Don't Believe Long-Term Oil Forecasts 68 comments
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On 4 October 2009, The Wall Street Journal ran an article World Need for Oil Expected to Ease (subscription might be required), where the author, Spencer Swartz, wrote:
The International Energy Agency next week will make a "substantial" downward revision to its long-term forecast for global oil demand, a person familiar with the matter said, marking the second year running the group has slashed its view of the world's thirst for oil.
...
If demand pessimists are correct, future increases in the price of crude could be damped as weaker consumption stretches world oil supply by billions of barrels. Various analyst estimates maintain that the roughly 2% a year average growth rate in world oil consumption seen earlier this decade -- the biggest reason for crude prices hitting a record $147 a barrel last year -- may turn out to be an anomaly and that annual growth in the neighborhood of 0.5% to 1% is more the norm.
The reality is that no one knows what the long term future holds. The IEA itself struggles with the Bull versus Bear oil outlook. Ask yourself, how many pundits foresaw the mess we are in now and anticipated the dramatic easing of oil demand?
Sure, one can gather relevant information and make a reasonable guess as to oil demand next year and the year after that. But after five years, the potential paths of demand growth become unwieldy. How will economic growth be sustained over the next five years? Will the OECD countries lag emerging countries? Will China and the rest of Asia power ahead and create substantial demand? If Asian countries do power ahead and create many millions of middle class citizens, will they demand their own vehicles and tickets on jet planes to see the world? Will Brazil and other South American countries enjoy strong economic growth? Will the Middle East be stable over this period? Will Iraq resume its full production capabilities? As you see, one can begin asking any number of questions that are impossible to answer with an accuracy or certainty and that might have a major bearing on demand or supply or both.
What do we know? We know that for a long time, oil prices were usually within $20-$30 real per barrel. Now those prices are laughable. No reasonable person expects the world to return to those prices any time soon. Many major oil fields around the world are in decline. Oil companies are searching in more remote and sometimes more unfriendly regions of the world to develop further existing fields and to discover new fields. And, the rise of oil prices has given new prominence to some national oil companies. A sample list, though incomplete, of companies include: Gazprom OAO (OGZPY.PK), Petróleos de Venezuela, S.A., and Petróleo Brasileiro S.A. - Petrobras (PBR).
If we were to accept the 1% annual growth of oil demand mentioned in the WSJ quote for a long duration, what would that mean or imply? A child born tomorrow will see by her seventieth birthday a doubling of daily world oil production from about 85 million barrels per day to 170 million barrels per day. Moreover, during her seventy years, the world will have produced more during that time than the total cumulative amount prior to her birth. Call me a skeptic, but I am unable to see where we would find that much additional oil to produce at such high rates for such a sustained period.
To be clear, neither the article nor the IEA is suggesting that we endure a 1% growth forever. Rather, I wanted to use this seemingly small innocuous number of only 1% growth to draw attention to its implication. If the long term growth were 2%, then in 35 years the daily world oil production would double to 170 million barrels per day and the oil produced during those 35 years would exceed the prior total cumulative amount of oil produced.
I recommend two excellent sources of information to learn more about oil, oil demand, oil prices and various policy initiatives:
- Statistical Review of World Energy from BP p.l.c. (BP). I found the link to the Adobe pdf document toward to the bottom on its homepage.
- Monthly Oil Market Report from the International Energy Agency. The link is to the webpage that hosts the document that is released two weeks after the initial release date. Subscribers receive immediate access through a different link.
Both documents are extremely helpful. I find the BP document provides concise information and historical context. The IEA document provides the agency's latest thinking and forecasts.
As the world struggles to find new sources of oil, there will be dramatic changes. I have already discussed some questions we should ask ourselves as we contemplate future oil demand growth. Of course, many more questions need to be considered. And I have indicated that some national oil companies have gained strength and prominence with higher oil demand and prices. As investors, we should also think about what long term oil demand growth means for oil sands companies such as Suncor Energy, Inc. (SU) and Canadian Oil Sands Trust (COSWF.PK), and for large multinationals such as ConocoPhillips Company (COP), Chevron Corporation (CVX), and Exxon Mobil Corporation (XOM).
As demand continues to rise, I am curious what will happen. Will scientific breakthroughs help? How will the world cope with the environmental consequences? How will people adapt to possibly much higher prices? How will countries and regions change because of either having or lacking domestic oil supplies? If the world does experience higher prices, what are the implications for global world trade? And do higher prices imply that people will travel less and have less of an understanding of other regions? These questions are just a small sample of what investors should begin considering.
A few years ago, Professor Bartlett gave a compelling lecture, captured in a series of YouTube videos, to some students at the University of Colorado. In his lecture, he discussed oil demand growth. The lecture starts a bit slow; however, when you reach the latter part of the third video, you'll see how the prior information is relevant to his discussion on oil. In other words, because they are important, don't skip the initial video segments and jump to the third. I urge you to watch the complete video series.
And after you've watched the videos, ask yourself, "What time is it?" This question will make sense once you've seen the videos.
