Updating oil price graphs

Seems like an interesting time to update some oil price graphs again.

Last time I got around to covering it, on January 20th, it meant we were within a week and and a couple of bucks of topping out, before going into a $10 decline for a month. After that bottom, we started up into the rally that's been going on until now. My guess is it's starting to get ripe for for a correction again unless we really do bomb Iran.

I had predicted at the beginning of the year that prices in 2006 would be $65 ± $20 in the absence of a major oil shock. I'm sticking to my story for now.

Right. Daily closing price of West Texas Intermediate. 2002-present. Expressed in then current US dollars. Source: EIA. Click to enlarge.

Average weekly price of all oil grades weighted by export volume of each, together with daily price of West Texas Intermediate. 1997-present. Expressed in then current US dollars. Source: EIA, and also here for the world data. Click to enlarge.

Here's the history from the beginning of 1997 on. The purple line is the daily spot price of WTI - West Texas Intermediate (Freight-on-board in Oklahoma - ie you have to pay for the shipping on top of this). The green line is the weekly average closing spot price of all grades of oil around the world. The EIA weights each grade according to how much is exported globally. This line is probably a more realistic measure of the oil price forcing function on the world economy, since it includes all the heavy grades in a reasonable proportion according to how much of them is being exported. However, WTI is the price that is often quoted in the US media (though the front month contract on NYMEX for light sweet crude is also quoted often).

According to Econophysicist Didier Sornette, one signature of a bubble is that the price rise starts to go superexponential. This has happened in US house prices in the last few years. The following quick and dirty study suggests oil prices have not got bubbly yet:

Average weekly price of all oil grades weighted by export volume of each, together with daily price of West Texas Intermediate. 1997-present. Expressed in then current US dollars. Source: EIA, and also here for the world data. Click to enlarge.

Why don't the lines start at the point they were in december of one year in january of the next?
They seem ok to me, except there I agree there is a bit of a jump between where the brown line ends and the orange one begins.
I assume it's just price change across the New Year holiday.  These are closing prices, so they can jump a few percent from one value to the next.
I looked fast and there seemed to be a pretty significant difference, but now that I took the time to look again I see that they match.

Optical illusion, I suppose..?

I want to repeat an example I used in another post on TOD, and re-ask the question:

Is crude oil and gasoline really that expensive?

My father commuted 21 miles each way per day in the 1970's energy crisis and seldom complained.  Inflation adjusted oil prices were higher then than now, even at the current record $75 a barrel.  Divide the per price barrel by what the average income was then...I made $1.50 an hour when oil went over $30 dollars a barrel in the late 1970's, or twenty hours a barrel.  Now, at only $75 a barrel, most folks make over $7.50 dollars an hour, which would be only ten hours per barrel.  If you make $15 dollars an hour, that's 5 hours per barrel.  Why was my father so nonchalant about gas prices?  He was getting 50 miles per gallon.  Not only that, he was burning Diesel, in a Volkswagen Rabbit Diesel.  He moved to it after having driven an Oldsmobile 98 for years...his fuel costs actually went down, while the cost of oil went up!

There is a serious problem of logic for any proponent to have to argue when trying to explain the absolute certainty of "Peak Oil" occuring either in the past or in the very immediate future to someone of a clever mind:

They will ask as a first question, "If that's true, why isn't gas and oil higher in price, in fact, WAY HIGHER?

This is difficult to explain.  So to turn a question asked earlier on TOD, in another string, Instead of asking, "Why has gasoline risen so high?", let's ask it the other way around:  "Why isn't gasoline far, far more expensive?"

If there is even so much as 30% chance we at the point (or past it) of sustainable oil production, the gasoline should be extremely high in price, at least as high as European prices, and European prices, given the PROVEN peak (and very rapid depletion) of Atlantic North Sea production, should be FANTASTICALLY higher.
Likewise, any competitive replacement, i.e., natural gas.  It is high, but not nearly as high as one would expect in a real "Peak" scenario.  And one more thing:  In a true "Peak" scenario, there should be little fear, as there obviously still is, of a massive downward correction.  All the corrections would have to be UP, and UP BIG.  But even confirmed "peak aware" folks still speak of possible downward corrections, possibly of fair sized magnitude, as though the "market" in oil is still like the market in stocks or houses, rational, and with room to spare in both directions....in other words, just a routine "auction" type market?  Is that really believable in a true catastrophic "Peak" energy scenario.  (and by the way, where is the hoarding one should see at the point of "Peak" oil?  It should begin soon if realization of a runaway demand exceeding dropping supply takes hold.  Do we have evidence of hoarding yet?

I say this not to argue against "Peak" but to ask why the "price signal" is a complete failure at such a potentially historic moment.  The implications of this pricing problem could be very foreboding, because if the price is being somehow artificially detached from real information, then when the "real" price has to be unleashed, it could happen VERY fast and with a magnitude that will stun the public and the system. Of course, that's the argument of those who believe in a severe collapse.  Combine that with Matt Simmons warnings based on the fast top and rapid depletion curve, the warnings in the Hersch report, and you get virtually no forward warning from current price signals.  

The only way the price can be maintained at this level must be (and I am playing through the possibilities here, please give more if you can find and argue for them)  (a) currency being artificially strenthened to maintain artificially high purchasing power of gas/oil.  (b)military force being of such magnitude that we are effectively "enforcing" our price  (c) markets operating in the dark on false and or "stacked" statistics  (ala Enron type accounting) showing that somehow the oil and gas is still out there and easily recovered with a bit more investment  (d) Peak Oil is either a fallacy or far in the future (we have to admit that possibility if we are to do an honest evaluation and prepare properly)

O.k., give me your best!  Which is it?  

We spend almost double what we did a decade ago on gasoline in terms of percentage of GDP. If this trend continues then gasoline and oil will be expensive if they are not now. The answers to these questions are all relative. Compared to the late 70's and early 80's things are cheap.
So perhaps the 90s were an anomaly and we're simply back to normal...
Taxes are not indexed for inflation (bracket creep) and this is  reason we are so stressed.  A larger percentage is taken from our checks than in the 70's.  All those gov't programs cost a fortune and the bills are coming due( soon even worse than now) Bend over...
I thought Peak Oil always referred to peak production not peak prices. I would completely expect peak production not to be simultaneous with peak prices as it will take market hindsight to figure out that it has occurred, and then grasp the situation and react. I believe the "market" will go go so far out on a limb based on theory. To push the price higher would require that more buyers/speculators actually believe to that extreme extent the result will soon be higher prices. After all no one bids higher than they need to to buy the oil, so if not enough people believe in iminently higher prices then they aren't going to bid that. Reaching production peak does not entail that price peak will occur soon. Most players probably have no idea how long the plateau will be. When you bet you bet not just on price but on timing too. With commodities it's easy to get knocked out of a postion because you got the timing wrong and something caused a dip before the rise. In the end I thinkit's pretty darn hard to corelate market prices with physical reality as there is far too much irrational psychology involved.
... and that is why prices will tend to "follow" the events. Prices now have (a lot more) to do with rising demand, not falling supply. The price signal of Peak will be extrordinary price movements reguardless of change in demand. Why? Because demand will change too slowly to make a fundamental difference. Supply, on the other hand, will make more than just incremental (albeit constant) movements. The price increases since 1999 can (on a global scale) be seen as a result in increasing demand and not of decreasing (although tightening) supply.
I'm not sure what you mean by the price signal being a complete failure. It is clearly "up" and this is in line with what prices are supposed to do at some point with peak-oil.

You have to separate taxes from European prices before you compare them alongside American one's. If you want to relate prices to peak-oil, you should probably just be looking at wholesale prices. Gasoline is also only indirectly involved with peak oil, which is of course about oil.

As far as prices being "fantastically" higher, we just don't know. This is uncharted territory. We'll only have some of these answers looking back.

In your last paragraph, it is hard to answer these questions because I don't dont know what you mean by,"...maintained at this level..." Is that a high level or low level?

I think it is hard to artificially strengthen a currency on the scale you suggest for a significant amount of time. I don't think you can enforce the price militarily. I don't think markets are operating in the dark. Peak oil is a lot of different things to a lot of different people. When you give me a one paragraph definition, I'll tell you if I think you're right or not :-)

Sir, Respectfully may I please take a crack at the definition of "Peak Oil."  I submit that Peak oil can best be described by a short list of definitions which individually may enlighten TOD's sense of direction in defining Peak Oil.
  A.Peak Oil falls into three (3) catagories all of which are directly related to a geologic peak. These are:
  1.Feild peak extraction (FPE)(by which is meant pulling out, pumping out, forcing out or otherwise retaining crude oil to the surface of the earth before that product becomes part of a specific nation's physically exportable limit. {The ammount currently available for export but held back or otherwise consummed by that country domestically. Further, marine terminal limitations will also impinge upon a givin nation and their ability to either get it in the pipeline or aboard a Tanker (VLCC)}
  2. Cummulative Rig maximum output: Derived from the sum total of production of crude oil possible for a givin feild during its moment of highest output. CRM is not theoretical it is demonstrated and like all good science experiments it is repeatable otherwise the feild or well or series of wells extracting from a givin feild are past Peak Oil and are in decline.
  3. Maximum country production capability(MCPC): This figure in Mbd is derived from either Feild(s)peak extraction (FPE)or(CRM)or a combination of both. Domestic use before export is NOT a factor in Country or feild peak oil production.

