Oil Price Poll 3

With oil prices around $63/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 from a while back, and here's a link to the second poll, where only 2% of those responding answered prices would "reach $63/bbl before they reach $83/bbl"...). Poll under the fold.

I can't see OPEC letting oil get too cheap or too expensive. Not too cheap to keep the the bank full of money and not too expensive to keep alternative fuels out of the picture.
If big oil is going to bring Jack 2 online the price of a barrel should be more like $95.
Keep in mind that

a) OPEC didn't seem to have any ability to halt oil moving to $78, a point far above which all conventional wisdom over the last three years said was too high. And a point $5 above the $73 listed in this poll and

b) if oil starts moving towards $53 from the current $63, I doubt OPEC could cut production fast enough in the given timeframe to stem the decrease. They would have to frighten the market by threatening huge cuts.

My guess is that the spread of opinions in this poll will be more evenly distributed among the three options. We've already seen $73. We've spent a good part of the year there. I don't think it's much of a stretch. I would have liked to have seen a $30 spread instead of the $20 one. Pick a card, any card.

OK, I did, using the Marseilles tarot and focused on oil price. The card I picked (from majors only) was IIII The Emperor. The simplistic interpretation is (transitory?) wealth and power, a more philosophical one is transcendence of spirit over material. I find it fairly silly to pick a single card, but hey, there you go.

$53 oil, ur pulling my chain, lol, it ain't going there. A $15 spread implies a low of $48-, that is seriously silly and highly unlikely.

I would argue that the most unlikely scenario from a basic logic viewpoint using the actual history of price swings the past 3 years is the range of $53-$73. For two whole months it is going to stay in that band? Yet with 20 people voting so far, 71% have picked it.

Every Thursday, Bloomberg conducts a poll of about 40 to 50 oil analysts, with the question will oil rise, fall, or stay the same. I tracked it fairly closely for about 4 months one time. I found that the majority was right about 33% of the time. In other words, you may as well tack the options to the wall and have a monkey throw a dart at them over its shoulder.

As your poll of experts example shows, predicting oil prices, even over a short period of time, is very hard.

I picked $53 - $73. While I think there is a very good likelihood that it will break past either or both in the next two months, I think it is about 80% likely that it ends up or averages in this range.

For more specific guesswork, I would say the price will say where it is or even drop in the next few weeks, then at some point climb back up to previous highs. Might take more than two months though.


I've marked in red the 12 times since the beginning of 2004 that oil has moved in either direction by $10 or more within 2 months. Some of these moves occured in as little as a month.

The next question is, how many times has it traded in a $20 band for 2 full months?

I'll be the 9th one to pick the $53 option, with the caveat that like SAT I am not particularly fond of the phrasing. I think that the chances of hitting either extreme (combined) are double that of trading in this $20 range. I think the distribution should be 33%-33%-33% instead of the current 10%-60%-30%.

Well, I welcome input on the phrasing of the options...

I wanted to do more than "up" or "down" from today.  That's not very interesting.  So, I had to pick a time horizon and some sort of constraint.  

If you wanted a 33-33-33 distribution, the middle range would have had to have been smaller, not larger, right?

so, perhaps a better way would be, "which is the next price point we hit," or something like that?

Don't get me wrong, I like the poll. Everybody is going to want to do it their way. You're the one that gets to choose. The distribution is changing as we speak. (And I'm certainly not above trying to influence it). $73 has made quite a move in the last hour or two ;)

Yeah, like maybe 5 price ranges instead of 3.

"Yeah, like maybe 5 price ranges instead of 3."

I'd choose between $0 and $infinity.  I'd be guaranteed a gloat for being correct.  Unless of course they have to start paying to have it hauled away.  So I guess I'd have to make it $-infinity to $+infinity for a 100% guarantee.

To me this poll has two different things: there's the "range" and the "which one first."  It would seem better to separate the two, have one that asks about ranges, but still ask which specific amount is likely to be reached first.  Then there's a more nitpicky thing about "remaining in $## - $## range"...is it nullified if it steps out of that range just once?  Or is it valid if it stays in that range 95% of the time?

Re: OPEC didn't seem to have any ability to halt oil moving to $78, a point far above which all conventional wisdom over the last three years said was too high. And a point $5 above the $73 listed in this poll...

Hang on there, Big Guy. OPEC has some control on the pricing low end but none on the high end...

I could have sworn that was what I said.
I interpreted that as you saying -- ah, nevermind! We both agree, they don't have that kind of control over production & pricing. To answer your queries from the other day, I should never post in the morning until I've had at least 1 strong cup of coffee... Yeah, I smoke, just like the Planet Earth.  

best --

"We both agree, they don't have that kind of control over production & pricing."

Well, I am glad you two agree, but allow me to say I sure as helll don't!  :-)

We have spent the last ten plus years being told that OPEC was the "swing producer", the "pivot point" the focus fo the oil world....and now, all of a sudden, they have no power over pricing/production????

