Oil Price Closes Above $100 a Barrel - New Peak Oil Press Release
Posted by Gail the Actuary on February 20, 2008 - 1:00pm
Topic: Supply/Production
Tags: $100 oil, peak oil, press release [list all tags]
This is another press release about $100 barrel oil. It is fairly similar to the one we sent out in January when oil hit an intraday high of $100 barrel. Feel free to send copies of it to folks you know, and to link to it in your web sites. If you know any newspaper people to send it to, that would be especially good.
The price for West Texas Intermediate (WTI) oil closed above $100 for the first time on February 19, 2008. "Rising oil prices have been giving a clear signal of pending shortages for over five years now," according to TheOilDrum.com. By ignoring this signal, world leaders are steering the world toward an energy disaster characterized by shortages, high energy prices, inflation, civil unrest and famine.
The $100 a barrel closing price is a sign that times will never be the same again. "The world is entering a new era. In this new era, the supply of energy will dominate the political landscape in a way that is not being recognized by any of the presidential candidates," according to TheOilDrum.com.
In past years, newspapers and magazines have assured citizens that there is no problem with future oil supply. Articles have suggested that oil prices will be lower in the future; they may even collapse due to excess supply.
Recently, published articles have added some caveats. There is a need for increased investment, both for exploration and for improved production technologies. The media doesn't mention that rates of return on the new investments are likely to be very low. At some point, it will become economically unattractive to keep searching for very small quantities of oil and gas that are expensive to extract.
The problem that oil companies are encountering is that there is a finite number of oil reservoirs, and many of these have been producing for over fifty years. In time, a large part of the oil that was originally in place has been removed. The oil that comes out now, comes out slowly, and is often mixed a high proportion of water.
In order to keep production up, additional wells are drilled into the reservoir. At some point, the strategy of adding more wells to keep production up ceases to work. Oil production from a long-produced field begins to decline, no matter how many new wells are drilled. Peak Oil Curriculum - Part 1
According to Gail Tverberg at TheOilDrum.com, "This problem of reaching irreversible decline happens for whole regions, the way it does for individual fields." For example, US oil production in the 48 states reached a peak in 1970. US production has since declined from a maximum of over 9.6 million barrels a day, to the current level of around 5 million barrels a day. (A barrel is 42 gallons.) More recently, the oil fields of the North Sea, Alaska, and Mexico have also begun to decline.
As more and more areas deplete, smaller fields are brought into production. Because they start out with less oil, these small fields do not last as long. Drilling activity must be increased in order to find even smaller fields. These, in turn, deplete even more rapidly, exacerbating the need for new wells.
According to TheOilDrum.com, "The world is now reaching the point where in the aggregate, all of the oil fields of the world are coming to peak production." As peak world production draws near, the rate of increase in oil production can be expected to stall because of constrained resources. This can happen even with rising demand. Once production falls short of what is needed, oil prices can be expected to increase, so that demand is brought in line with available supply.
The consequences of energy supply shortages can be surprisingly great. Energy shortages can lead to public unrest, such as occurred recently in Myanmar. In times of inclement weather, energy shortages can lead to a loss of export supply, if the supplier finds that domestic demand is consuming all that is available. Problems for importing nations then suddenly become worse.
Energy shortages can disrupt basic industries and lead to currency declines, as shown by South Africa's recent experience. South Africa energy crisis According to Gail Tverberg of TheOilDrum.com, "Higher energy prices can raise food prices, and can affect people's ability to repay their mortgages. Thus, energy prices can affect the financial sector." Peak Oil Curriculum - Part 2
There is now a fragile balance between demand and available supply. All ears await the next OPEC announcement on March 5. Will OPEC lower production? Will they leave production the same? Even in this country, any minor refinery incident has become a cause for concern, and a possible spike in oil prices.
