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285 comments on DrumBeat: January 12, 2007
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285 comments on DrumBeat: January 12, 2007
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Looking at Total Imports
If you go to: Weekly Petroleum Status Report Then click on 8 U.S. Imports of Crude Oil and Petroleum Products “XLS”, This brings up an Excel spreadsheet of the data. Here you can get the weekly import data of crude oil all the way back to August of 1982 though Total Imports only go back to 1991.
The first thing you may notice is that as US production has dropped and US consumption has increased over the years, total imports have gradually increased over the years. They were around 7 million barrels per day in early 1991 and passed 14 million barrels per day this past summer. They are hovering around 12.7 million barrels per day right now.
You can copy and paste this data into your own spreadsheet. I did and charted it. The weekly data jumps around so fast only a general trend can be discerned. However you can do a 10 week moving average and get a much better picture of what is happening. A 10 week moving average shows total imports at the lowest point in over two and one half years. You must go back to May of 2004 before the 10 week average of total imports were lower than today.
The data also includes Net Imports, That is imports minus exports. When you do that you must go back another two months, to March 2004 before you hit a lower point than today for the ten week moving average.
One more point, If you go to This Week in Petroleum you will see that crude oil inventories this past week are exactly 4 million barrels below the same week last year and are at their lowest point in over a year.
Right now inventories are sitting at 314.7 million barrels. At this point last year we were at 318.7 million barrels and that was just before inventories began their meteoric rise that eventually topped out at 347 million barrels in June. I am betting that in June of 2007 we will be well below 300 million barrels, in the lower part of the five year range if not below it.
Ron Patterson
Darwin: Thanks for all the work. It is my understanding that 270 million is pretty well the absolute minimum before supply problems arise so it should be interesting.
Long time lurker, first time caller.
Thanks for the info on the inventory status, Ron. I have a question that I'm having a hard time wrapping my admittedly non-technical mind around, and I was wondering if you could help conceptualize it for me (anyone else is welcome to do so, as well!): why, in the face of this kind of news, has the average gasoline price in my area (mid-central Indiana) dropped to $1.99/gal for the first time in a long, long time?
I do not ask this with any facetious sense at all; I'm trying to understand the relationship between the global oil status and what it means to the average consumer (ie. me). Where is the market response to the observable plateau in production upon which we are currently sitting?
Anticipatory thanks, by the way...!
Quijohn, welcome to the Oil Drum!
The answer to your question-who knows? If oil prices followed some type of logic that I could discern, I'd be very rich.
why, in the face of this kind of news, has the average gasoline price in my area (mid-central Indiana) dropped to $1.99/gal for the first time in a long, long time?
Product inventories are high and have been climbing. If the trend continues, the price will keep falling. Margins have been eroding, so I expect to see some of the excess removed by refiners slowing down a bit. But gasoline inventories are near the top of the range for this time of year, and have been climbing steadily. That indicates that lower prices and/or reduced refinery runs are on the way.
You've also hit on a point that isn't always clear in TOD.
1. we have (a pretty) good idea of world demand
2. we have a (somewhat good) idea of world inventories
3. world supply we have a poor fix on (because there are incentives out there to lie eg Iraq exports a lot of oil as 'smuggling' which is not recorded and also OPEC countries cheat on their quotas etc)
4. we have no good picture of reserves for at least half the world (see Twilight in the Desert by Matt Simmons re Saudi Reserve data, or any of the powerpoints on the Simmons & Co. website)
Demand +/- changes in inventory = Supply
So supply always equals demand. The way the 2 are made to come together at one point is *price*.
If we were at peak oil *now*, then given that demand is still rising, price would be shooting through the roof. It will do that because demand for oil is quite inelastic to price (2/3rds of oil use is in transportation, and it's not easy for the global economy to give up transporting things and people) and supply of oil is also quite inelastic to price (you have to find oil to produce more of it, and that takes time).
Now (4) tells us we don't know when Peak Oil will come. It could be tomorrow morning.
We can observe price, and price is not shooting up. Given that oil demand is apparently still rising, oil inventories are not plunging, we are not at peak oil.
Value, oil demand is not nearley as inelastic as you seem to think. Methinks you are comparing the US with the rest of the world and assuming they are very much alike. That is far from the truth. Many small countries that use crude or diesel for power generation is cutting back drastically. Blackouts are increasing dramatically in all third world countries. Everywhere lower income people are consuming less and less.
Bottom line, with the recent OPEC cuts the world is producing about one million barrels per day less than it was in the summer of 2005. And of course we are consuming about one million barrels per day less. Though consumption was not dramatically affected by the rise in the price of oil in 05, the high cost of oil has finally started to squeeze the consuming public, especially in the undeveloped world.
Theories count for nothing Value, if the the data tells a different story. As Matt Simmons is fond of saying; "Data trumps all theories." And so far the data tells us that we are at peak right now. We have been on the plateau for about two years. You just cannot argue with the data, though some people foolishly try to do that.
Ron Patterson
And so far the data tells us that we are at peak right now.
Of course used in that way, the data would have told us several times in the past we were at peak.
Data is subject to interpretation. Oil production goes flat or declines for other reasons than a production peak, as has been witnessed multiple times in the past.
Robert, with all due respect, I did say so far!
Now having said that, I think it is extremely foolish to declare, as Value did, that we are definitely not at peak because of the price of oil. The world has, without a doubt, produced less oil in 2006 than in 2005. Looking at that fact alone I think it is extremly foolish to say that we cannot be at peak because of the price of oil.
And just one more very important point! Before the OPEC cuts went into effect on October 1st, we were already below 2005 levels of production. A plateau of two years along with a slight drop in production, has never before in the history of the world happened except in the case of OPEC deliberately cutting production, Iran-Iraq war and the following tanker wars, or the collapse of the Soviet Union causing a cut in production.
I get so damn tired of people pointing to past drops in world oil production without giving us the cause of these drops! This time, before November 1st of 2006, that a plateau of two years and a drop happened while all the world was producing flat out. This has never happened before and that fact should simply should not be overlooked.
Ron Patterson
This time, before November 1st of 2006, that a plateau of two years and a drop happened while all the world was producing flat out.
