Oil Price Poll Redux
Posted by Prof. Goose on July 29, 2006 - 3:04pm
With oil prices around $73/bbl and news of reduced demand in the DrumBeat today, it's time for another poll: where are oil prices heading in the next two months?
(here's a link to our first poll a couple of weeks ago...I shortened the time horizon a bit in this one, just to shake it up a bit.)
Here you go...
“What people need to hear loud and clear is that we're running out of energy in America.”
—George W. Bush, May 2001
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Unless we have a supply disruption due to hurricanes or political events, I don't think we'll get anywhere close to either 63 or 83 in the next two months. More like 69-77 or so. However I think the upside risk is a lot greater than downside, i.e. it's much more likely that we'll see 83 in the next two months than 63.
As for traders (read speculators), they don't deal in multi-year trends, they ride the two to three month cycle of rally / sell-off. Plus, they are all economists at heart and still believe that demand creates supply. We know better.
Curve fitting might work short term through luck, but it absolutely doesn't make any sense as a predictive tool for oil.
-best
Six months? Yeah, right. Your first post is 10 days ago. Try again. Or at least post us some links to where your genius comes from.
Professionally, I work in IT, but being located in Houston, TX, I have been in and around the energy industry for my whole career (13 years). I worked on one application that managed well-log data and another that was an online data room for oil and gas properties. Yet another project was an online marketplace for new and used oil field equipment. I'm not a geologist or a reservoir engineer, but I'm not new to the industry either.
Back to the chart, I think that there is at least some predictive value in projecting a four year old trend out another six months. However, I did not intend for this chart to be a stand alone argument. I seem to have underestimated the amount of hostility I would encounter to the concept of $80 a barrel for oil though. I guess I expected that people here would be better versed in these issues. For the sake of completeness, here are the highlights from my project which I now submit as inductive support for the price projection I first posted.
The above two charts are year-on-year percent change and projected supply. Ya'll may recognize them as Stuart Staniford did the exact same thing not that long ago (from whom I initially obtained the idea for my project). Stuart actually helped me out (I've been a reader here for longer than ten days) by sending me the ASPO dataset for pre-1965 since the BP dataset only goes back that far. I used that data to complete my world linearization and Hubert curve charts as seen below.
Finally, I took the results of my linearization(s) and used them to extrapolate future discovery and production and combined these on a single world overview chart that also shows demand as projected by the EIA at 1.9% per year out to 2025. Doing that, I came up with the following. As you can see, one of these plots is not like the others.
Oh and BTW, I got an "A" on the project and the class and the program as a whole to date (4.0 GPA), so you cynics can just go take a flying leap for all I care. At least I can tell you why I think the price of oil is going up without having to rely on nothing more than unsupported "hunches" and "gut feelings".
Of course pulling Buzzard at 200k bopd would deplete entire field in under 8 years thus we should expect rapid decline to set in by late 2010 at which time Buzzard would pass the 50% Qt point.
I agree. It may fall a little bit, but where will all this oil come from to drive down the price so much? It's probably a better bet to talk about the yearly trend though. I would be quite confident to claim that a year from today the price will be higher than 73.
I think we've all seen that there isn't going to be a whole lot of demand destruction unless the price stays high, recession or no.
Did he mean the price "you" as in you(his son(or daughter), as a proxy for him) would pay? Or did he mean "you" as in what your average person would pay? Or did he mean what the aggregate of all those "yous" would pay, as in the market's going rate.
I suspect your Dad was pretty smart.
Of course I had no money to buy stocks, darn, that kept me from becoming rich.....
So you reject hard data in favor of clever colloquialisms? Nice try, but as you say "try again."
In the past the oil price has been notoriously difficult to forecast - in fact it used to be impossible. That was because the price was not controlled by market forces.
Things have changed and since 2002 market forces have been more in control and I think your chart is as good a way as any of pointing the future direction.
Have to note that your red line is labelled pessimistic and on this basis it seems you are a driver and not an investor.
The precarious state of oil supplies is amply illustrated by concerns of sea breezes blowing down GOM way. My understanding is that El Nino contributed to last year's severe hurricanes and that El Nino has now reverted to a more benign position this year. So a repeat of last year is perhaps less likely. What will happen in the absence of severe weather is that ocean temperatures will get hotter and hotter and the next time El Nino flips all Hell may break loose.
As for my "pessimistic" curve, the company I work for now actually benefits from high energy prices, so indirectly I do as well. We have already noticed a substantial up turn in new business lately. Still, I recognize what this means for the economy and the country as a whole and that is why I labeled it such.