That boggles the mind.  And moreso if you accept that the North Sea and Mexico are essentially peaked.  If OPEC were to back production off, what "swing producer" then would step in and make up the production (and remember, I have more faith in non-OPEC production than the peakers do, and am baffled by this logic!)

It gets even more focused, to my view if you you accept any concept of world peak.  Simmons logic goes that as Ghawar goes so goes Saudi, and as Saudi goes, so goes OPEC, and as OPEC goes, so goes the world....this would make the control of price centered not around OPEC, Saudi Arabia, but instead around Ghawar...I think Saudi Arabia has almost ABSOLUTE control over price if they should risk/be willing/desire to use it.  ABSOLUTE.

So what would lead to this wild perception that they don't?  I can find only one thing....the belief, that came only from the Saudi Arabians own lips, that they did not want oil in the $70 dollar a barrel range, but shucky darn, dag gone it, it went there anyway!

What a ruse.  I do not think for ONE SECOND the Saudi's minded oil going into the $70's, or frankly, it would not have gone into the $70's.  I think anything under $100 would have suited them fine.  The demand side was and is the only control valve until new oil comes on, some non-OPEC, and the rest, of course, OPEC and Saudi, which assures them control of price production as it has been since 1970 with that one bothersome little pest, the North Sea.  That has been the only swing producer large enough, and for a time, reliable enough to mess with their monopoly.  But it looks like those days are gone.
Where to now?

Laying aside for now radical changes in consuption of ALL energy by way of advanced technology  (that is coming, but it will take at least 5 to 10 years to really get into the system, at which point it will be BIG beyone belief), for now, natural gas is the competitor.  GTL, CNG, LNG, and LPG, that alphabet soup that is a thorn to crude oil producers, acts a s counterweight in the short term, nothing else.

So what price?  Well, anything above $50 is well above the historical mean, I could see us touching that long enough to lull ourselves to sleep...but not real long.   Then back to mid to high 60's for next summer, and everything else depends on war, weather, and price speculation.  But the tide is turning very, very fast...we have maybe a half decade to whether this idiotic paradigm, before we demonstrate why the world invented applied science and technology, and artful design.  the hackers and the kids are coming, and to them, limits on efficiency are just games to pushed around, and the barriers to be knocked down.  This is gong to be fun, is there anyway us old guys can get back in there and play?  :-)

Roger Conner  known to you as ThatsItImout

The commercials increased their net poistions for another week at a blistering pace. 5 weeks of commercial buying has always but a bottom in oil. We have 3 confirmed weeks so far. I am betting that Wed- through fri also they did the same as pries fell ( COT covers till tuesday). OPEC wont have to cut production we are gonna rally.
I think that is right.  There were numerous articles that implied this soon after oil went over $50.  Like this


"We will find the price level that will slow demand," said Adkins. "It may be $60; it may be $100. I think it's fair to say its going to be in that price band."

After the election, my guess is the price will rise again.

Manipulation of supply through the SPR and refinery product will have to come to an end. Once the economy ticks up in the next two months leading to mid-term elections, the yahoos who had been ready to vote their gas tanks and toss the bums (Repugnicans) out will have a change of heart and put the weasels securely in charge for another thrilling two years. Once that happens, back to the Iran problem. Look out for falling nukes! Look out for the Cantarell collapse. Look out for a China that no longer needs the US to ensure its economy. The US will drift into a curious position much like that of the USSR when we successfully bankrupted them. The US will be the next victim of that tactic. Meanwhile, the elites will put their money in safe havens and move away from what is fast becoming just another third world country. Secure in their hideouts, the conservative elites will watch as Joe Sixpack and Susie WalMart scrabble ever harder to make ends meet. The elites will chortle in glee at the irony of these common folk protesting abortion, stem cell research, gays, and them dang liberals. (They hate them edumuhcated liberals you know, always telling us 'Merkins to use our vote to get healthcare, good wages, free edumuhcation, and clean air, water and all that other commie bullshit). As the repugnicans clink their brandy snifters together and tell us once again that it is our own fault the US is in default, ruined, poisoned, and sick, and certainly not their fault, the rest of the world will finally get a chance to taste of the American dream. Too bad it will poison them as well.

Then comes the rising seas, the encroaching deserts, the famine. We bunch up at the poles, what few are left, and we pray that we can survive, for another day, or two.

By then a few will realize that arguing about when or how fast it would run out had been absurd, and that what was important was the certain knowledge that it will and that we had only one choice and one chance -- to change, to rationally reduce population growth, or face the limits to growth having squandered the very thing that could have saved us.

Oh, well.


That is all the time I've been allotted.

At this point the cornucopians and techno-lovers will give a lecture on why up is down and left is right if we use BRAND X !!!!! TECHNOLOGEE .

Again, thanks for your time.

Goodnight. Don't forget to turn out the lights on your way out.

Nice to see you back, if you are.
Hello TODers,
I picked the middle choice because the world economy is still adjusting to the new, higher equilibrium range. OPEC & Russia are strongly incentivized to cut production if prices start to drop.  Consumers will unwillingly cut their consumption only so fast, but any further price decrease will only rapidly juice the Energy Fiesta.

