There are a lot of people in denial about peak oil on this thread. Why has supply plataued at such a high price?
Pekelo wrote... This has got to be the less correct statement of the week. China has the world's 3rd largest carmarket. Are you saying they are switching back to 2 wheels? I don't think so... .............................................................................................. No...what I mean is that much of the world outside or relative to the US already uses far more motorcycles and diesels on a person to person basis than the US.... Certainly China is moving to more cars....but the car types will employ more diesels and smaller size vs US... The China market is not going to look like the SUV US market... ........................................................................................ The current environment is reflective of this...and China will change quickly if the US goes in to recession.... Just look at the incomes and capabilities...You cannot squeeze blood out of a turnip.... ...................................................................................... The US can change its lifestyles just to reflect more efficiency ....and this will have a huge impact on the price of oil at the bottleneck production points...
cause nobody wants the excess million barrils offered by the Sauds for MONTHS and the hedgies & fundies are going to need to build more storage facilities pretty soon if they want to hang on to the oil they've been hoarding for MONTHS and maintain current price levels.... insufficient demand iow... not surprising at current price levels... http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_pauly&sid=acUzduABKCDo
Last year was the first year when the world's DEMAND outpaced SUPPLY in crude oil. Supposed (and we have no good reason to think otherwise) this trend will continue, how does it effect the price of gas? Sure, in short term the price will fluctuate. And there can be unforesable factors like a worldwide flu epidemic or whatever that would cut down on consumption. But there can be also natural disasters/attacks damaging oilriggs and refineries, and mathematically speaking that has a bigger chance occuring than something that cuts down demand. So long term the price of oil can go only in one direction, and that is UP.
sure... Did You Know There's a World Surplus of Crude Oil?: David Pauly By David Pauly Aug. 16 (Bloomberg) -- Maybe the markets are lying. Crude oil keeps trading at $70 a barrel or more, where it's been pretty much since mid-April. U.S. gasoline costs on average about $3 a gallon, enough to make you think about walking. Still, there's a world surplus of crude oil. Analysts say production of the low-sulfur crude refiners prefer now exceeds global demand by about 1 million barrels a day, equal to about 1.2 percent of consumption. While basic economics suggest oil prices should be declining, Charles Maxwell, oil analyst at Weeden & Co. in Greenwich, Connecticut, says the surplus has done its work by keeping crude from soaring beyond the record $78.40 it hit last month. Since last spring, when there was no surplus, he points out that Nigerian output has been reduced by civil unrest, Venezuela and Iran have both cut production and BP Plc has found a leak in its Alaska pipeline. If that had been foreseen, ``you would have predicted $90 oil,'' says Maxwell. Oil prices per barrel may actually decline into the $60s next spring, when supplies usually become more abundant, if U.S. economic growth continues to abate, Maxwell says. He says there is anecdotal evidence that industry and individuals are starting to conserve energy. Another reason why crude prices might fall: ``We're running out of bad things that can happen.'' Funds Out? Earlier this week, Ben Dell, an analyst at Sanford C. Bernstein & Co. in New York, said crude prices were ripe to fall considerably because of the surplus -- and because buying of oil by pension funds and hedge funds may be ending. These funds have been able to buy crude on the spot market and sell it for future delivery at a higher price. The storage facilities needed to accommodate these trades will fill up in four to six months and they will have to end, Dell said. Crude oil, at $73.05 a barrel yesterday in New York, would be about $50 a barrel based simply on production costs, the Bernstein analyst said. The rest is due to increased investor interest and concerns about supply disruptions for political or military reasons. I have a hunch that the price of oil -- which was about $10 a barrel as recently as 1998 and which traded between $20 and $40 in 2002 and 2003 -- may soon drop even more than the experts think possible. Analysts, though, make a good case for relatively high prices staying with us. Lack of Vision The emergence of huge economies in China and India, for instance, has increased world demand for oil significantly while capacity to produce oil hasn't kept up. It became evident in 2000 that oil consumption would increase and the major publicly held oil companies should have doubled their spending for increased production, says Maxwell, who began working in the oil industry in 1957. They didn't. ``You can lay this at their doorstep,'' he says. Exxon Mobil Corp. has spent tens of billions of dollars buying back its shares, Maxwell says, money that would have reaped additional profit if it had been spent on production capacity. National oil companies, which control the lion's share of world production, didn't expand capacity either, Maxwell says, because they didn't get enough money from their governments and because they turned away private investment by tough bargaining. Maxwell predicts the price of crude will be between $55 and $75 for the next two years -- mostly in the $60s -- and people will adjust to the higher level. I'd still like to see $45 oil, but maybe this is the best we can hope for. (David Pauly is a columnist for Bloomberg News. Opinions expressed are his.)
