Monday's Open Thread

In this season of annual reviews, and predictions for next year, the floor is yours . . . .
I was listening to some financial talking heads on Bloomberg this morning on the economy next year, and they were both arguing that the price of oil will come down in 2006. Certainly Exxon's chief has been arguing for $40 a barrel soon to come back again. I have read some threads here at THE OIL DRUM that support that view.

My thoughts are fourfold. 1) in the long term oil will increase in price as we hit the peak. I agree with the Danes that it will be out in 2020. With shale oil and other sources and with the Big Oil companies pouring money into drilling rigs this next year, production should see an uptick. BUT, I do not think they can get any real return on their investments for a couple of few years just with everything involved (permits, site issues, set-up, shipping, etc.). So I would conclude that in 2006-08 production should not increase too much but than some new wells, etc. will come on line which will temporarily ease rising demand over that same period.

  1. Global warming, if the world's governments get serious about it, would impact my point #1, by discouraging the use of oil based energy. But there again it would take several years to see any real impact.

  2. There are wildcards out there. If Iran is bombed for three days by Israel or USA or both over the Nuke issue, figure the Persian Gulf will be shut down for sometime. No tankers leaving those waters for weeks would smash up the Far East, and Europe economies to a degree. Iran's new President is not helping this option go away, that is for sure. If a world wide recession results from this or some other economic/terror event, and there are a lot of potential triggers out there, oil prices would plummet.

  3. the other event this past year and going on worldwide is that the world's economies absorbed the higher priced oil much much better in 2005 than in the 1970's. It still hurts the poorest of every nation the most, but petro-dollars in the Middle East mean more fancy car sales, and more buying of the latest military equipment, which keeps economies moving ahead. Places like Nigeria, Canada, and Venezuela all get a big kick in their economies and that means more stuff is bought and sold.

P.S. I do a local radio show in Central California from time to time and have a "Rush is Wrong" segment. This week it is how wrong Rush is about the "expensive" (his words, not mine) Prius! He echoed the President of GMC (boy I am glad I do not own any stock in that turkey) who last year said that hybrids were a fad.
Remember that first the world needs to increase production from new or existing wells just to stay level...due to the decline of some of the existing wells.

Then, if possible, the world needs to increase production even more for the actual increase in demand.


Great point, Has anyone here tried to model, for example, the additional demand necessary to assuage the rapid decline rates in Prudhoe Bay and the North Sea?  I would think that EIA and IEA estimates for US and UK demand growth only include expected demand growth without any regard to depletion. I know this issue has been discussed here quite a bit, so maybe someone has done this already?
Peronally, I don't expect to see oil quite that low.   I am thinking that crude won't dip very far below the $45 mark.  I expect OPEC will most likely defend crude somewhere between $50-$53 barrel.  What is the possible high water mark for crude in 2006?  Difficult to gauge really.  I think we might still have several years to  go before we start seeing ramifications of PO hit the markets.  If we don't see any natural disasters or Geo-political events of major import, then I don't think that we will see crude much higher than $65 a barrel this upcoming year.  If oil remains relatively cheap ( $45-$65 ) then perhaps there won't be enough incentive to conserve and thus no real demand destruction will occur and thus perhaps global demand will remain relatively robust.  If demand remains strong throughout 2006 then perhaps we will see some issues going forward into 2007 or 2008.  I do expect however that OPEC and Non OPEC producers will be trying to produce everything possible  and they might just be able to produce enough to satisfy demand ...  barely ... for a little while longer ....
Again, I don't think estimates of $45 are realistic, the price is set now around 60 because there is no additonaly production or refining capacity.  Predictions of dropping prices can only happen if there is steadily increasing supply, which hasn't happened since May, and Saudi Arabia has all but flat out admitted to not being able to produce more. What if along with US and UK depletion rates of 8-13 percent, Gawar, and other major saudi giants go into rapid depletion?  If that happens, I would think that Goldman Sachs' prediction of well over 100 per barrel is more realistic.  Just the fact that Goldman Sachs', which vehemently denied "Peak Oil" a year ago, is now saying that it is possible, is extremely significant. And this scenario doesn't even take into account disruptions due to geopolitical events like terrorist attacks by either Islamic fundamentalists, or US, UK, and Israeli fundamentalist.
Production will always satisfy demand - today, tomorrow, a hundred years from now, whether we are talking about black gold, yellow gold, or golden grain. Prices may vary.
Umm... this "supply = demand" thing has been botherin me for a while now. I understand that, in the technical use of the words, supply is defined as the ammount of stuff that is sold and demand is the amount of stuff bought, so doesn't this just mean that:

amount of stuff sold = amount of stuff bought?

Is there more to it? Have I got the definitions wrong?

Economists use "quantity supplied" and "quantity demanded" for the values you're equating.  In a free market, those will be equal (by definition).

When an economist uses "supply" or "demand," they're usually talking about the whole curve--the whole range of quantities that would be supplied (or demanded) at the whole range of possible prices.  Normally, those functions a graphed, and the two graph lines cross at a single point--the market clearing price--and give you the quantity supplied and the quantity demanded.