World oil production is now about 85 million barrels a day. While some increase from this level may be possible, it is unlikely that daily production will ever equal 90 million barrels. "Some major organizations have forecast future production of 120 million barrels a day or more, but these estimates are not realistic," according to TheOilDrum.com.
In the coming months, the $100 per barrel closing price marker will be lost in the debate over other issues. The issue of limited oil supply is not an issue that will go away, however. Rather, it will steadily increase in importance. Eventually, there will be the cries for action, and for culprits to blame -- most likely within the first term of the presidential candidates.
"The presidential candidates currently pay little attention to energy policy. This needs to change," according to TheOilDrum.com. It would be best if candidates could change their focus before events force a change. So far, however, the markers of an approaching energy crisis have been largely ignored.
About The Oil Drum
The Oil Drum is a web-based community that discusses all aspects of energy -- from science and technology to its societal and geopolitical impacts. The editors and readers are drawn from many disciplines in academia and industry. The Oil Drum has a staff of more than twenty including individuals from the United States, Canada, Europe, and Australia.
The Oil Drum's parent organization is the Institute for the Study of Energy and Our Future, a 501(c)3 corporation. The Institute is funded solely by private contributions and advertising revenue from The Oil Drum's website.
More information on peak oil and its impacts on energy security is available on The Oil Drum website (www.theoildrum.com).
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Another link to the press release.
I think that one of the big problems we face is fairly simple. The media likes to attribute high oil prices to some simple factor which changes daily.
For example its been noted that if a large refinery goes down it makes sense for crude prices to decrease and finished products to increase. Instead crude goes up. That's like the price of timber going up when a large sawmill burns down.
Certainly geopolitical factors and other issues play a role in high prices. But constantly high and increasing prices for years deserves a serious investigation. Attributing these prices to the event of the week does the world a disservice.
Distillery burns down - price of barley soars.
But we just busted $100 again.
NYMEX now at 100.61.
Is there a lot of speculative money pouring into the market just now ?
Bloomberg seems to have given up providing explanations.
Perhaps they are getting bored with all these new records.
NYMEX now 100.92
Am I the only person on TOD following this ?
I will leave it to someone else to post the next record.
Sorry, but I can't resist informing you all that NYMEX has now reached 101.20.
Will someone please shut me up !
The question isn't so much particular indices rising above $100 a barrel. Its more "what is the future path of prices and when will be the last point the price is below $100?"
Now personally I originally calculated the end of Feb for the rise above $100, so the previous high caught me by surprise and this price is in keeping with the maths.
However, what with the likelihood of a number of large fields coming onstream this year, together with the probability of recession, I'd have to say I'd expect a fall back to the $60-$80 region in time for the US elections. That's excepting someone doing something stupid.
However I still see no reason to believe the start of the decline won't be in the 2011-12 timeline - 3-4 years away. What are we doing to prepare and adapt? Where is the movement? We are getting inside the planning horizon of business and politicians, but still the action isn't there at a large scale level.
Next to the large scale picture, day to day movements on Nymex are unimportant.
I think it goes slowly to $110, then the economy slows down and it settles back in to the mid-70s or 80s for a while, save any other geopolitical events. But still...that's gotta be enough to make it hurt. Especially with crack spreads finally catching up and gasoline demand about to increase.
I agree I did not expect it to go this high. However my worst case scenario indicates that GOM and other high technology old producing regions should be declining fairly rapidly now. Small field infield drilling etc. If this is true then I think the price is heading for 150 or so by mid summer.
However short term I'm waiting to see when the US can no longer import all the gasoline it wants. Once gasoline and blending components for export are maxed out thats when the fun begins.
So far it seems we can always buy all the gasoline we want but I suspect that sometime this year maybe the fall this will end.
The reason I think this is important is its root cause will be simply not enough oil for refinery capacity thus building more refineries in the US and competing for crude does no good.
Before this import prices for gasoline should increase substantially and like I said it seems we can get whatever we want now. But thats the number to watch it will go down before crude imports.
