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Crude Oil Supply and the Future: Putting Arguments in Proper Perspective

Dennis Atuanya, thanks for laying out the facts and pointing out the speculations. Whether or not a person accepts all of the peak oil scenarios, it is clear we have seen the end of cheap oil

Jer13xxx - Why bring that up? Climate models are not part of this discussion. Energy security is, and relying on petroleum supply staying like it has will surely lead to economic/national security problems. It would be interesting to see how cap & tax would affect that.

How High Will the Price of Oil Go?

Thanks for the feedback.
Range doesn't concern me so much. Most people commute less than 40 miles a day, and electric vehicles easily go double that distance. Recharge conveniently at home for pennies per mile (but upfront costs are more significant, as you mention). Have a hybrid or rent a car for your long trips & save money overall.
Tata is also experimenting with making an electric version of their small car, or a car powered by compressed air (probably noisy to refill). But the Nano is just too small and too slow for common American tastes, a used small car would be more attractive.
Fuel-cell vehicles (hydrogen) are a complete boondoggle, at this time, IMO.

Some of the established manufacturer's EV plans:
www.bloomberg.com/apps...
In China, Chery is an automaker to watch (may actually partner with Chevy), they have a proposed $15K electric car. Some more about China's auto plans:
evworld.com/news.cfm?n...

Living4Dividends wrote:
"I am not impressed by the US's lineup of EV. All are expensive like the Volt. I don't know about China's EV offering. Still 20,000 seems like a lot of money for a vehicle that only goes a short distance. The Tata Nano is $2500 for the fully loaded Indian version. Let's say the world model, with airbags & western safety features costs $5000. That is an inefficient car with superb gas mileage. "

How High Will the Price of Oil Go?

The $40K Chevy Volt is not the single face of our EV future. Many other companies (many small new ones, some new faces from China and elsewhere) are coming up with new innovative ideas for half the price of a Volt. The tricky part is getting past the safety crash test hurdles (several million dollars that a startup doesn't have), so more than a few are designed with 3 wheels to be classified as motorcycles. In 2011-2012 there will be a real change in options to the consumer, and the big car companies may never be the same, if they survive that long.

How High Will the Price of Oil Go?

I'm not so optimistic about oil substitutes. They'll take years to come online, and any disruption (like a 6-month slump in oil prices) will likely derail investments & cause the process to start over again. Ethanol was going to be the savior, but people became fixated on corn, which is the worst source of ethanol. Our green options are natural gas (a la Picken's plan), cellulosic ethanol, & electric vehicles (which can be charged overnight on the existing power grid for the first few million vehicles, after that we need to do something).
Coal unfortunately will be part of our future because it is there and it's cheap (as long as mountaintop removal and stream dumping is legal), but it's the worst option environmentally.
Geothermal (for electric grid, EVs) is an overlooked opportunity - green power, available 24/7 (for certain parts of the country). California could have all the EVs they want if they expand geothermal. That frees up natural gas for long-haul transportation.

But oil itself has a limited lifespan as a transportation fuel. I think we've already seen the peak in production. OPEC couldn't increase production in the first half of 2008 because they were at max production. With $60/barrel in a recession, when the economy starts coming back the price of oil will increase even faster. $100/barrel will be the low end in 2010, and it only goes up from there, only tempered by its braking effect on the economic recovery.

Oil Won't Stay Down for Long

I agree with txpenguin.

There was some speculation on the top side in the summer, but the supply/demand fundamentals still probably justified $100-$120/barrel at that time. But since it takes a long time to ramp up or down production, there's overshoot and undershoot when demand changes suddenly. Sub-$40/barrel is not sustainable, too many suppliers would get out of the market (like Canadian tar sands, which provides about 20% of U.S. imports and Venezuelan heavy crude, which also supplies the U.S.). We're seeing the end of availability of cheap oil, and only a real depression would cause oil prices to go below $30/barrel for more than a few weeks. I bet in six months oil is safely above $50 provided the economy doesn't worsen any further, and above $70 with a modest recovery.

Reasons to Love 3-Digit Oil

sharksm, I agree with your basic points (We shouldn't mandate XOM, BP, etc. to do or not do certain things, though they may do it on their own, and we should invest in alt. energy R&D and production).
But we can't drill our way out of this problem. We simply don't have enough oil in our control (ANWR, off-shore, etc) to raise production enough to lower prices. I'm sure eventually we'll drill there anyway., but let's save it for the real crisis yet to come.
And your original post suggested electric cars are expensive & unrealistic, which I disagree with. We are going to see an explosion of new cars (finally!) in the next 4 years - hybrids, PHEVs, BEVs, due to market forces. CARB, PNGV and other government mandates tried to lead companies here proactively, but it took market reaction to get real movement. Unfortunately American companies were slower to react than others.

Reasons to Love 3-Digit Oil

Stockpikr has a point. Fuel cells in particular are not a magic bullet. But electric cars are more efficient than ICE, they haven't been used because of entrenched beliefs and perception about battery needs. We need to make rational changes when faced with a coming crisis (it isn't here yet, folks!). Electric cars are part of the solution, but not the only part. Unfortunately, Brahm might be more correct than we want to think.
PaulK, even if abiotic oil is true (definitely not a mainstream idea), it would be so hard to find and so far to drill to these ultra-deep sources that oil prices wouldn't be any lower than they are today. Read the above story about Brazil's ultra-deep wells.

