 | CLK08 closed around $114 (Tres Yergins) yesterday..so, in the next 60 days, the front month price of CL will... | The Oil Drum | Hydrates updated |  |
Happy Third Yergin Day: A Poll
Posted by Prof. Goose on April 16, 2008 - 9:50am
In our last poll on 5 MAR (and here's the accompanying comment thread), 43% of you predicted that CL would hit $115 in the front month. We've passed it, but we haven't closed at it yet.
Either way, I thought a new poll was in order to celebrate Three Yergin Day. This is the comment thread, the poll is in the link below.
“Of all races in an advanced stage of civilization, the American is the least accessible to long views… Always and everywhere in a hurry to get rich, he does not give a thought to remote consequences; he sees only present advantages… He does not remember, he does not feel, he lives in a materialist dream.”
—Moiseide Ostrogorski (1902, 302-303)
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We had very good turnout last night at UCSB in Santa Barbara, where I gave a talk on Peak Oil/Peak Exports and Monday night was a red letter day for me. I had dinner with a group of UCSB professors, and with one of their Nobel Laureates. Very interesting, and needless to say a very smart, group of people. The presentation is supposed to be on UCSB TV.
In any case, my 2¢ worth regarding oil prices.
Of course, I think that importers are bidding against each other for declining net oil exports, but consider another factor. Let's take all of the consumers in all importing countries, and break them into five groups, with each quintile being the same population size, but ranked in terms of income, from lowest to highest. At the bottom of the bottom quintile, we would have a poor Third World consumer. At the top of the top quintile, we have a Bill Gates. While each quintile has the same population, the purchasing power for each quintile increases vastly as we move up the income ladder. IMO, this requires an accelerating increase in oil prices, because energy costs, as a percentage of income, decline as we move up the income ladder.
So, with an accelerating net export decline rate and a requirement for an acceleration in the rate of increase in oil prices, I think that we are looking at a geometric progression in oil prices: $50, $100, $200, $400. . .
At their current rate of increase, oil prices would double every 18 months, and we are of course seeing essentially the same ELM trend in food exports.
Geometric progressions in essential item prices end in bloodshed. Just because Mr. Gates, or a particularly successful hedge fund manager can afford to purchase 1 billion gallons of gasoline (at retail) with his 2007 personal income (John Paulson made $3.7 billion last year), doesn't mean that Mrs. B. Low Average will stand by idly while her children starve.
For example, North Korea is now sliding into another famine. And they have nuclear weapons now.
I would call it a Black Swan, if it weren't so obviously common.
I talked about this in response to a question last night.
When do scarce resources stop being allocated by price, and armies start marching--following the lead set by the US in the Persian Gulf?
I believe it is called "paying the ultimate price".
@WesTex
although I agree in General, I would disagree in progression. Price rises now are marginalizing the world's second fifth, the Wester World's first "fifth". Once that is accomplished, prices will stagnate again as demand falls. That all takes time. Then production falls will begin eating away at price again..
Just saying it'll happen more likely in observable steps, we being at the end of step 2 right now.
I never really understood this question. There have been dozens of wars fought since WWII - and that is just ones that the USA has been involved, at least 30 I think. All wars are essentially about resources, since land is a resource.
So we are not exactly looking at a new trend here.
I would suggest that the potential scale of these particular shortages, coupled with the increase in human population over the last 60 years (since the end of WWII) might give one pause to consider whether any resultant resource war might be a wee bit larger than past ones.
Perhaps the great irony is that the US hot war against Iraq, the economic war against Iran, and the proxy war attempt to replace Chavez have lessened the amount of oil on the market and driven up the price to the point where the aggressor is about to default financially--blowback I believe is the correct term. Any further resource wars will likely have a similar result, whatever the commodity. Campbell saw this eventuality, which is why he suggested the Depletion Protocol. IMO, either we arrive at such an international treaty, or we'll continue to have trouble caused by the country run by people who think they own the world imperilling all humanity. (Interesting the close relationship between imperil and imperious.)
New price of oil in soldiers per barrel?
Too far?
Only if calculating the price of Ethanol in Third World Refugees per mile is going to far as well. Thats the scale for the next 5-10 years, after that it just becomes the poor in general.
Hmmm... so in another discussion it was something like one barrel of oil does the equivalent work of 128 people.....so 128 less people equals 1 barrel of oil? Any volunteers?
