Oil Price Poll
Posted by Prof. Goose on July 9, 2006 - 12:28pm
With oil prices around $75/bbl, I think a poll is in order on the future of those prices, as well as a discussion of how and why we're going to get there. With the supply/demand balance and geopolitics as they are, this is a relatively stochastic situation, but I'd like to hear what you all think.
Here's the poll...
“What people need to hear loud and clear is that we're running out of energy in America.”
—George W. Bush, May 2001
Contact
- Content: editors at theoildrum dot com
- Tech support: support at theoildrum dot com
License
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
As to the poll, it's all about the hurricanes.
But I have changed my view a bit about demand destruction. Before I thought prices could never get to $100.
Now at $3.00 gas demand is still increasing. I guess the question is how far are we willing to go into debt to pay for our current lifestyle?
That area won't suffer the same fate as some other areas will when the gas prices make mortgage payments.
I am of the opinion that we can still go up to $4.00 a gallon if we phase it in slowly like $3.00 has been doing. If its a sharp hit in a few weeks and stays there, it will hurt more than if it goes up and down but finally settles at $4.00.
But I don't drive nearly as much as I did 16 months ago.
One thing is for sure though, they are spending less money on snacks, movies, nights out, etc so the entertainment and luxury businesses are losing out on their $50 a month.
How much of the US economy is based on luxury/entertainment. Is it most commonly the first thing that people stop spending on when their discretionary income drops or do people just pile on the credit card hoping for future relief?
Consumer spend is approx 70% of the US economy, I don't know of any attempt to define consumer discretionary vs staples spend.
Most gas spend is done on credit card, as is a lot of other consumer spend. There will be a lag before increased gas spend affects behavior. Those who pay credit cards off every month will probably make changes in spending behavior quite quickly. Others may let things drift a while before cutting back drastically, yet others will juggle things into probable bankrupcy.
So, the affect of increased energy prices on consumer spend, and hence the US economy, is likely to be gradual.
But while the long range commuters get demand destruction first, as the prices rise, the curve will rise and get steeper like a Hubbert Curve! He gave up a $40,000/year job becuse $6,000/year in gas sunk his truck. (and the gas money is after taxes)
The lesser driving was also mitigated by a public transportation system which was said to be one of the best in Europe. But even so, I didn't use it to drive the 10 miles to work because it would have taken me about 1 hour to get to work from my house on the west side of Aberdeen to the office on the south side. I don't know what pain level would have made me ride the bus, but even $4.50 / gallon wasn't it.
This means that the people who get the money (the oil exporters) can (and will) spend it back into the U.S. economy (or buy bonds). If they don't the dollar would not keep its value. So this means that the money comes back into the U.S. either way!
Only if extracting the oil requires more manual labor (more people to extract a barrel) the economy will be hurt! But since you hear every company screaming that they can not find qualified people I think that the increase in people working in the oil sector is relatively limmited (any data on this?)
How will employing more people in oil extraction hurt the economy?
Once the story hits the MSM, I would expect the price of oil to stay in excess of $100, unless the economy really goes into a deep slump.
More to the point, the commentators have a lot of excellent ammunition. First, the war and weather impacts are keeping lots of oil off the market. Therefore, even if oil production is flattening or begins to fall, that does not prove anything about "peak oil", which is a geological concept. Man-made or natural impacts on production invalidate a short term decline from indicating that oil has peaked in a Hubbertian sense.
Secondly, there is a LOT of new oil production coming on stream over the next 3 years.
Thirdly, the concept of PO as debated on MSM is a confused one that includes production of unconventional oil and other energy products, like bio-fuels. So a true discussion of PO on the MSM is almost impossible to have now.
What I think will have more impact is the increasingly rapid change in mind-set among exporting countries. They are becoming horders, recognizing that if they hold back production, they do not need to sacrafice revenue because price increases will produce the same revenue on lower production. These are the folks who truly do understand PO and who are acting in their best interests which are quite different now that a Peak (at least in sweet crude) is reasonably close to being in sight, if not already here.
Most of the big oil producing countries (with the exception of Norway and Russia) also have fast-growing populations; the political pressure to curtail exports to satisfy (and subsidize) growing domestic demand and provide for future needs could become a larger and larger consideration. Policy changes in exporting countries could dramatically affect the amount of oil available for export, even if total oil reserves or production don't change as dramatically.
This is crucial, in that offshore oil is the only thing which might prolong the "wobbly plateau" and/or keep prices from inexorably rising.
Without a real offshore gush, Deffeyes is probably right about the timing of peak.
