POLL: CLU08 went through $114/bbl..so, in the next 60 days, the front month price of CL will...

hit $126 before it hits $102
42% (1609 votes)
hit $102 before it hits $126
26% (983 votes)
stay in a trading range between $102 and $126
25% (951 votes)
it's still all geopolitics and other "above ground factors," so what does a price signal mean anyway?
4% (157 votes)
haven't you heard? it's all about the declining dollar and specs-not growing demand and a stagnant supply.
4% (151 votes)
Total votes: 3851

As Prof Goose would say (edited from last poll to include current results):

in our last poll on 23 JUL, 22% of you predicted that CL would hit $114 in the front month before it hit $140, and 39% of you predicted that CL would hit $140 before $114.

In the three polls prior to the last two, the results have predicted 10% rises within 60 days of each poll and were on target, and now our last two polls have witnessed 10% declines, which a majority have missed.

Past performance is not a predictor of future values, YMMV, and as it says in the disclaimer, nothing here should be construed as investment advice.

As I said last poll, this is the point about a plateauing oil supply to me: increasing uncertainty and volatility over time. As far as I am concerned, it's a guessing game right now...and will be for the foreseeable future.

I always click on the "haven't you heard?..." option. My prediction is correct every time because it's unfalsifiable. On any given day the dollar is either rising or falling. If I cherry pick the events, I can explain the change in oil price every time! :)

I was one of those who was wrong on the last poll after being right on several polls.

The commodities markets have broke down and need to find support. This is not only true of crude oil but also ethanol. Likewise grains confirm the reversal in that corn and soybeans as well as other grains have broken down. While the grains are not like crude oil they are somewhat related in that corn is used for ethanol and soybeans for biodiesel.

The economy is clearly in recession with auto makers in free fall and a local company Winnebago Industries dumping workers and putting many on shorter working hours.

The Rule in speculation, and that is what trend following is mostly, is to go with the trend. And when the trend reverses do not go into denial. Just accept it and follow it until it reverses which it will just as the uptrend reversed. Down is quicker as all the longs panic to get out of their wrong positions.

It may take some time for this downtrend to reverse since a new bottom has to be formed. It seems to me that harvest lows in the grains and the election of Barack Obama as President may put in the low. The Fed is impotent as is the oblivious lame duck President and Congress.

Overextended people who are living hand to mouth are in shock just like the banks and both are in survival mode.

Baring hurricanes and war this downtrend may last awhile.

Baring hurricanes and war this downtrend may last awhile.

Well that's the trick isn't it?

Its probably better than 50:50 that a hurricane threatens the oil infrastructure. Georgia just seems to get worse and worse as Russia goes for empire building undercover of the Olympics. If the neocons are going to hit Iran, it has to be soon. Oh, and OPEC meet again in September.

Oil prices react significantly to relatively small changes in the supply/demand balance - as befits oil's inelasticity. We've seen reductions in demand from one market swinging the price southwards, but any comparable reduction in supply will shoot up the price until we are again in uncharted territory (its easier this time).

Money into futures and a nice bet on $150 by the end of September would seem to be the smart move at the moment.

These were my comments on July 23. I think I called it very well:

"I have been an oil investor since the 1990's. I believe in peak oil. Over 50% of my porfolio was in oil and gas I have been greatly rewarded...

Last week I sold about 20% of my oil investments.

I sold shares in a natural resource fund that I have owned for a long time. Ten years ago I was buying the shares for $7. I sold for $42 I didn't quite get the top of $46. In Febuary, in the middle of the SoGen crisis, I was buying oil and gas mutual funds for $18 a share. I sold for $24. A very nice return for 5 months.

Sometimes you are so far ahead that you just have to take profits.

There is demand destruction out there. We have all sorts of stories about parked cars, increased transit use, etc...Higher interest rates and an economy in long term reccession may push the price of oil even lower. Who needs gas to get to a job, when you have been laid off? Better to spend the money on food, seeds and insulation.

I think I will be able to buy all my shares back with oil at $115. I will buy them back in small lots at a lower price. I think the Saudis will cut production at $100 and definitely at $80. They want to preserve their resources for future generations.

$80 to $115 could be the buying opportunity of a lifetime."

Today on August 11, I think we will see lower prices.

In the short term, the price of oil can be about more than just supply and demand. I can be about interest rates and the strength of the dollar.

When real interest rates are negative, commodites are a great play. You lose if you sit in bonds. When the Fed really starts to raise rates, oil prices often drop.

Recently I saw an interview with a Fed banker. He said the Fed was willing to raise rates, even in the face of declining house prices. That's an amazingly strong statement.

I think things have already changed. Higher interest rates will cause the world economy will decline even further and it will require less oil.

Investors who have been forced into commodities by low interest rates will see new higher interest rates and make the jump to short-term bonds and the dollar.

If a hedge fund made 30% in commodity speculation in the first part of the year, they will be tempted take profits and be happy to sit on short term bonds for rest of the year and end with an easy 35% to 40%.

I also think some American Banks are liquidating commodities and oil stocks because they need the money to stay afloat. The market is being sold all at once.

I think this is happening now. Some of those oil winnings are even making it back into speculation in the U.S stock market.

All those discussions about Chinese and Indian demand, will matter less as those countries have benifited greatly from selling goods to America. Demand from other countries will not make up for the decline in demand from America. The American consumer is tapped out from the housing crisis.

In the short term, think oil will go lower. Let's see if the Saudi's cut production at $100. I will not buy back in until $95. I am going to lighten up in other areas and have lots of money ready incase we get $80 or less in panic selling.

Long-term, I love secure, dependable Canadian oil companies as an investment, but I want to buy them at bargin prices when the newest speculators are scared silly by all the selling.

Of course, Israel or Iran could change everything in an instant. That's why only sold 20% of my oil holdings back when prices were so high.

In the short to medium term I agree with this assessment. I think demand destruction/economic downturn is an overriding factor at the moment. Lots of new efficiency and some new tech coming online as well. We'll have to see strong cuts in production to beat this trend.

Gold just dropped another $20+ to just a hair over $800/oz.

That's about 7% in less than a day. Commodities don't look like they're ready to turn around.

We need an "I'm Feeling Lucky" option that votes randomly.

A link from the DRUDGE REPORT containing a prediction:

The great oil bubble has burst

And where will that price be by mid-autumn, after a couple more months of gloom-laden statistics from the industrialised economies? Perhaps, with all the speculative fizz taken out of it, down by as much as a half from its June peak. That's not to say it won't go up again when the signals change and all those long-term factors loom large once more.

Keep in mind ...

All markets fluctuate. It is hard to determine a trading range for crude since it has never traded in the dollar amounts that we have seen over the past year ... ever! With the volatility of all markets, a range of 15 - 20% might be reasonable.

