflation, which will be far worse than gasoline costs, will become the norm.

a 20oz can of beans is still 59 cents where I live. Considering that as the lowest denominator of reasonable foods to eat, when that starts going up its too late to start getting ready. Panics can start in any part of the economy, from Food/Produce to Gas to Bank Runs. It seems all could happen at once which is, pretty much a worst case scenario. If we have a gas panic first, that may delay a Bank/Food panic a while longer. Honestly, I think most people will go for Gas and Cash before they go for what they really need. seeds and Food.

Last 2 years the prices rises started in FEBRUARY people! Buckle your seatbelts!!!!

Gasoline inventories are gonna start their annual decline in only 5 weeks!

Currently gasoline inventory is 205 MB, last Feb it peaked at about 227 MB. Can gasoline inventories rise 22 Million barrels in 5 weeks ?!?!?!?! If it doesn't, TSWHTF in 2008 IMO, cause a gasoline panic will very possibly happen.

Gasoline is everything!!

"Gasoline is everything!!"
I wonder about that. For most of the economy in the Just_In_Time 21st century logistics are everything. So diesel fuels for trucks, heavier oil fuels and diesel for ships and jet fuel for aircraft may be more important. Oh, and a certain superpower has standardised it's military fuel use on diesel distillates. All of these are so-called 'middle-distillates' and they have a different inventory cycle.

Sorry. I mean the price of gasoline (and by association diesel, jet fuel, heating oil etc)

People in Europe are still buying all the cars they can and driving them all they can with gas prices double what they are in the US, so I don't see $100 oil affecting the "Non-Negotiable" US consumer much if at all. Besides, oil's been effectively $100 for some time now and that hasn't had any effect in the US.

It's sure fun on rare visits to the gas station to see those $50-$100 fill ups though - most anyone who commutes is doing this once a week.

As I noted over on Robert's thread, when the NYT profiled several US drivers when gasoline crossed the $3 mark, the only drivers who had curtailed their driving were the ones physically incapable of buying the same amount of gasoline that they had bought at $2 per gallon.

The elasticity of demand for oil is not the same in the short term as in the long term. What to watch for: the average mpg for new car sales. How fast will fleet average fuel economy rise?

Also, there's a psychological effect at some point where people realize they have to change their habits. That's happened for some but not most.

There's also a lead time in engineering projects. We aren't yet seeing the decisions that the Detroit auto makers made last year or the year before. We will see the consequences of those decisions in the 2009 and 2010 model years and even more so in the 2011 model year.

The early 80s decline in energy usage shows what is possible. That's coming again.

Per a chart right here on TOD, the demand destruction cycle is already underway:

In the 1970's, the first major oil interruption occured in 1973 with the Yom Kippur War embargo.
Real and lasting demand destruction did not take hold until 1982, so that would be a gap of about 9 years. Of course, that crisis was reinforced by the follow on Iran hostage crisis, and runaway inflation.

FuturePundit, you said,
"The elasticity of demand for oil is not the same in the short term as in the long term."

Very true. And likewise, the "elasticity" demand recovery is different in the long term too. Note that after the collapse in demand in 1982, it took well into the 1990's to recover oil demand to the old high levels of the 1970's, over a decade! This was because the infrastructure and vehicles were built for the perception of ever increasing oil prices in the 1970's, and it took about as many years to get a Honda Civic off the road as it had taken to get millions of them on the road!

The difference worldwide this time around is of course the Asian growth economies, China and India in particular, which may continue driving world demand up even as some markets are able to contain or even reduce their home market growth.

Projections of Asian economic growth and oil consumption thus become pivotal. If China can maintain current economic growth for another decade or two, the world is in deep trouble in trying to contain oil prices.

However, three decades of growth near the double digit per year rate are almost unheard of. Not since the birth of the industrial revolution has such a thing been seen with the exception of rebuilding periods following massive war damage. And Asia faces the same headwind the rest of us do. Energy will cost them, and cost them dearly, all the more so the faster they grow.

We have to try to keep our powder dry for the long haul....who could have imagined the world of 1986 in 1977, with it's runaway consumption of Sport Utility Vehicles and the almost givaway prices of gold, silver, oil and natural gas (compared to the inflation blast of the 1970's). 2016 or so could be very interesting in unexpected ways.

Am I saying we are in the same positon now as we were in the 1970's-80's? No, and if we were, how would I know?


"I don't see $100 oil affecting the "Non-Negotiable" US consumer much if at all."

It won't show much in driving habits for a while. Knowing that you're sending from Arizona, all I see is Wile E. Coyote pulling himself further and further back into his big Slingshot. In other words, Credit Card Debt..


meep - meep!!

LOL and this is serious coyote and roadrunner country too!

Well, I'm finding I'm in an interesting situation.... kind of a micro-version of, "When you owe your bank $200, you have a problem, when you owe your bank $2 million, the bank has a problem" lol.

I'm "in" for about $100k and I'll be lucky if I make 1/10th that much from here on out.

Therefore, the bank(s) have the problem!

And, to posters above, the ONLY reason I am not traveling much, and when I can riding my bitty motorcycle is because the total cost of the bike is about what it would cost me as a bad-credit car owner to insure a car. Once it warms up, I can go into town for a gallon round trip. Insurance is the cost of a car fill-up for 6 months of insurance on the bike. I think it's the cheapest possible solution for my situation that will allow me to go downtown and scare up a little employment. So I am *only* cutting back on gas use and consumption because I am physically unable to buy or consume more.

The oil/gasoline connection is obvious. Connection of oil-to-everything-else is nearly as direct. Its difficult to think of much in the average home thats not made from or dependent on oil in some way.

Cute picture from National Geographic (6-2004) in that issue's feature article



The ripple effect of high oil prices has already hit thousands of items. Many Joe Six-pack types know this is happening, even if they've never heard of PO. Joe doesn't know much about it, but he definitely knows $100 oil this is not good.

People in Europe are still buying all the cars they can and driving them all they can with gas prices double what they are in the US, so I don't see $100 oil affecting the "Non-Negotiable" US consumer much if at all.

Comparing Europe to the U.S. is like comparing apples to oranges, for the following reasons:

1) European cars are generally much smaller and are far more fuel efficient (especially the diesel ones).
2) Europeans rely far more on mass transit than Americans in general. Those that do have cars can afford the price of gas, but still are not dependent on it. It is more of a luxury than a necessity. Therefore, increases in gas prices do not have much of an impact.
3) Europeans drive less distances on average than a U.S. commute. Remember, Europe is way more compact than the U.S.
4) The weak dollar means price increases have been substantially worse here.

