With Oil now over $132, and the forward-most contract, Oil for 2016 delivery, over $141, now is as good a time as ever to revisit Peak Oil, via this wonderful chart:
Crude Oil = $132; Peak Oil ?
May 21, 2008 11:45am by Barry Ritholtz
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Barry, that chart is barely readable… Can you export it as png or high quality jpg?
You see that point where the bars go from full color to the lighter shades AKA projected?
That’s the part where the bull$hit begins…cause no one knows exactly how much oil is left.
The data that is available is not audit-able and therefore suspect at best.
What we do know is that lately people seem to be using it faster than the oil companies/holders are willing/able to pull it out of the ground and sell it.
Don’t worry…
Even though all the economic data in the last 3 weeks points toward reccession.
Even though CEO’s are very bearish and say things are getting worse and their margins are squeezed.
Even though oil is at highs nobody imagined and contango is at levels never seen before.
The market technicals are strong so everything will be OK. Ha!
Oil in 2016 = $141? Given prices today, what level of stupid is the general population working at when it comes to oil prices?
Oh well, somebody will be left holding a very expensive bag when the bubble pops. This should cause a pretty impressive asset sell off to cover the bad bets. This will bring in new sellers and big ass falling stock prices. Woo Woo!
I was becoming afraid the market was in equilibrium regarding the number of buyers and sellers. Buyers with brains are not going to buy today. Sellers are holding at prices that would probably cause a loss if they liquidated. It will take a catastrophe to get sellers into the market and a bubble pop in oil is exactly what the doctor ordered.
Thanks Boone and GS for doing a great pump and dump. I might make some decent money this year.
Crude awakening is an interesting documentary on peak oil that correlates with this chart.
Per an article by Robert Bryce for Slate.com: Gasoline is also a fairly minor expense when you consider the overall cost of car ownership. In 1975, gasoline made up 33.4% of the total cost of owning and operating a car. By 2006, according to the Bureau of Transportation Statistics, gasoline costs had declined to just 17.1% of the total cost of car ownership. Of course, fuel costs have risen by about $1 per gallon since 2006, but even with those increases, fuel continues to be a relatively small part of the cost of car ownership.
(Gasoline is also cheap compared with other essential fuels. A Starbucks venti latte costs the equivalent of $23 per gallon, while Budweiser beer runs $11 per gallon.)
The simple truth is that Americans are going to have to get used to more expensive gasoline. And while they may continue grumbling at the pump, they need to accept the fact that even at $4 per gallon, the fuel they are buying is still a bargain.
Cinefoz…maybe we should add these political players to the list too
http://news.yahoo.com/s/nm/20080521/wl_nm/israel_iran_dc_1
I became ‘Peak Oil’ believer in January this year. Oil is still cheap. I have a blog
series ‘Countdown to $200 Crude on my blog
http://self-sufficient-future.blogspot.com/
Couple of my favorite oil sites:
http://lifeaftertheoilcrash.net/
http://www.theoildrum.com/
http://www.twilightinthedesert.com/
Twilight in the desert by Matt Simmons is a great book on ‘Peak Oil’. I read cover to cover back in February
Wishful thinking, avoidance, denial, procrastination, compartamentalized thinking and scapegoating–these are the first lines of defense against something as painful to think about as peak oil.
The United States will be forced to drastically cut its oil consumption in the coming decades, perhaps by 50% or more.
This will force a new era in which the attitudes, beliefs and values that have dominated American society and culture for the last 200 years will be turned on their heads.
This doesn’t mean the quality of life of Americans will be any worse–being released from the demands of endless consumption could be a blessing in disguise. The simple life has its advantages.
But it means nothing less than a cultural earthquake, and as Richard Bernstein explains, culture is amazingly obdurate:
“But culture is powerfully conservative. Culutre is what enforces obedience to authority, the authority of parents, of history, of custom, of superstition. Deep attachment to culture…is what pushes groups into compliance with practices that can be good or bad, depending on one’s point of view.”
Cultural change will not come about easily.
DownSouth wrote:
Wishful thinking, avoidance, denial, procrastination, compartamentalized thinking and scapegoating–these are the first lines of defense against something as painful to think about as peak oil.
reply:
You’re absolutely right and I am soooo wrong. Go buy some oil contracts. Buy a bushel basket full of them. They’re a sure thing. You can’t lose! Don’t be afraid to borrow a lot to do it. Think of it as a contribution to Conservation. You’ll be doing the entire world a favor.
Peak Oil is bunk. Pricing….that’s another story. The US has shelved production off of the California coast and in the Gulf of Mexico where additional reserves await us, but remain off limits. There is plenty of oil reasonably obtainable but high demand and currency issues place the price where it is.
One question I never hear answered from Peak Oil believers. If hydrocarbons are produced by decomposing forests from a millenium ago, why does Titan (a Moon of Saturn) have both methane and hydrocarbons in abundance? Perhaps the creation of oil is something yet to be understood completely.
☺☺…”they need to accept the fact that even at $4 per gallon, the fuel they are buying is still a bargain.”–Posted by: GreenMachine | May 21, 2008 12:31:41 PM
I suspect it will take gasoline prices much higher than that to achieve the demand destruction in the United States that will be required, perhaps on the order of $12 or $15 per gallon.
Isn’t Steve Forbes or Daniel Yergen (CERA) still calling for $35 or $40 oil?
