<DrumBeat: July 9, 2006 The Oil Drum UK Energy Trends, Coal>

125 comments on Oil Price Poll

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MikeCapone on July 9, 2006 - 12:36pm Permalink | Subthread | Comments top
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BioDiesel on July 9, 2006 - 12:41pm Permalink | Subthread | Parent | Comments top
Thanks for the info Mike :-)

As to the poll, it's all about the hurricanes.

But I have changed my view a bit about demand destruction.  Before I thought prices could never get to $100.
Now at $3.00 gas demand is still increasing.  I guess the question is how far are we willing to go into debt to pay for our current lifestyle?

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Dan Ur on July 9, 2006 - 2:24pm Permalink | Subthread | Parent | Comments top
As far as it takes.   But most people can still live paycheck to paycheck by juggling things, not going out to eat as many times, not going on the cruise but going to the mountains, smaller vacations, not bigger ones.  They can for now get by with things.   Huntsville where I used to live has BRAC coming in to Redstone Arsenal and Marshall Space Flight Center has been getting more NASA work and has more people coming in.  BRAC is moving 5,000 people in to work, while this does not even touch the numbers of support jobs that will arrive too.

That area won't suffer the same fate as some other areas will when the gas prices make mortgage payments.

I am of the opinion that we can still go up to $4.00 a gallon if we phase it in slowly like $3.00 has been doing.  If its a sharp hit in a few weeks and stays there, it will hurt more than if it goes up and down but finally settles at $4.00.

But I don't drive nearly as much as I did 16 months ago.

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TenPin on July 9, 2006 - 5:57pm Permalink | Subthread | Parent | Comments top
I live in Kansas City and my friends and I don't earn much money. I don't have a car but some of my friends do. I was considering how much of a difference the $1/gal price hike we've experienced over the last year really makes to them. Most of my friends use 45 gallons a month so now they obviously have $45 less per month to spend. You probably have to factor in some inflation elsewhere too such as food prices so make it $50. None of my friends are driving any less because of this so I guess I need to ask my friends how much more gas would have to cost for it to hurt their budget.

One thing is for sure though, they are spending less money on snacks, movies, nights out, etc so the entertainment and luxury businesses are losing out on their $50 a month.

How much of the US economy is based on luxury/entertainment. Is it most commonly the first thing that people stop spending on when their discretionary income drops or do people just pile on the credit card hoping for future relief?

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Agric on July 9, 2006 - 7:01pm Permalink | Subthread | Parent | Comments top
Your thoughts are accurate, Tenpin, consumer discretionary spend will be the first thing squeezed and the signs are there already. Malwart, when reporting second quarter results last week, said that consumer staples were their strongest sector and consumer discretionary rather weak.

Consumer spend is approx 70% of the US economy, I don't know of any attempt to define consumer discretionary vs staples spend.

Most gas spend is done on credit card, as is a lot of other consumer spend. There will be a lag before increased gas spend affects behavior. Those who pay credit cards off every month will probably make changes in spending behavior quite quickly. Others may let things drift a while before cutting back drastically, yet others will juggle things into probable bankrupcy.

So, the affect of increased energy prices on consumer spend, and hence the US economy, is likely to be gradual.

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Mad Maxout on July 11, 2006 - 11:49pm Permalink | Subthread | Parent | Comments top
So far, it's like you say, with the demand destruction at the long-range-commute end of the bell curve. I already know someone who succumbed to a barrel-a-WEEK commute. He got a job a lot closer to home. Even with some pay cut, he come out ahead no longer spending $500/month on the gas.

But while the long range commuters get demand destruction first, as the prices rise, the curve will rise and get steeper like a Hubbert Curve! He gave up a $40,000/year job becuse $6,000/year in gas sunk his truck. (and the gas money is after taxes)

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seismobob on July 9, 2006 - 7:50pm Permalink | Subthread | Parent | Comments top
When gas was in the $1.50 range I moved to  Aberdeen, Scotland where gas was in the $4.50 range.  Their was clearly a suppression of driving at that gas value. One could buy a 3 year old car with 15,000 miles on it.  It probably is mitigated by the fact that the UK is a very small country compared to the US,but it will be in the $4.50/ gallon range before people start re-organizing their lives, in my opinion.

The lesser driving was also mitigated by a public transportation system which was said to be one of the best in Europe. But even so, I didn't use it to drive the 10 miles to work because it would have taken me about 1 hour to get to work from my house on the west side of Aberdeen to the office on the south side. I don't know what pain level would have made me ride the bus, but even $4.50 / gallon wasn't it.

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tommy on July 10, 2006 - 3:00am Permalink | Subthread | Parent | Comments top
You have to understand that the extra money payed for gas is not lost! The money has gone somewhere else, but it isn't lost!

This means that the people who get the money (the oil exporters) can (and will) spend it back into the U.S. economy (or buy bonds). If they don't the dollar would not keep its value. So this means that the money comes back into the U.S. either way!

Only if extracting the oil requires more manual labor (more people to extract a barrel) the economy will be hurt! But since you hear every company screaming that they can not find qualified people I think that the increase in people working in the oil sector is relatively limmited (any data on this?)

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slx on July 10, 2006 - 7:44am Permalink | Subthread | Parent | Comments top
Since the dollar is steadily dropping in the past years, that money is not coming back to the us, apparently.

How will employing more people in oil extraction hurt the economy?

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Mad Maxout on July 11, 2006 - 11:53pm Permalink | Subthread | Parent | Comments top
But we all know some of that gas money goes into the economy right... when terrorists funded by it buy fertiliser, diesel (at $3/gallon!), and cars, then tons of money ends up coming from insurance companies' portfolios to pay for the healthcare of the injured. And portfolio money comes from the gas prices too!
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Vintermann on July 10, 2006 - 1:50am Permalink | Subthread | Parent | Comments top
I suspect gas prices has a comparatively small effect on household budgets, compared to rents tec. That is the case here, anyway, and we have three times as high prices due to taxes. There are a lot of things people would rather cut down on, I think. There's still not very much to be saved by driving less in the US.
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Gail the Actuary on July 9, 2006 - 1:30pm Permalink | Subthread | Parent | Comments top
I expect the story about peak oil to hit the MSM in the next three to six months. I have been telling people that if they have a large SUV or truck they would like to unload, now is a good time to do it. It might also be a good time to list the big drafty old house that is a long way from work with a real estate agent.

Once the story hits the MSM, I would expect the price of oil to stay in excess of $100, unless the economy really goes into a deep slump.

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oilaholic on July 9, 2006 - 3:33pm Permalink | Subthread | Parent | Comments top
I voted for C but not because the MSM will pick up PO.  The concept already is seeping into the MSM, but believers have been effectively colored as a new flavor of political nut by nearly all MSM commentators.

More to the point, the commentators have a lot of excellent ammunition.   First, the war and weather impacts are keeping lots of oil off the market.   Therefore, even if oil production is flattening or begins to fall, that does not prove anything about "peak oil", which is a geological concept.  Man-made or natural impacts on production invalidate a short term decline from indicating that oil has peaked in a Hubbertian sense.

Secondly, there is a LOT of new oil production coming on stream over the next 3 years.

Thirdly, the concept of PO as debated on MSM is a confused one that includes production of unconventional oil and other energy products, like bio-fuels.   So a true discussion of PO on the MSM is almost impossible to have now.

What I think will have more impact is the increasingly rapid change in mind-set among exporting countries.   They are becoming horders, recognizing that if they hold back production, they do not need to sacrafice revenue because price increases will produce the same revenue on lower production.   These are the folks who truly do understand PO and who are acting in their best interests which are quite different now that a Peak (at least in sweet crude) is reasonably close to being in sight, if not already here.

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Rose Selavy on July 9, 2006 - 5:09pm Permalink | Subthread | Parent | Comments top
I am curious whether the political debate in Kuwait about how fast to deplete the country's oil reserves, as well as the desire to understand the true size of their reserves, is the beginning of something new and significant. One could see it as "hoarding", or, as someone else on this list observed, as a sort of unilateral "depletion protocol", like the one Richard Heimberg has proposed.

Most of the big oil producing countries (with the exception of Norway and Russia) also have fast-growing populations; the political pressure to curtail exports to satisfy (and subsidize) growing domestic demand and provide for future needs could become a larger and larger consideration. Policy changes in exporting countries could dramatically affect the amount of oil available for export, even if total oil reserves or production don't change as dramatically.

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jim burke on July 9, 2006 - 4:12pm Permalink | Subthread | Parent | Comments top
There seems to have been a dearth of articles and commentary lately about the supposed gush of new, offshore oil coming online. (Though it's possible there was something in a Drumbeat which I missed.)

This is crucial, in that offshore oil is the only thing which might prolong the "wobbly plateau" and/or keep prices from inexorably rising.

Without a real offshore gush, Deffeyes is probably right about the timing of peak.

Any thoughts on this?

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steverino on July 9, 2006 - 6:53pm Permalink | Subthread | Parent | Comments top
jim, i'd like to comment on your observations ,as well as oilholics, above, i was looking back at a post on chris strebowski of ODAC. he predicted 3.6 mbbls. of new oil production in 2006. yet , when we look at actual production for the year , it's flat...so...it's probably that production decline is offsetting these new additions. that does not bode well for all the new production that is going to boost our total output, in my mind
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peakearl on July 10, 2006 - 12:50am Permalink | Subthread | Parent | Comments top
Chris Skrebowski made a significant error in computing type III decline rates. He ignored increases in production that occurred as a result of producing what was previous excess capacity. He calculated the decline rate as the net production change from year 1 to year 2 minus the new production onstream that year. However, if for example 1 mbpd is produced from former excess capacity, this then causes a 1 mbpd underestimate in type III decline rates. His reference case is 2004 to 2005, and going forward bases his estimations from that intial number. I believe that at least 1 mbpd of former spare caacity during that time was produced, which leads to big errors.
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jkissing on July 10, 2006 - 1:20am Permalink | Subthread | Parent | Comments top
1mbpd sounds low to me - all opec, not just SA, suddenly opened every spigot they could find.
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peakearl on July 10, 2006 - 11:54am Permalink | Subthread | Parent | Comments top
I was being conservative. It is surprising to me that he made this critical ommission which can completely alter his conclusions, and especially that no one seems to have picked it up. Otherwise it is a fantastic study.
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jkissing on July 11, 2006 - 10:21am Permalink | Subthread | Parent | Comments top
I agree he is doing great work, hope he keeps it up. And, good catch on your part.

It seems he could omit those few opec countries that were holding excess capacity and compute a world-wide depletion rate for all others, then extend this rate to those omitted. Are his numbers sufficiently detailed to allow others to make this adjustment?

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125 comments on Oil Price Poll

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