Saildog

Crude Oil and Gasoline Prices: Like Déjà Vu All Over Again

This is article was written by somebody not well acquainted with oil production. All the usual stuff is in their about price, markets and technology; and its all rubbish, since oil production has already peaked. Now the rules are different. With a supply curve that is completely inelastic, price is determined by demand only; and that in turn is driven by economic activity. The oil price and economic activity will settle into a new relationship that will remain tightly bound. As oil production drifts down and absorbs ever more inputs, our economies will shrink accordingly. Of course it will be patchy and variable around the world. Some places with energy resources will do better and others without will do worse. But overall, Business As Usual is finished. Welcome to The Longest Recession.

Oil Volatility Will Keep Killing the Economy in Waves

The most sensible comment I have yet seen from outside the Peak Oil community. This man "gets it", he clearly understand the thermodynamic and scalability issues we face.

Where it is perhaps weak is on the political and economic fronts. The fossil fuel lobby will kill this and the economy will never recover because the oil trap has sprung and we can't get out. Lower prices mean less investment, a better economy means higher prices, but that kills the economy and we revert to lower prices. The last sentence implies a cyclical economic pattern, but I doubt we will even get that.

We need both an energy and a financial surplus to achieve this. Now we have neither and we never will. Maybe it can be done. I will not be holding my breath. On the other hand if a major new oil province is found in a friendly place maybe we will be clever enough to use it wisely. Again, I am not going to hold my breath.

Iraq Production, Conservation Could Keep Oil Price in Check for Years

I am not so sure a distinction between "in ground" and above ground factors is relevant or even appropriate. "Above ground factors" are almost certain reinforcing feedbacks from the "in ground" reality that production has peaked.

Iraq, the major topic of the piece is itself the prime example of such a feedback. The US does not invade China over its aggression in Tibet, or Zimbabwe because Mugabe is a a worse despot than Saddam. The US invaded Iraq because of oil. It's own oil of course, but also because Iraq sits neatly between Saudi and Iran, both odious and unstable but oil rich regimes.

The American mistake was to assume that stability could be quickly and easily imposed.

Oil Futures Market: Unwinding the Bubble

Alex - this article is bunk. The reason for oils price volatility is the almost perfectly inelastic supply and demand curves (even in this very wide price band). Demand has contracted and the price has imploded.

You clearly know nothing about production. Go and read up some stats. Find out what the export land model means. Go and study the mega projects list. Learn what the implications of the IEA's 6.7% decline rates are. Understand the geopolitics of oil.

Wittering on about the price and the various costs of production is meaningless and adds nothing new to the debate.

Who's Really to Blame for Rising Oil?

The author of this article needs to learn Economics 101, then read a but of Herman Daly, then some Hartwick, even some Harold Hotelling. He knows nothing.

To point out the bleeding obvious supply is static and demand is such that all will be taken up at what ever the latest high price is. It is inelastic. No one will care if you do not buy gas on a Monday.

We're Nearing Crunch Time for Oil

I agree with A von A - tar is tar. It is not oil.

Jim did acknowledge his 5 point wish list was just that - wishing on a star. New oil production must outstrip production declines elsewhere significantly and there are quite a few roadblocks in the countries mentioned. The projects will be more difficult and more expensive than can possibly be imagined.

Ethanol is a form of top-soil strip mining. It can be done once, for a short period and the you are in worse trouble than ever.

Plug in hybrids - maybe. Lithium seems to be a problem.

Adjustment of populations to mass transit? In the US? Or here in Oz? Like the morons in the US we have craftily built all our new suburban McMansions at the end of dead end streets. Buses will never run down them.

Industrial production from trucks to rail? I read somewhere else today that "Just in Time" is a concept whose time has passed. Jim seems to agree, but I am not sure that our warehouse on wheels economies will adjust smoothly. At the very least there will be significant losses in efficiency and higher costs.

My point really is that all of these megatrends must come together spectacularly well (and a lot else besides) for there not to be significant dislocation as oil becomes unaffordable.

The Reasoning Behind Oil's Irrationality

From an investment perspective I cannot fault this article's conclusions. But his reasoning did prompt a recall of that syndrome of not seeing the wood for the trees.

The fundamentals are why oil is $90+ and will carry on trending up.

Whinging about oil locked up in ANWR, Venezuela etc misses the point that we have passed the point when oil becomes more valuable in the ground than as dollars in the bank.

It doesn't matter why production has remained flat at 85m barrels a day since 2004. The fact is that it has. Meanwhile China, India, Russia and most of the OPEC countries are using much more oil. As production is flat, that must mean more and more people in other countries are using less oil. That is why the price is trending up. It doesn't seem so difficult to me, but nobody else had said as much that I have read. Jeffrey Brown's Export Land Model is very alarming. Is suggests that net oil available for export is in an accelerating downtrend.

The final point is field decline. The North Sea is declining at around 8%, while Canterell crashed 20% in 2006. Global field decline could be anything between 4% and 10%, though nobody knows the exacty number. Platts report field declines of 8% in certain Saudi fields, but we don't know which fields, or what the overall picture is.

If we take the low end and round it down, global field decline from existing production is 3m barrels per day every year. In other words, with flat production since 2004, new production additions in the 3 years have totalled 9m barrels per day. That is more than total Saudi production. How many more Saudi Arabias are there?