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POLL: Oil Breaks $127, Now What?
Posted by Prof. Goose on May 18, 2008 - 9:59am
In our last poll on 16 APR (and here's the old accompanying comment thread), 42% of you predicted that CL would hit $127 in the front month before it hit $103. Yep, we've passed it today, though we closed below it. Oil has risen from $115 to $127 (~10%) in a month.
This is the comment thread for the poll, offer your conjecture and reasoning here...the actual poll itself is at this link.
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I selected that it hits $114 based on the expectation a recession and increased production would lower prices in the near term. However, I've been wrong on the last 2-3 polls because I selected the lower price for the same reasons. Good thing I'm not a day trader.
In the last poll I chose the higher number based on the opinion that so-called free market capitalism, to function at all, must continue the game as it exists: borrow in order to buy and then sell to the next sucker... until it kills 'em.
Pretty hard to make big money anywhere else (except drugs and guns) so the new bubbles have just got to be food and oil.
Expensive gasoline, the unraveling mortgage/construction fiasco (national equivalent of a heart attack) and now food have not been enough to scare them into righteousness. Therefore nothing is.
I'm betting that the number of serious players who suddenly find religion and quit their low-down ways voluntarily will be ZERO. Wannabe capitalists will continue to borrow-buy-sell at ever more stratospheric prices until the protracted suicide they have embarked upon is consummated by the terminal collapse of credit.
$140 here we come, I hope, because the alternative would be the signal that hell has finally broken loose for keeps.
So, another question to discus might be: will the price of oil or grain become a bubble that breaks the bank?
err, didn't mean "day trader". I meant short-term-trend investor or something like that.
In my opinion, and this is just my opinion, the primary driver of oil price is developing country demand, mainly China and India but other economies as well. There are signs that China's economy may be facing problems soon but they are not strong signs and some of those signs have been there before. I am specifically looking for those signals because at that point I would begin to consider shorting oil rather than playing long. But so far I don't see enough strength to those few signals to warrant a change in outlook.
Oil demand in the Middle East is growing rapidly as well, and tends to spike up during the summer months.
There are certainly plenty of flaws and instabilities in the Chinese system. They have no shortage of environmental, social and infrastructure problems. And relying on exports to the USA will not be sustainable for much longer.
The Party knows it is trying to ride and steer a bucking bull, and it is not a stable situation. At the moment they are trying to rein in speculation and inflation (yes, their money supply is growing thanks to the trade surplus) to relieve dangerous overheating.
However, as exports to the USA slow I believe they will be forced to take stimulatory action to stop their economy slowing to the point where unemployment grows. This may include letting their currency appreciate against the dollar in order to make food and fuel cheaper locally, and embarking on public works & infrastructure projects to provide employment.
Thus their likely reaction to a recession would increase demand for food and fuel in the long term as they give their population more buying power in global terms.
Once our government get those pesky speculators in line...all will be right with the world. I think we will be near or at where we are right now.
In the April 16th poll I picked oil would stay in the range of 103-127, and in fact it just breached 127, so I was just a tad bit too conservative on that poll. So on this one I've selected it will breach 140.
Also, after the rocky plateau of crude extraction, which first occurred in May of 05, the price of oil over the next 2 years doubled, then doubled again in just 1 year, so one might be bold enough to predict oil would double again in 6 months, which would occur in November of this year. Of course the higher the price the more drag it will put on the economy, so there probably is some point where price balances with economic activity. However, there still appears to be room for an increase in price. I was out today and there appeared to be just as many vehicles out and about as ever. Guys with huge black trucks guzzling diesel, which here in Calif. is 470-490 a gallon. Guess people have no end of funds at these prices for the energetic liquid.
Although it might be up to $127~ its probably safe to say that $17 of that is pure market speculation. How far that trends I can't really say but I imagine it will pull back to $110 - $115 when the market gets the news it wants to hear.
Oh you know and can quantify exactly how much is speculation? Do pray tell your scientific method for this assessment, sir.
I would love an explanation of how speculators run up the forward month contract. Before the end of the month they would have to sell the contract or take delivery. Without a way to store it I don't see how the speculators drive the price as the month ends. I see how there could be a bubble in something permanent like real estate or stocks or storeable like silver but the key feature of futures contracts is that they expire and both parties have to sell out of their positions or go ahead with physical delivery.
we have a post around here on how the futures markets work, and Jeff Vail has a post coming next week on backwardation.
The term "speculator" is probably too broad when used by the media - they should use "investor" instead. A lot of investment banks like Morgan Stanley are big players in the physical oil market (they own Transmontaigne). They are the real speculators when they take physical delivery and then store it in the hopes of selling it at a higher price in the future.
Exactly - speculator driven price increases have to be accompanied by increased holdings of the physical goods associated with the contract. Stocks are not building significantly QED no speculative bubble.
I'm stunned that so many OD'ers are buying the spin being put out by CERA and OPEC that speculators are driving this price run up. Normally around here we're a bit more skeptical than that. But because this line is 'easy' and 'convienient' it's been picked widely by the media and other commentators.
Hi Jaymax,
Have you a source for your statement: Stocks are not building significantly. Thanks.
From Paul Krugman in the NY Times
I understand that is not a primary source, so take it for what it is worth. I think, however, that a lot of people are putting too much emphasis on what is essentially noise in the US inventory numbers or (worse) reading US gasoline inventories as proxies for oil inventories.
Edit: On a personal note, I made a trip last fall to visit my parents in FL. We took peak oil videos and literature with us and spent the week talking about the coming rise in oil prices. They are Fox News Republicans, and I wanted to get to them before Fox propaganda turned to peak oil.
Well, they came to visit us this week. Instead of "Gee! You sure were right about oil prices!," my father last night said, "It is all speculation. If they reign in speculation, the price of oil will be cut in half." *sigh* I think my mother gets it, but I'm afraid my father is lost to iron triangle propaganda.
I can't understand why so many people don't "get" supply & demand. Unless you can affect either supply or demand, you're not going to have a significant effect on prices. Unless there is hoarding, speculators have no effect on supply, and the only effect they have on demand is opposite to the direction of their speculation.