When I initially saw the WSJ article, I was drawn by the long term forecasts. My personal bias is that most longer term things in life are difficult, if not impossible, to forecast with any reasonable degree of accuracy. Then as I read the article, I saw the 1% growth number, which by itself seems very innocuous. But if you think about what 1% growth means over a long and sustained period, you quickly realize there are going to be changes. Moreover, the world has already witnessed a significant shift in oil prices over the last decade. We are no longer in our prior historical norm of $20-$30 per barrel. Some might argue that we are now in unchartered territory. As part of that possible unchartered territory, I wanted you to think about some larger questions. The questions mentioned in this article are just off the top of my head without much thought. I am sure you can think of many more. And last, I wanted to draw your attention to Professor Bartlett's excellent lecture. His lecture will make you think about oil demand (and others) growth differently. I hope this article causes you to further your own research.
Disclosure: I am long shares in Canadian Oil Sands Trust, Suncor Energy, and Exxon Mobil as well as long and short puts in Exxon Mobil.
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This article has 68 comments:
1) even at oil prices of $145/barrel, production of the largest oil companies was down year-over-year
2) the US continues to spend huge sums of money to obtain oil: witness the war in iraq and afghanistan (which is not about the taliban, but about getting caspian sea energy treasures to market without going through russia or iran).
3) the chinese are now selling more cars (the vast majority of them gasoline powered) every month than america.
4) the U.S. has still not adopted a non-gasoline personal transportation solution (like natural gas vehicles) and therefore is still addicted to foreign oil despite all the rhetoric from the obama administration. it is clear obama and energy secretary chu are held firmly in the grasp of oil and coal power as they are "agnostic" about natural gas transportation even as supply has mushroomed and prices have dropped.
so, the U.S., and the world for that matter, continue on a collision course with the reality of worldwide oil supply/demand. if the economy does come back from the last prices spike (not a given), the current "glut" of oil supplies will be worked off in a matter of months and the next price spike will exceed the last one. the world is on an economic yo-yo driven by the new world reserve currency: oil. the U.S. is the biggest user by far (~25% of total), oil is priced in US dollars, but the U.S. is in deep debt and after 8 years of Bush China owns *alot* of it. so, you tell me, who is in the catbird seat going forward?
1) demand in the US has fallen 6-7%
2) brimming worldwide oil supplies
3) the worst economic contraction since the great depression
so, if prices are $77/barrel now, where are they going if the worldwide economy picks up over the next year? where will the go if the US dollar continues downward? and lastly, where will they go if the US decides to start the 3rd war in the middle east (iran)? the outlook for oil has never been more bullish than it is today.
Having said that, OIL SHOULD BE @ 90 SOONER THAN LATER
and China no doubt is buying into oil companies either directly but more under different names as not to "excite" the locales
FD: oxy /su bqi
The oldest rhetoric trick in the book - call those who disagree with you unreasonable, without any substantial argument to support it.
Credit inflations tend to reverse Very quickly, which destroys money supply, faster than central banks can replace it. That drives down prices - FAST - as there is simply less purchasing power around.
And we have been through the grandest credit inflation in very nearly 300 years. Maybe ever.
Anyone who looks to Al Bartlett's (read nee Malthus's) prognostications for the future is about as naive as anyone can get. Bartlett as a physicist is embarrassing in his Johnny one-note enthusiasm for the Malthusian exponential catastrophes. No real accounting for human ingenuity in response to changes in economics, financials and especially human technological creativity. Very sophomoric!
Bartlett (like Malthus) is the "Boy who cries Wolf!"... And Stecyk is his megaphone.
Many things happens everyday in the oil business and perhaps only a few really understand how is evolving (many of them in the oil unit of Citibank) ....China just signed with Equatorial Guinea's dictator a 7 billion deal...BP will increase 150% the production of Iraqi field, as will do it also Total and others in that country.... Mexico is losing production in a equivalent to 65,000 bpd in 18 months will be a big oil importer..... England will stop production somewhere next year in most platforms.
There are hugh amount of oil out there, The melting North Pole will bring the latest really big deposits there, Africa and South AMerica deep submarine fields are big, Falkland Islands the same as well as Gulf of Mexico "donuts" but, DO WE REALLY HAVE TO.....MUST TO EXPLOIT THEM? ... I believe than Humanity can drill out the energy problems but is wise to do it?
Rgds
Maybe others can't figure out where oil is going but I can fairly easily. First one needs to know what oil is available and how more might be made available.
Studying these one can only think that oil has peaked in production. The facts are we probably never will produce what we did in this decade. Why is most of the fields are dying and we'll have to completely replace them in just 20 yrs. That is not going to happen.
What will happen is oil as the world economy recovers, will hit the product limits in under 2 yrs, thus hit $150/bbl or until it causes another recession, then oil will drop but not as far, then the economy recovers, oil rises to higher levels, recession, repeat until we get off oil.
My predictions is oil will hit $5/gal late next yr or spring 2011, drop back to $80/bbl, then up to $180'bbl, drop, repeat adding about $1/gal/yr for about 8-10 yrs when we have replaced our fleet with EV's, PHEV's, high mileage cars and NG trucks, semi's.
This is going to happen no matter what because of that costs of oil.
Obama, Chu is not against NG, they have NG programs already. And NG does not need subsidies though it gets them for conversions, fueling stations. NG isn't great dfor cars because car owners don't want 5000psi NG tanks onboard, can't go through tunnels, takes a long time to fill up and takes too much room. But great for trucks. NG for cars is far better generating eff, cogen electricity to charge EV's which will go 3-6x's as far per lb of NG.
