 | CLJ08 closed above $104 today...in the next 60 days, the front month price of CL will... | The Oil Drum | DrumBeat: March 6, 2008 |  |
Comment Thread for the Poll is here...
Posted by Prof. Goose on March 5, 2008 - 8:26pm
Oil Rises Above $104 to Record on OPEC Output, Venezuela Tanks.
This is the comment thread for the poll, which is in the next post below. (Sorry, there's some glitch that I can't figure out to put them in the same thread.)
“The aim of every political constitution is, or ought to be, first to obtain for rulers men who possess most wisdom to discern, and most virtue to pursue, the common good of the society; and in the next place, to take the most effectual precautions for keeping them virtuous whilst they continue to hold their public trust.”
—James Madison, FEDERALIST #57 (1787)
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Objective Peak Oil watching should keep an eye on actual production rates of conventional crude and not on the arbitrarily created price signal as well as the whipped up out of thin air dollar.
The effects of peak oil initially will be through the price. Nobody (besides us) cares one iota about the production numbers, all the masses care about is the price. I just read some comments at a local newspaper article on high gas prices, though, and out of the 32 posts not one person thought the price had anything to do with supply.
On the future short-term price, I now think the sky is the limit. Earlier in the year, I thought the economy would drag prices down but after watching Warren Buffett talking about straws that have been sucking oil out of the ground since the 19th century, I think investors are convinced that peak oil is here.
nice bell. i'd like to ring it.
In honor of Lucifer:
"The bells of hell go ting-a-ling-a-ling
For you but not for me:
And the little devils how they sing-a-ling-a-ling
For you but not for me.
O death, where is thy sting-a-ling-a-ling,
O Grave, thy victor-ee?
The bells of hell go ting-a-ling-a-ling,
For you but not for me."
- Anon.
All this flopping around is a rather common market behavior when breaking though a big psychological price barrier. Looking at the weekly chart, it is obvious that the spring is generally a strong price season for oil. Refiners in the Northern hemisphere are building stocks (or should be) for the summer driving season and spring agricultural demand which is no small thing. Furthermore the government is subsidizing oil by adding to the SPR much to ire of some Senators. Couple this with military threats from Peak Oil's best friend Hugo, add in the coming hurricane season and those who look for down prices will be disappointed IMO. I voted for seeing $115 before $93.
Shouldn't there be one more choice? "I prefer to whistle Bob Marley's little tune, Don't worry be Happy!"
That's Bobby McFerrin.
http://www.justsomelyrics.com/1853164/Bob-Marley-Don't-Worry,-Be-Happy-Lyrics
Composed by Marley performed by Bobby McFerrin
http://www.allmusic.com/cg/amg.dll?p=amg&sql=33:3ifqxz90ldde
This here says composed by McFerrin
How about it hits 125 before 115.
don't you mean 125 before it hits 115 from above? - price is practically continuous (daily trading ranges virtually always overlap).
Anyway, looking at the trend over the last month (or 2, or even the last few years) price does definitely seem to be on the way up. (I voted for up before down in the last poll also).
And, in case you missed it, the UN has just released a whole pile of data on practically everything http://data.uq.org/Browse.aspx?d=EDATA is a list of energy data, everything from biodiesel through to pulp and paper waste, and includes the more traditional petroleum,gas,and oil shale production.
The choices are a touch too Manichean, too black-and-white. The tanking dollar is by no means the whole story, but without it, we would not be breaking $100 yet. This reflects a difference between now and the 1970s. In the 1970s, oil was still largely domestic, making it easier to inflate our way out of economic problems and generally to surrender to the entitlement culture. But this time, whenever Ben Bernanke drops rates another 50 basis points to try to hand over even more money to profiteering "bankers" and home "owners" expecting free rides, there will be another jolt at the gas pump, diesel pump, and so on. I suppose those jolts will add new meaning to the concept of the dollar "tanking"...
I think the dollar is a big part of the story. The falling dollar may be leading investors into commodities like oil as a safe investment. This might be a speculation bubble (on top of supply and demand issues).
Certainly you can speculate but if you lose you have to take delivery or take a lost.
