Crude Oil = $132; Peak Oil ?
With Oil now over $132, and the forward-most contract, Oil for 2016 delivery, over $141, now is as good a time as ever to revisit Peak Oil, via this wonderful chart:
Wednesday, May 21, 2008 | 11:45 AM | Permalink
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Barry, that chart is barely readable... Can you export it as png or high quality jpg?
Posted by: mhm | May 21, 2008 12:02:46 PM
You see that point where the bars go from full color to the lighter shades AKA projected?
That's the part where the bull$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.
Posted by: Kp | May 21, 2008 12:17:42 PM
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!
Posted by: Vermont Trader | May 21, 2008 12:18:03 PM
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.
Posted by: cinefoz | May 21, 2008 12:28:17 PM
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.
Posted by: GreenMachine | May 21, 2008 12:31:41 PM
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
Posted by: anon | May 21, 2008 12:36:07 PM
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
Posted by: sumanta | May 21, 2008 12:40:20 PM
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.
Posted by: DownSouth | May 21, 2008 12:42:29 PM
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.
Posted by: cinefoz | May 21, 2008 12:48:40 PM
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.
Posted by: John W | May 21, 2008 12:51:51 PM
☺☺..."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.
Posted by: DownSouth | May 21, 2008 12:52:23 PM
Isn't Steve Forbes or Daniel Yergen (CERA) still calling for $35 or $40 oil?
Posted by: Stuart | May 21, 2008 12:57:24 PM
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)?
Posted by: sylvia | May 21, 2008 12:59:09 PM
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.
Posted by: Jim | May 21, 2008 1:07:05 PM
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?
Posted by: Mr. Obvious | May 21, 2008 1:07:37 PM
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.
Posted by: Nathan | May 21, 2008 1:10:58 PM
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.
Posted by: mrkcbill | May 21, 2008 1:12:48 PM
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.
Posted by: cinefoz | May 21, 2008 1:15:57 PM
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?
Posted by: Lord_Huggington | May 21, 2008 1:21:46 PM
☺☺"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?
Posted by: DownSouth | May 21, 2008 1:22:06 PM
Yeah, thats it, the answer to peak oil is in the moons of Saturn. Is there a website for those moons yet?
Posted by: Innocent Bystander | May 21, 2008 1:22:07 PM
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?
Posted by: Brian | May 21, 2008 1:26:36 PM
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....
Posted by: brasil | May 21, 2008 1:29:27 PM
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.
Posted by: Douglas Watts | May 21, 2008 1:31:42 PM
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..
Posted by: Mark E Hoffer | May 21, 2008 1:42:45 PM
