<Conference open thread The Oil Drum News from the blogs>

46 comments on The back side of the curve

Comments can no longer be added to this story.

| Show without comments | PDF version

SW on November 10, 2005 - 9:48am Permalink | Subthread | Comments top
Time for bold predictions.  2005 was the peak for all liquids.  Katrina was the nail in the coffin effectively eliminating any chance that a rolling plateau could be sustained through 2009.  The delay in deepwater projects will make them bumps on the backside of the curve, insufficient to forestall the peak.  The bottle of bubbly goes to Deffeyes.
Comments can no longer be added to this story.
step back on November 10, 2005 - 12:06pm Permalink | Subthread | Parent | Comments top
The bottle of bubbly goes to Deffeyes.

Wait a minute.
It isn't Thanksgiving yet.
Can't we enjoy the dream just a few more weeks?

Close eyelids.
Pull blanket over one's head.
Repeat to one's self: "Yergin is right. Yergin is right. Yergin is ..."

Comments can no longer be added to this story.
step back on November 10, 2005 - 12:31pm Permalink | Subthread | Parent | Comments top
North Sea province as a whole is precisely following the predicted Hubbert Linearization downward ....
Texas is 90% depleted.  Saudi Arabia is 55% depleted.  The world is 50% depleted.  ...westexas

But of course, economist "experts" like Huber (is that the right guy?) will say, "Ignore the physical measurments. Ignore what the nerd scientists say. The Market is right (always). The Nerds are wrong (always ...And if you side with them you are one of them).

The declining Price Signal proves the Peakers are wrong!!!  

Comments can no longer be added to this story.
ABAPer on November 10, 2005 - 1:56pm Permalink | Subthread | Parent | Comments top
Hi Guys

The declining price signal article is oh so predictable...

We saw the same when the oil price went from $30 to $45 dollars and then eased to $40 and everyone gave a big sigh of relief and started back to investing as usual...

Then when oil went from $40 to $55 and then eased to $50 everbody in the markets yet again celebrated... etc.. etc..

The market is so dumb it hasn't even noticed that the price has risen by $20 a barrel along the way and is in a continueing long term up trend.... We get the slightest fall back and the flags come out... why... because that is what the market wants, it wants oil to be coming down in price...

Looking at the graphs it would appear we have at least one more wave in this cycle of advances and then it might just turn out that the whole of this run was just the start of a bigger formation...!

Why can't the economists see that energy drives economics and not the other way around... it seems just so obvious to any logical mind...?

I hope to be in a posistion to start spread betting on the oil price with the next wave... It seems the only way to safely navigate the storm is to ride the wave out... With the money perhaps I will invest in some local industry that is having a bad time right now that will be relocalised by necessity after the peak...

Comments can no longer be added to this story.
Essex Land Rover Man on November 10, 2005 - 2:12pm Permalink | Subthread | Parent | Comments top
Be careful. It is not as easy to make money as it seems. About 80% of traders lose money. Interday  fluctuations are bigger than the overall day to day changes. My gut feeling is prices will drift lower until the start of the cold weather in the NE USA and stocks begin to fall/demand is recognised as improving (which the big traders seem to not believe in at the moment) which could be late November or early December. Then the upward rally will begin, I guess until April/May. Then we wait for Bush (with help from Blair?) to bomb Iran to stop the Iranian Oil bourse selling oil in Euros - sorry meant to say to stop the Iranians from building nuclear weapons. Just because you (and I know about peak oil, it doesn't mean the market will react in the way you expect it to.
Anybody else have a feeling on how the markets will behave before Christmas?
Comments can no longer be added to this story.
bigfootvegan on November 10, 2005 - 3:17pm Permalink | Subthread | Parent | Comments top

I totally agree with your forecast, think it will stay around this price for next two weeks.
 Where does a complete novice go to buy oil futures?  I am sure oil is under priced and would like to help my exit strategy "slush fund"
any advice on this from anyone would be very much appreciated.
Comments can no longer be added to this story.
LevinK on November 10, 2005 - 3:18pm Permalink | Subthread | Parent | Comments top
My explanation about the failure of the market in this situation is that the price volatility hence the risk becomes too high for the speculators. Thus they restrict their activity even though they are basically pretty confident on where the market is headed to.
The price is then determined by the marginal barrel - and since supply is locked for months on, every 1% drop or rise in demand results in huge deviations in a continuous self-reinforcing process.
Comments can no longer be added to this story.
step back on November 10, 2005 - 3:36pm Permalink | Subthread | Parent | Comments top
I see today's price drop for crude futures (down to around $57/bbl) as being mostly political.

