Fundamentally, crude oil prices represent what refiners will pay for the feedstock for the refineries.
Light, sweet crude oil prices are up year over year, while total (heavy, sour + light, sweet) crude oil imports are down 4% year over year--and the shortfall is growing as time goes forward.
What does that tell you about the supply of net oil export capacity?
Granted, some of the supply may be and probably is being diverted to the refineries in the exporting areas, but it's a circular argument. Any way you slice it, the markets are sending a price signal that the US needs more crude oil imports, especially light, sweet crude oil imports.
Furthermore, as domestic demand--especially in Russia and Saudi Arabia--goes up, I expect that slightly falling product imports will start showing major declines.
As I said last year, I expect that by the end of 2006 we will be in the teeth of a ferocious net oil export crisis.
Can you help me understand why, if the prices are going to be escalating with a dropping supply, that the expectation is that countries will KEEP their domestic usage intact and not be selling this precious commodity? I tend to look at this like the adage about 'The Cobblers kid doesn't have shoes'.. What'll be more in demand, the energy, or the cash?
Other trends might also be precluding this market change, like the increase in Countries Nationalizing their fields, as the clear National Security importance of this resource makes itself more obvious to each state.
I think what will be the key postPeak determinant in export amounts is how self-reliant or self-sustaining each country is in a purely biosolar domain. Don't have the facts at hand, but it seems Venezuela's natural habitat should be able to water & feed its population with very little oil, versus Saudi Arabia's massive requirements to desalinate drinking water and import food.
If Chavez is smart, he should be encouraging voluntary birth control and Powerdown in Venezuela; to maximize biosolar sustainability, then they can sit on their reserves to use internally far into the future, or dribble out for export later at a vastly higher price.
Saudi Arabia, which has a very low quotient of natural bio-sustainability due to rapid and continuing pop. Overshoot and the parched desert climate, is therefore forced to export energy to import ever-increasing amounts of food and desalinization equipment in a fruitless effort to avert eventual political revolt when depleting exports cannot match basic lifeneed requirements.
Each countries' individual depletion rate colliding with its population's minimal sustanence needs determines when TSHTF.
This is the basic formula that Jay Hanson and Jim Kunstler use in warning us how the American Southwest will basically be ghost towns in the future.
Totoneila: You summed it up very well. Exports will continue if the exporting country has a dire need for the cash (greater than the need for the oil internally).
Thank you very, very much. Your insights are (close to?) indispensable (if this is not correct: sorry I'm a native Dutch)
HO hits the nail:
"To put this in context, back last October, estimating a 5% decrease in existing well production..........actual depletion rates, and the steps that are being taken to compensate. With Saudi Arabia admitting to a level of up around 800,000 bd/year in existing wells"
If there is any place to find out we passed Peak Oil, TOD will be the first. So we did.
Thanks again Westexas for hammering the net export capacity subject, and especialy your advise to become a net food- and/or energy producer which you have been firing at us all the time.
Note to other TODers: advise like this usualy comes at a premuim only. Take note.
Crude inventories rose again this week (but gasoline inventories fell again). That situation can't continue for too much longer without putting some downward pressure on prices in the short term. Longer term, we might see $80 oil later in the summer.
Kind of depends on what kind of oil was in those crude inventories. If there's very little light sweet crude, we could very well see the NYMEX price go up more. (I'm starting to sound like W.TX)
There's plenty of light sweet crude in there, because the number represents all commercial stocks of crude oil. They are at all time high levels, almost 26% higher than this time last year.
Doh! Yeah, you are right about that. I got those numbers in my inbox this morning, but I didn't pay much attention to them. I thought 26% sounded like an awful lot. Thanks for the correction.
Actually, around 10mm. 15mm loans from SPR have yet to be repaid. It would be nice for somebody to list all the crude and product loans still outstanding, and when they are supposed to be repaid to lenders.
The Lower 48 and the North Sea are two large producing regions that have been thoroughly exploited by private companies using the best technologies and data available. There were no political disruptions. The Lower 48 peaked at 49% of Qt. The North Sea (based on my plot of crude + condensate) peaked at 52% of Qt. In other words, slightly less and slightly more than 50%.
Khebab and I (my idea, Khebab did the heavy lifting) used the Hubbert Linearization (HL) model to predict post-peak Lower 48 production. The method, using only 1970 and earlier data, accurately predicted 99% of post-peak Lower 48 cumulative production.
