[Jack]

$this->bbcode_second_pass_quote('Zardoz', '
')Are all "psychological barriers" broken now? Is that an obsolete concept?

[whereagles]

$this->bbcode_second_pass_quote('ohcomeon', ' ') We're begging. Plain and simple. Like 3 year olds who've been told no and we whining, "Please, please, please..."

[DantesPeak]

$this->bbcode_second_pass_quote('Gandalf_the_White', '')$this->bbcode_second_pass_quote('Revi', 'I') think that the price may dip a bit this next few weeks, but if Goldman-Sachs are right we may see it go up again soon:

http://www.bloomberg.com/apps/news?pid= ... fer=energy

They think that there will be an average of $141 in the second half of the year.

[biofuel13]

And now the understatement of the day:

Goldman Sachs weighs in:

"The dire macroeconomic impact from the current oil shock has yet to materialize."

http://money.cnn.com/2008/05/16/markets ... 2008051616[b]


Has yet to materialize....lol...but hang on to your f@#king hats when it does start to happen....lol...lol.

I'm curious to know what some predictions are as to when we will start to REALLY start to feel the true impact of the current oil prices.
The rate of inflation at the grocery store is awful but to me still seems very low considering the speed at which the cost of food production and transport has risen due to the oil spike. So when will we really start to see it reflected at the checkout lane? 2 weeks? 2 months? 6 months?

[Forney2008]

I heard awhile back that during the Great Depression global oil demand fell like 90 percent. If so, wouldn't that cause oil prices to plunge if our global economy incurred a second Great Depression? I know that oil production might have peaked or soon will peak. However, wouldn't a deep recession/depression kill of a large amount of the excess demand growth from China/India as they can't afford to buy cars like they have if they all lose their jobs in large numbers? I am assuming that this recession becomes a depression and lasts a half decade at least. Also worldwide unemployment will be over 15 percent. What would oil prices trade at under this scenerio? Right now seems to be a tug a war between a slowly declining economy and declining worldwide production.

[idiom]

That is the best hope for a soft landing. A gentle long depression that never recovers.

[AirlinePilot]

Forney,

Your probably right. Global Depression lasting more than just a few years. Timing is problematic but my guess is within 3-5 years it begins in earnest, possibly sooner with unpredictable "Black Swan" type events.

Oil demand will go down but how much is also a very difficult thing to predict. It will be significant at the outset I think. It's what we all fear will happen and the very fact you may see this leads to a host of other very bad potential things which just prolong the agony. War, hunger, etc. It probably will go on for a long time until enough folks die or we figure out some new pardigm for energy use.

Your becoming a doomer, it's almost as if there just is no way out. Make the best of what time you have left.

[Eli]

$this->bbcode_second_pass_quote('Forney2008', 'I') heard awhile back that during the Great Depression global oil demand fell like 90 percent. If so, wouldn't that cause oil prices to plunge if our global economy incurred a second Great Depression? I know that oil production might have peaked or soon will peak. However, wouldn't a deep recession/depression kill of a large amount of the excess demand growth from China/India as they can't afford to buy cars like they have if they all lose their jobs in large numbers? I am assuming that this recession becomes a depression and lasts a half decade at least. Also worldwide unemployment will be over 15 percent. What would oil prices trade at under this scenerio? Right now seems to be a tug a war between a slowly declining economy and declining worldwide production.

[dohboi]

I think we are now going hyperbolic. If you add a feedback loop or two to a system experiencing exponential growth, it tends to kick it into a hyperbolic curve, truly explosive growth.

Increasing demand and flattening production have set oil prices on an exponential curve since 2000, about doubling every two years since then: $10 in 2000, 20 in '02, 40 in '04, about 80 in '06...

Now on top of that, we are starting to have feed back loops:

Export lands are starting to want to use much more of their own energy sources rather than sending them all over seas, at whatever price;

As these producers realize the price of this limited commodity is going to go up indefinitely, they will have better and better incentives to leave it in the ground ever longer since they can anticipate that it will be worth ever more in the future;

Other hording phenomena will soon kick in (note Bush's attempt to increase the Strategic Petroleum Reserve);

As Jack just pointed out, when traders start realizing that they are dealing with a commodity with real geological limits that are being reached, panic will set in, driving the price ever higher...

