Oil Price Poll 3
Posted by Prof. Goose on September 16, 2006 - 7:59pm
Topic: Miscellaneous
Tags: oil prices, peak oil, poll [list all tags]
With oil prices around $63/bbl and news of reduced demand in the DrumBeat today, it's time for another poll: where are oil prices heading in the next two months?
(here's a link to our first poll from a while back, and here's a link to the second poll, where only 2% of those responding answered prices would "reach $63/bbl before they reach $83/bbl"...). Poll under the fold.
If big oil is going to bring Jack 2 online the price of a barrel should be more like $95.
a) OPEC didn't seem to have any ability to halt oil moving to $78, a point far above which all conventional wisdom over the last three years said was too high. And a point $5 above the $73 listed in this poll and
b) if oil starts moving towards $53 from the current $63, I doubt OPEC could cut production fast enough in the given timeframe to stem the decrease. They would have to frighten the market by threatening huge cuts.
My guess is that the spread of opinions in this poll will be more evenly distributed among the three options. We've already seen $73. We've spent a good part of the year there. I don't think it's much of a stretch. I would have liked to have seen a $30 spread instead of the $20 one. Pick a card, any card.
$53 oil, ur pulling my chain, lol, it ain't going there. A $15 spread implies a low of $48-, that is seriously silly and highly unlikely.
Every Thursday, Bloomberg conducts a poll of about 40 to 50 oil analysts, with the question will oil rise, fall, or stay the same. I tracked it fairly closely for about 4 months one time. I found that the majority was right about 33% of the time. In other words, you may as well tack the options to the wall and have a monkey throw a dart at them over its shoulder.
I picked $53 - $73. While I think there is a very good likelihood that it will break past either or both in the next two months, I think it is about 80% likely that it ends up or averages in this range.
For more specific guesswork, I would say the price will say where it is or even drop in the next few weeks, then at some point climb back up to previous highs. Might take more than two months though.
I've marked in red the 12 times since the beginning of 2004 that oil has moved in either direction by $10 or more within 2 months. Some of these moves occured in as little as a month.
The next question is, how many times has it traded in a $20 band for 2 full months?
I'll be the 9th one to pick the $53 option, with the caveat that like SAT I am not particularly fond of the phrasing. I think that the chances of hitting either extreme (combined) are double that of trading in this $20 range. I think the distribution should be 33%-33%-33% instead of the current 10%-60%-30%.
I wanted to do more than "up" or "down" from today. That's not very interesting. So, I had to pick a time horizon and some sort of constraint.
If you wanted a 33-33-33 distribution, the middle range would have had to have been smaller, not larger, right?
so, perhaps a better way would be, "which is the next price point we hit," or something like that?
Yeah, like maybe 5 price ranges instead of 3.
I'd choose between $0 and $infinity. I'd be guaranteed a gloat for being correct. Unless of course they have to start paying to have it hauled away. So I guess I'd have to make it $-infinity to $+infinity for a 100% guarantee.
To me this poll has two different things: there's the "range" and the "which one first." It would seem better to separate the two, have one that asks about ranges, but still ask which specific amount is likely to be reached first. Then there's a more nitpicky thing about "remaining in $## - $## range"...is it nullified if it steps out of that range just once? Or is it valid if it stays in that range 95% of the time?
Hang on there, Big Guy. OPEC has some control on the pricing low end but none on the high end...
best --
"We both agree, they don't have that kind of control over production & pricing."
Well, I am glad you two agree, but allow me to say I sure as helll don't! :-)
We have spent the last ten plus years being told that OPEC was the "swing producer", the "pivot point" the focus fo the oil world....and now, all of a sudden, they have no power over pricing/production????
That boggles the mind. And moreso if you accept that the North Sea and Mexico are essentially peaked. If OPEC were to back production off, what "swing producer" then would step in and make up the production (and remember, I have more faith in non-OPEC production than the peakers do, and am baffled by this logic!)