China has pretty much shut itself down for the Olympics ... s kind of 'Clear Skies' initiative. Chinese storage is miniscule; refining in China is driven by the government price controls on petroleum fuels, it is unprofitable for refineries to process fuel. There is no reason for Chinese refiners to hold fuel they will lose money on.


By waiting, they have allowed prices to decline, that is helpful for them. By the end of the month, the Chinese will be buying again. I suspect prices will rise again.

Fluctuation... Is it a "forever" thing?

Regards, Matt B

So what are the main factors at work here and can we quantify them?

Assume the supply numbers via IEA are correct...

What is the elasticity of demand?
Demand is softening by what percent?
Which equals how many $ via elasticity?

What is the state of OECD stocks? Are commercials going to be forced into buying?
What is the state of heating oil stocks especially? Not much time till winter in the north.

When must people start living inside their means?
How extended is the average consumer on credit?
How fast will the credit crunch dry up consumer credit?

I am surprised stocks are not jumping upward, because this would seem a great opportunity to hedge.

There are many factors at play. Price instability is a key indicator that the tipping point of fear and panic is not far way.

Fundamentals of supply and demand will be clear in a year. By this time next year depletion rates and increasing domestic use in exporters will clearly indicate that demand destruction (economic destruction) or efficiency gains of 8% (rough guess) per year will be required just to maintain economic break even.

Fundamentals of supply and demand can be trumped (negative only) in so many ways: war, terrorism, storms, politics, stupidity (redunant), hoarding and other above ground factors. These instant actions will create supply shock.

Forecasting based on traditional supply and demand may work in the short term but ignores the whopper events. There are so many whopper events likely that it makes sense to ark-up, build an economic lifeboat for your economic community.

We have a small group putting together a list of supply shock contingency plans. So far the only two worth mentioning are Utah's and the IEA's. Both deal with temporary disruptions of less than 10%. I will try to create a post at TOD for people to list known and published contingency plans that can aid communities.

Elasticity of demand in the US is roughly - 0.045 for oil. Lower for gasoline, higher for kerosene and heating oil.

Here's a recent meta-review from Bank of England (6/2008) on oil price demand elasticity:

According to BoE price elasticity is close to nil in short term, but naturally increases as a function of time, while still remaining comparatively low. Income elasticity is much higher in developing Asia compared to OECD countries.

The elasticity is overdone. Between 1973 and 1981 the price of oil increased by nearly 1000%, but in the industrial countries demand fell be only 14%. That implies a low elasticity.

The "demand is down" mantra the MSM trumpets will be hitting a flat note in the coming weeks IMO.

I still know of no one who drives less and from what my lying eyes tell me, nobody else is driving less either.

As a matter of fact, travel is up in Southeast Michigan, people are leaving Detroit in droves

Anecdotally I offer two observations which support reduced driving levels at least in the West: the commuter freeway load is appreciatively off in Santa Cruz CA., with shorter backups during "rush-hour" and quicker cross-town drive-times. Secondly, I just road-tripped to Gillette WY and noted a much lower volume of RV traffic compared with the same trip five years ago. This should be high season for traveling campers and motor homes, but it seemed starkly quieter on the major highways.

This says nothing about Detroit, but around me at least there is less driving going on. Of course sales and inventory numbers trump casual conjecture, but we're looking at this as possibly our last "road trip" of any length--and appropriately so--I have a big footprint this year...

Well, I'm giving myself some kudos because I did predict the price arc back in Feb/Mar. Matter of fact, my wife was getting pretty annoyed with the prognostications. I didn't think it would go quite as high as it did, I thought around $140; but, I did estimate it would fall back to around $110 to $115 in August and hold above $105 into the Fall.

We're close to the floor price and I doubt we will see double digit pricing short of major economic collapse. Wait until the Olympics are finished and China gets back to BAU.

I'm one of those who got the polls right so far. Summer peak gasoline consumption is down about 4% vs last year. OECD demand is down. I read somewhere that demand in India is now flat with last year, and growth has slowed in China despite subsidized prices. The dollar is strengthening a bit, and dollar hedgers are changing their bets and baling out of commodities, which means speculators will bale out of oil also. There is considerable new supply coming on stream in the next few months, both from Megaprojects and refineries to refine heavy sour crude. The fundamentals still point down. Judging from past trends, before this recent spike, supply/demand fundamentals combined with the dollars present strength might justify a price now near $105./b. I don't have a model, just eyeballing.
If the supply comes on as expected, and the dollar strengthenings a bit more, that value drops (obviously). Overshoot on the down side is not unlikely. Brief downspike to $90./b anyone?? Murray

Murray, you "eyeball" model seems as good a model as any I've seen anywhere else. And While Spaceman says he has seen no drop in driving, I have to say that I have seen some cutting back in our area, especially in vacation and "recreational" driving. Where used to for a long drive trip involving two or three people in the vehicle folks would say "let's take the truck" referring to the SUV, they now say "let's take the car (in this area often a Honda Accord or Toyota Camry, sometimes a little domestic). I know of several people with motor homes or RV's who have parked them at a popular destination only a few hundred miles away and drive back and forth to them now instead of driving them back and forth.
And with each passing month, the population of newer smaller vehicles and little hybrids has been climbing as a percent of the total road population. It doesn't have much effect yet, but the impact is increasing. Oil consumption in the U.S., Japan, and Europe has probably already peaked, and should continue to decline. It is Asia and the developing nations that are the driving forces now.

I have taken the unpopular view that we really need a floor price at around $95 to $100 per barrel. Anything below that is more destructive than constructive and would only set off another round of wasteful use and money export from the developed economies and kill the momentum efficiency improvements and of the revolutionary alternatives yet to come, in particular the plug hybrid option and advanced haulage trucks that are in development now, and logistical changings using our rail system. The developed economies can weather $100 oil if they continue the trend of declining oil consumption.

$100 dollar oil for the rest of my natural life would suit me fine, I think those dreaming of $40 or $50 oil are living in a fantasy world.


I posted some long thoughts in today's Drum Beat about this. With graphs and tables. I don't want to copy all that here - I don't want to litter. So just saying... should any of you guys be interested, my comments on the issue are in the other thread.

$126 before $102, no choice for a doom3r.

Supply is up a tad and stocks are tickety-boo. Demand is down a smidgen. Overall supply is a dog's dinner; VenMex o/p is diving, UK is struggling, Russia has maxxed, most others are level-ish and Saudi is pounding the pumps to little effect.

The promised new oil may not be enough to offset global declines, may take a while for buyers to get that message.

Prices are being deliberately suppressed at the moment; some stock build here, more supply there and some phone call deals to the right people - how long the Global Elite can, want, or are able to, maintain control is another question.

