How December 2009 oil prices compared to what Oil Drum readers expected; a new price poll for 2010

The price of oil, as measured by the NYMEX price for the front month WTI futures contract, finished 2009 at $79.36. This was in line with what Oil Drum readers forecast a year ago. In our poll a year ago, the results were as follows:

• Over $147 - 12%
• $100 to $147 - 13%
• $75 to $100 - 27%
• $50 to $75 - 26%
• $37.50 to $50 - 6%
• $25 to 37.50 - 4%
• $15 to $25 - 1%
• Below $15 - 1%
• No Idea - 8%
• Futures contracts not tradable by 12/31/2009 - 3%

At the time the poll was taken, the price was about $45. While the estimates were widely disbursed, on average, they came out fairly close to the actual price at year end 2009.

We know about one change in 2010--Saudi Arabia and Kuwait plan to stop benchmarking their oil prices to West Texas Intermediate. Instead, they will be pegging their prices to the Argus Sour Crude Index (ASCI).

WTI contracts are very widely traded now, and one would expect this to continue to be the case. It is possible, though, that the pricing of WTI and ASCI will follow separate tracks. Some believe that WTI contracts are unduly influenced by speculation, and ASCI contracts will be less affected. The new year will allow us to see whether there is any material difference, in practice.

What influences on oil prices do you expect to be important in 2010? Do you expect demand growth to be important? Or will geological decline start to become more important? Any particular countries? Will credit play a major role?

So over half of us guessed that we would be in the range from $50-100, which is pretty much where we've been. It would have been interesting to see how many would have guessed specifically that we would stay in the $60-80 range for months as we have done. I personally expected more volatility than this, but any recovery is likely to lead to another spike and crash.

I'm doubting now that any recovery will be robust enough to cause a new spike much above $100. OECD imports seem to have peaked and may go down for the indefinite future. I happen to think that this and similar sites and the authors they promote had some, however slight, roll in this. With the meme out there that the oil shock was something more than a one-off thing, many seem to have decided to permanently change their lifestyles. Of course, many more had lifestyle change thrust upon them.

I agree with others that if we go very far above $80 (an envelope we are now pushing), economies will contract enough to bring the price down again.

Happy New Year to all. Any New Year's resolutions being made (or broken) yet? I'm going to give veganism a go--though I already nearly put cheese in my oatmeal or milk in my coffee this morning. Wish me luck.

If I had to deliver conjecture fast to my partners, bosses, etc., it would sound about like this:

(a)Saudi Arabia says "fair value" for crude oil is around $80. I would have to be presented really good incentive to argue against the Kingdom, they know this business well. So as a first bet, I would side with KSA for now.

(b) What depletion is occurring seems to be a wash given the slow recovery of oil consumption, which I have long predicted to be much slower than some expect. Now, other analysts are starting to say the unthinkable, that oil consumption has probably already seen it's all time peaks in most of the developed nations (Europe, Japan, U.S.)whether there is available oil out there in the world or not, the consumer is beginning to move (or be pushed) away from oil in various ways, and with the pressure to reduce carbon emissions this will certainly continue.

(c)Worldwide credit is beginning to loosen a bit, and the best possible thing to really get the investment community back into energy development (oil, gas and renewable) would be a summer price spike upward to about $100 per barrel. I think there is a good chance of that happening with crude oil by August, and then a drop back down, but natural gas seems set for a longer price slide than expected. A lot of industry that once used natural gas in a big way has been outsourced. Trends on weather early next winter will mean everything for the longer outlook, but unless it goes arctic, natural gas seems set to hold or drop in price. It is easiest to store in the ground for now, what is the incentive to drill?

(d)We are only talking next year, so barring unforeseen geopolitical events, it may look a lot like this year. On geopolitical isses, I do not dismiss some uncomfortable thoughts: A war between Iraq and Iran is not impossible, and would create a real mess. If the economy slides in Mexico, we could have some real social disorder there, creating another mess and this one close to home for Americans.

Lastly, once again I ask everyone to really study the technical changes taking place. We are at the cutting edge of one of the most radical leaps forward in technology in many decades. Despite the enabling power of the technology advances of the last 3 decades , we should recall that almost all of them are in a very narrow area of technology, i.e., information control and communications. The coming wave of technology will be much broader, much more critical and much more disruptive to our homes, cars, workplaces and even methods of wealth production. This is a time of what Alvin Toffler once called a "wealth production" revolution. Please, do not easily accept assumptions and theories from others. HEDGE, stay flexible, be careful, and make changes in steps you can easily reverse if need be. There are going to be many surprises, and you may be amazed at the variety of possibilities that are opened up.

Happy 2010!

"The coming wave of technology will be much broader, much more critical and much more disruptive to our homes, cars, workplaces and even methods of wealth production."

Care to be any more specific about this provocative and intriguing prediction?


You've been posting here long enough to be careful about asking for something like that, at least most folks here are careful about it, but since this is a slow holiday, and not many posts on this string yet, what the hell...

