26 Mile Long Glut of Idled Oil Tankers
Posted by Gail the Actuary on December 31, 2009 - 10:28am
This is a guest post by Mike (Mish) Shedlock. The article was previously posted on his blog Mish's Global Economic Trend Analysis.
Bloomberg is reporting Tanker Glut Signals 25% Drop on 26-Mile Line of Ships.
A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, may signal a 25 percent slump in freight rates next year.
The ships will unload 26 percent of the crude and oil products they are storing in six months, adding to vessel supply and pushing rates for supertankers down to an average of $30,000 a day next year, compared with $40,212 now, according to the median estimate in a Bloomberg News survey of 15 analysts, traders and shipbrokers.
That’s below what Frontline Ltd., the biggest operator of the ships, says it needs to break even.
Traders booked a record number of ships for storage this year, seeking to profit from longer-dated energy futures trading at a premium to contracts for immediate delivery, according to SSY Consultancy & Research Ltd., a unit of the world’s second- largest shipbroker. Ships taken out of that trade would return to compete for cargoes just as deliveries from shipyards’ largest-ever order book swell the global fleet.
“The tanker market has been defying gravity,” said Martin Stopford, a London-based director at Clarkson Plc, the world’s largest shipbroker. Stopford has covered shipping since 1971.
More than half of the ships are in European waters, with the rest spread out across Asia, the U.S. and West Africa. Lined up end to end, they would stretch for about 26 miles.
Storing Crude
Traders are storing enough crude at sea to supply the 27- nation European Union for more than three days. Royal Dutch Shell Plc, Europe’s biggest oil company; London-based BP Plc; JPMorgan Chase & Co.; and Morgan Stanley were among those that sought vessels for storage.
The storage trade is profitable so long as the spread between energy contracts exceeds ship rental, insurance and financing costs. A year ago, the spread between the first and sixth Brent crude-oil contracts traded on the London-based ICE Futures Europe exchange was 23 percent. Now, it’s 4 percent.
Speculation is one of the things propping up energy prices. Belief in a sustainable recovery is another, and rampant money supply growth in China is a third.
Regardless, with contango spreads tightening, demand for 26 miles of oil tankers will collapse.
The floating storage trade is becoming riskier and riskier. The spread all the way out to January 2011 is only $7 and there is certainly no guarantee or even likelihood oil prices will be that high then. One also has to factor in lease and crew costs.
It was one thing to store oil when crude was below $40 and future months were much higher. Risk factors are much higher now and the floating tanker trade will soon be unwound.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Of course, some of us finite earth types might add depletion to the list, especially the global net export depletion rate. Cumulative Net Oil Exports (CNOE) is the total volume of net oil exports from a given region, over a defined time period. For example, if we sum the output from Indonesia, the UK and Egypt (IUKE) their combined net oil exports fell at an annual rate of only 3%/year from 1996 (when their combined production peaked) to 1999; however, over this three year time period, their post-1996 CNOE depletion rate was 25%/year (EIA).
Sam Foucher puts the current post-2005 CNOE depletion rate by the (2005) top five net oil exporters, representing about half of global net oil exports, at about 9%/year, so I think that a plausible post-2005 total global CNOE depletion rate is on the order of 5% to 7% per year. At a 7%/year depletion rate, in the 2006-2009 time frame inclusive, net oil importers have already burned through about 25% of global post-2005 CNOE.
Finally, the Great Depression continues to offer some important lessons for us. It appears that global demand fell only one year, in 1930, and nominal oil prices rose at about 11%/year, from the summer of 1931 to the summer of 1937, and there were reportedly three million more cars on the road in the US in 1937 than in 1929. Two differences today--we now have a contracting supply of net oil exports worldwide and instead of millions of people who want to drive a car for the first time, today we have hundreds of millions of people who want to drive a car for the first time.
Incidentally, net oil exports from Mexico fell from 1.8 mbpd in 2004 to probably less than 1.0 mbpd this year. For the sake of argument, let's say that net exports fell by one mbpd. What happened to the tankers that were transporting that million barrels of oil per day and what happens to tanker demand globally as net oil exports contract?
Maybe they can be converted to military use as personell and materials transports. :-(
I could easily believe in a long slow collapse, with living standards actually holding up fairly well in many countries, if living well is defined as being warm, clean, healthy ,and busy.
But any body who has read a few dozen history books and is not blessed (or afflicted) with an incurably optimistic world view must realize that most of the world's problems will be solved in the short term with weapons unless we are extraordinarily lucky.
Right now we more conservative types can enjoy a not so funny laugh as the liberals necessarily pursue the military policies they ran against in order tp get elected, and of course Japan and Western Europe continue to shelter under our military umbrella while making hypocritical speeches about American empires.
The pressure continues to build and before too long the shooting will start in lots of new places as economies crash.
The many links posted here on TOD are more than ample to convince anyone who will read thru them-not to mention the primary site content.
Convert them to deep water fish farms or use them to transport fresh water from Greenland and Antartica.
How do you clean out a whole tanker to make it usable for potable water? One VLCC holding 1 million barrels of oil can hold how much water given the weight change of water V. Oil? And next is it even worth it to anywhere besides greatly draught stricken regions?
I remember a story of ages ago where someone from the Middle East thinking about towing an Iceberg up to water the Desert. I think costs and logistics got in the way.
I did base one of my Sci-Fi stories on IceCubes in the Desert, but it was Space Aliens doing the moving not us.
Better to just Mothball them for a while, or take all the older ones out of service that much faster.
Charles.
"I remember a story of ages ago where someone from the Middle East thinking about towing an Iceberg up to water the Desert. I think costs and logistics got in the way."
i think that was proposed to richard pryor in 'brewster's millions':
http://www.youtube.com/watch?v=vRpZg6q-9s8
see about 2:00 into it
I think it was Popular Mechanics back in the 60's who suggested towing icebergs to LA to help with their water supply.
With potential droughts coming, might not be a bad idea. I mean, we gotta keep those swimming pools filled, and lawns watered.
And with coming water problems in N. California, well...we can either keep those pools filled, or use water for agriculture. No water means no crops which means less people, which means...oh, wait a minute...never mind.
While I am not by any stretch of the imagination afflicted with optimism, I do occasionally indulge in less than bleak thoughts. For instance, is there any possibility that military "solutions" will be hampered by lack of cheap oil at any time in the foreseeable future? I know that there are plenty of weapons around and they have long shelf lives, but getting them to places where they cause trouble and maintaining supply lines are certainly oil dependent.
OK, go ahead crush my glimmer of optimism with some cold hard reality...
In war, militaries are justified to take whatever they want/need, so militaries will run out of fuel only after we've been cooking over campfires for a while. There may not be enough oil for us to continue BAU, but there'll be enough to keep killing people for a long time. I'll bet my bippy on it.
Your bippy is safe in the shorter run -- but ultimately I do believe that the collapse of industrialism, with the depletion of oil beyond a certain point, will make empire(s), global reach, and huge military machines a thing of the past. Whether I'll be around to collect your bippy I don't know.
On the other hand, things are heating up very fast now: Afghan, Iraq, Pakistan, Iran, Yemen, Colombia, Somalia, it goes on and on. How much longer can this go on without complete and utter collapse of one form or another? War can bring everything to a head much quicker than just the depletion curve alone.
And with plenty of men to fight WW III could look a lot like the beginning of WW I... until the nukes fly of course.
I agree with Ghung. Any collapse will cut off the civilian population first. The military will be one of the last entities to lose access to oil. Given that the US military in total uses less than 1mbpd and the United States still produces well over 4mbpd, there is plenty of oil for the existing military machine and for a large segment of its support network. The same is true in China, which still produces about 3 mbpd of its own oil - more than enough for military adventurism for several years. Europe may be in the worst shape in terms of oil, except of course for Russia.
The degree of collapse necessary to preclude military intervention is so large that global oil production would have to fall by tens of millions of barrels per day. While depletion and decline will steadily lower production from peak, it will not lower production fast enough to foil military adventurism by states that choose such avenues of action over the next few decades at least.
Just the SPR is enough to keep the US Military going for about 2 years, at least long enough to obtain new supplies (or get their butts kicked). If supplies get to critical levels we also have our nuke subs with their nuke armed cruise missles. Not much fossile fuel required there......mighty big stick.
I see these fears of military adventurism here all the time...and yet we see from the Iraq debacle that it's not as easy as it first may have seemed. For all this talk, I have yet to see a viable plan for stealing a country's oil. The use of a repressive puppet government has failed in several instances, and in the long run, this has been the effective strategy. The failure to establish one in Iraq, and the overall reduction in Iraq's oil output over the past decade due solely to, shall we say, "political unrest", should put the kibosh on offshore adventures.
If it doesn't, the uncertain nature of oil reserves due to depletion and the secrecy of foreign governments regarding the state of their reserves would make the rate of return too unpredictable to be politically expedient, especially with a populace that has been fooled once and a military stretched thin enough that a draft might be required.(make that "would be required." The size of military force necessary is beyond the US's current strength unless they abandon other commitments. And maybe even then.)
The other thing I have not seen here is anyone with a military or intelligence background discuss how difficult it is to capture, protect and maintain oil fields, pipelines and infrastructure(and you're the most warlike nation on earth...I find it hard to believe there are no retired officers lurking here(not that I expect state secrets.)) Is it too much to ask for someone to suggest they've read studies or run simulations and have an opinion one way or the other?(Or would that be a state secret? Outside of capturing oil wells in the game "Command and Conquer", not much comes up on Google.))
It is possible to take a countries oil without having to fight the locals. But this requires a hard nosed attitude to achieve that America, the EU and most countries couldn't handle at this stage. If you go in hard and exterminate the locals (neutron bombs, extermination camps, scorched earth etc) then their is no resistance (or a civilian population for them to hide in). The oil and other resources are then yours.
History is filled with examples of such ethnic cleansing and it may return on a bigger scale soon to a country near you (and with the US and China both needing the resources it is line ball as who will become desperate enough to go this route).
BTW empires and wars don't need oil to exist, just think of Alexander the Great or the Golden Horde for pre oil massive empires of conquest ( and with ethnic extermination to remove pesky locals).
Canukistani said:
"I see these fears of military adventurism here all the time"
Whether or not I have fears of "military adventurism" is of no consequence. It exists as we speak. Just turn on CNN or Fox news.
We blew the crap out of their country. I have no questions about why some of these people don't want to play ball with us. I translate "political unrest" to "just plain pissed". Whether or not our past failures should put the "kibosh" on future offshore adventures is another question. It doesn't seem to me that our leaders have learned much from their past mistakes (if mistakes they really are).
Along these lines, I have increasingly come to the conclusion this decade that the current US military is structured to be dominant at blowing stuff to smithereens, but cannot hold or secure a target. Operationally, the military also uses dollars to conduct transactions globally, and in some sense the dollar is intertwined with the military. It begs the question: has a new President been persuaded to continue the Afghan and Iraq adventures as a way to maintain the consensus-reality support for the dollar. History tells me that other countries and nations and economies are not particularly kind to the currency of a contracting Empire.
G
Here is where our Military training gets us in trouble, Bad guy runs into a building with kids in it. What do we do, Blow the place up and kill the bad guy, or play nice with him and the kids? We get burned on the alter of public opinion if one kid dies, or gets hurt. Ages ago the whole town would have been bruned to the ground and the bad guys would learn that hiding in a school would get them just as dead. That is not how the US Military was trained.
The fighting for whatever that we call Afganistan and Iraq has the US playing with kidgloves on while the other side can do just about anything it wants to do. The US is trying to do something that with the tactics it normally uses, it can not win. There is no easy solution, that we as a nation seem willing to live with.
I think we got into this mess and now we are for lack of a better term, trying to save face, by staying at it, even though it is a lossing battle with the tactics that we have to use to do do the "mission".
If I were President, See my Blog post from July 2007 about running for the job, I would have done things different. High sounding words, no one here knows the whole story about why we are there in the first place, we were only told what they thought we needed to hear, for what they wanted to do according to their plans. (They and Their, being Bush and Company, and now the current President knows some of that information, how much we have no clue)
I'd try to get more troops out of harms way than put more into it. The spin on the whole mess is just that spin, who did what and why might never be known fully, so many secrets that just won't ever get out to the light of day it's not even funny thinking about it.
Charles.
Hi Canuckistani,
I was drafted in the early 60s at a time when most US citizens did not seriously question a governament action like instituting a draft. That acceptance changed over the course of the Vietnam war and most likely has been made more cynical by current wars.
Most expectations for the occurrence of more foreign wars are usually based upon the idea that our citizens will not oppose the govenment in any serious manner. I think that with the so called voluntary army a govenment can make war decisions with little public opposition. However, if a draft was re-instituted, I suspect that the public opposition would be significant. Also, the professional military folks do not like working with draftees (at least as I recall from my experience).
IMHO, I think we should consider having some kind of permanent universal draft system. I suspect it would deter most wars except those to actually defend our shores. In the actual case of protecting against an invader, we would also be better prepared (perhaps).
So, I wonder if our ability to wage war is not truly limited by the number of volunteers available? Certainly, we can wage high tech bombing wars with fewer personnel, but eventually we need "boots on the ground" to hold terrority - or at least that seems to be the theory.
So, for example, if some elements of the US government really wanted to attack countries like Iran it is hard to imagine this without a draft - and any attempt at a draft would probably cause huge opposition for any war plans.
Or, is it likely that such a war would be undertaking without a draft? But, then, would not a draft be needed to deal with the backlash from the rest of the world?
Its a bit interesting that no one seems to have mentioned germ/chemical warfare.
I'd argue that if population is a problem and nukes are difficult to deploy and have their own problems that eventually chemical and germ warfare would probably become prevalent if things got to the point of trying to take and hold territory.
Germ attacks and many forms of chemical attacks could be disguised as terrorist operations.
Obviously with germ warfare your playing with fire but ?
And good old surrounding a region and cutting off food supplies and killing the crops with chemical sprays.
I'd argue that if you don't mind committing genocide then modern technology can be very effective in controlling a region. By the time you actually have to put boots on the ground so to speak there simply would not be much of the original population left. And assuming that you continue without regard to how many people where killed you could readily control the region.
For larger cities you could toss in a few neutron bombs and of course conventional bombing esp a return to creating fire storms.
I don't see any intrinsic reason for these sorts of campaigns from not being successfully executed. If anything by using a variety of modern military capabilities to their fullest capacity taking large amounts of territory and reducing the existing population to a easily manged small amount is actually fairly strait forward. Given starvation is a big factor it would probably take a 2-3 years but other than that I don't see a problem.
Its only social issues that right now prevent these sorts of actions but similar types of genocide occur even today its just expanding them to a more powerful military thats able to operate outside of public scrutiny or more likely without the public even caring as long as they get the resources sought aka oil.
One could imagine that this sort of total war is perhaps one of the plans proposed to deal with Iran..
Hi Memmel,
My understanding of Japanese history is that a victorious clan would totally destroy the defeated clan to avoid a future vendetta. But, the current theory seems to be that we would never again resort to these tactics - at least on a more global basis. As you say "social issues" are a preventative - so, it would seem that it is really a matter of how much our basic global social structures break down or, more hopefully, strengthen.
In my opinion a 2 year stint in the armed forces for every one male and female that was able to go through the training, be they rich, poor, white or not was something we should have been doing ever since day one. It would give us a better turn out and a more rounded world view. If your parents are rich, we'll shave your head and make you run with a ruck sack on your back. No getting out to go to college, you can have college after your 2 years in the forces.
But They did not put me in charge.
There have been troop draw downs because of world peace, and then there were flare ups and no troops ready and now we have men and women who are not regular military doing things that they were not meant to do be doing. I'd change it, but I am not in charge.
War is not pretty, never was, never is going to be. Being prepared for war is not an easy task. We let the peaceful years blind us to the what the world could do if one group or another got wind of thinking we were weak.
As it stands we can barely do what we are able to do, and the seams are tight to busting right now. If someone really wanted to screw us they could and it's a shame.
Charles.
Hi CEOJr1963,
That was a problem when I was drafted - it created more have/have-not animosity.
I keep wondering why this does not get more play in the mass media? It would seem that even the most hawkish folks would want to draw back many of our forces to provide for actual defense.