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

I agree.  I don't see why Russia and Saudi Arabia could not cut prodcution fast if they wanted to.  In addition - Do we think they have not realized that, for example, a 1% cut in production will result in something like a 2% rise in prices?  

China is still preparing to build and fill its 1 billion barrel strategic petroleum reserve:


As far as I know, they aim to start filling soon and build up the reserve over about five years. That's an additional demand of 600,000 barrels per day - on top of the heady economic growth demands they already have.  

Sorta like asking someone with progressive Parkinson"s whether he "ll feel better tomorrow.  Good chance.

Take a look at the insert in the Economist about the world-changing growth of the developing nations as they begin to eclipse the "rich" West.  By one measure, during this last year the developing nations surpassed the rich ones in total GDP.  The further growth trends are alarming.   Unfortunately, the authors assume the same kind of growth trajectory for the developing as once was the case for the developed nations, ignoring the soon-to-be-encountered insurmountable wall-- aka energy scarcity.

Do you have a cite on this re GDP?

US is about 25% world GDP.  Europe as a whole about another 25%.  Japan c. 10%.  Canada, Australia and New Zealand another 2-3%.  So 60-65% GDP is in the Usual Suspects.

Even if you revalue China's GDP for exchange rates, it's not huge (about 2.5 trillion at official exchange rates, or about 1/6th of the US, I believe).

Depends in part where you put Taiwan, South Korea, Singapore, as the 'developing' countries which are, in fact, 'developed'.

The cite is, as the comment notes, the current issue of The Economist magazine: Survey of the world economy, September 16th 2006.


LAST year the combined output of emerging economies reached an important milestone: it accounted for more than half of total world GDP (measured at purchasing-power parity). This means that the rich countries no longer dominate the global economy.

From the leader (page 9 in Asian edition):

...the emerging world now accounts for over half of global economic output, measured in purchasing power parity (which allows for lower prices in poorer countries). Many economists prefer to measure GDP using current exchange rates (which put the emerging world's proportion closer to 30%).
That Economist article is very interesting. It talks about how world growth is increasingly being driven by the developing world. Here on TOD we focus mainly on supply, but the demand story is equally important. From the article:
... the first decade of the 21st century could see the fastest growth in average world income in the whole of history.
That is scary. Not only is oil production peaking but demand could also be increasing at a record rate. Reducing demand as we go over the peak is no longer just about convincing Americans to drive more efficient cars, and live closer to work, but somehow convincing millions of newly affluent people not to follow the American model of big cars and homes.

oops my numbers were out of date.  Although I find that China number high, for a number of reasons (go there: this isn't a country that feels like it has a per capita income of $6800-- the average urban worker makes less than $2000 per year).

  Rank Order - GDP (purchasing power parity)

Countries for which no information is available are not included in this list.  
Rank Country GDP (purchasing power parity)  Date of Information
1 World  $ 60,710,000,000,000  2005 est.  
2 United States  $ 12,360,000,000,000  2005 est.  
3 European Union  $ 12,180,000,000,000  2005 est.  
4 China  $ 8,859,000,000,000  2005 est.  
5 Japan  $ 4,018,000,000,000  2005 est.  
6 India  $ 3,611,000,000,000  2005 est.  
7 Germany  $ 2,504,000,000,000  2005 est.  
8 United Kingdom  $ 1,830,000,000,000  2005 est.  
9 France  $ 1,816,000,000,000  2005 est.  
10 Italy  $ 1,698,000,000,000  2005 est.  
11 Russia  $ 1,589,000,000,000  2005 est.  
12 Brazil  $ 1,556,000,000,000  2005 est.  
13 Canada  $ 1,114,000,000,000  2005 est.  
14 Mexico  $ 1,067,000,000,000  2005 est.  
15 Spain  $ 1,029,000,000,000  2005 est.  
16 Korea, South  $ 965,300,000,000  2005 est.  
17 Indonesia  $ 865,600,000,000  2005 est.  
18 Australia  $ 640,100,000,000  2005 est.  
19 Taiwan  $ 631,200,000,000  2005 est.  
20 Turkey  $ 572,000,000,000  2005 est.  

I just checked option prices for December oil, which is what we'll be looking at in two months' time. The prices imply odds of hitting 53 or lower of about 7%; and of hitting 73 or higher of about 14%. It's not too surprising that 73 is more probable since we're closer to it than to 53 right now (the market price of December oil is about 65). However both possibilities together add up to only 21% so the market sees about an 80% chance that we'll stay between them.

Interestingly enough looks like TOD is not too far off from these odds. It's pretty unusual for the team around here to agree with the market! Next thing we know everyone will start saying nice things about economists...

Well, Halfin, I did agree with Hamilton's assessment of the situation for the most part...

