by frog
Robert Hirsch, on of America’s key researchers on the impact of peak oil, says we will soon be seeing US$12 per gallon gasoline prices. That’s over US$3 per litre, or NZ$3.80 at our currently healthy exchange rate. He says that the plateau in production that is responsible for our current surge in prices has been going on since the middle of 2004, and that it cannot last much longer. Once production declines begin in earnest, we’ll begin to see rationing everywhere.
Hirsch is famous for his initially suppressed 2005 report to the US Department of Energy entitled Peaking Of World Oil Production: Impacts, Mitigation, & Risk Management which opens with the statement:
The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.
The word “unprecedented” is diplomatic code for consequences worse than the global economic destruction experienced as a result of WWII. One only needs to read the Executive Summary to realise that it is too late to mitigate some of the worse effects of the coming peak, assuming that we are at or very near to peak now. Meanwhile, Treasury fiddles. I never did follow up from my post about last Thursday’s Budget Economic Forecast Update. I’ll do that now.
In the meantime, listen to Robert Hirsch on CNBC, where his pragmatic approach is rebuffed by an economist whose only advice is to drill more!
Published in Campaign | Economy, Work, & Welfare by frog on Mon, May 26th, 2008
Tags: CNBC, forecast, oil, peak, robert hirsch
on the trolls and those who are unable to keep on topic
Who to believe again, eh….
“Cambridge Energy Research Associates (CERA) finds that the remaining global oil resource base is actually 3.74 trillion barrels — three times as large as the 1.2 trillion barrels estimated by the theory’s proponents — and that the “peak oil? argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future”
Cambridge Energy Research Associates (CERA), an IHS company, is a leading advisor to energy companies, consumers, financial institutions, technology providers, and governments.
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While I’m sure that oil is a finite resource it pays to remember that oil only went up after the invasion of Iraq and that the oil price is not subject to demand and supply but to the fact that rich speculators are trading in oil commodities.
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# travellerev Says:
May 26th, 2008 at 2:43 pm
> While I’m sure that oil is a finite resource it pays to remember that oil only went up after the invasion of Iraq
It was definitely starting to go up before then, though there was a big rise around that time. Another thing that may have contributed to a rise about that time was the discovery that the caspian sea oil fields weren’t as good as had been assumed, which would raise oil prices by encouraging speculators.
> and that the oil price is not subject to demand and supply but to the fact that rich speculators are trading in oil commodities.
There is no doubt that demand is rising and supply is not keeping up with it. The only question is how much this explains the rise, and how much is due to speculators.
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“the oil price is not subject to demand and supply but to the fact that rich speculators are trading in oil commodities.”
trav,
Speculators can certainly move the futures market prices around by a lot: since futures prices are mostly guesses by speculators about what the price will be.
But the current price is driven by supply and demand. Because speculators don’t want to own a lake of oil (where would they store it? their boardroom?): as the contracts come due, the speculators must bail.
Also Iraq’s a distraction: this is largely a demand-driven price increase. Demand is up, not supply down. Saudi, Norwegian, Russian, Nigerian, Iranian, etc oil supplies have not been disrupted by the war in Iraq – Iraq itself is just not that big a player in the world market. But developing countries like China are getting richer and want to buy and use their share of the world’s oil: and supply has stopped expanding.
Peter,
Depends largely on what you count. Canada’s Athebaskan Tar Sands, for example, certainly contain as much petrol as the Saudi reserves. We’ve known that for over a century. But we lack any efficient way to extract it. Technology could certainly increase our “reserves” by adding in such things as that – but such technology doesn’t magically appear just because people want it and a lot of clever people have worked on the tar sands extraction issue over the decades. “Demand” doesn’t magically cause technology to improve: it often takes breakthroughs in underlying science and they happen when they happen.
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Oh yes the Tar Sands are now “economic” to to exploit at least in monetary terms, but not economic in environmental terms.
It appears that it deserves the epithet “the most destructive project on Earth”.
