[chris-h]

Trespam is spot on , even the current US administration must realise that military action against oil producing countries REDUCES there oil supply it does not increase it!! (Iraq being the obvious example)

It reduces the present world oil supply and increases future world oil supply.
It also increases price of oil to $50 or more which is good because rich countries can pay $50 while developing countries cannot.

There is nothing more important it seems for the prez than to stop
China ascent to superpower status . What is the easiest way to do that ? Just increase the price of oil in the word market so that China will not afford to buy oil.As a result China economy can suffer from peak oil use usage. Oil might be available but China will not have the funds to buy it.Didnt peak oil production brought USSR economy down ?
Well the same thing can happen to China.
Oh sure stocks in USA might fall the economy will slow down but the alternative letting China become economy No1 in unbearable.Besides dear Bush power base will not suffer at all as a result of reduced taxes.(yes i am a liberal if you like putting tags to people).So why not make a war with phony pretenses with the exclusive purpose of removing 2 million oil barrels from circulation in order to increase the price of oil and strangle china economy ? What is the price that USA is prepare to pay in order to remain no 1 ? Do you thing that $50 is too much ? I do not think so.
I believe that if the price of $50 does not bring china economy on its knees another war will happen with the only purpose of increasing the price of oil and strangling China economy.
When China economy collapses then miracusly the USA will start bribing Iraq tribal leaders and really build Iraq infrastacture ( water,power,security, more jobs) and amazingly all oposition to Iraq oil exports will stop.

Even if the US did manage to keep the oil infrastructure in place , international economic retaliation would soon cripple the US anyway.

economic retaliation from who ?
Its the big multinational companies that are calling the shots now in Europe in Japan. They will not let political leaders to retaliate. Besides Kerry might give a percentage to Europe and everything will be ok.

The best we can hope for is some sort of international oil quota system. This is where a forecast is made of the amount of oil that can be produced in any one year and then apportioned to each oil importer depending on a agreed oil use per capita. This is obviously going to be a painful and difficult process but I see no other option(assuming we dont blow the **** out of each other) This way a country can decide how it will manage its 'powerdown'.

What you think? wishful thinking ? ... probably....

PB

Ehh. We can hope for that but it is never going to happen unless you mean it like this.
The rich can have all they want and the poor can have nothing.

[Permanently_Baffled]

Hi Chris

I can see your point about China , but the US imports 13 mpd against China's 3mpd. Also China has huge dollar surpluses. High oil prices from further military action would bankrupt the US economy, see Monte Quests pefect storm thread, the US finances are already on the brink let alone the expense of more war and oil imports. Add to this the cost of rebuilding all the countries you have invaded , it just isn't affordable.

As for econmic retaliation, all it would take is for OPEC and Russia to trade oil in Euro's and then you can kiss goodbye to the dollar.

Military intervention will make the US situation worse, not better.

PB

[Soft_Landing]

Pup, I endorse your use of the US economy data to locate a price, but surely, the further away that peak is, the less the relevance of US GDP/barrel and the more relevant China's GDP/barrel. You didn't put those figures on the table, perhaps if you have them handy? I mention this particularly because of your peak date of 2020. It seems many other posters are leaning toward an earlier peak, and for them, a focus on the US economy is probably very useful... but perhaps when considering a more distant peak, you'd want to factor in China more.

With regard to the 'black box' model, I do have a problem with that.

The improvement in the GDP/barrel for the US economy is seen as making the US economy more oil efficient... I think this idea is a little too 'economic' for its own good. It seems to me that the services sector is comprised more of luxury or discretionary spending items, compared to manufactured goods, which may be either luxuries or necessities. The point is, when an economy slows, wouldn't one expect a relative shift in spending away from services sector and toward manufactured goods. The bad news is, the declining GDP/barrel precisely represents this shift toward services (in any case, toward luxuries, innovations, complex high-end goods etc.). In contrast, China's economy is heavily centred upon low-end manufactured goods - the kind of items least vulnerable to economic downturn. Little wonder their economy can handle higher oil price, the demand for their goods is relatively inelastic to declines in discretionary spending. Further, being tied to the US dollar helps no end. This ensures that currency appreciation doesn't eat into demand either. Actually, as the $US has declined in reference to most countries currencies, China's produce has actually got cheaper, increasing demanded quantity, and making up for margin pressure coming from higher oil price.