Cost is everything. If you can figure that out, everything else falls into place. Sadly you have many like oil companies, countries that spread mis-information trying to delay the switch from oil to RE, NG.
Don't invest in oil over 5 yrs as it will flatten by then, then drop as other techs, fuels take over transportation.
Oil sands, etc are not oil, they are far closer to coal than oil. Facts are your own RE on your home and an EV, PHEV or 2 means you can inexpensively make your own fuel at far lower rates than $5/gal oil. It will just take a while to change our fleets, homes to it and NG.
that is about all the silver linings to be found among the gloom.
> jack
The price of oil has got nothing to do with demand and there is no evidence (long term) that it does.
seekingalpha.com/artic...
green.autoblog.com/200.../
It doesn't seem to me like having a choice about which fuel to use is a bad thing.
Demand will fall if prices stay high, wether that is a result of inability to extract more oil or something else. We can use windmills to split water, use the hydrogen in conjunction with carbon, using solar concentration to raise the temps of the environment to use the fisher tropsche process to make oil.
So no wonder everybody has a prediction. Just remember that sudden shifts are difficult to adjust to, but a gradual increase in oil prices will lead to changes that will reduce the effect and put a damper on prices as well.
On Nov 09 08:32 AM John Eickholt wrote:
> I hope these oil traders will have to drink the oil for their New
> Years EVE drink.
We argue about short term issues of supply and demand, price adjustments up or down, and what impact those forces will have on the economy without adequate attention to what happens when there is no oil, or substitute energy to maintain the world. We ignore, or fail to include in our contemplation that our 300 million or so population consume twenty or so percent of the daily WORLD supply. Although we have great military strength and reach it cannot last forever because it is based on a continued supply of cheap oil, just as our growth driven economy is, and the cheap stuff is disappearing. If we do not as individuals, or as a nation focus on muddling through toward frugality and conservation in energy consumption my oldest daughter will experience a very different and unpleasant future. Human nature is to deal with the here and now and immediately evident future. If we continue down this path for the next twenty to forty years we just might be scre235. What do you think?
Most of the "easy-to-get" oil has already been found and there will be less of this oil available as time goes on. However, there are vast amounts of "not-so-easy-to-get" oil still out there. When the price reaches a certain point, the suppliers will find a way to get it. However, when the consumer feels the price is too high, he / she will cut back on demand. We saw this at $147 / barrel oil. Lather, rinse, repeat . . .
There are a host of factors that influence both supply and demand for oil and anyone who claims to have a clear, concise, accurate prediction of what the petrofuture looks like is either God or wrong.
One thing is certain - the relatively stable oil markets of the 20th century are over. The supply/demand/cost relationships are much more volatile now, and will, in my opinion, become more volatile as time goes by, until and unless the world gets serious about tapping renewable energy resources. Low cost oil producers are in decline. New souces are there, but much more difficult and expensive to develop.
The days of CHEAP oil are history.
1.) Everything that moves uses oil. Oil is essentially the only mobile fuel. That means cars, trucks, buses, trains, aircraft and ships all need it every day. Huge quantities of it. Without it stores would be empty, most people could not get to work, factories would close because of no raw materials and millions or billions of people would quickly face starvation.
2.) World population continues to grow. For this reason more oil will be needed every year even if living standards do not increase. We could not feed nearly the number of people on the earth today without abundant oil, let alone a population that continues to rise. Food production and distribution is highly oil dependent and there is no substitute.
3.) Developing countries need more oil to develop, because development means more things have to move. Labor, raw materials, finished products and waste products all need more oil as commercial development takes place.
4.) Oil is such an enabler because it contains a large amount of chemical energy per unit of volume and weight. It is liquid at normal temperatures and can be pumped between containers easily. It is easily stored.
So the only thing that can disrupt oil's very necessary role is some technology that can enable energy from, say, nuclear or coal power to be used as a mobile fuel. For example, a battery that could store the energy in a 200 liter tank of diesel fuel in a similar size and weight and be recharged as easily as a tank can be refilled.
No current technology comes close. Today's best batteries would need over a 10 times increase in energy density and most wear out quickly with frequent recharging. Many smart people over the years have worked on this problem with only small incremental improvements. It is not a problem easily solved.
So, keep your eye on technological developments but in the meantime stay invested in oil. Barring a revolutionary disruptive new technology the role of oil is safe because it is so necessary.
and the export countries desperately need the US consumer to buy their stuff, and that consumer is dollar based. make the dollar decline and they stop buying. raising interest rates may or may not have any impact at all. didn't before now in the last 8 years.
On Nov 09 09:47 AM ringo3khan wrote:
> I think it's important to remember that as much as the price of the
> commodity is determined by supply/demand considerations, it's also
> determined by the value or lack thereof of the U.S. dollar as same
> is held in vast quantities by the producing countries. Thus, oil
> has, in many ways become the new "Currency" and will be for as long
> as it's valued primarily in "dollars"; it's natural that as the instabilities
> in the U.S. financial and economic models become ever more violent
> and less predictable that the dollar will continue to fall in value.
> There is of coure the "model" out there that would indicate that
> if the Fed was to begin to raise interest rates, the dollar might
> begin to strengthen. However, the increased instability and inefficiencies
> of the U.S. society, political system and financial systems may well
> put us in a place where despite interest rate increases, the dollar
> doesn't appreciate significantly in value because, just as may now
> be the case with the currency of Zimbabwe, other countries and central
> banks won't want to be holding dollars in reserve. To the extent
> that this is the case, until such time as a more stable world reserve
> currency can be found, there may be no forseable ceiling on the price
> of oil.