If there's a lack of a free market (such as, if there are price supports or import restrictions), you can get into a situation where you don't clear the market.  For example, if there's a price ceiling making it illegal to sell gasoline for more than $2 a gallon, but the market clearing price would be $2.50, you'll see shortages.  Contrariwise, if the market clearing price of corn was $4 a bushel, but price supports hold the price at $5 a bushel, you'll see surpluses.

All of which is a bit off the point the previous poster was making, which I read the same way you did:  in a free market, the price will move as high as necessary to prevent there from being a "shortage" of some good.  Of course, that's what most people call a shortage--when there's so little of a widely used good that the price moves so high that ordinary people can't afford to use as much as they're used to using.

I think you have to account for the different factors behind the oil price - namely (a) pure market supply and demand, (b) a fear factor that seems to be waning, (c) speculation, and then finally (d) plain old inflation. Of these, inflation seems to be the one not talked about often. Measured against the gold price, which doubled since 2001, the present oil prices look a lot less threatening. Even taking the CPI as measured by pre-Clinton formula at 6% compounded per year (see you can account for a big part of the present oil price increase over the last 5 years.

Talking about $100 oil in 2010 needs to be in the context of which dollars you are measuring with. In particular as a lot of us expect inflation to accelerate.

This is my feeling as well.
Agric and I talk about it some, but mostly engineers post here, so they are not all that interested in economic issues.
Inflation is out of control all over the world right now, kinda of the "hush hush", in these economic "boom times".  All that money must go somewhere and the housing bubble has hid most of it since 2001.  When people start pulling their money out of housing, they must put it somewhere, if it goes into oil.....look out.  A bad hurricane season could put the speculators at the edge of their seat.  The price of oil has much more to do with inflation than anything else, as long as the supply stays somewhat stable.
You'll be happy to know that the housing numbers for November indicated a 12% decline in new home purchases, which, in economic measurements, is completely staggering.  From some economists you can hear the murmer of bubble bust talk.  Perhaps it's now sooner and no longer later.  
Be careful drawing a conclusion from that number too quickly.  The error bars in those numbers are huge.  See this discussion at The Big Picture.  
Also Stuart,there is a recurring concept that is rarely talked about in this whole spectrum of topics.

Oilmen in particular are playing poker with all sorts of variables.And by nature they hold their cards covered to their chests!I have spent my last 33 years living in an oil field in North Texas and have to deal with them because I have oil under my HomeStead!

Have worked on triple deep hole rigs.

The old fields are still producing 75 yrs after discovery

New oil is still found in Texas

Shut in oil/gas is rarely discussed,but it is a fact that Texas is not producing near what it could if real crisis appears

Good point.

But how big is the overall impact?

With steadily decreasing US and TX production and $60 prices, you'd have a lot of convincing to do to get me to believe any really significant production increase is possible.
Well made that point Stuart. 'New house sales' are NOT 'new houses bought' nor are they even 'new houses started'. They are mostly (in these times, anyway) more like: here's a pretty picture and a piece of land, can I have some money in exchange for an option to buy the maybe house in perhaps a year's time.

There is plenty of evidence that the domestic real estate market has peaked for now, properties for sale are at the highest level since 1986. Australia and UK seem to be ahead of the US on the property market cycle. Based on their experience the slow down should be mild and manageable, but one can never be sure...

1 Bombing Iran is not likely to cut non-Iranaian output from the Persian gulf, just like bombing Iraq did not stop production during the two Iraq wars, in spite of their holding the eastern side of Hormuz. Nevertheless, Iranian output would be out for a time, and prices would no doubt spike at the loss of 203mbd. Iranian output would eventually return, both to fund food imports and to prevent their neighbors from enjoying the high prices.
2 It is often said that high oil prices might drive the world into a recession, and that the recession would than cause prices to crash. There were three recessions during the seventies, not least the one that followed the Iranian oil embargo. Oil prices climbed 9x during the period, and never declined yoy. Recessions sometimes stop prices from climbing further, but have not so far actually induced any decline at all.
      2 main predictions[one nightmare]

1 War,with Israel trying to takeing out Irans nuke capacity.
2 Peak oil becomes a mainstream topic.

   The crystal ball gets a bit cloudy at that point.The political consequence of the various scandles,and unhappiness
of the public with the administrations wiretapping will affect how the public reacts to price shocks from war in the
 middle east

  The two wild cards I see are china and russia...who both got a dog in this fight...

all bets off at that point....

March 31 2006 (est)- Working natural gas minimum trough (EIA) - 1050-Bcf
Dec 31 2006 - Year-end Henry Hub Nat'l gas Spot Price (WRTG) - $9
Dec 31 2006 - Year-end USA avg Contract Price (EIA) - $45
2006 - Annual Avg Supply (IEA) - 85.5-mbd
My prediction is this:

Expect the unexpected. I wont bother with oil price forecast -too many variables - if we have upheaval or terrorist attacks in middle east - triple digits almost overnight - if we have worldwide stock mkt sell off - then $30bbl due to demand destruction - so $30-$120 sounds reasonable - anyone 'betting' on a detailed prediction doesnt understand markets or chaos theory - the trend is your friend with market prices.

