Well WT things seem to be going basically as you have predicted so far. We will know I think later this summer of the world has peaked on oil passes 70. Barring of course enough of a economic slow down to cause significant demand destruction. I think at least in the first half of 2007 the economy will stay strong enough that demand issues will not hide peak oil. The key is to get KSA in a situation where that either have to open up the spigot or admit they can't.
My prediction of a peak in prices between Feb 15 and March 15 seems to surprisingly be on course. Time will tell.
The model I used was pretty simple I considered the price of oil to behave like a rock dropped into the center of a round pool. The trick is guess the size of the pool. Once the initial wave reaches the edges it returns causing a spike.
Peak oil or supply is modeled as a shrinking pool.
So far so good. The trick is of course the size of the pool is decreasing so the spikes should both come more often and go higher over time.
My assumption was that oil price in this model was moving on a 8 month scale. If the pool is shrinking on average by half between the peeks that means the next peak would be in 4 months after the top of the comming peak. Then 2 months then I think it repeats. I'm not sure the model is good enough to handle all the issues but we will see. I think its a pretty good simple model for the price of oil at peak and it has a simple prediction that the time between peak prices will shorten until in a sense the market is exhausted resulting in a long period then the cycle repeats. The exhausted market represents either the boundary moving back or the scale reducing
as a significant number of players leave the market.
The idea came from looking at prices at peak and realizing they matched up to 1D slices over time in the above 2D model.
In any case the next two years should show if I'm right.
As I have pointed out on numerous occasions, there have been 7 different instances since 1980 in which oil production reached a plateau or declined. In two such instances, oil production declined by more then 1 million bpd, AND it took almost 3 years for production to surpass the previous high. We will know in another 18-24 months if we truly are at peak oil or not. Until then, rampant speculation does nothing but irk proponents on either side.
Let the data do the talking. And that doesn't mean how you chose to fit the data WT.
Actually the pool/rock model works for these cases also.
In this case the pool is getting larger faster than the price/demand ripples are moving. And return wave is muted and basically undetectable. Like dropping a rock in a large lake or the ocean. Only at peak do the size of the pool i.e. supply start having a big effect on prices causing a semi-periodic forcing.
In the past price dropped until oil was so cheap it was not worth expanding the pool. The key difference today is years of high prices have not resulted in any significant expansion of the pool.
If we are not at peak then plenty of oil projects should be profitable at 30 a barrel and we should have seen prices drop into this range by now. At the minimum a lot of project that are profitable at 30 should be coming online rapidly by now. Most people mention a higher floor price of 40-45 with confidence.
With almost 7 years of oil trending upwards production should have continued to increase at a steady clip. Yet we have had 2 years of stalled production without prices dropping to the 30 barrel level or even 45 for that matter.
So far I've not seen anything that rebuts WT model.
And if things continue as they are we have a chance to find stronger support for WT within the next 6 months.
Also I might add that the fact will speak for themselves
WT has made a great case given the information we have.
I don't understand the constant need to needle him.
He has made a prediction its testable and so far its passing all test that have been offered. The strongest test is of course when oil crosses 70 a barrel and KSA does not increase production.
If they do then WT is wrong so far he has not been wrong.
I'm sure we will know this summer.
And all this BS about 60 a barrel being comfortable is just that 45 a barrel is fantastic for KSA they should be pumping like mad. China is booming India is booming the world economy is growing faster than ever before the chances of them actually causing a price crash below 45 is slim to none. US producers have far higher costs and I don't see them slowing production.
So far at least revenue lost from lower production basically matches any gain from higher prices. KSA would probably have to drop production by at least 2 mbpd to get significant price increases that over revenue loss from lost production.
I guess I don't buy into these relatively small "cuts" that OPEC has made. If they want the price higher cut production by 2-3 mpd eliminate the glut then raise it slowly to a comfortable level.
memmel...good commentary. I have asked Robert (where is he lately btw?) many times this simple question...if things are just dandy and oversupplied in the oil industry, why is crude still $60 a barrel....I don't think I've heard a simple answer yet.
But the price of oil is only an imaginary number created by human psychology. Even if for some insane reason the price drops as we peak (super demand destruction), it won't change the underlying geology, or the fact that the human population is still growing, while energy resources are dwindling.
This leads to the argument that $60 oil has not appreciably hurt the economy. Which in turn leads to a possible conjecture that $60 oil is not 'expensive' oil given all other economic metrics involved such as growth in GDP, inflation, etc. Which in turn gives credence to RR's answer on the price likely being 'painfully' higher if we really are/were at/past peak. As has been said, $60 (or $50) is the new $40 (or $30) price that we accept as... acceptable.
60 is hurting our economies and so did 70+. I believe that last summers oil prices was the pin that pricked Americas housing bubble. The additional expense of gasoline caused enough people to pause in the migration to ever distant suburbia that the housing bubble collapsed. At that point in the bubble the last people buying houses could not afford the additional cost of gasoline and a crazy loan package. Things got that out of control. Thus people in the 25-35K a year income bracket did not buy 300K houses. The few hundred a month extra for gas stopped the ponzi scheme at the bottom.
The current price of oil is relentlessly sapping the real economy i.e. production of real goods and services. The only thing keeping the economy afloat now is the sloshing of all those petrodollars and china dollars back into the US as investments generally buying up US debt.
In our current whacked economy China/Japan/OPEC gets dollars that we print like crazy going into debt buying their goods then the nuts invest it back into the US. Allowing us to borrow more money. Sooner or later this game will end.
Core economic indicators housing manufacturing all started down when oil hit 70+. Most American companies are in reality Chinese /American with as many or more employees in China as in the US.
The current record profits simply reflect that these companies are playing both sides of the game.
Look at the P/E's of the stock market its been a speculative bubble for some time.
Whats amazing is how long the jugglers have managed to keep all the balls in the air not that the world economy has long since lost touch with reality.
If you look under the covers just a little bit you will see that the US economy is in the worst shape it has ever been in since the Great Depression. Now its just a matter of when it collapses and what the trigger will be.
Look at the trade deficits
Negative savings rate
Housing bubble crashing
The American consumer recklessly spending on credit.
Neither China nor Japan working to balance trade.
In short we are in for a long hard depression. The chance for a recession is gone.
My only question is what is the trigger.
Hedge Fund blow up
Yen carry trade unraveling
Oil hits 80+ a barrel
petrodollar collapse
Massive wave of BK's from the Housing bubble.
Thats the tough part. I'm just hopping to see if we last long enough to call KSA's bluff.