Any thoughts on this?
It seems he could omit those few opec countries that were holding excess capacity and compute a world-wide depletion rate for all others, then extend this rate to those omitted. Are his numbers sufficiently detailed to allow others to make this adjustment?
i don't think we will see $60 or below again.
Think US unemployment of 11% in early 2008 as the magnitude required.
I don't see why everyone assumes that economic or political dislocation will equate to lower prices.
Military situations in Central Asia, ME, NK, depletion rates, random acts of catastrophic violence/destruction... the list goes on folks.
All these things will push prices up, if anything.
I'm, of course, biased. I just can't imagine a soft-landing with us humans at the reins. That, and we already once had a massive depression without any help of essential commodity shortages. I inherently have always "believed", since I was a little boy, that the economic system is unstable.
There is a strong resistance level around $50.
However, I perceive $30 as a "floor."
July 5: Occidental Petroleum Corp. will take a $306 million after-tax charge after Ecuador's government seized the company's oil fields there, the company said Wednesday.
Those barrels of light sweet crude are indeed becoming more precious.
Frankly, on the ground, things already seem bad to me. Here in Spokane, more and more storefronts are empty and those remaining are debt collection offices(full to overflowing parking lot), tatoo parlors, nail salons, pawn shops and businesses providing second tier banking/check cashing/payday loans. Less than half of my neighbors work one full-time job...most either only work part-time or work only occasionally. I "consult", but to stay busy I consult in several different fields simultaneously.
People ascribe mythical properties to the oil futures market, which are not borne out by the reality.
I voted: C. prices see $90, before prices reach $60. I think it will be the combo of hurricanes, Mexican vote conflict,and more problems with Iran, Iraq, NK, and Nigeria. Plus the usual depletion overriding all these events.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
And, inspite of our discussions here, society has so many sunk costs I find it unlikely that energy usage is that elastic.
Next go study up on TEOTWAWKI ;]
To Be Fair (2BF), not all of the acronyms we use here are common acronyms
Actually your probably more correct then you realize.
China has the most to lose initially and they subsidize gasoline so there in a far more fragile situation.
The US has a lot of fat in its consumption while in China a lot is going directly into real if misguided economic gains.
Finally I lived in China for several years and I assure you its not a stable country the markets are volatile a lot of the so called growth is misdirected now caused by government officials directing spending based on personal stock portfolios. Pork Barrel politics is beyond comprehension in China. Its far more like the EU then the US. The only thing shared is the written language. I'm sure a lot of people
don't really understand the Beijing only controls via crackdowns tax collection is just say interesting.
Wealth is unequally distributed and only tight internal border control keeps disruptive mass migrations from happening.
See for example
http://jamestown.org/publications_details.php?volume_id=408&issue_id=3422&article_id=2370097
Not to mention the export economy and investments tightly tying the US and Chinese economies.
Finally the last tie is what really binds china's hands.
The moment the US economy starts to tank is the moment they have no choice but aggressively prop up internal consumption to prevent collapse. Energy will play a big role.
The question is will the export collapse overwhelm internal reform ?
What pretty interesting is this points to the US trying to aggressively take the Chinese down with them to preserve energy supplies either on purpose or by fiat.
Not quit as clear picture but certainly once the Chinese economy turns inward the gloves will come off.
The only thing keeping china together now and the communist in power is the economic growth the moment this stops...
The stock markets are not even a criterion for stability in China. Thinly traded and undercapitalised, they are more for recreational purposes than anything else.
Once you get the capacity built, you never go back. Nothing can stop that now.
The US has relatively little economic leverage against China, they could impose trade tariffs but that would spike US CPI etc up. China, however, has far too much US$, treasuries, bonds, and could probably inflict serious damage on the US$ and interest rates by selling them aggressively.
The trend line is clear over the last few years. Jerome a Paris just posted this:
Oil prices
It's going up $15-20/bbl every year, and that's if there are no wars or hurricanes.
As Jerome states in your link:
"So yes, I'm still bullish on oil prices. The fundamentals say that oil prices will remain high, and the risk of an international crisis threatens to send the prices to much higher levels at any time and thus justify a permanent, but extremely volatile, 'speculative premium' in addition to the 'normal' high price."
Still quite a bit of motor home traffic around the Oregon coast. Watched a guy fill one up the othe day, didn't know the numbers went that high!
Shorter trips just out to the coast was my vote too.
I believe the risk premium has been "priced in" already. When they tell you that prices are related to concerns about Iran, don't believe them. That will be an oil shock should a military strike or sanctions occur and the sky's the limit at that point.
