I agree west, the average is more relevant, but even if we take the average as our measure, current prices are close to 25% lower, this is a massive decline in revenues for the producers in a very short period of time, I believe such volatility is detrimental to the steady development of unconventional oil.

However, it would be very interesting to see how prices will move during this winter, considering the steady decline in net exports; as you have mentioned in a prior post, there seems to be a race between the decline in net exports, and demand moderation.

Regards,
Nawar

Paul, indeed PO is not a belief, it is a basic concept, and I do understand it as such, however such severe declines, may push certain believers to consider that PO is not as big of a deal as it may seem, some may start believing that solar and wind are doing their trick, while forgetting that our issue is liquid energy, and not energy per say.

As you know a lot of people and investors have a blind faith in the ability of markets to predict the future (didn’t the CIA wanted to start a terror futures contract after Sept. 11?), if prices continue heading lower, they will rather believe the markets rather then believe the simple fact beyond PO.

Regards,
Nawar

PO is absolutely a belief. Whether something is true or not has nothing to do with how many people believe in it. As the price drops, fewer people will believe in PO, and will put less pressure on TPTB to do anything about it, and will want to continue the party.

Secondly, with 10 trillion dollars in debt, the world is all in on the dollar. It's in few people's interest to have it collapse at this point.

Oh yes, no producer of oil or any other goods the US market consumes would take any pleasure in seeing their main customer go bankrupt.

And don't discount the fact that the value of the dollar gets pushed up every time the oil price rises due to increased demand by countries paying for their own oil imports in US currency.

Oil goes up, then there is a time lag of a few weeks, and then the dollar follows suit.
Could this lag be due to international oil customers gradually replenishing their US currency reserve accounts?
I'd be glad if someone could shed some light on this.

I think OPEC has a better handle on the supply demand fundamentals than you realize. OPEC wants high prices, but...

More than classical supply/demand I think OPEC was concerned with at what (oil) price would the world economy on which they depend start to tank. The experiment in high prices, showed that at least in the very short term (a few weeks) the economy was robust enough to withstand pretty high priced oil (say $140). Now they are seeing that on a somewhat longer time scale (six months to a year), that the world economy may not be quite as resilient as they had hoped. So they are still struggling to determine what price maximizes their profits. This of course doesn't mean that they can maintain control indefinitely, i.e. they may not be able to maintain enough production to keep the price within a range that the world economy can happily live with for much longer.

islamic? Maybe. I thought it was the US Congress.

It would help a lot if you'd drop the "islamic" everything something happens.

I'm about the same as you although a bit higher understand that in my opinion 2008 is the year we have fallen off the plateau and started into decline so its a bit of a split year.

I had us up to about 130-135 this summer and we should have stopped seeing price increases their and stayed basically level with a drop about now down to say 120 then headed toward 150 towards December.

This is what should have happened however it seems that the oil markets have been played with this year in my opinion in preparation for a war with Iran.

On that note as near as I can tell what actually happened is that Ghawar production is in decline which is not unexpected but in addition to this a significant amount of light sweet crude was withheld from the market something like 30-70 million barrels or so. This also includes probably a resting of wells that may have seen water breakthrough. Problems in Nigeria production mae the light/sweet situation worse. Balancing this KSA has always claimed to have excess heavy sour production and I believe them I don't believe its 2mbd but 500k-1mbd is highly probably to some extent selling this masked the problem. But this lead to Iran seemingly having some problems finding buyers for its own heavy sour oil recall the reports of tankers sitting loaded.

However this gave us and early glimpse of what life will be like once Ghawar is really in serious decline and it will not be pleasant since it looks like the heavy sour/NG issue is huge and was triggered by the above.

Eventually of course after price rose well above everyones expectations including mine KSA belatedly hit the market with a surge of light sweet this was coupled with what looks like a extensive set of financial maneuvering. Publicly this showed as a campaign agianst speculators you have to imagine that in private the people with large long position received a lot of pressure. Needless to say the combination of real increases in short term oil production esp light sweet coupled with financial moves burst the bit of bubble we had.