  For sake of discussions "Peak Oil production exported" (POPE) to the rest of the world is the maximum demonstratable ammount of oil in the tube or on the vessel over time (month/day/year). It is independent of domestic use but is of course subject to it because POPE = MCPC- domestice use.
  Further sake of discussion: Global demand has impact on the study of peak oil because market conditions as they move to the back side of the cliff may be mitigated by efforts derived from the study of market fluctuations during other non-peak times. However; demand has nothing to do with rig, feild and country peak production (These are internal and physical limitations not subject to the vagarities of demand) and export which may be influenced by demand but this does not necessarily need to be so. Study should not be inclined to discount the ability of Net exporting countries to decrease their domestic allowance wether by market or political forces. Market forces can only look upon events ex post facto. Otherwise they are speculative forces impacting upon a market.
  Opinions: No ammount of graphing and analysis of oil price or gas price over time will indicate (exponential or not) arrival of "Peak Oil" in total or country or world peak oil pruduction(X)Mbd. Price is derived from supply and demand and other factors not the other war around. Prices may certianly demonstrate that Peak oil has arrived and market forces are looking  at the peak in time past.

The price will go up until the bidding war finds winners and losers. Presumably the rich countries win and poor countries lose.

I don't think the oil markets understand peak oil yet. I don't think that there is a severe shortage of supply yet. We can't tell if we are at peak yet. There is probably the capability to raise production to over 90 mbpd as Chris Skrebowski's (optimistic) megaprojects update would suggest but I think it more likely that we never really get much higher than we are now.

I think we are in a waiting game to see what demand does, and what crisis happen in oil producing countries.

Its pretty horrifying to think of a few badly placed hurricanes and Iran even reducing production, let alone military action.

I think the price is somewhat detached from reality and when demand truly exceeds supply that it will escalate extremely rapidly.

We might be fortunate enough that somehow someday soon the US economy could take a turn for the worse and consume something closer to the global average of 4.8 bbl per person per year instead of 25. If US oil consumption could decline to maintain no supply shortage until they no longer import at all, that would suit the world just fine. If the US didn't import any oil and just consumed domestic production then they would consume the same per capita as the UK.

If I drive 40 miles a day to get to work and back, 5 days a week, 50 weeks a year that's 385 gallons of gas at 26mpg. Thats 9 barrels of gas per year already assuming nobody else is in my car, most of the people I know drive solo to work and back. Its so crazy to think that people elsewhere on the planet might be seeking this lifestyle when it just isn't gonna happen for anyone else. I don't know what the average distance is in the US for people to get to work but my friends here in KC drive at least 40 miles a day.

To your question of why prices are not already much higher then $70 per barrel.

After having been involved in the markets a great deal my vote would go to "C".  Most investors are in the dark to the full extent to which the gap between supply and demand for oil will grow.  

Secondly, because the market is made up of hundreds and thousands of individuals, the market does not sharply rise or fall with out BIG news to influence the crowd.  That is some Investors may be catching on to the facts about peak oil, however, at the same time if they are wrong about peak oil they do not want to be caught in a price bubble and lose money.  So most of them are playing it safe.  Testing the waters if you will.  

This is evidenced by the chart above with annual price comparison.  Investors will bid up the price of oil 20% then, back off for a while and take some profits.  After 3 to 6 months investors will test new record highs and push the price of oil up again, it goes in a fairly predictable cycle.  This just happened in the last couple of weeks.  The market had a physiological ceiling of $70 per barrel, however once this barrier was broken the price was free to rise to $75.  The price may dip down again however now that oil has crossed $70 per barrel, there is no longer the physiological ceiling.  A new ceiling might have just been created at $75 and maybe a couple of months from now in August investors will push it to $80 ceiling.  
In stock market theory this is referred to as the "Tea Cup Chart".  That is "A strong stock's price will Rise, Stabilize, Rise Higher, Stabilize, and Rise again Etc...

My central point is that prices will continue to rise as more and more investors test the waters of the peak oil theory.  This will allow the price to slowly rise, reflecting the growing understanding of the situation.  The only way I see a huge $200 price jump in a short period of time, due to knowledge of "peak oil". Is if the president called a oval office speech and explained the whole "Peak Oil Theory" situation to the American public on prime time TV.  Then he would need to call in a panel of Bi-Partisan oil experts to witness to a study of the theory they had just completed, finding it completely correct and more then that, they found it was far to late to do anything about it.  However I don't see that happening any time soon.

In a way it could be argued that public and investor ignorance of Peak Oil is the only thing saving us from a panic reaction that would crash the markets and destroy any chance of a transition to coal liquidation, shale oil, and massive amounts of solar power.  The economy can not handle a shock of $300 per barrel over night, however if you spread that same rise to $300 over a 10 year period the impact is manageable and it gives time for businesses to adjust to a new model.  

Of course this means that the sellers of Oil are not getting, what the oil is truly worth in the long term, however this is a better alternative then a Great Depression to end all depressions, in the next 10 years.

And I thought  "ignorance is bliss" was just a cliché saying.  

Interesting stuff. I think/hope we can move towards a gradual and controlled rise in the price of oil too. So maybe we at TOD should hope the 'optimism' and 'ignorance' prevail as long as possible!

However, 'events' or 'surprises' could come along and upset our delicately balanced 'apple cart' sending oil prices through the roof, with 'catastrofic' results. I think Dan Simmons is concerned about this unsettling prospect in relation to Saudi Arabia, and the possibility that they may have 'damaged' their major fields and production could fall drastically, triggering the 'panic market reaction' and price explosion he fears.

I think Dan Simmons is concerned about this unsettling prospect in relation to Saudi Arabia, and the possibility that they may have 'damaged' their major fields and production could fall drastically, triggering the 'panic market reaction' and price explosion he fears.

Dan Simmons is the author of the Hyperion series, the greatest science fiction of all time. You probably meant Matthew Simmons. :^)


Yes, of course you're correct, I did mean Matt Simmons. I think my feeble brain was trying to tell me that explaining the cultural importance and complexity of Peak Oil would perhaps require someone of Dan Simmons' ability and imaginative skill. I've read Hyperion and was impressed. It's gratifying to think that such complex and challanging material still has readership. I'm not sure about the Illium stuff though.
No, no!  DAN Simmons is correct:  We're talking about the possibility that the Shrike will get loose among the fields, pipelines and refineries of Saudi Arabia.  Just THINK of what would happen to world oil prices!


And I highly recommend the new "Ilium" and "Olympos" series...
I vote "C."  Enron-style accounting.  

Price only reflects the true supply if the buyers and sellers have perfect knowledge.  Which they most definitely do not.

And here is Exhibit A.

Don't worry, prices will go back down any day now.  Or so this guy says.

A bit more tension on Iran and a couple of nasty hurricanes and $80, $100 or $120 a barrel could result. But the history of oil is that the bigger the upward spike, the sharper the subsequent fall. That is what gave us ultra-low prices, $10 oil, after big rises in both the 1980s and 1990s.

The current boom in the world economy will fade, leading to a fall in global oil demand. There will be more supply, stimulated by current high prices. Dr Leo Drollas, chief economist at the Centre for Global Energy Studies, argues that through the current mess and confusion the fundamentals have not gone away, and they point to oil being too high at these levels.

I agree. I haven't given up on $40 oil. It is just taking a bit longer to get back there.

I agree. I haven't given up on $40 oil. It is just taking a bit longer to get back there.
I wonder if he's still covering short positions?
With the Sunday Times joining the Economist as would-be debunkers, an immediate peak instantly becomes vastly more probable :-)
Said like a true contrarian!

In 2002 I was visiting my father, an old oil man, who told me there's no reason to want to get back into oil at the moment - besides, everyone else is getting out. That was my first clue that "oil's not well" - a sure clue that the markets were about to change. Even back then it was hard to get a rig if you wanted to drill...

