72 comments on Horizontal and Vertical Well Production
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And maybe the learned among us can explain why the price of a barrel of oil is dropping into the 40s. Did the Peak Oil theory peak?
It bounced off of 50 pretty hard today. Today was options expiration so it had every chance to break 50 and it didnt.
Remember, there is no FUNDAMENTAL reason for oil at $50, or $80 or $20 or $1000. It all has to do with immediate supply and demand. Recently, due to warm weather, there has been plenty of current supply. And as PG pointed out in a post last week - Goldman Sachs reweighted their GSCI index which many pension funds are linked to so there was a spate of futures selling. Personally I think its overdone and we are due for a pretty quick $5-$10 rally. But the only thing Im VERY confident in (barring a world war or bird flu) is that we will be significantly higher in price 5 years hence.
By the way - the back months (2012 is what I watch) did not break the lows of two months ago whereas the front months are more than $10 below those levels.
By the way - the back months (2012 is what I watch) did not break the lows of two months ago whereas the front months are more than $10 below those levels.
I'm glad you pointed that out. For quite a while there, those back months exhibited backwardation. Contango for the front months.
Now we have contango all along the curve.
If prices rise with that contango intact, chaulk one up for peak oil.
A.
There are thousands (millions) of traders who try to explain price every day. Its the same for currencies, stocks, bonds and commodities. Explanations are most always poor.
During the oil price rises since 2003, the biggest "fundamental" reason for price rise had nothing to do with peak oil. Demand was increasing. Supply was also increasing, but capacity was not. What does Peak Oil have to do with it?
Once supply really begins to FALL more than one year in a row at ca. 4% will price be a "result" of Peak Oil. This could be next year. This could be 2012.
Peak: As WT advises, world exports are more important, fundamentally, to the oil price than supply. A lot of countries (e.g. KSA, Venezeula) are subsidizing internal consumption.
Right, at least at the moment that's true. But why not just call internal consumtion demand, even if it is subsidized (Iran, too btw.)? Again, it's still not "peak" right now which "dictating" prices. Right now we can still blame China...
Peak: Interesting enough, in light of the crash in oil prices is that if you look at the eia website their Saudi analysis as of August 2005 projects Saudi exports for 2007 approximately 40% higher than current. As of August 2005 they projected current (2007) Saudi production to be 11.5.
Why is it that we resent "our factories" which make "our products" paid for with "our debt" using "our oil?" Is it because some of the people who work in our factories would like to drive to work? Are they forgetting their place and getting too uppity?
If we don't want China to work for us all we have to do is boycott WalMark, KMart, Target, Best Buy, Home Depot, et al. Then China will stop using "our oil."
But since China is way more cost efficient using "our oil" (despite rumors claiming the opposite, the Chinese factory worker still does not drive an SUV), the Walmarts of this world are the cheapest source of high quality goods (oh, well... medium quality goods). Joe Average can not afford to buy the same products from American or European manufacturers.
Their labor costs are lower. In terms of efficiency using energy that is a totally different issue, and I suspect on the whole their energy efficiency is generally worse.
Higher energy use per unit of GDP *but*
that is normal. Poorer countries have lower GDP but also do more things with that GDP that require relatively more energy.
(example: Healthcare is 1/6th of the US economy, and relatively low energy intensity. It is a much smaller proportion of the Chinese or the Indian economy).
The question is whether the Chinese use 'best practice' on technology ie where the 2 economies are comparable, are they using as modern technology as the US?
In the typical exporting factory I would say yes. In terms of technology and productivity, the Chinese are up there with the best of them.
In the economy as a whole (including transport, power generation, domestic manufacturing, farming etc.) I would say no. For example their typical design of passenger car seems to be about 10 years behind the US.
One complication in the Chinese economy is that because they don't have a full market economy, the prices of energy may be distortedly low. This would seem to be particularly the case with electric power, but to a lesser extent with gasoline.
"And maybe the learned among us can explain why the price of a barrel of oil is dropping into the 40s. Did the Peak Oil theory peak?"