Reasons to Love 3-Digit Oil

Sharksm, the energy companies (XOM, CVN, etc) are in the energy business. Their oil supplies are drying up or being taken over by nationalized corporations. They need to come up with new energy sources to stay in business, BP is not promoting itself as 'Beyond Petroleum' for nothing. Get informed.
Electric cars do not need to cost $45K, with mass production they will be equivalent to cars on the market, with a lot less maintenance and repair needed. They can be powered by unused electric capacity at night, with a very minimal increase in CO2 - saving CO2 by reducing (by attrition) the number of inefficient gas guzzlers on the road. An existing ICE vehicle is <30% efficient (converting fuel to motion), electric vehicles are about 90% efficient.
Last point - our own oil supplies will be fully tapped, I'm sure, but why not wait until we need the oil to keep our farms running, no reason to use our own oil now just to keep John Doe driving to the grocery store in his Chevy Tahoe. We don't have enough to keep ourselves powered for long at all, or we would already have done this in the oil embargo of '79.

Oil Manipulations Exposed

Brian Pursley - The first article trusts the middle east numbers for their oil reserves, even though there is good evidence those are politically manipulated (their country quotas are based on that) and there is no verification of any of those numbers. The last two articles don't argue for abiotic production, but do say there are large, biological sources of oil deeper down. If that is the case, they are feeding the higher sources sporadically or only in certain locations, since most sources of oil have not shown any signs of recovery, in fact many have post-peak production declines sharper than expected (North Sea, Mexico). Certainly not a 'renewable, infinite' resource as you say, and I'm hanging onto my '06 Prius for many more years.

T Stephens - good post, even with the typos. If the hedge funds/futures market were suddenly the cause for the run-up in prices like the author is saying, why not the other commodity markets, and why not ten years ago also? I'm not going to say there is no manipulation or deceit at all in the market place, but that's not the cause of our current high prices. We're hitting peak oil production, and the sooner we accept that, the sooner we can create real solutions.

The Self-Defeating Oil Surge

For geothermal - don't forget the major player in the U.S, Ormat (ORA). This is an overlooked field I think.

But don't confuse solar and wind (or geothermal) as an immediate replacement for oil - transportation sector will first need electric vehicles, since most alternative energies don't produce gasoline or gas replacements. (And fuel cells are off in the distant future with nuclear fusion).

The Self-Defeating Oil Surge

Goldman Sachs predictions are a lot more accurate than the government's own EIA dept. This is same and different from the 1970's. In the 70's we suddenly depended on rising imports from OPEC which was taxing their infrastructure improvements, so we depended on them and they saw an easy way to bring us to our knees. But that time it was politically motivated. This time fields are depleting and new fields being brought online are just replacing the declining production from existing fields. For the first time, supply doesn't meet demand, so price rapidly increases (it's not linear when people will pay whatever they need to in order to get to work - called 'inelastic' demand in macroeconomics 101). Doesn't take 50% increase in demand for 50% increase in price.

Iraq's reserves don't mean squat if they can't keep pipelines to the ports open. OPECs reserves in general are suspect since they were used to determine nation's quotas and were artificially generated. There's oil still out there, but it's not the easy, safe oil anymore in the volumes we need. We're more and more dependent on unstable leaders and inhospitable drilling environments as the best sources are being depleted.

Oil prices might decline to the $90 level before resuming their upward march, but we will never ever see $35-$50 oil again in our lifetime.

Oil Manipulations Exposed

Brian - Not sure about your post. Oil is not infinite, even if you buy into the fringe abiotic hypothesis (mostly championed by Russia, which is now in production decline). We didn't take Iraq's oil in 1990, Bush Sr. knew there was no exit strategy if we took out their government, we just kicked them out of Kuwait (which would substantially increase their oil reserves and shipping access for oil, so yes, it was about oil, intelalum).
Timsinoil - price of crude has risen more often than not lately, why single out 2000's election? You could look at the terror alerts in the 2004 election for easier political manipulations.
Mikey - if this is a bubble (and it could easily be froth on top of a fundamental increase) it will hurt us at the pump, then at the grocery store, then in the unemployment line, and that's bad for everybody. That's why this is important, even if you personally can make short-term profits in trading.

We can't drill our way out of this. It can help marginally, but it's not a major piece of the solution. It's things we can do - driving the speed limit, with tires at proper pressure, will reduce our gasoline consumption 10%. Efficient , reasonably sized vehicles will save another 25%-50%. Electric vehicles and living close to work will be a part of our future.

Oil Manipulations Exposed

Interesting article. But the Nymex trading mechanisms haven't changed dramatically in the last four years that I know of, so why is that the cause of the higher prices?

Peak oil is hitting, the demand and supply curves are separating, global demand has increased despite the author's statement otherwise, and supply is peaking and will go down. I am not an oil "apologist" to use the author's biased terms, I am a realist. I've read about the petroleum supply for years. I know Mexico's supply has peaked, the North Sea has peaked, Prudhoe Bay has peaked. Saudi Arabia's king has stated they won't increase production after next year, and give reasons for only minor increases now, indicating they are really peaking but not admitting it. We can definitely drill more here in the states, but it is a drop in the bucket, we peaked a long time ago. What we need is a presidential administration that will support real answers like conservation, cellulosic ethanol and electric vehicles. Efficiency = productivity, it's a good thing for business and the home.