Thanks shargash,
That NY times article may not be primary but it sounds as if they are reading from primary sources ... maybe:)
(Actually though my question to Jaymax and a similar question to yartrebo (below)sprang more from amusement that the two diametrically opposed views came so close together on the thread without blows being struck).
Here's a link to the EIA web page where each week they report the stocks of crude oil being stored at major facilities. You'll notice there's not an excessive amount for this time of year. I suppose there could be some stocks that aren't being accounted for, but you'd have to find them.
Well the largest inventory is probably floating around or in transit in tankers. It is possible to change where ships go and how long it takes to get there to manipulate prices. Here's an interesting article.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aQZcc1kgLb8k&refer=home
By the way, I'm with Smith(above) all the way to $140. Woohoo! What a rush.
At least we get to fight al'Cia in Iraq, now that they finally got a foothold. Hopefully, McSame will steer us on a clear path to victory, or something.
I'm working on a chart that shows the history of actual storage of oil in the U.S. and it's relation to oil price. It sheds some light on this "speculation" thing. Rising inventories are billed as meaning nobody wants any oil and any price increase is pure speculation . But history shows that oil storage goes up when there's a shortage and everyone wants it. This happened big time in the 70s. It is hardly happening at all now when we have the mother of all shortages setting in. The difference between price run up and storage patterns between the 70s, the Gulf War, and now is ridiculous.
I too am baffled to understand how futures traders could significantly alter the market price of a commodity -- aside from moving it around in some kind of range based on fundamentals of supply and demand.
That's why I've been thinking there must be some actual physical hoarding going on now. Increasing inventory of this raw material seems very logical for a company whose business depends on having absolutely reliable sources of petroleum products, including companies who use petroleum products as feedstocks for plastics and chemicals.
Storing some spare quantity of the stuff is exactly what I would do if I were in that position, and was starting to worry about supply interruptions.
If there is in fact hoarding going on, I don't think it is being done for the purpose of turning a profit. It is usually only possible to profit from commodity price changes by trading contracts rather than the physical material. That's because the net profit for buying actual product low and selling it high would likely be quite small compared with the expense of doing so. Consider that one would have to acquire (or more likely, build) storage facilities, ship the product to the storage location, and then staff and maintain and protect that location, and finally ship the product on to its ultimate purchaser. In the face of such expenses, even a comparatively large increase in price would not be enough to gain much direct monetary profit from physical storage.
In summary, I think we are seeing some panic buying and hoarding, not for speculative profit but rather in pursuit of supply security. With the world market for oil as tight as it is now, even a very small increment of geographically widespread hoarding might move prices sharply higher.
Of course if supply later loosens up, such hoarding would contribute to increased volatility on the down side, too, since companies might then draw down their stored supplies for a while, rather than buying new product.
Or we are simply seeing importers bidding for declining net oil exports.
I'm guessing that it will reach $114/bbl before $140 and within the next 60 days. It's my opinion that in the short term, oil is way overbought. Current oil prices are causing substantial demand destruction and as a result inventories have been rising rapidly. I expect a sharp correction in the short term, though undoubtedly oil will breach $140 and head much higher in the coming years as a result of widespread monetary inflation and oil depletion.
Hi yartrebo,
Have you a source for your statement: ... inventories have been rising rapidly. Thanks.
My guesses in the polls have turned out to be right, so I'll stay with the trend and vote for 140 before 114. The oil chart appears to be in an accelerating upward trend. These sometimes lead to a blow off type top with very wild gyrations in price. I don't think we've see that yet.
Fundamental wise, peak oil per capita happened in 1971. In that sense we are 37 years past peak. Each year we each have less oil even if total oil extraction should increase some modest amount to make a new high. The dollar continues to be weak. Exporting countries continue to subsidize oil consumption. While car sales are weak in the U.S., they are still booming in Russia, China and the Middle East.
Locally Winnebago Industries is practically shut down, but the roads are filled with heavy truck traffic due to the construction of a very large wind farm. Planting the corn and bean crop is sucking up diesel like there was no end to it. While there seems to be some reduction in car traffic, it is modest IMO. People seem to get use to the higher prices.
Dante at PO.com posted this bit, from an article that doesn't have a public link yet:
Production is dropping, and Asia is taking a bigger share.
As I rode the electric motorcycle to work today, I smiled as I passed the gas station with the $3.75 sign for unleaded. Diesel was 4.50
When I got to work, I followed a new H3 Hummer into the parking lot. It still had the paper temporary tag in the back window.
I parked the bike and counted the number of full size SUV's and 4 door 4 wheel drive pickup trucks in the parking lot. Came up with 75 monsters. Counted 1 Prius and 1 electric vehicle (mine).
The price of oil is going to go a lot higher.
Cheers,
Kyle
http://www.evalbum.com/1414
Nice Conversion, how long have you been riding it now? (June '07?) Do you like the controller?
Bob
The Alltrax controller works good. It is just the 300 amp version and they do make a 500 amp version if you want more performance.
The performance right now is pretty good as is. When I do the next conversion, I want to try and do a 96 volt system to see if it will do freeway speed.
The bike has 2500 miles on it now and I have never been stranded yet. A good way to get to work and back for low cost and zero air pollution.
Kyle
Here's a fun game. As the price of gasoline and diesel move higher you could track how many of these big trucks you see in the parking lot. Kind of like a reverse tanker count that's done in the Persian Gulf.
I voted for the 114 - 140 trading range, last time I went for the top range.
I see oil heading steadily upwards. Todays $127 is already 6 months early and so it'll be above $150 for Christmas. That won't please the hauliers and there'll be calls to cut fuel duty ( there is already talk that the 2p increase deferred in April may be deferred again ).
Here is a copy of my email to a Wall St Journal article published on May 16 titled "Refiners Tilt to Diesel Over Gasoline" by Ana Campoy . Does anyone know where I can find data on freight traveling by truck vs rail?
Dear Ana,
Great story!
Your article got me thinking about the reduction in gasoline usage. Could it be more efficient cars? If so, the VMT is probably increasing which leads to more congestion and higher diesel burn rates in trucks. Do you know if there are more goods being shipped by truck this year? it seems unlikely, given the massive increase in rail freight. Perhaps the trains are the reason for the increased diesel consumption but you would hope they are more efficient than trucks.
