DrumBeat: October 21, 2006

[Update by Leanan on 10/21/06 at 9:50 AM EDT]

Oil falls to new 2006 lows on doubts about OPEC cut

NEW YORK (Reuters) - Oil on Friday fell more than 2 percent to a 2006 low below $57 a barrel on speculation that OPEC members would not follow through on plans to make deep production cuts to stem a three-month price slide.

U.S. crude for November delivery settled $1.68 lower at $56.82 a barrel, the lowest this year after trading as low as $56.55 in intraday activity. U.S. oil prices have dropped from July records of $78.40 a barrel on healthy inventories.

London Brent crude fell $1.19 to $59.68 a barrel.

[Update by Leanan on 10/21/06 at 10:32 AM EDT]

Iraq oil production data high

Iraq`s oil minister stunned experts this week when he said production had reached 2.86 million barrels per day -- higher than pre-war levels and above what was known as Iraq`s capacity of about 2.5 million barrels per day.

Peak Oil Passnotes: Oil Market Fractures

The basic gist of the market right now is bearish, but it does not make sense. That does not matter, the sentiment is there. We have a worsening geo-political situation that we have gone over before in some detail, non-OPEC supply is wobbly at best, OPEC are threatening to cut supplies – and already have in fact - whilst demand from the United States for the first 12 days of October is up 4.8% year on year. The fall does not make sense.

US warns of potential threat to Saudi oil facilities

WASHINGTON: The US government warned Thursday that it had received information of a potential threat against oil facilities in Saudi Arabia's Eastern Province.

"The US Government has received new information of a potential threat to oil facilities in the Eastern Province, including those operated by Saudi Aramco," according to a "warden message" issued to alert US citizens.

Separation Of Oil And State

As gas prices continue to decline, it’s only natural to wonder about the apparent coincidence between this trend and Republican interests in the election. Indeed, a recent poll found that 42 percent of Americans believe that gas prices have been “deliberately manipulated” in advance of the election. Countless articles have been written on blogs and in the mainstream press speculating on the possibility of a gas price conspiracy, either supporting the supposition or shooting it down.

Putin warned over energy access

LAHTI, Finland - European leaders agreed on Friday to deliver a blunt message to President Vladimir Putin that Russia must give European firms more chance to exploit its huge energy resources or risk an investor exodus.

China Finds 2nd Biggest Gas Field

China National Petroleum Corp has discovered the country's second largest natural gas reserve of 150 billion cubic meters, China News Services said yesterday.

The discovery, made by its Tarim Petroleum unit, is in the Tarim Basin in the country's northwest Xinjiang Uygur Autonomous Region, the report said, citing a Hong Kong-based newspaper.

Shell: Country still rich in oil

John Hofmeister, president of Shell Oil Co. in Houston, is on a two-year, 50-city tour promoting the benefits of offshore drilling and other forms of oil exploration that now are banned in this country.

The Post Carbon Church

Global warming study predicts wild ride

The world — especially the Western United States, the Mediterranean region and Brazil — will likely suffer more extended droughts, heavy rainfalls and longer heat waves over the next century because of global warming, a new study forecasts.

But the prediction of a future of nasty extreme weather also includes fewer freezes and a longer growing season.

Climate water threat to millions

Climate change threatens supplies of water for millions of people in poorer countries, warns a new report from the Christian development agency Tearfund.

Recent research suggests that by 2050, five times as much land is likely to be under "extreme" drought as now.

Clean fusion energy: HiPER is on the roadmap

New Era of bioenergy has begun

"The one common denominator among renewable fuel technologies is biomass," Robert Lane, Chairman and CEO of Deere and Company said

"In reality, the cellulose in biomass has the potential to create a great deal more energy than corn," U.S. Secretary of Agriculture Mike Johanns said.

"Wind is where people ain't," Pat Wood said.

From foe to fuel? Mesquite trees tested. Texas researchers, and farmers, eye them for cellulosic ethanol.

Alternative-energy elevators shoot for the stars

Power outages lasting longer

If it seems as though power outages in Seattle are keeping you in the dark twice as long as they used to, you're right.

