This page has been archived and commenting is disabled.

Guest Post: The Repricing Of Oil

Tyler Durden's picture




 

Submitted by Gregor Macdonald, PeakProsperity.com contributing editor

The Repricing Of Oil

Now that oil’s price revolution – a process that took ten years to complete – is self-evident, it is possible once again to start anew and ask: When will the next re-pricing phase begin?

Most of the structural changes that carried oil from the old equilibrium price of $25 to the new equilibrium price of $100 (average of Brent and WTIC) unfolded in the 2002-2008 period. During that time, both the difficult realities of geology and a paradigm shift in awareness worked their way into the market, as a new tranche of oil resources, entirely different in cost and structure than the old oil resources, came online. The mismatch between the old price and the emergent price was resolved incrementally at first, and finally by a super-spike in 2008.

However, once the dust settled on the ensuing global recession and financial crisis, oil then found its way to its new range between $90 and $110. Here, supply from a new set of resources and the continuance of less-elastic demand from the developing world have created moderate price stability. Prices above $90 are enough to bring on new supply, thus keeping production levels slightly flat. And yet those same prices roughly balance the continued decline of oil consumption in the OECD, which offsets the continued advance of consumption in the non-OECD.

If oil prices can’t fall that much because of the cost of marginal supply and overall flat global production, and if oil prices can’t rise that much because of restrained Western economies, what set of factors will take the oil price outside of its current envelope?

Those who still don’t understand the past ten years cling to the antiquated view that prices will eventually return sustainably to levels of 2002 in due course. They believe that a great volume of new global oil production will start to appear and prices will be driven back to the cheap levels of last decade. Many who take this view also believe that market manipulation and inflation largely account for the high price of oil and that once reflationary programs like quantitative easing (QE) come to end, the price of oil will lose its speculative bid.

To be sure, the prospect for significantly higher prices in the near term remains dim. The automobile-highway complex is in full retreat in the West, and the developing world is largely funding its next leg of growth not through oil but via natural gas and coal. Short of war, an oil spike of the kind seen in 2007-2008 will not occur until global growth resumes.

That said, the factors contributing to oil’s present stability are worth considering as the foundation for any crash lower – or spike higher – in the year ahead.

Oil’s Current Price Envelope

Autumn is typically a time for financial market crashes. Should the Federal Reserve or the European Central Bank (ECB) waver from their implied promise of more QE, there is not enough organic demand in the global economy to maintain even the current stall speed of international trade and industrial growth. Any return to austerity or move away from reflationary policy would quickly sink asset prices. And that would quickly flow through to demand for oil.

However, QE does not in itself raise oil prices. If the global economy were “normal,” then QE would certainly flow through more directly to oil prices. (If the global economy were truly normal, there would be no QE). But the global economy, and especially Western economies, exited normal four years ago. During the present phase, therefore, QE is largely a psychological inducement and has few, if any, structural implications. QE functions more as a behavioral trigger, preventing economies from falling below their current level of stagnation. Accordingly, QE does not increase the price of oil during a time of debt deflation. Rather, QE simply maintains the global economy at the drip-feed level, thus allowing the OECD and non-OECD to continue their respective decline and advance. The result is a kind of stasis between oil supply and oil demand.

Unsurprisingly, the price of oil has been stable and has oscillated around $90 for nearly two years. A technical analyst might call this a consolidation of previous re-pricing phase, and fundamentally speaking, this is probably accurate. Recently, Ambrose Evans-Pritchard of the Telegraph newspaper marveled that oil prices could be “so high” during such difficult economic conditions:

Goldman Sachs said the (oil) industry is chronically incapable of meeting global needs. “It is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand,” said its oil guru David Greely. This is a remarkable state of affairs given the world economy is close to a double-dip slump right now, the latest relapse in our contained global depression...Britain, the eurozone, and parts of Eastern Europe are in outright recession. China has “hard-landed”, the result of a monetary shock and real M1 contraction last winter. The HSBC manufacturing index fell deeper into contraction in July...So we face a world where Brent crude trades at over $100 even in recession.

(Source)

Yes, the price influences on oil that exert upward pressure are mostly balanced by the array of factors exerting downward pressure. But this is all taking place at the new, higher price level for oil. Let’s take two of these factors, just to start. First, OPEC spare capacity, from EIA Washington:

It is axiomatic that if OPEC increases production, then its spare capacity will fall. And that is exactly the trend that’s been unfolding since 2009, when a weak economic recovery began. While total OPEC production has remained largely within a range of 31-33 mbpd (million barrels per day) for years now, spare production capacity in OPEC has fallen for a third straight year and remains below the five-year average in 2012.

Oil markets always have (and always will) firm up prices when spare capacity falls because reductions in spare capacity simply make overall conditions ‘tighter.’ While I disagree with the Goldman analyst cited above that inventories or capacity will cause an imminent higher price squeeze, it’s absolutely the case that the lack of robust spare capacity in OPEC is supportive of price. Briefly, let’s take a look at OPEC production:

The increase in OPEC production since early 2011 has a paradoxical effect: Yes, more oil comes to market, but spare capacity is reduced by an equal amount. Meanwhile, there is no spare production capacity among non-OPEC producers.

Global oil markets are therefore efficient price discounting mechanisms: OPEC spare capacity, whether being utilized or held in reserve, is, at most times, priced in. (The singular wild-card to OPEC spare capacity is now Iraq, which I will address in Part II).

The Other Half of Global Supply: Non-OPEC

The incremental, post-2009 increases in OPEC production (coming from a low near 30 mbpd) along with the ability of non-OPEC to either maintain or slightly increase production – especially from the U.S. – has likely served to keep prices from running away to the upside. Again, these increased volumes of oil from both OPEC and non-OPEC are not enough to meaningfully lower prices. Rather, in a world where emerging-market demand growth balances developed-market consumption decline(s), these incremental additions to global supply are merely enough to restrain prices.

Let’s take a look at non-OPEC production:

The near-mania over the recovery in U.S. oil production continues to run at very high emotional levels, but as we can see, average non-OPEC production in the three years of 2010, 2011, and 2012, (at roughly 42.5 mbpd) is just one percent above the average high of 2004. The fact remains that non-OPEC oil production is composed of very uneven results from various producers. Many of these have long offered the promise of increased volumes but have turned out to be a disappointment. Brazil is a case in point, where oil production is stagnant and not growing. Meanwhile, Canada remains at least 4-5 years behind projected growth rates from last decade, and other non-OPEC producers continue to suffer declines in places such as Mexico and the North Sea.

Marginal Price Realities

The oil market now understands that should prices fall below $90, it starts to make sense for large integrated oil companies to simply buy oil on the open market for refining rather than spending the capital to develop the oil from the ground. The cruel math of the marginal barrel now means that prices must stay above the $90 mark to encourage investment in new supply.

Furthermore, the rate at which this new supply comes to market remains ploddingly slow. Recent forecasts, such as Leonardo Maugeri’s wildly cornucopian report, completely overstate the rate at which new supply will come to market and the rate at which existing supply is in decline.

More broadly, the public still seems not to understand that many of the giant, integrated oil companies are now mostly price-takers of oil, not price-makers of oil. ExxonMobil, Shell, and ConocoPhillips have increasingly become natural-gas-focused companies as they lost their ability to replace their own oil production with new supply over the last decade. The new oil resources which come on-stream now are made possible by the small and mid-sized oil companies, which are more nimble and more suited to the tight, narrow boundaries that define the next tranche of oil supply. Global oil supply was once composed of giant companies extracting huge volumes from singularly giant fields. Now the landscape has fractured into a million little pieces, with specialists far and wide digging up expensive, hard-to-extract oil.