“But, it’s not liquid oil, and extracting the crude from the sand takes vast reserves of water, a quarter of Alberta’s fresh water. This water is so polluted at the end of the process that it is simply left to stand in huge tailing pools that altogether cover some 50 square kilometres. It’s so toxic that birds landing on the ponds would die
Huge areas of the boreal forest ecosystem have been felled and the underlying peat bogs cleared away to expose the sands. At the end of the processing there is nothing but a ‘toxic moonscape’ of earthworks, ponds, and 80 foot high piles of pure sulphur. 5,000 hectares have been destroyed already, and David Schindler of the University of Alberta estimates that in ten years time they will have cleared an area the size of Florida.”
http://www.celsias.com/2008/03/04/the-most-destructive-project-on-earth-albertas-tar-sands-from-space/
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@BP
What is oil ? No, it’s not a silly question. There is a world of difference between easily extracted, easily refined light sweet crudes, and hard to extract, hard to refine heavy/sour crudes.
CERA conveniently do not distinguish among the various grades. The API does provide a guide to the classifications though.
Then there’s all the other non liquid oil resources, chief amongst them the Athabasca tar sands.
The world is peaking in sweet light crudes. There’s loads of heavy crude but most refineries can’t use it. And many refineries do not want to upgrade their plant as they see excess capacity just around the corner with decreasing feed stocks. Chicken and egg situation eh!
Assuming you’re actually here to listen and learn, not just take pot shots, I suggest you stop by the oil drum.
http://www.theoildrum.com/node/2409 is a good place to start.
Good luck.
NB: “Data always beats theories. ‘Look at data three times and then come to a conclusion,’ versus ‘coming to a conclusion and searching for some data.’ The former will win every time.?
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The honest position is: “we don’t know what oil reserves are”. We’re all arm-chair experts, talkin’ trash.
So it comes down to which analysts you choose to listen to, and once again, the debate is highly politically charged, making truth that much more difficult to come by.
I don’t know the answer, but I’m leaning towards a capacity issue, rather than a scarcity issue.
I’m doing no more than draw a line down the middle of a polarized debate and assuming the truth lies somewhere around there.
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It doesn’t actually matter what the reserves are; we’re limited by rate of flow, usually referred to as capacity. More capacity is needed and none is being provided. Thats actually what supply and demand is, its about flows, not reserves.
OPEC is refusing to increase flows; In many peoples opinion what they say is academic, as some OPEC members can’t meet their existing commitments, let alone increase the rate. Its widely believed that Saudi has a bit of capacity up its sleeve, but not much.
Most non-OPEC suppliers are in decline.
Until either a lot more capacity comes on line, or demand decreases, then the existing imbalance will remain, and the market will continue to try and discover just what oil is worth. Thats how supply and demand works. We know a barrel of oil is worth more that $130. How much more? I have no idea…
What is funny (peculiar) is looking back at all those predictions of what would happen when oil hit $35 a barrel, then what extraction techniques would become economic at $40/bbl etc. None of which has happened.
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>>none is being provided.
But what is the time frame? Alternatives may have a long lead time. And what forces may be restricting flow (political, economic, war, etc). If these circumstances altered, would flow increase?
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“The agenda behind the above-ground factors argument is often obscured by vague and misleading language like that found in the CERA press release cited above. What propagators of this message seemingly hope to accomplish is a sort of paralysis among policymakers designed to head off any serious conservation measures or transition to a renewable energy economy. These propagators know that the above-ground-factors message plays into our desire for continuity in our lives and also into the widely, if unconsciously, held cornucopian belief that the natural world will give us whatever we want, if only we will let it. As long as energy stringency can be blamed on anything but geologic constraints and as long as above-ground constraints can be made to sound temporary, those spewing this message may succeed at achieving public policy paralysis.”
http://www.energybulletin.net/44849.html
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meanwhile over at kiwiblog…… Toad has just tossed in a grenade!
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where big bro? I just wasted a good 5 minutes looking for the comment you alluded to.
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hang on…
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Here we go…..feel the love….ha ha ha
http://www.kiwiblog.co.nz/2008/05/prostitution_law_reform-2.html#comment-450066
“kiwitoffee wasn’t talking about the right to free speech, which I totally support, but about some supposed right to “live in a community where prostitution is not tolerated…, which I do not support, because that statement is, um, intolerant.
