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Taking a Look at the Oil Bubble
Not surprisingly, there's been some recent discussion here about oil and gas prices here. I'd recently seen a comparison of crude oil and gasoline prices, but I was unable to find it when I went looking for it again. So, I decided I'd put one together quickly. Here it is.
There are a couple of things to mention about the graph. First off, the price of gas has been scaled by a factor of 20 so that it compares closely in the range of the oil price. The data is from the DOE. The crude price is listed as United States Spot Price FOB Weighted by Estimated Import Volume (Dollars per Barrel). The gas price is U.S. All Grades All Formulations Retail Gasoline Prices (Cents per Gallon).
Disclosure out of the way, we can see that the retail gas price tracks pretty closely with the price of crude oil, but oil has departed from this trend with dramatic growth in the last year. The price of gas at the pump has yet to catch up.
That's what the data looks like. So what about the analysis? Why has this happened?
There's been talk of speculation in the oil market. I believe that's part of the story here, but this is almost certainly the case if we accept recent evidence that global oil production has peaked. I know what I would be doing if I was a speculator in energy markets right now. If we've passed the peak then we can expect for crude to get exponentially more expensive in the future.
As for regulation, we don't want to become too distracted with this. Even if we indulged in trying to regulate the speculators, which may or may not help in the short term, we can't expect to be able to do this with a global market. We also shouldn't be distracted with windfall profit taxes.
Regardless of whether you think that speculation is a cause or a symptom, there is little doubt that the wolves are about.
Consider also this analysis of gas price elasticities:
In other words, a 10% rise in petrol prices reduces petrol demand by 3% inIf we are past peak, then perhaps the speculators have arrived harbingers of this fact. However, this may not be all bad. They may help us put the brakes on demand faster than we would otherwise.
the short-term, and by 6-8% in the long-term. (Although the study isn’t clear on
this point, I’m guessing short term is <1 year, and long term is >1 year.)
Comments (64)
A little off topic here, but when you brought up not being distracted by windfall profits tax, my first thought was, why not have that tax as well. (I.e., instead of the "tax holiday" plan of removing the tax at the pump in lieu of the windfall profits tax, have both.) Obviously the corporations would pass some, if not all, of this tax on to the consumer, but that would just help curb our fuel consumption more. (For those concerned about the regressive nature of this, it can be balanced by plans that don't encourage more driving, e.g., a reduction in income taxes at the lower brackets.)
However, I then noticed a fatal flaw in the windfall profits tax plan that I hadn't notice before—if these taxes are "too high", then the oil companies can simply relocate to countries that don't have such a tax. Sales taxes don't suffer from that problem, of course.
Anyways, that was a bit of a detour, but I thought I'd share it, nonetheless.
June 10, 2008 9:36 AM | Reply | Permalink
Sure, you could have it, I'm just not sure that there's enough of a benefit to focus on that. That's what I meant about it being a possible distraction. I'm not wholly opposed to it, but I get the sense that a lot of people think that initiatives like this would somehow solve the problem.
June 10, 2008 9:40 AM | Reply | Permalink
I suspect too many people still haven't quite realized that oil is going to run out eventually (not soon, but eventually) and gas prices have nowhere to go but up.
So trying to lower oil/gas price is not a solution, it's a problem - because it's delaying the real solution.
June 10, 2008 10:31 AM | Reply | Permalink
Any sci fi that you know of, which deals with this?
June 11, 2008 2:47 AM | Reply | Permalink
The Diamond Age (by Neal Stephenson) may have touched on this tangentially. But even if it doesn't, it's a cool book :)
June 11, 2008 7:56 AM | Reply | Permalink
James Kunstler recently wrote World Made By Hand, which deals with a relatively optimistic post-peak energy scenario. There are several dozen reviews on Amazon (including mine).
June 11, 2008 8:18 AM | Reply | Permalink
Here's a really good look at post-peak novels:
http://seattleoil.com/phpBB2/viewtopic.php?t=1028
Some snippets:
In Retrieved from the Future, one rural community in eastern England creates its own miniature Age of Healing in the wake of oil. It does so even as much of the rest of the nation descends into chaos and savagery around it. The novel takes place in East Anglia’s Gretford District sometime during the early decades of the twenty-first century. Its prologue is told by a fictitious publisher who informs us that this is the first book to be printed in East Anglia since the great CRASH. A collection of writings by farmers, tradesmen, soldiers, and other everyday people, the book represents an attempt to explain to future generations what happened in this rural part of England during and following the CRASH.
