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143 comments on Has Peak Oil--As a Meme--"Tipped"? (Out of Futures Backwardation and into Contango)

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Hans Blix on May 19, 2008 - 9:56am Permalink | Subthread | Comments top

I read this analysis over at The Daily Reckoning:-"Why the Oil Price Will Correct Itself"

http://www.dailyreckoning.com.au/oil-price-7/2008/05/16/

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jeffvail on May 19, 2008 - 10:09am Permalink | Subthread | Parent | Comments top

Short quote from that article's conclusion:

"Some take measures to avoid using it. Some find substitutes. Some increase production. Markets still work, in other words. Every bubble eventually finds its pin. The day can't be too far off when the price of oil will fall back under $100."

That sounds like one part misunderstanding the root of the problem (he never mentions Peak Oil or any notion of supply constraints), one part faith ("Markets still work" . . . "can't be too far off"). Nor does he mention inelasticity of demand. As with most pundits, I'd say put your money where your mouth is--if an oil price correction "can't" be too far away, how many long-dated put options does the guy own?

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Warren on May 19, 2008 - 11:25am Permalink | Subthread | Parent | Comments top

He's not really a pundit. He spends lots of time talking about how the markets are not working. My take is that he focuses more on gold, currencies, and debt. If he looses any money betting against oil, he'll probably make it back in his own field, but I wouldn't expect him to be short, certainly not much. (I don't read his column much so feel free to correct me.) But I agree that he does not seem to be thinking about peak oil. I think there are many people who compare this time to the seventies, and expect it to pass.

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xeroid on May 19, 2008 - 11:51am Permalink | Subthread | Parent | Comments top

Beware, the oil price can still fall but we use less if we are in a contracting economy.

Peak oil means less oil supplied/demanded each year post peak - when looked at from the 'less demanded' point of view implies ongoing world recession.

If no adequate alternatives can be found the cost of oil will rise as a percentage of income (GDP), but may fall in absolute terms if demand is less than possible supply - IMO what 'net export' oil market remains will still match supply and demand by price (unless there is a breakdown of law and order and the market is no longer 'free'.)

Post peak oil I don't think you can predict the 'net export' price any more than you can now (so the futures market is still gambling!)
You can expect just an undulating recession - the world economy always contracting, sometimes more than others - and not everywhere in the world will have less access to oil than it needs to expand their local economy - chose where you want to live with care.

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Cslater8 on May 19, 2008 - 6:50pm Permalink | Subthread | Parent | Comments top

Yes, but demand destruction may not occur as fast as crude depletion and hoarding, which could mean prices continue to increase in spite of reduced demand, resulting from dramatically reduced supply.

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luisdias on May 19, 2008 - 10:01pm Permalink | Subthread | Parent | Comments top

Demand is always destroyed by supply depletion.

Or are you suggesting that somehow we'll be able to consume some kind of a "virtual" oil?

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ccpo on May 19, 2008 - 11:32pm Permalink | Subthread | Parent | Comments top

Economics is such bull excrement. If I cannot buy something it does not mean I do not still want it, and it certainly doesn't mean I don't need it if it's central to my existence.

Demand destruction is a stupid term. It should pply only to wants, not needs. When it is needs, ability to buy is destroyed, not the need to. Flight to an alternative and/or getting fired/not eating, etc., is what it is.

We should be more careful about how we talk about things. Intellectual gymnastics should not be allowed to gloss over human misery.

/rant

Cheers

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Cslater8 on May 20, 2008 - 3:05am Permalink | Subthread | Parent | Comments top

luisdias, so you're saying then that if food became too expensive people would stop buying it? In what form would the sustinance come from for the nutrition your body craved in the face of starvation, resulting from the need to prove that demand is "always" destroyed by supply depletion? No, you'd be paying whatever the price was and be thankful as hell you had something to scarf down.

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DaveMart on May 20, 2008 - 4:19am Permalink | Subthread | Parent | Comments top

Very unfortunately, that is not always possible.
No doubt if you have the money, there is plenty of food in Haiti.
Unfortunately most simply have not got it, and so they eat mud biscuits.
For oil, at some point most will simply not be able to afford it, and that is why I think that oil prices at some point, perhaps $300-500/barrel, will simply not be able to buy the oil, and so price in my view is unlikely to rise above that.
The demand destruction will stabilise the price.

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xeroid on May 20, 2008 - 8:56am Permalink | Subthread | Parent | Comments top

Cslater8, as Dave Mart says demand cannot exceed supply no matter what the price or whether you want or need it - hence several tens of thousands of people will die of starvation somewhere in the world today even though they may well have money in their pockets - there isn't always an adequate alternative.

If hoarding of oil starts in exporting countries in a big way (like the current hoarding of rice) the net export supply can be expected to fall away very rapidly.

Hoarding is normal human behaviour if is more profitable to act that way, and, at the current oil price acceleration it looks like it is more profitable even for oil companies like Exxon to keep the oil in the ground!

Nobody has any idea what the oil price will be that a poor impoverised OECD person can afford if there is a major resource constraint induced recession - but I suspect limited food (limited by the supply of phosporus and overpopulation) and clean water will take priority over everything else at some point.

So, eventually the price of oil may well be below the current one, people just won't have the money to buy it (as in most parts of the world already.) If you can't afford oil you won't be able to afford the alternatives like electric cars either IMO.

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DaveMart on May 20, 2008 - 9:05am Permalink | Subthread | Parent | Comments top

According to Picken on CNBC today oil prices will hit $150/barrel this year, and that can't be supported by the major importing nations, and will result in major depression until alternatives are found and used.
Higher prices in Europe in the past were a result of national taxation, and the money did not leave the economy.
IOW the effects I speculated on with oil at $3-500/barrel will actually hit at a lower price level, and next year.
He feels that not even $100/barrel is sustainable by importing economies, so even after demand destruction has reduced use below the 85 million barrels a day we can produce and prices drop, demand will not be stimulated.
It would just mean that oil exporting countries would have no incentive to hoard their asset as that too would be devaluing, but will not be able to afford so many imports as their impoverished customers will not be able to afford it.
This will further hit world economic demand.

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143 comments on Has Peak Oil--As a Meme--"Tipped"? (Out of Futures Backwardation and into Contango)

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