The International Energy Assocation's Medium-Term Oil Market Report
Posted by Prof. Goose on July 9, 2007 - 4:36pm
Topic: Supply/Production
Tags: eia, iea, oil, peak lite, peak oil [list all tags]
Many requests to bring this out to its own thread. Have at it. (There is also a very high quality discussion on this topic taking place in our DrumBeat today here...)
The IEA report can be accessed (for the time being) at this link:
http://online.wsj.com/public/resources/documents/iea20070707.pdf
(Thanks to Tim Iacono from The Mess That Greenspan Made for the tip on this free link.)
Very, very cool
For what its worth, front month crude (WTI) was down 75 cents today while crude for 2012 delivery was up 50 cents to an all time high ($72.30) today. Perhaps someone with money that doesnt read TOD read the IEA report....
That seems highly odd. By the IEA's assessment, given even moderate economic growth, demand outstrips supply by 2010.
Two and one half years away. That's the blink of an eye.
Nate Hagens quotes market at $72.30 crude for 2012 delivery...
Astounding, that would not even be rising to match
inflation! Astounding. If crude oil is "only" $100 per barrel
by 2012, for all practical purposes, that will be a pizz in the
sea compared to inflation in all other sectors.
In the meantime, check out todays market action on PV solar, text from
post to some of my own market friends
IS THE BIG MONEY COMING TO SOLAR?
One day moves on solar PV today 7/9/07
Canadian Solar Inc. +8.87%
Evergreen Solar Inc. +6.09%
First Solar, Inc. +23.94%
JA Solar Holdings Co., Ltd. +14.79%
LDK Solar Co.Ltd. +8.47%
Solar Enertech Corp. +6.49%
Solarfun Power Holdings Co. Ltd. +11.38%
Suntech Power Holdings Co. Ltd. +4.16%
Trina Solar Ltd. +16.00%
Notes:
First Solar went from normal volume of 1.98 to 9.0 million shares.
JA Solar went from normal volume of 1.72 to 4.0 million shares.
Canadian Solar went from normal volume of 241,279 to 862,894
shares. Volume increases were almost across the board.
The most astounding move must be consided First Solar
with a Price to Earnings (P/E) ratio of 516.62
Have not seen that sort of thing since the dot com days!
It is hard to believe that these kind of price moves and volume changes are
being triggered by the little "solo" investor, all calling logging on Schwab or
Scottrade at the same time.
We are now near or at a tipping point. The REALLY big money will be made early in this game, and will move in fast. Sadly, for me, I do not have the spare money at this time to take advantage in any big way, but for those that do, keep your eyes open! Of course, the "safe harbor" caveats still apply. Past performance does not predict, all investment involves risk, outside conditions could substantially change...
yada, yada, but keep your eyes open! :-)
Roger Conner Jr.
Remember, we are only one cubic mile from freedom
Nate, I'm not an expert but I have read about Options and traded them a few times.
Correct me if I'm wrong but futures in no way 'predict' the value at any given date, rather they are an indication of the probability of a future price based primarily on the current price, variability of price and how long into the future you are projecting.
The fact that Futures are not showing $120 a barrel for 2012 delivery in no way reflects the possibility that that is what the price will -or won't be... I.e. Futures are not a crystal ball for oil price somewhere down the line -to use them as such is highly misleading, especially as availabilty of the underlying asset may be reaching what could only be described as a 'chaotic boundary' or at best tipping point.
NEW SCIENTIST: On another note there is a cover story/article in this weeks UK New Scientist regarding how we are going to survice 'after oil. There's an interesting pie chart that shows the 3.4% petrochemicals market worth $375Billion - about the same as the 70.6% market for transport fuels. The article proposes that the feedstocks to the latter industry can come from Bio-based sources if the price of oil stays up around the $75 mark....
Nick.
DocScience
The price of a futures contract for what ever future month you are looking at, is just the dollar amount that people right now, are willing to buy and sell it for.
If the traders buyers and sellers think that the future amount will be much higher, they will buy or sell accordingly to what they can afford or according to the risk that they wish to take. The reason that the futures contract is $72.30 crude for 2012 delivery, is that is what the present buyers and sellers are willing to pay for that contract.