The fact that physical delivery is part of the commodities trade limits speculation.
In general big speculative bubbles can only occur where speculators can create false demand.
Store tulip bulbs in a warehouse or by 20 houses leaving them empty. Look at the silver market for example. With commodities your much more limited as long as delivery is part of the market.
This is a nice paper.
http://turtletrader.com/beginners_report.pdf
Almost all futures contracts are closed off prior to delivery taking place. Storage costs for commodities do affect futures prices but it's in term of a storage yield (the opposite of which would be a convenience yield - eg. benefit for having commodity on hand).
The fact that there is delivery would only affect the market if it was very illiquid and there was a risk of not being able to close out without taking a discount. This I guarantee you is not the case with oil (or any other exchange-traded) futures.
You can very easily speculate in oil futures without any worry of taking delivery, as long as you know the delivery dates you can close out your position beforehand.
The point is you have to close out.
Yes I'm aware you don't have to take physical delivery but you have to settle.
The key point is not speculation but can you blow a bubble via speculation. In my opinion the way bubbles are created is by creating artificial demand this is done by holding a resource instead of the normal users of the resource. This demand inflation feeds further speculation.
The next part of blowing a bubble is a source of credit margin account etc that causes leverage.
Finally it has to be difficult to short. The stock market for example is biased to the bull market while shorting is much easier in commodities.
So to be clear when people talk of speculation in the oil markets they mean speculation that leads to a unsustainable bubble. I'm saying the nature of the market itself makes this difficult.
Not impossible but difficult.
As proof we have had constrained oil supply for some time but its only now that its become hip to claim that prices are increasing because of a speculative bubble.
I'd like to see someone who has a deep understanding of the market explain how a speculative bubble could be created.
The problem here and now with this "bubble" is that we're
dealing with a(the) non renewable.
Every barrel coming on line is easier than the one that will follow.
Gasoline action the last three days showed exactly where we are.
$2.72 April declining to $2.52 then rallying yesterday to $2.64.
Crude meanwhile went to a new record.
The crack spread is non existent.
Valero, Tesoro, the other "high cost" producers are being squeezed out.
Problem. Everytime this happens, the aftermath is always
a soaring commodity. In this case, gasoline.
"In 1995 there were 25 refining companies operating in the U.S. Today that number has been reduced to 15. Among the survivors, 5 are independent. They have to buy 100% of their crude oil at market prices, which means they are active in the futures markets."
http://www.glgroup.com/News/Valero-Tesoro-and-Sunoco-prosper.-Exxon-Mobi...
Hi Round Tripper,
Any form of speculation is risky, your investment may go down as well as up, you may not get back the money you invested.... Unless you are a scumbag bank speculating dealer where you are only risking this year's bonus (and someone else's money) against a huge bonus if you get it right.
Commodities prices generally track things such as OECD leading indexes but have recently gone in the opposite direction, i.e. OECD leading indexes have turned down whilst commodities have gone up. You could argue that in a downturn then commodity prices should fall so the speculators are on dangerous ground, alternatively we are in game changing times with forthcoming shortages.
Same sort of arguments if you plot gold against oil, either gold is too expensive or oil is too cheap.
The important thing is to get the message out about PO and that we must act now.
That is interesting, since speculation in gold is viable. Anybody can take a delivery of gold and stockpile it for a long time waiting for highter prices.
Maybe gold is too expensive, or maybe that capacity of taking a delivery is in fact worth a lot currently. I guess both cases are considered speculation, but at the later one, the speculators are right.
either gold is too expensive or oil is too cheap."
Sounds like a trade to me ..
Unless both points are wrong <:)
Triff ..
Unless you are a scumbag bank speculating dealer...
Well, yes - or unless you are a blood-sucking parasitic "home" speculating "owner" aggrandizing yourself with IRS deductions and Bernanke bailouts at great expense to others. You would naturally be "entitled" to that one-way bet on "your" vast palace for the good and sufficient reasons that (1) you have a pulse and (2) you deign to show up and produce nothing at the dime-a-dozen Total Zero Moron McJob that is all yours because you could never be bothered to acquire any useful education, training, or skill.
