I'm sure it will be just a friendly chat!!!
Posted by Heading Out on December 27, 2005 - 12:28pm
And it is in light of
Demand for oil from OPEC in the second quarter may decline as much as 7 percent to 27.8 million barrels a day on rising temperatures in the Northern Hemisphere, which reduces demand for heating oil, he said then.this ability to curtail supply to ensure price stability that one might be most concerned.
However 2006 has the potential to be the last year that sufficient new projects come on line to match anticipated demand. Thus any momentum that has built, and it is not yet great beyond the United Kingdom, to find a more sustainable answer to international fuel needs will likely not be sustained much this next year. That will lead to another year being lost, more knowledgeable folk leaving the industry and fewer scientists being available or motivated to work on the problem. Perhaps, in such a situation, moves by this new consortium to keep oil prices high may rebound to all our long-term advantage by maintaining the visibility of the issue. And from recent comments that have appeared in the press, one can assume that this time around there will be an agreement that $50 might be a good floor for oil prices.
And one must also expect the unexpected. Hurricanes and other disasters can be anticipated to throw other challenges into the hopper to reduce supply. This will likely, however, be more of an impact in the second half of the year, rather than the second quarter, where demand usually declines. This will likely not stop our colleagues from the other side of the debate, who will once again label us as unreliable doomsayers, and the like, predicting the further fall in the price of oil, and the availability of continued reserves, albeit without the means to readily produce them. One, thus, awaits the collection of forecasts that we can anticipate from the pundits over the next week with interest. It will be interesting to see how many of them will include energy in their crystal balls.
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Ahmad Fahd al-Sabah
Viktor Khristenko Well, that's nearly half the world's supply all in one room! Historically, we know that transparency always goes up when you can sit down together, have a few vodkas, bring out the dancing girls and have, as HO says, a "friendly chat" about almost half the world's supply of hydrocarbon liquids.
I check periodically future prices ( http://futures.tradingcharts.com/marketquotes/index.php3?market=CL ) and the perception of oil peak slowly enters the business:
- The peak of oil price in future trading moved year ahead in two month. This October the maximum price was for June 2006, now it is July 2007.
- The difference between current price and price for December 2011 decreased from 5 to 3 dollars. This difference usually is very stable, much more stable than price itself.
Current price of oil depends on local conditions, like week of warm or cold weather.I think disruption in production make us a favor, it leaves oil for the future. The total amount of oil does not change - if we have a seamless flow of oil today - we will have a steep decline tomorrow.
Igor.
I don't see this happening. If oil prices stay high, as the markets are forecasting at $50+, we will see continued pressure on Western as well as Third World nations to economize and work to develop alternative sources. It seems quite unlikely to me that oil prices will drop much lower than this, both because of pent up demand increases and through OPEC price supports. This price level should be enough to maintain considerable investment in reducing oil dependency.
And there's no way we should expect to see anything less than an acceleration of the response (demand as well as R&D) as people realize, through empirical data, that the "high" prices are here to stay and aren't just a blip.
I realize that a BTU of energy from a nuclear power plant is not the same as a BTU of energy from oil, but nevertheless depletion worldwide--from nuclear and fossil fuels--marches relentlessly on at the rate of the energy equivalent of a billion barrels of oil every five days.
Meanwhile, China and India are industrializing like crazy, rapidly following the American dream (nightmare?) of suburban development.
Philip
I'd probably do a very similar investment to what you are talking about, just one or two contracts, several years out. The main alternative would be to buy some out-of-the-money call options, it would be less money up front and no margin calls, but a greater chance of losing everything. At least with your positions, if oil ends up where it is now you don't lose anything.
Do you mind saying how happy you are with your broker? I'm worried about getting into a relationship where they are trying to get me to churn my account. Like you I would be looking for a buy and hold situation, which is not what futures brokers are used to.
I initially started brokering with Lind-Waldock. Then Refco purchased them, then Refco went bankrupt and The MAN GROUP purchased them, and decided on naming them Lind-Waldock once again. I pay $60/round turn for each contract traded. I've been pressured and have caved to buying close in contracts, but just keep in mind that brokers are salesmen, nothing more. They don't know the market or your strategy. Stick with your strategy, and if you are upfront with your strategy with your broker, they won't harass you everyday. However, when first opening your account, you may want to say that you trade quite a bit, so you get a better trading rate.
