THE Price of Crude pt 4 (merged) Archived

[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???

[TheDude]

These little trips down memory lane are nice though. I sometimes check out the first few threads on forums here for a lark.

FreeRepublic.com has energy industry people chiming in occasionally, too, despite what Leanan said about them being a bunch of ultraconservative whack jobs.

[DantesPeak]

The energy analyst that has been associated with launching the concept of an oil 'superspike' says that oil is still on its way to $150 to $200 within 6 months. But after gasoline reaches as high as $5.75 a gallon in the US, high energy prices will cause demand to fall and the price of oil will drop back.

Based upon the current price of $139, this no longer seems a very scary proposition. Also, I don't agree with the idea that high prices will set in motion a process that will bring the price of oil back where it was before. We just won't end up this wild whirlwind ride back in the same spot where we started.

Goldman Oil Bull Speaks: Yes, Oil Still Going to $150-$200 A Barrel, Gas to $4-$6 (XOM) Henry Blodget | Jun 7, 08 8:38 AM :
The man who predicted the current oil "super-spike," Goldman's Arjun Murti, is smart enough not to let himself get photographed (in some idiot circles, Arjun is blamed for today's $138 a barrel), but he did consent to a long interview with Barron's this week. Bottom line, Murti's thesis that oil will spike to $150-$200 a barrel is perfectly reasonable. As is his belief that prices will thereafter crash.

Key points:
Unlike the 1970's oil spike, which was the result of a supply crunch (oil taken off the market), this move is demand driven: demand is increasing, supply isn't. Economics 101.
This is a spike, not a permanent move to $150-$200. At some point, probably soon, oil will reach a level that will severely crimp demand (translation: economies will collapse). At that point, prices will fall.
US demand is falling, but, so far, emerging market and other international demand has remained strong.
Oil will keep going up until demand shrinks. Increased supply won't save us.
$150-$200 oil means $4-$6 gas.
As long as $150-$200 oil permanently shrinks demand, oil prices will then drop to $75 a barrel.

Clusterstock

MONDAY, JUNE 9, 2008 INTERVIEW What Mr. Crude Oil Sees Ahead
Arjun N. Murti, Energy Analyst, Goldman Sachs By LAWRENCE C. STRAUSS:
AN INTERVIEW WITH ARJUN MURTI: Gas may have to hit $5.75 a gallon before consumption cools enough to take the heat off fuel prices.
IN 2004, ARJUN N. MURTI, A TOP ENERGY ANALYST AT GOLDMAN SACHS, published a report predicting "a potentially large upward spike in crude oil, natural gas and refining margins at some point this decade." It was a controversial call, with crude around $40 a barrel at the time. But it was right on the money.

Four years later, crude is trading around 139. Murti sees energy in the later stages of a "super spike," in which prices rise to a point where demand drops off. In a note last month, he wrote that "the possibility of $150-to-$200-per-barrel oil seems increasingly likely over the next six to 24 months."

With supply growth constrained and global demand staying strong, prices must rise further, in Murti's view. Barron's caught up with him last week in his New York office. The 39-year-old analyst doesn't give many interviews and keeps a low profile, preferring not to be photographed. But his strong views on energy have resonated across the financial markets.

Barron's: What do you make of Friday's big surge in oil prices?

Murti: There have been a number of bullish fundamental data points recently that contributed to the rally. These include further declines in U.S oil inventories announced June 4, the announcement of a decline in Russian oil production in May, and recent comments that Mexico expects further meaningful declines in oil production over the rest of this year.

Barrons


"We don't think the world has run out of oil. We do think [many producers] aren't on track to grow their supply aggressively." --Arjun Murti

[MD]

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

[yull]

Prices will only fall if demand falls faster than supply. That may be the case in the short term but once we are past peak and the 4% conservative decline sets in, demand will have to fall very sharply indeed. For importing countries of course exports will fall perhaps more like 6% a year and will accelerate. Then you take into account falling useful end product energy from a barrel (as more and more oil is heavy sour crude), and take into account falling EROEI, and the realistic net oil energy decline could be more like 8% a year and accelerating.

Then you have many other geopolitical feedback loops (exporter oil witholding, resource wars, soaring costs making a lot of remaining oil too expensive to produce) and it could be anything. Barely bears thinking about having to reduce demand that fast.

[dukey]

high energy prices will cause demand to fall and the price of oil will drop back.

demand for oil is nearly inelastic
sure people will scale down their cars somewhat, but even here in the UK people still buy SUVs with diesel retailing for $10/us gallon.

[yull]

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.

[GeoJAP]

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.

[mystiek]

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.....

[AirlinePilot]

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.

[DantesPeak]

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.

Very well put, AirlinePilot. When the oil decline out paces demand destruction, then things get scary. Like a domino effect, quickly crashing the whole system. Total chaos to be sure. At least a lot of us around here have had a few years to mentally and financially prepare for this as best we could.

When we reach zero oil elasticity, we can kiss our asses goodbye.
How's that for doomerosity?

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.

Discontinous being that the US oil supply and distribution system is pushed, for example, below minimum operating levels due to lack of just-in-time supplies from Nigeria. An unanticipated event being the bombing of Iran's nuclear facilities (unanticipated in that we don't exactly what date that would occur, even if we thought it would happen).

It's quite possible that the oil market believes we face a discontinous interruption of supplies soon. Even if that assumption is incorrect, it will set in motion various events that may actually cause the interruption of supplies, such as hoarding in anticipation of something happening.

[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!