Another prediction: in North America, Peak Oil will ultimately be secondary in importance to the natural gas cliff. I have no idea how in 5 years time we will get close to the amount of gas we are pumping now. Numbers of rigs and wells have doubled in last 5 years source yet our production is down source.  Canadas new wells have tripled in last 5 years and their reserves are down 12%. source. How can we change the heating structure of everyone in the northern states (5.1 quads out of national total of 7.1 from heating are from NG)quickly? TOD showed a graph earlier that our new wells have decline rates of 30-40% annually! TOD link here

NatGas is different than oil - we cant just invade a country with excess firepower and ascertain a steady flow of energy to our shores. LNG ports need time, political and public approval, and even then are fraught with difficulty. My prediction is that nat gas in north america will our gordian knot here. Who, among 6.6 billion is Alexander?

WOW - nat gas down 86 cents in night session to $11.45 (Jan contract) from high of $15.75 last week. Dont know what the news is but Im pretty sure this is the biggest one week drop ever.

(Some traders must have read my prediction...;)

Interestingly, last weeks price drop was only in the near contracts - mid 2008 and beyond made new highs.

Thanks for the detailed info & links.I agree, heating& heating bills  via natural gas is our most most immediate energy crisis.
As I see it, there are three possible ways to handle the heating issue:

  1. Cut what we need.  Retrofitting insulation is expensive, but doable.  Raising standards in building codes is easier (and should have been done a decade ago, but our pols are idiots).  Passive-solar buildings can do with very little, and sometimes without.

  2. Make more efficient use of what we use.  Feeding gas to an engine-driven heat pump gets more BTU's from a therm of gas than just burning it in a furnace.

  3. Switch to other things.  To the user, electricity and natural gas have similar convenience.  If you expand the options to fuel delivered by truck, you can include liquid fuels (petroleum or possibly bio-oil), pellets (wood pellets or shelled corn) or cord wood.  Some of these fuels are amenable to cogeneration, so fuel burned for heat could also charge traction batteries to run vehicles.

One possibility is to go back to heating with coal.  Not the old, dirty stoves, but with syngas taken from the gasifier trains of IGCC plants.  This could be piped to the point of use (commercial or industrial customers, probably too dangerous for domestic use) and used either in furnaces or in small gas-turbine cogenerators.
Hi Fred.

The last two lines do not match with each other. You can have an insight on World Oil Demand here.

IEA predicts an overall demand growth of 1.5 MDB for 2006. At least in 2006 1Q and 4Q Demand will be over your projected production. How can that lower prices?

Moreover, from this we can easily expect demand to go beyond 88 MDB in 2007 1Q. How can such demand be matched with production?

P.S.: Freddy although you might get the feeling of being bashed all the time, I mean no hostility against you, I just divert from your opinion.

The same IEA report that u quote states that Angola and FSU will provide the increase in Production.  Also remember that 1.7-mbd went into stock building in Q2 & Q3.  This was done for strategic reasoning and unwarranted demand.  Fortunate, but that cannot continue.  Look for 2007 demand to be matched almost entirely by Iraq.
Run-away Global Warming is going to take center stage over Peak Oil in 2006.

Welcome to the Meltdown Millenium !!!

Story at:

Step Back,

Note that when you check this story out that it is saying this will all happen by 2100 - just a few years off geologically but long last all of us NOW.

The melting of the permafrost in Alaska has been news in places like the NYTimes for almost a decade now, certainly the past five years. I think you have too much faith in human nature responding to this and not what guides many who run our nation - economic reality. As it was once said, "America's business is business" and that means many decisions, often wrong in the long run, will be made strictly on economics. Thus I would argue $40 -$45 - $60 or even $100 a barrel will be what people will be worried about and not Alaska melting, at least not quite yet.

Anyway, you still have the conservative right, which has much of the power in this nation, arguing that "yes it is warming but has nothing to do with 7 billion people doing what people do." It will take more to prove this point to them and it may mean we will have to wait for them to lose power or die off.

Probably two things that hurt us the most is 1) fear of a new Ice Age predicted in the 1970's and 2) The same fear expressed back then that we were about to run out of copper, zinc, other minerals in 10- 20 years time. The fact that we were WRONG on these two items hurts our credibility today. I get that thrown in my face all the time and have to agree we screwed up on those predictions.

With the minerals we were just off by a few decades though ocean mining is coming in the future.

Saw that hopeful sign about maybe it won't happen until next century.
Then again, many a traditionally cold places on Christmas 2005 were enjoying summer weather:
Extreme Warmth in Alberta
Sunday, December 25, 2005

Extremely warm weather was reported in Alberta, Canada, on December 25th. Both Drumheller and Bow Island, Alberta reported temperatures of 61 degrees this afternoon.

The normal high today is 29 degrees for Calgary, Alberta, according to our Pro site.


It's Christmas,
Got Snow?

A friend called from Tahoe here in California. Normally they ski the week away. But heard it just rained and rained. My, what a 1 degree change of temeperature can mean (0 deg C versus 1 deg C). Rain in December translates into drought in August because the Sierra Mountains don't pack the moisture away as snow.