Anyway this would be a great follow up story. It is refreshing to read an article that looks at the mechanics of the industry rather than the usual banal repackaged mindless drivel. My only solace is watching the used SUV market collapse and buying oil futures.
Hi realist,
re: "Does anyone know where I can find data on freight traveling by truck vs rail?"
AlanfromBigEasy can steer you in the right direction.
In all the hand wringing about ME oil production and price increases, I see very little discussed about:
A: Bush Baby going to grovel in front of the Saudis and having his ass essentially kicked in public, (in private he and Cheney the Dick and their Texas oil buddies Love higher prices)
B: Cheney the Dick and his Sock Puppet Bush Baby have done everything in their powers to keep Iran from selling oil on the open market, there by helping to drive price up.
Iran went from about 1.6 million to 4.2 million bbs from 1980 to present.
This looks like the real 'swing' producer in the ME, not the Saudis.
Taking Iran's production off market via sanctions Plus screwing up Iraq's production via Gross Negligence is Very convenient for anyone in a position to profit from sky high prices.
Between Iran and Iraq's combined oil production that is not arriving in the market place, they are essentially the fulcrum for world oil prices. (The Saudis also benefit Royally from this 'arrangement')
Goldman Sachs is lovin' it, their oil speculation profits are making up for their Gross Negligence in the rest of their bankrupt business model.
Every American who voted for Bush in 2004 is reaping the results of their ignorant or malicious vote. Anyone that is not buying oil futures is missing out on a chance profit from this collective lack of responsibility.
I agree, absolutely. I'm still to this day blown away by the fact that Bush got voted in for a 2nd term. There didn't seem to be any extent of information regarding his Administration's incompetence, arrogance or corruption to dissuade enough people from putting him right back in the Oval office. People just kept saying, "I like this guy - I'd like to have a beer with him". Boggles the mind how deciding on a president could in any way get connected to the experience of sharing a frosty mug. It boggles the mind!
You know, you may be antiBush (which is easy), but you didn't pick up on something funny last week. Bush didn't just go to Saudi Arabia, he first stopped in Israel to celebrate the 60the aniversary of Israel's ethnic cleansing of half the native population and subsequent apartheid economy for the other half.
It's like he was trying to offend the Saudis as much as he possibly could.
So why did he go to both instead of just one or the other?
"People just kept saying, "I like this guy - I'd like to have a beer with him". Boggles the mind how deciding on a president could in any way get connected to the experience of sharing a frosty mug. It boggles the mind!"
This shouldn't be so shocking- if you lived in a small (50-150 ppl) tribal group, that's exactly how you would decide who to support as a leader, AND it would be a good idea- if you like him, then he probably likes you too. (Which helps in maintaining social standing, and personal survival.)
This fascinating modern age has allowed us to watch t.v. and pretend we "know" people who don't know us. Our bodies are hard-wired to use emotion as a gauge for social and survival decisions. Rational choices come in way, way, way down the line. (You could make a strong argument that the best modern leaders could be chosen double-blind, based only on qualifications and proposed policy agendas and leave out age, race, beauty, charm, etc. etc.)
Unfortunately, the sort of superficial charm that Bush seems to adept at mimicking is also one of the signs of Psychopathy. The question Americans should be asking themselves is how they ended up electing someone who is by definition a monster.
I think the price of oil will not sink substantially until after the Olympics and $150/barrel oil.
The Chinese are not going to allow anything to get in the way of the party until then, but prices of oil and commodities will be hitting hard by that time, and I think that by October they will cut back heavily.
The price of the oil should have fed through to the price of gas by that stage, and a downturn in China should lead to a re-assessment of economic prospects in the States.
I can see a falling back of both oil and other commodities over the winter, but no-one will be able to afford it anyway, so recession should bite hard.
The question I am asking myself is whether the inelasticity of demand is sticky for oil on the way down now, as well as on the way up?
It seems to me that many of those who have already been knocked out of the market, essentially the poorer nations, won't be able to afford to increase their consumption much even if the price fell quite a way, particularly in difficult world trading conditions.
When the penny drops in the west that prices are a real problem, not a temporary annoyance, it seems to me the demand could drop a long way, with second cars being sold, and trips forgone.
In a recessionary environment it seems to me that even if oil prices drop a fair bit then demand might stay low.
This would have knock on effects on the oil producing countries, as their takings might go down, although from a high level, whilst demand is still restrained.
That would not be a real problem for most, but projecting forward their finance ministers should see that finances when exports decrease should drop rapidly.
Much though I respect West Texas's model's, I wonder if levels of $800/barrel will ever be reached, as it seems possible that something will have broken before this, and that at levels beyond maybe $3-500/barrel however desperately it is wanted, there may be no demand in the technical economic sense.
DaveMart,
I agree. The first time I voted on this I voted for it to "stay in the trading range," but the last two times I've voted for the increase.
It seems to me that the current rate of oil inflation will continue until a recession breaks demand. Since demand is worldwide, that would have to include Chinese demand. I don't see that happening until after the Olympics.
At the beginning of the year, the annual inflation rate of WTI was about 70%; by March 12, it was 87% greater than it had been on the same day in 2007. This is a bit arbitrary, since both this year's and last year's price fluctuated from week to week, but calculating the annual inflation since March 12, the inflation rate got as low as 59% on April 2 and as high as 104% on May 9.
At 80% inflation, the price would be $140 by July 31, and $150 by September 21; at 100%, it would be $140 by June 29 and $150 by July 18. The Olympics end on August 24.
Keith
How about a poll about whether you believe the Saudis will deliver on the purposed production increase this June? My opinion, they made the promise to BushCo to give them some kind of feather in their hat and try to impart some breathing room for a new plan to hatch.
We need to revisit the production numbers in July/Aug. to see what truly happened.
Iran says OPEC will not boost output
----
Hmmm...seems the production increase by KSA was decided back on May 10th, NOT when Bush visited. Interesting comments at the end of the quote below (my empahsis in bold):
Saudi oil production unchanged
Leaders rebuff Bush request amid price spike
The runup's been too fast. There has to be a dip/pause before the next price attack. Every market push eventually stops to catch its breath.
