kebu77

Remember $20 Oil? Looks Like It's Coming Back

The wild cards are Iraq and Nigeria, esp. Nigeria, which has potential to increase production substantially (quickly) and still be under its Opec quota, if it can begin to solve its political problems... KSA could (briefly) allow the resulting increased world production to continue for a while to cause Iran some pain. Collateral benefits, in addition to world stimulus, would be the incentive for Chavez to do a reality test and for Mexico to be further motivated to allow private sector participation in its now rapidly falling oil production. No predictions, only a reminder that geopolitics is always there lurking in the background...

Why Stagflation Has Already Begun

"Does it not seem odd that oil prices are as high today as they were in 2007 following a 4-year world-wide economic up cycle?"

Not if you consider - -

> Peak world oil production occurred in 2008

> Opec production cutbacks, including Nigeria crashing due to bad govt.

> Mexico crashing, soon not to be an exporter

> China just completing its first SPR build out, and other large amounts of oil being hoarded at sea

> Substantial cutbacks in oil E&P investment

> failure of peoples and their govts. to recognize the need to transition to "declining oil" economies

As an old boss once asked, "What are we pretending not to know?"

Non-Opec Oil Production Has Peaked

Please see, "Non OPEC-12 Oil Production Peaked in 2004" published on The Oil Drum (TOD) on February 23 - -
www.theoildrum.com/nod...

Many of the comments following this post are as illuminating as the post itself.

Two other recent TOD posts fill in some of the rest of the story - -

"Analysis of Decline Rates"
www.theoildrum.com/nod...

"Saudi Arabia's Crude Oil Production Peaked in 2005"
www.theoildrum.com/nod...

World Oil Supplies Declining Faster Than Expected - IEA

"...the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says..."

The IEA is a political organization better named "the Organization of Oil Importing Countries." They have been telegraphing this shift in assessment for months. It is a 180-degree turnaround from their cornucopian views up to a couple of years ago. Before, their basic view was, "If you project the demand, it will be supplied" - - no science, no real analysis.

Pay attention, now. They have been bitten by reality, but it will be a year or two before they can tell the whole truth, because it will be too shocking to tell all at once. (The IEA's masters are all politicians, an excitable group.)

The full FT article includes this: "It expects oil consumption in 2030 to reach 106.4m barrels a day, down from last year’s forecast of 116.3m b/d." This is not the first time the IEA has cut back its future production forecast, and it won't be the last.

As the IEA continues to (downward) revise its stats, keep in mind that oil available for export is dropping faster than total oil produced as the oil rich countries expand their internal consumption. (Jeffrey Brown's "Export Land Model")

Saudi Talk and Production Bring Down Oil Price

Jim said, "One reason might be to help the Republicans win the White House in November."

paulk8756 said, "I was simply parrying that ridiculous notion with another..."

If you pretend that political factors don't come into play, go back to early 2004 and look at what the Saudis did. They increased production massively over quota and kept it there thru the election. This was before the huge price spikes we've seen in recent years (over $70 in 2006, over $90 in 2007, plus 2008). You can pretend politics didn't factor in to that if you want, but at least articulate an alternative theory to explain the behavior.

I think the KSA holding hands with Bush at the ranch says it all.

Will the Saudis Break Ranks with OPEC? And Will It Matter to Oil Pricing?

There is also a political factor at work re Sunni-Shiite tensions in the Middle East. My comments on a related post on yesterday seekingalpha - -

Are the Saudis re-doing 2004? OPEC may 'set' a $100 floor, but it is up to KSA to comply. My guess is they won't because their shot-term political interest is in keeping the party in power. KSA sees the US as a check on a growing Iranian threat. McCain may not intend to stay in Iraq for 100 years, but clearly intends to stay longer than Obama. KSA opposed the US invasion, but once in, they wanted Bush to stay in office in 2004.

So, in spite of OPECs announced intent to reduce production, look for the Saudis to continue its high level of production thru the Nov. election, in its second attempt to decide a US presidential election. (The case can be made that KSA succeeded in 2004 when it produced WAY OVER quota beginning several months before the election and Bush won by a hair - - compare KSA actual production to quota, April-Oct 2004.) This time, they will fail due to the political fundementals (Google: lichtman + 13 keys). Even so, if I was Obama, I'd be pissed for the next 4 to 8 years.

So Kerr, Rubin and other (temporary) bears may find, when the dust settles that the avg. oil price in '08 is closer to $100 than $115. Then, in 2009, geology oil fundementals replace the geopolitical issues and oil starts its march to the Maxwell-Pickens-Simmon... $200 level. Things happen, like KSA lets its wells rest, Iraq fails to settle down, the North Sea and Mexico continue their precipitous declines, the engineers running China continue their massive capital expansion, and 2009 marks the fourth straight year of declining oil exports (Google: "Jeffrey Brown" + "Export Land Model").