The next couple of winters are going to be particularly harsh and prolonged. I expect NG prices to go, well, up.

no choice for a doom3r

“You've got to ask yourself one question: 'Do I feel lucky?' Well, do ya punk?”

What could be more perfect for a doomer?

cfm in Gray, ME

Never in all my years of watching the various markets, stock, commodity, etc, have I observed this degree of volatility. The stock market is up 300+ points one day, down 200+ the next, down 100+ the next, then up 300+. Oil kept rising to astronomical levels to 145, then started dropping like a stone to now less than 115. Instability seems to be the key word in today's market.

When I was a kid in high school in the mid 70's, stocks would go up 1/8th, or 1/4, or down 1/16 or a 1/32. It was all done with fractions back then. On a rare occasion a stock would rise or drop more than 1 full point, a full dollar. Maybe it's Globalization, but it sure seems whacky now!

I chose oil to hit 102 before it hits 126. But what do I know, I've only gotten one of these polls right so far. But I have a good excuse - too much volatility.

Comparing absolute changes is not really meaningful since the prices themselves are higher now. Better to talk about percentage changes when looking at volatility.

There aren't many posts here so I decided to copy my posts from the other thread. sorry for this, it was too late I realized I should have posted everything in this thread.


If you take a look at the diagram below, I think the petrodollar effect is clearly visible.

Oil fell 15% while the exchange rate did not change at all. After the price of oil seemed stabilized at this new, much lower level, confidence in the dollar grew. This, paired with negatíve news coming from Europe led to the strenthening of the dollar.

In the last few days, the price of oil followed the exchange rate. The price of oil is moving the dollar, making it stronger at the moment.

Methinks after oil goes back up again the dollar will weaken -- again. No wonder: oil is priced in dollars and if you have to put a substantially bigger amount to the market to get your oil, that creates an oversupply of dollars, this weakening the currency.


Imagine the following: We have to scenarios. Oil costs USD 150 or USD 120. Net exports stand at roughly 45 mbpd. So:

If WTI (or FOB) = USD 150, that's 6.75 billion dollars per day
If WTI (or FOB) = USD 120, that1s 5.4 billion dollars per day

You buy the same thing (oil) with more or less of the same dollars. But there is a more than 1 billion USD idfference there. So what happens?

Oil trades for USD 150 ---> lot's of dollars into the pockets of the exporters. It means there is an oversupply of dollars on the market, that tends to devalue the dollar. On the other hand, the exporters are still either spending or investing all these dollars. So what happens when oil goes to 120? There is a relative scarcity of dollars on the market in comparison with a few weeks earlier. Scarcity means the value is bound to go up: Hence the dollar strengthens.

You can follow this on the above diagram, I think.


WTI spot traded for USD 145 on July 11th. It was 116 yesterday. In the meantime, the dollar strenghtened, too. So what happened? Here is the full period:

Exchange rate adjusted oil lost almost 20%, while the dollar strenghtened 3.6%

But how did this happen? Let's see 3 different periods:

1) July 11th - July 25th
2) July 25th - August 4th
3) August 8th - August 9th

It is clearly visible from the numbers, that in period 1) the exchange rate didn't change at all but the dollar fell. In periods 2 and 3 the dollar strengthens (the above mentioned petrodollar effect), and oil changes in parallel with the euro. See the tables below.

So basically there was a sudden change in supply and demand between July 11th and July 25th? What was that? Supply remained basically the same. So it has to be demand then. May and June data for the US economy? The Chinese buying less oil (diesel) on the import markets due to the Olympics? I don't know.

But it's pretty obvious to me that demand weakened before the 25th of July, and the strenghtening of the dollar is a result of this (and the negatíve news coming from the EU). Later on ,the strengthening dollar is pulling down oil.

Just my 2 cents. I see no speculative effect here. At all. Only supply and demand and some changes in the exchange rates.


So what's next? I'm not sure. But I think:

1) After the games China comes back into play
2) Lower prices will make people and nations buy more oil
3) There is an OPEC meeting in early September
4) Heating oil comes into play in early October

All in all I think prices will remain relatively low in August and early September, but we will see a sudden jump come October. I don't rule out USD 150 in November.


Oh, and as for the question at hand: I say 126 before 102. I don't think oil has too much place to go down from here. It may touch 110, but that's it I think.

I think your analysis is largely correct. Supply hasn't changed much, and is probably down a little when net energy & net exports are taken into account. So I think the decline must be demand based. This is confirmed by the broad-based decline in commodities.

Coal and natural gas have declined more than oil, and their decline preceded oil's by a few days. The abruptness of the decline in demand points to a something fairly specific. I don't see anything in the OECD that would account for it. OECD demand is down, but it is down by about the same amount as net energy/net exports.

A freeze of sorts by the Chinese seems to be the best explanation for a sudden, broad-based decline in demand. Is it on account of the Olympics? Probably, at least in part. What will happen when the Olympics are over? I suspect demand will go back up, but I don't think it will go back up to where it was before. Some of that pre-Olympics demand was caused by Olympic preparations and some was caused by post-earthquake emergency power generation and reconstruction. The former will be gone, while the latter will continue to decline.

As for predictions, I have generally been a bit on the conservative side. I failed to predict the run-up to $147 (voting "trading range" for those polls). I was correct in voting for the decline to $114. I suspect oil still has some down side, but I rather think it won't quite get as low as $102. After the Olympics, the price should go back up some, but not to where it was before (near term, of course; long term it will go up a lot more). Anyway, I say 126 before 102, but it will be a near thing.

As far as I see, 1Q 2008 there is substantial demand destruction in OECD, mostly USA. After 1Q ended, there were few countries lifting subsidies. Also, many central banks in parts of the world that consumed much of that oil released from OECD demand followed by raising interest rates and tightening monetary conditions. ECB also raised interest rates recently. That's demand destruction on the other side. Take a month or two for feedback loop to develop and work it's way through. Besides, Japan, EU zone, UK shows signs of recession (which is not good for commodities).

No proof, but I suspect the US election also comes into play. How does an incumbent executive branch in the US manage oil prices so voters are (somewhat) happier at the polling booths? Currency values, interest rates, timed to squeeze even the $20 the speculators have in the price out just as voters are deciding.

I'd say any floor's possible until Nov 8, then watch the spike.

I said 126 before 102. Two reasons:

1) Georgia. Lots of the heavy fighting occurred after markets closed on Friday...so we'll probably see some rise on Monday from that...plus more if the pipeline is damaged severely.

2) The next sixty days correspond to the peak of hurricane season. We got lucky with Dolly, and things are quiet at the moment, but that can change quickly.

It really is shocking how quickly the oil market has fallen. Are we really cutting back THAT much on demand? Or is it mostly emotional response to bad economic data?

I still think $150 is very possible by Thanksgiving.

