Speaking of Peak Oil, has anyone noticed NYMEX futures today?

[GliderGuider]

June futures are trading over $129.00 as I write this.

http://www.nymex.com/index.aspx

[Dead_Parrot]

1. Under $130!

:toast: :bounce: :applause: :woohoo:


( :banghead: )

[GliderGuider]

2. Y'owe me a keyboard...

:rofl:

[hogwyld]

3. My question is that since oil is a supply/demand commodity

and the developing world can't really afford it at those levels, wouldn't the demand side start to drop off precipitously? Wouldn't the same also occur with a global recession?

[Bigmack]

4. Ah but factor into that equation

over a billion Chinese and at least a billion Indians with their BIG and GROWING economies, that even in a global recession will still be demanding oil..... Ms Bigmack

[NickB79]

6. Plus, the Chinese government subsidizes fuel prices for the masses

They're shielding their citizens from the brunt of the oil price increases to maintain their 10% per year growth rate, so demand destruction can't be brought to bear upon them.

[hogwyld]

7. Well if there's a global depression

I wonder how long the Chinese could do that. I know that they're the pre-eminent world superpower, and can do no wrong and all, but eventually, the market does correct imbalances.

[GliderGuider]

5. A billion Africans could get priced out of the market entirely and it wouldn't make a difference

Africa uses only about 3% of the world's oil supply. Frankly, the global rich/poor disparity is such that twice that number could be deprived of oil altogether and demand wouldn't slow down.

The one thing that would drop demand is a global recession or depression that hits the US, Europe and China. We'll probably get to see one of those within the next decade or so. The question is whether the resulting drop in demand will be faster than the drop in supply. If the call on the supply always stays ahead of the supply volume, then even in a recession we will still see rising oil prices. That's the painful implication of an economic situation that reaches a resource limit before enough substitutes are deployed.

[depakid]

8. "even in a recession we will still see rising oil prices."

which portends stagflation.

My guess is that we're a lot closer to contraction than most would like to believe.

Also, you probably saw this, but there's an interesting bit at the oil drum about the potential for contango in the markets:

Is contango even possible in oil markets? The conventional wisdom is no, at least not over a sustained period of time. The theory behind this is that if oil is selling for more two years in the future than it is today, then producers will use arbitrage. They'll buy a front-month oil future, sell a distant-month oil future, pocket the difference, take delivery of the front month oil and store it for delivery at the later date. This prevents oil in the future for selling for any more than the cost of storage of oil until that date, and when time-value-of-money is accounted for, that usually requires that future oil sell for less than spot oil.

Contango could exist if a few circumstances were met: present rate of oil production would need to be effectively fixed, there would need to be a consensus that future rate of production will be lower and that demand will remain highly inelastic, and there must be some impediment to storing today's oil to sell in the future. If all three of these came to pass, then the oil markets could be in significant contango and arbitrage would not be able to remedy the situation.

http://www.theoildrum.com/node/3997

[GliderGuider]

9. Everybody dance the contango

December 2016 contracts are $139.50/bbl at the moment -- $11 more than front month contracts. We'll see how long it holds. I think it will stick because the storage cost of oil is too high to make any significant degree of arbitrage possible.

I think a global economic contraction is no more than a year away.

[depakid]

10. Been thinking for years that things would get "interesting" once the traders figured out

that Deffeyes and the guys from ASPO were right. Looks like we're about to find out how "interesting" its going to be.

Also wondered a lot about where the tipping points would be for the more vulnerable sectors of the economy and how their travails would effect other sectors and macroeconomies as a whole.

Curiously, I was up at the little service station/market last week (which has been surprisingly quiet lately). Talked to the owner about what his volume had been he lit up. Said that since gas had risen over $3.50 per gallon, he'd been selling 1,000 gallons less per week and it was getting worse.

When I tried to query him further about the effect of prices rising further he got livid, and claimed that "at $4.00 per gallon, I'll have to close this place down! You don't thinking I'm making money selling you cheap beer."

[kristopher]

12. I'm betting neither you nor depa have made much money in the stock market

Yet here you are acting like you know wtf you are talking about...

[depakid]

14. LOL

it pays to choose one's portfolio wisely and insulate yourself from both the US dollar and from much of the equity market.

Times like these, cash is king, particularly when you can get a Term Deposit at 8.10% p.a. for 12 months.

http://www.westpac.com.au/internet/publish.nsf/Content/PB+HomePage

Of course, one would have been well served to have transferred funds back when the Aussie dollar was at around 85- as opposed to 96 today.

[kristopher]

15. Or to have bought gold at 550 usd an ounce

[depakid]

16. better to have leveraged that with mining stocks

if one were so inclined....

[kristopher]

28. I don't gamble in the stock market.

Not inclined you might say. I'm not good enough I say.

[Terry in Austin]

11. Supply, demand and price elasticity

In response to price increases, demand for a given product will fall at a particular rate -- what's known as the "price elasticity" of the product. If it's fairly inelastic, it takes a large price increase to reduce the demand by even a small amount.

Oil products are very inelastic, it turns out.

A recent piece at the Oil Drum discusses this and cites a Congressional Budget Office report that puts elasticity for gasoline at -.06. This means it would take a 100% increase in price to reduce consumption by six percent.

The price elasticity for oil, according to another source, is -.07.

[kristopher]

13. You'd be wise to look at the original CBO report and evaluate the assumptions

You'd be wise to look at the original CBO report and evaluate the assumptions behind the quoted number. Some of the stuff on TOD is good, much of it is garbage. Elasticity in in petroleum demand correlates greatly to the persistence of the price increase and the baseline you are using to evaluate what an 'increase' is. A much better tool for predicting social behavior related to the price of energy is to look at other countries that have traditionally used high taxation to maintain high energy prices in order to depress demand.

