Oil price discussion and analysis

[MRC & Co]

Re: OIL AGAIN!

I think that is Smurfs point, higher prices = lower consumption. How much effect that will in turn have on prices............surely there is some regression analysis on this somewhere!

How about algae? Anybody read much about this option to the Co2 emissions problem and it's use in the production of biofuel?

 

[Tysonboss1]

Re: OIL AGAIN!

I think that is Smurfs point, higher prices = lower consumption. ?

Well thats how the capitalist system works,... Higher prices is supposed to encourage lower consumption, either that or we have to start rationing like back in WW2.

But lower consumption won't mean a price drop because as soon as the price drops then consumption will increase again and forcethe price up again.

 

[rederob]

Re: OIL AGAIN!

Well thats how the capitalist system works,... Higher prices is supposed to encourage lower consumption, either that or we have to start rationing like back in WW2.

But lower consumption won't mean a price drop because as soon as the price drops then consumption will increase again and forcethe price up again.

The theory is interesting, but does not explain why, when the US has had its highest ever gasoline prices, inventories have been declining - substantially.
Inventories will generally increase if consumption falls by the wayside.
As the opposite has occurred, is it telling us that not only is consumption decreasing, but supply is decreasing at a faster pace!
If the latter were to prove true, then we will see $200 oil this year.
I am not convinced this is the case.
US driving season, which is almost on us, should give rise to some salutary data on the elasticity of oil prices.

 

[Smurf1976]

Re: OIL AGAIN!

Ummm
I am confused.
Consumption remains high as inventories are dwindling.
The option to me is "higher prices".
QUOTE]

My point is simply about the physical flow of oil.

Statistics vary but the world is extracting about 31 billion barrels each year and doesn't seem to have the capacity to extract much, if any, more than this. It doesn't matter how much is in the ground, what alternative technogies we have etc. The installed production capacity and actual production are 31 billion barrels per year.

And we have a few billion barrels in above ground storage. Hard data is very hard to get on this one, but I'd guess that we couldn't take much more than 2 billion barrels from storage before serious problems arose. It's just not practical to have every tank virtually empty, every car running with 2 litres left in the tank and so on.

So, 31 billion barrels of production and 2 billion barrels sitting in storage.

Simple math now... Over the next 12 months there is no way, at any price, the world can use more than 31 + 2 = 33 billion barrels. $130 a barrel, $50 a barrel or $1 million a barrel doesn't make any difference - we're limited to the actual rate of production plus what we have in storage. We're not going to build 10 billion barrels p.a. of new production overnight no matter what oil fields are discovered and what the price is - it just doesn't happen that quickly (and if we're at peak then it's not going to happen at all).

So we seem to be using more than we're extracting. No matter how much is actually in storage, it will run dry eventually if we keep doing that.

It's like saying someone earns $31,000 per annum. No matter how much they have in the bank (ignoring interest since oil in a tank doesn't grow by itself), they can't sustainably spend more than they earn. If they spend $32,000 this year, $33,000 next year and so on then sooner or later the bank acount will be empty. And from that point on their spending must be no higher than their income which isn't increasing. (Don't say borrow - oil can't be borrowed into existance).

Same with anything. Water in a dam, water in a tank, food in the cupboard and so on. You have some in storage, a rate of inflow and a rate of consumption. If your rate of consumption exceeds inflow then at some point the storage will be empty and from then on your consumption can't exceed inflows.

Price is simply the means of matching supply and demand. Sure, price will probably head to the moon to reduce consumption to match production. But the key point in physical (not financial) terms is that ultimately consumption just can not exceed production in the long term. If we're at peak oil and consumption is higher than production then it means at some point consumption must reduce to the level of production - there's just no other option.

I'm talking globally here of course. One individual or one country can outbid another and maintain their consumption. But as a planet that doesn't work.

 

[JeSSica WaBBit]

Re: OIL AGAIN!

I am hearing you Smurf, good point.

It seems simple to me, i dont see how prices will not continue to increase.


JW

 

[GREENS]

Re: OIL AGAIN!

nearly 100% of Australias enthanol production comes from waste.