That last portion, though, is not a fact. It is your opinion. In fact, "all the world" certainly wasn't producing flat out, as I have argued before. Canada was not producing flat out. But even in the Middle East, Saudi had already made the statement that they were having trouble finding buyers. They had already made cuts. You simply choose to believe that they were lying about the statement they made.
Ad the Saudis not having buyers for their oil in June 2006, when NYMEX light sweet was 70 $/b plus.
In 2006 if Aramco - like CERA and others - believed that the price of oil soon (within a year or two) would fall, then how come they didn't lower the price a little?
It has been argued (Robert) that an eventual bluff easily could be nuked by someone simply buying oil from the Saudis. IMO, this is not an evidence for spare production capacity. We all believe the Saudis have tank farms, don't we?
An explanation to my question could be ECONish, that maximizing the profit means producing less than 100%. Personally i don't think the Saudis are free to produce less. Such behaviour would not be tolerated by Uncle Sam, which i think has lot of tools to utilize when exercising power. But this of course, is just an opinion. I'm sure there are knowledgeable generalists, like Sailorman and others, that has a more qualified say on this than I.
I just watched "Lawrence of Arabia" again. Anybody who thinks Arabs are likely to act in their long-term best interests should watch that movie.
Can the Saudis restrict output to boost prices and hence revenues? Heck yes they can; Uncle Sam does not get to peek at their books (which assumes, BTW, that the Saudis know how much they are producing--highly questionable IMO).
So what are the Saudis doing?
1. Nobody knows.
2. That probably includes the Saudis. Why assume that they know what their production capacity is--not to mention their reserves?
It is always a great mistake in human affairs to assume that the other guy knows what he is doing.
Am I missing something here? You are being ironic?
I assume that Aramco has a functional hierarchy, reporting oil output to the top dogs, wouldn't you?
US knowledge of KSA internal affairs?
There is quite a few Saudis with cultural links to US; education, business et cetera. I can easily imagine Uncle Sam having many informants in KSA. But of course, it's just unqualified speculations. I know very little about KSA.
Here in Norway, US knowledge of internal affairs caused big headlines recently. Prior to the invasion of Iraq, the inner circle of the cabinet had secret discussions. The former prime minister, Kjell Magne Bondevik, revealed in his biography that the ambassador in Washington, Mr. Vollebæk, got those discussions referred in a meeting with the state department. It was the state department who initiated the meeting.
The secret discussion was limited to a group of five ministers (prime, finance, foreign, defence and justice) and their apparatus.
So, either the US is exercising technical surveillance on Norway's "white house", or they had a mold inside the apparatus of the inner cabinet. At least, that is my interpretation of that event.
I was not being ironic. Norway is not KSA. Norwegians have been counting accurately every single herring they have caught for the past thousand years.
The people I have reason to believe who know the most about KSA oil production claim to know the least. (Those with claims of knowledge about Saudi production and reserves have no consensus nor any strong claim to such knowledge.)
My position on KSA is based almost entirely on Matt Simmons, "Twighlight in the Desert."
Well said. You seem to have a talent for summing it all up in one sentence. You should write books. We should all spend less time reading Westexas and more time letting you shake the fuzzy dice.
First of all, thanks to all of the thoughtful responses.
Now, as to this:
Regarding our current inventory level, which as Robert pointed out:
...is it that our inventories are filling up at the expense of these Third World countries? Is there any data to support decreased consumption/demand in these countries? It makes a modicum of sense that if these countries have indeed "bowed out" of the oil bidding for the time being, the increase in supply would result in a lower cost, which (if I understand you all correctly) could very well explain why the inventories have been climbing (ie. "buy it while it's down and store it for when it isn't").
But if that isn't the explanation, what other things could be responsible for the current mix of low price points & high inventories, again, when viewed in light of the plateau that I see time and again by the many impressive graphs around here? :)
Again, I apologize if any of this seems pedantic or redundant. I'm just trying to research this and come up with responses to potential questions about PO - it's hard to convince somebody to that PO should be a concern when the gas pumps don't reflect it. It's the old "Who do you believe? Me or your lying eyes?" issue.
Well, for starters our inventories are not filling up. While it is true that gasoline and distillate inventories are up, crude inventories are down by a greater amount. All in all, inventories are down.
The power and gasoline problems in developing countries has been in the news frequently lately. And they always give the high price of oil as the problem. That being said however, developed countries are cutting their consumption also.
OECD demand for 2005 49,601,000 barrels per day.
OECD demand for 2006 48,923,000 barrels per day. (First 9 months avg.)
http://www.eia.doe.gov/emeu/ipsr/t17.xls
There is all the proof you need. High prices are pushing demand down everywhere. And inventories are decreasing, not increasing. Inventory days of supply for OECD nations were at the top of their range during the third quarter of 2006, dropped to near the middle of the range at the end of the fourth quarter and are expected to drop to the bottom of the range in 2007.
http://www.eia.doe.gov/emeu/steo/pub/contents.html
Ron Patterson
North American demand dropped 0.064-mbd in 2006, while Asian demand grew 0.339-mbd. And non-oecd natins were just part of it. Latin American grew demand by 0.109-mbd. In all, global demand grew by 0.91-mbd in 2006, almost all that coming from non-OPEC producting nations. There is much disinformation at TOD.
Have prices since my inventory warning last year reflected my reporting of events and facts or that of the Peaksters?
There are also many reasons why consumption of oil might drop besides the price of oil, i.e. general economic slowdown because of multiple reasons, some probably energy-related, many more strictly economy related (falling housing market, etc).
It seems to me that the global crude oil market is so huge that a few fractions of percent of drop in consumption over a critical mass of consuming economies can cause high volatility in prices. In other words, there is a huge amount of 'slop' in the markets in terms of trading prices and anticipations of supply/demand, even while there may not be this 'slop' in terms of actual supply. IMO we could go several years beyond peak before the 'noise' in the economy, including possibility of deep recession, will give away to clear trendlines indicating economic realization of the peak.
This is why (if it wasn't clear already :) I think WT and RR could be both essentially correct, just looking at the situation in different lights.
I believe "price" in an open/free marketplace would be a good indicator in this situation. I am not convinced crude oil prices are set in an open/free marketplace. If there is any manipulation going on, then the price will never be a good indicator.