And as Stuart has convincingly argued, oil prices are not in a "bubble". All this is related to tightness of supply, especially the peak of light sweet crude (LSC). That's why African deepwater is so hot right now -- it's all LSC. But deepwater will not save us as Bubba and I have written about in the past.
So, I voted for C based on the fact that we will only see $60/barrel if there is a severe recession. That is definitely a possibility but not necessarily in the next 6 months. In any case, who knows? Recessions and high oil prices are highly correlated in the past 35 years.
Of course, there could be a dip in the price if either the dollar gains some ground or the economy slows enough to reduce demand. But I'm still guessing C — $90 before $60, and not $60 for a very long time if ever.
Then there will be shortages (again!).
A co-worker today was recently in a pawn shop, he was talking with the pawn shop owner, long story short: people are pawning things to pay for gasoline. And this is in Houston. A slow start to demand destruction. On another note.... i have overheard people mention that they are dipping into their savings accounts to pay for gasoline. I guess most everyone thinks this is a temporary setback, and that gas will drop one day!
So a $4 gallon sticker shock will quickly seperate the haves and the have nots .
full steam ahead, straight into a brick wall
What happens if we reach a point where no one can pay off their credit cards and we see massive defaults on consumer credit, mortgages, etc.?
just my thoughts.
Seriously, though, banks holding credit card debt that is not sold off as some sort of security will be in trouble, and there will be the inevitable federal bailout like the S&L mess.
Most of the mortages have been bunched together and sold off as collateralized debt securities. These securities are held by lots and lots of entities. I don't know which entities will be hit the worst, but I assume someone here does. I suspect that the "mortgaged-back securities" are held not only here but abroad as well. Essentially those things will be junk, but how that will affect the inevitable derivatives market is not known to me.
Where the hedge funds stand in all of this I don't know, but I sure with I did. Those things use huge leverage to send money in the amount of the U.S. GDP flying around the world looking for highly speculative returns. It could be a mess.
Best,
Matt
How is your ashram [or whatever you call it] coming along?
I'll be happy to help find the inspired and perfect sacred books . . . .
Plea$ant dream$.
This is all ya need.
http://www.lifeaftertheoilcrash.net/IndividualItemPages/TheOilAgeIsOver.html
- War is peace.
- Freedome is slavery.
- I am holding up three fingers now.
- I am also holding up four fingers now.
- The rats are coming, the rats are coming, more infected Norway rats climbing all over you . . . .
- And don't you ever forget that you are Nothing and that Big Brother is All Good, All Knowing, All Powerful and never forgives or forgets.
Got it Eric?Took long enough for someone to get it.
I've written several (as yet) unpublished papers on G.O.
That's because I expect that when the dollar renormalises, American consumption of imported (and exported) goods will go down as the price rise destroys demand in America. This will cause such a collapse of worldwide demand that prices will fall overseas where it is denominated in Argentine, Mexican, Chilean, South African, Turkish, Indonesian, Nigerian, Brazilian, Chinese, and other export oriented hard currencies.
Assuming that the internal political situations in the oil exporting countries don't change as the American military is definanced. An Arab nation would be able to control the price of oil by restricting production, especially if they shut down the Persian Gulf and only exported from outside the Persian Gulf till Iran withdrew from the Arab areas where Iran gets 95% of it's oil.
I guess I don't see that happening. In fact one could argue the military will be the last thing to crumble in a world of diminishing oil supply. On that note, I mention the following article in Foreign Affairs March/April 2006 The Rise of U.S. Nuclear Primacy by Keir A. Lieber and Daryl G. Press.
What they spend the bulk of the article talking about is the perceived and increased ability of the United State to take out both Russia's and China's nuclear capability in a first strike.Yes, you read that correctly. I hope you didn't spill your coffee, beer, wine or whatever you were drinking. And this is not some neocon think tank who published this article. It is the prestigious journal Foreign Affairs. Since I was upbraided for using a profane term yesterday, I will just say that this is some of the scariest stuff that I have ever read. I mean, ever.
The primary purpose of this article is political agitation, to send a warning to "evil" Russia and to rally the neocon hordes at home.
Or another purpose might be to raise the specter that the current administration is crazy enough to do this if pushed to the wall? No nukes ever have to be fired if the other guy is unsure of your intentions. This is a reversal of the play used by the leaders of the old USSR - are they M.A.D. or are they truly mad?