Dont be surprised if the catalyst is GMAC finance. I read an article this morning (can't find it now) that basically laid bare several facts about their "investment" portfolio. By investment I mean loans for homes. They are really out of whack in terms of risk management and their sub prime portfolio is blowing up in their face. Combine that with the purchase by Cerbrus....damn I need to find the article.....oh Mish had it.
tate, interesting idea but wont the taxpayers ultimately "cover the losses" ?
as a side note gmac is offering online money market accounts paying in the range of 5% for basically a saving account. gmac states that the money market account if fdic insured ?????
I agree that the high(er) oil price may be a 'stealth' drag on the economy. Along with all the other such drags, such as increasingly unservicable debt, spells hard times. Whether tomorrow or in 5 or 10 years who knows. I would bet on a within 2 years time frame. Hopefully in time for GW to get more of the blame he so richly deserves, even if his policies are not directly related to the long term problems.
"In short we are in for a long hard depression. The chance for a recession is gone." There are far too many variables in play at present to make such a conclusion. Notably the FED has a few arrows left in its quiver. Until the quiver is empty, count on the FED continuing to act so as to squish market volatility in every direction.
Don't bank on a hedge fund blow up causing a 1929-like event. LTCM didn't thanks largely to the FED organizing an orderly fire sale of positions. Amarath didn't, thanks to Citadel and JPM. Hedge funds are SWIMMING in cash at present. Any mess-up will likely be resolved just the way Amaranth was: large-scale buying of the portfolio by other hedge funds/banks at discounted prices. Some hedge fund investors lose, others win, and the market moves on.
The runup in oil pices the last few years was from demand growth via growing economies, not from a large drop in supply. Thus, when some talking head predicts a recession when oil hits $X, ignore them -- how we get to $X matters. A supply shock can easily cause a recession (like the Arab oil embargo of the 1970's), but not a rise in oil prices due to strong economic growth against roughly level oil production. The rise in oil in such a case simply reduces growth.
The aggregate American consumer still has several months left on the "credit card". The slowdown in housing should result in a drop in the home-as-an-ATM-machine (cash-out refis, etc.) driven spending. The best case scenario is for income gains to make-up for the drop in home-equity "bonus cash". Will income gains be this large? I doubt it, but the US economy is still chugging forward. The US economy may get a little lucky this time around.
The dumb-dumbs in the media babble on and on about the trade deficit, but they almost never discuss "cash flows": America earns as much on its foreign investments as foreignors do on their US dollar holdings. Prior to 2005, America was cash flow positive in spite of the "face value" of foreign investments in the US far exceeding the "face value" of US investments abroad. (Borrowing from the Asians at 4% to make equity investments abroad that return much more than 4% is not such a bad thing. Risky? Yes, but not necessarily stupid.) The US is roughly cash-flow neutral at present. Worry when America gets cash flow negative. Since the cash-flow situtation has been steadily deteriorating the last several years, it's almost time to start worrying. I strongly recommend immediately reducing, if not completely eliminating, the debt side of your personal balance sheet. No need to panic, but now is NOT time to lever up. Just my $0.02.
I'm off to Mexico for a holiday. Have a great weekend.
From what I read in the WSJ, JPM was directly involved with and facilitiated the Amaranth failure. They would not release Amaranth's margin funds and they were the clearing house of record. They made the most money (of all players) salvaging and reselling the remnant positions. It was an incredible conflict of interest.
A drum could also be used as the model but this is already the Oil Drum :)
I wonder how many complex 1D systems can be modeled as a 2D wave with reflection and a time scale. The model is empirical but on the same hand it seems to make price changes clearer.
The trick of course is that the pond or drum thats bounding the 2D wave is itself changing in size. I did not do the numerical analysis on the system but I think it can be chaotic for certain parameters.
Also note that the model predicts that record highs must be followed by crashes. Since the pond cannot shrink any more and must expand. Permanently high plateau's are impossible.
A few other things it predicts. Unexpected or external events to the market cause a new stone to be dropped in the pond if its a negative event or the pond to get larger if its positive. Smaller negative events are modeled as a slight contraction of the sides of the pond. Really big negative events are both a contraction of the pond and a new stone.
So event like and embargo basically reset the whole system.
This model predicts this and its exactly what happened in the 70's the whole oil industry reset after the Arab oil embargo.
Sure texas had peaked but the important factor was actually political. The peaking of texas prevented the US from expanding the pond. Not till the North Sea came online did we go back to the expanding pond situation. So we had a full market reset.
It is a qualitative model but if you get the parameters right it has some empirical predictive powers.
I've been reading all the voodoo Elliot wave and technical analysis cruft and of course pricing at peak and I think my model is far simpler more intuitive and predictive than anything else I've seen. I've never seen another model that forces a crash to happen after large peaks. The fact mine goes to infinity as the size of the pond approaches zero or the size of the rocks splash approaches the size of the pond is not modeled by other approaches as far as I know.
Note it does predict a price crisis happening at some point with a depleting resource. You are going to get into a situation where the parameters are sensitive to the creation of a really big splash or wave. So according to my model we will see a price spike to hundreds of dollars a barrel causing basically a system reset to new parameters.
So if I'm right a 70's style shortage embargo situation is coming but its not for political reasons but because of depletion.
It will pass but after its over the market will reset.
From WT export land model this is when the pressure of internal consumption plus the need to export plus the wealth of consumers meets at a crisis point.
If I had to guess today when this would occur I'd say Mexico will initiate the next crisis with the populace of most oil producing regions responding unfavorably to the realization that the oil export money won't last forever.
WT export land model actually predicts internal crisis in each of the oil producing countries as they are forced to either give up exporting or radically change their subsidy strategy for internal consumption.
Also Bush could bomb Iran.
So basically we are going to go from crisis to crisis over the next 4-5 years with the mother of all oil crisis happening when parameters reach the right values. So according to my model we are due for the big one. After that the market resets.
In reality the pond model is not a pond but the tightening noose of a hangman's rope.
Dave, well reasoned critique of CERA and its statements. An ability to increase daily supply is not the same as running out of oil no matter how many times they try to make the two equal.
Westexas, I agree your assessment of the geology and impact of supply have been the best predictor for close to 2 years now. Keep hammering your basic message so that new readers come across it. You have the patience of Job to put up with Hothgar. Ignore him as I do now.
Memmel, A really excellent and creative way to show how markets interact with supply/demand and prices. Good way to track and predict price swings based on true supply versus artificial supply based on someones profit motive to increase or decrease the commodity. I now have a pictorial model for economics rather than mathematical formula. Very handy. Thanks for sharing this concept, wether you invented it or not.