One reason is that the people in charge aren't the people who know what is what with a military force. Clinton, Bush jr, and Obama have had next to no training while being under the gun. Bush Jr, did have some, but not nearly enough.
The 2 years training in a military or civil service job that I think should be an everybody kind of thing, will teach things that schools can't. Team work, not being the least of these. You spent the 2 years in the services (military and or civil) then you get out and can do whatever you want, 2 years of college is paid for by doing your stint. Later when your country needs you, you'll have at least been trained to serve again, and might even be willing to do so without much grumbling.
Why do we not see any of these things in the MSM? Because the armchair quarterbacks without any training are calling the shots, because money talks louder than smarts, because soldiers are dumb and politicians are smarter than most everybody, and lots of other little things all rolled together. It has been an issue for decades.
Charles.
If you are talking about the Swiss model of an indomitable defensive military built of compulsory service, yes, I'd agree. The military culture we have, however, is a much different and more dangerous animal. I'd hate to see what we'd look like with a whole population capable of efficiently producing, say, a Fallujah, anywhere in the world, on command. And that's said with all due respect, as my larger family is military, top to bottom.
We have issues that a regular sifting out of people over a few decades worth of training people in 2 year service periods would solve. We need the time it takes to weed out the bad apples so we don't get nasty results like we have been seeing recently in the records. If everyone went through filters, not everyone would be handed a gun, some would get a shovel and asked to be a civil service person not a soldier. If we had started 30 or 40 years ago to teach compassion and skills and usefulness to others some of this would have never shown up. But we haven't and are handing people guns that never should have them. It's not something we can fix now, without a radical overhaul, which I don't see happening.
Yes I was thinking about the Swiss training.
Think about having a school teacher, who during their 2 year service period was trained in EMT duty, or as a Pilot, but now they teach 12 year olds math, but with a twist of national service blended in with most everything else.
Again I am not in charge, so I can't tell you where we could be, but only weep for where we are.
Charles.
You know if we really wanted to take the oil from another country we could do it. But we would turn into something that the US is not. You just kill the population or turn them into slave labor, and then you take it. There, a done deal, simple.
But the US was not, and has not done that. For all the fluff about the US going to Iraq to get the oil, if we wanted it bad enough we could use genocide to get it. That might happen in the years to come with someone else running the show.
I am sure if you wanted to see a role playing gamer plan out taking over the world you could just ask one of us that have done it on paper and in our heads. But real action of taking over a country just for getting to it's oil has not been done.
I'll say again,
No matter what you think about the US in Iraq, if we really wanted the oil there, all we'd have to do is kill all the people and take it. Anything short of that is just playing nice guy, or not really trying for the oil like a mad man would, the US has not fallen that much into chaos yet. We are not playing the hand that people have been labeling us with, even though our actions there might not be all that great, we aren't there fully to take over and raze the place.
My father was in the Air Force keeping track of some of those "state secrets" , then I wanted to follow in his footsteps, but got there by a different route and ended up doing the same keeping of Secrets bit.
I am sure sometime in the past 4 plus years we have talked about taking over regions with oil wells. The thrust of your last paragraph seems to be to bash the US.
Charles.
*rant off*
They important thing is yet....
Depending on how things go total war is probably not off the table. With Iran given its population if we did invade it probably would be more of a genocide than current "modern" warfare. One reason perhaps nothings been done yet. I have to think if we let Mexico continue to fester that when we finally are dragged it it will get nasty fast.
If the US managed to control the worlds Oceans and deal with Russia and was willing to take the risk of probably limited nuclear war then if the gloves did come of we are positioned to effectively rule the world with the single exception of Russia itself.
China simply would not last long cut off from its imports a nuclear move by China would probably garner a response from both the US and Russia.
God knows how Japan would fit. A more direct/subversive front in Europe would keep the Russians busy. They would not necessarily lose but would have a lot of incentive to generally sit this one out and see. For them longer term a gloves off direct expansion of US military might to create a old style global empire would almost certainly collapse as fast as it formed. Why fight a enemy that would probably self destruct ?
Assuming we managed to hold it together then the Russians are probably in a postion to cobble together a new empire of their own I could easily see the US willing to throw Europe to the Russian bear in exchange for peace and split whats left of China and India if anyone even wants them.
Depending on how things go Russia itself could easily collapse again and be taken over by Europe bypassing a nuclear confrontation no real telling.
I'd guess right now probably one of the biggest reasons we have seen quasi stability is if the gloves do indeed come off it will be a nasty war and a true WWIII but playout out a bit differently.
If it does happen or unfortunately probably when it happens it will turn into the worst war in history and probably the worst of all time as future generations probably won't have both the resources and the will to create the insane conditions we have created and will live for a long time in its aftermath.
Now a nuclear war back in the 60's or 70's does not look nearly as terrible as what we may well face which is a semi-nuclear vicious longer conflict which will probably destroy more and actually kill more people than if the US and Soviet Union had just duked it out a long time ago.
I actually think the fact that most of the powers recognize that if war does break out now its the big one is one of the big factors thats keeping the situation more of a gentlemanly game of killing a few hundred thousand people instead of millions and then billions. Not that the powers are not make their moves and positioning. China is obviously setting up oil agreements that will be backed by force if necessary. Russia seems to be playing it safe and focusing on consolidating its regional position. Japan is getting suicidal. The third world as South America are pressure cookers slowly reaching explosive leves same with Eastern Europe. And of course Iran.
So far at least everyones content to simply move some pawns around the board and position and reposition for the big one however this won't last.
Nuke subs have almost zero utility going forward as offensive weapons. They had deterrence during the cold war but much less so now. Nuke weapons are not useful for the kind of wars you (presumably) non military folks banter about. The US military going forward has a well trained cadre with some weapons of the golly gee joystick variety as well as night vision gear ,remote attack capability and great communications. WE had similar advantages in SE Asia where I had some unscheduled vacations in the late 60's and early 70's. We were defeated by a determined pajama clad guerrilla force on bicycles who could operate with good natural cover. Of course it's different in the Central Asia topography but having served at the upper officer level I can tell you that there is a dearth of strategic competence at the General level on up. Westmoreland and Tommy Franks are two egregious examples who spring to mind. People who think we can win wars against the kind of seemingly marginally equipped ragtag forces we could be facing in southern and central Asia are either delusional, inexperienced or incompetent. I have met these primitive fighters and even minimally equipped, they are formidable opponents and only muddleheaded politician draft dodger types like our ex VP and video game experts labor under the delusion that we could ever mow them down with ease. That part of the world is where empires go to die. The US is likely to be that next empire. If Colin Powell were still in charge I would feel more confident because he was the last brass who was smart enough not to start something he couldn't win, unlike the current crop of shall we say, undistinguished leaders. nuff said.
hugho,
Being only an arm chair warrior myself and only an amatuer historian,I defer to your judgememt concerning the fighting of Vietnam and Afghan type wars, so long as they are fought under what I describe as "television rules" meaning fought in such a way as not to upset the folks back home too much or expand the number of countries involved too much.
When the chips are really down and the hand is being played for all the money AT the table, rather than just in one pot, guerilla foghters won't be able to cross a nearby border and give the big powers the finger while taking a time out.Nor will thier industrialized friends be able to ship them supplies and munitions thru nuetral territory without fear of immediate reprisal-every dog will be in the fight.More lokely yet is that thier industrial nieghbor will already be fully engaged.
In Vietnam, Iraq, and Afghanistan we have tried to change a society into something that suits us without killing too many people and looking too much like the Jews of the Old Testament or the Huns of the Middle Ages.We could still fight that way as recently as WWII when we carpet bombed whole German cities with napalm until they eventually got the message-we WILL NOT quit until you are either dead or until you surrender.
The real difference in the way we see this situation is that I don't foresee us fighting WWIII with the guys in pajamas but with other industrialized countries.The guys in pajamas can't bring the war to us, we have to go there and fight them on thier own terms under the current television rules.
The folks in pajamas will be safer than anybody else unless there is oil or ng under thier land.In that case, who ever takes thier territory the last time around will simply exterminate them if they don't cooperate.So far as I can see, human beings of the Afghan sort are very hard, perhaps impossible to defeat, if you fight on thier terms.
But if the rules change, and the rules WILL CHANGE,we could wipe out the country in a year with nothing but weed killer and a few dozen transports converted to crop dusters.It wouldn't even put a big strain on the herbicide industry-the guys in the plants might get in a little overtime is all.Ask any farmer.
I can't really come up with a clear picture of the role of nukes in WWIII. The two most likely scenarios are sfaIcs one, that the war arrives before nuclear weapons proliferate very much more.
In this case the major countries that have them will probably refrain from using them for fear of reprisal unless defeat appears to be imminent otherwise.I don't doubt that France, the US, or Russia would use the bomb to stop a ground invasion as a last resort..Ditto a small country like Isreal. A rogue regime such as the one in North Korea will most likely not fire off thier half dozen bombs for fear of reprisal but you can never know about madmen.
If the second case comes to be, that there is widespread proliferation,we will probably all die from radiation poisoning sooner or later.
Why is the American response to a crisis, nearly always violence and theft? What is wrong with honest trade?
"You can rely on America doing the right thing, having exhausted all the alternatives" - Winston Churchill
Hugho:
Having qualified on Los Angeles class and Ohio class subs (as well as SW qualified on Nimitz class carriers), I am well aware of our nuke subs' utility as offensive weapons. Hell, I used to take my "nooner" (nap) under a rack of Tomahawk cruise missles. Weather or not their warheads were conventional or nuclear I shouldn't say (although Jane's will tell you both), their purpose is tactical, not strategic, which means offensive under most senarios. I'm sure this capability still exists on current classes of subs .
http://www.fas.org/man/dod-101/sys/smart/bgm-109.htm
My response above was to the narrow question of whether we (the U.S.) will have the ability to wage war when oil supplies begin to fail. Whether we will or should is another question entirely. My point is that we will have the ability to put a lot of hurt on a lot of people for a long time, peak oil or not. The end of the age of oil will not mean the end of war.
That last comment, The end of the age of oil will not mean the end of war. Is the biggest thing people forget when going after this whole subject matter of the end of the world as we know it. We tend to paint a rosy picture of 100 million happy people all living a sustainable lifestyle and getting along in the happy future we have all been talking about the last week or so with other threads. When I don't think anybody really takes into account that there has not been a long history of people not killing other people for some reason or the other. We might not be able to fuel cars but we will be able to hit each other over the head with rocks. And just because they have a nicer lawn than we do.
The old Sci-Fi story of the last 3 people on earth. 2 men and a woman, the two men duke it out and one loses, now there are 2 people left. In the story one of the men is an android, being all superior attitude about winning in a fight. In the end the human kills him. Now who was the author?
Charles.
Like I said up thread, we are hand tied from doing anything but being beaten in those places we are now fighting. Short of killing anything and everything we can't win, and should just leave it all to sink in it's own sand.
But again, they didn't put me in charge.
Nice post by the way, my dad had a vacation over there. I worked at the other end of the intell scope.
Charles.
David ,
Is the < 1 mbd figure you mention just direct usage by the military as fuel for transporting troops and supplies, running ships (non-nuke that is), flying planes and driving tanks? If it is, then isn't the war machine still vulnerable to the general civilian winding down, since military equipment, food for soldiers, a tax revenue base for paying soldiers and buying guns and tanks and planes, etc. would presumably require quite a bit more oil to maintain? I am thinking of the difficulties that Nazi Germany ran into since they had no real supplies of oil to run their war machine. I know we have quite a bit more native oil than they did (since they had none), but still, how long can a general decline of available oil support the entire structure required for overseas military adventures? After all this includes running something like 800 bases in other countries, as well as fueling machines, not to mention the gads of "civilian contractors" involved in operations.
Not asking for any definite answers here, just seeing what others think. :)
-G
Yes, the 1 mbd figure is direct usage. And yes, the military would be subject to issues in the civilian sector. But the US alone has another 3-3.5 mbd production that it could allocate to critical industries (food, military production, other designated industries) that would allow the country to continue to function for quite some time. And that presumes that the US could not obtain any other oil from any other source at all, an unlikely situation. A more likely situation would be a USA that loses 1-5 mbd of production elsewhere in the world due to political or military events elsewhere. Then the US population would be more likely to "rally round the flag" under the belief that eventually they would see their access to oil restored.
This is likewise true of China and Russia and there are various other players who either have oil or who could easily capture a sufficient volume to remain active in global military affairs. I cannot postulate any reasonable scenario short of direct use of strategic nuclear weapons that would result in a downsizing of the global oil supply sufficient in size and speed to stop further military adventurism. And a nuclear exchange would itself be military adventurism.
So, unfortunately in my opinion, the possibility of global military action over declining resources remains strong for the next several decades given the rates of decline currently being reported. The threat of military intervention must thus be navigated to reach a place low enough on the resource tree to avoid further military action or the crisis must be averted through another energy source.
That is one reason I oppose the "Drill Baby Drill " concept being pushed by the right wingers which is more of a "Drain America First" policy. Leave our oil where it is while it gains in value over the years in exchange for dollars which will lose value over that same time period. The Arabs need those dollars, Euros, yuans, and pounds sterling just to keep their fast growing, engineering challenged populations fed.
Thomas. Amen brother. The oil in the ground will all be used eventually, but we would be wise to have it be later, rather than sooner.. Wise? ah, that's the rub.
I have advocated the opening up of offshore drilling in the US to convert that new oil extraction dollar for dollar into new solar and wind power generation, and public electrified rail transport. And, I still maintain that view.
Absent a benevolent dictator, how likely do you think such a forward looking use of resources is? Isn't it more likely that we'd use any additional oil for stretching out BAU for a little longer, that is, for powering jet skis, weed whackers, and SUV's?
Elect me as your leader and I promise to band weed whackers except where needed and to use sheep and goats and cows and horses and chickens to do the weed whacking.
Elect me as your leader and I promise to make sure you all are fed and have nice cottages to live in that are warm or cool where needed.
Elect me again for my second term in office and I promise to think about stepping down when that term is up, honest I will.
Elect me for change.
Never mind, someone already ran with that slogan.
Elect me for a better energy tomorrow.
Charles E. Owens Jr. President 2012
I know it all seems so tongue in cheek these days.
But If I were in charge I would be killed for trying to do things for the better.
And they will not hesitate to take the wood for our campfires if they run out of fuel.
OFM,
You may be wrong...in the short run. I believe that we're headed for 5 years (at least) of "relatively" stable BAU (compared to the "aughts") with the 2008 liquids production peak eclipsed in 2010. Given OPEC spare capacity, GOM and central asia, including Iraq, ramping up along with OECD demand continuing flat or falling and China/India demand increasing, I think we'll see relative stability in the financial and geopolitical arenas with the notable exception of Afghanistan as we settle in to a bumpy, decade long oil production plateau that began in the mid 2000's. As floating storage declines, deliveries will follow a decline in oil price to the mid 60's or lower.
This is not a rosy scenario for the climate or the environment as exploitation of ecosystems will continue unabated - we'll have to pay the piper for borrowed eco-capital eventually but we'll continue to kick that can down the road.
I'm somewhat bullish on Americans increasingly, albeit slowly, dialing down their overall fossil energy use with efficiencies, conservation, renewables and perhaps some "stick" from the Waxman-Markey bill and Post-Copenhagen GHG reduction agreements.
I do not foresee much GDP growth as government bailouts unwind, but neither do I see imminent collapse. I do see an opportunity, should we choose to take it, for a degree of relocalization of goods and services and a build out of public transportation along with a growing local food industry in the US.
Basically, I think we may just have some breathing room through the 20-teens.
Hi Sterling,
Short run and short term are not well defined terms and you may very well be right that we will have another decade or so of relative peace.
But it's not just fossil fuels, the pressure is on in respect to water, farmland, food, and a bunch of other critical resources.
Furthermore the population continues to grow, and grow fastest, mostly in the countries with the worst prospects.
I hope you are right -the longer we can go without tshtf , the better our chances of avoiding a REAL war, one where the major countries are in direct conflict.
But if things go down hill slowly enough we might come to our senses and make the collective changes needed to avoid outright collapse and war.
If for instance the typical nurse or teacher gives up the money most of us spend on a car by opting for public transportation, she would be able to afford a superinsulated house with super efficient appliances and solar panels with the money saved.