The amount of time the average Seattle City Light customer goes without electricity has about doubled in recent years, and is nearly twice that of Tacoma, according to Seattle's public utility.

‘Zero-energy’ house is one family’s dream home come true

The home’s architect is calling it “the greenest house in the Midwest, possibly in the country.”
Is there any non-OPEC producer who would can afford to reduce output just to raise prices?
Norway could, but they are past peak and have to reduce output if they will or nil. And Russia, they have almost payed off all their old debts, and it would make sense for them to shephard their remaining reserves. Not sure if they are past their second peak.
Kuwait can. They have lots of oil and a small population.
Kuwait isn't an OPEC member? Gee, I guess you learn something new everyday.
The question is, if a country reduces output X%, will worldwide prices rise by more than X%? If so, then reducing output is a good deal - the country makes more money. If not, then reducing output could be a losing proposition, in the short run at least.

Let F be the fraction of worldwide oil output that the country produces. Let D be the price elasticity of demand for oil. And let the country reduce its output by the fraction X.

Then worldwide output reduces by FX. And this output reduction will cause worldwide oil price to rise by FX/D. For this to be profitable, the rise in price must be greater than the drop in output: FX/D > X. Therefore F/D > 1 and F > D is the condition that must be met. That is, the country's fraction of worldwide oil output must be greater than the price elasticity of demand.

D is hard to estimate, it varies depending on the time scale and absolute price of oil. In the short term elasticity is small but over the longer term people can adjust and find substitutes.  Likewise, at low prices nobody cares, they don't cut demand if prices rise, but at some threshold it really hurts and we see a noticeable demand effect. In some periods D has been very small, maybe 0.01 or even less. Other estimates have it as high as 0.1 or 0.2.

Many countries produce more than 1% of worldwide output, but if D is as high as 0.1 then there are only three such countries: Saudi Arabia, Russia, and the U.S. At D=0.2 there are no countries in the world producing 20% of oil.

Therefore, unilaterally cutting oil production could be a profitable strategy for a country if we are in a regime where demand response is inelastic. Even a small cut by a small country could produce a significant price rise which would bring in as much money as before. However if we get into a situation where demand is more elastic and production cuts don't lead to price rises, the strategy will not be profitable for most countries.

You forgot that you will get to sell that X, later in time, for a different price. Even better, by sucking slowlier from the oil field, if I have understood correctly, means that you recover more.
For RR, Westexas and others:

As some of the articles above note, futures prices continue to be weak (at least for near-term dated contracts).  What is the supply/demand situation in the physical market?  Is there a excess of supply?

Is it because Iraq is producing more than expected?  Other countries?  Or has there been a reduction in demand?

As some of the articles above note, futures prices continue to be weak (at least for near-term dated contracts).  What is the supply/demand situation in the physical market?  Is there a excess of supply?

There is an excess of supply (crude and gasoline) at the moment. Refining margins are sliding, and upstream producers are getting less for their product as inventories remain very high. Production is starting to ease off in response (also in refining), but prices are still historically high.

I think we are getting closer to getting supply and demand back in balance. Refinery utilization has been down the past few weeks, and there was a very big draw in gasoline inventories last week. If that trend continues for a couple more weeks, prices will start to come back up. I believe they may have overcorrected at the moment.

There was a small ammount of demand erosion in OECD countries that ammounted to aprox 100,000 barrels a day.  There were a lot of smaller non-OPEC projects that went online this year and even more for the next 2 years.  OPEC has acknowledged that their own share of the market would decline 2007-2008 if they chose to do nothing, so they are acting proactively to shore up oil prices in an attempt to save the social programs in Iran and Venezuela under the guise of maintaining said market share :P
Curmudgeon, I think weak prices probably reflect but the seasonal fall trend to lower prices.  I also think the degree of variation showing up this year---the degree of this particular year's appreciable price drop---probably reflects a spooked market,  Counterintuitively, this drop probably thus signals market tightness.