Also, you have a great chance of losing everything whether you do options or not. Even if you are long only one contract, every dollar fluctuation in the market represents $1,000 of your money. It's actually possible to buy crude-minis, which represent just $500 of your money, but those are only for the close-in months. You can buy a contract for as little as $10,000, but if the price goes down just $5, they'll liquidate your account and you're screwed. You need to make sure you have enough wiggle room, and that's why I'm only long 1 or 2 contracts, so I can afford it if it goes down 5 or even 10 dollars.
Philip
Just thought it might be helpful - I'm a customer of IB, but have no other affliation. Feel free to ignore!
http://www.channelnewsasia.com/stories/afp_world_business/view/185447/1/.html
Am I wrong?
-Amy
I think you are referring to OPEC lowering production right? I think it is all dependant on the current price. I think OPEC would have a fairly difficult time to cut production when the price is over 60, especially since they just came out with a 45-55 price band (does NOT refer to the CME price). Of course, OPEC is forced to "cut production" if depletion forces them to, and it is likely they will mask their depletion with convenient production cuts.
Either way, I'm curious as to why OPEC is against market transparency. What is in it for them? If they are at their limits, they can't really be blamed for the price of crude. Is the allusion of having control over the price of crude so beneficial?
Philip
Yes, I was referring to OPEC's potential reduction of production---more specifically, though, referring to the snippet in HO's original post and the 7% reduction in demand for OPEC's oil. I should have pasted the relevant bit into my post.
I just don't think we're going to see as much drop in demand this Spring as we sometimes see. I could be wrong, but if the market is made more tight by the refilling of reserves, the price would likely go up.
I suppose we can watch OPEC's production in response to price, especially if the U.S.'s benefactor nations start to refill those reserves this spring, and infer from their actions whether OPEC has real production capacity standing by.
-Amy
Also the chinese will start filling their strategic reserves of refined products.
The survey of 30 analysts' forecasts shows the price of benchmark U.S. light crude oil futures in 2006 will average $57.34 a barrel.
Long-term forecasts showed analysts expect prices to fall nearly $15 in the next five years.
U.S. oil prices were expected to average $42.53 in 2010, with Brent crude seen at $38.45 a barrel.
Analysts' forecasts showed divergence of $25 for 2010.
Goldman Sachs was the highest, forecasting U.S. crude prices would be at $60 a barrel. The lowest forecast from NAB put prices at $35 in 2010.
http://today.reuters.co.uk/news/newsArticle.aspx?type=businessNews&storyID=2005-12-24T055522Z_01 _BAU271017_RTRUKOC_0_UK-ENERGY-PRICE-POLL.xml
Can anyone explain this?
Just because they were wrong before does not demonstrate that they will be wrong next time.
I think the point is that while it doesn't prove they'll be wrong again, it certainly means you place confidence in their predictions at your own risk. There was a recent thread about the fallibility of "experts." It again points out that we need to look at the data ourselves, reach our best conclusions, try to be objective, and realize the "experts" have a very poor record.
There are a host of cognitive errors such as these which have been documented over and over. The great majority of people think they are above average in predictive ability along with many other favorable traits. This is not a joke, it is a documented fact which is a pervasive part of human psychology.
People are not stupid, it's just that there are many areas of discourse and debate where there is no penalty for being wrong, politics being the most obvious. It doesn't matter if you are right or wrong about the war in Iraq because your opinion will not change what happens. It's more important for you in terms of personal success and happiness to have an opinion which makes you look good to other people and feel good about yourself. Evolutionary pressure has driven people to adopt beliefs in these kinds of areas based on social acceptance and not truth vs falsity.
Peak Oil is kind of a special case because in some ways it is a big-picture political question where none of us is in a position to set policy. However there are potential personal impacts where being right or wrong could matter and make a big difference. If someone moves to a commune to escape the collapse of industrial civilization but somehow humanity keeps moving along with business as usual, he may have made a costly mistake. Likewise someone who does not take precautions against a foreseeable peak will find himself much worse off than he might have been. So in this case there are personal decisions that matter.
