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The Set Up For a Collapse of Oil Prices

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

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Re: The Set Up For a Collapse of Oil Prices

Unread postby wildbourgman » Mon 15 Jul 2013, 20:08:43

SeaGypsy, I'm not in any camp because I've seen oil prices go up and down for different reasons. For background in 2007 I had tunnel vision on Peak Oil. I could recite field production and consumption stats, quotes from Twilight in the desert ETC, but I couldn't see any other problem. At the same time I started hearing crazies like Peter Schiff, Marc Faber, ETC calling for a major decline in housing prices and a massive credit collapse. I couldn't believe what they were saying. In 2008 I saw it all come together and yes oil was a big piece of that puzzle.

Now there were Peak Oil people like myself that didn't think debt issues, recessions or any other economic problems causing oil prices to drop but they did. In my view our economic problems are so deeply rooted that we could have a decline or societal change before peak oil has the chance to show us how bad things would have been with a energy price shock. I don't think our growth is fast enough to cause the problems many of us peak oilers once thought was possible, yet.

I feel that this worldwide fiasco is so dynamic that many peak oil people (like myself once) are one trick ponies and can't see the other issues that may stand alone or even work together. Time will tell.

.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby ROCKMAN » Mon 15 Jul 2013, 20:16:54

Wildman - "I feel that this worldwide fiasco is so dynamic that many peak oil people (like myself once) are one trick ponies and can't see the other issues that may stand alone or even work together."

And thus why I created the garbage can term " POD"...Peak Oil Dynamic. Yes: a garbage can term. But every piece of trash in there plays a roll in our energy future. Some folks don't like the POD because it's too general and includes too much. So much easier to just focus on one's favorite "one-trick pony", eh? LOL
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Re: The Set Up For a Collapse of Oil Prices

Unread postby SeaGypsy » Mon 15 Jul 2013, 20:33:36

wildbourgman wrote:I could recite field production and consumption stats, quotes from Twilight in the desert ETC, but I couldn't see any other problem. At the same time I started hearing crazies like Peter Schiff, Marc Faber, ETC calling for a major decline in housing prices and a massive credit collapse. I couldn't believe what they were saying. In 2008 I saw it all come together and yes oil was a big piece of that puzzle.

Now there were Peak Oil people like myself that didn't think debt issues, recessions or any other economic problems causing oil prices to drop but they did.


They weren't crazies at all now were they?

At that time I was flying through Singapore every few weeks. I watched from the air as ships built up and up, idling in port; there were thousands by mid 2009. Initially QE 1 was a stop gap measure. Since we have had not just US QE 2, 3, Infinity- but QE in most developed countries; with no end in sight. As QE kicked in, prices again rose as stuff started to move again, the ships for a short time filled their tanks with $40 ish dollar oil before very quickly rising back towards the $100 average we have seen since. Without QE 1, 2, 3, infinity; with the rest of the developed world following the US lead- there would have been not just a sustained drop in oil prices- but an extremely serious global economic catastrophe. People looking at such as if price relief were somehow possible without financial disaster are simply kidding themselves- or their investors.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Pops » Mon 15 Jul 2013, 20:59:41

In December for our WTI price game I guessed a $74 low for the year (I think the average guess was $75) based on inadequate access to market for Bakken oil. Surprise! Now rail is taking bakken oil to 3 coasts and CA to get world price. So instead of adding 800k to a few million bbls flowing through cushing, it is in effect adding 1M to 80 million bbls on the world market. The spread is just a few bucks now and it's WTI that's risen, not Brent that's fell. $106/108 right now

Even if there is enough rail cars and bakken doubles production in the next year and EF continues to grow, it is still just a couple of percent of the world liquid total and well within OPECs ability to offset to maintain price.

And, Bakken production growth fell once again in may to 26% compared to last may's 66% and well numbers are growing at 35% compared to 52% last year. The Director's Cut says there is a 90+ day lag time between drilling and completion with 500 wells on the list. None of which is 100% proof that growth is coming to an end but it ain't zero either.

No way I can say oil won't go to $50 this year but it is looking more and more like if it does, it won't be a good thing.

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Re: The Set Up For a Collapse of Oil Prices

Unread postby SeaGypsy » Mon 15 Jul 2013, 21:28:01

How much of the speculation on collapsing oil prices is purely based on fantasy- eg: Saudi America?
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Re: The Set Up For a Collapse of Oil Prices

Unread postby agramante » Tue 16 Jul 2013, 01:59:34

wildbourgman-
I'm picking up on a topic you began talking about a week or so ago, correlating inflation to oil price. Inflation is a metric (a bit like the Dow Jones) based on the price of a market basket of goods. Depending on the country/organization, the basket of goods considered for the price index will vary. In the US (as I would suspect in all industrialized areas), gasoline and fuel oil are part of the index. Per Wikipedia:

http://en.wikipedia.org/wiki/Consumer_price_index

So consistently high oil prices will drag the price index upward, being themselves part of the index. However, if oil prices spike relative to other goods in the basket, then oil prices will rise higher than the overall inflation rate, as other, non-price-spiking goods will comparatively restrain inflation. But your line of thinking is valid: oil prices do not exist in a vacuum. Not only are they directly part of calculated inflation, but as the price of oil rises, so rise the prices of other goods and services which themselves consume oil.