The Global Distribution Map i posted this week (http://trendlines.ca/energy.htm#misc) shows that every barrel not taken up by usa & europe went to non-oecd nations. There are a few TOD dieoff fans like Ron et al that want us to believe there was extreme hardship around the world last year due to high prices. Anecdotal and out of proportion.
We now know that the price spike in 2006 was artificial. The 1.7-mbd in surplus supply went to inventories. The demand destruction in the West went to asia. This is not rocket science.
Exports compared to a year ago are bunk. The global export/import patterns were skewed by the Gulf Hurricanes. Tankers were diverted. Now all is back to normal. In 2006, the usa produced within 40-kbd of 2005 volume. In 2006, usa nat'l gas production exceeded 2005 by 2.9% and TEOTWAWKI did not happen despite all the forecasts by some of the TOD pundits from the lunatic fringe.
Please mister Hutter, be more polite.
Tell me, why do you bother to read and post at TOD, which obviously is a peak oil freak show?
Is "debunking" Ron and others your idea of public service, being useful for the community? It would be better if you spent your energy on expanding on the ideas here, and of course exercise your intellect to criticise. IMO most of your posts are not honest criticism. It's mainly rhetorics and a strong bias without acknowledging others views, certainly not a quest for reality and truth.
Freddy is usually full of it, but in this case he is even more full of crap. No one is comparing the entire year Freddy, I was using a 10 week moving average. What about the eight months before the hurricanes?
What about the first 9 months of 2006? Why are total imports, using a 10 week moving average, lower now than any time in the last 31 months? Did hurricanes skew the production for two and one half years, when about half those months were before the hurricanes?
I was using a 10 week moving average and comparing it with every other 10 week average over two and one half years.
Sometimes Freddy, you just open your mouth and stick your foot all the way down your throat.
Ron Patterson
Nobody really cares about your ten-week avg, ronny. I sure don't. It indicates dick all. And i have never commented about your academic exercise; so i don't know why u are on a tirade.
Jeffrey is the Poster claiming that Exports today compared to a year ago (hurricane episode) is relevant. And i addressed that ridiculous comparison. That's all.
He is clearly wrong. And u are lost in space.
But don't let me stop u from taking a moment to explain to us why we should care that exports in Q4 down from 2004 should concern us...
Over the last nine months there have been several issues wrt inventory, non-OPEC supply growth, OPEC quota reductions & usa Demand destruction that i have addressed since October. All my statements and suppositions are backed by posted graphs and stats (some of which are still posted at http://www.trendlines.ca/energy.htm#misc
OTOH, u and Jeffrey are involved in alotta hokus pokus rhetoric mixed with baseless claims of decay in KSA, Russia, etc etc.
My explanations follow the price movement and geopolitical action impecably. Yours takes a leap of faith worthy of a fundamentalist religious zealot.
I am content to watch the world and event unfold as they should. U and westexas are eating up our bandwidth with your daily repetitive bund as if saying it a hundred times will finally convince us via some sort of fatigue factor.
Oil futures fell another five bucks this week. WT and u lost much more than that in credibility...
Peaksters defended the post Iraq2 price hikes as proof of Peak. Now that they recede, it's supposedly just a correction. Yup.
I have defended $50 contract prices as the equilibrium price for 18 months. I warned that there was a fear component and surplus capacity issues and thus prices could not sustain their recessionary heights.
Folks can believe your off-the-wall rants or my data supported outlines. Since 2003, your luv affair with EIA stats has made u look foolish in your retractions and false accusations. My IEA figures have been consistent in both forecasting upcoming events that i have posted and explaining past trends.
Do you have no shame, Fraudy, to be back here lying when I just showed that you can't even report accurately the weather in your own town?
today we learn that the lunatic fringe no longer takes the weekend off...
If oil is like other markets, the price is determined at the margin. If there is one extra barrel of oil with no buyers the price will fall to find a buyer. Likewise if there is a buyer for one barrel of oil and no sellers, the price will rise to find a seller. This is why commodities are so volatile. The actual physical amount available is irrelevant in the futures market since it is all paper barrels. In the corn market, with which I am more familiar, the bins can be nearly empty of corn just before harvest and yet the price of corn will fall. The futures market which determines the cash price is anticipating the harvest and lowering the price (normally). Likewise after the harvest, normally, the bins on the farm are full of grain, but the price of corn normally rises. I know these seems counter intuitive, but that is the way it normally works. This past harvest was unusual in that prices rose at harvest, a rare event. In the case of oil, I would suspect that the market is anticipating an over supply in the future. The declining inventories now are irrelevant. It is a futures market of paper barrels. Possibly the rapid expansion of ethanol is lessoning the need for crude oil as there will be ample supply of motor fuel at the margin. Add in the global warming effect and you get an over supply at the margin, which is turn decides the price for all the crude. The physical inventory numbers are irrelevant to price. However they could still indicate that peak oil is near or here already, it's just that ethanol and global warming are mitigating the effects at the moment. This can all change overnight.
Briefly, it is clear that world oil traders/companies do not believe we are peak right now (whether we are or aren't, people's behavior reflects primarily what they believe), crude prices have fallen from their high, no new obvious threats to oil supply have emerged (I think the concerns with Nigeria and Iraq have gone somewhat stale) and there is no shortage of supply - at least for the developed world. The question is given these factors, why wouldn't prices be dropping? Supply/demand imbalance will have to become much more evident for prices to really climb again in the absence of another new major supply threat (such as terrorism in SA).
There exists a certain knock-out effect too. I don't know how common it is, but if somebody is forced out of oil because of too high prices, he/she/it might just not rely on oil ever again even if the price falls back down. This is a bit more permanent type of demand destruction. This sort of behavior might also prevent the price of oil from ever rising into astronomical levels. It's a slow squeeze and financial entities (people, firms, countries..) are dropping out of the game one by one. A small player drops and the price growth slows down a bit. A large player drops and the price drops a bit. A very large player (or lots of smaller ones) drop out and the price just falls like a rock. Ofcourse the supply still keeps shrinking so the prices start to go up again.
Yes, I know this is quite obvious to many and the rest just probably disagree but this is my point of view.
U have described the process wonderfully. In 1998/99, many new users were drawn to petroleum use, both domestically and commercially. At that time, if anyone suggested crude cost would rise from $15 to $69 within ten years, they would be considered insane.