All in all the very best of what TOD provides in content for understanding oil supply and when that pesky peak might become evident. Thanks to all, keep it up your message does get through all the irrelevant posts.
Do the rocks dropping in the pond get larger over time, also causing larger spikes? Perhaps as more people begin to appreciate that perhaps CERA ain't telling it like it is?
Thats why the model is qualitative not quantiative you have to many knobs to turn :)
The only two fixed quantities is it takes X amount of time for a super tanker to sail from the producer to consumer. And the edge of the pond represents the total amount of oil. The two conditions give a natural cycle of 3-4 months with 3 big peaks each year.
External events like and attack on Iran or collapse of Mexico are big rocks that overwhelm the natural cycle your free to toggle the model as you wish. Change the size of the rocks the timing change the rate that the total pond size changes etc etc. The model would generate any waveform you desire. The only new factor is the reflected wave coming back to create secondary peaks. This concept of a echo peak caused by resource depletion is I think novel.
This reflected peak is caused by high prices demand destruction price reduction and increased demand. Thus once supply is constrained every price peak spawns the next one.
If supply where too increase you would not get the reflected wave but it would dampen out as the bounds or pool size increased.
Thuis pre-peak we would never see this reflected wave. And also the natural cycle demand driven is for two peaks in prices once in winter and once in summer. The prediction of a third and basically final peak in fall is new. Along with the prediction that attempts for the market to move to 4 peaks results in a reset. The argument is that the sailing times of tankers places a intrinsic restriction on how much oil we can move and how fast. Of course at some point post peak these tankers simply won't have any oil to deliver this leads to the 4 peak crash.
Anything more than this would entail doing a really good job of tuning the model to sync it with reality.
One more time :)
If the model is right and we are post peak we will move to 3 peak pricing seasons followed by a aborted attempt to move to 4.
We will never again see low prices in the fall and inventories should be at all time lows in early fall along with major SPR draws in the summer. Eventually of course we will have summer walking season not driving season as people move to use buses and trains and other public transport for summer vacations.
Obviously the vacation industry will be the first to die.
Or at least one based on car/air travel. Local vacation spots should fare quite well.
It of course makes sense that the most frivolous industry on the planet is the first to go.
your model makes a lot of sense, and the pond may be infinite acting (as the cornucopians assume). ..............and now a disclaimer:past performance is no guarantee of future returns.
The price of oil in the near term might behave differently than a Peaknick might think.
We are headed into the shoulder period - the time between peak heating and peak driving demand. Though we are not there yet, the crude futures market is in a condition of significant "contango", in which the spot price is lower than the futures price, indicating, at least temporarily, oversupply.
If the futures market market exhibited the opposite, "backwardation", that would indicate a shortage. Prices would move accordingly.
I like your analogy/model of the rock in a pond, and will happily consider it in my trading.
In the end demand may no longer drive supply as it did in the past, but demand will drive prices. If the economy were to experience any type of contraction, demand would be decreased and it would be my expectation that the price would fall, all else being equal That leaves us back with a "chicken or the egg" scenario:
Did diminished oil supply cause demand destruction and a recession, or did a recession cause demand to fall. Even with the benefit of hindsight, I am not sure if i would be able to determine the difference.
"...the crude futures market is in a condition of significant "contango", in which the spot price is lower than the futures price, indicating, at least temporarily, oversupply..."
Another anology that was here reciently was short term interest rates were higher than long term ones(inversion) It doesn't make sense but it can and does happen.
I have often considered the same thing PO might be covered by economic factors and it might be that we will never recognize it.
The "natural state" of futures markets is contango. After all, future(s) prices should be higher to reflect sorage, maintenance, and transportation costs. Inverted yield curves, while not unheard of, are far less commone then positive yield curves, and ussually indicate a recession if the inversion lasts for greater than a certain period of time.
Speaking of which, the currrent yield curve has been in this condition for longer than has been traditional to predict a recession - yet, as yet, one has not materialized. Clearly, this is not an exact science.
The fingerprint of fiat currency manipulation is all over our current economy. Nothing is natural right now. Give it time.
The only thing playing games with money causes is for the eventual downturn to be far harder than necessary.
We did succeed in creating a real global economy over the last ten years the problem is its out of control. Thanks mainly to Japan China and the US. EU economic expansion is the only real growth that has happened not that they are not playing games too.
Chinese economic growth is a myth. Its fueled by deficit US spending and Japan trying to maintain and export economy in competition with China. All three economies will implode taking South America out as collateral damage. Europe should survive as the strongest economy it will have a lot of problems but it will be better than the rest.
In Arkansas their is a saying.. Thank god for Mississippi.
This comes from Arkansas repeatedly beating Mississippi and ranking 49 instead of 50 in a lot of metrics. Yes their is a fight at the bottom :)
I think Europe will be the Arkansas economy of the future. The strongest of the weak.
Assuming the global economy does not implode for other reasons peak oil is certain to cause it.
"Chinese economic growth is a myth. Its fueled by deficit US spending..."
Agreed, and do they care if all the factories are on thier turf. I guess the factories could be bombed in a mutual game of screw you.
We traded alot of security for low Walmart prices.
Don't forget all the pollution we have let them have.
What use are the factories they only need a tenth of what they build for their internal economy. For a balanced real global economy maybe 30%.
Next the have no way to handle the waves of layoffs once the trade unravels.
Despite what people say about the US we are the real bastards in the world and we hoodwinked China into chasing the American dream.
No matter how bad it gets in the US no doubt in my mind it will be far worse in China.
Chinese economic growth is a myth. Its fueled by deficit US spending and Japan trying to maintain and export economy in competition with China.
is true, then how do you explain China trades more with the EU than the US? Let's be a bit more honest. China is not wholly dependany on any one nation any longer. Catch up on some current Chinese reading and you'll find bits a pieces of your point, but your blanket statement is not true.
China-EU trade accounted for 15.5 percent of China's total foreign trade volume last year, and EU remained the top trade partner of China, according to MOC statistics issued on its website.
China's exports to EU reached US$181.98 billion last year, a rise of 26.6 percent year-on-year, and its imports from EU went up by 22.7 percent year-on-year to hit US$90.32 billion.
According to EU figures, EU's imports from China was 135.6 billion euros, 4.6 billion euros more than its imports from the United States. China has replaced the United States to become EU's largest import market.