Oil CEO said: "Every Thursday, Bloomberg conducts a poll of about 40 to 50 oil analysts, with the question will oil rise, fall, or stay the same. I tracked it fairly closely for about 4 months one time. I found that the majority was right about 33% of the time. In other words, you may as well tack the options to the wall and have a monkey throw a dart at them over its shoulder."

I, and others, have pointed this out to your before, and Oil CEO now says it in as plain language as I can recall - what the market "believes" usually has little bearing on what actually occurs with regards to oil pricing, especially as you get further out in time. Yet you continue to defer to the market about future price when the market has been wrong again and again and again.

I'm not deferring to the market here, I'm providing information that readers can use as a data point. At the time I wrote this, the poll results were within a few percentage points of matching market predictions, although since then TOD has gone a little more extreme. I'm quite surprised that as of now, the TOD percentage is higher even on the low end price of 53 than the market odds. It's noteworthy when TOD readers see a greater chance of a steep drop in oil prices than the market does, don't you think?

As far as accuracy, yes, markets are often wrong - the future is inherently hard to predict. In this particular poll though we are really asking about volatility. What are the odds that the price will stay within a certain range?

According to Jim Hamilton at:


oil volatility has been in the range of 29% to 36% per year for the past 30 years (and towards the high end more recently). Over a two month period there's not much difference between the low and high end of this range. This means that the market has been historically pretty accurate in forecasting the probabilities of these kinds of price moves. If the volatility were jumping all over the place then accurate forecasts would be impossible, but given that it is staying within this range then the degree of variation is quite predictable on the average.


You seem to be confusing 40-50 experts with the market. The experts there are just like us experts here. People with guesses.

The "market" in this context would be the futures market. Neither Halfin or anyone is claiming that the market can predict prices accurately. Again, since you seem to be having so much trouble with this:

Neither Halfin or anyone is claiming that the market can predict prices accurately.

In fact prediction, especially in fairly active markets, is virtually impossible. The futures markets have made millions of predicts about prices 24 hours a day for decades. So of course, markets have been wrong. But they have a public track record that can be followed and analyzed.

Broadly speaking the claim that I think Halfin is making is that markets are more accurate over time and over instance than any other single method of prediction.

One more time:

The future can not be predicted by markets or anyone else.  No one is claiming markets can accurately predict prices or anything else. They do give a better window on how participants view the future than any other method.

I think the only reason you have so much trouble with this is a kneejerk reaction to "markets" that makes everything else go red. All a market is is a huge number of people making predictions, in which they need to put money behind.

Claude Mandril just on Australian TV interviewed by business journalist with an interest in peak oil:

Interestingly, he confirms climate change is real and the best thing to do for both CC and PO is to institute a drive for efficiencies. He also seems to confirm problems remain for 'conventional' crude in 'conventional' locations.

That means in conventional oil in conventional areas - North Sea, North America, Australia, Africa. Maybe we will witness peak oil in the coming decades, I don't know exactly when. But I think it's more a problem for international oil companies than for oil supply globally.

In terms of prices he was very cagey but suggested $40-50 (a la Lord Browne from BP?):
CLAUDE MANDIL: I don't think, again, it's a question of supply and demand, because the supply is very good right now. It's a question of flexibility, of resilience to unexpected events, and for that we need more spare capacity. This spare capacity will come progressively in the coming years. We expect that additional spare capacity will come upstream as soon as in 2008 and perhaps in 2010, 2011 for refining. And I expect at this time, barring, of course, any unexpected event, we could again see prices which are at a more comfortable level...

ALAN KOHLER: Like what?

CLAUDE MANDIL: ...which does not mean $15 or $20 a barrel, certainly more, but less than the $60 which we know today.

ALAN KOHLER: What do you mean - $40, maybe $50?

CLAUDE MANDIL: I don't want to give a precise figure, because it would be interpreted as a target, but it is in this range.

These types of polls could be answered more quickly if there was a standard upside-skewed distribution. See for example the green F(5,2) curve
http://en.wikipedia.org/wiki/F-distribution tweaked and re-centred to zero. That way you could easily say up $10 is as likely as down $5.

All I'll say is I think $60 is the short term rebound price and $150 after inflation adjustment is the long term rebound price.

According to this poll Americans are feeling pretty cocky. Supposedly the average person feels that $63 oil and $2.60 gasoline is pretty cheap (something that no one could have predicted a couple of years ago).http://www.forbes.com/business/businesstech/feeds/ap/2006/09/15/ap3019221.html
This is a follow-up to a discussion I had with Jack a few days ago about the, "Export Land" model put forth by WestTexas.

As I have stated before, I think that this model and its implications for oil importing countries are underappreciated.  

The graph:


WestTexas's quote:

On the graph, note that a 20% drop in production, and about an 8% increase in consumption over a 4.5 year time period results in a 50% drop in net oil exports.
Jack's response:

Certainly the export land model interesting as a concept and useful to a point. Buy isn't it just extrapolating to the ridiculous?

Saudi Arabia and many other producers have economies dominated by oil exports. If they use the oil, they eliminate their ability to import anything and eventually shut down the global economy.  