One never knows if this is a feint within a deception within a deceit, or not. After all, one thing we humans excel at doing is lying to one another. And further, US use of tactical nukes against Iran would be "proof" that this regime is crazy and force Russia and China to consider very carefully just how far they push the US. And finally, this paper serves to give pause to the Iranians as they have to ask if the US is really that crazy.
Personally I don't think they are but would you want to bet your life on the Bush administration's sanity?
There could be spikes above $90 from hurricanes, Iran, Israel, etc., but I'm betting that these will be short-lived (only for a couple of days)
I think that the price of oil will continue it's steady rise as the consumer frogs slowly get boiled. Enough 'experts' will be rolled out by Westexas's 'Iron Triangle' to help sooth the sheeple as they cook.
As a lot of people have been saying, there does not appear to be a great deal of demand destruction in the high consumption countries at these current prices and most people just seem to be getting used to the price. I haven't heard anyone here recently complaining about the price of petrol. I think people will cut back on other stuff before they make drastic changes to their driving habits.
I betting on Americans using the credit card savings etc since they I think still assume gas will go down until it gets very tight. Past that point I'm not sure few Americans around today have faced true economic hardship. I discussed this with my parents who are in there 50's. My mom knew economic troubles as child my dad did not. Certainly the their parents understood economic problems and they gained some wisdom form that but its really been a long time since we have had significant problems.
Its been so long since we have seen long term tough times that I think it will be a huge shock to Americans born since 1950 or so since most of us have never seen anything but increasing wealth. Sure there has been industries see hard times but not the whole nation. We are not the country we were 60-70 years ago with a significant portion of the population having survived a major depression.
My point is most American don't really have a clue what to do and will assume this is a temporary thing digging the hole deeper why would they not ?
What really pisses me of personally is this stupid lifestyle has ruined it for people that do believe in savings and minimal debt and conservation. We cant' afford too risk buying homes at today's inflated prices and I am conservative with gas since I work mainly at home and recylde reuse etc. Sure when problems come I'll be okay but I personally hope the idiots take it hard so we can get out of this ridiculous potlatch economy.
I am of the generation born since 1950, but my parents both lived through the Great Depression, and this had a profound impact on their outlook. To this day they try and live simple frugal lives, and it is a lesson that rubbed of on both my brother and myself.
Many others who lived through the Depression took different lessons from it however. Perhaps it was an effort to try and forget the hardships of the Depression and the war that caused many parents in the 1950s to try and live it up, and those different lessons have gotten us to the place where we are today.
I think your right I notice this in the older generation around 50-60 they differ quite markedly in the outlooks on life. Maybe on reason the 60's was so contentious.
Although later generations are certianly softer there far more homogenous the basic difference today is how much money people have maybe one reason for the flagrant spending ?
To some extent understanding how they react as a group is important since at the end of the day they control the bulk of the wealth in the country.
http://answers.google.com/answers/threadview?id=2050
I guess I'm already starting to look back on the great american oil economy as a historical event :)
As we say in holdem, the race is on.
I am voting for a spectacular collapse in the Cantarell and in the Ghawar within the next nine months. The Cantarell field is, of course, already in collapse, but soon it will be evident that the politicos, in a bid to head off huge populist strife, have lied about the extent of the decline. Pretty much the same is true in the Ghawar. The Saudis are not going to be able to kowtow to the Bush administration for much longer without seriously damaging their fields and will continue to try and ratchet back their production in order to rest the fields. In the meantime, the Saudis will try to bring on heavy sour processing in their country and others (think China) as fast as they can.
When Chavez completes the pipeline to the Pacific, his being handcuffed to the United States market will end, and that means he can simply stop selling most of it to us. The transition will not be sudden for the world, really -- though, for the United States, it will seem like a baseball bat to the head.
At that point, all of our speculation about how the US economy will fare will be seen as having been pointless. The world energy economy will have bypassed the US and in a series of brilliant chess moves have effectively garroted the Western bully.
Our belief that prices will collapse when "we" no longer use as much oil will seem quaint when we realize that our money has become the world's toilet paper.
Ah, yes. The United States of Banana Republics, except we won't have anything to export. No factories, no resources, no brilliant minds, just aging nukes. No bananas.
- No gambling
- No helping refugees
- Get along with the Nazis
- "I stick my neck out for NOBODY."
Ah, the chief of the local milita, of course, . . . here are your winnings sir."Casablanca" may be the future.
"Ingrid, of all the gin joints . . . ."
Like I said in an earlier post, the Russians are excellent chess players. They are also slowly inching us into a corner with their Bishop and we have forgetten to watch for the Queen.
The collapse of the US economy will take out the world.