Greens, as you might gather, are very tolerant of personal behaviour and of religion, so long as that does not impinge on someone else’s rights. Fundamentalist religions, be they Christian, Islamic or any other variety, seek to deny people their human rights by imposing laws based on religious dogma.
When it comes to the supposed “right? to market unhealthy food to kids, for instance, it does impinge on other people’s rights – ie the right of kids to not have their helath compromised by corporate advertising. When it comes to spanking, the same thing – it is the right of kids to be free from violence that must supersede some perveived right of parents to bring their children up as they please. It is exactly that latter supposed “right? that, taken to its extreme, leads to the child prostitution we see in countries like Thailand.
But with consenting adults, outlawing prostitution is denying the fundamental right of adults to control over their own bodies and the fundamental right to freedom of economic activity that does not exploit anyone else. Prostitution is a simple contractual arrangement between adults, so it’s no big deal.”
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Yes that would have let the cat admidst the pigeons big bro.
I can’t dispute the logic of his argument though.
Thanks
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Thanks, Sleepy. The only things I apologise for are the spelling mistakes.
It really bugs me when the right-wingers who rant on about economic freedom suddenly turn around and say that they want to criminalise the sex industry.
It also bugs me when the only freedoms they seem to care about are those of adults (to bring up their kids as they choose adn to make as much money as they want) rather than those of kids to be free from violence and from being sucked into eating unhealthy foods by pernicious child-targeted advertising.
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I think the prostitution law is a good thing, however I do take issue with a 24/7 business in a residential area.
The fact it is a brothel/panel beater/pub/restaurant involved is immaterial. It’s the perceived level of disturbance.
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The rate of flow is related to the rate at which the oil moves through the rock.. you CANNOT pump faster at any given well or from any given field.
CERA … the people who always have to make downward revisions?
(long but detailed)…
http://europe.theoildrum.com/story/2006/11/25/125137/18
http://en.wikipedia.org/wiki/Cambridge_Energy_Research_Associates
http://resourceinsights.blogspot.com/2006/11/does-oil-drum-threaten-ceras-market.html
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@BP The honest position is: “we don’t know what oil reserves are?. We’re all arm-chair experts, talkin’ trash.
Bullshit. You might reach your conclusion because they comfort your ideology but some of us either have industry knowledge or have reached our conclusions because facts, not ideology lead us to them.
Facts:
• OPEC’s daily shipments of crude oil declined by 4.3 percent in the four weeks ended May 4, according to Lloyd’s Marine Intelligence Unit. (5/24, #2)
• Mexico’s April crude production fell 13 percent compared to April 2007. Exports fell 14 percent to 1.43 million b/d. Output at its largest field has declined 51 percent since it peaked four years ago. (5/24, #5)
• Russia’s oil and gas condensate production declined 0.7 percent during April 2008 compared to the same month a year earlier, the Federal State Statistics Service reported Friday. (5/24, #18)
• US Energy Secretary Bodman rejected a call by some members of Congress to release oil from the government’s emergency stockpile, saying it is needed to respond to future supply emergencies, not to influence prices. Bodman also told a Congressional hearing he does not believe that rampant market speculation is causing record high oil prices and that it is a matter of supply and demand that can be traced to essentially flat global production over the last three years. (5/23, #10)
• In Angola, French oil major Total’s CEO said the company plans to increase their production from today’s 290,000 b/d to 700,000 b/d with two or three years. OPEC reports April’s total Angolan production at 1.873 million b/d. (5/24, #4) [comment: won't be holding my breath]
• Oil production from countries outside OPEC is stagnating despite a more than a six-fold rise in oil prices since 2002. Non-OPEC supply growth in 2008 is expected to average 680,000 b/d, according to the IEA’s latest Oil Market Report. Biofuels will contribute 425,000 b/d of this total, making non-OPEC oil production growth just 255,000 b/d. (5/23, #4)
• In Nigeria the MEND threatened more acts of sabotage against the nation’s oil industry, accusing the government of “insincerity.” (5/22, #7)
• Petrol stations in at least five Chinese provinces are limiting sales of diesel, as oil firms divert supply from the price-capped retail sector to avoid losses in the face of soaring crude prices. (5/22, #11)