Sooner or later these countries will begin to see growing domestic demand - which is boosted by export generated income and subsidized prices - as a threat to their existence and will curtail it.

I disputed Jack's point of view, arguing that the windfall oil revenues in Saudi Arabia (if it even makes sense to speak of windfall revenues, since they're likely to be permanent), were being leveraged, through economic diversification, in a way which made a future curtailing of domestic demand implausible.

Here are some interesting articles which illustrate what i'm talking about:







My conclusion: the Saudi diversification program (which, by the way, was modeled to a large degree on the wildly successful UAE diversification program) combined with greatly increased foreign direct investment due to SA's recent entry into the WTO and the accompanying economic liberalization, will likely cause the kingdom's future domestic consumption numbers to be revised up, not down, in coming years.  

As WestTexas has rightly pointed out, the increased domestic consumption of exporting countries, especially if combined with peak oil, will have dramatic consequences in importing countries like the U.S..      


By the way, I didn't vote in that poll up above because I don't like the way the answers are phrased.

I think oil will hit $57 about two months from now.  I don't think it will ever hit $53.  It'll hit $73 soon enough, but not until maybe five or six months from now.  I wouldn't call what we're in right now a trading range, though.  By the time we get down to where I think we're going, we'll have seen a fairly serious bull market correction of more than 30%.  

"...serious bull market correction of more than 30%." Are you saying equities will rise by 30%? Are you really a trader?
Within the context of a bull market (in this case a commodities bull market), there are sometimes downward, "corrections," not that I give a f*** about jargon or lingo.
Correction: we'll have seen a fairly serious bull market correction of almost 30%.  
I'd like to ask if you (SAT) see any difference between what you postulate as diversifying their economies and giving citizens free or reduced energy subsidies, including but not limited to reduced transportation fuel. I think that these subsidies will be quite difficult to reduce or eliminate in the future, and for regimes that are not that 'legitimate' to begin with, might really lead to some serious unrest.
BTW, I do agree with you that the ME nations are at least attempting to use their windfall in a more productive manner than they did back in the 70s...

I definitely see a difference between oil money going towards diversification and oil money going towards subsidies, but I think most of these countries will be so flush with cash that they will continue to be able to do both.  As I noted in a post below, it's hard for me to imagine any scenario where Saudi oil revenues don't continue to go up.  Even if their own oil production peaks, prices will spike to the point that they will still be raking in record revenues.  So I don't really buy the unrest scenario.  

Thanks for the follow up. I think we only differ in degree. I agree that the Export Land Model is interesting and to a point predictive, or at least highlights to a potential trend.

I don't dispute that oil revenues combined with subsidized petroleum prices have led to increased consumption in exporting countries. I agree that many oil exporters are trying to invest to diversify their economies.

Where we seem to differ is in the following two points:

  1. I think this trend has to level off and do not think exporters will ever reach the point where they shut off exports. I see the situation as self-regulating. At some point, the cost of local consumption gets high and the countries will reduce or eliminate subsidies. This will come about because the countries will need to buy foreign products such as cars, machinery, etc. At the same time, as reduced exports drive prices up, the benefits of exports grows.

  2. Talk about diversification and successfully transforming an economy are very, very different things. Taking economies that have been single product-based and converting them to the point that they no longer export that product would seem unprecedented.

I am sure there are many articles discussing this. However, I find your reliance on a single news source that seems dedicated in part to promotional activities weak. I have no doubt that cash is flowing into the Middleeast like mad, so gushing articles detailing it don't impress me much. Money was pouring into US real estate a few years ago and plenty of press releases from that time claimed the market would run forever. I would like to see a more analytical viewpoint.

Ameinfo's sources include:

Company news releases and event announcements which are produced by independent organisations and provided to AME Info for on-site posting.

Company news releases and event announcements are posted and updated daily - Saturday through Thursday.


While the ME has boomed an crashed in past oil cycles, I do believe this time is different. I think oil prices will stay high and countries will manage to increase domestic investment. However, I expect, as your article indicate, this will come mostly in the form of resource processing.

However, the level of transformation required to fulfil the ELM seems to me to be speculative at this point. The barriers to developing Middleeastern countries remain massive, although abundant cash will help. The UAE is an amazing story and features growth at China levels.

However, I would guess it has less than 2% of ME population and less than 3-4% of its GDP. I expect that booming oil markets will flood the coffers of Russia, Iran, and Saudi Arabia. I don't think it will fuel their transition to modern industrial leaders that can compete with Asian, or other economies, in non-oil-based industries.

I do think the ELM is useful, but plotting a fixed 2.5% growth rate for domestic consumption has to be regarded as "for demonstration purposes only"

I think this trend has to level off and do not think exporters will ever reach the point where they shut off exports. I see the situation as self-regulating. At some point, the cost of local consumption gets high and the countries will reduce or eliminate subsidies. This will come about because the countries will need to buy foreign products such as cars, machinery, etc. At the same time, as reduced exports drive prices up, the benefits of exports grows.