The situation is not hopeless except for the overwhelming tendency of society to do the wrong thing.
"The situation is not hopeless except for the overwhelming tendency of society to do the wrong thing."
That is the crux of the matter, isn't it? Guess we better choose wisely.
Happy New Year!
The chances of American Empire unwinding in the next 25 years is quite high. We will not see much use in having bases in a hundred countries. Irrespective of whether right of center or extreme right of center people are in power.
The chance of a hundred-year-old with a serious heart condition "unwinding" in 25 years is quite high! Try 5 or 10. At the rate we're going now, I'll be very surprised if we make 10.
One of my predictions for the next decade is that by 2020, the US will already be well underway in its withdrawal of all forces from the Eastern Hemisphere, and the winding up of all commitments and alliances. We are seriously overstretched, and our economy will have declined so much by then that we will be unable to maintain anything except a maritime defense perimeter around North America. Mid-Pacific, Mid-Atlantic, Mid-Arctic, Caribbean - that, air defense overhead, a very few Army troops scattered around the country, and a fleet of boomers to sustain MAD, and that will be all we can still afford.
By then, WT's ELM will have played out to the point that there will be very few oil exports left worth protecting or fighting over. Protecting what we have over here will be of far more importance.
Not to mention that all the shiny new war machines we had going into Iraq and Afghanistan are now neither shiny nor new. Fighting in deserts takes quite a toll on high dollar equipment and from what I've heard secondhand it hasn't been replaced.
So Evnow, what do you think will be the fate of the rest of the world after the American Empire collapses?
I find it quite amusing that people talk about the collapse of America without ever mentioning the fate of the rest of the world.
What happens to America happens to the world! America is the keystone of globalization. And when globalization collapses the world collapses. Every nation, except some small third world nations, depends on other other nations for either exports or imports of some vital products such as food and/or natural resources. And no nation is depended upon more than the US of A. USA Grain Exports - Where to, how much? TOD Europe
In 2008 the US exported $425,220,000,000 in commodities and imported $689,973,000,000. Remove that from the world and see what happens to those countries who import from and export to the U.S.
Imports and Exports of Leading Commodities, 2008
Ron P.
Ron:
Your question wasn't addressed to me, but I'll take a stab at it anyway. (Understanding that while I am predicting that the US is going to have to pull back, I'm not so much advocating that as just trying to look at things realistically.)
What will be the fate of the rest of the world when the US pulls back?
1) I suspect that the EU is going to have to come to some sort of understanding with Russia. They may not go so far as to become allies, but they will obviously have to avoid becoming adversaries. This is going to result in a relationship which is quite distasteful to Europeans, and somewhat costly - but less costly than the alternative of being confronted by a hostile Russia. Being locked in Russia's embrace will mean that the EU becomes quite constrained in what it can do elsewhere around the globe. The EU and Russia are thus more or less doomed to eventually converge into one large economic and political bloc, rather this is what they really want or not.
2) Obviously, China is going to be the regional hegemon in east Asia. Taiwan sooner or later is just going to have to cut the best deal that they can. My guess is that if they start being really nice to the mainlanders for a while, don't wait too long, and play their cards right, they just might be able to preserve most of their autonomy; as long as the Chinese flag flys over the island, that might be almost enough for Beijing. Beyond that, I don't see China as having any more territorial ambitions - except northward. If the Russians has any sense about them, they would be shaking in their fur boots. Siberia is the obvious direction for China to expand - lots of empty space, lots of resources. This is one very big reason why Russia and the EU will be driven into each other's arms. While I don't see China as having any territorial ambitions in E or SE Asia, it will definitely want to be "in charge". I expect a trade bloc to develop, but not EU-style where everyone are equals - China definitely does not consider itself an "equal", but rather will want to be calling the shots. I am sure that China will want to hasten the withdrawal of the US from the region, so settling the Korea problem and removing that as a hot spot (and potential problem for themselves) will become a "front burner" issue over the next decade. I can see China eventually leaning hard on both countries at the opportune time to accept some sort of grand bargain that will result in their reunification under a relatively benign, but neutral government, with a guarantee of peace, prosperity, and a fair amount of freedom - as long as it isn't used to criticize China or interfere in its affairs.
3) India and China need not necessarilly be adversaries, given the mountain range that separates them. Nevertheless, as the two big dogs in Asia, they are likely to become less and less friendly toward each other. I thus see a strong likelihood that India and Russia will attempt to renew the old relationship that they had during Soviet days, and to try to build upon it. Both need allies, and need them against China, so into each other's arms they will go. This in turn will tempt China to strengthen its old ties with Pakistan. The US leaving Afghanistan is no guarantee that peace will break out in Central Asia. On the contrary, it is highly likely to be the main cockpit of great power rivalry through the remainder of this century at least, and probably long after that. The Great Game contines.
4) What happens with Iran, Turkey, and the Arabs is interesting to speculate. Turkey and Russia have historically been at odss with one another, and Turkey feels it has ethnic kinship with many of the peoples of Central Asia, and thus interests that may be at odds with either the Russians or the Chinese, whichever seem to be dominant at the moment. I thus see Turkey engaged in a long-term game of intrigue to play the two off against each other, making whatever opportune moves become available to promote its own interests in Central Asia. I think that the opportunity for the EU to add Turkey has passed, and that the two will increasingly be turning their backs on each other. This, in turn, suggests increased tensions between Turkey and Greece, especially over Cyprus. The EU (and that is all that NATO will be left with once the US (and Canada) are out) will be too weak and unassertive to be any real threat against the Turks, which in turn might result in the Greeks leaving the EU as well. Far from becoming an assimilated bloc, the Balkans will likely be a rough frontier for the EU, with pieces continually falling in and out.
Being surrounded by Turkey, Russia, China, and Arabia places Iran in a particularly tricky position. They also have some interests in Central Asia, and would also like to be the regional hegemon over the Arabs. What they need more than anything else are allies. They might not forever have the luxury of the Turks in being able to play off the Chinese and the Russians against one another; Iran might eventually have to make a hard choice and cast their lot with one or the other. My guess is that while both China and Russia would like to have Iran as an ally, Russia actually needs them far worse, and the benefits of having a friendly Iran (with direct access to the Gulf and Indian Ocean) are so strongly advantageous to the Russians that they will bend over backwards to please the Iranians and close the deal.
This will not imply conflict between the Turks and the Iranians - they have too strong a community of interests in keeping the Kurds down.
This in turn suggests to me that there is only one place for the Arabs to go, and that is into the arms of the Chinese. China is probably best positioned to be the ultimate beneficiary of what little scraps of Arab oil are still available after the US has finally left the area. China will be prepared to play very nice and to pay premium prices to bring the Arabs firmly over to their side.
This in turn suggests the development of two large suber-blocs: China/East Asia/Pakistan/Arabia vs. Russia/EU/India/Iran, with Turkey being a swing power and Central Asia being the buffer zone that is up for grabs.
Of course, the withdrawal of the US and these subsequent developments are bound to be very, very bad news for Israel. They are going to find themselves in a very bad spot. The Arabs are going to find themselves with a patron that can supply them with more and better weaponry than they ever got from either the Soviets or the US. Neither the EU/Russia, nor Turkey, are going to be inclined to get themselves out on a limb in aid of Israel. On the other hand, they might find it in their interest for Israel to continue to be an irritant in Arabia's side; thus Israel might get a little covert help from them, but they really can't expect anything more overt. This in turn suggests to me that the pressure will be on to try to settle with the Palestinians and cut the best deal that they can. In fact, it is likely that the US will be putting intense pressure on Israel to do just that before the US completes its withdrawal.
As for Africa, it will continue to be a mess. The EU and China will compete for whatever opportunities present themselves, but neither will see much of anything there really worth fighting over.
Latin America is the one region outside of North America where the US will continue to have some interest and will exert some influence. China is the only rival power in a position to give the US any competition. Rather than being monolithic, Latin America is more likely to split into rival camps (it is already doing so), one more interested in dealing with the US, the other seeing the US as a threat and preferring to deal with China. These will not freeze into hard fault lines, but rather many of the countries involved will continuously shift back and forth.
Australia is going to have a tough decision to make: Sustain their alliance with the US, with the understanding that this might put them at odds with China (which will be their main trading partner), and with the understanding that the US will be able to render very limited military assistance, leaving the Australians needing to mostly get out from under the US umbrella and expend the resources necessary to field a truly robust and effective defense; or cut their ties with the US and cut the best deal they can with China. My guess is that the Australians will go with the former option, but it will be a very hard decision.
Given the tendency of much of the world to eventually distil into two large opposing blocs, might we evntually see WWIII? Possibly, but not necessarilly. WWIII would mean horrific losses, and not for gains that were all that great, either. I'm inclined that a balance of power will be maintained indefinitely as the two big blocs play the Great Game against each other.
WNC, sorry to be so late in responding but I have been to a New Years Day family get together and just now got in. However....
I had something different altogether in mind with my post. You are talking about the power and influence of nations and I was talking about the welfare of the people. China employees millions manufacturing goods to be exported to the US. And the US exports food, especially grain, to the world.
As the link I posted above shows, we buy over six hundred billion in goods from other nations and export over four billion is commodities to them. If we stopped shipping grain abroad and China, and all the people who manufacture all the exports to the US were suddenly unemployed, it would be disaster.
When the US goes down the tubes, economically the world goes down the tubes economically! That was my point. And the military runs on money. When the money is gone the power is gone. Then the collapsed nations, virtually all of them, would revert to something entirely different. And I shudder when I contemplate what that might be.
Ron P.
WNC,
I AM impressed with your reasoning and insights and things might well work out more or less as you describe them.
But a prophet that sticks to generalities is better recieved in the long run.
That's why I don't make many specific predictions. ;)
A really nice post, but how are all those people going to feed themselves without the grains that the USA ships to them? If we pull out of the game as you state it, where we will have gone? We have been a big player for a long time and have had our fingers in a lot of pies ever since WWII, just pulling up stakes and going back to home turf does not seem like something we are going to do.
China has a big hand in several African nations, but they are supplying the labor and not the locals, besides dirt moving jobs, all the tech jobs go to Chinese shipped in from China. China also has it's own problems with Muslim hardliners in it's hinderlands.
Rosy predictions that might in part shape up, but things are not as simple as you make it seem. Water issues are getting a lot more play in China as the cities grow and the rivers dry up where the farms used to be. The smog over most Chinese cities will take a few more years of clean air acts to clean up at the rate they are pumping it out now. Oil is on a down swing things won't get any better if they don't start using more wind and solar.
And as Ron showed, there is a lot that the US provides that the world would be sorely in need of when it is not there.
Charles.
"Of course, some of us finite earth types might add depletion to the list"
Most would call that a zing but to me it has deeper tone like a heavy duty thump.
These fantasy money games the world gov's are playing can't be helpful for you guys, talk about having a loose cannon on deck.
Hey, look what I found....
This is by far the most technical paper I have read to date on the topic.
http://www.global-greenhouse-warming.com/gas-wood-generator.html
contains link to "Woodgas Generator Manual" 9.8 meg pdf.
Paper is titled "Handbook of biomass down draft engine systems." - property of US government
Best,
D
Yes, a thump based on the obvious fact that prices have reflected supply and demand. Last five years ->
1) supply was constrained the price went up
2) demand fell the price went down
3) supply fell the price went up
4) ??? (today)
Thanks for the links on gasifiers, I lost them when an old computer croaked.
I would like to get in touch with any Oil Drummers seriously interested in this technology as I am planning on converting an old truck motly for the fun of it but also just in case.
Are you familiar with the GEK (Gasifier Experimenters Kit)? An acquaintance has been playing with one for a couple of years and it looks promising as a way to get the idea from drawing board to practical applications.
thanks yes .
It costs too much to just use it for a toy-it's probably a good deal for a researcher with a salary and a budget.
I don't have enough engineering training to make good use of it.
I'm trying to figure out how RPM can be controlled well enough to run a diesel generator conversion. It seems that maintaining 1800 rpm would be tough.
Hi Ghung,
I spent a week or two searching this subject about a year ago and then my old computer died with all the links-I know, you are supposed to back up , but I'm a computer klutz.
I studied what I found thoroughly, which was not very much-mostly the same stuff is repeated endlessly.
The first thing about doing a diesel conversion is that you will still need the diesel fuel injection system in order and intact and you will have to run the engine on a SMALL AMOUNT of diesel because you cannot ignite the wood gas by compression.But you are SUPPOSED to be able to cut your diesel use by up to ninety percent, possibly more.
Unless you have a very good machinist and mechanic on hand to help you experiment you must not even consider the possibility of installing spark plugs as the likely result will be the ruin of a very expensive cylinder head in any case.
The easiest thing to do would be to add an additional governor salvaged from another engine and drive it with a vbelt.This would be a pain but it would avoid a lot of problems as you could connect it directly to the gasifier throttle valve without interefering with the original fuel system. This would enable you to dump the gasifier output directly into the intake manifold of the diesel and should work fairly well , depending on circumstances.There will be complications, and they are not covered in detail in any reference materials I have seen.
I will avoid these problems doing a gasoline engine in a truck since a holding a constant rpm is not a big deal using a foot throttle.
I believe you would be much better off to go with a gasoline engine at least you first try. I have a lot of experience with oddball hand made Rube Goldberg contraptions and unless you are long on time and really enjoy such things you can find yourself in a very deep hole time and money wise with nothing to show for your troubles even if you are a much better artificer/mechanic than I am, and I 've been around for quite awhile.
Personally I will consider it time and money very well spent if I can find somebody with a working homemade full size gasifier actually in use if I can get a good look at it and a half a day of conversation with the owner operator even if I have to spend a full week on the road in order to do so.
My guess is that there are no more than a dozen up and running trucks and cars equipped with gasifiers in the lower 48.
These things are not that complicated but getting one "right" will involve a lot of experimantation and revision which will consume a lot of time and materials unless you are able to follow a tried and true design to the letter-which seems very unlikely.
Actually, Mac, I've built a couple of those and have one on stand-by to my big genset. What would you like to know? In short, the tech works, but it's a real hassle. It's not very scaleable and works poorly on small engines if at all. It's pretty hard to run anything under about 10kw on the technology unless one pre-manufactures charcoal and uses it directly. I've found ethanol to be more cost effective.
Hi Jay, thanks I found your emailaddress and will get in touch when I get started.
Thanks for the links on gasifiers, I lost them when an old computer croaked.
I would like to get in touch with any Oil Drummers seriously interested in this technology as I am planning on converting an old truck motly for the fun of it but also just in case.
Here's a link to a photo of mine. Of course you can get the expired propane tanks for free and they're a good size for the body.
http://sanityandsimplicity.blogspot.com/2008/09/energy-self-reliance.html
I have the feelin' that some forests are about to get Violated.
Of course not! We'll only gasify coffee grounds, crop residues and the occasional downed tree to be able to get to town once or twice a month.
A tanker traveling between Mexico and Texas can make the round trip in about 1 week. A tanker that travels between the Middle East and Texas requires about 1 month to make the round trip. To deliver the same amount of crude oil at the same rate from more distant lands requires more tankers, in this example, about 4 more.
Over about the last year and a half the demand for oil tankers has declined because problems with the global economy have reduced demand for crude oil exports by more than ELM has increased demand for oil tankers. Generally net oil importing countries consume their domestic production before importing oil from their neighbors before importing from distant countries.
Last chance for countries without Strategic Oil Reserve - like Australia - to buy a couple of these tankers, move them to a safe port and squirrel away some oil for tough times. But the Ozy government is advised in this liquid fuels vulnerability report:
“ACIL Tasman concludes that while there will be a peak in production of crude oil at some time, internationally accepted information from authoritative sources suggests that this peak is still some decades away and will occur beyond 2020. It is not anticipated to be a significant factor that will affect Australia’s liquid fuels vulnerability prior to 2020.”
More details here:
http://www.crudeoilpeak.com/?p=793
2020! That's ten whole years!
I think that many of these studies / surveys / analyses were originally written in the 1990s, and have been regularly updated since then.
The problem is that the "2020 - it's years away" mentality, applicable in the 1990s, is suddenly looming with ever increasing ground-rush as the accompanying text has not been updated to reflect any changes to the figures.
Thus, many of the commentators have not noticed that the "years away" is now less than 10 years away.