Can someone tell me what oil price makes the price of gasoline in the US equal to the European price of say $8 per gallon. Assuming taxes stay constant.

Well, taxes don't stay constant, and if taxes stay at least somewhat relative to each other in the US and UK, then no price of oil makes their respective pump prices of gasoline equivalent.

There's a market price on Nymex for gasoline, which is roughly $2.55 now. The price paid at the pump in the US is about $0.60 to $1 higher than that, and made up largely of taxes, federal, state, and local. The price paid in the UK is close to $10/gallon, which is over $7 worth of taxes per gallon.

Fuel taxes in the US and the UK vary as a percent of the market price. According to this article on UK fuel taxes, taxes in the UK between 1991 and 2000 account for between 68% and 82% of the total price paid at the pump. This would mean pump prices 3.1x to 5.6x the market price. Currently in the US, the pump price is about 3.05/2.55 or 1.2x the market.

When Nymex gasoline is about $6.66, prices at the US pump will be about $8/gallon, and will be about $20 to $35/gallon, or $5.30 to $9.30/liter in the UK.

$100 is still way too low for oil companies to even start considering making investments that might delay the impact of depletion.

That's quite interesting. What, in your opinion, is the price floor for the appropiate investments?

In the Drumbeat thread, I noted remembering gas at 24.9 cents per gallon in the early 60's. But that was a SILVER quarter. This afternoon the melt value of a US silver quarter is $2.78, not so far from the current price for a gallon of gas.

Point is, that gas when I was a kid came from Texas or Louisiana onshore oil. Now we're drilling in North Alaska and in thousands of feet of water in the GoM, but gasoline in real money still costs about the same. As Simmons has repeatedly pointed out, considering PO oil is WAY too cheap at $100 a barrel.

As our resident oil trader has pointed out, go long on pullbacks.

Errol in Miami

To me, it mostly means that my wife is less likely to strangle me for my multi-year spread of $100 crude call options.

I don't see it as a way to make "profit", but as insurance. If oil stays below $100 in US dollars, odds are the social infrastructure in the US won't change much. If it doesn't, odds are some extra money will be useful.

Of course, there's always the possibility/likelihood of deflation, so I may or may not remain unstrangled. A much more exciting bet than RR's.

Big thanks to american drivers. My 2 oil future contracts are up $22,220 for the year. I collected .01 cents from every American driver. Or you could look at it as free gas for 14 years.

When will the pyramid collapse?

imprecise maths, methinks..

I'm assuming 220m drivers in the US but actually it should be spread around the whole world. So perhaps US drivers are only contributing roughly 1/400 of a cent instead of 1/100, since they are burning about 25% of the world's oil. Also, the money is paid indirectly by drivers since some oil service company will end up actually buying my contracts. But the oil companies will just pass the costs on to the drivers so I think it is fair to assign the costs to oil consumers (largely drivers).

Realist I admire you - you know where the money is!

Better than being Dealer McDope....

Hey fleam, I got a passport to a Port of Trade for a VLCC of Arabian Sweet, a Pig Payoff Karmic Card, and enough McDealer Dollars to do the deal.

Ahh... Memories....!

Simmons Says $100 a Barrel Oil Is `Remarkably Cheap': Video

January 2 (Bloomberg) -- Matthew Simmons, chairman of Simmons & Co. International, and Jan Stuart, oil economist at UBS AG, talk with Bloomberg's Pimm Fox about crude oil's rise to $100 barrel today, the outlook for oil prices and prospects for alternative energy. Oil rose to $100 for the first time in New York as record global fuel consumption threatens to outpace production.

Do you mean to say that TOD did not have a press release on $100 per barrel oil already drafted???

We did. We have had one setting in the queue since November, when we thought we would need it. It probably just needs to be cleaned up a bit.

Here is one of them that I think they pulled?

It's not just a arbitrary number that has been broken, but once a psychological barrier has been exceeded, it becomes less of an impediment for future increases to exceed. I think back to the days when it seemed to take forever for man to figure out how to break the sound barrier. After that barrier was surpassed, it seemed all of a sudden that it wasn't a big deal, everybody was doing it. It wasn't too long ago that everyone was holding their breath when gas got close to exceeding 2.00 a gallon, now that doesn't seem like a big deal. Unfortunately, a year from now we will have a new barrier that causes us anxiety, and $100 a barrel will seem so insignificant. What will it mean to me and my wife? It means that we will think twice before we take a long road trip, we will weigh how well we want to eat at home against eating out, we will ignore the TV ads for the latest whiz bang, because we know we will likely need the money for an increased cost of something else we truly will need. We will see more desparate TV ads for car dealers trying to unload their floor plan before the buying public turns a deaf ear to them also. My two cents worth(not worth as much today as yesterday!!).

if you had to pick a number for what oil should be priced at, ignoring global warming and everything, to reflect it's value? you can use a range.

what price would gasoline have to be so that people would fully appreciate the work it does?

I've seen the future.

Full-frontal flora
Growing number of folks tearing out their front lawns and planting vegetable gardens

Most people I know who grow their own food are usually immigrants or grew up in a home of someone who was an immigrant and grew their own food.

Small town life must just be different from suburbia. I couldn't imagine anyone in my town caring about what anyone grew in their front yard, as long as it was reasonably neat and not a public nuisance. Multiple cars on the front lawn in various states of disrepair are about the only thing that is likely to draw any complaints - and even then, not all that much.

Here's an idea: how about laying out a front-lawn garden so it spells out "Mind your own business!"

People tend to take more ownership of a neighborhood in small towns than in suburbia. I think that's because the yards are smaller and what your neighbor does has more of an impact on your quality of life. I know that it pisses me off when the house hasn't had it's front yard raked or mowed in more than a month. That being said, nobody should complain about vegetable gardens in a neighbor's front yard.

Seems like there are far more important things to get pissed about than whether someone rakes or mows.

the magic of higher prices is working.


As jet fuel prices rise, even the drink cart's weight matters
In a high-cost era, airlines look beyond increased ticket charges to cope

Globe Staff / January 2, 2008
As jet fuel prices soar to record levels, airlines are doing more than just raising fares and passing along the costs to travelers.