OECD Inventories

When new supply comes online at very slow rate against existing declines, one of the sources upon which the market can draw is inventory.

Based on the number of days' supply, total OECD inventories are back down near their lowest levels of the past four years at 57 days' supply. Readers will recall that the IEA Paris cited these inventories when the Libyan conflict broke out last year, as a reserve of oil that would be sufficient to calm oil markets. Not so. Oil markets were not pacified at all by inventories, which have been in a downtrend for over two years:

For over a year, inventory levels have been below the trailing five-year average. Per the most recent Oil Market Report from the IEA, inventories fell again, counter-seasonally.

Frankly, it is not so much that OECD inventories are at critically low levels, or that inventories are falling rapidly. Rather, the point is that inventories are not building. Indeed, on an absolute basis, OECD inventories at 2,683 mb (million barrels) revisits similar levels from 4-6 years ago (2006-2008). This is yet another reason why stagnating economic growth in the West has not exerted much downward pressure on global oil prices.

Energy Transition and the Next Set of Risks to Oil Prices

Global growth, scarce though it may be, is no longer being funded by oil. OECD economies have rebounded weakly since 2008, and have used natural gas, coal, and renewables like wind and solar rather than oil to build back broken portions of their economies. Meanwhile, in the non-OECD, where oil demand is still growing, the consumption of oil is completely dwarfed by coal consumption. There is no question that energy transition is underway and has been already for at least five years. In my last report, I suggested that one possible pathway for oil was to be finally set free to achieve significantly higher prices as the construction fuel for a world in transition.

In Part II: The March to $200+ Oil, we take a look at the various factors (and the relative influence of each) that are combatting to push oil outside its current price range: lower, as a result of renewed deflation and financial crises, and also higher, as a result of a near-term growth spurt brought on by renewed reflationary operations.

Click here to read Part II of this report (free executive summary; paid enrollment required for full access).

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 09/07/2012 - 13:23 | 2772291 johnQpublic
johnQpublic's picture

i'll take israel attacks iran for 1000 alex

Fri, 09/07/2012 - 13:29 | 2772332 DCFusor
DCFusor's picture

Transitory.  Human stupidity in one form or another is what will move oil longer term.

Like that was news - I'll wait till 11 for that.

Fri, 09/07/2012 - 13:34 | 2772356 Flakmeister
Flakmeister's picture

The thing about Peak Oil is that anyone without their head in the sand (or paid to speak otherwise) saw it coming, the thing that no one really got was how it would play out.....

Fri, 09/07/2012 - 14:18 | 2772545 DaveyJones
DaveyJones's picture

got or gets? It still has some interesting geopolitical variables based on, well mostly, human stupidity

Fri, 09/07/2012 - 14:34 | 2772601 Flakmeister
Flakmeister's picture

I think the aspect that people missed is that the peak would be a much longer drawn out affair... A true slow-motion train wreck with lots of Brownian motion thrown in....

Fri, 09/07/2012 - 15:31 | 2772853 DaveyJones
DaveyJones's picture

Brownian definitely

Fri, 09/07/2012 - 19:19 | 2773431 Citxmech
Citxmech's picture

Personally, I agree with Martinsen that the economic/debt implosion was a result of cessation of growth in the energy produciton sector.  I also think that reading about the "bumpy plateau" is WAY different than living in it.  So many are focused on the trees that they miss the forest.  The part that scares me are the steps that the ones with the most to lose will take to try and maintain the unsustainable.

Sat, 09/08/2012 - 02:31 | 2774034 o2sd
o2sd's picture

LOL. In 1919, gasoline prices were 25 cents a gallon. If you adjust for inflation to present day, in real terms that is $3.49 in present value dollars. According to USEIA(http://www.eia.gov/petroleum/gasdiesel/) gas averaged $3.83 in September. In other words, the price of gas has only increased by 0.1% in 93 years.

If there is a supply problem, the market has not priced it into the price of gasoline. Meanwhile, the US saw gasoline demand peak in 2007 and has declined since. Demand is expected to fall sharply even as mileage and numbers of cars increase due to increased effeciency and biofuel supplementation.

Lastly, when oil production peaks, 50% of the extractable oil has been taken from the well. The water cut increases, raising the extraction cost and lowering the daily production, but there is still oil in the ground. If we only double the efficiency of our energy consumption, there is enough oil in the ground for another 200 years. 

DONT PANIC.

 

Sat, 09/08/2012 - 09:30 | 2774332 Flakmeister
Flakmeister's picture

Did you pull the 200 year figure out of your ass?

It sure smells like it...

Sun, 09/09/2012 - 23:16 | 2777465 o2sd
o2sd's picture

No I did not. But your sizzling rebuttal, full of facts and figures has left me with the notion that you really don't know what you are talking about. Do you even know what peak production actually means?

Mon, 09/10/2012 - 09:27 | 2778089 Flakmeister
Flakmeister's picture

Would you like to play?

200 years at current production = 423 billion barrels of recoverable oil....  I think it is safe to say that number is utter bullshit...

Mon, 09/10/2012 - 18:57 | 2780131 o2sd
o2sd's picture

OK, here is the current proven reserves:

http://en.wikipedia.org/wiki/List_of_countries_by_proven_oil_reserves

If you want to dispute those numbers, go ahead, given me your sources for proven reserves.

Current consumption is 82mio bbl/day. If we only double the energy efficiency, consumption would decline to 41mio bbl/day which is 92 years on proven reserves alone. We have already built cars that can get 200mpg, pumps and fans that are 10x more effecient, buildings that are 9x as thermally efficient.

As production declines, the price will rise and all of the efficiency technologies we have ALREADY developed will be put into place as a demand response to the rising price.

We have 10x the negabarrels on the demand side than the producers have on the supply side.

Mon, 09/10/2012 - 23:38 | 2780708 Flakmeister
Flakmeister's picture

You think it is that easy....

Did you assume any growth in demand? Did not think so...

You also make the rookie error assuming that the flow rates for those putative reserves are the same.... Ghawar super-K zones and SAGD heavy oil are not comparable...  

The OPEC ones are overstated by 300 million barrels and the Saudi ones have not changed despite extracting ~9 mmbpd for 30 years... Hell, use Wiki to see the history of OPEC reserves to see what I am talking about....

If you are really interested in the issue, you should read the Hirsch Report for realistic time lines of mitigation....

Finally, I call BS on your claim re: pumps and fans (not that it of any consequence), not to mention that thermally efficient buildings don't rely on oil....

You are in denial.....

EDIT: the 200 yr figure was for the US quoted above was for the US...

Tue, 09/11/2012 - 09:22 | 2781359 o2sd
o2sd's picture

No, I assume demand will decline. There are those who are fighting the rapid decline in demand, but they will be swept aside by market forces. There are at least 4 sustainable, renewable,scalable, non-food sources of hydrocarbons that are profitable at roughly $5 per gallon,and insanely so at $10 per gallon, so it's unlikely that the black goop that is expensive and dangerous to pump out of the ground will go beyond that price for very long.

Even if the proven reserves are overstated, the market can respond to the higher price of oil (driven by decreasing supply), by lowering demand even faster, especially in the US.

Heating oil consumption has dropped from 942,000bpd in 1973 to 309,000 bpd in 2008, as buildings became more thermally efficient and switched to natural gas and electricity.

I'm not in denial, I'm just in possesion of the facts.


Tue, 09/11/2012 - 19:16 | 2783525 Flakmeister
Flakmeister's picture

You are delusional....sorry...

