Thanks!

It's a nice way to show the results, I'm going to keep the idea.

can someone test if there is a statistically significant correlation between assumed/predicted peak date and accuracy -- it seems that the 10 best performing models all peak in the next 5 years, while 10 out of the worst 15 predict a peak 20 or more years from now.

The CERA 2006 forecast seemed to incorporate spare capacity - note that for the year of publication it was in excess of observed production. It's odd that 3 years later no one knows what the precise methodology used was.

You can smooth out bumps like our current shut-in production. As Deffeyes wrote, his HL curve for the world incorporates all manner of disasters impacting production - two World Wars, the Great Depression, Jimmy Carter...

Hi LouGrinzo,

Although there were Y2K "nutjobs" that predicted a hopeless situation, I think it is instructive to look at what actually did happen in that case.

The fact is that all the publicity put the vast majority of companies (those with any significant amount of IT) on a war footing. Hordes of old COBAL programmers were brought back into the workforce to scoure old code and fix potential problems. I was an IT manager at that time and I can say that the only reason a huge problem was avoided is because serious action was taken to fix vunerable code. The threat was very real. No IT manager wanted to explain why the payroll failed after Jan 1, 2000. It is ironic that the Y2K threat is viewed in hindsight as being an example of unfounded hysteria. The fact is that problems were avoided because action was taken to fix the problems before the clock ran out.

What should we learn that can be applied to PO? Duh...

And depletion marches on. Based on Sam's modeling of the top five net oil exporters, they will probably have shipped on the order of one-third of their post-2005 cumulative net oil exports by the end of 2010, 18 month from now.

Did you mean below? EIA says first ten months 2008 opec averaged 31,459kb/d, then transitioned down to 28,686k/d avg jan-apr 09, a reduction of 2,773k/d... so, if SA capacity really increased say 750k/d, then opec spare capacity = 3,500k/d. In awarding a ribbon to the closest guesser, a guess of around 83.5Mb/d looks about right for the amount that would be produced these days if prices had stayed around 100/b... Robelius low looks pretty good, might as well go with his curve.

On this basis, and thinking a little further out, he guesses capacity will decline to current production in 2012... - but maybe he didn't include an increase in SA capacity, meaning we might still have a little surplus then - so considering that prices have been held up by the squirrels, and that they are running out of storage, and that the recession will get worse, IMO much worse, before it gets better, then prices will fall at least until 2012. OPEC probably needs to cut another 1Mb/d as oil comes out of storage to avoid a hard fall, maybe 2 or more as recession bites... 2015 does look another story...

High oil prices last year hurt, but high oil didn't cause the ballooning debt or the debt implosion that has just started. I used to think that USG would be more aggressive now than in the thirties, but on reflection USG is financially far weaker now given current debt, deficit and future liabilities... we can no longer spend our way out of this without either debasing the currency, sucking every dollar of savings out of our economy, or both. Deflationary now, maybe inflationary by and by...

Most people think we can simply keep on borrowing from the friendly foreigners, but foreigners' source of dollars is drying up along with our trade deficit just when our need for dollars is exploding. Print it or borrow it from ourselves.

I'm not quibbling with the notion of peak oil, or indeed suggesting OPEC has an unlimited ability to produce more oil, but I do wonder whether the forecasting of peak can retain any real value in a world which now clearly does have very real, and substantial, levels of spare capacity. There is also the question of oil demand - and it is really the intersection of these two elements which raises everyone's concerns. In simplistic terms, projecting a production peak of 10 b/d in x year is interesting but unimportant if there is only demand for 1 b/d. I want to know when demand and supply intersect, and we then have to deal with shortage. Focussing just on the supply side may leave us open to premature forecasts of energy shortages, and the casino nature of the current oil market is not helping as financial institutions are in a very real way responsible for the excessive price rises of the past 18 months (and the last 6 months in particular).

I want to raise a few salient facts which need to be assessed in more detail.

1. Oil demand is not exponential or static. Look at OECD oil demand from Q4 2005 on an annualised basis by quarter. It falls in every successive quarter. This includes years of strong economic growth in 2006 and 2007. What happened in Q4? Hurricane Katrina. Prices suddenly surged and consumers became aware, and began to later their behaviour. Non-OECD consumers did not - but in most cases consumer prices were subsidised. They won't be next time, so what kind of demand response came we really expect from prices?

2. OPEC produced 32.8 million b/d of C+C in June 2008. By February 2009 this was reduced to 28.1 million b/d. It's a touch higher now - that's 4.7 million b/d in the bank. I don't think we have depleted that much in 8 months. It's difficult to say for certain, but I do suspect the Saudis had a little left in the tank last year (but not much). Since we began this year Angola has added several new fields along with Nigeria (offset by problems onshore) and the Qataris are ramping up very large volumes of NGLs. I'm betting we've got at least 5 million b/d of shut-in production that could be brought on stream.

3. Inventories are near capacity. I don't know if anyone has noticed, but as of today the world is enjoying a massive surplus of oil - there's a risk we will run out of storage capacity (China already has - they cut exports this month because they have nowhere left to put any oil). We've got 5 million b/d of capacity in the bank, and 2.8 billion barrels clogging up inventories to the extent that traders are chartering tankers to store oil in rather than move it. It's going to take many months (24-36 at a guess) to reverse this situation - and that assumes we have demand growth next year and no supply additions.