One could place a small nuclear reactor into the size of a grapefruit, capable of running an automobile (or similar sized machine) for 1000 years.
The only thing it would need is water in the tank instead of oil (byproduct is H2O - clean).
What we have is a cornered market on nuclear uses -- WHY!? Because there is money left on the table if corporations (the only entities sizable enough to corner the market) can't sell you more expensive product in the near term.
Wake up fools, there are answers everywhere but not if one doesn't look and expand their technology horizon.
Energy problems have the one common simple solution of social will. Non less than the blubbering corporatists paying for politics against this will. BOOO HOOO!
You sharts keeping the conversation around oil are the problem.
On Nov 09 11:31 AM Kevin_T wrote:
> Only a major technological breakthrough can alter the ever-rising
> importance and price of oil. This is because of a few basic facts.
>
>
> 1.) Everything that moves uses oil. Oil is essentially the only
> mobile fuel. That means cars, trucks, buses, trains, aircraft and
> ships all need it every day. Huge quantities of it. Without it stores
> would be empty, most people could not get to work, factories would
> close because of no raw materials and millions or billions of people
> would quickly face starvation.
>
> 2.) World population continues to grow. For this reason more oil
> will be needed every year even if living standards do not increase.
> We could not feed nearly the number of people on the earth today
> without abundant oil, let alone a population that continues to rise.
> Food production and distribution is highly oil dependent and there
> is no substitute.
>
> 3.) Developing countries need more oil to develop, because development
> means more things have to move. Labor, raw materials, finished products
> and waste products all need more oil as commercial development takes
> place.
>
> 4.) Oil is such an enabler because it contains a large amount of
> chemical energy per unit of volume and weight. It is liquid at normal
> temperatures and can be pumped between containers easily. It is
> easily stored.
>
> So the only thing that can disrupt oil's very necessary role is some
> technology that can enable energy from, say, nuclear or coal power
> to be used as a mobile fuel. For example, a battery that could store
> the energy in a 200 liter tank of diesel fuel in a similar size and
> weight and be recharged as easily as a tank can be refilled. <br/>
>
> No current technology comes close. Today's best batteries would
> need over a 10 times increase in energy density and most wear out
> quickly with frequent recharging. Many smart people over the years
> have worked on this problem with only small incremental improvements.
> It is not a problem easily solved.
>
> So, keep your eye on technological developments but in the meantime
> stay invested in oil. Barring a revolutionary disruptive new technology
> the role of oil is safe because it is so necessary.
"even at oil prices of $145/barrel, production of the largest oil companies was down year-over-year"
Deflation takes prices back to where they should be, and would be, in an unmanipulated market.
When oil fell from $150 barrel to $30 barrel it wasn't because oil was being manipulated lower, it was because the upward manipulation lost its traction. How quickly oil returned to its real price when inflationary forces (manipulators) lost their composure, and gravity took over.
Housing prices? Look what gravity does to housing prices. Now the manipulators (the Inflationists -- the Ruling Class) are trying to drive prices back up. It's the same in everything.
On Nov 08 12:59 PM worriedwart wrote:
> NO ONE minds when prices are manipulated low, which is why manipulation
> to higher prices is tacitly acceptable, like it or not
>
> Having said that, OIL SHOULD BE @ 90 SOONER THAN LATER
> and China no doubt is buying into oil companies either directly but
> more under different names as not to "excite" the locales
>
> FD: oxy /su bqi
Barring a second giant collapse in demand, the long-term oil curve is definitely up - the only real question is how steep it will get.
Of course we will eventually stop using oil, just as we have stopped using previous forms of inefficient energy. We have plenty of alternatives, although not all of them are efficient. Rising oil prices just means that the world will begin to move towards better forms of energy. Oil won't go up in price forever. Seen the price of charcoal or whale oil lately? This shift will happen sooner or later, but it will come, and I'm reasonably certain that civilization won't crumble when the oil stops flowing. We need more innovation and less doomsaying.
On Nov 09 09:48 AM The Dark Years wrote:
> This is one of the most relevant and salient observations I have
> seen in Seeking Alpha as it deals with an inconvenient reality that
> one day there just will not be enough oil to drive the world economy.
> Guessing, estimating, forecasting, or prognosticating exactly when
> or why that will happen defers the issue to an uncertain future.
>
>
> We argue about short term issues of supply and demand, price adjustments
> up or down, and what impact those forces will have on the economy
> without adequate attention to what happens when there is no oil,
> or substitute energy to maintain the world. We ignore, or fail to
> include in our contemplation that our 300 million or so population
> consume twenty or so percent of the daily WORLD supply. Although
> we have great military strength and reach it cannot last forever
> because it is based on a continued supply of cheap oil, just as our
> growth driven economy is, and the cheap stuff is disappearing. If
> we do not as individuals, or as a nation focus on muddling through
> toward frugality and conservation in energy consumption my oldest
> daughter will experience a very different and unpleasant future.
> Human nature is to deal with the here and now and immediately evident
> future. If we continue down this path for the next twenty to forty
> years we just might be scre235. What do you think?