It's incredible how people are prepared to put their (nick)names to such blanket statements as "long term, price of crude can only go up". I guess fools and their money ARE lucky enough to get together in the first place... Any trader worth his salt would not make such claims. Long term, the price of crude will be what the market dictates it to be, based on long term supply and demand. But do you really think the Chinese economy will turn out to be any hotter than all the spec froth about it now...? Do you think the US consumer is going to start buying more SUV's and less hybrids? There is now an ethanol glut building up so the price of ethanol is also destined to fall. Where does all of that leave the price of crude d'ya think? You know what they say..... When every last anal-cyst and shoe-shine boy is recommending stocks to buy, then that's the best time to get out of the market.....
That is Saudi propaganda. They think they are still a swing producer when their large fields are in decline and the replacement field, Khurais, was abandoned after pumping 144,000 barrels a day and is going to be brought back producing 1.2mbd by injecting salt water. http://www.theoildrum.com/story/2006/8/25/22530/0433#more
Pekelo wrote.... Last year was the first year when the world's DEMAND outpaced SUPPLY in crude oil. Supposed (and we have no good reason to think otherwise) this trend will continue, how does it effect the price of gas? Sure, in short term the price will fluctuate. And there can be unforesable factors like a worldwide flu epidemic or whatever that would cut down on consumption. But there can be also natural disasters/attacks damaging oilriggs and refineries, and mathematically speaking that has a bigger chance occuring than something that cuts down demand. So long term the price of oil can go only in one direction, and that is UP. ................................................................................................... Excellent Commentary.... I see what you are saying...and indeed it is very diffifult to discern the premium in oil prices due to Iraq..Iran...Venezuela rheteric and military moves...surplus of investment money and so on... Another issue being what countries use the most ..why...and can they change ...and still have the potential to get economically stronger... The poorer countries already use a lot of motorcycles and small diesels...If the US population simply went back to what these people are currently using it is safe to say that oil prices and usage would decline...and dramatically so... But of course if the countries that are strengthening resort to US lifestyles then the demand for oil would push prices out of sight... The question is what is the amount of the middle east unrest premium...is it $25...is it $10.... The question of the dollar...will it strengthen...will it weaken...will more oil move to Euros etc... The poorer oil dependent countries are at the end of their rope...they simply have to change....currently speaking... The poorer oil subsidized countries are oil ok.... The US can change a little...and affect a lot... Europeans would have to change more relative to the US...as they are already smaller...and use more diesel..etc... China on the rise can adopt a non SUV car market... All in all ...this recent period will reflect a rather excessive rise due to military influences etc.....and the $75 to $55 looks like the probable range for 36 months or so... The real key here being that as the total population increases and oil usage increases...just how is it that oil prices cannot rise... The answer being that oil will demand what the market will or can possibly bear...but there will be excessive fluctuations in prices such that prices will be relatively high...or relatively low at times... Today...oil reflects the excessive military premium...
Any market can go where people think they never can. It happens over and over and over. Sure, oil could go WAY up. But it could also crash. A global recession, massive new supply to hit the market, major shift to alternative fuels. Any of these can happen. The latter would take quite some time, but the first two could happen within a few years. Personally, I think oil in the 50's is more likely than $100, unless a hurricane direct hit, or something ugly happens in the Mid East. But based on supply/demand, oil is over priced. Almost every person who trades physicals will tell you that. Its the funds and general paranoia propping rates. Paranoia is due to tight excess supply, even though inventories are high. This excess supply will increase in the next few years short of another big boost from a global expansion.