4. Prices have been run up for a variety of reasons - inflations worries, weak dollar, reduced perception of financial risk, concept of commodity scarcity, manipulation(?). But we have seen the rally (on low volumes) topping out because there has been no demand rebound. None. Might still be a bit early, but as inventory costs are rising,. if I'm a refiner dealing with excess reserves of crude, weak margins across the board and no demand I'm not paying a high price for crude. The paper market can add in the hypothetical demand, but eventually the physical market takes over. That's what we're seeing now. We're going to plummet past $60 and test lows in $40s. You need to look at prices over a longer period because the market is skewing the message.

5. My final and main point is this. In the current environment, modelling possible peak dates using published supply data is not possible (due to spare capacity) and not useful (due to falling demand). There's a risk that the message gets lost if this is not taken on board, because I believe we will be looking at low prices for at least 12-18 months and everyone will blame the price run-up on speculators. To continue to project imminent catastrophe may not be helpful and yes, it might mean a lot of people saying "I told you so". I do think that we will however face problems if more is not done to address our dependence on liquid fossil fuels, so I hope that the community can adapt to the current situation in the industry. This is in many ways a good thing - there is much more time to adapt than there was 12 months ago.

Just a few thoughts to spark discussion.

A big increase will be OPEC coming back online as prices go over $100...

For that to happen the recession would have to be over. Demand for oil would increase then oil prices would go up and OPEC, to keep prices from going higher, would increase production. Fat chance of that happening any time soon.

A more likely scenario would be that the economy gets worse and oil demand drops further. OPEC makes further cuts in a vain attempt to keep prices above $60 a barrel.

Soon, within the next few years, total economic collapse. The world will never realize we have reached peak oil... Pity.

Ron P.

Actually its worse than that all my research into the Rust Belt states which have faced the collapsing economy have resulted in the conclusion that bulk of oil usage is driven by the intrinsic infrastructure. This of course can be readily seen by the large differences between US and European oil usage despite the effectively equal standard of living. Decades of infrastructure investment decisions seems to be the guiding factor in the absolute level of oil usage in a given region.

Another fairly easy to find piece of supporting evidence is that oil usage seem to be effectively the same per capita across the US despite large variances in the median income levels. Podunkville Mississippi uses the same amount of oil/gasoline per capita as Los Angeles for the most part.

This suggests that fairly dramatic changes in median income and or increases in oil prices redirecting cash flow to purchasing gasoline can probably be fairly readily absorbed and that the intrinsic infrastructure constraints make it difficult to do much else.

As you recognize the demand changes and even the calculated capacity changes have so far fallen within the same band as depletion. In other words things seem to have probably worked out such that supply and demand are balanced. The price has moved both up and down quite violently to achieve this but surprisingly or probably not supply = demand.

The question of course looms what happens next my above assertion of a fairly constant baseline demand is not inconsistent with a fair amount of discretionary usage. If fact one would expect the potential demand curve to be highly non-linear. In fact the worst guide to the future supply/demand/price curve would be the initial changes. I.e recent events are going to be the least likely to mirror future events.

In fact the discretionary demand itself is tightly coupled to the availability of credit this demand taking to form of house construction luxury goods and big boy toys.

Thus one would actually expect demand to be initially linear with the credit cycle contracting and expanding with credit then being in a sense reinforced as sticky demographic changes like suburban expansion make it difficult for demand to drop below certain levels.

However :)

The future seems to be quite different with structural demand capable of decoupling if you will from the changes in credit availability and becoming closely linked to the cash flow economy. I.e people begin to default en masse on credit yet oil demand remains stubbornly high.

So far this year for the most part oil prices have pretty much tracked the stock market and expectations of recovery i.e the assumption was that oil demand would remain linearly linked to economic expectations most easily expressed in the stock market and currency exchanges. The reason I feel that we are at a historic point is that this coupling is in my opinion going to be broken.

Either the market is well supplied with oil and oil prices will track lower reflection the currently lower demand and the spare capacity in the market.
Remember we have seen oil average in the 40-50 range in the recent past while unemployment was much lower and overall economic level higher. Prices have increased as the economy have by all metrics continued to weaken substantially.

Or as I contend we have probably hit the structural demand level and this is the las t time oil will move in tandem with the stock market/debt economy instead it will move for the most part steadily higher taking a larger and large precentage of the cash flow economy with rising defaults and weakening equity stakes no longer having a significant impact on oil prices.

Now having cautioned against using recent history I will point out after the last bottom in oil prices they doubled within three months. There is a pretty good chance that this might actually be the pattern we see. A strong retraction in prices based on economic fears followed by real world steady oil demand resulting in a strong price increase. Sort of a one step back two step forward pattern.

Once we are past the initial blow off of debt driven demand its not clear at all exactly how oil prices will change except that they should over any reasonable time span say a six month running average track steadily upwards.

Using this metric and a quick check on the futures market six months out shows Jan 10 at 66.87. The recent high was a little over 73 so this relentless increase argument suggests that oil is currently significantly undervalued at the moment.

Farther out of course the futures market is in good agreement with the thesis that oil prices will indeed head relentlessly higher. So the big picture oil market and the thesis that the expectation that demand will remain robust are in good agreement.

Of course this does not fully explain why I think the big one is now i.e when the credit economy and oil decouple and oil becomes coupled to the cash flow economy but
this post is getting a bit long. The basic answer is credit is no longer driving the economy and indeed credit default is actually boosting free cash flow. Thus people that stop paying the credit cards and the mortgage payment and exiting the credit economy are actually now boosting the saving/cash flow economy. This economic transition which actually boosts our ability to buy oil is what I think is happening right now. In fact it explains why the distressed regions of the country continued to exhibit robust demand for oil products even as the credit/lending economy crashed in these regions.

Certainly at some point high oil price would eventually constrain this cash economy but thats not something we face in the very near future.