However my worst case scenario indicates that GOM and other high technology old producing regions should be declining fairly rapidly now.
Memmel, Prof. G.
That would be a good subject for a write up.
GOM - 3 Years Later
With all the post Kat-Rita damage at the time, and how much was impared, it would be a great study to take a clinical look now.
How much was lost?
How much capacity was/will never be reclaimed?
Dollar amount of loss?
etc.
Just Sayin...
I found a wealth of data on the DOE website. I'd have to dig up the links but I posted them here a few times. Simmons has given several talks on the issue.
Bringing it all together is a bear since their is a treasure trove of data and a number of good summary papers exist.
Short summary is if the rest of the world that has invested in advanced extraction methods follows the decline patterns seen in the GOM we are fucked.
And sorry to use such language but...
Nup.
$180 by the end of the year, I say. Just in time to give the knockout punch to the US economy - then it drops back down a bit to $130, and all that unfulfilled demand from China, India, etc drags it back up slowly.
Sorry, but I don't see the importance in your reporting every new record. It is not as if the world is going to end with someone paying $101 for a barrel of oil. Go and do something useful.
It is basically a reason for a news-like story to tell to the press. Sometimes there are teachable moments. We are hoping this is one of them.
Gernos - at The Oil Drum we don't really give a damn about the oil price but we do care about energy shortages and the impact upon society;-)
However, by chance I just happened to click by accident on this chart busting spike over at 321.
http://www.321energy.com/index.php
I think we'll see the oil price move sharply up to $110 from here.
Closing prices today:
Tapis $101.79
Bonny $101.07
Louisiana $103.50
WTI $100.83
http://www.upstreamonline.com/market_data/?id=markets_crude
We may see Brent break through $100 tomorrow.
And by way of partial explanation of what is going on in terms of supply and demand imbalance I think this chart is part of the story:
Our outlook for Russia from the Khebab/Brown Top Five Net Exporters Paper:
Bloomberg seems to have given up providing explanations.
I noticed that as well. Wasn't too long ago you'd see a story entitled "Oil trading higher on Middle East concerns" replaced ten minutes later by another that read "Oil trading lower on latest job report", followed shortly thereafter by a third telling us "Oil little changed at market close". Personally, I never found their analysis all that helpful; then again, I never understood the inner workings of these things and I suspect I never will. I've resigned myself to the fact that my only real connection to the markets is at the pumps and that little fill slip the oil man drops through the mail slot.
Cheers,
Paul
Great Piece, Gail. Insightful, well-written, and non-hyperbolic. A Serious Reader will be Impressed.
The graph is worth the price of admission. I've put it around at a couple of my favorite blogsites.
Thanks! We try to get the word out. It is hard to know how long the disconnect will last.
$99.98 at 11:50 C 022008 and the Dow, S&P and Nasdaq are up.
There is a signal out there that is incoming.
A total disconnect.
For me the signal is that Ben's printing press is operating at full speed. IMO the plan all along has been the US to maintain its energy supply by outbidding other countries, borrowing like there is no tomorrow and exporting the resulting inflation to the rest of the world.
A collapse of the dollar is no concern because it is ultimately propped by our foreign creditors and trading partners which will do every possible effort to keep the status quo.
This strategy is working so far.
Interesting idea, but I suspect that there is little of the us-them thinking you are referencing (e.g., U.S. v. other country). I strongly suspect that ole Ben and the gang think of "us" as the global capitalist elite and the them is some vaguely defined and despised enemy of capitalism. If you think these people make decisions based on nationalism, I think you are barking up the wrong tree. Yes, they use the institutions of government to their advantage, but they are not great patriots. Negative cash flows from one part of the economy to another are not necessarily a bad thing (in the capitalist view) and can even be a source of profit.
