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93 comments on IEA: oil demand has surpassed supply
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93 comments on IEA: oil demand has surpassed supply
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Its funny but his statement denying peak oil did not really fit in with the rest of the talk. My opinion is he still thinks production can increase esp considering OPEC reductions but on the same hand he seemed to be saying that we can expect demand to be greater than supply for the foreseeable future.
So the message is we have a lot of oil left but its going to be really hard to get and expensive and development will probably not keep up with demand ?
Also outside of Opec he did not actually say the rest of the world could increase production rates just that it could find more oil. No one is saying we won't and we will find oil till till its not worthwhile to extract.
We have plenty of oil left but please prepare like we don't ?
I like how he says the North Sea is in Depletion. Cant say the North Sea has peaked :)
Overall its a pretty weird interview. You can probably read any message you wish into it.
There's nothing contradictory or inconsistent about that.
If demand is increasing at 2% per year and supply is increasing at 1% per year, then we need to prepare for demand destruction, despite no peak.
If that 1% supply increase is from nonconventional oil that requires $70/bbl prices, we need to prepare for perpetual high prices, despite no peak.
Does the particular terminology matter? Perhaps "depletion" is simply the term he's used to, or is the term most common in Dutch. Fundamentally, which word he uses to describe it is irrelevant.
Watch how fast it takes you to wear out your welcome. Oil Drum editors are notoriously harsh. My advice: present Christmas presents sooner rather than later.
If one is prepared, then it doesn't matter what Pitt says.
'in depletion' implies to me the naughty side of peak while 'in accretion' would imply an increase in production, the yummy side.
(Now to get serious, how about a rating on the terms 'naughty' and 'yummy':))
AND it does matter what Pitt says unless a mutual congratulatory society is what this site is all about, no?
Pitt the Elder, as we sometimes day around here " would argue with a rock".
"Does the particular terminology matter?" he opines.
Does it matter he asks? Well as I read most of his posts this is just about all he argues over..it being what some one says or the terminology..yet here he takes the opposite tack...
Debate can be carried to ridiculous extremes as in most of his replies. It can get on one's nerves quite easily,hence I skip most of what he blathers on about. This one I couldn't resist.
The man most certainly does not have a life beyond extreme TOD debate flogging.
Also I have yet to see a language he does not tend to assume expertise in.
Rocks don't make dubious claims with no evidence.
Then I suggest you haven't read my posts all that carefully. If you had, you might have noticed things like "numbers" and "evidence" in them, rather than whining about whether someone's using my favourite word or not.
Please explain how my most common phrases - "that you believe something does not make it true", and "provide evidence" - are "ridiculous extremes".
Is there a point to your gratuitous (and, you'll be happy to know, incorrect) insult?
You have yet to see one where I have.
If you'd understood what I wrote, you'd notice that I was claiming neither expertise nor ability in Dutch. What I was doing was pointing out that obsessing over particular choices of wording in a transcript translated from another language is foolish.
Were you paying attention, you'd have noticed that the two are very different.
It could be the translation. But, if he did use the equivalent of the English word depletion, then I think it would matter. A resource begins and is in depletion the second you start using it, so you can say that about every field. Terminology does not matter only if the terms mean the same thing.
I should probably go back and look at my intro economics texts, but isn't demand always represented on as a curve, such that the amount demanded is a function of the price at which it is offered?
So, a statement like "oil demand has surpassed supply" just means to me that the price is too low... or "demand exceeded supply at a too low price."
In a functioning free market the price rises to the point where supply (the available stock) equals demand (the amount that is sought and purchased).
Only if there is no stock at any price can demand be said to exceed supply. If there is a functioning market, a price is reached which is just low enough to attract buyers to all of the available supply, and just high enough to discourage purchase of the last marginal unit.
The whole discussion of "price" sees it as a problem. But it is the solution. The only market solution.
The interview notes that oil demand is highly inelastic. But as long as it is not perfectly inelastic, there is a price that solves the problem.