The culture of something for nothing is not just for "scumbag bank speculating dealers". It would be far easier to put it in its place if it were. Instead, it perfuses the entire society, making it virtually impossible to rein in without a major society-wide economic failure.
I am no expert in enegry.
I only read your posts with interest.
HOWEVER i've gotten active as a result of a postcard from pnm which is working on 20 year natural gas and electric forecasts.
Here a draft of the natural gas 20 year forecast.
We, hopefully, do our best work responding in writing.
Cheers
from us cats.
I have no frikken idea how to vote, we are in no man's land. The S has not yet HTF, however there is an unlimited supply available.
What is striking is the rapidity of the decline in the availability in gasoline, diesel oil, and heating oil. Australia, China, and Africa come to mind. Despite the contrary views of OPEC, supply pressures seem to be increasing very rapidly. (However, I notice that the talking heads on CNBC still think the price of oil (and related commodities) is driven by speculators. To me, CNBC et al are doing a great disservice by not getting a little more informed on the subject before commenting.) Today I paid US$3.28 a gallon for regular gasoline at Costco, but the going price in this area at the Shell stations is $3.49. I really think the price is headed to $5.00 in the next few weeks, or at least before summer. (No more coffee mochas!)
Even though I have followed this subject for about three years, I found myself touched with a little panic at the fast changes. I kept thinking, "I'm not ready..."
Actually, gasoline inventories are at something like a 5 year high, and crude stocks are are signficantly higher than average for this time of the year, while admitidely the distilate and heating oil are a little bit lower than normal.
Then, is it trader push or China pull?
Is that true for the world as a whole or just the US?
I suggest that you review the current issue of the IEA's Oil Market Report (WARNING! PDF). Please review page 30 of the PDF.
This shows that the OECD as a whole is below the 5 year average as of February when the report was composed. The United States may be high but the rest of the OECD is low. Thus your statement only applies to the United States. The OMR notes that the stock build in the US had begun in January but it says nothing about any stock build in the rest of the OECD. Thus, OPEC's assertion that the "market is well supplied" appears questionable.
The US has 25.8 day supply vs. 24.1 day supply from this time last year.
The average of the last 5 years' days of supply of gasoline was about 24.6 days in the last week of Feb.
Over all, since about May 1994 we have not exceeded 30 day's supply of gasoline.
PADD I and PADD II (East Coast, Midwest) have higher-than-last-year levels of storage, by about 18%. The other Pads are similar to last year.
It looks like imports+production of gasoline in the last week of February are 9.842 million barrels, while gasoline demand (product supplied) was 9.071 million barrels, hence the rise in stocks.
http://tonto.eia.doe.gov/oog/info/twip/twip_gasoline.html#production
If I had to guess, I'd say that a combination of slightly increased imports YoY, increased crude->gasoline production (up 5.25% over last year) and demand destruction in the US economy accounts for just about everything.
However price must be set by the cost of the marginal gallon, which is why it is so high. (i.e., nobody is willing to produce from crude or ship tankers at a cheaper price).
(I don't understand the issues if blending stocks and imports and so may be off base with some of this.)
NR
One more thing I noticed, the dollar is down 18% vs. the Euro YoY, while the price of gasoline is up 26% YoY.
Clearly there's not a 1-to-1 mapping between crude price and finished gasoline, and there are enough complexities (blending component cost, refinery issues, trans-PADD shipping, and on and on).
But they have the same sign at least :-)
So if you think the dollar will keep dropping (eek!) and demand won't drop substantially, then the price of gasoline would seem to keep rising.
refs:
http://select.nytimes.com/mem/tnt.html?emc=tnt&tntget=2008/03/06/busines...
http://tonto.eia.doe.gov/oog/info/twip/twip_gasoline.html#production
Hi Nervous,
My take is that since oil is priced in dollars (USD) the oil exporters receive billions and billions of USD for their sales. When they see the USD exchange rate going down against most other currencies then they sell USD and buy Euros, yen... which of course keeps pushing the USD down so they don't get as many Euros... which makes them want to increase the oil price.