And so they became part of demand. As the baseline Price rises, those fringe users get knocked out of the game. At present, many are hoping that the baseline is still about $40 i.e. the contract price will still see $40 in the price troughs. Today it is $51. And as the fear premium and geopolitical premiums as price components extinquish, we are finding out this month where that bottom is.
IEA is advising that non-OPEC supply will increase 1.7-mbd in 2007. This plus their 0.65-mbd increase in 2006 will far surpass announced OPEC quota cuts to date. OPEC's next scheduled talks are in March.
It appears to me that in a 'just in time' world the the price of oil is only linked with fulfilling current physical trades. With remarkably warm weather in the northern hemisphere and low heating demand, no hurricane outages this year and no geopolitical issues stopping any major production there is no shortage at the current prices.
The situation with North American gas should however serve as a warning, (Perhaps also the major daily shifts in UK prices that frequently now happen.) post Katrina over $15.00 currently $6.60 with lots of price volatility. From the posts here we know that ongoing North American gas suppy is going to be critical in a short space of time with production in steep decline. However the JIT culture only 'sees' the immediate requirement and the price swings to enable current delivery. The futures market also seems to be deeply anchored in the 'now' with no consideration of potential production shortfalls that will result from resource depletion.
Its this kind of 'now' culture that I am sure is the prime driver of the oil price.
One more point, If you go to This Week in Petroleum you will see that crude oil inventories this past week are exactly 4 million barrels below the same week last year and are at their lowest point in over a year.
Yet we are still above the historical range for this time of year. We would have to drop another 25 million barrels just to get to the average portion of the range. High inventories amount to idle money. After Katrina, a lot of refiners started to keep higher inventories, but that memory is fading. I think inventories will continue to drift down until they are back in a more average range for the specific time of year.
The other thing to keep an eye on is product inventories. They have been climbing, and if they continue to climb refiners will start to cut refinery runs (and prices will continue to fall). This will also cause imports to fall farther. Finally, turnaround season will start in a couple of months, and you will definitely see imports down then. But they will come back up in May and early summer. Remember, just last summer we were setting new import records after imports had fallen in the spring.
RR
P.S. It was 19 below at my house in Montana this morning. Winter is here finally.
High inventories lead to more profit, if the markets are in contango (long dated higher than short dated), right? I thought that inventories were generally and persistently high for this reason for a while.
If this mentality changes (and it's starting to look this way) then I'd imagine there'd first be a quick liquidiation of inventories, hence even less importation, for a little while.
High inventories lead to more profit, if the markets are in contango (long dated higher than short dated), right?
Yes, this has also likely contributed to the high inventories.
If the new congress passes the much talked about inventory tax (LIFO) against oil companies, it will become much more expensive to hold inventories. In that case, you will see inventories drop substantially. Then the first time our supply gets disrupted and prices sky-rocket as inventories are drained, the congress will realize their error and repeal the tax (while complaining about the profiteering going on as oil companies rake it in due to the high prices). But I suspect they may have to learn this lesson the hard way.
Good point, although what's interesting is that the steep contango has persisted right through the recent sharp price decline (in fact the curve is now very close to a perfect contango). The incentive to maintain high inventories has persisted over the past few months, and therefore the remorseless weekly decline in stocks has been puzzling.
There's an argument that can explain how a fall in price such as we have seen can occur despite little or no surplus in worldwide production capacity. In simple terms it goes like this:
1) Expectation of future capacity constraints + hedging (e.g airlines) --> steep contango in futures market.
2) Contango leads to heavy inventory build, keeping oil from reaching spot market. Spot price rises, but this reinforces 1) above, so contango persists. Inventories continue to rise.
3) Storage approaches limit and high spot price suppresses demand in short term --> upward pressure on spot price subsides.
4) Market receives a false signal - sees price has topped and interprets rise in stocks as overcapacity --> price falls
5) Factors reduce expectations of immediate capacity constraints (e.g. mild weather, eased political tension) and medium term capacity constraints (e.g. new non-Opec supply) --> further sharp drop in price along the short and medium parts of the curve.
The key point in this is that at no time over the past few months has the contango gone away. There has been every incentive to maintain high inventories under the current price structure if there has been adequate production.
And yet inventories have been falling...
I think we are now in a Housing lead recession. The housing industry seems to use a lot of oil and oil products compared to traditional industries so I think we are seeing more of a demand drop than I predicted.
As far as I know this is the first Housing lead recession that has happened so looking at past consumption patterns during a recession may not be quite right.
So in general the drop and oil consumption is a indicator of the housing slump. Motorola's recent weak number should be a warning that consumer spending is waning quickly.
The warm weather helped also but I think we will know over the next few weeks how big a factor it really was. In fact it would be cool :) if we can get the consumption boost from this cold front since it will give us a good idea how big the warm weather effect is.
Great post and suggestion. The first Recession in history anywhere with a 4.5% Unemployment Rate. And yesterday Bloomberg reported December consumer spending set a record.
Good call, Mike.
Memmel,
I sold my last spec house this past summer. Saw the writing on the wall, stopped building, and I am sitting on the sidelines.
Building homes is very energy intensive. The manufacturing and transportation of building materials uses lots of energy. Think concrete, asphalt shingles, and all that vinyl.
The actual process of building burns lots of fuel. Saw my subs pumping 50 gallons a diesel a day into their excavators, bulldozers, backhoes,etc. Just the logistics of running around to move equipment, procure material and deal with the local govt burns alot of fuel.
I personally went from burning 40 gallons a week to way less than 40 gallons a month, once I stopped building.
All in all, a very energy intensive activity.
Look in to green building standards in your area.
Hmm good point. The energy saved by not ordering all the construction materials is pretty high also this would put a damper on NG/electricity usage also. A lot of construction material. And of course all the transport costs for them with a lot of it moving by truck.
Of course the warm weather helped but I think we will find out over the next few weeks how big a effect that was causing.
This morning on CNN, they were predicting millions would be without power over the weekend. They said it was 51F in Indianapolis, -51F in Calgary. Result: huge ice storm, probably centered on St. Louis.
Hello Leanan,
Not a weather expert, but aren't ice-storms more destructive than a normal snow-storm? Does GW guarantee more ice-storms than snow-storms during winter?
