THE Price of Crude pt 4 (merged) Archived

[Peleg]

I'm going to venture to guess a peak this year of $181. I now think that G Sachs was right at a $141 average for the second half, so that means a big spike by Labor Day and then a retrace into the $130 or $125 mark before rallying on bad news in the fall and getting read oil-mageddon next summer.

The graph looks like this


_. <- $181 (?) Labor Day - Gas >= $5.60 unleaded (US average)
_._.
_. _.
_. _.
_. _.
--------------------------------------------------------------------------------
_. __. average
_. __.__trading band_________________._______.
_. __._________________________.
_. ___.__________________.
--------------------------------------------------------------------------------
_.____._____________.
_._________.___. <- deep retrace
. <- $100 (?)


The long term trend is still going to be slightly up but the spike get's the message across and the American economy starts contracting fast. China and India will still eek out some growth for a couple years but not the phenomenal growth we have seen over the last decade or so.

Now I am being kind to the typical summer moves there, by only letting peak oil dominate it in that fashion. it could be that we see a spike this coming week, in garish display of fear and insider trading when early news of the coming oil field report starts to leak out. We could blow through $150 on Monday and be flirting with $180 by Friday on a mixture of concerns.

This increased volatility should not surprise anyone. The bigger the stakes the bigger the fear premium, the bigger the variation.

[wisconsin_cur]

Yes, even here in the UK with petrol/diesel price well over $10 a gallon you see huge traffic jams full of SUVs and Land Rovers with their engines going. Demand isn't going to go down fast soon. And if they magically all got small cars then someone in China will make that conserved energy up in no time.

Britons also live in a country the size of Kansas with excellent public transportation. Higher prices will affect the suburbs of America, soccer moms, and the delivery industry more profoundly here than in Europe.

At some level you are right but what exactly would this effect on America have on Europe? Events will unfold like a chain. Some links will come under more stress (ie the USA) but it is weaker links that will break (maybe all of them? maybe the US maybe even "enlightened" Europe?.) Britain is as dependent upon food imports as anyone and France has trouble with its diversity even when times are fat we could go on.

Not trying to minimize how much trouble is coming on the USA but your fooling yourself (where ever you are) if you take solace in the fact that "the USA will hurt more than us."

[Peepers]

Duplicate message. Please delete.

[Twilight]

I think the biggest difference is proximity to amenities and road freight miles travelled. No-one in a British city or suburb has to drive to buy food or other essential goods. I think a lot of people just find it convenient to drive a couple of miles out then back instead of walking them, and doing their week's shopping in one or two trips. Even then, there is often the choice of walking to a smaller neighbourhood store down the road, which tends to be more expensive but might cut a four mile walk or drive to just one. The supermarkets have not killed off the small shopkeeper just yet, or the small franchise stores, which in past downturns have just gone through changes of ownership and become more seedy. Only out in the country are living arrangements not walkable. As for road freight miles travelled, self-explanatory really. The UK is a small place, the distance from port to warehouse to store is covered in an energy-intensive manner, but no more so than crossing a single American state. What is more, from looking at country of origin labels, much of the essential goods we do import are from France and Spain. We are not talking the other side of the continent here.

There are unfortunate similarities of course. Long commutes being one. In spite of our public transport, it is common enough for people to spend an hour or two in traffic every day for the same general economic principles to apply here - at what point does a commute make some people's jobs loss-making? A Briton may drive a car with more than twice the mileage, but with the cost of fuel more than twice as high, two hours in traffic every day puts him fundamentally in the same boat as many Americans, if he does not then benefit from the taxes paid. Having said that, the typical commute is probably considerably shorter, enough for those SUV owners to absorb an additional dollar in the pre-tax fuel price. So what surprisingly works at $10 might not work so well at $11. I expect we will know that within a year.

That is the way I see it. Our living arrangements just have a higher threshold of pain, which if exceeded will be exceeded at a later date. We have bought our SUV owners an extra couple of years of happy motoring. And it is not as immediately apparent what will break. I have been thinking about this, and suspect our resilience is obscuring our vulnerabilities.

