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Peak Demand Theory Pt. 1

General discussions of the systemic, societal and civilisational effects of depletion.

Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby GoghGoner » Mon 16 Nov 2015, 11:56:04

The OP could also ask what prices other commodities will fall to. It is important to remember that oil is just another commodity in the cycle that is playing out. Copper tends to lead if I remember right so oil prices could fall quite a bit more (not predicting, just allowing for the possibility).

http://www.brecorder.com/markets/commodities/europe/261468-demand-fears-push-copper-to-lowest-in-more-than-six-years.html

Copper prices fell to their lowest in more than six years on Monday in a sell-off triggered by the attacks in Paris, a stronger dollar and poor demand prospects in top consumer China.
Benchmark copper on the London Metal Exchange slid as low as $4,700 a tonne in early trading, its lowest since June 2009. The metal used in power and construction was down 2.5 percent at $4,705 at 1503 GMT.
Risky assets, such as commodities and equities, came under pressure as investors turned to safer assets, such as the dollar, after suspected Islamist militants launched coordinated attacks across Paris.
"We're struggling to see light at the end of the tunnel, things aren't getting any better in China, we can't see what is going to turn things around for industrial metals," Cantor Fitzgerald analyst Asa Bridle said.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Plantagenet » Mon 16 Nov 2015, 14:11:13

Oil drops into the high 30s

oil-weakness-accelerates-slams-opec-export-price-below-40-first-time-feb-2009

You'd think the terror attack in Paris would boost put a risk premium on the oil price and jack it up, but the overhang in supply is so great its broken through 40.

Look out below!

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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Cog » Mon 16 Nov 2015, 15:46:28

Plantagenet wrote:Oil drops into the high 30s

oil-weakness-accelerates-slams-opec-export-price-below-40-first-time-feb-2009

You'd think the terror attack in Paris would boost put a risk premium on the oil price and jack it up, but the overhang in supply is so great its broken through 40.

Look out below!


And Obama wants to sell oil out of the SPR now? :oops:
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Pops » Mon 16 Nov 2015, 16:07:15

Here is a great chart and explainer from Berman:

Image
Quantitative Easing, the increase in the U.S. money supply and artificially low interest rates resulted in a weaker U.S. dollar that was a contributing factor to higher oil prices after 2008 (an OPEC production cut in early 2009 was another important factor). The end of QE in mid-2014 and a resulting stronger U.S. dollar corresponded with the collapse in world oil prices (Figure 5).


Regardless of anything else that is going on, oil continues to be sold in dollars. As long as the dollar continues upward in value, oil must continue down. There is also a huge overhang ($4-5 Trillion) of 2nd world debt out there that was brought about the low interest rates in the US (QE) forcing money elsewhere to get a return. That debt gets bigger and bigger (it is in dollars, which are getting more expensive) so it will come under greater and greater pressure... and like oil right now it's value will fall

Deflation is dollars getting more expensive and assets getting less so...
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby ROCKMAN » Mon 16 Nov 2015, 20:37:16

Pops - "Desire" was your word...not mine. I still stick with demand and supply.

And you still didn't answer the question: based upon YOUR definition what is the demand = desire + ability to pay
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby ralfy » Mon 16 Nov 2015, 21:23:37

ROCKMAN wrote:Pops - OK...let's go with your definition: demand = desire + ability to pay. I'll fill in part of your equation: currently consumers have the "ability to pay" for around 91 mm bopd...the current consumption. Now you plug in your number for how much the consumers "desire" and add it. Then we'll have your estimate for the current global "demand". Can't wait to see what that number especially since it has to exceed current production: IOW current demand must exceed the current supply of oil y your definition. Either that or you believe that there is ZERO desire by all the people to buy more oil then they are currently. In which case demand = ability to pay.

Cog - I hate being the one to break it you, bro. But you ain't the center of the universe. LOL. Neither are all the other folks who still can't afford to buy a car and even those folks with cars that can't afford to buy more motor fuel even though it has gotten cheaper. I'm taking about the MILLIONS of cars being bought today by folks who have never owned one...folks who have never bought a gallon of gasoline/diesel who are now buying tens of millions of gallons.

Ralfy - And one should consider the millions of folks (like millions of Chinese) who can now afford motorized transportation thanks to the drop in oil prices coupled with the all time record high global oil production. But you inadvertently help make one of my points: if oil prices were to fall to around $25/bbl we may actually see a shortage of oil production when demand from all those potential new buyers that couldn't afford $45/bbl oil exceeds the max production rate of the global producers.