S.M. Stirling, finished writing his gripping adventure novel Island in the Sea of Time in 1998. The characters in Stirling’s novel rather suddenly and unexpectedly find themselves facing the imminent depletion of their fuel reserves, food stores, and other resources. They have to frantically come up with a plan for surviving completely without modern technology. The event responsible for this startling state of affairs is a fearsome electrical storm that appears to have somehow shifted the entire island of Nantucket back in time some 3,000 years. Thus, there are no gas stations or stores at which to replenish their resources once they run out.
Last Light — a chillingly evocative title ... of a book that means us no kindness. Scarrow, unlike Seymour, does not paint some portrait of a simpler, pastoral way of life in the wake of oil. Instead, he lays out some 400 pages of raw, blood-soaked action and suspense unfolding over one week, during which petroleum supplies to the West have halted after attacks on the world oil infrastructure.
June 11, 2008 8:45 AM | Reply | Permalink
I doubt that a windfall profits tax would do anything to help. Economically, this country is headed to the abyss and I don't think there is too much we can do other than Obama's plan to extend the safety net and try to soften the fall as much as possible because as usual, the poor will be disproportionately punished for the sins of the greedy.
June 10, 2008 12:16 PM | Reply | Permalink
As hard as it may be to believe, a surplus of gasoline on the market has keeping the price of gasoline down relative to other oil-based products.
When you refine oil, there are certain ratios of substances that result - you can't simply make all diesel or all gasoline. For example in the 3-2-1 "crack spread," three barrels of oil is refined into two barrels of gasoline and one of distillates (heating oil, diesel). There are other crack spreads, but they still yield lots of gasoline.
http://en.wikipedia.org/wiki/Crack_spread
Many Europeans drive diesels, and disaster-stricken Asians have been buying lots of diesel, leaving European and Asian refiners with a surplus of gasoline. The US is getting that gasoline fairly cheaply.
June 10, 2008 9:40 AM | Reply | Permalink
Here's a primer on refining oil:
http://science.howstuffworks.com/oil-refining.htm
June 10, 2008 10:05 AM | Reply | Permalink
FWIW, I really appreciated this particular analysis. I don't have anything to add, but I don't want you to think that it wasn't because I didn't find it interesting.
June 10, 2008 11:55 AM | Reply | Permalink
Thanks.
June 10, 2008 12:00 PM | Reply | Permalink
Ditto.
I know "me too"'s can be annoying for other readers, but sometimes you just don't have much more to say than "Huh, I never thought about it that way."
The writer of a thoughtful, informative message like this can be left with the (false) impression that she didn't make an impact.
June 10, 2008 2:00 PM | Reply | Permalink
A fine illustration. I've tried to explain this crude cracking ratio to people who wonder why Diesel has gotten so expensive, compared to gasoline. They assume the refineries can just make more diesel and they are keeping supplies low to punish diesel buyers. As the ratios show, you can only get so much diesel out of a barrel of crude. The boom in diesel pickups and cars has more consumers fighting over the supply of diesel that used to chiefly go to large trucks and construction equipment.
June 10, 2008 6:53 PM | Reply | Permalink
DF - thanks for posting! That is some pretty solid evidence of a bubble, in my view, though I also agree with some of the other readers comments about long-term trends. If you're a speculator, it's those trends and expectations that drive trading.
June 10, 2008 10:29 AM | Reply | Permalink
AlaskaSense, why do you see bubbles in everything?
Does this look like a bubble to you as well?
http://www.eia.doe.gov/emeu/aer/pdf/pages/sec11_20.pdf
Consider this, China is nearly importing as much oil as the US, but their per capita rate is woefully smaller than the US's. Therefore, they have plenty of pent up demand as well.
The rise has come (once again) because there are no swing producers to prevent shocks in the market. I supposed if you think the prices come down a little constitutes a "bubble", fine, but don't expect us to see $3/gal gas ever again.
June 10, 2008 11:05 AM | Reply | Permalink
DF:
You may have seen that chart when I posted it from the EIA.
You may want to check out this portion of their website
http://tonto.eia.doe.gov/ask/prices_faqs.asp
Scarier than any horror film you'll see this year...
Rec'd as always.