As far as demand destruction goes well its certainly a factor but demand does not change dramatically over a few months demand destruction has been going on for years and is absolutely required to match flat supply with a growing population. Needless to say this supposed demand destruction argument happened during the months we supposedly had the highest world oil production ever. Of course this is just one of the blindingly obvious paradoxes ignored by people who wish to believe the current price is real. I could write forever on this and the bottom line is that concerted financial pressure along with the help of real increase oil exports will cause a price drop.

Finally following the last surge we have seen a sharp drop in oil exports out of the ME this indicates that a second mini surge if you will is possible over the next month or two and this can be coupled with political talk of opening the SPR. I believe the goal is to try and get the market price down to 70-80 dollars a barrel in anticipation of a strike on Iran.

On the Iran side the situation is fairly strait forward. Once Iran has stockpiled sufficient quantities of highly enriched uranium they no longer have to have the large enrichment facilities. They can build a bomb now or later if the political climate changes or never and blend it down for nuclear fuel. And they can build the bombs almost anywhere potentially in a number of small facilities that would be impossible to track.

Later they could readily build more enrichment facilities that need not be large to ensure a growing stockpile of enriched uranium. Once they have enough to build a few bombs they basically have a lot of options and would be practically impossible to stop. Their bomb program would effectively be successful.
Once nuclear reactors are in operation plutonium would then be viable which is much easier to separate.

This is important since even if Mcain wins he would have a tough time getting and attack together on Iran before they reach the point that they are basically immune from attack and could use the attack itself as justification for suddenly deciding to develop a bomb.

So this is basically it its pretty much now or never for and attack on Iran which would reasonably ensure they don't or can't develop a bomb. If this window is passed then their may well be and attack but it probably will simply ensure that Iran will develop nuclear weapons. Right now my opinion is that they are telling the truth in the sense that they have no short term plans to build a bomb but they will maintain needed enriched uranium and later plutonium supplies along with the expertise to rapidly assemble a bomb.

Finally even with the mini-surge that is highly probable I just cannot come up with a way for price to remain low through Nov esp with the recent Hurricanes SPR release cannot keep us from having a crunch by at least that point in time. But assuming they can successfully keep the price down over the next few weeks and this mini-surge does show up then I believe its possible to see oil prices pushed down into the 70-80 dollar range.

The reason for all this is pretty simple and attack on Iran would lead to a price doubling if they get it down to 70-80 then this means 140-160 not a lot higher than at the beginning of the year. The assumption is that disruption of supplies from other countries in the gulf would be temporary but Iranian oil production would be shut-in for the foreseeable future. By aggressively pushing the price down now although temporary then the response from and Iranian attack would have to work from and artificially low price point. And certainly the pressure would stay on to try and suppress the price as much as possible. From this standpoint and attack later with oil say at 150-200 a barrel would be far far more damaging. I think and attack was planned for last year but to many Generals objected and we have seen a serious house cleaning on this side.
Also the US is officially winding down operations in Iraq and it does seem to have settled down quite a bit this itself may be temporary but for the moment at least the US seems positioned to be able to reduce its presence in Iraq.

Finally even if for some reason and attack does not actually happen you have the secondary goal of taking Americans minds off of the Middle East and keeping the campaign from falling into a lot of promises to force OPEC to ship more oil. Overall the financial moves have not only been in oil but a broad spectrum full court press to temporarily shore up the financial system for a few months.

But a Mcain win in the election is in my opinion secondary to either attacking Iran before the election or losing whats probably the last chance that can reasonably ensure they cannot develop nuclear weapons.

Sorry for the long post :)

Not really but we are in a unique geopolitical year this year its really the first post peak decline year if you look at tanker traffic, price and oil quality. The high probability of and attack on Iran during the very first year we probably had significant declines at least in exports does not bode well for the future geopolitical climate. Coupled with this of course is the situation in Russia. Russian moves in Georgia indicate that they have every intention of trying to ensure they have their way if a resource war does develop.

