The big banks are back in print about "Peak Oil". Raymond James, Goldman "The Anti-Christ" Sachs, Barclays, Bank America et al are back on the beat.
Bank of America and Barclays Capital, two leading oil traders, have told clients to brace for crude above $100 (£64) a barrel by next year, before it pushes relentlessly higher over the decade. This is a stark contrast from recessions in the 1980s and 1990s, when it took years to work off excess drilling capacity built in the boom.
"Oil has the potential to flirt with $100 this year. We forecast an average price of $137 by 2015," said Amrita Sen, an oil expert at BarCap. The price has doubled to $78 in the last year.
"The groundwork for the next sustained step up in oil prices is now almost complete. Global spare capacity is likely to be reduced to low levels within a relatively short time. The global economic crisis has postponed, but not cancelled, a crunch which would otherwise be starting to bite now," said Barclays.
Their arguments are well presented in the article. Better late than never.
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Soc Gen's boss is out saying the breakup of the European Union is inevitable, and of course its inevitable. Europe's generous social programs will bring them to ruin just as the U.S. social programs and military budget will bring us to wish we never heard of FDR (Europe did not have the U.S.'s entrenched underclass to contend with, so they grew one.)
The U.S. should not be so smug, either, about Europe's break up. "There, but for the grace of G-d, go I"; or us.
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Ron Paul leads the pack in today's Republican straw poll. For those of you that have been reading me for awhile I was an early supporter of Congressman Paul last time around. Not that I think he has a shot at the nomination for 2012, but its nice to think about it...
Anyway, I got an email from a friend of mine with similar political leanings today:
A $50 Lesson
I recently asked my friends' little girl what she wanted to be when she grows up. She said she wanted to be President some day.
Both of her parents, liberal Democrats, were standing there, so I asked her, “If you were President what would be the first thing you would do?”
She replied, “I'd give food and houses to all the homeless people.”
Her parents beamed with pride.
“Wow...what a worthy goal.” I told her, “But you don't have to wait until you're President to do that. You can come over to my house tomorrow and mow the lawn, pull weeds, and sweep my yard, and I'll pay you $50. Then I'll take you over to the grocery store where the homeless guy hangs out, and you can give him the $50 to use toward food and a new house.”
She thought that over for a few seconds, then she looked me straight in the eye and asked, “Why doesn't the homeless guy come over and do the work, and you can just pay him the $50?”
I said, “Welcome to the Republican Party.”
Her parents still aren't speaking to me.
The Cheap Oil Free Lunch Extravaganza is going to come to a screeching halt in the near future. If you really want to help your fellow man, you will help him learn to provide for himself because he is really, really, really going to have to. Or else. Those stories in the media about "jacking the age" for social security and medicare benefits are not some figment of your imagination. Collapse of SS and Medicare does not mean 100% no more payments. Taking away 50% of the promised payments qualifies as collapse for me, and for the MORONS on the economic Left to claim that Social Security and Medicare was SAVED (HAHAHAHHA ROFL!!) by reneging on a contract made with people that have already PAID is just a TAD disingenuous...
In the mean time... Relax and enjoy! We've got crazy people flying planes into government buildings and nutty professors sending Anthrax to gain funding... both these guys killed themselves but felt the need to take a few innocents with them... At the base of their insane motivations are some pretty outrageous expectations, I would be willing to wager. This is no time to "rage against the machine". For myself I am going, as I always have, to pay my taxes on time, obey the law right down to things like the speed limit, and do my best not piss anybody off. People seem just a bit stressed at the moment... I wouldn't have wanted to get into a road rage incident with the "IRS pilot"... he probably wouldn't have thought too much about blowing somebody away on his way to the airport, if you catch my drift... It is nice to be nice!
25 comments:
Wow, what a completely excellent post. 'Love that email too!
Europe is completely screwed. I first realized that when the Russia/Europe natural gas wars were running wild a few Decembers ago. Britain is especially doomed, never even mind the EU financial crises. After all, what the hell is Britain going to do with all those people on the island, all those houses, basically no more coal, and now, not enough natural gas? I mean, this heating crisis of theirs is just a few years away - tops. As for food, maybe they're situated a bit better with that, or maybe not, I dunno. But in general, I am SO glad I'm not living in Great Britain.
Something for everyone ....
1) Oil will NOT stay above $100 a barrel for long, as the economy will not tolerate it. It went to $147 briefly in 2008 because of speculation, and came crashing down just as fast. Businesses and citizens cannot support $100 barrels, so demand will come down and oil prices will come down. We've already seen it happen in '08.