I tend to believe that people are smart and rational when it counts, so in this area I'd expect that the consensus opinion as revealed by people's actions is a good guide to the truth. So far there is no consensus among the general population that taking precautions against an oil peak is a worthwhile activity. This to me is one more piece of evidence that at least the worst case Peak Oil scenarios are not a near future threat.
There are plenty of examples of people not preparing for a threat and maintaining a collective denial of threat until the dreaded occurs. I would say many more examples of denial and failure to prepare than the contrary. For this reason, and the fact that certain knowlege of peaking is impossible, I don't take people's lack of preparation as indicative that a problem is not coming.
Economists are looking to the past, guessing that higher prices will once again cause switching and bring more product to market. Personally, I think a) geologists are more likely to get this question (future oil supplies) right than economists, and b) i would rather base my bets on Groppe, who has mostly been right, rather than CERA/EIA/IEA, who have all been uniformly wrong, and always in the same direction, over at least the past five years.
And, I do bet, my portfolio is mostly in US e&p's, but I don't depend on higher prices to do well. 50/b is good enough right now to make a lot of money.
I'm WSDave, and I'm new here. I've got several questions about oil, gas, and electricity that PO folks might know something about.
May I proceed, or is this the wrong forum?
Thanks,
WSDave
Some probably would prefer you to ask in the "Open Threads", but many wouldn't have a problem if you asked questions on the diaries, as long as it somewhat relates to the post.
FYI, read back a few months at other posts and comments, this should answer most your questions. TOD the last few months has brought out the best analysis on peak oil on the ENTIRE web. Along with naysayers, putting in their 2 cents.
Mountains of info to dive into.
Thank you for the welcome. I've looked through several of the prior threads and didn't find anything that really dealt with my topic.
I see that Monday was an open thread. How often do those occure?
WSDave
No set schedule. Sometimes once a week, sometimes twice a week...sometimes the week is skipped.
Rick D.
I'll go ahead and post here, since I never know when I'll have the chance otherwise.
We're going to remodel the house and are trying to figure out how to heat it. From what I hear, oil isn't going to drop in price much below what it is now (and certainly not over the 30+ years that we'll be in the house). NG is supposed to drop back to 1/3 to 1/2 what it is now, once the refineries are back online. Electric is supposed to be the most expensive way to heat, but my local power company (in Seattle) has a chart showing that at current prices, electric is as cheap as oil and gas.
This brings up a few questions:
Is NG likely to go down in price? If so, for how long?
Are Nuke plants likely in our future, thus (more or less) maintaining the current price of electric?
Will all of the above solutions be expensive vs. "green" systems (Heat pumps, solar hot water, etc.)?
The house will be about 5,000 sq. ft., with some ability to section off areas, but not a lot. It will have 7 inhabitance (family of 4, plus 2 parents and a grandparent) spread over a basement and three levels (it's got a small footprint, so we have to build up).
So what do y'all think, Gas, Oil, or Electric?
Thank you,
WSDave
Nukes in the Northwest doesn't look promising. Many other sources of electricity should be coming on-line. A few biomass plants, a gas-fired near Longview, and lots of wind turbines on the drawing board. I beleive Seattle has a wind program, it may cost a few dollars more every month, but I think it's worth it.
It looks like the summary of your response is that, since we have ways to make renewable electricity, it will (in the long run at least) be the cheapest and largest supplying fuel.
Do I have that right?
It has the added benifit of being easy to transport to and through the structure (after all, it's just power lines that I'd need some of anyway). A heat pump will need some ducting, but from what I've read, it couldn't supply the whole house anyway.
WSDave
The natural gas supply for the Northwest does not look good. It all comes from Canada, they are having their own problems with decline rates and Tar sand production. If it was to compete with electricity, it would have to be brought in via LNG from Russia, even then I don't think it could compete with electricity. Some of Seattle's electricity comes from one nuclear plant, some hydro, some biomass and coal. If you want to buy wind power it's a bit more expensive, (2-5$ more a month) the more people that sign up for wind, the more turbines are built in Eastern Washington.
I don't think oil will ever be able to compete with electricity in the NW.
As for heat pumps, here is some info from the City.
There are other tips as well on their site.
I really like the looks of this company's products, but I haven't had a chance to work with them myself yet. 6" of foam at R-5/inch would give you R-30 (with no thermal bridging by studs), the materials are insect- and rot-proof, and the strength of the structure would keep your house standing even if Seattle has another quake. The two things you wouldn't be protected from are tsunamis and lahars.