Unless, of course, the curve is steeper than you expect.
"Past performance is not guarentee of future returns."
I guess that is why I follow the prices every day. It is facinating to watch, but seeing the steady march upward is tinged with a certain amount of disbelief.
The US, thats us, has been adding oil to the strategic petroleum reserve for some time now. The chinese have started to do the same in a big way and I'm sure other countries will, if not already doing so. This hoarding of a limited resource is leading to the price spike more than increased actual usage. Once the hoarding behavior really catches on, watch out - the sky is the limit for price, and much sooner than even us oil drummers imagined. Of course, this is just an opinion, based on a feeling, based on my perception of human behavior. PEACE
In 1941, Japan has a reserve of 43 million barrels, enough for two years of war. http://www.ibiblio.org/hyperwar/USA/USA-P-Strategy/Strategy-2.html#cn15
The currently have 580 million barrels in reserve. The US reserve is about 700 million barrels http://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve with plans to expand to 1.5 billion barrels.
China is aiming for about 300 million barrels of reserves. http://en.wikipedia.org/wiki/Global_strategic_petroleum_reserves#China
The plan in Congress to halt deliveries to the US reserve seems like a declaration that Iran won't be invaded. This is probably smart, but something more direct would be better. One Mukden Incident is more than enough in that region. But, better than saying that oil is too expensive, Congress should be saying that we will be reducing out consumption so much that the current reserve will exceed 90 days supply of imports.
Chris
Congress voted 97-1 to stop filling the SPR. If Bush does not pass the legislation; a two-thirds vote by Congress might override the veto.
On May 15th the House of Representatives passed a bill with a goal of completing a withdrawal of American combat troops in Iraq by December 2009.
I'm sitting here in Florida thinking about hurricane season, which starts June the 1st. Since oil prices seem to jump every time something new threatens supply, I figure an active Atlantic hurricane season could bring a lot of sharp jumps in price through October. The price at the end of that time could depend on how many severe storms threaten the Gulf of Mexico plus anything else that happens to threaten supply worldwide. I think a barrel could hit 140 pretty quick.
This could be a busy hurricane season as well. Burma's hurricane is very early, West Australia saw a couple of harmless cyclones come in very late. Not Normal. Does anyone know what the thermohaline is doing.
Uncle Sam has been filling the Strategic Petroleum Reserve for months, "stealing" oil away from the commercial market:
http://news.yahoo.com/s/ap/20080513/ap_on_go_co/congress_energy
China's oil consumption is growing at an annual rate of 14%p.a. (and probably increasing exponentially)
Demand is a runnaway train and the supply is severely struggling.
Cantarell in Mexico is a fine example of the sort of collapse in production that "new technology" achieves. Horizontal drilling & nitrogen injection act like a "super-straw" (as Matthew Simmons descriptively puts it) and increases production significantly in the immediate term, -but then when the decline eventually starts, it's very severe and production collapses by 10%+ per year post peak.
What you are witnessing right now is a function of the free market. How high before demand destruction occurs, I don't know? Certainly I personally believe that US consumption MUST have decreased slightly. Their economy is fc#ked and Bankruptcies are at an all time record high. But China is overshooting right now (won't be sustained as their export market will eventually collapse because America isn't buying from them in the same volumes it was 12 months ago).
The sky's the limit, Folks. This is Peak Oil. RIGHT NOW. You'd better start taking action 'cause it's gonna get worse as the years roll on...
Permaculture and Solar are going to be a big help. Do your research & get active!
What is Permaculture going to do ?
I have recearched it and found nothing it has done. Just a marketing tool to sell books and seminars.
Possibly a link to where it has done anything....
I'm putting a permaculture garden together in an inner city unit and getting great initial results. I'll be feeding my family when others are going hungry. The best way to verify anything is to do an experiment, ie, try it out.
"I'll be feeding my family when others are going hungry"
Oh, lol. Sometimes the delusions I read here are just too funny. You go Lucifer! I'm sure your starving neighbors will admire and envy your foresight.
Yews and if they try to steal my food I'll waste them with my handgun. If they ask nicely I'll find some spare.
Yeah !
Permaculture seems to my mind an impossible thing. I grow a killer garden every year, but I am also hauling in soil amendments. How can you garden without adding back the nutrients you take? Yes you can grow nitrogen rich cover crops, but what about the minerals and other nutrients that are being removed??
Todd
Composting is one answer. Of course, there are many forms. A cool composter/methane sequestration unit made in India has been posted several times on these forums. Keeping small animals, such as rabbits, in movable cages that you can set where you need them. See Garden Girl on YouTube. Add aquaculture. Etc.
One gets the feeling there is much you haven't looked into yet.
Cheers
One word: Humanure
Okay, three more words: complete the cycle
The Humanure Handbook is pretty much the bible on the subject and can be downloaded for free (or purchased) online.
There are, of course, legal issues in places where most people live, but some have taken to "guerrilla composting", adding vermiculture to the mix in order to deal with the potential health issues (which are genuine but overblown) without having to be overly concerned about composting at a high temperature.
Trees with deep tap root pull up nutrients from the water table here in Perth, and that is a flowing body of water so input to the system are coming from many place, it's renewable, at least for hundreds of thousands of years anyway.
You obviously haven't looked very hard:
http://globalpublicmedia.com/articles/657
http://www.powerofcommunity.org/cm/index.php
Cuba produces 80% of it's Public consumption through it's own Permacultural practices. Australian's were the one's to teach them Permaculture. Their situation was so desperate that they had no choice. But now their diet is much healthier and the Cuban people are much healthier.
They experienced an artificial "Peak Oil" due to the collapse of the Soviet Union AND U.S. embargo's.
If you don't grow your own food, -you will starve to death.
Traditional large-scale agriculture is finished. Permaculture and localisation are the future, -whether you like it or not.
Actually, they produce about half their calories and nutrition domestically, the other half - like most of their grain - is either imported (from the US, by the way, the embargo doesn't apply to food and fuel), or is the product of something imported - like their livestock fed on oilcakes. See this article by some idiot.