AKH
Matt -- An interesting attitude from down under. As a side note I saw a report yesterday noting that China plans to set up a 200 million bbl SPR of their own it the next two years. At minimum it sounds as though they'll get a break on transport costs. Also, given how quickly their gov't can react, they my take adavatage of all that floating storage should we see a short term oil price drop in the near future. With the low oil prices in 1Q 09 they quickly increased their oil purchases to take advantage of sub $40 oil.
Hi Rockman,
And while they build up thier oil reserve, they get rid of some more soon to be worthless dollars if they can act fast enough.
Yeah mac. Did you catch the story about the huge copper reserves China just tied up? Converting $'s to commodities not only insulates against inflation but that devalution devil. Essentially the same thing my new company is rushing to do: convert from cash to oil/NG in the ground. Of course, China has thousands of times more US notes to fling around then we do. As much pressure as we feel around here by the process it's got to be that much more on their gov't. That can always lead to some big misteps. Whether China's effort to establish a naval base in the Persian Gulf becomes such a misstep remains to be seen: re your short term military solutions
Yeah, and if you read to the end of the article, 17% of the tanker fleet is single-hulled vessels that will need to be taken out of service over the next few years, starting this coming year. He also neglects to mention the analysis later in the article that shows the need for storage going down, since demand is expected to increase.
I guess I'm a little unclear as to the point that Mish is making here, except that the 26-mile long chain of floating storage is going to shrink. Looks like some of the tankers will be put to use moving increasing demand, some will be scrapped due to single-hulls, and as WT points out, some won't have any cargo available to carry.
His point is much like the typical remarks made by news talking heads that need to explain every daily stock market fluctuation. As Rockman said elsewhere in this thread, the actual rationale will get figured out long after the headlines die down.
Your analysis makes just as much sense, which is why these immediate analysed to be taken with a grain of salt. I would call it game theory in process.
Yep but amazingly it seems that no one cares that none of these tankers are steaming at full speed carrying oil from producing regions to consuming regions.
I'm dumbfounded that this obvious aspect of the situation is not even mentioned.
Along with this is of course refinery utilization. We just saw 140 a barrel oil and now the entire supply chain is in a major slump yet the world is happy enough to assume its a collapse in demand and OPEC has cut back.
Thats why I'm saying lets wait and see what happens if this rosy scenario is in the least bit false then real production had to have fallen dramatically regardless of demand changes resulting in lower prices.
If OPEC did not first produce what they claimed then cut back to close to the amount they claimed the real production capacity decline accelerated dramatically for geologic reasons if so then its probably not suddenly changing.
The evidence points to a sharp fall in global oil production esp given the fact that oil is already over 70 despite many economic indicators in depression level values or deep recession.
If any of it is due to and acceleration of the decline rate in oil production then we will see problems with supply sooner than later if its on the order of 1mbd per year or greater. Regardless of the current price of oil.
We don't know for sure of course what the real world production rate was before the economic collapse however given the number of tankers reported to being used as storage plus reports of tankers waiting to load plus refinery utilization levels we do have enough info to know oil exports to consuming countries have declined significantly at the level of at least 5%.
Regardless of absolute values the change is huge. Even if its not the real decline in production if a significant portion is related to production falls then the rate of future production is questionable.
For example if Saudi Arabia is now facing escalating decline rates their willingness to increase production as prices increase is questionable. One has to assume they will maximize their per barrel profit and minimize actual production regardless of capacity if they face falling capacity.
You will never see cheap oil for them again and the price points needed for them to increase production if they can are and open issue and certainly higher than the previous average price.
In any case prices have reached the pont that they are touching the number the Saudi's claim is fair.
http://www.wtrg.com/prices.htm
http://www.forbes.com/2005/03/24/cz_0324oxan_oilprice.html
http://www.thefreelibrary.com/OPEC+Is+Set+For+A+$70-80%2FB+Price+Range,+A+Year+After+The+Saudis...-a0215406892
I guess I don't have a lot of faith in Saudi price band defense announcements. As far as I can tell its impossible to google for Saudi announcements inside of Saudi Arabia so the concept of considering the validity of past statements simply is not possible.
This statement will not turn out to be false unlike every other single historical statement from OPEC.
Its really hard to call on game theory giving that batting average :)
I'll use simple arithmetic grading as may game theory and choose a big fat zero as to my opinion of OPEC statements.
The phase out of single-hull tankers, which needs to be completed by 2010, may provide support to tanker rates:
http://www.imo.org/About/mainframe.asp?topic_id=1018&doc_id=4801
As these tankers come out of the fleet I would expect it to accelerate the unwinding of floating storage. As a countervailing factor, expect Iran to continue their brinksmanship to spook the markets and support prices for their oil.
I see very little evidence for speculation in the oil price history of the last 7 years.
That sounds nothing at all to me.
Hello Euan,
A 26 mile long line of tankers would amount to something like 120 tankers assuming an average length of 350 meter for each.
If it is assumed that each tanker on average has a capacity of 2 Mb (Million barrels), this should amount to a potential total storage capacity of 230 - 250 Mb.
In 2008 EU consumed close to 15 Mb/d, and consumption has declined through 2009 and is now around 14 Mb/d.
This reuslts in that the oil (petroleum) stored onboard the described tankers has the potential to supply EU for 16 - 18 days....which puts things into a different perspective.
Such an amount of petroleum stored on ships suggests speculation. The end user of crude oil, refineries has storage of their own.
I'm a bit surprised your not considering how many barrels of oil where not delivered by 100+ VLCC's being used as floating storage.
Assuming three months round trip time at 2m million barrels.
12/3*100*2 = 800 million barrels of oil not delivered using oil tankers to gasp transport oil.
We have plenty of reports of even more tankers laid up empty waiting to load.
Obviously the number of tankers that are idle are significant probably at least 50.
Next those that do load are probably slow steaming say doubling transit times as they simply have nothing to do once they land the oil.
To some extent lower daily rates are probably a result of arbitrage between steaming speed and profit. Go twice as slow for half the pay but save on bunker fuel for a marginally higher profit.
Overall the total amount of oil not exported measures in the billions of barrels perhaps 2 billion barrels.
Using some tankers to store a few 100 million barrels for extended periods of time is not the real story. The real story is daily global oil production and exports have fallen dramatically.
A few hundred million barrels is a side show compared to whats not happening with the delivery of freshly pumped crude or the lack of it.
See my longer post below for more but I think people are fundamentally misinterpreting the situation. And OPEC "cutting" production is a complete myth.
Counting since when?
Just looking at crude oil, 656 million barrels were not produced between July 2008 and September 2009
11/12/2009
Oil crunch delayed by 11 days since Oilympic peak in July 2008
http://www.crudeoilpeak.com/?p=812
The question is: for which daily production = daily consumption was the tanker fleet "designed"?
Rune, is it known if these 26 miles of tankers are stationary, i.e. just being used for storage, or are they part of the global transit fleet?
Euan,
Recently I saw figures that the worlds VLCC fleet are around 450.
I would assume that the number I estimated above (120 tankers) are floating storage not counting oil in transit.
"I see very little evidence for speculation in the oil price history of the last 7 years."
May I, with absolutely all due respect, express my feelings at that sentence as I pick myself up off the floor...
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
I guess we will agree to disagree....:-) On the other hand, the traders in any commodity and the hedge fund agents and bank funded agents do not have a habit of showing us their records and reciepts, so it may depend on how you define evidence.
RC
Roger, how dare you disagree;-)
I thought "we" agreed a long time ago that the futures market was zero sum game. So that leaves buy and hold in storage as only speculative force - it doesn't seem nearly big enough volume to me to drive price. Surely those buying and storing are hoping for increase in demand to drive up price?
In my chart I see y axis noise as market inefficiency / speculation, but over all trend as supply / demand. Happy to listen to alternative explanation though.
€
Producers store oil in the ground for free.
IMHO the game changed in 2005 when Shell realised it is possible to cut out the middleman and the volatility tax applied by market makers
Introducing Financial Oil Leasing
IMHO at least one producer (and probably now two) - who have every interest in maximising oil prices - has for the last few years been using investors' money to support the market price, with investment banks being willing intermediaries via the opaque Brent/BFOE complex.
Hamanaka successfully manipulated the copper market in a very similar way, and for five years he did so after the whistle was blown.
The existence or not of short/medium term macro manipulation by producers does not detract from the point that in the long term the market price will rise as supply gets scarcer and more expensive.
What is IMHO happening is an oscillation - leveraged by fund money and OTC derivatives - of the oil market price between a 'Buyer's Market' lower bound, and a 'Seller's Market' upper bound, whatever those bounds are. And of course the (declining) value of the reference currency is an issue in these price boundaries.
there is always a tendency to measure stored oil in days of supply. that would be valid if all other supplies were cut.
to put this into context, consider the volume stored at sea, probably ca 125 million barrels. and if demand exceeds supply by 1 million bpd the new metric is 4 months excess supply.
and since it has taken nearly 1 year to burn through 125 million barrels of excess, we can conclude that demand has exceeded supply by about 0.34 million bpd. it could take another year to burn through the remaining 125 million barrels, or a significant correction in oil price could be just ahead if the excess is dumped on the market. that could happen if storing oil at sea is no longer profitable.
I agree with Mike's assessment.
The last six months have been a race between deflationary forces in the US and Europe and rising consumption in Asia. It's still unclear to me which will win but there is a very distinct possibility that, if deflation gets ahead, oil prices will crash once again in a giant short squeeze. This will happen If the contango in the oil futures markets flattens out too much. That's why I keep an eye on the shape every day at the Energy Futures Databrowser:
Right now we're near the upper edge of the trading band set up in the last quarter but it is the steepness of the contango in that band that you should keep your eyes on. If it ever goes flat the oil markets are in for big trouble. The databrowser also allows you to browse through the daily futures chains of the last six months to get a sense for the variability of this futures chain.
Happy Exploring!
-- Jon
It depends on how you interpret the futures market :)
I have a big post below however assuming expanded storage of pumped oil for sale then one would expect the month on month variation in prices to lesson.
Contango flattens as oil demand is met increasingly from floating storage and not changes in real production.
So first and foremost the flattening is probably driven by real oil speculators holding oil in storage and releasing later.
Of course they cover cost hedging across the futures market flattening the curve substantially well out into the future. Eventually of course profit drops no matter what and absolute price increases i.e the whole curve moving up steadily provides more and more of the profit.
Drumroll oil prices steadily increase.
However again see my long post your right this whole situation can blow up and as it gets flatter and flatter we are closer and closer to something happening. Either the market is really well supplied and it flattens and flattens until we see and absolute price collapse by a substantial amount routing the physical oil speculators and forcing them to dump into a price collapse.
Or in my opinion we see daily production no longer able to meet supply and now it looks like backwardation sitting in in the front month drawing down storage. But then snapping the futures curve all over the place as it tries to fall into natural contango.
Thus regardless of the outcome the futures market is increasingly signaling that a basic change is getting closer and closer and whatever the forces are that have influenced the market to date they are changing.
Its still not clear exactly what can happen but a flat futures market is in my opinion highly unstable and simply not a long term condition.
"now it looks like backwardation sitting in in the front month drawing down storage. But then snapping the futures curve all over the place as it tries to fall into natural contango."
Historically, contango has been the more unusual occurrence... from Morgan Downey's Oil 101
"Backwardation is far more common than contango.... A more robust theory as to why backwardation is more predominant than contango is that traders in most commodity markets can easily arbitrage a contango curve by building more storage and selling forward to finance the storage... Contango only exists for brief periods before new storage facilities are constructed and forward curves are sold. However, backwardation is not a market condition which a commodity market can arbitrage out of existence." p. 326
Now, if we have a period of sustained shortages, maybe a contango market would be more common. But since this has never happened, we have no idea how the markets are going to react. Quick collapse, slow happy transition into a sustainable egalitarian future...
Well it costs money to store oil. Its not free.
I might as well say I think Morgan Downey is completely full of crap so...
I won't even go into whats wrong with your above quote. In my opinion it has so many different things wrong with it its not even funny.
Starting of course with the ability to rapidly expand storage of oil and oil products being something easily done. Or any commodity for that matter.
I'll stop but the dude is in my opinion the second most clueless person about oil after Yergin. The problem with both of them is they are dangerously incompetent because they think they know something and spout "facts" with fundamentally flawed basic assumptions.
Supply demand, absolute storage levels, expansion of storage (costs time and money) storage costs, market volatility, seasonal demand swing etc etc etc all play a role in if a market is in natural backwardation or contango
and how volatile the situation is. I promised to stop so I will but your better off reading Yergin if you want to fill your head with nonsense.
You can feel however you want about Downey. I don't know him, and I won't be offended either way, but I'd prefer you to not confuse me with him. I referenced his statement because it is a plausible explanation for the preponderance of backwardation... and regardless what you think about Downey, backwardation HAS historically been the norm. Furthermore, the explanation that he provides for backwardation 1) is not his own, and 2) is shared by many. But, this explanation is just that... one explanation. You have a different perspective. I respect that, and I don't personally think that this explanation should be taken as dogmatic.
As for building out storage, I generally agree with you. It is simply too costly, but more importantly, too time consuming with the permit process, facility construction and all. That said, the system has a lot of half full tanks on average. Don't believe me if you want, but one piece of evidence can be seen using google maps. Lots of storage tanks employ floating roofs. A birds eye view keen to shadow detection shows that on any given day (at least clear sunny days that had satellite flyovers) there are a lot of facilities operating at half capacity or less. Another place to gain storage is to simply rent a tanker - poof! There's 2 mbbl... I suppose that if you owned a pipeline you could slow down your flow rate to gain the same effect.
In fact, the extra storage has in large part been created by the industry as it moves towards JIT delivery (except of course during contango markets where it makes sense to buy and hold if the future price is higher than the insurance, maintenance and security staff, taxes (possibly), and on and on). I find it amusing that you state that storage is expensive, because Downey says the same thing, "unlike many commodities, oil is very expensive to store" (p. 273), and it is the price of storage that has pushed the industry increasingly toward JIT supply chain management which created extra storage capacity.
Now, you say that "[I'm] better off reading Yergin if [I] want to fill my head with nonsense." Well, sir, in fact I did read Yergin's book, but I've also read Heinberg, Simmons, Deffeyes, Antonia Juhasz, Jeff Rubin, Brune, David Goodstein, Andrew Nikiforuk, Raymond and Leffler, Hyne, Dimitri Orlov, Joseph Tainter, Ruppert, William Catton, Ulrich Beck, Guattari, Noel Castree, Malthus, Mill, Jevons, Marx, Smith, Meadows (Donella, not Rachel), Knox Agnew & McCarthy, Harrison, Hawken, Lovins, Harvey, Akerlof and Shiller, Baran and Sweezy, Sweezy and Magdoff, Madgoff and Bellamy Foster, Nelder, Castells, Jane Jacobs, Doreen Massey, Pickles, Katz... and more that aren't falling from the top of my head.
I'm also just as apt to pick up the Wall Street Journal as the NYT or the Washigton Post, or The Guardian, or the Financial Times. Perhaps you think I'm just practicing for a Katie Courick interview... but my point is that I read all different kinds of perspectives IN ORDER TO MAKE AN INFORMED OPINION and to become acquainted with what I believe to be oppositional perspectives (like the perspective that because the U.S. had high and rising crude inventory levels from 2004 to 2007, there must not be a problem with supply) see link: http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTESTUS1...
Now, if you insist on thinking of this as 'filling my head with nonsense' feel free.
As for futures markets and speculation vs. fundamentals... as I said in another comment - speculation can drive the price up, but it won't be sustained for long unless supported by the underlying fundamentals of supply and demand... NEITHER of which do we have good data on. So, I try to piece together what I can with the information that I have available, and I put this into a flexible meta-theory about how the economy works and how it doesn't... A meta-theory which accounts for ecological limits, social limits, and political limits. Above all, a meta-theory that is consistent, but also flexible.
One last point. I'm not a personal fan of aggressive comments, and yours to me felt a bit personal. I think aggressive comments tend to 'police' great sites by making some potential commenters shy away from sharing their opinion. This could be bad for at least two reasons: 1) they might just be right, or 2) if they are wrong, a civil discussion which convinces them that they are wrong is not going to occur because they've not made the comment. It's like discouraging students from asking questions in class.