Therefore, in my opinion, I think it's important to specifically consider the US economy with regard to a world tipping point.

Stephen Leeb says 60% increase in YOY average price, right? That's about a yearly average of $55 now, from memory.

Andrew McKillop keeps saying not till after $75.

These numbers, however, indicate timings for first wave of demand destruction. It is possible that an initial worldwide recession would destroy demand (and lower price) prior to later episodes of severe price run-up as depletion hits steeper parts of the curve (as pup mentions explicitly aka 25 yrs post peak).

So, we need to be careful we don't talk through each other here. Are people guessing all-time-high oil price, or the first high price that destroys demand about the time of peak?

I don't think an initial price run-up needs to go past $100 for initial demand destruction, enough to kill the world economy for a few years, and hold oil price back for a while. In the long run, I am much more comfortable with the possibility of much higher peaks in the oil price. The behaviour of oil price post peak seems to me to be far more at the mercy of random events than economic modelling - at any time is the possibility of civil disorder in Iran, Iraq, Nigeria, Venezuela, Saudi, the list goes on. Similarly, civil disorder in Japan, for instance, may have the effect of freeing up a large portion of world supply. Small events will have big consequences, thus, price prediction post peak is for me a fool's game, as they say.

As far as the first price peak is concerned, I imagine onset of peak to be accompanied by a worldwide recession, triggered by sustained oil price of $90 plus or minus $20. The bottom of that recessionary cycle might, as a pie in the sky guess, see oil prices touch $50, before stabilizing and reaching up again.

(I am interested in any argument as to why the second price peak should be higher or lower than the first price peak - the only tentative idea I'm working with is that demand destruction for oil should exhibit diminishing returns - thus, higher oil price fist time round would destroy the easy-to-destroy demand, and later price rises face increasingly harder to destroy demand... Therefore, later price peaks would be higher than early ones… any other suggestions very much welcomed)

[pup55]

I am not near my spreadsheet at the moment, but China's GDP/BOE is somewhere in the $750 range.

Also you are quite right, the question was not posed specifically enough. I am obviously thinking divergently.

As to the short-term demand destruction tipping point issue, it has already reached it at my house. I got rid of my old "detroit metal" and bought a used kia, so for me, the tipping point was $50 per barrel. Maybe this is a topic for a poll.

Although not popular on this website, I still subscribe to a few macroeconomic concepts, such as: as the price of fuel and/or oil increases, people will, supposedly, find ways to prioritize usage in "value added" activities to maximize the GDP/BOE. In the short term, you nibble around the edges, in the longer term, you do what Germany does and make periodic large-scale investments to make your processes more energy efficient. It helps to have a cultural predisposition toward thrift and efficiency. That explains Japan and Germany, and why we are struggling a little bit in the US.

I am not ready yet to get into a conversation about the issue of the extent to which "service industries" actually add value to the economy, and therefore, whether or not an energy price increase will affect a "service oriented" economy more or less than a "manufacturing or materials conversion" economy. Gotta be convinced by somebody first, then can give a better comment. I am thinking at the moment that as the price of basic survival materials (such as chemicals and agriculture) increases above a certain level, a lot of these service industry jobs will evaporate. Tough to sell insurance to each other if there are food/survival issues. Since services are a component of GDP maybe this will have a depressing effect on GDP per BOE to offset improvements in materials conversion.

Like I said, I can be convinced on this last point.

[Soft_Landing]

Although not popular on this website, I still subscribe to a few macroeconomic concepts

I know how you feel...

To all: Here's a relevant article...