I have a little graph which I've posted here a few times, and I'll post it once more since it's precisely on your topic. I divided the annual average price of WTI oil into the median US household income, from 2011 (the most recent year) back to 1967 (the earliest year that income stats were available from the US Census). One interesting feature in correlating income-to-price on an annual basis: it automatically accounts for inflation, since the same inflationary factor affects both incomes and prices for any given year. Plot it yourself, both in non-inflation-adjusted, and inflation-adjusted dollars. The plots will be identical. And here it is:

Median Household Oil.jpg
Median Household Oil.jpg (74.98 KiB) Viewed 2562 times


The data show that over the last several years, petroleum has been less affordable to Americans than at just about any time in recent history.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby SeaGypsy » Tue 16 Jul 2013, 02:13:01

Agramante; which reflects on the topic heading how? (This topic is too easy to go off on tangents and vagaries.)
(Second edit after no response): Just because Americans can afford less oil says nothing about the actual price. If you want to start or find a more relevant thread- go for it. Americans want and need cheaper oil is not a valid argument for world prices crashing or otherwise.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby wildbourgman » Tue 16 Jul 2013, 08:45:08

Guys, I'm just going from article to article and chart to chart and then looking at my career and oilfield experience since I was a child in South Louisiana in the 1970&1980's. In my experience and my gut feeling that Rockman could probably explain it better, I feel a sharp slowdown in United states drilling activity coming. It's well over due! I can't explain it.

It doesn't take a massive glut of oil to cause a price collapse, it takes a percieved future glut to cause panic. On the otherhand price increases can happen in the same way.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby agramante » Tue 16 Jul 2013, 09:03:47

Sorry, Seagypsy, you're quite correct. I was zoning in on one comment bourgman had made concerning inflation, not really addressing the main topic. I guess I like a good tangent now and then.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby SeaGypsy » Tue 16 Jul 2013, 09:10:56

There isn't a glut, won't be a glut and if the con job works at all to create the impression of one- price reprieve will be very short lived.

(That's cool Ag. Just a very different format to TOD. This place gets messy and hard work for the mods when the rest of us here don't make an effort to keep on topic or at least twist our tangents together into a twine, so to speak. There are a bunch of threads about inflation topics, just use the search tool, pick one and go for it, or begin a new one which may or may not get merged.)
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Re: The Set Up For a Collapse of Oil Prices

Unread postby agramante » Tue 16 Jul 2013, 09:17:41

Noted. I'll mind my P's and Q's a little better from now on.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby SeaGypsy » Tue 16 Jul 2013, 10:37:13

Ag, you haven't done anything wrong. If you can work out how inflation fits into this subject I would like to hear it.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Pops » Tue 16 Jul 2013, 14:13:42

SeaGypsy wrote:How much of the speculation on collapsing oil prices is purely based on fantasy- eg: Saudi America?

I think Americans are ready for some good news Regardless of the denial we see here regularly, average joe I'm pretty sure gets it, oil is important.

And we've all heard of the good old days before the evil A-Rabs could cut off our oil, so this sounds like just the ticket.

That explains why we want to hear it, and every newscaster wants to be the one to deliver good news because breathless exclamations of American exceptionalism are great for ratings - what is the downside? They were just quoting Gurus after all.

Then of course there are the varied interests invested in the current set-up, I call them the Chamber of Commerce Boosters Club. Their goal is more, that's it, just more. More consumers, more houses, more cars, more stuff and consequently more profits for the sellers. They are the stock market fluffers and real estate pros, etc, and the very idea that lack of oil could put a crimp in growth threatens their existence in a very real way.

Of course there are also the Kochs/etc who I'll guess would like nothing more than to pump every drop at the world market price without restriction. I'm fairly certain they can figure out why the market price is at all time highs (see: declining exports/ELM)
So for them, making a killing means promoting exports and it goes like this:
1, the US will be an exporter eventually
2, why wait? Remove all barriers to export now
3, Shp it while they can.

