Oil price rebound may be five years off



financialpost

Also from that article: "OPEC capacity has indeed risen in the face of falling demand. In fact, OPEC capacity will have risen by roughly one million barrels per day in 2008, and OPEC appears to have boosted capacity by over one million barrels per day on average in each of the past three years. Thus spare capacity will likely recover to over five million bpd by the end of 2008 (capacity fell to below two million bpd in 2005)."

It isn't that Peak Oil is wrong, it is just that demand destruction is faster than supply decline and will be for quite some time. The increase in capacity is for OPEC countries, not for non-OPEC producers who are still rapidly declining.

Given that the recession seems likely to linger until at least 2010, I expect that oil will stay low and probably go lower yet. The Americans still have to deflate their economy by trillions to clean out the housing overbuild and mortgage fraud.

Graeme : Following oil price now is worthless as we are entering in a world economic depression. I've myself ceased to check prices on 321energy, a thing that I did dayly in the "good old time" which ended with 147$ a barrel. Now economy is falling appart.

Anyway, this article is dangerously misleading in the way it was written to leave people in the business as usual word. Basically, you understand the title as "we have many years of cheap oil, please consumme".

When someone looses his job, cheap oil is expensive. That's the point.

I'm in the market for a fuel efficient small SUV/station wagon type thing. These lower gasoline prices are helping me by reducing demand for such vehicles.

Peak oil wasn't "wrong" in the 1950s when M King Hubbert originally theorized it. But I doubt any of us would have been shaking in our boots and heading for the doomstead knowing that the day of reckoning was a half century off. So the timing matters.

It all comes down to how much slack exists in the system. This article assumes everything is driven by demand and supply may as well be infinite. A big reason we have been on a production plateau in the last few years is due to expensive non-conventional and conventional field development. The low oil price is already putting the breaks on this activity (e.g. the tar sands). But the "cheap" conventional oil production is still declining.

So, how much of a gap will there be in the summer of 2009 between the production and the demand? The demand will not fall as much as expected since the cheap price will restore most of the demand from the 3rd world that has been "destroyed" in the last two years. We are going to see price spikes driven by transient rejuvenation of demand by large price drops since we are already past peak production for the current oil price level.

WTIC $48 -> $55 in so many days. So much for "five years off."

Dis wrote: "So, how much of a gap will there be in the summer of 2009 between the production and the demand? The demand will not fall as much as expected since the cheap price will restore most of the demand from the 3rd world that has been "destroyed" in the last two years. We are going to see price spikes driven by transient rejuvenation of demand by large price drops since we are already past peak production for the current oil price level."

Very nicely put. I do wonder if governments, companies, individuals...are aware of peak oil, might some choose non-oil-based ways to restore their economies or even powerdown. And if that happened in enough cases, could this keep the world just ahead of the curve.

What if oil is suddenly seen as something to avoid being dependent on at almost any cost? What if it essentially goes out of style? US industry, as I understand it, largely moved away from dependence on oil after the oil shocks of the 70's. Maybe this could happen more broadly.

I know that this seems highly unlikely now, but PO is getting more press and the wild swings in oil prices have certainly captured a lot of people's attention. If we have another huge run up and crash, perhaps people will start thinking that the price of oil is just too volatile to base the future of their economies on?

The problem is that oil is just too damn convenient and so much infrastructure is already based around it. So it will probably take a number of such shocks for the nail of reality to drive into the brain of most institutions and individuals.

I think that oil will rebound a little quicker than that. I think it will hit around $100 a barrel by the end of 2010. A nasty winter could burn off a lot of it this winter. Next winter we go into the season with less cushion. Demand destruction can only go so far. We will still need to move things around and grow crops.

This depression is a great way to cool the demand for everything, but there is a point at which oil is a bargain. $55 might be it.

It will strongly depend on if we are entering an inflation depression or deflation depression. My bets are on deflation, at least for the US.

back below 50 today.

Impossible to tell what will happen. Deflation or inflation? I feel like a soccer goalie at a penalty kick. Will the ball go left or right? Will we have deflation or inflation? I keep looking at the shooter for an indication of which way it will be. Last week I was convinced that it was inflation, but this week I'm back to deflation.

I think I'll just stay right here in the middle until we know.

We might be heading towards a new catch phrase: Peak Supply. Or not. It will depend on OPEC’s ability to finally become a true cartel. Or not. Latest independent trackers show exports are down but Iran and Venezuela are likely cheating and producing twice their quotas. The KSA is starting to issue some threats. I saw one report where they referred back to 1998 when they again punished cheaters and opened their valves which drove oil down to almost $10/bbl. Once again we get to watch this high stakes game of chicken. The KSA certainly now has sufficient capacity to flood the market and drive prices down even further. But will they? OPEC is calling for another rate decrease but the KSA has stated publicly that they won’t cut back until they verify compliance by other members.

I make no predictions. But I think the KSA has shown in the past that they don’t bluff when it comes to threats of flooding the market. They did the same in 1986 and drove oil down to $10/bbl. Again in 1998. The KSA says $75/bbl seems like a good price. After $147 it might not sound too bad to many of us. But that would still raise crude costs by about 50% over the $50 level we’ve been floating around. That would also roughly match the average 2007 price which generated much unanticipated income for the exporters. Even if demand destruction keeps consumption rates down, if OPEC can finally master self discipline we might see sustained higher prices. At that time PO (maximum oil production capacity) might not be as important as PS (maximum oil rates allowed). I figure we’ll have a good idea of which chicken blinks first in about 5 or 6 months from today,

DalefromCalgary said:



The economic output of a society is directly proportional to the energy input. This was validated by Cleveland. The Total Available Energy curve is the energy from oil that has, is and will be input. As the ERoEI decreases the energy input decreases, and economic activity decreases.

Economic activity (Total Available Energy) declines before the occurrence of production declines. The economy will contract before oil production contracts.

Here is a road map to the future:


Available Energy

Extrapolate this curve to world output by dividing parameters by 0.54

Same, maybe not quite that high, but I didn't trust the analysis behind prices going up to 147. anymore than I trust the reasoning behind it firming at around 50. Doesn't pass the sniff test.