Those readers of "oil drum", who are sure that oil prices will be much higher in 2012, and were able to buy contracts for then, have bought them at the $72.30 or less, and only need to hold on to them until oil is high enough to sell out for a profit. They only bought as much as they could afford, and that has kept the price from rising much higher.
There is also the risk that if we have a complete monetary crash before then, those who bought 2012 contracts , can’t get there money out, losing it all.
.
Of course futures don't accurately predict the future. Nothing does.
However, broadly speaking future prices do give a more accurate view point of future price direction than any other forecasting method (except for looking backward, finding who was right and then saying that person is better than futures markets).
I haven't seen any quantitative studies regarding oil futures, however, there is good documentation that currency forcasters are not, over time, able to out forecast currency futures.
Some fodder for the has light sweet oil already peaked debate, from page 45:
The last thread on this subject made me wonder if peak light sweet has really occurred. The increasing sour effect seems real enough but on the same hand I never got a good handle on how this would effect refining. It seemed to me that its a problem that can and is readily dealt with.
Although a lot of people seem to believe in peak light sweet it seems that in looking at the data that we really are not seeing this. What seems to be happening is that refiners have moved to more complex refining with more of the product mix going to gasoline and other lighter products on top of a general peak in oil production. So for economic reasons regions that have advanced refining capabilities may be importing heavier oils but this is not the same as peak light sweet. I saw no clear evidence for a global peak in light sweet vs general oil production.
Your post seems to point out that indeed a peak of light sweet has not happened globally.
I posted this yesterday, ill post again
This is USA FOB data from the EIA. The landed data was the same. Data is current to last month.
It shows the demand for light sweet crude by measuring the linear relationship between API gravity and price. Higher gravity means better oil(well sweeter). If the supply curve moves to the right or left(proportional changes in prices for ALL GRADES), the slope will remain unchanged, however IFF the price of the sweeter crude goes up more than the lower grades of oil... the slope goes up (blue line)
Red line is the correlation
Black line is the hypothetical cost of 0 degree API.
i used r and something like
for (i in 1:end){lintemp<-lm(price[i,]~gravity);summary(lintemp)}
and did some concating to bring it all together with a lowess smoothing of the resulting data to bring out trends.
In my opinion, light sweet crude has a strong chance of being in crisis at this moment. Using only the graph (which does not have data before 1983(eia limitations)) i can only say that the slope/correlation/hypothetical barrel have never moved this strongly together in the past 24 years)
/the coolest part of this graph is that given api gravity and price, i can guess the price of every other api barrel stream fairly closely. (esp now since the R^2 is .99something for a linear fit)
But this same conclusion can be drawn if the US has moved to more advanced refineries and is taking advantage of the price differential between light sweet and the heavier sour grades to make more money on refining. I agree that the US crude supply seems to have gotten heavier and sour but this is by choice not because of a global peak in light sweet oil.
You would have to have the same information for more countries to see if peak light sweet is real. As the spread price spread between light and heavy contracts over the coming years we may well see this curve move back.
So you need to show that we have not significantly upgraded our ability to handle heavy sour oils in the US. If I understand what Robert has said correctly the fact that the opposite is true and most of the refinery upgrades over the last few years included extensive support for refining heavier sour crudes.
I think you will find if you graph the capability of our refineries you will see that the correlation is actually between refining capability and not peak light sweet.
The widening price spread between light and heavy sour oils can easily be explained by the fact that its a lot easier to get a simple refinery in operation in a region that demand is growing. Also note that the asphalt and other by products used in construction such as roofing tar are in higher demand in these same regions since road construction is also growing. So its not exactly a bad thing to practice simple refining in areas that are developing a more extensive automobile culture.
So the global price differential that resulted in a move to complex refining in the US seems to be simply the result of growing demand for the mix of products from simple refining of light sweet in the developing world.
To me its common sense that the increasing demand for oil products in the growing second and third world economies would be met with and initial expansion of simple refining capacity and thus price pressure on the lighter and sweeter grades even though the overall mix does not seemed to have changed significantly.