I acknowledge the current weakness in the price of oil, but I think everyone should step back and try to look at what's happened in the oil market over time. And try to look at it objectively. If you look at a chart of the price of oil since the mid 90's you'll see that oil has come from $10 a barrel and is now $70 a barrel. Along the way there have been corrections and spikes, as with any long term security - these spikes and corrections are more pronounced with oil b/c of its sensitivity to geopolitics and weather. The key is, that the long term trend has been bullish and REMAINS bullish. Not until we see oil begin to trend downwards for a significant period (6 months) can you dispell the oil bull market. The true question is, is this a change in trend? Or a temporary correction? Based on the fundamentals, I still think we are in a long term oil bull market. No need to list all of the political and weather factors. The main issue in dispute are the geological factors - and these are pointing towards scarce oil resources. Globally, oil consumption has risen at steady long term rates and will continue to rise at this rate, if not faster, due to increased demand from large emerging markets that will offset a possible decrease in demand from declining mature markets like the US and europe. Add to this the declining yields of major oil fields around the globe. We have only been able to maintain our production rate because of technological innovation and ALOT OF REALLY HARD EXPLORATION WORK. It's safe to say that to keep up our production in order to meet the growing demand, we'll have to continue to rely on technological innovation and discovery to keep our oil production numbers up. One problem. The technology is destroying the oil. water injection destroys the reserves over time, which lowers the oil yield over time. This is why we are spending MORE money today to pump LESS oil (on a field by field basis). Let's not lose sight of the huge intangible factors that heavily influence the market. - The oil companies aren't going to spend TENS OF BILLIONS to improve infrastructure if the price of oil doesn't make it financially feasible. - State-run oil companies are increasingly becoming more protectionist and taking harder lines with international oil companies. All of the bad news is LONG TERM BULLISH for oil. All the "good news" is INTERMEDIATE-TERM BEARISH for oil. All of the political and weather-related short-term risks and shocks to the system are SHORT-TERM BULLISH. There's way too much misinformation and lack of understanding floating around the oil market right now. Great example: the Canadian tar sands in alberta. Yes, the tar sands hold 175 billion barrels worth of oil - enough to keep the Us running for 25 years. Right now, the bitumen from these tar sands is extremely difficult and expensive to process into refinable crude. The first major $multi-billion$ dollar facility (~$10b cost?) is slated to be completed by 2010-2015... do you know how much crude it's going to process? 144k barrels/day worth, according to estimates. I'm sorry, but those numbers don't add up. The bottom line is, the oil has to be expensive for any investment to make sense. Without costly oil, there's no investment. With no onvestment, there's less ability to increase supply to meet growing demand. Less ability to meet supply means costly oil. This is long term bullish with short-term bearish corrections along the way. 50 before 80? Just maybe. 35 before 100? No way. Will we see 20 again? Probably not. Will we see 200 ever? Probably. Simple as that. Should point out that geologists are beginning to come out of the woodwork in support of the peak oil theory. The commodity divisions of large institutions are beginning to revise their oil price estimates over the next decade or so upwards - and they are always behind the curve (their research calls that is). All it takes is one hurricane, or some more rhetoric between the US and Iran to shock the price back into the high 70's. What happens if we have a FEW hurricanes? or if the Iran situation gets really messy (which it's shaping up to. Read all about it at bbc. Do a google search for credible analysis of the nuclear situation, the positions of the security council, and the position of Iran. In true form, the US government is following a severely flawed foreign policy in the middle east that will lead to more unrest, more violence, and more war. Political regimes and their ideology do not behave like market forces, which I think some people overlook as they analyze the oil market without putting it in proper context.) If you are playing oil short, you may have short-term success. But if you are in the oil market, you should be setup to quickly capture big returns in the event of a large supply shock, which can happen overnight or develop within a few hours. I can afford to miss the slow trickle down to 70, 68, 65, even 60 maybe. But I can't afford to miss the spike to 80, 90, 100, and then 150 and beyond. There is much more upside potential in the price of oil than there is downside. The key is whether the long term trend has reversed from bull to bear - and it hasn't yet. just my opinion based on the observations and research of many others.