[Pops]

Thanks for that wt.
The only global increases currently is in the US and shale. Even the CEO of EOG said last year was likely the peak in shale growth.

--
Of course costs put a floor under price, if that wasn't true, the price of everything would be zero. lol

I raise calves, I sell them at auction, high bidder "wins".
If I don't make a profit I cut costs
If I can't cut costs I go out of business.
If I go out of business the supply drops
If supply drops and demand doesn't, the price increases

The market doesn't care whether I - me, personally, makes a profit but it requires someone to make a profit in order to continue to supply the market and meet demand.

I linked to the Price of Collapse thread because in it I was trying to figure out what happens when the cost is too high to bear but must be born for any supply to be created, so
a) there is a range of costs for oil, the cheapest will be gone first, so price must rise to extract the next harder "oil"
b) there is a range of uses for oil, the uses with the least utility must be abandoned in order to pay the same dollar amount for a smaller volume

conclusion: increase utility, use less, pay more per unit

Of course there is a cyclical nature to any form of "production" whether it's oil or calves and the longer the production cycle the bigger the swings. Add in the ability to make money from other than the product itself (McClenden flipping leases for example) and demand from other than consumers (US SPR or China JVs) and the distortions become greater but at the heart it's still just supply and demand.

[SeaGypsy]

Those dwindling few who hold what's left of the easy oil can see all this and are weighing in. The easy oil might not be the first used when all is said and done. ELM has some frightening consequences for these major exporters, it is thoroughly in their interest to hold out in the event of a price lull. Desperate times are already emerging for those having recently fallen off the export cliff and some of those nearing it. The worse this syndrome gets, the louder the signal to those precious few to GTST asap. If this means pushing very expensive extraction to the forefront elsewhere, as is happening now, this seems pretty much as 'nature intended'. Environment be damned.

[westexas]

Re: SeaGypsy

Note that Egypt and Indonesia are still trying to reduce petroleum consumption subsidies, even after they slipped into net oil importer status. And even in most cases where oil exporters have successfully cut their petroleum consumption, e.g. Denmark, the rate of decline in consumption was not nearly enough to offset the rate of decline in production.

Denmark is a case history of a net oil exporter, showing a production decline, that taxes fuel consumption and that has successfully cut their consumption. Denmark’s 2004 to 2012 rate of change numbers (EIA):

(P = Production, C = Consumption, NE = Net Exports.)

P: -8.0%/year

C: -1.9%/year

NE: -18.7%/year

ECI Ratio (P/C): -6.0%/year

Given an ongoing production decline in an oil exporting country, unless they cut their consumption at the same rate as the rate of decline in production, or at a faster rate, the net export decline will exceed the production decline rate, and the net export decline rate will accelerate with time.

In Denmark’s case, their 2004 to 2005 net export decline rate was 4.5%/year, while their 2004 to 2012 net export decline rate accelerated to 18.7%/year.

In simple percentage terms, a 47% decline in production from 2004 to 2012 resulted in a 78% decline in net exports, even as consumption fell by 14%.

[SeaGypsy]

Beautiful, ugly numbers WT. Would you rather live in post collapse Denmark or post collapse KSA?

[westexas]

Re: SeaGypsy

Door #1.

After reading "On Saudi Arabia," I think that the most surprising thing about Saudi Arabia is that it has not already slipped into chaos:

http://www.amazon.com/On-Saudi-Arabia-Religion-Lines/dp/0307473287/ref=zg_bs_5007_7

$this->bbcode_second_pass_quote('', 'W')ith over thirty years of experience writing about Saudi Arabia, Pulitzer Prize-winning reporter and former publisher of The Wall Street Journal Karen Elliott House has an unprecedented knowledge of life inside this shrouded kingdom. Through anecdotes, observation, analysis, and extensive interviews, she navigates the maze in which Saudi citizens find themselves trapped and reveals the sometimes contradictory nature of the nation that is simultaneously a final bulwark against revolution in the Middle East and a wellspring of Islamic terrorists.

Saudi Arabia finds itself threatened by fissures and forces on all sides, and On Saudi Arabia explores in depth what this portends for the country’s future—and our own.