Do you have a Plan B for your life?

We are building a community. A solution for peak oil, the unfolding financial and economic crisis, climate change and the pursuit of authentic happiness.

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Hi Joao and Vanessa.

I's great you guys are building a sustainable lifestyle in such a beautiful location.

I appreciate your offer of joining your community and I have thought about it.

I have a Plan B based on my available resources and assets. Plan B is sketched out in 3 phases; B1 and B2 are essentially knowledge and resource ( money ) gathering enabling the B3 self sufficiency stage at no later than 2010.

Altering The Plan and moving to Portugal would increase the required resources at least twofold. This is energy inefficient and would extend the B1/B2 gathering phases probably pushing the B3 phase into a negative time frame; TSHF before I build Sanctuary.

I hope you will post some of your insights here or on your own blog.

Fare Thee Well

By consistently voting down, and voting more than once in the more recent polls, I am now getting more correct votes than incorrect. Maybe its time to start trading, though olive oil seems nicer than the black goo. Let's keep this trend going on down to $20/barrel by cutting US consumption by 20%. http://mdsolar.blogspot.com/2008/06/oil-is-too-expensive.html That could help us meet our Kyoto obligations as well.


I've had three votes so far on this poll.


Forecast updated for oil price drops, EIA data, stronger US dollar and OECD demand destruction.

My guess is that oil price will "hit $126 before it hits $102". My forecast indicates that average monthly oil prices will never go back down to $102.

Supply, Demand & Price to Dec 2012 - click to enlarge

Volatility makes sense right now, given your supply/demand curves crossing back and forth. But why won't price shoot up highly later this year as the demand increases again? Aren't we at the supply max/demand minimum right about now?

A continued floor-crawl at $120 to me signals price is still based on marginal production costs. Toggling back up to $150 would imply that it is based on marginal consumption costs instead, with a few of the highest elasticity users falling off the cliff in between.

Do you concur? Do you see an opportunity for a significant step-up by 2009?

Forecasting price is very difficult. I think that the recent run up in oil prices to Jun/Jul 2008 represented an overbought situation.

My forecast price for Oct 2008 is over 50% greater than the price in Oct 2007, just one year ago.
That's a huge increase and is causing significant OECD demand destruction. For example, in Aug 2007, US consumption of petroleum products was about 21.1 mbd. For the week ending 1 Aug 2008, consumption was 20.1 mbd, down 1 mbd or 4.7% in one year!

US consumption appears to have peaked in 2005 and the recent EIA consumption data indicates that the downward trend continues. In 2007, the total US crude oil/petroleum products consumed was about 7.55 Gb. If average consumption of 20.3 mbd for June/July 2008 is assumed to be an average for 2008, then this represents consumption of 7.41 Gb for 2008, or a significant drop of 1.9%.

Oil prices are forecast to resume their uptrend in late 2009 as total liquids supply starts declining and falls off the peak plateau. However, if any serious supply disruptions occur, I would not be surprised to see weekly oil prices spiking to $200/barrel before late 2009. The oil market is now in a fragile balance between supply and demand.

I'd like to add something I think is important. I'll not bring in all the graphs. But historically VMT ( Vehicle Miles Traveled ) flattens and sometimes declines when we have housing busts. Housing is a large industry in many countries and overall uses a lot of transportation plus in general the new construction is farther away from the city center so you have a tendency towards longer commutes.

The housing industry in the US is pretty much done I ascribe a large amount of our current flattening to this one time reduction. I think you will see that as we go forward that remaining demand will be much more inelastic.

If you look at the demand graph consumption is almost a perfect fit with the rise and fall of the national housing bubble its not price sensitive. Certainly recessions play a part but in my opinion the VMT effect is actually felt in the housing industry.

expect to be reminded of this prediction "never go back down to $102 again"

expect to be reminded of this prediction "never go back down to $102 again"

and here is the reminder :-)

I don't know. Even adjusting the Megaprojects for some additional delays and disappointments, I can see supply reaching 89 mb/d (all Liquids) by mid to late 2010. If your demand is right that would move the final shortfall to about the beginning of 2011. Murray


I'd also like to see supply reaching 89 mbd (incl biofuels) by about 2010. However, I think that 2010 supply will be closer to 85 mbd (incl biofuels).

Below is an updated Megaprojects capacity additions chart which shows about 5 mbd new capacity for both 2008 and 2009. At first glance, these capacity additions should justify about 89 mbd by 2010.

There is a strong distinction between capacity additions and actual annualised production additions. For example, both the IEA and ExxonMobil estimate that the USA Thunder Horse project will add about 210 kbd annualised production, rather than the 250 kbd capacity, attributable to the production infrastructure, which might be achieved for some part of a year, but not for every single day of the year.

Another example of capacity additions not becoming production additions is Brazil. Between October 2007 and April 2008, Brazil has brought "capacity" of 500 kbd on stream from Roncador P52/P54, Golfinho Mod 2, Piranema and Siri.

From the EIA, Brazil's crude/condensate production, prior to this 500 kbd capacity addition, was 1,726 kbd in Sept 2007. In May 2008, it increased by only about 100 kbd to 1,815 kbd. In other words, so far, only 100 kbd additional production has been realised from 500 kbd additional "capacity".

Many other countries with offshore production capacity additions usually refer to the capacity of the associated infrastructure including FPSOs, rather than estimating an annualised production addition, taking into account the oil field's ability to increase production and downtime due to repairs, maintenance and bad weather. Countries with significant new offshore production capacities, listed in Megaprojects, also include Angola, Australia, Azerbaijan, Ghana, Kazakhstan, Malaysia, Nigeria, Norway, Russia, Saudi Arabia, UK and Vietnam.

The production characteristics of offshore fields is one of the main reasons that Colin Campbell revised his peak year from 2010 to 2007 and now to 2008 at 85.3 mbd (excl biofuels). For comparison, my peak supply year is also 2008 but at 86.6 mbd (incl biofuels).

This revision (see table and graph on Page 2) is based on an update of the deepwater situation, revising the previous version made in 2005. The model considers the four main deepwater countries (Angola, Brasil, Nigeria and USA) and lumps the remainder together. The previous version came to a total ultimate production of 68 Gb, which has been increased to 85 Gb. The earlier model was based on Hubbert depletion profiles, but this has been abandoned in better recognition that the rate of deepwater production is likely to be constrained by the capacity of floating production facilities delivering more of a plateau than a peak. Deepwater oil is very costly to produce, and investment limits are a constraint.

World Supply Additions to 2020, excluding biofuels - click to enlarge

Another capacity addition category also included in the Megaprojects is oil sands from Canada. The upgrading of oil sands into crude requires inputs of water and natural gas. Pumping of the upgraded crude requires pipeline infrastructure and diluents to promote the flow of the upgraded crude. Megaprojects 2008 table includes Canadian oil sands capacity additions of 260 kbd.