The poll is difficult because of the $unit. Is there some sort of a market-basket in which we could price it? We can't price it in energy units - or can we? Pricing in dollars - well, bail out Citibank and yeah, it will be over $127. Is that or is that not exactly the issue? Soldiers per barrel, hmmm, what do we do about the fractions - an arm and a leg? And there is really only one Yergin - unless his family wants to get in on it - so that doesn't work as a pricing unit.
What I'd find much more interesting would be a poll on the EROEI for all liquids - assuming such a number could be calculated. Maybe there are ten different metrics ranging from soldier per barrel to failed bank per barrel and count-of-billionaires-on-planet per barrel. Like the caviar index.
cfm in Gray, ME
Should probably be lives per gallon as more than just soldiers will be hit.
duplicate
Actually from a reasonably well off and aware guy on the street's perspective this is the most important question to ask. At what point will my security be compromised if my lights are on and my house warm and my family well fed if there are hungry and cold people out there ?
If you look at a community like the wealthier suburbs of Johannesburg ( or any other high inequality country ) you can see a little into the future on this issue. I don't relish the prospect of electric fences and gating off whole streets but it is just a matter of degrees.
The majority in SA have never experienced home comforts and probably don't really know what they are missing but the masses in the towns and cities in the West most certainly would be peeved at finding themselves back in the position their grandparents were spending 20% of their income on heat, 30% on food and 20% on public transport.
These are the average families, those on GBP20-30k household income.
I'm talking about families on 200k+ with no mortgage or other debts and very large funds behind them. They aren't going to be crippled by energy at 50p kWh ( ie basis renewables / coal mix ) and food at 1950 real prices. They'll be able to pony up for an electric car, insulate their houses and install solar/wind micro generation. They'll be reasonably immune to anything. Remember you could buy a roast leg of lamb in Warsaw in 1944 you just had to have enough money.
There's only one social effect of increasing energy costs and that's a dramatic explosion in inequality. Back to roaring fires in the manor houses and scrabbling for lumps of coal in the damp huts.
Most families with 200k+ plus will lose their jobs.
Would you care to justify that statement ? Why ? At what oil price ? Through what mechanism ?
Anyway, I plucked 200k as a figure out of the air. I could have meant 2.5m.
I don't think you quite understand the perennial nature of the top 1% wealth; through wars and recession it just persists. I'm not talking about people with a few hundred k in their pensions or housing, I mean multi millions spread across all classes of investments from currencies, gold, t-bonds to commodities, land, businesses and stocks.
These kind of people don't lose it all in a recession, depression or currency collapse, they are too wealthy and too diversified. They have no idea what debt is and don't really need to budget.
Believe me I married into this and am constantly amazed at the casual nature of this kind of wealth. It's never flashed but quietly sits all around you, invisible to the public unless you care to check the stockholder register or the tax returns ( or lack of ).
My point is there is a sliding scale of the knock-out effect of peak oil ... starting with the 3rd world guy on $2 a day and working up to $20k america today and $100k middle america tomorrow.
My contention is that we will break through the other side of the turbulent 20-30 year journey to a non-fossil energy world with a radically changed social makeup. Only the wealthiest will have won out, most will lose.
You have to realize that many wealthy people depend on the poor people. My uncle once said to me, "Sell to a poor man, not a rich man, the poor people are poor for a reason." Rich people do depend on poor people. If the economy really falls apart, many wealthy people will fall out of wealthy and go do middle or lower class.
Also, in battery electric vehicles, it costs the equivalent of $1.00 per gallon of gasoline. Also, they are simpler and require less maintenance. Granted, they have range problems, but I'm assuming that will be overcome, literally thousands of engineers/scientists are currently working to overcome the range issue.
The bottom line is, battery electric vehicles are not just a replacement for the ICE and petroleum, they are an advancement . After battery electric vehicles become widely used, there will be a huge economic boom, much like the 1920s, 1950s, and 1990s in the USA.
Before then, there might be a large disparity between the rich and the poor.
The rich will be hung in the streets, if past history is a guideline. There is no French Aristocracy.
The rich got there by random chance, and most do not have the cognitive ability to see the predicament they are in now.
We have been living with a superstition based economic model that has rewarded the most morally corrupt of our citizens. The feedback may be a bit messy.
No one knows, the possibilities are beyond our imagination.
Madmaster
Thank you, I knew there was a way out of this mess, I just needed someone enlightened like you to help me see.
"Before then, there might be a large disparity between the rich and the poor."
That's my point. It would take something of the order of a comet hitting the earth before the people I'm talking about become working class.