Whats even more interesting is that Pakistan is on the brink of collapse yet the papers are not even really covering the meltdown of the only nuclear armed Islamic state.

And last but not least the current year has been marked by underlying geologic decline but on top has been some significant manipulation of the oil markets as near as I can tell the outcome is twofold. If and attack on Iran actually takes place then our short term situation will be entirely driven by above ground factors.
For the next several years geologic peak will be secondary and probably effectively masked by the attack it could well be years before the situation stabalizes to the point that real production levels could be determined. More likely is that further entanglements with Russia, Venezula, Collapse of Mexico etc etc will result in people thinking that if only all this ended the oil will flow.

If and attack does not happen then prices should increase on their own accord I expect a spike to 160+ by December simply because the current situation is unstable. But as the supply and supply quality change and probably more important NG production changes the price will go up until the spreads stabilize then plateau for a bit then up some more. As near as I can tell the first round of serious demand destruction is actually at the 200 dollar a barrel level. The current round is simply the collapse of the housing industry and the start of a mild recession. 200 a barrel will eliminate the most outrageous use in the US with large SUV's etc really off the road except for the wealthiest people. From here on out the oil prices should creep higher approaching 300 a barrel and the next stage of demand destruction contraction where very fuel efficient cars are widely adopted. In the interm the continued collapse of the housing and consumer debt defaults in general will ensure people retain cash flow for food, gas, rent. Eventually as we pass 300 a barrel and into 500 a barrel collapse of a significant portion of the middle class will be the next stage of demand destruction. Starting back at 200 a barrel we will see collapse of poor nations such as Eygpt but they don't use a lot of oil so demand collapse if you will probably won't free up significant supplies.

On a time scale you have
2008 at 140 -160
2009 160-200
2010 200-300
2011 300->500+ ( first serious collapse year )

Depending on how low they can get oil prices before and attack on Iran we would see post attack 160-200 etc
basically about a 30-40 dollar long term premium from the attack. But at least for the short term if they pull it off they practically get it for free.

Although I don't have Eastenders data I suspect the reason I'm higher is I've got a very strong suspicion that Ghawar started into decline and I think that prices will be driven by the light sweet supply and that NG production problems will prevent the heavy sour oils from being all that useful.

Whats really interesting is that Iranian crudes are generally of low quality
http://uk.reuters.com/article/oilRpt/idUKL142487620080730
http://www.stratfor.com/geopolitical_diary/geopolitical_diary_iranian_oi...

Given I expect US NG production to collapse worldwide we probably will simply not have enough NG to process the heavy oils such as Iran produces. In short peak light sweet plus rapidly declining NG production puts us into the paradoxical situation of incredibly high prices for light sweet but a surplus of heavy sour oils that are not that useful. Basically we will have all the heavy oil we can refine without sending NG prices skyrocketing. As T Boon Pickens has realized we are better off just burning the NG directly its no longer economical to refine the heavy sour crudes.

The reason this is important is because from the big picture Iranian oil is of limited utility without opening up Iranian Natural Gas supplies and in fact heavy oil in general is of little use without a significant new source of NG. Iran has the largest natural gas resources and they are located close to a lot of the worlds heavy sour production so the choice is politically bleak. We would have to help the Iranians develop their NG resources and back off on attacking them on the political side.

http://en.wikipedia.org/wiki/Iran_Natural_Gas_Reserves

So on the energy front we have no use for the Iranian oil without Iranian NG and to get both will require a significant investment from the western nations or china. So its pretty much gotten to and all or non situation. The US would have to eat a LOT of crow on this one.

Needless to say given all the above which is pretty reasonable outside of my suspicions about Ghawar the big picture seems to indicate that a concerted effort to push down oil prices before and attack on Iran before the last and best window of opportunity passes is sensible. You don' have to agree with everything I'm saying just the key points about NG and heavy sour and at least strained light sweet supplies coupled with the nuclear situation. The rest is details.