I read the Sunday Times most weekends, and I am not impressed with this guy on anything to do with energy. He is either a journalist or an economist, both unable to deal with laws of nature. The market will always provide is his best answer. Laws of nature mean nothing to him. He would still be predicting oil at $40 a barrel is just around the corner in 30 years time (which depending on how bad repetitive recessions etc could be, may be closer than perhaps I am giving him credit for). It is just that he thinks the world's economy is going to carry on expanding forever without any constraints and oil is going to get cheaper, if only the oil producers, like the UK North Sea region, follow his plan to increase oil production.
Re:  ThatsItImout

Following is an excerpt from my Energy Bulletin article on the MSM and Oil Prices

Why Aren't the MSM Discussing the Import Situation?

I think that we are seeing an "Iron Triangle" of sorts defending the status quo concept of ever expanding energy supplies: (1) most housing, auto, financing and related companies; (2) Most MSM companies that are selling advertising to Group #1 and (3) some major oil companies, major oil exporters and energy analysts that are working for the major oil companies and exporters.

The housing/auto group wants to keep selling and financing large homes and SUV's.

The MSM wants to keep selling advertising to the housing/auto group.

In my opinion, some major oil companies are afraid of punitive taxation, and some exporters are afraid of military takeovers. This group of oil companies, exporters and their analysts provide the intellectual ammunition for the other two groups, i.e., promising trillions and trillions of barrels of conventional and nonconventional oil reserves."

Re:  "The Iron Triangle"

I listened to part of Ed Wallace's local Dallas/Fort Worth (auto related) radio show yesterday.  Mr. Wallace by the way has an article coming out in Business Week on ethanol.  

In any case, the show yesterday had all three elements of the "Iron Triangle."   Mr. Wallace started off with a long discourse on a speech last week by Lee Raymond, retired CEO of ExxonMobil, to the effect that the recent run up in oil prices was temporary and that the market would adjust, more supply would appear and prices would fall.

So, we had the ExxonMobil guy providing the intellectual ammunition.  

The journalist took Raymond's comments and ran with it, asserting that the price run up in temporary.

And all of the advertisements were by auto dealers, trying to sell and finance cars.

So, who ya gonna believe?  The sour pussed guy that tells you that you might as well start cutting back on your expenditures (energy and otherwise), get out of debt, look into organic gardening, or the guy that tells you that soon you can resume your blissful hour long commutes in your $50,000 SUV and from your $500,000 mortgage?

Mr. Wallace went on to assert that Peak Oil would not occur for 50 to 80 years, because conventional reserves were 50% greater than expected (three trillion total) and because of trillions of barrels of nonconventional oil.

As one who is trying to become educated regarding PO while also trying to inform friends and acquantances, I am constantly amazed that most intelligent, successful people that I raise the issue with have NEVER HEARD OF THE CONCEPT.
This may be part of the reason for the political inertia so far. Hopefully, as more people become aware of the situaion they will attract the attention of politions. The recent activity in Washington surrounding immigration being an example.
It also may mean that these folks, who tend to be investors, as they gain awareness, may continue giving upward impetus to the price of energy companies.  
Hidden in plain sight
Good two-page flyer that I use that covers the topic.  I can print it front/back on a single sheet of paper.

I give this white paper, with more detail, for people who want to know more.

Re:  Oil Prices

In Texas and the Lower 48, once we hit about 50% of the Qt mark, price had essentially no discernible impact on conventional oil supplies.   As I have documented many times, using the Texas case one could assert that rising oil prices correlate to falling production.  Of course, the reality is that the smaller fields we found post-peak could not make up for the declines from the large, old fields.

I continue to believe that the Lower 48 and the North Sea are our two "cleanest" HL (Hubbert Linearization) case histories.  The Lower 48 peaked just slightly less than 50% and the North Sea peaked at just slightly more than 50% (crude + condensate)--and production has not increased since peaking.   Deffeyes asserts that we are past the 50% of (crude + condensate) Qt mark worldwide.

Look at the ages of the large fields in the top two exporters SAR (Saudi Arabia/Russia) and the top two importers USC (United States/China).  All of the large fields are old, and consumption in all four countries is growing, in some cases quite rapdily.  Anyone think that this is a stable situation?

IMO, in the first quarter of this year demand for crude + condensate exceeded supply, and we are meeting the demand by drawing down inventories.  The best short term data in the world appear to be the weekly and monthly EIA data (a case of damning with faint praise).  In any case, the weekly data since February show much sharper declines of total petroleum imports than is normal.  

What I found odd is the combination of rising light, sweet crude oil prices and falling imports.  

Most of the MSM are attributing the price increase to speculators and geopolitical tensions.  I disagree.  I think that we are in the early stages of a bidding war between importers for rapidly declining net export capacity.  Nonconventional production will help, but IMO it will only serve to slow the rate of decline of total oil production.  IMO, from the first quarter of 2006 forward, the total net energy supply will decline until the rate of growth of alternative energy is equal to the rate of decline of conventional energy.  

IMO, oil prices would be higher were it not for a  coordinated effort by the "Iron Triangle," who have a masssive vested financial interest in the status quo concept of constantly increasing energy supplies.

So, a lot of energy consumers are going deeper into debt in order to try to hold on to their current energy intensive lifestyles.

Longer term, when the reality of Peak Oil becomes apparent to even Daniel Yergin, the irony is that it is people like Lee Raymond, Daniel Yergin and the journalists in the MSM, who are actually going to cause demand--and thus prices--to be higher than they would otherwise be, because they are, in effect, telling us today that there is no problem with the $50,000 SUV and $500,000 mortgage way of life.  

If you believe the Peak Oil guys, you cut spending, get out of debt, and live much closer to where you work--which is precisely what the Iron Triangle does not want you to do.  

If you follow the Peak Oil guys advice, tomorrow, if the Peak Oil guys are wrong, you will have less debt, more money in the bank and a lower stress lifestyle.  If the Iron Triangle guys are wrong, you could end up bankrupt--except of course that it is quite difficult to file for bankruptcy, now, courtesy of our Iron Triangle friends.  

I expected individuals to have intense denial of the need to change, but until you mentioned your "Iron Triangle" concept, I hadn't thought about the intense institutional resistance to acceptance of the consequences of peak oil. Of course, we have seen it from GM and Ford for a long time, but the housing industry is hugely influential, and it would suffer badly (especially here in California) from widespread acceptance.

Still, it probably is ironically helpful to have the realization dawn slowly as a poster above noticed. The panic of $300/bbl oil would create "collateral damage." I am pessimistic about the possibility of any of the orderly transitions suggested by Hirsh being implemented, even if it weren't too late, and it may not be. It is too late to do it without a lot of pain, but democracies don't accept pain without really compelling reasons. The UAW has accepted some (fairly small IMO) reductions in benefits as Ford and GM disintegrate, though.

West Texas
Like the Iron Triangle explanation and this re: oil prices.
  Logical. Makes sense.  god knows nothin else does.
Isn't the 'iron triangle' in reality similar to Dick Cheney's statement, that the Amereican way of life was 'non-negotiable'? That is, there are currently enormous cultural, economic, political and social factors that mitigate against our 'understanding' of the consequences of Peak Oil, and even our acceptance of its existence? I'm not sure the massive 'cultural' changes required of us by Peak Oil are possible with the constaints of our present politial/economic system, that's before one factors in the 'timeframe' problem.

One is almost tempted to the well-worn Titanic analogy again. We are on the deck, we can, sort see the iceberg, we choose to ignore its existence, because at this latitude it shouldn't really be there! We decide to return to the bar for drinks and a dance; a dance that may well be our last.

I am reminded of the scene in James Cameron's movie, where the ship's architect, Thomas Andrews, asserts that the ship will sink.  

Bruce Ismay, managing director of the White Star Line, says that's impossible, the ship is unsinkable.  

Thomas Andrew replies that the ship is made of iron and that she can and will sink.

Cognitive dissonance, then and now.

The important lesson to learn from the Titanic episode is that the ones that survived were the ones that heeded the warnings and headed for the lifeboats right away.   Of course, proportionally far more steerage and third class passengers died than first and second class.   However, when the end came and all of the boats were gone, it didn't matter if you were first class or steerage.  

Damn. That analogy hit home...
I think you're spot on with the Iron Triangle analogy - extremely powerful entities providing an overwhelming mass of misinformation at every turn to the consumer (not citizen) in an effort to continue the unsustainable myth of the growth economy.

Unfortunately if citizens want to find the truth they really have to dig for it and think about these issues - and for many this is just too much work.

Fortunately there are sites like TOD that provide some push back on the "party (Iron Triangle) line" - hopefully some are starting to get at the truth and realize that the rosy picture they've been sold on over the past decade (?) is just that - nothing more than slick marketing used to continue to sell, sell, sell...

Bang on comment to an excellent provactive question.  Please keep on posting with evidence to support your net exporter theme.
Thank you very much.  The Russian HL plot was the first time that I managed to scare myself.  
This is a bit off topic, but I have a couple of questions for you regarding your "net exporting nation" scenario.