What will be interesting is if millions without power for an extended period of time from this icestorm will also help drive FF prices down overall during this period because of greatly reduced involuntary demand. If the power transmission infrastructure really gets torn up with numerous high voltage steel-towers turned to trash, and countless miles of powerlines out of service: will even the natgas pumping stations potentially go down for some time?
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Not a weather expert, but aren't ice-storms more destructive than a normal snow-storm?
Very much so. It doesn't take much to start causing real problems. I went through 2 very bad ones in Oklahoma. Trees down everywhere, power lines down, icy roads where people are unaccustomed to them. We were without power during one of these storms for a week. I remember watching transformer after transformer explode during that storm. It was quite a light show.
The ice storm that hit Quebec in Jan 1998 was among the worst natural disasters to hit Canada. I recall watching trees self destruct before my very eyes. The temperature was -5C and it rained for about 5 days. The 720 kV towers collapsed in some areas...
Flak
1998, eh. Hmmm. Last year we had a big el nino? Nahh, must be coincidence!
Like fish in a barrel...
www.realclimate.org
Hello R-squared,
Thxs for responding. This may seem like a stupid set of questions, but living in Phx since I was a kid--I have totally ignorance on this subject.
Can a snowplow remove road-ice or not? Or is the coating generally too thin causing the snowplow to get damaged and/or damage the roadbed? Or is the loss of sufficient snowplow traction and control the primary reason this is not done? Do they have mechanized ice-grinders that can easily chewoff this road coating?
I can see where salting the ice may be helpful, but if salt is required--doesn't that really screw up the soils/rivers affected by the eventual runoff? Or do they have some way to neutralize this?
Arizona high country uses volcanic cinders, not salt on their roads. A thin coating worked into the ice/snow almost becomes like asphalt restoring vehicle traction and control. The loose gravel sure chips the paint and windshields of vehicles tailgating, but most drivers quickly figure out that leaving much more space between vehicles is not only safer, but much cheaper too. Thxs for any reply.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Salt helps, as long as it's not too cold, and yes, it does pollute. (The worst ice storm I've ever driven in was one where it was so cold that road salt didn't help. What a mess that was.)
There are ways to mitigate it. (Generally in the road/drainage design.) And using salt may be forbidden in especially sensitive areas. They'll just use sand, no salt.
They did a study in one of the northern European countries - Denmark, or some place like that. They had two similar stretches of road, one that was salted and sanded, and one that was not. They found that the cost was the same. That is, the cost of the salting and sanding offset the cost of the increased damage and injuries on the unsalted road.
Can a snowplow remove road-ice or not?
The first problem is that they don't even have snow plows in that area. Ice and snow aren't frequent enough to justify them in most Oklahoma cities. The larger cities may have some; I don't know.
But, no, to my knowledge a snowplow can't remove ice. Our roads are covered with ice here in Montana, even though the snow plows have been out working.
Like the often repeated road report:
"Ice and snow covered, whipping bare in the driving lane" The "whipping bare" is so descriptive.
The worst is the black ice--slick and so clear, it looks like asphalt. Very hard to notice.
Yup, hailing from Finland I can pretty much guarantee that there is absolutely no way to remove ice from the road mechanically without destroying the road in the process. Hell, even then you'd have to repeat the destruction quite often.
Here in Quebec there are a lot of different road conditions. Rain on bare frozen pavement will result in black ice. You steer left the car goes straight. You brake, nothing happens. The plows will be out but they will be salting. The coating is too thin to be removed by the blade.
Snow on bare pavement will compact if it is wet and will then act like the ice coat above. This will be about an inch thick and may get lifted by a plow but generally this is handled by further salt applications.
All the salt mixed with road snow lowers the freezing point of the snow so you get a brown slush which remains semi-liquid. Once you get into this stuff the car will hydroplane and you have all sorts of control problems.
The continual friction of tire on main roads creates heat and this, plus plows, will keep most roads more or less clear. The salt does create problems but this falls into the same category as tailpipe emissions - nobody is really going to address the problem as there is no other means of getting around. Cars do not last long up here and neither do boots or winter clothing.
And it's underway:
Ice storm threatens chaos
Poor Oklahoma. They just got the power fixed from the last ice storm.
We are in the thick of it in KC, MO right now as well...freezing rain, sleet, now...temp is about 18 degrees F right now.
This is a HUGE storm. Watch out in St. Louis...they are going to get nailed on this one and with the power problems they had with the last storm...double nasty.
Stay warm all my Midwestern brethern.
That comment about "one-in-maybe-15- to 25-year event" indicates Chad Meyers doesn't know too much about Oklahoma weather. I went through two of these - very bad both times - since 2000. I also remember we had a really bad one in Oklahoma about 1990 or so.
I posted a note from an Accuweather guy a couple of days ago in which he suggested that we could see something like the 1977-78 winter, which started off mild but ended very badly.
We can't say global warming *guarantees* more ice storms than snow storms.
What we can say is it is likely that when there are storms, they will dump more moisture. Conversely winters are likely to be later, warmer and shorter.
So what is it about St. Louis, being hit so hard so many times in the last year?
God is angry. He was betting on the Tigers to win the World Series. ;-)
Yikes! Now that's real Montana winter weather.
Well, as the Zen koan goes:
Chop water, haul wood. :-)
Or as I say here in Vermont: chop water, carry wood.
(Chopping the water refers to shoveling the snow and ice.)
Note that Total US Petroleum Imports doubled in 15 years, from 1991 to 2006. As I have noted, this is just shy of a long term exponential growth rate of 5% per year, as our domestic production has fallen and as our consumption has increased. Based on the HL method, we have consumed about 5/6ths of our conventional crude oil reserves.
BTW, based on consumption, crude oil inventories are down to about 20 days consumption, versus the 30 days that we had in the early Eighties.
One of the things that caught my attention was the rapid increase in Chinese oil imports, versus the decline in US imports in the fourth quarter, combined with the reported reduction in Saudi production of over one mbpd since early 2006 (I estimate that exports from the top three exporters may be down as much as 2.5 mbpd in 2/07 relative to 2005).
As I said yesterday, connect the dots. We are seeing a substantial movement of US land, air and sea forces to the Middle East, just as the available data are pointing to rapidly declining world exports, and by the way, the available exports appear to be headed more for China than to the US.