Joh W: peak oil may be bunk, and there may well yet be WMDs in Iraq that we just haven’t found. All things are possible.
But how on earth do hydrocarbons on Saturn help us to keep running industrialized scoieties the way that we have been (ie, on cheap, plentiful, spurting-out-of-the-ground oil)?
Bottomline – Peak or Not high Oil prices are here to stay, All you folks who cling to the idea barrels of Oil are waiting to be discovered are kidding yourselves.
In addition, an aging infrastructure and lack of refinery capacity is going to continue to exacerbate the problem of high gas prices.
The S&P 500 has a P/E of 18-ish. Can someone explain to me how the S&P 500 can support such a ratio with oil at $130+, gas at $4.00, and producers caught between rising raw material costs and shrinking margins? Not to mention a housing slump and credit crunch…
Am I missing something?
Everybody needs to read the following, which was linked to in an article by Daniel Dicker on realmoney:
http://hsgac.senate.gov/public/_files/052008Masters.pdf
Based on the “technicals,” we not only have peak oil, but peak natural gas, peak wheat, peak corn, peak gold, peak sugar, peak you name it….Or…Speculative demand, which is totally insensitive to price, is driving up prices. And higher prices drive still more speculative demand as more trend-followers jump on board. These markets were never designed to accomodate such massive inflows of liquidity.
Historically, to discourage speculation, the CTFC required position limits for non-commercial traders. But the CTFC granted the Wall Street banks an exemption from position limits. So a hedge fund, for instance, can enter into a commodities swap with a bank and the bank can then go and buy futures with no position limits. The size of the swap and thus ultimate futures buying is unlimited because the bank is doing the buying and the bank is considered commercial, rather than non-commercial.
Commodities’ prices will probably continue to rise until this loophole is closed. There is certainly a good fundamental arguement for higher commodities prices. Every bubble has a good story. But the fundamentals haven’t changed that much over the past year or the past 3 months to justify the parabolic price rises we’ve been experiencing.
We can deal with the $4 gas.
But what about the:
$1 Bagels
$12 Salads
$50 for weekly yard mowing
$10 Popcorn and Coke at Movies
I’d say we are in a crisis. Since our whole infrastructure is made up on the automobile.
News item:
“According to the Bank of England’s market contacts, speculative purchases did not seem to be the prime cause of the recent increases in the oil price.”
Reply: I love a chain reaction. I think it’s taken on a life of it’s own now and everyone feels helpless. Even the BOE is adding fuel to the fire. Let’s see just how much air this baby can hold before it blows up. $150? $160? I’m starting to feel Great about this market now. I’m looking forward to an extremely obnoxious butt shaking happy dance … all who want can join in when the rug gets pulled out from under.
One thing that I’ve grown more curious about in the last year or so, is the price of crude oil and the futures market at NYMEX. Last September I set up a spreadsheet to track the price, volume and open interest of the nearest six months contracts. One thing that has puzzled me is that the open interest in a contract starts off around 40,000 (equivalent of 40M bbl of crude). As the assignment date nears, more and more contracts are added until typically about 380K contracts are open about 20-25 calendar days before assignment. There is then a steep drop off until the open interest on assignment day is about 30-40K contracts. You can see the basic open interest chart with front month bbl price overlaid here: http://docs.google.com/Doc?id=dsz4q8g_2d9wfqjhg
I’m aware that lots of people who believe the price of oil is manipulated point to this as evidence of manipulation. Though who exactly, is the manipulator is never really addressed which tends to lower their credibility in my eyes.
There is a part of my brain that thinks that excess contracts to trade – beyond what is physically deliverable to Cushing – would actually ease price volatility since there is more supply (of contracts). Think extra cashiers in a busy check-out line reducing wait times.
Anyway, the testable part of this idea is that price volatility should increase in periods where the open interest is lower – but I can’t seem to make that mathematical case. (Or my expectations for correlation are too high). Since the contracts that are canceled in the front month tend to show up in the next month out, it seems logical that a 2 month total of open interest should be used to correlate price movement.
I have my own ideas about this, but am curious what the group thinks regarding these phantom barrels/contracts. Thoughts?
☺☺”Go buy some oil contracts. Buy a bushel basket full of them. They’re a sure thing. You can’t lose! Don’t be afraid to borrow a lot to do it.”–Posted by: cinefoz | May 21, 2008 12:48:40 PM
Make no mistake that my money is where my mouth is.
I’ve been in the business of investing in oil and gas properties since the early 80’s. I’ve lived through the busts as well as the booms, and have learned from the school of hard knocks just how treacherous this business can be.
But I don’t speculate. I don’t buy oil and gas futures. On the contrary, I make long-term investments in oil and gas properties and select stocks of oil and gas producing companies. And I NEVER borrow any money to do so.
I think we’re in a position where we have to choose our poison. As Machiavelli observed: “And let no state suppose that it can choose sides with complete safety. Indeed, it had better recognize that it will always have to choose between risks, for that is the order of things.”
Now you and I see things differently. But isn’t that good? Isn’t that what makes a horse race? And just think, if it weren’t for the oil bulls, who would you have to bet against in the futures markets?
Yeah, thats it, the answer to peak oil is in the moons of Saturn. Is there a website for those moons yet?
From Feb 06 to Feb 08, worldwide daily oil demand was up 1.5%. Clearly there is going to be more demand from developing economies going forward, but it’s just not in the numbers today despite the hype.
Any guess as to the speculative premium in today’s $130/barrel price?
