$100 Oil - Open thread
Posted by Nate Hagens on January 2, 2008 - 7:30pm
Topic: Miscellaneous
Tags: $100 oil, open thread [list all tags]
Today, someone in the NYMEX pit session paid $100.00 per barrel for front month crude oil. (Logical for it to happen during a TOD holiday short staff period). Despite the talking head rationale for today's $4 rally, the underlying reasons for the 8 year+ climb in crude are geologic in nature. $100 oil in itself is no big deal - its 1% higher than $99 oil. But it serves as a milestone reminder that the future is likely to be less 'easy', and perhaps dictated by new rules. Questions abound: will high prices bring about more production? Will high prices begin a "hoarding" phenomenon among exporters and producers? Will $100+ oil spur energy alternatives with the scale and quality of energy dense crude oil? Is this even possible? Will society start to realize the dichotomy between natural capital and financial capital? Will $100 oil reduce demand in developing countries? Will OECD oil-importing countries (like the US) take the lead on changing the cultural carrot of consumption that drives energy use?
What does $100 oil mean to you? Please add your thoughts, links and suggestions.
Neat - 100 is 1.01% higher than 99.
And did you see this article on nat gas prices.
http://www.321energy.com/editorials/mckenziebrown/mckenziebrown122907.ht...
In the UK, nat gas spot prices have been running about double last year's prices. I find it difficult to understand why nat gas prices else where are not going through the roof.
Eaun
Thanks Yoon - Im often imprecise on my maths.
I did not see that article but thanks - NG was up 5% in US today, actually more than crude oil. I am curious as to the price elasticity of these two major fossil fuels in the event of a recession/depression. At least in the US, low NG prices in last couple years have caused complacency, as one might expect, and more electricity generation is from gas than 2 years ago - we have a cold pig of lows running across US now and there are rumours of a record weekly withdrawal of NG from the system (300 bcf?) might be in the cards.
I assume Aberdeen has fewer 'degree heating days' than Midwest, USA. FYI - the back months of the NYMEX strip have been making daily life of contract highs since early December.
We have snow on the way tonight and interesting times ahead. I gotta say I love the snow.
What it means to me is that my mfglobalfutures screen was covered with big green numbers at the close. HUZZAH!!! It might be TEOTWAWKI but I'll be drinking champagne in the microhydro bunker.
ya
also green were:
soybeans
eurodollar
corn
natural gas
wheat
don't spend it all on one sling pump.
Don't forget gold's all time closing high. (The legendary Jan 1980 $875 gold record was intraday.) Of note in 1980 the gold price peaked immediately prior to the proclamation of the Carter Doctrine which restored confidence in the petrodollar - backed by military threats. What can be said now that would restore confidence in the US dollar?
"We were just kidding - heres all your oil back" ?
Nate, according to Bloomberg the NYC gate spot for natural gas went up $7.47 to $16.61 per MMBtu today. That's over 81% increase in a single day! What's your source for the 5% increase?
http://www.bloomberg.com/markets/commodities/energyprices.html
I hope I'm not missing something obvious here :-)
Spot prices in northeast spiked for some reason, but I didnt know they got that high? Is that right -anyone? I referred to Nymex website.
This might explain it: http://icons.wunderground.com/data/640x480/2xus_st_anim.gif We're probably seeing a sudden spike of the demand in the midwest and to a lesser extent the northeast that can't be met by the limited supply. My plan to replace my 30 year old 60% AFUE gas furnace with a more efficient one might have to change in favor of a electric furnace or a heat pump.
I love the heat pump at our house. However, in sub-freezing temperatures, the heat pump can do very little unless it's a ground loop heat pump. Under 0*C, it's using the resistance heating coils which are substantially less efficient than the heat pump. I didn't design the house I live in, but the next one I will, which will contain many south-facing windows with an overhang to prevent solar gain during the summer. (Also triple-paned to boot!)
Bloomberg has natural gas (as well as oil and gold) on its front page. It showed it closing at 7.85, which I think was close to its high for the day. I hadn't heard anything about it more than doubling to $16+.
I remember reading somewhere (yeah, hearsay, I know) that during the CA energy crisis a 2% shortfall in natural gas supplies resulted in a quadrupling of the spot price.
Hi Nate
Bloomberg had NY city gate spot at over $18 earlier. It caught my eye for sure, but I cannot remember the exact number. They are showing $16.61 now.
I presume there is some local shortfall factor (-9C maybe?). Luckily here in Oz it is T shirts and the beach all round.
Rod
here is a link for spot prices to all of the various gas trading points
https://www.theice.com/marketdata/naNaturalGas/naIndex.jsp;
"Peepers" at PO.com linked to this graph as an explanation of why prices are spiking;
http://rebelresource.wordpress.com
Documentaries on energy scarcity in the first category - enjoy
ruizscar, thanks a mint for that link. There's a wonderful documentary there I hadn't seen.