• President Bush told leaders of the oil-rich states of the Middle East that they must face up to a future without their hydrocarbons. In a stark warning, he said their supplies were running out and urged them to reform and diversify their economies. (5/20, #2)
• Over the past five years, US demand for diesel has been rising at triple the rate of gasoline. Each 42-gallon barrel of crude oil yields about 19 gallons of gasoline and about 10 gallons of diesel fuel and heating oil. Increasing imports of gasoline from Europe and increased ethanol production here has resulted in reduced production of diesel. (5/20, #5)
• Kazakhstan’s Minister of Energy said the Agip KCO consortium has proposed postponing the beginning of commercial production from the Kashagan field for another couple of years. According to the minister, they talked about re-scheduling the “big Kashagan oil? from 2011 to 2012 or 2013. (5/19, #6
Source: Peak Oil Review 26 May 2008
All of the facts point towards geological and above ground factors constraining supply, which are the underlying cause of high prices. Add a speculative premium and we end up with oil on the high side of USD100. No amount of wishful thinking for some new magic energy source that will appear when prices are high, or that high prices will suddenly overcome the laws of thermodynamics, are going to change that.
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@BP The honest position is: “we don’t know what oil reserves are?. We’re all arm-chair experts, talkin’ trash.
Bullsh*t. You might reach your conclusion because they comfort your ideology but some of us either have industry knowledge or have reached our conclusions because facts, not ideology lead us to them.
Facts:
• OPEC’s daily shipments of crude oil declined by 4.3 percent in the four weeks ended May 4, according to Lloyd’s Marine Intelligence Unit. (5/24, #2)
• Mexico’s April crude production fell 13 percent compared to April 2007. Exports fell 14 percent to 1.43 million b/d. Output at its largest field has declined 51 percent since it peaked four years ago. (5/24, #5)
• Russia’s oil and gas condensate production declined 0.7 percent during April 2008 compared to the same month a year earlier, the Federal State Statistics Service reported Friday. (5/24, #18)
• US Energy Secretary Bodman rejected a call by some members of Congress to release oil from the government’s emergency stockpile, saying it is needed to respond to future supply emergencies, not to influence prices. Bodman also told a Congressional hearing he does not believe that rampant market speculation is causing record high oil prices and that it is a matter of supply and demand that can be traced to essentially flat global production over the last three years. (5/23, #10)
• In Angola, French oil major Total’s CEO said the company plans to increase their production from today’s 290,000 b/d to 700,000 b/d with two or three years. OPEC reports April’s total Angolan production at 1.873 million b/d. (5/24, #4) [comment: won't be holding my breath]
• Oil production from countries outside OPEC is stagnating despite a more than a six-fold rise in oil prices since 2002. Non-OPEC supply growth in 2008 is expected to average 680,000 b/d, according to the IEA’s latest Oil Market Report. Biofuels will contribute 425,000 b/d of this total, making non-OPEC oil production growth just 255,000 b/d. (5/23, #4)
• In Nigeria the MEND threatened more acts of sabotage against the nation’s oil industry, accusing the government of “insincerity.” (5/22, #7)
• Petrol stations in at least five Chinese provinces are limiting sales of diesel, as oil firms divert supply from the price-capped retail sector to avoid losses in the face of soaring crude prices. (5/22, #11)
• President Bush told leaders of the oil-rich states of the Middle East that they must face up to a future without their hydrocarbons. In a stark warning, he said their supplies were running out and urged them to reform and diversify their economies. (5/20, #2)
• Over the past five years, US demand for diesel has been rising at triple the rate of gasoline. Each 42-gallon barrel of crude oil yields about 19 gallons of gasoline and about 10 gallons of diesel fuel and heating oil. Increasing imports of gasoline from Europe and increased ethanol production here has resulted in reduced production of diesel. (5/20, #5)
• Kazakhstan’s Minister of Energy said the Agip KCO consortium has proposed postponing the beginning of commercial production from the Kashagan field for another couple of years. According to the minister, they talked about re-scheduling the “big Kashagan oil? from 2011 to 2012 or 2013. (5/19, #6
Source: Peak Oil Review 26 May 2008
All of the facts point towards geological and above ground factors constraining supply, which are the underlying cause of high prices. Add a speculative premium and we end up with oil on the high side of USD100. No amount of wishful thinking for some new magic energy source that will appear when prices are high, or that high prices will suddenly overcome the laws of thermodynamics, are going to change that.