I would add "try to" into that making it: "At some point, the cost of local consumption gets high and the countries will try to reduce or eliminate subsidies."  As a few articles that've been posted in the drumbeat have shown, that is not something that comes particularly easy and whether they'll reduce the subsidies and risk rioting and getting kicked off the throne or out of office, or wind up backing down remains to be seen.  From the examples thusfar, the smart money is on not rocking the boat.

Look at Indonesia and the UK as examples where domestic consumption was constrained to preserve exports as production declined.
While I agree that removing subsidies is never easy, I would say it has been highly successful in the last few years. Thailand, Indonesia, China, and, as far as I can tell most developing countries, have done it.

Newsclippings reporting riots is a poor proxy for reform success.  In Thailand, where I live, any time the government threatens sdubsidies, there will be small "riots" by taxis drivers, truckers and fishermen in an effort to force a government rethink. Once that fails they go back to work. Around the world the subsidies have stayed removed and the "riots" are gone.

Indonesia and the UK are very, very different from Middle Eastern countries. The UK was never a petrol state. It has been a wealthly country with a developed economy large compared to its oil resources. Indonesia also has a diversified non-oil economy and the fourth largest population in the world.

I recognize that removing subsidies is not easy and that Middle Eastern leaders have benefitted by handling out cheap oil to the populations. But transforming their economies will require this sort of toughness. I am not convinced by the argument that these countries will take all of the heroic tough steps they need to completely change the industrial and economuic bases of their countries, but not be able to take the smaller step of subsidy removal that has been successfully been done by others around the world recently.

The Financial Times of Saturday, 16 September, has a fantastic lead editorial on this exact subject that all sides will find something to like in. If anyone has access to it, please post.

Note that there are lots of examples of net oil exporters becoming net importers, e.g., Indonesia.

BTW, someone posted a news item about Russia a couple of days ago, to the effect that oil production has (supposedly) rebounded, but that oil exports are down substantially.  

IMO, we are going to finish up 2006 with a substantial decrease in net oil exports versus late 2005.  

Congrats on picking the Oil Market correction BTW. Good luck on your $57 bet.

Just on the point of Fossil Fuel exporters, it appears that Russia wants to seriously ramp up Nuclear Power at home while selling Natural Gas abroad.


The article also quotes the Russian exec as saying their Natural Gas reserves will be depleted in 50 years. I guess he's a Nuclear guy so he's talking down the competition but it's interesting that this thinking is high up amongst the Russian Powers That Be.


That's a smart strategy by Russia.  I think most of the big oil exporting countries seem to, "get it," this time around, in the sense that they are planning to leverage their oil resources to the max.  One exception to this rule might be Venezuela, which seems to be repeating many of the errors the ME countries commited the first time around, back in the 70's.

I've always found it odd that people seem to think that peak oil will be devastating for the oil exporters.  So far, Saudi Arabia's oil production has held steady and they are making record profits.  If production peaks, prices will spike, and they will still be making record profits.  I see it as a win-win for them, especially in relative terms (relative to the economic outlook for importers).  Other countries, like the UAE, are in an even better situation, since their production is decades away from peaking.

Over the next 20 years, I think we will see a continuation of what we have seen over the last 4 or 5 years -- a massive transfer of wealth from oil importing countries to oil exporting countries.  IMO, this trend is only in its infancy.  Also in its infancy are the oil exporters' plans to diversify their economies.  After 4 or 5 years of consistantly high oil prices, the Saudis are now able to launch a 700 billion dollar effort to diversify their economy.  After prices stay high for the next 4 or 5 years, you will seen them launching even more ambitious efforts, and they will also be able to build on their prior successes.  This was something they weren't able to do in the 70's, since the boom quickly turned to bust.


Venezuela built some quite large dams before (just finishing up a 2 GW AFAIK).  Guri, at 5 GW was the biggest.  (GW from memory).  Large aluminum smelting industry.

I would say that Venezuela's recent past investments are better than Russian planned nukes.

I just watched the Dallas/Fort Worth broadcast of Part One of the PBS Peak Oil debate (the McCuistion Program)--yours truly; a local operator; an ExxonMobil representative; a consultant (Chris Ross, who was recommended by Saudi Aramco) and Michael Lynch (on the phone).  No word on when it is supposed to be shown nationally.

I have previously referenced Chris' comments regarding future ME production.  Remember, he was there based on Saudi Aramco's recommendation.

Chris repeatedly said that the ME is not going to produce the amount of oil that consumer are expecting, and he said that countries with long life reserves have different long term goals than companies like ExxonMobil that want to maximize current production.  

IMO, the Saudis are going to soon start claiming that they are voluntarily cutting back on production from older fields to maximize the long term recovery from the older fields, while they aggressively try to to expand production from newer fields.

BTW, as I noted down the thread, there are lots of examples of net oil exporters becoming net oil importers, e.g., Indonesia.