Their oil supply dropped by 20% in two years, and is now only 5% less than what it was in 1989 at peak consumption. Their coal consumption dropped by a factor of four, but their natural gas consumption went by a factor of 14. Overall, in energy terms they only use 10% less fossil fuels now than at peak in 1989.
So while Cuba certainly did cope well with a decline in fuel supply and food imports, the drop was not as dramatic and their response not as perfect as commonly said by their fans.
Which is a pity, I quite liked the fiction story presented of the socialist permaculture paradise.
Siwmae (Hiya) jmygann,
You've researched permaculture! Clearly, if you can make a comment like that then the research hasn't been very long or deep. And I take it no actual +doing+ of permaculture, for an extended period, was involved in the research.
Those who know and use the methods know better. Here's a typical example of the practical results a permaculture master can achieve:
http://www.permaculture.com/drupal/node/141
I'm not in Dave’s league, but I wouldn’t flinch from feeding about 8 to 10 people year-round, once my current – very small – permaculture operation is up to speed.
Small-plot, Fukuoka/Bonfils-method grain growing will be adding into the food stream also this year, using no-till, no-fertiliser, no herbicides/weeding, white clover only as nitrogen fixer/ground cover; hand tools only, with very low labour schedule - using Fukuoka's 'do [almost] nothing' approach. Eat yer hearts out techi-skeps: it works.......
Hwyl fawr (Cheers), Rhisiart Gwilym
The CEO of Shell released a statement in January acknowledging that the demand would surpass conventional capacity by 2015. IMHO, he probably added five years to his own private estimate so as to reduce the shock value.
In his statement, he talked about two scenarios: the "Blueprint" scenario envisages people finding cooperative solutions such as the "Oil Depletion Protocol"; the "Scramble" scenario forsees every group seeking advantage for themselves and major conflicts as a result. From the tone of his remarks, he was almost pleading for people to start engaging in "Blueprint" solutions immediately.
We aren't going to have a "Blueprint" solution because there is no longer any leadership in the western world. China doesn't yet have the stature or clout to take the role and by the time a new US president is sworn in and begins to effectively govern, the "Scramble" scenario will be well underway.
Markets can go crazy when there is too much demand - think of Cabbage Patch Dolls or the Nintendo Wii, for example. So, I am expecting thinks to get very weird very soon.
Colin Campbell made the remark that the peak of oil production is not the real problem. For him, the real problem will be the panic that people will start to feel when they realize that every year there will be *less* oil to be shared by *more* (rich Asian) people. James Kunstler has a similar view.
The best that individuals can do to prepare is to reduce personal consumption as much as possible, strengthen ties to family and friends, and relocate, if needed, to a safer community.
150 by mid to the end of June. There is just not enough supply coming online before then, coupled with new information on negative impacts to non-oil industry sectors in the US, plus a lagging effect on bank lending in OECD countries. Oil dependency consumption trends have not changed in developing countries in the past 5 months, despite US information on decreased consumption (its just not enough of a decline), and developing countries' consumption continues to be on the rise. Add to the soup the instability in the middle east, and we can have a clam bake.
PS: looking for an internship this summer (graduate level education)
Things to get very weird very soon?
Calgarydude, I see your point about the "Scrambling" scenario and would like to add to it.
Oil prices have shot up more than 25% since New Year's Day. That's more than a ten fold increase in 10 years. It was a mere four years ago, September 2004, when oil shot pass $50/barrel. And the present price is coming at us at a time when geo-political events and weather are not making headlines and the US is slowing economically.
If the trend continues, that is using the past as a yardstick for the future, oil will be at least $1000/barrel by January 2018.
What's weird is how reluctant people are to see how weird the rise in prices have been. We treat the phenomenon like we would treat digestive cramps -- just a little gas, this too will pass, and then long anticipated relief.
Except the passing of less and less gas (and oil) will mean only more pain. Stronger medicine than Pepto Bismo and Tums will be required. Unfortunately, the "Blueprint" scenario is becoming more remote with every price increase.
I vote for the 140 but do not think it will return to 114. Basically demand is causing the price to rise. I do not expect supply to match demand hence price will rise in the future.
We hit 126 in half of the allotted 60 days. 140 won't take the full 60 days either. Americans are richer than we think we are, and we won't seriously drop our demand for a long time.
Good points - but the price does not mainly reflect how much Americans will pay. It's how much essential crude cost the poorest economies globally can handle. US consumers could pay a lot more, especially with low fuel taxes.
I would expect fuel-subsidising importing countries to flake out first.
MAY 2008 - THE MONTH "OIL SUPPLY" finally made it into the MSM
I think a big acknowledgment needs to be made concerning the fact that the MSM is now, at long last, beginning to mention 'oil supplies' as a factor in the price. Wow, it only took $120 to make it happen!
To me as a Peak Oil aware person, this is actually a big occasion.
Rising as I predicted in the last poll. $180 by the end of the year, I said in January.
Historically, US recessions have dropped US oil demand by a bit above 1% for each quarter of the recession. This would only be 1Mbbl/day per year of recession. A million barrels a day will be snapped up very quickly by China and India, and by places like Senegal which are now getting priced out of the oil market. This will keep the price up.
We could suppose a very severe recession in the US, in fact a Depression, but we haven't seen one of those in the automobile age so its effects are difficult to predict. And in any case it would like the last one take a few years to develop. We didn't have the stock market crash and then twenty million people were out of work the next day, it took a couple of years.
$180/bbl during fourth quarter 2008.
"haven't you heard? Yergin et al say it's all about the declining dollar-not growing demand and a current lack of supply."
Yergin is not saying that anymore ! ;)
What I think is interesting about Yergin is that since he has started admitting prices are inevitably headed higher, he is not being quoted as much in the MSM and he is not being invited on as many talking head shows. They are having to find another oil "expert" that is not as dire. Those are getting harder to find.
From http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/mone...
There's no significant spare capacity of quality product anymore. Kinda explains the price, and its future direction.
Here comes $150.
Is scare capacity the ability to reduce production by 2m barrels per day?
Hey, I think you guys are on to something here.
Perhaps a list of oil-producing countries could be devised that shows how much production might be taken off-line with minimal internal socio-economic impact. This amount would be termed: Scare Capacity.