There is clearly enough data from the past decade to indicate that a warming event is occurring and I would certainly argue it is due in large part to human activity.

I think Alaska (and most every place else, though we do not fully understand some of the corrections Mother Nature may make for us) will get that much hotter much sooner.

But knowing something and seeing govts. doing adequate stuff about it are two different things.

Here in California we can not get homes to be oriented for passive solar and building more and more suburbs out there and with longer and longer distances to drive is still happening and we are supposed to be leaders at this. What about Alabama or some other red states (like Texas)?

As an aside about Tahoe, if snow melt is poor and stays that way for several more years on average, how will and what will California do if people continue to flow into the state at 6 million every decade? Desal plants? Shut down more and more agriculture (which will probably happen anyway with the population pressure?)

The warming of Alaska and the other Arctic regions should be a concern to the entire world, not just to those unfortunate few whose houses are tipped and whose roads are broken by melting soil.  

Right now, about 500 trillion grams of methane is released into the air every year.  This release results in an increase in the greenhouse effect comparable to the one from carbon dioxide.  It is estimated that over 30,000,000 trillion grams of methane are locked up as frozen hydrates in the Arctic.  If  just 0.01% of that hydrate is thawed yearly, methane release would be 3,500 Tg/year, seven times what it is now.  Methane would then probably be more signficant than carbon dioxide for climate change.


You raise a concern voiced before that is very valid. I understand that the methane hydrates in Siberia are even more extensive and that Japan is starting to try off shore mining of it.

It has been well argued that it may be part of the reason for heat spikes in the distant past that humans can not possibly have any claim to.

The tar sands in Canada and Venezuela are often mentioned as the next source of oil after the regular oil peaks. I know companies are working on the tar sands in Canada. What about Venezuela, has anyone read about the tar sands in Venezuela being developed?
The housing bubble is bursting. Energy prices rose significantly last year. These are both precursors of recession. That's my prediction and I think it will arrive in the springtime. This may lower demand which may lower prices a bit. Otherwise, if I am wrong--and, of course, I am never wrong ;)-- I see prices for oil staying at or above the current price. The reason for that is simple--nothing else except an economic downturn will lower demand and I can't see where any significant excess supply capacity will come from. I think we've documented that here at TOD all this year.
As discussed with Stuart earlier, Real GDP looks great for 2006Q2 due to infrastructure rebuilding and content purchases in the Gulf. Watch for 4.5% to blow out your Recession call!
Ever the optimist, aren't you Freddy? You believe the IEA numbers? As you've acknowledged, they have been wrong in the past and they clearly they have a mandated agenda to support the mainstream political policies of the IECD countries.

Infrastructure rebuilding? What are you referring to? Looks to me like we're stuck with what we have now in the near term (no new LNG, refineries). If we get back to where we were, prices were still high before the hurricanes and have been rising 20%/year since 1999. "Content purchases" from the Gulf? -- I assume you mean the Persian Gulf? The Gulf of Mexico?

Wise up a bit. Don't believe what you read. Be skeptical. Follow the data like Stuart and the rest of us do. Peak oil is a theory that will be borne out by the data going forward, not some toady agency's self-serving prophecies.

But why do you (and some other TOD contributors) have such a need to cling to optimistic scenarios when there is ample evidence that the situation is at best ambiguous, if not downright threatening? This is the question you (and some others) need to ask yourselves.

Is there no room for any opinion other than yours?

The recent exchanges between Stuart and Freddy have been among the most educational that I have read on this (or any other) site. A theory can not be kept alive without exposure to opposing points.

While I tend to agree with Stuart a bit more than Freddy, their fact and analysis-based discussion moves us all closer to the truth.

Commentors on this site has a huge tolerance for people eager for the immediate end of the capitalist/industrial society as we know it, but little for JD or Freddy who dare to challenge the gospel.

The peak oil movement needs more challenging analysis and less conspiracy theories. This is the only way to dispel the (currently fairly accurate) assertion that peak oil is in part a doomday cult.

Re: "Is there no room for any opinion other than yours?"

How did you read that into my remarks? I said
Be skeptical. Follow the data like Stuart and the rest of us do. Peak oil is a theory that will be borne out by the data going forward, not some toady agency's self-serving prophecies.
The IEA is not independent--I think you know that. I would call O&GJ an independent source. A call to "be skeptical" is a call to openmindedness, not a closed opinion. I said "will be borne out by the data". That's a call to wait & see what the 2006 numbers bring, again not a closed opinion.

I said the situation is at best ambiguous, if not downright threatening. This means that multiple outcomes are possible. Again, I did not say the case is closed. But I was also trying to make a more important point. When Yergin, IEA, ExxonMobil & the rest cling to their rosy scenarios, they are telling the people what they want to hear. Usually, they back these remarks up with talk about huge reserves numbers--trillions of bbls out there waiting for the taking. These numbers sound impressive but don't increase incremental yields from declining megafields or put new small fields into production because the economics don't justify their development. What's going to happen to Russian production this year? Mexico has tipped--how bad is that? Is the Burgan Complex going to see large decline rates? Will West Africa meet projected numbers?

