THE Price of Crude pt 4 (merged) Archived

[joewp]

Back in 2006, I posted the following price projection and was lambasted for my "hockey sticks" graph.

Us Cassandras are always lambasted or worse, since people just don't want to hear it. That's one heckuva graph, Geko. Can you extend it out a few more years and a few tens of dollars up?

[manu]

Good call Geko.
Gampy, maybe you should get into the morturary buisness. They should be really busy in the years to come. Better, the crematorium buisness.

[gampy]

Good call Geko.
Gampy, maybe you should get into the morturary buisness. They should be really busy in the years to come. Better, the crematorium buisness.

Lol...my back is fucked. Lifting caskets isn't an option. Sadly, my physical condition precludes any kind of "real" work.

I have found that being a cook is pretty recession proof, but if the shit really hits the fan, I wonder.

I suppose no one is safe. Except politicians. Well...maybe not, that could wind up being a very dangerous profession in a few years.

[Geko45]

Back in 2006, I posted the following price projection and was lambasted for my 'hockey sticks' graph.

Ah yes, it was Spartacus that was trying to explain to me how wrong I was. To bad he isn't active anymore. Seems like a lot of those 'unlimited growth' people aren't around anymore.

Here's the quote and original thread. Should be good for a laugh.

BP CEO says oil will fall as low as $25/bbl. Huh???

Geko45....I have been looking at price forecast charts for the last 25 years. Invariably they are 'hockey sticks' like yours. Try using a longer period (ie: pre 2000 and see what happens). According to pre-86 forecasts, oil price now should be a lot higher than it is.

Your curve-fit to the production data doesn't even have any science, and does not reflect new refinery capacity coming on stream.

Whilst I would agree that oil is a finite resource, I have difficulties with pseudo-science, particularly from MBA's. I got an MBA 15 years ago.....and most of the case studies I did then (ie: how great was Enron etc) show what a limited outlook those schools have in relation to free thought. It's all herd mentality.....like a lot of sheep. Individual thought (that doesn't agree with the lecturer) is likely to see you fail.

I never met a McKinsey person with an original thought.

The last paragraph of my response:

Then why do I have a 4.0 GPA when I am the only person in my cohort that thinks that we have a problem? During my presentation, I had to field all the usual red herring type questions. I was even asked about the 'giant' discovery off the coast of Louisiana which is now defunct. It sounds to me like you had a bad experience in your MBA program and are now projecting it onto me. I'm not here to deal with your emotional baggage. If you spent half your life living as a 'sheeple' then I'm sorry, but it's not my problem. I might have had some respect for your arguments if they had not turned into an ad hominem attack on MBAs.

[Micki]

No way. $3.00 diesel didn't stop any trucks... $5.00 diesel isn't slowing down very many trucks... and neither will $8.00 diesel. They'll just keep on a truckin' no matter what the price is... until there ain't no more diesel at any price. THAT will be what finally stops the trucks.

Hmmm...yes and no. Mainly No.
In an inflationary environment higher costs can get offset by higher income. But if supply doesn't match demand, price of that product will move ahead more until demand matches what is available.

And don't make the mistake of extrapolating last couple of years events into infinity. At some point you hit a breaking point. We don't know when...but it is there.
First few years, increasing costs can be worn by some companies, tightening the belts and increasing credit.
At some point none of this is going to work.

To illustrate it, let's use this as example.
Company A has increasing transport costs, but in order to stay competative in the market, has absorbed these costs.
Joe Sixpack with $0 savings already barely making even.

In the beginning Joe may(will) increase credit rather than tightening belt.
So when food costs and discretionary goes up, Joe takes this from credit card and from house equity.

Eventually he is juggling credit cards whilst costs keep moving up. He needs to tighten the belt. He cut's back on travel, magazines, christmas presents etc. In order to afford loans, driving and eating.

Meanwhile the companies have reached a level where share holders demand better gross margin on the businesses and/or competition has started dying off (less risk to increase prices). The company therefore decides to push the costs on to the customer.
Now prices jump further.