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Fastbike,
“I think we ought always to entertain our opinions with some measure of doubt. I shouldn’t wish people dogmatically to believe any philosophy, not even mine” Bertrand Russell
>>because they comfort your ideology
And what ideology would that be, then? Skeptical inquiry?
Unless people are involved in this area day in, day out – and that presumably includes everyone involved on this messageboard – then their opinions will only ever skim the surface. Second hand facts. Amateur analysis. Cut n’ paste masquerading as unequivocal truth. What you’re saying might well be true. I have an open mind on the topic, and feel no need to jump to a conclusion.
Spend some time in the Middle East recently. Got talking to a woman who was a business development exec for a Texas oil company. Got talking about Peak Oil. Whilst not completely dismissive, she was of the opinion that there be dragons, smoke and mirrors.
It was an interesting chat….
Question: what percentage of the worlds oil is used by cars?
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@BJ Good link
My favourite quote from CERA’s Peter Jackson
And having just learned that the UK has declined more rapidly than expected, CERA then proceed to reduce and not increase the projection of that underlying decline.
Way to go CERA. I’ll be taking my tips from you and then investing in the opposite direction.
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@BP, skepticism is good. Blind faith that market solutions will trump thermodynamics is not.
Dragons, smoke, mirrors in the oil industry, who would have thought it
I honestly thought they were a paragon of virtue LOL. Although seriously, your point reminds me of the lack of transparency in OPEC reserve figures. CERA et al really think that the OPEC team have produced >15M BBL/D since the mid 1980′s and it has had no effect on reserves. If OPEC were telling the truth we would see reserves fluctuate (up and down) according to production and exploration/reclassification.
The fraction of oil used by cars is irrelevant in a world where people think that paying $2/l is price gouging. Wait until supply disruptions become the norm and governments start rationing.
The plans are all drawn up thanks to the IEA
http://www.med.govt.nz/templates/MultipageDocumentTOC____13698.aspx
“Saving Oil in a Hurry” gives details. Funny it has never been given any publicity. Joe and Jane Motorist haven’t got a clue.
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>>I honestly thought they were a paragon of virtue LOL
You get my point, I’m sure.
Interesting data:
omrpublic.iea.org/omrarchive/11apr08full.pdf
Supply exceeded demand from 2004-2006. In 2007, demand exceeded supply. In 2008, there has been a surge in supply that will meet demand.
I’d watch closely for shorts…that bubble is getting mighty large….
>>The fraction of oil used by cars is irrelevant
The notion that you must replace all oil use is incorrect.
If you can reduce demand in one significant area that does not require oil (i.e. the operation of cars – they can, and do, run on electricity), then demand for oil drops, reserves last longer, and the price of oil falls.
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The situation appears to be more complex than anticipated.
“Iraq dramatically increased the official size of its oil reserves yesterday after new data suggested that they could exceed Saudi Arabia’s and be the largest in the world.”
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3964957.ece
“Some conspiracy nuts believe the Bush Administration had a secret plan to control Iraq’s oil. In fact, there were TWO plans. In a joint investigation with BBC Television Newsnight, Harper’s Magazine has uncovered a hidden battle over Iraq’s oil. It began right after Mr. Bush took office – with a previously unreported plot to invade Iraq.”
According to Ed Morse, another Hess Oil advisor, the switch to an OPEC-friendly policy for Iraq was driven by Dick Cheney. “The VP’s office [has] not pursued a policy in Iraq that would lead to a rapid opening of the Iraqi energy sector… that would put us on a track to say, “We’re going to put a squeeze on OPEC.”