To conserve fuel, some are squeezing more passengers onto fewer planes. Others are getting creative and using less paint and lighter beverage carts. And some are scheduling more direct routes and adjusting their flying to take advantage of tail winds.

Airlines have little choice.

little choice

And from the Wall Street Journal:

Oil Hits $100, Jolting Markets

But if oil's ascent keeps pushing up jet fuel prices, travelers are sure to feel a squeeze. John Heimlich, an economist for the Air Transport Association, predicts that if oil stays where it is or goes higher, airlines will identify their worst-performing routes and then cut the number of flights assigned to them, substitute smaller planes or cancel the routes.

ticket cost based on weight?

Don't give them any ideas :-) The sad thing is that the airlines are so efficient economically, especially at price discrimination... Ticket prices aren't going up as they should in a sane world.

I'm all for moderately higher prices. I'd rather pay an extra $50 a ticket and have better service on the plane. (Or be surrounded by less people who have yet to learn what deodorant is.)

Didn't airlines say halfway back in 07 that US$80/bl made the business uneconomic?

So Matt Simmon's famous 8 oz. cup of oil is now worth 15 cents. Corn at $4.50 per 56 pound bushel is worth 4 cents for 8 oz. Does anyone see a problem here? He says we should be careful (obviously referring to corn ethanol) not to chose alternative energy sources that require more energy to produce than is available in the product. Spoken like the true oil man he is. Electricity is well known to have far less energy content than the fuel used to produce it and hardly anyone says peep about it. This fallacious argument can never be put to rest and is repeated over and over again just like the big lie technique used by propagandists. It only applies to corn ethanol because corn ethanol is the only realistic competition that the oil companies need to worry about and they know it.

What if we used such logic to determine which metal should be produced? Suppose for sake of argument that 10 pounds of iron are consumed to produce 1 pound of gold. The metal return on investment would be .1. Using this logic no gold should be produced. It is obvious that when price is left out of the equation, the result is nonsense. Electricity is the "platinum" of energy and liquid fuel for transport is the "gold" of energy. It makes no difference if more energy is used to produce the expensive forms if the energy consumed is of a less useful or cheaper form. It is simple economics as can more easily be seen in the metal analogy.

Why otherwise obviously intelligent people get so confused on this issue is beyond me. It's becoming more obvious to me that where you stand on this issue depends on where you sit as the old saying goes.

Electricity is well known to have far less energy content than the fuel used to produce it and hardly anyone says peep about it.

You can't plug your toaster into a pile of coal. But you can run vehicles on the natural gas used to produce ethanol.

It only applies to corn ethanol because corn ethanol is the only realistic competition that the oil companies need to worry about and they know it.

In the past 7 years, ethanol production has grown by 5 billion barrels per year, yet gasoline consumption has grown by 14 billion barrels per year. What exactly do the oil companies need to be worried about? Besides, who do you think is selling ethanol companies the natural gas they use?

To put the issue into further perspective, a single oil refinery can produce more motor fuel than all of the ethanol plants in the U.S. It's just not something oil companies are too concerned about (and I know a lot who actually like it, because it has resulted in increased natural gas profits).


Starting small is not really a strong argument I think. There were only 3.8 GW of solar cells produced in 2007 (you can't plug your toaster into a pile of sand) but that was 50% more cells produced than in 2006. We saw coal and nuclear power companies getting very nervous about this, so much so that they gutted the energy bill in the Senate.

What is tough for ethanol is the low efficiency of converting sunlight to usable energy through plants, not its current small size. It runs into a limit on land area. On the other hand, it is perfectly possible to produce natural gas or other hydrocarbon fuels using water and atmospheric carbon dioxide as feedstocks, leaving plants out of the loop, without running into land area limits by using more efficient ways of converting sunlight to usable energy.

It is normal for a substitute energy source to not keep pace with growth in consumption in the beginning. What is more important is the size of the ultimate resource compared to total consumption and this is the problem for plant based ethanol.


The argument wasn't about starting small. It was that you can't use coal for the same thing you can use electricity for (unlike the case with natural gas and ethanol) and that gasoline demand is growing much faster than ethanol production is scaling up (therefore, why would the oil companies worry?)

Hi Robert,

I see your meaning now. Ethanol slots in to the liquid fuel infrastructure a bit better than natural gas so some make the arguement that it is value added I guess. Presumably, with higher CAFE standards, gasoline demand will not grow so rapidly and ethanol could possibly shut down some refineries. But, it is marginal.


Its intresting that an energy cruch increases the interest in mining fairly useless stuff like diamonds and gold. Creating symbolic value by making intricate ceremonies with paper instead of expending real effort in mining fairly useless stuff is a great innovation.

I believe we are now starting the downward slope of the plateau of peak oil. Unless there is an economic recession or depression of a global nature (other than that caused by the rising price of fossil fuels), we should witness the relentless rise in oil prices until economics takes over, in which case, growth of an economic variety will cease to exist. I gave a lecture on global warming and peak oil in June of 2003 and in that seminar, I predicted almost to the quarter the price of oil and gas using a simple model. There is hope on the horizon, Genesys, LLC,
www.genesys-hydrogen.com , has invented and developed a new technology that generates hydrogen from water vapor that is economic and viable. They produce their own electricity for the RET (radiant energy transfer) technology which they have filed patents for using conventional steam turbine technology, cracking the waste steam to hydrogen and oxygen. The technology can be applied to any primary energy source such as solar thermal, geothermal, combustion of biomass, etc. This is what we need in order to have a common fuel (e.g. hydrogen) from various sources. Since water vapor rather than liquid water is used, any water source (e.g. waste water, sea water, etc.) can be used. Very high efficiencies can be obtained using this process technology. In fact, in one of their technical papers, they have established using the principles of thermodynamics and physics that it is MORE efficient to generate hydrogen than electricity. This is true because the technology utilizes the internal energy of the waste steam in the production of hydrogen. Generating electricity alone does not use the waste steam from a turbine, thereby lowering the thermal efficiency of the electricity generating process.

Hmmm... Pity they're so vague abour the technology but my guess is that this is a steam electrolyser. It's well known that steam electrolysis is much more efficient.. In Scotland a researcher at St Andrew's University had a small scale prototype running recently. Unfortunately, this being Scotland where risk capital is a dirty word it didn't get further than the bench top..

So unless they're willing to be a little more explicit about how this works then I conclude it's nothing new and we can move on..

"Will high prices bring about more production?"