You are right, but I was simply assuming your point. USA as a political and geographic entity is relevant as much as it is the place where most of the global capital is concentrated, the elites in Europe or East Asia are no better than that and of course are participating in this schema. It is simply the same old game - the rich vs the poor and how the rich can get richer without the poor guys revolting. There is nothing new under the sun and inflation is a century old way of shifting wealth from the bottom to the upper classes.
But you are right and I don't doubt that these folks care about the average American as much as they care about the average Nigerian or Indian.
There are pundits (Mish Shedlock,e.g.) who are saying that the Fed is actually removing liquidity from the monetary system. This is leading to monetary deflation, even while we have rising prices for increasingly scarce commodities.
There is also argument made for a rebounding dollar based mostly on the fact that other currencies -- primarily the Euro -- will fall faster than the dollar falls. Race to the bottom!
I won't get into much discussion about it but how does this reconcile with this news for example:
U.S. banks said "quietly" borrowing $50 billion from Fed
I guess according to BB "toxic waste" also qualifies as an asset
Just to add something to support your point: I don't think the Euro area is in a better shape either. The money supply there has been growing in double digit rates and IMHO their housing bubble is even bigger than the US one. Only the scarcity of land is preventing it from popping yet, but noone knows for how long this will hold it.
But two dead fish don't make one alive. I expect the same thing as here to start unfolding in Europe too. There will be way too much money chasing too few assets and it will be a rocky ride when this all comes crashing down.
Levin: The printing press is not open to 99% of the economy. IMHO, the Fed is funnelling money to the banks under the mistaken (?) assumption that this will allow increased lending. Instead of increasing lending, investment banks are increasing their speculative activity. It isn't just oil, pretty well all commodities are on fire lately. I can't prove this-it is a possibility I don't see discussed.
As I write this, gold is at $945 an ounce. On fire indeed.
Oil, natural gas, coal, wheat, other grains, and most metals are ALL on fire right now. The smart money is moving into commodities and gold and other metals. (A couple of free stock tips fuh ya: DBA, MOS, CEF, RIO. Look at the chart, set it to a two-year view, and ask yourself what's to stop any of them, short of a major global recession.) Yes, this push above $100 is allegedly driven by short term events, and yes I believe that is largely the result of speculative money coming back to the sector, having been severely sold off in January. But even though we know those factors are temporary and probably a wrong basis for valuation, it doesn't make oil any cheaper, does it?
My range for oil this year: $80-$150. Big volatility. Median price probably around $110.
I believe these sectors will continue to hit new heights, and volatility will increase, as we approach the 2010(ish) peak. After that, anybody's guess.
All this takes me back to 1980/81. The oil price hit the equivelent of $100 in todays money and gold hit $800 an ounce (in 1981 dollers). Daja vu all over again?
High or very high oil price will knife into the mid and lower classes.
While they can cut down (and do) there is an incompressible range - going to work, shopping, educating children, going to doctors etc. Keeping the economy, normality, chugging along.
If ‘oil’ is no longer affordable after all sacrifices have been made, the economy collapses. Like a cheese soufflé. First with a grand huffy sigh, then down into desperation. And while the world PTB cares nothing for Joe 6-pack and his capacity to pay for BBQ, beer, a lawn mower, video games or Victoria’s Secret underwear, and so on, a systemic collapse is an ultimate horror for them.
"Rather, it will steadily increase in importance."
That is the one line that worries me. I think the crisis will evolve in an unsteady fashion. We have seen how the climate denialists utilize any short term counter fluctation to heap scorn on global warming. I expect the same dynamic with perception of peak oil. Just as there are price spikes due to events, I expect there will be spikes of both signs. A major new capacity comes on-line, or a sudden decrease in demand somewhere, and that will provide enough fodder for peakoil denialism. I hope you can edit in an UN to make it "unsteadily increase in importance".