The malandra group who are Australias largest producer of enthanol use waste from there flour mills,... CSR are also a producer and use the by product from there sugar mill as a feed stock for the ethanol plant.

I do agree with you that if we can turn significant amounts of waste into biofuels, this is a great alternative, but I just can’t see it happening on a large enough scale. Who cares about the Oz market we are completely insignificant in a global context. What about the US where most of its ethanol comes from corn.

LOL

since when have the last two ever mattered to a trader??

If they did coal & oil would be worthless. But last time I checked they were going alright.

Your 100% right traders couldn’t give two hoots, but traders care about what governments think because they are the ones that are going to be sinking the money into such alternatives and guess what the governments are placing increasing weighting on social and environmental issue associated with biofuels. So there you see all 3 issues I have talked about tie back in. There are more than just first round effects of biofuels not being economical. Put it this way my point is that biofuels no matter what way you look at it will never be a major source of energy and rival the likes of conventional fuels such as oil and gas (there contribution will always be relatively meaningless on a global scale). Also I must say although this comment is relatively insignificant more and more investment funds are becoming social and ethically conscious whether it is initiated from within the company or because of unit holders pushing them to do so.

 

[Tysonboss1]

Re: OIL AGAIN!

The theory is interesting, but does not explain why, when the US has had its highest ever gasoline prices, inventories have been declining - substantially.
Inventories will generally increase if consumption falls by the wayside.
As the opposite has occurred, is it telling us that not only is consumption decreasing, but supply is decreasing at a faster pace!
.

The official US line is that inventories have decreased due to shipping delays.

Oil is really one of the most non elastic resources when it comes to supply and demand pressures, but the priciple is still the same.

I mean when bananas doubled in price I stopped eating bananas, but if you double the price of fuel I will still have to purchase some fuel, fuel consumption will be reduced but not stopped completely, we have seen this already with qantas canceling routes, alot more use of buses in sydney, and I can bet alot of the people who like to show pony there V8's are making alot less trips round the block these days, and on thursday a parcel of mine was late from the courier when asked why he said that the truck from brisbane was delayed 24 hours because it was not full enough to pay for the fuel so they delayed it till the next night

 

[rederob]

Re: OIL AGAIN!

The official US line is that inventories have decreased due to shipping delays.

Oil is really one of the most non elastic resources when it comes to supply and demand pressures, but the priciple is still the same.

Not just shipping delays, but maybe also the extortionate costs of landing oil: http://www.marsoft.com/high_tanker.htm

The recent surge in tanker rates has most likely been brought on by a combination of strong market fundamentals and special factors such as floating storage.

So let's summarise:

1. US crude inventories on continuing decline
2. US gasoline stock at lowest band of multi-year average levels
3. Global oil demand (consumption) still rising, albeit at a decreasing rate
4. Non-OPEC producers experiencing progressively diminishing output
5. Reserves replacement being outstripped by consumption
6. Drilling success rates dwindling year on year
7. Drilling costs rising sharply and rig availability low
8. Lifting prices and transport costs continuing to increase
9. Non-conventional crude supplements (NGLs, biofuels, etc) barely filling the gap
10. Crude output actually peaked 3 years ago
11. Oil price manipulated upwards by speculators

 

[Tysonboss1]

Re: OIL AGAIN!

Not just shipping delays, but maybe also the extortionate costs of landing oil: http://www.marsoft.com/high_tanker.htm


[/LIST]

It's funny how the cost of oil can increase as transport costs increase,... but then the transport costs will increase further due to the oil incrasing,... kind of a self fulfilling cycle, considering so much oil is used at every stage of production bringing the oil from "well to wheels".

Considering that as feilds peak they can as much as triple the number of wells drilled just to maintain the rate of production, does anybody know of a company involved in leasing rigs or drilling equipment,.... might make a good investment.

 

[Smurf1976]

Re: OIL AGAIN!