First off, doesn't that scenario apply only if the exporting nation's oil resources have been nationalized?  What you're proposing is effectively the same as having one price for local consumption and another (higher) price for export.  If that's the case and  the free market prevails, then the exporting county's oil companies will simply export their oil, and the exporting country essentially continues to "buy on the open market" by paying the global price.  The only way to prevent this would seem to be restraining the companies' actions either through legislation or nationalization, which in this case seem almost indistinguishable to me.  Is there some aspect of supply allocation that I'm missing here?

Related to this is the provisions of NAFTA as they relate to Canadian petroleum exports to the US.  Essentially they prevent us from favouring local consumption over exports to the US, by mandating that reductions in exports to the US can only be done if matched by reductions in domestic consumption.  If the analysis in my first question is correct, this effectively makes it illegal under international trade law for Canada to nationalize its oil resources. Leaving aside the question of the desirablility of such an action, it seems to me that this law has removed one of the main possibilities for Canada to address Peak Oil for its own citizens.

If I can discuss this:

* First off, doesn't that scenario apply only if the exporting nation's oil resources have been nationalized?  What you're proposing is effectively the same as having one price for local consumption and another (higher) price for export.*

In Saudi and Kuwait, carfuel is cheap. Maybe they dont tax it? If the state provides free healthcare, writes off personal debts when a new Emir arrives [like Kuwait], low taxes etc, then there is more money for the citizens to buy fuel. Also many of these citizens are very wealthy by world standards

Essentially, this means that rising fuel costs makes them richer to pay for their own fuel. The lower the rate of export to us, the richer they become - so they can buy it themselves. So they are not part of the rest of the world's demand/supply balance [at this moment in time] and can continue to consume as their population multiplies.

I agree. Higher oil prices are setting up a positive feedback loop in the exporting countries.  Also, in a lot of cases, product prices in exporting countries are much lower than the world price.  And of course, Saudi Arabia has an average of seven kids per family.

So, what the net exporters can, or will, export is going to be squeezed between falling production and increasing consumption, while what the importing countries want to import is increasing, because of increasing demand and falling production.

And you gotta include Venezuela in that list now:


Venezuelan President Hugo Chávez is planning a new assault on Big Oil, potentially taking a major step toward nationalization of Venezuela's oil industry that could hurt oil-company profits, reduce production and put further pressure on global oil prices.

Venezuela's Congress, made up entirely of Mr. Chávez's allies, is considering sharply raising taxes and royalties on foreign companies' operations in the Orinoco River basin, the country's richest oil deposit. Major oil companies like Exxon Mobil Corp. and ConocoPhillips of the U.S. and Total SA of France have invested billions of dollars there to turn the basin's characteristically tar-like oil into some 600,000 barrels a day of lighter, synthetic crude.

Mr. Chávez, a left-wing populist who favors greater state control of the economy, also wants to seize majority control of the four Orinoco projects and force private companies who run them to accept a minority stake, according to a top executive at state-run oil company Petróleos de Venezuela SA, known as PdVSA.

The moves would up the ante in Mr. Chávez's long-running battle with foreign oil companies, which he accuses of making outsize profits amid high oil prices at the expense of a poor nation. The stakes are high because Venezuela, the world's fifth-largest oil exporter, holds the world's biggest oil reserves outside the Middle East and is the third-biggest supplier of crude to the U.S.


If the latest initiative succeeds, it would eliminate the country's remaining privately managed oil fields.

Referring to the 70's and how gasoline was more expensive then

I never paid more than 79 cents for a gallon of gas in the

The Peak in the Seventies in crude
was short lived.

The Bottom 80% of America were never better off
than in 1974.

And since then thru various mechanisms
Ex-the Reagan Social Security Tax increase
their purchasing power has steadily eroded.

The Only thing keeping the bottom 80% in the game
has been the ability to extricate wealth from homes
and a gallon of gasoline costing
less than a dollar.

Those days are over.  America's
saving's rate is negative.

We are $15 Trillion dollars in debt.

I will argue that this $15 Trillion
dollars would be the exact amount needed to
pay for all the Hydrocarbons we have imported
since 1980, when, happily for us,
not so happily for them,
the Iran/Iraq War started.  What a coincidence,
that's when Reagan's Happy Days started.

Well, there are no more happy days. The till is empty. We can no longer borrow on
the Internationaal Stage to finance our addiction.

From now on it's how many BTU's did you earn this week, honey.  Did you earn more than you did
in 2000?

I don't think so.

As a Nation we are 6% of the World's Population, using 25%
of it's Hydrocarbons, and borrowing 85%
of the cost.

Our Military is the only thing keeping the wolf
at bay.

Oh yeah, when the oil markets actually start reflecting the
real price of gasoline, they will be shut daon.


I think you make some good points.  Many people are in a poor position to deal with increased costs.
1973 Oil Embargo on less than average wage and Differences from now
Having lived in the NYC area through the 1973 oil embargo--and, at the time, I was making less than average salary--I found the rationing and long lines the most irksome. The embargo lasted maybe six months. I did not find the price particularly onerous. Additionally, the brevity of the embargo prohibited any kind of deep effects on the economy.
The back-to-back problems with Nigeria and Iraq dwarf the magnitude of the 1973 disruption or any other disruption, according to the EIA.
US Energy Intelligence Administration reports that during the first week of April, the disruptions in Iraq and Nigeria were estimated to have resulted in the loss of 2.7 million barrels per day (mbd)of oil exports to world markets (gross disruption size prior to offsetting production from other sources). These disruptions came just as the previous one of almost the same size - the loss of 2.5 mbd of Venezuelan exports in December 2002 - was declining. The occurrence of two oil market disruptions of this magnitude in succession is unprecedented. Prior to these disruptions, there had been only six large disruptions (other than quota cuts) during the past half-century...

The above article has a good chart on the magnitude of disruptions since 1951. A couple of points are worth mentioning:
1. The U.S. is much more dependent on long supply chains for its goods. Consequently, rising oil prices will impact the price of goods, especially imported ones. And, yes, the U.S. is a net importer of food stuffs.
2. The U.S. labor force is under pressure from cheap labor abroad.
3. If the dollar tanks (yuan rises), then we will see prices sky-rocket.
4. The growing disparity between the have and have-nots is growing--in the U.S. and elsewhere. Consequently, the greatest effect on rising prices is on those least able to afford it.
5. A long squeeze--such as the one we are in--is harder to deal with than the short jolt of 1973.
6. A policy of preemptive war makes everyone jittery, as does the possibility that peak oil is within our attention span. In other words, PO is between now and ten years out.
The embargo was short, but the price increase was not. In the nine-year priod from 1972 to 1981 the price of oil increased 9x. This increase fueled stagflation, caused widespread pain and suffering as the economy shifted to greater energy efficiency and during which ford stock declined to $1, and only ended when new oil supplies arrived from the far north - the north slope, the north sea, and Siberia - to offset OPEC cutbacks, and 'teaching' OPEC that high prices lead to new supplies.

The current price increase, ignoring the silly $10/barrel that occurred when opec had an internal quarrel, is from the $25 level that SA tried to maintain for years, thinking this price would avoid both recessions and any search for substitutes. We are now at 3x this price, so we are 1/3 the way to a level that might have the same overall effect on the economy (it is often said that today's price is below the 1981 peak of around $90 in today's terms. I think we are far below the 1981 inflation-adjusted price because I think inflation has been severely understated for many years, thoroughly explaining today's fondness for SUV's).

Sadly, the cavalry might not save day this time.

Just to make some (maybe obvious) points about the markets where oil prices are set:

Futures are very highly leveraged. For a few thousand $$ margin you can buy a thousand barrel contract, so for each contract and each $1 move in price, you gain/lose $1000. Futures contracts expire into delivery/receipt of the actual commodity, so they must converge with the spot market, the market for the commodity RIGHT NOW. Which is what makes the market so short-sighted.

For example, if your belief in peak oil led you to buy december crude last summer, when oil had pushed up to $70, so as to get in before everyone realized peak was upon us, by november/december you would have lost something like $15k/contract.

So in the market fear is the balance to greed... it would be great to own oil for 2012 (as far as contracts go now, I think) but how many tens of thousands of $$ might you have to put into margin to hold that position if the price goes against you (esp. if the economy falters)?

That's a good point about the futures markets. Even if you guess right about the price trend, short-term moves against your position can wipe you out.

There are two ways to prevent this. One is to not use so much margin, or equivalently to back up your position with a lot of cash, and just bite the bullet on those short-term reversals, holding to your confidence that eventually you will be right.