Happy New Year to everyone, and best of luck in the coming decade!
There is absolutely nothing wrong with having the opinion that Downey and Yergin are complete and utter idiots. It does not detract from the site one bit to call a spade a spade. Your free of course to take what they have to say and anything else you read as a fact or worthy of understanding.
However it does not matter what people say or write the underlying truth is oil is a hell of a lot more expensive now then it was ten years ago and the world financial system is teetering on the brink of collapse. The truth is rather obvious and direct. We got into this position for a reason and it was not because of some marginal change in oil supply and demand and some misguided financial policies.
Not only is the oil based fiat fractional lending economy broken its been broken for a long time. Fundamentally busted and with no long term viability.
I don't think this is a highly controversial position to take any sort of review of economic indicators suggests that things are definitely out of control. If so then some people in particular Yergin and Downey are making their arguments from a fundamentally flawed position and can be readily discounted.
Its like counting the number of stone heads erected on easter island in the last years before the civilization collapsed. Sure we can talk about the market contango and backwardation and storage etc etc just like if we where on Easter Island we could have talked about how many heads we erected and how hard it was to find trees this year and guess next year might be better or worse.
But if the basis of your argument is that the system is intrinsically sound and its actually on the edge of collapse then your analysis is worse than worthless its damaging. So I have no problem making strong statements about both I'm sorry they deserve it.
Of course we are free to pretend that no the worlds not wobbling on the edge and that oil supply and demand are close to balance and the financial debacle is the result of pure greed etc etc. If so then where draw the line ? If the system is sound then its sound and only the most outlandish claims need be met with a critical eye.
If its not then we are living in a sort of warped nightmare as our governments and financiers attempt to keep the gaming going just a bit longer even though they know its over. Erecting one more stone head and hoping its not the last one.
My argument is of course the real situation is a wild twilight zone where people mix in "facts" that perhaps make sense under more normal circumstances and really only succeed in keeping people from looking critically at the big picture which is scary as hell. The combination of unprecedented and desperate moves on the part of our rulers along with these purveyors of irrelevant facts keeps most people from stepping back and thinking about our real situation and seeking the truth.
So thats the basis for my strong opinion and if I'm actually right then its already to late to do anything about it. You can imagine I have no problem making strong statements. Why not ? No one wants to wake up and face the truth ?
Screw political correctness sorry I'll leave that to the people spinning facts.
Thank you for your comment and you write well.
I wouldn't take Memmel's point personally. His contention was with your cite, not with you.
The person to whom you cited is considered by many to be a contributor to the catastrophe upon us because he either intentionally or incompetently misinforms regarding the status of oil.
So citing to him here is like an Israeli columnist citing to the Koran for support - it's not going to be well received, period.
And Mem - love you brother, but the "fill the head with tripe" thing was more than needed. I agree, this is no time to worry about being PC, but let's stick with attacking the source of the cite, and not the citer.
I hope I don't alienate you but at some point enough is enough. I've heard enough crap from "trusted" sources. Its way way past time for people to way up and get first very very concerned then very very pissed off about whats happened. If it pisses people off so be it. If there that sensetive and PC then fine. I stand by what I say regardless of how offensive it comes off its high time for people to wake up and be offended. Get your feathers ruffled a bit then either realize what going on or go back to navel gazing.
Mish Shedlock has become increasingly political on his site and he does not pull a lot of punches. The peak oil community takes being politically nice to and extreme. However one of two things have happened either the peaking of oil production has been a intrinsic problem for a while or simple financial greed is our real problem. But why on earth would our leaders kill the golden goose so to speak thats served them well for decades ?
To some extent I'm working from my own unpublished work that lines the entire situation up in gory detail so I'm a bit biased. Supposedly the work is floating around with some oildrum editor. But it does nothing but help prove that the entire globe and most of humanity was taken for a ride over the last few decades and oil or rather the lack of oil was intrinsic in the decision to slaughter the golden goose and grab a few of the last eggs.
The housing bubble and credit bubble was not and accident and misguided policies it was deliberate. Our rulers are not bumbling idiots and simply misguided. Every single central bank in the world has played along with the credit bubble they are all in.
Why ?
Again all I can say is wake up realize that we are not on the verge of some great disaster in the future but well past what ever terrible events lead the worlds central banks to decide to embark on financial suicide.
I became peak oil aware several years ago from my bio almost four years since I joined the oildrum. And at the same time started learning about the housing bubble and financial situation. It turns out it was already to late to effectively change the situation the day I joined. Truth and reality had been effectively split from what was being spewed as facts years prior. I'm 41 years old and the entire truth is almost my entire life was lived during a period of ever growing lies. I was about three years old when what was being foisted as the truth had any bearing on what was really going on. Realistically you would have to be in your 60's or older to have lived in a economy as and adult that was even close to sane.
Its a shock to realize everything I thought I knew or understood or lived was nothing but the side effect of an ever growing festering lie.
Right from the very start fractional reserve lending and later fiat currencies where never truly functional the entire system of modern finance and related oil consumption has never ever been stable. In fact the intrinsic instabilities go way back into the dawn of the coal age.
Its literally never been a functional or even halfway sustainable economic system. But ponzi schemes can run for a very very long time as long as new entrants can be coaxed to enter and as long as losses can be hidden.
If one considers the real increase in productivity from technical advances and expanded trade which is highly deflationary i.e real wealth should have increased dramatically over the last 100 years vs the mountain of debt then the difference is breath taking. From where we should have been theoretically considering the rapid rate of technical advance vs where we are today is almost incalculable. Trillions and trillions of gold backed standard uninflated real money has been lost. The flying cars of the 1960's and easy life of a 30 day work week never happened something else did far more sinister and ugly.
As I said perhaps its time for people to wake up and come to grips with just how deep and widespread the real theft has been. As we come towards the end and things become more blatant I do hope more people wake up and realize what was stolen from them and future generations.
To some extent I apologize but but also anyone that wants to consider that we are some how in some sort of even close to balanced system is just basically wrong its not about being nice or not.
I don't know how to nicely tell someone their entire life has been a lie.
It sure was not a lot of fun when I realized it myself. I was not that nice to myself when I realized how stupid I had been for so long and to top it off realizing that when I finally got a clue it was to late was not exactly nice. I like to consider that I have a fairly high intelligence to realize how stupid I was simply was not nice. There is nothing nice about the situation personally or for others. The real truth is disgustingly brutal and difficult to accept. In a very very real sense by living most of my life in a dreamland I've been party to the murder of billions of people.
Thats the real truth of the matter and there is no sense in dancing around it. Sure it was not explicit and over the years the more I saw the more I questioned but it took a long time to accept that not being explicitly responsible for our current situation is no excuse.
I've benefited as much as anyone else if not more from the great ponzi scheme thats been played. Our suburban houses and fuel efficient eco friendly prius's will eventually cost thousands of people their lives perhaps even your own. When who knows but once you realize the breath and depth of the deception its obvious many will pay dearly for what has transpired.
Probably not the top leadership it looks like they have won but as with any ponzi scheme only a few make it out rich and the rest are left bankrupt. In general we are the ones that will be left holding the bag and far far worse there are millions that never even got to play and benefit at all no matter how briefly who will be left in worse shape.
So if sometimes I not "nice" there is a reason :)
Don't even make the neuronal connections required to form the words "alienate me" - I'd hate to have you waste the chemical energy.
I'm 41. I found about peak oil in 05ish. I found out as a result of the housing bubble. My path has been virtually the same as your path, including the introspection that led to the realization that I was a part of the sytem.
My solace and my ability to assume no guilt is derived from the following understanding:
Had I known, there is nothing I could have done to change where we are. All I could have done is change what I personally did. Even changing the direction of those who know me best has proven - - - essentially fruitless.
But, further, I'm not sure how I could ever have known.
Hell, without the Internet, I have no doubt I'd not have changed much at all. It's why that Rockefeller spawn thinks the Internet is dangerous - he's correct. It's dangerous because it allows people to turn their heads away from the shadows on the cave wall.
For me it was this - - - have known the economy was a house of cards for 10 years - - - saw the housing bubble in early 05 - - - from message boards on housing, found LATOC - - - from that, began to question 911 - - - from that, developed current unifying theory, which is that the criticality of oil has been understood by the leaders for a long time, and the last two leaders have executed a well-orchestrated plan for controlling ME oil.
I suppose Mem, that I have already fully passed through the anger stage. There is nothing that can be done. We are weightless against the momentum. The hammer is going to fall, and all we can do is prepare and react. We cannot prevent. So I am passed being angry. I'm now simply ready.
I'll write.
Wow pretty much the same here. Although I did live in China and Vietnam before that so I caught on to the truth about slavery earlier. Regardless of how we whit wash it the base of our economy is slavery pure and simple. Even knowing this I guess I'm dense as it took longer to fully connect the dots.
This was back in the late 90's. And I assumed that once people got "rich" then they would live the good life and it was their governments responsible for their poverty. The brain washing takes a while to fade it seems :)
Also I spent a large part of my life as a true believer in silver bullet technology accepting that was a false believe took and amazingly long time given how stupid it is.
I'm currently working on supporting alternative currencies as the use of markers for the exchange of goods and services is not a bad idea despite how badly its been abused. Pure barter has fundamental problems.
Also I continue to work on what I hope will effectively become a electronic knowledge platform. Basically a different approach to web browsers. I'm not anti technology and it plays a incredibly valuable role in the transmission and dissemination of information. Its not a silver bullet but knowledge and information are important and electronic transmission of both is a good thing. I suspect for example that everyone that uses the Internet and is not narrowly focused is at least dimly aware of the housing bubble and peak oil and where well before most non Internet users. Suffice it to say thing things we create are neither intrinsically good nor intrinsically bad for the most part its how many we make how we use it and what we do with the waste etc etc all the secondary factors not any particular item. To some extent I think thats one reason things have gotten so bad on the grander scale as at almost every level the differences are small. Only if you say go to a factory in china and bypass the intermediate levels can you see the gulf.
But moving on my first reaction was to consider tuning out ala 1960's join a commune or go do organic farming etc just isolate myself. However as I researched alternative lifestyles I realized that they are not solutions.
Thats not to say they are bad and not worth pursing simply that they don't solve the problem. The problem is of course once you understand how bad things are the solution is a true alternative economy. WT ELP economize localize produce is the right answer. Part of that is of course sustainable farming but the other half is sustainable living which is everything but food. And for this you need and alternative monetary system to decouple from the fiat currency.
Thats nothing more than of course the monetary system needed to support ELP which basically assumes all goods and services that can be made locally are and trade is specialized i.e French Wines are from France.
But here is where you begin to realize the reason the game has gone on as long as it has. Its truly a perfect trap. Like you once I realized I was in a trap I said well I'm smart I just have to escape. Guess what ?
There is no real escape. You can reject it to some level and tune out and not partake but unless a large enough mass of people make the same decision it does not really effect the trap itself.
And of course few are aware of the trap and even those that think about it assume that they know a way out and or dismiss it as being a trap.
Thus you can certainly minimize your interaction with our great ponzi scheme but your still forced to pay taxes and its impossible to manufacture everything you need thus at best all your doing is a symbolic protest movement.
But it does not solve the problem. Underlying our great ponzi scheme was of course steadily increasing oil supplies. However beneath that level is a far more ancient trap which is concentration of wealth by force if necessary. The steady growth in energy and technology just allowed the ancient game to grow to insane levels.
In fact the poorest simply execute it in its most basic form have six kids then pressure those that survive to take care of you in your old age.
Ie you concentrate wealth that you did not earn with your own labor by obligating your children to take care of you as you did for them.
Realistically by having so many kids your reduced their individual opportunity vs your own i.e you leveraged your ability to take resources in and overall lower population environment to have kids which simply because of rising population would face a greater challenge than you.
You literally stole their future with your own selfish decision to have so many children thus you gave them nothing but act as if they owe you something once you can no longer care for your self.
Whats important is that the much touted low birth rates of the wealthy western nations are a myth. Its a pure lie. Instead we have played a even better game. We don't have the children we let some poor sucker in the third world raise them then when they are old enough to work we take 90% of their labor to produce goods and services for us at slave wages and the parent in the third world gets only a small percentage despite having raised so many kids. We don't have to raise them smell them or even know their names to take their labor. Every single wealthy person with a few kids probably has at least 100 if not more human slaves toiling on their behalf in the dark corners of the world plus of course the energy from oil.
And it gets even better we don't pay them with gold but with promissory notes and debt ! With these we allow them to buy a few small items very much like the classic company store game.
Its the con of the century why would people want to escape ?
No one really wants out they just want to move up the ladder and let others fill in below.
Its really the perfect trap everyone is willing to play and there is no real way out. To escape you need to build alternative economies and manufacturing but your competing against slave labor.
And there lies the other half of the ancient game of concentration of wealth it succeeds by creating pools of slave labor that simply cannot be beaten using any method that allows human dignity. In reality its not concentration of wealth thats the problem but the ability of humans to manipulate other humans into becoming slaves. Without the slaves I'd argue concentration of wealth itself would not be a problem.
It seems to me the only real answer lies in making every single human intrinsically valuable to the community as a person. The only way for people to have enough value at the individual level to not be coerced into slavery is for the population to be so low that people matter. Investment in each individual to the limits of their abilities is the best solution for the community any attempt to limit them or coerce them to work for low returns is foiled by better offers elsewhere. This does not mean that wealth is not concentrated however it does mean the best investment possible is back into the well being of the community members in the full sense that they produce what ever adds the most value to the community.
Exactly what this contribution would be is fairly open indeed if population is actually low and stable over time wealth intrinsically accumulated with all members of the community. What it means to add value changes perhaps. Given that this solution supposedly beat and ancient enemy from the dawn of agriculture if not before with forced coercion and war based slavery even in ancient hunter gather tribes its tough to know how it would work. At best we have some of the most isolated tribes as examples but not all. Slavery is viable with all modes of living. And for the most part these tribes don't embrace or peruse technology.
We literally have no examples of a self sufficient technically advance community were people live and work with equality. Every community that I know of which has equality and personal worth also rejects or simply does not peruse technical advances. Amish to the most isolated tribes.
Everyone that contemplates escaping the trap seems to also take the approach of limiting technology they use. As a simple example you could build a windmill generate electricity and thence hydrogen and ammonia fertilizer all perfectly renewable yet not "organic". I'd argue you should stablize the inorganic fertilizer in a organic matrix i.e charcoal or boosted terra preta plus if you will. But this is to prevent the problem of runnoff common with in organic fertilizers. Nothing wrong with them just they need stabilization with some sort of matrix to slow the rate of uptake. In fact organic source of fertilizer such as concentrated chicken manure spread too heavily also suffer from nitrate runoff its not and intrinsic problem with inorganic vs organic just a concentration problem.
My point is that this envisioned solution of both population control and responsible technical development literally seems to be the one that has never been tried to the best of my knowledge. Probably the closest example are Israeli Kibbutz's which have in general been highly successful despite all the other social political issues in the region.
This well worth reading about them.
http://en.wikipedia.org/wiki/Kibbutz
Eventually of course the succumbed to the allure of the great ponzi scheme but at least briefly in time when traditional slavery methods where not viable we had and example of communal wealth. Clearly no anti-slavery solution is competitive however if we eventually do reject slavery i.e population drops low enough it does suggest that and alternative is viable.
So we do have a historical precedence eventually of course the movement became corrupt as with all things human however its not clear this has to happen.
However one reason for its eventual failure was the inability of the Kibbutz movement to integrate the complex web of professional workers instead of more direct agriculture. Some of course specialized and embraced manufacturing but the "doctor" is problematic.
In any case if we ever do manage to control slavery no matter how its disguised which effectively means population control I don't see that alternatives have any intrinsic problems with becoming viable. In all cases it seems that eventually the siren song of slavery seems to eventually win. And it seems that the professionalism thats required for technology is difficult to extract from slavery as its hard to escape the natural pyramid that forms. Thus the common practice of rejection of technology in alternative approaches. I'd argue this has far more to do with indoctrination of people that do specialize in believing they are intrinsically better than others than in specialization itself.