It gets even more focused, to my view if you you accept any concept of world peak. Simmons logic goes that as Ghawar goes so goes Saudi, and as Saudi goes, so goes OPEC, and as OPEC goes, so goes the world....this would make the control of price centered not around OPEC, Saudi Arabia, but instead around Ghawar...I think Saudi Arabia has almost ABSOLUTE control over price if they should risk/be willing/desire to use it. ABSOLUTE.
So what would lead to this wild perception that they don't? I can find only one thing....the belief, that came only from the Saudi Arabians own lips, that they did not want oil in the $70 dollar a barrel range, but shucky darn, dag gone it, it went there anyway!
What a ruse. I do not think for ONE SECOND the Saudi's minded oil going into the $70's, or frankly, it would not have gone into the $70's. I think anything under $100 would have suited them fine. The demand side was and is the only control valve until new oil comes on, some non-OPEC, and the rest, of course, OPEC and Saudi, which assures them control of price production as it has been since 1970 with that one bothersome little pest, the North Sea. That has been the only swing producer large enough, and for a time, reliable enough to mess with their monopoly. But it looks like those days are gone.
Where to now?
Laying aside for now radical changes in consuption of ALL energy by way of advanced technology (that is coming, but it will take at least 5 to 10 years to really get into the system, at which point it will be BIG beyone belief), for now, natural gas is the competitor. GTL, CNG, LNG, and LPG, that alphabet soup that is a thorn to crude oil producers, acts a s counterweight in the short term, nothing else.
So what price? Well, anything above $50 is well above the historical mean, I could see us touching that long enough to lull ourselves to sleep...but not real long. Then back to mid to high 60's for next summer, and everything else depends on war, weather, and price speculation. But the tide is turning very, very fast...we have maybe a half decade to whether this idiotic paradigm, before we demonstrate why the world invented applied science and technology, and artful design. the hackers and the kids are coming, and to them, limits on efficiency are just games to pushed around, and the barriers to be knocked down. This is gong to be fun, is there anyway us old guys can get back in there and play? :-)
Roger Conner known to you as ThatsItImout
http://energybulletin.net/4746.html
Manipulation of supply through the SPR and refinery product will have to come to an end. Once the economy ticks up in the next two months leading to mid-term elections, the yahoos who had been ready to vote their gas tanks and toss the bums (Repugnicans) out will have a change of heart and put the weasels securely in charge for another thrilling two years. Once that happens, back to the Iran problem. Look out for falling nukes! Look out for the Cantarell collapse. Look out for a China that no longer needs the US to ensure its economy. The US will drift into a curious position much like that of the USSR when we successfully bankrupted them. The US will be the next victim of that tactic. Meanwhile, the elites will put their money in safe havens and move away from what is fast becoming just another third world country. Secure in their hideouts, the conservative elites will watch as Joe Sixpack and Susie WalMart scrabble ever harder to make ends meet. The elites will chortle in glee at the irony of these common folk protesting abortion, stem cell research, gays, and them dang liberals. (They hate them edumuhcated liberals you know, always telling us 'Merkins to use our vote to get healthcare, good wages, free edumuhcation, and clean air, water and all that other commie bullshit). As the repugnicans clink their brandy snifters together and tell us once again that it is our own fault the US is in default, ruined, poisoned, and sick, and certainly not their fault, the rest of the world will finally get a chance to taste of the American dream. Too bad it will poison them as well.
Then comes the rising seas, the encroaching deserts, the famine. We bunch up at the poles, what few are left, and we pray that we can survive, for another day, or two.
By then a few will realize that arguing about when or how fast it would run out had been absurd, and that what was important was the certain knowledge that it will and that we had only one choice and one chance -- to change, to rationally reduce population growth, or face the limits to growth having squandered the very thing that could have saved us.
Oh, well.
Thanks.
That is all the time I've been allotted.