June 10, 2008 11:02 AM | Reply | Permalink
One last website with a nice analysis:
http://www.theoildrum.com/node/2611
Take note of the section title:
"Gouging: The Lazy Man's Answer"
This is something that I have maintained quite a while on this website to deaf ears -- there are too many conspiracy theorists out there and it's simply too easy to blame "them".
June 10, 2008 11:08 AM | Reply | Permalink
CT, thanks for this link.
June 11, 2008 2:45 AM | Reply | Permalink
Oil discussion again.
There is no doubt that oil is running out and that demand is going up. I have no doubt that demand is greater than future supply can produce, but we keep going back and forth about what effect specualtion has on price. I think the best indicator of that would be volume of trades
http://www.chartsrus.com/chart1.php?image=http://www.sharelynx.com/chartstemp/free/chartindCRUvoi.php?ticker=FUTCL
Don't know how to link, but take a look at historical oil price and the volume of trades. Specualtion is amplifying the problem.
June 10, 2008 11:13 AM | Reply | Permalink
RE: Speculation isn't amplifying the problem, it *is* the problem. Speculation is now controlling the price of oil because the producers can't. And this problem will never go away since we have arrived at peak oil where a producer can't simply pull more up at a faster rate to dampen price shocks.
June 10, 2008 11:25 AM | Reply | Permalink
I always feel like a right-winger coming into these conversations with my comments. But here goes.
It seems that a conclusion drawn by many here is that gas prices should be high to keep people from driving. While I won't argue that in theory, it's much harder in practice.
The basic reality is this: we live in a vast country built around roads. Public transportation options are scarce outside of cities. Biking/walking are not a viable option for some for various reasons. Unless we change our entire system of transportation and work and the economy, viewing raising costs to lower demand as the first course of action is going to have major consequences on just about every other sector in America.
Of course, keeping going as is will also have serious consequences.
People are not going to stop driving. Ever. Or until we literally run out of gas, at which point we'll be in much more serious trouble than whether we can fill up at the pump or not.
At this point, priority one needs to be the technology for cars to run on alternative fuels and then getting those vehicles into the mainstream. If they want to do something to keep costs from skyrocketing in the short-term, that's fine with me, so long as it doesn't hinder the rest of the efforts. It will keep the economy healthier and help a lot of people. Or, they could figure something out to help people who need help with the costs of gas, and leave the billionaires to fend for themselves for once. :)
Cellulosic ethanol sounds promising if they can figure out a way to lower the costs of processing. Someone on an earlier thread on this topic directed me to an interesting link about using algae.
June 10, 2008 11:37 AM | Reply | Permalink
I'm sure they will lower the costs somewhat, but really all the cost has to do is not go up. The cost of gas will rise to meet it.
Part of the motivation behind windfall profits taxes and other fuel taxes is to divert some of that money into researching alternative fuels (such as using algae), as well as to reduce driving some (we've actually seen a reduction already) so as to give us more time to develop alternative energies. It should be pointed out that part of the necessity of driving is overestimated as we are not just a majority urban culture in this country, but largely so. (A quick google search led me to this site which lists our urban population at 226 million, leaving our rural population at about 75 million. Don't get me wrong, I'm not one to write off those 75 million, or to deny that the 226 million all have access to reliable public transit (most of them unfortunately don't), but I do want to put some numbers into the mix so we don't pretend the problem is worse than it is. (There are things that can help rural citizen's transportation needs as well, but they are mostly, if not entirely, a subset of the things that can be done to help urban citizen's transportation needs.)
June 10, 2008 11:51 AM | Reply | Permalink
Yes, but those urban numbers include the exurbs and suburbs which is where the real growth is, the cities themselves are losing population.
June 10, 2008 12:25 PM | Reply | Permalink
Absolutely, but the exurbs and suburbs offer opportunities for public transit improvements that are much harder to achieve in rural communities. We need to look at all solutions, so I sometimes get fed up with the idea that public transit isn't practical. It isn't practical in large part because there hasn't yet been the political will to make it practical.
June 10, 2008 12:40 PM | Reply | Permalink
Public transit was practical. In his book, Internal Combustion, Edwin Black described how GM bought up and dismantled trolley companies across the US, tearing up track to make sure communities would have to buy buses. I tend to prefer surface rail like trolleys that follow the streets and respect the urban fabric.
I am familiar with subways like DC Metro and Marta and Boston's T. While they have been made to work in hyper-dense cities, I think they are too expensive for most applications. I could see trolleys returning to serve those former suburbs that become satellite cities. It all depends on if there are jobs and where the jobs are, though.