EIA production data for Canada, including oil sands, was an average of 2,607 kbd for the first five months of 2007. The average for the first five months of 2008 was less at 2,565 kbd. Canada's conventional crude may be declining but crude production from oil sands is proving difficult to increase.

World total liquid supply, including biofuels, might be higher in 2009 than 2008, but I have my doubts. Increasing supply from offshore fields, oil sands and ethanol is proving more difficult than originally believed.

I'd love to see some comprehensive data on the world wide status of shallow water offshore production.

At least in the GOM declines in shallow water have offset gains in deep water if the decline continues I think we will see overall decline in production in the GOM even with ThunderHorse.

We have a lot of shallow water production I've seen numbers that indicate 40% of the worlds oil production is from shallow offshore wells.


The main drivers for this anticipated steady decline in drilling numbers, despite relatively high oil prices, would appear to be an increasing shortage of shallow water prospects and field developments in the Gulf of Mexico, the North Sea and elsewhere. Some additional shallow water drilling is possible in the Persian Gulf, depending on controlling governments encouraging investment to a greater extent than they do now, but elsewhere there is little room for drilling sufficient to maintain current levels.

Increasing Water Depths

During the last decade reductions in opportunities in shallow waters have been counter-balanced by moves towards increasing water depths. Water depths capabilities will continue to grow beyond the current drilling record of 2,965 m partly offsetting declining activity in shallow waters. Of the approximately 3,000 wells drilled offshore each year, 12 percent are now located in deepwaters. The number of deepwater wells relative to shallow water wells is expected to increase to around 16 percent by 2007.

My opinion is that this ability of deepwater drilling to overcome declines in shallow production is a temporary situation esp considering the difficulty of deep water. Also offshore oil fields are not generally amenable to advances extraction methods since they are so expensive to maintain. In fact many are not even worth performing secondary recovery on using water or gas injection. And water handling offshore is problematic. Horizontal drilling has help stave off problems but we will increasingly find it simply increased the depletion rate. In any case shallow offshore production notably in the GOM but worldwide is probably the type of oil production most vulnerable to steep decline. Also of course the new situation that the fields are now declining without replacement should steepen what looks like a already steep decline rate. Depletion rates in offshore fields often approach 20%.


It found that heavy reliance on increasingly high cost and technically challenging fields like the Kashagan project in Kazakhstan, Russia's Sakhalin II and Canadian and Venezuelan oil sands have left world supply growth vulnerable to a seemingly never-ending series of project delays.

Rubin notes that delays in the latter two countries will shave over 700,000 b/d from earlier 2012 production forecasts. In some nations, soaring development costs have resulted in complex and often tense re- negotiations of royalty agreements with host countries. Some have even led to either a temporary or indefinite suspension of operating licenses.

"Of course, stagnant conventional world oil production underlies the recent problems associated with harvesting unconventional supply. Virtually all of the increases in global oil production have occurred from deepwater fields or oil sands, with conventional production seemingly stuck at 2005 levels of 67 million barrels per day."

These project delays are also happening at a time of accelerated global depletion in existing fields. The rate has climbed to over four per cent, which cuts nearly 4 million barrels per day out of each year's production.

The recent increases are in part, related to the growing importance of offshore, and, in particular, deepwater fields, which have depletion rates twice that of conventional fields.

"Cliff-like depletion rates have already been in evidence in the North Sea and now the huge Cantarell field in Mexico," added Rubin.

"Since 2000, offshore fields have been the single-largest source of new supply growth. As their weight in total production increases, future depletion rates will continue to rise. Even holding the current depletion rate constant over the next five years, we must produce nearly 20 million barrels per day of new oil just to offset what will be lost through depletion during this period."

Rubin notes that these major project delays and increasingly rapid depletion will result in a supply increase of only about 3 million barrels a day by 2012 - far below the 10 million barrels projected by the International Energy Agency.

More info I found on the GOM looking around.


The really interesting table is this one.

Platform Rig Fleet Total Contracted Fleet Utilization Rate
U.S. Gulf of Mexico 53 32 60.4%
Europe/Mediterranean* 107 104 97.2%
Worldwide* 296 256 86.5%

The big number is GOM fleet utilization. Or better small number.

And here is for the world.

GOM oil production is probably going to "go off a cliff".


Here is an updated US Gulf of Mexico monthly HL plot indicating an economic URR of 23 Gb for shallow and deep water.

US Gulf of Mexico Monthly HL Plot - monthly production/cumulative production vs cumulative production - click to enlarge

The low Gulf of Mexico rig utilization rate of 60.4% might confirm the following updated production forecast which assumes a URR of 23 Gb.

The increase in production since about 1995 is due to deepwater (>1000 ft) production increases. The decreasing production forecast for the US Gulf of Mexico is being repeated in offshore Mexico (Cantarell) and the North Sea (offshore Norway, UK & Denmark). Offshore field development plans often drain the field quickly at high depletion rates to recover the high initial capital expenditure. However, once the decline phase is established for an offshore field, the decline rates can be very high.

Page 23 of the IEA OMR March 2008 states that mature field decline rates for offshore areas of the UK, USA, Mexico, Australia and Norway range from 15% to 20% per year.
"Newer fields in these areas - often deepwater, smaller accumulations of oil - are also prone to rapid build to plateau, followed quickly by sharp decline. Deepwater development planning and well configurations differ markedly from onshore fields, aiming to rapidly recoup high up-front expenditures."

US Gulf of Mexico Monthly Oil Production to 2030 - click to enlarge

The IEA OMR August 2008 highlights were just released and show a new total liquids record of 87.8 mbd (incl biofuels) for July 2008.
"Global oil supply increased by 890 kb/d in July to 87.8 mb/d. Norway, Canada, Argentina and Brazil underpinned non-OPEC growth of 520 kb/d, amid a lull in seasonal maintenance elsewhere."

It's interesting that Norway's production, part of the North Sea, was stated as contributing to July's increase. Perhaps Norway has delayed their seasonal maintenance.

Thanks !

I'm keen to see if it does not deviate from HL to the downside. The shallow gulf is the poster child for a over exploited region. I'm not sure HL correctly predicts past when a region becomes fully exploited.

Once no more fields are being developed then the effects of advanced extraction technology are felt. Before this the finding of new fields keeps the region on a Hubbert like or symmetric profile.

I believe HL can over estimate the final URR if discovery is well in advance of development since it allows selection bias for new fields and the end of the drilling campaign because a region is fully explored and developed is not correctly handled by the simple calculation. Thus the ultimate URR will be lower then predicted. Technical advances cause a similar inflation effect.