Absolutely! Producers will search out every option. Everything from deep well, to NGL, to synthetic fuels, to biofuels will be explored. No stone will be left unturned. High fuel prices for the forseeable future provide a gold mine incentive.

The question is -- how much fuel will be supplied and will it be enough to beat the increase in demand coupled with the depletion rate. In my opinion, this is the 'great game' of the 21rst century.

Off to the races...

A wrinkle in the game -- renewable energy/electric cars will be an increasingly competitive alternative. With liquid fuel prices going up and renewable prices going down, eventually there has to be an economic tipping point.

"Will high prices begin a "hoarding" phenomenon among exporters and producers?"

Absolutely! With the commodity becoming so valuable -- both as a fuel and as an engine for economic growth, the incentive to hoard will become a very powerful altering dynamic. Exporting countries, enriched by their oil wealth are, therefore, likely to consume more and export less. Add this to the depletion rate and the problem really does begin to look insurmountable.

"Will $100+ oil spur energy alternatives with the scale and quality of energy dense crude oil? Is this even possible?"

This is the solution to the whole peak oil problem. In my opinion, it is not only possible it is likely to be an increasingly clear path forward.

The arguments stating that renewable energy is both energy diffuse (as opposed to dense) and variable are valid points. But the abundant nature of solar energy, for example, is an effective counter to the variability/density arguments.

For example, if you look at coal the amount of land required to mine the coal, produce it and transport it are more than the total amount needed to generate the required solar energy needs of this country (http://www.sciam.com/article.cfm?id=a-solar-grand-plan). When you take this fact into consideration, if you're looking at energy density, it's better to look at the product -- electricity -- than the means of production -- solar panels. What's the energy density of all the world's oil infrastructure when taking into account the massive land mass, platforms, and devices used to transport the oil? If you're going to argue EROI, you need to add these into the equation.

Renewables, especially solar, have such a huge upside that, in my opinion, we will be shocked by the advances that are likely to occur over the next three decades. In my opinion, renewables are the solution that will ensure a civilized, prosperous, and clean world for us, our children and our children's children.

"Will society start to realize the dichotomy between natural capital and financial capital?"

I think we will begin to. But this is a much slower process. People are energized by crisis. If climate change picks up and becomes a serious threat, natural capital will begin to mean more.

I think the transition away from fossil fuels will, ironically, be monetarily driven. You will have the old oil capitalists warring with the new renewables capitalists.

"Will $100 oil reduce demand in developing countries?"

In those countries that have not subsidized their fuel or who are primary producers, the likelihood of demand destruction is high. However, since many developing countries have subsidized oil and/or produce it, the likelihood is that developing countries will continue to consume more unless the subsidies regimes are lifted.

Demand destruction will occur first in countries without subsidies or adequate means of oil production. The non-subsidized importers will be hurt first. In my opinion, the subsidized importers will be hurt second but harder. And the subsidized exporters are in the best spot to reap economic benefit from the current situation.

"Will OECD oil-importing countries (like the US) take the lead on changing the cultural carrot of consumption that drives energy use?"

OECD countries will be forced to conserve. Even in the US. political pressure will likely force regime change in the US presidency and Congress. Those who are best able to articulate strong and diverse energy policies that do not involve war are most likely to win elections in the current political climate. Those who do not stand on such policies will be forced to wage campaigns of fear in order to galvanize support. In my opinion, fear will lose this time. People don't have the stomach to fight wars over oil when it is obvious to many that we can walk away if we choose to.

Perhaps I am an optimist in this sense. If I am proven wrong and there is no regime change in Washington the next few years are going to be very bad. The potential for war is not just in the Middle East but with an emerging China as well.

"What does $100 oil mean to you?"

Though the point is psychological, it is also historical. We have never reached such a high price in oil without some obvious catastrophe. The last time we were here Iran pulled 5 million barrels per day off the world market. If Iran did that today where would we be? $200 oil?

What does $100 oil mean to me? It's a warning shot, a call to action, the canary in the coal mine is dead. Now are we going to get the hell out of the coal mine? Or are we going to stay here and see who else drops off?


The last question is implied by the graph.

"Where will oil prices go from here?"

In my opinion, without major structural change the current trend is up for the forseeable future. We will likely have demand destruction in the OECD. We will likely have new supply. But we will also likely have severe depletion rates, increased demand in oil exporting countries and in subsidized India and China, high cost new supply (synthetic fuel, deep water, ethanol, NGL etc), and continued risk of disruption due to weather events and geopolitical tension all supporting prices.

The last straw is OPEC. Though unable or unwilling to control price on the down side they are very much able to control price on the upside. So what is the bottom for OPEC? And can we see some new supply coming on line in the next year that will erode OPEC's current price command?

In my opinion, the normal range for 2008 will be from $70 at the very low end to $140 at the high end. In my opinion, tightening forces will still retain their upward pressure and we are likely to see $120 or more at some point in the coming year. At this point, recession in the OECD is not as important as recession in India/China and/or worldwide recession. In other words, consumption losses and falling prices due to reduced demand in the US are likely to be resupported by growing demand in China/India as long as economies continue to grow there. To put it more simply, subsidies allow them to opportunistically snatch up any destroyed demand in the OECD.

Extreme low side potential: for prices to fall in any significant way we will need a worldwide recession and demand destruction that off-sets any consumption gains in oil producers and that results such a ground swell that it overwhelms OPEC's price command and the depletion rate together. This coupled with substantial efficiency gains could return prices to a more reasonable $40-70 dollar range.

Extreme high side potential: Any disaster or political tension that results in significant quantities of oil being removed from the market will likely result in a very severe spike -- $130-$200 oil depending on how much oil is removed from the market and the length of that removal.

Final assessment: look for the beginnings of structural and political changes in the OECD becoming a factor in 2008. This will result in new economies but no new pressure on the price of oil as yet. In the meantime the crisis is likely to become all too clear and the evidence of 'peak oil' will continue its march into the public eye.

The non-subsidized importers will be hurt first. In my opinion, the subsidized importers will be hurt second but harder.

The biggest non-subsidized importer is the US. Americans are fearful of $3.00 gallon gas but we are paying the equivalent of US$4.67 gallon already in the land down under and it doesn't seem to be worrying anyone.

At least we have a substantial tax on petrol here so that if things get really hairy we can pressure the govt to reduce the petrol tax. You don't have the same options in the good ol' and having such ridiculously low gas has encouraged yall to drive the kids around in trucks lol! (it's only slightly better here. Our rich bitches drive the kids around in tractors lol).