Alas my PBS is not Dallas/Fort Worth. No Peak Oil Debate for us here.
Look out below! Oil at $50 at least once by Christmas...
Hey Keith, speaking of things falling, how about some more stock tips? Tell me what you like and I'll short sell the shit out of it. That Pacific Ethanol tip of yours was a real winner - down from 40 to 16 in just four months. Sweet!
Good one! I bought at $10 and sold at $37. If you had listened to me you would have made money on the way up too.
Here's some, "breaking news" on Sinopec's immenent deal to develop the Yadavaran field in Iran.  India will also be involved.


In case anyone missed it, Total has now agreed to get involved with Inpex of Japan in the development of the Azadegan field (29 billion barrels).


Sanctions anyone?

I voted for a lowering of prices(53 before 73) since its my belief that this country is getting a 'wakeup' call regarding the housing market and mortgages. To me this translates into being more thrifty with non-essential driving habits.

Being a doomer does not mean one can no longer hope.Also I see far far more motorcycles out on the byways and highways. People keep asking me what kind of gas mileage I achieve. More SUVs on used car lots(seen yesterday). In fact the saleman said that they just wholesaled a huge number of Grand Cherokees and just kept the best of the best.

I was going to mention much the same thing.  I think the issue will be less Exportland and depletion but rather ARMland. My guess is that US demand will drop significantly across the board as 2007 progresses and moneies are sucked out of the economy to pay increased mortgages. This, of course, gets into Jevon's Paradox.  In other words, world demand will be flat.

Therefore, my expectation is for oil to increase in 4Q2006 and early 2007 (to upper 60's) and then fall as the year progresses (mid-50's).

As noted above, latest consumer confidence ratings in the USA are rising dramatically.
Interesting post that I think is quite accurate.  The ARM problem was mentioned by my accountant, as well as interest only loans. Told me of a client that sold a 1.8 million dollar beach house with 180k down and interest only loan with $3800.00 monthly payments.  If this person cannot make real payments and wants to flip this house and prices drop...what then? He also mentioned just how upside down some people are and stretched thin even with the low payment...He also looked a bit scared...

Receint issue of business week had a large article about arm's.  Made the case that the latest run up in real estate prices was prolonged by these risk-prone loans.  Housing Price overshoot or just a slow down in the increase?

If most american jobs are due to "discresssionary(sp?) spending" and people have been using thier homes as giant ATM's then this would indeed lead to what...? A slowing economy?  Lower oil prices? Drop in precious metals? Lower incomes(layoff and reemployment at lower/less benefits?)
 I see very little room for huge improvements.  Take the reducing finacial capacity and needed investments due to peak oil this looks like we will get shot with both barrels.

I bet on the drop to $53 and then back up again as the  closest fit to what makes sense.(ie Westaxas's sine wave?) Lower prices (for elections) and then let er rip as we need(be forced to) to compete globally for what is left.  IMHO  If Bush can threaten Iran and invade Iraq He sure a hell could tell the oil companies to tow the line or else.  Repulicans are still in control and they know people are worried and unhappy with fuel prices and they want to be re-elected.  Create enough pain to make big oil $$$ but not too long or too severe lest they loose thier seat of power.  Look gas is at ONLY $2.62 and we are so happy...just before election season starts(hmmm...) When they can't control it will they panic for real.

As an aside- we live next to a fresh clearcut- Many people are unhappy - I ask a few questions- do you live in a wood house? do you use computer paper?  Or toilet?(duh)
I feel like I'm telling them we are living on Easter Island. They understand but still want it to be someone else's problem.

There is a funny website called despair.com with great posters about our collective stupidity.  I highly recommend it. ;-(

>The ARM problem was mentioned by my accountant, as well as interest only loans. Told me of a client that sold a 1.8 million dollar beach house with 180k down and interest only loan with $3800.00 monthly payments

Want to see how bad things are in your area? Next time you go to bank as the teller about the banking habits of the average person. Try a few different branchs too. The teller will likely tell you that the majority of people are living paycheck to paycheck and have little or no savings. They are literally, one paycheck away from finance disaster.

>I bet on the drop to $53 and then back up again as the  closest fit to what makes sense.(ie Westaxas's sine wave?)

Remember that US consumption is only 25% of global consumption. Its likely that price may remain in the 60's if China, India and other continue consumption growth and if they decide to begin filling strategic reserves. I think if prices fall to the high 50's China will use the opportunity to fill its strategic reserve. The US is also likely to resume fill its strategic reserve too.

>Receint issue of business week had a large article about arm's.  Made the case that the latest run up in real estate prices was prolonged by these risk-prone loans.  Housing Price overshoot or just a slow down in the increase?

On flip side of the coin, builders have produced an over supply of new homes that will further pressure prices. When prices start really fall, funds for loans will disappear as few lenders will want to risk money on declining real estate prices, which might be the trigger to cause real estate prices to go into a tailspin.