Sat, 09/08/2012 - 10:24 | 2774408 Henry Hub
Henry Hub's picture

I don't know what the price of gas was in 1919, but it was approximately 20 cents a gallon in 1965. I had VW Beetle. Drove it everywhere. Total gas bill - $10.00 a month.

Fri, 09/07/2012 - 13:34 | 2772357 Bam_Man
Bam_Man's picture

The REAL re-pricing of oil happens when the first producing state says "We don't accept funny money any more. Settlement in Gold only from now on."

It is not a matter of "if", only a matter of "when". And to all the deflationists out there - you will be absolutely correct right up until that moment.

Fri, 09/07/2012 - 13:51 | 2772441 SmittyinLA
SmittyinLA's picture

Didn't Saddam, Kadaffi try that?

 

It goes like this "Hey, we're only taking gold, silver and goods in exchange for our oil" .............immediately followed by "boom yer dead, and your nation's water & electricity systems turned off"

 

This is capitalism, he with the most gold to buy the most guns rules.

Fri, 09/07/2012 - 14:12 | 2772523 ParkAveFlasher
ParkAveFlasher's picture

Iran is not Libya, and it is certainly not Iraq.

If anything the US literally inflated her reach to fight a protracted occupation of Iraq (which we are still paying for).  If the dollar blows up any further, it busts. 

Fri, 09/07/2012 - 14:14 | 2772527 easypoints
easypoints's picture

Great point. However, China can get their oil elsewhere, and don't mind paying in dollars. When that changes, the petro-dollar will die and all that will be left is gold and war.

Fri, 09/07/2012 - 14:21 | 2772554 DaveyJones
DaveyJones's picture

Good point, empires never kill to control raw resources

Fri, 09/07/2012 - 15:17 | 2772784 t0mmyBerg
t0mmyBerg's picture

Before that happens, the US will do what is becoming increasingly likely, which is to tell China we will no longer accept their mercantilist approach.  Either they must live up to the promises they made in 2002 in order to gain access to the world trade system and become workshop to the world, or they will be frozen out.  That will drop a bunch of oil demand right out of the picture.  Price drops then.

Sat, 09/08/2012 - 19:20 | 2775304 sushi
sushi's picture

Great idea. Freeze out the Chinese.

And then watch as the price of a $400 PRC air conditioner goes up to four times that price. And a huge variety of consumer goods simply dissappear from the shelves. Try and calculate Walmart's revenue stream if all they had to sell were US made or OECD made goods.

Yup, smart move.

And then there are the profits of firms such as GM which sell more cars in China than they sell in the US. Once the US has "frozen" out China do you really believe GM will maintain any profitable production in China? Since most of the Fortune 500 use China as an export platform (heard of APPL?) once that is no longer available where will they source their product. Watch P/E levitate to infinity once the warhoused product dries up.

Of course the other option is to simply bomb the Chinese into submission. That just achieves the same result as above but requires several billion in US defence expenditures. Of course that can be financed. Sure. Just sell the bonds to China!!! Once their economy has been flattened they will be jumping in the street to buy US debt.

The world is such a simple place when you know less than little.

 

Fri, 09/07/2012 - 19:03 | 2773442 Arnold Ziffel
Arnold Ziffel's picture

China's Wen just annouced an almost $200 Billion infrastructure program (roads, trains, etc) which will require lots of Black Gold. I don't see oil falling much below $85 .....more likely rise to $200 in the near future:

1. demand;

2. hedge against inflation; and

3. MENA wars.

 

Rather then a mere "Black Swan" it might turn out to be a "Black Oily Swan."

Fri, 09/07/2012 - 13:54 | 2772456 Sofa King
Sofa King's picture

Shit was all laid out in the movie "Rollover".

Fri, 09/07/2012 - 15:46 | 2772913 billsykes
billsykes's picture

I gotta see that I like Kris Kristofferson

Fri, 09/07/2012 - 14:50 | 2772675 Stock Tips Inve...
Stock Tips Investment's picture

Regarding this issue, I think we should consider three new elements. First in the world are investing large amounts in exploration and exploitation of oil. This will have a major effect on the supply of the next 10 years. Second, the world is growing very significantly the consumption of alternative energy sources. This factor will also have a big impact over the next 10 years. The third is that U.S. will become a net exporter of energy in the next 10 years. The combination of these three factors will generate the biggest economic change in the world since the rise of China as a world power.

Fri, 09/07/2012 - 15:07 | 2772747 Flakmeister
Flakmeister's picture

You lost us when you claimed the US would become a net exporter of energy within 10 years...

You should not snort mescaline and post on ZH simultaneously....

Fri, 09/07/2012 - 15:59 | 2772977 ParkAveFlasher
ParkAveFlasher's picture

That said, where is that "I trade on DMT" guy today?  Now THAT'S a meme-in-waiting.

Fri, 09/07/2012 - 20:19 | 2773588 Spastica Rex
Spastica Rex's picture

Nice. All I can ever manage with posts like that is "OMG."

+1

Fri, 09/07/2012 - 20:43 | 2773635 mumbo_jumbo
mumbo_jumbo's picture

flake,

maybe you should read other blogs than just the hedge.  i've read that 10 year number is quite possibly a reality.

abiotic oil, wouldn't that just put a monkey wrench in the oil/gold bugs view

Sat, 09/08/2012 - 00:57 | 2773652 Flakmeister
Flakmeister's picture

Umm... Do you think I would be informed as I am on energy matters if I only hung out at the Hedge?

Let me guess, you are going to quote the flawed CITI "analysis".....

The only way the US is "energy independent" in 10 years is that the dollar and the economy have collapsed and we are using energy at 1940 levels....

Sat, 09/08/2012 - 10:37 | 2774429 Henry Hub
Henry Hub's picture

Apparently when Romney talks about the U.S. having oil self-sufficiency, he is counting the Canadian oil sands in this calculation. If he's elected I'll be waiting to hear about massive U.S. troop movements on the Canadian border. Have to protect the oil from the terrorists, don't you know.

Fri, 09/07/2012 - 13:41 | 2772362 DavosSherman
DavosSherman's picture

Perhaps the repricing of oil is going to be tied directly to the repricing of water.  

I stumbled upon this in 'The Ripple Effect, the Fate of Freshwater in the Twenty-First Century' (page 288) "The federal Bureau of Land Management (BLM), the agency responsible for managing public lands, estimates that the shale formatioin under the Colorado, Whoming, and Utah could yield as much as 1,800,000,000,000 (1.8 trillion) barrels if oil, an amount three times the size of Saudi Arabia's "proven" (quotes mine) reserves."

That is enough to get even the hard core peak oilers attention.  My take on the PO debate has been simple: BP's global 86 m/bpd production v. 88 m/bpd consumption says it all.  Easy oil is gone.  At the very least this is the erea of Peak Easy Oil.

But aside from the mining/time issues there is the water problem.  One barrel of butumen (synthetic crude) oil takes 5 barrels of water to get.

Fri, 09/07/2012 - 13:49 | 2772428 Flakmeister
Flakmeister's picture

Check out the history of Kerogen mining and processing...That "oil" in the Green River formation is the equivalent of really shitty coal....

BTW, don't fall for BP's slight of hand, refinery gains, NGL and ethanol is not C+C.... Real Crude and Condensate production is ~73-74 mmbpd.....

Fri, 09/07/2012 - 13:50 | 2772433 SelfGov
SelfGov's picture

The word to pay attention to there is, "...could..."

You're talking about the Green River Basin which doesn't actualy have any oil in it.

It has stuff that can be converted to oil but the tech to take it out is not there.