So WT, since you paint yourself as all knowing on oil matters around the world, would you care to explain to us why prices are now down 35% from their all time high set last summer, despite the fact that 2.5+ mbpd that hasn't been replaced is supposedly off the market?
As I noted down the thread, lower short term demand because of a combination of a (so far) warm winter and perhaps a slowing economy (and lower demand in many poorer countries) is not mutually exclusive with Peak Oil. What we are not seeing is higher crude oil production.
Hothgor, just curious. Why do you feel that it is necessary to open every comment with some kind of snide remark?
As I said earlier, you apparently have no problem with the concept of a virtually infinite growth rate against a finite resource base. I do. Why don't we just leave it at that?
westexas:
I see the demand destruction due to warmer weather, but here's the part I question: You state "we are not seeing (is) higher crude oil production".
Granted, we are not seeing higher crude oil production because the market is currently flooded, I would assume. Why supply 500,000 more barrels when the market is not demanding them?
On that rationale, OPEC's desire to cut output, and for others to throttle theirs down would seem to me to be more a function of market economics than inability to produce more.
I agree with the finite resource base argument, I just don't think that the data right now would support that as being the prime factor behind slowing production figures. I'm calling market economics at this time.
Re: Declining Oil Production: Voluntary or Involuntary
In geophysics, when we do gravity surveys, one inherent problem with the technique is that an observed anomaly may be due to either a small shallow structure or a large deep structure (and anything in between). In other words, all we have is the observed anomaly. (One my daughter's middle school science projects was to measure the gravitational effect of the moon. I borrowed a $25,000 gravimeter for the project.)
One way to address the interpretation problem is to develop models to compare to the observed data.
So, the oil anomaly we see is that the world is going to clearly end up 2006 with lower crude oil production than we had in 2005, after five years of an average year over year increase in oil prices of 21% per year.
As noted down the thread, the Saudis started "voluntarily" cutting production as oil prices went from around $60 to around $75. Oddly enough, while they claimed that they could not find buyers for even their light, sweet oil, many other countries, such as Iraq, had no problems finding buyers.
And the decline in Saudi and world production fits the mathematical models. In other words, our observed data match the models. Does it prove that we are past peak crude oil production? No. But ask yourself this question. If we had had a cold, or even normal winter, do you think oil prices wold be "down" to the low $50 range? So, do you think that short term weather patterns (plus some overall reduction in demand) are affecting the short term supply/demand balance?
So, the oil anomaly we see is that the world is going to clearly end up 2006 with lower crude oil production than we had in 2005, after five years of an average year over year increase in oil prices of 21% per year.
But as you said above, demand is currently down. If demand is down, that means lower production and lower imports. All that is needed to explain the lower production is that demand is down. We don't require any conspiracy at all.
As noted down the thread, the Saudis started "voluntarily" cutting production as oil prices went from around $60 to around $75. Oddly enough, while they claimed that they could not find buyers for even their light, sweet oil, many other countries, such as Iraq, had no problems finding buyers.
That isn't true. Between January and May of 2006 - when Saudi first said they were having trouble finding buyers, Saudi production fell by 200,000 barrels a day, or 2%. During that same time period, Iranian production fell 150,000 barrels a day, or 3.7% (despite record high oil prices). In fact, production in most OPEC countries fell over that time period. Does that mean they have all peaked?
As I have shown, this time period also corresponded to a very large increase in U.S. inventories. It is a fact that if our inventories are very full, we will need less imports. There is absolutely zero evidence, despite your claims that the Saudis are lying about this, that they in fact are. Their comments are completely consistent with what was observed in the market.
I agree that it is getting kind of hard to find countries with rising production, but from the January to May time period, Iraq's production went from 1.6 to 1.9 mbpd, on its way to 2.2 mbpd in July, while Saudi Arabia--because they couldn't find buyers for all of their oil, even "their light, sweet oil"--saw their production fall, within the context of the overall decline from 9.6 mbpd in 9/05 to a projected 8.5 mbpd in 2/07.
So, if the Iraqis could find buyers--even for "their light, sweet" oil--for another 600,000 bpd in production from January to July (as oil prices hit their so far all time record nominal high), why couldn't the Saudis find buyers?
I agree that it is getting kind of hard to find countries with rising production, but from the January to May time period, Iraq's production went from 1.6 to 1.9 mbpd, on its way to 2.2 mbpd in July...
Again, as I said in the first response, Iran's production fell over that time period. Here are the numbers:
http://www.eia.doe.gov/emeu/ipsr/t11a.xls
Does this mean they have peaked? Their production fell by a larger percentage than did Saudi's. Other oil producers that saw lower oil production over this time period were Nigeria, Algeria, Indonesia, and Kuwait. So, why would their production fall if oil prices were so high? Answer: High oil prices don't necessarily indicate that a country will be producing at maximum capacity. There are other considerations. But when one is merely data-mining, it is quite easy to just pick the pieces that fit the theory they are promoting. Much more difficult to take all the data and put it together. But the fact is, other countries - including countries that have not peaked - saw their production fall over the same period that Saudi claimed they couldn't find buyers. It is also indisputable that U.S. inventories rose sharply during this time, indicating that in fact supply was exceeding demand.
But I'm puzzled as to why Iraq and Russia were able to sell another 830,000 bpd of crude production--from January, 2006 to July, 2006--when Saudi Arabia couldn't find buyers. Could you enlighten me?
There was also the curious fact that average US spot prices went from $61.63 in January to $74.41 in July--as the Saudis couldn't find the buyers that the Russians and Iraqis seemed to have no trouble finding.
Do the Russians and Iraqis just have better oil traders?
But I'm puzzled as to why Iraq and Russia were able to sell another 830,000 bpd of crude production--from January, 2006 to July, 2006--when Saudi Arabia couldn't find buyers. Could you enlighten me?
Maybe they were selling to people who didn't have overflowing inventories. Maybe Iran was selling to some of the same customers as Saudi - customers with quickly filling inventories - which explains why their production dropped.
There was also the curious fact that average US spot prices went from $61.63 in January to $74.41 in July...