More bullish views will return as it, again, separates itself from the herd. "Just my opinion, I could be wrong," but for starters watch the next eight weeks.

OPEC Sets $100 Floor for Oil

YogiG: "The Saudi Oil Minister, in a separte comment, said that they would 'keep all customers well supllied, quota or no quota'... that comment was not publicized along with the main statement... Hmmm..."

Deja Vu all over again: Are the Saudis re-doing 2004? OPEC may 'set' a $100 floor, but it is up to KSA to comply. My guess is they won't because their shot-term political interest is in keeping the party in power. KSA sees the US as a check on a growing Iranian threat. McCain may not intend to stay in Iraq for 100 years, but clearly intends to stay longer than Obama. KSA opposed the US invasion, but once in, they wanted Bush to stay in office in 2004.

So, in spite of OPECs announced intent to reduce production, look for the Saudis to continue its high level of production thru the Nov. election, in its second attempt to decide a US presidential election. (The case can be made that KSA succeeded in 2004 when it produced way over quota beginning several months before the election and Bush won by a hair - - compare KSA actual production to quota, April-Oct 2004.) This time, they will fail due to the political fundementals (Google: lichtman + 13 keys). Even so, if I was Obama, I'd be pissed for the next 4 to 8 years.

So Kerr, Rubin and other (temporary) bears may find, when the dust settles that the avg. oil price in '08 is closer to $100 than $115. Then, in 2009, geology oil fundementals replace the geopolitical issues and oil starts its march to the Maxwell-Pickens-Simmon... $200 level. Things happen, like KSA lets its wells rest, Iraq fails to settle down, the North Sea and Mexico continue their precipitous declines, the engineers running China continue their massive capital expansion, and 2009 marks the fourth straight year of declining oil exports (Google: "Jeffrey Brown" + "Export Land Model").

More bullish views will return as it, again, separates itself from the herd. "Just my opinion, I could be wrong," but for starters watch the next eight weeks.

Interview: Kevin Kerr On the Commodities Pull Back

Kerr: ". . . the Middle Eastern countries - Saudi Arabia being the biggest one - could just instantly cut production. They don't want us to have more oil, they want us to have less oil."

Maybe not between now and November. Kerr's comment parallels views recently expressed by CIBC, which "cut its 2008 target for average oil prices from $125 per barrel to $115 and from $150 to $130 in 2009."

In spite of OPECs announced intent to reduce production, look for the Saudis to continue its high level of production thru the Nov. election, in its second attempt to decide a US presidential election. (The case can be made that KSA succeeded in 2004 when it produced way over quota beginning several months before the election and Bush won by a hair - - compare KSA actual production to quota, April-October 2004.) This time, they will fail due to the political fundementals (Google: lichtman + 13 keys). Even so, if I was Obama, I'd be pissed for the next 4 to 8 years.

So Kerr, Rubin and other (temporary) bears may find, when the dust settles that the avg. oil price in '08 is closer to $100 than $115. Then, in 2009, geology oil fundementals replace the geopolitical issues and oil starts its march to the Maxwell-Pickens-Simmon... $200 level. Things happen, like KSA lets its wells rest, Iraq fails to settle down, the North Sea and Mexico continue their precipitous declines, the engineers running China continue their massive capital expansion, and 2009 marks the fourth straight year of declining oil exports (Google: "Jeffrey Brown" + "Export Land Model").

More bullish views will return as it, again, separates itself from the herd. "Just my opinion, I could be wrong," but for starters watch the next eight weeks.

Maxwell's Oil Analysis

Barry and Jim: Will panic set in too late to make the radical changes needed to smooth the energy transition? Electric cars will come too late and cost too much. On the other hand, a rapid expansion of railroads and rail electrification would introduce the massive efficiencies needed to save liquid fuels "in a hurry" (the IEA's term).

Electrified rail moves freight about 20X more efficiently than trucks. Pickens' plan to burn CNG in trucks and cars means burning more coal and spending money we don't have on increased road maintenance (as the depleting highway trust fund collides with tax resistance).

Alan Drake recently made such a proposal, in detail, on The Energy Drum - - www.theoildrum.com/nod...
Electrified Railroads

Excerpt: "Electrifying our freight rail system will provide a Non-Oil Transportation alternative in an oil emergency, whether acute or chronic. Regardless of oil prices or availability, there would be a backbone of essential long distance transportation that requires no oil. And the USA, with Peak Oil arriving, appears to be moving rapidly towards a chronic oil price and affordability emergency."