Yes, before 2002 there was more supply than anyone could possibly need, so the price was more a function of geopolitics than anything else. But that has changed, shut-in capacity has been reduced to next to nothing which means the rules of supply and demand are now king. That is why we are now seeing a bull market that is 4.5 years old with no signs of a slow down in sight.
Never mind, you will have to get used to that ;-)
Majik 8-Ballz Sayz: "Expect a Change...
I buy that. IMHO The Direction and Velocity of Change depends mostly on Current Windowz of Opporunity and How Quickly they might slam shut...
... in other words, TimezUp. And Now All Dependz ...
On PoliTICz, Mice and ManzThingy... (oh joy...)
=========Diplomacy: Babel on The Border
A number of long-held assumptions about the Israeli-Arab conflict have been thrown overboard during the first two weeks of the current battle.
The first is that this is an Israeli-Arab conflict. Wrong. It is fast turning into an Israeli-Islamic conflict, as the true power behind the throne is not located in Bnit Jbail, Beirut, Cairo, Damascus, Riyadh or any other Arab capital, but rather in Teheran. And the Iranians are not Arabs.
Another comfortable assumption was that the conflict is over territory, and that if Israel would just cede territory, the conflict would dissolve. Wrong. Hizbullah's attack on Israel two weeks ago had nothing to do with territorial claims, except maybe claims on Haifa, Nahariya, Kiryat Shmona and Safed.
And, finally, the war has put paid the notion that Israel learned the lessons of May 1967 and would never again entrust its security to the hands of an international force that could be withdrawn at a whim. Wrong again...
http://www.jpost.com/servlet/Satellite?cid=1153292014986&pagename=JPost%2FJPArticle%2FShowFull
I remain behind my 100% correct and invincible forecast: The price of oil will fluctuate.
I expect to see greater volatility over the next two years than the past two years.
Is there a floor under the price of crude? Yes, but I do not know where it is. Barring a major global depression, it would surprise me to see light sweet crude ever below forty dollars again.
Is there a price ceiling? Yes. It is political. At some point there will be rationing and price controls. When? Dunno. Would not surprise me to see various controls and excess profits taxes by late summer of 2008, as the U.S. presidential election heats up. Thus, IMO, going long on any oil company at this point is folly. So is going short;-)
For most people what you are saying is probably true at this point in time. And I may very well be among that group for all I know... but if you knew which companies were the Most Susceptible to Disruptions (from weather or war) and you knew which companies were the LEAST sensitive and therefore most reliable...
Panic Sellers and Panic Buyers with Wrong and Right Companies in the Wrong and Right Profoundly Locales ("location!, Location!,Location!" meets "Energy is non-negotiable").
BUT... who the hell knowz all that stuff right?
They pay large dividends, and tend to be valued by analysts on the assumption of $40-$50 oil.
I think they all the large oil co's look pretty good value regardless of the oil price, because Wall St doesn't believe in peak oil.
They believe that discoveries have dropped off the last 20 years because people haven't been looking for the stuff, and when they find some the oil price will drop again. If you disagree, you could do worse than buy some BP, Royal Dutch, Statoil, Total, Chevron, Exxon etc.
Or, there is now the USO crude oil Exchange Traded Fund which can be bought and sold like a stock. It is supposed to track the spot price of West Texas Intermediate, so I don't know if that would be affected by price controls or not. Even if so, its price would not collapse even if price controls came into existence (as the oil companies' might), but rather would merely stabilize. But I would imagine that price controls would only be applied in the retail market; the last thing the government would want to do is to discourage domestic production by artificially lowering the value of domestic oil.
What I don't see is that any country is going to be stupid enough to volunteer its soldier for this somewhat unenviable task. France has said no and the rest are walking around looking in the air and making uninterested noises. Even Kofi Annan hasn't much hope or anything soon.
I would not, certainly not for Toady B.Liar
Enough.
When UK parliamenarians and US Congessmen start to put theire children in harms way, then the rest of us can start to cough up.
I assume you are smart enough to go to more than one source for your information. So you must know that the reality is very much the opposite of what you copied and pasted.
Hezbollah has never been as popular in the Arab world. In Cairo people are putting Hassan Nasrollah's pictures next to Nasser's. What the discredited Hashemite and Saudi Kings say don't represent just the opposite of what their people think and want.
It's very strange how out of touch people seek out vindication from sources of misinformation just to keep.