Recognizing I had been brain washed because I went to school and gained some knowledge was probably the hardest thing for me to understand. Of course I must make more money since I'm better educated and smarter than other people sure perhaps its because they where never given the chance but that does not change the fact I'm fundamentally worth more because of my vaunted education. Of course I can barely write so I know I'm not all that special :)
But to finish I'm the same as you I'm ready and I wait and write. I'll contribute as I can to real alternatives and I moved to Oregon since I think this region is most likely and able to produce a new kibbutz movement thats not religion centric. As it happens I'll continue to enthusiastically join. I'm originally from Arkansas and to be honest its not clear if times get hard if a new form of slavery won't return to the region perhaps not based on race but certainly based on wealth. I think the state has simply not emerged long enough from the most flagrant abuses to not fall back. I hope I'm wrong but I suspect that if the south does manage to overcome its recent past it will be a stunning victory. However race is such a issue that if other less biased forms of slavery crop up they probably will succeed.
Well it looks like my last post for the year. I think its a good one.
And hopefully despite my deep shame at what we have done so far you can see I think in the long term humanity stands a chance to be well human.
And let people become people and be what ever they can be outside of causing harm to others. If we ever give up on our ability to shaft other people via tricks then I think we do have a bright future. Sure we are smart enough to dupe others esp if we limit their education but at some point so what ? Get over it lets do something different for a change. Is untold thousands of years of slavery enough ? Lets try something different for a change.
I'm trying to sort this post out -- the flow is rather turbulent, but it seems to move in the direction of describing the possibility of a slave-free world.
Maybe so, but non-industrial societies (Chinook Indians, Aztecs, Mayans, Polynesians, lots of others -- I'm not an anthropologist) were slave-holding societies.
Agriculture increased the power of the slave system -- start with Gilgamesh -- and allowed the ruling class to clearly differentiate from the rest.
Industrialization simply upped the ante. As far as I know, Buckminster Fuller was the first to talk about "energy slaves" -- the notion that coal, oil, electricity could substitute for human labor, and could in some ways be considered in the same terms. This was further leverage for the ruling classes, but for a few hundred years, at least, has generated a "middle class" -- a class that didn't rule, but still participated in some of the benefits of owning slaves, but since they weren't real people slaves, no moral stigma was attached.
I don't know if it is really coming apart -- most of the posters on TOD seem to assume that it is, but I don't think the fat lady has sung yet, and the opera is not yet over. There is plenty of energy in the world system -- fossil and other -- to produce something really grand. But that something won't be people riding around aimlessly in tin boxes with rubber wheels to go "shopping" and to "jobs" that are essentially meaningless.
My kids are far more optimistic than I. They see a human core worth preserving and advancing; they are not impressed by the 19th and 20th century superstructure.
HAPPY NEW YEAR!
Hi Memmel,
Interesting thoughts about slavery - some new insights for me. I have always been fascinated with our early history and the amount of slavery that was commonly used. The typical high school text books mention slavery but they seldom highlight what an integral part of ordinary human life it was up until a few hundred years ago. I've often wondered how "civilized" we have actually become in the last few hundred years.
I know that we share the same thoughts about the need to have a smaller human population - for many reasons. But, I don't recall that you have said much about the effect of religion (especially the modern organized religions) in preventing a rational approach to human population.
It seems to me that the effect of religion, regarding population, is far more subtle than whether or not wealthy belivers strictly follow the commands of the religious leaders. Even if a religious family privately decides to use birth control (in opposition to the teachings of thier religion), that does not mean that they will vote for or support a political candidate who understands the population problem and advocates strong family planning measures.
Curious to know what you think about this?
+1.
My lame little forumese thanks for a well written post. That's why I read here, by the way, finding people who are usually better read and better spoken than myself, who see the same things but have gone a little deeper in. If they decide to put your piece up I'll be interested to see it.
China leased the Saudi's storage facility in the Caribbean. The writer who penned the article noted that the 5 million barrel was not significant since it represented only 6 hours of US consumption. He-she also noted that it was nothing compared to the U.S. Strategic Oil Reserve which holds 726.6 million barrels.
Hmmmmm...let's see, that would be roughly 121 hours worth--perhaps 5 days.
Wonder how much you and I would get of that...
Considering Matt Simmons says people drive around on about one-third full and stations don't run much more than that...
any kind of pinch is going to send us into an oil crises fairly quickly.
726 mb is not 121 hours (5 days) worth.
If 5 mb = 6 hrs then 1 day = 20 mb. So 726 mb is worth 36 days worth.
Long those same lines jw: during the embargo days of the late 70's there was much speculation as to where all the gasoline inventory sudden disappeared to: tankers saling in circles, hidden oil depots, etc. Long after the headlines died down they figured it out. Essentially everyone who had been in the habit of not filling up until they were low stated filling up at half empty. When added up that extra mobil storage matched perfectrly the "missing" inventory. Though the volumes offered only represent a few weeks/months of consumption they could make a substantial offset (at least emotionally) to a sudden hoarding spike as we saw way back when.
So, the question, then, is "What causes a contango curve?"
Some options:
1) speculation that the positive rate of change in demand is greater than the positive rate of change in supply
2) speculation that the negative rate of change in demand will be less than the negative rate of change in supply
3) speculation that demand will grow while supply decreases.
In all cases, the curve shape - be it in contango as it is (just barely) now, or in backwardation (as it usually is) - is due to *speculation* about supply and demand.
That is a good argument for speculation. Here's the counter argument.
There is a very strong correlation between the spot price and the front month futures price such that the futures price carries over into the spot price. Speculation drove the price up rapidly in '07 ad '08 and speculation drove the price back down as the crisis of credit came to be realized (though other factors were at play: namely all those investment banks that gamble big on the ICE were rather abruptly forced to cover their asses as the credit crunch started chomping on their heels... they needed cash, so they sold the most liquid of their assets - oil futures... and this initiated positive feedback loops fed by speculation that the price tomorrow will be less than the price today).
Here's what gets me. During the strong part of the price run, a popular refrain was that because the amount of physical crude in storage was high (as it is now), supply must not be short. But the contango market was caused precisely by the shortage (as measured by declining spare capacity)! Shortages (real or forecasted) cause prices to rise into the future which gives every incentive to hoard because the physical commodity will be worth more tomorrow than today. This, of course, can only go on for so long... primarily because you run out of storage space, and the market has a tendency to 'right itself'.
So the irony, is that he evidence in support of speculation was actually evidence of real shortcomings in the growth of supply... BUT, the curve is based on speculation about future supply and future demand!
I would argue, that both speculation and fundamentals play a role. You can speculate prices up, but eventually they will come back down if they are artificially inflated (i.e. not supported by the fundamentals) because none of the players wants to be left without a chair when the song comes to an end, so the 'speculators' pay very close attention to the cues.
evnow
thanks for the correction
I don't know where my head was -a senior moment I suppose.
jwcoulter
Suppose you owned an oil tanker. I think it would be something like owning a grain truck only on a much larger scale. The main reason reason grain is moved around is supply not demand. The truckers are real busy at harvest but not so much other times of the year. And it is obvious to me that if there is less grain to move the trucks will stand idle.
The current price or the future price make little difference in the movement of grain or oil. Sophisticated farmers and grain users sell and buy their grain on the futures market to hedge and offset grain sales or purchases.
I don't do it, but I know large farmers sell their grain ahead of time and physical movement is just a formality. Grain buyers do the same thing only in reverse. The actual physical shipments matter little since they are hedged on both sides of the trade from the seller's or buyer's point of view. I'm pretty sure the same thing is true of the oil trade.
But actual physical movement does matter to the truck or the tanker owner. If there aren't loads to carry their investment stands useless and earning nothing.
It appears to me that what is going on is a drop in oil supply from exporting countries. The idle tankers lined up are the result of lack of oil to transport.
If I owned an oil tanker what would I do? I have large fixed expenses, so I agree to lease it out for storage in order to have some income to offset the expenses.
It's like a grain tractor and trailer which can't find loads to haul so it's owner rents it out to store grain.
This is wrongly interpreted by analysts as speculation when in really it is a desperation move on the part of tanker owners to earn a little income instead of letting the ships sit idle earning nothing.
IMO contango and backwardation have nothing to do with grain/oil storage or future prices since the future is unknown and what we see in either situation is only the markets current assessment which is subject to change in either direction at any time.
It seems to me as exports decline from exporting countries we will see more tankers used for storage whether the price of oil goes up or down.
Says law says that supply creates its own demand. If follows then that lack of supply destroys/reduces demand. If one is in the business of transporting the product, the situation can become desperate.
The tankers used for oil storage are a symptom of that desperation, not speculation.
The owners of the oil may or may not make a gain holding the oil, but they think they have little to lose as booming demand in developing countries, a falling dollar and an increase in stimulus spending before next year's Congressional elections are just about certain.
X, If I were the owner of a tanker, I wouldn't care one way or the other whether my ship sat idle or was cruising at full throttle so long as I was being compensated. What I would care about is sitting idle without anything on board and no paying customer in sight.
If you are the owner of the crude, on the other hand, and you think the price is going to fall and continue to fall into the future, you dump the crude onto the market (and cut your losses)... THEN supply will create its own demand (of course if everyone is dumping a bunch of product, the price will fall - perhaps precipitously).
It does not follow that a lack of supply destroys demand, however. An empty plate alleviates no hunger. An empty water bottle alleviates no thirst.
Depending on how fast those tankers dump their cargo, the price could decline drastically. In turn this could cause the upstream shuttering of some production, but only if the price falls far enough and stays low long enough to force owners to shut in production.
X, if the futures market has nothing to do with prices, how then, are the prices determined?
I understand that they are determined through contracts, and the contracts typically reference either the futures exchanges (NYMEX or ICE) or trade journals.
Last point: Maybe I'm misunderstanding your statement about the 'future', or you were misunderstanding mine. Of course we don't know what the future holds... that's precisely the point I was trying to make. In the absence of perfect information, we make a 'best guess', and the shape of the futures curve reflects the general market sentiment - the average of all best guesses. It reflects, what Keynes would describe as our 'animal spirits'. And if that curve points up, that reflects a general sentiment that prices will be higher in the future. It does not mean that they *will be* higher. That would infer perfect knowledge, and the owners of the oil in those tankers certainly do not have a crystal ball. This means that they are not 100% confident that the price will be higher tomorrow... and as that futures curve flattens, they become less and less confident that the price will be higher. As their confidence declines, it becomes more and more probable that the oil is going to be dumped on the market. When this happens, supply *will* create its own demand, but to achieve the higher level of demand, the price will have to drop.
I thought I was done... but upon re-reading your post, I see that I need to make one more important point.
Speculators (of which there are untold numbers) are defined as purchasers of a future contract that have no intention on taking delivery of the physical product. Oil producers, refiners, and others can and do 'speculate' about future prices, but when they make a sale or a purchase as a hedge, they are not considered 'speculators'.
This is important because in addition to not having any intention of taking delivery, most speculators simply cannot take delivery, and this is why they are *forced* to re-sell their paper barrels as the date of delivery closes. This exposes them to huge losses (and possibly great gains) because you only need 10% of the value of the paper barrels sitting in cash in your trade account. In other words, futures speculators are highly leveraged (10 to 1). This also means that a 10% decline in the value of the paper barrels equates to a 100% loss. Fortunes are made and lost on the futures markets, to be sure.
And by definition this is what provides the cash that allows real oil producers and consumers to hedge in the futures market.
Without paper barrel speculators you don't have people closing cash positions to either support a correctly hedged position of a real oil producer or consumer or penalize them for hedging wrong.
Its the liquidity that fundamentally drives the futures market itself. Without the influx of cash speculators then there is no third party to bankroll the futures markets and they become illiquid and marginally useful.
Thats not to say you can't have futures markets that only do physical settlement however without the cash your eventually going to simply have one of the parties fail to deliver. Even if you allow cash settlement instead of physical delivery for parties normally capable of delivery you still eventually are going to have a party make a badly wrong bet and blow up.
Even with the injection of cash speculators the specter of a delivery failure on a massive scale is always possible if you have big failures.
Personally I think this is exactly what happened in 2008 some of the very big players in the oil markets where on the verge of being wiped out.
As fate would have it these happened to be players that also had control of the US Government and instead of them being wiped out they damn near wiped out the global economy covering their asses. And ended up after the dust settled being the winners.
Its more complex than that with all kinds of other financial positions also playing huge roles but in the end a few powerful and well placed banks eventually played a trump card which was control of the US government to cover massive losses in the 100's of billions if not trillions of dollars.
Former winners who bet against the real powers that be became the big losers and the losers won massively resulting in record bonuses.
Of course the global economy got hit in the head with a sledgehammer in the process but thats because the people with the sledgehammer started swinging it out of desperation.
Over the short term of course they won but at what cost ? And did they really win ?
Yes, they won.
Even if the entire global economy collapses, they will have bought all the physical assets with their stolen money, and they will own everything and everyone. They have also bought the courts, so no one will indict them for their crimes, and they bought the media, so they can tell any story that suits them.
In a little while -- less than 25 years, maybe less than 15 -- no one will remember how they got it. Then it will become apparent that it was God's will all along, and a new aristocracy is born.
Whats sad as I could easily see propaganda on the natural finale of true capitalism is with the benevolent winners taking care of the people.
Its the natural outcome of the natural process of concentration of capitol into the hands of the best and brightest.
Of course since most of you our dirt poor now its obvious you don't possess the intrinsic mental capacity to be wealthy and compete with the naturally selected winners. However some of you may prove worthy to join the elite so stay the course and hope your sons and daughters can succeed where you fail.
Of course your genetic heritage is tough to overcome but some of you may perhaps have what it takes to be a new blue blood. It all depends on the results of your genetic screening and if you have offered your fairest daughters for genetic back mixing in and attempt to improve your inferior genes.
Yeah I can easily see it happening its been done before.
That's what the bourgios French thought before the revolution. Peons these days have sharper pitchforks.
The common people of the world have arms now and I rather doubt that the elites will be able to live like the nobility of old, when the possession of a few war horses and swords was enough to cow the local peasentry.
A half dozen nails driven thru a board and slipped out of the bushes into the path of a delivery truck will put it in the woods if it's rounding a sharp curve.
A dozen tough guys with homemade fire bombs could easily burn down a small city in a night.
The commoners might not be able to enjoy the tail end of technological civilization but they will easily be able to deprive the elite of it.
I bet I could make a homemade catapult that would fit easily on the back of a pickup truck capable of throwing a cats ball of bare electrical cables into a high tension power line-blacking out maybe an entire city maybe a state or two.
Just one man ,an employee, who could infiltrate a conventional powerplant and slip some abrasives into the lubricants reservoir of the turbines r generators could probably destroy the facility or at least take it offline for a year or two.
@Memmel
It surprises me how general is the misunderstanding of futures markets, and of oil futures markets in particular.
My qualification for my views is getting on for 25 years in market development and regulation. For six of these years I managed the substantial IPE Gas Oil contract, and in particular North West European (ARA) deliveries arising from that contract that could run up to 800,000 tonnes in the second half of the month.
Speculators as most people think of them - ie funds - are NEVER involved in deliveries, and their positions are typically rolled over from Month 2 to Month 3, avoiding the spot Month 1 entirely. The only clients that exchange clearing members (whose arse is on the line to the clearing house for any defaults) will allow to have open interest in a 'spot' month of a deliverable contract like Gas Oil are those capable of making or taking deliveries. There are in fact very few of these consenting adults, and the games they play - it was in my day Europe's biggest game of 'chicken' approaching expiry - are essentially 'zero sum'.
Only players in a position to secure supply in the physical market can affect the oil market price. It's that simple. And in the global market, this means the few players active in the Brent/BFOE complex that sets the global market price for oil. The players active on the ICE Brent/BFOE futures contract - which is cash settled, have no more effect on the oil price than if you and I bet each other as to the price. The NYMEX WTI contract is almost entirely irrelevant, and has been the tail on the Brent dog for getting on for 10 years.
In my view - and my thesis has nowhere been refuted - the run up in oil prices during 2006/7 was in all probability manipulated by a major producer in collaboration with a major investment bank, and the spike in 2008 in oil and in all other commodities was simply what happens when interest rates go to the zero bound, and money shifts away from fiat currency like dollars into something - indeed anything - else.
The mechanism being used by producers is financial oil leasing. ie producers borrow money from funds, directly (Shell) or indirectly (everyone else) and lend oil to the funds in return. This mechanism allows funds to bypass futures markets and avoids brokerage, and a volatility tax to market-makers. Private storage in the oil market is de minimis, being only a few days supply.