I don't like what we do but on the same hand I see Europe at best marginally better despite there best intentions.
China is hell bent on replicating the American dream private cars and all with India right behind. I think we will go down but so will everybody else there not in much better shape then us and in many ways worse off. So sure it looks like were going to get whacked hard and we focus on the US in these discussion but you could not pay me to be in China if the economy crashes. It might do for this forum to evaluate the effect of high oil prices on other economies.
I think you will get really scared.
Our problems are lack of rail and the McMansion/SUV crowd which happens to be a big percentage of the US. Once we eliminate the senseless waste the US is actually probably still going to be on of the best economies esp with increased localization.
We have.
1.) Small population per square mile and square arable mike
2.) We still have abundant natural resources.
3.) We still have a highly educated population.
Probably only Canada ranks higher on intrinsic wealth per capita.
Basically if we don't succeed no one else will either
I'd much rather weather the next few years in the US or Canada then anywhere else in the world I assure you.
I wonder why you analyze USA as a single economical entity. Your country is about as big as europe, perhaps people are mobile enough for your country to not have significant differencers between states. And you have the same currency and so on. But the economical fortunes should be vastly different between regions during a PO downslope.
Myself I wonder if the worser PO and GW scenarios would break up EU, it is a more fragile cooperation then your federal state. But the benefits of free trade are big even in times of extreme crisis, I think it is more likely to be redefined as a simpler cooperation. But I am slowly switching opinion about the Euro wich adoption I campaigned for and lost, it was probably a good thing for us to keep our small currency.
If you count natural resources per capita the nordic countries Iceland, Norway, Sweden and Finland should be in a better position but we are tiny countries, not realy comparable to the USA. My guess for one of the best regions for an uncertain future would be Norway, Sweden or Finland, especially if we cooperate closely to have a fall back if EU breaks up. Such cooperation is common on manny levels and includes Denmark who has less natural resources per capita.
Estonia is culturally close to us and I know far too little about Lithuania and Latvia, three tiny states who for a long time will be rebuilding after being occupied parts of the Sovjet union.
It will be intresting to see what happens when Norway runs out of new oil money. They have made a reasonable job of not overheating their economy. My impression is that they have used their oil money in four ways, financing a social state in the way Sweden had when our economy had its peak including numerous subsidies, building infrastructure the most visible part being an immense ammount of road tunnels needed in their mountanous landscape and now they seem to increase rail investments some, building industry and saving in funds owning foreign assets. Norway is perhaps like a western Quwait with much better integration of the guest workers and they have allways had the ambition to have a better country the day the oil runs out.
None of the nordic countries can maintain itself withouth trade. We could probably become a richer version of north korea indefinately if the rest of the world gives up but that is nothing to wish for. I am sure a key for survival in the downslope will be to have things and resources to trade. I thus find it comforting that my own country and closest neighbours have large export industries with goods and knowledge that will be sought for by other relatively prosperous regions during a PO downslope.
And most of these resources are not easy to steal hopefully making it less likely to be on the recieving end of any military campaign. But if times turn rough and big powers turn into bullies we will probably be forced to lick nazi ass as we had to do in Sweden during WW2. You have to be important but not too important and voulnorouble at the same time.
I am quite sure I will stay in Sweden, unless I get some offer that pays very well. My countries fortune and my own fortune is not one and the same although I like the local robustness and that some good investmets have been done and are likely to be done.
I wouldn't be so sure, as the percentage of suburbia dwellers and dependence on large highways is far greater in the US and Canada than in Europe. Tell people in Europe they have to find an alternative to driving and most will have an alternative. In most of Canada and the US there is no alternative and, frankly, the physical fitness level of many Canadians and USians is such that they couldn't walk or ride a bike a significant distance even if they wanted to. How will the service and manufacturing economy function when their cheap labour becomes unavailable?
Sorry, I don't buy the argument that the US economy collapsing "will take out the world". The U.S. isn't the most important trading partner for most countries. As for Canada, there may be significant pain for many exporters, but as the country is a net oil exporter I suspect the overall story will be quite different.
Canada, perhaps. Being in an oil and other energy (NG & hydroelectricity) exporter with a stable gov't that can apply itself to problems is not bad. Some internal cohesion issues but also decent non-oil transportation in several major cities and building a bit more (Ottawa, Vancouver, Calgary, Edmonton, Toronto).
The US ?