(a) We are beginning to see the "big players" come into the so called "green revolution". General Electric, IBM, Siemens, Honda, and many others. The core of the high tech industry worldwide have now split from the oldline energy producers and see reduction of greenhouse gases and reduction of carbon based fuel usage as a vast profit center. This is no longer a cadre of left over environmental boomers who celebrate earth day every year and then climb back in the old fashioned SUV and drive away. We are seeing the best technicians, scientists, planners, logistical organizers and financial organizers the world can deliver being brought to bear on the "green" issue. This is a worldwide revolution. This is not just "greenwashing" but for the first time we are starting to see real technology being commercialized, and put into operation. Some trends are becoming apparent:

(b)Micro CHP (Combined Heat and Power) and the dash to gas. Most projections are that we are in no near term danger of natural gas shortages. This is a home based (North America) fuel that can be used to augment advanced technology such as CHP. We know the Japanese are desperate to increase exports. They have a falling home population, and rising pension costs. They also have one of the greatest set of technical minds anywhere in the world. They must export and they must develop and commercialize new technology. Be prepared for what I will call the "Japanese renaissance", and of course their biggest customers are the U.S. and China.
Honda has been developing Micro CHP for home scale installation for several years, but so far we have seen little result in the U.S.
That is about to change:

The beauty of these CHP systems is that they can be retrofitted to older houses, townhouses and condos, and present huge savings in fuel consumption in using heat that is normally wasted from the power production for household use. Heating and power systems in homes has not changed in any appreciable way since WWII with the addition of air conditioning. That is about to change, and this is only the tip of the iceberg. Distributed Power is often dismissed by many, but with smart house monitoring and city monitoring systems, we are about to see the first restructuring of the Heat/Power use of American homes in a century.

IBM is beginning to make a full push on thier "Smart" theme. This is more than just advertizing. They are actively selling "smart planet", "smart city", "smart grid" series of ideas and technologies to government and industry around the world. They like Honda intend to sell the product of all their work and they are not advertizing for nothing. These firms and other high tech firms see the coming era of carbon limits as beneficial to their business, NOT a liability (that is a huge sea change in perception) and are discreetly lobbying for "green technology" and carbon limits worldwide.

General Electric recently announced their first new applience in over 30 years, to be built in Louisville KY's applience park. This is a "hybrid" hot water heater,

This is essentially an advanced heat pump hot water heater, and will reduce by half the amount of energy consumption for the same amount of hot water. This type of technology will put pressure on households and utilities to continue the cutting of carbon release at the household level. Again this is just the first shot in what is seen by GE as an ongoing and growing area of technology.

At some point soon, it is very probable that limits on carbon release at the household level will begin to be discussed seriously. This will force revolutionary technology and architecture forward. There will be no where to hide, no way back to the waste of past years.

We have looked at just some of the developments being readied to use at the household level and will deliver reductions in energy consumption and carbon emissions. For now I am leaving aside the rapid advances in solar PV, solar thermal, battery design for plug hybrid vehicles, plans to use natural gas instead of oil in plug hybrids (possibly combined with computer controlled micro turbines) and wind because they are so often shown in the press, and because I want to get to the point of discussing economic impacts.

We are looking at changes in home heating, in water heating, in CHP use for electric power production onsite, at vehicle changes which will include a soon to hit incredible wave of competition in low carbon transportation (some of the white papers being presented by the Germans are stunning in their scope, including comfortable fast plug hybrid cars charged at home, fueled at home by natural gas, with advanced gas turbine engines used to power high tech communication, entertainment and navigation, some of the efficiencies are stunning). The advances in communication technology will continue, and we are just now seeing the beginning of wireless devices always on, used for work, education (how many days a week should your child really be in school when he/she can do so much of the education online?)

What does all this mean? I am now about to present a set of possibilities, put them out there to be ripped to pieces, because I am playing this out in my own mind. It will be somewhat interesting, but even more so challenging for those who read this, should anyone choose to, because it is so much out of the normal thinking normally found on the oil drum. I am willing to admit that I may be completely wrong, that I may be misreading the upcoming situation badly, only time will really tell us for sure. I am putting forward a possible scenario, NOT an assured one, and admitting that many things may occur to keep it from occuring in anyway similiar to what I am about to suggest. I think it is important, however, to consider the possibility I am about to suggest, if not for our own sake then for the sake of the children and grandchildren many of my friends already show great concern for (I have no children myself) We should be very careful not to consign our nations offspring to limited viewpoints which could count them out of the possibilities to come. Here goes:

Many here at TOD have heard the term "disruptive technology". As long ago as the 1920's the Russian economist Nikolai Kondratiev set down a theory of business cycles based on "disruptive technology". The American sociologist and futurist Alvin Toffler in the 1970's predicting that when the so called "industrial age" moved forward into the information age, we would see one of the greatest upheavals in world history. Toffler was absolutely adament that until we left our industrial era energy base behind, we would NOT be able to leave the industrial era behind. The hints of the "information era" so far are only that hints, toys to give us an inkling of what is soon to come.

When the disruptive technology first begins to hit the marketplace, there is fear, changes in employment leading to unemployment in some industries, disruptions in population patterns of movement, and most of all, disruptions in understanding about the nature and production of wealth. Once the commitment is made to the newer level of development however, and the consensus is built among the intellectuals and elites, the new growth in development can be so shockingly fast, so much that Toffler actually considered it a threat to individual mental health (his great term "future shock"). Long standing ideas of money, status, purpose and even relationships no longer act as fixed points of reference. It can be a very dangerous time. But...coming out the other side, if we are able to make it over the massive disruption, can make us witness to one of the great periods of development in history, with experiences possible undreamed of to this day.

The best allegorical illustration I can give is like the great scene in the movie "The Longest Day"...the beach is essentially silent, everyone is waiting...everyone has been trying to plan for what seemed like an impossible to plan for event...and then the giant gun turrets begin to whine, rotating on the battleships, turning toward the coast...and all hell breaks loose.

This is what is happening today. The "big guns" of industry, government, education and even media are all turning. The power is being concentrated. The time of relative calm is about to end.