I’d like to hear from 1 or maybe 2 people who have on the ground real life not second hand info on oil..not gleaned from some edited report…how does it help to spout ideas of others that you know nothing of their motivations..like GS or OPEC or Boone..in fact read between the lines with Boone…he said all you need to know was 85 and 87 demand and supply..yet two months earlier he was short..what changed..lol..and also on Boone and every other alt energy idea..solves nothing ..80% of oil usage is for transportation..what does a wind farm do..and I agree…Yes it would be difficult for a man in handcuffs to dig a hole with a shovel…but to say peak oil is credible?? …you have production shut in or decrease where..Russia..what do they have beside oil to sell ..nothing..Venezuala..nothing ..Mexico ..nothing..all these production decreases are puposeful..all these producing countries get expert and then throw out the teachers or break the contracts or worse like Mexico fail thru ineptitude ..so what good is someones opinion gleaned from 5000 different sources of information when 80% of that information is incorrect, manipulated and full of motive….
One question I never hear answered from Peak Oil believers. If hydrocarbons are produced by decomposing forests from a millenium ago, why does Titan (a Moon of Saturn) have both methane and hydrocarbons in abundance?.
Jupiter and Saturn are basically made of hydrogen and methane. The Sun is made of hydrogen. Methane (CH4) is one of the most abundant chemicals in the Universe. However, it just so happens that most of the hydrogen and carbon on Earth are sequestered as compounds which require more energy to extract them than they can liberate (ie. water, carbon dioxide, carbonates in rocks). Buried organic deposits are unique in that they are “reduced hydrocarbons” (ie. not combined with oxygen) and they release excess energy when oxidized, ie. burned. Chemistry and geology are not the friends of a peak oil skeptic.
T Boone was saying that we should build more Wind & Solar to displace NatGas fueled centralized Electricity production, and put that NattyGas to use as a Transportation fuel. The technology to use NatGas in either gasoline, Diesel, even Wankel ICEs–to say nothing of Turbines– has been well-proven for decades..
Past that, “Peak Oil” as Geo-Physical reality is FOS, John W, above, raises some good points..
sylvia, you should remember that we haven’t yet pumped the first barrel of Crude out of the North Slope..
Oooh, I want to read the chart so badly but it’s too small on the screen and won’t let me print! :-( Anyone know how I can download it/make it bigger?
Lord_Huggington – “Anyway, the testable part of this idea is that price volatility should increase in periods where the open interest is lower”
It seems to me that causality may run the other way at times (i.e. open interest rises because volitility has risen). Stable prices mean forward buyers have a reduced need to hedge, and the reduced volatility means less spread for writers of contracts.
On the phantom barrels point, I suspect a lot of activity is related to buyers hedging input costs (eg. freight) which, though correlated to crude, may not require taking physical delivery.
FWIW
Not to worry. When oil gets to $200/barrel, the Dems in Congress may finally realize that the caribou in Alaska are not that important after all. If oil gets to $300/barrel, they’ll consider coal liquefaction. And at $400/barrel, they might even permit drilling off the coast of Florida.
“Peak Oil” as Geo-Physical reality is FOS.
Well, no. Petroleum deposits in the Earth’s crust are finite. Deposits that are economically and technically extractable are a small subset of this finite quantity. I defy anyone to tell their financial advisor that “Peak Trust Fund” is FOS.
Brasil, there a lots of oil industry people over on the theoildrum.com if that’s the kind of insider discussion you are looking for.
I love a good horse race. Can’t wait ’til 5:00 when I can mix a mint julep. Place your bets. Place your bets.
mark ..thanks for the comment..in brazil where I do have on the ground experience ..they use natgas in conversions for autos now..very crude..as they are dangerous..but shows it is possible easily…many taxi’s have them…on another subject ..how much spec is in the price of oil..? ..if they took out all non user specs including ETF’s and gave them 6 months to get out ..I’d bet oil would drop to below 80 in 5 trading days..
Come on people. Barry, this post could go down as very close to top ticking the oil market. We are definitely in a blow off driven by too many dollars chasing too few assets………in the financial markets. Not in the real economy. That isn’t inflation. It’s speculation. Just like 1929. At least bonds/stocks they hold intrinsic value and you are paid for it. That is unless you buy nondividend paying investments like RIMM, Apple, Baidu and the other ridiculous bubbles. What does owning a derivative on energy hold? It’s gambling. There are TRILLIONS of dollars in oil-related financial products held by financial institutions. Ten years ago that was basically zero. They are plowing into these products so hard that they are exceeding their limit in the US and then gaming the system by going overseas and investing.
Commodities are always the last cycle stocks to move before a fall. The biggest mouth in the peak oil scheme is a frigging banker. A banker. The same clowns that created the housing mess, the private equity mess, the emerging markets mess, the mortgage mess, the SIV mess, the the the the. Matt Simmons and his Twilight in the OZONE manure. We have bloggers who know nothing about energy starting their peak oil blogs. It only took only eight years to get everyone onto this scheme.
Oil is hard to find. Duh, guess what. Oil executives have said that for decades. Including when it was $10. Ain’t no reason to look for more when it was just $10 a handful of years ago. Boone Pickens just said we are doomed because we import 60% of our oil. Doh! And, we also did so when it was $10. It’s all horse hockey. Economic demand is up single digits. Financial demand is up over 1,000%.
