[ProudFossil]

Congress certainly did nothing about the speculators. The US dollar is still at the same level it was when oil was $145. Although consumption has dropped a bit in the US, still it is rising elsewhere. There has been no real increase in production even though Saudi Arabia promised it would do so.

The only thing I have heard of at the time the price started going down was President Bush removed the executive order banning new drilling off shore. Did that give a hint that maybe the US would start getting its own energy supply again?

[Carlhole]

Signs of demand destruction.

[DantesPeak]

SemGroup, a major oil tarder and purchaser, speculated heavily on the futures market - betting on the price of oil to fall. They lost more than $3 billion, went bamkrupt about a week ago, and suddenly they can not purchase 500,000 bpd from 2,000 small oil producers. They also ship the oil to Cushing, OK, which is perhaps the most important storage and pipeline location in the US.

So it is a matter of supply and demand. However with oil inventories already low, if other companies don't contract to pick up those small suppliers, we may have a bit of an inventory problem before too long.

[benzoil]

$this->bbcode_second_pass_quote('Carlhole', 'S')igns of demand destruction.

[cipi604]

It's already going higher.Today 2$ up and some spare change.

This bubble doesn't want to burst... dammit!

[Cashmere]

Disagree wholeheartedly that a 20$ drop is a sign of "demand destruction," particularly given the dramatic run up.

This is a sign that the market moved too quickly.

Everybody in the know now gets that oil is only going one way, long term. That awareness led to the ramp up in price - fears of being locked out at too high of a price, fears of having your competitor pull a Southwest Airlines on you, and so on.

So we got the ramp up.

The drop of 20, IMO, is only an indication that a bit of the panic buying has subsided.

I don't buy demand destruction for one moment. Sure, there has been some in the U.S., but so what? As far as the numbers go, we are already in decline for sweet light. The rest seems poised to follow.

This is not aluminum foil, where consumers will sub out plastic wrap.

This is oil.

Perhaps the rate of increase will slow, but the price of oil will continue to rise.

The "long emergency" is a misnomer. It should be, "the acute emergency followed by the long descent into the new stone age."

Don't let the Siren of "demand destruction" bait you in.

Just because the cart got ahead of the horse for a short while doesn't mean that the horse is stopping.

And let's not forget that the rise has been historic. The fact is, if you had drawn a smooth curve from 60 in 06 to 125 today, nobody would be talking about "demand destruction". We'd all just be nodding and going, "yep, peak oil."

The dip recently is a very worrisome sign - because it means that those in the know have figured out the game, and it means that the next spike up will likely make the run to 146 look rather flat.

In other words, I can see a spike that takes us back to 150ish happen very quickly, because we've already been there, so there'll be less hesitation to buy in, followed by a spike to 160 or 170, then a settling back down to 150 ish.

"Demand Destruction" is a meaningless concept for oil, because there is no substitute.

What is critical is the demand versus supply delta.

That number will grow from today until there is no more oil left to pump, and that is why prices will continue to rise until you reach the number at which it makes no sense to process the oil.

Given that many people will gladly pay 20 bucks a gallon for gasoline, and certainly all militaries, I suggest that the top point for crude is going to be very high indeed relative to 125.

By the way, the belief of those in the Know that oil is only going up long term is shown in call options at high values going out a few years. You can't touch any long term options without laying out substantial cash, and much more than just 3 years ago. The difference is in long term expectations.

Time will tell.

[joewp]

This is always a very weak time for oil prices. You had a big run up in the spring into July 4th, then some weakness starts to set in as the Summer drags on. Hurricane activity is low now, the driving season holidays are past us, and refiners are switching over to heating oil. Other responses in this thread are also part of the decline, but may only explain the size of the drop.

One big spiral storm in the Gulf of Mexico in late August or September and things will get exciting again, or failing that, some cold weather in the Northeast (the largest user of heating oil in the world) in November or December usually drives up prices.

Barring an unusual circumstance like a war in Iran or a major hurricane bearing down on the center of Gulf oil extraction, it's rare for oil prices to set new records from now until at least February or March.

Of course, if the oil extraction rate starts to decline, all bets are off and we can be off to the races with little to stop the price from rising almost every week.

[DantesPeak]

$this->bbcode_second_pass_quote('Cashmere', 'D')isagree wholeheartedly that a 20$ drop is a sign of "demand destruction," particularly given the dramatic run up.

This is a sign that the market moved too quickly.

[JoeW]

This is how Peak Oilers get a bad name... US consumption declines and we have guys here that say there's no such thing as Demand Destruction when it comes to oil.

Apparently, at $4/gallon gasoline, we are indeed experiencing some demand destruction. Somehow, people have cleverly found ways to use less gasoline.

There are substitutes, you know. They're just not easy ones. There is:
1) drive (or ride) a smaller, less comfortable, and perhaps less safe vehicle
2) walk
3) live where you work or work where you live
4) stop driving like you have corporate sponsors and a pit crew
5) there are plenty of others, I'm sure, but you get the point.

People who can't afford the price have no choice but to change their habits. They were hesitant to do that until it became clear that the good old days of $1 gasoline were gone forever. In my opinion, the oil production situation has looked more like a plateau for the last couple of years than a peak. Once a serious decline sets in, all hell will break loose. There will be plenty of pain and suffering, if that's what you're looking forward to. But there will also be demand destruction, among the poorest people. To ignore it is to ignore their plight--not surprising given the "every man for himself" mentality that has become a real cultural force in the US.