In some Asian cities, six or eight couples will cram into an apartment. They'll send money back to their parents who are raising the grandchildren in a farming village. I could see people cramming into DC or Silver Spring, then sending money to their retired parents and children in exurbs like Hagerstown or Winchester.
June 10, 2008 1:13 PM | Reply | Permalink
Having grown up in Atlanta, one thing about MARTA that bears mentioning is how much surrounding suburbs have fought its expansion tooth and nail (because it brings the "criminal element"—you read between the lines). Perhaps that's lessened some since I left in 2001, but I wouldn't count on it.
June 10, 2008 1:22 PM | Reply | Permalink
They said the same thing about the DC Metro rail. But of course, no one ever mentions how much the Metro REDUCED the crime rate in blighted areas that got Metro stations.
The truth is that inexpensive travel if ALL sorts has an equalizing effect.
June 10, 2008 2:06 PM | Reply | Permalink
Donal,
100+ years ago it was possible to get from the town I grew up in to Boston in less than 3 hours, switching trains once. (About 50 miles, the local trolley went to Worcester to get the line going to Boston.)
Several summers ago I was visiting friends in Worcester, while they were re-surfacing a number of the spoke streets. The DPW had dug down 18 inches to the original paving stones, in order to remove the trolley tracks that had been laid and used throughout the city.
It's pathetic that our public transportation in the 19th century offered much greater coverage than it does today in the early years of the 21st.
June 11, 2008 1:17 PM | Reply | Permalink
Oh, I don't claim that public transportation isn't viable, I claim that it isn't viable for the next two decades at least. The problem with public transportation in states like Ohio is that once you get to the area you need to be, there is no system available to get you to that particular destination. I'd love a light rail system going to Indianapolis or Columbus, but the problem is once I get there I need to drive twenty miles to get to where I'm going out in the burbs.
Frankly, I think in the next couple decades, when were in the midst of a deep recession, the thing to do would be for the government to create a wpa to build light rail transportation but then, where will we get the money? Bush et.al have put us so deeply in debt, ruined the dollar and our credit that I don't see where the money can come from - it isn't going to come from overseas, that's for sure. Right now, we're borrowing money to service our debt on our debt.
June 10, 2008 1:13 PM | Reply | Permalink
Not in my city. The Hottest places in town and the fastest growth are in Downtown and Midtown (the first ring of suburbs from the twenties which are the middle of the city now). The inner suburbs are fast becoming slums. The outter suburbs are barely holding their own until the price of oil goes up just a little bit more.
June 10, 2008 4:44 PM | Reply | Permalink
Many 'working poor' people have already stopped driving. I've been seeing Hispanic construction workers on bikes over the last few years, and lately I see all sorts of people on all sorts of bikes.
The rural poor are really screwed. They'll probably flock to motorcycles, or scramble to move closer to work. Middle class will try scooters, econoboxes or hybrids, and will also try to move closer to work - if there is work.
Rich will still drive SUVS, probably armored, but there will be far fewer of them.
June 10, 2008 11:53 AM | Reply | Permalink
Hilary, that's far too simplistic. The point is not to keep people from driving, the point is lowering total oil consumption. Making people drive less is just a small part of it.
People need to buy more fuel efficient cars. Transporting bulk goods needs to be rethought; rail should be used far more. Ethanol based fuels can be used.
You seem to be overlooking that this is a bit of a chicken and egg problem. Unless gas prices go drastically up, of course everyone will sit on their asses and keep doing what they've been doing all along. High gas prices will hurt, but there's no way to get out of this hole without hurting. Do you have a better idea of spurring people into action?
BTW I always thought the right-wing frame was letting the market (ie. pricing) take care of things... so I'm not sure why you say you feel like a right-winger discussing this?
June 10, 2008 2:08 PM | Reply | Permalink
I think she may mean that she doesn't accept the green mantras out of hand, but rather recognizes the cold realities of where we're at in terms of energy consumption and infrastructure. If that makes you right-wing then the left is screwed.
June 11, 2008 1:54 AM | Reply | Permalink
You pretty much nailed it, DF. And it's not that I don't accept them really. It's just that I can completely agree with something in theory but recognize it's weaknesses in reality.
