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The Set Up For a Collapse of Oil Prices

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

Re: The Set Up For a Collapse of Oil Prices

Unread postby pstarr » Thu 06 Mar 2014, 21:41:09

Rock, thanks for the clarification. I appreciate industry insights from insiders like yourself. These complex stories benefit from clarifying, especially when the serious meat of the story is buried deep within gobs of rancid promotional fat.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby copious.abundance » Fri 07 Mar 2014, 00:35:54

ROCKMAN wrote:Which isn't to say there isn't a potential for a collapse in oil prices. It would happen for the same reason oil prices fell 70% the last time: a severe global recession as we had in the mid 80's.

There was no global recession in the mid-80's. The recession of the 80's occurred in 1981-82. The price of oil did not crash until 1985-86, when the US was fully into a recovery. And there was not another recession until 1990. Thus, the 1980's price collapse occurred right in the middle of an economic recovery, nothing to do with an economic collapse whatsoever.

Get your facts straight. :badgrin:
Stuff for doomers to contemplate:
http://peakoil.com/forums/post1190117.html#p1190117
http://peakoil.com/forums/post1193930.html#p1193930
http://peakoil.com/forums/post1206767.html#p1206767
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Re: The Set Up For a Collapse of Oil Prices

Unread postby pstarr » Fri 07 Mar 2014, 01:38:40

copious.abundance wrote:
ROCKMAN wrote:Which isn't to say there isn't a potential for a collapse in oil prices. It would happen for the same reason oil prices fell 70% the last time: a severe global recession as we had in the mid 80's.

There was no global recession in the mid-80's. The recession of the 80's occurred in 1981-82. The price of oil did not crash until 1985-86, when the US was fully into a recovery. And there was not another recession until 1990. Thus, the 1980's price collapse occurred right in the middle of an economic recovery, nothing to do with an economic collapse whatsoever.

Get your facts straight. :badgrin:
No. You get your facts straight. The collapse was a consequence of a deal between Saudi Arabia and Ronald Reagan. Reagan wanted to be perceived as beating the Ruskies. SA wanted US weaponry. So SA flooded the market with cheap petroleum (destroying the OPEC cartel in the process) in order to steal oil sales from the Soviet Union. Which at the time desperately relied on oil income in its Cold War with the USA. We, the US won. The rest of OPEC followed suit, broke quota, and pumped oil like crazy. And thus began the greatest peacetime economic expansion ever. And the Great and Final Liquidation of Oil.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Subjectivist » Fri 07 Mar 2014, 07:05:35

Pstarr you forgot the part where the US oil industry was crushed and thousands of skilled oil field workers and specialists lost their jobs.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Scrub Puller » Fri 07 Mar 2014, 07:42:38

Yair . . . copious.abundance . . . .

The price of oil did not crash until 1985-86, when the US was fully into a recovery.


Yup, you mean about where the US is now?

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Re: The Set Up For a Collapse of Oil Prices

Unread postby ROCKMAN » Fri 07 Mar 2014, 08:07:17

Sub – Actually many tens of thousands of jobs. But that wasn’t bad news for the US economy…at the moment anyway. As a rule what’s good for the oil patch isn’t good for the rest of the country. Which is why some folks still have a problem understanding the time lag between energy’s surges/retreats and those effects on the rest of the economy. The jump in oil prices starting in the late 70’s took years to completely impact the global economy. Just as it took years for the collapse in oil prices to begin lifting the economies back up.

I couldn’t find data back to the early 80’s but did find one chart (http://www.aei-ideas.org/wp-content/upl ... iljobs.jpg) that actually surprised me: oil/NG extraction employment dropped 40% from 1988 to 2004…from about 200k to 120k. But today, thanks to that price surge it’s back up to at least 200k. But what’s even more interesting is that from 1988 to 2004 the inflation adjusted price of oil more than doubled from $14.87/bbl to $37.66/bbl. But ahhh…in 1998 it dropped to $11.91/bbl. And thus the time lag factor again: no industry turns on a dime when conditions change…even when significant changes kick in. It takes years for budget programs to change and even longer for the boot count of the ground.