Yes, rich people depend on poor people but then it is easy to argue the other way around as well. Poor people do not possess the leverage on societal needs to
On rare occasions has there been an absolute revolution and to be frank it the SHTF big time then it comes down to who owns the military and who feeds the military and that isn't the man in the street. Revolution happens through sudden change and a lack of control of the pivotal areas of media and information and there is no way Joe is going to know anything other than what he is fed.
Electric cars might be $1 gas equivalent but they cost $20-40k+ to buy and if living costs carry their recent trend then Joe isn't buying one before gas is out of sight for his income segment.
As long as the food keeps rolling in, even if it is expensive, and the lights are on some of the time then Joe will sit there and let the pot get hotter.
As for the rich being rich by accident - oh boy. yeah, of course they are, just clueless aristocratic buffoons waiting for the plucky peasant to stick his pitch fork up their behinds. This isn't 1789 or even 1917 !
Even if money devalues they own the land the means to protect it, or even seize it. There are plenty of legal mechanisms in place for this but in the crunch the soldier is asked 'would you like your family to be fed and protected ?' and he's no longer the flag bearer for democracy but the long arm of the self-preserving oligarchy.
Soldier then points gun at workers and they harvest and work - that's how it works.
The question is - do we commoditise non-fossils before we get to that point ?
Cars are just about a quarter of world oil consumption (US with 40% is something like a deviation).
For your optimism to come to fruition we will need to find ways to make all those trucks, ships, airplanes etc. run on something different than oil. Not that it is impossible but it is not that easy as you make it sound.
I don't see the TV listing yet, but found this:
http://www.sa.ucsb.edu/sustainability/
Pete
Huh, Moore's empirical law actually shows (yet not any more) a similar growth in processor power... No causal relation though, I guess.
How high must oil prices surge to make our civilization understand that the current battle against the exponential law was lost the day we engaged it? A lost war among others...
Oh, I'm new on this board and forgot to introduce myself: I'm Pierre from Switzerland. Thank you all TOD guys for this very good website!
Westtexas, Do you think this net export decline is partly due to the idea that as oil becomes more scarce countries are beginning to hoard, i.e. keep remaining reserves for their own usage and as a hedge against world food price increases?
It's certainly possible, and as time goes on, it probably becomes more likely.
Westexas,
As usual you make a great deal of sense and as I've noted elsewhere I'm writing to her Majesty to see if West Texans can be knighted for perspicacity. Indeed, your discovery of the yergin indicator is surely even worthy of a nobel in economics, if not a pulitzer.
But, I don't think your notion of accelerating prices due to an declining impact on disposable income takes sufficient account of the role of oil in wealth generation. In this latter perspective, Chindia is able to generate more wealth per marginal barrel of oil consumed than the OECD countries. As long as this is the case, Chindia will pay the prevailing market price, whatever it is. From the perspective of people whose wealth is increasing, the price of oil is declining.
/doug gabelmann, her majesty's most loyal canadian subject
It's a good point, and I was making something of a similar point with a UCSB professor on the way back to Dallas (a marathon journey that was supposed to be three hour trip that turned into a 12 hour trip marked by multiple equipment failures--air travel is so much fun these days).
I pointed out that based on exterior perceptions, a European living in small energy efficient housing along a mass transit line may seem to be poor relative to an American living in a million dollar McMansion with three SUV's, but what if the American is overwhelmed with debt? It's entirely possible that the European has a much stronger financial statement.
BTW, as usual I noted at the UCSB conference that Khebab did 90% of the work on our top five paper. One of the professors commented that our paper might perhaps turn out to be the one of the most important papers of the 21st Century:
http://graphoilogy.blogspot.com/2008/01/quantitative-assessment-of-futur...
So what's the sense of writing specialized papers that no one will read?
Sometimes the Druid dude makes scary sense.
His article on collapse of pottery skill reminds me of Milton Friedman crowing about how no one person in our advanced society even knows how to make a 10 cent pencil.
I have to admit that something similar occurred to me as soon as he said it. However, I continue to use Alan Drake's Electrification of Transportation ideas, combined with a crash wind power, and hopefully solar, program as my "Peak Oil Tranquilizer."
If history is any indicator, even if everybody forgets how to read English for some period, eventually, it will be relearned. I think, however, that English is around to stay. Let's hope that the libraries don't get burned if things really start to fall apart.
Vini, Vici, Vorgotmee latin:
I came,
I saw,
I forgot how to speak Latin
I think Julius Caesar said "Verdi", I conquered.
He intended to say that infinite expansion of the empire was a sure thing. You look at it and boom, it's yours. Today hardly anybody speaks or reads Latin. So much for Julius and his hubris.