I will bet my life that the world demand for oil wains well before we run out. We didn’t leave the stone age because we ran out of stones. Remember that. A Saudi oil sheik said it. He saw the writing on the wall. Oil prices fell after the 1970s because of demand destruction, economic substitution and efficiency. Technology today has the ability to change the world far more drastically than the 1970s.
~~~
BR: I hope it does !
I’ve noted the price of Crude throughout the move from $32 to $134 — my price target was $125.
I’m out!
Obviously I was a complete genius to buy my Prius in ’05 (and get the carpool sticker).
I read that the Saudis increase it’s reserves roughly( on a YOY basis) by the same amount they pull out of the ground. At some point it will be “oh S!@# it’s gone….” That will be what peak oil looks like.
Someone please go nuke the NYMEX…..it’s getting out of hand
Ciao
MS
Don’t worry, I just shorted oil ahead of the FOMC minutes here. So it will go down now..
BTW, I did write my serious summary of Peak Oil in October, 2006, it begins:
“I’ve been through the wringer on the whole Peak Oil thing. I’ve come out of it with what I call “cynical optimism.” Depending on where you stand though, you might not see the future I see as something that optimistic.”
I think it stands up pretty well.
Do you want to make money off this trend or do you want to help our country out of this unhealthy dependency? Oh, you want to do both, you say?
HorseHockey!
Let’s look at the facts:
1) The dollar is worth less so everything you buy with it costs more.
2) Unless you have a large nest egg, you’re out of luck as an employee to bargain for increased wages to reduce the erosion in your buying power.
3) The “It’s all about ME” mindset is not conducive to frugal and prudent living and saving. This is where most people are at.
4) Ripping people off is getting harder (just ask the people at BSC).
So what is the best course of action?
Position yourself so you can’t be subject to the HOOK business model. The HOOK is used when you buy a printer cheap but the ink cartridge costs a fortune.
1) Get a tiny but comfortable car.
2) Get a utility tow trailer for purchasing bulky items or whatever.
3) Get your energy from the sun or the earth(geothermal).
4) Ensure all your machines are electric (yeah the car too).
Your lungs will breathe cleaner air, your health will improve, you won’t be at anyone’s mercy and you’ll be doing your grandchildren a favor.
Of course, you can continue being a sucker for rich, greedy idiots and hope the rest of us will carry you along; but I wouldn’t count on it.
When oil gets to $200/barrel, the Dems in Congress may finally realize that the caribou in Alaska are not that important after all.
Please provide us with the links and evidence to support your thesis that increasing U.S. oil production by drilling in every National Parks, grave yard, public school playground and church sanctuary would have any appreciable effect on long-term world-wide supply, demand and price trends for petroleum.
I run the risk of sounding like an idiot and I am 99% of the time Mr. Free Market, but what if the government took these three steps:
1. Start selling from the Strategic Reserve
2. Institute higher margin requirements for commodity investors
3. Institute a temporary “windfall” capital gains tax on commodity investments
What effect do you think that would have?
>Not to worry. When oil gets to $200/barrel, the Dems in Congress may finally realize that the caribou in Alaska are not that important after all. If oil gets to $300/barrel, they’ll consider coal liquefaction. And at $400/barrel, they might even permit drilling off the coast of Florida.
ANWAR should be hoarded until oil is far more expensive than it is now. That would be the true conservative thing to do. (But we haven’t seen a real conservative in so long, no one knows what one looks like anymore.) We should burn Middle East/Russian/South American oil until they are dry and then fall back on domestic sources. This horrendously short-sighted and irresponsible notion that we should burn all of our own oil until we are 100% at the mercy of others is nuts, and certainly not “conservative” by any measure. But sure, priorities will change, no doubt about it. More likely nuclear will go, well, nuclear. Resistance to that will go first, I expect, just because it has PR upsides to it, vis a vis global warming.
Coastal drilling has a downside that no seems to recognize: it requires massive quantities of natural gas to power it. Those operations make heating your home far more expensive by competing for that fuel. But the market has spoken and driving your Escalade is far more important than keeping your kids warm… so that’s the situation we have.
Douglas,
First of all there is about 2 years supply of oil up in ANWR. Second of all, there is a shitload more off the coasts that we are not touching. Third of all, despite this week’s inventory decline, inventories are pretty much at the same level they have always been in years past. What justified $60/brl oil back then and now justifies $132/brl oil?
I think what John W is suggesting is some form of the abiogenic hypothesis, which most petroleum geologists think unlikely. And contra John, most oil is thought to have derived not from primordial forests but rather lots of dead plankton and other plant life in shallow seas. In any event, whatever the origins of oil and other hydrocarbons, what is clear is that the trend in new discoveries are all in hard-to-reach and hard-to-exploit places (e.g., deep under ocean beds), and as such the price of extraction is going in only one direction. Even were the oil “renewable” in the sense that it is abiogenic in origin and is seeping up from deep within the earth, it is not doing it at a rate that can keep up with our demand. If it were, US production wouldn’t have peaked in the 70s.
All it would take for oil prices to crater is for the fed to come out tomorrow and raise the fed funds rate by about 1% or so, and announce a policy of continued rate hikes, no matter the recessionary consequences, until inflation is brought under control. Well that, and withdraw all of its bail-out plans such that the dollar will again have meaning.
