No new prehistoric zooplankton and algae are dying. That’s the best part of the peak oil argument. Oil prices currently hover around a $90 a barrel- and have shown a slight decline- because many people believe we’re getting to the bottom of this keg, while serving more customers than ever. That line of reasoning ignores the back room where there could very well be a stash that can keep this party going.
Oil doesn’t have to be $90 a barrel. That’s the short-term price, based on supply that’s more or less fixed for five years into the future. Looking at the long term is tougher, for both peak-oil Chicken Littles and the Hummer sales force. In other words, any price that goes up, can also come down.
If your two-year-old wants more fries, McDonalds will sell you more fries. They don’t have to find new fields in which to plant new potatoes, then harvest, chop and fry. If they did, and you asked for more, they’d ask what you’d pay. You and the other parents with kids screaming for more fries could bid the cost up to $100 bag.
According to the International Energy Agency, the world is pumping out about 85 million barrels of oil a day. The world wants about 86 million barrels. That inequality forces up the price. Traders literally bid on futures, pushing it skyward. But, the more a barrel is worth, the more oil suppliers want to supply. And, the more a barrel costs, the less consumers are inclined to buy. All of which can– and should– pull prices back down.
Ironically, given how fast oil can propel a Gallardo or a Gulfstream, the world of gooey, gunky oil goes slow. Once significantly motivated to reach for higher fruit, it can take years for energy companies to pick it. Oil from shale, tar sands, deep Gulf of Mexico waters or the Arctic is ready and waiting; it’s just not easily accessible. It takes time and money to gear up. None of the tough stuff was considered profitable for $15 or $20 a barrel. When oil gets above $30 they wake up the engineers. When it nears $100, all sorts of new production possibilities arise.
Unless you’re The Organization of the Petroleum Exporting Countries. OPEC can probably increase production tomorrow afternoon. They talk about it all the time, because while they’re making tons of money now, they don’t want their gravy train to, you know, end up like America's passenger trains.
In 1981, while oil traded at $39.50 a barrel (roughly equivalent to $100 today), Saudi oil minister Sheik Yamani warned, “If we force Western governments into finding alternative sources of energy, they will. This will take them no more than seven to ten years.” Yeah, and that’s before global warming had it’s own Oscar and hybrids were bred for Merlot.
High gas prices can also enhance– if not trigger– an economic downturn, which fuels decreases in demand for oil, again forcing a return to a more palatable equilibrium. “Prices may move substantially lower if the economy keeps worsening and OPEC continues to boost production,” Rick Mueller, Director of Oil Practice at Energy Security Analysis Inc., told Bloomberg News recently. “There could be a series of large inventory builds as demand slips. Prices could easily fall into the $70s if this occurs.”
The price could drop even lower. Ethanol flows now, with new development techniques on the horizon and subsidies on the books. Energy from natural gas, nuclear and conservation increases each quarter.
Not that we’ll ever see $10 barrels again. While supply CAN climb, the world’s demand for oil IS climbing. It goes up by around a million barrels per day, every year. The US is the biggest pig at the trough, but China and India slurp up more and more each year.
Jeroen van der Veer, Chief Executive of Royal Dutch Shell (the world’s second largest oil company), told his staff in late January that output of conventional oil and gas was close to peaking. He wrote: "After 2015 supplies of easy-to-access oil and gas will no longer keep up with demand."
British Petroleum (the world’s third largest oil company) Special Economic Advisor Peter Davies agrees in part. But Davies believes demand is going to reel in production. Reporting to Parliament in January: “BP has proven the world has oil reserves of 1.2 trillion barrels, enough to sustain current output for 40 years.” Davies thinks the globe can crank out 100 million barrels per day, covering demand and pressuring price.
Put another way, enough ancient plant matter died to get us to 2050. We’ll need more sustainable energy after that, regardless of whether or not you believe humans spit in the winds of climate change. Sure, oil consumption will eventually be extinct, but in the near future gas may stop taking such a big chop out of your paycheck.
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In 20 years the Chinese will have more than doubled world demand for oil. And the Indians will be boosting it even further.
The nuclear (and the wind, which is growing far faster percentage-wise and in absolute terms than nuclear) are not going to replace petroleum unless electric cars start to boom–which they may–and for petroleum use, conservation means smaller cars and insulating homes in the Northeast (like mine, which is getting roof insulation as soon as it quits precipitating for more than two days in a row).
I would think that OPEC Will most likely cut production to keep oil at or above $80/barrel. If they can get everyone to go along, gas will still stay around $3/gal for the near future, no matter how much demand drops.
China doesn’t want to pay north of $60/barrel for oil, either.
Why don’t we develop alternative sources of energy and sell that tech to them?
China also has The Bomb, so there’s no reason we couldn’t build advanced nuclear plants for them; it’s not like that would proliferate anything worth worrying about.