It was actually meant to support your argument. That is, a growing global middle class but also low levels of disposable income for most.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby ROCKMAN » Mon 16 Nov 2015, 21:31:04

Sorry ralfy...was reading to fast. Your support wasn't inadvertent. Thanks
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby GoghGoner » Tue 17 Nov 2015, 09:03:35

Pops wrote:Regardless of anything else that is going on, oil continues to be sold in dollars. As long as the dollar continues upward in value, oil must continue down.


Lithium is prices in dollars but continues to increase in price, same with tea, etc... The value of the dollar obviously has an effect, however, it does not explain anything in itself.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Pops » Tue 17 Nov 2015, 09:14:14

ROCKMAN wrote:Pops - "Desire" was your word...not mine. I still stick with demand and supply.

And you still didn't answer the question: based upon YOUR definition what is the demand = desire + ability to pay

When you say that "the amount of oil being sold (demand) equals the amount of oil being sold (supply) you aren't describing supply and demand because you're ignoring price on both the consumer end and supplier end. If supply always meets demand why even bring it up? Why even talk about peak oil if demand will always equal supply? Why not just say POD and be done?

investopedia:
The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price.

Google excess demand / excess supply to see how supply and demand can be out of balance.

To answer the question of what I think demand is right now takes a little more than just quoting the amount sold. Which is why this question keeps coming around...
My WAG at this very moment is oversupply is depressing the price, easing ability to pay, allowing desire to run rampant-ish.

Price is about the post-OPEC average though still double the long term average.

Consumption is growing, albeit slowly.

Stocks are large - Days of Supply haven't been this high since '85

The problem down the road isn't demand at this price, it seems to be supply at this price.
But hey we all know supply is just supply and doesn't respond to price, resources, costs or any of that other economic blather.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Pops » Tue 17 Nov 2015, 09:18:04

GoghGoner wrote:
Pops wrote:Regardless of anything else that is going on, oil continues to be sold in dollars. As long as the dollar continues upward in value, oil must continue down.


Lithium is prices in dollars but continues to increase in price, same with tea, etc... The value of the dollar obviously has an effect, however, it does not explain anything in itself.

Oil is still sold using dollars pretty exclusively, Petrodollars and all that
Is lithium always sold in dollars?
I don't know.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby ennui2 » Tue 17 Nov 2015, 10:54:37

Iran is set to add half a million barrels a day to the markets despite the glut.

http://www.nytimes.com/aponline/2015/11 ... .html?_r=0

The glut may not last but for the immediate future it's very hard to talk about depletion as any sort of immediate concern.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Subjectivist » Tue 17 Nov 2015, 11:06:24

Here is the thing though, if all the available storage is full will Iran even be able to sell its additional oil into the market? It seems obvious when anyone sells oil it either gets refined and burned, or put into storage. Once storage is filled to capacity the producers will be limited to selling at the actual consumption rate, because there won't be any where left to store an excess purchase.

That would create a buyers market where the sellers are forced to cut prices and compete for the limited demand for daily consumption. Granted a great many barrels are consumed each day, but if the producers pull out 92 million bbl/d and the consumers only need 91.5 million bbl/d that last 500,000/bbl/d will have to stay in the ground somewhere.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Pops » Tue 17 Nov 2015, 11:14:52

here is IEAs guess of the balance next year showing Iran as red:

Image
https://www.iea.org/oilmarketreport/omr ... entreport/
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Plantagenet » Tue 17 Nov 2015, 12:11:58

Pops wrote:here is IEAs guess of the balance next year showing Iran as red:

Image
https://www.iea.org/oilmarketreport/omr ... entreport/


The chart shows Iran adding only about 250,000 bbls a day to global supply by the end of 2016.

This seems modest.

The Iranians themselves are projecting exporting about a million bbls/day by the end of 2016.

Iranian Oil Minister Bijan Namdar Zanganeh says the country can increase exports by 500,000 barrels a day as soon as sanctions are lifted, then an additional 500,000 a day in the following six months.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Pops » Tue 17 Nov 2015, 12:40:03

net total supply increase
which includes reductions elsewhere, namely LTO
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby GoghGoner » Tue 17 Nov 2015, 13:49:58

Pops wrote:
GoghGoner wrote:
Pops wrote:Regardless of anything else that is going on, oil continues to be sold in dollars. As long as the dollar continues upward in value, oil must continue down.


Lithium is prices in dollars but continues to increase in price, same with tea, etc... The value of the dollar obviously has an effect, however, it does not explain anything in itself.

Oil is still sold using dollars pretty exclusively, Petrodollars and all that
Is lithium always sold in dollars?
I don't know.