2) I've been following peak oil since early 2006, starting with "The Long Emergency." While there has always been lots of commentary on oil supply, very few writers ever talked much about oil demand, and certainly not about the noteable drop in world oil demand these past two years (from 87 million barrels per day to 83 mbpd). Demand has a LOT to do with peak oil, and explains why we are overflowing in oil and natural gas right now. Oil supply may be constrained, but demand is constrained even more.
3) If Ron Paul ever gets any traction, it will be because of the "Obama kids" (college kids mostly) that knew they were screwed and suddenly became "political." They are essential. And by my estimation, the Obama kids are abandoning Obama, so they may be available for votes (as much as I think Libertarianism is a big wish). Downtown Chicago has had at least one small "Audit The Fed" march by college kids that I witnessed.
4) As a Federal employee, I have to admit I felt for the pilot who crashed his plane. I did feel a small twinge of sympathy for him. But then I thought .. just how much of the pilot's anger was based on fact? How much REAL IRS persecution really occurred? Hmmmm ...
Bur:
I have NO sympathy for murderers. Period. Especially, those that murder completely unknown, innocent of offense folks in cold blood in order to make a point.
The IRS pilot, the Anthrax professor, the guy that shot the abortion doctor (and I do not support abortion)... who left these guys in charge to play G-d? Clearly they were/are mentally ill... any sane person realizes that we will all be dead soon enough. Its a funny old world. Best to keep your head down and do your best to be happy with what you have.
On your Peak Oil analysis...
I think it needs work. I believe that if you put your system of analysis to the test in the markets you will lose all of your money. Its OK to have your opinions.... but I would not bet on them if I were you.
For my money, I am looking for something that may not or has not materialized yet - a sell off in Oil. If it comes, and the curve flattens, I am going to make my move. You can take the other side of the trade if you like.
I thought with oil it was important to pay attention to the lows, not the high. In the mist of a painful recession, oil is priced at $79.81. Please correct me if I'm wrong but I've read research that in past recessions, the price of oil dropped lower than half its previous high and did not recoup to over half during said recession. I understood that our current low high of nearly $80 a barrel is what made 'this time different.'
I took Mad Scientist's trade advice (on EVEP) and missed substantial gains. You better than he is, I hope? :)
A debt-impaired, asset-bubbled world economy can't use as much energy -- no way. Prices are going to go down for energy. Demand drop will lead supply drop.
Bur, I *kind* of agree with your thoughts on oil prices. They might not stay "high" long, but really, what is "high" for oil?
In an economy perennially in the toilet, oil prices could stay under $1xx I suppose, but then again, are "low" oil prices really low to a people and economy completely broke and impoverished?
Any way you cut it, oil won't be affordable any more, even if the price is closer to $100 than $200, and even IF so many oil storage tanks in Cushing, OK are still 70% full.
In the end, the world pumped about 87M bbl/day at one point, and it now looks like it never will reach that daily number again. People will be poor and they'll suffer, all because the cheap oil is gone. Whether it happens at a nominal $100, $200 or $300 matters only to traders really.
As Greg's story link mentions, the US market no longer sets world oil prices either, so I don't even think it matters much what the NYMEX/Cushing storage condition is. Oil bound for China doesn't come within 3000 miles of Cushing.
Your constant optimistic tone is politically palatable in some circles I'm sure, but overall, it's not very realistic either.
Bur,
The problem I see with your logic is that you are holding everything but the price of oil constant, it isn’t. Each time it runs up the weaker players gets creamed and they will not return to their old habits anytime soon, even if they want to. Thus, each run up in price assaults stronger players and eventually the price will stick.
For example, the guy who ran out and bought a house he couldn’t afford with 100% debt financing because he could make the minimum payment, and he wanted it, then took out a HELOC to buy toys is already purged, or being purged, form the system. After his beemer got repoed he couldn’t get another loan so now is driving a $500 hooptie he paid cash for and living in a cheaper apartment, with his parents, or perhaps in the aforementioned car. His standard of living so adjusted he can now withstand a higher fuel price before getting beat down further. On the other hand some who made more prudent choices to begin with could already withstand a higher oil price.
While some stronger players will become weaker by burning through savings to maintain their standard of living or loosing their source of income; the general thrust will be to cull the heard and strengthen the ability to withstand rising fuel costs. It’s natural selection in action.