Rough Seas Ahead?

"To those who think OPEC will do something to support oil above $100, I suggest you consider the likelihood that the Saudis - the most powerful OPEC member - will be happy to drive oil down before the U.S. election if they think that will elect another Republican administration."

While this is an investing site, I'm glad to see a recognition that political factors can throw us curve balls. The above is an entirely realistic view as can be seen by two prior Saudi production shifts - first, the massive increase above quota before the 2004 election (ensuring a continued Republican administration - don't take my word for it, look at the data re KSA actual prod. vs. quota) and second, production cutbacks contributing to a Democratic Congress in 2006 (that threat, along with a call to Cheney to get on a plane, ensuring the surge versus a pull-back from Iraq).

The Saudi's miscalculation was to supress production too long, leading to the 2008 price spike, due I believe in part to their (and others') failure to realize that flat overall world production was leading to declining world exports from 2006 into 2008 (Jeffrey Brown's Export Land Model).

Some analysts, by ignoring the possibility that the Saudis were intentionally withholding production into 2007, jumped on Matt Simmon's "Twilight in the Desert" theme a little prematurely and, by crying Chicken Little a little too early, compromised the credibility of peak oil theory. All we can really say about the Saudis is that they are very good at keeping secrets. Thus, by definition, anything they say is unreliable.

Should We Listen to Boone Pickens on Oil?

Paultaut said, "I am unsure whether CNG energy is enough to keep the Big Rigs rolling."

True. We need a shift to more rail transport - - electrified, that is. Electrified rail is a couple of dozen times more efficient that big rigs in moving goods, without even counting the reduced cost of road maintenance from getting the rigs off the road.

A short-run shift to CNG for small trucks/cars for energy-security reasons is OK, if it doesn't mean burning more coal (w/o sequestration) for electricity. Burn more coal only in a really serious national emergency like what would occur if there were a rapid onset of peak oil.

The diesel saved from reduced big rigs and diesel-elec. locomotives being switched over to straight electric can be reallocated to jet fuel and home heating oil. Continued flying will be needed until a rail system like Europe's is put in place, then flying can be cut back to cross-ocean and cross-continent.

Of course all of this, or something like it, means there must be a national discussion on energy and implementation of an energy policy (not just a billionaire's commercials to sell his nat-gas and wind electricity).

p.s.: Did Boone get his CNG idea from the Iranian's who are moving to CNG in a big way, including mass conversions of existing vehicles, to reduce their dependence on imported gasoline?

U.S. Oil Production Today Same as in 1948

U.S. Oil Production Today (Totally) Different from 1948:
-US population ~146 million v. 310m now (see how different your graph is done in per capita terms)
-Zero oil imports v. two-thirds now
-Oil industry private industry dominated (except Mexico)
-US the "Saudi Arabia" of crude, no other country produced even half what we did
-US production lite sweet crude all extracted on land in temperate climates v. most now off-shore and polar
-World production had only started its upward climb v. now more or less at peak - - so what whether it's now or 2011 or 2015 (unless you've stopped buying green bananas)
I'm stopping now, but I'm nowhere near done . . .

Oil Prices Finally Changing Consumer Behavior

When there is a change in a trend, 12-mo. data will understate the magnitude of the change.

Looking at the actual monthly FHA data, the change in driving behavoir actually begins around 2003. (For May, April and March 2008, you have to go back to 2003 to see lower miles driven.)

While your graph shows 2008 dropping down to the 2005 level, when you look at the individual month data, 2008 has actually dropped down to 2003 levels - - a big change from the multi-decade rising trend.

Oil Prices, Global GDP, and Net Oil Exports

Anyone interested in future oil export availability, Google: "export land model" - - exports peak before overall world oil production.

Adjusted for Income & Fuel Efficiency Increases, Gas Today is Almost 50% Below Record High

Per capita disposible income mixes Buffet and Gates with Joe Six-pack. Use median disposible income instead and you tell the truth about the impact on "working stiffs" Then add back in all the pick-ups, vans, and SUVs. Your data will likely tell a different tale.

Then think about how new cars and "light trucks" get recycled into used ones - - the re-sale price of light trucks has collapsed in the past year. So a working family looking for an affordable vehicle will more often than in the past (basically a one-time shift in the mix) opt for the "truck" over the car, drive less, and bear the higher fuel cost. At least until the excess of trucks not used for work makes it into scrappage - - several years from now. (In the long run the workers are dead...)