[davep]

So I would appreciate a link to where I could check out oil-future trading in 2010 and beyond.

You can check out the futures and options here

For example, a call at 150 dollars for December 2010 is currently 1.87 dollars per barrel (so, 1870 dollars for 1000 barrels, the trading unit). Nice!

[shady28]

Coming soon. Demand destruction has trumped peak oil, for now.


http://yelnick.typepad.com/yelnick/

Oil in Super Contango!

MarketWatch reports on a peculiar situation developing in crude: super contango.

...

What is driving super contango is falling demand, an incredible over-supply, and expectations of higher prices this summer. The storage bins in Cushing, OK are rapidly filling up. I understand that many tankers are idling or coming very slowly, so more is stored on the sea. Does it make sense that prices will rise to the levels above $50 when so much excess crude is coming in? The curve seems more poised to collapse.

[Jotapay]

Enjoy it while you can.

[neocone]

I think some people indeed misunderstand something: We are animals like other animals on this planet, and the process that created us (i.e Natural Selection) also probably built-in psychological behavior that lets us immediately adjust to ressource depletion, whether it's Oil now or food 500 years ago during a famine. People would stop having kids and not walk as much or do anything then and switch to survival mode.

Most of today's cajoled generations who lived on steady food supplies and easy transport have no clue how abnormal those conditions are... but in our genes we have the ability to adjust orderly to population swings of +/- 90% without flinching. Just as the human body can tolerate huge temperature swings and our species has adapted to live from the Poles to the Tropics.

The Russian and the Chinese endured without a hitch population drops of 20-30% in a couple of decades (Cultural Revolution in China alone was like... -100 million in a year).

Today we shout the sky is falling... fine... Oil will now not be produced as much, but the gradual fall will be imperceptible amid all the societal changes we will start making by instinct.

[Specop_007]

I think some people indeed misunderstand something: We are animals like other animals on this planet, and the process that created us (i.e Natural Selection) also probably built-in psychological behavior that lets us immediately adjust to ressource depletion, whether it's Oil now or food 500 years ago during a famine. People would stop having kids and not walk as much or do anything then and switch to survival mode.

Most of today's cajoled generations who lived on steady food supplies and easy transport have no clue how abnormal those conditions are... but in our genes we have the ability to adjust orderly to population swings of +/- 90% without flinching. Just as the human body can tolerate huge temperature swings and our species has adapted to live from the Poles to the Tropics.

The Russian and the Chinese endured without a hitch population drops of 20-30% in a couple of decades (Cultural Revolution in China alone was like... -100 million in a year).

Today we shout the sky is falling... fine... Oil will now not be produced as much, but the gradual fall will be imperceptible amid all the societal changes we will start making by instinct.

What does this have to do with Economics & Finance?

He was just trying to make you look.....

[mefistofeles]

At this point I think prices have bottomed or very close to their bottom. Right now what we are really seeing is supply. In the industry that I work in,consumer electronicsm there is quite a bit of talk about all suppliers that will go bankrupt after Chinese New Year. Although it is possible to get physical supply the situation among the suppliers has become more tenuous. Customers are really worried about whether or not the factories they place orders with will go bankrupt.

I image the same must be true for the oil industry, with less credit available for financing and lower returns on capital, bringing new supply on line must be difficult at best.

Although I'm sure there must be demand destruction at current prices consumption will probably stabilize if not increase. I just drove to Las Vegas for CES from Los Angeles and spent less than $22.00 filling up my car either way,on premium gasoline too I might add. At these prices if I buy something on E-Bay in Vegas,especially a heavy items,its just cheaper for me to drive to Las Vegas or San Diego than to actually pay for shipping. Gasoline has become so cheap I don't think about the cost of driving someplace far,I'm really more concerned about the time involved.

Sure there may be a reccession but here in the US at least people need to drive, whether its to work to visit friends or whatever. Right now its so cheap to drive in the US its just easier to drive distances greater than two miles,versus riding a bike or even public transit.

Enjoy the good times while they last.

[threadbear]

Shady, I don't think most Canadians appreciate how devastating this is going to be to our economy, if it happens. We're already in deep deep doo doo. But tell me, Shady, after so much production is shut down, don't you think that further consolidation, Saudi cuts will eventually firm up the price a little?

[shady28]

Although I'm sure there must be demand destruction at current prices consumption will probably stabilize if not increase.
...

Sure there may be a reccession but here in the US at least people need to drive, whether its to work to visit friends or whatever. Right now its so cheap to drive in the US its just easier to drive distances greater than two miles,versus riding a bike or even public transit.

Enjoy the good times while they last.