I gather from this interview that the IEA spokesperson thinks price is currently related to "speculators" and other factors. Aren't they otherwise known as traders, who are reflecting the collective wisdom about the current and future price point that clears the market (sells all the supply at the price that maximizes value while failing to discourage sale of the last marginal unit?)
"Demand exceeds supply?" Every time I hear that my poor little mind boggles. It's like hearing the sound of one hand clapping... it's not a clap, unless elasticity is 1.
"At current prices, demand exceeds supply." That's a statement I can understand. So let prices rise until it doesn't, and then work out your response to the resulting problems through a taxation regime, or by creating an empire to re-extract that money from the oil producing states.
Whatever.
I think everyone understands this. The "demand will exceed supply" talk is just a way of characterizing "upward price pressure."
Come to think of it that's really the fundamental difference between the Aad van Bohemen picture of the future (high prices, tight supplies) vs. the peak oil picture of the future (high prices, tight supplies). Does future price pressure stem from the demand curve shifting to the right or, as peak oil advocates argue, from the supply curve shifting to the left?
It may not really matter much which it is, except of course if both are happening simultaneously.
It seems like a very illogical expression. It would make more sense to say "demand is increasing and supply is not." Price will resolve the issue because demand and supply are always balanced (absent severe market inefficiencies.)
(I always wonder when people talk about demand destruction whether they are referring to destruction of demand for oil at higher price points because there is less you can do when the energy inputs are so much more expensive... or destruction of demand for consumer goods and everything else as oil costs filter down through the economy first, resulting ultimately in a reduction in growth and a reduction in the demand for oil itself?)
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Regarding demand and supply curves, I'd say both are happening. The growth in demand is a function of investment and development... the plateau and decline in production is a function of geophysics and extraction efforts... two different functions that are always in a balance that is represented by price.
"In a functioning free market the price rises to the point where supply (the available stock) equals demand (the amount that is sought and purchased)."
In the first place, the oil market is not a free market. In a free market, all producers are free to make as much as they're physically capable of, and all buyers are free to buy as much as they can afford.
However, OPEC being a cartel, production is kept below the physical maximum, and "who shall we sell to?" is a politicalor diplomatic decision.
Secondly, oil demand shows very strong price inelasticity. That is, there's a certain amount you need to live your particular lifestyle, and if the price rises you won't reduce consumption by much. If you need 20lt of petrol to get to work to earn $500, so long as that 20lt of petrol costs less than $500, you'll pay for it, because that spending enables your earning. That's a simple case that you can poke plenty of holes in and show alternates where it turns out different, but it shows the basic principle, that oil is like our daily bread - there's a certain amount we need to consume to enable earning and thus other consumption.
Interesting question what constitutes a "free market"....
In the oil market, it seems likely that producers are producing pretty near everything they can... but it wouldn't be less free if they weren't, would it?
Aren't buyers now free to buy as much as they can afford? Or are you saying that OPEC is turning down hard cash to sell below the market price to someone? (Could be, but I'd like to hear about that.)
So by your two criteria (which I don't think constitute a proper definition of a free market)... it looks like there is a free market (unless OPEC really is turning down offers of higher payments for political reasons....)
So does it make sense to speak of a market (or free market) in oil? Well isn't there a free futures market?
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Second, as long as demand is even slightly responsive to price (and it is), it has some elasticity, and so there is, ipso facto, a price point at which demand and supply balance. Only if demand is completely inelastic (n=0) would it make sense to say that demand could exceed supply.
Isn't the futures market a pretty accurate reflection of the price that traders think will clear the available supply at a certain date in the future?
When and where is demand ever greater than supply without an immediate price correction that reduces demand to a level exactly equal to supply? There may be momentary inefficiencies and time lags, but if the amount that is sought for purchase is significantly higher than the available supply, are you saying that sellers are still selling at a lower price for more than an hour or a day?
I would be surprise to learn that... but maybe I'm naive.
So, again, when is demand greater than supply? And for how long? (minutes? days? months?) And in those days or months, the price doesn't change to bring them into balance?
Does not price rise pretty much in real time until enough purchasers drop out of the bidding war and those remaining purchase the existing supply at a new higher price point?