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Page added on February 24, 2012

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Peak Oil is here, Crude Oil price to reach $150 by 2012 Year End

Peak Oil is here, Crude Oil price to reach $150 by 2012 Year End thumbnail

The ‘Peak Oil’ or ‘Hubbert Peak’ theory refers to the peak in global oil production. Oil is finite and non renewable resource and once half of its reserve is depleted then it will go into a terminal decline as shown on the above figure.

 

Hubbert Curve

The theory is named after M.King Hubbert (former Shell geologist) who created a method of modeling the production of oil. Of the 65 oil producing countries 54 already past its peak and is now declining.

Oil production in the US is down 11% since 1971, UK North Sea down 27% since 1999, Australia down 26% since 2001. Cantarell oilfield Mexico’s largest, has its output falling from 2.1 MBD in 2004 to less than 0.5 MBD today and Saudi’s Ghawar ,the world’s largest oilfield has been declining at about 5% per year.

Even King Abdullah realizes the effects of Peak Oil and had been quoted on a new oil find. “Leave it in the ground …. Our children need it”

According to two researchers at the University of California, world oil supply will peak between 2010-2030 and any renewable replacement technologies will only be viable at around 2140. So, there is an existing gap of 130 years.

US Military findings

The US Military issued a 2010 Joint Operating Environment analysis early this year on Peak Oil and the summary of their findings are:

#1  To sustain the energy needs by 2030 we need to find a fresh supply of 1.4 MBD        (millions barrels per day) from now until then.

#2  By 2030 the total world oil consumption will be 118MBD but energy producers will  only be able to supply 100MBD.

#3  By 2012 surplus oil production will disappear and as early as 2015, the shortfall   between supply and demand will be 10MBD.

Very Bullish Technical Setup

Please take a look at the above 1 year chart for WTI light crude oil. Since making a low of $92.52 on Dec 16th 2011, oil had since been moving on an uptrend. Moreover, there has been a huge base building from early Nov 2011 towards the beginning of Feb 2012.This is indeed a very bullish signal, signaling very HUGE upward movement in crude oil prices in the coming months. After breaking out from the resistance at $103.74 which is recorded in 4th Jan 2012, we shall see crude oil price to break the 52 week high which is recorded in 2nd May 2011 at $114.83.

To calculate our target we take the low in December which is $92.52 and the high in 4th Jan 2012 which is $103.74. The spread between the high and low is $103.74 – $92.52 = $11.22. So, the next immediate target for 1st breakout will be $103.74 + $11.22 = $113.28, which is just a little bit short of the 52 week high of $113.83. Since most of the indicators are overbought, we shall expect a bit of correction before the 52 week high will be taken out on the next leg up, which we estimate to reach $113.28 + $11.22 = $124.50.

Why we still need oil?

It is very difficult for us to discard our dependence of oil overnight and here are some facts:

– Approximately 10 calories of fuel are needed to produce 1 calorie of food

– To produce a car you need 20 barrels of oil

– To produce a 32Mb Ram chip you need 3.5 pounds of fossil fuel

– Fertilizers are made from ammonia which is derive from natural gas

– The manufacturing of 1 ton of cement requires 45 gallons of oil

– Pesticides, agro-chemicals and plastics are made from oil

– The transportation of food, water and medicine requires oil

Peak Oil is here to stay. The Chinese are more prepared than any of us. China is now training 40,000 geologists a year to confront these challenges and they are scouring all over the globe to look for oil and joint energy partnerships. Whereas in the US, it is doing exactly the opposite, training 500 geologists and 40,000 lawyers !!  So, it is obvious that both have different directions, one is training more lawyers for its Sub-Prime mess whereas the other is training more geologists to look for more energy sources!!

out of oil

What can we expect in the near future as a consumer?

  1. Forget about cheap oil, its history. Oil is going to hit US200 in the next 5 years. Prepare to pay US 5 – 6 per litre for your oil.
  1. Car sales will be dominated by efficient hybrid and electric cars by 2025
  1. Prepare to pay more for food, medical, energy and etc due to price inflation.
  1. Prepare for more street demonstration and riots due to lack of food and higher cost of living.
  1. Prepare for a change in lifestyles and be more prudent
  1. Be self sufficient – if possible have a plot of land to grow your own food.