I quickly scanned week-end prices for Canadian 40 (~WTI).  Price drops at this time of year are as follows:

2000  71.6%
2001  63.7%
2002  82.0%
2003  83.5%
2004  77.0%
2005  82.5%
2006  72.0% (thus far)

2005's shallow drop probably reflects extra market tightness created by last year's hurricanes.  If it does, one can see greater volatility emerging from 2003 onward, when oil prices truly began rising.

As to your questions, I think the answer to each, aside from imprecise generalizations, is "nobody knows."

when we say weak prices    arent we really talking about falling prices   falling from an all time $ high of last summer    $ 60 or $ 58  or  $ 50   any well run oil company can virtually mint money at these prices   (although the money they are making is $us)    is our perception out of whack because prices were just too high during the summer ?  despite the msm  i am convinced that oil prices are subject to manipulation   remember 1998   $ 10 oil ?  (apologies to the punctuation police academy)
weaker prices are typical in sept/oct/nov.  this is the lowest demand period as summer driving is over and winter heating demands are not here yet.  Not to mention refiners do maintenance also dropping demand for crude.

The s/d balance is tight in summer but fairly sloppy this time of year.  So the fear premium should wane.  Not to mention those speculating on Katrina II have had their asses handed to them and had to sell (Hence the $2+ contango as Nov WTI expired).  Longs are suffering.  Looking like Dec will roll down to converge (Still excess supply).  Won't be too long before the GSCI has to roll thousands of wti contracts forward.  that should put a heavy feel on this market in the front.

If we have a mild December, OPEC is gonna have to cut seriously or accept much lower prices.

Fall price declines for WTI, expressed as a percent of the previous high, are:

2000  82.4%
2001  59.1%
2002  82.2%
2003  89.6%
2004  72.2%
2005  80.8%
2006  73.7%

Do you really believe Iraq is producing more than expected? Do you believe the infrastructure remains to handle this sudden gusher?
Leanan:  Yesterday I noticed some comments on ocean level rise. Here is an excellent study on the pacific ocean area by the Australian government. Thru 2006. 3.8 Megs


Man the lifeboats, it's gonna rise some more:

To put that Reuters artical in perspective: A net loss of 27 cubic miles of Greenland ice/year is equal to 3.2 mm of ocean rise in ten years.
For the metric challenged, 1/8th of an inch.

Note though that even this small rise will increase shoreline erosion. Depending upon soil/sand types, anything steeper than a 50:1 rise is unstable#, so one would expect the shorelines to be pushed back by a half foot or so.  More next decade.

Best Hopes,


#Vague memory on slope.  Anyone have better #s ?

The financial press was eager to embrace the concept of a "terror premium" in oil prices earlier this year.

Odd that no-one seems to be talking about the concept of an "optimism discount" in oil prices. Optimism due to happy talk on the part of incumbents prior to an election.

The 'terror premium' was thought to have added about $20-25 a barrel to the price of oil.  We would have to go much lower before we even begin to discuss an 'optimist discount'.
$20 terrorism premium    well we about $ 20 below the nearly $ 80 peak    so  is the war on terror over  ?    can we bring the troops home  ?   can we start paying off george w bush's $ 3trillion debt ? and thereafter start paying off the $ 5.6 trillion debt accumulation for all the other presidents before the befuddled one ?
No.  The over-inflation of oil prices were retarded to begin with.  People have simply learned to deal with the risks now and are cashing out.
Ya...kinda amazing they all learned to calm down and not believe the hype several months before the election...even though they were all living in illusion several years prior.

Rack it up to mass delusion.

you refer to the overinflation of the oil price as retarded       how retarded is converting perfectly good cropland to wastelands (suburbs)  and ethanol production to race gas guzzling suvs up and down the freeway on a rat race to nowhere ?    and how retarded is reporting the "budget" deficit at $ 248 billion  when in reality the real deficit (the increase in national debt) is $ 576 billion    the difference of course being "special" (as in retarded) items like the iraq war ?
Your preaching to the chior!!