This is the same kind of blinder logic that got people in trouble investing in oil early in 2008.

People who do not have money do not buy things. It isn't a matter of want or even need - you cannot drive around in a car if you can't put food on the table.

There is a LOT more demand destruction that can occur in the US as far as oil and gas are concerned.

If you have a hard time believing that, just go out this Friday night to the nearest big city. Go after about 8pm, see all the cars jamming the highways and major streets. Is there any *need*for these people to be driving around? I'd bet that 80% or more of those cars out on Fri/Sat night is purely discretionary driving, and likely half of the driving after 8pm on weekdays is discretionary.

Take a look at some of the massive declines that were being noted in early December :

http://www.aspousa.org/index.php/2008/1 ... ber8-2008/

Natural gas : "Between April and September, gas consumption by industrial users dropped 14% to the lowest monthly figure since at least 2001.(12/6, #14)"

Japan : "Refiners in Japan, the world’s third-largest oil consumer, are cutting processing in December and probably in January to cope with bigger declines in fuel demand at home and abroad. Nippon Oil plans to cut processing this month by 18 percent from a year ago after slashing the run rate by 25 percent in November. (12/3, #10)"

China : "Gasoline and diesel stockpiles belonging to China’s two oil giants, Sinopec Group and CNPC, hit record highs in October. (12/2, #6)"

http://www.cleanmpg.com/forums/showthread.php?p=178167

"US fuel consumption of all petroleum products fell by an almost unheard of 5.8 percent or 1.2 million barrels/day (bbl/d). Gasoline consumption is projected to decline by 320,000 bbl/d, or 3.4 percent through 2008 with the year-over-year decline estimated to fall another 0.5% through 2009."


Here's a little critical thinking applied to the above.

US oil consumption for the first 4-5 months of 2008 was slightly positive. In the last 8 months of 2008, enough demand was destroyed to cause a 3.4% decline in oil consumption for the year as a whole.

Right now, some of the oil producing nations are predicting a 12-14% decline in oil consumption in 2009. Given the way these people think (linear projection), I'd hazard a guess that oil consumption RIGHT NOW is probably 10-15% down.

So, if things don't get 'worse', then oil consumption is down 10-15%.

Things will get worse.

I think you will see oil demand fall by a healthy 25% or more from the peak by the final months of 2009.

[shady28]

Shady, I don't think most Canadians appreciate how devastating this is going to be to our economy, if it happens. We're already in deep deep doo doo. But tell me, Shady, after so much production is shut down, don't you think that further consolidation, Saudi cuts will eventually firm up the price a little?

Yes it will. Demand destruction leads to destruction of the means of production (econo speak - factories, farms, miners and drillers cut production).

The bottom inflection point (of the economy in general) is when demand turns up and crosses with production. I think we are a very long way away from this, maybe a couple of years away.

[threadbear]

Shady, I don't think most Canadians appreciate how devastating this is going to be to our economy, if it happens. We're already in deep deep doo doo. But tell me, Shady, after so much production is shut down, don't you think that further consolidation, Saudi cuts will eventually firm up the price a little?

Yes it will. Demand destruction leads to destruction of the means of production (econo speak - factories, farms, miners and drillers cut production).

The bottom inflection point (of the economy in general) is when demand turns up and crosses with production. I think we are a very long way away from this, maybe a couple of years away.

After the price firms up to let's say 60.00 per barrel, for the sake of argument, in a couple of years time... do you see alternatives start to take over, at some point? This is my approximation of what will happen.

[shady28]

After the price firms up to let's say 60.00 per barrel, for the sake of argument, in a couple of years time... do you see alternatives start to take over, at some point? This is my approximation of what will happen.

That's a really good question, and I think it depends on what happens as far as the energy industry, regulation, and social trendso ver the next 5 years or so.

To be more specific - the scenario I'm talking about is one where demand destruction seriously outstrips any issues with reserve availability (peak oil) or production for the next 2-5 years.

Relative to past absolute prices, energy will be cheap during this time - although it won't be as cheap as it might seem when you factor in the vastly reduced purchasing power of the consumer.

If, during that time the efforts to improve the energy infrastructure - the power grid, auto industry, power generation - do in fact occur then I think 'peak oil' may not be the disaster it has been forecast to be.

So of the 'ifs' here - if the government bails out the 'big 3' and forces them to make more electrics, more hybrids, and significantly improve fuel economy overall. If the infrastructure Obama talks about includes conversion to wind power, developing clean coal power, developing breeder reactors, use of tidal power generation and shutting down existing natural gas and oil powerplants.

Those are some big ifs. IF history is the guide, then the last time the opportunity for these things came was the late 70s / early 80s. As soon as the economy began to recover, these things were forgotten.

