Posted: Sun May 18, 2008 11:42 am Post subject: Re: Another Record ($127.79)
Homesteader wrote:
threadbear wrote:
Homesteader wrote:
Some years ago now, if memory serves, didn't natural gas prices in CA increase 400% due to a 4% decrease in supply?
No, the slight decrease of 4% was capitalized on by Enron, who had captured control of the nat gas market, in an energy market that had been recently deregulated. There is much more to the oil and commodity market run up than meets the eye.
Salon:
"Feinstein reported that Enron controlled 50 to 70 percent of the trading market for natural gas deliveries into Southern California from May 2000 to June 2001, and it did so through bilateral sales, which require no public disclosure of their details.
Natural gas prices drive electricity prices, and California energy prices went through the roof, from $7 billion in 1999 to $28 billion in 2000 and $27.7 billion in 2001."
Yes, I remembered that it was engineered by Enron. However, couldnt that situation be used to support parabolic price increases can be caused by slight decreases in supply? Basically supporting evidence for dohboi's post above.
I know I'm out of my league here. However, dohboi made what appears to my untrained eyes a pretty compelling argument.
Certainly. It explains how deregulation of these markets has a hugely distorting effect.
Joined: Apr 05, 2007 Posts: 155 Location: Great Britain
Posted: Sun May 18, 2008 1:28 pm Post subject: Re: Another Record ($127.79)
It would only become hyperbolic and then unpurchasable if there was no reaction to the price via oil demand. i.e. it is a contradiction in terms to have something available but unpurchasable as that would defeat the objective of the seller of making a profit! come on people lets have some practical sense here otherwise we are just embarassing ourselves.
So the real question is at what price will oil cause sufficient demand destruction to bring demand and supply back into balance? I don't know!
What I do know is even in the UK which due to energy taxes petrol has only increased by c.20% to c.$9 per gallon people have become a very small shift to the public transport system/cycling/walking etc. So there is real capacity to to shift which I would expect when oil hits $300-400 (my guess at when petrol goes to $12+ in the USA)
There is unfortunately also a real level of near unshiftable demand which would then cause a second wave of prices rises as supply falls below the reduced level of demand due to the shiftable demand alluded to above. It will be this second wave that countries need to mitigate for now (the first wave prices increases are frankly unavoidable) in order to facilitate a calmer shift into a post oil world. The question is how long do we have for this - that question will only be answered by seeing what demand is at $300-400 and working out what spare capacity is left (my view is oil producers will not look to increase supply even if they could) it would then be a case of calculating the number of months/years (I hope!) remain before this excess is used up to stop production falling.
my pure best guess?
to get to $350 - three years
spare capacity - two years
Total - five years to switch car production to high efficiency and electric cars/ max out on solar/wind/wave and avoid a stepchange event......not overly long people...
Last edited by Smudger on Mon May 19, 2008 3:40 am; edited 1 time in total
Joined: Mar 07, 2007 Posts: 359 Location: Holland, United Kingdom (of the seven Netherlands)
Posted: Sun May 18, 2008 1:30 pm Post subject: Re: Another Record ($127.79)
Exponential growth seems about right. I had a picture drawn in 2007 which displayed 10% price increases each year since 1998. That picture is still valid today.
Joined: Oct 23, 2004 Posts: 5913 Location: New Jersey
Posted: Sun May 18, 2008 2:09 pm Post subject: Re: Another Record ($127.79)
Smudger wrote:
It would only become hyperbolic and then unpurchasable if there was no reaction to the price via oil demand.
There are supply, demand, and price controls in many countries in the world. These controls have increased demand over market clearing levels that would normally be set by price. It appears the third world plan is to subsidize energy to some extent, but after that if the price keeps rising, they will just not import or use any more. The net shortages will occur in those countries first.
Posted: Sun May 18, 2008 5:57 pm Post subject: Re: Another Record ($127.79)
Well, somebody had to come up with the equivalent of "the magic of the market will solve everything."
Hyperinflation has happened many times. It is not outside of the realm of economic possibility. And we are seeing here a once-in-history event--the peaking and inexorable decline of the basic fuel that moves us and our stuff around, grows our food and gets it to market, heats many of our homes, makes a great many of our products (including the shells of the computers we are all reading these threads on)...
This is not a normal economic event. Demand destruction will happen and is happening=lots of people are and more will be doing without, including (already) doing without food. So demand can be destroyed, and people can be destroyed, but currency can't? All my model predicts is that purchase of oil with dollars will become meaningless soon. Anyone following Dante and others posts on what's happening to the dollar will not be surprised by the idea that the world, including the oil-proucing world, may soon see it as a meaningless currency.
And, by the way, I forgot another obvious feedback loop--further increases in resource wars. These both suck up more resources themselves, and they tend to destroy infrastructure and personel necessary for extraction, and of course destabilize entire regions indefinitely, as we have recently seen. Does anyone think that the US and others won't be tempted to find excuses to go to war with countries that just happen to have our oil under their sands (or jungles, or oceans...)?
Having said all that, I pray to the heavens that smudger is right and that my scenario is a "contraction in terms." But we have seen a long parade of economists come through these threads pointing out how their precious theories prove that oil prices cannot continue to rise past this or that point, only to be shown by logic and by events that they were, sadly, wrong. Perhaps this time they'll be right. I do hope so. Unfortunately, I have a sinking feeling that even if they are, I and most that I know will be included in the "destruction" side of demand destruction.