I too think it is retarded for us to make such a big push on ethanol.  When I drive to work each morning, I sit at probably the worlds longest stop light.  It disgusts me to see all the gigantic gas guzzling SUVs, Hummers, and jacked up trucks here in East Texas.  Something has to give!

Personally, I think EVs and PEHV's are the way to go.  More and more town cars will switch over to be entirely EV's, while I see most SUV's becoming PEHV's running on biodiesel 'or ethanol in the near term'.  I try my best to look at things from a perspective of decades and watch for trends, and try to concentrate less on the here and now in terms of energy and conservation.

I just recently purchased my first home, and after 5 years of careful management of my credit in college, I managed to get a 30 year fixed interest 100% financing loan to pay for it to boot!  The town home is great: 2 bed, 2 bath, 2 story, but all electric.  I have a west-southwest facing roof that I was contemplating adding a solar system too, but tbh I really dont know if it would be ideal to set one up.  I'll be looking for advise in the next couple of weeks when I close this thursday :P

I'm looking for practical sollutions to reduce my own consumption, and encouraging my family and friends to do so.  I just wish the rest of the world would get its act together.

OPEC has been planning to cut production for months, this way they can complain about lower oil prices at the same time.
Washington DC Metro Expansion Delayed 1 Year by Federal Delay in Funding

The first half of the Tyson's Corner-Dulles expansion (Silver Line) has been delayed by at least one year due to delays in appropriating funds from the FTA.  Local funding is in place, property taxes have been increased and tolls raised on the Dulles Toll Road. All FTA paperwork is approved but the "check is NOT in the mail !"

Hard to have "Best Hopes"


That's too bad, I was reading about the plans in the ASCE journal, and it sounded good. Expanding urban rail is clearly a good energy saving strategy, but will the funding keep up until the project is complete if 12/05 really was the peak?
I have been curious about the effects that peak oil will have on major infrastructure projucts. How will engineers react to non-existant growth? Will there be especially high unemployment? I haven't really given it enough thought to posit all of the feelings in nice concise queries, but I will continue mulling.
Thanks for the really great blog/forum.
TOD Canada has posted its daily Round-Up

Bob Rae calls Clean Air Act 'Orwellian"
  • So far in the Liberal leadership race, little has been said about environmental politics. Too busy with personal attacks. Now Harper has finally come with what he tries to pass for a plan, the Libs of course tear into it. But their record is dismal; under their 'leadership', emissions rose 25% in 7-8 years. Are we ever going to see something real? Or will it be mere words down the stretch?

Carmakers applaud Clean Air Act

  • Canada's auto industry knows how to reduce CO2 emissions: force people to buy new cars.

Inflation drops to 0.7%, but interest rates stay up

  • Lower gas prices may lower inflation, but it's not that rosy at all. Canada's economy is out of whack. Inflation in Alberta is much higher than in other parts of the country -blame housing prices-, and the core inflation rate runs away from the grip of the Bank of Canada.
    In short: an economy based on commodities will swing as wildly as commodity prices do. Advice: buckle up.

Ozone layer hole 'bigger than North America'

  • Throughout 2006, we've seen jubilant stories of how the Antarctic ozone hole was shrinking, slowly. Well, guess what, it's not. At all. As predicted, climate change leads to lower temperatures on the (lower) stratosphere.

Québeckers are busy not working

  • Former separatist leader Lucienne Bouchard lashes out against the French Canadian lack of work ethic.
    It's the same old song from right field: hard work solves all problems. Still, the man was never known for such views. Another victim of Canada's right turn. The right wing press likes it.

Hollywood fights Big Oil over Proposition 87

  • As Ottawa looks to EPA standards for Canada, and BC wants to emulate California, Proposition 87 is of interest here.

Too much oil, too much money, too fast: Alberta wants Norway model

  • Norway's Petroleum Fund makes financial sense, sure. But Statoil is a state-owned company. Alberta doesn't have that. More importantly: Alberta has no pollution control to speak of. If they would look at Norway's environmental model as well, they might be on to something.

I just had an idea.  The biggest single subsidy for suburbia and sprawl has been the mortgage interest deduction for income taxes.