[JohnDenver]

$this->bbcode_second_pass_quote('Carlhole', 'S')igns of demand destruction.

[Cashmere]

$this->bbcode_second_pass_quote('JoeW', 'T')his is how Peak Oilers get a bad name... US consumption declines and <b><i>we have guys here</b></i> [s]that[/s] who say there's no such thing as Demand Destruction when it comes to oil.

There are substitutes, you know. They're just not easy ones. There is:
1) drive (or ride) a smaller, less comfortable, and perhaps less safe vehicle
2) walk
3) live where you work or work where you live
4) stop driving like you have corporate sponsors and a pit crew
5) there are plenty of others, I'm sure, but you get the point.

. . .

To ignore it is to ignore their plight--not surprising given the "every man for himself" mentality that has become a real cultural force in the US.

[JohnDenver]

$this->bbcode_second_pass_quote('DantesPeak', 'S')emGroup, a major oil tarder and purchaser, speculated heavily on the futures market - betting on the price of oil to fall.

[DantesPeak]

$this->bbcode_second_pass_quote('JohnDenver', '')$this->bbcode_second_pass_quote('DantesPeak', 'S')emGroup, a major oil tarder and purchaser, speculated heavily on the futures market - betting on the price of oil to fall.

[Heineken]

$this->bbcode_second_pass_quote('JohnDenver', '')$this->bbcode_second_pass_quote('Carlhole', 'S')igns of demand destruction.

[DantesPeak]

$this->bbcode_second_pass_quote('JohnDenver', '')$this->bbcode_second_pass_quote('Carlhole', 'S')igns of demand destruction.

[Cashmere]

$this->bbcode_second_pass_quote('JohnDenver', '')$this->bbcode_second_pass_quote('Carlhole', 'S')igns of demand destruction.

[Starvid]

Markets are not rational in the short term. That's just life. Get used to it.

[DantesPeak]

Basically the first cuts to meet falling net supplies are the easiest made in the US, so the rest of the world - mostly Chinida - can increase their demand at the same time.

When supplies keep falling, it won't be so easy, for example, to stop driving to work or taking the kids to school when there is no alternative. Perhaps needless to say but declining enegy usage is a coincident economic indicator - or in other words - the loss of jobs in the US every month this year is no chance occurence.

[Carlhole]

I don't know what stock market reports you guys tune into, but the ones I have been reading recently have simply said that the price of oil has gotten too pricey vis-a-vis expected economic growth, airlines started failing, the subprime mortgage threatened to place a big damper on credit and all that.

The market looked at this and decided to get scared. So there was a sell-off. It wasn't a huge sell-off --- it's acting the way markets typically act.

There is still a lot of bullishness on oil -- just read the investor comments on Google Finance on stocks like CHK or UNG or PBR and others. People are nervous about the momentum of the world's economies going forward in the near term but they are very bullish on oil in the long term.

[Carlhole]

Here's Tom Whipple's reply to the question:

Peak oil review - July 28

$this->bbcode_second_pass_quote('', '.')..In light of the energy shortages, hopes for a nine percent increase in economic growth are dimming rapidly while prospects for an actual economic decline are appearing ever more likely. India’s economic miracle may be coming to a close more rapidly than anyone thought.

3. China after the Olympics

The numbers are now in, and China’s increase in oil product consumption during the first half of 2008 is truly impressive – “apparent consumption” of gasoline was up 16.2 percent, diesel up 14.7 percent and kerosene up 6.6 percent. While some of this increase is related to last winter’s blizzards, the earthquake, and preparations for the Olympics, a lot came from plain old economic growth which was 10.4 percent in the first half.

Currently China is faced with a power shortage partly due to the temporary closing of power plants in the vicinity of Beijing in an attempt to clean-up the air for the Olympics. Most Chinese authorities say the heart of the problem is the inability of China’s railroad system to move enough coal to the rapidly increasing numbers of power plants scattered across the country. Coal stockpiles have decreased by eight percent in recent weeks and two or three percent of China’s thermal power plants are reported to have closed.

To guarantee adequate electricity supplies while attempting to clean up the air during the Olympics, Beijing ordered a number of major industries, most notably aluminum production, to cut back on consumption prior to the games. Despite the shortages, China’s power generation increased 8.3 percent in June over 2007 and thermal power production increased by 6.8 percent.

Price caps on coal and electric power are complicating the situation. While long term coal contracts and retail electricity prices are capped, spot coal prices have doubled recently so that 80 percent of the power companies are sustaining losses.

In another month, the Olympics will be over as will the need for cleaner air and reliable electricity. Power plants around Beijing will resume operation as will the 100s of industrial plants that have been forced to shut down and the 300,000 trucks and 1.5 million cars that have been banned from operating around the capitol.

Increased transportation of coal over the short run seems difficult to achieve as various efforts to increase coal shipments over the past year are likely to have rung the slack out of the transportation system. This suggests that if China is to keep on growing at 10+ percent, there will be a need to import more coal, oil and natural gas. While increases on the order of 15 percent as we saw in the first half of 2008 seem high, continued growth in imports seems likely. Beijing also may seize upon the recent $24 a barrel drop in world oil prices as an opportunity to build its strategic oil reserves.

The rapid run-up in oil prices during the first half of the year and the recent drop may have more to do with Chinese demand in a tight oil market than is generally recognized.