VERY limited non-oil transportation alternatives. Imports 2/3 of it's oil and soon will need to import massive amounts of NG (15% from Canada today, LLNG tommorrow). Making zero effort to prepare for Peak Oil. A repeat of ostrich like behavior towards GW seems likely (see ethanol). Spending ~1/20th the money that China is on new Urban Rail despite being a much richer nation.
The ability to plan ahead seems completely lacking, as does fiscal discipline. Several trillion $ in infrastructure likely to be scrapped due to poor planning while "birth control" is exercised on needed infrastructure.
The US has lots of problems sure and we will need to rebuild infrastructure and it will be hard but.
In the countryside/small towns cities that dot the us its a fairly simple matter to urbanize the small towns and depopulate the countryside which actually opens up a lot of farmland/grazing land thats been taken over by mini farms.
The big problem is surburbia/suv land. Here new town centers will occur near the rail heads with agian a significant loss of suburban construction thats simply no longer viable.
For the US I see the loss on the scale of say Germany or Japan after WWII but its still a very very big and rich country that is not densly populated.
Sure were losing a significany amount of the infrastructer developed over the last 70 years and it will be a huge blow to the US but were losing senseless wasted infrastructer.
A single large apt block can accomadate fast number of former surburbanites for a reasonable cost.
Probably recycling the tar/copper glass and steeland wood from former suburban homes would contribute signifantly to reducing the cost of developing new dense high rise apts.
http://www.architectureweek.com/2004/0811/building_1-1.html
That is, you cannot use more than you have, regardless of how much you think you can.
And truly, do you think the U.S. is currently in a position roughly equivalent to Somalia? The U.S. may have a lot of difficulties (well, 'may' is just politeness on my part, being generally a very negative person), but honestly, at times it is just hard for me to grasp how widely our viewpoints diverge - and I am a person who thinks the U.S. is going to suffer greatly. But I am not ignorant enough to think that American suffering in the possible futures I can envision will even come close to the current and future suffering in a continent like Africa. (As always, leaving aside global nuclear war.) Unless the suffering of not having 500 cable channels is greater than having 4 of 6 of your children starve slowly while the local warlord's militia gang rapes your oldest daughter and 'recruits' your oldest son.
When did he start it? And where exactly does it end? Was that China, Japan, or what? Or was he just going to pipe the oil directly into the Pacific and let whatever fish are left pay for it? And why not the Atlantic?
- It is assumed that Hugo is mad as a hatter.
- Therefore he can dominate the world by threatening to dump huge quantities of crude into both oceans.
- Therefore he will do that.
- Hence, he is the future dictator of the world.
Q.E.D.Here is my take:
$100 this year.
$200 in the next 2 years.
After that time, a more interesting question might be:
What currency will be used to price oil ?
A. US recession and global slowdown commencing in about 6 months
B. Things continuing much as the last 3 years
C. Things hotting up a little, faster price increases
Scenario: 2006, 2007, 2008, 2009, 2010, 2011
A: 70, 65, 65, 70, 80, 95
B: 70, 85, 102, 120, 140, 165
C: 75, 95, 120, 150, 190, 240
These are average price for 12 months, price spikes in year n-1 will be approximately the average price in year n while prices are increasing. I haven't allowed for relatively extreme events like deep global economic depression, $ collapse, major supply or geopolitical disruption, significant new wars, clear onset of peak oil. I think there is a high probability of one or more of these before 2010 so I think my estimates will be wrong since they are based on 'business much as usual'.
I actually think there is a 50/50 chance of oil hitting $500 sometime before 2011, even $1000 is plausible, but such prices would be due to inherently unpredictable events. IMO $500 oil is more probably in the next 5 years than $30 oil, $250 more likely than $40, $100 more likely than $50.
I do think oil is pretty inelastic, expecially in the short run. However prices at double what we have today will certainly limit consumption. I think this effect puts a cap on the oil price regardless of supply conditions.
What price oil then?
The history of the Mexican peso is flat-out fascinating.
One would think that prices over $100 / bbl should reduce US demand somewhat but that may be less than most people presume. Demand destruction has not been significant in response to the increase in price from $25 to $75 over the last 5 years, so why should a similar trebling in price to over $200 over the next 5 years be much different?
There is a fair chance of the US$ halving in value vs. some other major currencies over the next 5 years. I do not think there is any absolute 'cap' that one can reasonably put on the price of oil but as a guide I would be surprised if a WTIC bbl exceeded the price of one ounce of gold within the next 10 years.
I do think attempting to predict oil prices more than a year out, and especially stating them publicly, is unwise, foolish me. But I seem to be reasonable up to a year ahead.