I won't argue over Japan, they are indeed idiotic to say the least right now. Also on China, keep this in mind. They are in a desperate race to get farmers into the cities and transform the country. This is a delicate balancing act and they accomplish it by building anything, anywhere. They have hundreds of auto manufacturers, hundreds of ball bearing plants, etc etc. Resources are being wasted in such ways we may be put to shame. This will cause a glut of overcapacity and CHEAP assets but thats years away IMO. Yes it's interconnected, but it's not as dependent as we still think. This complex environment can do anything at this point!
I don't disagree its a complex subject and I am aware of the trade balance with the EU.
As far as I know the EU does not have a massively negative trade imbalance with its partners overall. Nor does the population have a negative savings rate. And China is not buying up EU debt to support deficit spending. And finally most of China's reserves are still in dollars. I mentioned a few times that Europe looks like the strongest of the weak western economies.
A wild guess is that China/EU trade might be 25% of what it is today for political reasons I think a lot less.
But your forgetting that we are a huge trading partner with the EU also so if we go down China/EU trade is certain to decrease Also I think their will be a strong backlash in the EU against Chinese imports if the US falters. Localization will happen.
Or put it this way the global economy is at a cross roads either the current trade imbalances are settled in a friendly manner or they will be settled via a big unwinding. I think France and Germany will force the EU to focus on internal trade or they will break up the EU.
The problem is we now have created this huge unbalanced global economy which cannot last.
Needless to say it is a complex topic maybe I should add a few caveats to my strong statments...
I don't disagree its a complex subject and I am aware of the trade balance with the EU.
As far as I know the EU does not have a massively negative trade imbalance with its partners overall. Nor does the population have a negative savings rate. And China is not buying up EU debt to support deficit spending. And finally most of China's reserves are still in dollars. I mentioned a few times that Europe looks like the strongest of the weak western economies.
A wild guess is that China/EU trade might be 25% of what it is today for political reasons I think a lot less.
But your forgetting that we are a huge trading partner with the EU also so if we go down China/EU trade is certain to decrease Also I think their will be a strong backlash in the EU against Chinese imports if the US falters. Localization will happen.
Or put it this way the global economy is at a cross roads either the current trade imbalances are settled in a friendly manner or they will be settled via a big unwinding. I think France and Germany will force the EU to focus on internal trade or they will break up the EU.
The problem is we now have created this huge unbalanced global economy which cannot last.
Needless to say it is a complex topic maybe I should add a few caveats to my strong statements...
I stress that the model is qualitative not quantitative. If you get lucky and plug in the right numbers you get a prediction that is accurate over basically any time scale. The smaller the time scale the more "rocks" or really pebbles are being thrown in. Note that at the smaller scale reflected waves from previous peaks are not relevant. Only theoretically does the model have predictive powers.
Notice I predicted a price peak between Feb 15 and March 15 a time that as you mention should not result in a peak. According to conventional wisdom we should not be having a price spike over the next few months. My model said we would get a reflected wave spike about now from this summers peak.
The natural oil price cycle seems to go from April to April with a peak in the summer and a peak in the winter.
My model is predicting a change to three peak price points not two.
1.) Late Winter peak ( timing controlled by global warming )
2.) Spring Early summer peak ( attempt at a driving season )
3.) A new fall peak ( Hurricane fear driven political responses peak oil)
More important the new fall peak is directly related to peak oil it only happens because the pond is getting smaller. Also notice that the warm winters are saving us to some extent by pushing the winter peak a bit later.
In my opinion this new peaking of prices in the fall should show up next year.
Once it goes to four peaks as you can see we are headed for trouble. We don't have room for four peak price points since a pricing/supply cycle takes about 4 months for logistic reasons
you just cannot contract and move oil beyond the rate a tanker fleet can sail.
This is why opec took 3/4 months to study the effects of their cuts you have that much slop if you will in the actual supply of oil.
Notice that the fall peak from Katrina in 2005 was and outlier
my prediction is that over the next two years it will become permanent. When the system tries to move to 4 peaks a year it fails. The intrinsic maximum number of peaks possible without a market reset is 3. Since at 4 we go to plateau and thats not allowed.
So if I'm right we will see a price spike or peak this fall.
This is a peak oil signal no matter how they spin it.
The driving force for the fall peak is refilling of reserves esp the SPR in the US and chinas new SPR. Everyone will have one in the next few years. They will be drawn down in the summer and maybe some in the winter to soften the natural price spikes but refilling them in the fall will be the main cause a new spike.
So we should be seeing record low inventories in late summer from now on out if peak oil is upon us.
As much as I'd like to think we can be more certain by as early as this summer, reality has an unfortunate way of muddling things beyond belief. The long-predicted recession may pick up steam and the economy may sag in such a way that demand drops more-or-less in concert with oil supply. This could muddle the picture for several years into the future, especially given the big push to invest in new spare capacity which will likely smooth out the curve into more of a plateau.
My own fatalistic sense is that those eager for an obvious set of signs pointing to a geological peak are due for another case of 'peakitus-interruptus' thus forcing us to, once again, put off that after-the-fact satisfying smoke.
Yeah we need the economy to hang their for one more year.
I agree. If it tanks we might not know for years what happened.
Or if Bush bombs Iran.
I don't believe in conspiracies but dang the timing is just to good. America is in the perfect position to trash the world economy by tanking the dollar or increasing interest rates or both forcing Japan and China to unpeg. And if you don't think Japan has the yen pegged to the dollar ...
My theory is that the US will either tank the world economy or bomb Iran to maintain the illusion of plenty of peak oil if the powers that be really fear peak oil as much as they seem too.
They are already pushing hard that their is plenty of oil just those pesky governments won't let us pump it.
If we are lucky we will get a glimpse of 80+ bbl and no increase in KSA output before the waters are muddied.
By lucky I mean a chance to confirm peak not lucky in the traditional sense :)
You don't believe in conspiracies? Do you mean you don't believe that people say one thing and do another? Really? Sociology is amazing! Step back from the culture and examine basic human behavior. Read the 48 laws of power. #3 - conceal your intentions. Why should we know what's going on, we're stupid remember? It happens all the time and to honestly whitewash all ideas as conspiracies only seeks to undermine the facts by using a highly connotative word.
sa failed this test last summer when oil passed thru 70 and their production declined. Over the past year sa has steadily reduced production, regardless of whether oil was above 60, 70, or at a record (broken continuously thru aug 8), or whether oil was falling. Price, up or down, has not had any significant effect on their production, now down twice their agreed cuts.
Well WT things seem to be going basically as you have predicted so far. We will know I think later this summer of the world has peaked on oil passes 70. Barring of course enough of a economic slow down to cause significant demand destruction. I think at least in the first half of 2007 the economy will stay strong enough that demand issues will not hide peak oil. The key is to get KSA in a situation where that either have to open up the spigot or admit they can't.