“Cheney, far from “putting the squeeze on OPEC,” has taken a defacto seat there, allowing the cartel to maintain its suffocating grip on the U.S. economy.”
http://skeptically.org/oil/id1.html
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@BP I’d forgotten that the IEA often hide nuggets within their publications. Thanks for the link.
Back to the debate. For sure you can reduce demand in any area. However, there is no such thing as a free lunch. Where is the capital for replacing oil dependent infrastructure coming from ?
E.g. To meet IEA’s 342 million BOE/day in 2030 (all energy) envisions energy sources to grow thus (from 2004 base):
Coal 55.5 to 88.8 = 1.6 X
Oil 78.8 to 111.5 = 1.4 X
N. Gas 46.0 to 77.4 = 1.7 X
Nuclear 14.3 to 17.2
Hydro 4.8 to 8.2
Biomass/Other 24.7 to 38.8
Total 224.1 to 341.9
If you then want to shift significant primary energy supply from oil, you’ll need investment in the alternatives plus investment in existing oil infrastructure to prevent depletion rates from disrupting the market too quickly. An orderly transition is preferable to a collapse.
It’s not a good market to be looking for investment capital at the mo ;(
Oh, and by the way cars are approx 1/3 of oil useage. It’s hard to get accurate stats as refinery products are normally reported by fuel type, rather than end useage. E.g. motor gasoline is mostly used by cars but includes trades vehicles, middle distillates are used commercially and by private vehicles.
The speed of the shift away from oil powered vehicles is constrained by rate of vehicle replacement amongst other things. Hirsch covers this quite well. He thinks 20 years is required. I’m not sure we have 20 years for the orderly transition so hold on for a bumpy ride.
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@SleepyTreeHugger quoting (I think) Ed Morse: “…allowing the cartel to maintain its suffocating grip on the U.S. economy”
Yeah, right. Like OPEC have any control over oil prices any more.
A few years ago, sure; OPEC could up their deliveries by 10% anytime they wanted to, and decrease it as well. Today, they’ve got nowhere to go.
And I’d be very wary of dramatic claims of increased reserves; most announcements on existing reserves for the last several years have been downwards. Not to mention that Iraq’s existing numbers for reserves are widely (universally?) believed to be inflated anyway, due to the OPEC rules…
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the invasion took place precisely because the neocon cabal controlling the US government does believe in an oil peak soon or even now
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dbuckley
Precisely why would they want to reduce the price of oil when their revenues have quadrupled in seven years?
The last time they increased production was when the Soviet Union tried to bust the OPEC quotas in the late 80s. It was the Soviet Union that got busted instead cos Saudi Arabia can produce its oil far more cheaply than anyone else. The Oil Glut subsequent to the Oil Crisis in the 70s was a significant contributing factor to the fall of the Soviet Union.
Up until recently the struggle between some OPEC members was keeping production levels low enough to maintain prices like Iran as opposed to others who just wanted to maintain market share as Saudi Arabia did.
”The Saudis are fed up with OPEC,” said a well-placed oil official from the Persian Gulf region who asked not to be identified. The Saudis’ principal concern now, he said, is to hang onto their market share at any price.
http://query.nytimes.com/gst/fullpage.html?res=9B0DE5D61130F933A25751C1A961948260&sec=&spon=&pagewanted=all
“In the US there was a dramatic decline domestic exploration, and the number of active drilling rigs was nearly halved in 1982.”[23] Oil producers held back on the search for new oilfields for fear of losing on their investments[24]. As of May 2007, companies like ExxonMobil are not making nearly the investment in finding new oil today that they did in 1981.”
http://en.wikipedia.org/wiki/1980s_oil_glut
I don’t know what particular rules you’re alluding to, but Saudi Arabia has always imposed a lower production quota on other member States.
As I said in my earlier comment, the situation is far more complex than most imagine. Theres just not enough information thats reliable available to make any definate assertions.
I’m all for the development of plans for energy self-reliance and independance, because it would free us from the whims and vagaries of the commodity speculators and the oil cartel.
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BluePeter Says:
May 26th, 2008 at 10:41 pm
> I think the prostitution law is a good thing, however I do take issue with a 24/7 business in a residential area.