Rumor has it (I have nothing particularly quotable) that the Chinese are going in for Solar PhotoVoltaic in a big way and are on the verge of a huge cost reduction in SPV cell production. Could be we missed that boat. It still might be better to develop our own, of course, and sell them to the Indians, rather than see SPV cells become just another thing we buy from the Chinese.
Rday, luckily for us, OPEC member nations are greedier than average and rather dislike each other. Of course, since this has softened the price of oil somewhat, it could be that this is “bad luckily for us,” as it permitted business-as-usual, given that we lack the national will to do something constructive about the future. Or even to acknowledge that the future might be different from the past.
I think the limiting price is simply economics. At what price does it become viable to simply make gas out of either the Canadian tar sands ( which they are doing now) or distill oil from mountains of US shale.
We are not running out of oil just cheap oil. I actually look forward to the day when the price of oil makes the middle east redundant. We will also then have steady pricing from that point on.
David, I think you nailed it. it’ll be a long while until we as a country can phase out fossil fuel powered vehicles. And even still it will take a substantial increase in our electricity generation abilities to handle the increased demand. Personally I’m completely in support of an increase in Nuclear power. Say, 100-150 plants or so. that’d roughly replace all coal generated power.
But is anyone else worried about what will happen when the middle east (volatile already) no longer has its largest customer buying? Doesn’t this essentially amount to someone going out of business? And that cant be good when you have dictators ready to go to war for far less than economic stability.
When chevy Volt becomes as common as F150, expect oil prices to drop
Though the speculators have much to do with the recent price of oil in our country, I believe that both OPEC and the Oil companies are flirting with prices to see what people are willing to pay. Neither the Oil Companies or OPEC is interested in seeing Alternative energy/fuel. Both will adjust prices/production to maximize profit and attempt to make us energy complacent, that is, it will remain just cheap enough that Alternative fuel isnt really all that important.
Global warming, however, is the fly in the ointment that will ultimately derail any devious plans by Big Oil and OPEC to keep us hooked. Change is inevitable at this point, the price of oil is just a factor in how fast we get there. Despite rising demand, I think big oil and OPEC will try to keep prices stable long enough to extract every last drop and collect every last cent.
I’m still waiting for the price to affect demand. yeah, we see a lot of hybrids running around but US, China and India are still increasing the take every year. Until that changes don’t expect Our Friends the Saudis to drop their price.
When the straws go dry over there they will ahve nothing but sand with nice buildings on top. We will still have America the Beautiful with plenty of natural resources underneath.
ANWR is a real solution for about 20 years, but we would need to direct the oil to our cars not to the rest of the world. Taking the US off the world oil market would upset the applecart a bit but under our system of economics and politics it is not possible. We would have to pump ANWR, let the oil flood the market, convince companies to lower the price per barrel willingly by adding this capacity, and then wait to see what happens. When Oil was at 30 a barrel we should have hit ANWR, at least started to drill. Tom Dachshle decided in December 2002 not to pursue it and the price leaps a month later. Now that there is SO much money being made per barrel you would think there would be interest in getting to the tough oil spots. The reality seems to be that adding any new capacity is bad for price and companies are dragging their feet.
No one is making a move for tough oil until easy oil runs dry.
When chevy Volt becomes as common as F150, expect oil prices to drop
When people are willing to pay 30K for a battery powered car that goes 40 miles on a charge and needs new batteries in a few years…
Pigs will fly.
Maybe if they cost 10K, went 200 miles on a charge, and carried as much cargo as a SUV.
Every once in awhile an article like this is written to re-inform everyone of the obvious (oil is not running out). Do keep buying those econoboxes and hybrids though; I wouldn’t mind cheaper gas for my old junkers. The crumple zones of new cars keep me very safe sitting between my steel bumpers, should one of those little beer cans ever collide with me.
In the past oil producing nations have increased production in order to surpress prices and therefore discourage the development of alternative energy sources (solar and wind power would be much more mainstream if this hadn’t occured).
They are now counting on rising demand in India, China, eastern Europe and elsewhere to keep demand up this time around.
Global warming is the wild card which may upset their little plan – we may convert to alternative sources whatever the price of oil. Let’s hope we do it and make a bundle selling the technology to countries that can’t afford the cost of developing alternatives.
Steve_K, you think like me. Every time I see a hybrid on the road, I think “more gas for me!”
But seriously, do you really think that the global warming hype is going to last when/if oil prices come back down? (My opinion, based on real life conversations with actual climate scientists – not people in the media and such – is that there’s no clear evidence of global climate change above and beyond normal climate cycles of the earth – ever hear of the ice age? Was it global warming when we came out of that?)