My prediction of a peak in prices between Feb 15 and March 15 seems to surprisingly be on course. Time will tell.
The model I used was pretty simple I considered the price of oil to behave like a rock dropped into the center of a round pool. The trick is guess the size of the pool. Once the initial wave reaches the edges it returns causing a spike.
Peak oil or supply is modeled as a shrinking pool.
So far so good. The trick is of course the size of the pool is decreasing so the spikes should both come more often and go higher over time.
My assumption was that oil price in this model was moving on a 8 month scale. If the pool is shrinking on average by half between the peeks that means the next peak would be in 4 months after the top of the comming peak. Then 2 months then I think it repeats. I'm not sure the model is good enough to handle all the issues but we will see. I think its a pretty good simple model for the price of oil at peak and it has a simple prediction that the time between peak prices will shorten until in a sense the market is exhausted resulting in a long period then the cycle repeats. The exhausted market represents either the boundary moving back or the scale reducing
as a significant number of players leave the market.
The idea came from looking at prices at peak and realizing they matched up to 1D slices over time in the above 2D model.
In any case the next two years should show if I'm right.
As I have pointed out on numerous occasions, there have been 7 different instances since 1980 in which oil production reached a plateau or declined. In two such instances, oil production declined by more then 1 million bpd, AND it took almost 3 years for production to surpass the previous high. We will know in another 18-24 months if we truly are at peak oil or not. Until then, rampant speculation does nothing but irk proponents on either side.
Let the data do the talking. And that doesn't mean how you chose to fit the data WT.
Actually the pool/rock model works for these cases also.
In this case the pool is getting larger faster than the price/demand ripples are moving. And return wave is muted and basically undetectable. Like dropping a rock in a large lake or the ocean. Only at peak do the size of the pool i.e. supply start having a big effect on prices causing a semi-periodic forcing.
In the past price dropped until oil was so cheap it was not worth expanding the pool. The key difference today is years of high prices have not resulted in any significant expansion of the pool.
If we are not at peak then plenty of oil projects should be profitable at 30 a barrel and we should have seen prices drop into this range by now. At the minimum a lot of project that are profitable at 30 should be coming online rapidly by now. Most people mention a higher floor price of 40-45 with confidence.
With almost 7 years of oil trending upwards production should have continued to increase at a steady clip. Yet we have had 2 years of stalled production without prices dropping to the 30 barrel level or even 45 for that matter.
http://www.wtrg.com/oil_graphs/oilprice1947.gif
So far I've not seen anything that rebuts WT model.
And if things continue as they are we have a chance to find stronger support for WT within the next 6 months.
Also I might add that the fact will speak for themselves
WT has made a great case given the information we have.
I don't understand the constant need to needle him.
He has made a prediction its testable and so far its passing all test that have been offered. The strongest test is of course when oil crosses 70 a barrel and KSA does not increase production.
If they do then WT is wrong so far he has not been wrong.
I'm sure we will know this summer.
And all this BS about 60 a barrel being comfortable is just that 45 a barrel is fantastic for KSA they should be pumping like mad. China is booming India is booming the world economy is growing faster than ever before the chances of them actually causing a price crash below 45 is slim to none. US producers have far higher costs and I don't see them slowing production.
So far at least revenue lost from lower production basically matches any gain from higher prices. KSA would probably have to drop production by at least 2 mbpd to get significant price increases that over revenue loss from lost production.
I guess I don't buy into these relatively small "cuts" that OPEC has made. If they want the price higher cut production by 2-3 mpd eliminate the glut then raise it slowly to a comfortable level.
Anyway.
memmel...good commentary. I have asked Robert (where is he lately btw?) many times this simple question...if things are just dandy and oversupplied in the oil industry, why is crude still $60 a barrel....I don't think I've heard a simple answer yet.
I think I asked him that question a few months ago and his response was, "if we are past peak, why is crude not at $100?" or something to that effect.
But the price of oil is only an imaginary number created by human psychology. Even if for some insane reason the price drops as we peak (super demand destruction), it won't change the underlying geology, or the fact that the human population is still growing, while energy resources are dwindling.
This leads to the argument that $60 oil has not appreciably hurt the economy. Which in turn leads to a possible conjecture that $60 oil is not 'expensive' oil given all other economic metrics involved such as growth in GDP, inflation, etc. Which in turn gives credence to RR's answer on the price likely being 'painfully' higher if we really are/were at/past peak. As has been said, $60 (or $50) is the new $40 (or $30) price that we accept as... acceptable.
60 is hurting our economies and so did 70+. I believe that last summers oil prices was the pin that pricked Americas housing bubble. The additional expense of gasoline caused enough people to pause in the migration to ever distant suburbia that the housing bubble collapsed. At that point in the bubble the last people buying houses could not afford the additional cost of gasoline and a crazy loan package. Things got that out of control. Thus people in the 25-35K a year income bracket did not buy 300K houses. The few hundred a month extra for gas stopped the ponzi scheme at the bottom.
The current price of oil is relentlessly sapping the real economy i.e. production of real goods and services. The only thing keeping the economy afloat now is the sloshing of all those petrodollars and china dollars back into the US as investments generally buying up US debt.
In our current whacked economy China/Japan/OPEC gets dollars that we print like crazy going into debt buying their goods then the nuts invest it back into the US. Allowing us to borrow more money. Sooner or later this game will end.
Core economic indicators housing manufacturing all started down when oil hit 70+. Most American companies are in reality Chinese /American with as many or more employees in China as in the US.
The current record profits simply reflect that these companies are playing both sides of the game.
Look at the P/E's of the stock market its been a speculative bubble for some time.
Whats amazing is how long the jugglers have managed to keep all the balls in the air not that the world economy has long since lost touch with reality.
If you look under the covers just a little bit you will see that the US economy is in the worst shape it has ever been in since the Great Depression. Now its just a matter of when it collapses and what the trigger will be.
Look at the trade deficits
Negative savings rate
Housing bubble crashing
The American consumer recklessly spending on credit.
Neither China nor Japan working to balance trade.
In short we are in for a long hard depression. The chance for a recession is gone.
My only question is what is the trigger.
Hedge Fund blow up
Yen carry trade unraveling
Oil hits 80+ a barrel
petrodollar collapse
Massive wave of BK's from the Housing bubble.
Thats the tough part. I'm just hopping to see if we last long enough to call KSA's bluff.