[Peepers]

I really worry about the folks dependent on heating oil. At least during the summer-if you can at all possible sit by a window fan or under a tree with a nice cold beverage, but winter is coming.....

I agree. I'm a journalist in Cleveland and had the opportunity to hear ASPO's Tom Whipple give a presentation to the National League of Cities' Steering Committee on Energy, Environment and Natural Resources. The NLC committee met here May 30, but unfortunately I was the only reporter in the room to hear Mr. Whipple. During his presentation and my interview of him afterward, he had many interesting things to say. Among them, that heating oil/diesel fuel (they're kissing cousins) are likely to be in shortage as early as this winter, but more likely next winter. I wasn't aware that diesel can't be made very easily from sour crudes.

Based on tanker and reserves data, he also felt that the net-export crisis would start to emerge "within six months." Thus even if we weren't passing geological peak oil at that time, we would be passing the practical peak. In the end, practical is all that matters from a consumer's point of view.

By the way, Tom Whipple is a very nice man. I didn't know he was a retired CIA analyst!

[MD]

It all depends on how much economic destruction occurs. It's going to take a lot to see cheap oil again.

Agreed. Either way, we don't win. Economic destruction or sky-high energy and food costs. Some choice.

Faced with that choice, some economic subsystems will attempt to destroy other subsystems without disrupting their own. It's inevitable.

Many of those plans won't execute well.

[arretium]

I believe the breaking point comes when decline out paces demand destruction. That could come very soon I think. That is the point where even at higher prices we begin to see shortages I believe, even in first world countries. That is when the real chaos and panic set in.
The above concept is very difficult if not impossible to explain to someone who has not been looking at this issue for a long time. We only get it here because of the wealth of information and explanation from all of our more knowledgeable members. This phase is just the appetizer.

I believe you will see shortages. But, not do due to free market principles. I believe oil finder is correct in theory. The problem is there is no true free market nor will there ever be. Even here in the U.S., the Gov't will ensure it gets its supply even if it refuses to pay market prices. They'll just order sellers to sell it to them at the price the U.S. Gov't will pay.

That's where we'll see shortages in the form of some purchases (like Gov'ts) buying oil based products at lower prices than the rest of us, thereby causing increases in price for the rest of us to compensate. But, meanwhile, price controls will be instituted regulating the price at which sellers can sell oil products and viola (sp?): shortages.

[Dan1195]

Ultimately the medium term question becomes are we already in middle of the "final price spike". This I define as where, assuming no major shocks due to artificial supply constriction occur, the price of oil rises relentlessly never again falling below the 200 day moving average which rises upward continuously. This process never stopping until either oil is capped in price and rationed or the worlds economy crashes and burns enough that total world oil demand and world import demand drops more than available supple and exports stabilizing the price. A third option, where replacement technology is a significant factor in stabilizing the price I don't believe is a viable option of now.

[shortonoil]

DantesPeak said:

I agree. Also our common assumption here is that supplies and prices will transition smoothly, but not at an aburpt or rapid pace. All traditional models as to what will happen here become moot when a discontinous or unanticipated event shows up.

Those familiar with the Available Energy model that I posted her about six months ago will probably also remember that I predicted that oil would peak at $175; the balancing point between a world economy declining at 3.5 to 5% and its available energy decline.

The problem with this model is that it is based on what happened in the Continental Lower US 48 states. The US had the advantage of increasing imports to balance out declining domestic production. A world wide energy peak could have Black Swan effects that we can’t even image.

The only thing that we can be relatively sure of is that oil will not peak below $175. After that it becomes as DantesPeak has said, it will: “become moot when a discontinous or unanticipated event shows up.”

[Cashmere]

Just when you thought it was safe to get back in the oil slick . . . Wow. It seems as though the big money was looking for any excuse to get back into oil. Slide down to 100 on hold. At least for now.

[OilFinder2]

Sorry, your rally was short-lived. Down $2.69 today.