That little email has me lmao. I read it to my wife and she almost fell over while giving my daughter a bath. Thanks. I have been reading your blog for almost 2 yrs and love it. Keep up the good work.
Bur, from IEA, demand is forecast to be back at 86.5mbpd this year:
Forecast global oil demand is revised up 170 kb/d for 2010 as more robust IMF GDP projections are partly offset by a higher price assumption and persistently weak OECD oil demand. Global oil demand is estimated at 84.9 mb/d in 2009 (-1.5% or -1.3 mb/d year-on-year) and 86.5 mb/d in 2010 (+1.8% or +1.6 mb/d versus 2009), with growth entirely in non-OECD countries.
Investors like me are optimists. We are optimistic that things will go up, so we bet on that. We are optimistic that things will go down, and then we bet THAT way. :)
Sorry, guys, but the world isn't coming to an end, The "China & the European Union" thing cannot last, and the world, by any other name, is in a deflationary depression, and has been like this every 75 years or so. We're going to have to live differently, and prices will be higher, but we will survive.
Bur:
Whoever said the world was coming to an end?
In the need of old men to be heard after so many years of being hushed by their family, I really think some of these guys out there WANT the world to end, if only to show everyone that their paranoia all this time and their stockpiling of gold and ammo was not for naught. There are countless examples throughtout history of "we had to burn the village in order to save it" nonsense. If the world were to end, that would sure show those rascals we were right! ... right?
"rascals" being "the public."
Gregg,
Considering what Stephen said about so many people in Brittan: The BBC reports that there are 61.6 million people living on 93,638sq miles or slightly more than one person per acre. How much of that land is arable? There is the sea, but there isn’t as much cod as there use to be and getting enough can be problematic.
It will not be the end of the world; but, it will be the end for a disturbingly large number of people around the globe. I wonder how many people do nothing to mitigate, and possibly seal their fate, because their governments tell them everything is under control.
It doesn’t look so bad to us because, once again, we have been spared the worst of it by geography.
Lots of points here to comment on.
Yes, Britain is better off for not being in the Euro because we've been able to devalue quietly by 30% and will probably continue to do so in real terms. Trouble is, if there's a 'race to the bottom' between the Euro, Dollar, Pound and Yen, our devaluations won't give us competitive advantage and any benefit won't show! But the oil price will just continue to climb; inflation is just a devaluation of money.
As for Britain being crowded, yes it is. But it still produces 80% of its own oil and gas, and the land is remarkably productive; good soil, good rainfall, good climate. That's why it was the first rich industrialised country. And its an island - have you guys looked at your southern border recently?
But also a lot of the UK population are immigrant, and I think if things get really difficult there, many will go back to Eastern Europe, India and Asia, especially if the opportunities improve there.
Stephen B; Europe isn't one country. France and Scandinavia is strong and reasonably healthy, Greece and Iberia are poor (and always have been). The problem of the Euro-zone was a single currency with different fiscal policies and economies. A failed experiment, shortly to be dismantled (probably in a hurry!)
Bur; Regarding oil price, I say again that a gallon of petrol has the energy content of 8 weeks of labour. So if a gallon of petrol is, say, 4$ and 8 weeks of labour is $1,800 at minimum wage, oil price can go up a LONG way before you employ people over machines to farm or make things. I reckon $400-$500 a barrel EASY.
Lastly BKLYN, oil price is still going up because the oil market hasn't collapsed; China and India will take every drop they can, and they're using it to build infrastructure and manufacturing, not just to blow it driving around, killing foreigners or consumer crap. They're investing; mostly in stuff that will continue to use MORE oil. So you tell me where oil price is going next.
Recent Headline: With U.S. demand in retreat, Saudi Arabia looks to China
"Chindia's" net oil imports, as a percentage of total net exports from the (2005) top five net oil exporters, rose from 19% in 2005 to 27% in 2008.
EIA data show that Chindia's net oil imports increased at about 9%/year from 2005 to 2008, while (2005) top five net exports fell at about 2%/year from 2005 to 2008.
Over the 2005 to 2008 time frame, US net oil imports fell at 4.3%/year.
All of this occurred as annual US oil prices went from $57 to $100.
So, to summarize, from 2005 to 2008:
Net oil exports went down, especially from the top five;
Oil prices went up;
US net oil imports went down;
Chindia's net oil imports went up.
IMO, rinse & repeat--with the provision that we expect to see a long term accelerating rate of decline in global net oil exports.