I do suppose that in a scenario in which the U.S. dollar halved in value, but the global economy kept chugging on full speed with no lapse in oil consumption growth a $240 barrel price is conceivable.
The U.S. uses 25% of the world oil production, as you know. I do not believe that a dollar collapse could take place without a coincident destruction in demand that would tend to balance the currently precarious oil market.
I do think that this phenomena tends to cap the upside price of oil and do not believe that there is much change oil gets anywhere near $240. This is not cornucopian thinking. In fact, I think the likelihood of economic depression is greater than the likelihood of $240 oil - because I think the factors that people cite to justify $240 a barrel oil are more likely to result in a crash than a smooth upward glide in the oil price.
You comment and other replies to my point are valid. I do think it is easy overlook the value of the dollar in plotting oil price scenarios.
At the severe end the economic effects could undermine the production and transportation infrastructure sufficiently to make oil and oil products even scarcer and more expensive.
Financial / monetary collapse may make payment for oil etc difficult.
Military silliness, which often accompanies economic depressions, and which is most likely to be instigated by the USA, can also make oil supply scarce.
Suddenly taking 10% of current supply off the table for a period of years could result in a price spike of $500, declining to $350 over a few weeks then gradually to about $250 over a couple of years.
I do agree that a 'manageable' depression (provided it is wisely and well managed) should result in a reduction in the market price of oil, but that is far from certain. It would also seem reasonable that the trebling of oil price over 5 years should reduce demand - but that has not happened much in ith USA over the last 5 years, perhaps a tenfold increase over 10 years will? That is, after all, barely more than two consecutive 5 year treblings.
Bear in mind that most of Europe is surviving with the equivalent of US$6-7/gal petrol. In most of those countries the cost of crude only accounts for about a quarter of that cost, so a 100% increase in the cost of crude (up to $150/bbl) would equate to only a 25% increase in fuel costs.
IMO, this is why the US will 'feel' any fuel cost increases worse than Europe.
Any country with low fuel taxes (or even fuel subsidies) are going to be the worst hit by PO.
More than double the sensitivity to oil price, x more than double the consumption => more than 4x the economic impact.
Based on my consumption curve model that I posted in the drum beat 2 days ago I'd make the following almost wild ass guess; that I would expect to see reduction in gasoline consumption of about 20% over the current position of the market, that is a new consumption level of about 8 million bbl / day if Gas were to remain at $4 for long.
Demand surpression / destruction has been the domanant factor in this model since the price passed about $2.40 / gal. but 8 million bbl / day preceded that point on the demand upslope. That level refers to where the market was at when gas was selling in the range of $1 - $1.30 a gallon as it was back in the fall of 1996. So one could say that it might be similar to undoing 10 years or so of market growth.
I'm not making book on this by any means, the data set is small at this price range and thus the model poorly constrained.
and going out to eat is not worth it anymore, plus family travel is cancelled due to costs and reality really sets in!
Then we will see the sheitze hit the fan.
I imagine that once oil breaks 95 bucks that's when the finance people finally take notice and come over to read TOD--not to mention, that's when markets will really cringe... No one likes to here the inflation adjusted oil price record broken...
It does not take a genuis to figure out there is no way for China and Indoa to expand to a western style economy for the full populations makes me wonder what there real end goals are. At some point the two of them basically use all the resources in the world which is impossible.
I've never seen any long term planning statements from either.
Say out 20-30 years.
memmel
Your remarks points up to me once again the most distressing revealation about the peak oil issue, at least as I view it, and that is the recent American tendency to defeatism. I don't think India, China, Japan, and many other nations are so willing to concede the complete loss of the modern age and all the power and independence that comes with being a world class technical power. I think the evidence shows they intend to grow and prosper. Now, it seems obvious that they cannot do this as a solely "crude oil" fueled society and culture. And, I do not for one second believe they remain such.
I must say that I think your remarks concerning China and India are fundamentally flawed. I do believe they fully intend to continue their rising standard of living, and their rising prestige and power in the world. I do believe that is their "real end goals". It is interesting that we say of them "I've never seen any long term planning statements from either.
Say out 20-30 years.", when the Americans haven seemed to be able to muster planning out to 5 to 10 years! We used to make fun of the Japanese for their fanciful "100 year plans", but over the long haul, they stil seem to be paying off.
The United States "peak aware" community seems to miss a fundamental theoretical point: If we declare defeat and surrender before the effects of peak oil even get fully underway, we have nothing to fear from "peak oil".
Many in the U.S are already telling us...solar....won't work, wind....won't work...bio fuels....won't work....fusion nuclear....won't work....efficiency....won't work....reduction in natural gas consumption through using the ground tempeture below our feet....won't work....modern efficient design...won't work...