Yes, it will go up, yes it will go down, it may ramp, it may slump. During this last year, ''good news'' is a drop of a buck n a half. Also known as a 'slump in oil prices'.
To me at least a slump is a drop of 25 %.
There will be ups and downs for a variety of (yet) unknown factors. A hurricane here, a pipeline attack there etc.
It may well be a rollercoaster determined by fear, euphoria and greed, but fundamentally, the position is still as follows:
- There is no swing producer now.
- The number 2 , Cantarell is depleting.
- Kuwait may change the game rules in quite a fundamentally new way.
- Any new oil is way off and will never be enough to make up the difference
- Iraq is breaking up.
- Nigerians may get cheesed off with living on less than $3 / day and decide to take control of their own resources.
- Nobody has told China that the sweet oil party has moved on to another frat house.
- A new Salah al Din may emerge in the middle east and kick some serious crusader ass.
- Israel has worked out the regional demographics and has decided that the best way forward is to make life unviable for the Lebanese and Palestians by destroying the infrastucture required for life. (Water, power, transport etc)
Who knows?Hope for the best, but plan for the worst. Drive your miles,but cut your budgets as if you are paying $3.75 a gallon. (ie 'tax ' yourself)
Then if it falls, dont go splurging it on a new flat screen TV, or Chinese Garden Furniture, but kitty it for when it turns up to $4.00 a gallon.
Ditch the SUV - You know it makes sense. Especially if the price of oil falls: Euphoria will kick in and you will offload your future liability at a better price than when oil ramps up in price later.
Drive like its rationed to 1 tank a week - You will amaze yourself how 'soft footing' improves your mpg.
It may jump about, but the long term fundamentals point north.
Indeed! Heck, I am a trader now and even I don't sweat monthly fluctuations.
''Invest in land - 'cos they aint making anymore more of it''
Mark Twain (I think)
Will Rogers on Real Estate
April 13, 1930
(paraphrased) put your money in land ...ETC
Both Will and Mark were sharp cookies.
Land mines are a real pisser.
And, of course, land can be created, too. Drain a lake (like Lake Washington). Build a dike (risky, but doable). Etc. So, "they" are, indeed, making "it" in some places.
-best
My son had a hard time, because his dad is an economist and old blowhard knowitall. So he (and two of his sisters) majored in economics, and because he is smarter than I am and found a good woman to be his wife, I think he'll do just fine.
His favorite book was "Stuart Little," and after reading it to him more than one hundred times, I came to the conclusion that it contains most of the wisdom humans have come by during the past six thousand years. Also the prose is superlative; too bad the movie did not live up to the book.
In regard to important things, what you have not learned by the age of twelve you probably never will learn.
Moral: Spend more time with kids, both your own children and also others'.
Hurricane season isn't in full swing, this hot spell was country-wide, how much heat does that mean is in the water?
We are cooking at present.
I think what may happen is that the Hurricane season may shift so that frequency and intensity may become greater in the latter part of the season.
Who knows?
Just like oil prices:
Hope for the best, prepare for the worst.
After reading the latest National Geographic on hurricanes I've now become interested in deep warm water. These are areas where the warming extends well below the surface. They really get a hurricane kicking with only wave height keeping them under control.
Deep hot water probably results thus in monster storm surges.
The longer hurricanes don't form the worse they will be if if water continues to be abnormally warm since it will warm deeper. If global warming is really driving things people will be happy when we have early busy hurricane season since it probably will mean less mega-storms. I'f I'm right then we will look back on 2005 as a mild season.
Play with me.
Play with me motherfucker. Otherwise, nobody will pay attention. People only pay attention when you use bad words.
I use way less fuel than you. And I'll guess Roger Conner and many others do as well. What do you have to say for yourself?
But, I have been a passager in a van hauling a trailer, from Arkansas to Alabama, and back again in about 6 hours. The Trailer though was rebuilt by me and my dad about two weeks ago from an old 60's tent camper, and should serve us for another time period until we have to hook it to a horse team to get it to town with the market goods.
OilCEO were you having a bad day or something?
If the USA ever signed up for Kyoto, they would need a second, additional protocol for you.
I agree. My prediction is $80 +/- $40. ;-)
Funny you should mention him. He came from a Kurdish background, not an Arab one:
http://en.wikipedia.org/wiki/Saladin
This goes to show that Arabs will unite behind a warlord outside of their extended tribe if he professes Islam and speaks Arabic.