The last time “global warming”, and all this “earth day” stuff was big was back in the 70’s – which correlates well to the ‘73 oil embargo. Here’s my take on it:
There’s always a small contingent of doomsdayers out there that keep saying “peak oil”, “global warming”, “over population”, etc. And, rightfully so, they’re ignored most of the time. But once something happens (oil embargo, $100/bbl oil, etc) that makes people notice something in their pocket book, they say “maybe those hippies are right”.
And then the politicians get in on it because they can greenwash stuff an not only say “think of the children”, but also “think of the earth”. Then once the oil prices come back down, everybody is happy again and they forget the doomsdayers. Same situation again. We’re all worried about global warming because of the media’s angle with respect to the current high energy costs, once those come down, we’ll be back to where we were before. I only hope it happens before another malaise era sets in with cars.
Yeah, but you guys are all forgetting something: global warming is a myth and was invented by Al Gore.
Which just shows you how much of an ass Al Gore is, he’s willing to warm up our planet and threaten the future of human existence just to get some attention and make some money.
So let’s just beg the Saudi’s to lower the price of oil again alright?
In the past oil producing nations have increased production in order to surpress prices and therefore discourage the development of alternative energy sources (solar and wind power would be much more mainstream if this hadn’t occured).
In a word, Mr. Perkins: HOGWASH!
Reality #1: Oil is a commodity with substantial volatility in its price, in other words high risks for its producers. Anyone remember the 90s? Big Oil didn’t control its vast conspiracy so well back then, did it?
Reality #2: Solar and wind are marginally competitive, even with oil at $100/bbl. It’s getting better, but it’s not there yet. And when you have a lot of solar (or wind) electricity you need a lot of fossil power on standby, for when the sun goes down (or the wind stops blowing).
Reality #3: Anyone who believes that OPEC had willingly let the oil prices drop in the past, deserves to have a free session with Dr. Phil. Low oil prices cause real pain in OPEC countries, and some even say the Soviet Union colapsed mainly due to low oil prices. They are going to go through all that suffering just to keep wind and solar off the market? I guess you also believe they read our mind to determine what gas prices we will tolerate?
Reality #4: The oil market is about as free as any market out there (Nothing is perfect, I know). Volatility is what you get with that. Prices swings happen when producers over(or under)estimate demand. $10/bbl in the 90s happened when the Asian tiger economies went belly-up, and suddenly there was more supply than demand. Nobody seemed to mind the free market back then. Nobody called on Congress to help out the poor oil companies. Now that the reverse is happening, we are seeing a lot of hypocrits crawl out of the woodwork…
Qsus,
Can you provide some facts to back up your claims to the myth and that Al Gore invented it?
I’d love to see gas prices go down, but I can’t see it happening, even if supply goes up – the oil companies and Opec are enjoying the influx of cash into their operations and aren’t going to willingly let that go.
Everybody is mixing apples and hot dogs when they talk about electricity generation (nuclear power, wind power, etc.) and oil production. There are exactly zero oil power plants in the continental United States, and they are rather rare world-wide. Power in the US is made mostly via (in order) coal (close to 100% domestically sourced), natural gas (mostly domestically sourced), and nuclear (mostly domestically sourced). Now, via electric cars and plug in hybrids, you can make things that use oil (cars) use electricity, but there are no mass produced plug in hybrids or electric cars yet, so that’s not even a factor.
Oil is mostly used for transportation (cars/trucks/big rigs/ships/motorcycles/airplanes/etc.) and to make things like plastics. Electricity generation is almost a completely seperate issue.
When you look at the alternatives to hydrocarbons, nothing is really going to replace it except for some kind of nuclear option, assuming we wish to continue maintaining the standard of living high per-capita energy consumption provides.
Solar is a dead-end this way. The sun’s peak power in all wavelengths on summer solstice in the Sahara works to about a kilowatt/sq. meter of earth’s surface area. Sounds like a lot, but when you consider the generating capacity of the United States electrical grid is right around a terawatt, it’s not so much. Back-of-the-napkin calculation there shows that to replace ten percent of the grid with solar (in the Sahara, on summer solstice, with 100% capture efficiency of the solar cells) would take something like forty square miles of solar panels. Factor in the reality of modern inefficiencies using solar cells, and that we are not in the Sahara, and the sun goes down every now and then…you get the picture.
Wind power is also hampered by the same low energy density problem. It would take SERIOUS windmillage all over the place to begin making a dent in total electrical capacity of the U.S. If you then factor in the notion of even a small fraction of the mobile mechanical power in the United States (cars, airplanes, etc.) being energized off the grid, solar and wind start looking nonsensical as a “solution.”
Same thing with ethanol and biodiesel. You would have to ferment every piece of organic matter we generate as a society, in addition to forgetting about corn being in the food supply chain anymore, to really make a dent. People talk about Brazil’s success with ethanol, but they grow the much more ethanol-viable sugarcane, in a tropical environment permanently in a growing season, with half the population consuming what, half the per-capita energy consumption of us pig-like Americans? Not gonna happen.
