[ROCKMAN]

Bantri,

That’s the point I’ve tried to emphasize before. It’s easy to get wrapped up in the short term cycles since those can hit us in the pocket book daily. In the oil patch we run economics on a 12-month average. It’s even more informative to use a 12 to 18 month running average. Such would clearly support your point. Despite the $147 price spike last summer we continued using about a $70 to $80 projection for the first 12 months in our economic analysis. Even more interesting: many companies were using a price forecast 10% or more less for years 2 and 3 in their economic analysis. Thus that price projection would have oil averaging $60 to $70 for 2009…not a bad guess as it turns out. But activity in the oil patch will slow up significantly but not from pricing worries: the credit availability, and more importantly the cost, will be the big hindrance.

The oil patch learned after it’s near suicidal optimistic forecast during the late 70’s boom to never take sort term price increases for granted. And more importantly, to not use them as justification for risky investments.

[bratticus]

At $130/barrel we blew an economic fuse and the "power went out."

[ROCKMAN]

That's a damn fine analogy bratticus...congrats

[dohboi]

Yes, nice graph, bantri.

I have often pointed out that oil has been on an exponential curve for the last several years, but I was just estimating. This shows it quite nicely.

Since 2002, we see doubling about every three years, or just under that. If you start with the $10 price in 1999, this trend is further strengthened.

The next doubling should put us at about a $160 average by 2011. Of course, we may bump into various kinds of discontinuities--war, sustained economic collapse, EROEI wall...


The main thing that struck me about the graph is the increase in volatility. Does anyone know how to graph that?

My guess is that the price of oil will start acting the way the stock market has been acting recently, with ever wilder, more extreme swings.

[threadbear]

The most important thing about the spike forecast, is it was forecast by a an outfit that made nearly all of it's profits last year, through it's energy desk. They should never have been allowed to do this. They created their own reality and YOUR'S too.

[newbonic]

$this->bbcode_second_pass_quote('bratticus', 'W')ell...maybe the price didn't hit $250 or $200/barrel but it sure looks like a SuperSpike in hindsight.

[bratticus]

$this->bbcode_second_pass_quote('ROCKMAN', 'T')hat's a damn fine analogy bratticus...congrats

[bratticus]

$this->bbcode_second_pass_quote('newbonic', '
')
Is there an inflation adjusted version?

[bratticus]

I've been thinking about this a bit more and it may have been that because of Gustav and Ike we never reached $200-$250/barrel before the "economic fuse blew."

[Zardoz]

$this->bbcode_second_pass_quote('threadbear', 'T')he most important thing about the spike forecast, is it was forecast by a an outfit that made nearly all of it's profits last year, through it's energy desk. They should never have been allowed to do this. They created their own reality and YOUR'S too.

[bratticus]

$this->bbcode_second_pass_quote('threadbear', 'T')hey created their own reality and YOUR'S too.

[threadbear]

$this->bbcode_second_pass_quote('bratticus', '')$this->bbcode_second_pass_quote('threadbear', 'T')hey created their own reality and YOUR'S too.

[sjn]

$this->bbcode_second_pass_quote('threadbear', '')$this->bbcode_second_pass_quote('bratticus', '')$this->bbcode_second_pass_quote('threadbear', 'T')hey created their own reality and YOUR'S too.

[threadbear]

Thank you SJN--I would argue that, although a war risk premium becomes part of the larger equation of supply and demand, if the original war indicator information is divorced from an even broader geo-political perspective, it isn't reliable. People who speculated based on a war being a sure thing, could have also been at the mercy of conflicted self interested info flows. If the Bush administration chose to drive the price up, while they were in office, all they had to do was continue to talk up the likelihood of aerial attack on Iran.

The problem with long term geologic peak oil supply/demand analysis and shorter term is that they are at times distinct, and at other times dovetail in a perfectly reasonable way. But the tracks can also diverge or parallel so tightly they are indistinguishable, until something like a sharp spike up OR down, makes it obvious, in hind sight.