At this point the cornucopians and techno-lovers will give a lecture on why up is down and left is right if we use BRAND X !!!!! TECHNOLOGEE .
Again, thanks for your time.
Goodnight. Don't forget to turn out the lights on your way out.
I picked the middle choice because the world economy is still adjusting to the new, higher equilibrium range. OPEC & Russia are strongly incentivized to cut production if prices start to drop. Consumers will unwillingly cut their consumption only so fast, but any further price decrease will only rapidly juice the Energy Fiesta.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
China is still preparing to build and fill its 1 billion barrel strategic petroleum reserve:
http://www.easybourse.com/Website/dynamic/News.php?NewsID=53728&lang=fra&NewsRubrique=2
As far as I know, they aim to start filling soon and build up the reserve over about five years. That's an additional demand of 600,000 barrels per day - on top of the heady economic growth demands they already have.
Take a look at the insert in the Economist about the world-changing growth of the developing nations as they begin to eclipse the "rich" West. By one measure, during this last year the developing nations surpassed the rich ones in total GDP. The further growth trends are alarming. Unfortunately, the authors assume the same kind of growth trajectory for the developing as once was the case for the developed nations, ignoring the soon-to-be-encountered insurmountable wall-- aka energy scarcity.
US is about 25% world GDP. Europe as a whole about another 25%. Japan c. 10%. Canada, Australia and New Zealand another 2-3%. So 60-65% GDP is in the Usual Suspects.
Even if you revalue China's GDP for exchange rates, it's not huge (about 2.5 trillion at official exchange rates, or about 1/6th of the US, I believe).
Depends in part where you put Taiwan, South Korea, Singapore, as the 'developing' countries which are, in fact, 'developed'.
http://www.economist.com/surveys/displaystory.cfm?story_id=7877959
From the leader (page 9 in Asian edition):
oops my numbers were out of date. Although I find that China number high, for a number of reasons (go there: this isn't a country that feels like it has a per capita income of $6800-- the average urban worker makes less than $2000 per year).
Rank Order - GDP (purchasing power parity)
Countries for which no information is available are not included in this list.
Rank Country GDP (purchasing power parity) Date of Information
1 World $ 60,710,000,000,000 2005 est.
2 United States $ 12,360,000,000,000 2005 est.
3 European Union $ 12,180,000,000,000 2005 est.
4 China $ 8,859,000,000,000 2005 est.
5 Japan $ 4,018,000,000,000 2005 est.
6 India $ 3,611,000,000,000 2005 est.
7 Germany $ 2,504,000,000,000 2005 est.
8 United Kingdom $ 1,830,000,000,000 2005 est.
9 France $ 1,816,000,000,000 2005 est.
10 Italy $ 1,698,000,000,000 2005 est.
11 Russia $ 1,589,000,000,000 2005 est.
12 Brazil $ 1,556,000,000,000 2005 est.
13 Canada $ 1,114,000,000,000 2005 est.
14 Mexico $ 1,067,000,000,000 2005 est.
15 Spain $ 1,029,000,000,000 2005 est.
16 Korea, South $ 965,300,000,000 2005 est.
17 Indonesia $ 865,600,000,000 2005 est.
18 Australia $ 640,100,000,000 2005 est.
19 Taiwan $ 631,200,000,000 2005 est.
20 Turkey $ 572,000,000,000 2005 est.
Interestingly enough looks like TOD is not too far off from these odds. It's pretty unusual for the team around here to agree with the market! Next thing we know everyone will start saying nice things about economists...
I, and others, have pointed this out to your before, and Oil CEO now says it in as plain language as I can recall - what the market "believes" usually has little bearing on what actually occurs with regards to oil pricing, especially as you get further out in time. Yet you continue to defer to the market about future price when the market has been wrong again and again and again.
As far as accuracy, yes, markets are often wrong - the future is inherently hard to predict. In this particular poll though we are really asking about volatility. What are the odds that the price will stay within a certain range?