For more than 10 years I have tried (eminently unsuccess-
fully) to get people to think of oil in terms other than as energy. We can, relatively easily, find many sources for energy.
Oil is the basis for a great number of products -- every-
thing from fertilizer to tires to asphalt to pharmaceuticals
to paint (go Google "petroleum"). For the next 40 to 50 years, the BIG task will be to find the sources for the materials to be used to make all these items we now take for granted in our everyday life. It's going to be a grand time and I wish I were 15 years old and could get in on it.
(Please read the oil article in the July-August Science Illustrated.)
William Byrum
Columbia, S. C.
Much of the emerging world has not and is not going through the financial suicide the US is with credit. And that is where most of the future demand for oil will come from.
On Nov 08 02:11 PM Jasper M wrote:
> "No reasonable person expects the world to return to those prices
> any time soon."
>
> The oldest rhetoric trick in the book - call those who disagree with
> you unreasonable, without any substantial argument to support it.
>
>
> Credit inflations tend to reverse Very quickly, which destroys money
> supply, faster than central banks can replace it. That drives down
> prices - FAST - as there is simply less purchasing power around.
>
> And we have been through the grandest credit inflation in very nearly
> 300 years. Maybe ever.
That is why Saudi Arabia is dumping using the NYMEX contract and opting for contracts that are less manipulated by the Wall Street banksters.
On Nov 09 03:05 AM bigbear4511 wrote:
> Oil was $32 dollars a barrel in February due to the market crash.
> It is highly possible we will experience another crash in the not
> so distant future. the next crash could easily be worse than this
> one. No one thought we would see 50$ a barrel ever again and we went
> way below that. The next big crash could be in CHina. Who will pull
> this economy out of hole when that happens.
Second - you're right about the manipulation, but it's on the downside by Wall Street. Wall Street makes much of their money from people like you buying stocks, and they do not want people seeing commodities are a solid long-term investment and moving their money there.
On Nov 09 08:32 AM John Eickholt wrote:
> Oil has been manipulated for years with the Hype of weather, China
> and India. Just like today the weather Hurricane Ida that has been
> downgraded.
> Some facts from last weeks Gov. inventory report.
>
> Distillate fuel demand has averaged 3.6 million barrels per day over
> the
> last
> four weeks, down by 14.8 percent from the same period last year.
> Jet fuel
> demand is 3.1 percent lower over the last four weeks compared to
> the same
> four-week period last year.
>
> www.eia.doe.gov/pub/oi...
>
>
> Distillate fuel move our goods and services. This is down 14.8% from
> last year. Even with this news they want to trade up prices for Greed.
>
> A story from Fadel Gheits about oil prices.
>
> Fadel Gheits is the one guy that CNBC won't bring on.
>
> seekingalpha.com/artic......
>
> FG: Two things. Oil prices have not been driven by supply and demand
>
> fundamentals for years. This was exacerbated by the incredible influx
> of
> money from financial players into the commodity markets over the
> last five
> years and especially oil, which basically created the oil bubble
> that we had
> last year. Supply and demand fundamentals are beginning to play a
> secondary
> role now in oil prices. Financial players have much more clout and
> basically
> manipulate-influence, if not manipulate-oil prices; that is very
> clear.
> That's why we have the investigation by the CFTC and all the hearings.
> I am
> not holding my breath to see any changes because the politically
> motivated
> individuals and the incredible lobbying by financial institutions
> make it
> very, very difficult to regulate or enforce regulations in the books
> to stem
> that incredible increase in financial institution influence on the
> commodity
> prices.
>
> I hope these oil traders will have to drink the oil for their New
> Years EVE drink.
On Nov 09 04:01 PM Tony Daltorio wrote:
> The only reason that oil was $32 a barrel was the blatant manipulation
> of the NYMEX contract by Wall Street.
>
> That is why Saudi Arabia is dumping using the NYMEX contract and
> opting for contracts that are less manipulated by the Wall Street
> banksters.
Another thing is that if diesel stocks continues to grow through the winter with minimal draw downs that will keep crude prices depressed for the short term. If they got nowhere to store the inventory prices will come down.
On Nov 09 02:42 PM Michael Clark wrote:
> When are prices manipulated lower? The whole point of inflationary
> price manipulation is higher prices, isn't it? Sure, short-term prices
> can be manipulated lower by short-sellers....but everything in the
> world is more expensive than it should be. That's what business is
> and does...manipulates prices higher. The only force that manipulates
> prices lower is 1) too much supply; 2) deflation.
>
> Deflation takes prices back to where they should be, and would be,
> in an unmanipulated market.
>
> When oil fell from $150 barrel to $30 barrel it wasn't because oil
> was being manipulated lower, it was because the upward manipulation
> lost its traction. How quickly oil returned to its real price when
> inflationary forces (manipulators) lost their composure, and gravity
> took over.
>
> Housing prices? Look what gravity does to housing prices. Now the
> manipulators (the Inflationists -- the Ruling Class) are trying to
> drive prices back up. It's the same in everything.
I agree!
Having already gone thru the Barlett scenario's some time ago, I also agree with him.
At this point, we seem no better than the batch of yeast, in an enclosed space, which is about to consume itself out of existence, whilst allowing a minority of self interested people to enjoy the fruits of our demise!
> Much of the emerging world has not and is not going through the financial suicide the US is with credit.