I did stumble across a rather odd way of looking at the economy: shifting capital expenditure from one segment to another would increase the number of jobs in the US. For every $1 million in output the oil/NG extraction industry employs 1.3 workers. But for retail trade and healthcare it takes about 12 and for accommodation/food services about 22 workers. So their logic follows thusly: if we were to divert more capital from energy extraction to service dominated consumerism we could greatly increase job growth.

I’m going to assume most here see the problem with this “solution”.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby copious.abundance » Fri 07 Mar 2014, 11:06:51

pstarr wrote:No. You get your facts straight. The collapse was a consequence of a deal between Saudi Arabia and Ronald Reagan. Reagan wanted to be perceived as beating the Ruskies. SA wanted US weaponry. So SA flooded the market with cheap petroleum (destroying the OPEC cartel in the process) in order to steal oil sales from the Soviet Union. Which at the time desperately relied on oil income in its Cold War with the USA. We, the US won. The rest of OPEC followed suit, broke quota, and pumped oil like crazy. And thus began the greatest peacetime economic expansion ever. And the Great and Final Liquidation of Oil.

1. FACT: The US expansion in the 80's was already 3 years old by the time the price of oil started collapsing. And the period of greatest growth came in 1983-84, again BEFORE the price collapse came. I can pull up the data to prove this.
2. Given #1, the expansion in the 80's had nothing to do with the collapse of oil prices in 1985-86. Zero. Zilch. Nada. The expansion was well under way before prices collapsed.
3. Even if your explanation of the deal between SA and Reagan is correct, that means the collapse in oil prices in the 80's STILL had absolutely nothing to do with any economic collapse, as ROCKMAN stated it did. A political deal over sabre rattling has nothing to do with "economic collapse."
Stuff for doomers to contemplate:
http://peakoil.com/forums/post1190117.html#p1190117
http://peakoil.com/forums/post1193930.html#p1193930
http://peakoil.com/forums/post1206767.html#p1206767
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Re: The Set Up For a Collapse of Oil Prices

Unread postby pstarr » Fri 07 Mar 2014, 12:00:37

Oily, you really need to post this somewhere convenient, as a reminder. Perhaps on your rumpus-room door? Or out on the deck by the wet bar? It will always hold true and be really simple to understand. See all those price spikes? Recessions follow. It ain't corn futures that sets the ball rolling either.

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Re: The Set Up For a Collapse of Oil Prices

Unread postby copious.abundance » Fri 07 Mar 2014, 12:33:59

Thank you for showing us that chart, p-the-starr, because it shows us EXACTLY what I was telling ROCKMAN: The oil price collapse in the mid-80's had absolutely nothing to do with a recession.

Image

Notice that big drop right after the 1985 mark. No shaded recession area anywhere within 3 years on either side of the collapse.

Thus your chart helps to prove the claim made by Graeme's articles and myself that oil price collapses need not be triggered by a recession. Your other rants about oil price spikes are off-topic and a diversion from my point to ROCKMAN. Notice the title of this thread is "The Set Up For a Collapse of Oil Prices." Note it is about falling oil prices, not rising ones.
Stuff for doomers to contemplate:
http://peakoil.com/forums/post1190117.html#p1190117
http://peakoil.com/forums/post1193930.html#p1193930
http://peakoil.com/forums/post1206767.html#p1206767
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Re: The Set Up For a Collapse of Oil Prices

Unread postby pstarr » Fri 07 Mar 2014, 12:54:08

copious.abundance wrote:Thank you for showing us that chart, p-the-starr, because it shows us EXACTLY what I was telling ROCKMAN: The oil price collapse in the mid-80's had absolutely nothing to do with a recession.

Image

Notice that big drop right after the 1985 mark. No shaded recession area anywhere within 3 years on either side of the collapse.