We need to keep in mind that the 120 million barrel figure includes everything from coal to bitumen to shale and biofuels. Their definition of oil includes anything that can be converted into liquid fuels. It is the end products that matter not where it came from as far as the economy is concerned. A big part of the coming crisis is the lack of investment in these other sources of liquid fuels. As a group investors are conservative in both their politics and their investment decisions. They wait until somebody else is making a profit on new technology before they stop investing in old technologies. So far every alternative to oil depends on a subsidy to make their venture profitable. And this need for a subsidy has not gone away with higher oil prices as alternative advocates had claimed.
I think this is a bit misleading.
1. 'All liquids' are not necessarily readily exchangeable for all crude oil uses.
2. Also, I believe the net energy from the non-crude 'All liquids' is generally lower, and sometimes much lower, that that for crude. This will indirectly impact the economy in increasingly significant ways.
As I have pointed out many times apparently to little avail, oil is heavily subsidized both by policy and de facto. Wars for oil security as in Iraq are a de facto subsidy. The SPR is a de facto subsidy. The oil depletion allowance is a de facto subsidy since a similar soil depletion allowance is not available to bio fuels. The blenders credit is a subsidy to both ethanol and the oil companies, since it is the oil companies that actually collect it and none are complaining. It is a buy off of the liquid fuel distribution monopoly that would otherwise stop ethanol production in its tracks.
What surprises me about the oil market is how shallow and short the correction was from the first $100.00 dollar touch at the beginning of the year. I expected this base to have a pull back closer to $80.00, but it didn't happen. Also here we are breaking out again after only about 6-7 weeks of basing around $87.00 to $95.00. This tells me this is a very strong market which is anticipating the spring driving season as well as heavy agriculture demand. It is an up market like we have been experiencing the last few springs. Apparently it is getting stronger each year at least in dollar terms. Percentage wise it appears to about the same. $125 or more here we come.
Hi practical and Thomas,
I was listening, practical - (or, should say, I agree and have for a long time :))
I'd sure like to see someone(s) develop this further and possibly write up.
Thomas says:
"So far every alternative to oil depends on a subsidy to make their venture profitable. And this need for a subsidy has not gone away with higher oil prices as alternative advocates had claimed."
The salient point is that the "need for a subsidy" has not gone away - in fact, it can't.
The entire (extremely costly) oil-consuming infrastructure was built via "subsidy" and, as you, (practical), point out - is maintained via "subsidy" as we speak.
This connection needs to be documented and laid out for others to see.
It does seem, though, that there are better and worse places to spend "subsidies".
....and the national highway system is an oil/FF subsidy....and the tax break on mortgages on three car garage mega-homes in exurbs is an oil/FF subsidy...etc etc etc
That's not "according to TheOilDrum.com"; that's according to whoever you're quoting...which appears to be yourself.
Unfortunately, the entire piece reads as "Gail Tverberg has certain beliefs, and is trying to give them weight by claiming they come from TheOilDrum.com". In fact, none of the quotes you attribute to TheOilDrum.com exist anywhere other than this article (google search, site restricted to theoildrum.com), which makes the entire piece seem outright deceptive, and that isn't helpful for credibility.
Not to mention that trying to quote a website is just weird. The website didn't write those words, some person did. Why are you unwilling to credit the person for their words?
If you believe something, say it; don't try to mislead people into believing it comes from more than just you. If it's really a press release from a group of people - and that's not how it reads - then do what everyone else does and put all of your names at the bottom. Right now, honestly, it just looks fringey, crackpot, and deceptive. As written, it's probably doing more harm than good.
False, These are not just Gail's beliefs but those of a consensus on the TheOilDrum.com
see:
http://www.theoildrum.com/node/3487
http://www.theoildrum.com/story/2006/8/12/114231/281
http://europe.theoildrum.com/story/2006/11/25/125137/18
http://www.prnewsnow.com/PR%20News%20Releases/Industry%20Specific/Oil%20...
see, after "googling" you can find 4 articles where CERA's credibility is torn apart on TheOilDrum.com, the vast vast majority of the comments under them also accept CERA's lousy record and lousy credibility.
I disagree...
-Crews