At least scary to the importing nations.
-best,
Wolf
I'm a real pessimistic type of person, and I like to think ahead a couple of years. This year things have moved a lot quicker than my predictions, that's real scary.
Hello TODers,
I voted for the new high crude price scenario, primarily because of rising food demand, shrinking grain stockpiles, and the tremendous growing need of energy to mine, beneficiate, then globally distribute I-NPK, plus hopefully even greater energy-impetus to recycle and move O-NPK. The need for immediate grains plus future food reserves is gaining steam,IMO.
Another kicker from the fact that we are using ever more energy for water, the greater energy difficulty of harvesting depleting fisheries, and the various crop failures means we will have to burn even more energy to move greater amounts of food around the globe to these flooded or drought-stricken areas, or where political strife prevented vital seasonal cropping cycles.
24 page PDF-warning:
http://www.potashcorp.com/media/pdf/investor_relations/speeches/potashco...
Consider that all the forecast charts in this excellent PDF make no energy allowances for a postPeak decline [if starting now]. Is this an oversight with future dire implications in the next five years?
From my posting on Friday's Drumbeat:
http://www.theoildrum.com/node/3995/344777
--------------------------------------------
As the net energy from FFs decreases and ELM hammers home: IMO, I think people will be shocked at the rising percentage of this ever-decreasing energy that will be directed to maintain NPK global flowrates. Remember: No Substitutes exist for NPK to leverage plant growth; it is a conversion process-- pouring crude oil on topsoil won't help-- we have no choice but to mine, process, and move I-NPK and O-NPK globally.
-----------------------------------------
Haber-Bosch natgas generated [N]itrogen already uses 1% of global energy--what are the postPeak effects if this become 2%, %5, 10%, 15% of global net energy if rapid Hubbert Downslope depletion of crude and natgas sets in?
Now consider the same thought process for [P]hosphorus from the phosphate mines, and again for [K] potassium from Potash mines. If depleting energy supplies become hoarded: the global movement of NPK, sulfur, and other essential plant nutrients becomes very cost-prohibitive, or even impossible. Now recall the earlier weblinked posting of mine where potash hit an inflation-adjusted $14,500/ton in 1914.
Consider how the avalanche caused problems for Juneau, Alaska. The decreased electricity, plus citizen effort has reduced their electricity usage by 30%. But I would be willing to bet that nobody is eating less, in fact, they are probably eating more to maintain body temperature in the colder housing from turned-down thermostat settings.
As posted before: sitting in the dark with a full belly is pure luxury compared to starvation.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
If you look at the way the market has behaved over the past year:
http://newsvote.bbc.co.uk/2/shared/fds/hi/business/market_data/commoditi...
It looks to me just eyeballing this that retreats have always been about 10% against general trends of about 20% increases over two to three months. If this trend continues based upon today's price we could drop as low as $114.00 anytime but over the next 60 days will likely go up about 20% which is about $147.00. So we will stay in the range baring any extrordinary events. Somewhere (maybe on here) I have read the view that as the poor consumers of oil drop out of the market, to balance supply and demand the price must increase to eliminate the more affluent (but still at the bottom) consumers. This view makes a lot of sense to me and I think explains part of that 20% increasing trend. So $144 to $147 over 60 days.
By the way, my take on the little "plateau" in pricing beteen Nov '07 and Feb '08 represents a period of real fear in the markets when people didn't know what to do with their money and feared that a recession would kill demand. I believe bonds were quite strong during that period.
A thought game
1. FACT 1: a tight margin between supply and demand raises volatility and base price of oil (amount X)
2. HYPOTHESIS 1: some players act together (unco-ordinate or otherwise) to run up the price even more, through geopolitical play, futures trading, analyst forecasts, etc. This results in a significant 'speculative' prise increase in the oil price (amount Y). That is, a price increase, which is not at the time directly supply problem related (i.e. not down to geological/political market supply issues) and as such independent from price increase X.
3. FACT 2: all oil producing countries not past their peak yet reap huge profits, both in relative and absolute terms.
4. FACT 3: this trend continues for a few years (high price and price growth), making some of the producing countries more lulled by and reliant to high oil prices.
5. FACT 4: big oil producing countries start looking for alternatives: unconventional, biofuel, conservation, car mileage improvements, etc.
6. FACT 5: a commodity investment boom around fossil fuels is formed. Whether mainly due to developments detailed above, or also due to other factors, is not fully known with certainty.
- That's the situation roughly so far -
7. HYPOTHESIS 2: OPEC (esp. AOPEC) unity starts to crack even more and co-ordinated price setting becomes increasingly more difficult as key producers completely ignore set production quotas. OPEC starts to lose their geo-political leveraging position due to internal squabbling.
8. HYPOTHESIS 3: players who have leveraged the market, semi-synchronously pull their profits from the commodity investment bubble, sending futures prices plunging.
9. HYPOTHESIS: Commodity crash combined with somewhat soft demand due to weakening economy and a sudden burst of additional production capacity from a new mini-swing producer together send the oil prices crashing by 40-60% for a while and then stabilizing at c. $70ish pbl level.
Now, the QUESTION.
Assuming the above were true and how the future will unfold, which I am NOT saying it is/will, what would it mean, what would happen?
If oil price was to "crash" for a period of 3-5 years (and markets didn't know for sure that it's only for that period), what would it mean?
- Nothing?
- More breathing room until the final geological/upstream constrained imposed peak?
- Serious trouble for certain oil producers (which?) and their leaders (who?)?
- A change in power for some countries (which?)?
- Change in economic growth for the world / USA ?
- Change in USA's geopolitical position (how?)?
- Change in (A)OPEC's leverage ability?
- The speculative component from oil is removed for another Z years, due to many having burnt their fingers in this market?
- Something else, what?
What say you?
Dream on.
IMO, oil prices are rising because of a decline in net oil exports, in order to balance supply & demand. Then net exports fall again, requiring a higher price to balance supply & demand. Saudi Arabia produced 11.1 mbpd total liquids in 2005. They wanted--and were able--in 2008 to match their 2005 net export level, they would probably have to produce about 11.7 mbpd.