I know this is a bit more complex than simple peaking of light sweet but the global data seems to indicate that both types are readily available but the price spread is being caused by other factors and driving the use of complex refining in the more developed world.
In any case this is a Robert problem IMHO.
It is a surprise to me to see WTI nearly $5/barrel higher than Brent. I thought WTI was a better grade crude than Brent and has most often in the past led Brent by $2-$4. Does this mean that oil is not truly fungible? Anyway I expect WTI to catch up with Brent or Brent to fall precipitously to WTI. Are we buying Brent and hoarding WTI? What's up?
hmm, i'll have to punch out a
histogramstacked line graph over time of how imports are divided. it could get interesting then. if we show increasing heavy crude import and increasing light prices, then the US has effectively hedged against rising oil prices!Exactly !
The US by upgrading its refineries to handle "junk" oil is optimizing itself for the long term case of ever increasing oil prices. This is probably the underlying reason that WTI has become decoupled from global oil prices in the US at least the need for light sweet crude has dropped dramatically.
I'd have to guess the same is happening in Europe and Asia.
It may well buy use several years of below 100bbl oil I don't know. But maximizing the abilities of the refineries to handle any oil and optimize for any product is probably whats keeping the current situation of zero production growth from causing price spikes over 100 now.
Overall the move to complex refining can only do so much before absolute supply begins to be a issue.
From the EB:
http://energytechstocks.com/wp/?p=43
Prediction #1 (of 3) from Oil Expert Matt Simmons:‘Real Risk’ Gas Pumps Run Dry This Summer
Energy Tech Stock
For those who know more than the rest of us casual observers, is this as bad as it looks? From skimming the report, it looks like an offical "brown smelly substance hitting a vortex", but not a SHTF announcement. Am I reading this right?
It may be better to be a live jackal than a dead lion, but it is better still to be a live lion. And usually easier. - Heinlein
To Ride, Shoot Straight and Speak the Truth - Col Cooper
My Two Rules Regarding Peak Oil Pronouncements From Public Officials:
(1) Generally assume the opposite of what they are saying, i.e., if they predict rising production, assume falling production;
(2) If they admit to supply problems, assume that things are at least twice as bad as what they say.
And contrarily, two rules for a cornucopian regarding oil forecasts by dissidents:
(1) Generally assume the opposite of dissenting opinion, ie, if dissidents are predicting permanently lowered annual production YOY, assume ceaselessly increasing production;
(2) If they declare that demand is going to go down because of massive price increases, assume that demand will double because things are inversely twice as good as the pessimists say.
WT, I think were seeing the sea-change when the powers that be start to admit to our long term supply problem. They're not going to admit to a peak-we've been labeled as cultists-but rather that supplies will be fine in the long term, we just need more money invested to straighten out the logistical problems. Yergin's not going to admit he's wrong, he's an expert. Exxon-Mobil and Cevron aren't going to admit that their reserve figures are not what they seem because they are including b.s. like the Venezuelan heavy oil, that would affect stock prices. Instead, they're going to blame environmentalists and political above ground factors.
And yes, we're going to get smeared because we're the Cassandras pointing out that the emperor has no clothes.
Bob Ebersole
To map this to another ongoing crisis we have brewing. The world wide housing bubble thats now popping in the US and I think New Zealand/Australia. The powers that be admitted that their was a problem but have claimed its contained next they apply remedies that in general will exacerbate the problem by tightening credit at the wrong time. The real situation is fairly easy to ferret out by reading the numerous blogs and website that use facts and reasonable theories to project a much worse situation unfolding for housing as the bubble deflates. Finally these sites made predictions in advance and to date the facts have supported the projects of the "alarmist" websites over the proclamations of the authorities.
So in my opinion the combination of a reasonable amount of information and a lot of fairly sharp people arguing a problem beats the hell out of anything that comes out of our public news sources as far as both truth and reliability esp in projections. When the powers that be finally take a position which is generally the least threatening of the results generated by the web bloggers I tend to believe the web model.
This web developed meta models approach seems to have accurately predicted all our current problems and how they will unfold. Its a probabilistic sort of answer and thus a bit hazy crystal ball but in the case of the housing bubble it seems to be following a fairly alarming consensus opinion that fits the facts. Not the more benign outcomes that are also presented.