Change the tax laws !

Interest on any mortgage issued after 1/1/8 cannot be deducted from the taxpayer's federal income taxes.  Interest on existing mortgages in force as of 12/31/7 can still be deducted until paid off.  Any refinancing of a qualifying mortgage will remove the qualification unless the refinancing reduces the principal by at least 3% or shortens the term by at least 2 years.

i) Interest on mortgages issued on primary residences after 1/1/8 can still be deducted if the tax payer can show that the front door or 3/4 of the property mortgaged is within 1 mile of an electrified Urban Rail stop or station (measured from the closest loading platform along a walkable path).

Change the date to 1/1/10 or even 1/1/15.  The effect will be the same :-)


OR, use public policy to encourage conversion of urban rental properties to homeownership opportunities via condos or cooperative housing corporations. There is no reason that city apartments should be more likely to be rentals than suburban houses. It's a historical accident.

There is no doubt that taxation laws induce lop-sided developemnt of urban areas. While I'm no expert, and I may well miss something here, I'm not sure that mortgage taxation would be the first thing to look at.

Changes in property taxes, away from buildings and onto land, which promotes density, and towards banning the use of property tax for roadbuilding, would seem to me to be at least as potentially substantial and effective.

If this is combined with a true system of land-value capture, it would inevitably lead to large-scale development of public transit, since property values near transit stations (and other public investments) are much higher.

It's been a while seen I read about these issues, but people like Clifford Cobb and William Batt stick in my memory as making a lot of sense on the subject.

Which in the final analysis is no more than making a driver pay the full cost of driving, And that is an issue that a change in mortgage taxes would seem to fail to address.

In the present system, sprawl is the only logical outcome: the developer builds where land is cheapest, namely far away, and the community pays for the infrastructure (roads, electricity lines etc.) to connect this 'far away' with the existing developments.

This infrastructure makes the new properties more valuable, and the developer rakes in the profit, which has been financed out of the public coffers.

better yet why not get rid of the "income" tax   replace it with a tax on consumption
Yes, the effect will be the same whenever you would enact such a plan.  The housing market would plunge!  In the mid-80's a simple depreciation schedule change caused commercial real estate to plunge.  I realize the end goal is to prevent the sprawl of suburbia but I say let the market do it naturally without government rule changes to accellerate it.  Sprawl will stop with $5.00 per gallon gas on it's own.
There is enough oil for China to start filling its SPR, but there's not enough oil to fill our SPR. There is enough oil for OPEC to take 1.2 mbpd off the market, but there's not enough oil to fill our SPR. The government is the enemy. The government is the mother of all terrorists. I'm all for lobbying for strong government action to counter the inhumane impacts, but I'm not counting on it. TPTB are possessed by greed and the government is controlled by TPTB. The poor will bear the real pain the of peak oil. If the poor can no longer afford to eat or drive to work TPTB don't need them anyhow. The rich will lose massive amounts of fantasy wealth, but the rich won't have to sell their mansions and monster trucks.

Now is the time for all the sane and rational people to PANIC. If the government is the enemy then we have to prepare for very hard times. The next 50 years could be hell on earth. The current price of oil tells us nothing about the future. I now have to retreat back into my shielded cubicle and continue my brainstorming.

OK, I'm going to poke fun at myself with this one:

US warns of potential threat to Saudi oil facilities

All I can say, I'm glad we have have the following 3 Strike Groups cruising the Persian Gulf simultaneously:

  • the Iwo Jima Expeditionary Strike Group
  • the USS Eisenhower Carrier Strike Group
  • the USS Enterprise Strike Group

You know...just in case they are needed for something nasty.
Are you going to see Clint Eastwood's Iwo Jima(aka Flags of our Fathers) this weekend? I was totally psyched to see he filmed two movies back-to-back. The second one (apparently from the Japanese perspective) is due out in the spring. I haven't seen either so I can't comment further.

Dirty Harry.