And what have our government done to alleviate our dependence and also our dwindling supply of oil? The warning signs have fallen on deaf ears and by the time when urgency is needed to confront the problem, it will be too late. Unfortunately, there is no easy fix and the clock is ticking!

Any government should be doing everything in its power to encourage the development of technologies in Wind, Sun ,Wave, Biofuel or Nuclear to lessen its dependency on oil.

This is a matter of National Security as demonstrated by Russian President Vladimir Putin, who use of the On/Off switch to control the flow of oil on its pipeline to Ukraine. People needs to WAKE UP to the urgency that is required before it is too late.

Another factor that need to be taken into consideration is that the expected increase in demand is going to outstripped the supply in a much faster way because we have not taken into consideration the demand of oil from China and India. As you know, historically the growth of oil demand is somewhat about 50% of economic growth but in recent years its growth had somewhat in excess of 60% and increasing as shown by the Oil Consumption Chart above.

Economic growth in China averages about 8-10% for the past two decades , while India’s about 6-8% for the past few years enables them to increase their middle class population. Hence, the demand for cars, motorcycles, industrial consumption on oil also increased proportionally. Currently, China’s car production stands at 18.5 million units per year as of 2011 and according to Reuters, its passenger car sales is expected to increase by as much as 10% next year.

Secondly, the combined population of BRIC nations accounted for more than 40% of the world’s population, we don’t need to be a rocket scientist to figure out where the direction of the demand for energy will be heading for the next decade or two.

In conclusion, we will expect the imminent energy crisis WILL BE WORSE than the current credit crunch!!

by Sam Chee Kong

The Market Oracle



7 Comments on "Peak Oil is here, Crude Oil price to reach $150 by 2012 Year End"

  1. Kenz300 on Fri, 24th Feb 2012 10:17 pm 

    Too many people and too few resources. The world is in for an adjustment. China and India continue to grow and demand ever more oil.

  2. MrEnergyCzar on Fri, 24th Feb 2012 11:56 pm 

    This is why I’ve been preparing for Peak Oil for almost 5 years now….

    MrEnergyCzar

  3. cusano on Sat, 25th Feb 2012 12:15 am 

    When my daughters were small, they’d step on a rock and say ” ouchy, oochy”. Kinda what I’m saying now when I refer to our fossil fuel situation.

  4. BillT on Sat, 25th Feb 2012 2:00 am 

    About one barrel of oil for one ton of cement. I am watching one of many condo towers being built beside the one I live in, there will be thousands of tons of cement in it when it is finished,and it is a small 34 floor 100 foot square tower.

    Another built last year nearby is twice the height and twice the base and there are hundreds going up in Manila alone. Millions of tons of concrete, not to mention the energy it takes to raise that concrete 700 feet to the top floor. Add in the steel rebar, etc, and each building takes many thousands of barrels of oil or the equivalent energy.

    These monuments to capitalism will stand empty when there is no longer oil or natural gas to power the elevators or repair them or replace them. Nor will there be power to fill the water tanks on the roof daily or pump the sewage to the treatment plant or to run the treatment plant. Or to bring hundreds of truckloads of food into the city daily.

    Think about the future your grand kids will inherit…

  5. alagarsamy on Sat, 25th Feb 2012 11:11 am 

    sir
    The Peak oil is true and happening. iam at my 70 years.i am just imagining how this world will move in 2100?
    energy is out. we must try Natural way of life .
    Alternative fuels and food position must be safe. I have small piece of land 3 acres. so i try to grow food and energy crops
    Everybody must grow trees
    Alagarsamy
    http://www.mgrbiodiesel.com
    India

  6. BillT on Sat, 25th Feb 2012 12:56 pm 

    alagarsamy, I am 67. I think those who are left in 2010 will use muscle power to move themselves and anything they need to move. I don’t see any energy resources lasting much beyond 2050 unless there is a catastrophe that kills off 90% of us in a few years.

  7. BillT on Sun, 26th Feb 2012 2:26 am 

    2100…not 2010…lol.

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