The wall panels look intersting, and certainly R-30 is never a bad thing. As for flooding, were at 212' above sea level, so that not a concern (if WE get flooded, things are REALLY bad!). Nor does Seattle get much snow, from a weight standpoint.
Here is another company I have been meaning to check out:
http://www.solar-components.com/quilts.htm
Essentially insulated heavy drapes for the windows that have magnetic strips along the edge so that you can get a good seal.
I ran some numbers for my house and by far the most energy loss comes from the windows. The house is relatively new (2000).
The company in the link above just sells materials - you need a sewing machine to put it together. I might just see if I can find some place that makes them finished.
In other words, they're guessing how traders will react when they're, in turn, guessing how all the other traders will react.
I'm not yet convinced that you can make a solid case for even this limited price drop and for even this kind of artificial reason. The period that has my attention right now is mid- to late-spring of 2006, the time of year when gasoline prices typically peak in the US. If prices stay more or less flat from now until then, and then we get a normal (or larger) rise, I think it will be a strong sign that we've settled at a new baseline price for oil and that the mid-term declines are very unlikely.
Here are my predictions (WTI quarterly per barrel averages) based on nothing more than guessing.
1Q06 $64
2Q $62
3Q $76
4Q $74
We'll see how good these guesses turn out! :)
Prices have exhibited a steady upward trend, doubling from about $30 in Oct 03 to about $60 2 years later. On top of this trend there has been a zig-zagging trend of increasing amplitude and period, the latest peaks and troughs being:
$53 - Oct 04
$41 - Dec 04
$57 - Mar 05
$47 - May 05
$71 - Aug 05
$56 - Nov 05
Based on this I expect to see:
$80 - Mar 06
$63 - Jul 06
$90 - Oct 06
...but we shall see!
It was the same thing with interest rates in the 1980s and 1990s - everyone made a prediction where they would be a year out and 90% of the time some event occured that no one expected and they were all wrong. In fact, I cant reference the study right now, but if you took the average wall st consensus regarding economic predictions a year out vs today, and bet the opposite, you made money around 70% of the time. I expect oil will be no different. People are conditioned to expect things to be like they are today. 3 standard deviation events (or 5-7 sd events like Peak Oil) are not how wall st makes its bread and butter.
Re 2011: My sense is that the forecasts for lower prices in 2011 are primarily based on data which is questionable -USGS, IEA, Saudis etc with aggressive assumptions on depletion rates (e.g low). Doomers AND cornucpians both suffer from lack of transparent data. Myself - I recognize the potential for significantly higher prices or slightly lower prices, but I will follow what the market tells me - right now trend is lower.
http://www.oilnergy.com/1opost.htm
The most unlikely graph for the next 6 years would be a flat horizontal line, despite what the futures market says. The other possibilities are (a) that we are at a price spike and prices will fall away, or (b) prices will just keep going up at about 35% a year. I find (b) more likely.
I did an analysis yesterday that found that the market saw a 50% chance for December 2006 oil in the 49-71 $/bbl range. Anything within that band would be very consistent with the market prediction and there is even a 50-50 chance of moving outside that band. As we move out to longer time frames the band widens and the market sees even greater uncertainty in prices.
But when you look at the graph of prices since 1999 ( http://www.oilnergy.com/1opost.htm ) you would find it very hard to argue that price should do anything other than just keep rising. Irrespective of whether you think the reason is "peak oil" or just tight supply in the face of increasing demand from China, India and the US, prices have risen consistently for 6 years. Oil still seeems very cheap in an absolute sense, demand is proving very inelastic and global economies are growing as fast as ever.
I think price will keep rising at its current rate of 35% per year until something gives way. That "something" may be a global recession, $US hyperinflation or worse.
http://www.theoildrum.com/comments/2005/12/8/114224/263/12#12
The secret is that today's price also predicts the future price, and I elaborate on that in my post linked above.
As far as price trends, I don't think you can say that just because we have had five years of increases, that means it will keep going up. (And actually the WTI price apparently decreased from 2001 to 2002 so we really only have four straight years of increases.) There may be other reasons to believe that prices will continue to rise, and you can certainly find many of them offered in the discussions here, but straight extrapolation of a four year trend is not that reliable.