What happened IMHO after the spike is that demand shrivelled in products and blew back to crude oil, and it became too expensive for the people doing the manipulation to continue to support the Brent/BFOE price. This then collapsed to the lower bound and maybe below, in an overcorrection as the market deleveraged.
Since interest rates remain at the zero bound, fund interest soon enabled the price to resume its upward march. I suspect that Saudi Arabia is now actively involved in the current market support operation at $75 to $80. It would account for them getting seriously pissed off with WTI's terminal decline as a useful intermediate pricing reference, since this would have meant a huge amount of friction costs for them.
People forget that such management of the oil price is not new -I remember the Iranian OPEC representative looking back to those days with nostalgia in a meeting I had with him in London a few years ago. The oil market price was routinely managed by producers and the Seven Sisters for tens of years before the first oil shock. It seems to me the Saudis are probably managing forward sales/leasing of their opaque "Pool' of oil (stored for free) in a very similar way to a monetary authority managing its money supply. The situation is not dissimilar to the tin market pre-1985 when the International Tin Council set the global price and bought in stocks, until new production kicked in and eventually the price collapsed.
The question is, how long can the current unstable equilibrium at the "upper bound" of oil pricing continue? Can the Saudis manage the price unilaterally as a sort of "oil supplier/lender of last resort" with financing via the investment banks' structured funds? (which is IMHO what is going on). The market is analogous to a RoRo ferry with water on its car decks, but in calm seas. The first decent wave that comes along will capsize the ferry.
Interesting thoughts. Thank you for posting.
First and foremost in general I don't disagree with what your saying.
Every piece if information I have suggests that the Saudi's withheld a substantial amount of physical oil off the market and stored it in tankers then flooded the market near the price peak. Now a lot of the seems to have simply ended up in the hands of speculators but thats not the point. Also we had a sharp drop in demand caused by the financial turmoil and hurricanes.
Thus withholding of physical oil during the first half of 2008 lent massive support to the various financial games and the later combination of a flood and financial chaos worked to collapse prices.
Thus I believe it was a mixed set of moves involving both physical crude and market moves similar to what your suggesting but this is what I think the move was.
Now as far as later on in 2008 and 2009 in my opinion physical oil speculators at that point managed to take control of a substantial amount of oil stored primarily offshore with some onshore at least 100 million barrels. And these are real speculators not the Saudi's.
This is important because the collapse in prices near the end of 2009 was probably not the action of real oil producers but speculators with enough physical oil stored to allow them to surge and really collapse the market.
The Saudi's would never have been party to pushing oil prices below 50.
This suggests that physical speculators which I call the oil bank had amassed enough oil to really control the market. Of course after they unloaded what ever they had too to drive prices down they probably bought more back for later delivery at rock bottom prices.
Thus their where at least two surges during 2008 and one case of oil artificially held of the market.
Now moving on into 2009 its really hard to say what the truth is. Eventually the Saudi's got a price that was at least ok for them above 50.
I'm of the opinion that the oil bank is still in action and that the Saudi's don't like having to deal with a more nimble swing producer if you will that has enough market clout to roll its storage and make money.
Very little physical oil was actually sold at prices even close to the spike and with my scenario the Saudi's saw even less profit from it. I'd have to imagine they hedge out in the futures market but that even those hedges where probably blown out by the later steep drop. No matter how you slice and dice it OPEC in general got the shaft big time through 2008-2009 and overall probably lost a huge amount of money at least vs what they expected to make.
So OPEC is not happy. And they have a mechanism to influence prices without being able to pump more oil i.e they no longer need spare capacity.
And thats simply by exporting below capacity and storing oil in tankers.
They can do this any time they wish however I suspect they will be less inclined to dump in the future. What they can do eventually however is to manage price increases if they wish to a sort of step like function by first lowering exports and storing then drawing down storage and managing production if the wish.
But like I said I don't think they are happy campers and right now the physical crude help by speculators pretty much blunts what ever action OPEC could take on its own thus at the moment they are not in control despite what they say.
However they smell blood if you will they know damned well that over the coming months they will eventually regain control of the oil markets this time effectively for good baring war. This is the first time since the 1970's where OPEC has been a valid and credible market maker and serious force in the world.
And to repeat I don't think they are very happy with how things have gone so far so and the one thing I don't believe at all is that OPEC intends to support a price band at 70-80 even if they can. What the can do and will do is and open issue however I think that 2010 is OPEC year in the sun either real production has fallen to the point that prices move on their own and OPEC pumps flat out, or they withhold and do far more controlled surges, or they really do have a bit of spare capacity they might actually use. Regardless it will be their call and nothing the world can do about it except ruinous military action.
Given the nature of alternative sources of oil such as the arctic and ultra deepwater etc I just simply don't see any chance of other sources coming on line in a timely manner or at a price point that effects OPEC from here on out.
Of course this means that nothing that has happened to date has any bearing outside of the additional concept of cut and surge that could be important in the future. Its a entirely new ball game thats going to be played and its impossible to predict how its going to play out.
One other thing I'm just amazed about is how the MSM is blithely reporting that OPEC is now in full control of prices and not worried one bit about the implications of such a situation. Its like everyone is overjoyed that they are now "in control". Given that they are huge holders of US dollars and very interested in what the US does to the value of the dollar I'm amazed no one in the MSM has even attempted to speculate what them being in control really means for our future as if they control the oil they also for all intents and purposes control the worlds central banks and the global money supply. Oil is now the worlds true main currency. And not a peep from the MSM ...
I'm sure there must be an element of truth in your analysis of the use of tankers to store oil but it seems to me that there is more involved.
I think the producers are sometimes caught short by a sudden drop in demand and cannot pull the production plug fast enough to prevent a price collapse and that this happened last year -It would have taken a while for some producers such as the Saudis to cut back and others would not cut back at all, if they were still making a little money-the countries with oil mostly manage to spend thier money as fast as they get it - or even faster-meaning they are in hock.
Farmers get into binds of this sort constantly especially if they produce perishable products.Prices can crash so low that you can't even recover harvest costs.It'shappened to us too many times to count.
Of course oil is not perishable but if there is oil coming into the system at the producing end faster than it leaves at the consuming end, the price would crash hard once storage facilities start getting full.
I don't know enough to guess how long it takes or took producers to cut back but I expect the traders know and storing the glut would have been a pretty safe if they could lease a ship cheap-assuming the market revived.The only way the oil market could fail to recover would be for the entire bau economy to keep on going downhill.
People's memories are amazingly short.Thirty dollar oil was considered outrageously expensive only ten years ago.
Well given that oil prices rose steadily over a period of years its far more likely that producers where producing flat out and price continue to rise. Even more likely that production was actually falling even as they where producing flat out. So thats a good guess at initial conditions.
Next given that situation what happens next is not obvious. Another plausible scenario is possible.
Given producers could not increase production to meet demand another option is to decrease exports and store oil for a period of time even though this spikes prices.
The sharp increase in prices will of course work to cause demand to decline and regardless demand=supply so if supply is artifically constrained demand has no choice but to drop.
When enough oil has been stored to have a impact on the market then you simply flood the market in our case probably not just with oil but also with a substantial amount of stored refined products in particular distillates.
That will cause a sudden spike in oil prices and a sudden collapse as the market went from artificially tight to artificially over supplied.
On top of that if you also have the Central Banks and US Government actively pulling the plug on the global financial system instigating a financial crisis and a demand shock as letters of credit cease and uncertainty literally freeze the global economy and it gets a bit out of hand i.e and attempt to throw ice water on the global economy to drop demand as oil supplies are increased gets a bit out of control then you have and additional short term sharp drop in demand as the entire world literally takes a few days off. A global banking holiday if you will that stopped commerce in its tracks for a brief period of time.
Now of course this is not a long term demand chance but a sharp blow with a quick rebound. As icing on the cake we happened to get some hurricanes which caused outright shortages and forced conservation of a substantial amount of oil simply because it could not be refined and consumed.
Put all that together and you can blow out the price of oil without any long term demand changes.
On top of this since the physical market is suddenly flooded and the world is coming to and end financially the futures market should collapse regardless of what the true situation is. It will collapse along with all the other financial markets across the board. To expect the futures market to have any bearing on fundamentals which are now at least short term extremely bearish is asking a lot while everything else collapses.
The only assumption you have to make is that a very desperate decision was made to store oil regardless of its effects on spiking prices in order to cool the market with a later dump. Couple this with a concerted effort to throw cold water on the financial markets and you need not make any other assumptions. In particular some massive drop in demand over the long term and cut back in production simply is not needed or warranted.
It does make one heck of a cover story and is some fantastic propaganda that will work until it does not.
mac -- From a practical standpoint it doesn't take very long to change the flow rate of a producing well which has been cut back. A little as 10 minutes for a single well in some cases. The delay is more in the processing and, even more so, in the transport phase. But I'm sure you know as well as most do how the inventory dance works: when the market moves in your favor you only win proportional to how fast you can react. Last I heard floating storage was running about $.50/bbl/month. Maybe even cheaper from some of the recent stories. It also strikes me that the floating storage might allow the KSA to moderate some of the cheating by other OPEC members. Allows some time to bring them in line (if they really have such stroke).
China hits back at U.S. steel pipe decision
The Ministry of Commerce said it was "strongly dissatisfied with and resolutely opposed" to the vote of the U.S. International Trade Commission for countervailing duties, which Washington said were needed to balance out unfair state subsidies to Chinese makers of pipes for oil wells.........
The United States imported $2.74 billion of "oil country tubular goods" from China in 2008, more than triple the previous year, as rises in oil prices led to increased demand for the oil well tubing and casing.
http://news.yahoo.com/s/nm/20091231/bs_nm/us_china_usa_trade
I'm a bit amazed that oil drum readers are so willing to accept "official" statements about oil demand. Esp in the US.
Looking at secondary indicators of oil demand I'll show one VMT shows that demand for oil bottomed out and started increasing through 2009.
Pretty much what someone suggested would happen :)
And in line with what happened during the Great Depression.
Next commercial transport is down by about 5% now.
http://www.calculatedriskblog.com/2009/12/ata-trucking-tonnage-index-inc...
http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_m...
Distillate demand for transportation aka trucks is about 25% or so of oil demand in the US you can look at demand breakouts to get a better number but its easy enough to see that our current 5% drop in trucking has a small impact.
25%*5% = 1.25%
At 20 mbd thats a whopping 250kbd at the height it was 500kbd of distillate or 1mbd or so of oil demand now about 500kbd.
Certainly the ratio of distillate demand to gasoline changed and since their are limits to how much you can optimize for gasoline production one would expect distillate inventories to build.
Now although this number which is about all we can prove from secondary sources is much smaller than the demand changes claimed in the popular press its not small. 250kbd day in and day out is a lot of distillates building up. And US gasoline imports have been weak all year.
Hmm lets look at US distillate exports.
http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MDIEXUS1...
Well what do you know this imbalance in refining has been met by a sharp increase in distillate exports from the US !
Imagine that a market actually working like it needs to.
The bottom line is that we have seen a change in product demand in the US with distillates being well supplied vs gasoline. This has been solved with rising distillate exports from the US. Overall oil demand however has not changed that dramatically despite the claims. Outside the US according to all the data total oil demand has on average increased or at least remained flat with the possibility of and actual decrease doubtful. Given population continues to increase there is a fundamental natural increase in demand of a few % a year esp as overall large cohorts of young people in developing countries are reaching working age. We have a baby boomer phenomena in the third world and its now in its 20-30's.
Thus changes in the price of oil over 2008-2009 must have a large supply component and not therefore whats of interest is what really happened on the supply side ????
Once you know where to look and dismiss all the claims about radical changes in demand then you can start figuring out whats really going on.
Given prices are set on the marginal barrel and its fairly easy to flood the oil market which is a basically just in time system holding only a few days worth of supply vs daily shipments we can even get a handle on the magnitude of supply changes required to cause and effect on prices.
Given a change in supply of say 2-4 days worth of oil globally is more than enough to flood storage and collapse prices we are talking about 200-400 million barrels of oil at most. It could readily be even 100 million barrels of oil. 50 million probably would not have a huge impact on prices.
In the end despite all the smoke and supposed knowledge about oil demand surprisingly little seems to really have happened.
And finally oil demand has distinct seasonal components with US summer driving season being the best known but in general demand for oil products varies quite a bit from season to season on the scale of 1-2mbd.
If one assumes that peak production capacity is no longer able to meet peak demand and that storage is expanded and production held constant then on a a say 3 month period of low demand of 1mbd you can store about 100 million barrels of oil if production is kept flat out.
Ignoring for the moment the interesting events of 2008-2009 if we are no longer able to meet the seasonal variation in demand with changes in real production then you must move to flat out production and the additional storage of at least 100 million barrels of oil during low demand periods.
If your lucky its enough to cover the seasonal changes in consumption.
This is quite similar to US NG market where daily production simply cannot meet the large seasonal swings in consumption and a fairly large amount of storage is used to ensure supply.
So you finally arrive at whats almost certainly the truth. That is oil production no longer meets demand. Leveraging of the natural seasonal swings via expanded storage has been mistaken to be a sign of a well supplied market. Its a horrible mistake and one that will become increasingly clear over not years but months.
Plenty of other issues played a role in prices during 2008-2009 all of them interesting and all temporary. On a fundamental basis we bought a small amount of time leveraging seasonal demand swings with expanded storage.
Its hard to know exactly how long this can keep a lid on prices but its a finite number i.e its fixed to be a few hundred million barrels at most as its a difference.
Given the way oil prices have moved I argue that it did not work that long at all and has already started to fail. And it will fail fairly quickly as a defict in overall production of even 500kbd quickly drains any attempt at storing oil based on seasonal flux.
If fundamental supply and esp exports is falling at a rate of even 1mbd on and annual basis then this game buys you about a year at most and thats really pushing it. Smaller but real changes on the demand side from the economic contraction help extend the period that expanded storage smooths supply.
But pretty much no matter how you do it if you try and deduce real demand changes from external data then the margin is razor thin and likely not to last long. Indeed current oil prices are probably quite low as the market simply has not adjusted to this fundamental change and is misinterpreting it. With a lot of propaganda from the MSM to help cloud the underlying issue.
In reality its and explosive situation based on a very thin margin once this margin is gone the whole thing blows up.
In my opinion this has actually already happened and is in the past although storage has not yet been drained down to critical levels its no simply a matter of months before the real situation is obvious.
+1 The distallate graph is very interesting, I was wondering why diesel prices have recovered as well as they have.
Just before the peak of oil prices in the spring and summer of 2008 diesel fuel was selling for $0.35 to $0.70 more than gas. Now in US demand is lower so diesel price is only $0.05 to $0.15 more than gas. This is observation from St. Louis and Chicago areas.
A large user of diesel fuel is railroads, which have reduced their workforce by almost 15% as freight traffic has fallen about 15% and passenger traffic is down about 3%. Other use of distillate is heating oil, which may not fall much because of the recession, except for businesses using less. With lower price the homeowner maybe be using more than last year IMO.
The important thing is its 15% of 25% or so of our overall oil usage.
Or 0.25*0.15 = 3%
Of course for trains its probably more like .10*.15 = 1.4% change in distillate usage. Say that about 50% of a barrel of oil and its 0.7% or
about 140kbd in oil.
The point is its % changes of % usage the MSM never ever does these sort of calculations and imply that oil usage in the US is down say 10% or so.
Its not as far as I can tell and its variable by product. Distillate usage as I showed in my long post is down significantly in the US but we are handling the difference via exports of distillates.
Perhaps speculators are buying some of these cargo's in fact they probably are.
I'd argue if you read you do see plenty of evidence that speculators are unloading crude and buying distillates.
This suggests that they believe two things will happen oil prices will rise strongly and distillates will rise even more. This makes sense given the rest of the world is far more dependent on distillates than the US.
And the current oversupply of distillates depends more on the differentials in US demand than and absolute oversupply of oil.
Assuming oil imports into the US fall a bit more over the coming months then the US will go from and oversupply to a balanced or negative side rapidly pulling down distillate stocks. In fact we are seeing signs of this now. Assuming that the oil is not there for import then we will see the US aggressively importing gasoline and having problems getting distillates. Thus the distillate situation can change rapidly with some fairly small changes in oil supply and or US demand.