The folks that think “peak oil” has anything to do w/ a price spike that started in 2003, w/ fed funds at 1%, but really got rolling after August of 2007 when it became clear that no amount of dollars were too many to forestall financial system collapse…are simply amazing to me. Supply and demand for oil changed by magnitudes that great in six months to yield a doubling in price and there was nothing else, i.e., financial, i.e., dollar devaluation, going on? It was “peak oil” when we know Saudi Arabia could pump more but refuses, ditto Russia, ditto Mexico and Venezuala, ditto, the US itself? This is the essence of absurd.
And to be unable to see how this oil barrel price inflation yields the perverse incentive to shut in production so you can watch the asset increase in value by about a 1% per day, which in turn causes more price increases?
Yet again, financial bizarro world.
Oil prices today are simply the mechanism by which the US will endure the recession and income contraction that is now overdue. There’s nowhere left for the dollar to hide.
Estragon – Thanks for the reply.
My reply to your point about causality is the impressive regularity of the open-interest increase and decrease each month. It’s almost clockwork, regardless of the price. (As you can see that in the linked chart.)
I had also considered the expansion as a hedging tactic. The only problem I have with that, is with the rising price of crude contracts, the people opening up and canceling these contracts are likely getting hammered since they are selling low, buying back high. With the data in that chart, you can make some rough estimate of just how much those contract writers are losing each month.
IMHO, peak oil is about as obvious a theory as climate change. Based on what I view as a foregone conclusion, I’m long SSL, SU and BPT which have been great to me. BFRE.OB is a tiny company that will produce a very tiny volume of ethanol, but the idea is huge. Blue Fire has been a terrible investment thus far, but it deploys a commercially ready and patented process for the conversion of cellulosic waste materials to ethanol. This will take a while to bring online, but the company could be turning garbage into fuel at landfills everywhere. Short ’em if you dare cinefoz!
great call VT…..I hope it was not the USO though…..PBR would have been MUCH better
Ciao
MS
Roman ‘s question…What justified $60/brl oil back then and now justifies $132/brl oil?” …
really good hype..?
>when we know Saudi Arabia could pump more but refuses, ditto Russia, ditto Mexico
Okay, linkie please explaining how Ghawar’s current water cut is not indicative of sunset on that field?
Mexico is suffering from incompetence, but long term, that’s to our regional advantage, so that’s fine with me. They have announced that they will be out of oil in seven years.
Russia I’m willing to believe got smart and decided to make far more money next year (or next decade) for the same work. Boy these ex-Marxists learn fast, don’t they?
Drilling ANWAR and/or offshore is going to produce what percentage of oil the US uses daily? 10%? 20%? Seriously…
And where are new reserves coming from? According to the chart, after around 1980 the rate of discovery has been tailing off.
Peak Oil is right, the problem is just the timing. Barring a major “black swan” event, that might be in the next generation or two.
My view is that much of the current supply constraints is due to state-owned producers being misrun. They’re being starved of capital, while politics prevent them from partnering up Western firms who have money and technology. And then there’s Iraq, which has the second largest reserves of oil in the world.
Lord_Huggington,
The rise and fall of open interest, likely as positions are rolled into future months as the front month expiry approaches, is obviously done by those not wanting to deal with the physical (either supplying or taking delivery).
Some of the expansion is almost certainly hedging by indirect users and arbitrage plays (say, short oil paired with a short refiner position, or short front money and long further out). No doubt anyone writing oil futures recently is wishing they hadn’t, but individual writers aren’t necessarily out of pocket as much as you might think.
Brasil,
Why should Exxon be allowed to hedge if they want, not me? Shouldn’t I be allowed to buy an ETF to offset the increased cost of the gas I buy?
darkness
gets it……
Ciao
MS
“CNG vehicles have been introduced in a wide variety of commercial applications, from light-duty trucks and sedans – like taxi cabs, to medium-duty trucks – like UPS delivery vans and postal vehicles, to heavy-duty vehicles like transit buses, street sweepers (pictured right) and school buses. In California, transit agency buses are some of the most visible CNG vehicles.”
http://www.consumerenergycenter.org/transportation/afvs/cng.html
above is a simple intro to CNG vehicles in our midst, all with 100’s of thousands of hours of in-service time..
My earlier comment was predicated on ‘near-time’..
Dear Mr. Big Picture,
Do you have a reference for the chart?
Best regards,
this is an old article but still very relevant.
http://www.newcolonist.com/ghawar.html
Ciao
MS
I’m not dismissing the speculation explanation, but the fundamentals are supply being squeezed and demand increasing (especially if China continues to subsidize gasoline).
The answer is shades of grey, not black and white.
Been out all morning…but did see on CNBC that since the stimulus package was announced, oil went from 92 to 132…the Fed and Mr. Bush have monetized the oil inflation…any further stimulus/rate cuts will go right on top of oil. Good job.
We may have just hit the point I have been writing about, where oil causes a non-linear market event.
(Non-linear event is a nice way of saying C-R-A-S-H)
First of all there is about 2 years supply of oil up in ANWR. Second of all, there is a shitload more off the coasts that we are not touching. Third of all, despite this week’s inventory decline, inventories are pretty much at the same level they have always been in years past. What justified $60/brl oil back then and now justifies $132/brl oil?
—
I agree with “Darkness” above: the most prudent thing for the U.S. is to consider its domestic oil reserves as seed corn and preserve them for the future. This oil is owned by our grandkids. Running the well dry (literally) just because we are temporarily peeved by $4 dollar gas is pretty childish. Also, two years of reserves in ANWR means that its full and immediate exploitation will have no appreciable long-term or even short-term effect on prices at the pump. It’s like equating a $1,000 Christmas bonus with being promoted to CEO.