Deffeyes puts the world halfway point at December 16, 2005. Based on Deffeyes work, at current rates of consumption, we will consume 10% of all remaining recoverable conventional reserves in the next four years.
The top four net exporters are at around 55% of Qt, farther along the depletion curve than the world and increasing cash flows are driving up consumption in some exporting countries, e.g., car sales in Russia are up 15% year over year. This is why I view declining world net export capacity as a mathematical certainty.
I have suggested that Peak Oil websites put a Peak Oil "Clock" counting down remaining recoverable conventional reserves at the rate of about 833 BO per second, starting from 1,000 Gb (crude + condensate) on 12/16/05. The production rate per second could be reset every January 1st.
How high for oil prices? All we know is that $60 to $70 has not dampened demand. I agree with Simmons that we are probably headed toward $200 or more, in 2005 dollars, by 2010.
Nice dodge. One post up, you're saying: "As I said last year, I expect that by the end of 2006 we will be in the teeth of a ferocious net oil export crisis."
Then you backpedal and say: "This is why I view declining world net export capacity as a mathematical certainty." We all agree that declining world net export capacity is a mathematical certainty. That's a truism which requires no mathematics at all to demonstrate. The point at hand is not the eventual decline of world net export capacity. It's the ferocious crisis you are predicting to occur within the next 9 months.
Khebab and I (my idea, Khebab did the heavy lifting) used the Hubbert Linearization (HL) model to predict post-peak Lower 48 production. The method, using only 1970 and earlier data, accurately predicted 99% of post-peak Lower 48 cumulative production.
This isn't right either. Prediction is something you do before the fact. Unless you did the "prediction" prior to 1970, it wasn't a prediction at all. It was an exercise in ad hoc curve fitting. It is very easy to manipulate the HL method to "predict" the right answer after the fact.
Deffeyes puts the world halfway point at December 16, 2005.
This is revisionism.
From New Scientist vol 179 issue 2406 - 02 August 2003, page 9:
I am 99 per cent confident that 2004 will be the top of the mathematically smoothed curve of oil production," says Kenneth Deffeyes, a geophysicist at Princeton University.
Furthermore, when this prediction fell through, Deffeyes switched to Thanksgiving 2005. And when that prediction fell through, he switched to Dec. 16, 2005. And as recently as a few days ago (at the EGU meeting in Vienna) he was waffling yet again, saying the halfway point may be as late as April 2006. Deffeyes' method isn't scientific at all. It consists of taking a series of pot-shots, and then sweeping his failed predictions under the carpet.
Of course, you'll claim that these discrepancies are small, but that's not the point. The point is that:
a) The statement "Deffeyes puts the world halfway point at December 16, 2005" is a flat-out lie.
b) Deffeyes' method has already been shown to be inaccurate by the fact that his prediction of peak oil in 2004 failed.
So now, let's try again. At what price will oil sell for during the ferocious crisis you are predicting before the end of 2006? Don't worry about your ego. This isn't about you. It's a test of your theory.
I agree that Jeff has dodged Stuart's pointed question, and I am not satisfied that his model should not include refined products.
That said: 1) Deffeyes's first prediction of 2004 looks remarkably precient given the subsequent "bumpy plateau" documented by Stuart, so it seems to me pointless to quibble about various points along a relatively flat line; 2) WesTexas and Khebab's theory needs more numbers to substantiate it, but on an a priori basis it makes simple sense - growing oil exporting economies will export less oil if production remains flat or begins to decline even modestly. As with determining peak - or even global warming, one's comfort level with the adequacy of the statistical information will vary.
So now we are left with teasing out what "ferocious decline" means and when that becomes important. As for predictions: last Fall I didn't think gas prices would go below $2.50/gal, because of the lack of refinery capacity. I was wrong. Given the increased volitity in the market, I think it's foolish for me and most non commodities traders to make predictions, (beyond my simple prediction, of course, that the front contract for oil will not retreat lower than $55/bl after May 1, 2006).
That said: 1) Deffeyes's first prediction of 2004 looks remarkably precient given the subsequent "bumpy plateau" documented by Stuart, so it seems to me pointless to quibble about various points along a relatively flat line;
I think you mean a relatively flat line SO FAR. It is not known yet whether the current plateau is the ultimate peak. What we do know for sure is that Deffeyes' prediction of 2004 is already wrong, and has the potential to get a lot wronger as time goes on. We won't know exactly how wrong until we know the date of the actual peak. You can't say he did pretty good yet because we don't know the actual peak date yet. You're just assuming that the peak is now, and that's not legitimate. You may be wrong.