Rriight . . . there has been next to no credit inflation in Europe, or China . . . wait, no . . .
> And that is where most of the future demand for oil will come from.
I would love to know where one supposes this demand will come from, with marginal demand for their exports vanishing, likely for decades to come.
While agreeing with both what you and Kevin Steyck - I would like to point out that convectional economic points to market prices equaling/equating the marginal cost to produce a product.
In the oil industry that marginal cost per barrel can be as low as $8 per barrel, (Angola, Venezuela, Nigeria) with the Saudi's likely to produce oil at an even lower marginal cost per barrel. Hence any premium received above that real cost is not based on economic absolute fundamental but on a speculative positioning.
Speculative plays are largely justified to account for a host of the otherwise real and perceived indirect costs; in which case the structure of the international oil oligopoly; sovereign hostility, peak oil time discounting plays, and a dollar or two for considerations of carbon pollution - per barrel are a weak (rather than absolute) consideration.
But what has historically truly capped oil in the $20 to $30 range is that at about a long term sustained price of about $40 per barrel, refined tar sands or coal , and other hydro-carbons via the Fischer–Tropsch process become economically viable. That is their long term marginal cost begins to equate with price (revenue) per barrel.
The estimated reserves in both coal and tar sands will free the United States, Canada and perhaps Mexico from a dependence on foreign oil beyond an extremely long term foreseeable horizon. Estimates of over 150 years are deemed reasonable unless the population demographic in these countries takes some unlikely and perverse upward tack.
The long term capital outlay to process these alternatives as against straightforward oil drilling and the volatility on current speculative oil prices, implies that in the short term higher prices can be fairly sought, and more importantly achieved, and will most likely do so into the nearer short term.
Not all the OECD nations share this enviable fall-back or buffer and of the BRIC nations China and India stand 'naked' too. Their future will remain hostage to the impish vagaries of oil.
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Is not the current oil spike sustained by a US's extraordinary position on interest rates and hence the 'US dollar carry', and those hedged by an expectation that if US(?) interest rates rise, gains on debt positions in either notes of bonds will far outweigh falls in oil price positions?
You'd think so ..
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To the poster suggesting 'grapefruit nuclear reactors in domestic cars'¿
Can you imagine what a fallout it would be the the auto wrecking industry!
The national road grid, would become pot-holled by run-away reactions to every fender-bender, and a widespread family DNA mutation accretion to the the national gene pool, in which case Halloween would be all the more ghoulish - yet real - going forward! :o)
On Nov 08 11:59 AM Michael Fitzsimmons wrote:
> i tend to agree with you and site several reasons why:
>
> 1) even at oil prices of $145/barrel, production of the largest oil
> companies was down year-over-year
>
> 2) the US continues to spend huge sums of money to obtain oil: witness
> the war in iraq and afghanistan (which is not about the taliban,
> but about getting caspian sea energy treasures to market without
> going through russia or iran).
>
> 3) the chinese are now selling more cars (the vast majority of them
> gasoline powered) every month than america.
>
> 4) the U.S. has still not adopted a non-gasoline personal transportation
> solution (like natural gas vehicles) and therefore is still addicted
> to foreign oil despite all the rhetoric from the obama administration.
> it is clear obama and energy secretary chu are held firmly in the
> grasp of oil and coal power as they are "agnostic" about natural
> gas transportation even as supply has mushroomed and prices have
> dropped.
>
> so, the U.S., and the world for that matter, continue on a collision
> course with the reality of worldwide oil supply/demand. if the economy
> does come back from the last prices spike (not a given), the current
> "glut" of oil supplies will be worked off in a matter of months and
> the next price spike will exceed the last one. the world is on an
> economic yo-yo driven by the new world reserve currency: oil. the
> U.S. is the biggest user by far (~25% of total), oil is priced in
> US dollars, but the U.S. is in deep debt and after 8 years of Bush
> China owns *alot* of it. so, you tell me, who is in the catbird seat
> going forward?
On Nov 09 11:43 AM Dr. Charles Laser wrote:
> I agree this is a good article and other good commentaries. Having
> been around the oil business 55 years (35 full time as a wildcatter
> and writer of oil pricing articles (demand and supply) I can assure
> you of two things: 1. Oil prices will rise to well over $150.00 a
> barrel by mid 2011 on a sustained basis due to rising demand and
> less available supply for a period of about fifteen years. 2: We
> have not found 1/10 of 1% of the world's available oil supply simply
> because we have not drilled in enough places or deep enough. I predict
> that Nevada, New Mexico, Arizona and Iowa will someday produce billions
> of barrels of oil (if the government allows us to drill here in America)
> under various type structures including deep thrusts. I further agree
> with eminent scientist Astrophysicists Thomas Gold, Steven Soter
> and others that oil is not a fossil fuel and we can never run out.
> Hydrocarbons, in particular methane, the main component of natural
> gas--has been found on Jupiter and the moons of Saturn and we believe
> the earth had been endowed with methane and other hydrocarbons long
> before life came around. Our studies show convincingly that the Nevada
> portion of the Eastern Great Basin has the same general characteristics
> (thick, thermally mature, highly organic source rock carbonate platforms
> and other structures) as the giant fields in Saudi Arabia, Iran or
> other Middle East countries. Further Nevada has the two largest continuous
> high producing oil wells in the U.S. in forty years. Had the crash
> of 1987 not taken place billions of barrels of oil would have been
> found by now down to 20,000 feet depths. Additionally Nevada has
> massive resource (natural gas) sources from the rich Chainman shale's.