I mean when bananas doubled in price I stopped eating bananas, but if you double the price of fuel I will still have to purchase some fuel, fuel consumption will be reduced but not stopped completely, we have seen this already with qantas canceling routes, alot more use of buses in sydney, and I can bet alot of the people who like to show pony there V8's are making alot less trips round the block these days, and on thursday a parcel of mine was late from the courier when asked why he said that the truck from brisbane was delayed 24 hours because it was not full enough to pay for the fuel so they delayed it till the next night

What seriously worries me with this situation is that we've already done the low impact changes to cut oil consumption (eg moving away from oil heating and oil-fired power generation) and now we're doing the moderate impact ones - cancelling flights and delaying trucks.

But the oil consumption and price are clearly still trending UP despite all of this. That means we're headed straight for the high impact ways of limiting demand - car bans, rationing, recession and so on. The easy options just aren't having enough effect.

I will go as far as to argue that most places are a lot LESS able to implement a cut in oil consumption now than was the case in the 70's. The so-called "post-industrial" economy doesn't work well with public transport and it guzzles oil in every possible way for things that were unthinkable only 3 decades ago.

Looking at the Australian context, the industrial economy we had 30 years ago largely ran on coal and hydro, at least in all the Eastern states. Today's post-industrial economy needs oil more than ever.

On a slightly different point, it's not just oil stocks that are being run down (above ground). Coal's much the same and rather a lot of hydro schemes (globally) have been depleted through over-production. That's another hidden form of stock drawdown - draining the lakes has kept coal and oil consumption artificially low but it can't be kept low any longer.

 

[kransky]

Re: OIL AGAIN!

What seriously worries me with this situation is that we've already done the low impact changes to cut oil consumption (eg moving away from oil heating and oil-fired power generation) and now we're doing the moderate impact ones - cancelling flights and delaying trucks.

But the oil consumption and price are clearly still trending UP despite all of this. That means we're headed straight for the high impact ways of limiting demand - car bans, rationing, recession and so on. The easy options just aren't having enough effect.

I will go as far as to argue that most places are a lot LESS able to implement a cut in oil consumption now than was the case in the 70's. The so-called "post-industrial" economy doesn't work well with public transport and it guzzles oil in every possible way for things that were unthinkable only 3 decades ago.

Australias most popular cars: Ford Falcon and Holden Commodore.
The V6 versions burn 10 to 11 L/100km
V8's burn about 14L/100km
Honda Civic for example burns 7 L/100km
Honda Jazz burns 6 L/100km
I think there is still a lot that people in Australia can do to reduce their rate of energy consumption in a short time frame...

BUT

The structure of our cities is going to make adapting to much higher energy prices very hard compared to the high density cities of Europe in the longer term. And that is where the real problem lies imo.

 

[Smurf1976]

Re: OIL AGAIN!

Australias most popular cars: Ford Falcon and Holden Commodore.
The V6 versions burn 10 to 11 L/100km
V8's burn about 14L/100km
Honda Civic for example burns 7 L/100km
Honda Jazz burns 6 L/100km
I think there is still a lot that people in Australia can do to reduce their rate of energy consumption in a short time frame...

I take your point that we can use less in the long term, but I really doubt that Joe Average with a Falcon, Commodore or whatever will be scrapping a perfectly good car that may still be under warranty. By scrapping I mean crushing / landfill or at least wrecking and not simply selling it as a working vehicle. I just don't see how we're going to afford to do that.

It took years to phase out a relatively small number of oil-fired boilers and power stations following the last oil crisis. Took 3 years to achieve anything, 8 years to become significant, 13 years to get any major infrastructure built and 30 years to largely complete. And that's with a gas and electricity industry already well set up to build pipelines and coal-fired generation in a country that has plenty of those two fuels.

I'd argue that replacing millions of vehicles is somewhat more difficult than converting a far smaller number of power stations and factories to coal or gas or building replacements.

 

[numbercruncher]

Re: OIL AGAIN!

Ive always said retrofitting existing vehicles is the solution, maybe even with Gov subsidies similar to the LPG sub ?

And lo n behold I find a Sydney company that is now retrofitting Cars with Electric engines !

http://bev.com.au/

 

[Knobby22]

Re: OIL AGAIN!

One of my friends has converted his car to electricity and plugs it into his solar system on his house. The guy also has his own water.

 

[Tysonboss1]

Re: OIL AGAIN!

Ive always said retrofitting existing vehicles is the solution, maybe even with Gov subsidies similar to the LPG sub ?