More importantly, I'm not quibbling about the date. I'm quibbling with the fraudulent notion that Deffeyes has a prediction.
Well, he has made several predictions. Subsequent data has allowed him to revise his previous predictions. His latest prediction is consonant so far with Stuart Staniford production number for December 2005, arrived at (I believe) by averaging EIA and IEA production reports. Deffeyes made his most recent prediction before the final revision to the December numbers, if memory serves.
Yes, I am increasingly satisfied that "peak is about now." Time will tell. Can you point to any other time when the production numbers have been flat for seventeen months coincident with dramatically rising oil prices? How long does one wait until one realizes that the production numbers are not going to go significantly (>1%) above 85 mbd?
This doesn't negate the fact. Data is swamped by noise a good deal of the time. There is always something that is "out."
We're looking for a parallel to the current situation. What could be more swamped then now. Iraqi oil is out, Nigerian oil is out, and price is being influenced by non-events like Iran. The talk on this website alone probably adds a dollar to the price of crude.
You're correct in a narrow technical sense, but it wasn't a very analagous situation. Prices (very roughly) fell from $30 to $20 through 2001, and then retraced their steps from $20 to $30 again through 2002. Production bottomed out after the reductions following the tech-crash and were flat before starting to rise again in 2003.
Of course. That is why I refrained from any comment(only to do so now). Fletcher was building his case against JD on the assumption that this situation hadn't occurred before. I was just trying to inject some evidence. You can use it anyway you like.
I agree, there are problems here "analagous"-wise.
But be careful. The price run-up I'm looking at in the period I mention is actually from $20 to $40 (100%) and greater than that of the current period.
Also, the tech-crash and other events are localized. The price and production scenarios we are discussing here are global. Granted the US situation is relatively large and influential. However it still only accounts for roughly 25% of the world energy situation at most.
For the record, I believe JD's logic here is correct and his comments regarding the oil-gurus' predictions valid. If we are going to pride ourselves on technical detail and accuracy, then we need to be critical of numbers that are tossed about and to set an example ourselves.
At the same time, Fletcher makes good points and Westexas and yourself are doing the hard work. Good to see the analysis/debate on this level. And of course a bit of emotion is always good for entertainment's sake at least.
At the same time, Fletcher makes good points and Westexas and yourself are doing the hard work. Good to see the analysis/debate on this level.
Good point. I am putting Westexas on the spot, but please understand that it's not personal. It's about theory and methods. Westexas is doing lots of good work relating to peak oil, and I respect that. I very much agree with his ideas on gas taxes etc. However, I'm dead serious about being honest with predictions and numbers.
If memory serves, there were other times as well. If you look over too narrow a range, one could get a false impression. Right now, there are still some 300,000 barrels shut in by the hurricanes, 500,000 barrels shut in in Nigeria, and over a million in Iraq. That is contributing to the flattened production.
Yes, I am increasingly satisfied that "peak is about now."
In 2003, Deffeyes was increasingly satisfied that the peak had already occurred in 2000. From the New Scientist article:
And he [Deffeyes] believes the highest single year may already have passed. "2000 may stand as a blip above the curve and be in the Guinness Book of World Records."
Or, as was written in the ASPO newsletter:
This may substantiate the view, voiced by Ken Deffeyes, at the Paris ASPO Meeting [May 2003], that peak oil production may turn out to have been in 2000 as much from falling demand as supply constraints.
That's a huge goof, as you can see by referring to Stuart's Plateau graph. Deffeyes seriously thought that 77mbd (2000, EIA) was it, and here we are today pushing 85mbd. That's a major screw-up and it makes his methods suspect. His superficial focus on production trends leads him into error. He's not paying attention to things like bottom-up analysis, or geological data (like the USGS). Those factors are very important.
Here's another data point: In his book "Hubbert's Peak", Deffeyes claimed that the numbers pointed to the year 2003 as the peak. So, if we were to be honest, that is the year we should use to evaluate the accuracy of Deffeyes' method.
Can you point to any other time when the production numbers have been flat for seventeen months coincident with dramatically rising oil prices?
1979-1983. Production was worse than flat. World oil production dropped by 15% over 5 years, amid the highest real prices ever. Did that prove that oil was peaking? Obviously not -- although some people at the time apparently said it did.