> The one thing most people fail to understand is that everything take
> energy of some form or another. When you have billions of people
> becoming educated through communication of laptop computers and cell
> phones you create new products, arts, music and advances that accelerate
> demand for new products and services. That is turn creates need for
> more energy. So the bottom line is that oil cannot be replaced as
> an energy source (some 4000 products are made from oil) and while
> there is enough supply to last likely thousands of years (yes it
> will be more costly to find and produce) prices will rise until enough
> new oil found balances with demand in twenty or so years...Dr. Charles
> Laser
On Nov 09 05:12 PM bigbear4511 wrote:
> Sure manipulation lost traction, but it was also in part to a major
> drop in demand. Imagine if OPEC didn't do the production cuts. Where
> would our storage levels be at if they didn't. Oil could easily be
> around 30 dollars a barrel without the cuts. Demand does have a big
> factor. Everyone shouts emerging markets for oil consumtion yet the
> whole world bases the price on how much oil is being consumed in
> the states. If states keeps declining through efficiency in usage
> like it has in the last 5 years oil prices may stay low.
> Another thing is that if diesel stocks continues to grow through
> the winter with minimal draw downs that will keep crude prices depressed
> for the short term. If they got nowhere to store the inventory prices
> will come down.
>
> On Nov 09 02:42 PM Michael Clark wrote:
I agree totally that supply and demand has had little to do with this
Speculators armed with cheap money will continue to move markets
however the world found out what happened when oil hit 140 then 7 months later was 35
Many large countries dont want that to repeat and many oil speculators who got burned getting oil at 130 will in turn keep all this in mind
On Nov 08 03:13 PM Jonathan Swift wrote:
> What an amateurish article: what he's saying is really [ "I don't
> really know anything better (or as well) as the analysts, but I want
> to be heard for the nothing it's worth."]
> Anyone who looks to Al Bartlett's (read nee Malthus's) prognostications
> for the future is about as naive as anyone can get. Bartlett as a
> physicist is embarrassing in his Johnny one-note enthusiasm for the
> Malthusian exponential catastrophes. No real accounting for human
> ingenuity in response to changes in economics, financials and especially
> human technological creativity. Very sophomoric!
> Bartlett (like Malthus) is the "Boy who cries Wolf!"... And Stecyk
> is his megaphone.
ETFDesk users see this as a potential opportunity to: buy USL OIL USO DBO
Flex Fuel/compessed natural gas vehicles like the Fiat Sienna tetrafuel can run on any combination of gasoline, ethanol and/or compressed natural gas---or no gasoline at all.
Diesel/CNG engines like the VW Jetta can run on any combination of petroleum, biofuels, and/or compressed natural gas.
Why worry about the price of petroleum when we don't need it?
However, the shielding required to make the reactor safe is hundreds of times bigger and heavier. I.E. small nuclear reactors are just not safe.
The basic issue regarding oil is that it is a high density energy material. No doubt we can reduce consumption per unit, however, there will be more units to consume the energy. Consequently, the issue is simple - overall consumption will increase, with all of intended (and unintended) consequences.
However, I do take issue with a couple of tyhe comments that were made.
1 - "Distillate fuel move our goods and services. This is down 14.8% from last year. Even with this news they want to trade up prices for Greed.
A story from Fadel Gheits about oil prices.
Fadel Gheits is the one guy that CNBC won't bring on."
Actually I have seen Mr. Gheits on CNBC a number of times.
2 - the U.S. continues to spend huge sums of money to obtain oil: witness the war in iraq and afghanistan (which is not about the taliban, but about getting caspian sea energy treasures to market without going through russia or iran).
Sorry, although I agree with Mr Fitzsimmons more times than not, I just do not believe we are in Afghanistan for the reason stated. It is highly cynical to think energy is the reason we are there.
[Edit] After writing this comment I discovered a reference to this article: www.guardian.co.uk/env... casting doubt on the IEA reporting even though their forecasts are getting more reality based than they have been in the past. Apparently they are still worried about keeping their balance on the particular political tightrope they have to walk.
On Nov 09 05:03 PM MWRjr wrote:
> Oil has been a cyclical commodity for 150 years and remains so today.
> Those who say the price will go very high or very low and stay there
> don't understand supply and demand and technology. Yes, the shallowest
> and easyist to find oil is found first and gets used up, but the
> improvements in technology have cancelled out the increasing scarcity
> for the last 150 years and will probably continue to do so for the
> distant future. In real, non inflated dollars oil is no higher now
> than it was 30 years ago and probably won't be any higher 30 years
> from now. I remember back in the 1970's when everyone said the world
> was running out of oil. They were as wrong then as the people saying
> the same thing today are. If oil gets to $200-$300 per barrel it
> will be because the dollar has devalued to 10 times less than when
> oil was $20-$30 per barrel.
'Jackson Cash suffers from an ignorance problem regarding nuclear power -- the actual size of the fusion environment is indeed small.
However, the shielding required to make the reactor safe is hundreds of times bigger and heavier. I.E. small nuclear reactors are just not safe.'
??? Not all small reactor designs are based on fusion - most are fission designs.
The navy has been running ships and submarines with small reactors for years.