[bl00k]

CNN

Democratic lawmakers criticize a recent Commodity Futures Trading Commission report downplaying speculators' role in high oil prices.
WASHINGTON (AP) -- Democratic senators say a government report issued last month on oil prices was based on flawed information. They're asking for an investigation into the matter.

In a letter Thursday to the inspector general of the Commodity Futures Trading Commission, four senators criticized an interim study that said fundamental supply-and-demand factors were to blame for the run-up in oil prices. The study played down the role of speculation. The senators said the study was based on inaccurate data and they questioned the timing of its release.

The study was issued a few days before the Senate voted not to move forward on legislation that would have required the commission to set limits on trading in oil markets by investors and speculators.

Don't really know what to think of this...

[Plantagenet]

CNN

Democratic lawmakers criticize a recent Commodity Futures Trading Commission report downplaying speculators' role in high oil prices.
WASHINGTON (AP) -- Democratic senators say a government report issued last month on oil prices was based on flawed information. They're asking for an investigation into the matter.
In a letter Thursday to the inspector general of the Commodity Futures Trading Commission, four senators criticized an interim study that said fundamental supply-and-demand factors were to blame for the run-up in oil prices. The study played down the role of speculation. The senators said the study was based on inaccurate data and they questioned the timing of its release.
The study was issued a few days before the Senate voted not to move forward on legislation that would have required the commission to set limits on trading in oil markets by investors and speculators.

Don't really know what to think of this...

Its pretty obvious.....The democrats are convinced that speculators are the cause of high oil prices, no matter what the actual data says.

[Cochise]

Its pretty obvious.....The democrats are convinced that speculators are the cause of high oil prices, no matter what the actual data says.

I am not a dem, but i know many of them, and for the most part they are NOT convinced that speculators are the cause of high oil prices. Your comment is therefore rendered totally useless.

[joeltrout]

Its pretty obvious.....The democrats are convinced that speculators are the cause of high oil prices, no matter what the actual data say.

I am not a dem, but i know many of them, and for the most part they are NOT convinced that speculators are the cause of high oil prices. Your comment is therefore rendered totally useless.

Location: LA

Does that mean you from Los Angeles, Louisiana, or elsewhere???
Here in Los Angeles most all of my friends believe it is speculators.
joeltrout

[Cochise]

@ jeltrout i live in LA. the most people i know think that the high gas prices are here to stay and that they are the result higher demand/shorter supply.
These people are more o less evenly distributed between dems and reps. Maybe i am unconsciously picking people that are similar minded to me , who knows...

[shortonoil]

Plantagenet said:

Its pretty obvious.....The democrats are convinced that speculators are the cause of high oil prices, no matter what the actual data say.

Well we can’t let a few facts get in the way. Facts like shorts and longs are usually about even so they cancel out, and to move prices upward the speculators would have to store the product to prevent it from going back onto the market at present market prices. Know anyone with 600 mb stored in their garage?

Washington thinks that it has to play the game that makes them look they are doing something about the problem, when in reality that can’t do a dam thing. This is one of biggest obstacles we have to addressing the PO problem; stupid, short sighted, self serving politicians!

[Cashmere]

Can you picture these ignoramuses on the Titanic:

"We don't believe the results of the study that say that taking on water is the cause of the current sinking. We're forming a commission to look into it.

Talk about a goose chase.

[Twilight]

They got an answer they did not like and want a second opinion in the hope that it will be different. What is more, if the second opinion does turn out to be different, they will accept it without questioning the inconsistency.

[JohnDenver]

There's no need to do studies, or argue the question theoretically. The most efficient approach is simply to run the experiment. Force the long-only roll-every-month index traders to liquidate, and see what happens to the price.

The experiment has already been done once, and the results were outstanding. In 2006, index speculators were forced to sell $6 billion worth of rolling long positions in gasoline due to a rejuggling of the composition of the GSCI, and gasoline prices fell $0.82 in four weeks.

Of course, you guys might be right. Long-only roll-every-month index speculators may be having no impact at all on the price. If that's true, then nothing whatsoever will happen when we force them out of the market -- i.e. there won't be any negative affects. So we don't have anything to lose by trying.