Fri, 09/07/2012 - 15:19 | 2772791 Dapper Dan
Dapper Dan's picture

"

But aside from the mining/time issues there is the water problem. One barrel of butumen (synthetic crude) oil takes 5 barrels of water to get."

I am not worried about them using water that comes from the ground, I drink bottled water!

Fri, 09/07/2012 - 15:36 | 2772879 DavosSherman
DavosSherman's picture

"I am not worried about them using water that comes from the ground, I drink bottled water!"

LOL Dapper Dan.  On page 292 of that book it explained that American's spent $10,600,000,000.00 on bottled water per year.  Someone who drinks eight glasses of water a day from the tap pays 0.49 a year, and if you were really not joking you'd be paying $1,400 a year for those 8 glasses a day.

Oh, one more thing, 40% of bottled water is actually tap water.

Fri, 09/07/2012 - 20:10 | 2773574 prodigious_idea
prodigious_idea's picture

Don't believe everything you read.  A discussion of bottled water leaves the $/unit element behind very quickly.  And your 40% stat is inaccurate.  Unfortunately an explanation with facts is too time-consuming and off-topic for this thread.

Fri, 09/07/2012 - 20:22 | 2773595 Spastica Rex
Spastica Rex's picture

Lucky for you.

And.... he's gone.

Sat, 09/08/2012 - 10:46 | 2774446 Henry Hub
Henry Hub's picture

***Someone who drinks eight glasses of water a day***

Nobody can drink eight glasses of water a day. Eight glasses of beer, no problem.

Sat, 09/08/2012 - 19:23 | 2775306 sushi
sushi's picture

And I don't drink beer that comes out of the ground.

Fri, 09/07/2012 - 13:37 | 2772371 Richard Chesler
Richard Chesler's picture

Oil prices are not rising, Obanana dollars are falling.

 

Fri, 09/07/2012 - 13:50 | 2772437 Flakmeister
Flakmeister's picture

Relative to what???? Oil?

Define your metric first....

Fri, 09/07/2012 - 14:24 | 2772560 DaveyJones
DaveyJones's picture

they are not mutually exclusive. In fact it's the same mathematical principle. More of the latter, less of the first. One has intrinsic value, one doesn't.  

Fri, 09/07/2012 - 17:52 | 2773263 CrashisOptimistic
CrashisOptimistic's picture

The price of oil per barrel has not changed in 100 million years.

It is 5.6 million BTUs / barrel.  It always was, it is now, and it always will be.

Until you understand that at a deep, instinctive level, you cannot understand the future.

Fri, 09/07/2012 - 19:06 | 2773450 Citxmech
Citxmech's picture

The BTU yield of oil is the value - not the price.  Big difference.   Demand effectively goes up (increasing the price) as the net BTU yield of oil declines because of the decreasing EROEI that occurs as extraction becomes increasingly difficult.

Fri, 09/07/2012 - 22:33 | 2773823 DaveyJones
DaveyJones's picture

"well" said

Sat, 09/08/2012 - 19:47 | 2775330 CrashisOptimistic
CrashisOptimistic's picture

That's a very solid bit of thinking that reaches an incorrect conclusion.

The PRICE is 5.6 million BTUs because it is 100% transparent.  If you pay more than 5.6 million BTUs for a barrel of oil in terms of effort, you have overpaid.  The energy content defines its price.  

Under pay in effort expended and civilization gets a great deal.  Overpay and civilization dies.

Fri, 09/07/2012 - 13:42 | 2772388 Racer
Racer's picture

If traders, err vacuum tubes, had to take actual physical delivery, the price of oil would be decimated in a phantasecond

Fri, 09/07/2012 - 13:52 | 2772445 SelfGov
SelfGov's picture

Why?

Is it because many holders of oil don't have the room for all the barrels they own so would be forced to sell?

Fri, 09/07/2012 - 13:52 | 2772430 otto skorzeny
otto skorzeny's picture

horseshit enabler article-as soon as this tool quoted GS i knew it was crap. they can't pack the shit onto Cushing with a shoehorn they are at such capacity.

Fri, 09/07/2012 - 13:54 | 2772454 Flakmeister
Flakmeister's picture

You heading back to the 60's????

Cushing is a pimple on the ass of the oil market now...

Besides you are full of shit...

http://www.eia.gov/todayinenergy/detail.cfm?id=6710

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W_EPC0_SAX_YCUOK_MBBL&f=W

Fri, 09/07/2012 - 13:50 | 2772434 dbTX
dbTX's picture

The cost of bring oil to the market hasn't changed that much since 2008, the price of futures contracts, on the other hand has. Until buyers are forced to take delivery nothing will change.

Fri, 09/07/2012 - 14:04 | 2772463 SelfGov
SelfGov's picture

<== genuinely curious.

Why would forcing them to take delivery lower the price?

EDIT...

Also, if prices went lower like you claim what do you think they would drop to?

If it fell below $90 wouldn't oil stop gushing from the US Shale plays?  I might be wrong but this would make US production (and elsewhere) take a nosedive.

Fri, 09/07/2012 - 14:29 | 2772574 Flakmeister
Flakmeister's picture

Once a well is drilled, it is produced no matter what the price, a simple question of cashflow...

Now if the price drops, no new wells are drilled, esp. expensive rapidly decling new wells in the Bakken.... So production does eventually drop...

-----

As for the futures, people always overlook this:

If you force delivery, then you must also require anyone selling a contract have the ability to provide delivery if you catch my drift....

Fri, 09/07/2012 - 15:09 | 2772751 SelfGov
SelfGov's picture

Thanks for the response.

Sooo if they don't have their own oil inventory they can't even sell the oil they've accrued...

 

Fri, 09/07/2012 - 13:51 | 2772440 pndr4495
pndr4495's picture

The high prints in crude oil took place roughly a year after the NYMEX floor became irrelevant because of the presumed greater efficiency of computerized trading.  It was a beautifully executed false flag endeavor by banking interests.

Fri, 09/07/2012 - 14:20 | 2772552 adr
adr's picture

The price of a barrel has nothing to do with pulling it out of the ground. So now $90 is the magic number when we were told in 2005 that $40 would make it profitable to drill anywhere in the world. A rise above $60 was seen to create total instability in the world economy. Market forces were supposed to present that from happening. Instead the speculators drove oil to $147 in once of the most epic bubble blows in history.

$90 oil is priced at $90 because governments spent the profit off future barrels of oil at the $90 price. Middle East governments can't balance thier budgets on $60 oil. That has nothing to do with how much it costs to pull out of the ground. Companies were building billion dollar deap sea rigs with oil at $20, it must have been profitable to do so or it wouldn't have happened.

Perhaps extraction is slowing because demand is falling. Why would you drill for more oil and push to extract more of the resource when the current supply is enough? You don't produce 10k units of inventory when you only have orders for 3k. Much of what is being extracted is being bought for stockpiling, not for refining. There is more oil being added to storage than can be consumed at current rates. Why extract even more when storage facilities are being pushed to the brim.

Oil companies were making billions of dollars on $20 per barrel oil, they would still make billions on $40 oil. If you were getting $20 for your product and then some dope came along with the exact same product and then started geting $100 for it. Your price wouldn't stay at $20 for long, even if it didn't really cost you any more to produce it.

Oil is at a new normal price because Wall Street wants it at that price. There is barely anybody trading oil anymore that could tell you the first thing about actual extraction and production of the commodity. When ignorance takes over trading, you end up with $10k tulip bulbs.

Fri, 09/07/2012 - 15:32 | 2772586 Flakmeister
Flakmeister's picture

Real bubbles don't reflate to 80% of their peak value within 5 years (as is the case with Brent)...