No, but Clint's put out some decent movies since in the last few years so I'm sure it's worth a viewing.
From above:  Separation Of Oil And State


As gas prices continue to decline, it's only natural to wonder about the apparent coincidence between this trend and Republican interests in the election. Indeed, a recent poll found that 42 percent of Americans believe that gas prices have been "deliberately manipulated" in advance of the election. Countless articles have been written on blogs and in the mainstream press speculating on the possibility of a gas price conspiracy, either supporting the supposition or shooting it down.

The trouble with conspiracies is that they're wickedly difficult to prove, particularly without a smoking gun. There may be a conspiracy, or there may not be. However, there doesn't have to be a specific conspiracy on gas prices in the run-up to the election--there just has to be a collective recognition of self-interest among the Bush administration, oil industry executives, investment fund managers and oil traders. (my emphasis in bold).

I'm not sure what the difference is between a "conspiracy" and a "collective recognition of self-interest".  Probably whether there were records of phone calls and/or meetings between the administration and others or not.  If there were such calls/meetings, what would be the chances of ever recovering something like that.  

Guess you'd have to be on one of Cheney's hunting trips to know for sure.

Since there is little difference between the two parties, and esentially none when it comes to business interests, I don't think there is any need on the part of parties with interests in oil to get Republicans elected.

I think much of the reason that consipracy theories gain so much traction is the combination of government and business opacity along with the complexity of their operations which non-specialists have trouble understanding. It leads to very understandable paranoia.

"understandable paranoia"...thanks for understanding.

I need all that I can get.  In the vacuum of logical explanations, I tend to make guesses to try to find answers...like many others it appears.

Has anyone here studied phosphate rock and/or potash production? I played with production data supplied by the USGS (great data source by the way) and created some simple excel charts from the data showing their peak in the 80's:



I haven't been able to find any other sources to study whether or not they are in terminal decline. The mining and fertilizer journals I have found are pay only. Haven't found any books on the topic either. Any ideas?

USGS has said there is only 130 years of economically mineable Phosphorus.   So it is a concern (for food production).
Right, I have read their views on the subject, but I'm looking for more detail.
When the price goes up, so do reserves. Minerals aren't the same as hydrocarbons either, they go all the way down the mantle. We wont ever run out of phosphorus, or any other mineral.

Geologist: Earth has lots and lots of oil

SPOKANE, Wash., Oct. 20 (UPI) -- A University of Washington economic geologist says there is lots of crude oil left for human use.

Eric Cheney said Friday in a news release that changing economics, technological advances and efforts such as recycling and substitution make the world's mineral resources virtually infinite.

For instance, oil deposits unreachable 40 years ago can be tapped using improved technology, and oil once too costly to extract from tar sands, organic matter or coal is now worth manufacturing. Though some resources might be costlier now, they still are needed.

"The most common question I get is, 'When are we going to run out of oil?' The correct response is, 'Never,'" said Cheney. "It might be a heck of a lot more expensive than it is now, but there will always be some oil available at a price, perhaps $10 to $100 a gallon."

Cheney also said that gasoline prices today, adjusted for inflation, are about what they were in the early part of the last century. Current prices seem inordinately high, he said, because crude oil was at an extremely low price, $10 a barrel, eight years ago and now fetches around $58 a barrel.

I wonder if he's related to Dick.

$ 100 per gallon   $ 4200 per barrel     well the oil in your crankcase would be worth $ about $ 125     is suppose there would be a lot of recycling at that price   but wouldnt everything else just go up    say $ 125 for a good steak  (which you have to cook yourself of course with $ 60 natural gas)  buy gold and silver   lots and lots of it
Regarding gold and silver:  My friend went to the dentist to get a crown three weeks ago.  Her boyfriend gave her a one ounce kruggerrand and told her to ask the dentist to accept that for payment instead.  Much to everyone's suprise, he took it!  Much better for the dentist considering that he's probably in one of the highest tax brackets.

The alternative economy is beginning and we should all prepare for the return of bartering.

What can you do with gold? When the crash comes(if it does), gold will be worth nothing. See Cormac McCarthy's 'The Road.'

(Just an opinion. No numbers or facts available.)