And lo n behold I find a Sydney company that is now retrofitting Cars with Electric engines !

http://bev.com.au/

$32,000 for the retrofit,.... I think I ill wait for the production model.

 

[Uncle Festivus]

Re: OIL AGAIN!

Monetary inflation is responsible for the majority of oil's price gains???

Paul Van Eeden offers his view.

http://watch.bnn.ca/trading-day/may-2008/trading-day-may-30-2008/#clip56474

http://www.youtube.com/watch?v=iwAHnpIR8is

Dan Denning -

We’re even more sure that global central banks are either unable or unwilling to take steps that might lead to a lower oil price. Hiking rates would slash global economic growth, and inevitably lead to lower oil demand. And there’s also the fact that the oil price””like all commodity prices””is closely correlated with money supply growth.

Cut the growth in broad money supply and you knock at least one leg out from commodity prices.

http://www.dailyreckoning.com.au/

 

[kransky]

Re: OIL AGAIN!

I'd argue that replacing millions of vehicles is somewhat more difficult than converting a far smaller number of power stations and factories to coal or gas or building replacements.

I dont know if i agree... firstly the supply of more fuel efficient replacement cars isnt an issue.

Getting the bigger cars off the road is the issue. Falling sales of larger cars and rising sales of small and light cars is the start and we have been seeing that for quite a while now and its accelerating.

With 1 Million new cars sold per year and around 11 million passenger cars on the road it wont take that long to adapt surely..

http://www.fcai.com.au/sales.php/2008/04/segmentation.html

year to date sales of "large" and "upper large" cars is down from 48,900 in 2007 to 38,700 this year (Huge drop of 20%)... while "small" and "light" cars are up from 115,000 in 2007 to 124,000 this year (rise of 7%)

I think that the used prices of large cars will fall and their use will simply dwindle.

Holden need to make a smaller 4cyl version of the commodore!

 

[Tysonboss1]

Re: OIL AGAIN!

Holden need to make a smaller 4cyl version of the commodore!

The holden Astra is a good size 4cyl,...

I would love to see a hybrid or EV holden commodore in production.

Holden made a hybrid commadore back in 2000,... never went to production though, maybe it's time to bring the concept car into production.

I don't know if it is still there but the original prototype commodore hybrid was in the power house museum for a while.

 

[rederob]

Re: OIL AGAIN!

It's in production, it's all electric, and its very fast.
http://en.wikipedia.org/wiki/Tesla_Roadster#cite_note-Associated_Press_Air_Bag-17
But it's not here yet, and not in my price range.
Maybe 2010!

 

[boy123]

Re: OIL AGAIN!

OPEC president Chakib Khelil again blamed speculators for the steep rise in oil prices on Saturday, insisting that supply was not a problem. "There is no problem of supply, the problem is much more linked to speculation," he told a press conference with visiting French ecology and energy minister Jean-Louis Borloo.

Is oil price really a bubble that is created by speculators? Why do some experts say that the world is not lacking of oil and yet oil price has been rising at a fast pace.

Let us analyse oil using Economics 101:
The world can now produce 85 million barrels a day, and that's it. Global demand is 87 million barrels a day and growing.

Now let us put this into the perceptive of an employee:
Say David is earning $4000 a month, but he is spending $5000 every month. Does this mean that he is poor now? No.
Does this mean that he is going to get bankrupt in the next few years? Not sure, depending on how much reserves he has in his bank account, and whether his pay will rise in future.
But one thing is for sure, if he continues to spend more than he earns, his reserves is going to drain off one day.

The world is certainly not lacking of oil now. But the amount that the world is consuming now is more than the amount that it is producing. Let us not forget that the global demand is now 87 million barrels a day, this number can rise to 100 million barrels a day when China and India population become more affluence in the next few years.

So this means deficit (demand > supply) is going to widen. If this trend continues, oil price is going to rise higher as a reflection of its fundamental, and world oil reserves is going to drain off one day.

It is not the evil oil companies or the futures market speculators that have pushed crude oil to $125 a barrels. It's forward looking on the basic supply and demand.

Let's us get ready for $150 oil, $250 oil...