Nuclear fission power is a technical solution – the problem with nuclear power isn’t a technical issue, its a human issue. People are not socially mature or competent enough I think to use nuclear power effectively. The fact we don’t trust anybody with it because of its sheer power betrays our own weaknesses. It would be like a band of chimps suddenly learning how to control and make fire. Six months after that big epiphany, the chimps would be dead and the whole forest would be burnt down with them.
Nuclear fusion power I think is the ultimate solution to our energy problems, if we can figure it out. It does not make doomsday weapon magic-pixie-dust as a side-effect of it’s nuclear processes, and does not make those long-lived radioisotopes like fission. All the oil and gas we burn today originally consisted of plants or plant-eaters that ultimately derived their energy source from sunlight, ironically making us fusion-power parasites as a society today, eaters of the sun’s tablescraps. The fact that virtually all life is fusion-powered, and when I look up in the night sky at the universe I see that every visible part of it is fusion powered, indicates to me nature is trying to show us the best way here.
Reality #2:
And when you have a lot of solar (or wind) electricity you need a lot of fossil power on standby, for when the sun goes down (or the wind stops blowing).
False. A lot of wind connected to the grid will balance out, accordin gto a study presented at the Dec 13 Annual meeting of the American Geophysical Union.
There are also flow batteries to store the power
http://www.ehponline.org/docs/2007/115-7/innovations-abs.html
regarding CarnotCycle, above, 40 sq miles of solar panels would be pretty trivial. That’s a bit more than 6 miles square. If that’s enough to replace 1/10th of the grid, or even 1/30th of the grid, I’d say we’re in business. And Texas alone will soon have the equivalent of 23 big nuclear plants’ worth of wind. Your pessimism is unwarranted.
“There are exactly zero oil power plants in the continental United States, and they are rather rare world-wide.”
The percentage is low and falling, but oil-fired plants do exist in the US:
http://www.eia.doe.gov/cneaf/electricity/epa/epat1p1.html
http://www.eia.doe.gov/cneaf/electricity/epm/table1_2.html
5% of Canada’s powerplants are oil-fired:
http://www.ec.gc.ca/cleanair-airpur/Coal_and_Oil_Fired_Power-WS36F53482-1_En.htm
Many third world and Opec countries have oil-fired generation:
Although it has received scant coverage in the U.S. media, in many parts of the world, the electric grids are shutting down for long periods each day. In a few places the electricity is now off most of the time. Some of this is due to droughts which have reduced the hydroelectric generating capacity in many parts of the world. Some is due to the price of oil which has simply become too expensive to use in thermoelectric generating stations and in a few places the electricity is out or has been greatly reduced because of civil strife. Iraq, Nigeria, Gaza and Pakistan are the most prominent instances of the latter. Even the climate has contributed to the problem as a wave of unusually cold weather has enveloped the Middle East, Central Asia and Siberia, forcing many to use electric heat as their only means of survival.
Currently, there is some form of power shortage starting in southern China and ranging south to Vietnam and then westward across the subcontinent to Africa. Parts of Bangladesh, India, Nepal, Pakistan, Iran, Iraq, and many places in central and southern Africa have reported shortages. These range from minor inconveniences to cities where the economy is close to shutting down. Problems have been reported in Central and South America and nearly everywhere where oil-fired power plants are used to generate electricity.
Thus far the developed countries have largely avoided problems due to better electrical infrastructures, domestic fuel supplies, or the ability to pay whatever it costs to obtain the necessary fuel. In effect, the rich have outbid the poor who are now suffering the consequences.
http://www.energybulletin.net/39174.html
When chevy Volt becomes as common as F150, expect oil prices to drop
Should oil consumption ever drop dramatically, the price would skyrocket, not decline – even if this happens before natural reserves run out.
Part of the reason gasoline prices have remained so low for so long is due to the increasing volume of demand. Today, the expenses of exploring, drilling, extracting, transporting, and refining are spread across the 85 million barrels produced each day. If demand goes down, all of those fixed costs get spread over fewer barrels of oil, so the per unit cost must go up to cover these expenses.
This effect is magnified because when the demand goes down, fewer suppliers will bother to stay in the crude oil business and supply will become limited even if the natural resource isn’t.
I’m guessing demand rises faster than production. Taking a long range view – say a decade into the future- I’d bet on gas being more expensive, in inflation adjusted dollars. (If we’re still using dollars 10 years from now)
Miked,
Back in the early 70’s the Earth Day crowd was warning of “Global Cooling”. They thought pollution would block the suns rays. When the earth did’t cool but actually got a tiny bit warmer they switched doomsday prophesies.