 We don't know how future financial crisis' will unfold. Precious metals could be useful as as a store of value and for  barter if people begin to believe their national currency will not retain future value because of inflation. (ie. Germany in the 1930's, Argentina in the 1970's)
A portion of savings in gold and silver coins may be useful in some scenarios. Personallly, I don't have a lot of faith in our governments ability to safeguard the future value of the dollar given America's current fiscal situation.


Gold & silver

I am not a "doomer" per se, but I am sorting out 1982# and earlier cents from my change (the copper ones, before copper coated zinc).  If hyperinflation is years away, I may get a few.  Not worth a major effort, just something I do.  Worth 3 cents each at recent copper high.

And later, when I get more concerned, I will buy thousands of dollars worth of nickels.  75% copper, 25% nickel.  (Canada has more nickel in their nickel).

In hyperinflation Germany, minor coins kept their value.  People would accept change from their silver marks in bronze pfenning.

#1982 was a mix of copper & zinc US pennies.  I keep all 1982 and will sort them out "later".

Best Hopes,


i thought i was the only one hoarding  pre 1982 pennys people sell me their pennys and a go through and sort them    but obviously there is no real gain in it   it is just a reminder to me of how much the us govt has devalued our currency  kind of a wierd subversion  
inflation    hyperinflation     deflation      that is the cycle   before the "crash" as you call it   you may be able to pay off your mortgage with a wheelborrow full of $$$$$$$x10^100 and go buy a sack of groceries   (or implements to tend your garden)   with another  are you expecting that after the "crash"   there will be no oil  , no economy , no cars    just tribes of cavemen wandering around  draging women home by the hair to cook and clean the cave ?
I'm counting on inflation, that's why I'm a metals bug.  My thought is to use the inflated price of my metals to repay my dollar denominated debts in the future.  Gotta time it right however before the deflationary period at economic downturn.  No one can predict the future of the market but this is the conclusion I've come to.
It cant get to $4200 per barrel, its flat impossible. First there would be massive demand destruction before that happened. Second, the price of synthesizing it from limestone, water, and nuclear power is at most in the hundreds of dollars per barrel, not thousands.
One thing I notice in Friday's oil price is the big difference between the November and December contract. Friday was the last day for trading in oil for November delivery, and it closed at $56.82. But if you look at the chart on this page, it has already switched to the December contract, which was much higher, $59.33 at Friday's close. This is a difference of over $2.50 a barrel, which is unusually large in my experience.

I can see two explanations. The first is the straightforward one, that the market thinks that oil will be $2.50 higher a month from now. It sees the current low price spike as a short term effect and expects oil to bounce back soon. However, this doesn't really make sense, a change of $2.50 in one month is a 50% per year increase. Anyone would prefer to hold off and sell their oil in December if they really expected this price difference.

The other explanation is that Friday's drop in the closing contract was an aberration, caused by a temporary market imbalance. At the end of the day, all unclosed contracts have to make or take delivery, and most people in the market are speculators who don't really want barrels of oil showing up at their front door, figuratively speaking. So there can be a scramble to close contracts, and in this case there was probably an imbalance of long over short speculation. This forced the longs to sell at a loss in order to get those contracts closed, and produced a short-term price drop.

The ultimate cause was probably a holdover from the early-year bull rush into commodities. We thought that got pretty well straightened out since August, but yesterday's trading suggests there is still an imbalance of longs over shorts from that summer frenzy. This may point to further price softness in the weeks ahead, as this imbalance is probably present in the December contracts as well.

Good analysis. The $2.50 is strange. See my comment earlier. I  forget which thread. I'm watching for how this irons out by Monday. I'm also looking for how experienced traders weigh in on this.
The November contract was actually showing 60.21 for a little while last night and then got recalculated to 59.33.
At the end of the day, all unclosed contracts have to make or take delivery, and most people in the market are speculators who don't really want barrels of oil showing up at their front door, figuratively speaking.

That a person holding a contract at expiration must either make, or take delivery, depending on which side he was on, is one of the commonest misconceptions in the market. It is simply not so.