Yesterday I paid 1.54 euro per liter for regular gas (euro 95). That's $8.60 per gallon.

My car runs 50 mpg, so I don't really care. Besides, I bought this amazing invention, extremely cheap in gas usage:

I don't know its mileage, because I haven't filled it up yet, get back to you on that.

...if you cycle for 1 hour you will burn -say- 500 extra Calories and cover -say- 20 miles:

500 Cals = 2.0934MJ and there are 131MJ in a US Gallon so you are doing (131/2.093) x 20 = ~1252mpg...

Those 500 Calories 'cost' you somewhere between 4 and 10 FF Calories per Calorie due to food transport, packaging, etc. If we say 10 for ease of calculation (you eat a lot of Crispy Cream Donuts flown in overnight from the US!) then that 1252mpg would be like simply burning petrol in a car and getting 125mpg. Unlike Petrol though in addition to getting from A to B you can also use them for thinking, typing and sex...


(Conversions at: http://www.unit-conversion.info/energy.html )

"Those 500 Calories 'cost' you somewhere between 4 and 10 FF Calories per Calorie due to food transport, packaging, etc."

... Unless you happen to be human. In that case, you needed the exercise anyway, so you saved the cost of gym membership and improved your health. Not only did the 500 calories cost you nothing, but they saved you even more. You can do even better by buying the food by bike as well. Or best of all, grow the food in your yard and bike to work.

On the news yesterday they said we should expect gas to rise to 1.75 euro/liter, when the 100$ is accounted for. About this spring. That's almost $10 per gallon.

I think I have to trade in my car for this one:

Twenty miles per hour?

Are you on steroids?

We humans do 8 miles per hour. Anything more than that is considered unethical.

And I thought I was doing well at 15 mph on my cycle. The 1252 mpg is compelling. That said, I don't think I'd manage to travel 20,000 miles on a bicycle in one year. Unfortunately, I do a lot of driving. At least my car is a 34 mpg average fuel efficiency. Looking to up that in the very near future.

I'd just like to post one more item of note on this thread. Since the US has very large coal reserves, I don't think you can rule out a substantial push for CTL and other synthetics. I'm hoping the politics and economics of renewables win out. Just a hope and an opinion, mind you.

Seems the US economy is also more vulnerable to price increases as US drivers travel further in less efficient vehicles. Subprime issues aside, it's interesting to see that current US economic growth is behind that of the rest of the world. I wonder what impact, if any, high oil prices are having on the current credit crisis?

The shifting of wealth from West to East is beginning. the great oil arbitrage will probably shift barrels from the West to the East. From the higher per-capita users to the lower per-capita users.

Since September, Middle Eastern and east Asian sovereign wealth funds have made a succession of investments in four US banks: Bear Stearns, Citigroup, Morgan Stanley and Merrill Lynch. Most commentators have been inclined to welcome this global bail-out : better to bring in foreign capital than to shrink balance sheets by reducing lending. Yet we need to recognise that these “capital injections” represent a transfer of the revenues from the US financial services industry into the hands of foreign governments. This is happening at a time when the gap between eastern and western incomes is narrowing at an unprecedented pace.

In other words, as in the 1870s the balance of financial power is shifting. Then, the move was from the ancient oriental empires (not only the Ottoman but also the Persian and Chinese) to western Europe. Today the shift is from the US – and other western financial centres – to the autocracies of the Middle East and east Asia.


I also read this article and I get the Middle East bit (especially with the ELM model about to go into overdrive) but who are the 'East Asians'?

If they mean the Chinese then I think this is incorrect, remember when the Japs where going to take over the world back in the 1980s?

-I think the Chinese (and Indians) will probably have troubles of their own very shortly. It should more properly read 'The Net Energy Exporters".


"I think the Chinese (and Indians) will probably have troubles of their own very shortly."

I agree; China has enormous problems that point to very large angry mobs in its future.

Errol in Miami

Well guys, 100$ oil is the tipping point to go massively solar. As I previously pointed out, Europe is going to invest billions in CSP technology. It seems that the idea catches up in the US at last:


looks to me like a land based copycat to the MARE Initiative plan:


Now how about that ?


The cost to ship bulk & containerized commodities by sea continues to move up. Ocean carriers & vessel owners have been adjusting their bunker fuel surcharges every month for quite some time now. Shipping costs for containerized goods have jumped in some cases five times. Many traditional shippers of dry bulk commodities are unable to pay high bulk shipping rates and have begun to shift over to containerized mode.

Quite often, the cost of ocean transportation does not seem to be discussed as much as is the cost of gasoline or jet fuel. The majority of goods are shipped by sea and that cost has been steadily increasing; the cost of bunker fuels account for about 50% of the transportation cost.

We will all be feeling the effects of increased shipping costs in the form of higher prices for all goods that are shipped by sea.

Fuel oil prices and asphalt are two that I've considered to be possible canary and the coal mines about peak oil. One they are produced as side products the simpler the refining technology the more you get. In a lot of ways they are waste products of the oil industry. For fuel oil a lot of the use cases can be substituted for NG. For asphalt uses in many cases projects can be delayed etc.

The fact that prices have steadily increased for these is one reason I think we really are at peak.

So yes I think that from a peak oil perspective fuel oil/bunker fuel/asphalt prices are important indicators of depletion. I think in many ways better than gasoline prices.
Glad you brought it up again.

Not to be the fly in the ointment, I have to mention something....since fuel oil/bunker fuel/asphalt are all priced in dollars, wouldn't we see a price increase due to currency devaluation, depletion or no depletion?

Just asking....


Asphalt Prices have been rising significantly over the past 3 years, Though the base grade of asphalt in NY Peaked in 2006 at $400 per ton (~ $1.67/gallon). I am hearing that 2008 is going to blow this out of the water though. In the years preceding 2003, Aphalt danced between $100 and $200 per ton at a pretty steady seasonally predicatable pace.

On the conservation front, Hot Mix Asphalt producers are looking at reducing fuel consumption with Warm Mix Asphalt, where they can reduce the fuel consumption of ~3 gallons of diesel/ton of Hot Mix and save 20% to 50% of their fuel. For some light reading on this go to http://www.warmmixasphalt.com

Meanwhile, the construction of the new Stratosphere hotel is in full swing:

http://i29.photobucket.com/albums/c272/Brush_rat/Second%20album/Strat-213.jpg" title="" >

Can we say Irrational Exuberance?