Ugh, I hate it when people trot out the global cooling myth whenever global warming is mentioned. Its a fine talking point, but lacks any real substance. The fact that Time magazine published an article about something in the 1970s does not mean that there was anything remotely resembling a consensus about the subject. Get some facts about the issue, not even oil companies are denying the fact of global warming these days.
http://www.guardian.co.uk/environment/2003/mar/12/usnews.business
Reality #3: Anyone who believes that OPEC had willingly let the oil prices drop in the past, deserves to have a free session with Dr. Phil. Low oil prices cause real pain in OPEC countries, and some even say the Soviet Union colapsed mainly due to low oil prices. They are going to go through all that suffering just to keep wind and solar off the market? I guess you also believe they read our mind to determine what gas prices we will tolerate?
OPEC frequently manipulates oil prices to keep them low, not because they are afraid of solar or wind power.
Ultimately, it’s in OPEC’s self-interest (Ayn Rand, anyone?) to keep oil prices somewhat stable for as long as they can. If OPEC overproduces and create a glut, crude prices will fall to unprofitable levels. On the other hand, if they under produce, non-OPEC sources for oil become viable and they lose control of the commodity that they are so dependent upon.
“But is anyone else worried about what will happen when the middle east (volatile already) no longer has its largest customer buying? Doesn’t this essentially amount to someone going out of business? And that cant be good when you have dictators ready to go to war for far less than economic stability.”
Actually, the Middle Eastern dictatorships will be absolutely no threat at all once their oil runs dry. The dictators can try to convert all the castles they built for themselve back into money and weapons but what are they gonna fight us for? We’ll have given them their wish and deserted the place by then. And how are they going to fight us when their starving population revolts?
As for oil prices dropping, they will drop to almost zero shortly after they get too high. As soon as other technology becomes cheaper than oil, it will be used. There are already plenty of options on the table and untold advances which would be driven by excessively high oil prices.
In the mean time I think Al Gore and his friends in the oil industry will continue to get rich off of Global Warming hype.
Go on-line and read the comments of Charlie Maxwell, energy guru and nine time winner of energy investor on Wall Street, a true expert and someone without a political agenda. Folks, the world is using more as much oil as being produced, and the demand is outstripping supplies. Big supplies in Nigeria, Venezuela and Russia are in nations not exactly friendly to us. The cost of finding and producing more oil is substantially higher than even a few years ago. U.S. Ethanol alternative is a joke. Oil hit over $91 bucks a barrel today, even after the dollar got a bit stronger. In two years, oil will be at $125.00 a barrel or higher.
As for oil prices dropping, they will drop to almost zero shortly after they get too high. As soon as other technology becomes cheaper than oil, it will be used. There are already plenty of options on the table and untold advances which would be driven by excessively high oil prices.
That’s exceedingly unlikely. Even if ever single car exploded tomorrow there would be still massive demand for oil. Practically everything you see right now contains oil derived components. People though $3/gal gasoline would be enough to cause American consumers to revolt, and yet here we are now. Cars like the Prius are still a niche product and I doubt you would want to sacrifice any power in your personal car. Besides, think about the effects of exceedingly cheap oil. People would abandon their alternative techs in a heartbeat. It would be the 90s all over again.
@kbw
I wouldn’t call the Prius a niche. Not at 181,221 sales last year.
@ KBW,
I didn’t say it would happen anytime soon.
# windswords :
Back in the early 70’s the Earth Day crowd was warning of “Global Cooling”. They thought pollution would block the suns rays. When the earth did’t cool but actually got a tiny bit warmer they switched doomsday prophesies.
Back in ‘74, the year that Global Cooling hit the media, I learned about the threat of global warming–not cooling!–in John Holdren’s class at UC Berkeley. Holdren, now a professor at Harvard, was head last year of the American Association for the Advancement of Science. He got his PhD in plasma physics. So, no, serious people weren’t switching “doomsday prophesies”
ANWR is a real solution for about 20 years, but we would need to direct the oil to our cars not to the rest of the world. Taking the US off the world oil market would upset the applecart a bit but under our system of economics and politics it is not possible.
This would be like burning the paintings in the Louvre for the energy.
@ guyincognito:
I’m not concerned with them attacking the U.S. I’m more worried about them having their own civil wars and the resulting problems thereof. Starving people will do anything to survive (including wage war). After all, that is how many dictators worldwide have gotten into power. And you’ve got to remember several of those states are (or will be) nuclear armed. And regardless of our oil needs at the time, repeated nuclear explosions are events that Al Gore doesn’t need to hype up in order to show possible consequences.
And as for those “plenty of options on the table and untold advances,” well they still need to be made viable on more than a test tube basis. And sorry, but I can’t yet afford a $50k+ eco-friendly future car that is worthless to me half the year in my climate.
People talk about Brazil’s success with ethanol, but they grow the much more ethanol-viable sugarcane, in a tropical environment permanently in a growing season, with half the population consuming what, half the per-capita energy consumption of us pig-like Americans? Not gonna happen.