All open futures positions after the last trading day are marked to the cash settlement price and liquidated. Cash settlement is advantageous because it offers a simple means of settling up responsibilities of both the buyer and the seller who need only transfer money through the exchange's clearinghouse with neither party to the transaction making direct contract with the other party.


To circumvent the disadvantages of cash settlement, some futures contracts are designed with an EFP (Exchange of Futures for Physical or Exchange for Product) mechanism which allows a firm with a long or short position, after the termination of trading, to locate a firm with an opposite position of equal size. The two firms are matched--a transfer of physicals takes place between them and their futures positions are liquidated at a mutually agreed upon cash price prior to the exchange's liquidation of all open futures positions at the cash settlement price.
Fundamentals of Trading Energy Futures & Options, page 167.

Ron Patterson

'fraid you are wrong.  WTI is not a cash settle.  Whle you can still trade cash WTI for a couple of days after the contract closes on the Merc, if you don't close your obligation you must either produce or take wet oil.  same on the products.  IPE Brent is a cash settle as the 500 MB parcels are too large to force a physical settlement.  The bigger traders have tankage and can do this pretty easily.  As can midwestern refineres who don't mind taking wet WTI in the pipe and running it.

EFP's are mostly used long before the settles.  Just a nice way to swap a wet cargo for futures such that both sides can set the exact price when they please.  IE, seller sells a 900 MB cargo of Nigerian crude for prompt month WTI + $1 basis NYH.on an EFP.  Buyer gives $900K and tells his broker to "sell"  900 WTI contracts at the current screen or whatever the traders agree for the price.  That ticket goes through bypassing open outcry though it is announced in the ring.  Then the seller sells 900 at his/her leisure (may have already sold so closes a short position) and the buyer covers the short at his.

From foe to fuel? Mesquite trees tested. Texas researchers, and farmers, eye them for cellulosic ethanol.

As much as ranchers may hate them, the mesquite is a signature plant of this southwestern biome. It occupies approximately the same ecological spot as the African Acacia tree. It makes an interesting, very hard wood when it gets really big and old. It's a legume, which fixes nitrogen and holds back the desert.

It is truly sad to see it destroyed this way, but I suppose that's just another step in catabolic collapse. <sigh> There won't be so much as a blade of grass left alive...

Ethanol train car blast investigated

NEW BRIGHTON, PA - Federal investigators arrived Saturday at the smoldering scene where two dozen ethanol tanker cars derailed and several exploded on a southwestern Pennsylvania bridge.

With tanker cars still burning, National Transportation Safety Board officials said they would gather maintenance records and interview witnesses, including crew members of the Norfolk Southern train.

...About 50 to 70 trains use the affected tracks daily. "We're working on a plan to detour as many of those trains as we can," Husband said.

That was one heck of a blast.  One of the wonderful benefits of the new ethanol age.  None of the safely pumping through pipeline crap.

Just wait until one of those ethanol expresses goes boom in a heavily populated area.

So where are all the posters tonight...ah yes..there must be a conference going on...more fun there I'm sure.
World Series. And the price of oil is down.

...and the Cardinals are up, is this the Twilight Zone or what....by the way, anybody notice the 12 plus percent wipeout in Propane prices....the cleanest, easiest to store, all around best version of fossil fuel known to the human race is collapsing even faster than oil...natural gas is racing skyward on the other hand, and is now fundamental to clean low sulfur Diesel...boy am I glad I bought that Diesel Benz several years ago, I mean how could I go wrong...?

What a fvckin' satire this whole fiasco is turning out to be....but hey, the cards are up! :-)

Roger Conner  known to you as ThatsItImout

Ya...thank God for distractions..I guess I have to root for the Cards even though I'm in KC, MO.  The days of the Royals being as good as the Cards are way over.
In that case, thanks for giving us Aaron Guiel.  I love him, even if he looks like Ralph Malph.   ;-)

Jeff Weaver vs. Kenny Rogers.  Something's gotta give.  It's the battle of the pitchers who sucked when they were Yankees...