Overall US demand seems to be firming although still low. One factor that seems clear is that globally during the financially crises everyone simply allowed their stocks to run low given the uncertainty as the world has not come to and end people who are still in business will restock.
So you get a natural bump as this occurs "green shoots" and then you probably return to higher distillate usage as stocking return to a more normal if lower level.
Everything I've read points towards a lot of players assuming distillate prices will rebound sharply. If your assuming lower total oil production and just a small increase or rebound in demand this is a pretty safe bet and makes a lot of sense. Especially if your willing to service the global market somewhere soon I suspect distillate markets will tighten and our distillate mini glut will evaporate fairly quickly.
Thank you, and very interesting.
I have many questions.
many thanks for this extremely interesting thought: "Leveraging of the natural seasonal swings via expanded storage has been mistaken to be a sign of a well supplied market."
There is noway there is that much oil in storage sitting idle in tankers.
1) There is only around 450 VLCC's on the planet there are plenty of photo's and reports of empty idle tankers. Have yet to find Full photo's.
2) The voyage time to china is twice as long from the middle east as it is to the USA. All else being equal as US demand fell and China took up the slack more Tankers where required to ship the same amout of oil a greater distance.
3) The tanker market was TIGHT in 2008 there was almost no spare capacity. Demand has only fallen around 2mbpd or 3% that does not equal 120 spare ships.
Given half of the tankers are full steaming to there destinations and the other half are empty, one could make the argument that there are is about 425 million barrels of "stored" oil on the water.
"2) The voyage time to china is twice as long from the middle east as it is to the USA. All else being equal as US demand fell and China took up the slack more Tankers where required to ship the same amout of oil a greater distance."
Wrong.
Second largest supplier to US is Saudi Arabia. That oil is shipped in super tankers and goes around Cape of Good Hope (southern tip of Africa) to reach the US, so the distance is much longer than to China (twice as far to US than to China) . Much of the oil going to Europe also travels that route, except for oil sent by pipeline from Iraq through Turkey. Look at a globe or world atlas if you have one.
Sonnds like constipation.
No buyers. (Market collapse)
There is hope.
Hope that the down slope will be gentler.
Not delayed gratification, but delayed nastiness.
I'm not sure what to think when Mish has gotten top billing here. Are deflationists in charge of the TOD now? Perhaps so, since every time I mention the likely inflationary impact of rising energy prices, and the coming collpase of the US dollar's value, some well known posters here say I knew nothing about oil trading - when in fact I worked in one of the busiest Wall Street trading desks. I doubt they can say the same.
Anyway the amount of oil stored by slow steaming is, as memmel's says, more important than the rehashed deflationary spin coming from Mish. I haven't added up the numbers, but per "Oil Movements", OPEC exports have stagnated for months - and did not increase as usual in to the Northern Hemisphere winter. Therefore if we are truly in oversupply of oil, and many VLCCs were used for storage and slow steaming, tanker rates would be very high by now. Granted they are coming off extremely low levels of a few months ago. But about the same amount of oil was stored in idling tankers a few months ago, so the rising price of tanker rates can not be explained by storage or oil exports - but perhaps in part due to the rising oil price and more likely slow steaming of limited supplies.
In sum, I come to the complete opposite conclusion of Mish. The tanker market is telling us oil is in short supply. Granted if you dumped a 100 million barrels into the market suddenly, the price of oil would go down temporarily. But that would not last, and it certainly won't give us the consumer price deflation that Mish and some others keep promising us will show up.
I think both you and Mish are wrong.
According to IEA figures shown in the drumbeat (yesterday ?) OPEC is pumping about 1.7 mbpd above quota and nearly 1.0 mbpd above last year's amount for Nov. This means more oil to export, mainly to asian countries (China, India, Taiwan, Korea, etc.) Because the distance to these countries is less than the distance to Europe and North America, fewer tankers are required to deliver this greater amount of oil exported by OPEC.
Basic formula is tonnes of oil times miles transported equals oil tankers needed and tanker rates. More oil (maybe 10% more to Asia) going much shorter distance does not offset the decreased oil imports of N.A (down about 8%) which required two or three times the tanker miles. OPEC exports more oil but it goes a much shorter distance, thus fewer tankers needed.
"""""but per "Oil Movements", OPEC exports have stagnated for months - and did not increase as usual in to the Northern Hemisphere winter."""""
So you believe that the above information is bad?
You believe that the IEA numbers are better?
My understanding is that Oil Movements counts tankers, and they're hard to miss.
How does the IEA tabulate exports, exactly?
EDIT - You're not reffering to this Bloomberg article, which was cited in the last DrumBeat, are you?
""""" Dec. 31 (Bloomberg) -- The Organization of Petroleum Exporting Countries increased crude-oil production in December to the highest level in a year as members took advantage of rising prices, a Bloomberg News survey showed. Output averaged 28.965 million barrels a day this month, up 65,000 barrels from November, according to the survey of oil companies, producers and analysts. The 11 countries with quotas, all except Iraq, pumped 26.615 million barrels a day, 1.77 million above their target. All members exceeded their production goals."""""
If you are, then I'd strongly counsel you to not rely on the words of "oil companies, producers, and analysts" and, instead, to rely on independent sources like . . . Oil Movements.
I'd take even Oil Movements with a grain of salt.
A simple reason of course is they have no idea if a tanker is loaded then parked for long term storage.
Next their Non-OPEC numbers are all over the map with huge revisions.
While the OPEC numbers are far more stable. I don't buy in that they have problems in one area but not the other.
I give them and accuracy rating of +/- 2 VLCC's a day. Thats of course 4mbd a day so effectively useless except for ballpark estimates. Evening and error of one a day makes them only marginally useful. In short they do nothing to increase the reliability of export estimates that much.
I could readily be generous in my error estimate also.
And back to the original if we include he use of tankers for long term storage when they are loaded is not all that important its when they are offloaded. On top of that product storage is also becoming important so...
On the production side the storage available after oil is pumped is not small one has to consider how full the huge number of pipelines arond the large fields is. Heck Saudi Arabia could probably surge 1mbpd for at least a week simply drawing down its pipeline network to MOL.
http://www.eia.doe.gov/cabs/Saudi_Arabia/OilExports.html
Its been a year since I posted on the oil drum but I still feel I need to get a life :)
Happy New Year Mel! And everyone else off course !
I do enjoy your postings a lot, just to say. ;-)
IMHO, TOD needs people like Mel stirrup up things a bit, so please keep it up, Mel. Looking forward to read you in 2010 ! Does not mean I don't highly appreciate all the other excellent stuff happening here !
This is certainly going to be a very interesting year.
Indeed Oil Movements may be off, and I note that they do sometimes include revisions in their reports. Never the less I expect some consistency in their reporting, so that relative changes would be noted. Off course, we do not know if that tanker leaving port is filled with oil - or not - or heading to a location where it will sit in storage. If I wanted to make someone believe my oil output was higher than it really was, sending out more half loaded tankers would be a good way to do that.
Not that I know if that was ever attempted. But keep in mind the widely quote Bloomberg report includes estimates and partial figures, and data from unreliable sources. In addition, some estimates appear to be derived from composite opinions. In sum it would appear to be much easier to systematically over-estimate oil output than to under-estimate it.
Since I don’t know for sure, I just try to go by what the fairly free markets are saying. Since some speculation is inherent in any market, market prices are not a perfect indicator of supply and demand - but a very useful one.
Therefore other than a perhaps seasonal pickup in shipping rates, VLCC rates are depressed. Granted I agree with the posters that some shipping demand has been lost due to re-routing available supplies from North America and Europe to the shorter shipping distance to the Far East. I don’t claim to a shipping expert but if the amount of oil being shipped had actually improved by about 500,000 bpd or more from about 3 or 4 months ago, I would expect VLCC rates to have been higher.
Well VLCC rates are sensitive to bunker fuel prices. They won't ship at a loss or at least to large a loss. The higher oil goes the higher rates go.
And bunker fuel prices also move some on their own its to 100% tied to oil.
Right now I'd suggest the biggest force driving up rates is the scrapping rate if you read about the VLCC fleet its very old many ships near the end of their life span. And of course single hulls are not allowed on many routes. With the big drop in rates I'd argue ships that where kept in service over the last few years are being scrapped now.
Its really really hard to get numbers on when a ship is scrapped or converted to a bulk carrier are gutted for permanent storage etc.
However it makes sense to assume that scrapping is high now and its helping to firm up rates.
Feel free to get into this issue. Its complex and many other factors play a role in shipping rates outside of the volume of oil being shipped.
We put up posts that might be of interest. It doesn't mean that we necessarily agree with their conclusions. Ideally, we will have posts on both sides of a story.
I very much appreciate your comments, which are in fact better than Mish’s. I am not sure if I have time to write up a long article about the coming great expansion of money coming to the US in 2010 (quantitative easing ) so that TOD readers would find it of interest, but I have become convinced that there will be a set back to the US economic recovery in the second quarter 2010 (partially related to rising oil prices), and subsequently a new, more expanded use of fiat money will commence by the Treasury and/or Federal Reserve.
It is highly likely that the monetary inflation/deflation debate will be settled by upcoming events in 2010, so we will know for sure if Mish or myself is right about the issue. But with the various definitions of deflation floating around, let me be clear I am only talking about the monetary effects. Gains in productivity are a kind of deflation that actually create wealth, and economic recessions/depressions create dis-hoarding where goods are sold to raise operating funds, and cause prices to fall during the period they are in progress. Basically I am saying monetary inflation is more powerful than the various forces of deflation.
Happy New Year!
Couple thoughts.
I might need to brush up on my physics, but unless their is a conspiracy and the boats are being filled with water . . .
. . . wouldn't it be child's play to see whether a tanker was full based on how high/low it was floating in the water?
My impression of how they tabulated their numbers was that some dude with a pencil noted when these giant ships come into port, and whether they're full or not, and then notes when they leave. And whether they're full or not.
Isn't there a very small number of ships out there transporting significant amounts of oil (less than 1,000 big ones? 4,000 total)? If that's the case, how hard can it be to note - 5 ships came in. 3 have left. All three had their hulls at maximum water depth. Ergo, this port exported 3ships x volume of 1 ship worth of oil?
If you were even reasonably attentive, how do you miss a boat that is as long as the eifel tower?
Even if you exclude the small ships, you'll probably get good relative numbers just looking at the big ships.
OPEC numbers might be better than non-OPEC because they are more interested in OPEC numbers. The exports of many non-opec countries is probably known. OPEC is much more critical to the world than non-OPEC for many reasons.
Anyway, regardless, I don't trust a Bloomberg Survey, for sure, to tell me what OPEC exports are.
Can you trick tanker trackers ?
Tankers carry weight not volume the 2million barrel number is based on light crude while many crudes are significantly denser.
Also they have ballast tanks fairly large ones since they have to run empty.
I suspect if you wished you could readily short load one by a few 100kb's with ease.
In fact partial loading is not uncommon. In googling it seems more common with product tankers making multiple stops but nothing intrinsically prevents it. How well you can hide it if you want to show a full load water line depends on your ballast.
And of course you can always run the ships at night.
You can of course dream up other scenarios the sky is the limit but if a country wants to show a certain amount of tanker traffic and if it say owns 60 VLCC's itself then it pretty much can do what ever it wants.
On the tanker rates side it can readily take its own fleet offline loaded or not and lease sending rates skyward. And of course you can practice slow steaming to even hanging out for a bit. And of course you can surge and lower tanker traffic. Its really not productive if someone wants to cheat and act like they are shipping more oil plenty of games can be played.
And of course you have the obvious one of bribing or otherwise compromising the trackers.
The bottom line is how much trust can you put into various numbers ?
At best for tanker reports I'd argue like I did in my first post up to +/- 1-2 VLCC's a day and thats not even considering suzemax's etc.
Product tankers ...
No information available seems capable of narrowing down oil exports by about 2-4mbd or so or say a 5-10% error. Thats not really a bad number at least we have a ballpark figure but so far at least none of the reported changes have been beyond what I consider reasonable error bounds and thats not including outright attempt to play games.
I've been watching info about tankers for years now and don't post on it that often simply because there its to complex to draw any solid conclusion from.
However 100+ tankers not carrying oil day in and day out and pic's of VLCC's mothballed off Singapore with other ships plus reports of some ship owners aggressively witholding ships.
http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-gho...
http://www.zawya.com/Story.cfm/sidZAWYA20091228043830/Oversupply+is+key+...
As far as when a significant number of VLCC's where loaded with oil for storage.
I'd argue it makes the most sense if it was done by producers to have happened when rates where at their highest.
Which fits with my contention that the price spike in 2008 was intentional the market could not be cooled with daily production so a large amount of oil was stored sending prices spiking then the market was flooded.
It looks like a second longer round of building storage happened later in 2009 and this was probably unloaded steadily over the year. How much is really out there now as anyones guess as you don't know how cargo's are being rolled. Given rates continue to remain low despite strong prices either daily production is falling rapidly or cargoes are unloaded or both.
The sharpness of the rate spikes in 2007-2008 leads me to be these where producers storing oil offshore. Since they produce oil they can take several 100kbd and divert it to floating storage and build rapidly. So VLCC's whould have been taken off the market at a fast clip say 1 a day.
Do that for a few weeks and the market tightens rapidly.
The other longer term moves are I think speculators buying spot cargos and building or maintaining storage levels at a much lower rate.
Its hard to say what happens next we will just have to wait and see.
My summary of this thread is as follows:
Everybody agrees that tanker lease rates are falling.
Everybody agrees that tanker lease rates are falling because tanker availability has increased.
One side (MSM talking heads) says tanker availability has increased because worldwide demand is down, a greater fraction of ME oil is moving on shorter routes to Asia, AND/OR speculators are not holding as much oil in floating storage because there is an expectation that oil prices will not rise appreciably into the future (due to glut on market, lack of demand, and so on).
The other side (memmel et alia) says that tanker availability has increased because producers can't produce enough oil to fill them, and the demand for the oil is there.
Ironically, everybody therefore agrees that tanker rates are going to fall over the next 12 months.
Which side is correct?
It seems to me we are going to have a very definitive answer.
As tanker rates drop appreciably (and they're calling for a 25% drop), the first side will expect price to drop while the second side will expect price to spike.
Simple as that.
Did I miss anything, or is that a proper summary?
Basically.
To add to that there is little contango in the market thus one assumes this will help draw in oil from floating storage. Given storage costs for all intents and purposes the market is effectively in backwardation now.
To just add one more point. Reported on land storage levels are high and plenty of news about more oiled stored offshore. So pretty much regardless of where prices go I don't expect a strong response from OPEC if they can respond until oil storage levels fall significantly. In particular KSA will probably do little until the speculators that have stuffed Cushing with oil have been forced to unload. So I expect them to do nothing until oil prices are around 90 and even then nothing unless storage levels are falling.
90 should be a price point that will start drawing in whatever in speculative storage as it represents a significant profit and its above the threshold that OPEC has called for so a "flood" from OPEC could theoretically happen driving prices back into the 70's.
Another scenario is that the status quo remains and nothing happens but I can't see how we can stay in perfect balance. Regardless of what real inventories are everything points towards a steady draw down over the year this will probably continue at the minimum so even assuming BAU still puts you into something changing within the next three months as parts of the world at least can no longer draw down inventory as they start to hit MOL.
Obviously this means they would have to increase imports which forces others to draw down inventory faster.
So the important point is to recognize that the current situation is unstable and will only stabilize when inventories go back to rising and falling in a more natural manner at some price point.
And to be clear regardless I really expect to see a bit of a price run nup over 80 and at least into the 90's before we can know for sure what OPEC can do. This is pretty much certain no matter what at this point as the inventory draw down needed to entice OPEC to pump more forces prices to those levels. I'd argue its impossible for oil to set at 80 as we fall from the top of the five year range to the middle and no way is OPEC going to make a serious move before this. So ..
This means that we should expect OPEC to start claiming high prices are from speculators and there is plenty of storage and no reason to pump.
Which will add strong support for the 90 price point and should I think send the market into true backwardation. If that does not draw down inventories then well nothing will.
So once the dust settles from this event we will see what the truth is as daily production then becomes very important.