Again, data-mining. You are ignoring all the factors I laid out in my debate response to you. There was a lot of geopolitical stuff going on - right in the wake of Hurricane Katrina taking a lot of supply off the market. Again, no conspiracy necessary to explain that.
as the Saudis couldn't find the buyers that the Russians and Iraqis seemed to have no trouble finding.
You don't know whether they had trouble or not, do you? You know they were able to increase production, but you don't know whether they were offering discounts, etc. Again, "having no trouble" is spin. Iran apparently had a little trouble. Ditto Nigeria and several others. Again, have they peaked?
So, why were Iraq and Russia both able to find the right buyers at the $74 US spot price in July, but Saudi Arabia couldn't? It's not like the all time record high oil price didn't offer them a huge incentive.
In regard to your peaked question. The problem in Nigeria is self-evident. I have seen HL plots on six of the top ten net oil exporters--Saudi Arabia; Russia; Norway; Iran; Mexico and Kuwait--and in all six cases they are right at, or past, the 50% of Qt mark. In aggregate, the six have consumed more than half of their recoverable reserves.
So, why were Iraq and Russia both able to find the right buyers at the $74 US spot price in July...
Proof that they found buyers at $74? OPEC crude trades at a discount to WTI, you know. You have no idea what kind of price they offered to move their crude. None. Producers offer customers discounts all the time, so once again you are spinning.
It's not like the all time record high oil price didn't offer them a huge incentive.
Thus you continue your pattern of simply ignoring data that don't fit. You are a hammer. Every problem is a nail. I show you a screw and you just ignore it and continue to talk about the nails. To you, screws don't even exist.
Did the all time record high oil price offer Iran an incentive? Yes or no? Has Iran - not in aggregate but by itself - peaked? Yes or no? Did Iran, and several other OPEC members besides Saudi, lower production over the same period? Yes or no? To pull Saudi from the group, suggest they were lying even though rising inventories supports their story, ignore the fact that other producers showed the same behavior during these record high oil prices, and only pick out the cases that support your argument is nothing but data mining. The argument is ad hoc. It is infinitely malleable.
And this is what we call "putting the cart before the horse."
Demand is down because of higher prices. Higher prices are caused by a shortage of supply, which is a product of lower imports and other product limiting factors.
When the supply of any product drops, then prices automatically rise until demand drops to meet supply.
All that is needed to explain lower demand is higher prices. That was covered in economics 101. Perhaps you missed that class. But at least you got one thing right, no conspiracy is involved.
Ron Patterson
When the supply of any product drops, then prices automatically rise until demand drops to meet supply.
So then I guess what we have right now, with falling prices, means that supplies are rising - just the opposite of the scenario you described. Which means falling imports, inventories, etc. are quite irrelevant given that prices should automatically fall until demand increases to meet supply. The market is signaling that there is plenty of supply at the moment. That's based on your own logic.
Robert, you need to understand one thing very clearly, this is not my logic! This, as I said, is basic economics 101. And even people who hate economics and economists agree on that very simple principle. When supply is in excess, prices drop until enough buyers take up that excess or producers are unwilling to produce at that reduced price. And the vice versa when there is a scarcity of supply. When supply drops, the price rises until it prices some buyers out of the market and/or more producers are willing to produce more at a higher price.
If suppliers, because of a high price, find themselves without buyers, as Saudi Arabia says they did, then all they must do to find buyers is lower their price. That is why everyone knows they are lying when they say they had no buyers for their oil. Well, everyone except those who do not understand economics 101. There are always buyers! The price simply must simply be adjusted until buyers come into the market. It is called the law of supply and demand.
And yes, the market is signaling, with falling prices, that there is enough oil at that price. As of late there has been considerable decimation in demand, due to the price of oil over the past two years. People are buying smaller cars, people are driving less, and countries that use oil to produce electricity are just producing less of it. And of course the very warm winter is no small factor in the reduced demand. And, of course, the fear premium has largely disappeared.
Saudi Arabia reduced production when prices were in the mid sixties. All they had to do to attract buyers was lower their price a dollar or two. At the time Arab light was going for about 60 bucks. All they had to do to attract every buyer in the market was lower their price to $58 a barrel. Only someone who has no concept of how economics works could possibly believe that they could not find buyers at only a slightly lower price.
Ron Patterson
That is why everyone knows they are lying when they say they had no buyers for their oil. Well, everyone except those who do not understand economics 101.
Or those who apparently think a sound Saudi strategy would be to sell more of their non-renewable oil by lowering the price. If I were in their shoes, I certainly wouldn't.
Only someone who has no concept of how economics works could possibly believe that they could not find buyers at only a slightly lower price.
No need for straw men, Ron. I never argued that they couldn't have found buyers if they lowered the price. Heck, my company could sell a lot more too if we lowered the price. But why would we? Why would we risk starting a price war? Saudi said they weren't going to leave money on the table. Can you blame them? Would you lower the price of your non-renewable resource to sell a little more of it? If I was the largest producer, I would try to keep prices as high as the world could stand it. I would try to push prices back up to the $70 range. I would do that by cutting production if the price started to soften.
They could have sold at $58 to $65 when WTI was selling at above $70. And they did not! And you believe them?
Now the contract price of Arab Light is below $50. The very oil they are selling right now, some 8.7 mb/d of it, (best guess), at below $50 a barrel, they could have sold for $60 a barrel. Because they were unwilling to take that low a price for it.
Yeah Right!
Do you own any bridges Robert?
Ron Patterson
They could have sold at $58 to $65 when WTI was selling at above $70. And they did not!
Can you see the future, Ron? You can't say what they could have done based on what prices have done since then. They were trying to prop the price up. A year ago, we were selling gasoline for a much higher price. Oil companies would have liked to see the price stay high. Yet today margins have eroded and we are selling gasoline for a much lower price. Does that mean in hindsight we should have sold more when prices were higher? Well, we might do a lot of things different with the perfect view of hindsight.
Look at inventories, Ron. Simple questions. 1: Were U.S. inventories at all-time record highs and rising when Saudi made this claim? Question 2: If inventories are very high and rising, doesn't this mean that companies are going to slow down on their purchases? Question 3: If companies slow down on their purchases, doesn't that mean that some suppliers will need to reduce output?
Do you own any bridges Robert?
I own 1, but I am reluctant to sell. Make me an offer.