Thus your chart helps to prove the claim made by Graeme's articles and myself that oil price collapses need not be triggered by a recession. Your other rants about oil price spikes are off-topic and a diversion from my point to ROCKMAN. Notice the title of this thread is "The Set Up For a Collapse of Oil Prices." Note it is about falling oil prices, not rising ones.

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

Unread postby ROCKMAN » Fri 07 Mar 2014, 13:07:29

The facts are pretty easy to find: oil prices peaked in 1979 and quickly collapsed to their low by 1986: http://www.bp.com/content/dam/bp/images ... s_2012.jpg IOW the oil price collapse began by 1980 and actually bottom out by 1986.

And oil prices collapsed because the world slide into a major recession which caused demand to plummet. A drop in global oil consumption in 1979 from 62 million bopd to 53 million bopd by 1983. Once again a pretty simple chart to read: oil price began falling at the same time global oil consumption declined as a result of the recession.

http://upload.wikimedia.org/wikipedia/c ... o_2005.png

“The US expansion in the 80's was already 3 years old…”. What expansion??? US oil production had bottomed out from our 1971 peak by 1976 and then rebounded a bit by 1979. From 1979 to 1983 it remained flat. There was no expansion in the 80’s. The best one can say was that we remained relatively flat.

http://origins.osu.edu/sites/origins.os ... 1449_0.png
Interestingly we did see a little bump up in production by 1985 as US operators produced as much oil as possible to improve cash flow as a result of the price collapse. But by the late 80’s the lack of drilling caught up and US oil production continued its decline.

Pretty much all facts. Got any other DOCUMENTED facts other than the verbiage you offer we would be very appreciative.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby copious.abundance » Fri 07 Mar 2014, 13:23:42

Here, I'll help ya out. Look near the top of the page, and tell me what the title of this thread is. From that information you can infer what the topic of discussion is.

After you've done that, you might want to consult a dictionary and study the difference between the words "collapse" (in the thread title and in my original response to ROCKMAN) and your own word "spike." Spend some time contemplating the difference in definitions; this should further help you discern what the actual topic of discussion is.

As for the more gradual fall in oil prices between 1980 and 1985, you have a stronger US dollar to thank for that (see graph below). Even when the recovery kicked in during 1982, the price of oil continued to fall. Thus, once again, the fall in oil prices had nothing to do with economic conditions.

Image
^
Over the exact same time frame, notice the nearly perfect inverse relationship between the value of the dollar and the price of oil.

Image

It wasn't until the well-know Saudi output surge in 1985-86 that you saw The Big Price Collapse. IOW, that crash had a supply cause, not a demand one.
Stuff for doomers to contemplate:
http://peakoil.com/forums/post1190117.html#p1190117
http://peakoil.com/forums/post1193930.html#p1193930
http://peakoil.com/forums/post1206767.html#p1206767
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Pops » Fri 07 Mar 2014, 15:11:18

A couple of reasons why I think we won't replay the '80s:

1) KSA went from 2-5mmbopd overnight and I don't think they have 3mmb extra now (the rest of OPEC has peaked for all intents).

2) Non-OPEC production increased from 25-37mmbopd between 75 & 85 - today it's flat or falling aside from US LTO - we can't do a 12mmbopd increase again especially if RU is peaked (it kept production from falling through the oughties but has started to plateau, plus it's own consumption is rising)

3)Industrial and electricity generation use of oil dropped in the '80s and didn't come back - transport didn't drop as much and was already growing again by 85 just like it is now - we won't reprise those savings this time around.

4) In the '80s the overall "decline" rate was actually positive - older wells produced more oil! Today decline is as it's name implies, a loss of production, and the rate is increasing, so any extra must replace decline first

Image


5) we are already supply constrained so even if the 2-3mmbopd that's offline due to politics did come back tomorrow the economy would suck it up with no problem and still want more.