If you think about it cessation of the drilling campaign is a sort of phase change event certainly drilling slows and this is included in HL but its still a fairly abrupt change that should not be exactly predictable since it depends on the details of the drilling campaign. This is similar to HL being off around peak when you generally have a stepped up drilling campaign.

The big question of course is if this is true how much is HL off ? This can be determined to some extent buy the amount of new oil added from new field development each year and also in field drilling. But what this means of course is that the decline rate goes to the individual field decline rate with less and less infield drilling once a region is fully developed for offshore this is 10-20% a year so the entire region fairly rapidly approaches this decline rate once its fully developed. The rate at which it approaches is determined by the lifetime of the fields in general.

Given a average 5-10 year life time for GOM fields and a peak in 2002 we are at year six of the downslope.

Given the 5-10 year average lifetime and assuming replacement has slowed dramatically we should see the decline rate begin to steepen seriously over the next few years with production dropping very low by about 2020 or so. With a URR around 15-20 GB instead of the predicted 23GB.

Given that we have produced 16.2 GB if I'm right production must drop dramatically over a period of a few years. At about 0.5 GB a year this gives eight years or so if production was flat but we should see the decline rate quicken closer to 20% basically now. So for me to be correct production has to drop by 50% over a 2-3 year period.

Time will tell.

On CNBC Pickens recently said he was still long on oil (after being wrong short on oil). When Pickens throws in the towel and sells then I will buy back into oil.

Even Pickens is a contrarian indicator....LMAO!!!

I suspect that BP Capital, the Pickens hedge fund, has sustained large losses during recent weeks. Is anyone privy to actual data?

Maybe we should rephrase the poll so that it asks what the price of oil will be in Euros or a basket of currencies to avoid the fluctuations associated with the value of the US dollar.

After a long bull run markets have far too many spec longs so the markets are vulnerable to sudden drops which forces them out. A vicious circle develops as prices continue to drop and more longs are forced to liquidate. This age old dynamic is evident in every commodity market and really all markets to some extent and always will be.

It's true that these types of market dynamics are more common and more pronounced in markets where futures volumes are large as the ease of entry for speculators attracts more weak hands. In oil the volume of contracts is large but still a small part of the overall trade. Without doubt there has been significant hoarding of physical oil worldwide as the psychology has been to hold onto the oil for one more hour, one more day, one more week. I know the reported inventory numbers don't show a lot of hoarding going on but don't take those numbers as gospel. It is in the self interest of all holders to under report their holdings after all. Assuming holders of oil are likely to be stronger holders of losing long positions than futures specs a flood of oil is not likely to be let loose quickly onto the market. Still, longs are now thinking in terms of selling into new strength. The tendency for some time now will be for supply to hit the markets as prices rise instead of the near past tendency of supply to tighten up as prices rose as greed took over.

None of this is in the nature of a prediction but just somethings to keep in mind as one watches the market.

How about $126 next week? Some over-weekend reports of $122 and 123. I think the Russians have spooked some people and forced them to look at their hole card. Lot of speculators playing oil short may wish they had evened up their positions on Friday. Just my opinion

All I have to say is that one group is always capable of driving down oil prices and this is oil producers.

They can readily keep oil low for a time via a combination of playing the future markets and actually delivering oil. It won't work for ever but think about it.

If your a widget manufacture and you feel the price of widgets has gone to high what you can do is store up some widgets to ship at a later date. Short term this will drive up the price of widgets even more but as demand weakens you can "flood" the market with your stored widgets sending prices into a nose dive.
Also to make it even better you time the flooding of the market to happen during the lowest widget demand season. Next lets assume it took the widget producer six months to store up enough widgets for a 2-3 moth surge.

The market was correctly responding to a perceived shortage in widgets when really it was just the widget manufacture playing the market. Next since you have a widget futures market you can also take the opposite or delivery side of a lot of trades and make a killing as the prices drop since your hedged at the higher prices.

Very little or no widgets is actually delivered for the low price as you refuse most contracts for the new low price. So as people attempt to take future delivery at the new low price you simply send them to some other widget manufacture saying your orders are filled. And they probably are since you took a lot of contracts promising delivery during the high price period.

Even better since your also having problems producing widgets you can claim that the market is well supplied and cut back deliveries even further during the low price period and store more widgets up to force the price higher take out future positions etc.

Rinse and repeat.

Since you have huge amounts of cash and you don't want to make your market manipulation obvious you operate via hedge funds and secondary investment groups. This allows you to safely claim your not manipulating the market.

What this does is adds a lot of volatility to the market. For widget consumers what they see is a initial pulse of widgets at a fairly low price as the widgets flood the market. Between the widget consumer and the widget producer in our case we have a middle man that polishes widgets. At first while prices for polished widgets are high he ships a lot of widgets but as prices fall he is forced to sell his polished widgets at a loss his inventory builds driving prices down and he drops production of polished widgets. Naturally even though the prices are low he is forced to limit the amount of unpolished widgets that he buys.
The signal is a small inventory build of unpolished widgets but polishing machine utilization drops making people think that demand for polish widgets has dropped.

Also as a further twist you have to ship the widgets by large ships between the producer and consumer you ask your ships to sail slowly and you filled almost all of them up so the market sees this large amount of oil setting on the ocean however its actually taking several more weeks then normal to reach its destination.
It seems to set there just over the horizon and never actually arrive.

Everything looks rosy for a bit but since we know what happened we can look forward into the future.
This was a very dangerous move.

On the producing side.

1.) Actual production cuts are announced or implemented covertly allowing the producer to rebuild storage to some extent but no way can the widget producer rebuild fast enough. During the period of demand drop from widget polishers you also refuse to fill some contracts.

2.) Demand is high on the polished widget side and prices for polished widgets are dropping fast so you try and catch the wave while you can and limit your losses. You have to keep taking delivery of all the unpolished widgets you ordered but you don't order any more and you start dropping production of polished widgets as your taking your losses. You have to keep selling polished widgets because of pre-existing contracts but you let your inventory of unpolished widgets drop and because prices are dropping still on unpolished widgets hesitate to by more.

What next lets switch to oil.

What you have just done is set up the conditions to cause a shortage. Eventually in a few months the surge of oil will reach the consumers and be burned but inventories in the consuming nations will begin to go down fairly rapidly and as people try and make orders for more oil they find they cannot get it. This will force the refiners to the spot market and oil prices will go to the moon and worse spot shortages will develop.

However this time around the widget consumer thinks he has figured things out and that prices will drop any day now. This means that being the brilliant people Americans are they will assume that this time the fast rise in oil prices is temporary and any day now a slug of oil will show up. The problem is this day never seems to arrive. Eventually of course it does but the next big dip is from a much higher price point.
And the consumer or rat ( not to dismiss the intelligence of rats ) has become conditioned to the new higher prices and welcomes the drop to "low" prices that would have been unthinkable just six months earlier.