Hey Westexas:
In the later part of that period the import decline was more pronounced as well.
We are in the middle of a slow motion train wreck. I would have thought Oil prices would much lower at this point, or maybe I was just hoping. I think this is going to be an exciting time to be alive.
Now, if we can get the call right...
Greg,
My guesstimate is that globally we are depleting remaining global post-2005 Cumulative Net Oil Exports (CNOE) at the rate of about 6%/year, or about 1% every two months.
Our best case for the (2005) top five net oil exporters is that the post-2005 CNOE depletion rate is about 9%/year.
IMO, importers on OECD countries like the US are caught between a long term accelerating rate of decline in global net oil exports and rapidly increasing import demand from Chindia, et al, and recent data suggest that the developing world is outbidding the developed world for oil supplies.
I've compared focusing on the US, to figure out what's happening in oil markets, to the old joke about the drunk looking for his lost car keys under a streetlight late at night. He lost his keys down the street, but the light was better under the streetlight.
Everyone,
Take into account that the Fedrel Gubment is doing NOTHING to mitigate the coming shortage. Obama just advocated loan guarantees for, count 'em, exactly ONE new nuclear power plant. And we all know the Gubment loan guarantees are only necessary to protect investors from arbitrary and capricious Gubment regulation.
Now the administration is out burning its political capital by trying to increase the national debt with yet another national health care proposal. I can't fathom what they hope to gain.
Have you seen the Miss Me Yet bill board? I am missing GWB big time, and I think he's a C- president. But, his administration advocated research into thermal production of hydrogen from nuclear power (at twice the efficiency of electrolysis), and combined nuclear/fusion, and oil shale and solar and wind and offshore drilling. GWB at least saw the energy shortage as a coming problem.
Is Evan Bayh positioning for a run at Obama in 2012. What is his take on Oil?
Inventories are creeping down, prices are rising. It may be too late for a selloff, then again if the big boys are are hinting that we should go long...
Regards,
Coal Guy
Westexas:
Your numbers are certainly supported by the import data... and, as you point out, we are often looking for data where the light is best... In retrospect, teh big surprise (to me) was the incredible ramp up in ethanol production in the U.S. to 787k bpd over the last 90 days.
Still, with the Euro/Oil ratio back near highs, and the Euro/Gold ratio at absolute highs, my bet (given NO dust up with Iran) is that Oil prices decline in the short term, and that large integrated Oil co's are a better bet than crude at the moment... but we shall see.
Coal Guy:
I did not support GWB on Iraq and Afghanistan (then again I am not going to support any president in our continuation as world enforcer), but the rest of his policies I give a solid c+/b-.
I do miss GWB when compared to BHO. GWB suffered form unreasonable expectations of the power of the presidency, something I think BHO does as well, but without question, the presidency is a decision making job, and BHO is NO DECISION MAKER.
The U.S. is awash in oil (330+ million barrels), gasoline and natural gas, at least for the time being. The EIA charts are very clear, if you can believe anything the government is saying. :)
Re: US Crude Oil Inventories
US crude oil inventories are only high by recent standards--since the industry went to a Just In Time inventory system. Some longer term perspective on a Days of Supply Basis:
http://tonto.eia.doe.gov/dnav/pet/hist_chart/W_EPC0_VSD_NUS_DAYSw.jpg
The Minimum Operating Level (MOL) for crude is probably about 270 mb, so our current crude oil supply in excess of MOL would meet US refining demand for around 110 hours or so.
Bur:
I have not covered the issues Westexas raises. Google MOL on Oil. Its worth understanding.
Also, did you skip the ditty about looking where the light is better?
The EIA graph I have of "Annual U.S. Ending Stocks excluding SPR of Crude Oil" shows that the amount in U.S. storage has been very close to 300 million barrels of oil since 1935, year after year after year. Today, the figure is 340 million barrels. Lots and lots of oil, and we've had lots and lots of oil for decades.
The other graph I have is "Annual U.S. Ending Stocks of Total Gasoline" which has been around 200 million barrels since 1956. The figure today is 232 million barrels. Lots and lots and lots of gasoline, and we've had lots and lots and lots for decades.
I can read a graph. :)
Even westexas's graph-link, which is days of supply, has been rising the last few years to 25 days of supply today.
Although I heard westexas speak at the ASPO conference in Denver :), I guess I'd have to disagree overall. We are awash in oil products, and have been for a long time. Nothing is going "down."
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