Ah, yes, Brazil. Couple of things worth noting about Brazil. First, the average Brazilian use 1/7th as much oil as the average American. (It’s the Europeans who consume half as much as Americans, and live very comfortably, thank you very much!)At that level of consumption, the US would be a major exporter of oil!
So to emulate Brazil we need to conserve seriously. Or perhaps we should consider that Brazil drilled their way to independence (ethanol is a nice green drop in the bucket). Another factor which may or may not be relevant: the US GDP is 20 times that of Brazil, yet we consume only 10 times as much oil. So, who is more productive with the oil they consume?
OPEC frequently manipulates oil prices to keep them low, not because they are afraid of solar or wind power.
I guess that just haven’t done so for a while.
Ultimately, it’s in OPEC’s self-interest (Ayn Rand, anyone?) to keep oil prices somewhat stable for as long as they can. If OPEC overproduces and create a glut, crude prices will fall to unprofitable levels. On the other hand, if they under produce, non-OPEC sources for oil become viable and they lose control of the commodity that they are so dependent upon.
OPEC seems split on the issue right now. The Saudi’s seem to favor increasing production. Diablo’s buddy Hugo and the mullahs favor $200/bbl. We’ll have to wait and see who wins that argument, but it sounds like it’s Hugo and the mullahs.
Overall they don’t seem much concerned with losing control over oil prices. And in reality $100/bbl just showed how dependent we all are on OPEC. I see much higher prices ahead. Note oil is up $3.60, just today.
OPEC is quite concerned that the US falls into a recession, which would greatly diminish our consumption level. To counteract this, OPEC has increased output each of the last five months. For February they are holding steady and in March, if they think the US economy is contracting, they will probably agree to cut production to match the drop in demand. So yes, OPEC is quite active in trying to keep supplies and prices stable.
Reality #3: Anyone who believes that OPEC had willingly let the oil prices drop in the past, deserves to have a free session with Dr. Phil. Low oil prices cause real pain in OPEC countries, and some even say the Soviet Union colapsed mainly due to low oil prices. They are going to go through all that suffering just to keep wind and solar off the market? I guess you also believe they read our mind to determine what gas prices we will tolerate?
You assume that the ruling classes in OPEC nations give a hoot about the “suffering” of their people. They don’t. They have all the money in the world and they want to keep it rolling as long as they can.
Okay so solar doesn’t work at night and the wind comes and goes but they are still relevant sources of energy. For the time they are making useful energy they are doing it cleanly and the fossil powered plant down the road can throttle back thus saving some coal, gas, or whatever they are burning to make electricity. In fact during the summer when we are all running our a/c to stay cool those solar panels are making their peak energy. Just like every bit of technology we have, if we take it mainstream there will be technology advances and efficiency improvements. See cellphones, computers, medicine, etc.
Require all new construction to add a certain percentage of solar square cell area in step with the amount of floor space under that roof and we’d quickly have a large source of electricity to use. And because it is modular it is easy to add on to later as a person or company’s budget allows.
Wind is another story. It’s useful. As they power up, the power grid can throttle back hydro or other sources of electricity.
Why use coal, nukes and hydro ONLY?
Besides when the oil is gone what how will our president send us to war? No battery powered fighter jets that I know out there…
miked:
There’s always a small contingent of doomsdayers out there that keep saying “peak oil”, “global warming”, “over population”, etc. And, rightfully so, they’re ignored most of the time. But once something happens (oil embargo, $100/bbl oil, etc) that makes people notice something in their pocket book, they say “maybe those hippies are right”.
And then the politicians get in on it because they can greenwash stuff an not only say “think of the children”, but also “think of the earth”. Then once the oil prices come back down, everybody is happy again and they forget the doomsdayers.
Economist Julian Simon once wagered doom and gloomer Paul Ehrlich that the inflation adjusted price of 5 metals would drop over 10 years. Simon was, of course, correct. But that’s not “news”.
Oil is near an all time high and may rise for a long time. But there’s a lot of potential negative pressure. There are huge reserves in politically delicate places like ANWR, the East coast of the US, off Cuba’s coast. A dictator croaks/a few senate seat change and vast reserves open up.
Also, there are huge inefficiencies in many state owned oil firms (like Venezuela & Russia). Open these degenerate states to Exxon-Mobile and watch production double…
hltguy:
In two years, oil will be at $125.00 a barrel or higher.
I think that’s high, but you could be right. IF you’re REAL SURE, you should cash out your 401K and drop it into oil futures. Most future markets price Feb 2010 oil at under $90. At $125, you should make a killing.
Let me know how you do.
I’m with Engineer on this one: oil is a commodity, so prices fluctuate as a natural effect of supply and demand.
One of the main causes of higher oil prices has been the spectacular success of the Chinese economy over the past 15 or so years. If the U.S. and Europe go into recession, or if China slows down, then the oil price may well sink.