We can't be that sure that English will become the global language. Why not Mandarin?
I don't see where you can vote "I don't know". In a narrow range like $103 to $127, I would have to admit I'm clueless!
Who'd ever thought that a 20% range over 60 days would be considered narrow, but given recent volatility in everything your right that is a pretty narrow range.
In a dinner of 16 senior industry guys mid February there was a small bet on price of oil on 31 dec 2008. the range was 75 - 140usd/bbl.
Happy Yergin day!
You've got to email that pic to him. Hilarious!
This currency has lost all value but it still brings a chuckle thanks Khebab. Has the Yergin Miester gone underground? Haven't seen his grinning puss for several weeks and his proxies making the TV rounds are quite subdued. How long before they start waving the white flag? I have for quite some time expected this year to be the last hurrah as far as maybe seeing a slight increase in production. That seems to be a slowly fading possibility. Look forward to seeing the UCSB show if possible. Any chance we will see a Nobel prize for Khebab and W.T.? Their work sure beats the subject matters that have been winning lately.....
I think the numbers on the corners should be 38, and instead of "ONE DOLLAR" at the bottom, it should say "ONE YERGIN." Otherwise, fabulous!
In Yergin We Trust
Shouldn't the motto be "In Yergin We Trust (To be wrong on everything)"?
____________________________
He never imagined "The Prize" will be
that of becoming poster boy of the cornucopians
Are there any other oil futures traders out there that want to share war stories?
I bought my first future contract was Dec 07 for $39 per barrel in 2004. When it hit $47, I panicked and sold thinking it couldn't go higher.
I'm currently holding three contracts and feeling pretty confident. Seems like holding on is better than trying to guess all of the peaks and valleys.
When the armies start marching, your contracts will be worth less than the paper they are written on.
Paper what paper? It's a cloud of electrons and (most likely) some magnetically charged dust that gives those contracts value. :)
Actually depends on the length of the contract. Even if we did collapse I think it's still 5 maybe even 10 years out. More than enough time to make a killing in the markets in the next 2 years and build your Armageddon compound on the proceeds.
Correct. But until then he can enjoy the fruits of his knowledge versus those who still believe is an infinite resource, or who believe oil is abiotic, or who simply believe foreign oil is somehow rightfully "ours" (an absurdity I've never quite understood).
Good point. I plan to sell at around $180 based on Charles Hall EROI calculations and pay off the mortgage. Once we are below 5:1 EROI, things will start to unravel. Any predictions on when US treasuries rates will increase. I'm having a hard time figuring out who is buying US debt these days.
Matches my story almost exactly for starters - I bought two Dec'07 in 2004 - I bailed when there was a dip.
Since then, my holdings have increase somewhat - and two other times I've bailed on a downturn rather than holding tight - listened to my fears over my reasoned estimate.
Now, I've learnt - and it's not that I won't bail if the economy looks like it's going to take a big dive - but three times since then I have steeled all my courage, met my margin calls, and come out with a few less hairs, but in a stronger position to provide a safer retreat from the oncoming madness - I will be able to provide a place and some skills, and will look to others to provide the other essential skills etc. Just so long as Yergin and his mob are prepared to keep losing money on their oil bets...
(What's funniest about blaming 'speculators' for the ever incresing price, is most of them seem to think peak-oil is baloney, and oil is over-priced... how does that work then?)
Which forecast was it that CERA made such that $38 became a "Yergin?" -- if we ever want to refer to this outside of TOD, we need a citation!
"In any case, in a column in Forbes Magazine, published on 11/1/04, Daniel Yergin, in response to a question about the future direction of oil prices, dismissed concerns about oil supplies and asserted that oil prices on 11/1/05 would be at $38 per barrel. Note that oil prices exceeded $60 in the summer of 2005, prior to the hurricanes.
In my opinion, Mr. Yergin serves as an excellent symbol of the major oil company/major oil exporter/energy analyst group. And since oil prices are now trading at close to $76 per barrel--twice Mr. Yergin's prediction--I hereby designate July 13, 2006 as "Daniel Yergin Day," in honor of Mr. Yergin's continued efforts to, in effect, persuade Americans to continue driving large debt financed vehicles, on long commutes to and from large mortgages."
Jeffrey Brown, AKA, westexas
http://www.energybulletin.net/18111.html
Many thanks to Jeffrey Brown for providing the citation for defining a "Yergin." Too good!
Clarification: Thanks to "toilforoil" for posting the definition.