So at least for now the game is to pulse oil supplies timing the arrival of the largest amounts of oil with the minimum in market demand. Given this model we could see another pulse next spring but oil prices will be touching 200 a barrel when it arrives and we will start next summer at a new low price of 150-160 a barrel.

Nice theory. Where is the data to back it up?

IIRC when the price spiked over 140$ the stocks were below normal. They rose again when demand reduced and price went down. So the stocks went in the direction opposite from this theory.

I get the tanker traffic report its worth its weight in gold but its not public.

Tanker traffic was low the first half of this summer the second half OPEC filled every tanker on the planet then sent the to sea sailing around in circles as near as I can tell. Seriously though they seem to be doing whats called slow steaming taking there time getting to market. Plus tanker rates are now falling. Indicating that sailings could decline in the coming months.


You can get some idea from the tanker rates. And what I said was they did not send oil when demand was high earlier in the year and more important it looks like light sweet was in short supply. More on that later.

The surge was timed to hit when demand began dropping this situation was set up for political reasons. As I outlined.

However some really important pieces of info may exist in what happened. It looks like the Saudi's took almost six months to store up light sweet crude for this surge. Ghawar is the primary source of light sweet crude so it actually looks like they could be having problems with Ghawar's production. Next if you have read my posts about light sweet vs heavy sour we also know some more info. When Ghawar does decline it will have a huge effect on the worlds oil prices. The recent price swing was caused by a combination of intentional holding back of light sweet on KSA's part with overlapping problems in Nigeria. However going forward we may actually be dealing with real declines in light sweet production and it looks like it will have a huge effect on oil prices.

If Ghawar is really in decline then we can expect the rate of price increases to go up a lot faster than in the past. We won't know for sure for several more months but so far things are not looking that good.

My opinion is that this is a one shot deal and we are actually on a new slope with prices starting to double every twelve months. I think we will end the year with oil prices between 160-200 depending on the strength of the dollar the low end includes a expectation that it will fall back at least to its previous low. If by some miracle the dollar continues to strengthen then its 130-200. End 2009 should see 260-400 again depending on the real strength of the fiat currencies. Understand that even a doubling over 16 months from todays prices puts us at 228.

The reason for the strong increase is real declining light sweet production. I'm pretty sure that recent events signal that Ghawar is now in trouble. It took me a while to understand why prices kept rising earlier this summer they should have leveled off in June but did not. Now that I think I understand whats happened this recent decline in prices is not good news at all.

2010 is when real demand destruction starts biting tough to say since we can't absorb another price doubling. All bets are off in 2010 I think the price increase will have to level off as we pass 300 a barrel everyone crowing about demand destruction will get a chance to see the real thing in action.

I did find this online and I've found several other people expecting the price of oil to fall by 50% from its 140ish highs.


So lets see who is right in December.

I'll keep my prediction simple and include a falling dollar 160+ by December.

On July 30 Rembrant posted discussion "Mainstream Dutch analysts foresee oil supply constrained world" of the CIEP report " Oil turbulence in the Next Decade" along with a link to download the report. As Rembrant states : CIEP is especially important because it is endorsed by amongst others BP, Shell Netherlands, Total E&P Netherlands, three Dutch Ministries, Wintershall, Vopak Oil Europe Middle East and several Dutch energy companies.


I highly recommend this report to those who want to understand oil pricing and the looming crunch between supply and demand.

The 17 page section 4 is an instructive guide to four factors affecting oil pricing and I now understand "contango and backwardation" for the first time. They conclude" the current high prices are driven by structural factors and can be explained without resorting to throwing blame at speculative investors playing the futures market...".

Their conclusion is oil prices will be highly volatile between a floor of about $110/bbl set " by the marginal cost of the last barrel needed to match demand" and an upper price heading above $200/ bbl by 2009 based on the " The Real User Value" of that oil in increasingly closed oil markets.

Section 8 on decline rates of existing oil fields describes (see page 62) how at an average 4.5% decline rate, that by 2030 only 34 million b/d of today's oil production will remain. They see, at best a plateau of a fixed oil pie to be divided among the world's nations. The choice will be cooperation or confrontation.

They conclude," In practice this means demand rationing will be required in the OECD countries, and particularly the US, in order to accommodate growth in the newly developing countries... Much will depend, therefore, on responsible leadership in this scramble for oil and other liquids"

Even if the US goes into recession and reduces demand the number of high oil consuming people in world has more than doubled since the mid 1990s and this will offset any small drop in US demand.

The title is very accurate- We are in for a Turbulant Decade!

Like I said with the last poll,$80 oil will come around pretty quickly. $40 oil could take 10 or 15 years,depending on how quickly alternatives ramp up.

Can you explain how biofuels and synfuels ramp up to 30 Mb/d flow rate? That is what might be needed after 15+ years to fill both growing demand AND natural decline from crude oil fields producing now.

Whose prediction is this?

Which data you are using?

Do you have any models, reality based numbers or any references to back up your wild claims?

Clearly you are NOT using IEA, EIA, BP, or EWG. So I'm curious, where are you pulling your forecasts from?

One thing where ever he pulled them from sounds like they will be useful to wipe up this mysterious place.

"Can you explain how biofuels and synfuels ramp up to 30 Mb/d flow rate? That is what might be needed after 15+ years to fill both growing demand AND natural decline from crude oil fields producing now."

Cellulol and bio-oil. You won't find many predictions out there,because nobody has gone commercial yet. While everyone is focused on what's left in the ground,science has advanced by leaps and bounds. Companies like Dupont and LS9 will go commercial with cellulol and bio-oil in the next few years. Anything that can be grown can be turned into liquid fuel. Wood chips,corn stover,and even grass clippings are the fuel of the future. Oil that costs more than $40 a barrel to produce 10-15 years down the road will be worthless.

... and not a single volumetric or emergy flow rate calculation from you to counter the mountain of evidence from EIA, IEA, World Bank and the rest.

How am I supposed to believe your assertions? Based on your optimism alone?

You assume that the systematically optimistic EIA and IEA are wrong and their numbers for synfuels and biofuels will be multiplied by a factor of 10?

I really hope that kind of delusional optimism not based on any kind of real world analysis ends up being correct. I really do.

But I'm sure as hell not banking on it!

The number one issue we will have going forward is not a shortage of reduced carbon source but a shortage of natural gas to heat these carbon sources to produce liquid fuels. This has nothing to do with the source of the carbon coal, oil, plant products etc. Our engines run on refined semi-synthetic fuels to make these fuels requires a lot of energy. You can only get this energy from two places burning NG or burning part of the input fuel for heat in the refinery.