If you look at an automobile or an American home or an American office, except for the communications and computer devices that have been added, these large portions of modern life all over the world, the home and car, the office, are relatively unchanged since the turn of last century (1900). This is astounding when one thinks of it...we still drive cars powered the same way, live in houses heated and powered the same since the introduction of electricity (and think of the revolution that caused!) with only the addition of air conditioning in the summer (an incredible revolution not often noted, it opened the sunbelt to massive population and changed the south) and the computers (and what a revolution that has started but it is far from over). Work patterns are essentially unchanged except for the computers.

It is hard to imagine the changes coming. Again, let us try to think some of these things through just as a few examples...

-What will the financial landscape of a nation look like when it is realized that oil and natural gas consumption growth is simply no longer to be counted on? These are vast enterprises. And it matters not that the oil may still be "out there", the consumption simply begins to stall, and then is literally "pushed" down by advanced technology and carbon limits. Natural gas will enjoy a rebound, but with technology now moving fast, for how long? Projecting oil and natural gas consumption will become a guess in the dark, so much has been built up on the premise of always increasing consumption. No one has seriously considered the possibility that consumption will decline faster than the threat to production, it simply is considered not to be considered.

-Why do people still bank by going to a building? The money is virtual anyway, why should not financial matters be handled online? Why can I not buy stock as easily as I buy a lottery ticket?

-Commercial real estate? How much do we need? While the retailers suffered a hit in the store, online sales increased 15%. This is just the beginning. Tele-commuting has not even really began yet and poses the possibility of massive changes in office space usage and work patterns. With a headset and some software most call centers can be operated out of the home. What will we do without the morning and evening rush hour, surely one of the most idiotic expressions of our fascination with keeping a farmers hours?

We could go on and on, but let us now ask an important question: What is the nature of work?
Scientific American has a fascinating article this month, discussing the "gold farmers". These are people who play Massively Multiplayer Online Role-Playing Games (MMORPG) for the purpose of buying online assets (armor, weapons, tools) and selling it to other players for real world currency.

The Chinese government has been trying to limit this activity because it competes with "real" jobs. Many Chinese can make as much money selling "virtual" assets and currency as they can make working at a factory:
"The Chinese government estimates that trade in virtual currency exceeded several billion yuan last year, a figure that it claims has been growing at a rate of 20% annually. One billion yuan is currently equal to about $146 million."

These "virtual" assets trade at about the exchange rate that Chinese currency trades against the Japanese yen. China is not the only nation dealing with this as the trade in "virtual currency" is now over 1 billion dollars and growing fast in almost every developed nation in the world. This creates of course an export of western currency to developed nations, making the playing of massively multiplayer games an export industry. I ask that folks think about this...a kid playing online games in China or India or Pakistan is payed by Western players for his efforts in real money.

And this redefining of how we think about "work" is only beginning. The potential for disruptions in currency and economic value are so hard for most of us to understand that it is almost impossible for us to really get a grasp of what is now meant by "value". This makes investment planning and projection of ROI (return on investment) almost impossible. The disorientation symptoms of future shock are becoming ever more present.

It is our obligation as citizens to try to stay informed. If we do not, there is a real danger that we, and based on our advice of how to act in the future, our children and grandchildren will risk being shunted aside by a world they cannot even begin to grasp, possibly consigned to a life on a farm as a laborer. We may not even need "peak oil" to cause this to happen, but our lack of awareness of what is going in the world may well be enough to consign us to poverty, left out of the greatest revolution in history.

If the "worst" (by the measure of many folks here on TOD) were to happen, and things were to go not just well over the next third of a century, but ASTOUNDINGLY well for those well prepared and alert, how many of us could cope? I think that the posters at TOD would be the BEST PREPARED FOR CATASTROPHE of any group in the U.S. if not the world...but I am forced to ask myself, what if the catastrophe does not occur, in fact, what if the absolute opposite of what so many of us expect were to happen? Could we cope?


Thanks for the info and insights. Much food for thought.

Prosthetic tech now allows people to operate devices essentially directly by their thoughts. I think it is only a matter of time before we go one step beyond the blue tooth--having communication devices directly implanted into our bodies.

I will just point that our present human vocal structure was a more drastic adjustment of our biology to accommodate communications than this new development will be. We gained the ability to distinguish nasal from non-nasal sounds only by sacrificing a very basic ability that all other mammals have--the ability to eat/drink and breath at the same time.

The linguistic ability gained by this sacrifice has arguably been the greatest disaster ever to hit life on earth and the stability of the planet.

So I do not look at such developments with much glee. Nearly all our technological advances have spawned problems greater than the problem they were intended to address.

At least with spoken language it occurred over a period of many generations. The problem with technical revolution is that once it hits a certain tipping point it can move very fast, creating huge changes in only a few decades. The speed of the changes is what is disorienting...we who were born to the world as it now is simply cannot learn fast enough to stay up with what is going on. We still make assumptions based on how things were a few decades ago when we went to school, but the assumptions no longer seem work.

I will give you one that is a problem for me: Books. I was raised to read, to love books, to respect literacy. But the world is becoming more and more audio visual. Very soon even typing will become obselete with voice command systems. Books and reading are becoming like Greek and Latin, a remnant of an outdated information and educational system. Even the measure of "literacy" is changing fast.


(But then some of us still bother to learn Greek and Latin, which, I suppose, really makes us dinosaurs!)