6) new marginal production requires high prices and the nature of the fastest growing oil (LTO) means new production can be turned on and off on a few months instead of a decade's notice

That's all I have time for right now.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby lasseter » Fri 07 Mar 2014, 16:32:53

copious.abundance wrote:1. FACT: The US expansion in the 80's was already 3 years old by the time the price of oil started collapsing. And the period of greatest growth came in 1983-84, again BEFORE the price collapse came. I can pull up the data to prove this."


Yes, and here is the data.

Image

It was all based on massive increases of debt. Your nation borrowed massively from the future just to keep the wheels turning and expand a little. But you never paid it back, you just kept borrowing and borrowing more, like a drunken sailor. That is why the whole US economy is going down the toilet now. Because the interest repayments on all the debt is choking the life out of it.

You are not special though, all the OECD nations are in the same leaking boat.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby copious.abundance » Fri 07 Mar 2014, 20:53:44

^
That off-topic reply made pstarr's off-topic reply look on-topic. :lol:
Stuff for doomers to contemplate:
http://peakoil.com/forums/post1190117.html#p1190117
http://peakoil.com/forums/post1193930.html#p1193930
http://peakoil.com/forums/post1206767.html#p1206767
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Re: The Set Up For a Collapse of Oil Prices

Unread postby lasseter » Fri 07 Mar 2014, 21:46:23

Checkmate :lol:
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Re: The Set Up For a Collapse of Oil Prices

Unread postby Graeme » Sun 16 Mar 2014, 17:39:40

When Will Global Oil Demand Peak?

One of the biggest debates in the energy sphere right now is whether global oil demand is approaching a peak. Some commentators, like Citigroup (NYSE: C ) commodities analysts led by Ed Morse, argue that the world's demand for oil is rapidly approaching a peak, while others, like Valero (NYSE: VLO ) Chairman and CEO Bill Klesse, believe that global oil demand will continue to rise sharply. Which side has it right?

Citigroup: global oil demand nearing a peak
In a research paper released last year and titled "Global Oil Demand Growth -- The End Is Nigh," Citigroup analysts argued that global oil demand will peak much sooner than the markets anticipate, exerting downward pressure on oil prices by the end of this decade. They cited two main factors to support their conclusion -- the gradual transition toward natural gas as a fuel source and the improving fuel efficiency for newer vehicles.

Not only is natural gas cheap and abundant in North America, but it's also much better for the environment, spewing significantly fewer greenhouse gases than oil or coal. Recognizing the substantial cost and environmental benefits of using more natural gas, a host of U.S. companies are using more of the cleaner-burning fuel to power their trucks and hydraulic fracturing fleets.



As for fuel efficiency standards, Citi estimates that the fuel economy for new vehicles is improving at an annual rate of at least 2.5%, driven by regulatory changes mandating higher fuel economy standards in the U.S. and other developed countries. As developing countries like China follow the developed world's lead in enforcing higher standards, Citi reckons that fuel economy for new light-duty vehicles should grow by 3%-4% annually over the next several years, placing downward pressure on global oil demand.


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Re: The Set Up For a Collapse of Oil Prices

Unread postby Keith_McClary » Sun 16 Mar 2014, 21:26:25

Pops wrote:6) new marginal production requires high prices and the nature of the fastest growing oil (LTO) means new production can be turned on and off on a few months instead of a decade's notice.
So LTO is the new "swing producer"?
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Re: The Set Up For a Collapse of Oil Prices

Unread postby wildbourgman » Sun 21 Dec 2014, 16:26:21

Wow, looking back in time, some of us were right and some were wrong. Toot toot!

I wish I had the conviction and the extra cash back then to put my money where my mouth was.
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Re: The Set Up For a Collapse of Oil Prices

Unread postby copious.abundance » Mon 22 Dec 2014, 00:37:42

Haha, thanks for bumping this thread, I'd forgotten about it.

Some people are looking pretty silly right now. :lol:
Stuff for doomers to contemplate:
http://peakoil.com/forums/post1190117.html#p1190117
http://peakoil.com/forums/post1193930.html#p1193930
http://peakoil.com/forums/post1206767.html#p1206767
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