It's a good thing too if it makes people take notice and reduces the demand especially in the US. Unfortunately prices are way too low in the US so demand will not really go down:-(
That's only the OECD.
Countries that are outbidding the outliers.
See Argentina, SA, Kenya, Pakistan.
Will it might be "true" that absolute volumes are at some kind of 5-year high (yesterday CNBC was touting it as being the highest level since 1994(?)), when converted to "days of supply" it's actually a bit of a yawner (25.8 days).
See: graph and links at http://tonto.eia.doe.gov/oog/info/twip/twip_gasoline.html
I agree with this sentiment: "I'm not ready...".
No kidding. None of us are. I want a few more years before the production of oil starts declining. Give us time to get ready. I'm working hard to get ready.
Amen. I just planted blueberries; at least we'll have fruit in season...
I have to agree with comments earlier that our gasoline is priced too low. Until it gets to the Australian/European price level (I realize taxes play a big part in those prices), we won't see much progress in conservation.
I voted for option one. Why? Why not? I have been wrong every other price vote here. But I will say this, when we hit $114, we need to have do something special to celebrate The First Triple Yergin Day.
Tapis is knocking on $109.
IMO--no surprise here--we are seeing a bidding war for declining oil exports. Remember that once an exporter starts showing lower production, the net export decline rate tends to accelerate with time.
A Tale of Four Predictions: Hubbert & Deffeyes versus Yergin & Jackson
http://www.energybulletin.net/22733.html
Sounds like Bush is getting frustrated with OPEC's unwillingness to open up the spickets to drive down the price of a barrel of oil, actually going so far today as to suggest the U.S. should have more electric cars - wow, now there's a new one coming from a Texas oil man.
However, Bush has a rocky relationship with some OPEC members, like the leader of Iran and Venezuela to name just two. Maybe it shouldn't be a surprise that OPEC doesn't care if our economy suffers due to high fuel costs, because it just might reduce our economic power and readiness to militarily and politically interfere.
I,who am more "ready" than most...am not ready.Our entire world economy is running on inertia...and like a bike going too slow,is getting ready to crash....
Cutting and gutting the US economy is safer than trying to do the deed with a "event"Our military is still dangerous.If the ability to neutralize our military is ever developed I expect us to be hit hard.We have hurt a lot of people in a lot of places.
It seems just somehow,that it will be greed and corruption in the banking industry that lays us low this time...not some terrorist in a cave.We never seem to learn how to control the bankers in this country,and it looks like they did us again...just like '29
Out in the real world, Goldman Sachs is anchoring the view that the current oil price is grounded in the fundamentals of supply and demand rather than speculation or goofy short-term geopolitical events. It's hard to ignore what they've said on the record over the last few years on oil prices. GS makes the analysts who are dismissive of $105 oil look a bit foolish.
Such analysts are already wrong as oil hit $106 today.
I keep remembering Summer06 when GS single handedly
smashed NYMEX gasoline by dropping it's representation
in th GS Commodity Index.
http://www.pastpeak.com/archives/2006/10/goldman_sachs_a.htm
" "We saw gasoline fall 82 cents in the wholesale market over a four-week period, which is unprecedented," he said. Mr. Goldstein said that the decline in gasoline prices helped send prices of the whole group of energy-related products down.
Now, rather than highs, these products are hitting lows — natural gas, for example, traded on Wednesday at its lowest price in four years. [Emphasis added]
There's an element of crowd psychology in commodities futures trading, as there is in the trading of stocks, real estate, etc. A number of factors contributed to the crowd's psychology changing course with respect to gasoline futures. But the fact that Goldman's announcement came on August 9 and gasoline futures plunged more than 8% the following day is hardly coincidence."
I wonder if MSM will lead with $105.56 Crude. I wonder if anything
could be more important?
Carroll, Lewis. The Hunting of the Snark: an Agony in Eight Fits
"Fit the Seventh: THE BANKER'S FATE"
To the horror of all who were present that day.
He uprose in full evening dress,
And with senseless grimaces endeavored to say
What his tongue could no longer express.
Down he sank in a chair -- ran his hands through his hair --
And chanted in mimsiest tones
Words whose utter inanity proved his insanity,
While he rattled a couple of bones.