The Washington b.urea.ucrats have spoke their magic words of power: "Mr. Gorbechev bring down those oil prices."

Lo and behold, the waters have parted and new abiotic oil has sprouted forth from impermeable rock formations in the desert kingdom. The Price Signal proves beyond doubt, the power of Congress over all things investigated.

Comments can no longer be added to this story.
Francois on November 10, 2005 - 3:39pm Permalink | Subthread | Parent | Comments top
About the only thing the oil markets have proven is how right the peak oil premise is with respect to price volatility on minor demand/supply imbalances.

I really dont know how the present lower demand / higher supply is being effected - be it through the SPR release, gasoline imports, people flat out broke and not buying or whatever. As an investor you should be very afraid of being on the wrong side of this see-saw even

Francois

Comments can no longer be added to this story.
bigfootvegan on November 10, 2005 - 4:24pm Permalink | Subthread | Parent | Comments top
if the price went below 57 it will still go up beyond that price at some point surely?
is it possible oil could stay below 57?

I completely agree with you that the price is volatile

but surely demand will soon outstrip supply and when that happens the price will go up

why wouldnt people who think this all invest in oil?

which would then mean that peak oil believers would all be hyping bad news to increase there funds???

is this what simmons is doing?

ohhh I am so naive.....

Comments can no longer be added to this story.
Oil Trader on November 10, 2005 - 4:40pm Permalink | Subthread | Parent | Comments top
Dec 11 contracts are selling for $53 a barrel This could be the last good buying opportunity. It could fall some more but if you can ride it down it will be worth it. The chance of it spiking well over $100 is far greater than it falling back to $30. Thats how to trade just guess the odds. and have a long term view.
Comments can no longer be added to this story.
Sam Foucher on November 10, 2005 - 10:36pm Permalink | Subthread | Parent | Comments top
Let's have a look at the last three years:

Prices are still around the linear trend observed since September 2003. They are now dropping the same way they did last year around Bush reelection. They could go as low as $55 but probably not for long.
Comments can no longer be added to this story.
step back on November 10, 2005 - 12:38pm Permalink | Subthread | Parent | Comments top
P.S. on Peter Huber. It took a while to locate his Money versus Science article. Here it is:
http://www.forbes.com/free_forbes/2005/1031/122.html

In the real world, however, investors don't care a fig whether they earn positive Eroei. What they care about is dollar return on dollar invested. And the two aren't the same--nowhere close--because different forms of energy command wildly different prices. Invest ten units of 10-cent energy to capture one unit of $10 energy and you lose energy but gain dollars, and Wall Street will fund you from here to Alberta. ... Put another way, Eroei--a sophomoric form of thermodynamic accounting--is always negative and always irrelevant. "Matter-energy" constraints count for nothing. The "monetary culture" still rules.
Comments can no longer be added to this story.
mikeB on November 10, 2005 - 4:21pm Permalink | Subthread | Parent | Comments top
Invest ten units of 10-cent energy to capture one unit of $10 energy and you lose energy but gain dollars, and Wall Street will fund you from here to Alberta

You've put your finger on one of his quotes that's like an ice pick in my bad tooth.

Can anyone tell me if anyone has EVER done what Huber describes, at all, let alone over a long period of time?

Comments can no longer be added to this story.
step back on November 10, 2005 - 9:30pm Permalink | Subthread | Parent | Comments top
tell me if anyone has EVER done what Huber describes, at all, let alone over a long period of time?

Sadly it is done ... and yes, all the time.
When electricity is produced by utilities, they take cheap coal, burn it, throw away about 70% of the resulting energy, just to convert the remaining 30% into more pricey electrical energy.

This exactly why some critics think that heating your home with electricity instead of natural gas is just nuts. The electrical approach is incredibly inefficient.

(But please, don't use that ice pick imagery. I just got out of the dentist's office.)

Comments can no longer be added to this story.
mikeB on November 11, 2005 - 7:48am Permalink | Subthread | Parent | Comments top
Aahh. Thanks. I withdraw my ice pick.

In other words, go through energy like water in order to make a buck, and don't worry about the natural supply.

It confirms a quote I heard stated somewhere: "The free market is the most efficient way of converting natural resources into garbage."

Comments can no longer be added to this story.
step back on November 11, 2005 - 11:08am Permalink | Subthread | Parent | Comments top
"The free market is the most efficient way of converting natural resources into garbage."

A far longer way of reaching that short conclusion may be found here:
http://www.rainbowbody.net/Finalempire/

Comments can no longer be added to this story.
Everett on November 11, 2005 - 3:25am Permalink | Subthread | Parent | Comments top
The example of tar sands and natural gas that Huber uses seems counter to the point he is trying to make, as it can be argued that oil is being produced using an equivalently priced fuel.  What would be really nice is a more direct and efficient process that just converted NG into a liquid fuel (ammonia?) and entirely bypassed the tar sands.