The other is to buy options rather than futures. You can get $100 or now even $150 options for relatively cheap (not nearly as cheap as they were a couple of months ago though!). The bad part about an option is that if the price never gets that high, you lose your whole investment, unlike with a future where you only lose money if the price actually goes down (assuming you are long). OTOH you don't necessarily have to hold to expiration, so you could for example have bought a $100 2010 option a few months ago and now sell it for a pretty good profit.

The big benefit with options is huge appreciation. I just checked, a 2010 $100 call option is $4.40 per barrel, so in units of 1000 barrels, one contract is $4,400. Then if oil goes to $200 by then as Matt Simmons believes, your contract will be worth $100,000. Making 20 times your investment is pretty sweet, especially for a Peak Oil true believer who sees this as a relatively sure thing.

Great advice, Halfin.  Just to be clear, these aren't standard options which are set against the price of an underlying asset, but instead "futures options".  This wouldn't matter because each would price according to the expected value of the underlying security on the strike date, but American-style options can be exercised at any point in their life.

And yes, commodity futures offer terrifying leverage.  Be careful.

Much safer and easier to buy stocks of the smaller US based exploration and production companies. You may focus on oil (ard/pxp) or natural gas (gmxr/upl). I prefer the former at this time.
The advantage is that if price increases or, very importantly, stays the same, your stock will increase because at 60/barrel these companies, growing production and reserves, are very profitable. If price rises further, all the better.
In looking for an oil price signal for peak oil, you need to be looking at an inflation adjusted chart that has some of the major artificial pricing episodes removed like this:

Some of the obvious periods when basic supply/demand was not the market's only consideration:

  a)the beginnings before a world market for oil was established
  b)the Iran/Iraq war wherein they attacked each other's oil facilities for 10 years (it was even called the tanker war)
  c)the Kuwait invasion and first Persian Gulf war
  d) the artificial glut of oil in '97-'99 that was, in fact, a "glut of bad data" as Matt Simmons has phrased it. This "glut" devastated the drillers, who were beginning to seriously gear up for what they correctly were foreseeing as a tidal wave of demand from Asia.

 This kind of chart pretty clearly shows the price signal you would expect to encounter as global demand begins to leave behind global production increases, whether that be exactly at peak production or just near it. At $75/bbl now, you would have to look at this chart and conclude that something has fundamentally changed with the supply/demand of this resource and it seems to be centered around the year 2000. You would have to conclude this even if you had never heard of Hubbert or seen a bell curve in your life.

 The demand surge of the 70s broke the 100 year price resistance level and will probably wind up being a mild foreshock of the climb we are starting. In the 70s, we had a huge amount of unused well head capacity in OPEC to somewhat control the climb in the price of oil. That throttle mechanism is gone now.

Hello TODers,

Please take a look at the Google home page!  It shows a windmill and PV panels basking in the sun.  A long time ago I asked them to include a "I feeling Unlucky" button that would automatically take the user to Dieoff.com. Maybe we are halfway there.

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

Sornette has an interesting paper called "Thermometers" of Speculative Frenzy at that link:
From the definition of a bubble as a self-fulfilling reinforcing price change, we identify indicators of a possible self-reinforcing imitation between agents in the market. We show that during the build-up phase of a bubble, there is a growing interest in the public for the commodity in question, whether it consists in stocks, diamonds or coins. That interest can be estimated through different indicators: increase in the number of books published on the topic, increase in the subscriptions to specialized journals.

Here, we propose yet another method which bypasses all the difficulties of the previous approaches [for detecting bubbles] by monitoring external indicators which show an anomalously growing interest in the public at times of bubbles. Such indicators can be for instance the number of publications and books published on the topic and the size of their sales during bubble periods. From the definition of a bubble as a self-fulfilling reinforcing price change, we thus search for indicators of a possible self-reinforcing imitation between agents in the market. We will show that such tendency for traders to imitate their nearest "neighbors" is self-reinforcing and increases up to a certain point called the "critical" point, at which all traders may place the same order (sell) at the same time, thus causing the burst of the bubble (a crash, a large correction or more generally a change of regime). The main point of our paper is that, during a major speculative bubble, the fever does not remain confined to the economic or financial sphere but spreads to other segments of the society which can actually become actors themselves by buying the market, usually close to the end of the bullish mood. This "fever contamination" provides a probe of the imitation process which is at the source of the speculative bubble, and gives therefore a direct access to the fundamental mechanism of the bubble. We believe that this approach is better suited to qualify the existence of bubble than other methods relying on poorly constrained models of the fundamental prices.

Hmmm... Increasing numbers of books being published, increasing numbers of visitors to specialized websites, anomalously growing interest by the public, average Joes piling into the market. Sounds familiar. You guys should run a poll, and see how many visitors to TOD are long on oil.

I'm sure many of our readers are long on oil.  However, we our midweek peak is currently running 10,000 visits/day.  As a ballpark estimate of our readership, and if we rudely discount our international readership, that indicates we are about 0.003% of the US population.
While I'm sure there are a few Rainwaters lurking here, I imagine most of us are long on paying the morgage and buying grocrey's.
I'm not suggesting that TOD readers are the sole basis of the phenomenon. I'm suggesting that they are one manifestation of a much broader trend.
You cannot discount the international readership I am tipping its way more than half your hits. That means you are way over estimating the IQ of the US population by a factor of 50%:)

Someone once quoted. "You can never underestimate the intelligence of the voting public"

If hoarding is a sign of a bubble top, I think it's going on, at least I'm doing it and it pays.  With a name like PRACTICAL what did you expect?  I bought about 40 five gal. plastic gas containers about 2 years ago when I first figured out peak oil.  It wasn't very profitable at first as gas prices didn't move as fast as lately.  However I had lots of gas saved up during the spike last August and September.  So I didn't have to pay the $3 per gal. at the time.  I was low in January when gas was $1.91 here so I started filling up my containers again.  I kept buying until gas reached $2.30 here.  Now it's $2.90. I watch the NYMEX futures web site.  When gas futures spike I go out and buy, as the local stations take a day or two to raise their prices.  They say confession is good for the soul.
conventional wisdom is that gasoline will go bad in 6 months - but some say differently
If a person hoards gasoline in the winter, when it has around 10% butane by volume and has a vapor pressure of about 15 psi, it will start boiling off the butane when hot weather rolls around. So, anyone who does that will lose a portion of their stash every time they open their containers and send butane into the atmosphere.


I think that, superimposed on your last graph, you should include a line, starting at the same point as the yellow (is it an average, or what?) line, but with a slope that would indicate inflation.  I understand that this requires one to make a (probably unsatisfactory) measure of inflation, but any indication would, in my opinion, be illuminating.
If Sornette thinks superexponential is evidence of a bubble, I wonder what he think of this: The best example I have ever seen of superexponential growth is a human population history chart.
That seems unfortunately insightful. For us not to be rapidly reducing our world population by at least 2/3's immediately by safe and humane control of birth rates is to be guilty of the genocide of many orders of magnitude higher than has ever before been perpetrated. History will blame the majority of people living today for the miserable deaths of around 4 billion people.
Yeast multiplies faster.
CNN is running a story about a pawn shop which claims business is up 30% due to people seeking gas money.  They interview this guy who is selling a 100-year old watch...to buy gas for his Jaguar.

The man is obviously not poor, as he paid $40,000 for the Jag.  And he's got a collection of antique watches; he talked about selling more of them if necessary.  But he's retired and on a fixed income, so when prices go up, he pawns something.  

Apparently, selling the Jag and getting a Corolla is out of the question...

See my "Iron Trianble" comments up the thread.
In addition to contract technology work, I also am a tipped restaurant server. I am finding tips to be down about 40% in the last couple of weeks. Evidence appears to me that we are currently experiencing serious economic downturn, and the markets are off in never-never land.
I think very many people were already extremely overextended and this oil price jump is now a proverbial camel back-breaking straw.
So will the second quarter of 2006 have been the start of a major recession or the second great depression?
If this is to happen, I find it more likely to be a result of the rising interest rates and the end of the housing bubble.

IMO energy costs are still too low relative to average income, to affect personal spending that much.

Hmm. Many have pointed out that "demand destruction" is not yet occurring, and so many people are still driving SUV's long distances and spending considerably more money on gas than they did several weeks ago. That would mean less money to spend elsewhere.
It would seem also that these prices could be a factor in a spectacular housing bubble burst as people consider the cost of driving from distant suburbs to work.

Great graphs.

I wonder how price increases affects demand for oil and petroelum products like gasoline?
The below link


Brings you to a piece with a graph (in English) showing development in gasoline consumption and average gasoline retail prices in the US for the period Jan 1993 through mid April 2006, and the graph illustrates that despite close to a doubling of average retail gasoline prices, it seems it have not curtailed demand.

Should not gasoline demand be affected by prices? Or does this tell something about "oil addiction", and if so, at what prices will demand (consumption) become significantly affected?