A classic example that has nothing to do with biofuels in sugarcane where the biogasse is burned to distill the ethanol. For corn you probably could ferment the distillers grain to methane and burn that. As you can see pretty quickly about 50% of the input reduced carbon is used to output the refined liquid fuel.
Look at something as simple as making charcoal the volatiles are burned to char the wood.

Only two sources of liquid hydrocarbons do not suffer from this issue vegetable oils and light sweet petroleum oils. These have a equal and fairly low refining energy requirement say about 10% of the net carbon content.

If you do btu in vs btu out then you will start to realize that the refining process is only about 50% efficient which actually is not all that bad but when you talk about replacing fossil fuels its a refining problem which is in fact a larger issue then the size of the supply of reduced carbon.

If we have cheap NG or even expensive NG we have a powerful incentive to burn it directly or at worst use GTL to create liquid fuels. If we don't have cheap NG then where are you getting the heat or btu's for refining anything ?

Despite the complexity of refining on a energy basis its really not a lot different from a simple charcoal oven.


Although I believe that the overall trend for Oil Prices will be up for the next couple of years at least, I also believe that the price spike up to 145 USD was in fact caused largely by the weakening dollar and a general rush into commodities. Remember, it is not long ago that the price of oil was at 55 USD/BBL. A steady upward trend would suggest a price of about 80-90 USD now. I therefore suspect that oil prices will fall back to about 80-90 USD/BBL and then continue to gradually trend upwards. Incidentally I believe the floor is at about this level due to increasing lift costs/bbl.

I have voted for the 102 USD/BBL option and am quietly confident about the outcome of this prediction!

I'm with you too NM. I don't trade futures but I work in the oil patch and project future well head prices. I tend to use nothing shorter than a 6 month running average. Based on that 6 months ago it looked like we were heading for $100 to $115. It's a volatile projection with 10% to 15% spikes up and down. But, I also don't think this is a natural trend. Saudi controls swing production. Not that they have absolute control but by not competing for market share as they did back in the mid 80's they've taken a huge chunk of competition out of the equation IMHO. I would hope that Saudi is gauging demand destruction and will try to maintain sufficient stabilization of the global economy while maximizing oil prices. So far it looks like that's working...either by design or luck.

I voted 102-126 this time. Thinking we are close to bottom.

Ace just sent this round via email:

Global oil supply increased by 890 kb/d in July to 87.8 mb/d. Norway, Canada, Argentina and Brazil underpinned non-OPEC growth of 520 kb/d, amid a lull in seasonal maintenance elsewhere.

OPEC July crude supplies rose by 145 kb/d to 32.8 mb/d.

Highlights IEA OMR Aug 2008

So the fall in July can in part be explained by simple supply demand dynamics. The lower price will stimulate demand whilst the world will likely struggle to maintain 87.8 mmbpd - and I'd bet on Saudi throttling back.

It will take a while for the tanker to turn, but I suspect the next run up to be brutal. The MSM, politicians and the markets will no doubt think that the crisis is now over.

Main caveat to above will be Russia occupying the whole of Georgia and or the US going into Iran - in which case all bets are off.

Any comments on the liklihood of OPEC organizing a serious short-term drop in prices such as this in order to discourage investment in alternatives? Even a short-term drop, if it is dramatic, must take a lot of "wind out of the sails" of investors contemplating PHEV's, wind generation, solar thermal etc.

And might the Pickens Plan be a return "shot across the bow"?

Today's bounce in energy, diversified metals and gold was pretty strong. Maybe that was the bottom.

Something very interesting to ponder. As oil is priced in U.S. Dollars, the price of of oil declines with the strength of the Dollar and rises on its weakness:

On July 16, 2008 . . . the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. . . . So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others

Hi folks,

This is a first post, so excuse any newbiness. I have been following TOD reports for some time, and am impressed with the level of wisdom – something not always linked to intelligence (!) – which the site also has an abundance of.

I love the concept of trying to predict a single resource price in a multi-resource/multiple variable system. An analogy (or metaphor) can be drawn with the dripping tap of the much maligned ‘chaos’ theory. Due to the nature of the global economic system and its complex and intertwined web of causes and effects, the period of increasingly available energy allowed for a similar increase in the available work for activity (work as in the physics kind – mostly mechanical to make stuff like electricity, goods and to transport them) (see: http://www.iea.org/Textbase/work/2004/eewp/Ayres-paper1.pdf) This availability is now being constrained in various ways, from resource peak to supply/demand restriction. This is going to cause a corresponding shrinkage of available work and hence activity.

Back to the dripping tap. In this experiment, a tap (faucet) is opened until water drips out. It’s opening is continued, and it is noticed that the drips become regular and a smooth laminar flow may even form. Then suddenly, on increasing it further, the drips/flow becomes totally erratic and unpredictable. (see: http://perso.numericable.fr/cricordeau41/quatuor/english/fractal_31.htm & http://www.newscientist.com/article/mg12416873.700-chaos-a-science-for-t...)

The oil supply can be seen as analogous to the dripping tap. It was opened slowly, went through various chaotic periods, where amongst other things, the price fluctuated wildly, with long smooth intervals of supply that provided long smooth intervals of economic growth. The point of this analogy is that now there is a new dynamic entering the system, hot air, or the desire to continue as before when the reality of another dynamic, the actual amount of water in the pipe has changed. Thus, while the ever-increasing flow has stopped increasing, the pressure (desire to continue) in the pipe has not. This is causing the whole system to go into chaos, and not just the stream coming out of the tap; the pipes have started hammering, the water now sputters violently and soaks anything nearby. And turning the taps down or trying to regulate it will do no good as the pressure is ever increasing in the system. Eventually the pipe bursts and what little water was left in it goes everywhere. There is none left. Price is now irrelevant.

The thing about chaotic systems is their inherent unpredictability, and instability. One moment they can be completely (seemingly) calm and (almost) predictable, the next they can spin rapidly towards disaster. It appears that we are entering another chaotic period, with uncertain outcomes. The only certain thing left seems to be human nature with all its uncertainties and failings. Somehow I don’t think over 6 billion people are going to learn to work with nature and redistribute wealth and resources fairly and equitably. I only wish it where so, but that is the nature of wishful thinking. Russia’s incursion into Georgia is just the another move in a continuing game of chaotic chess. The global system of human affairs is incredibly more complex than a dripping tap, and so much more chaotic. The results of this chaos will be interesting if nothing else (eg: man loses job, shoots senator: http://uk.news.yahoo.com/skynews/20080814/twl-top-us-politician-shot-dea...)

The allegedly Chinese curse “may you live in interesting times” seems to have landed on us all (http://kiad.livejournal.com/421724.html or http://www.bilinguist.com/data/hy00/messages/13375.html)

As has been said elsewhere on this site - People can’t handle too much reality…