I think cheap energy is an oxymoron that makes Huber's argument a nonstarter.  There are many factors to consider in deciding the worth of a particular energy source.  
For NG, location is a consideration because a pipeline is usually needed to move it to where there is demand. So, from this perspective, the NG under the Canadian tar sands is worth much less than NG produced in Texas.  The tar sands are then just a vehicle to facilitate moving the energy of the NG out of the wilderness.

Another factor to consider is the energy investment to access "cheap" energy. Huber doesn't mention all of the gasoline and diesel that must be burned, in addition to the cheap NG, in order to process the tar sands.  Just about every type of cheap energy, (hydro, solar, or wind) requires a considerable capital investment before it can become useful.  I suspect oil in some form would be a signficant part of any such investment.

I guess my point is that there isn't any straight trade or conversion of one energy type to another; some expensive energy must be used to make the conversion happen.  Because cheap energy requires some expensive energy to become useful, cheap energy can never be all that cheap.

Comments can no longer be added to this story.
step back on November 11, 2005 - 11:22am Permalink | Subthread | Parent | Comments top
Pardon my criticism, but I suggest that it is wrong to mix price-based "economics" with "science". The two have little to do with one another.

You wrote:

straight trade or conversion of one energy type to another; some expensive energy must be used to make the conversion happen.  Because cheap energy requires some expensive energy to become useful, cheap energy can never be all that cheap.

"Price" is a noise bark made by two or more human creatures as they "negotiate" with each other. Mother Nature does not listen to such noise barks.

"Energy" is a particular expression of the mass-energy complex (E=mc^2) controlled by Mother Nature. Ma has her way of doing things. If you don't play by her rules, you lose. It's simple as that.

When humans deal with each other, they mostly bark at each other and ignore Mother Nature's laws. (98% of the populace are not educated in "science".) So in that sense, Peter Huber is right to write that economics rules if you consider current day human interactions. That is the way 98% of the humans interact.

Comments can no longer be added to this story.
Everett on November 11, 2005 - 2:39pm Permalink | Subthread | Parent | Comments top
Don't concern yourself, I think that we are mostly in agreement.
Market economics seems to have a restricted perspective on the worth of energy resources.  By ignoring up front capital costs and oil energy inputs,  alternative uses for the natural gas, and back end costs like contaminated water and global warming, it is easy for the market to justify oil production from tar sands.  A perspective that only considers the short term and that has a narrow product-focused scope can justify almost anything. My quoted statement is just saying that from a larger than market perspective, there is no such thing as cheap energy.

We both acknowledge that the last century has been an extraordinary era (error) where humanity literally burned through a unique fossil fuel resource.
I think the unprecented growth in energy supply largely insulated the market from "matter-energy" considerations.  We were able to create a bubble BarkWorld where Nature's voice was muffled.  With the Peak upon us, the bubble must burst, and we will clearly hear matter-energy getting the last laugh. We will realize that we were playing by Mother Nature's rules all along, but didn't realize it because we were squandering an great gift.

Comments can no longer be added to this story.
step back on November 11, 2005 - 4:40pm Permalink | Subthread | Parent | Comments top
Yeh. Mother Nature likes to play many fun games.
One is called Overshoot and Die-off.
Lot's of fun.
She plays it all the time.
Just for the random heck of it.
Unless, of course, you believe in Intelligent Design.
If that is true, then Ma Nature is a mean bitch.
Imagine intetentinally fooling the humans into burning oil.
Why that ain't motherly at all.
Comments can no longer be added to this story.
TJ on November 10, 2005 - 1:07pm Permalink | Subthread | Parent | Comments top
Probably truer than you think.  It looks like the plan is to get one more good Christmas season from the economy by hook or by crook before the long dive begins.
Comments can no longer be added to this story.
Rick on November 11, 2005 - 5:51am Permalink | Subthread | Parent | Comments top
I just ran across a quote I hadn't seen: George Littell of the Houston oil consulting firm Groppe, Long and Littell, from September 2005 Oil and Gas Investor: "We think that if you look at the curve globally, the oil peak occurred in 2002, and we are now about 4% off that peak."

I agree that Deffeyes is a strong contender, but when do you think we'll have enough data to figure out when the peak occurred? If it does turn out to be a bumpy plateau, it could be a long and inconclusive wait.

Comments can no longer be added to this story.

46 comments on The back side of the curve

Comments can no longer be added to this story.

| Show without comments | PDF version