Dont be surprised if the catalyst is GMAC finance. I read an article this morning (can't find it now) that basically laid bare several facts about their "investment" portfolio. By investment I mean loans for homes. They are really out of whack in terms of risk management and their sub prime portfolio is blowing up in their face. Combine that with the purchase by Cerbrus....damn I need to find the article.....oh Mish had it.
http://globaleconomicanalysis.blogspot.com/
http://wallstreetexaminer.com/blogs/winter/?p=436#more-436
Guess how these banks are going to find the reserves to pay for the losses? Pull money out of their equity accounts of course.....
tate, interesting idea but wont the taxpayers ultimately "cover the losses" ?
as a side note gmac is offering online money market accounts paying in the range of 5% for basically a saving account. gmac states that the money market account if fdic insured ?????
"60 is hurting our economies and so did 70+. "
I agree that the high(er) oil price may be a 'stealth' drag on the economy. Along with all the other such drags, such as increasingly unservicable debt, spells hard times. Whether tomorrow or in 5 or 10 years who knows. I would bet on a within 2 years time frame. Hopefully in time for GW to get more of the blame he so richly deserves, even if his policies are not directly related to the long term problems.
A few quick points to make.
"In short we are in for a long hard depression. The chance for a recession is gone." There are far too many variables in play at present to make such a conclusion. Notably the FED has a few arrows left in its quiver. Until the quiver is empty, count on the FED continuing to act so as to squish market volatility in every direction.
Don't bank on a hedge fund blow up causing a 1929-like event. LTCM didn't thanks largely to the FED organizing an orderly fire sale of positions. Amarath didn't, thanks to Citadel and JPM. Hedge funds are SWIMMING in cash at present. Any mess-up will likely be resolved just the way Amaranth was: large-scale buying of the portfolio by other hedge funds/banks at discounted prices. Some hedge fund investors lose, others win, and the market moves on.
The runup in oil pices the last few years was from demand growth via growing economies, not from a large drop in supply. Thus, when some talking head predicts a recession when oil hits $X, ignore them -- how we get to $X matters. A supply shock can easily cause a recession (like the Arab oil embargo of the 1970's), but not a rise in oil prices due to strong economic growth against roughly level oil production. The rise in oil in such a case simply reduces growth.
The aggregate American consumer still has several months left on the "credit card". The slowdown in housing should result in a drop in the home-as-an-ATM-machine (cash-out refis, etc.) driven spending. The best case scenario is for income gains to make-up for the drop in home-equity "bonus cash". Will income gains be this large? I doubt it, but the US economy is still chugging forward. The US economy may get a little lucky this time around.
The dumb-dumbs in the media babble on and on about the trade deficit, but they almost never discuss "cash flows": America earns as much on its foreign investments as foreignors do on their US dollar holdings. Prior to 2005, America was cash flow positive in spite of the "face value" of foreign investments in the US far exceeding the "face value" of US investments abroad. (Borrowing from the Asians at 4% to make equity investments abroad that return much more than 4% is not such a bad thing. Risky? Yes, but not necessarily stupid.) The US is roughly cash-flow neutral at present. Worry when America gets cash flow negative. Since the cash-flow situtation has been steadily deteriorating the last several years, it's almost time to start worrying. I strongly recommend immediately reducing, if not completely eliminating, the debt side of your personal balance sheet. No need to panic, but now is NOT time to lever up. Just my $0.02.
I'm off to Mexico for a holiday. Have a great weekend.
From what I read in the WSJ, JPM was directly involved with and facilitiated the Amaranth failure. They would not release Amaranth's margin funds and they were the clearing house of record. They made the most money (of all players) salvaging and reselling the remnant positions. It was an incredible conflict of interest.
Very interesting thoughts...would like to hear more when you return.
You are doing great Memmmel, this goes along my lines (way to answer, thoughts and clarity). Nice.
Thanks ..
A drum could also be used as the model but this is already the Oil Drum :)
I wonder how many complex 1D systems can be modeled as a 2D wave with reflection and a time scale. The model is empirical but on the same hand it seems to make price changes clearer.
The trick of course is that the pond or drum thats bounding the 2D wave is itself changing in size. I did not do the numerical analysis on the system but I think it can be chaotic for certain parameters.
Also note that the model predicts that record highs must be followed by crashes. Since the pond cannot shrink any more and must expand. Permanently high plateau's are impossible.
A few other things it predicts. Unexpected or external events to the market cause a new stone to be dropped in the pond if its a negative event or the pond to get larger if its positive. Smaller negative events are modeled as a slight contraction of the sides of the pond. Really big negative events are both a contraction of the pond and a new stone.
So event like and embargo basically reset the whole system.
This model predicts this and its exactly what happened in the 70's the whole oil industry reset after the Arab oil embargo.
Sure texas had peaked but the important factor was actually political. The peaking of texas prevented the US from expanding the pond. Not till the North Sea came online did we go back to the expanding pond situation. So we had a full market reset.
It is a qualitative model but if you get the parameters right it has some empirical predictive powers.
I've been reading all the voodoo Elliot wave and technical analysis cruft and of course pricing at peak and I think my model is far simpler more intuitive and predictive than anything else I've seen. I've never seen another model that forces a crash to happen after large peaks. The fact mine goes to infinity as the size of the pond approaches zero or the size of the rocks splash approaches the size of the pond is not modeled by other approaches as far as I know.
Note it does predict a price crisis happening at some point with a depleting resource. You are going to get into a situation where the parameters are sensitive to the creation of a really big splash or wave. So according to my model we will see a price spike to hundreds of dollars a barrel causing basically a system reset to new parameters.
So if I'm right a 70's style shortage embargo situation is coming but its not for political reasons but because of depletion.
It will pass but after its over the market will reset.
From WT export land model this is when the pressure of internal consumption plus the need to export plus the wealth of consumers meets at a crisis point.
If I had to guess today when this would occur I'd say Mexico will initiate the next crisis with the populace of most oil producing regions responding unfavorably to the realization that the oil export money won't last forever.
WT export land model actually predicts internal crisis in each of the oil producing countries as they are forced to either give up exporting or radically change their subsidy strategy for internal consumption.
Also Bush could bomb Iran.
So basically we are going to go from crisis to crisis over the next 4-5 years with the mother of all oil crisis happening when parameters reach the right values. So according to my model we are due for the big one. After that the market resets.
In reality the pond model is not a pond but the tightening noose of a hangman's rope.
Excellent thread and Kudo's to all involved.
Dave, well reasoned critique of CERA and its statements. An ability to increase daily supply is not the same as running out of oil no matter how many times they try to make the two equal.