[Javaman]

17. did you check it today???? nt

[GliderGuider]

18. Uh, yeah. Crap.

A high trade of $132.08 :wow:

[Javaman]

19. I first predicted $130 by memorial day. Seems I was a week off.

now I'm prediction $150 by 4th of july. and oh maybe $170 to $180 by memorial day.

[GliderGuider]

20. It looks like both our Nostradamus genes are functioning

In the thread where I bet Nederland, I predicted $150 for August 30, 2008. That's looking more possible every day -- that's only about 20% with three months to go, and the price has gone up 20% in just the last two months.
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=266&topic_id=1535

[Javaman]

21. I remember reading that and thinking...

that Nederland was on some sort of hallucinogens.

currently, I don't see any reason, real or imagined, why oil oil should ever drop below 120 again.

there is the theory that as demand drops, so will the price of oil.

I don't really think that is entirely accurate.

Given the fact that not only does a 42 gallon barrel of oil once refined gives back roughly 44 gallons, but there is also nothing like it in the world for the amount of products that can be produced from it.

If anything as demand drops I see it becoming more expensive as will the last remaining products that are produced from it.

Like any valuable commodity, more and more will be stretched out of it as it becomes less and less common. Take for example the various metal prices. Various metals are reaching or have reached peak and have their prices gone down? nope, they have gone up. They are still needed because of the very particular and irreplaceable benefits they provide.

We are living the oil shock now and no one really seems all that concerned or really paying attention.

Everyone is pinning their hopes on one sort of miraculous cure after another, but the reality is, there is nothing that will replace oil.

and there is going to be a very real period of time, which is basically the "in between" time, where oil becomes to expensive, the good easy stuff is gone and and sort of alternative fuel sort has yet to be deployed in large enough scale to take up the slack, if ever.

that time, I think is very close at hand.

[GliderGuider]

22. As long as demand stays above supply the price will stay up.

Oil is the master resource of our civilization, so I suspect that demand is remarkably inelastic. In the post-peak decline, even demand destruction in poor nations may not drop the overall demand below the shrinking supply. That will result in permanently escalating prices.

The critical factors for substitution of oil by renewables are technology, capital and time. We have the technology, capital is looking shaky, and we may be out of time. That's not good.

[Javaman]

23. Never enough time, especially in the last 35 years. LOL

I read recently, I think it was on energybulletin.net, that there is something like 30+ nations experiencing food and fuel shortages.

What I ponder, for lack of a better word, how long will it be before there is a break point. Meaning, at what number of nations experiencing fuel and food shortages, will it cause the world to tip to a point of global regression.

I think sometimes our nation is not so much insulated by wealth, technology or access to resources as we are insulated by lack of entropy.
Like the Roman empire, historians site the sack of Rome as the end of the Roman empire, but others see the a long decent of the empire centuries before, but it was it's momentum of size that kept carrying it forward.

Are we in that stage? We have huge deficits, our nation is completely dependant on a finite and quickly dwindling resource and we have a government that seems to be in willful denial over how to deal with the problems.

Are we just running on impulse power? And as a result are handicapped by lack of political vision (both sides of the isle) to properly deal with our problems?

[Dogmudgeon]

24. Soon we will have to stop talking about "tipping points"

As the crisis proceeds, we won't be dealing with systems that have small numbers of dynamics and simple mathematical descriptions. Systems in breakdown tend to become "strongly nonlinear".

Yeah ... that's jargon, too. In other words, the tipping points will have tipping points.

So an age passes. Do we have what it takes to build a new one?

--p!

[tom_paine]

27. Yes we do. A New Dark Age.

:rofl:

[brokensymmetry]

25. Good insights.

I think you're exactly right, Javaman.

Momentum. How long that will last...that's another question.

[IrateCitizen]

26. Your analysis of Rome is quite apt, IMHO...

Rome was a giant black hole in the Mediterranean that sucked wealth from its surrounding provinces. It needed that wealth to maintain the bread and circuses for its increasingly unproductive citizens. Problem was, they needed to keep expanding in order to feed the center, which in turn exacerbated the problems of Roman expansion. Romans succeeded for centuries by doing the things that had always been done in Rome. When they needed to adapt in order to survive, they were completely unable -- frozen by inertia.

The sacking of Rome by Alaric in 410 was more of an anticlimax than anything else. The seeds of its downfall had been sown much, much earlier.

What's amazing to me is that I discussed this with my 9th graders, and they came back to it weeks later asking, "Is that like us?" Of course, I don't give them my take -- but I encourage their questioning and ask, "What do you think?" The sad thing is that so many of them are so ill-equipped to deal with what is flying toward them....

Modern America was an entity built upon the notion of cheap, plentiful petroleum. Of course our institutions are not able to deal with its decline as such because our society is conditioned to expect that bottomless pool of oil as a natural phenomenon, central to the "American way of life." Personally, I think the death knell for that way of life was sounded back in the 1970s -- we were just given a brief reprieve because the North Sea and Alaskan slope oil fields finally came on line in the 1980s.

Expecting any kind of positive impulse from our federal government is a waste of time, IMHO. Politicians will stand much better chances of re-election looking for scapegoats rather than pushing more realistic (and belt-tightening) measures. I think that any meaningful political work toward the end of cushioning the blows will come at a much more local level where concerned citizens can actually be involved in the process.