My personal view of TOD is that this is a place where questioning mainstream authority is the right thing to do. Stuart's post using the IEA numbers still showed a flattening out of production in 2005. Meanwhile, US demand last month was the highest ever. Here's what Stuart actually said earlier
The EIA graph shows 1mbpd or some more spare capacity in 2006 than 2005. However, 1mbpd is significantly less than our uncertainty in the decline rate of fields in production, and I don't believe the EIA knows it much better than we do, since it shows little sign of serious study of the issue. So I don't buy that we can have any confidence in this number (I'm not saying it definitely won't be so, just that there's no way to really tell next year's spare capacity with anything like that precision).
There's nothing controversial in this. We've been discussing this all year. If the IEA can just come along and say "everything's fine", what are we supposed to do, just believe them?
Dave, if u remember the original GDP discusion that i had with Stuart debating Miles musings, i linked to a CBO post Hurricane report that forecasts that employment will be back to Pre levels by 2006Q2 and that there are six quarters of enhanced growth coming in the rebuild era.  My comments above wrt infrastructure and contents relate to the ground in Louisiana et al and household contents.  The discussion relates to Real GDP ... not oil.

And, i "cling to optimistic scenarios" 'cuz they have been the "most" right since 1991 in global short/medium and long term prediction.  It is easy to cherry pick their data and say they got this or that country wrong but in what matters most, the global supply, they are always right within their perameters and caveats.  There was no levelling in non-opec supply capability in 2005 that some are gloating about.  It was a stat based on the GOM impact.  Take that out and all was fine.  And we saw how quick gasoline exports were diverted to the usa (with IEA guidance).

As i challenged last week, when y'all have someone that u want me to add to my Scenarios that is representative of the EOTWAWKI cause, i will add their data to the graph and we'll watch how they do over the next ten years...

In my mind Colin and Rembrandt fulfill your quest.  We know Colin's record.  It's graphed at my site.  And Rembrandt Koppelaar is not predicting the dire picture that is painted by some here.  

You're contradicting yourself. How can an 85.5 MBD be compatible with 4.5% GDP growth?
The growth rate of global oil extraction is not a 1:1 correlation with
 Real GDP growth in the usa.  Just compare the last ten years: Global
extraction went down in 1999 & 2002 while USA Real GDP went up.  In fact,
 there is no correlation with global GDP either.
Wow, Freddy. You won't like this sneak preview of my 2006 forecast...

Can the US economy continue to grow at around 4%? No. OK, how about 3%? Possibly, but the odds are against it. For US growth to stay at or above 3% almost everything has to go right. US consumers must continue to spend money they don't have and further increase borrowing beyond current record levels despite interest rate increases. There must be no significant drop in US property prices. Foreigners must continue to increase investment in US treasuries. There must be no major financial market problems like hedge fund or derivatives domino style collapse. US stock prices need to remain near present levels. I find it difficult to believe that all of these will come true.

I expect US GDP (as currently measured) to drop to 2% growth for the first half of 2006 and be flat in the second half of 2006.

Barron's online Interview with Kurt Wulff, Founder, McDep Associates.  Price predictions.

From that Barrons article:
"Now he makes the case that natural gas isn't expensive at current levels, and that it one day could be worth more than oil."

Now THAT is bullish on nat gas.

Isn't it already worth more than oil on a net energy basis?
I just got through reading a Journel article linked from J. H. Kuntsler's blog.

The first part talks about xurbia, and the second part talks about the Solar energy farms proposed by SES.  

 It brings to light the issue of energy is not money.  I have to have energy to make more energy available, but I don't need money to make more money available.  Which seems to be the factor that most people get confused about when they compare energy with economics.

The listed link is a very interesting read.

I read the Livejournal article and I agree we seem to forget lifecycle analysis when discussing the embodied energy needs of machinery including planes, trains and automobiles. A family of Cubans driving a vintage gas guzzler will have less per-passenger kilometre energy impact than a single driver who wears out a hybrid every few years. Imagine this...there is no oil, coal is prohibitively taxed and terrorism fears have shut down nukes. Where will we get the energy to manufacture high input items such as metals and ceramics? Wind, solar and firewood won't be enough.        
A family of Cubans driving a vintage gas guzzler will have less per-passenger kilometre energy impact than a single driver who wears out a hybrid every few years...

.... or a movie star who buys a Prius as their tenth car.

Steel is going from the U. S. to China, scrap that is . Also manufacturing equipment, too. Between this energy intensity problem and population/food issues I think we way underestimate the peak oil problem, and I worry the markets will figure out the depth of this quicker than most of us allow our minds to "go there". I would guess the markets " follow the money" for example would recognise that China must know something- at least how valuable steel is to expand manufacturing for ex. These darker issues are diffult emotionally and steps away, so  harder to imagine and think thru.
I can corroborate that claim that statement about scrap metal going to China. A friend of mine is a sculptor who uses scrap iron as his stock and he's been having a very difficult time finding enough lately.
A family of Cubans driving a vintage gas guzzler will have less per-passenger kilometre energy impact than a single driver who wears out a hybrid every few years.
Sorry, but I've got to call bullshit on that one.
Whoops, missed what you said about per-passenger.