I have suspicions that it is like the mid-80's when they conspired (Bush I/Reagan/KSA) to "Pump like mad" to drop the price to the floor and bankrupt Russia. (that and getting Canada and others to drop the price of gold by selling bullion) Those two things were the ways that Russia at the time got it's hard currency. Their production price I heard was more than the market price for Oil, and I believe it went a long way to bankrupt them.
Now too, we hear that the current price drop is hurting Iran finanically. Hmm.
History might rhyme with the present tune.
Or
I could be totally wrong.
John
That would be nice!
"I could be totally wrong."
At least you have the learning to admit that yourself being wrong is a very likely possibility. I draw my hat before you, Sir.
It is far more likely that the US would never ask KSA to manipulate prices any other way than they decide to themselves because the diplomatic response to such a request would simply be roaring laughter. And even Condi Rice has limits to how much humiliation she can take (albeit they must be very, very low these days). I do understand, though, that Americans have to develop all kinds of conspiracy theories to make themselves believe that not they but someone else gets taken to the cleaners by OPEC and the rest of the oil producing countries. It is, after all, quite devastating to realize that one is the laughing stock of most of the world...
:-)
Well, you can't know anything with 100% certainty (in a philosophical sense) but we are getting into the 70% or so certainty range.
The NY Times reported on 12.23.06:
"A member of the Saudi royal family with knowledge of the discussions between Mr. Cheney and King Abdullah said the king had presented Mr. Cheney with a plan to raise oil production to force down the price, in hopes of causing economic turmoil for Iran without becoming directly involved in a confrontation."
http://www.nytimes.com/2006/12/22/world/middleeast/22saudi.html?pagewant...
... or "history might rhyme with present time".
(double post)
I don't buy the whole KSA wanting to bankrupt Iran. That's basically somewhere between speculation and a rumor and probably closer to a rumor (least credibility). KSA needs the money nearly as much as Iran does. Saudi Arabia is facing a massive population explosion, and massive unemployment among the younger generation. They really can't afford to forego money that would better be spent on development for short term political grandstanding. That isn't to say their leadership won't make mistakes, but if they are smart in the long run they should fear their own populace a lot more than they fear Iran.
Nagorak writes - "I don't buy the whole KSA wanting to bankrupt Iran. That's basically somewhere between speculation and a rumor and probably closer to a rumor (least credibility)."
It's pretty much accepted that KSA (Sunni) and Iran (Shia) both want to diminish each other's prominence in the world. We should remember that the more fervent adherents of these two parties hate each other more than they hate America.
There have been numerous other media articles on this subject. Web search around for them.
I was surprised to learn that about 80% of Shia are known as "Twelevers". Essentially they are messianic and awaiting the 12th Imām to return.
See - http://en.wikipedia.org/wiki/Twelvers
"Ithnāˤashariyya) are those Shiˤa Muslims who believe there were twelve Imāms, as distinct from Ismaili & Zaidi Shi'ite Muslims, who believe in a different number of Imams or in a different path of succession. Approximately 80% of Shi'a are Twelvers and they are the largest Shi'a school of thought, predominant in Azerbaijan, Iran, Iraq, Lebanon and Bahrain."
"The concept of Imāms and the Mahdi
The Shi'a Imams, the first of which is ˤAlī ibn Abī Tālib, are viewed to be infallible. It is an important aspect of Shīˤa theology that they are, however, not prophets (nabī) nor messengers (rasūl) but instead carry out Muhammad's message. They are considered as superior as all prophets and messengers except the last one. Shīˤa Muslims view all religions and groups that accept prophets or messengers after Muħammad to be heathen or heretical. ***They believe the last (who also is the twelfth and current) Imām, the Mahdī, is in hiding by the order of God and will reappear by God's command.***"
Shia messianic madmen want nukes just to be equal to our own messianic madmen with nukes. Go figure. And while you are figuring move that Doomsday clock several ticks forward.
Well you have a good point. Maybe I am under estimating human stupidity at work.