I'm sure some of you can think of other such feedback loops that have started or soon will kick in.

So when you add even one or two of these feedback loops onto an already exponential growth curve, you get hyperbolic growth, and it's not pretty. Basically, instead of doubling over a fixed period of time, the price increases a set amount over an ever shrinking period of time, till you reach infinity--that is until all trading of oil in dollars becomes impossible.

So if we take a couple weeks ago as our starting point for the sake of mathematical convenience, the price was about $120, about double what it was a year ago--an increase of $60 over a period of a year.

If this represent a blip from which it will return to its now "normal" exponential growth of doubling every two years, we should expect the price not to rise much above $160 this year not hit $320 till about 2010.

If this is a new level of exponential growth, then we will now see doubling every year.

Both of these scenarios are really bad, but I would now say that they represent wild-eyed, pollyannish optimism at this point--really bad, but still best-case scenarios.

Given the tendency mentioned above for added feedback loops to knock growth from exponential to hyperbolic, we should see another $60 rise in the next four months, and then another in the next two months--so another doubling over the next HALF-year.

But this is just the beginning. From there it would keep rising $60 at ever shrinking stretches of time: in about three weeks, in about two, in about ten days, nine, eight.... then two day, one day, and then it is increasing by $60 in less than a day, less that and hour, a minute....

By next year about this time, by these calculations, oil will not be purchasable by any quantity of dollars. Essentially this is hyperinflation of the dollar in relation to oil.

So that's my latest. I don't give the system more than about a year before oil becomes for all intents and purposes un-purchase-able by those holding any quantity of dollars.

Of course, it is unlikely to be a smooth ride up--there will be huge peaks and craters as people assume that oil can't go higher and cash out, only to find that oil does go up further and their cash is worthless.

I hope to heaven that I'm wrong, but this model points pretty strongly in the direction of total collapse within about a year.

But then again, maybe the magic of the market will solve everything afterall

Thoughts?

Here's a bit on feedback loops from Wikipedia (my emphasis):

"A system in equilibrium in which there is positive feedback to any change in its current state is said to be in an unstable equilibrium, whereas one with negative feedback is said to be in a stable equilibrium.

The end result of a positive feedback is often amplifying and "explosive", i.e. a small perturbation results in big changes. This feedback, in turn, will drive the system further away from its original setpoint, thus amplifying the original perturbation signal, and eventually become explosive because the amplification often grows exponentially (with the first order positive feedback), or even hyperbolically (with the second order positive feedback). Indeed, chemical and nuclear fission based explosives offer an excellent physical demonstration of positive feedback. Bombarding fissile material with neutrons causes it to emit even more neutrons, which in turn affect the material. The greater the mass of fissile material, the larger the amplification, resulting in greater feedback. If the amplification is great enough, the process accelerates until the fissile material is spent or dispersed by the resulting explosion."

[url=en.wikipedia.org/wiki/Positive_feedback]feedback[/url]

[bodigami]

My out of thin air guesstimate is that we have at least 3 years before oil price becomes hyperbolic. When the depletetion rate becomes sharper... and population growth is still around current levels.

Recently, I was expecting some low prices of $115... but the price is still increasing with no fall backs.

[DantesPeak]

Great post dohboi.

I have long said here (back as early as 2005) that price increases in the US will accelerate by 2008 and reach hyperinflationary rates (something like 20% per year for ordinary consumer goods) by 2010. However the events of the last six months have me thinking that prediction may have been too optimistic, and things could get out of hand sooner.

As memmel has explained elsewhere, more likely instead of a smooth transition to ever faster increases in the price of energy (in terms of US dollars), things will become chaotic once worldwide oil and oil product stockpiles reach critically low levels (otherwise known as minimum operational levels). Essentially we have tranisitioned from local and scattered oil product shortages, to regional, and now national oil product shortages in a scant year or so. This game of whack-a-mole will end, and the point of chaos occurs, when it becomes perceived that oil product shortages have slipped below worldwide MOLs. Then no amount of price increase will eliminate oil product shortages in some parts of the world.

I do not know how close we are to the end game here, but it looks to be less than two years.

[Troyboy1208]

This is not how I wanted to start my Sunday morning. I am sitting here with my coffee and now I want to switch to something much stronger...Thanks Dante!