Here are some sound reasons why a relationship exists between oil price and USD. If you read the article, you can see that LTO broke the relationship b/w 2012-2014 but the correlation returned at the end of 2014. I don't think the end of QE had much to do with the current glut and cratering oil prices so I think the return to correlation was just coincidence. Now, if LTO really does decrease then we should see a return to correlation for the reasons listed below.

http://www.efxnews.com/story/26455/how-usd-oil-prices-relate-what-means-eurusd-nordea

Theory? Usually studies find causation to be from oil prices to the USD. Other times, both ways. Why does this relationship exist?

1. Reserve diversification. As oil producers, worlds’ major reserve holders, accumulate USD (on higher oil prices), they diversify into EUR (second largest reserve currency) and other FX. This has been the trend over the past few decades. This trend has paused somewhat over the past few years, to USD benefit.

2. Global growth prospects. Oil prices decline on growth prospects worsening: notably, the EMU, China, other EMs recently – which, simultaneously force people to buy the US Treasuries, the largest “safe” government market in the world. Hence the USD demand, and strength.

3. Monetary policy. The US Fed, the central bank of the USD, world’s major reserve currency, finishes tapering in October and is mulling policy tightening next year. Expectation of higher interest rates is good for the USD here and now, but… less inflation and less growth ahead is discounted in the current oil price. Shall I continue? Ok, thanks. Then back to empirics.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby pstarr » Tue 17 Nov 2015, 13:54:29

ROCKMAN wrote:Pops - "Desire" was your word...not mine. I still stick with demand and supply.

And you still didn't answer the question: based upon YOUR definition what is the demand = desire + ability to pay

As Pops seems unable or unwilling to quantify the desire component. I will try for him: it is the difference between supply and demand, excess production as measured by capacity or storage. That is the total amount of petroleum sitting idle in pipelines, refineries, tankers, and Saudi Arabian oil reservoirs that has not found a market because the desire is not strong enough.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Pops » Tue 17 Nov 2015, 14:40:12

Goner, I couldn't really grasp what the article was saying. I'm not thinking about the price of WTI in dollars, the value of the dollar doesn't really affect me, I get paid and spend them just about the same. I'm thinking about everyone else.

In my little mind, if I pay for my dollar-denominated oil in seashells but the value of seashells compared to dollars has fallen, don't I feel like the price of oil has increased? Even if the price in dollars hasn't?
I didn't get a raise, didn't get any more shells, yet it takes more to pay for oil.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby ennui2 » Tue 17 Nov 2015, 15:15:55

pstarr wrote:As Pops seems unable or unwilling to quantify the desire component.


That's because to truly quantify it you need to be clairvoyant. Desire is an emotional/psychological thing. Therefore it's ripe for doomers to use their imagination to claim they know what this or that group really desires, which is being denied by their revisionist definition of peak-oil doom that is somehow inclusive of <$40 oil.

The real way to measure unmet demand is something like this:

Image

But to construct a narrative in which <$2 gallon gas at the pump is somehow still a pain-point is laughable.
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Re: Peak Demand: could oil fall to $25 a barrel?

Unread postby Pops » Tue 17 Nov 2015, 15:36:33

pstarr wrote:
ROCKMAN wrote:Pops - "Desire" was your word...not mine. I still stick with demand and supply.

And you still didn't answer the question: based upon YOUR definition what is the demand = desire + ability to pay

As Pops seems unable or unwilling to quantify the desire component. I will try for him: it is the difference between supply and demand, excess production as measured by capacity or storage. That is the total amount of petroleum sitting idle in pipelines, refineries, tankers, and Saudi Arabian oil reservoirs that has not found a market because the desire is not strong enough.

I didn't quote a number because it is not a fixed amount. There is no number for desire, no number for ability, they constitute a scale: at 1¢/gallon I want this much gas, at $1,000/gal I want this much.

Demand is a function of price, just as is supply. The market is a constant auction that figures out what the price should be based on utility and availability. Obviously there is a similar scale for production, supply will be certain amount at 1¢/gallon and a different amount at $1,000/gal

"Desire" x "ability" is just a way to understand why demand is what it is.

Are we at "Peak Demand?" If so is it because we don't want more or can't pay more?

peak demand could mean the cost of energy is now more than the economic utility the energy delivers.
Revi thinks so, short is selling something he claims can prove it, I think Pete thinks so.


Or copious and Graeme might argue that we are at peak demand because: CAFE and car pooling and PV?

Or JD might say price is low because PO is bunk and demand being soft is unrelated

OR... maybe this simply overproduction? Like all the busts that followed all the booms before?

Or gasp! a combination of factors
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