I think one issue mistake that Deffeyes is definitely making is that the error bars on the method are quite significant and he doesn't seem to recognize that. (My estimate for a similar linearization to his was that the two sigma error bars on the smooth curve peak were 4.5 years either way IIRC). All his various revisions are within that size error bars AFAIK.
However, one thing to note is that I believe Deffeyes is working off the time series of field crude from the OGJ. I haven't checked that any time recently, but it's possible it has a somewhat different answer.
I also think that when making predictions in public, if they prove wrong, it's appropriate to do a little public reflection on the fact and improve the methodology in some way before moving on. Just making new predictions using the identical method with no public acknowledgement seems unsatisfactory.
I don't think Deffeyes's is really serious about any dates he prognosticates he is only trying to provide a little comic relief for a very serious problem. Also it assists him with additional data that could go missing if it wasn't for all the folks trying to search out information to prove him wrong. If there is one guy that has written a book that I would like to take on my fishing boat and help me finish off a six pack it is he.
Having seen one of his talks, I'd describe Deffeyes manner as darkly sarcastic. He makes these predictions, based on limited data, to warn us off a dangerous path, but sees that few are listening. Perhaps he takes that attitude to protect whatever optimism he still has left.
(1) In regard to oil prices, I was deliberately a little vague because as several people have pointed out, a significant drop available oil and a subsequent oil price spike to $100 or more could conceivably cause a subsequent short term oil price decline back to the current level or lower. Longer term, as production continues to fall, I think that we will see the $200 level. So, I expect to see $100 oil this year, but I don't think that it will stay there--in the short term. Long term, yes.
(2) In regard to the HL technique. As I'm sure we all know, in 1956 Hubbert did predict that Lower 48 production would peak between 1965 and 1971. He also suggested that world oil production would peak within 50 years or so, i.e., before 2006. In regard to "curve fitting" allegation, this is simply not true. In effect, we pretended that the post-1970 Lower 48 production data did not exist. We used the 1970 and earlier data to predict post-1970 cumulative production. There no mathematical way that one can "curve fit" the data set. It is mathematically impossible. Actual Lower 48 production was 99% of what the HL model predicted. My point is that Hubbert predicted the peak in advance, and using only the data through 1970, the data set was right on the mark for post-peak cumulative production. The point of this excercise is to apply the model to Deffeyes' prediction. The Lower 48 model indicates that Deffeyes' prediction of 1,000 Gb of remaining conventional recoverable crude + condensate reserves should be taken very seriously.
I'll bite Stuart. I made a 260% profit in commodity investing in the past year, so I have some feel for the markets.
In the absence of serious hurricanes, economic collapses, or new wars, maximum single day 2006 NYMEX WTI oil price could be about $80 with the average for the year closer to $70. Much of this price increase would be due to gradual US dollar devaluation. Sellers will want a higher US$ price to keep up with general inflation.
Any nonlinear events could drive the US dollar much lower or oil higher depending on how one looks at it.
LOL, Don, there are those that argue the price will drop to $30 in the absence of adverse events. $80 seems a high guess in comparison, but I think I know which you and I would bet on. May I tempt you to do a forensic analysis of my predictions? Second comment here, I do hedge but quite specifically: http://www.theoildrum.com/story/2006/1/2/101214/8972#comments
I stick by my fearless unchanged and invincible forecast: The price of oil will fluctuate.
Silver is an interesting speculation; both Bill Gates and Warren Buffet like silver, and they are both way smarter than I am. Following my principle of learning from VSP (Very Smart People) I bought some shares of Pan American Silver a couple of years ago at around $6 a share. I suppose they have gone up, but financial markets and making money in them is boring to me now, compared with more interesting challenges, such as teaching BSYW (Beautiful Single Young Women) to sail.
By the way, another DUET: All women are beautiful young and (so long as they wear no ring) single. Sailors have known this for a long time;-)
My yearend predictions (posted here January 2nd) are looking on track:
"Oil is close to a cusp, I think. It has increased in price by over 30% in each of the last 3 years. That has spurred just about all possible rapidly available production to come onstream. Some biggish new projects are due to come online in 2006 so there is a possibility that there will be a slight oversupply in the near term. The two critical factors are: will decline rates in the current major fields in production (FIP) be higher than current fairly optimistic predictions; will there be a significant reduction in demand (currently expected to be 1.9% increased demand) due to a global slowdown? A few months back I coined "Agric's law of oil price" which is: the average price of oil in a calendar year will be within 5% of the maximum price for the previous calendar year (Nymex light sweet, next month quote). This has been true the last 3 years, I expect it will continue to be so until prices go haywire. That gives an average price in 2006 of $70.