Oil-shocked into recession?

[lowem]

Pup: I think I'm following you, but I question using those GDP figures. Long before oil gets up to $600/barrel, the GDP figures will have come down (in real terms, not considering inflationary terms). Therefore I don't think the analysis works.

You have to keep Greenspan and Bernanke's printing press in mind, so who's to say that a barrel of crude oil won't reach $180, $1800, or for that matter, $18000?

But hey, one step at a time. I'm still looking at $72 for now ...

[trespam]

You have to keep Greenspan and Bernanke's printing press in mind, so who's to say that a barrel of crude oil won't reach $180, $1800, or for that matter, $18000?

But hey, one step at a time. I'm still looking at $72 for now ...

I agree about the inflation issue. That's why I'm just thinking in 2004 dollars. I believe you are closer to a price at which economies will shrink and demand destruction will set in. $72/barrel oil is just about $4/gallon here in So Cal. I think the US will slow down signficantly and recess by that time and the world will follow suit. That could be a year from now for all we know.

[trespam]

It seems to me that the services sector is comprised more of luxury or discretionary spending items, compared to manufactured goods...

My intuition says the same thing. I can think of simple things. People will be mowing their own lawns more, working on their own cars, they won't be throwing excessive parties for their kids birthdays with rental equipment or trips to theme parks.

contrast, China's economy is heavily centred upon low-end manufactured goods - the kind of items least vulnerable to economic downturn. Little

Now here I will differ a bit. You are correct. Low-end. But...a lot of crap is included in that. Sorry to be crude. But I love the shelves of halloween products in the local drug store. Crap. Completely unnecessary. All made in China. Who's going to be buying crap like that--a plastic haunted house with lights, motorized ghoul, and frightening screams--when they can barely afford to put gas in their car, their house has just dropped 30% in value, etc? So I think China will take a hit because of our inability to purchase that crap.

So, we need to be careful we don't talk through each other here. Are people guessing all-time-high oil price, or the first high price that destroys demand about the time of peak?

I don't think an initial price run-up needs to go past $100 for initial demand destruction, enough to kill the world economy for a few years, and hold oil price back for a while. In the long run, I am much more comfortable with the possibility of much higher peaks in the oil price. The behaviour of oil price post peak seems to me to be far more at the mercy of random events than economic modelling - at any time is the possibility of civil disorder in Iran, Iraq, Nigeria, Venezuela, Saudi, the list goes on. Similarly, civil disorder in Japan, for instance, may have the effect of freeing up a large portion of world supply. Small events will have big consequences, thus, price prediction post peak is for me a fool's game, as they say.

As far as the first price peak is concerned, I imagine onset of peak to be accompanied by a worldwide recession, triggered by sustained oil price of $90 plus or minus $20. The bottom of that recessionary cycle might, as a pie in the sky guess, see oil prices touch $50, before stabilizing and reaching up again.

(I am interested in any argument as to why the second price peak should be higher or lower than the first price peak - the only tentative idea I'm working with is that demand destruction for oil should exhibit diminishing returns - thus, higher oil price fist time round would destroy the easy-to-destroy demand, and later price rises face increasingly harder to destroy demand... Therefore, later price peaks would be higher than early ones… any other suggestions very much welcomed)

I agree. Excellent discussion. My intent in posing the question was two fold now that I think further: (1) initial demand destruction and (2) absolute all-time high. Forgetting the crises that you mentioned above (revolution, terrorism, etc), it would be intersting to know how the economy would be expected to oscillate and, with it, the price of oil would oscillate up and down, with a long-term upward trend.

Trying to model beyond even a few oscillations might be fun but would not be of predictive value.