Next there is a supply crunch and oil prices double.
Joe is maxed out on credit, has resorted to eating instant noodles 5 days a week.

Are you suggesting he will now continue consuming AND driving?
If he stops (or cut's back) consuming, transportation will go down and slowing economy may lead to recessionary spiral.
Alternatively cut back on driving, so he can affort other consumption. Note, this cutting back is just so he can maintain the level of consumption he is used to, so overall oil consumption has gone down.

Now add in the increased cost for production and transportation of food. Can Joe afford this AND maintain consumption and driving?

Now let's assume there is another 10-20-90%, hike in prices whilst income is the same. ....You still don't think this will impact on consumption? Of course it will.

So yes, whilst the trucks will keep driving, there will be less and less of them.

Like with most things however, we just don't notice it until 1) we are affected ourselves or 2) it is in mainstream media.

[vision-master]

It's funny, I don't own a car, I walk and bike everywhere. I live in a relatively small city, but I know for a fact that I will probably lose my job once gasoline becomes so expensive that people will forgo fast food for gas.

I am exploring some way to find a job that will survive gas shortages, and high food prices.

Question is, what kind of job is safe in a depression?

People need to eat, but where will they eat in a depression? I am in a kind of transitional phase (career wise) and am trying to figure out what kind of trade, or skills might be indispensible in a serious economic clusterfuck.

I work in the "hospitality" industry at the moment. (I am a short order cook)

I wonder if people will be eating out much in the near future.

Railroad OR Corrections.

[Anjorni]

Who's Verleger? Last I heard, OPEC was blaming the US and the $ for $200 oil...

Reuters

Scapegoating? Possibly... but definately another justification other countries will now use for their 'basket pricing'.

This is going to get ugly real quick.

Reuters
OPEC president sees $200 oil possible: report
Monday April 28, 5:22 am ET

ALGIERS (Reuters) - OPEC President Chakib Khelil does not rule out oil prices reaching $200 a barrel, even though supply is adequate, because the market is driven by the dollar's slide, Algerian government newspaper El Moudjahid reported on Monday.

"Questioned about a possible rise which would go to $200, the minister did not rule out this eventuality, explaining that this rise is from now on indexed to the fall in the dollar or to the rise in the dollar," El Moudhajid reported.

"In terms of fundamentals, stocks are high, demand is easing, supply is satisfactory. Therefore normally, without geo-political problems and the fall of the dollar, the prices of oil would not be at this level," he was quoted as saying.

Khelil, a former World Bank official, is also Algeria's Minister of Energy and Mines.

He added: "The prices are high due to the fact of the recession in the United Sattes and the economic crisis which has touched several countries, a situation which has an effect on the devaluation of the dollar, and therefore each time the dollar falls one percent, the price of the barrel rises by $4, and of course vice versa," he was quoted as saying in brief remarks to journalists on Sunday.

[eastbay]

No way. $3.00 diesel didn't stop any trucks... $5.00 diesel isn't slowing down very many trucks... and neither will $8.00 diesel. They'll just keep on a truckin' no matter what the price is... until there ain't no more diesel at any price. THAT will be what finally stops the trucks.

So yes, whilst the trucks will keep driving, there will be less and less of them.

Exactly. Each day there will be fewer and fewer as the price climbs ever higher. We read about truckers, mostly interstate, parking their rigs all the time because they can't afford the fuel, but they reflect a small percentage overall. At $8.00 and $10.00 there will be plenty of trucks still on the road... but at some point worldwide diesel supply will shrink and then we'll see acres of idle trucks lined up because it won't be available at any price. That point isn't very far in the future either. I wonder where they'll all get parked? I bet there are no plans for this either. Where do we park 10 million semi's??

Oh man, great graph Geko. Wow. I'm guessing that in two years we're going to see some serious demand destruction if the middle line remains on course. Any chance you could update it to reflect 2009 and 2010 projections?