Should not gasoline demand be affected by prices?

Of course it should be.  At some price, people will drive less.  It is already happenning; see:


What happens is at noticeably higher gas prices some conservation kicks in.   Then people get used to the higher price and driving goes back to the normal "no sacrafice is too small to reject" mode.
There are simply no hard numbers to suggest that Americans are driving less. Any small increases or decreases in the amount of gasoline we use on a daily basis versus a year ago or a month ago fall completely within the "normal" range of changes over at least the last 5 years. The changes are also subject to both a margin of error and to revision.

All stories of drivers driving less are purely anecdotal at this point.

I personally feel that you if gas prices continue to rise at the rate they have been that you will see demand destruction shortly. But to date it hasn't happened. It has simply been alot of hype by a media which thinks that it has a story and which we all know is insufficiently capable of reporting that story.

While I agree with you that they are not driving "less", there is pretty compelling evidence that they are driving "less than they otherwise would have".  Generally US vehicle miles travelled (VMT) has increased about 3% a year.  2005 was basically flat over 2004 - something that hasn't happened since the oil shocks of the seventies.
Exactly.  Kinda like government "spending cuts" are cuts in future increases rather than actual cuts.  

But there are more and more people in the U.S. every year.  If we aren't using more and more gas every year, someone is cutting back.

You pose a very interesting question.  I'm not so sure that there is going to be serious demand destruction, for two reasons:

  1.  The American way of life is non-negotiable(but we might live it a little less often if we have to);
  2.  Much more importantly, there's a LOT of countries out there that subsidize the cost of gas for their own citizens.

Many of the countries that do subsidize happen to be large net exporters with poor domestic populations.  As more money flows in, more demand will arise, but production will be falling, and removing those subsidies will be politically impossible in such unstable environments.

Oh, and the other one where gas and diesel prices are set and subsidized by the state?

China.  2nd largest consumer of oil in the world.  Obscene growth in cars.  Not about to run out of dollars to use to subsidize their people, and concerned only with domestic stability.  Fat, lazy people in steel cages are happy people.

As someone noted on another thread, we keep looking at this in terms of USD.  We also look at it in terms of American consumption and demand.  There's a lot of merit to both of those since the dollar is 66% of world reserves and we eat 25% of the oil, but in economics, most of the chain happens at the margins.  We flattened our margins starting about a year ago.  The rest of the world hasn't.  That's the biggest reason I think prices will continue to climb.

have a friend, who just came back from nanjing...everyone wants a car and everybody wants it to be an SUV.
We can sticksell them all of ours.  That solves a couple of problems for us.  Creates others for the Chinese.
The problem is that in PeakOilWorld there is no "us" and "them" any more.  There's just us.  The SUVs in your comment simply become the proverbial deck chairs.

We can't fix the problem by making someone else own it.  Borders are a convenient fiction.  It's like climate change - just as we all breathe the same air, we all burn the same dinosaurs.

Fat, lazy people in steel cages are happy people."

I think this description is more aptly applied to americans than to chinese, very few of which drive cars.

What has not double over the thirteen year period you mention? Housing is up a lot more, but demand remains strong. Quite a bit of the oil price increase, in this decade alone, is inflation.
From WaPo:

The Battle Over the Blame for Gas Prices

He added that the reasons for fatter refining margins were not so clear. "This is the time of year when that number always goes up, but it has gone up more than usual," Borenstein said. "What we're seeing is that refineries are making huge profits. We have not been building refineries, demand continues to grow, and supply is not keeping up with it."

...Major refiners say that the shortage of capacity in their industry has been years in the making and, because of the long time it takes to build refineries, will also be years in the fixing. For years, it was a low-margin, capital-intensive business. Investors shunned refining companies, and many refineries were put up for sale at relatively cheap prices or closed.

"The curves have crossed, and [profit] margins have improved," said Bruce Smith, chairman and chief executive of Tesoro Corp., a large independent refiner. "Only by improving margins do people have enough to invest in new facilities."

ThatsitImout - The reason that many (aware) market participants and Peak Oilers still fear a dramatic sell off in crude prices is because crude is priced at the marginal barrel. First of all, Peak Oil signifies a level where we will not ever be able to increase the production to a higher point in the future - it ALSO however, means we have never in the history of the planet produced that much oil. At that lofty production level, any decrease in demand that outstrips the flatness or slight decline of production means lower prices - if we are at or slightly beyond peak and we have a global recession, we literally could have $20 oil, irrespective of how much is left - the demand will have dropped considerably.

This angle is of course frightening because it suggests that the real price increases wont start to happen until well beyond peak (1-3 years?).

I have said for some time that I believe we will have a minispike approaching Peak to $100 or so and that will slam the world economy so bad that prices drop to $40 or so, the world rebuilds and the next time demand breaches its old highs, production is significantly lower and mrs-sasquatch bar the door...

During the seventies there were three recessions. nevertheless, price rose 9x during the period. None of the recessions caused a yoy decline in price. The only thing that did cause prices to decline in the early eighties was new supplies from the far north, the north sea, slope, and Siberia.
I expect that the price of gas will go up in dollars and down in real money.
When the US stops getting free money from the rest of the world we will have to pay for the gas and the price will go up, but since the price will go up in real terms in the US the US will use less and the price will go down in real money terms.
IE, if we stop buying overseas oil, 14 million BPD of world demand will evaporate. Imagine what that will do to the price of oil.
What I see is inflation in the US and deflation in the rest of the world as we stop importing.
Now consider what happened with whale oil back when it was used for lighting.
The first substitute was coal oil, then kerosine from oil wells, then calcium carbide lamps, then DC current from Edison generators, then AC current from Tesla generators.
Each new techology required at least one new invention to make it practical.
So, where are the inventors?
The total volume of while oil, while large and important to the wales, is vastly less than 1% of the volume of oil produced each year today. Inventors have a tough problem these days because the size of the problem is so large. There are rumors of imminent breakthrough in solar panesl, we will see. Meanwhile, we know enough to transition to nukes, but so far lack the will. Necessity will produce something different, what it will be depends on the options at the time.
Check out this article from today's Parade:

Is the American Dream Still Possible?

It's about the American outlook in general, not really about energy in particular.  Though it does have this segment:

Simone says that financial stress is part of their lives: "It comes from the `maybe, could be, should be' nature of our business." When the economy is down, people don't buy a new garage-door system. The cost of gas at the pump is a major factor, she adds: "When the price of gasoline goes down, business goes up."

What struck me was the last part, where Parade offers its recommendations.

What Can You Do?

In this (and every) election year, many politicians rev up emotions that keep voters from focusing on the pocketbook and daily-life issues that truly matter. You know what really touches your family and life: The cost of milk, gas and prescription drugs. The quality of schools. The hope that the government will step in fully prepared to keep you safe and secure if a disaster hits your neighborhood.

Don't leave decision-making and priority-setting to zealots who have an ax to grind--or to the blindly ambitious people who emerge in every generation. For more than 200 years, our system of government has encouraged power to the people. Be an active citizen.

Parade is the essence of middle class, mainstream America.  I suspect their reaction is  America's: the government must lower gas prices.  

speaking of mainstream America and MSM...
Cal thomas has a brilliant idea; "Become independent from foreign nations for oil."   He uses "if we can get to the moon..." argument.

Article titled


When you got to the moon, the US was the world's leading oil producer.
Ted Kennedy said about the same thing on Tim Russert this AM: he blamed Bush for high gas prices and said the govt. should fix the problem.    

Isn't it so frustrating that the only thing that's just as bad as the Rupublicans is the Democrats?   Somebody should just buy all of the copies of Ted's book and get him to go back the the bar and be quiet.

Something positive can come out of this.  Bush is pushing the "X will save us" line with hydrogen, plug-in hybrids, and biofuels.

Those are all good (on longer timelines), but it still needs to be driven home in the MSM and public consciousness that we need a short-term solution too.

Pushing Bush on why his Energy Bill (and etc.) now is a good thing.

Considering the invasion of Iraq has seriously cut oil from there and sabre rattling at Iran the government has been a big factor in this year's price rise. This year's rise is on top of increased demand from China and India which isn't our government's fault.  Their rejection of the hybrid car development from Clinton's PNGV program has left us without an inadequate supply of higher mileage cars to reduce our demand. The lack of a consistent alternative energy program over the last 30 years has left most Americans with no choice in their fuel supply or how much they use. The underpaid working families of America cannot afford new cars and are left choosing what others have bought when fuel was much cheaper. At the moment I am stuck with the car I bought in 1999. My income is half of what it was in 1999. What choice do I have?
My apologies for posting this comment here, but it's the only option I appear to have in the mess that continually loads whenever I click on the site. First, the site will not load completely, not any page of it. Second,for at least the past two weeks  the center column of comments and news has been completely overwritten by the ads and promos in the left hand column -- the left column itself remains blank. I've referred several people to this site in the past two weeks, including a state energy official, and they have all had the same complaint. This is on several machines, both Mac and PC, with everything from a home cable modem to a corporate server farm. And I just noticed that on this Post a Comment page, the center column has been overwritten by everything in the right-hand column.