> The fact it is a brothel/panel beater/pub/restaurant involved is immaterial. It’s the perceived level of disturbance.
For once, I agree with you. I supported the prostitution law reform bill, but I did so on the assumption that town planning rules would be used to restrict the location of brothels in the same way that other businesses can be restricted in their location on the grounds that they’re too noisy or the area has insufficient parking.
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Yep, kahikatea. The resource consent process is actually slightly, although not onerously, more arduous for brothels than for most other activities. See s 12 Prostitution Reform Act:
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BP: “I’m leaning towards a capacity issue, rather than a scarcity issue.”
That seems implausible. Because if so you’d expect production to be increasing now that we’ve had high prices for the last 4 years – and yet it is not.
That production is declining at a time of stupendously highly prices suggests a true lack of resources rather than a mere lack of capacity to exploit resources.
Icehawk
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>>high prices
Speculation. Artificial scarcity. Production issues. Wars. All play a part…
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BP: “Supply exceeded demand from 2004-2006. In 2007, demand exceeded supply. In 2008, there has been a surge in supply that will meet demand.
I’d watch closely for shorts…that bubble is getting mighty large….”
I recommend you stay out of the market.
By “supply exceeded demand” they mean is “people stored up some oil”.
But that’s very misleading: because the price also increased over the same period. And the price increase because actually demand increased faster than supply.
To run the sort of bubble you’re claiming people would need to be storing vast amounts of oil. They don’t: they can store only a very short-term amounts (up to a few days supply). The US strategic reserve is by far the biggest of these. They ran it down 2004-6 to try and contain oil prices – and failed. Since then they’ve replenished it (because it’s a strategic reserve).
You can’t run a huge long-term speculative bubble on oil because when your options come due you’ve got to either use it or store it – and several million barrels of oil isn’t something you just quietly stash. The entire world’s stores of oil, including all oil in transit and in refineries, is less than 1/6th of a year’s production.
It’s not a speculative bubble. It’s supply and demand. If you want a conspiracy theory, build one around artificial manipulation of supply: that would still be kooky but at least the numbers would add up.
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STH: “I don’t know what particular rules you’re alluding to, but Saudi Arabia has always imposed a lower production quota on other member States.”
The production quotas for most OPEC states (inc SA) are based on the ratios of their declared reserves. SA has the biggest reserves, so they get the biggest quota…
Of course, this rule when introduced caused some “interesting” reserve adjustments to take place…
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What you guys don’t seem to realise is that the price is predicated on the subjective theory of value i.e. the seller sets the price of what he thinks the buyer is willing to pay. Its much easier in a captive market such as oil, because its easy for buyers to collude to agree on a favourable price and thus removes the ability of the buyer to demand a better deal from someone else.
“You can’t run a huge long-term speculative bubble on oil because when your options come due you’ve got to either use it or store it – ”
Well obviously they “use it”, which they can and are doing, because the “market” is signalling that they’re willing to pay whatever the seller is demanding. It doesn’t matter whether the “market” believes that the price reflects the underlying fundamentals or not. Its actually irrelevant cos they don’t have a choice.
You can maintain a speculative bubble on anything as long as the consumer is willing to pay whatever you’re demanding.
“All it suggests is that there are few buyers for physical oil cargoes at today’s prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year.”
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article3980797.ece
“U.S. oil executives told Congress yesterday that prices should be between $35 and $90 a barrel. John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell Plc, pegged the proper range “somewhere between $35 and $65 a barrel.”