Westexas,
you miss the point. I fully agree with you. But I cannot know this (100% certainty or proof via elimination of all other options).
My thought game is to imagine and not to claim what would happen if oil price would crash temporarily. You know, 'for the sake of the argument, imagine...'
I'm trying to ask if the situation in such a hypothetical crash would be similar/different compared to what happened when the oil price crashed the previous time.
Also, let us not forget that, many people have argumented that after the final peak in oil production, oil use/price will go through a period of oscillating cycles of peaking/crashing as the economy tries to adjust, without changing its underlying principles (again, this completely unrelated to the thought game, but a good reminder for oneself to keep the options open).
So, again:
What significant changes/incidents might come about, if the oil price was to crash?
This doesn't have to mean one believes or arguments for the likelihood of such a crash. That's why it's labeled a thought game to begin with!
A crash would mean deflation across the board,
bringing the worst possible scenario to
debt, and anyone who owned it.
If we look a just light sweet crude, things are still rather bullish, but the majority of the crude on the market is NOT light sweet any more. There is an increasing spread between heavy sour and light sweet. With 2-3 million barrels of spare capacity of heavy sour available, there is no supply problem, just a refining shortage.
No matter how high the price of light sweet goes, it will not be used for refining unless product prices rise enough to make it profitable. With ethanol and flat demand holding down the price of gasoline, light sweet is becomming less and less profitable for processing. Its diesel that is pulling this market higher, and heavy crude refineries are better suited for making more diesel.
By bumping the price of WTI up to 140, traders will be shooting themselves in the foot. It would be cheaper for older refineries to simply shut down and retrofit with sour crude equipment than to keep running.
The OPEC has attempted to support the price of sour crude to approach sweet crude, but this is creating tension with its customers, and is not supported by fundamentals like storage and refining margins.
I think WTI will hit $140 by 2009, but traders will have to boost product prices first. Gasoline prices are not far about 2007 levels when crude was half current prices! Short term WTI is going to pull back or hold steady while product prices rise. By the end of the summer, $5 gas should allow for another big run in crude.
What would happen?
Probably something similar to the mid to late 1980s when oil prices plummeted and commodity prices slumped.
OPEC would likely stay together. If the organization could weather the last crash and the Iran/Iraq war, the Gulf War, and strong outflows from non-OPEC sources (e.g. North Sea, Alaska, Canterell, etc.)it will weather anything.
Oil regimes would be distablized to some degree and the potential exists for maverick actors on the world stage -- an example from the past, Saddam Hussein's attack on Iran & invasion of Kuwait.
The US's geopolitical position will change regardless of expensive or cheap energy. China, India, and Russia will challenge the status quo. If Chalmers Johnson (author of Blowback) and others are right as they gaze into their crystal ball, the US is now overextended and its pre-eminence will disappear, not going extinct like the Dodo bird but pulling back much like the Soviet Union did.
Personally, if I may be so bold as to make an educated guess, I can't see these hypotheses coming to pass. But then again, I've never had much luck with a crystal ball.
Thank you for playing the game. And as for the hypotheses, I agree, although the limitations to a functioning crystal ball apply here as well :)
In Egypt oil exports were falling, oil demand was remaining constant. Current exploration and development programs were yet finding new oil. Egypt has large reserves of natural gas and natural gas consumption almost tripled in about ten years.
What's surprising with the current runup in oil prices is not the actual price that is being reached, but rather the lack of effect we have seen so far on US & world markets. I think a few years ago if you would've told any economist or even lay person that oil would reach into the 120's they would've predicted a severe recession or outright depression. It's possible that there is a lag between the price and economic blowback.
It still confounds me that KSA doesn't raise their prod. to maximum. The Sauds used to gladly increase output when oil reached the 30's. I guess it could be that a) their spare capacity isn't as much as they claim or b) the spare capacity is of the heavy, sour hard to refine type.
This will be an interesting summer and hurricane season...$5 gas is just around the corner. Bring it on!
KSA and many other AOPEC countries are still constantly and vehemently claiming that the price rise is NOT due to market fundamentals, but due to rampant speculation.
It is their right to spout such opinions.
The important thing is of course, what is the real reason, which many here believe is that KSA is unable (geological/investment issues) and/or unwilling (saving it for later generations/seeing how much world markets can take) to ramp up production.
I suspect that the truth is that Saudi Arabia doesn't have enough spare capacity to significantly moderate prices. They have half admitted it themselves. This isn't a topic they want to dwell on however because much of their strategic value to the United States lies in their purported ability to act as swing producer in order to stabilize prices. In exchange the US in effect guarantees Saudi security (and by extension the survival of the House of Saud). Hence the Saudis are acutely sensitive to any factor that might lessen the perceived worth of their strategic partnership with the US.
In a similar vein the Saudis have talked up the red herring about "speculators" driving up the price of oil because it conveniently distracts attention from those other topics.
In addition, I think a lot of oil producing countries are taking a look at their remaining stocks and are questioning the wisdom of selling it as fast as possible to the highest bidder. Once it's gone, it's gone, and they understand that as much as anyone. They're deciding right now what is important, and will probably come up with policies that balance saving some oil for their current and future needs and selling the rest for revenue, though perhaps at a slower pace.
I want to suggest that the current oil price is 4/5ths dollar devaluation, and 1/5th oil fundamentals (supply/demand). This is not a view through rose colored glasses or from a main stream perspective at all. And as a frequent reader of this site, I’ve read nothing to convince me peak was not in 2005. Further, I think the ‘plateau of peak’ has kept the fundamentals, or the effect of oil’s fundamentals, from exerting full force; and that is likely to change soon.
The above ratio just feels about right from everything I’ve read and understood lately, but it’s cherry picked from the end of a recent article by Adam Hamilton of Zeal Intelligence; Dollar-Neutral Crude Oil. The essay considers the last eight years or so of Oil’s bull-run - in dollars, euros, and gold. The price perspective changes radically depending how it’s viewed; and the reasoning is compelling.
The point is not to disparage oil’s fundamentals; my outlook is actually close to Grey Zone’s or Kunstler. It’s just that the dollar’s fundamentals are deteriorating rapidly, as well as oil’s; with a hellish synergy.