"Leave him here to his fate -- it is getting so late!"
The Bellman exclaimed in a fright.
"We have lost half the day. Any further delay,
And we shan't catch a Snark before night!"
Meanwhile here in the UK (which all US / non heavily Gas-taxed countries can think of as 'FutureVille') I walked past a Texeco Garage last night and saw that:
1. Petrol is 109.9 pence per litre
2. Diesel is 113.9 pence per litre
at todays exchange rates and converting to US Gallons, that's:
1. $8.30 / per US Gallon of Gas
2. $8.60 / per US Gallon of Diesel
-the effects of such higher taxation are dramatic and have resulted in:
1. Generally smaller much more economical vehicles that still get you from A to B.
2. Higher tax revenues that are spent in Europe -not the Middle East.
3. A much greater buffer for reducing the transport fuel burdon should things get 'sticky'...
4. Much higher uses of public transport including a core rail system in France that is in effect 80% nuclear powered.
Nick.
and for a 2nd post...
...gas prices will rise resulting in:
* Transport being hit the hardest by the coming rises particularly in countries like the US that have little or no taxes and thus no buffer for taxation reduction. Countries that subsidise fuel and are now -or shortly- NET importers will suffer the most.
* The price signal will translate into consumer demand: car manufacturers will dramatically increase the rollout of PHEVs / Hybrid to boost mpg.
* Cars getting a lot lighter then shrinking in size while maintaining similiar performance and safety levels
* Electricity generating capacity will have to be enlarged somewhat although overnight recharging overlaps well with daytime grid use. Greater use of Gas then LNG and coal/nuclear should cope.
* There will be a rise in the use of public transport.
Regards, Nick.
Hi noutram,
Regular gasoline is currently selling here for $1.157 per litre/$4.35 per U.S. gallon and its appears to be BAU on our motorways; that is to say, I haven't noticed any change in traffic volume or a shift in vehicle mix. Local retail prices have been at or above the $1.00 per litre mark for several years now and yet there are plenty of spanking new trucks and SUVs lumbering up and down my street. I honestly don't get it.
What worries me more is the cost of home heating oil and propane; I'm thankfully locked in at $0.889/litre until May 31st, but my fuel oil provider is charging new accounts $0.999/litre or $3.76 per U.S. gallon and this price has been steadily rising week after week (in Victoria, B.C. the average retail price is $1.149/litre or $4.32/gallon). A typical tank drop now runs in the range of $500.00 to $600.00 and whilst I'm not overly concerned about the Lexus crowd, for those desperately trying to stay afloat a bill such as this would be heartbreaking.
Vehicle ownership is a big expense and in some cases an unavoidable one, but home heating (and cooling) regardless of whether you rent or own, live in a small flat or a sprawling monstrosity is seldom discretionary unless you live in a truly temperate climate; one way or the other you're stuck footing the bill. Our transportation sector is vitally important, without question, but I wonder if it doesn't overshadow something equally important -- our shelter.
Cheers,
Paul
A thought for all on prices.
Currently there is measurable amount of ethanol and biodiesel in the fuel supply of the U.S. I don't want to debate if these are good energy returns or not. The key is they bulk up the fuel supply and moderate prices.
Currently soy bean oil price is linked to crude oil price. Check the pricing of both for the past 6 months they move up and down in lockstep. I believe that corn prices are also now linked to crude oil price.The key is that the commodities appear to be linked to crude oil prices, not gasoline prices as you would expect.
This is making biofuels less competitive with gasoline and diesel in the short. And if it continues for another few weeks I predict a large percentage of the ethanol and biodiesel supply will come out of production. These two currently make up as much as 2% of the total fuel supply in U.S. and Europe. The U.S. midwest is running on E10+ with lower amount as you move to the coasts and Europe has at least B2 diesel everywhere.
Pull 1-2% of the liquid fuel supply of the market and see what happens to prices of refined products, which have not risen anywhere near as much as crude since November. The catch twenty-two is that biofuels cost too much but without them petroleum fuels will cost hugely more. Pick your poison.
Hello TOD, I'm new here, but this site is incredible. Very enlightening and frightening.