Westexas, I agree your assessment of the geology and impact of supply have been the best predictor for close to 2 years now. Keep hammering your basic message so that new readers come across it. You have the patience of Job to put up with Hothgar. Ignore him as I do now.
Memmel, A really excellent and creative way to show how markets interact with supply/demand and prices. Good way to track and predict price swings based on true supply versus artificial supply based on someones profit motive to increase or decrease the commodity. I now have a pictorial model for economics rather than mathematical formula. Very handy. Thanks for sharing this concept, wether you invented it or not.
All in all the very best of what TOD provides in content for understanding oil supply and when that pesky peak might become evident. Thanks to all, keep it up your message does get through all the irrelevant posts.
Do the rocks dropping in the pond get larger over time, also causing larger spikes? Perhaps as more people begin to appreciate that perhaps CERA ain't telling it like it is?
Thats why the model is qualitative not quantiative you have to many knobs to turn :)
The only two fixed quantities is it takes X amount of time for a super tanker to sail from the producer to consumer. And the edge of the pond represents the total amount of oil. The two conditions give a natural cycle of 3-4 months with 3 big peaks each year.
External events like and attack on Iran or collapse of Mexico are big rocks that overwhelm the natural cycle your free to toggle the model as you wish. Change the size of the rocks the timing change the rate that the total pond size changes etc etc. The model would generate any waveform you desire. The only new factor is the reflected wave coming back to create secondary peaks. This concept of a echo peak caused by resource depletion is I think novel.
This reflected peak is caused by high prices demand destruction price reduction and increased demand. Thus once supply is constrained every price peak spawns the next one.
If supply where too increase you would not get the reflected wave but it would dampen out as the bounds or pool size increased.
Thuis pre-peak we would never see this reflected wave. And also the natural cycle demand driven is for two peaks in prices once in winter and once in summer. The prediction of a third and basically final peak in fall is new. Along with the prediction that attempts for the market to move to 4 peaks results in a reset. The argument is that the sailing times of tankers places a intrinsic restriction on how much oil we can move and how fast. Of course at some point post peak these tankers simply won't have any oil to deliver this leads to the 4 peak crash.
Anything more than this would entail doing a really good job of tuning the model to sync it with reality.
One more time :)
If the model is right and we are post peak we will move to 3 peak pricing seasons followed by a aborted attempt to move to 4.
We will never again see low prices in the fall and inventories should be at all time lows in early fall along with major SPR draws in the summer. Eventually of course we will have summer walking season not driving season as people move to use buses and trains and other public transport for summer vacations.
Obviously the vacation industry will be the first to die.
Or at least one based on car/air travel. Local vacation spots should fare quite well.
It of course makes sense that the most frivolous industry on the planet is the first to go.
your model makes a lot of sense, and the pond may be infinite acting (as the cornucopians assume). ..............and now a disclaimer:past performance is no guarantee of future returns.
The price of oil in the near term might behave differently than a Peaknick might think.
We are headed into the shoulder period - the time between peak heating and peak driving demand. Though we are not there yet, the crude futures market is in a condition of significant "contango", in which the spot price is lower than the futures price, indicating, at least temporarily, oversupply.
If the futures market market exhibited the opposite, "backwardation", that would indicate a shortage. Prices would move accordingly.
I like your analogy/model of the rock in a pond, and will happily consider it in my trading.
In the end demand may no longer drive supply as it did in the past, but demand will drive prices. If the economy were to experience any type of contraction, demand would be decreased and it would be my expectation that the price would fall, all else being equal That leaves us back with a "chicken or the egg" scenario:
Did diminished oil supply cause demand destruction and a recession, or did a recession cause demand to fall. Even with the benefit of hindsight, I am not sure if i would be able to determine the difference.
"...the crude futures market is in a condition of significant "contango", in which the spot price is lower than the futures price, indicating, at least temporarily, oversupply..."
Another anology that was here reciently was short term interest rates were higher than long term ones(inversion) It doesn't make sense but it can and does happen.
I have often considered the same thing PO might be covered by economic factors and it might be that we will never recognize it.
DelusionaL:
I like your handle...
The "natural state" of futures markets is contango. After all, future(s) prices should be higher to reflect sorage, maintenance, and transportation costs. Inverted yield curves, while not unheard of, are far less commone then positive yield curves, and ussually indicate a recession if the inversion lasts for greater than a certain period of time.
Speaking of which, the currrent yield curve has been in this condition for longer than has been traditional to predict a recession - yet, as yet, one has not materialized. Clearly, this is not an exact science.
The fingerprint of fiat currency manipulation is all over our current economy. Nothing is natural right now. Give it time.
The only thing playing games with money causes is for the eventual downturn to be far harder than necessary.
We did succeed in creating a real global economy over the last ten years the problem is its out of control. Thanks mainly to Japan China and the US. EU economic expansion is the only real growth that has happened not that they are not playing games too.
Chinese economic growth is a myth. Its fueled by deficit US spending and Japan trying to maintain and export economy in competition with China. All three economies will implode taking South America out as collateral damage. Europe should survive as the strongest economy it will have a lot of problems but it will be better than the rest.
In Arkansas their is a saying.. Thank god for Mississippi.
This comes from Arkansas repeatedly beating Mississippi and ranking 49 instead of 50 in a lot of metrics. Yes their is a fight at the bottom :)
I think Europe will be the Arkansas economy of the future. The strongest of the weak.
Assuming the global economy does not implode for other reasons peak oil is certain to cause it.
"Chinese economic growth is a myth. Its fueled by deficit US spending..."
Agreed, and do they care if all the factories are on thier turf. I guess the factories could be bombed in a mutual game of screw you.
We traded alot of security for low Walmart prices.
Don't forget all the pollution we have let them have.
What use are the factories they only need a tenth of what they build for their internal economy. For a balanced real global economy maybe 30%.
Next the have no way to handle the waves of layoffs once the trade unravels.
Despite what people say about the US we are the real bastards in the world and we hoodwinked China into chasing the American dream.
No matter how bad it gets in the US no doubt in my mind it will be far worse in China.
If
is true, then how do you explain China trades more with the EU than the US? Let's be a bit more honest. China is not wholly dependany on any one nation any longer. Catch up on some current Chinese reading and you'll find bits a pieces of your point, but your blanket statement is not true.
http://www.chinadaily.com.cn/china/2007-01/28/content_794665.htm
I won't argue over Japan, they are indeed idiotic to say the least right now. Also on China, keep this in mind. They are in a desperate race to get farmers into the cities and transform the country. This is a delicate balancing act and they accomplish it by building anything, anywhere. They have hundreds of auto manufacturers, hundreds of ball bearing plants, etc etc. Resources are being wasted in such ways we may be put to shame. This will cause a glut of overcapacity and CHEAP assets but thats years away IMO. Yes it's interconnected, but it's not as dependent as we still think. This complex environment can do anything at this point!
