Oil Price Poll
Posted by Prof. Goose on July 9, 2006 - 12:28pm
Topic: Supply/Production
Tags: oil prices, peak oil, poll [list all tags]
With oil prices around $75/bbl, I think a poll is in order on the future of those prices, as well as a discussion of how and why we're going to get there. With the supply/demand balance and geopolitics as they are, this is a relatively stochastic situation, but I'd like to hear what you all think.
Here's the poll...
As to the poll, it's all about the hurricanes.
But I have changed my view a bit about demand destruction. Before I thought prices could never get to $100.
Now at $3.00 gas demand is still increasing. I guess the question is how far are we willing to go into debt to pay for our current lifestyle?
That area won't suffer the same fate as some other areas will when the gas prices make mortgage payments.
I am of the opinion that we can still go up to $4.00 a gallon if we phase it in slowly like $3.00 has been doing. If its a sharp hit in a few weeks and stays there, it will hurt more than if it goes up and down but finally settles at $4.00.
But I don't drive nearly as much as I did 16 months ago.
One thing is for sure though, they are spending less money on snacks, movies, nights out, etc so the entertainment and luxury businesses are losing out on their $50 a month.
How much of the US economy is based on luxury/entertainment. Is it most commonly the first thing that people stop spending on when their discretionary income drops or do people just pile on the credit card hoping for future relief?
Consumer spend is approx 70% of the US economy, I don't know of any attempt to define consumer discretionary vs staples spend.
Most gas spend is done on credit card, as is a lot of other consumer spend. There will be a lag before increased gas spend affects behavior. Those who pay credit cards off every month will probably make changes in spending behavior quite quickly. Others may let things drift a while before cutting back drastically, yet others will juggle things into probable bankrupcy.
So, the affect of increased energy prices on consumer spend, and hence the US economy, is likely to be gradual.
But while the long range commuters get demand destruction first, as the prices rise, the curve will rise and get steeper like a Hubbert Curve! He gave up a $40,000/year job becuse $6,000/year in gas sunk his truck. (and the gas money is after taxes)
The lesser driving was also mitigated by a public transportation system which was said to be one of the best in Europe. But even so, I didn't use it to drive the 10 miles to work because it would have taken me about 1 hour to get to work from my house on the west side of Aberdeen to the office on the south side. I don't know what pain level would have made me ride the bus, but even $4.50 / gallon wasn't it.
This means that the people who get the money (the oil exporters) can (and will) spend it back into the U.S. economy (or buy bonds). If they don't the dollar would not keep its value. So this means that the money comes back into the U.S. either way!
Only if extracting the oil requires more manual labor (more people to extract a barrel) the economy will be hurt! But since you hear every company screaming that they can not find qualified people I think that the increase in people working in the oil sector is relatively limmited (any data on this?)
How will employing more people in oil extraction hurt the economy?
Once the story hits the MSM, I would expect the price of oil to stay in excess of $100, unless the economy really goes into a deep slump.
More to the point, the commentators have a lot of excellent ammunition. First, the war and weather impacts are keeping lots of oil off the market. Therefore, even if oil production is flattening or begins to fall, that does not prove anything about "peak oil", which is a geological concept. Man-made or natural impacts on production invalidate a short term decline from indicating that oil has peaked in a Hubbertian sense.
Secondly, there is a LOT of new oil production coming on stream over the next 3 years.
Thirdly, the concept of PO as debated on MSM is a confused one that includes production of unconventional oil and other energy products, like bio-fuels. So a true discussion of PO on the MSM is almost impossible to have now.
What I think will have more impact is the increasingly rapid change in mind-set among exporting countries. They are becoming horders, recognizing that if they hold back production, they do not need to sacrafice revenue because price increases will produce the same revenue on lower production. These are the folks who truly do understand PO and who are acting in their best interests which are quite different now that a Peak (at least in sweet crude) is reasonably close to being in sight, if not already here.
Most of the big oil producing countries (with the exception of Norway and Russia) also have fast-growing populations; the political pressure to curtail exports to satisfy (and subsidize) growing domestic demand and provide for future needs could become a larger and larger consideration. Policy changes in exporting countries could dramatically affect the amount of oil available for export, even if total oil reserves or production don't change as dramatically.
This is crucial, in that offshore oil is the only thing which might prolong the "wobbly plateau" and/or keep prices from inexorably rising.
Without a real offshore gush, Deffeyes is probably right about the timing of peak.
Any thoughts on this?
It seems he could omit those few opec countries that were holding excess capacity and compute a world-wide depletion rate for all others, then extend this rate to those omitted. Are his numbers sufficiently detailed to allow others to make this adjustment?
i don't think we will see $60 or below again.
Think US unemployment of 11% in early 2008 as the magnitude required.
I don't see why everyone assumes that economic or political dislocation will equate to lower prices.
Military situations in Central Asia, ME, NK, depletion rates, random acts of catastrophic violence/destruction... the list goes on folks.
All these things will push prices up, if anything.
I'm, of course, biased. I just can't imagine a soft-landing with us humans at the reins. That, and we already once had a massive depression without any help of essential commodity shortages. I inherently have always "believed", since I was a little boy, that the economic system is unstable.
There is a strong resistance level around $50.
However, I perceive $30 as a "floor."
July 5: Occidental Petroleum Corp. will take a $306 million after-tax charge after Ecuador's government seized the company's oil fields there, the company said Wednesday.
Those barrels of light sweet crude are indeed becoming more precious.
Frankly, on the ground, things already seem bad to me. Here in Spokane, more and more storefronts are empty and those remaining are debt collection offices(full to overflowing parking lot), tatoo parlors, nail salons, pawn shops and businesses providing second tier banking/check cashing/payday loans. Less than half of my neighbors work one full-time job...most either only work part-time or work only occasionally. I "consult", but to stay busy I consult in several different fields simultaneously.
People ascribe mythical properties to the oil futures market, which are not borne out by the reality.
I voted: C. prices see $90, before prices reach $60. I think it will be the combo of hurricanes, Mexican vote conflict,and more problems with Iran, Iraq, NK, and Nigeria. Plus the usual depletion overriding all these events.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
And, inspite of our discussions here, society has so many sunk costs I find it unlikely that energy usage is that elastic.
Next go study up on TEOTWAWKI ;]
To Be Fair (2BF), not all of the acronyms we use here are common acronyms