Your thinking very closely mirrors my own across the spectrum. We've entered the virtual era - distributed "virtual" corporations consisting of perhaps a couple of dozen people connected primarily through web technologies from their homes or the nearest coffeeshops operating multimillion or even billion dollar companies, the increasing intelligence of the energy/transportation/distribution/remediation grid, relocalization of food and goods production (and with it the relocalization of political power), and the corresponding dis-integration of the 1950s era command-and-control structures in our societies - multi-national conglomerates, large-scale geo-political entities, centralized power production and distribution systems and so forth, large-scale state controlled securities and so forth.

I like to think of this as the move away from the Proprietary Petroleum Operating System (PPOS) and Towards an Open Energy Operating System (OEOS), much like the move from Windows to Linux. While the metaphor isn't perfect (what metaphor is?), it's worth considering the properties of the PPOS:

  • Limited number of vendors control the production and distribution pipelines, creating centralized systems that largely benefit a small group of producers and investors disproportionately,
  • Applications (transportation systems, distribution systems, etc.) are heavily dependent upon these vendors but also work in tandem with these suppliers to perpetuate the status quo, with innovations occurring only in very peripheral areas and with only minor increments
  • It is very difficult to opt out of the PPOS - there is little room for alternative innovators and the system tends to encourage monopolies, duopolies or or collusive behaviors.
  • The Command and Control architecture found its way into the corporate structures (primarily from the military after WW2), and generally companies were able to wipe out the older businesses by making use of the centralized power distribution model coupled with economies of scale brought about by the energy system.
  • Financial systems have become geared to the PPOS - credit creation is for the most part a direct consequence of energy production or energy futures, and so long as net energy production globally had a sufficiently high EROEI, the the Petroleum Operating System could effectively borrow either directly from future expected oil revenue streams (based upon cornucopia models) or indirectly from economic production and distribution made possible by that oil.
  • In general, you could only contribute to the grid in a meaningful fashion (beyond your own immediate needs) by going through heavy regulatory hoops and facing a major capital investment, which established a significant barrier to entry.
  • Educational systems (much like documentation systems) were similarly centralized and usually also were comparatively expensive to achieve, which limited the participants in the economy to the wealthy, the well connected, or the exceptionally talented (and then only with sponsorship).

There are other examples, but this illustrates the basic principles. What I see with an OEOS, on the other hand, is something that would be unrecognizable in 1950 -

  • Energy is produced in a variety of different ways, and transmitted via intelligent grid systems. In a smart grid system, you can sell your excess energy production into the open market, perhaps automatically - which makes it possible for companies that aren't "energy" companies to actually generate power through photovoltaics, heat recapture systems, waste conversion and so forth. This weakens the power of the dedicated energy companies.
  • Transportation and distribution systems shift away from large scale petroleum use to secondary electrical energy consumption. Inefficient systems - 18 wheelers, for instance, get replaced by trains, the 1000 mi diet shrinks dramatically, etc.
  • The electrical, transportation, and distribution grids become intelligent, and can report their current state quickly (and can be changed dynamically, as necessary). Expect to see a raft of energy apps, appearing, just as the iPhone is now turning bus and local area trains routes into applications.
  • Power production decentralizes, with associated power revenues remaining closer to the point of production (localization of revenue).
  • Distributed, network centric virtual corporations, where production takes place via temporary linked alliances of networks.
  • The energy networks, transportation and distribution networks, policy grid networks, educational networks, health networks, and so forth all become part of the information grid rather than separate and siloed entities.
  • The formats for working with the information over these grids are open standards, following a services architecture.
  • ... and so forth.

This won't happen overnight - I think we're about twenty five years into a process that may end up taking nearly sixty years over-all, and when it's done, it's very likely that most of the things that we take for granted today, including broad nation-states and oligarchic conglomerated corporations, will likely no longer exist in any recognizable form.

The long term consequence of that is to create a system which

Oh, and my thoughts on oil prices this time next year -

I think both Mexico (Cantarell) and Venezuela will become net importers, Saudi Oil production will be significantly down even given a still weak global economy, and we'll begin to see spot shortages in the US and Canada as supply chain problems and terminated exploration investments due to still constrained credit begin to impact the availability of oil (economic upper limit peaks rather than physical resource upper limit peaks). On the other hand, I think that the US economy will begin to be picking up in earnest towards the end of 2010, after likely one more swan dive from current levels in the equity markets in late winter or early spring when either you see one or more sovereign debt defaults in the euro-zone that takes another of the big-5 banks in the US down with it (CITI or BAC would be my guess) or you see a major state (CA, GA, FL or possibly NJ) default, which will cause a slow decline in the equity markets until they break the lows established last March. I don't think we're in for hyper-inflation yet - we're still in deflationary regime and may be for another eighteen+ months - but the economy will have started adjusting to the reduced credit regime and companies will be working around that limitation by changing their employment patterns.

Given that, I'd bet the price will be just shy of $100 or so a barrel, though it may end up dropping as low as $45 at some point before getting there.

I agree!!! For dif reasons... see post @ bottem.
I thank you for the "mind kick",

I like to out the box side think.

What does all this mean? I am now about to present a set of possibilities, put them out there to be ripped to pieces

As it happens sometimes, your enthusiasm communicates well. It reminded me very much of so many Popular Science magazine articles, talking about the wondrous carefree world technology had in store for us...

The main pieces I would rip into that picture would be: you describe two types of changes, those increasing the efficiency of the end use of energy, and those involving low-EROI energy production. Neither effectively address the core problems of fossil fuel decline, population growth, and climate change. Details and interpretations could be endlessly refined and defined out, but the problems remain.

on edit: not that the changes you describe would be bad things at all, just far from sufficient!

just a minor correction...I see it as anything BUT "carefree", and if I somehow left any other preception that was an error in my communication skills...the pressure to learn, change, move fast, think in terms in which we have to reason fast with no usable example to help guide us...anything but carefree...