We had better be right on this, because if the Chinese, Indians, and Japanese happen to make them work....the United States will become the 21st century version of the Soviet Union, and answering to the newer world powers.
Roger Conner known to you as ThatsItImout
In every era there have been doom-sayers, hence the many images of people holding signs saying the end is near. The self-criticism of Americans seems to be a newer phenomena, and not one that I see to the same extent in other countries, West or East. At its heart is is good and healthy, but a minority has extended it to the point that they see the US as everything bad and "the other" as everything good. My view is that this is a small self-marginalizing group. I wouldn't worry much about them.
I am an American, but I live in Asia. I love both places and see a bright future for each. I don't doubt that dwindling oil supplies will present one of the greatest challenges human society will face. However, I don't think it is inevitable, or even likely, that the more severe die off or resource conflict scenarios will transpire.
My view is that the doom-mongers start out with doom, then build their social, economic and energy scenarios from there. I see the followers of Tainter, Diamond and "no-growth" economics in this camp. By the way, I see the cornacopeans as the mirror-image. They are convinced everything will work out fine, and procede from there.
When I first came to TOD, maybe two years ago, I was first opening my eyes to peak oil and the analysis here convinced me that it was real. But increasingly as I have read the posts that seem to irritate you, I came to see that many here are as biased as anyone else, just to the other side.
In the last few months, a number of posters repeated posts that seem to say: "A light bulb went out in Bangladesh. Whjat more proof could you possibly want that peak oil is here. Anyone who denies this is stupid, blind or bought off".
I have started to treat TOD as I do any other information source. I search for the gems, of which there are many and discard the rest.
I don't think the posters you refer to are missing the point that we shouldn't just give up, they are running from it. They don't like modernity, industrialism, capitalism, the U.S., whatever and want to see it fail. Again, they are the mirror image of those who blindly think that everything is great and that there will be no problems.
There is a wonderful diversity of opinion here and a lot of people who are open-minded, willing to debate, share opinuions and change their minds. Focus on them. Ignore the advocate wing that treats peak oil doom as a religion, to be propogated, not questioned.
Ummm... why would that be entirely a bad thing? Do you enjoy being a world power if it means being responsible for massive death and destruction by the military your taxes pay for? US citizens have lost the freedom to travel in much of the world because of their foreign policy (aka plans for global hegemony backed by threats of the use of nuclear weapons). Perhaps a little humility would go a long way. I just hope the U.S. adjusts to the new reality without throwing a fit, as a country with a nuclear arsenal large enough to kill everyone on the planet throwing a fit would be a bad thing.
As for China and India and so on - yes, there is increased oil demand, but don't forget that there is also huge investment in renewable energy and they have an opportunity to do many things "right". They do not have and will not build something akin to the Interstate Highway System and Walmart-burbia.
I would be happy to have a complete Higway system in Sweden, what we have is about half built and finishing it will probably take decades. It would be nice with safer roads for transports that dont fit well on rail and to easier get to the distributed biomass resources and disperse industries, homes and summer cottages. The capilary road system is of course as important or even more important but it is nice to have a solid backbone in the road system. A good road bed lasts for hundreds of years and a good bridge for a hundred years.
When traveling by car I use to think about the narrow meandering roads in hilly terrain around the nice road way and that people for a very long time will have a straight and level path. What a dream for previous generations! We used a lot of resources but we moved some mountains for future generations.
Have you ever thought about how these cheap energy era investments will be usefull in the long run?
In the announced details of the massive Urban Rail building program till 2015 (see Saturday's Drum Beat, 3rd post), there was mention that these 10 years would be their peak subway building period*. This indicates that they have longer term transportation planning, although the details may be a bit fuzzy.
*Shanghai will surpass New Tork City and London and have the world's largest subway system.
http://www.abc.net.au/4corners/
It covered just about all bases ..deepwater, enhanced recovery, ethanol, tar sands. Peak postponers were interviewed from IEA, DoE, the Kuwaiti and Saudi ministries. Peak-is-now interviews included Campbell, Hirsch and Skrebowski.
The closing message was this is not a rerun of 1973 and there won't be a smooth recovery.
Clearly, things often happen that upset nice little trends like this, and at some point some things probably will happen that change the pattern. But, I see no reason to assume abrupt discontinuities soon in the current trend. If its price increase continues as it has, crude oil will reach $80/bbl around the end of this year, and will reach $100/bbl by the first half of 2009.