The answer is shades of grey, not black and white.
Posted by: Larry | May 21, 2008 2:37:21 PM
reply: There is something called a ‘Beautiful Lie’. It is a lie that sounds so believable that you instinctively believe it. A beautiful lie contains elements of the truth. This confuses your built in bullshit detector. You give the substantive parts that are a fiction the benefit of a doubt because you trust the parts you know something about.
A lot of the peak oil nonsense being spouted now, and how it impacts the price of oil so severely, is a perfect example of a beautiful lie.
Thanks MS, its the USO but small position and immaterial. Just for the hell of it. Probably cover it tomorrow at the open no matter what.
Overall I think oil is fairly valued here so just a trade for a couple dollars.
Put your crash helmets on market fans…also note that as soon as volume picked up, down goes Frazier…or is it vice versa?
Barry R:
I would love to read your chart but it is impossible to read. Even when I downloaded it and opened it as an image it appears fuzzy and impossible to read. It won’t print properly either. Any help would be appreciated! Thanks.
Its funny that a peak oil story gets everyone fired up. KP mentioned the bars getting lighter on the other end so none of it matters. I suppose if you can’t follow more tahan two data points to form a graph then that explanation makes sense.
However when you do the math and realize there have been less and less oil discovered since 1980, you begin to realize the obvious. No matter how it got there, its stored energy and it’s half gone. Everything since the Industrial revolution has been predicated on oil. At one point we didnt know what to do with the stuff!
Oil is finite and there will be an end. There are five stages of grief and the faster you work through the first four stages, the more prepared for the future you’ll be.
thefinancedude,
Ultimately, does it even really matter whether peak oil is true?
What really matters is whether people think it’s true.
If it’s disbelieved, it will eventually happen. If it is believed, it may not but we’ll behave as if it did.
Posted by: Douglas Watts | May 21, 2008 2:04:56 PM
“Please provide us with the links and evidence to support your thesis that increasing U.S. oil production by drilling in every National Parks, grave yard, public school playground and church sanctuary would have any appreciable effect on long-term world-wide supply, demand and price trends for petroleum”.
. . .
Thank you for responding.
I agree that drilling on U.S. territory will not have an appreciable effect on “long-term world-wide supply”.
But it’s a lot better than ethanol from corn. And if drilling in Alaska is combined with drilling in the outer continental shelf, and coal liquefaction, that would provide the energy needs for the U.S. (not the rest of the world) for many years.
The “greenies” have yet to come up with a solution (for liquid fuel) other than a non-descript, unspecified “biofuel”.
cinefoz,
US production peaked in 1970. That is a fact and there can be no denying it. If you deny it, there can be no rational discussion with you. Prudhoe Bay and the Gulf of Mexico both came on line AFTER the 1970 peak. Yet, even with the largest field ever discovered in the US (Prudhoe Bay with 2.6 mbd at its peak production level, now down to about 250,000 bpd) our total national production continued to decline. After the oil shocks of the 1970’s oil exploration in the US went into overdrive, yet US production never rose back to the previous level.
If we open every potential place for exploration right now, (North Slope, continental shelf, national parks, etc.) and produce as fast as we can, as much as we can, the production in the US will never reach the output levels of 1970. In fact, it is unlikely that the attempt would do anything other than slow the existing rate of depletion. What has happened in the US will happen to the world, the question is when. The price rise over the past few years suggests that it is happening now or it will be happening soon.
Chemistry and geology are not on the side of the Peak Oil skeptic. Best line in the thread.
PPT is out of bullets
VIX only has to double to get to past sign of fear…that’s all.
Cinefoz,
If this is a discussion about whether “peak oil” is causing it price at $130+ per barrel, you are correct. It isn’t.
Will oil ever run out? Yes. Will it be sudden, such as would cause a price doubling in six months? No.
You are correct to look places other than “peak oil” in explaining the crude inflation going on today.
Sometimes the easiest answers are the best ones. Like Carl in the movie “Swingblade” figured out what was wrong w/ a lawnmower by checking whether it had any gas.
If oil is screaming through the roof it could be “peak oil” or supply constraints or increased demand, or it could just be that oil prices are measured in dollars. A bit of each of the latter three is my guess, w/ the dollar problem far and away the biggest factor.
But it’s a lot better than ethanol from corn. And if drilling in Alaska is combined with drilling in the outer continental shelf, and coal liquefaction, that would provide the energy needs for the U.S. (not the rest of the world) for many years.
The “greenies” have yet to come up with a solution (for liquid fuel) other than a non-descript, unspecified “biofuel”.
—
Respectfully disagree. The model you suggest is the equivalent of “do we raid our daughter’s college fund or our son’s?” At best, this model simply shifts the entire problem onto our kids and grandkids. Not to mention that we already have to wean ourselves off oil so as to blunt what is going to be a nasty set of climate changes over the next 50-100 years. I know it’s cliche, but this is the skydiver without a parachute saying at 10,000 feet that everything is fine.
Cheers.
Posted by: Douglas Watts | May 21, 2008 4:12:41 PM
“The model you suggest is the equivalent of “do we raid our daughter’s college fund or our son’s?” At best, this model simply shifts the entire problem onto our kids and grandkids”.
. . . .