The main reason that the more tragic outcomes seem to be the ones that are coming to the pass is that the government/business's seem to always act in such a way to ensure that the worst situation becomes unavoidable. This this one of the key requirements for the more dire outcomes and its seems to have held with flying colors with the housing bubble and Global Warming. I see no reason it won't for peak oil. The only way to get the more benign projects is for governments to pro actively and aggressively combat the problems that they are just now beginning to acknowledge.
The number one failure across the board is thus the attempt to maintain business as usual at all costs by our current governments and ignore the increasing number of serious issues our world is facing which is in reality a choice for the more dangerous outcomes.
(1) Generally assume the opposite of what they are saying
(2) If they admit to supply problems, assume that things are at least twice as bad
If you assume the opposite of what they say shouldn't supply problems = glut?
Supply problems = not meeting demand, but perhaps this is a naive non-economist POV. Last time I checked, CERA et al predict glut, ie--rising demand to 2030 will be easily met by expanding supply. Chevron et al try to play advertising games, but by and large in the corporate, financial, hedge fund world people are not very concerned with PO any time soon. Projected global growth is pretty much in line to keep ever-expanding. Which means energy production must increase, if it can't, growth will certainly suffer. Did I address what you are saying? Or did I misunderstand it? Maybe others have some thoughts...
Did I address what you are saying? Or did I misunderstand it?
No, you did not address what I was saying; and yes, you misunderstood it.
I was pointing out the obvious contradiction between westexas's two statements.
To avoid confusion next time he should say what he really means:
1) Ignore any statements that contradict what westexas says.
2) Blow way out of proportion any statements that may support what westexas says.
Ah, so it was flamebait... Sorry for taking the bait.
Headline from 7/10 Drumbeat:
In a word, yes.
One need only look at the previous releases of the WEO to see that this does not bode well (although the WEO 2006 seems like it is the first issue to suggest very real trouble. Previous editions, notably the WEO 2004 hinted at the sort of items that would badly skew thier predictions and interestingly, they have all come to pass)
Is this the "pre-spin" that occurs before the fan because of a lack of straightening vanes or one induced by spin vanes for flow control (in either case angular momentum is conserved).
In regards to the "fan," this IEA report is starting to look like a discussion as to whether it's going to be axial flow or radial blade and if it's radial blade whether it's forward-curved, backward-inclined (airfoil or non-airfoil), or straight-blade radial.
I cannot help but suspect that the IEA is slowly climbing on the peak oil bandwagon. The secret to never admitting you were wrong is to reverse your position slowly! The beginning of the Executive Summary reads: "Despite four years of high oil prices, this report sees increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2012."
"The secret to never admitting you were wrong is to reverse your position slowly!"
How right you are! As I said a couple weeks ago in a comment--a classic example of this is troop levels in Iraq. War begins, military wants more troops--Wolfy say "no! we have enough!" Next, wait four and one half years and you get "we need more troops! We need to surge!"
Biding-time is our species hyphenated middle name. Homo biding-time sapiens.
Also, another major component here is that one can criticize mistakes but not the fundamentals of the underlying cultural problem. If the elite lets society see a little glimpse of their hand through the mirror, then it is all the easier to absolve oneself of blame or guilt. We can criticize soldiers on the ground in Iraq for being in a stressful situation and perhaps killing people indiscrimately because they're upset, psychologically unbalanced, at wits end, etc. Court marshall them and punishment... However, somehow the people at the top slip away from real criticism, or responsibility, Rummy etc. They were just trying to do their jobs as best as possible and they can't be held accountable for their actions because how could they predict that soldiers would torture people, or indiscrimately kill? Same goes for PO, I'm sure when some underground political magazine goes to track down the Bush family and all their partners in crime down in Paraguay for an interview in twenty years, that they will declare they "tried their best" and aren't responsible for an outcome they didn't forsee--they "thought" Iraq would go fine... Of course, they'd still be lying, since they obviously knew it was going to be a disaster--hence, that's why we invaded in the first place... Our official foreign policy is to act as a catalyst for disaster.