True - a poor choice of words on my part. One thing I notice, looking at the natural world, is that "efficiency" can be equated with "stress", and is a more the opposite of "carefree" - nowhere in disagreement with your post. Between climate change, population pressure and fossil fuel depletion, not even the rosiest scenario is free of efficiency. But if it allows more people to live better, then all change to that direction is needed...

Thank you for an excellent post.

I fully agree with your thinking: Oil production may well have peaked and be falling - but I truly believe that demand will soon be falling even faster.

Bit puzzled by your comment about banking though! I haven't been to a bank since 1991 and couldn't possibly imagine what I would do there? What do people do there? I did hear a rumour some time ago that in the USA people still send pieces of paper with signatures on them to each other to make payments - but surely that can't be true?

I have no idea what will be the price of oil in future, but I want to share a vision of our "unreal reality".

Sorry for not translating. Google translator generates an acceptable English (from Spanish).

Happy New Year.

Thanks for sharing this. It looks like you did a good job on the two pieces you put up.

I think some of us will have different views on the extent that renewables can be a solution. They are certainly enticing, but expensive and difficult to scale up.

Ok. It is difficult but not impossible, and no energy was cheap at first.

Spain have already reached record 53% of wind power (a very windy day). Look down the large swath light green. Gradually...

And a month after it reached 54% of wind power:

Ah ha - pontifications as to future possibilities of the oil price kind. I love conjecture because it requires zero proof, but lots of educated guessing.

1. Lately the price of oil seems to be glued into the 75-80 dollar range. It almost seems like the oil business as a whole very carefully calculated what the maximum the economy could handle and settled into that small range.

2. One concern of mine may seem strange at first glance. The first time the price of oil went skyward (147) it was a massive credit bubble bursting that caused its sudden downward descent into the 30's. However, the next time the price goes above a hundred a barrel, there might not be that safety valve available to bring prices down.

3. Now what we may have is a market that is ignoring bad news, like from Dubai, more billions to GM, empty malls - subdivisions and even an empty city in China, banks holding millions of properties empty so they don't bring down prices on the open market for existing homes, more layoffs, foreclosures and business' shuttering, huge state and fed debts with greatly reduced revenue, but apparently only upward movement in stocks. No matter what bad news there is, upward on onward seems to be the direction we are headed.

4. Thus, expansion will slowly build in here in the U.S. and more quickly in China, with demand for oil increasing as 2010 marches on. By July-Aug. the price of oil will be close to breaching 100.

5. If the economy holds at that price, by the end of 2010 price of oil will be between 100-120.

6. I'm predicting 125 is the new ceiling price. Once there in 2011, some bad news similar to Lehman in 08 will cause a price drop into the 50's. Notice how price doesn't get up to 147 again, or down into the 30's. That's because it won't be such a surprise next time and people know the parameters of what is possible, so the range gets smaller.

7. So I am predicting another economic earthquake, a pulse of a high price followed by a lower price, but not until mid 2011.

I think there is more meaning in the question: How do you think the value of the dollar will compare to the value of oil through the coming year?

My usual answer is that its been a mystery how the dollar continues to hold its value, and a wild guess as to whether it can stagger on at current levels for one more year...

Maybe the fact that the dollar is holding its value has to do with how badly the rest of the world is doing. It is sort of a race to the bottom for everyone.

Gail, I'm with you on that one; just look at some of today's articles about Japan, Spain, Greece, Ireland, and others being close to systemic default.
If we on the drum, should have learned anything in the last couple of years, it is that oil prices are radically affected by economic factors on a world wide basis, and that high or low oil prices play a large role in creating those economic factors. What the price will be on Jan 1 of 2011 is a function of timing. Those who follow Gerald Celente, would believe that the unwinding of the worlds economic engine will complete it's spiral in 2010. He has not always been accurate, but he has definitely been more right than wrong on many predictions his trends institute has made. On the other hand the PTB seem to be able to keep the balls in the air longer than any of us thought possible two years ago, so who knows. Maybe the cornucopians will win out for another year. Should be fun to watch.

Having bet most of my marbles on hyperinflation in 2008, which inexplicably failed to happen, I've learned not to underestimate the ability of the PTB to keep things smooth, on the surface, when it suits them. I think the collapse of the dollar, or any other major currency for that matter, definitely would not suit them, given the intertwined and multinational nature of the beast.

Looking very far into the markets, its still a little like going to a good circus, where you see things done that can't possibly be done and can't possibly be sustained, yet to our wonder they are.

Gail, you hit on something there I've been wondering about. Is the dollar simply holding its own because the other currencies its being traded against are also losing value? In other words, the real value of all currencies is dropping, envisaged as a pie getting smaller. It's the only reason I could think of as to why the dollar suddenly stopped sinking.

If all of the currencies are all falling simultaneously, it seems to me the situation is fairly fragile. Countries may at some point stop trusting each other to pay their debts--because they know that no one really is in a position to do so. Why should they continue exporting goods to other countries that can't really pay for them? I would not be surprised if countries in poor financial shape are asked to do something equivalent to putting up collateral--perhaps ship some sort of export in return for the import--an oil for wheat deal, for example.

If trade deteriorates in this way, I expect that a much smaller amount of goods will actually be shipped, making it difficult to make complex items that require imports from many parts of the world (like computers). Shipping companies will go bankrupt from lack of orders. There will probably be plenty of oil for shipping, so people won't associate lack of oil with the problems that are occurring.