Since the Economist Magazine once promised us $5 oil, would it now be fair to say that we are approaching two dozen Economists?
---------------------------------------------------------------
From Wikinews, the free news source you can write!
Monday, August 14, 2006
In its August 10 edition, The Economist magazine asserts that Saudi Arabia can continue producing oil at its current production levels for 70 years, without having to look for another drop. Further, the magazine claims that the nation could find "plenty more if they look", calling for privatisation of national oil companies to help increase oil production.
The language is provocative - the world has plenty of oil, and only requires sufficient investment and exploration to find it. This is a line that The Economist has held for some time, certainly since before its now infamous March 1999 issue proclaiming that we were "drowning in oil" and featuring a prediction of US$5 per barrel. That issue was followed by an embarrassing retraction in December of that year, as oil started its steady climb. It now sits above US$70 per barrel.
I'm curious about the 100 votes (as of 4:30 PDT) for the Haven't You Heard ... choice. It seems to me the case was made over the past several Drumbeats that the declining dollar has had little real effect, that the supply/demand imbalance is the true culprit. Perhaps it's that the pesky price of gasoline isn't following crude as it once did.....
I voted this choice and I don't regret it. It was kind of a protest against the oversimplified view the poll takes on what determines oil price.
Of course I don't think it is "all about" the falling dollar, but I certainly think it has a lot to do with it, or to be more precise they both have a similar cause - namely too much money sloshing around and a lax FED targeting growth instead of inflation (which is the other way to say that the FED is protecting the interests of the rich on the expense of the poor & middle class - hardly a surprise IMO).
Otherwise my option of choice would have been "I have no idea" but I couldn't find that one.
Well..
What is chicken and what is egg?
Is oil rising because of dollar oder is dollar falling because of oil? German exports (and Euro strenght) are to a great degree because of the price of oil - even if most of it is imported here..
Cheers, Dom
I ran some numbers and it turns out that $38 was the 30 year average price of oil in 2004. Yergin probably picked $38 for no other reason than that.
I'd just like to point out that $190 a barrel is "half a DekaYergin".
Ah, the DekaYergin. Get used to that word. It's coming.
I think a more realistic survey would be average monthly price for a month, quarter or year as that is more stable.
For example the last 5 weeks are listed
http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_w.htm
3/7/08 103.44
3/14/08 109.35
3/21/08 105.28
3/28/08 104.49
4/04/08 103.46
4/11/08 109.71
avg. 6 wks. 105.96
Daily
4/14/08 111.71
4/15/08 113.71
4/16/08 114.93
3 days 113.45
4/17/08
4/18/08
So if we get above a weekly or monthly running average of 120 then there should be deviations of about 5 - 10 dollars depending on daily news. We built a base of around 90-100 for the four months from Nov.-Feb. then broke through it to 105 for 6 weeks. Now we areusing that base to get to 115-120 and we will stay there for 6-10 weeks likely enough, at which time 125-130 till end of summer will hold and so on with maybe 150-160 at end of 2008 or a drop back to 130 or so if a warmer winter or recession slows demand in Asia, US northeast, etc.
Prof. Goose,
I'm new to Peak Oil and The Oil Drum and your poll of the 16th has given me an opening into the debate, but first, a couple of questions:
1 – What is CLK08?
2 – I assume we're coming from 114, so how do we get to 127 before 103?
Despite not understanding the above, I did vote, and put my x on #5 because it was the nearest to why I believe oil prices will continue to rise. As I see it, for the past 100 years we've been clambering up the west face of Hubbert's Peak, a time of plentiful oil. During that time, oil prices have risen, (tracking our ascent?) However, the people setting the price, (suppliers, etc.) have no notion or don't subscribe to Peak Oil Theory, yet prices have risen. This says to me that prices are set at nothing other than what the market will stand. Oil at 114 does not make me a happy bunny, but when the non-believers are converted, we'll look back on 114 as if it where a gift.
Thank you to all at the Drum, it's now become a daily source of quality information but how about some sort of glossary for newbies like me, but...
Itsonlyme
CLK08 is the trading symbol for the current front month oil options contract.
As to your second question, I would imagine we'd get there by traders bidding the price of oil up on the front month oil contract.
CL = NYMEX Light Sweet Crude futures contract
K = May delivery
08 = 2008
At time of this writing, according to here, Tapis is $123.50, though WTI is only $116.53, and Brent is cheap at $110.11.
I'm not sure which benchmark the poll's supposed to be addressing... if it's Tapis, we're already there, it only took a week. If it's WTI we might have another two weeks ;)