Even so, it's darn close.  If the Cuban family has one child and drives a 13-MPG guzzler, the Prius driver is still going to beat them.  Two people in an Insight will probably whoop everything except fraternity-contest packing of an old Chevy.

Maybe per mile, but I expect the Cuban will be driving his old car only a few times a month, and will be taking friends and neighbors on every trip.
Someone with a Prius+ and a short commute may burn less petroleum than the Cuban, even per-passenger.
it may be a calm before the storm, but all i know is gasoline is selling for about $2.14 on average around my place in Houston, it would seem people have adjusted to the prices. I think public consumption will continue to rise. the price is not affecting much on peoples spending habits, at least not from what i see. People have seen prices go up, and go down. thats the norm in life right? it always has before. my co-workers have big pickup trucks, i don't hear them complaining about fuel, maybe a little at $3.19 a gallon. which comes to 0.199375 a cup.
And the public is blaming the big mean oil companies for fixing prices anyway. So I don't think the public really cares anyway, they are only thinking 20 minutes ahead! Ok, maybe an hour.
2006 is an election year, some of which have already happened; Evo's victory in Bolivia is already producing Gringo headaches. Prior to the 2002 and 2004 elections, Rove perscribed war and escalating war as electoral levers and tens of thousands have died; how many will die from Rove's tactics this year?

My wildcard item is the revealing of Iran's secret defense pact with both Russia and China putting the former under the latters' nuclear umberella. This deters the rabid Likudniks attack and preserves the peace while starting a rush to monetize O&G in Euros that will ultimately precipitate US financial crisis in 2007-08.

For a positive outcome to emerge from 2006, a great rising of participatory democracy is needed in the USA for its direction--and by extension that of the world--to be reversed. Like yoda, one can sense that the future will be dark, but just how thick the darkness and its details remains too cloudy to see.

For completeness, the futures markets have December 06 crude at 61 dollars/bbl. That means the consensus among bettors is that there is a 50% chance it will be above this and a 50% chance it will be below this. See how many of your other prognosticators will take a bet at even odds on either side of their predictions.

I don't have option pricing handy tonight, the markets have been closed for the long weekend. So I can't give a confidence interval for this. I'll try to post tomorrow some kind of 25%/75% range based on option prices.

I looked at the option prices, and based on those values the markets see about a 25% chance that the crude oil price in December 2006 will be above 71, and about a 25% chance that the price will be below 49. So there is a 50% chance it will be in the range 49-71, 25% chance of being above that range and 25% of being below that range. Not too terribly surprising IMO.

Of course no "expert" is going to get paid to just read off the futures prices, is he! Any fool could do that. And yet fools do even better than experts in making predictions, in part precisely because "experts" are forced to diverge from the consensus opinion in order to be interesting and to justify getting paid for their work. My recent reference to this topic:

Thanks for the information on futures markets, Halfin ... quite helpful and interesting as always.  I look forward to your posts.

Tetlock's book you refer to looks very interesting and I think I will go read it.  But I don't think you should overstate the conclusion;  it looks like he asked questions of "political and economic" analysis, though the review doesn't mention any economic ones specifically (I assume they're things like "will GDP growth next quarter be negative, below 2%, or above 2%?").

But there are obviously places where expert analysis wins out.  If you ask "will Nigeria have more people than Pakistan in 2025?", I am positive that experts will easily surpass either laymen or chance.  Not to mention silly things like "will there be a total solar eclipse in 2008"?  There's a big range of how easy it is to predict things in different fields, and I don't think we should try to group them together.

Personally I think specific political forecasting is very hard and I'm not surprised that personal biases and well-known human frailties show up in predictions.  This doesn't mean experts are useless for political prognostication either; I imagine experts are still better at doing things like fleshing out realms of contingent probability (what would the world look like if X happened vs. if Y happened).  And there are probably political (and economic!) predictions that are easier and harder to make accurately, though I'll have to think about that. But I'll have to read the book to find out.

As far as I can tell this book also doesn't try to make the case that markets as a whole are better at predicting things in their regime than (any, or all) individual experts.  I certainly know there are other books making that claim, though, along with plenty of counter claims.

In the end it's probably best to look at the specific realm of predictions rather than trying to lump them all together.   There are strong reasons to believe your (and e.g. James Hamilton's) point of view that futures markets, bad as they are at prediction, are better predictors than any one person.  The profit motive is powerful.

But there are entrance barriers to all markets, particularly futures markets, and so the market players do not include the broadest spectrum they might.  And I'm far from convinced that the "smart money" is always available in enough quantity to crowd out herd behavior.

It isn't just demographics. That simply looks at the percentage of child bearing age people coming up, the 15 to 35 year olds now and for the next 20 years, most now born, but also by the effects of AIDs on the population structure of Nigeria.
A cure for AIDs could double the birth rate in Nigeria twenty years from now.