My observations confirm your assumptions.

All central banks right now are attempting to devalue their currencies to gain an export edge against the rest of the world. The US has been actively devaluing the currency but is also facing the constraints that devaluing too fast will shatter the faith in the dollar as the global reserve. Since the dollar's power is dependent on it being the global reserve currency, there is genuine fear of devaluing too fast by our own Federal Reserve. This has allowed other central banks, such as Japan, to step in and devalue their own currencies more rapidly than our own. Other currencies, such as China's, are pegged artificially to the dollar so any devaluation we do to the dollar translates straight to the yuan anyway. Thus the US is losing the race of devaluation but devaluation is occurring amongst all the major players in a perverse race to the bottom.

The problem facing Bernanke in attempting to spur US exports and therefore US hiring is that he might destroy the thing he is sworn to protect - the dollar's reserve currency status. In 2010, Bernanke will have to choose between risking that destruction or finding the US with a worsening trade deficit even with real unemployment somewhere north of 20%.

As to what will happen with oil prices, I would not venture a guess and thus would not invest in that market at this point in time. There are too many radical variables out there that could take oil price sky high or drop it to the floor.

I think it is a race to the bottom.

But, If we -"ALL"- deval at the same time, at the roughly same rate of speed:
no one gains "much" of an edge... no one loses "much" of an edge.

As a side note...
I haven't seen anyone say how many CDO and CDS's the big banks in China bought. It is possible, that they own more of our bad mortgages then they would ever want to admit to. We sold those things to THE WORLD.

And this is a VERY important thing....

I -HIGHLY- recommend giving this a listen as you surf the net today:
Its free, center/left side of page, click the "Full episode" button.

I am reading "Thinking in Systems" by Donella Meadows (Club of Rome).

What we have here is a strong feedback mechanism.

The scarcity of oil causes a price spike, (perturbation), the price correction overshoots and returns to the highest that it can be, and held there by strong feedback from the economy. Any higher and the economy is strangled, any lower and the economy takes off causing increased demand which feeds back as higher cost oil.

This is a good thing as the alternative, without strong feedback, would lead to price instability or with no feedback to a crash taking out the economy and civilisation.

What we can expect is a more gentle wind down to that overused word "sustainable" future.

If one looks at percapita oil consumption in the US across a number of states with large variation in both average income and the local economy one finds that it does not vary that much.

You need to disregard the oil producing states as they are not correct.

Most states are very close to the weighted average of 23.

This suggests that their is and intrinsic or infrastructure based use level that fairly independent of personal wealth. If oil supply falls near or below the level to meet this basic demand then we will probably see high oil prices regardless of growth or shrinkage of the economy barring outright collapse.

Given we have seen a steady rise in oil prices despite sustained high unemployment it makes sense to suspect we are not that far off from this intrinsic demand level.

Also US VMT has stopped falling again and continued to increase despite the combination of rising gasoline costs and rising unemployment.

Next the US economy has for the most part stabilized I'd argue its weak but again we seem to be hitting a sort of bottom.

If so then I'd argue its likely that we will see a continued increase in oil prices if supply is dropping. Export land alone suggests this will happen if one assumes that we are now post peak and also suffering absolute declines then this will continue.

On the financial front governments around the world are now willing to take any action required to avert economic collapse thus another collapse is unlikely over the short term. Certainly the US for example could move to subsidize gasoline prices for the poor for example or other aggressive measures to blunt the impact of rising energy costs. Other governments are likely to try similar policies. Perhaps the US would be forced to take action as others try to offset the effects of rising energy costs.

Of course such actions esp if they became widespread would simply make matters worse but I just can't see any country allowing its weakened economy to collapse further because of high oil prices. It makes sense that several will take aggressive action to insulate their economies and if enough take this route it forces others to take action.

Its probably a very safe bet to assume that China will do what ever it takes to blunt the impact of rising oil prices and they have enough dollars to subsidize oil for a long time. If so then they alone are enough to force other countries towards subsidies. India for example etc.

So overall I simply cannot see high oil prices being allowed to naturally cause economic contraction.

And I think that the US and probably many countries are much closer to what I call structural usage thus further drops in usage levels become exponentially more difficult as fundamental changes are required.

If such a situation develops its effectively economic warfare and will eventually cause some economies to blow up.

At some point if such a scenario does play out then one has to guess that free market oil will become a thing of the past as countries cut deals with oil producers for exclusive access in exchange for all kinds of incentives besides money.

I could readily see China for example agree to develop a large number of nuclear reactors for a oil producing nation in exchange for oil its a win win situation.

So we just have to wait and see what happens however if you think about it many countries have already massively increased the level of government debt they literally cannot afford to allow their economies to collapse as now it would be a complete collapse. Japan for example is at the point of no return for sure. If high oil prices become a problem it basically has no choice but to subsidize given their debt levels another bought of economic contraction is probably the death knell for the Yen.

I'd argue the US is in the same position it simply cannot allow another contraction as it would become obviously bankrupt at that point. There is now a incredibly long list of countries that have expanded government debt to save their economies to the point they really don't have any choice but try any prevent contraction at all costs or default.

So it fairly obvious if this is true then a vicious circle will be set in motion with subsidies shielding consumption and thus resulting in higher prices forcing more and more countries to adopt ruinous subsidies or fall into economic collapse.

Thats my prediction for 2010. As far as actual prices goes who knows ? There really is no limit if this scenario actually happens.

You know I can't remember where I voted that we would be in those ranges.