Take public transportation. Ben, I know you get frustrated when people say it's not practical. But right now, it's not. And as Bev notes, it won't be for awhile, even if we do choose to pour resources into it. The point about the suburbs is also an important one to make.
All of the places I've lived are suburbs. Where I grew up, outside Pittsburgh, we have the T. From my house to the T station, it's about a 15 minute drive. If you live out in the stix, it can be up to 40 minutes or more. And, as is the case with most such systems, it's mostly designed to get you into the city. But how to get around while you're in the suburbs, just going about your business? Most of the time, you have to drive. Great thing about that town was the bike trail, which I did use all the time and is something I really miss.
Later I worked outside Philly. I lived in one suburb and worked in another suburb. No trains, Ts, between those two places. Too far and not safe enough to walk or ride. I carpooled for awhile but then my carpool buddy moved and I had no one out my way going the same direction.
I think improving public transit in this country is important. But here's the thing. Even with the most perfect system in the world, people would still drive. Which is why I think getting alternative energy run vehicles on the road right now is of incredible importance. If we started putting them into the mainstream at this very moment, it could take up to 20 years or longer to replace all the existing gas run cars. (Total guess on that one. Anyone have real numbers on how long it takes new products to saturate the market?)
I don't want to see 10/gallon gas before people get up of their asses. It will obliterate the economy first. Donal captured it well. People already can't get to work. Already not spending to be able to pay for gas. I think (or at least I'm really, really, really hoping) that we've reached a point where there is the political will to do something.
June 11, 2008 9:03 AM | Reply | Permalink
If it's so terrible, where are the demonstrations? Where are the road blockades? Where are the riots? Where are the outraged editorials?
I have no doubt whatsoever that some people are getting badly hit by rising oil prices. But look at how many million have no health insurance, and that doesn't seem to be spurring many people into action.
Before anything changes, the people in the position to change things must feel a need for change. They must either suffer themselves (not too likely in the case of gas prices) or the suffering of others must be made clear to them.
June 11, 2008 10:14 AM | Reply | Permalink
Just doing a very cursory analysis of the data (I do this type of price analysis for a living), I have these observations:
1) There seems to be a bit of a lag between oil and gas prices. Gas prices I would guess are based on the price of oil approximately one months prior. This is to be expected; it is yesterday's oil bought which becomes today's gas and other derivative products.
2) The lag mentioned previously is only approximate; it is made more accurate by considering the price of gas as being based on a moving average of the price of oil. I would hazard a guess that the price of gas is based on a weighted moving average of oil prices from 20-50 days prior (again, just from back-of-the envelope calculations). This moving average dependence is typical of derivative products.
3) It is important to realize that the price of oil is only one factor in the price of gasoline. If the other costs of gas have not risen, then the percentage increase (which is what is graphed here) will not go up proportionately.
Consider this example: a commodity accounts for 50% of the cost of a certain manufactured product. If the commodity price goes up by 25%, the cost of that manufactured product does not go up by 25% as well. In this example, the cost of the product will only go up by 12.5%. I would guess that this effect is in play in the oil/gas price dichotomy.
June 10, 2008 11:41 AM | Reply | Permalink
My understanding is that it takes about 3-6 months for a given barrel of crude to come out of your local pump in the form of unleaded, but the gap we're seeing started about a year ago. This is another reason that I think it's very safe to say that it has become a speculators market.
June 11, 2008 2:01 AM | Reply | Permalink
# of Vehicles in China
1980, 2 million
1990, 6.2 million
1998, 13.2 million
2003, 36 million
2008, 120 million
Try to brake that trend.
June 10, 2008 11:42 AM | Reply | Permalink
Exactly right. One of the subtleties of the Kyoto Accords was that India and China were pushing for per capita caps -- so, while the US should definitely curb greenhouse gases, in the very near future we would be spitting into the ocean compared to the largest developing countries.
As always, it is the big picture that is crucial.
June 10, 2008 11:52 AM | Reply | Permalink
Although it looks somewhat exponential to my eyes, I expect it won't go above 1.5 billion in the next 20-30 years. :P
June 10, 2008 11:53 AM | Reply | Permalink
Sucks for the Chinese that they're late to the party.