I expect the oil price to creep up to $70 by mid march. Thereafter I predict a spike to about $95 in response to some external event, it could happen by mid April. Will $100 oil happen in 2006? Maybe not based on current supply and demand but there is a significant probability that geopolitical or supply disruption events do cause a $100+ spike. I do not expect the oil price to drop to $40, even $50 is unlikely since a key support level at $56 has held well in recent months."
I'm now more confident that the oil price will hit $100 in 2006 (maybe a 50% probability), the current price of about $68 is based on high US crude stocks and relatively little supply disruption / geopolitical angst, there is considerable scope for upside price moves. I do not expect the price to drop below $55, the average for 2006 should be between $65 and $75 unless things go quite awry. Something fairly serious (supply disruption or geopolitical wise) would probably need to occur for the price to exceed $125 anytime in 2006.
It is a bit silly that oil prices have been moving up on declining gasoline stocks. The gas stocks were bound to decrease due to refinery shutdowns (some of which were delayed due to hurricanes) and changed gas formulation legislation. The recent sharp growth of imports in refined products to US is much more important than the minor reduction in crude imports, look out for some nasty trade numbers in the next few months.
It would have been better if the US economy had slowed a bit more already. Now, when the slowing hits, it will be sharper.
My gold prediction was good "I expect gold to make a jump to near $600 by April before pausing". Note that gold will correct downwards soon-ish before making its next serious push up (guess: drop from peak of perhaps $620 to between $550-$570). US$ accurate too: [till mid year] "the US$ should remain in the 88 to 92% range of its index". Copper has beaten me, I never expected it to get as high as $2.60: "I expect the price to drop from current level of about $2.00 to below $1.60, probably by March to May, then climb back to above $1.80." US stocks have remained a function of Fed liquidity pumping so are 10% higher now than I predicted, but that will change - when you sense it happening go short, a drop of 10%+ does happen in the next few months but beware, there is yet scope for further upside in stocks (though not much, lol).
Fundamentally, crude oil prices represent what refiners will pay for the feedstock for the refineries.
Light, sweet crude oil prices are up year over year, while total (heavy, sour + light, sweet) crude oil imports are down 4% year over year--and the shortfall is growing as time goes forward.
What does that tell you about the supply of net oil export capacity?
Granted, some of the supply may be and probably is being diverted to the refineries in the exporting areas, but it's a circular argument. Any way you slice it, the markets are sending a price signal that the US needs more crude oil imports, especially light, sweet crude oil imports.
Furthermore, as domestic demand--especially in Russia and Saudi Arabia--goes up, I expect that slightly falling product imports will start showing major declines.
As I said last year, I expect that by the end of 2006 we will be in the teeth of a ferocious net oil export crisis.
Other trends might also be precluding this market change, like the increase in Countries Nationalizing their fields, as the clear National Security importance of this resource makes itself more obvious to each state.
I think what will be the key postPeak determinant in export amounts is how self-reliant or self-sustaining each country is in a purely biosolar domain. Don't have the facts at hand, but it seems Venezuela's natural habitat should be able to water & feed its population with very little oil, versus Saudi Arabia's massive requirements to desalinate drinking water and import food.
If Chavez is smart, he should be encouraging voluntary birth control and Powerdown in Venezuela; to maximize biosolar sustainability, then they can sit on their reserves to use internally far into the future, or dribble out for export later at a vastly higher price.
Saudi Arabia, which has a very low quotient of natural bio-sustainability due to rapid and continuing pop. Overshoot and the parched desert climate, is therefore forced to export energy to import ever-increasing amounts of food and desalinization equipment in a fruitless effort to avert eventual political revolt when depleting exports cannot match basic lifeneed requirements.
Each countries' individual depletion rate colliding with its population's minimal sustanence needs determines when TSHTF.
This is the basic formula that Jay Hanson and Jim Kunstler use in warning us how the American Southwest will basically be ghost towns in the future.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
Thank you very, very much. Your insights are (close to?) indispensable (if this is not correct: sorry I'm a native Dutch)
HO hits the nail:
"To put this in context, back last October, estimating a 5% decrease in existing well production..........actual depletion rates, and the steps that are being taken to compensate. With Saudi Arabia admitting to a level of up around 800,000 bd/year in existing wells"
If there is any place to find out we passed Peak Oil, TOD will be the first. So we did.