Saudi minister al-Naimi said in March when oil was trading near $100 that prices were unlikely to fall below $60 or $70, representing the cost of producing alternatives such as biofuels or tar sands.”
http://www.bloomberg.com/apps/news?pid=20601109&sid=aNpbEqWbUwok&refer=home
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From Dallas news Editorial [take note bounders from Deomographia]
” Our economy and way of life – especially in sprawling, car-crazy North Texas – depends on a steady and affordable supply of oil. It can’t last, because oil is not an infinite resource. We might not be at the end of the cheap oil era yet, but when that day comes, its dawn will look something like what we’re living through today.”
http://www.dallasnews.com/sharedcontent/dws/dn/opinion/editorials/stories/DN-oil_26edi.ART.State.Edition1.462618b.html
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icehawk, BP – while I agree with icehawk on the fundamentals, I am willing to concede a bit of speculation in the current surge in prices. Perhaps 5-10% at the top end. That could still mean a reasonable reduction should a minor speculative bubble be forming. But it won’t last long at all for the reasons that icehawk points out. Same applies for the US dollar devaluation scenario. 12% drop in the dollar over the last year. 100% increase in oil prices. Sure, dollar collapse is a contributor, but not the significant one. BP – we have a supply issue, and all the oil companies, the IEA and the EIA agree that this is the case. The IEA will formally publish their significant supply downgrade in November. Stay tuned…
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Good interview with Jeanette this afternoon on RNZ. (unlike this morning on 9toNoon where she was not allowed to finish her sentences).
http://www.radionz.co.nz/audio/national/aft/the_panel_-_part_13
Start at 3:20 in.
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I would definitely vote for this afternoon’s Jeanette but not this mornings Jeanette.
The difference? The early version was on about Maori justice and how she (probably) couldn’t work with National. She said how she doesn’t do deals like NZ First and Dunne deals. Now there’s 4 reasons why she’s not in government now and won’t be after November.
The later version was Green only and came up with positive and practical ways to advance NZ’s future efficiency.
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>>people would need to be storing vast amounts of oil
No they don’t.
>>You can’t run a huge long-term speculative bubble on oil
Yes you can, and they are. The futures market is leveraged to the hilt, fueled by Peak Oil mythology and US government policy.
Watch for the shorts. Comin’ to a computer screen near you soonish….
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Samian The early version was on about Maori justice and how she (probably) couldn’t work with National. She said how she doesn’t do deals like NZ First and Dunne deals. Now there’s 4 reasons why she’s not in government now and won’t be after November.
I must have listened to a different interview to you. Can you supply a transcript of the words you found problematic?
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BP The futures market is leveraged to the hilt, fueled by Peak Oil mythology and US government policy.
Funny that the oil futures market has moved from permanent backwardation to contango.
Some reasons to invest in oil futures:
1. Oil, unlike other futures choices, is embedded in all other commodities.
2. The market does not recognize net energy, the differences between (short term) flow and (long term) reserves or net exports. As these concepts permeate the investing public, it will result in higher price floors.
3. Oil price spikes will likely be negatively correlated, or at least uncorrelated with other asset classes, so provide beneficial diversification.
4. All renewable sources of energy (wind, solar, biomass refining, etc) require oil to transport their goods and employees. Even if we seamlessly transition from a world of fossil fuels to one of renewables, we cant make windmills from wind or solar panels from sun. Oil will continue to increase in value.
5. We still are firmly entrenched in a neo-classical system that believes in perfect substitutes so ‘hoarding’ behavior is not yet being seen. Hoarding could occur at local, regional and national levels and once the concept of finiteness of oil is more widely understood, the hoarding aspect will represent another permanent increase in demand.
And some of the risks associated with oil futures:
1. Oil is priced at the marginal unit, so demand destruction, even in the face of less future reserves, will result in price drops. Large exogenous shocks to the system, like bird flu or some other natural (or man-made) disaster could cause oil prices to drop precipitously.
2. Oil is only storeable to a point by end-users, so a situation like the one above would preclude end users (that are aware of long term scarcity issues) from `hoarding’ at the margin and prices could stay low until the economy recovered.
3. If oil prices go high enough, there is the risk of nationalization of the resources, rationing, windfall profits taxes on oil companies, all of which change the dynamics of the oil pricing market.
4. In a real collapse, money in futures in a brokerage account might be meaningless.
(Thanks to Nate Hagens at The Oil Drum).
Interesting times ahead.
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if you enter a futures contract to buy or sell oil at a future date at a specific price, then on the day, depending on what the actual price is, you either pay the difference or pocket the difference… i can’t see why this should be imagined to affect the actual price of oil?
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