lewisabroad

When Will the Oil Price Pop?

oil prices will continue to behave with exteme volatility - that is the only sure thing. Extremely high prices hit the real economy of import nations and result in economic downturn. Demand reduction from the resulting downturn = lower prices. price rebound will be huge in a recovery and has the potential to derail a recovery, setting the stage for another drop in price.
Long term the analysis is correct. However, when the price of oil reaches parity+switching cost of alternatives it will plateau at a new equilibrium point. By alternatives I mean grid-connected battery powered + nat gas. Until then it will be simple supply demand. Trying to put a number to it is a fool's errand, because nobody knows where the dollar will head in three years. When I say price, I am talking oil's equivalent to a basket of currencies (or relative to a basket of commodities if currencies globally are devalued).
The alternative scenario to switching to oil-free transportation is grim. this could be the case if switching costs are too high for a cash-strapped economy. The US is certainly in a dire situation. Hopefully the pain will give people the necessay motivation to work hard as nobody has really done in the last 80 years.

1,238 Billion Barrels of Oil Reserves: Is This an Oil Price Bubble?

Paulk, is opening up remaining US reserves our best option?
1. It won't have any affect on global supply for 7-10 years.
2. I won't lower prices in the US unless global demand goes up less than the incremental increase in production those fields provide. The only affect domestic production has is on the trade balance and some local employment. Great benefits, I admit, but I think far more jobs could be created by developing a technology-driven alternative fuels / alternative technology economy and exporting. Chevy Volt, PV research, and cellulosic biofuels research are a few examples. If we are successful with these then nobody would be buying the oil from the Sauds, Iran, or Chavez, they would be buying or licensing tech from US firms.
3. In 30-50 years, when foreign reserves are tapped, won't our children and grandchildren be glad there is still some production capacity in the US? Might it be a more valuable strategic commodity when it is left in the ground for use in the future when it is more scarce? I suppose this may be one reason the Sauds are reluctant to increase production - the other being maybe they can't...
4. www.eia.doe.gov/oiaf/s... says it all: "With respect to the world oil price impact, projected ANWR oil production constitutes between 0.4 and 1.2 percent of total world oil consumption in 2030, based on the low and high resource cases, respectively. Consequently, ANWR oil production is not projected to have a large impact on world oil prices."

Jacktrader - if you read this, could you elaborate? I'd love to hear more detail about how the estimates are calc'd

Last point, $4 a gallon for gas is still cheap folks - Europeans, Japanese have been paying more for over a decade. And before we go pointing fingers at the Chinese and Indians their per capita oil use is 1/12th and 1/34th of the US, respectively.

1,238 Billion Barrels of Oil Reserves: Is This an Oil Price Bubble?

Why all the irrational vitriol directed at "greens"? I don't get it, why a group of people who advocate risk management when it comes to climate change get so much hatred directed at them for curtailing 'freedoms'. I'd say the patriot act did just as good a job and it was a bipartisan effort. Besides, what is wrong about ending our dependence on fossil fuels? something wrong with evolution? Nuff said.
About the supply demand problem, three factors we have to think about:
- rate at which oil can be pumped from the ground is finite. Even the biggest reserves take time to extract, and the faster you try to extract them the faster the geological formations will "break", resulting in oil that cannot be recovered (see recent mexican production). We can pump oil for 1000 years - just not very much by then.
- new discoveries typically take 7-10 years to come online, longer for remote projects (I worked for a supplier to Sakhalin I and II - these places are a logistical nightmare)
- high inflation in oil producing countries means it is in their interest to see high prices. They need to maintain their social welfare systems and the only way to do it in an inflationary economy is by restricting supplies.
Dr. Perry may be right about reserves, but how much is in the ground doesn't set the price - it's how fast we pump it minus how fast we burn it (plus some manipulation by the hedgies). Right now that is almost at parity and until demand goes down it won't change. I'm willing to bet that if prices do start to drop below $100/barrel OPEC will reduce production. I'm also willing to bet that we will see nothing but a super volatile market for at least the rest of the summer, which will vindicate the bears when it drops and the bulls when it skyrockets. All the while the hedgies will be playing off each other to see who has the fastest algorithm on the trading floor...
High oil prices are the best thing for this country. Nothing spurs innovation better than a hungry belly, and Americans have been too fat too long.