[Homesteader]

Some years ago now, if memory serves, didn't natural gas prices in CA increase 400% due to a 4% decrease in supply?

[threadbear]

$this->bbcode_second_pass_quote('Homesteader', 'S')ome years ago now, if memory serves, didn't natural gas prices in CA increase 400% due to a 4% decrease in supply?

[Homesteader]

$this->bbcode_second_pass_quote('threadbear', '')$this->bbcode_second_pass_quote('Homesteader', 'S')ome years ago now, if memory serves, didn't natural gas prices in CA increase 400% due to a 4% decrease in supply?

[threadbear]

$this->bbcode_second_pass_quote('Homesteader', '')$this->bbcode_second_pass_quote('threadbear', '')$this->bbcode_second_pass_quote('Homesteader', 'S')ome years ago now, if memory serves, didn't natural gas prices in CA increase 400% due to a 4% decrease in supply?

[Smudger]

It would only become hyperbolic and then unpurchasable if there was no reaction to the price via oil demand. i.e. it is a contradiction in terms to have something available but unpurchasable as that would defeat the objective of the seller of making a profit! come on people lets have some practical sense here otherwise we are just embarassing ourselves.

So the real question is at what price will oil cause sufficient demand destruction to bring demand and supply back into balance? I don't know!

What I do know is even in the UK which due to energy taxes petrol has only increased by c.20% to c.$9 per gallon people have become a very small shift to the public transport system/cycling/walking etc. So there is real capacity to to shift which I would expect when oil hits $300-400 (my guess at when petrol goes to $12+ in the USA)

There is unfortunately also a real level of near unshiftable demand which would then cause a second wave of prices rises as supply falls below the reduced level of demand due to the shiftable demand alluded to above. It will be this second wave that countries need to mitigate for now (the first wave prices increases are frankly unavoidable) in order to facilitate a calmer shift into a post oil world. The question is how long do we have for this - that question will only be answered by seeing what demand is at $300-400 and working out what spare capacity is left (my view is oil producers will not look to increase supply even if they could) it would then be a case of calculating the number of months/years (I hope!) remain before this excess is used up to stop production falling.

my pure best guess?

to get to $350 - three years
spare capacity - two years
Total - five years to switch car production to high efficiency and electric cars/ max out on solar/wind/wave and avoid a stepchange event......not overly long people...

[Gerben]

Exponential growth seems about right. I had a picture drawn in 2007 which displayed 10% price increases each year since 1998. That picture is still valid today.

[DantesPeak]

$this->bbcode_second_pass_quote('Smudger', 'I')t would only become hyperbolic and then unpurchasable if there was no reaction to the price via oil demand.

[dohboi]

Well, somebody had to come up with the equivalent of "the magic of the market will solve everything."

Hyperinflation has happened many times. It is not outside of the realm of economic possibility. And we are seeing here a once-in-history event--the peaking and inexorable decline of the basic fuel that moves us and our stuff around, grows our food and gets it to market, heats many of our homes, makes a great many of our products (including the shells of the computers we are all reading these threads on)...

This is not a normal economic event. Demand destruction will happen and is happening=lots of people are and more will be doing without, including (already) doing without food. So demand can be destroyed, and people can be destroyed, but currency can't? All my model predicts is that purchase of oil with dollars will become meaningless soon. Anyone following Dante and others posts on what's happening to the dollar will not be surprised by the idea that the world, including the oil-proucing world, may soon see it as a meaningless currency.

And, by the way, I forgot another obvious feedback loop--further increases in resource wars. These both suck up more resources themselves, and they tend to destroy infrastructure and personel necessary for extraction, and of course destabilize entire regions indefinitely, as we have recently seen. Does anyone think that the US and others won't be tempted to find excuses to go to war with countries that just happen to have our oil under their sands (or jungles, or oceans...)?

Having said all that, I pray to the heavens that smudger is right and that my scenario is a "contraction in terms." But we have seen a long parade of economists come through these threads pointing out how their precious theories prove that oil prices cannot continue to rise past this or that point, only to be shown by logic and by events that they were, sadly, wrong. Perhaps this time they'll be right. I do hope so. Unfortunately, I have a sinking feeling that even if they are, I and most that I know will be included in the "destruction" side of demand destruction.