[SeaGypsy]

If I were stuck in Europe, it's Finland I would choose- most like Australia for vast areas of low population, harsh as hell but survivable, forest, lakes, berries, fishing, interesting women.

40,000 people came to Australia by boat this year, with an increasing majority being middle class Iranians, able to pay the $10,000 for a smuggler's ticket- a clear product of the embargo supposedly about Iran's nuclear ambition, much more likely about oil.

Your ELM makes sense of history as it is happening WT, exponential ELM POD anyone?

[wildbourgman]

I get what many of you are saying about this issue but no one ever seems to bring inflation into the equation.
Oil is priced in dollars and the U.S. has increased the amount of dollars in circulation. With the economic problems we have had since in 2008 you would think oil and other commodities would have fallen in price but many did not.

In my recent view inflation does not act equally with a rise of all prices. In stagflationary recession you could even see prices fall of say 10 percent when without inflation it should have fallen 50 percent. That would be a net increase in inflation of 40 percent, but when the FED looks at inflation numbers they don't take that into account. The fact that they exclude energy and foods cost in the CPI is another story altogether.

In my view energy prices without inflation could have been much lower in the last five years, but then again drilling activity would have slowed in reaction to that. I guess what I'm saying is that nominal prices may not entirely predict or explain production rate capability. Many peak oil folks including myself ofte forget about how dynamic pricing can be.

[Pops]

$this->bbcode_second_pass_quote('wildbourgman', 'I')n my view energy prices without inflation could have been much lower in the last five years, but then again drilling activity would have slowed in reaction to that. I guess what I'm saying is that nominal prices may not entirely predict or explain production rate capability. Many peak oil folks including myself forget about forget about how dynamics pricing can be.

[SeaGypsy]

I recall just yesterday mentioning inflation, it's been around the site a lot over the years, that and um, Pops is right.

[wildbourgman]

I'm having a hard time getting to the point. I realize that this site and others have talked about inflation in relation to oil prices. What I'm saying is that many times in certain peak oil conversations or blog threads it's often left out.

I don't know if anyone can put a number on this but what would have oil prices been if QE 1,2,3 infinity would have never happened? How low would they have gone short term if the bank bailouts would have never happened? What's the number? I'm not smart enough to even guess!

[Pops]

Me either, lol!

I'd guess generally though, the effect of cheap credit is to make production cheaper and supply more plentiful. In fact, very cheap money and resulting low returns could very well cause those in charge of getting returns on capital to invest in riskier ventures than they otherwise would, drilling for oil as an example. In that case, again, more money looking for a return increases supply. And of course the generally crappy economy has limited growth and again, an easing of demand on supply. Net result in my WAG scenario is that recession and cheap money made oil cheaper than it would have been.

[Ron Patterson]

Opec has a different opinion:
OPEC Doubts if Oil Supply Will Keep Up With Growing Demand
http://online.wsj.com/article/SB10001424127887324879504578597272759235786.html

[westexas]

$this->bbcode_second_pass_quote('wildbourgman', 'I') don't know if anyone can put a number on this but what would have oil prices been if QE 1,2,3 infinity would have never happened? How low would they have gone short term if the bank bailouts would have never happened? What's the number? I'm not smart enough to even guess!

[Keith_McClary]

$this->bbcode_second_pass_quote('TheAntiDoomer', '^')Yawn, another "shale boom is ending" article, only to be proven wrong over the next few years.

[Graeme]

What if the price of oil collapsed this year?

$this->bbcode_second_pass_quote('', 'C')ould the price of oil fall to $50? Jan Stuart and Stefan Revielle of Credit Suisse think so. Just think about the implications here: it would touch just about every industry on the planet; many speculators would be ruined; hordes of drillers and prospectors would go out of business. Britain’s drivers, meanwhile, would be thrilled. And it would be a boon for companies struggling to keep their fuel costs down, such as hauliers.

But is it likely to happen? According to these two analysts, investors are becoming increasingly concerned about an oil price collapse. “How bad can things get?” is the question, and their answer is “very bad!” But only if the global economy implodes once again…

The argument runs like this: global imbalances have not been fixed; indeed, in some cases they have got worse “and much of the available political and real capital has merely been squandered in the interim”. The cost of fixing things has now escalated, and the inevitably painful process of cutting debt has merely been postponed. But the painful reckoning cannot be put off forever.