Given your failure to grasp this simple fact, we may safely ignore anything you post on oil and related matters...

Fri, 09/07/2012 - 15:15 | 2772776 SelfGov
SelfGov's picture

That's "deap"...but ultimately wrong...

Fri, 09/07/2012 - 15:28 | 2772839 greyghost
greyghost's picture

well put ADR. some one pointed out months ago that these posters come out when the price of oil looks to be going down. $100 dollar oil looks to be some sort of price level for the peak oil posts coming out of the woodwork.  these posters took alot of flak from readers about talking their book a few months ago. when oil went done under $100 a few months back they crawled out from under every rock. you couldn't go a few days without some sort of peak oil guest post for weeks on end. got to laugh about the other poster that pointed out that using the word jew or israel or arab or muslim would bring the pro jew crowd out in large force, almost as if they were monitoring the world wide web with special computor programs searching for key words. i have lived thru 2/3 dollar barrel oil to $48 oil, back down to $10 oil back up to $80 oil back down to $10 again back up to $150 oil and back down again.....and yes they just keep on drilling and finding and drilling and finding oil...everywhere. it is almost as if the price of oil has nothing what so ever to supply. they make billions at $10...they make bigger billions at $150.

Fri, 09/07/2012 - 15:31 | 2772855 Flakmeister
Flakmeister's picture

You don't really know much about oil, do you?

When was the last year that more oil was found than was extracted???

Fri, 09/07/2012 - 15:51 | 2772907 DaveyJones
DaveyJones's picture

"it must have been profitable to do so or it wouldn't have happened"

So explain Apple Records and the Iraq war. Like the Beatles, oil is non fungible. Just because Wall Street and the Government are corrupt does not change geological facts, eroei principles, the history of empires and their resource, and  the amazing correlation with population growth and the development of this unparallelled substance. These factors are more profound than financial structures which, by their very modern construct, are built on an abstract and false premise that this kind of growth (and this kind of resource) will continue.    

 

Fri, 09/07/2012 - 18:03 | 2773283 CrashisOptimistic
CrashisOptimistic's picture

There is a misunderstanding.

The wells producing 10,000 bpd in 2005 aren't still producing 10,000 bpd.  When they were already drilled, and had the pipelines hooked up and the drilling crews had bone home, they could extract a barrel of oil for some tiny number of dollars, call it $20.

But it's not still 2005.  That well is only producing maybe 500 bpd now.  You have to get 9500 bpd from elsewhere, and that elsewhere is in miles deep ocean with a well that required 18 mos to drill (and pay crew for), not the 5 weeks it took in Oklahoma.  

Now multiply this over thousands of wells.   And add about 2/3 of a billion additional humans on Earth than in 2005.

The Very First Thing To Understand About Oil, the VERY FIRST THING, is that whatever a well flowed last year, it will flow less this year.  Simply that.  It's a perpetual down escalator.  You have to drill more and more and more to at first walk, then trot and then sprint up that escalator.  You have drill and drill and drill to make up for the decline in flow rate.  And then each of those holes you drilled that flow X bpd as soon as you hook it up to pipeline . . . it will be less next year.

Understand this before you worry about new discoveries and futures trading.  Refineries do take delivery, and there is no law of the universe that says the price they pay must be what NYMEX quotes.

Sat, 09/08/2012 - 12:49 | 2774746 falak pema
falak pema's picture

...Refineries do take delivery, and there is no law of the universe that says the price they pay must be what NYMEX quotes....

As oil majors are ALL integrated from well head to pump, they ALL use transfer pricing from Tax havens to sell to their downstream operations in countries where profits are taxed.

Its an Oligarchy economy, where pricing is fixed for tax purposes, with opaque buffers. Big oil typically pays 8% as corporate tax on consolidated profits world wide. The market then works in the visible part like Brent crude/Euro finished products and WTI crude/US finished products, where apparently the latter is manipulated by logistic constraints locally dictated. So lets say Brent/europe is free market yardstick.

The price the refineries pay are dictated by fiscal optimisation and supply grade oil switching on tanker at sea between majors to fit their particular momentary needs. All refinery operations then show modest or no profits; surpise surprise. 

What is new since the Chindia arrival, aka 1999, is that Oil producers (OPEC and consorts)  have now gained more and more upper hand from Majors, as they can sell direct to markets outside the western pale. 

Oil majors are now on the defensive, as supply is getting fragmented, as big wells deplete, more controlled by national entities, and the downstream is getting unhealthy as the retail chains now use gas a "loss leader or break even bunny girl" to attract clients to their mega market malls.

Gas and condensates seem to be the game for the big boys today. Lets see if any big major will announce an oil find to match Cantarell or Ghawar...but that would be a major surprise. As easy access sediment basins are pretty well mapped, not the remote ones.

Sat, 09/08/2012 - 00:52 | 2773966 massbytes
massbytes's picture

The only place the oil is being "stockpiled" is at Cushing, OK due to a lack of pipeline and other transportation capacity to move it to the coast where it could be refined or shipped.  This "stockpile" wouldn't be there if it could move.  Old costs to produce oil and gas are irrelevant to what it costs today to produce the same.  Pipe, labor, chemicals, leases, royalties etc are all markedly higher than in the nineties.  I do agree that costs to complete a well are not relevant to the current price of oil and gas.  But your theories about the ME governments I don't believe are correct.  I believe pricing to be simple supply and demand with short-term speculative influences up and down.

Fri, 09/07/2012 - 14:26 | 2772561 dark pools of soros
dark pools of soros's picture

the only thing I know about oil is that most don't know jack about it and the very few that do have no vested interest in informing them

Fri, 09/07/2012 - 14:32 | 2772591 Flakmeister
Flakmeister's picture

There are a few here at ZH that are willing to share....

Fri, 09/07/2012 - 15:01 | 2772719 dark pools of soros
dark pools of soros's picture

they have a huge vested interest in disinforming them

Fri, 09/07/2012 - 15:08 | 2772754 Flakmeister
Flakmeister's picture

Oh...

I did not know I had huge vested interests, news to me.,...

Fri, 09/07/2012 - 15:35 | 2772858 greyghost
greyghost's picture

except you always show up right on que with the same tired story. you must see how that looks to everyone else? your not talking your book are you?

note to self, flak already has aprox. 15 post on this thread alone!

Fri, 09/07/2012 - 18:14 | 2772889 Flakmeister
Flakmeister's picture

If you followed things here for the past 2 1/2 years, I don't try to sell anybody anything... If anything, I call out the blatant bullshit regurgitated from those people that do have an agenda and a book to talk...

As for a tired stories, would you prefer bed time fairy tales about abiotic oil and kerogen? Or would you prefer a no-nonsense take on the facts?

Do you want the Red Pill or the Blue Pill when it comes to oil? Or better yet, can you even tell the difference between the two?

Fri, 09/07/2012 - 15:46 | 2772915 SelfGov
SelfGov's picture

The story isn't as tired as you are of hearing it.

You should keep hearing it too until it has sunk in. Only then will you realize why it is important to repeat this. 