I don't disagree its a complex subject and I am aware of the trade balance with the EU.
As far as I know the EU does not have a massively negative trade imbalance with its partners overall. Nor does the population have a negative savings rate. And China is not buying up EU debt to support deficit spending. And finally most of China's reserves are still in dollars. I mentioned a few times that Europe looks like the strongest of the weak western economies.
A wild guess is that China/EU trade might be 25% of what it is today for political reasons I think a lot less.
But your forgetting that we are a huge trading partner with the EU also so if we go down China/EU trade is certain to decrease Also I think their will be a strong backlash in the EU against Chinese imports if the US falters. Localization will happen.
Or put it this way the global economy is at a cross roads either the current trade imbalances are settled in a friendly manner or they will be settled via a big unwinding. I think France and Germany will force the EU to focus on internal trade or they will break up the EU.
The problem is we now have created this huge unbalanced global economy which cannot last.
Needless to say it is a complex topic maybe I should add a few caveats to my strong statments...
Naw :)
I don't disagree its a complex subject and I am aware of the trade balance with the EU.
As far as I know the EU does not have a massively negative trade imbalance with its partners overall. Nor does the population have a negative savings rate. And China is not buying up EU debt to support deficit spending. And finally most of China's reserves are still in dollars. I mentioned a few times that Europe looks like the strongest of the weak western economies.
A wild guess is that China/EU trade might be 25% of what it is today for political reasons I think a lot less.
But your forgetting that we are a huge trading partner with the EU also so if we go down China/EU trade is certain to decrease Also I think their will be a strong backlash in the EU against Chinese imports if the US falters. Localization will happen.
Or put it this way the global economy is at a cross roads either the current trade imbalances are settled in a friendly manner or they will be settled via a big unwinding. I think France and Germany will force the EU to focus on internal trade or they will break up the EU.
The problem is we now have created this huge unbalanced global economy which cannot last.
Needless to say it is a complex topic maybe I should add a few caveats to my strong statements...
Naw :)
I stress that the model is qualitative not quantitative. If you get lucky and plug in the right numbers you get a prediction that is accurate over basically any time scale. The smaller the time scale the more "rocks" or really pebbles are being thrown in. Note that at the smaller scale reflected waves from previous peaks are not relevant. Only theoretically does the model have predictive powers.
Notice I predicted a price peak between Feb 15 and March 15 a time that as you mention should not result in a peak. According to conventional wisdom we should not be having a price spike over the next few months. My model said we would get a reflected wave spike about now from this summers peak.
The natural oil price cycle seems to go from April to April with a peak in the summer and a peak in the winter.
My model is predicting a change to three peak price points not two.
1.) Late Winter peak ( timing controlled by global warming )
2.) Spring Early summer peak ( attempt at a driving season )
3.) A new fall peak ( Hurricane fear driven political responses peak oil)
More important the new fall peak is directly related to peak oil it only happens because the pond is getting smaller. Also notice that the warm winters are saving us to some extent by pushing the winter peak a bit later.
In my opinion this new peaking of prices in the fall should show up next year.
Once it goes to four peaks as you can see we are headed for trouble. We don't have room for four peak price points since a pricing/supply cycle takes about 4 months for logistic reasons
you just cannot contract and move oil beyond the rate a tanker fleet can sail.
This is why opec took 3/4 months to study the effects of their cuts you have that much slop if you will in the actual supply of oil.
Notice that the fall peak from Katrina in 2005 was and outlier
my prediction is that over the next two years it will become permanent. When the system tries to move to 4 peaks a year it fails. The intrinsic maximum number of peaks possible without a market reset is 3. Since at 4 we go to plateau and thats not allowed.
So if I'm right we will see a price spike or peak this fall.
This is a peak oil signal no matter how they spin it.
One more thing :)
The driving force for the fall peak is refilling of reserves esp the SPR in the US and chinas new SPR. Everyone will have one in the next few years. They will be drawn down in the summer and maybe some in the winter to soften the natural price spikes but refilling them in the fall will be the main cause a new spike.
So we should be seeing record low inventories in late summer from now on out if peak oil is upon us.
If we get hit by a hurricanes in the gulf ouch...
As much as I'd like to think we can be more certain by as early as this summer, reality has an unfortunate way of muddling things beyond belief. The long-predicted recession may pick up steam and the economy may sag in such a way that demand drops more-or-less in concert with oil supply. This could muddle the picture for several years into the future, especially given the big push to invest in new spare capacity which will likely smooth out the curve into more of a plateau.
My own fatalistic sense is that those eager for an obvious set of signs pointing to a geological peak are due for another case of 'peakitus-interruptus' thus forcing us to, once again, put off that after-the-fact satisfying smoke.
Yeah we need the economy to hang their for one more year.
I agree. If it tanks we might not know for years what happened.
Or if Bush bombs Iran.
I don't believe in conspiracies but dang the timing is just to good. America is in the perfect position to trash the world economy by tanking the dollar or increasing interest rates or both forcing Japan and China to unpeg. And if you don't think Japan has the yen pegged to the dollar ...
My theory is that the US will either tank the world economy or bomb Iran to maintain the illusion of plenty of peak oil if the powers that be really fear peak oil as much as they seem too.
They are already pushing hard that their is plenty of oil just those pesky governments won't let us pump it.
If we are lucky we will get a glimpse of 80+ bbl and no increase in KSA output before the waters are muddied.
By lucky I mean a chance to confirm peak not lucky in the traditional sense :)
You don't believe in conspiracies? Do you mean you don't believe that people say one thing and do another? Really? Sociology is amazing! Step back from the culture and examine basic human behavior. Read the 48 laws of power. #3 - conceal your intentions. Why should we know what's going on, we're stupid remember? It happens all the time and to honestly whitewash all ideas as conspiracies only seeks to undermine the facts by using a highly connotative word.
Test: How many "Rules of Acquisition" are there?
sa failed this test last summer when oil passed thru 70 and their production declined. Over the past year sa has steadily reduced production, regardless of whether oil was above 60, 70, or at a record (broken continuously thru aug 8), or whether oil was falling. Price, up or down, has not had any significant effect on their production, now down twice their agreed cuts.