I guess I'm still confused. Saudi Arabia's stated position for years has to keep oil prices within a certain band--not too high or too low. They didn't want oil prices to go too high because it would encourage conservation and alternative energy. Why suddenly abandon that position?
And why were the Saudis willing to sell 9.5 mbpd in July, 2004 at an average US spot price of $40.78, but they were unwilling to sell 9.5 mbpd in July, 2006, when the US spot price was an average of $74.41?
And why cut February, 2007 production to 8.5 mbpd, when current US prices are above $50, when they produced 9.5 mbpd in 2004 at $40 per barrel?
(I realize that OPEC oil sells at a discount to US spot, I'm just using it for comparison purposes).
Why suddenly abandon that position?
I know I have explained this several times. Because they saw that the world was willing to pay that price, and it didn't cause the kind of fallout they had feared. As I said before, I might have been happy 2 years ago to get a price for my house that would be ridiculously low today. Why might that be?
So the Saudis, being ruthless capitalists, cut their production and allowed competitors like Russia to take advantage of the US spot price of $74 in July?
In any case, I would argue that we have been in "Peak Lite" since 2002, given that the average annual year over year increase in oil prices, starting in 2002, has been 21% per year for five years. After Peak Lite comes the Real Decline.
So the Saudis, being ruthless capitalists, cut their production and allowed competitors like Russia to take advantage of the US spot price of $74 in July?
You have provided no evidence that Russia got that price for their crude. I also read an article today that Saudi is not too happy over Russia's refusal to cut production to keep prices high.
In any case, I would argue that we have been in "Peak Lite" since 2002, given that the average annual year over year increase in oil prices, starting in 2002, has been 21% per year for five years. After Peak Lite comes the Real Decline.
On that, we can agree, although we won't have a clear picture of the true supply situation until prices pick back up. At the moment, the very thin margin between supply and demand has fattened up a bit. How long this lasts largely depends on China.
As I said, I'm just using US spot prices for comparison purposes. But no one disputes that oil prices went way up from January to July.
Jeffrey, your misunderstanding of the market continues to be founded in your belief that somebody buys crude at Spot. Spot and futures are for options traders ... not specifically for trading of oil. Oil and nat'l gas is commonly sold in six month and one to three year contracts. LNG is sold in 10 - 20 year contracts. These contracts are not rigid and have some pro rata built in to protect both parties. OPEC contracts warn that quota cuts will supercede the Agreement and not necessarily respectively.
Perhaps also, a nation or oilco may holdback sales in hopes of higher pricing regimes at a later time (like when opec quota cuts kick in). Or they may dump knowing that prices are on the way down (due to increased non-opec supply coming down the pike).
You and Ron continully analyse the past as monday morning quarterbacks and thus y'all are confused by why they took certain decisions at that time. They did not have your advantage.
When u ask why a country did not choose to sell when others did, it illustrates that u are not aware of the infrastructure limitations of choosing your customers. And some nations sell "regardless" 'cuz they need the cashflow. These will be mostly national oil companies that have payrolls and IMF payments to make. Not every seller is a willing seller.
simply put the gravitational effect of the moon on you is the same a pea has on you held .5 meters or 1.5 feet above your head.
We have to correct gravity surveys for the earth tide effect caused by the moon.
I don't understand how can you say that nobody is demanding more oil today or during 2006 while China, for example, is growing by 10% each year! And it is not the only contry in this situation.
I mean, it seems obvious for me that we are, since a couple of year, in a time frame where there is never too much oil to buy!
If there was demand, prices would be rising. Instead, they are falling. It really is that simple. The high oil prices of last year plus the mild winter could have destroyed a lot of demand. At the same time OPEC got a great test case that the market can support $60/barrel. Why let go of that if you can force it by removing supply (plus buying yourself months, if not years until the peak)? As soon as demand picks up during driving season, prices will start to rise, unless I am totally mistaken and demand destruction goes way beyond anything the producers could imagine.
"I mean, it seems obvious for me that we are, since a couple of year, in a time frame where there is never too much oil to buy!"
So you are obviously wrong. You wouldn't be the first one.
manmax -
I'm not saying that nobody is demanding more oil, but what I am saying is that it would appear the market is sufficiently supplied at the moment and is not demanding much more. China may be growing by 10% *annually*, but right now, on January 13, 2007, we must ask: who is buying and in what quantity? This is not to say that 6 months from now supply will be outstripped by demand.
Right now, however, the market appears to be balanced, if not in excess supply.
Also, on the discussion of prices and correlations - let's not forget that in 2006 there was a significant "fear premium" built into commodity prices, specifically oil. There was the forecast and fear of a strong Hurricane season, there were geopolitical concerns in the middle east with Lebanon, Iraq, Iran, there were concerns about China's strategic petroleum purchases, etc.
However, by the end of July, when the Lebanon conflict began to subside, when it appeared that the forecast for the hurricane season wouldn't pan out, and Americans started to become a bit more prudent in consumption, it became apparent that the $74/barrel price was unjustified and the great sell off began.
For sales and purchases, someone mentioned that you have to consider logistics and financial needs when questioning motives and answers for the market. For example, Saudi Arabia said it could not find buyers for its light-sweet crude in 2006. There's a lot there for interpretation. For example (and without data), perhaps the United States' reserves will adequately supplied, perhaps in general, Saudi Arabia's buyers were already taken care of and weren't demanding more, perhaps the Iranians and Russians were selling every drop to the Chinese, locking out the Saudis from that market, etc.
There's a lot that can be interpreted and needs to be studied in the financial markets to get a better grasp of what was going on seven months ago.
This year we may see prices stay depressed because of extra capacity that has come online, infrastructure that has been upgraded and improved, new technologies, etc. This is not to say that our oil is an infinite resource, but that concern about peak oil being "just around the corner" may be overblown.
I have a strong feeling we're going to see repeats of the 2006 oil market off and on for many years to come.
Yes. Here's hopes for a nonsnarky New Year. Love and kisses.
An interesting chart out there shows the Chinese buying big on the dips. It seems while the loudmouths in the financial media in the West do their part in beating down the price of oil with their reporting on full tanks and warm Manhattan weather the Chinese quietly stock up.
They said they were going to do that. They started their SPR when prices were going crazy, but said they weren't planning to fill it until prices went down.
Proof of the hopelessness expressed by ronny:
