The Oil Drum

150 comments on Friday open thread

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Nate Hagens on March 3, 2006 - 10:26am

And, backdated contracts are making all time highs. December 2009 is at $67.62 and its high during the hurricanes was $63.

Up until now, I think traders believed that the current price spike was geopolitical unrest and hurricane and expected many new projects coming online in next few years. It appears now they may be starting to believe in higher decline rates.

NY Times article probably started some new research efforts who though PO was a fringe idea 6 months ago.

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PaulusP on March 3, 2006 - 10:53am

"December 2009 is at $67.62"

That, my friends, sounds like the bargain of the century

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LevinK on March 3, 2006 - 11:08am

Yes, if there is an oil market by 2009, if the economy does not slide into a new Great Depression and if some smart guy does not invent a high-density electric battery, $67.62 will probably be a great deal by 2009.

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louGrinzo on March 3, 2006 - 11:09am

You want a bargain? Try this: December 2012 oil is $65.41.

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Nate Hagens on March 3, 2006 - 12:21pm

lou - i think it 'almost a certainty' that oil will be higher than 65$ by 2012. the reason i dont load up on those contracts however is that one has 6.5 years until expiration. we have possibilities such as:
a)large scale bird flu
b) global recession/depression
c) some bizarro weather event or natural disaster

that all could cause oil to go to $30 since its priced at marginal barrel between now and 2012. i think the most likely path is that we have 3-6 month trends in oil prices with higher peaks and higher troughs until 2012 - i think the asymptotic rise in oil prices (from say $150 to $1000 per barrel wont happen until 5-6 years post peak and AFTER the governments have attempted at privatizing oil, rationing coupons etc). In other words, the futures market might not exist for the REALLY big run up in prices in the next 10-15 years. Unless Coal to Liquids is extremely successful.

Richard Heinberg told me yesterday that he visited SASOLs CTL operation in South Africa - SA produces 150,000 barrels a day despite having large reserves of coal and they still import 400,000 barrels of oil per day. He also said that the Sasol CTL plant is the only structure in Africa that can be seen from space (the pollution clouds).

My real fear is not Peak Oil per se but using coal on a grand scale circa Britain 1700's. Soot everywhere, lung problems etc.

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Calorie on March 3, 2006 - 1:37pm

If anyone is seriously considering loading up on long-dated oil futures, please don't forget that there are plenty of other people more than willing to take the other side of the trade, and most of them are not stupid. Even if one accepts Peak Oil, there are plenty of reasons why oil futures may tank such as those posited here by LevinK and thelastsasquatch. Buyer beware!

thelastsasquatch,

Re: "My real fear is not Peak Oil per se but using coal on a grand scale circa Britain 1700's. Soot everywhere, lung problems etc."

Today's (3/3/2006) Wall Street Journal has a page one article:

"China Stumbles In Attempt to Cut Use of Coal and Oil - Beijing Pushed Natural Gas, Which Is Now Too Costly; New Strain on Crude Prices."

http://online.wsj.com/article/SB114132068187387733.html?mod=home_page_one_us

Here's one quote:

"Meanwhile, in the 18 months through July 2005, the government approved 168 power plants, nearly all of which are coal-fired. In the past year, China has built enough coal-fired power plants to provide electricity to all of Italy, all but ensuring coal will remain a dominant fuel for decades."

As an ex-hedge fund manager, you still get the Journal, no?