I know it's not just me. Anyone else having probelms?

What browser and operating system are you using?

There was some trouble for IE users earlier this week, but it was quickly fixed.  

The site looks fine to me, in the latest versions of Firefox and IE, running on Windows XP.

I'm using a Mac with "Safari" as a web browser.  No problems.
The only problem I ever notice on this site:  leaving the IE Favorites window open to the left causes some features, like the text box I'm typing into right now, to have minor problems.

Other than that, I've not had any problems.  I'm running Windows XP with IE 6.0.

I am using IE 6.0 and what Cash describes is happening to me, too.
I use Firefox with an iBook using OSX and an iMac using Safari. Others have reported problems with Internet Explorer.

But, wonder of wonders, after posting the above problem, it seems to have been resolved. No idea why or how. Whoever among the gods of TOD is responsible, many thanks.

I using Windows XP Pro and IE 7 (beta).  No issues.  IE 7 allows multiple tabs.  The Oil Drum works fine.


Why does the graph appear to top out at about $71 when oil was over $75 last week?
It only went through the prior week.
Probably represents the May contracts, which expired last week. The $75 price was for June contracts.


The EIA data only went through 4/19 is part of it.  And I'm guessing the spot price didn't go quite as high as the Nymex front month contract.
I expect that Americans will flounder around for a while with these higher and higher energy prices and spot shortages trying to figure out why this is happening.  It's really fun to watch people interviewed on television: "it's those greedy oil companies" and "I don't know why these gas prices are so high but I sure wish it would stop".

Finally we'll all agree on the need to start killing millions of people and taking their oil by force.

I always wait with some anticipation for Don Sailorman to weigh in on the discussion.
Its because you get unexpected reward as opposed to something expected from Sailormans posts which causes a dopamine surge which makes you briefly 'satisfied'. Don (and others) have the breadth and consilience to accomplish that. (which is good). I liken his comments and experiences to the nearest thing TOD has to Jay Hanson
Hello theLastSasquatch,

If you haven't checked Dieoff_Q&A forum lately: Jay Hanson is permanently signed off--he said these websites have become 'toxic' to his health--severely affecting his mood and ability to sleep!  He is trying his best to move on to a pure survival mode--I consider this a Leading Indicator of travail directly ahead.  I am surely going to miss his comments, but I wish him my best.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

"Pure survival mode" is a misnomer. We get the same neurotransmitter signals of fitness whether they contribute to actual fitness or not. Reading/posting on these lists serves our fitness algorithms of a)tribal altruism b)relative fitness (relative to all the non-peak-oil aware and c) dopamine rush from the novelty of new, interesting or funny messages and information.

Cognitively Jay (and us) may acknowledge that some of the things we do in modern society are maladaptive and bad for our health, but our limbic and reptilian systems will seek them out just the same, because they are available.

"Survival mode" really means getting dopamine and other chemical cocktails that met with evolutionary success in todays culture and environment. Even if Jay throws his computer out the window, he would have to SERIOUSLY train himself to get dopamine from other sources in order to avoid buying another computer or going to Kona internet cafe to check energyresources,etc.

The energy subsidy we have received on the planet has doubled as an 'unexpected reward' subidy - as long as the current infrastructure and culture exists, the options available to us to get these chemicals are just too many for our small intellect to overcome (in general).

I write this, of course, when I should be planting spinach and green beans.

Gee, guys, it is nice to be apprciated!

Today however, I have a slight grump--not so much from this thread but the one answering the "Economist."

If price is allowed to rise freely, then the statement "demand is greater than supply" becomes meaningless. At a high enough price, there can be no shortage, because there exists a price at which quantity demanded equals quantity supplied.

There is one and only one way to create a shortage: And that unique way is to impose a price ceiling below equilibrium price.

Thus, the problem we face is not the meaningless, "Supply will not be enough to meet demand!" but rather the question of how high prices will go to bring the amount supplied equal to the quantity demanded.

At some point of extreme increase in price there will probably be the imposition of price controls and rationing to allocate a diminished supply. Then and only then--with price controls in place--will demand exceed supply (at a price below equilibrium price), and in that situation there will be shortages, in which willing buyers at the controlled price will be unable to buy.

In the absence of price controls, buyers can always get oil or gasoline--if they are willing to pay a sufficiently high price. I do not like the phrase "demand destruction" but it seems we are stuck with it: It works. At a sufficiently high price people will be unable or unwilling to buy as much as they are willing and able to buy at lower prices.

Thus what we should focus on is not the imaginary situation of people not able to buy oil products at all--but rather on the consequences of rising and someday extremely high prices.

To belabor the obvious: Our economy and our whole way of life is based on cheap oil. As oil prices rise to double and perhaps triple current prices, the pain and disruption will be enormous, and to simply assume that "the market" will assure a smooth transition to very high-priced oil is fatuous.

The only good news for those of us who live in rich societies is that most of the pain and by far the worst outcomes will be in poor societies.

The bad news being we wont be able to travel anymore to those poor societies given that we will be summarily stoned, mobbed and looted.

Relative fitness only works to a point. If Im the only guy out of 100 with any food or money, I doubt the other 99 are going be kowtowing sycophants.

I agree with your points though - implicit in the statement is
"Demand (in the current neo-classical paradigm of cheap oil) is greater than supply (in the soon-to-come hubbertian downslope, irrespective of price.)

Sailorman:  "In the absence of price controls, buyers can always get oil or gasoline--if they are willing to pay a sufficiently high price."

Like almost everything else, this is true, within limits.  The problem of course is the volume.  Again, I will trot out my trusty old Texas model.  Vast sums of money have been spent on advanced drilling and recovery techniques in Texas, but production has fallen every year for 33 years.  If we were the sole source of crude oil for the world, for every four gallons of gasoline that we bought in 1972, we would be bidding for one gallon today.  So there is oil available, but it appears that no amount of money will bring us anywhere close to our peak production.  

I think we are in agreement.

Suppose production of oil falls at the rate of 5% per year for the next twenty years: Quantity supplied can still equal quantity demanded if the price rises far enough.

There will be a microeconomic effect in which households and business firms are unable to buy as much gasoline, diesel, etc. at higher prices as they were at lower prices. Eventually (not yet) there will also be a macroeconomic effect in which greatly increased oil prices will produce recessions or depressions that lower real economic output, real incomes and hence the total demand for oil.

What I should make clear is that unlike most economists, I do not expect price variation ("the market") to enable most societies to make a smooth transition away from dependence on cheap fossil fuels for transportation and food.

Economies and societies can collapse while quantity demanded equals quantity supplied.

'There is one and only one way to create a shortage: And that unique way is to impose a price ceiling below equilibrium price.'

I have to take exception to this - there are other ways. For example, there was a real housing shortage in German cities like Hamburg, Berlin, Köln, etc. ca 1945 (and in Germany in general, as millions of ethnic Germans flowed west or were pushed out) - and this shortage had absolutely nothing to do with price. Worse, price would not have played any role at the time - the infrastructure was as gone as the cities themselves. Of course, over time the situation was dealt with, but in the winters of 1944, 1945, 1946, and 1947 there was a very real housing shortage which was not an economics problem. I have noticed that economics seems to make very little provision for the actual destruction of war, even though humanity engages in it on a regular basis.

This to me is what makes peak oil a difficult problem - there will be less coming out of the pipeline (whether today or in a decade or two), and absolutely no price will change that.

Whether it feels like a shortage isn't the same as whether the absolute quantity is less, every year. At least till now, that has been the pragmatic result of extracting a finite resource from places like the U.S., the North Sea, etc. There is no reason to believe any other major oil field is qualitatively different.

This conflict between absolute quantity and human determined demand does not have a simple resolution, however. And price will undoubtedly play a major role. We may not feel any real need for oil in 15 years, for whatever reason.

But there are shortages which have nothing to do with price, and I suspect peak oil (or peak natural gas in North America) will contain a number of elements which are not related to price at all. When the oil or gas is burned, there is no price level imaginable to get the used energy back for further use in the same way. More efficient use? - certainly influenced by price. Alternatives - why not? More energy from already burnt fossil fuels? - only if you consider the greenhouse effect a net energy gain. (A curveball - thermodynamics isn't something to casually toss around in such discussions, so I try to avoid that line of argument. It is conceivable that the amount of solar energy trapped over the next 5 centuries far outweighs the original energy of the burnt fuel, and that wind farms end up pulling more energy out of the air, so to speak - thus dancing around the idea that burnt oil and gas are 'gone' as an energy source after being burnt. Oil is a very slippery subject.)