 

And if Flak was trying to sell his book he wouldn't provide all the information to us here for free :)

Fri, 09/07/2012 - 16:19 | 2773019 greyghost
greyghost's picture

and you know flak has no investments in the oil market....how? and you know that flak is not a trader on the oil exchange....how? and yes this story about how the lack of oil/peak oil has something to do with the "PRICE" of oil is total bullshit! if in 1979/80 oil is $50 barrel and there are gas lines and the country thinks the end is upon us because of peak oil!!!!! now listen carefully clown.....WHY DID THE PRICE OF OIL DROP TO $10 BARREL BY THE MId 1980'S. remember you are defending the oil/price/peak oil theory. the price of oil is set by traders in the oil market...not by supply...never has and probably never will. we have record supplies of gasoline and oil "in" the market place now. why, under the laws of supply and demand haven't the prices of both collapsed under the weight of supply? maybe it is all rigged markets for oil/gasoline, interest rates.....hell there is no end to this list of rigged markets. the price of oil has risen and fallen by great percentages ever since peak oil was born over forty years ago. didn't you write that article back in 1980 when oil was $50 barrel, that oil would never ever see $10 again, because of peak oil. shit to hear you asses drone on and on about peak oil/price we should be at $10,000 barrel after fifty years of peak oil theory.

note to self: is that you and flak giving me -2 junks...smile

Fri, 09/07/2012 - 16:22 | 2773031 roadhazard
roadhazard's picture

Peak Oil ! Peak Oil !, 911 !,  911 !... give me a fucking break.

Fri, 09/07/2012 - 16:51 | 2773123 SelfGov
SelfGov's picture

I don't know about Flak but I don't have any investments other than in thousands of heirloom seeds and 4 (four) ounces of silver.

When you ask why the price went down in the 80s you must first ask why the price went up in the first place.

If my memory serves me correctly (which it doesn't because I was born in 1979) but 1980 was the beginning of an oil glut due to new production coming online and decreased demand from industries recovering from the recent oil shocks.

It was a lack of supply that increased the price and fear of further supply decreases that increased the price even further.

The facts we list about Peak Oil should be far easier to read given the (mostly) appropriate use of capital letters and punctuation.

Fri, 09/07/2012 - 16:53 | 2773134 SelfGov
SelfGov's picture

Also it looks like more than Flak and I dislike that comment.

Only one up vote for yours so far. Is that you voting for yourself?

Fri, 09/07/2012 - 18:18 | 2773329 CrashisOptimistic
CrashisOptimistic's picture

"WHY DID THE PRICE OF OIL DROP TO $10 BARREL BY THE MId 1980'S. "

Because Alaska arrived, to the tune of 2 million bpd.

Alyeska is now down to about 400K bpd.

Fri, 09/07/2012 - 18:29 | 2773354 Flakmeister
Flakmeister's picture

Buddy, don't flatter yourself, I never junk people, it is a waste of time and I rarely give someone a greenie...

If the economy collapses faster than the supply of crude, the price drops....In fact, if you had been following my posts for the past couple of years I have repeatedly stated that we are in the saw-tooth economy, each leg up in recovery implies increased oil demand until the price slows the economy down, rinse and repeat as long as net exports are on the market... Very simple...

Using price as the only metric when discussing peak oil only shows the shallowness of the analysis.....

Fri, 09/07/2012 - 19:47 | 2773537 greyghost
greyghost's picture

using price as the only metric.......well now we agree. however wasn't the title if the guest post "the REPRICING of oil"? it always has been about "PRICE".

Fri, 09/07/2012 - 20:28 | 2773607 greyghost
greyghost's picture

so by your metric about economic collapse faster than the supply of oil...the price of oil drops? 1980 price of oil $50 collapses to 1985 $10 oil? so by your thinking the 80% drop in the price of oil equals how much of a collapse in the economy by 1985? what was the trigger point collapse in the 1980's economy for an 80% drop in oil price? and the fall in the available supply of oil from 1980 to 1985 was? how does one account for a current glut of oil and gasoline on the market with an economy in total shambles{collapse your word} and yet the oil price hasn't collapsed? either peak oil controls price thru a lack of product or it doesn't. how large have the worlds economies grown since the 1st oil shock in the seventies. i don't need nonsense figures to tell me that the world is using much much more oil than in 1970, all i have to do is look around. the u.s. is using a hell of a lot more oil now than in 1970, need i go into the 1.5 billion chinese or the 1 billion indians all using a hell of alot more oil than 1970/1980. question: where the hell is all this extra oil coming from?????

PEAK OIL IS A FRAUD AND USED ONLY TO EXTRACT A HIGHER PRICE FOR THEIR PRODUCT

please answer the main question about where the hell all the extra oil pumped today comes from? i don't need figures to know that we are using more and more oil since the peak oil crap hit in the early 1970's. there are simply more people and wealthier people all over this planet using more and more oil....where the fuck does it come from?

Fri, 09/07/2012 - 20:52 | 2773659 Flakmeister
Flakmeister's picture

Educate yourself starting here

http://mazamascience.com/OilExport/

This is an interface to the BP energy data, while being flawed, it does convey the underlying trends very welll...

So if Peak Oil is a fraud, explain why global net oil exports are down 10% since 2005....

Go ahead I am all ears..

Sat, 09/08/2012 - 00:45 | 2773957 greyghost
greyghost's picture

what fucking vacumm have you been in? europe is in a state collapse. u.s. not far behind. who the hell needs to import more oil? record oil in storage in the u.s. yet the price hasn't collapsed to $50 barrel? yet oil sits near $100 a barrel? now there you go again, i asked if the world is pumping more and more oil and using more oil than in 1970 when peak oil became a cult. according to peak oil we should have run out a long time ago...fifty years is a long time to always be on the edge of running out, all while the price swings from $2 barrel and $150 a barrel and every price in between several times. what's the story about the girl who cried wolf once too many times. hang in there some day this story will come true...in a time far far away.

"why global net exports are down 10% since 2005".....again that is economic factors.....has not one thing to do with the amount of oil available and the peak oil cult! 

Sat, 09/08/2012 - 00:56 | 2773968 Flakmeister
Flakmeister's picture

The 1970s to 1980 was not peak oil.....

The US peaked in 1970, production is down ~40% since then....

You clearly do not understand net Exports and why they peaked 3 years before the shit hit the fan... Did it ever occur to you that the two might be connected?

And you fail to grasp that peak oil is a flow problem, not a reserve problem....

Equivalently, it is not about running out....

Finally, you are not allowed to make shit up, there was no Peak Oil cult in the 1970s...

Why don;t you look at Chindian oil demand since 2000 to get some more clues, I provided the link....

Sat, 09/08/2012 - 01:12 | 2773993 massbytes
massbytes's picture

US oil storage only sets part of the world pricing for oil.  The high US storage at Cushing is simply a transportation problem.  If the oil at Cushing could get to a coast...it would be gone.  Either refined or shipped.  You don't understand Peak Oil.  It has never been about running out of oil.  It is about how much oil we can produce at any point in time.  If we could use 100 million barrels per day, we couldn't get it because we cannot  produce that much today.  Unfortunately when looking at what the world is likely to be able to produce, taking into account depleting fields, we probably will never be able to produce 100 million barrels per day.  It should be self-evident to you that we now are baking sand, fracturing brittle impermeable shales, and drilling in 15K feet of water to try and maintain our oil/gas production.  Since we produce our easiest to produce resources first, where do you think costs and availability are going?  No,we are not going to run out of oil, but we are going to pay a lot more for it and there will be less available.  But, if the world demand crashes down 20 million barrels a day...it will get cheaper.  Pick your poison.

Sat, 09/08/2012 - 11:06 | 2774501 greyghost
greyghost's picture

why are we drilling 15k wells? because 100 years ago they only had to drill 200 feet for oil. that is simply human nature at work. if i need a water well do i drill to 200 feet and stop...only if i find water at 200 feet. i find no water and then go to 300 feet....400 feet...500 feet.....oh but wait at 563feet and 5 and 1/2 inches i find water! genius, what do i do? do i continue on to 600 feet...700 feet....800 feet?????no no no i take the water and run...no need to go any further...UNTIL THAT WATER STOPS FLOWING!!!!!!!! why does everything have to be rocket science..........?