[Johnston]

It's funny, I don't own a car, I walk and bike everywhere. I live in a relatively small city, but I know for a fact that I will probably lose my job once gasoline becomes so expensive that people will forgo fast food for gas.

I am exploring some way to find a job that will survive gas shortages, and high food prices.

Question is, what kind of job is safe in a depression?

People need to eat, but where will they eat in a depression? I am in a kind of transitional phase (career wise) and am trying to figure out what kind of trade, or skills might be indispensible in a serious economic clusterfuck.

I work in the "hospitality" industry at the moment. (I am a short order cook)

I wonder if people will be eating out much in the near future.

Maybe fast food and eating out will be different in the years ahead, but your ability to prepare food will be valuable in the future.

Who knows, we might all just get rations of basic foodstuffs... and people like you will be able to make something appetizing out of it.

Remember of course that many people in today's society (eg. me) can't cook at all. After the crash we will be screwed, so I think your skills will count for something.

[Geko45]

Oh man, great graph Geko. Wow. I'm guessing that in two years we're going to see some serious demand destruction if the middle line remains on course. Any chance you could update it to reflect 2009 and 2010 projections?

I updated it with the most recent price data and pushed the scale out a couple of more years (and the dollar scale up a $100) and either my model is breaking down or we are in for one serious spike. I want to play with it more before posting an update, but the worst case scenario was crossing $200 in Jan of 2009 (pretty much like this article suggests). Gosh, I hope I'm wrong.

[DantesPeak]

Oh man, great graph Geko. Wow. I'm guessing that in two years we're going to see some serious demand destruction if the middle line remains on course. Any chance you could update it to reflect 2009 and 2010 projections?

I updated it with the most recent price data and pushed the scale out a couple of more years (and the dollar scale up a $100) and either my model is breaking down or we are in for one serious spike. I want to play with it more before posting an update, but the worst case scenario was crossing $200 in Jan of 2009 (pretty much like this article suggests). Gosh, I hope I'm wrong.

Well done.

I think there is a better than even chance we continue to move up the hyperbolic curve for the price of oil.

[CamelJockey]

possibly, after the election

[arretium]

If this is true, why have we not seen it yet? This article was written in 2000:
http://www.freerepublic.com/forum/a39ded01f0f37.htm

It's gonna happen next week!

[SoylentGreen]

that guy must be the laughing stock of that news agency....if he is still employed that is?

[TreeFarmer]

Take is easy guys, the $5/barrel oil is coming, it'll just be in very small barrels.


TF

[timmac]

A X director of public relations of Enron writes a story about $5.00 a barrel of oil coming soon,, looks as if this guy can still spin the stories and reports, just as Enron taught him,, by the way when was oil at $5 a barrel any way,, 1930's 40's 50's...

[midnight-gamer]

Don't you mean $5 a gallon?

[Plantagenet]

The Congress is going to enact a new $9 per barrel tax on domestic oil, so even if it did fall to $5 per barrel you'd have to add in the tax and would wind up at $14 per barrel.
---------
WASHINGTON - House Democrats next week will push to impose a new conservation fee on oil and natural gas taken from the Gulf of Mexico....
The bill calls for a $9 a barrel "resource conservation" fee on domestic oil, and a $1.25 per million Btu fee on natural gas .....

[cowuvula]

The Congress is going to enact a new $9 per barrel tax on domestic oil, so even if it did fall to $5 per barrel you'd have to add in the tax and would wind up at $14 per barrel.
---------
WASHINGTON - House Democrats next week will push to impose a new conservation fee on oil and natural gas taken from the Gulf of Mexico....
The bill calls for a $9 a barrel "resource conservation" fee on domestic oil, and a $1.25 per million Btu fee on natural gas .....

That will help Mr. middle class beer drinker.

Gas is almost as expensive as beer now.

[Micki]

That article is from 2000. Should we still wait or has inflation driven up the barrel cost to $6.50 now???