According to Jim Hamilton at:
http://www.econbrowser.com/archives/2005/07/100_a_barrel_wh.html
oil volatility has been in the range of 29% to 36% per year for the past 30 years (and towards the high end more recently). Over a two month period there's not much difference between the low and high end of this range. This means that the market has been historically pretty accurate in forecasting the probabilities of these kinds of price moves. If the volatility were jumping all over the place then accurate forecasts would be impossible, but given that it is staying within this range then the degree of variation is quite predictable on the average.
You seem to be confusing 40-50 experts with the market. The experts there are just like us experts here. People with guesses.
The "market" in this context would be the futures market. Neither Halfin or anyone is claiming that the market can predict prices accurately. Again, since you seem to be having so much trouble with this:
In fact prediction, especially in fairly active markets, is virtually impossible. The futures markets have made millions of predicts about prices 24 hours a day for decades. So of course, markets have been wrong. But they have a public track record that can be followed and analyzed.
Broadly speaking the claim that I think Halfin is making is that markets are more accurate over time and over instance than any other single method of prediction.
One more time:
I think the only reason you have so much trouble with this is a kneejerk reaction to "markets" that makes everything else go red. All a market is is a huge number of people making predictions, in which they need to put money behind.
http://www.abc.net.au/insidebusiness/content/2006/s1742710.htm
Interestingly, he confirms climate change is real and the best thing to do for both CC and PO is to institute a drive for efficiencies. He also seems to confirm problems remain for 'conventional' crude in 'conventional' locations.
In terms of prices he was very cagey but suggested $40-50 (a la Lord Browne from BP?):
http://en.wikipedia.org/wiki/F-distribution tweaked and re-centred to zero. That way you could easily say up $10 is as likely as down $5.
All I'll say is I think $60 is the short term rebound price and $150 after inflation adjustment is the long term rebound price.
As I have stated before, I think that this model and its implications for oil importing countries are underappreciated.
The graph:
http://static.flickr.com/97/240076673_494160e1a0_o.png
WestTexas's quote:
Jack's response:
I disputed Jack's point of view, arguing that the windfall oil revenues in Saudi Arabia (if it even makes sense to speak of windfall revenues, since they're likely to be permanent), were being leveraged, through economic diversification, in a way which made a future curtailing of domestic demand implausible.
Here are some interesting articles which illustrate what i'm talking about:
http://www.ameinfo.com/89954.html
http://www.ameinfo.com/85533.html
http://www.ameinfo.com/87830.html
http://www.ameinfo.com/92511.html
http://www.ameinfo.com/75318.html
http://www.ameinfo.com/65654.html
My conclusion: the Saudi diversification program (which, by the way, was modeled to a large degree on the wildly successful UAE diversification program) combined with greatly increased foreign direct investment due to SA's recent entry into the WTO and the accompanying economic liberalization, will likely cause the kingdom's future domestic consumption numbers to be revised up, not down, in coming years.
As WestTexas has rightly pointed out, the increased domestic consumption of exporting countries, especially if combined with peak oil, will have dramatic consequences in importing countries like the U.S..
I think oil will hit $57 about two months from now. I don't think it will ever hit $53. It'll hit $73 soon enough, but not until maybe five or six months from now. I wouldn't call what we're in right now a trading range, though. By the time we get down to where I think we're going, we'll have seen a fairly serious bull market correction of more than 30%.
BTW, I do agree with you that the ME nations are at least attempting to use their windfall in a more productive manner than they did back in the 70s...
I definitely see a difference between oil money going towards diversification and oil money going towards subsidies, but I think most of these countries will be so flush with cash that they will continue to be able to do both. As I noted in a post below, it's hard for me to imagine any scenario where Saudi oil revenues don't continue to go up. Even if their own oil production peaks, prices will spike to the point that they will still be raking in record revenues. So I don't really buy the unrest scenario.