Who can predict the price of oil, long-term? I would say there are too many variables. I remember a front page of The Economist saying something like “The Coming Era of Cheap Oil” — I think it was around 1994. And since then, prices went only one way: up.
Beyond the expanding economies of China/India, the day a couple months back ago or so they introduced the $2500 car is when it finally hit me long-term gas prices would not be going down unless there was a major meltdown in the world economy (which could happen). I even came across an article about a week ago agreeing with me, but I can’t find it at the moment.
I control the Roth portion of my IRAs, and the week after Katrina I allocated literally 50% of my portfolio to energy stocks, with more of a focus on the oil companies and less so on exploration. Since then, I’m up to 70% major oil companies and 15% exploration (0% ethanol). I’m buying other stocks since that are poised for growth again, but I’m still going to keep energy real high.
I’m not trying to brag (as I wish I had more money in that account), I’m just associating my 2 cents with my lively hood when I’m 67 to show how sure I am prices aren’t going down long term!
ihatetrees: I already have. A year ago, when oil was in the $60 range per barrel, I had call options and did quite well thank you. I have little doubt, and therefore have put my money where my mouth is on the $125.00. I don’t want to see it happen in some ways, but I believe it is inevitable. And that is not even factoring in any military conflict with Iran or a multitude of other scenarios that could really jump oil prices higher. If you believe it will not happen (higher oil prices), them I suggest you may want to short oil and make some decent coin.
Good job, Michael Martineck, this is the most economically literate article that’s ever been on TTAC.
KBW :
“Ugh, I hate it when people trot out the global cooling myth”
It was not a myth. It was talked about in the media quite a bit. I didn’t say that it was real. And not just by Time magazine, but also the New York Times (which has warned of four separate climate changes since 1895), Newsweek, etc. But apparently your choice of the phrase “global cooling myth” was not yours but belongs to the realclimate.org blog. I guess I’ll have to call you a “the media published stories (complete with quotes from scientists) about global cooling” denier. :)
Not to put too fine a point on it, but more people were saying that the earth was cooling in the 70’s than are today saying that Cerberus only purpose in buying Chrysler is to strip and flip it. We have no trouble believing the latter but you absolve the former as a “myth”?
Here’s some links of my own to check out:
1975 Newsweek article on Global Cooling
http://www.denisdutton.com/cooling_world.htm
For the details of the media’s climate ADD read here:
http://www.businessandmedia.org/specialreports/2006/fireandice/fireandice.asp
‘In 1902, when Teddy Roosevelt became the first president to ride in a car, the Los Angeles Times delivered a story that should be familiar to modern readers. The paper’s story on “Disappearing Glaciers” in the Alps said the glaciers were not “running away,” but rather “deteriorating slowly, with a persistency that means their final annihilation.”’
Article on the the Global Cooling trend we are in NOW (since 1998).
http://acuf.org/issues/issue62/060624cul.asp
“Speaking of the 1500-year climate cycles, grab an Internet peek at the earth’s official temperatures since 1850. They describe a long, gentle S-curve, with the below-mean temperatures of the Little Ice Age gradually giving way to the above-the-mean temperatures we should expect during a Modern Warming.”
hltguy:
A year ago, when oil was in the $60 range per barrel, I had call options and did quite well thank you. I have little doubt, and therefore have put my money where my mouth is on the $125.00. I don’t want to see it happen in some ways, but I believe it is inevitable.
Well done. You’re a braver investor than I am. I’ve never had it in me to use options.
For the record, my (non-money-where-my-keyboard-is) opinion:
Feb 2010 oil = $105/barrel.
A metric to watch is the price of oil per ounce of gold – the dollar (and fed) being too chaotic.
ihatetrees: Economist Julian Simon once wagered doom and gloomer Paul Ehrlich that the inflation adjusted price of 5 metals would drop over 10 years. Simon was, of course, correct. But that’s not “news”.
Erlich should have wagered about the inflation of oil through this decade. substituting metals is easy compared to substituting for oil.
windswords said:
It depends what you mean by myth.
It is true that there were a few stories in the media, on slow news days. It is not true that the scientific community thought that they understood things enough to give a clear warning, given the state of knowledge at the time.
There were two reasons to worry about global cooling:
1) The timelines of the ice ages were only just coming into focus, and a fairly naive look at those numbers would make it seem that we were due for a repeat “soon” in geological time, i.e. within the next few thousand years.
2) Humans were causing the release of large amounts of soot, SO2, CO2 and all sorts of other industrial by products. The CO2 would gradually accumulate and cause a warming, but most of the others would tend to cool – the same process as in the over-hyped nuclear winter scenarios. At that time, it wasn’t clear which effect would dominate.
So, plenty of material for speculation, but not much more than that. There was no scientific consensus that we were in for a prolonged cooling.