My advice for what its worth, would be to sell your real estate and rent. If you were able to sell soon, you would be selling near the top. If you lose your job because of the recession, you will be able to easily relocate. If your stuck with a mortgage, you either need to wait until you sell your home (much harder in a recession), or be stuck trying to find a new job locally (limiting the available job opportunities.) Renting offers you much more flexibility during an economic downturn. Also, rents may fall in a recession where as a mortgage, payments are fixed.

Best of Luck to you.

The oil price is heading down.  High oil prices are always followed by lower oil prices. But with the loss of purchasing power of the dollar, $30- $50 oil should now be considered the cheap oil range.

Future price spikes will occur.  Then a fall off again. That is how markets often work

"Future price spikes will occur.  Then a fall off again. That is how markets often work"

Addressing Peak Oil by talking about oil prices is like focusing on a high fever, instead of the underlying infection.

Volatile oil prices, IMO, are just a symptom of the problem--a series of auctions for declining net oil exports.  For a number of reasons, the price of oil at the auctions can go up and down, but the available data are showing declining net oil exports worldwide.

Hello TODers,

SUBJECT: Polling for the Resource War?

Most of you are already aware of my feared '3 Days of the Condor' scenario.  I wonder if the Charles Krauthammer link in this Sunday's Drumbeat helps shift American attitudes to the 'Nuke their Ass--I want Gas' mindset and acceptance of resource wars?  Makes one wonder if the CIA/NSA conducts their own specific polling, but, of course, we will never see the results.

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

Time magazine's cover story this week reportedly discusses various scenarios resulting from a US attack on Iran.
From CNN:

What war with Iran would look like
POSTED: 10:46 a.m. EDT, September 17, 2006

Editor's note: The following is a summary of this week's Time magazine cover story.

(Time.comexternal link) -- The first message was routine enough: a "Prepare to Deploy Order" sent through Naval communications channels to a submarine, an Aegis-class cruiser, two minesweepers and two minehunters.

The orders didn't actually command the ships out of port; they just said be ready to move by October 1.

A deployment of minesweepers to the east coast of Iran would seem to suggest that a much discussed, but until now largely theoretical, prospect has become real: that the U.S. may be preparing for war with Iran.

The Bush team, led by Secretary of State Condoleezza Rice, has done more diplomatic spadework on Iran than on any other project in its 5 1/2 years in office.

For more than 18 months, Rice has kept the administration's hard-line faction at bay while leading a coalition, which includes four other members of the U.N. Security Council, that is trying to force Tehran to halt its nuclear ambitions.

But superpowers don't always get to choose their enemies or the timing of their confrontations. The fact that all sides would risk losing so much in armed conflict doesn't mean they won't stumble into one anyway.

So what would it look like? Interviews with dozens of experts and government officials in Washington, Tehran and elsewhere in the Middle East paint a sobering picture: Military action against Iran's nuclear facilities would have a decent chance of succeeding, but at a staggering cost.

And therein lies the excruciating calculus facing the U.S. and its allies: Is the cost of confronting Iran greater than the dangers of living with a nuclear Iran? And can anything short of war persuade Tehran's fundamentalist regime to give up its dangerous game?

No one is talking about a ground invasion of Iran. Too many U.S. troops are tied down elsewhere to make it possible, and besides, it isn't necessary. If the U.S. goal is simply to stunt Iran's nuclear program, it can be done better and more safely by air.

An attack limited to Iran's nuclear facilities would nonetheless require a massive campaign. Experts say that Iran has between 18 and 30 nuclear-related facilities. The sites are dispersed around the country -- some in the open, some cloaked in the guise of conventional factories, some buried deep underground.

A U.S. strike would have a lasting impression on Iran's rulers. U.S. officials believe that a campaign of several days could set back Iran's nuclear program by two to three years. Hit hard enough, some believe, Iranians might develop second thoughts about their government's designs as a regional nuclear power.

Some U.S. foes of Iran's regime believe that the crisis of legitimacy that the ruling clerics would face in the wake of a U.S. attack could trigger their downfall, though others are convinced it would unite the population with the government in anti-American rage.

Given the chaos that a war might unleash, what options does the world have to avoid it? One approach would be for the U.S. to accept Iran as a nuclear power and learn to live with an Iranian bomb, focusing its efforts on deterrence rather than pre-emption.

The risk is that a nuclear-armed Iran would use its regional primacy to become the dominant foreign power in Iraq, threaten Israel and make it harder for Washington to exert its will in the region. And it could provoke Sunni countries in the region, like Saudi Arabia and Egypt, to start nuclear programs of their own to contain rising Shiite power.

Those equally unappetizing prospects -- war or a new arms race in the Middle East -- explain why the White House is kicking up its efforts to resolve the Iran problem before it gets that far. Washington is doing everything it can to make Iran think twice about its ongoing game of stonewall. Everyone has been careful -- for now -- to stick to Rice's diplomatic emphasis.

"Nobody is considering a military option at this point," says an administration official. "We're trying to prevent a situation in which the president finds himself having to decide between a nuclear-armed Iran or going to war. The best hope of avoiding that dilemma is hard-nosed diplomacy, one that has serious consequences."