You are correct that there are situations in which markets do not function: For example, in the aftermath of Katrina, in New Orleans and elsewhere there were places where one could not buy a bottle of water for any price.

I did not mean to imply that at a high enough price output will always increase. My main point is that at a high enough point "demand destruction" will occur (where markets are functioning) to drive price up. People will be deprived of consumption not because there is a shortage but because they will not be able to afford to pay extremely high prices.

Thanks for your observations. I'll try to be clearer in the future.

Actually, I was going to use water as another example, but it wasn't necessary.

And in all fairness, I was also reacting to the idea of another poster from another article that peak oil means that demand exceeds supply, which was too absurd for me to even bother commenting on, though it really, really bothered me. Peak oil means, in part, physically less, regardless of how much demand exists. Assuming, reasonably in this case, that people still feel the need to use oil as the decline begins.

I may add that such examples essentially only work with the basic needs of survival, and don't really apply to a shortage of anything not directly related to staying alive. Also, such shortages are generally caused by such catastrophes as war, weather, earthquakes, etc. All other 'shortages' can definitely be defined in terms of price. And much of the current demand for oil and natural gas is far removed from such survival needs. Though watch the next few winters - that is where real shortages may lead to real problems in some areas, such as the British Isles.

Sailorman says...

"The only good news for those of us who live in rich societies is that most of the pain and by far the worst outcomes will be in poor societies."

I have read this opinion before. Why is it true?

No energy importing society is less financially leveraged than ours.

No economy is more dependent on oil than ours.

How will Costa Rica or Vietnam suffer more than us when the SHTF?

In poor countries many people are already undernourished, malnourished, or in some cases starving because they cannot afford the relatively cheap food that is now produced with relatively cheap fertilizers, pesticides, and irrigation water pumped with fossil-fuel energy.

As the price of oil and natural gas increases, so also will increase the price of food. Fewer people will be able to buy adequate amounts to eat, and therefore the higher prices for oil and natural gas will cause increases in deaths resulting both directly from hunger and also indirectly from diseases that kill undernourished people.

Note that all this can happen with no global "shortage" of food at all. The United States and other countries can (and do) have huge surpluses of crops while a substantial portion of the world's population goes undernourished. The underlying problem is too many people on earth to be fed with agricultural techniques that do not depend on fossil fuels. The probable trigger for a major increase in death rates among the poor of Asia, Africa, and Latin America will be major increases in food prices that will inevitably follow major increases in the prices of oil and natural gas.

Rich countries may suffer economic crises comparable to the Great Depression and come through eventually without experiencing a dieoff. Rich countries can cut back consumption of fossil fuels enormously and still produce plenty of food for their own populations or produce manufactured goods that can be exchanged for increasingly expensive food, and they can afford welfare programs. Poor countries do not have these options.

Suppose, for example, the U.S. reduces its consumption of oil and natural gas by a quarter over the next ten years; the resulting disruptions might be severe but not catastrophic. If higher prices force, for example, India, to cut its use of fossil fuels (and products made from them, such as fertilizer) by a quarter, much of that decrease would cause food production to decline.

Briefly, people in prosperous countries are much better able to absorb the effects of reduced supply and increased prices of fossil fuels than are poor people in poor countries.  

Re: "I'm sticking to my story for now." and the "Iron Triangle"

What a week! I'm traveling and haven't been able to get near a computer -- watching CNN as oil prices rise $5 and watching this television nonsense. Without TOD, it's like an out-of-body experience. Finally got to a library.

Well, Stuart, my story was approximately your story (without any geopolitical oil shocks) but I'm backing down on the high end. The Iran deal can only get worse as can Nigeria. (Did you see that Nigeria was conveniently forgiven some of their immense debt the other day?) Hurricane season is not yet here but I expect it to be about like last year since sea surface temperatures are exceptionally high now and all the other forcings (eg. the NAO) are still in place. So, I figure after that first big one hits the GOM, we could see prices over $85/barrel -- now that we've broken the $70 barrier and set a new ceiling on Friday of $75 plus. This would be significant because it would represent the highest price ever in inflation-adjusted dollars. It will depend on when the hurricane hits. If it's before Labor Day, then I think prices could exceed $85/barrel. I expect profit-taking to lower the price next week but I wonder where prices will stabilize now that the barrier has been broken?

I thought that Iron Triangle comment was terrific because it's so true. I just needed to watch more TV (which I rarely do at home).

As for oil prices not being bubbly, I'm glad you put that graph up because this is definitely not a bubble situation. Volatility yes. Bubble no. The fundamentals have changed. Only a few on Wall Street know this. In fact, approximately 0.006% of them

Have a good one, Dave

Also, China is absolutely zooming (10.2% growth) at $75 oil. Demand destruction will eventually come but it is a LONG way off (price-wise) in China. The irony is Americans get cheap trinkets at WalMart in exchange for expensive gasoline.  
A big part of that is because China has no negative price feedback.  There will be no demand destruction whatsoever.

CNOOC, Sinopec, and PetroChina are cheaper than almost any other oil companies in the world.  That's because they sell oil with domestic price caps on gasoline, diesel, and probably other products.  They were adjusted upwards slightly this year, but it's still very, very cheap.

They can do this if they wish, but they are still buying oil on the open market, and as prices go higher and higher, it costs them more and more.

I guess they have all of our $ from the crap we buy at Walmart.

The first picture in this thread is classic for techno-traders!
In October 2004 the price hits the top in the mid $50s then retreats. In March 2005 the price tests previous maximum but fails to break. Then in June 2005 the price breaks the range and what was the top becomes the bottom (see June, July, November 2005 and February 2006).
And once again, August 2005 was the top. In January 2006 the price climbs to the previous maximum and retreats. Now the price breaks the range and...........
Right! If you do believe in Peak Oil and techno-trading, it's time to buy, because the next maximum will be somewhere near $90.

As for me, I am not a believer :-)

When I stare at it, I can't convince myself that a random walk could look like that, though JDH at Econbrowser insists oil prices are, at least on a quarterly scale.
He says:

The conclusion I draw from such calculations is that a random walk seems to be quite a good approximation to the dynamics of real oil prices, just as it has proven to be for a good many other economic data series.

I take that to mean that this is an extremely noisy system.

We may be focussed on a single fundimental driver in that system (depletion), but we know from reading the news that there are many more drivers (the mood of militiants in Africa, etc.)

I think the key take-away of that Econombrowser article, reinforced perhaps by my reading of "fooled by randomness," is that oil prices are on a random seeming walk, and there is no reason that walk should resolve suddenly into something more "rational."

Outside of a severe global recession, I can not think of a single factor that could bring oil prices down anytime soon. We have a fair idea of the depletion rate, we know what new projects are scheduled to come online if everything goes right, the quantity demanded is not dropping (especially in Asia), there are no signs a large-scale movements toward greater efficiency or fuel switching (and even if there were, this would take years to implement), etc. So, I think we've got a pretty fair idea of what is possible price-wise at this point.
The implication of these calculations is that, yes, $15-30 a barrel five years from now would be within the realm of what could be judged as consistent with historical experience, though so would $200-250 a barrel.
Hamilton's lower bounds in any one quarter are simply not plausible anymore outside of the aforementioned recession.
the aforementioned recession being considerably more likely than zero, in my estimation.
Which don't you believe?  Peak oil or techno-trading?  Or both?
These are both alchemics
Many say we will see $3.50/gal this summer.  If you factor in Iran, who knows how high it could go. Everyone knows America MUST get off the oil.  After September 11, 2001 I expected our President to call on Americans to GET OFF THE OIL.  I was expecting a speech like the one JFK gave that motivated us to reach for the moon. As you know, this never happened.  Eventually I realized that the only way this is going to happen is for us to do it ourselves.  To that end I created this idea and have been trying to make it a reality..

The EPA is offering a research grant opportunity that I believe is a perfect fit for this idea.  I have sent an e-mail to a hand picked list of university professors who have experience with government research projects.  I'm looking to form a research team to apply for the EPA grant, conduct a social-economic experiment and surveys to determine to what extent the American public will support it, project the economic potential of WPH, and identify logistical, social and political obstacles as well as opportunities.

All government grants are awarded based on merit of the proposed research.  I believe WPH has merit but your help is needed to verify it. You can help by posting your feedback.  Let the professors and the EPA know what you think about WPH.  Do you think this idea is worth pursuing? We need to know if Americans will support a plan like this.

Do you have any ideas to improve the plan?

Share any and all of your thoughts.

Tell your friends and family about this Blog post and ask them to post their thoughts on WPH


Thank you