Excuse my ignorance but where did you get that option/commodity quote?

Jack Greene

I think 2006 is going to be a year of demand destruction for several reasons:

  1.  The new minimum on American credit card payments will begin next month.   This doubles the amount the average American is going to be paying each month to pay off their debt.   Due to this, American consumer spending will drop quite a bit.  This will have an affect on China, primarily, and India, second.   This is not a bad thing, if you live in America.

  2.  Energy conservation has become "cool".   Hybrid cars are the envy of the "Gold Collar" crowd.   Hummers and Esaclates are looked at as jokes now.  Homeowners and landlords are looking to make things more energy frugle.

  3.  The housing market has slowed and housing prices are flat or declining.   This makes Americans who thought they were "house rich" think twice about buying the new "made somewhere in Asia by cheap labour" Plasma big TV for $4000.

These three factors add up to demand destruction.   My prediction is that crude will only touch $70 again (if at all) during the 2006 hurricane season.   It will hover around $50 for most of the year.   Dropping into the high $40s in spring.  Natural Gas has peaked this year - speculators are dumping and getting into something new.   Winter is 1/3 over and the end of the tunnel is in sight.  Look for $15 again in peak of hurricane season 2006...  But $10 most of the year otherwise.

Best investments are Solar and Wind power (GE and other specialty companies like ESLR).   GM and Ford are "dead men walking" (especially GM - Mr. Ford does talk a good game about future investments in hybrids).    Major Oil Companies will be flat investments.  

This demand destruction will last about 4-5 years.   When Americans are out of debt again and housing prices begin to rise, look for demand to increase again - towards the end of the decade.  

Dump Chinese and Indian stocks - without Americans buying cheap plastic toys and Big Electronics, the factories over there will be hurting.  

The rest of the decade will be a "hunker down" period.   Americans needed to do this in 2000, when the stock market melted down - but housing prices kept the bubble going.   Work hard and save money is the new way...

Best Regards!

"Don't Educate them, Entertain them!"

The new minimum on American credit card payments will begin next month. This doubles the amount the average American is going to be paying each month to pay off their debt. Due to this, American consumer spending will drop quite a bit. This will have an affect on China, primarily, and India, second.

I agree that there will be an effect, but disagree that it will necessarily fall on imports from China and India. Domestic services may take the bigger hit: less eating out, less domestic travel, defer having the house painted, etc. But Junior will still get new shoes and the broken DVD player will get replaced. Spending on luxeries — however that's defined for a particular household — goes first in tough times, not spending on necessities.

Oil Market Outlook 2006: Future Imperfect, by Adam Porter:
Like a lot of markets, the oil indexes are strange beasts indeed. Theories come and go. Waves of fashion wash across the shores of analysts, journalists and institutions alike. Quite amazingly most of them are wrong. If there is one tip about predicting the oil markets it is this: don't.
Adam at his best! Two pearls:

The International Energy Agency (IEA) however has slightly less excuse. Energy is their raison d'etre, not political power. Or at least that is what they say. They predicted that in 2005 non-OPEC output growth would be 1.38 mbpd. That figure has now been revised. It now stands at 0.1 mbpd. That in itself may yet be revised, downwards.

It would be nice to think that all this predictive energy could be put to more constructive use in 2006. Maybe by finding out the actual reality of today. Maybe by measuring exports more accurately than a man on a quay looking at a tanker to see how low it is in the water. Yes, that is how it is done, if at all.

This is a nice article for the people predicting the end of the world in 2006, it might just not happend.

And there's more
Reassuringly the IEA have revised upwards their non-OPEC output growth figure for 2006. Next year they assure us it will now be 1.39 mbpd, not 1.32 mbpd that they had already called. Mind you they do not have to go far to beat this year's prediction.

American `demand destruction' was also in vogue just a few weeks ago. Yes, the IEA told us it was happening. Yet a few weeks later American demand for gasoline rose by 600,000 barrels in one week, to stand at 22.156 mbpd. That is not just a lot. That is a record high, ever.
after Adam Porter pointed out that IEA's 2005 non-OPEC number was off 92.75% in the wrong direction. And yet, here I am writing comments in this thread defending my position that the IEA is not trustworthy. What's often missing is the very thing Porter brings up: So how did IEA, Yergin, et. al. do in the past? What's their track record?
In 1991, IEA, Mike Lynch & EIA predicted 2004 would be 78-mbd. It was 83. Colin
Campbell forecast 52-mbd.  What did Porter project?  The track records are
 quite evident...
I think the wild card is the world geopolitical situation.  We've got predictions of rising and falling prices for crude and refined products.  Theories that demand destruction will hurt the US more than China and visa versa.  I tend to think there will be some inertia that will mask the observable effects of energy depletion and GW on the economy in the near term, and that only severe economic problems will cause most people to make major changes in their lifestyles.  But there will be increasing stress on the relationships between nations competing for resources, and changing alliances as they jockey for best position.  It will be far too easy for a big mistake to be made, and this has the greatest potential for rapid ill effects.  There are so many opportunities for disaster - good thing we can all sleep well knowing we have such a cautious and rational administration guiding us with a sure and steady hand.  OK, that was almost too much sarcasm, even for me!