Everyone stop what you're doing right now and watch Africa: America's New Oil Target.
It is remarkable.
It's even quaint: released in Nov of 2006, this film shows the worldwide reaction to oil hitting $50/barrel in 2005. Horrors!
A good quote:
Thanks -that is a Johnson Rice graph from last weeks TOD TWIP
A good example of rate of change being more important than the absolute number (dy/dx)
So prices are spiking in order to attract more exports to the USA? But how does this work? I mean if Brent and all the rest go up proportionally too? Will it work.....will imports to the USA soon increase now?
Another question: Can someone please tell me what world oil consumption actually is for the last 3 years? That is monthly world production +/- monthly changes in OECD inventory. Can't numbers be produced very easily this way showing how world oil production is incapable of meeting demand without drawing down inventories (since early 2007 I think), and thus making OPECs decisions look weak? Or are the drawdowns in OECD crude inventories just not that significant yet?
I will repeat my posting from the older thread since this one just opened up:
$100 oil is interesting, but like Y2K and the alignment of the planets/end of the Aztec calendar in 2012 it only has psychological significance in and of itself. I think the actual price of oil is not as important as the reaction to it. For example, $100 oil inflation adjusted was a much bigger deal in '80 after the Iranian revolution when it caused a pretty severe recession. Now, it is just a news story, much less important than the current election coverage. It will be interesting to see at what price we (the American people) feel the impact full force.
Although this is not the proper place to post the following, I must comment on the irony of the fact that I happen to be in Houston on the day oil first hit 100. I am here for business, but have about 1 free day, and was wondering if anyone knew of any "must-see" attractions here besides the NASA center? Thanks.
The M. King Hubbert museum is a must see. Oh wait - its not built yet..
where do I send my donations?
They are to go to Daniel Yergin, that is if he can be found.
Sina your hotel will have a sort of rack holding little brochures for local sights. Cities always have hidden things about them that are really neat, and those brochures are often the best, by far, way to find out what local attractions there are.
The Chamber of Commerce is a good place too - it generally has a wider selection of the brochures lol, and some maps and stuff.
You could also check ahead on-line, too.
The reason we don't react to it is that our economy is distorted by false statistics and many new tricks for creating a cornucopia of personal debt. If we'd told big enough lies we could have gotten through the Stock Market Crash of 1929, for a while.
And whether expensive oil causes a recession or an inflation depends on what policymakers do. The first moves after the Iranian revolution were to let inflation go into double digits without covering it up. Bad move. The recession was the severe consequence of having to get the inflation down. But no politician in his right mind will prefer recession to inflation until after he is safely elected. Since this is an election year, it will be an inflation year whether the stats are rigged or not.
Any chance of seeing the words net oil exports in any of the msm reports on $100 barrel oil?
We've been waiting to finalize our Top Five Net Oil Exporter article until WTI hit the $100 mark. Khebab is toiling away right now on the final graphics.
Well here IS a piece in the MSM on oil.
http://articles.moneycentral.msn.com/Investing/Dispatch/HundredDollarOil...
It starts out ok
"It's getting harder and more expensive to find new oil deposits, and global demand is growing"
but then goes to this:
Others believe the speculative fever is so out of control that a bust could occur like the 1986 and 1998 busts that saw crude collapse to around $10 a barrel each time.
For one thing, says Fadel Gheit, senior energy analyst at Oppenheimer & Co. in New York, OPEC has increased production despite the opposition from Iran and Venezuela. "All in all, there hasn’t been any significant change in supply or demand to justify a 50% jump in oil prices since August."
Lovely
"There hasn’t been any significant change in supply or demand to justify a 50% jump in oil prices since August."
This is not altogether wrong. I think what accounts for at least some of the price runup is growing understanding that increasing production of cheap oil in perpetuity was never guaranteed.
There hasn't been any significant change to the overall environment, in that quite a few people have known for years, and insiders have known for decades in some cases, that the peaking of oil production was an eventual certainty. That tidbit of critical information hasn't changed since August, but has been kept obfuscated and obscured until just recently.
I LOVE the excuses:
"ports closed due to bad weather in Mexico..."
Apparently, Oil Tankers cannot load when it rains...
fighting in Nigeria
Heck, haven't they been fighting in Nigeria for a while?
Or is it really due to the fact that those Oil Tanks at Cushing are a bit emptier..?
The Peak That Dare Not Speak it's Name, p'raps?