My question is how are gasoline prices so low right now. By my math, if you can get ~21 gallons of refined gasoline per barrel of crude, shouldn't we soon be seeing prices well over $5/Gallon?
$104/21= 4.95 + $0.18(federal tax)+ other costs and taxes...
The short answer is that you get other stuff from the barrel of crude that you can usually sell: fuel oil, propane, kerosene, diesel, and asphalt.
Hi ChicagoAussi,
The following is based on Wikipedia.
A barrel of oil contains 42 gallons. Including gasoline, here are the major products that refiners extract from those 42 gallons:
Petrochemicals (Plastic)
Asphalt
Diesel fuel
Fuel oils
Gasoline
Kerosene
Liquefied petroleum gas (LPG)
Lubricating oils
Paraffin wax
Tar
It will be interesting to watch how these now historic oil prices affect the prices of a range of products, not just what we buy at the pump. Keep an eye on those candle prices!
And we get more than a barrel of refined product from a barrel of crude.
Any kind of crude or just the "sweetest."
I'm not a refinery expert, but I think that the volume gain may be the greatest from heavy oil, as hydrogen is added to the cracked heavy hydrocarbon chains.
Today the talking heads on CNBC stated the market is getting comfortable with $100+ oil and that if you take the lows and each upside over the past couple of months, the next new upside to oil should be $120.. Then where is anyone's guess..
Actually, I would have said it would trade within a range of $80-120, but given what I'm being paid to render my expert opinion, $93-115 will be close enough.
;-)
Recently, the WSJ had an article that says US gasoline demand (which is really dependent on every day americans, not buisness activity) is down 1% from last year, which is good news by any standard. I wonder how much of this is people driving less because of high fuel costs and how much of it is the effect on demand from hybrids and the drop in demand for trucks/SUVs in favor of smaller vehicles. Personally, I think it's the begining of a trend, even if slower going than we would like, of a gradual reduction in US gasoline consumption. Unfortunatly, much of that demand is going to be picked up by the rest of the world.
Anyway.....
Some of the comments mention that none of us are 'ready' for the consequences of Peak Oil (as presaged in the skyrocketing price of petrolium), and it occurs to me that unreadiness is the very essence of disaster, isn't it? Snow can be an idyllic White Christmas, or death from exposure... depending on whether you're ready for it.
In other words (verbose version), one can prepare for harsh conditions but one can't get ready for disaster because it's only a disaster when the magnitude of the conditions exceed one's level of preparedness.
I would really like to avoid that, which involves resolving many excruciatingly detailed questions, most of which are some form of "Ready for what, exactly?" and "Ready when, precisely?"
If gasoline hits 5 bucks a gallon, does that signal the collapse of civilization? Probably not. So, how about $10? Crude oil at $200 a barrel? At just what point does this particular 'frog in the saucepan' conclude that "Hey, this water is HOT!" and jump?
Jump too late and it's, well, too late. Poached frog.
Jump too soon and it's uncomfortable and unsettling, not to mention ineffective (readiness for the wrong event is called 'expensive waste of time')
The trick, it seems, is comparable to leaping from a fast moving vehicle. Maybe it can be done, but timing and technique are going to be veeeeery important.
That's why I read the Oil Drum. That's why I deeply appreciate what TOD is doing for us all. We have no historical record of such a juncture, such a perfect storm, as is currently developing. TOD's efforts to report facts and refine estimates about these developments are invaluable.
Thank you for what you are doing.
$93 before $115. I just figure, high prices are awesome and I wish they would go higher still, but just my luck, probably they'll go down :(
As a biker who's sick of the fumes and the death machines, I'm all for higher priced gas. The last two years have been grand.
Just switch to bikes, peoples! You'll really like it better. It's way more awesome to be in shape. Quit smoking. Throw your TV out the window. Cancel your NY Times subscription cuz they suck. Also quit eating that factory junk processed food (including anything with sugar). Read the Pollan book, get with the program...
Don't worry about the price of oil. If it gets too high people will drive less. Instead of saving money (on the house) by living far, they'll save by living close and having no commute and no car at all. Bingo.