Sultan Baybars (not Saladin) drove the crusaders from the middle east and halted the mongolian invasion of the tartars in about 1260. He was born in Kipchak, mongol russia (A russian finally drove the westeners for the middle east!).
He foundered the first marmaluke (slave soldiers) dynasty in Egypt and succeded in organising Egyptian society into a military society capable of finishing off what Saladin could not do.
Strangely, in general, the west seems to remember Saladin, who failed to get the crusaders totally out of the middle east, but can not seem to remember the name of the man of succeded. The middle east remembers Saladin as the one who failed to capatalise on his victories and Sultan Baybers is the hero who finished of the job.
Sorry about the spelling.
The "arabs" are a mixed bunch whose main commonality is their language. There are loads of "arab" christians which the American media are very careful so as to rarely mention. For example, 10% or Iraqis are Christian as as 10% of Egyptians. Over 30% of Lebanese are Christian.
When the arabs/moors invaded spain, they had a jewish general and lots of jewish soldiers. Think about that!
Historically, the leadership of countries like Egypt, Syria and Iraq were frequently non-arabs. The most militarily successful Egyptian ruler was an Albanian - Mohammad Ali Pasha. This ruler occupied what is now Israel, Lebanon and Syria - he grabbed them from the Turks..
Even Anwar Sadat, who was a vastly better commander than Nasser and who gave the Israelis a real scare and who managed to regain Sinai in exchange for peace, is from Sudanese extraction - that is why is was so dark-skinned.
No way...My new RAV4 gets 30mpg on the highway!!! Not all SUVs are created equal.
Actually the new RAV4 is longer and more sporty looking than previous models.
Care to share what you are driving around in these days?
No, I don't drive it more...if we need to go long distances without the dog and luggage, we drive the Prius.
Against this backdrop of a world built around "easy motoring" as Kunstler likes to call it, we don't have many choices in the 30mpg range and higher, especially if someone has a family (spouse and children) to haul around places as well. From what I can see, the RAV4 is not a horrible choice given the choices we Americans are allowed right now.
Yes, lots of us hope more and better choices will continue to come to market. But those of us living in the US have to live with the limits of what "the market" will offer us, rather than what we might actually want.
Personally, I am considering a VW Jetta TDI now, although the Ford Escape hybrid at 36 mpg city looks attractive too. The Escape would drop already small commuting costs further and give me lots of room for hauling things to and from the local garden center and local Lowe's hardware store.
Gets slightly better milage (than Jettas) since the shape is more aero.
Drive one. It might remind you of the old BMW 2002's. Great visibility.
Toyota has excellent service and that, in part, sealed the deal for me.
A Honda Civic LightFoot gets 41MPG here in suburban Maine. Kids use their bikes to get to the movies.
The poor boys will go first. Look at it as a rising tide: Those nearest the beach will drown first.
Sad really.
On the hurricane front -- there may be a chance that global warming may cause a shift in the normal hurricane formation, shifting storms south. Remember that the planet experienced the first hurricane to ever hit below the equator in the Atlantic.
I'm trying to outdo Michael Lynch here. And I think I'm having a great chance.
ML beat Ron Patterson to the punch a couple of times but predicting lower prices.
We don't have a gold standard.
We don't have an energy standard.
All this implying we decoupled the price/commodity relationship. The govt/market can say whatever or set whatever prices they want.
But True any number on a given scale can be reached, the when is not given in your statement. It could reach zero dollars, when the ants are the only creatures left on earth that still inhabit wall street, because humans have died off. It could reach 100,000 dollars a barrel when hyperinfaltion makes the Dollar equal to the price of a double bubble gumball.
All subsets can be met given enough time and study of the possible futures of the events ahead.
You have said about as little as I just did, and It means about as much as my post.
2005?
2006?
2007?
2008?
2009?
2010?
Later than 2010?
I'd be very interested in the collective wisdom of TOD readers on this. Maybe one of the editors can make it a poll.
Of course, it's easy to say, "I don't know when the peak will be". But think of it like this: imagine that you can make one guess, and if it turns out you were right, you will win a big prize. In other words, you have to try to pierce your own uncertainty and come up with the best estimate you can. Such guesses have been shown in many situations to be surprisingly accurate, when enough people guess and nobody knows other people's guesses until afterwards. TOD polls are perfect for getting this kind of information.
Net Liquids Peak, that is.
Thanks, but comparing my work to Stuart's is like comparing an amateur song writer with a modicum of natural talent to Mozart...