Medium term, I think we'll see increasing climate related damage.  I don't think the GOM will completely recover - at least not until oil is a whole lot higher.  It only has to get smacked hard every 2-3yrs to make it look like an increasingly lousy investment.  And long term, a violent and unstable climate will only increase our energy requirements.

And through it all, I expect there will be no major proactive steps taken by our government to mitigate either the energy or environmental impacts.   Further, most individuals will lack the means (either financially or otherwise) to do much on their own to prepare.  We'll be left with whatever the market can instigate, and I don't believe that will be adequate.

Beginning Monday, December 12, 2005, MMS will issue Hurricane Katrina/Hurricane Rita Evacuation and Production Shut-in Statistics twice a week. The report will be posted on the website at 2:00 p.m. EST on Mondays and Thursdays. In the last few days there has been minimal improvement in the production numbers and this appears to be a trend that will continue with incremental movement over the next several months.
note the info is current as of 5 days ago.
meanwhile hurricane season starts in about 5 months. Just in time to start dodging them again. Geopolitocal unrest will certainly be the other wildcard.
Many people don't seem to realize the amount of production still affected.
Interesting article:

Stocks spooked by recession worries
Yield curve inverts for first time in 5 years; nat. gas slides


Hi all,

This is my first post. I've been reading this site for a while, but didn't bother to create an account because I didn't have much to add.

Not anymore.

This is the thorn in my side that got me to join:

Interesting how people don't like direct deposit because:

  1. they like to go to a financial institution to deposit their checks
  2. they don't trust direct deposit
  3. they like receiving a paper check

What's wrong with this picture?
#1 probably requires you to drive to a bank
#3 if you get a check in the mail, a mail truck has to deliver it to you

What does everyone think? Should direct deposit be mandatory? Or will this not help us conserve in a significant way?

People still drive to a bank to use the ATM, and they will still probably get a deposit confirmation in the mail.  DD saves people one trip per pay period.
i work with a guy that prefers to drive to work, pick up his check and then drive to the bank to deposit it. I asked why not direct deposit? his reply? "I like the satisfaction of holding this check in my hands before i deposit it" So i conclude it must be a psychological pleasure in the brain thing. other than that, i have no answers. different strokes for different folks.
A comment was made in one of the earlier posts in this thread to the effect that military action against Iran would not necessarily disrupt oil shipments out of the Gulf.

The support the poster gave for this claim is that during Gulf War I Iraq was not able to prevent shipments out of the Gulf. Well, the only reason they could not was that i) Iraq is situated at the opposite end of the Persian Gulf from  the Straits of Hormuz and ii) had no military capability to materially interfere with such shipments, i.e., no navy to speak of and essentially zero control of the air space. However, Iran is a whole other story.

Super tankers going through the narrow (roughly 40 miles wide) Straits of Hormuz do have to pass by the Iranian coast, whose rugged topography is perfect for hiding mobile anti-ship cruise missiles. While the US would have control over the air space, it still would not be able to seek out and destroy all of the cruise missile locations.

 Iran also has a number of modern diesel subs. Such subs are taken VERY seriously by the US Navy, and I am told that in war games involving subs against a carrier battle group, the subs usually come out on top. That is why our Navy is highly vulnerable in the relatively confined waters of the Gulf and would likely pull out of the Gulf altogether as part of the plan to attack Iran.

Thus, Iran IS quite capable of interferring with tanker traffic leaving the Gulf. A super tanker makes a pretty easy target, and for its size is not particularly robustly built.  Just one single sunk or badly damaged tanker would instantly throw the world oil markets into total panic.

Iran would also very likely halt all its oil shipments, thus immediately removing roughly 4 million barrels per day from the world oil market. Sure, it would stand to loose billions in revenues, but war is wa,r and countries have gone to far more extreme self-damaging measures to hurt the enemy (the US embargo of oil to Japan prior to Pearl Harbor being one notable example).

No, military action against Iran would have a catastrophic effect on the world oil situation, not to mention also possibly triggering a global war should Russia and/or China stick their nose into the situation.

Does anyone remember the sinking of the SuperTanker Bridgeton(by the Iranians) in the fall of 1987?World oil prices jumped $10 in one day.
I mostly agree, except that Iran might not need to stop all exports - they may still happily export to China.  And what if the Chinese decide they'd like to take delivery - as I've said before, what will we do if we're in the middle of a blockade or military action and the Chinese tankers show up?  I'm still reading scary things about and Israeli attack in spring.  This is not motivated by any oil/energy concerns, merely the desire to disable a regional rival with a preemptive strike.  It could be propaganda, or it could be real.  
When those Iranian product pipelines were blown up by terrorist or freedom fighters a few weeks ago, they shut in some oil fields for maintenance almost immediately. If we stopped Chinese oil tankers from going to the Gulf, Iran would be doing some long deferred maintenance on all their oil field pipelines until the Chinese oil tankers appeared again.
I'm more concerned about the Chinese reaction if we stopped their tankers.