Very interesting debate again on TOD.
My guess is that oil prices are more likely to be geometric (or exponential if you wish) than linear once the top region of the bell curve is reached. It seems to be more or less the case since the beginning of the decade.
120$ oil during one year would cost the world about 8% of its GDP. No question for me whether we can afford it or not. And the poor people who cannot won't affect the market significantly once they're out. Not that sure once it's 16% and definitely not if it skyrockets to 32%.
Human's mind is used to deal with an apparently linear world, both in space and time. I'm sure everybody's gonna be surprised, including myself and even Matt Simmons, when the years turn to months and the months to weeks. In a sense, time is accelerating.
The price can go everywhere from now, but I voted for the 140$ line to be broken soon, as I did for the 127$ line before.
If PO is now, the first thing we'll have to do is "think non-linear".
Please excuse my french accent.
The last few polls I chose the max. increase, I only wish I'd put some money on it. The analogy about the Oreo cookie resonates the most. We've been going thru the hard biscuit portion for more than a half a year. Now we get a short soft bit (leveling off or lower prices)before next winter. Then we head back up to the next peak of at least $200/barrel by next winter sometime, the other side of the Oreo. Despite the Typoon in Burma and the earthquake in China, there hasn't been an event like Katarina that effected supply or demand in a massive way, so if there is an event of such or greater magnitude, all bets are off, as prices could be further driven to 50% above whatever existing prices are at that time.
It is beginning to feel like TSHTF time up here in BC. Gas pump prices hit their highs in the year after Katarina and have just recently passed those highs. Thanks of course to the US declining dollar and our oil (poision)sands.
May your gardens prosper this summer.
Peak Oil is increasingly being discounted in the futures price.
By the start of this year the Dec 2008 contract traded usd 10 above the Dec 2010 contract. On Friday the difference had shrunk to only USD 2! On Friday alone the near term contract prices increased by 2-2.5 usd while the contracts further out 4-5.4 dollars!
This a truly relevant phenomenon that is not reflected upon in the media. It shows that the increase in oil prices over the last months in not a fear of short term shortages but that this fear is now long term reaching!
The shift over the last months in the difference of near term and furhter out is an eyeopener for me, and it should be for everyone.
If you want to study this phenomenon go to futuresource.com
Let's see:
- speculation accounts for about $3 or so. That's how low the price went during last week's expiration of options.
- US dollar depreciation accounts for about 50$. The US dollar used to be at parity against the Euro and was worth about $1.45 CAD.
- eliminating "speculation" and dollar depreciation,we're left with $75. This is the result of SHRINKING inventories due to un-balance between production and consumption. To get an accurate picture of inventories one should not look at absolute values, but at "days of consumption" based on current demand.
The short to medium term is clear. Short term, whatever reduction in consumption due to US recession and conservation efforts, it will be made up by increased consumption in the rest of the world. The US dollar slide will continue. The oil price it will be a function of the US dollar.
Medium term, the un-balance will really kick in. In China, India, South-East Asia, South America, Russia and Eastern Europe- car sales are booming. And most of them are not replacement vehicles- as it is the case with US and Western Europe.
The oil price will go up to the point where the balance will re-establish itself.
But before any meaningful discussion, we should first find a better reference then the US dollar. And I think that might be a bigger problem then the oil problem.
China has apparently written a blank cheque to subsidise their domestic petrol prices until after the Olympics.
http://www.quamnet.com/newscontent.action?listSectionCode=NEW_ECO&articl...
So the world supply will feel the full force of Chinese demand growth (without a price signal) until late August.
Many appear to be surprised that $3.80 a gallon gas has still not dampened demand in the US and they ask how high does it have to go? Well here in Australia motorists are paying the equivalent of nearly $5.50 a gallon gas - and they continue to fill up their tanks and drive SUVs without petrol riots. Car usage and ownership is similar in both countries, so assuming the average US urban/suburban dweller has a similar profile to his/her Aussie counterpart, I would venture that gas prices could easily go considerably higher in the US without things falling apart just yet.
They have a lower minimum wage, and a larger rich-poor gap than us in Australia, though. Also they've heaps of illegal immigrants working for less than the minimum wage. So on the whole the US has a lot more people than Australia who haven't the discretionary income to deal with great price increases in things.
It may take a long time for the effects of a high oil price to filter through to governments to change policies. A written question to the UK transport minister on assumed their future oil prices produced the following result dated 9th May:
$65 in 2010
$68 in 2015
$70 in 2020.
See:
http://www.publications.parliament.uk/pa/cm200708/cmhansrd/cm080512/text...
Obviously they haven't quite caught up with Goldman Sachs.
The problem is that there are lots of pointless projects scheduled (such as widening of the M25 motorway and a 3rd runway at Heathrow airport) that should really be cancelled and money diverted into more worthwhile things like railway development.
We may well see an oil price spike simply because it may take several years for governments to turn their planning machines around to help cut demand. And that's despite having UK Climate Change legislation in place which is supposed to be doing it.
BobE
Interesting how the 2008 contract price of 1 tonne of thermal coal has gone from $55 USD to $130 USD in Asian markets as of April 1. Spot price hit $155 in Rotterdam last week. Kind of mimics or leads the price of oil. Forecasts for 2009 and 2010 are in the $140 - $160 range. No reason that 1 barrel of oil won't be at least in that equivalent range within a year. Some LNG prices to Asia are also tracking much higher.
I guess as Clinton once might have said "it's the Energy , stupid".
Uranium is now very underpriced in terms of $ per BTU to all other real energy fuels. Guess I'll speculate there shortly.
As they say. Buy on the dips in a fundamental boom market. I'm hoping oil dips to $110 or so in short term before the US summer kicks in.
I drive a 1.5l Mitsubishi Colt at about 50 mpg( Imperial gallons). Cost new was $15000 AUS dollars Much better 10 year value than the Prius.
I voted it will go to 140 $/bbl. This is almost a sure thing. The dollar is weakening quickly, and the economy, although also weakening quickly, has a high degree of inertia built into it. I think that this will max out (as the depression/recession comes on very strongly) around 180 $/bbl.
Rather depressing, but thanks for this poll.