Despite my distaste for Neocon policies I actually think they are sincere in their attempts to ensure that the American way of life continues. They fail to mention they mean the American way of life for the rich and powerful but I'm sure they will realize they made a small omission and explain exactly what they mean any day now.
The Neocon premises are clear:
1. The rich and powerful (corporate CEOs, politicos, the intellectuals who justify all, the media moghuls, bigtime lawyers, university presidents, big bankers/brokers/merger-meisters, fifth-generation inherited wealth, etc.) are nothing more than public servants. That's right, public servants who do the important tasks that need to be done for the welfare of lesser folk. After all, without the super rich, who would set fashions?
2. The U.S. has a monopoly on superpower military ability, and this proves superior U.S. wisdom and virtue and also that God is on Our Side.
3. Inequality is good, because it rewards the virtuous and intelligent and keeps the lower orders in line; it is a great motivator. Thus more inequality is better than less.
4. Tax cuts on the wealthy is the unique way to prosperity for all. (All who matter, anyway.)
5. Immigration to the U.S. is good, because it keeps those uppity union types down. Illegal immigrants are a great boon for keeping wages reasonable and legal citizens from thinking that is too big for their boots.
6. Globalization and markets and technological advances will solve all our problems.
7. Peak Oil is a subversive myth; CERA is the fountain of truth.
8. Global warming is good--especially for countries in temperate or northern climates. Bring it on!
Well, I could go on, but you get the picture. Of course there is nothing "new" or "conservative" about this position at all, but the neocon term is needed to distinguish current positions from those of old conservatives, such as Barry Goldwater, guys with some coherent view of the world based on the ideas of thinkers such as Edmund Burke.
"sincere in their attempts to ensure that the American way of life continues"
Semantics and intentions, difficult to pin down, but not impossible. These guys are way more cynical than the media play them out to be. The media does indeed attempt to paint them as cynical. But it's glossed over, no one pays attention. It's the faux neoliberal critique made for soccer moms and cornucopians pining away for the American dream, yet still trying to maintain some self-respect and honesty. Washington is a town where everyone just imbibes deceit ritualistically. It's all posture, and rhetoric, propped up by power politics and realpolitik. Money, and influence. Rummy was such a tricky bastard Tricky Dick didn't even trust him! This lot sold weapons to Iran to fund death squads in South America. Targeted assassination of political figures. The list is long and tired and no one even cares about it. Ollie N has his own radio show now...
These people are products of greedy corporate apology, and only exist to maintenance power and their own personality disorders.
We all know the Powell Doctrine. Dubya's daddy invoked it because all the intelligence on an Iraq invasion yielded the exact same results... Namely, what we see today. The fact is that Dick *CHEE-NEE* was Defense Sec. during "Operation Desert Storm" and he is well aware, as is the entire military establishment with much knowledge and foresight that this war was hard-pedaled through our democratic institutions sold on false premises and with a rosy outlook consciously known to be false but maintained in order to execute the plan. It is inconceivable that these hardened conservative politicians would think Iraq would be anything other than it is today... In fact, their calm in the storm seems to show, at least to me, how unphased they are by the situation--almost as if everything is going according to plan (so far). Viceroy Bremer was more evidence of this.
I think you are right, that they probably do not see themselves in such a cynical light... They all probably believe that what they are doing is in the best interests of the country. I'm not sure where I stand on this... I'm not sure where most of the Left stands on this--it would be interesting to get some polling data on people who consider themselves to be a "liberal" and ask them how cynical the Bush Admin is... I'm sure a lot of people on the far left would go the "mentally insane" route, but I think that is uncalled for--it leads quickly to conspiracy theory territory, because if they are literally insane they really are capable of anything. I would put them in totally sane, but extremely cynical and ruthless, cutthroat to the max. All of their functions serve power... As long as it seems to serve power, money, influence, they take that strategic route. PO could be soon or now, and Iraq is obviously about control of oil. It's about anticipating crisis and creating it as opposed to waiting for it to happen. It is about instigating instability, rather than responding to it. That way, it's on our terms (from the neocon POV.) There was a window after 9/11 and they took it--they fit their bad intelligence to make a deceptive case for war and iced the cake with "it's-all-going-to-be-fine-there-will-be-no-mushroom-cloud-as-a-smoking-gun-if-you-just-go-along-with-it" window dressing... Even if it can't enter into any academic discussion since crude is supposedly completely "fungible" so we must just be "spreading democracy" and "fighting the Global War on Terror" with our 14 permanent bases and multi-billion dollar embassy... Meanwhile in the "Drug War" we're building some new prisons... The War on Poverty is really having a blast, for all their talk of evangelical "compassion", it sure seems they were just sucking up some more morons into their voting demographics with their "faith based" plunderings of the constitution... Too many wars to keep track of with us humans--we should just invent a new term that encompasses all the "practical" wars we've invented for PR reasons.