What fuel, EXACTLY, should we use for cars, trucks and airplanes?
Real estate always goes up; they aren’t making any more land.
Sound familiar?
DL – “What fuel, EXACTLY, should we use for cars, trucks and airplanes?”
The problem isn’t the fuel. What’s needed is better battery technology. Given that, sources of fuel can be a diverse and distributed mix based on local comparative advantage.
When you really think about it, oil is just a chemical battery storing solar energy captured in photosysnthesis which happens to have a good output to weight ratio when oxidized. The problem is it isn’t a rechargeable.
I work in the energy business. It is not about reality. It is about the perception of reality. If we all took a 1/2 day off a week from consumption in this country. We would save roughly 20 to 25 million barrels of crude oil a month. Here is the rub. We would have to sacrifice a bit of our lifestyle and our feeling of freedom.
Posted by: Estragon | May 21, 2008 4:42:50 PM
“The problem isn’t the fuel. What’s needed is better battery technology. Given that, sources of fuel can be a diverse and distributed mix based on local comparative advantage”.
. . . .
I suppose. If oil gets to $500/barrel, people will become willing to charge their car batteries with energy from wind and/or solar power (and maybe even nuclear).
And I notice that even Boone Pickens is making a big bet on wind power.
anyone have a link to a more readable chart?
text is too small for me to make out.
>Oil is finite and there will be an end. There are five stages of grief and the faster you work through the first four stages, the more prepared for the future you’ll be.
This is why assertions that peak oil is a lie (beautiful or not) doesn’t bother me. We need the wake up call. Because if it isn’t now it will be soon, as in, within half a generation (on the far far outside).
Over at the energy-focused blogs the discussion has moved from “when will it happen” to “so what do we do?” The exercise I like goes something like: so assume the best case scenario possible–we perfect fusion. Power is free, or cheap, what does it take to convert the infrastructure over to another source of energy? Even under that rosy scenario, things aren’t terribly pretty. It will be ten years before we get back to our current mode of life. Given that build-out of an electric-based infrastructure requires gas energy input, wouldn’t it be better as a public policy plan to start doing that now while oil is cheap?
And as investment strategy, T.Boone is right, all things to make electricity, and make us move with electricity, will be in short supply.
Barry,
Do you think the increasing availablity of commodities as an asset class(ETF/ETN’s) has contributed to a self feeding run-up in commodity prices beyond justified by supply demand fundamentals, a declining dollar, and geopolitical risk? And if oil is at 133 now when the economy sucks, where does it go upon recovery?
Here is very interesting testimony in front of the Senate yesterday on the subject(see PDF).
http://hsgac.senate.gov/public/_files/052008Masters.pdf
http://seekingalpha.com/article/78264-commodities-prices-speculation-exposed
Thanks,
Ryan
Wow, it took to the bottom of the thread (a good thread, mind) to hear a voice of reason calling for some concerted reduction in oil consumption. It can be done; N Americans are still big energy pigs.
This “I liked it so much better before” position wont get us far. As a (mostly) admiring neighbor I have to ask: what the hell has happened to Americans?? Where’s the ingenuity? I know, America got fat and spent its last dime. sad.
No one here will lock themselves in a carport while their car is running. Cars produce poison. It’s time to understand once and for all that shitting where you eat is bad for your health. The internal combustion engine must go or we’ll be replaced by an intelligent species.
“Real estate always goes up; they aren’t making any more land.”
This is a poor analogy IMO.
Land and oil are both finite resources, agreed, but the similarities end there.
I can buy one acre of land, and that can be all the land I need for the rest of my life.
Try doing that with one barrel of oil.
This is why the “oil bubble” (to the extent that it is, which may not be true) is so much different than any other “bubble” in history.
sumanta et al,
– before falling more deeply in love with the peak oil, you may want to read some critiques of the methodologies. Since he is so disliked by most in the ‘peaker’ community, I would suggest those written by Michael Lynch.
– And, since you mention Simmons specifically, let me quote something he published in January 1998:
Our intention in this report is to highlight that in the NYMEX crude oil market, price is not the beacon for fundamentals. Rather, it reflects the psychology of a small group of financial players.
(Matthew R. Simmons, Is Another “MG” At Work? (Or, What is Driving Down the Price of Oil?), January 27, 1998)
– Boone Pickens also said the world would never produce more than 85 million barrels/day of oil. Well, he was not talking about strictly oil but of total liquids production and, sorry Boone, liquids production did surpass 85 million b/d end last year, rising to 87 (IEA) or 86 (EIA).
– I don’t expect to correct confusion over how crude oils (plural) prices are formed other than to point out that price discovery is centred in futures markets, which are markets in financial instruments and, unless one rigidly adheres to a type of efficient market hypothesis and associated impossibility of artificial prices, financial markets are open to trend-following, momentum generating, story telling, behavioral pressures — which is distinct from manipulation.
– Someone above asked about information from ground level. The most I can say is that an old independent oilman I know quite well, who has nothing to gain from a lower price, believes that 75% of today’s light sweet/WTI price is financial.
– There has been no shortage of supply; demand has risen but gives evidence of turning over, and not just in the U.S.; price rises. Driven by fundamentals? No.
Logically speaking-if a barrel of oil was selling for $16.70 (give or take a few cents) on 11/19/01 and if the vast majority of the earth’s population would be lucky to feed itself for the day and count a bicycle as a major asset, who has used up all this oil? Most of their food can not even be attributed to being produced from a “combustible engine” and that engine has only been around a 100 years.