Over these past few weeks I have had several things to think about, and one of them is that we can't predict what will happen from day to day because things just aren't as easy to predict before they happen as we all seem to think that they are.

What prevents oil from going to 100 Dollars a barrel in the new year 2010? A war could happen, a bombing of a port could happen, Things that we don't see now could happen to change things as they seem to be slated to happen from this point in time. If notthing like that happens, Oil should in my opinion stay in the range of 50 to 100 dollars a barrel by this time next year 2011.

Now I hopoe I can remember that I said all this up there in 2011.

Best Wishes for everyone this year.

On New Year's Resolutions

I'm only making one New Year's Resolution this year: I resolve to reduce my carbon emissions by 10% in 2010.

Lucky for me, there's low hanging fruit available in my household, so I expect to easily exceed that target (we're really aiming for 20%). To help others I compiled a list of 10 tips for making a 10% reduction in 2010: . Most of these ideas will be old hat to TODers--I'd love to hear suggestions on how to get another 10% after we do all that, too!

I was inspired by the UK 10:10 movement Not finding anything similar in the US, I've also created a Facebook group

Last year was easy for me - I commuted and ran errands by bicycle the whole year. This winter I upped the house insulation and turned the heater down even farther (telling the family about following more European room-temp traditions and how more calories are burned in a cooler environment).

I haven't got anything else, short of building a solar oven or something of that immediate plans.

Yes... buying a bike... this may be the perfect time of year to find one on Craigslist and then be all ready for warmer weather.

We're doing a lot to change how we eat this year. Growing more of our own food and joining a CSA that grows food within 20 miles of home. That's going to cut down a whole lot of food miles.

We've also sworn off any beverage that comes in a plastic bottle. We're always really good about recycling whatever we can, but not buying it in the first place is even better. :-)

One interesting change of perspective on gardening came from trying to do all the shopping by bike:

originally, I'd plan out my garden to grow the things that were most expensive to buy at the store, like tomatoes and peppers and so forth. Potatoes are so cheap I never thought to grow them, though they do really well here, until the first time I tried to lug a 25 lb bag of them home in my backpack...
Now I'm planning next year's garden thinking about weight and bulk - and growing lots of potatoes, onions, cukes and things. And for drinks and things we buy mixes and frozen concentrates; its so much easier to get the water from the tap than to carry it home on your back!

In the coming year there remains the possibility of 'risk pricing' playing a major role in the price of crude. Any significant increase in risk pricing by the market would render most projection models invalid.

On the economic front the U.S. is likely to once again see a reduction in consumption. America's all-time high was in the area of 20.6 Mb/d. Today it is closer to 18.6 Mb/d.

To quote API's 'Facts at a Glance' for December.

"Distillate deliveries for November averaged just 3.69 million barrels per day, the
lowest for that month in ten years. This November's deliveries were down nearly 12 percent
from the November high of 4.18 million barrels per day reached in 2006. "

Given the very serious economic downturn affecting the disposable income of so many Americans, in addition to recent mileage improvement goals, it seems probable that the U.S. will once again see a reduction in its consumption of crude for 2010. A further 5% reduction in U.S. consumption year over year is entirely plausible. I.e. A million barrels per day decrease.

What is even more likely is that the increase in use of crude in China and India combined will more than offset the decrease in U.S. consumption. China is adding on the order of 7 million new cars every year while India is adding another million. Adding in the vehicles of all class will of course increase these numbers.

The rest of the OECD countries will likely continue to add only a small amount of growth to crude consumption. Russian consumption on the other hand will likely continue to rise meaningfully.

Most Gulf countries will continue to see a significant percentage increase in their domestic oil consumption through 2010. Though they will remain as yet minor players in the consumption game.

If the year unfolds with only these factors making themselves felt there will nonetheless still be a meaningful upward pressure on the global price of oil. Especially if production of crude and condensates is unable to climb over 2009 levels. The limited studies that have been done in this area suggest the effect would be in the range of a 25% to 50% increase in the global price of crude over today's prices. I.e. $95 to $114.

The joker in the deck for next year remains the same as it was for 2009. How much will political unrest interfere with oil production and distribution?

Two studies have correlated the following effects from a decline in oil production.
Scenario A) A 4% reduction equals a 177% increase in price. 'Oil Shock' scenario
Scenario B) A 15% reduction in supply would lead to a 550% increase. Brookings Institution

If we are allowed to "pontificate" and get ridiculous..
I say $65 and this is how I get there:
this should be fun... at least to pretend anyways...

The U.S. rising interest rates at the end of Q1 2010, will cause an increase in adjustable interest rates on loans taken out by American "Big Agra" co's and smaller farms. Food prices, in America will climb a small, but significant amount. This will cause justifiable speculation, on the CBOT and thus a spike in global food markets.

As the price of food goes up, there will be a "lag" time between the spike, and the price difference reaching farms that produce them. During this "lag" time, "Potash" producers will begin to drive HARDER bargains as they know farms must start buying again:
"Standoff over fertilizer prices imperils world food supply"

By April, the collapsing global "potash" market:
Russia-India potash deal to force price rethink -BPC and the fact that Potash producers know farms NEED to to start re-buying it, [at much higher prices] will raise the terrible possibility that global food production could decline by 30% by 2011.