Hi, I'm new here. I take economics at UNBC, my brother works in oil in Alberta, and the Peak has been growing on my mind.

To me, the speed the price of oil is rising signals major hoarding ahead. In fact, I'm amazed that more countries aren't hoarding already. It's baffling. By now, oil stewards ought to be scrambling to find out the return on keeping their proven reserves in the ground. Many countries would come out ahead, right? Whoever controls the world's proven reserves, what stops them from sitting on it? Internal politics? Threat of invasion?

Whatever the reason, I think we can no longer rely on it. Hoarding will soon be the only sensible strategy for oil exporters looking to come out ahead. When something in your ground is rapidly gaining value, why pump it out and trade it for something that's losing value?

Welcome to the drum Rafe.

I've been lurking here just over a year and you will find some amazing stuff being inked -it's all a real eye opener from the usual media coverage on issues which seems to really not 'get' what a mess we are in just yet.

I have made an attempt to put all my years readings on what we are about to go through in one place -you could call it my 'year end report'! :


As regards your question on hoarding, it's certainly a possibility but you have to remember that trade is a 2 way street and a lot of the Net Exporter are the equivalent of 'energy banana republics' and would probably implode if they stopped importing stuff (or consider KSAs Defence purchases).

As your doing Economics I would also consider the question as to whether some of the 'Economic rules' you are learning also apply if the Net Energy in the overall system is decreasing, e.g post Peak Oil... Especially the one about 'substitution'... (consider Uranium for example... :o)


Forget $100 oil from the point of view of having any impact. Consumers make the USA work. Consumers buy gasoline not oil. It's $4 gasoline that I'm waiting for, that's when the MSM are gonna go ape!!

For all the people out there who say "but gasoline is US$9 per gallon in Europe"
From http://www.fhwa.dot.gov/ohim/onh00/bar4.htm (the numbers are 10 years old but its the proportions I am interested in)

USA Total Vehicle Miles Traveled: 1570 Million
UK Total Vehicle Miles Traveled: 236 Million

Americans do 6 times more miles per year!!! And you think the country could survive with gas at triple its current price of $3 per gallon do ya???
I don't. I think 'No super cheap gasoline, no US of A !!!!'

Oh and don't forget that indirectly, Americans are paying up to US$8 per gallon already, much of it indirectly via the US Military.

...but there's probably 6 times as many drivers in the US so divide the TOTAL vehicle miles and its about the same no?

Believe me, Americans may like to think that the economy will implode when Gas hits $4 or $5 but it most probably won't*: you will pay your money, moan about 'gouging', etc., buy less cheap Chinese plastic crap and get on with life. Been there...


A nod to Kunstler: eventually the Necrotic Suburbs (love it!) will rule...

When you're spending an hour of your work day paying for the gas it takes to get to and from that job, there's going to be a lot more than moaning about price gouging.

Actually, the link shows auto VMT per capita as well as auto VMT overall. So for 1997, auto VMT per capita in the US was 5.7, whereas in the UK it was 4.0. They don't say it, but that's probably in thousands. So we in the US drive 43% more than in the UK. Not six times, but still significant.

I didn't make my point very clearly. Lets say that in the UK they travel a total of distance of 1. In the USA they travel a total distance of 6. The UK spends (@ US$9 gallon say) a total of 9. In the USA they spend a total of 6 times US$3 = 18. That's twice as much spent on gas per year ok? But if gas was the European level of $9 in the USA then their spend would be 6 x $9 = $54! You see what I am getting at? Can the USA possibly afford to spend this much and survive as a country?

It means for me personaally that my gross income has jumped from 8,000/mo to 80,000/mo and my plan has worked, so far. Net income is up as well, but not by 10x, or even close to 5x. This is compared to $10 Oil, of course, since I didn't actually sell any at $8. It means that I now feel secure in starting to set $ aside for retirement. It means that I can help put my grandkids (my youngest's two boys) to college while I couldn't help her.

On the other hand, my extended family will be as bad off as the other cornucopians, since they will not listen to my musings, warnings and rants. I probably couldn't pay off their credit card debt every month, either. They will suffer the hoarder's shortages and unavailability of fuel at any cost and live through any recovery as well.

My community will continue to thrive, since I live in "oil country." My country will not. The US will begin to suffer from price increases without insulation, not on the futures markets, but at the pump, the store and the bank. It means that will be a lot of suffering as prices remain high, and while I could help by lending a hand physically, I will most likely be asked to lend hand figuratively, like $'s.

It will hopefully mean that the great unwashed public will finally start to pay attention to their consumption and make moves to prepare themselves for a paradigm shift in how we live, for all the wrong reasons, but still prepare.

And it will mean that I can hire a guy to move pipe around so I won't smash my fingernail like I did yesterday - the one which just grew back about three months age. Oh well, the gelatin for my arthritis helps keep my nails strong.

can you expand a bit on the details between the net and gross you allude to in the first paragraph?

The gross income is what I collect, after taxes and royalties. The expenses of operations I incur are off of that. In 1998/9, I had one part time employee and one full time employee, and used contractors for all well service work. As contractors got harder to find, I bought 4 old "pulling units", and hired two additional employees to work on them. In 2005, I had some health problems, being 5'11' and weighing in at 225, I had developed hi blood pressure, so I had to cut back on my own time. I still pump, relief pump and help short term on the pulling. I oversee all the field operations and do all my own geology, usually based on looking for highs based on limes, when recompleting stuff. I hate drilling, but drilled a good well last year (07) and the hole bridged off and I couldn't get down to the best part of the new hole(actually, I deepened a well I knew was high). So, my expenses have grown a lot faster than my revenues. Most of what I own is old worn-out wells with old worn-out equipment, but I get to spend a lot of time outdoors, looking at the deer instead of hunting them.

I do not have any partners, and I do not want any. I have more stuff under lease than I can develop myself, and just renewed 5 leases for a short term while I try to figure out what to do with them.

I live and work in a really hilly part of OK and most of my leases are here. In bad weather and weekends, I have time to peruse TOD and a couple of other sites. Except maybe liquor related businesses, I don't think any other industry is as heavily regulated, with those attendant headaches, but it has been worth it for me.

Oh Yeah, and best well is 13 B/D and worst ones are 1/4 B/D. And, every one of them is different.

I get paid based on posted prices, not futures, and right now, tht price posted by the oil companies, which is always virtually the same for all purchasers, is about $3.00/Barrel below the merc price, so my revenue estimate is a little high, but in the same ballpark.

Saudi Aramco Postpones Khursaniyah Project Oil Production Start
2008-01-03 06:34 (New York)
By Glen Carey

Jan. 3 (Bloomberg) -- Saudi Aramco, the world's largest state-owned oil company, delayed the start of production from the 500,000 barrel-a-day Khursaniyah field. The facility will be brought online ``upon completion of commissioning activities,'' Saudi Aramco said today in a statement received by e-mail.

$100/barrel oil is a psychological ceiling, breaking through it means the ceiling is no longer there. Over 2008, I expect oil to continue going up at something close to the net 2007 increase. The real behavior change in consumption will lag until consumers really feel it in their wallets. I suspect that the $4.00/gallon ceiling will be psychologically important for many people, but it won't make that big a difference in the USA. Most consumers have a long relationship with their cars because of the high acquisition costs and long lifecycle. Also, many people are, in fact, tied in to commuting and usage patterns that they cannot easily modify--they will continue to buy gasoline at a similar rate for years regardless of the price. People will cut back on discretionary expenses first, and unless and until they view gasoline consumption as discretionary, those habits will not change.

We are cutting our discretionary driving substantially and aggresively shifting use from the minivan to the mini cooper, but we have no plans to change the family fleet of cars for more efficient ones. The reasons are simple: 1) we have an installed base into which we are substantially invested, and 2) we think the offerings at car dealers will be substantially different in 3 or 4 years when it will make sense (in the aggregate) to change vehicles.

As far as I'm concerned, expensive oil is good news. It will provide a consumption-driven demand for more efficient alternatives. More good news is that private equity is looking elsewhere now that the subprime era has taken the wind out of the sails of the big takeover fever of the first half of 2007. From the January 2, 2008 Washington Post at http://www.washingtonpost.com/wp-dyn/content/article/2008/01/01/AR200801...

"With oil prices nearing $100 per barrel and widespread concern that fossil-fuel economies are changing the climate, private equity is also likely to begin investing in the energy sector and in renewable energy in particular. "

Meanwhile, we're cutting back on energy consumption all the ways we can and educating our kids as much as we can. Looking forward, we need to keep educating friends and acquaintances about Peak Oil and what it means, along with what they can do about it in their daily lives. I'm still astonished at how little headway the concept has made into the mentality of the people.

2008 seems likely to be the year that peak oil will become mainstream vocabulary.

Um Woodchuck:

Are you looking for labor and what type? Slinging pipe is a bit much for me but driving around checking gauges and fittings is just my speed...

BTW, with those kind of gushing profits I hope you're able to do some sort of eco-bunker retreat for you and yours...

Also, I calculated a year or so ago (?) when oil first went over $3/g at retail in the midwest that $100/b (increasing prices about 2.5 pennies per gallon) would result in retail prices of $3.60/g. Have refinery/big oil margins declined? Is that why gas is still at $3 a gallon? And if so, how much can margins be squeezed so that Valero, Exxon, etc. can "protect market share" so to speak if oil hits, say, $150/b?


I have several good guys who work for me now, and I am not looking for more. I am trying to get my oldest grandson thru college and then here to work for me anyway.

On the eco-bunker retreat, i am building a super green house. I used Structural Insulated Panels (SIPS) made locally which are 6" of foam sheathed by 3/4 inch OSB, and we are going to use a heat pump for cooling and wellhead gas for heat (not my gas though). Everything is being done with a mind to very low operating costs, but it is in the area where I "work." Out here in the country, if you have a rough reputation, people do not steal from you. They know the consequences if they do, and it ain't any better than stealing in strict Muslim countries. I did have someone who stole a window fan from me and when I confronted him, he broke in again and brought it back. He couldn't get it in the window, and the second break in cost more to fix than the fan was worth, but that is how it works.

What bothers me the most with PO is going to be maintaining transportation every day for all of these crummy leases. If hoarding takes over, like it did on 9/11, everything will be scarce, and you can't just let these things alone, not even for a day in my experience. So, either I have alternate plans or I just shut them down. One of the hidden dangers of PO awareness. I have no friends in the business who are concerned in the least, thinking that they will be able to buy since they will have enough money. That just ain't so.

Quite true. The various articles which came out in MSM and Fatih Birol interview and the OPEC article all show that they arwe getting it and admitting it slowly but surely.

If production drops faster than any adjustment can take place in terms of effiency in OECD and the chinese/Indians take up any USA efficiency created slack anyway plus the Arabs/Russians just keep buying more cars to use teir own stuff as in ELM then the price will keep rising and the change will be permanent, not a 70s-80s efficiency head fake repeat.

Soenting I read yesterday:


Observing what's happened, we can see that this age has withdrawn from Dao, and Dao has withdrawn from this age. Since they have both withdrawn from each other, how could a person of Dao arise in this age, and how could this age progress with Dao? Since Dao won't rise in this age and this age won't raise Dao, even if a sage came out of the mountains and forests into the midst of us, their virtue would remain hidden. It would remain hidden, but not because the sage chose to hide it.
In the past there were those who were called hidden scholars, but not because their bodies were bent over in supplication as if they couldn't look anyone in the eye, nor because they kept their mouths shut and didn't utter a sound, nor because they concealed their knowledge and wouldn't express themselves. At the time, making oneself act that way would have been utterly absurd. If the times were favorable for them to make great strides in the world, they would have done that then returned whole to where they came from without leaving a trace. If the times were unfavorable, they'd detach themselves from the world, then plant deep roots while investigating the limits and wait. Either way, they'd be preserving their bodies.
Those who preserved their bodies in ancient times didn't use their knowledge to get into arguments nor to make themselves appear intelligent. They didn't use their knowledge to detach from the world nor to detach from virtue. Even if they found themselves in a dangerous situation, they'd stay still and return to their own nature. What other action would they need to take! Petty actions aren't attuned to Dao, and petty perceptions aren't attuned to virtue. Petty actions injure the ability of Dao, and petty perceptions injure the ability of virtue.

Because of this awareness, the sage frequently seems neither to lead nor follow, and often seems to do nothing, for that which he does is done without guile; it is done naturally, being neither easy nor difficult, not big or small. Because he accomplishes his task and then lets go of it without seeking credit, he cannot be discredited. Thus, his teaching lasts for ever, and he is held in high esteem.

what they can do about it in their daily lives.