And given that there have been so many amazing advances just in the last 50 years, the TV, the computer, the ATM (that can spit out a receipt whereas voting machines can not?)the internet, the cell phone, emails, fax machines and then scans attached to emails, the space station, the CAT scan, hell, wireless everything. Do you honestly believe that the technology to harness the energy of the sun (which is free and easy) is not out there somewhere purposely buried as deep as the oil buried and unretreivable as the oil under the sands in Iraq purposely by the chaos since 3/02.
Juan,
Thanks for the heads up on Michael Lynch.
As I stated above, I have some skin in this game so my interest is more than just academic. I need to be vigilant about predicting future price movements, as a failure to do so will cost me some money. I’m now of the opinion that peak oil, whether due to politics or to geology, is effectively upon us. Nevertheless, I’m always interested in hearing contrarian opinions, because if there is something I don’t know–something that would be detrimental to the future price of oil–I certainly need to know it.
I did a Google on Lynch and came up with this:
http://peakoiloptimist.blogspot.com/2005/05/michael-lynch-last-skeptic.html
It is a piece done back in May of 2005. I haven’t had time to go and read and digest Lynch’s white paper and other publications, but I will.
What caught my eye, however, was this from the comments section:
“About the XOM peak report, I spoke to some friends over at Exxon and the 2013 predicted non-opec peak is based on $20-$25 oil prices, which they are still using. XOM redefines the term conservative when it comes to predictions and reserve bookings. 1P proven is an extremely small part of their reserve base. Geologic-proven-undeveloped is apparently a really large chunk of the portfolio.”
“At $35-$45 dollar price targets, they have a whole different set of projects that can become potentially viable, but XOM will wait at least another year or two before changing the price forecast level. (They remember the 1998 collapse quite clearly)”
We are now three years down the road and oil is $132 per barrel. And not only that, the oil speculators have really thown down the glove–they’re offering $132 today guaranteed up to $141 in 2016.
So where is all this new oil production that was supposed to become viable at $35-$45 per barrel? Can XOM boast any projects that, even with the oil price guraranteed at $132 to $141 per barrel for the next eight years, will significantly increase its reserves?
The answer of course is no.
And yet I still hear the same old hackneyed argument: “At $150 per barrel, everything becomes economically viable and producers will flood the market with oil.”
Lord_Huggington
Do you have the data on Open Interest for a period prior to 2007? Basically, is this ‘350k-450k contracts down to 40k’ a recent phenomenon?
It is interesting to me that no one in this whole thread (except anon, who did so obliquely in a link) has mentioned that one of the reasons the price of oil has been bid up so high might be fear that, deep in the dungeon of the United States Naval Observatory, Mr. Cheney is going all Dr. Strangelove on us.
How remote is this scenario ?
Saudi Arabia reduces its oil production to ensure revenue for future generations. Russia may have peaked, its yoy production is lower, leaving Iraq with the most available oil. Our military seizes Iraqi oil fields, (which they probably should have done in 2003). Would Russia and China acquiesce ? I doubt it, in which case using the price mechanism to ration, gas would probably exceed $20/GAL, if we were lucky. And the lines waiting would resurrect memories of the 70’s.
I think a higher resolution version is available at oilposter.org, but as far as I can tell, you’ll have to buy it and get it physically shipped to you (i.e. what BR posted is the highest resolution available for download).
Just as the propagandists had to change the name from global warming to climate change you guys need to get caught up with the times. I do believe they have been forced to call it peak conventional oil now. When you look at it from that perspective it changes the argument quite a bit
“The problem isn’t the fuel. What’s needed is better battery technology.”
In a sense, gasoline is a form of battery technology. It’s really efficient and quickly charged…;-)
LiPo batteries have made *serious* advances in the last decade, and chem-E’s tell me that there is even more potential from Chromium. Best ask yourself why a small San Carlos company has the second quickest car on the planet, with twice the fuel efficiency of a Prius, while the major auto makers struggle to catch up.
Let’s save the gasoline for old Barchetta’s.
From a report on the oil situation published in 1920 by the US Geological Survey:
“There are traces of oil everywhere, not always in commercial quantities … and no man is yet able to say what will be ‘commercial quantities’ and what ‘inaccessible territory’ when the automobile has finished off its mad consumption of gasoline. That day is perhaps closer than we think…”
The report announced the USA had only 20 years yield left from onshore oil deposits (meaning they believe the USA would be out of oil by 1940!).
We don’t have to use oil products to drive our vehicles. Electric cars are available now. The Chinese are Europeans are already making them.
the gloom and doom continues among the academia here on the Big Picture, the glass is always 1/2 empty and full of
poison for you guys.
Cheer up.
~~~
BR: Actually, there is no such thing as half empty. A 10 ounce glass with 5 oz in it is half full.
You can say, correctly I might add, that with 5 oz in it, it has been half-emptied.
Its essentially a grammar, not philosophical problem.
Geese Barry, and to think I studied university
chemistry, physics, physiology, etc.
And I did not know the proper adjective.
It is quite obvious the US is sinking economically speaking and your threads are
correct.
But to wallow in despair without hope of battle is called deppression in psychology.
So how does one battle this deppression ??
with commodity investments !!!!
So guys, instead of complaining about this, about that, throw some ideas around on how to make money in this mess we are in.
Again, would be great a higher resolution chart?