you_can_call_me_Al

Toyota's View of the Future

This follows a line of thinking I've had since first hearing about peak oil. Specifically, in 2005 it seemed that any honest-to-God flattening in production would be met with an excess of demand within 12-24 months and with a concurrent spike in price. At some point there would be a reaction, and most of the easy-to-fix wastefulness (mainly in the U.S.) would be eliminated. Hindsight tells us that $147 per barrel was the point of maximum pain, and folks were losing the SUVs, using public transport, not driving to the neighbor next door, etc.... Demand has now fallen below production capacity once again, so we should expect to see a pretty dramatic fall in price to nearly pre-runup prices ($80?). Things probably won't go all the way back down, of course, because some buyers will recognize future scarcity and create support somewhat above that level (higher if there are many, lower if there are few).

Now for the good part, cheap prices will act to increase demand as mentioned above, but to some extent the genie is out of the bottle. Americans are likely to shy away from guzzlers and are less likely to return to the totally profligate attitudes of, well ...the last fifty years. Offsetting this: 1) some people WILL return to those attitudes, and 2) declining global production as new finds fail to offset the weakening giants. The former will happen almost immediately, the latter in the next few years.

Where the right entry points sits boils down to some basic questions:
1) How quickly can auto makers get large numbers of alternative vehicles on the road? Alternative here means anything that doesn't use gasoline (NG, EV, dilithium crystals, ...who cares?).
2) When will the giants start to fall off in earnest? Cantarell is in free fall. If the others follow its example (not likely) then we're in for a very big spike indeed. Most likely, they will fall off more slowly, but it's still a big problem.
3) Finally, at what point will EXPORTS fall? As declining giants become common knowledge, oil producing countries will be less willing to sell their resources than before, and the price per unit demand will rise. This last point is seldom recognized.

There's no doubt that there's some corruption in the commodities markets (duh), but its existence does not negate the underlying forces. It merely exacerbates them. If/when these people are discovered, it would be a mistake to then assume that the oil problem is "solved." Look forward to one more spike in the next few years before alternative vehicles are produced in earnest. That one will probably be worse, but at least the problem will get solved once and for all. Congress, alternative vehicles are the answer, suing OPEC is not.

Forget $100 a Barrel - Oil Will Plummet to $30

Are gasoline inventories down because demand is up? I don't believe so. You may want to check the refiners' production numbers too. Not claiming any certainty here, but my expectation is that gasoline inventories are down because refiners are producing less in response to Americans driving fewer miles.

Nitpicking aside, your point is well taken. Some adjusted driving habits in America don't mean we've stopped driving altogether, or that India and China can be ignored. Oil won't go to $30 until there are a helluva lot of electric cars on the road. That will be awhile.

$100 on the other hand....