This is remarkably convoluted analytical process, and is probably best left up to the vagaries of intuition. But, for the purpose of understanding where reasoning can get skewed, here it is.

My own personal forecast for oil, based on long term peaking supply, the effect of shutdowns due to depressed price, the eventual downturn of the American dollar, the actions of Opec, etc... is a stabilizing of price at between 85.00 and 100.00 US. It could end up higher, depending on the future dollar strength. It could go as low as $40.US, before that, though.

[sjn]

Threadbear, so you're still thinking PO is in our future? I can't see how even if it was geologically possible to increase production for a few years from here, it would be economically viable. My intuition has been telling me for some time, like shortonoil's quantative analysis, we're hitting the net energy wall. Incremental production costs are soaring because there really aren't any good high EROEI prospects. (At least not outweighing the EROEI<1; on a marginal basis)

I can't invisage the current financial system continuing to be viable in this climate, indeed, my earlier predications on oil prices were predicated on a breakdown of the US dollar especially its position as the defacto oil currency, leading the eventual discontinuation of the global oil exchanges. The dollar, at this point remains strong even, in the face of an unprecidented financial crisis - this can't continue indefinitely, it's currently being supported by most of the world CBs as the worlds currency reserves are depleted. Eventually the national interest of those countries must come before the continuation of the current system. Where is the financing going to come from to increase production from here?

I certainly can't envisage a long term price of $80-$100 US for oil given my prediction for financial collapse! Yet I wouldn't rule out the possiblity of it going as low as $40 in the short term, although that depends on whether the US Treasury can continue throwing money at Wall Street, given the current correlation between the equity markets and the commodity complex, it is actually currenty maintaining the price of oil in the face of ongoing deleverage!

In my opinion, the current price of oil has no relationship to market supply and demand, for oil itself, but rather of the future contracts as liquid financial instruments. It makes no sense for the price of oil to be below the cost of marginal increase in production, even if demand is down, decline of existing production continues incessantly.

[threadbear]

SJN. I definitely ascribe to Peak Oil theory. Geologic peak, eventually raises the floor on price, even in a downturn, as the cost of bringing new supply online isn't economically feasible for small and mid size producer/developers. National and Large transnational corporate producer/developers could do it, they have the money, but what would their motivation be, in an environment of weak demand? They don't want even lower prices. But there is the rub, eventually supply and demand balance and prices start to rise again, as oil is still a depleting natural resource without significant competition. I just think that a global economic depression, puts a lower ceiling on price, depending on the value of the dollar, at least lower than prices we saw last summer.

[AirlinePilot]

$this->bbcode_second_pass_quote('threadbear', 'B')ut there is the rub, eventually supply and demand balance and prices start to rise again, as oil is still a depleting natural resource without significant competition. I just think that a global economic depression, puts a lower ceiling on price, depending on the value of the dollar, at least lower than prices we saw last summer.

[shortonoil]

sjn said:

$this->bbcode_second_pass_quote('', 'T')he dollar, at this point remains strong even, in the face of an unprecidented financial crisis - this can't continue indefinitely, it's currently being supported by most of the world CBs as the worlds currency reserves are depleted.

[threadbear]

$this->bbcode_second_pass_quote('shortonoil', '[')b]sjn said:

$this->bbcode_second_pass_quote('', 'T')he dollar, at this point remains strong even, in the face of an unprecidented financial crisis - this can't continue indefinitely, it's currently being supported by most of the world CBs as the worlds currency reserves are depleted.

[sjn]

$this->bbcode_second_pass_quote('shortonoil', '[')b]sjn said:

$this->bbcode_second_pass_quote('', 'T')he dollar, at this point remains strong even, in the face of an unprecidented financial crisis - this can't continue indefinitely, it's currently being supported by most of the world CBs as the worlds currency reserves are depleted.