It is odd though. The trend since 2002 has been so strongly upwards that it is very hard to see anything other than a continuation. I know that bubbles develop in markets (e.g. the dotcom boom/bust) but oil is just a basic commodity. I know that speculation plays a part but I find it very hard to believe that a 4 year bull run could be founded on speculation alone.
I read an article recently which suggested that the "real" level of $ inflation could be better judged from the gold price than the RPI figures. Gold has risen from about $330 to $515 in the last 3 years, about 17% per year. I wonder what this says about the real price of oil and the real value of the $ ?
http://us.newsfutures.com/
You can bet on the outcome: Oil futures will close at $65 or above before dipping to $55. Right now there are 4533 contracts held by players and the last trade was at X$21. In other words for X$21 someone bought a contract that pays X$100 if oil (next month future price) goes to $65; if it goes to $55 first it pays nothing.
That notion may be an illusion.
The fact that the US is a major oil importer (whose fraction of imported oil grows larger by the year) and Russia is a major oil exporter gives Russia a huge natural geopolitical advantage. That advantage is manifested not only in Russia's being energy independent but also in the political leverage Russia can exert upon those countries dependent on its oil and gas, e.g., much of Europe. And don't think Russia will hesitate to use the 'oil weapon' if things get dicey with the US regarding our attempt to dominate the Middle East. And unlike Iraq (and maybe before too long, Iran), the US is not about to attempt to 'liberate' Russia.
I predict that Russia will get increasingly bold in its foreign policy, the main goal of which will be to permanently disabuse the US of any Illusions that it can take control of Middle Eastern and Central Asian oil.
And unlike with Middle Eastern countries, their economic interests directly challenge ours. China is motivated by resource limitations and Russia by geography (which hasn't changed since the time of Peter the Great).
As I pointed out earlier, Russia enjoys a big advantage over the US in that it is a net exporter of oil while the US is a net importer. All the trends point to the US having to increase the amount of oil it imports. At the same time, growing internal demand may force Russia to decrease its exports. So, we are liable to be squeezed from both ends.
http://business.timesonline.co.uk/article/0,,9072-1959462,00.html
Europe is assuming that it can ramp up gas supplies from Russia, but I have also read articles suggesting that Russia may decide, very sensibly, to choke off supply and conserve its resources for the future.
There is no doubt about it - countries with depleting and exhausted energy reserves will have an unfamiliarly weak hand to play as the century unfolds. This will be a big problem because major competing players such as China and Russia are able to present very coherent national policies through strong central government in a way that laisse-faire capitalist economies have never been able to do.
One has to look at US behavior from outside. Rightly or wrongly the US is seen as a tyrant of economic imperialism, ripping off poorer nations for selfish greed, and willing to use economic power, subversion and military force to maintain their postion. China and Russia also realise that the US must be brought to its economic knees before global markets will be more fair to them - this is probably the long game they will play.
China has built sufficient US treasury resources to create a US$ crisis when it suits them but first they need to use the US consumers to finance their economic development until chinese and other consumers can replace them. They will pull the plug on the US$ someday, at an opportune (for them) moment.
Russia has resources, particularly oil and gas. The govt has effectively taken control of most of these. There are some signs that Russia will not exploit its oil reserves as rapidly as it could, holding them back to protect its economic development when most major nations are desperate for oil. They will likely provide a certain amount of oil and gas to Europe and China as a means of keeping them on its side should the US threaten Russia.
The US will be standing more or less alone (it's hard to see UK behaving as it did over Iraq in future) and it has only its own heavy handed foreign policy and greed to blame. I honestly cannot see any easy way out of this for the US without turning most US policy (foreign, fiscal, economic, military, energy...) on its head.
Were you aware that the US spends about as much on its military as the rest of this world spends on military forces? That, alone, gives an indication of US strategy. You want to save the US? then halve the military budget and spend that on becoming energy independent.
Off at a slight tangent, I found this study into the energy payback of wind power. It analyses the full lifetime energy budget of a wind turbine and comes up with a suprisingly positive result. I have often wondered whether a wind turbine could generate enough energy to even build another one! This report indicates I was being too pessimistic - surely this is the route to energy independence?
http://www.windpower.org/en/tour/env/enpaybk.htm