Maybe we will see more of this in other places. If people could be allowed to make money out of ferrying people without too much red tape, then it is a new service industry not uncomfortable 'carpooling'

PUC cracks down on 'Amish' Taxis


WT, we all knew this was coming.

In "Twilight in the Desert", Simmons wrote in 2005 about Khursaniyah:
"It seems quite amazing that each of these projects to rehabilitate old, underperforming oilfields targets a production of 500,000 barrels a day for long periods of time. That these three [Abu Hadriya, Khursniyah & Fadhili] old, small fields could suddenly anchor the growth of Saudi Arabia's oil supply presses optimism right to the edge of fantasy and invites a reality check."

Errol in Miami

What I did this year to insure against $100 oil :

1) got a wood-pellet furnace installed to replace the fuel-oil one. Cost : about 12000 euros, of borrowed money unfortunately, but will pay for itself in about 6 years at CURRENT oil prices... heats my house including two rented apartments.
Saving in fossil fuel : 3000 to 4000 litres a year, depending on the coldness of the winter (very cold in December!)

2) fell in love with a woman who lives about half a mile from where I work... Fossil fuel saving : 80% of my diesel bill (I only go home on weekends...) about 1600 litres a year.

The downside : my capacity to reduce fossil fuel use in 2008 is severely limited!

My first Howdy from Moscow! (idaho)
$100/bbl just means to me that the ceiling just flew off. Guess we better start nailing stuff down.
Thanks to all the contributors of TOD for this place on the tubes!

Filled the car up with petrol yesterday, 41 liters at £1.02 per liter, roughly 10.8 gallons for $80. Did I travel any slower, no, as I wanted to get back before it was dark. The higher cost by itself is not the thing that will affect usage when most people have discretionery income they can spend on other things and the freedom a car gives them is highly valued. When that fat is used up and there is no discretionary income left then I will slow down and use the bike or a train.

Having said that the other car is a old diesel which seems to be running quite happily on a mix of diesel and neat sunflower oil. Cooking oils are cheaper than diesel at the pump, here at least. A bit messy but I know of a quite a few people using this now.

Talking to my parents who remember the UK in WWII, and they remember cars running on ballons of town gas, chicken manure and home made coal gasification contraptions strapped to the rear of buses.

Innovation may be the name of the game on a personal level and who knows maybe someone will get a car to run on water.

( By the way, why do you Americans use the term gas when you put a liquid in the car?)

By the way, why do you Americans use the term gas when you put a liquid in the car?

For the same reason that the British are Brits. :-)

Gas = Gasoline

I think he meant "why do you call it gasoline when most of the rest of the world calls it Petrol?"?

Actually, I'd like to know that as well...

This may not be the best place to ask such a question, but I suspect there's more knowledgeable people here than most other places... Specifically, this relates to Aussies:

How do you go about buying Oil futures (buy in January at $99.50, sell in April at $110)? I'm registered with ComSec for Shares trading, but I can't see any way of buying and selling 'oil'. Since we all seem convinced that Oil is only going to go up (barring a moderately bad eceonomic downturn), it'd be nice to at least be making some money on the whole deal, and getting myself a little nest egg (debt reduction, buying tradeable non-monetary items etc) to insulate myself with. Cheers for any advice.

Bellistner, start with the basics: buy low, sell high.

While my crystal ball is fogged in right now, I'll note that crude has had a pretty good run without a correction and has just broken a psychological barrier. This sometimes means that there will be some dithering before that psychological barrier is decisively surpassed. In other words, short term US$100/bbl may be "high".

Some things that could lead to a pullback: confirmed recession in the US, maybe the MSM breathlessly reporting one of Saudi Arabia's megaprojects coming on line, a warm spell in the US and reasonably calm elections in Pakistan. My point is: consider waiting for a pullback to say $80 before taking a position.

Just an opinion ( don't take this to the bank : )

Errol in Miami

Apparently the big money is not betting on Peak Oil. I can say that with confidence since I just picked up options to buy crude at $120 per barrel in December 2010 for only $3/barrel. If people really thought that peak oil was real then these options would cost a lot more. In fact, futures contracts for delivery in 2013 are going for only $87/barrel.

If people really believed in Peak Oil then they'd be snapping up these contract and options and thereby drive their price up.

Am I missing something here?? If oil is selling for $200/barrel in December 2010 then a $15,000 investment today will be worth over $400,000 when the contract expire.

They're gradually getting more expensive - in July 07 I got Dec 2010 $100 call options at $2/barrel.

There's more volatility seemingly priced in now and the base price is up some, but still it seems like you're mostly betting against those who don't believe in peak oil. I can't pass up a bet like that, even if I do risk my wife's wrath. (actually, she's quite supportive; we'll see if that holds up if oil tanks in price)

For those like me who don't have a ton of bucks to buy futures, a few options might well be a decent bet. But will you have the nerve to hold out for $200 oil, or will you take profit at $150? That's where you can still wind up feeling stupid. Still, why not?

notintodenial said:
Bellistner, start with the basics: buy low, sell high.

Gotcha. Words to live by. ;)

Now, for a trading n00b, what's the difference between, 'contract to buy', 'call options', and 'options to buy'? And how does it all work? Do you pay $2 now, the other $98 in 2010 (or whenever the contract expires), sell the contract to someone who needs some Crude right now, and pocket the profit/cry into your beer?

At two or three dollars a barrel, it'd be almost silly not to throw some money at them. Does anyone also know how I go about actually buying these options (ComSec doesn't seem to give me the ability to buy commodities, just shares)?

Robert, you are barely saved in that bet, i not see any wisdom in your saying that oil wouldn't hit $100 in 2007, it went so close, in your own words 99% of the bet, you shouldn't be proud on wining the bet but you are not only proud you even published a post bragging about yourself.

Ironic comments, coming from someone who has declared himself "wise." Some might view that as bragging.

But, I think the vast majority of people would disagree with you. My post laid out what happened in 2007, and I said in the thread that the bet was essentially a tie.

Also, I have been saying all year that I would publish a post at the end of the year on the bet - regardless of the outcome. If you think it was bragging, you have a very strange definition of bragging. But to each his own, and thanks for your "wisdom."

One writer at MSNBC seems to think that the consumer will not worry about high energy prices. According to the author, it is less of a percentage of income for energy than in the past. With the housing market taking away the illusion of wealth, we will see.