June 10, 2008 2:10 PM | Reply | Permalink
I am not saying that speculation, market manipulation, the dark market and hedgers combined with the worthless dollar are driving the price of oil, there are many reasons why the price of oil is spiking, including supply/demand. My point is that speculation and market manipulation are playing a greater role in this than supply/demand. BP recently settled a lawsuit for 303m for their manipulation of the propane market in 03,04. So yes, it happens. This isn't conspiracy theory, this is looking for an explanation for a highly unusual occurrence in the market. This is very definitely taking the shape of a bubble and unfortunately, this bubble is taking us into a far deeper and longer recession than we've seen in decades.
What can we do about it? Nothing.
June 10, 2008 12:08 PM | Reply | Permalink
Bev,you can do something about it! Use public transportation,ride a bike,walk,carpool,drive a hybrid or other gas sipper,turn off lights when not needed,etc... there are many little steps you have total control over that add up to a whole lot of change. Also, a vote for Obama would certainly be better than McCain.
June 10, 2008 2:05 PM | Reply | Permalink
All very good ideas.
June 10, 2008 5:15 PM | Reply | Permalink
You should probably label the graph on both sides (dollars per barrel for oil on the left, dollars per gallon for gasoline on the right). It's interesting that this graph implies that at least one of the two prices is out of whack at the moment: either oil should be about $80, or gasoline should be about $6 (or of course we could get oil at $100 and gasoline at $5, or anything else that maintains that 40:1 ratio).
Donal is correct about the gasoline oversupply holding costs down (somewhat) in the US. (Most of the oversupply comes from Europe, as far as I know, so it tends to hold prices down more on the east coast.) Crack ratios can be tweaked (mostly by adjusting temp and pressure), but major changes are very expensive.
June 10, 2008 5:15 PM | Reply | Permalink
Er, I mean 20:1, not 40:1 (price ratio).
June 10, 2008 8:36 PM | Reply | Permalink
Yeah, I had another one that was labeled properly, but I screwed it up somehow. To clarify, the Y-axis is indeed US Dollars, but again gas prices have been scaled up 20:1.
June 11, 2008 2:16 AM | Reply | Permalink
Mark my words: There's tons of oil on the Moon. Trillions and trillions of tons of oil.
That's why Bush is so dead-set to get back there.
June 10, 2008 7:56 PM | Reply | Permalink
And don't get me started on Mars.
Mars is practically made out of that nucular material.
June 10, 2008 8:58 PM | Reply | Permalink
America can, will, should and must blow up the moon.
June 11, 2008 2:12 AM | Reply | Permalink
Is the Blue Swathed Gremlin volunteering for space travel?
Send him to Jupiter for gas mining.
June 11, 2008 2:46 AM | Reply | Permalink
What I like here is data that shows whether or not the current steep climb in oil prices is a bubble or not. My gut says something is wrong here, but that could just be the times or the tomato in my salad today.
Here’s what we have so far:
- rise from $70/barrel to $140 in less than a year in oil prices
Bubble:
- no major changes in instability in major oil producing nations (exceptions in Africa)
- gas prices, which normally appear to track oil prices, have diverged from oil prices this year (DF)
- energy markets can be manipulated (Enron, and BP case cited by Bev D;
- 16:1 leverage in oil commodities trading (Hamsun) which allows more speculative volume
Not a bubble:
- gas prices should diverge from oil prices as the number of diesel drivers in Europe and Asia is rising faster than gas drivers, which helps hold down gas prices (Donal)
- the number of cars in China has climbed from 36 million in 2003 to 120 million in 2008 (this is evidence of a demand curve shift) SPQR
- World petroleum consumption charts/Bartlett production piece in Physics Today (clearthinker) – the consumption chart doesn’t show 2006-2008, but one can certainly guess the trend. Again, a shift in the demand curve here
- Evidence that peak oil has been reached
If I were a trader and looking at the trends in “not a bubble” I’d be leveraging up as well. Which is why I think there is truth to all of this.
So can 300 million of us make enough little changes now to avoid a repeat of the early 70s?
Hope so.
Time to do so.
June 10, 2008 9:12 PM | Reply | Permalink
The End of the Age of Oil
If we have indeed passed the peak you can expect a catastrophic reduction in human population which will make Hitler look like a saint.
June 10, 2008 10:29 PM | Reply | Permalink
The link is
http://pr.caltech.edu/periodicals/CaltechNews/articles/v38/oil.html
For some reason the software didn't accept it.
June 10, 2008 10:33 PM | Reply | Permalink
This quote is the same one about swing producers we talked about continually here but is still underappreciated:
June 11, 2008 12:39 AM | Reply | Permalink
What's good for the goose is good for the gander, at least until the flock flies south.