Thanks again Westexas for hammering the net export capacity subject, and especialy your advise to become a net food- and/or energy producer which you have been firing at us all the time.
Note to other TODers: advise like this usualy comes at a premuim only. Take note.
RR
Link: http://tonto.eia.doe.gov/oog/info/twip/twip.asp
I think fear is the only thing propping oil prices up in the short term.
RR
25,7 million barrels higher than a year ago, or less than 8%.
RR
The Lower 48 and the North Sea are two large producing regions that have been thoroughly exploited by private companies using the best technologies and data available. There were no political disruptions. The Lower 48 peaked at 49% of Qt. The North Sea (based on my plot of crude + condensate) peaked at 52% of Qt. In other words, slightly less and slightly more than 50%.
Khebab and I (my idea, Khebab did the heavy lifting) used the Hubbert Linearization (HL) model to predict post-peak Lower 48 production. The method, using only 1970 and earlier data, accurately predicted 99% of post-peak Lower 48 cumulative production.
Deffeyes puts the world halfway point at December 16, 2005. Based on Deffeyes work, at current rates of consumption, we will consume 10% of all remaining recoverable conventional reserves in the next four years.
The top four net exporters are at around 55% of Qt, farther along the depletion curve than the world and increasing cash flows are driving up consumption in some exporting countries, e.g., car sales in Russia are up 15% year over year. This is why I view declining world net export capacity as a mathematical certainty.
I have suggested that Peak Oil websites put a Peak Oil "Clock" counting down remaining recoverable conventional reserves at the rate of about 833 BO per second, starting from 1,000 Gb (crude + condensate) on 12/16/05. The production rate per second could be reset every January 1st.
How high for oil prices? All we know is that $60 to $70 has not dampened demand. I agree with Simmons that we are probably headed toward $200 or more, in 2005 dollars, by 2010.
Then you backpedal and say: "This is why I view declining world net export capacity as a mathematical certainty." We all agree that declining world net export capacity is a mathematical certainty. That's a truism which requires no mathematics at all to demonstrate. The point at hand is not the eventual decline of world net export capacity. It's the ferocious crisis you are predicting to occur within the next 9 months.
Khebab and I (my idea, Khebab did the heavy lifting) used the Hubbert Linearization (HL) model to predict post-peak Lower 48 production. The method, using only 1970 and earlier data, accurately predicted 99% of post-peak Lower 48 cumulative production.
This isn't right either. Prediction is something you do before the fact. Unless you did the "prediction" prior to 1970, it wasn't a prediction at all. It was an exercise in ad hoc curve fitting. It is very easy to manipulate the HL method to "predict" the right answer after the fact.
Deffeyes puts the world halfway point at December 16, 2005.
This is revisionism.
From New Scientist vol 179 issue 2406 - 02 August 2003, page 9:
Furthermore, when this prediction fell through, Deffeyes switched to Thanksgiving 2005. And when that prediction fell through, he switched to Dec. 16, 2005. And as recently as a few days ago (at the EGU meeting in Vienna) he was waffling yet again, saying the halfway point may be as late as April 2006. Deffeyes' method isn't scientific at all. It consists of taking a series of pot-shots, and then sweeping his failed predictions under the carpet.
Of course, you'll claim that these discrepancies are small, but that's not the point. The point is that:
a) The statement "Deffeyes puts the world halfway point at December 16, 2005" is a flat-out lie.
b) Deffeyes' method has already been shown to be inaccurate by the fact that his prediction of peak oil in 2004 failed.
So now, let's try again. At what price will oil sell for during the ferocious crisis you are predicting before the end of 2006? Don't worry about your ego. This isn't about you. It's a test of your theory.
That said: 1) Deffeyes's first prediction of 2004 looks remarkably precient given the subsequent "bumpy plateau" documented by Stuart, so it seems to me pointless to quibble about various points along a relatively flat line; 2) WesTexas and Khebab's theory needs more numbers to substantiate it, but on an a priori basis it makes simple sense - growing oil exporting economies will export less oil if production remains flat or begins to decline even modestly. As with determining peak - or even global warming, one's comfort level with the adequacy of the statistical information will vary.
So now we are left with teasing out what "ferocious decline" means and when that becomes important. As for predictions: last Fall I didn't think gas prices would go below $2.50/gal, because of the lack of refinery capacity. I was wrong. Given the increased volitity in the market, I think it's foolish for me and most non commodities traders to make predictions, (beyond my simple prediction, of course, that the front contract for oil will not retreat lower than $55/bl after May 1, 2006).
I think you mean a relatively flat line SO FAR. It is not known yet whether the current plateau is the ultimate peak. What we do know for sure is that Deffeyes' prediction of 2004 is already wrong, and has the potential to get a lot wronger as time goes on. We won't know exactly how wrong until we know the date of the actual peak. You can't say he did pretty good yet because we don't know the actual peak date yet. You're just assuming that the peak is now, and that's not legitimate. You may be wrong.
More importantly, I'm not quibbling about the date. I'm quibbling with the fraudulent notion that Deffeyes has a prediction.
Yes, I am increasingly satisfied that "peak is about now." Time will tell. Can you point to any other time when the production numbers have been flat for seventeen months coincident with dramatically rising oil prices? How long does one wait until one realizes that the production numbers are not going to go significantly (>1%) above 85 mbd?
Yup. Late 2001 thru early 2003.
Resolution too fine, data swamped by noise.
We're looking for a parallel to the current situation. What could be more swamped then now. Iraqi oil is out, Nigerian oil is out, and price is being influenced by non-events like Iran. The talk on this website alone probably adds a dollar to the price of crude.
I agree, there are problems here "analagous"-wise.
But be careful. The price run-up I'm looking at in the period I mention is actually from $20 to $40 (100%) and greater than that of the current period.
Also, the tech-crash and other events are localized. The price and production scenarios we are discussing here are global. Granted the US situation is relatively large and influential. However it still only accounts for roughly 25% of the world energy situation at most.
For the record, I believe JD's logic here is correct and his comments regarding the oil-gurus' predictions valid. If we are going to pride ourselves on technical detail and accuracy, then we need to be critical of numbers that are tossed about and to set an example ourselves.
At the same time, Fletcher makes good points and Westexas and yourself are doing the hard work. Good to see the analysis/debate on this level. And of course a bit of emotion is always good for entertainment's sake at least.
Good point. I am putting Westexas on the spot, but please understand that it's not personal. It's about theory and methods. Westexas is doing lots of good work relating to peak oil, and I respect that. I very much agree with his ideas on gas taxes etc. However, I'm dead serious about being honest with predictions and numbers.
RR
In 2003, Deffeyes was increasingly satisfied that the peak had already occurred in 2000. From the New Scientist article:
Or, as was written in the ASPO newsletter:
That's a huge goof, as you can see by referring to Stuart's Plateau graph. Deffeyes seriously thought that 77mbd (2000, EIA) was it, and here we are today pushing 85mbd. That's a major screw-up and it makes his methods suspect. His superficial focus on production trends leads him into error. He's not paying attention to things like bottom-up analysis, or geological data (like the USGS). Those factors are very important.
Here's another data point: In his book "Hubbert's Peak", Deffeyes claimed that the numbers pointed to the year 2003 as the peak. So, if we were to be honest, that is the year we should use to evaluate the accuracy of Deffeyes' method.
Can you point to any other time when the production numbers have been flat for seventeen months coincident with dramatically rising oil prices?
1979-1983. Production was worse than flat. World oil production dropped by 15% over 5 years, amid the highest real prices ever. Did that prove that oil was peaking? Obviously not -- although some people at the time apparently said it did.
However, one thing to note is that I believe Deffeyes is working off the time series of field crude from the OGJ. I haven't checked that any time recently, but it's possible it has a somewhat different answer.
I also think that when making predictions in public, if they prove wrong, it's appropriate to do a little public reflection on the fact and improve the methodology in some way before moving on. Just making new predictions using the identical method with no public acknowledgement seems unsatisfactory.
(1) In regard to oil prices, I was deliberately a little vague because as several people have pointed out, a significant drop available oil and a subsequent oil price spike to $100 or more could conceivably cause a subsequent short term oil price decline back to the current level or lower. Longer term, as production continues to fall, I think that we will see the $200 level. So, I expect to see $100 oil this year, but I don't think that it will stay there--in the short term. Long term, yes.
(2) In regard to the HL technique. As I'm sure we all know, in 1956 Hubbert did predict that Lower 48 production would peak between 1965 and 1971. He also suggested that world oil production would peak within 50 years or so, i.e., before 2006. In regard to "curve fitting" allegation, this is simply not true. In effect, we pretended that the post-1970 Lower 48 production data did not exist. We used the 1970 and earlier data to predict post-1970 cumulative production. There no mathematical way that one can "curve fit" the data set. It is mathematically impossible. Actual Lower 48 production was 99% of what the HL model predicted. My point is that Hubbert predicted the peak in advance, and using only the data through 1970, the data set was right on the mark for post-peak cumulative production. The point of this excercise is to apply the model to Deffeyes' prediction. The Lower 48 model indicates that Deffeyes' prediction of 1,000 Gb of remaining conventional recoverable crude + condensate reserves should be taken very seriously.
In the absence of serious hurricanes, economic collapses, or new wars, maximum single day 2006 NYMEX WTI oil price could be about $80 with the average for the year closer to $70. Much of this price increase would be due to gradual US dollar devaluation. Sellers will want a higher US$ price to keep up with general inflation.
Any nonlinear events could drive the US dollar much lower or oil higher depending on how one looks at it.
Can't argue with that;-)
http://www.theoildrum.com/story/2006/1/2/101214/8972#comments
Silver is an interesting speculation; both Bill Gates and Warren Buffet like silver, and they are both way smarter than I am. Following my principle of learning from VSP (Very Smart People) I bought some shares of Pan American Silver a couple of years ago at around $6 a share. I suppose they have gone up, but financial markets and making money in them is boring to me now, compared with more interesting challenges, such as teaching BSYW (Beautiful Single Young Women) to sail.
By the way, another DUET: All women are beautiful young and (so long as they wear no ring) single. Sailors have known this for a long time;-)
"Oil is close to a cusp, I think. It has increased in price by over 30% in each of the last 3 years. That has spurred just about all possible rapidly available production to come onstream. Some biggish new projects are due to come online in 2006 so there is a possibility that there will be a slight oversupply in the near term. The two critical factors are: will decline rates in the current major fields in production (FIP) be higher than current fairly optimistic predictions; will there be a significant reduction in demand (currently expected to be 1.9% increased demand) due to a global slowdown? A few months back I coined "Agric's law of oil price" which is: the average price of oil in a calendar year will be within 5% of the maximum price for the previous calendar year (Nymex light sweet, next month quote). This has been true the last 3 years, I expect it will continue to be so until prices go haywire. That gives an average price in 2006 of $70.
I expect the oil price to creep up to $70 by mid march. Thereafter I predict a spike to about $95 in response to some external event, it could happen by mid April. Will $100 oil happen in 2006? Maybe not based on current supply and demand but there is a significant probability that geopolitical or supply disruption events do cause a $100+ spike. I do not expect the oil price to drop to $40, even $50 is unlikely since a key support level at $56 has held well in recent months."
I'm now more confident that the oil price will hit $100 in 2006 (maybe a 50% probability), the current price of about $68 is based on high US crude stocks and relatively little supply disruption / geopolitical angst, there is considerable scope for upside price moves. I do not expect the price to drop below $55, the average for 2006 should be between $65 and $75 unless things go quite awry. Something fairly serious (supply disruption or geopolitical wise) would probably need to occur for the price to exceed $125 anytime in 2006.
It is a bit silly that oil prices have been moving up on declining gasoline stocks. The gas stocks were bound to decrease due to refinery shutdowns (some of which were delayed due to hurricanes) and changed gas formulation legislation. The recent sharp growth of imports in refined products to US is much more important than the minor reduction in crude imports, look out for some nasty trade numbers in the next few months.
It would have been better if the US economy had slowed a bit more already. Now, when the slowing hits, it will be sharper.
My gold prediction was good "I expect gold to make a jump to near $600 by April before pausing". Note that gold will correct downwards soon-ish before making its next serious push up (guess: drop from peak of perhaps $620 to between $550-$570). US$ accurate too: [till mid year] "the US$ should remain in the 88 to 92% range of its index". Copper has beaten me, I never expected it to get as high as $2.60: "I expect the price to drop from current level of about $2.00 to below $1.60, probably by March to May, then climb back to above $1.80." US stocks have remained a function of Fed liquidity pumping so are 10% higher now than I predicted, but that will change - when you sense it happening go short, a drop of 10%+ does happen in the next few months but beware, there is yet scope for further upside in stocks (though not much, lol).
Tis a peculiar world, and likely to get more so.