Farms either can not afford the potash that is now becoming scarcely available,
or because food prices are so high, it is in their interests to plant -LESS- crops.
[OPEC cutting production, provides economic justification of such actions]

This will exasperate, horrid food insecurity conditions in North East Africa:
ETHIOPIA Food Security Alert December 30, 2009
Kenya Food Security Alert December 24, 2009

These events will lead to more extreme desperation and thus, more piracy off the horn of Africa, causing ever higher insurance shipping rates. Less traffic thru the Suez Canal, less income for Egypt to import Wheat to feed its people. [Egypt is the worlds #1 Wheat importer]

If not also a Muslim brotherhood coup, or some other take over Egypt:
"Many Egyptians seem distressed at the idea of a Gamal Mubarak presidency."

All of this, hurts Asian exporters.

The nation of Yemen will also see massive spikes in violence, and Piracy off its coasts. As a result of declining oil production revenue, and little ability for the gov there to feed its people: violence and desperation should be expected to spread in the south as well as north. These events: a result of food insecurity, tribal hatred, religious extremism and "Geo-political influences".

Saudi Arabia will be FORCED to "intervene"... Again:

This event will cause a price spike in crude oil prices, that hurt Asian exports, and place a further "cramp" in international food aid budgets to Africa. Higher crude prices, = higher gas prices= less money spent on food aid, and more to move food logistically.

This event will cause West African states, to once again "Panic" and stop exporting food to their neighbors, as the costs of -IMPORTING- food will become "too high". They will not export -NO MATTER THE PRICE- as they did in 2008:
"The Food Chain Hoarding Nations Drive Food Costs Ever Higher"

Such an event will have GRAVE implications for south east Asia food security:
"Running on Empty: South Asia's Food and Fuel Crisis"

As well as India:
"India faces hyperinflation in food and essential commodities"

This event will cause -more- political instability in Chad, who is ALSO suffering in the food crisis:
"CHAD: Drop in cereal production and poor pastoral conditions in 2010"

Causing a drop in in Crude oil production there,
further sending prices higher. ...Further hurting Asian exporters.

These events will also have an Effect on food security in Nigeria:
"NIGERIA Food Security Outlook January to June 2010"

... causing crude oil production to decrease as:
"radical Islam in northern Nigeria" spreads:
and Violence by "Mend"
and other armed groups end their cease fire W/ Nigerian gov, as a result of higher food prices, and higher crude prices that they do not benefit from.

HURTING Asian Exports.

As famine, civil unrest, war, drought, and poverty deepen across most of north and central Africa, the raw materials Asian depends on can not be produced at a rate that is necessarily to sustain China's economic grow rates.

Given that higher crude prices hurt exporters, AND the drop in US credit access
importing these materials to Asia, from South America, to sell them to ANYONE
may not be economically viable.

This "slow down" will cause the bursting of China's housing bubble:
"Housing bubble threatens China's boom":

These events will do massive damage to investor confidence, in Asian assets. International investors will rush to security and buy U.S. treasury bonds. As this takes place, more and more Chinese workers cant find work, and begin to openly call for a new government.

This unrest will lead to a collapse of Communism in China. That event, will trigger a collapse of North Korea, as no other nation would be willing to support them. This will lead to million of starving illiterate persons, to "flood" into South Korea, thus wiping out the incomes of 1/3rd of -ALL- South Korean workers.

"OPLAN 5029 - Collapse of North Korea"

If such events take place, I believe, it is reasonable to conclude Crude oil would be trading around $65 in December 2010. Given that it would take at least 10 years for investors to regain confidence in Asia.... -2020- when PEAK OIL is SURE to be doing MASS damage....

By default, I -MUST- believe that if these events prove real, the economic situation in North America would be such, that trillion dollar investments in renewable energy WOULD and COULD be made in short order. Thus, we would avoid a "Mad max" decline of North American civil society, and a "SOFTER" and slower, landing, at the end of the oil age.

Or am I not allowed to dream? LOL!

You are not only allowed, but encouraged to present your scenarios and provide links in support.

I think 2010 will resemble 2009. We are unlikely to go into terminal decline in 2010, I’m sure that’s too soon. There is some spare capacity again because of the recession. Unless Americans start driving again like before the recession, which I doubt, then a minor uptick in the American economy will not change demand from us. The Chinese and Indians are slowly chipping away at spare capacity but it will be several years before they make up the difference causing another spike in oil prices.

However, there is always a small chance the world may be hit by a wild card. A major hurricane hitting a strike in the heart of offshore oil platforms in the gulf…, terrorism along a major pipeline or something like that…, Somali Pirates manage to pull-off sailing away with an oil tanker (ok, maybe that one is far fetched)…, etc.

Barring any surprises, I think 2010 will be like 2009 so I’m guessing prices will be $75 to $100 dollars a barrel, but I’d like to reserve the right to change my mind at anytime.

Regarding oil price, look at this link.

On the chart showing oil price, at bottom is 1M 1Q 1Y 5Y

Run your cursor ove 1Y (1 year) and it will show the last year of oil prices. You'll notice the overal trend is up, but also there are periods of pricing that look like mountain ranges with brief periods between that look like valleys.

This trend, if it continues, seems to show we are headed into a new period of price increases, a mountain range topping out at about 85 dollars per barrel in the near future. Should be interesting to see if that pans out.

Moscow throws down the gauntlet to OPEC

Russia and OPEC, two of the main energy chess board players, how will it play out?

Great news , thanks a lot. You can try windows 7 download

The Chinese must be scared to death of peak oil to be dreaming up this.

Interesting point is that, the Chinese will pull out all stops in not letting their growth be held back by arriving at the party when all the easy oil is nearly gone.


This is funny. I wondered out loud about the prospect of nuclear powered ocean shipping about a year and a half ago to a civil engineering colleague.... This was, of course, before I thought better of saying such things out loud (even to others in the P.O. community).

thanks for the link.

happy new decade