The idea that we can frack our way to the good old days is pretty enticing.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby wildbourgman » Tue 16 Jul 2013, 19:12:04

Pops, as far as my post on this thread, when I say that I think oil prices will go down I'm not saying this in a "good news" way at all. I'm saying that's a symptom of lower demand due to our ongoing recession. In view we are going to have a repeat of the 2008 price swings.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby SeaGypsy » Tue 16 Jul 2013, 19:46:14

What these speculators don't get: any price fall below profitability for US frackers will shut down fracking in short order- forcing the US back to increasing import dependency and very quickly bumping the price back up. There is no fall in demand in the developing world, only in the developed. The developing world is much bigger in population, with huge pent up demand. Navel gazing and fantasy is what drives those on the side of the OP.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Sun 21 Jul 2013, 18:46:44

With More American oil coming onto the market, wouldn't you expect prices to fall?

U.S. Solves Its Oil Glut Dilemma

Historically, oil has traded at a slight premium in the U.S. over Europe. Then, in 2010, North American oil production grew much more quickly than anyone expected -- including companies that manage oil pipelines and transportation. Domestic demand also remained surprisingly weak.

American prices dropped $20 below world levels because it became impossible to get all the oil out of the middle of the country quickly and cheaply.

Does the end of that spread mean slightly higher prices for American drivers? Probably not. U.S. gasoline prices are determined by world oil and gasoline prices (as well as the cost of transporting gas from refineries). The fact that U.S. oil is now flowing more freely from what had been a midcontinent bottleneck should be a good thing for American drivers.


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Re: The Set Up For a Collapse of Oil Prices

Unread postby SamInNebraska » Sun 21 Jul 2013, 20:15:13

Graeme wrote:With More American oil coming onto the market, wouldn't you expect prices to fall?


Coming onto a global market? Of course not. As long as the marginal barrel drives price, and that marginal barrel is relatively expensive Canadian tar sands oil or American tight/shale oil production, the price does not change.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby sparky » Mon 22 Jul 2013, 00:57:38

.
Pretty good exchange , check the prices , all the indexes are firmer

For the recession thing , well , I've lived the 1973 oil crunch
followed with a pretty severe recession , Prez Carter was speaking of energy conservation

Nobody had any doubt that the sharp rise in oil price WAS the recession
only idiots cannot notice that the rock bottom price of the late 80ies
restarted Growth while bankrupting the USSR

the condition for oil to be at 50$ a barrel is a severe depression , worldwide .
Bernanke is building a bridge of straw ,so far so good !
the present firming of price indicate a rather miserable growth rate
Asia is firmer and possibly could become independent of Western markets
The Northern Harvest is in ,
nothing too bad , but the ending stocks will get lower.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Sat 03 Aug 2013, 18:51:12

A 'Perfect Storm' Could Cause A Collapse In Oil Prices That Hits The Stock Market Too

Deutsche Bank strategists Rocky Fishman,
Salil Aggarwal, and Lon Parisi are out with a note warning clients that a “perfect storm” of structural, demand, and supply-driven factors could conspire to cause a “major pullback” in oil prices, with the potential to derail the rally in the U.S. stock market as well.

“A major pullback in oil prices could have a concentrated effect on the S&P energy and industrials sectors, with perhaps further sentiment knock-on effects,” write the strategists. “After WTI’s brief pullback from its peak last month, it may be time to at least consider this possibility.”

WTI crude oil prices have rallied from a low of $US84.05 a barrel on November 7 to $US106.88 at Friday’s close, returning 27.2% over the past nine months.

“Oil is now, according to our commodities team, the most richly traded commodity in the world in real terms after massive appreciation over a multi-year horizon,” says the Deutsche Bank team. “However, structural, demand-driven, and supply-driven catalysts exist for a near-term pullback — and a ‘perfect storm’ of a multiple of these factors could cause an even more significant move.”

Fishman, Aggarwal, and Parisi bullet the three factors that could come together to cause a perfect storm for oil prices:

Structural: Falling inventory levels in the Cushing complex start levelling off or even turning up — whether driven by increased Bakken- to-Cushing transport or infrastructure concerns. The huge net long speculative futures position also could set up downside volatility if unwound.

Demand: Another leg down in China growth impairs Brent pricing, or US economic data disappoint and limit demand for WTI. Low refining margins are indicative of weakening demand.

Supply: Most supply events would be bullish oil, but we wonder if resolution of one or more stress points (e.g. the incoming Iranian regime negotiates an end to its embargo) could materially drive up supply.

Deutsche Bank chief U.S. equity strategist David Bianco hiked his year-end price target for the S&P 500 in mid-July, citing “recent WTI oil price strength despite the climb in Treasury yields and the dollar.”

Bianco also spelled out the logical inverse of his call: “A surge in yields or oil price collapse has long been the chief risks to our strategically bullish view.”


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Re: The Set Up For a Collapse of Oil Prices

Unread postby sparky » Wed 28 Aug 2013, 20:58:19

.
It's always good to check one's past record
a collapse in price would need a collapse in consumption
IE . A very severe recession

There was a bit of growth and supply shortage rear its ugly head .
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