I'm wondering if you watched that Trivers & Chomsky discussion that's on google video:
http://video.google.com/videoplay?docid=769917703790238616&q=trivers+cho...
It's boring at first but gets a little better... They seem to agree with you that Bush Rove Co. probably see themselves as entirely benign and even helpful. Another liberal friend of mine agrees with them... I don't think he, or they (Chomsky and Trivers) are right about this particular matter of psychology--although I agree with all of them generally when it comes to politics, the irrationality of the Republcians and the pathetic meekness and, really the only word for it is "phoniness" of the Democrats. All three of us agree that these people aren't insane as the 9/11 truth meme of mostly the fanatical far left (Charlie Sheen--go back to making crappy comedy movies, we'll need 'em!) and the paranoid right (Alex Jones) would dictate.
DocScience
Great write up.
Bush has now got almost every law in place that would allow him to be a dictator, while congress does nothing. Since Bush is being driven by his whole team, do you think he actually knows what he has done to the constitution, or even cares ??
Does he actually think he is doing this for the peoples benefit ??
Thx.. Yes, I think he sees himself as governing for "the peoples benefit". I say this with reservations, because you can never really know these things. Also, it's semantics. How serious is Dubya? How much power does he actually wield? He seems to defer a lot, so he basically doles out power. I think the people he doles out power to are radically cynical realpolitik practitioners. They make Henry Kissinger blush.
You can only infer these "value judgments". How conscious is he of how "correct" these people are--I would say it borders on religious faith for him. It seems to me that George W. Bush is sincere in his "love" for this country. He's just another person like you and me (except really powerful), operating in the world. He probably gets scary reports everyday that embolden his conservative edge--he certainly surrounds himself with some very hawkish neo-conservative strategists. He's probably a mix of delusion, honest do-gooderism, hardened corporate conservatism that he got growing up and much else--just like any adult human. He delegates, so I think his personal psychology is "I trust these people, I share their values, this is the best thing for the country..." If he was cynical to the degree that he knew what he was doing is really making everything worse then that would make him a heartless cynical bastard... He's not that good of actor, he fucks-up/goofs-up often... To some of us, it may seem like a perverted love, but it is a love nonetheless. Conservatives love this country just like liberals, it just manifests itself differently (but there are a lot of similarities--the priorly mention soccer moms.)
I remember a few years ago some liberal wrote an article about George W. Bush being a "dry drunk". Personally, I think premises like these are pretty absurd. The more likely premise is that these people are not very unstable, that they are hardened politicians "playing the game" and hoping for the best--even if that seems contrary to their actions, I swing to that conclusion, which I believe to more in accord with reason and parsimony.
if the iea trys to climbs onto the wagon well after it has set off it cant catch up.
i am in the position of putting the iea as a "business as usual" publication. they will only admit peak oil when irrefutable evidence is upon us (5 -10 years of year on year declines) by then everyone will already know, the iea is the last to know and the last to announce.
(kindof like tv, once tv announces a fad, you are too late)
Thanks for the clarification. Its time to invest in that wood stove. I hope this doesn't create a panic in the next year.
It may be better to be a live jackal than a dead lion, but it is better still to be a live lion. And usually easier. - Heinlein
To Ride, Shoot Straight and Speak the Truth - Col Cooper
From Green Car Congress: http://www.greencarcongress.com/2007/07/iea-sees-oil-su.html#more
"Peak oil? The IEA report notes that “The concept of peak oil production and its timing are emotive subjects which raise intense debate.”
"