I was there in the Seventies, and have one particular reason to remember the topic. In ‘76 I entered a UK civil service fast track selection procedure. One question was, as best I remember it, “there is incontrovertible proof that an ice age is imminent and within a hundred years the UK will be under ice. Advise the minister…” I’d just finished my bachelors in physics, with some emphasis on geophysics in my final year, and almost burst out laughing at how preposterous the scenario was given the scientific knowledge of the time.
Later, windswords quotes various websites. The essential dishonesty of these is very noticeable, they talk only about mass media and avoid any evaluation of what mainstream science said then and now. It’s also noticeable that there’s a consistent political stance – the “American Conservative Union”, an article from “Boone Pickens Free Market Fellow” etc.
It’s a tragedy that in the US the science has got waylaid by politics in this way. It seems that in the rest of the world, the political right has no trouble in recognizing basic science, so people like Sarkozy, Cameron, Merkel all agree on the need for action. I wish it hadn’t been Gore making that movie, it makes again for a split based on partisan identity and not consideration of the facts.
But – for the free market acolytes – can we perform a little thought experiment. Assume, just for the moment, that the global warming people have it right. Your political philosophy has it that optimal solutions come from trusting the distributed decision making of the market (and I’m not going to argue for socialist central planning, I remember British Leyland). So, given the problem of how to contain greenhouse gas emissions, and the insight that markets are the best way to allocate resources, why try to avoid the question? Isn’t this an opportunity to show how markets can be harnessed to bring greenhouse gases under control at minimum cost and maximal benefits?
Gas prices? Go into your local Wal-Mart. Look at the cameras. You can buy a decent one for 100bucks. Now go to the dentist. Ask them to make a picture of your tooth. And here it goes- 200bucks. How come? See, if someone charged you for the camera 200 bucks, you wouldn`t buy it, because you can live without it. Would you avoid dentist, and hold the pain forever? No!So the prices for commodities, that are intercheangable or secondary in their meaning have to survive in competition driven market. First necessity items, which people can not avoid are destined to skyrocket forever, because there is no reason for the company do decrease the price, because even the high cost will ensure the sales of all services or products. if you could find a substitute for oil, the prices would go down, ditto the ExxonMobil 40bn annual profits.That`s why governments should always have a strong hand on first necessity items for the nation( to reign the greed)- utilites, education, housing, medicare.Ron Paul Austrian economics works only until this level- it can`t get past Jurisb theory of competition that works only for replaceable, substitutable or dismissable items. Oil reserve- 80 years. gas reserve- 400 years. You have to realize that corporative efforts to find a reason for price increase should be taken as finding rather an excuse.This also answers the question why not so many babies are born in USA, so they have to import even that through immigration. See, it doesn`t matter that an average US salary could make you afford to buy zillions of Snickers bars or millions of DVD players.What matters that average US salary has decreased the purchasing power of the middle class to afford medicine, education and lodging, thus potentially decreasing natural baby-boom. Offshoring and killing manufacturing ,US has offshored well-paid middle class, that was the womb of babies, meaning next taxpayers. So today you have only billionnaires, that have profited from cheap labour force abroad, and withering middle class, that can`t afford 2-3 children, because their non-manufacturing related jobs don`t allow them to do so. So – I would say that imports have also killed white caucasian family regrowth rate. Short term profits, short term lives.wish you heard me!
Great article. Comprehensive, sensible.
However, a word to those of you who say “we are not running out of oil…”
That depends on how low the tank is before you say you’re “running out…” I could make the case that from the moment you fill up and start the car, you are “running out.”
And that is where I differ with y’all. Regardless of how large it is, the Earth is a finite object. That means there are LIMITS. Therefore, whatever is “inside” must also be of a finite, LIMITED quantity.
The geological forces that made oil stopped long ago. Because replenishment is not happening, every barrel we take therefore decreases the total available.
We take 85 million barrels a day. For the most part, we don’t store it; we use it up.
Zero barrels are replaced by natural forces.
The burn-rate is 85 million per day, or about 31 billion barrels a year. Historically, we have increased our demand every year.
The Earth has a finite volume left in the ground. That volume is not replaced.
I suggest that those who believe “we are not running out” reconsider the math. After all, even little kids understand the meaning of “all gone.” It’s inexcusable for grown adults to not have a grasp on this simple concept.
I’m not talking about tomorrow or next week. I take a longer-term view here.
I think the evidence and plain logic support my opinion that we are in fact “running out.” In 20, 200, or 2000 years…at some point in the future, it will EVENTUALLY be “all gone” (or not accessible, which, for all intents and purposes, is the same thing).
Even if we switch to another form of energy for transportation, we will still use oil for plastics, medicines, food production, and so forth. Our survival will still be heavily dependant on a finite resource that is NOT being replenished…
So to say “we are not running out” is to ignore the obvious…at least to most kindergarteners.