June 11, 2008 1:56 AM | Reply | Permalink
There are strong indications that Saudi production peaked 2 to 4 years ago. However, as you know, production figures are considered a state secret and what is known publicly is not very reliable.
Worse, the Saudis have been using water injection on a monumental scale which means that the downside of the production curve will be very steep, giving humanity very little time to make a decent adjustment to ever-increasing oil shortages.
The good news is that our economy and technology are remarkably flexible and many people have been working on this problem for a long time. The bad news is that the public is as stupid about this as it is about everything else.
June 11, 2008 5:35 AM | Reply | Permalink
Here's more from the Financial Times about last week's spike in the price of crude.
June 11, 2008 2:26 AM | Reply | Permalink
The way I figure it, I hope the price of gas keeps going up through the election - it will decrease emissions and make people mad as hell at the Republicans and oil companies. I think of the extra money I pay at the pump as donations to the Obama campaign but better.
Let's say I buy 200 gallons of gas between now and the election. If it cost $7 a gallon I pay an extra $600, but (correct me if I'm wrong) - $7/gallon gas should translate into a democratic landslide in November. And even better when Exxon reports record profits 936 Hallibillion dollars.
June 11, 2008 5:46 AM | Reply | Permalink
Does anyone have any data about Russian production capability or their field sizes? I seem to remember a foreign affairs article that discussed that Russia may be the next dominant market player as the Saudi production peaks.
June 11, 2008 10:25 AM | Reply | Permalink
It appears that this information has been made a state secret.
June 11, 2008 12:22 PM | Reply | Permalink
Great stuff, DF and all. Very interesting points.
But somewhere in all of this the suppression (since 1925) of Iraq's oil production should be accounted for and included in any analyses. The extent of Iraq's oil reserves is unknown, but some experts speculate that it is larger than Saudi Arabia's. At any rate, only 15 of Iraq's 74 known oil pools are being pumped, far below capacity. Of 526 known structures, only 125 have been drilled. There are 3K oil wells in Iraq (there are a million in Texas).
I agree with DF about traders being the principle cause of price inflation. The failing dollar may in fact be a co-sympton of oil inflation, rather than a co-cause. After all, His Highness Alan Greenspan testified the same to congress a while back, and OPEC concurred. The world is being Eronized.
OPEC. Under current US policy, Iraq oil production is being kept under OPEC quota constraints, which are patently unfair. Those constraints are based on Iran's oil, which is far less than Iraq's. Originally it was to prevent war between Iraq and Iran, but it didn't work. During the war, the Saudi's bankrolled Saddam, even giving him 7 billion for his "Islamic Bomb" program, in order to suppress Iraqi oil production.
Credit for this goes to Greg Palast: "Armed Madhouse".
June 11, 2008 11:31 AM | Reply | Permalink
So I guess your post to my entry was wrong?
DF you wrote in response to my post: I am very puzzled when I hear calls to curb speculation. Setting aside whether or not this is even feasible in the near term, what is the basis for believing that this will be effective? How can the US control, via policy, the most important commodity market in the world? There are speculators beyond our borders and our control.
My original post said this:
Obama needs to call immediately for an end to speculation in oil
By Karl Shepard - June 11, 2008, 1:14AM
The Saudi's argue that the oil price hikes of recent days are not justified
[http://www.smh.com.au/news/world/saudis-call-summit-on-rising-prices/2008/06/10/1212863645115.html]
(one of many reports) by supply or demand. That squares with the facts.
There is no way that over a million new buses, cars or trucks could have been fueled in China and India in the past few weeks.
Business Week has reported several times on the commodity market speculation
[http://www.businessweek.com/bwdaily/dnflash/content/jun2008/db2008068_580706.htm]
that has driven up the price of oil and other commodities beyond what should be normal levels. According to Business Week article cited above, this can be traced to the Clinton administration deregulation of commodity trading in 2000.
The Democrats in the Senate forced a vote on windfall taxes on the major oil companies plus re-regulation of the commodities market. The effort would have been better spent on re-regulation of commodities markets and the subsequent reductions of speculative capital in oil - something that Obama needs to call for immediately.
One stone thrown and two birds killed: Obama will show his savvy on the economy and the befuddled McCain will respond poorly at best.
Karl Shepard
Hillsboro,Oregon
June 11, 2008 11:50 PM | Reply | Permalink
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