Sat, 09/08/2012 - 12:12 | 2774646 Flakmeister
Flakmeister's picture

Does the paucity of your analysis know no bounds?

Sat, 09/08/2012 - 12:23 | 2774674 falak pema
falak pema's picture

lol, tonneau des Danaïdes.

Sat, 09/08/2012 - 12:13 | 2774650 massbytes
massbytes's picture

You are pretty hopeless.  Go over to the oildrum site and get educated.  We can't just keep going deeper as below certain depths the oil is cooked into natural gas.  You answered very little of my post.

Fri, 09/07/2012 - 14:37 | 2772614 FrankIvy
FrankIvy's picture

 

 

1.  This is too easy.

2.  The Kingdom of Saudi Arabia (KSA) has a huge portion of the remaining exportable oil.

3.  Only exportable oil affects international oil price.

4.  The KSA has not shared its field data in decades, and does not allow outside auditing.

5.  OPEC production quotas are determined by "proven reserves," thereby providing tremendouse incentive for the KSA to lie about its proven reserves.

6.  KSA's population is largely young and unemployed, persisting on govt. handouts.  Any hint that the KSA oil fields are depleting would trigger a revolution, giving the KSA even more incentive to lie about the remaining oil.

7.  Watch Syriana.

8.  During the run up in price from 2005-2008 to 145 a barrel, the KSA was not able to increase production substantially to take advantage of the 5 fold greater profit being offered (unless you believe they found religion and decided to, for the first time, save oil for future generations).

9.  Conclusion - the KSA is lying dramatically about its oil reserves. 

10.  World oil production has been relatively flat for 7 years.

11.  Conclusion - world oil production has maxed or is close to maxing.  Price has nowhere to go but up.  Given that all of modern society is based on cheap energy (try forging a PV by hand), most of society will return to 1700 standards of living within the next 50 years.

 

Bet on it.

Fri, 09/07/2012 - 15:04 | 2772736 dark pools of soros
dark pools of soros's picture

won't we build a pipeline from the sun to San Francisco by then?

Fri, 09/07/2012 - 18:20 | 2773337 CrashisOptimistic
CrashisOptimistic's picture

"Lie" has different meanings.

Just like other words, like Reserves.

Did you know KSA defines Reserves to be what they had on day 1?  They don't reduce it for consumption.  Have a look in the wiki.  They haven't changed their claim in years.

Sat, 09/08/2012 - 12:11 | 2774643 falak pema
falak pema's picture

So you don't see a new global energy emerge in the next 50 years?

I wouldn't bet on that; necessity is, will be, the mother of invention.

If the world has not been blown up in between.

Sat, 09/08/2012 - 19:54 | 2775339 CrashisOptimistic
CrashisOptimistic's picture

falak, my read is non uniform distribution.  No one is going to accept less than they get now in any attempt to fairly divide up flow.

Then it will be realized that conventional war burns an enormous amount of fuel.  And nuclear warheads on missiles burn very little.

The Phases are this:

Phase I, use the military to secure supply.

Phase II, use the military to deny supply to competing consumers.

Phase III, use the military to kill competing consumers.

And no, I see no magical substitute solution because technology and science progress comes from oil.  Oil fuels trips to seminars for exchange of thought.  Oil gets grad students to work to do the experiments of research.  Oil ships laboratory equipment and spare parts for it.

Science stops when oil gets scarce because science is a luxury to be deprioritized when food transport to cities demands scarce fuel.

Fri, 09/07/2012 - 14:39 | 2772624 jesusonline
jesusonline's picture

horseshit enabler article-as soon as this tool quoted GS i knew it was crap.

You better stay way the fuck away from my man Gregor. He's got his stuff right long ago.

A lot of people nowadays are lost in extremes.

Oil is at a new normal price because Wall Street wants it at that price.

No it's not. It is both because of the end of cheap resource era and the increasing complexity of the financial markets.

You can't relate to prices of 20 dollar oil anymore. That means financial depression. You might also want to give it a go and look what the Saudis says about their reserves. The intel on their oil exploration ceased to exist from 2010 onwards. North Sea is clearly in decline. Venezuela says it got the top spot in proven oil reserves and then they miss their own 2012 production rates. You name it.

Don't stop believing in "It's all Wall Street, we've got loads of shale oil", you are in the know, bruddas, snub everyone else.  Or maybe you ain't.

Fri, 09/07/2012 - 14:40 | 2772631 Crash N. Burn
Crash N. Burn's picture

Everyone aware HALF ALL THE OIL EVER CONSUMED WAS IN THE LAST 22 YEARS! Doesn't bode well.

Oil prices, 0% growth and the environment

Fri, 09/07/2012 - 15:22 | 2772805 SelfGov
SelfGov's picture

So you're saying humanity burned more oil since 1990 than it did in all the years before that?

1990 was 22 years ago?!!

Fri, 09/07/2012 - 15:57 | 2772971 DaveyJones
DaveyJones's picture

its not the time that people were using, it's the number of people using

Fri, 09/07/2012 - 16:40 | 2773078 Crash N. Burn
Crash N. Burn's picture

"So you're saying humanity burned more oil since 1990 than it did in all the years before that?"

"Exactamundo" - Arthur Fonzarelli

Fri, 09/07/2012 - 14:50 | 2772672 1000yrdstare
1000yrdstare's picture

It seems to me that since they are trying to pull oil from sand, doesn't that relate to desperation? or am I getting it wrong?

honest question...

 

please reply, all answers accepted..

Fri, 09/07/2012 - 15:11 | 2772761 earleflorida
earleflorida's picture

if you are speaking of the canadian oil-tar-sands... it perplexes me why they don't build a refinery on the canadian/us border.

it has been ~ 40 years since a refinery has been built in the us?

Fri, 09/07/2012 - 15:28 | 2772841 Flakmeister
Flakmeister's picture

Red Herring...

While there have been no green field refineries, capacity has dramatically increased over that time...

As for an Albertan refinerey, given that there is an over capacity in the world, why would anyone build more? Especially when the oil cos. involved almost all have refining assets elsewhere?

Fri, 09/07/2012 - 15:11 | 2772762 Flakmeister
Flakmeister's picture

You are correct, getting oil from sand should be a tell....

Fri, 09/07/2012 - 15:51 | 2772940 billsykes
billsykes's picture

This is the simple insanity of it. YOu have to heat the oil up to get it out of the sand, you heat it with nat gas. so you can refine the oil, lose a bunch in the process and then make it into gas for your car....

 

They were even talking about having a nuke reactor built at billions of dollars to heat the sand.

This is how dumb it is, QE mentality sinking into everything.

How about switch cars to nat gas, and then work on getting to electric.

Fri, 09/07/2012 - 18:26 | 2773345 CrashisOptimistic
CrashisOptimistic's picture

Because physics says no, Bill.

A horsepower is 745 watts.  A 100 horsepower Camry (that hauls zero food to grocery store shelves from farms) would require 74.5 Kilowatts just to have a Camry equivalent.

Nat gas has 1/1000 the energy density per barrel as oil at room temperature.  

Oil became definitive of civilization and created all the wonders of the 20th century (namely 7 billion people)  because it is amazing stuff.  Thus far, nothing else discovered is.

It's going away.  So are 6 of the 7 billion.