[chris-h]

contrast, China's economy is heavily centred upon low-end manufactured goods - the kind of items least vulnerable to economic downturn. Little

Now here I will differ a bit. You are correct. Low-end. But...a lot of crap is included in that. Sorry to be crude. But I love the shelves of halloween products in the local drug store. Crap. Completely unnecessary. All made in China. Who's going to be buying crap like that--a plastic haunted house with lights, motorized ghoul, and frightening screams--when they can barely afford to put gas in their car, their house has just dropped 30% in value, etc? So I think China will take a hit because of our inability to purchase that crap.

Oil producing nations.
If oil goes up to $200 i think that it will be good for the Saoudi economy.
And for Russia.

[trespam]

Although not popular on this website, I still subscribe to a few macroeconomic concepts

I know how you feel...
[quote]

One point to raise on this issue: I will frequently bash the economists, but I do so when they refuse to accept (1) that an economy is embedded within an ecology and (2) neoclassical economists who mix ideology with science, e.g. free-markets are "good" in all respects.

Free-markets are often good. And mcroeconomics can often be considered independent of the surrounding ecology. But these are not absolute truths.

Peak oil will be driven by macroeconomic considerations.

To the poster who said peak oil will be good for producers: yes. They win no matter what. Russia is in a good position because (a) they have lots of oil and (b) they have lots of nuclear weapons. But...oil producing econmies will have to plan well. Saudi Arabia, for example, is completely dependent on oil revenue. They have large investments in the rest of the world. When economies contract and inflation pickes up, oil consumption goes down and dollar assets depreciation in real terms. The Saudis may have problems keeping the masses happy. They could very well have periods of plenty and longer periods of economic problems. They could come undone.

[ernest]

It is important to differentiate between short and long term prices if you are investing. China's economy is already cooling down, and their rapid increase in petroleum utilization likewise. IMHO the Chinese need for oil is one of the prime factors driving high oil prices.

It is totally possible oil will go to forty a barrel and stay there for a year or two. Eventually it will go much higher, but anyone who is planning on investing in oil as a sure bet should hedge their bet.

[trespam]

It is important to differentiate between short and long term prices if you are investing. China's economy is already cooling down, and their rapid increase in petroleum utilization likewise. IMHO the Chinese need for oil is one of the prime factors driving high oil prices.

It is totally possible oil will go to forty a barrel and stay there for a year or two. Eventually it will go much higher, but anyone who is planning on investing in oil as a sure bet should hedge their bet.

Absolutely right. The people on this board who spend too much time and energy obsessing about the next dollar increase in the oil price, screaming that the sky is falling, the sky is falling, don't realize that the peak may look like a peak from the perspective of a thousand years, but the peak could very well be a plateau that lingers for many years, with oil prices oscillating about.

I put money into the Vanguard energy fund a while back. But it is a long-term investment. Short term I expect it to be all over the place.

[chris-h]

It is also totally possible that

a) A sane president will be elected in the USA and invest like mad in rewnewables(Not like kerry plan something 2 0 times more costly)

b) USA economy collapses (very bad) and takes europeans and japanese with them.
Russia ,China and India become the new superpowers.
As a result of the massively reduced consuption the world peak goes 10 years into the future.

c) Some star trek tech is discovered maybe a better battery and nano solar tech and the crisis ends.

d) Bush is reelected and invades Iran.
All Iran production is destroyed for 10 years.
Oil prices go up to 200 before peak oil making all goverments to massively invest in renewables.World economy collapses reducing oil consumption 20 % and after 10 years the world can have access to both Iran and Iraq oil (since for 10 years Iran oil was not exctracted)

[pup55]

I’ve got a demand destruction example for the forum. It is gas-oriented, but the concept is applicable to oil or other energy sources of course. Maybe it’s worthy of another thread.

According to:
http://www.ppi-far.org/ppiweb/usagp.nsf ... 80007B54DD

there was an experiment run in 2003 on the issue of nitrogen fertilizer in corn farming. An experiment was run down in Oklahoma on similar land comparing the effects on yield with and without nitrogen fertilizer: With N2, the yield was about 120 bushels of corn per acre, and without, dropped to about 70. So, the 50 bushels of corn was the “valueâ€