Posted: Sun May 18, 2008 6:45 pm Post subject: Re: Another Record ($127.79)
Oh, and do see the neighboring thread on increased corrosion problems pointed out by Simmons. As others have pointed out, the further down we go on the slope, the more acidic the product which of course means it eats away at the equipment more rapidly, equipment made for the more ph neutral light, sweet crude. Replacing all that infrastructure would cost trillions, if it's even possible at this point.
Maybe we need a whole new thread on the feedbacks that could accellerate the price curve of oil in the near future?
Posted: Sun May 18, 2008 8:29 pm Post subject: Re: Another Record ($127.79)
Let me be try to be clearer on my reply to Smudger. He is right to point out that demand destruction is at least this negative feedback to the multiple positive feedbacks driving prices upwards.
But like the poor (in fact, equivalent to the rapidly expanding numbers of the poor), demand destructions is always with us and has always been. Yet it has had no measurable effect in dampening the exponential growth in oil prices we have witnessed over the past eight years. Why should it now play any more of a roll.
It is as if economists just have this one-horse show--demand destruction/stimulation of supply--that they say is all powerful and will always have the same result--lowering or stabilizing of prices. These have worked very well in certain markets, especially in an era when energy was ever more available and could be expected to be ever more available.
That era is now over.
The "positive" feed backs I mentioned and the simple geological fact of depletion are proving far more powerful than the much-touted mechanisms of neo-classical economics.
If it weren't so terrible, it would be interesting to see what if any models and ideas developed on the up-slope of energy availability will work on the down slope. I fear it will be very few.
Joined: Apr 16, 2008 Posts: 121 Location: Western PA, USA
Posted: Mon May 19, 2008 12:46 am Post subject: Re: Another Record ($127.79)
Well, that graph kinda shoots that whole demand destruction thing out the water, when oil production apparently rose sharply from the mid 1930s on, which is impressive considering the deep depression we were in at the time. So if a depression did not drop demand in that case, then what would? I do know that increased production does not necessarily always mean higher demand, but why increase production if demand is flat or down?
Posted: Mon May 19, 2008 1:14 am Post subject: Re: Another Record ($127.79)
Forney2008 wrote:
So if a depression did not drop demand in that case, then what would?
High prices. After oil skyrocketed around 1980 it took over a decade to reach the same level of consumption seen before. Keeping in mind that was a spike that only lasted a few years, if we are at peak and oil stays this higher or higher, I imagine that after a similar pause, demand will drop and not return. _________________
Joined: Apr 05, 2005 Posts: 2472 Location: South of Atlanta
Posted: Mon May 19, 2008 2:20 am Post subject: Re: Another Record ($127.79)
Smudger wrote:
Total - five years to switch car production to high efficiency and electric cars/ max out on solar/wind/wave and avoid a stepchange event......not overly long people...
I'm sorry but you have to be dreaming here. There is no way this could possibly happen so quickly. We dont even have a viable battery technology for this to occur yet.
Joined: Apr 05, 2007 Posts: 155 Location: Great Britain
Posted: Mon May 19, 2008 3:56 am Post subject: Re: Another Record ($127.79)
AirlinePilot wrote:
Smudger wrote:
Total - five years to switch car production to high efficiency and electric cars/ max out on solar/wind/wave and avoid a stepchange event......not overly long people...
I'm sorry but you have to be dreaming here. There is no way this could possibly happen so quickly. We dont even have a viable battery technology for this to occur yet.
...there was a touch of irony in my comment...
Dohboi - We are in very similar places. I believe the positive feedbacks are already beginning and will really go up a gear once supply starts falling. The usual demand/supply defences trotted out by economists increasingly do not have the stablaising effect in this market for the reasons you say. We are already at the point where supply can't really increase (to my mind) so you are now entirely reliant on demand destruction which can't happen etc etc. Our only difference is that I don't believe oil will get to the point where the price makes it unpurchasable simply becuase if there are no buyers the seller will simply drop the price to a point where some-one will buy it. The issue is that the price is likely to be very high meaning a lot of people in say Africa will have to look for alternatives and the extra disposable income in the US built up over the past century will now pass to the oil producers as the US centuary comes to an end. p.s. sorry yes meant contradiction and have changed.
On the great depression point, oil consumption in the US actually dropped massively. you have to remember that at the time the US was the swing producer for the world so was exporting oil across the world (note how imported oil dropped to almost nothing through the 1930's as it was not needed)
Posted: Mon May 19, 2008 10:00 am Post subject: Re: Another Record ($127.79)
Smudger wrote:
On the great depression point, oil consumption in the US actually dropped massively. you have to remember that at the time the US was the swing producer for the world so was exporting oil across the world (note how imported oil dropped to almost nothing through the 1930's as it was not needed)
"Massively" = ~30%?
Again, you can barely make out the Great Depression on the US consumption graph below.
Posted: Mon May 19, 2008 10:13 am Post subject: Re: Another Record ($127.79)
emersonbiggins wrote:
Smudger wrote:
On the great depression point, oil consumption in the US actually dropped massively. you have to remember that at the time the US was the swing producer for the world so was exporting oil across the world (note how imported oil dropped to almost nothing through the 1930's as it was not needed)
"Massively" = ~30%?
Again, you can barely make out the Great Depression on the US consumption graph below.
The market for oil was smaller then and most American's still used their cars for needs rather than wants. The Interstate Highway system did not even exist. Plus, the richest were not really touched by the depression (I mean the Morgan,s and Rothschilds.) I'm sure all of those things and more help to explain it. Referencing the depression era market to try to explain the post-peak global market is probably not verse. The price of oil must not have been as restrictive then as it is now.
The interesting point you bring up is why that would be true. _________________ I return to you now at the turning of the tide.
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