Fri, 09/07/2012 - 15:05 | 2772692 earleflorida
earleflorida's picture

ref: last pg. 20        http://www.sutp.org/files/gtz2010-en-fuel-prices-in-the-arab-world.pdf

note: it has been 80 years hence the demarcation of the ME was set-n-stone... chiseled into a bloodless 'Bedouin's Soul', this quasi-anachronistic sovereign-land-trust? by TPTB --- once an independent nomadic free tribal land where boundaries were not yet in the arabic lexicon, nor fear of thy neighbor was a thought.

Prior to WWI... it was the UK that ruled the ME-World-- since WWI the USA has ruled the ME-World... and with an iron fist--- the Arab Spring uprising have been a precursor to what follows? There lies the Chinese rub of soothing condolences stoking pacification for their plight against the evil west...

jmo

thankyou tyler

Fri, 09/07/2012 - 15:01 | 2772720 web bot
web bot's picture

Speaking of oil... Canada has closed its embassy in Iran.

This should be viewed as a canary in the coal mine for what's coming next.

Fri, 09/07/2012 - 16:03 | 2772990 DaveyJones
DaveyJones's picture

"Baird said the Iranian regime’s support of Syrian president Bashar Assad, Iran’s refusal to comply with the UN’s resolutions on its nuclear program and its regular threats to Israel make it a significant threat to global peace. “It is among the world’s worst violators of human rights; and it shelters and materially supports terrorist groups,” said Baird in a statement. “Moreover, the Iranian regime has shown blatant disregard for the Vienna Convention and its guarantee of protection for diplomatic personnel.” Read more: http://www.ctvnews.ca/canada/canada-closes-embassy-in-iran-expels-irania..."

given their reasons, I guess they'll be closing their US embassy on monday.

Fri, 09/07/2012 - 18:30 | 2773360 CrashisOptimistic
CrashisOptimistic's picture

Well, there is after all about 3.5 million bpd there that could be liberated.

But the bad news is Chinese troops man the anti aircraft weaponry.

Bomb the weapons and you're bombing Chinese citizens.

Fri, 09/07/2012 - 15:15 | 2772774 ian807
ian807's picture

The price of oil will trend up from here on out, after the momentary dips brought on by economic events.

The price pressure is twofold. Simple scarcity will have some upward pressure on prices, but the second reason is more subtle.

At the end of the day, it's much more costly to get that barrel of oil from a deepwater well in the gulf, or from a frakked well in Bakken. Oil from those places doesn't yield anywhere near as much energy either. So, in energetic terms, we're spending more, and getting less. Energy yield on oil has been declining for as long as we've been drilling. It's never going to get better, or cheaper.

Fri, 09/07/2012 - 15:42 | 2772898 De minimus
De minimus's picture

The only way it gets better is if you take yourself and family out of their market to the extent possible. This requires personal investment of time and resources but the benefits do outweigh the costs.

Starve them of every last penny, rob them of every resource they can take from you and enrich yourself in the process. It does feel good I promise you!

Or, you can just live as they allow you to, and accept whatever limits they impose on you.

Remember that pot of water the frog and you were put into?  My advise is to hop, as soon as possible.

Fri, 09/07/2012 - 15:27 | 2772834 1000yrdstare
1000yrdstare's picture

So, the powers that be know we are running out or are past our peak, what excuse will they use when it is gone? or are they slowly getting the last of it out and will introduce some "new" technology that they have waiting in the wings. or will they just start a limited nuke war (targeted at ME oil states) and claim it is all unrecoverable now? I don't know, but I do believe oil is the key to everything and all, there are few things in the World that are not connected to it in some way. So IMHO it will end in 2 ways, suddenly (damaging oil fields and reserves) or slowly by pricing it out of the common mans reach.

Fri, 09/07/2012 - 15:40 | 2772896 ian807
ian807's picture

Slowly pricing it out of the common man's reach is inevitable. No political intervention necessary.

Fri, 09/07/2012 - 18:33 | 2773367 CrashisOptimistic
CrashisOptimistic's picture

I see how you've done some reading and adjusted your phrasing at the beginning . . . running out or are past peak.

Good.  We will never run out.  We will run short.  Drastically short.

Now consider this in your extrapolation.  Conventional warfare burns godawful amounts of fuel.

Nuclear warhead missiles do not.

Fri, 09/07/2012 - 15:54 | 2772946 1000yrdstare
1000yrdstare's picture

Yes, but with that comes angry common folk... they tend to start sharpening the national razor if pushed too far...meh, maybe not,.. we still got the idiot box.

 

Although....no oil=no power=no idiot box...hmmm

Fri, 09/07/2012 - 17:30 | 2773207 plumber9
plumber9's picture

don't worry about it plenty.... of oil under the POLES.. won't be long before the ice melts and we have easy access...

Fri, 09/07/2012 - 18:46 | 2773404 Flakmeister
Flakmeister's picture

Actually, there isn't unless you think 25 billion barrels is a lot globally speaking...

And if you do, you shouldn't be discussing oil in a public forum....

Fri, 09/07/2012 - 19:48 | 2773535 Bicycle Repairman
Bicycle Repairman's picture

No mention of FED printing or the price of oil in gold?  No mention of the war margin built into the price of oil?  Seriously incomplete analysis.

Fri, 09/07/2012 - 22:21 | 2773769 earleflorida
earleflorida's picture

ref:  "The Most Important Video, 'Archived Version"__ `"Arithmetic, Population and

Energy"`by  Prof. Albert Bartlett --- Energy Population --- [8 part series @~ 9:16 min each]

http://www.youtube.com/playlist?list=PL6A1FD147A45EF50D

please note-- this video is a classical... empirical document- a data landmind of invaluable statistics, and ladened with realistic [raw actuarial white-papers, proven by a time-line via  time stamp for verification/ trust] probabilities that hasn't been cherry-picked. Absolutely spoken with no hyperbole.

great read

jmo

thankyou tyler 

Sat, 09/08/2012 - 00:47 | 2773958 steve from virginia
steve from virginia's picture

 

+$100 oil is making everyone broke. If oil is too expensive now, how can more expensive oil be paid for? It's hard to have $200 oil when everyone's broke.

 

Can't buy gas with food stamps. Europeans aren't going to buy anything for a long, long time. In a few more years they will be killing each other again.

 

Wait until the props come flying out from under the Chinese economy. Oil will cost $20 a barrel before it costs $200.

 

$20 oil and everyone penniless and shuffling around in rags. "Brother, can you spare a nickel?"

Sat, 09/08/2012 - 10:34 | 2774172 falak pema
falak pema's picture

Its interesting to sea an Oil major like TOTAL of France who supported the peak oil meme upto this SUMMER, now openly joining the official bandwagon of its sister majors like SHell and saying we will bring on 45 MBPD of new oil within TEN years.

This is now their official spiel! What a turn around! What gives in BIG OIL geostrategy today?

Here is the link of this astonishing new take on oil's current future as published in Le Monde :

Pic pétrolier : deux vice-présidents de Total répondent à [oil man] | Oil Man

International : Toute l'actualité sur Le Monde.fr.

For them, unlike their President's presentation this last winter in Doha where he said, "peak oil should be with us in ten years!", the new spiel is Peak Oil will come but MUCH  LATER!

Wow, how the party line can change, virtually overnight!  

95 Million BPD oil plateau here we come within 10 years! ...where's my pinch of salt!?

Sat, 09/08/2012 - 07:03 | 2774177 bigwavedave
bigwavedave's picture

For 40 odd years (give or take a few) the US deficit has been funded by oil producing nations reinvesting $ per barrel into $ per UST. That is what keeps the $ price of oil where it is. Without $90 oil there are no marginal buyers of UST. Hence QE and the Fed being the marginal (now only) buyer of US debt. 

Do NOT follow this link or you will be banned from the site!