For its doomsday scenario, Credit Suisse assumes “a repeat of the collapse in trading and global activity that accompanied the Great Financial Recession of 2008”. “It could happen [very soon] and a recovery would be decidedly sluggish”. Oil demand would deflate sharply, there would be plentiful supply and a recovery would be “halting, fragile, and painfully slow”. The US dollar would strengthen and oil prices would fail to recover to much beyond $80 a barrel in the next few years.

[wildbourgman]

I think 50 dollar oil is possible for a short period of time, due to decline rates and production cost of the real movers which are shale oil and oil sands.

We have less world demand due to economic problem so the price should go down.
We have increased supply in the states which means the price should go down.

Not withstanding inflation, war, or a major hurricane hitting the GOM I think we will have downward price pressure at some point. If oil falls too low you will see massive layoffs in the shale plays that many of the workers have never saw before. I think it'll cause a panic of sorts. I know of many young men working in North Dakota and the Eagleford play in Texas that think they can spend every dime they make, because the boom will never end. Many politicians and business men are telling people that this will last 30 to 40 years. I say lets wait and see, but any downturn in the price of oil could be short lived due to extreme decline rates in shale wells. So once they stop drilling the price will start creeping back especially if low prices spur higher demand.

My prediction is that it's going to be wild especially for those who have never strapped into this roller coaster before. Enjoy the ride!

[Graeme]

Expect $50 oil, but not $2 gas, Gulf Oil CEO says

$this->bbcode_second_pass_quote('', 'O')il prices should be about half of today's $105 a barrel by the end of the year, Gulf Oil CEO Joe Petrowski predicted on CNBC on Monday.

He stressed on "Squawk Box" that this trend is mostly on the supply side because record amounts of oil and natural gas are being produced in the United States and in Canada and OPEC supplies are higher.

But "$50 [a barrel] oil does not translate into $2 gasoline," he said, because it still has to be refined and transported.

[SeaGypsy]

$this->bbcode_second_pass_quote('westexas', '
')In my opinion, QE is more of a response to high oil prices, than a cause of high oil prices

[wildbourgman]

Guys I don't think QE in America was a response to high oil prices. When QE started in November of 2008 the price of oil was 70 dollars a barrel. The price of oil tanked due to the poor economy and the economy tanked when it did partially due to high oil prices.
I think high oil prices had something to do with the 2008 credit crisis, but I think we would have eventually had a credit crisis without high oil prices. There have been credit problems in countries and banking systems well before oil was ever used. We can have a chicken and egg debate but I don't think that all of our systemic economic problems are tied to oil.

I think our other systemic problems have stopped us from growing our demand like many of us thought would happen. That's why I believe that we will have another major price drop unless some shortage arises.


$this->bbcode_second_pass_quote('', '(')From the decline of empire blog )High oil prices are a significant drag on the economy. If the oil price gets high enough, past experience demonstrates that recessions follow. The only controversial part is identifying just how high the price must be to trigger a recession.

I should note before proceeding that the record-setting oil price of 2008 was not the main cause of the "Great" recession. In fact, the recession began in the 4th quarter of 2007, before the price surge in mid-2008. Even here, sorting out cause and effect gets tricky because the oil price had been rising throughout 2007. On the other hand, house prices started declining in mid-2006.

Undoubtedly, the surge in oil prices accelerated the deterioration of economic conditions in 2008. However, the financial meltdown in the fall of 2008 and the tailspin that followed was certainly not caused by high oil prices. To understand that, we must look at the collapse of the Housing Bubble and various structural imbalances that existed in the economy for many years (or decades) before that.

[SeaGypsy]

Wild, we around here have had this argument going on for a long time- those who put the USRE crash as causative versus those who see the rapid increase in oil prices as causative of RE crash. I'm in the second camp.

The proposed price crash is based on way too much navel gazing IMO, Anglo-Amerikan- European self absorption and wishful thinking.