Toshiba now have their 4s small reactor design:
peswiki.com/index.php/...
Most of the shielding is provided by simply burying it, so the earth shields it.
Dr Charles:
You mention your expertise in the oil industry, and go on to argue in favour of Gold's hypothesis regarding the abiotic origin of oil.
Surely it would be fairer to make it perfectly clear that most oil men and geologists with comparable experience certainly do not believe in the hypothesis?
Personally regarding future oil supplies, the most thorough analysis I have found is the following:
www.energybulletin.net...
The sources and reserves of the largest exporters are here compared to determine their likely future output, and importantly their own rising demand is subtracted.
It all boils down to the West having to make do with a lot less oil in the future, as the cheap oil has been used and demand in the Brics and exporterrs will continue to rise, whilst supplies won't.
"Geology rules, and Mother Nature bats last." That should be a bumper sticker.
Also, I was looking for the article on inflated numbers from the EIA, I heard a comment on the radio, but hadn't seen anything else about this today.
On Nov 10 04:00 PM User 391256 wrote:
> Well, 70% of the petroleum geologists at the Petroleum Geology Conference
> in London believe that peak oil is a concern. (www.theoildrum.com/nod...).
:
> We are heading onto the downslope of oil production just as we headed
:
> there are no scalable alternatives in the way of portable
> transportation fuels available... not talking about hypotheticals
> here or wishful thinking about human ingenuity. The world uses around
> 80 million barrels (=3,360,000,000 gallons) A DAY mostly for transportation.
> The current state of alternatives is a drop in the bucket. The most
> recent figure for global decline in production is between 6% and
> 7% per year with discoveries having peaked about 40 years ago. Price
> will likely go up and down as tight supplies drive it up and then
> recession drives it down in a long stairstep descent into a lower
> energy economy. Geology rules, and Mother Nature bats last.
>
> [Edit] After writing this comment I discovered a reference to this
> article: www.guardian.co.uk/env...
> casting doubt on the IEA reporting even though their forecasts are
> getting more reality based than they have been in the past.
1) This holds well if there is an indefinite supply limited primarily by cost of production. If oil is in decline, the cost of production will be going up, and overall consumption may not rise after all.
2) Regardless of overall consumption, if each unit produced is used more effectively, more work will get done with the same amount of units consumed. More people get to work, more things get made, more relatives are visited, etc. Increasing efficiency is still a good thing and a worthwhile goal, even if overall usage doesn't go down.
On Nov 10 12:59 PM Blair wrote:
> The basic issue regarding oil is that it is a high density energy
> material. No doubt we can reduce consumption per unit, however, there
> will be more units to consume the energy. Consequently, the issue
> is simple - overall consumption will increase, with all of intended
> (and unintended) consequences.
You should do a search on theoildrum.com for EROI (or EROEI) which is Energy Returned on Energy Invested. In the early days of petroleum one unit of energy from oil produced 100 units of energy from the oil produced. The ratio is now somewhere between 1:8 or 1:15, so energy is becoming more expensive in terms of energy. As the crude gets harder to find, extract, refine, etc., more energy is used to produce it and thus there is less net energy to be used by society. Since most of society's functions are supported by liquid fuels for transport this is a non-trivial problem. Much of the energy efficiency gains are due to outsourcing of production, and the bottom line is that overall consumption has been increasing. Producer countries are increasing their domestic consumption as well leaving less for export.
The problem of the deep penetration of oil in the industrial economies and the problem of scale simply are not fully appreciated. Innovation and ingenuity are wonderful things but they don't matter in the least if the decision-makers and the investment community are ideologically bound into deep denial of the limits to growth.
And you're right, consumption will ultimately have to fall as there will be less to consume.
On Nov 10 06:42 PM nerfer wrote:
> You're referring to Jevons Paradox. There's two points I'd like
> to make on that:
> 1) This holds well if there is an indefinite supply limited primarily
> by cost of production. If oil is in decline, the cost of production
> will be going up, and overall consumption may not rise after all.
>
> 2) Regardless of overall consumption, if each unit produced is used
> more effectively, more work will get done with the same amount of
> units consumed. More people get to work, more things get made, more
> relatives are visited, etc. Increasing efficiency is still a good
> thing and a worthwhile goal, even if overall usage doesn't go down.
>
>
> On Nov 10 12:59 PM Blair wrote:
As far as demand for oil in the future, natural gas is a simple replacement for automotive use. The technology has been around for decades. Any large long term increase in gasoline prices like the close to $4/gal we saw recently would result in the use of alternatives.
www.planbeconomics.com.../
I figured they would be on the own islands relaxing instead of posting here
Who controls the the price of oil ,CHINa does
!140 dollar oil does not work and it will hurt every country as will 35 dollar oil
oil will continue to slowly rise but there will be peaks and valleys and speculators and bubbles and no one knows short term what will happen
if teh US was serious they would use nat gas and drill off teh coasts before China does
seekingalpha.com/artic...
fd - long oxy, pbr, rig, su
The politicians have ignored our energy problem for decades since the first "oil shortage".
The car companies already make nat. gas vehicles in other countries.
No amount of "technology" is going to help in the near term except nat. gas!
We are being dismantled systematically - remember Rome?
A real insult is that China just mandated lng/nat. gas stations And what their gov't wants they get quickly!!!!
Sure wish we could prosecute some congressmen?