<Plan for Hydro-Fracture Drilling for Unconventional Natural Gas in Upstate New York The Oil Drum DrumBeat: July 24, 2008>

145 comments on CFTC Report on High Oil Prices - "Speculation My A$$"

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Odysseus on July 24, 2008 - 12:39pm Permalink | Subthread | Parent | Comments top

I agree Nate, many of us peak-oiler's get a bit too excited when seeing price trends validate our personal models of PO. In reality, I think we will see an undulating plateau of supply with erratic price swings for several years. I view the whole price/volume system as very chaotic (in the true mathematical sense): it is extremely sensitive to minor changes and is wildly non-linear.

Has anyone considered mapping oil price as a chaotic system? I wonder if there is a strange attractor underneath this?

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Millard Fillmore on July 24, 2008 - 2:09pm Permalink | Subthread | Parent | Comments top

Lemme see.
1. The oil-producing nations would rather have higher than lower prices. 2. The oil-producing nations have huge mountains of money (sovereign funds) and expert financial advisors, and thousands of financial minion-quislings at their disposal. 3. Oil demand is inelastic in the short-run, meaning if speculators game the price up, demand does not wither for several years. 4. Any financial market can be gamed, and they have been gamed many, many times in the past.
But, oh no! No one ever manipulated the NYMEX! Never! Impossible!
Please. If I ran an oil-producing nation -- and our only real source of income was oil -- of course I would try to game the price higher. It would be a violation of fiduciary duty to my fellow citizens to NOT game the price higher.
So, we can assume oil-producing nations are gaming the price higher, through financial quislings. The gaming worked, as demand is inelastic in the short-run, defined as five years or less.
The gaming worked -- but the game has run its course. Demand is withering, in the medium-term, which we are reaching now. Automakers switching over fleets etc. Now, global demand will likely sink for several years. If prices hold long enough, then the long-term, and much greater elasticity begins to set in, bringing huge, decreases in demand.
What is fascinating is the OPEC-killer lurking in the wings. The death-ray for speculators. The GM Volt.
If such a car works commercially, it is game over for the oil boys and their minion-weenies. Who will need oil then? The world will be able to prosper at 40 mbd or less. Cities will be quieter and have cleaner air.
Tell me the downside in this, because I can't see it.

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Odysseus on July 24, 2008 - 4:03pm Permalink | Subthread | Parent | Comments top

I agree that all the money sloshing around in our economic system is contributing to price volatility. But I completely disagree with any notion of a vast conspiracy or some "puppet master" that is pulling strings to consciously run up prices. The whole oil price system has lots of drivers from oil-producing states waking up to the real value of what they have in the ground, to worried investors who are starting to comprehend the house of cards that is the US economy. People in this system are like cellular automata's who are following their own interests. I think the influence by global actors like government, KSA, or even Exon Mobile is quite muted. As in calculus, all the little dx's add up, but you need to understand the underlying trends in order to add them up and make any sense of it.

As I see it, all this energy, fear, and money are racing around trying to find some stability point, yet they can't because it is a chaotic system. It keeps oscillating and chasing any hope for answers and stability... but there are no easy answers or safe havens. Climbing out of this peak oil hole will not happen easily or naturally, unless you are betting on Malthusian outcomes.

You're much more optimistic than I about the impact of the GM-Volt. I sure hope is has an impact, but I see it as too little, too late. By 2010 we're going to be in a vastly different world if we continue on current trend lines.

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Millard Fillmore on July 24, 2008 - 4:30pm Permalink | Subthread | Parent | Comments top

By 2010? Demand is falling now, but global production of liquid fuels is hitting records highs every months. Sellers of sour crude have no markets. Oil is plunging, and it may turn into a rout.
And conservation methors are just getting started.

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145 comments on CFTC Report on High Oil Prices - "Speculation My A$$"

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