I expect that will happen again - with a twist. The economy will only be able to recover up to a point before peak oil takes over again. A bottom in the economy may form up in 12-24 months, but it will likely take a couple more years before we hit consumption levels like we had in 2007 / 2008.

Now we're talking 2011 - 2013 and beyond - possibly hitting the cap of peak oil again.

The short version of this is - the opportunity is there courtesy of the financial and economic meltdown, but the human record on using these opportunities is spotless - we never fail to fail.

[Jotapay]

...but the human record on using these opportunities is spotless - we never fail to fail.

I try not to fail at failing to fail.

[Specop_007]

Damn shady, good assessment. You've put some thought in it to be sure.

I however do now want to disappoint, so I now feel obligated to go buy a new F250 with a gas engine to haul myself to work and back every day.

Truth of it is though I bet a lot of people have thought of getting a new vehicle because the car manufacturers are selling them cheap and gas is even cheaper.

[neocone]

As a hunter the current situation is awesome: Driving my SUV anywhere is super cheap... to get organic and free range meat. Only costs involved are the tags and license and the ammo + some time.

Also best drive everywhere since flying with firearms or even a bow is a nightmare. And 4X4's are always gas guzzlers.

[AirlinePilot]

If, during that time the efforts to improve the energy infrastructure - the power grid, auto industry, power generation - do in fact occur then I think 'peak oil' may not be the disaster it has been forecast to be.

I don't agree with that.

I believe with this particular scenario it becomes difficult to defend price remaining low for any period of time. My guess is that If we avoid a depression and by some miracle the dollar does not collapse, this infrastructure "injection" spikes demand, at least a little, resulting in relatively higher prices fairly quickly. Couple that with any real cuts by OPEC and the impact of the current crisis on future expenditures for production, and you have all the ingredients of another large spike. Maybe not like this last one, but the pressure on higher price will be there. I think barring complete demand collapse this plays out inside of the next two years.

I also think your overlooking the impact of the Export Land model, which is currently not a huge player, but with any increased demand becomes a major one in short order.

[galacticsurfer]

Super contango is rare and signals a new spike. This article in German says that happended in 1998 when oil costed $10.

http://www.rohstoff-welt.de/news/artike ... ts-Monthly

[shady28]

If, during that time the efforts to improve the energy infrastructure - the power grid, auto industry, power generation - do in fact occur then I think 'peak oil' may not be the disaster it has been forecast to be.

I also think your overlooking the impact of the Export Land model, which is currently not a huge player, but with any increased demand becomes a major one in short order.

That is an 'if' that I don't think will happen.

However, I think you are underestimating the amount of demand destruction that has and will occur over the next year. A couple of months ago, in excess of 10,000 factories in China had closed. That trend is only getting worse. According to the link below, spending within China is expected to be off 20-30% this year.

The last few months of 08 saw the USA losing over 500,000 jobs PER MONTH. These people are not going to consume, and that trend is likely to continue or even get worse in 2009.

Going back to China, China's oil demand fell 1.2% year over year in the month of November 2008. When you consider that, up until the final months of 2008, China's oil demand was expected to be up 9+% year over year - you're looking at a 10% drop from the trend established earlier in 2008. In other words, going into 2009 Chinese oil demand is dropping well inside of 2007 levels.

Japan, China, and US oil consumption have all dropped. These are the 3 top oil consumers.

As far as Obama's plan - I have little doubt that it will FAIL *economically*. The economy and the financial system will continue its collapse to much lower activity levels throughout 2009. This means oil demand will continue to dry up. The flip side to this is that those programs *may* have a longer term positive effect in terms of using more renewable and alternative energy sources which would dampen the impact of future peak oil problems as well as building the technology to address that issue in the future.

[AAA]

I listened to this today and wanted to share it.

You are cordially invited to listen to Morgan Stanley's global energy update.

Date: Thursday, February 5, 2009 Time: 10:00 AM EST

Ole Slorer, Managing Director, Global Head of Energy and Utilities, US Oil Service

Stephen Roach, Managing Director, Chairman of Morgan Stanley Asia

Hussein Allidina, Vice President, Global Commodity Strategy

Sadad Al-Husseini, Consultant to Morgan Stanley

Theepan Jothilingam, Executive Director, European Oils

Stephen Richardson, Vice President, North American Exploration and Production

Dial-in number (800) 288-8961
International Dial-in number (612) 332-0634
Passcode: "OIL"

If you are unable listen to the call, a replay will be available:
Replay number (Domestic) (800) 475-6701
(International) (320) 365-3844
Passcode: 984905