$100 oil= $.1488095 per 8oz. cup. Still a LOT cheaper than bottled water or sodapop. It's a marker of sorts. But with EU gasoline priced at about $300, I think $200 will have more meaning. In the realm of psychological expectations, there may be some impact as most folks understand this means petroleum products will become more expensive and might alter their behavior; this will be especially true for those on fixed incomes or already up against a financial wall. Otherwise, I expect $100 oil to have exactly zero impact on BAU.
I don't like that comparison. you don't buy oil by the cup. you buy it buy the gallon. you can't even compare oil to milk because you buy more oil per month than you do milk.
I've always thought that pricing oil by the barrel, then buying all the products by the gallon is misleading. $100/barrel oil is only $2.38/gallon. IMO, that's ridiculously cheap! I don't see why oil prices won't keep increasing to $3, $4, $5/gallon and more.
Matt Simmons makes an important point in his Bloomberg interview today: demand responses will moderate the price now, not supply responses. Up until recently, the price of a marginal barrel of new production has been the main factor driving prices. The price of the marginal barrel of demand destruction; that's an entirely different matter, and much, much higher.
One way to look at it is oil will increase in price until substitution is competitive. Substitution means not oil. This could be less oil or alternatives.
I always use vegetable oil as a metric since its comparable to crude.
So salad vegetable oil goes for 5.49 a gallon.
http://www.webstaurantstore.com/admiration-pure-vegetable-salad-oil-1-ga...
Now the other problem is their is simply not enough vegetable oil to substitute for all uses
of oil or even most so it would still go up in price as a fuel.
This puts it say aroung 10-15 dollars a gallon.
Or in a thread that went on at peakoil.com the MAXIMUM price for gasoline per gallon is less than
10-15 dollars a gallon which equates to 500-800 dollars a barrel.
That may sound alarming but gasoline is already close to 10 dollars a gallon in Britain.
Anyway thats what I came up with for was probably a pretty good ceiling.
Back to vegetable oil you can see that substitution becomes viable at around 200-275.
So the "lower" maximum bound when alternatives become viable looks like about 200.
I'm guessing we will push this by the end of the year so this means by this time next year Peak Oil could well be mainstream and alternatives to oil reasonable investments.
Gas in Britain pays for various social programs and governmental hijinks through taxes. Same in the US. Other governments subsidize gas use below the market price. Nymex gasoline is currently $2.5594/gal. That's roughly $7.40/gal in the UK that goes via taxes to pay for things that Americans have to pay for directly out of their own pockets.
If the islanders would be willing to forgo what their petrol taxes fund via the VAT and fuel duty, I'm sure prices in the UK could be reduced to US levels.
A government will figure out a balance between what it wants to spend and one of various breakdowns into individual taxes to raise that money. The stated rationale for the current tax level on petrol is to provide a strong incentive to find alternatives to driving. (Whether the government really wants the revenue instead, cutting petrol tax would mean other taxes rise.) In contrast, heating fuel is taxed less than standard goods, let alone petrol. (Whether this is seen as socially positive depends on your views about driving.) The disturbing thing is that I've been told by several people that even 2GBP per litre (which I think is 15 dollars/US gallon) wouldn't actually change behaviour. (They'd moan like hell, feel hard-done-by, protest, but they'd still drive.)
The other political issue is that, being a small island, it's just about possible for continental truck drivers to fill their tanks at cheaper French prices before getting on the ferry and deliver their loads and get back to the ferry, thus putting the native haulage industry at a disadvantage.
I agree. This is an apples and oranges comparison. You can't run an energy economy on water. At least not yet.
Funny the todo; it's a comparison Simmons always makes at his presentations, which I simply echoed; so your complaints are with him. On a TOD thread several years back, I made the point that US gas demand wouldn't drop significantly until it started to cost drivers about 30 cents per mile to operate their vehicles, which is $6/gal @ 20mpg; by significant, I mean 15%+ reduction in demand. The opposite has been true so far with gas rising to over $4 in more remote US locales this year with demand contining to rise @ .2% y/y. This is what I had in mind when observing that $100 oil is just a roadsign on the march to higher and more meaningful prices.
I respect Simmons, but I don't like this particular comparison. The relative value of oil to an economy is much higher when it is cheaper. When oil becomes expensive, alternatives/efficiencies become viable.
As for demand, I think you're probably right from a sudden change perspective. But, even now, it looks like we might be priced in for long-term, slow change at 3.00 + gas.
"You can't run an energy economy on water."
True. But you can't run any kind of economy at all without water, because you die in about 3-4 days.
Hmm. Maybe water is underpriced...
apples and oranges.
Howbout retail and wholesale? Who said you can't get not-yet-bottled water for $0.15 per cup? Probably even cheaper. Try buying a tankload sometime - *before* it's processed...
Sorry, just couldn't let it be.
Cheers, Dom