Price of oil under $70/barrel

[Big Phil]

http://www.google.com/hostednews/ap/art ... AD9FOOE000

Oil drops again, now down 20 pct in just 2 weeks

By MARK WILLIAMS (AP) – 1 hour ago

Oil prices fell again Monday and have now fallen about 20 percent in just two weeks as investors worry about the ripple effects of a debt crisis in Europe.

Oil fell below $70 Monday, reaching a low of $69.27 before rebounding slightly. There is fear in the market that economic weakness in Europe could spread to the U.S. and hurt the global recovery and therefore demand for oil. The turnaround has been sudden — oil hit an 18-month high of $87.15 a barrel during trading on May 3.

The plunge in oil extended to the New York Stock Exchange, where shares of major energy companies were lower.

Oil's decline holds good news for motorists, who should see sharply reduced prices at the pump. The cost of a gallon of gas has fallen just 2 percent nationwide since peaking earlier this month at $2.929 per gallon. But that pace should pick up heading into the Memorial Day weekend and the summer driving season.

Prices in many markets in the U.S. will be $2.75 per gallon or lower by next week, said Tom Kloza of the Oil Price Information Service.

Kloza said the only losers from lower crude prices will be oil producers, but they still will make plenty of money at current prices.

Gasoline prices fell 0.5 cents overnight to a national average of $2.867 per gallon, according to auto club AAA, Wright Express and OPIS. Prices have dropped 4.1 cents in the past week and 6.2 cents since peaking May 6 at their highest point since October 2008. Price remain 55.9 cents higher than a year ago, but the gap is narrowing.

The Energy Information Administration will release its weekly survey of gasoline prices later Monday.

Oil prices have tumbled in the past two weeks on the European debt crisis and as supplies of oil continue to grow. The debt crisis has weakened the euro, which hit a four-year low against the dollar Monday.

Because oil is priced in dollars, it becomes more expensive for investors holding other currencies.

On Monday, benchmark crude for June delivery dropped $1.45 to $70.16 a barrel on the New York Mercantile Exchange. Earlier it fell below $70 for the first time in three months. That follows a plunge in the June contract of $2.79, almost 4 percent, to $71.61 on Friday.

Oil stocks fell on they NYSE. Exxon Mobil dropped about 1 percent, while shares of BP, which is trying to stop an oil spill in the Gulf of Mexico, and Royal Dutch Shell fell close to 2 percent.

The oil spill in the Gulf of Mexico has done nothing to slow the drop in crude prices and, so far, has not interfered with tankers carrying imported crude to Gulf ports or those taking refined products from there to other parts of the country. There is concern though that the spill could eventually slow shipments if vessels must be scrubbed of oil before they reach port.

In other Nymex trading in June contracts, heating oil fell 6.49 cents to $1.9957 a gallon, and gasoline fell 8.19 cents to $2.047 a gallon. Natural gas rose 2.7 cents to $4.340 per 1,000 cubic feet.

In London, Brent crude advanced 3 cents to $77.96 on the ICE futures exchange.

Associated Press writers Pablo Gorondi in Budapest and Alex Kennedy in Singapore contributed to this report.

Copyright © 2010 The Associated Press. All rights reserved.

Interesting news... what's far more interesting to me is how much the price of oil was affected by speculators over the past decade, as opposed to actual increases in demand or declines in production.

[Marcus Aurelius]

Interesting news... what's far more interesting to me is how much the price of oil was affected by speculators over the past decade, as opposed to actual increases in demand or declines in production.

There is no linear relationship between price and demand when it comes to essential resources like crude oil. If demand is slightly higher than supply, the prices will rise very sharply until the demand goes away, or is "destructed" as some economists call it. Speculation does have a role as well, but there is no real data about its significance. It has been pretty much agreed though that until the economic recovery starts for real in the US and in Europe, prices over $75 a barrel are probably fueled by speculation and the "speculation free" price of crude should be somewhere between $60 and $75. Even many peak oil proponents actually agree on that, because it fits well with the current supply and demand.

However, this does not tell us much about the causes of the oil spike in summer 2008, because demand remained at fairly high level until the financial crisis was already well in progress, even if some segments of the economy were already going towards recession before that.

There is also at least one error in the article is: at $70 many deep water producers will only be making a fairly meager profit and some projects currently in development would not be profitable at all. Furthermore, for shallow water producers it means that there will be much less money for infrastructure maintenance, which is not a good thing in the long run.

[Admiral Valdemar]

Speculation happened, yes, but it will ALWAYS happen. The issue to look at in depth was why it suddenly happened, which was down to the marginal barrel being bid up by competing economies before the US basically picked up the ball and went home and the credit crunch started. Oil prices will have been a factor in that event, though they were not the chief cause in the least. Contrary to what I may have said in some tirade back in the day, oil prices won't be hitting triple figures to four figures and making us pay $10/gal. for gas. We'll kill the economy fully before that.

Anyway, the new paradigm is volatility, rather than relative or even nominal price spikes. The stock market is showing this same pattern now too as investors are wary of how the real economy and finance sectors will play out.

Keep in mind that even at a bargain of $70/bbl., it is still far more than the ten bucks for oil back in '99, or even 2005.

[J]

what's far more interesting to me is how much the price of oil was affected by speculators over the past decade, as opposed to actual increases in demand or declines in production.

And how exactly did you reach this conclusion?

[Big Phil]

Speculation happened, yes, but it will ALWAYS happen. The issue to look at in depth was why it suddenly happened, which was down to the marginal barrel being bid up by competing economies before the US basically picked up the ball and went home and the credit crunch started. Oil prices will have been a factor in that event, though they were not the chief cause in the least. Contrary to what I may have said in some tirade back in the day, oil prices won't be hitting triple figures to four figures and making us pay $10/gal. for gas. We'll kill the economy fully before that.

Anyway, the new paradigm is volatility, rather than relative or even nominal price spikes. The stock market is showing this same pattern now too as investors are wary of how the real economy and finance sectors will play out.

Keep in mind that even at a bargain of $70/bbl., it is still far more than the ten bucks for oil back in '99, or even 2005.

I remember your peak oil tirades with fondness... although breadlines and suburban wastelands still takes the cake in my book

Volatility seems to be on the menu for the immediate future in all sectors of the economy - nobody knows what's coming, despite opposing predictions of gloom and doom or everything coming up roses - and the price of oil is far from logical, which was what I was addressing. Given that the global demand for oil hasn't dropped in half since 2008, there's no logical reason for the price to be so "low," unless it was artificially "high" in 2008 due to speculation. Of course, markets don't operate on the basis of logic or perfect knowledge, so weird shit tends to happen... like the price of oil hitting $35/barrel a few months back.

what's far more interesting to me is how much the price of oil was affected by speculators over the past decade, as opposed to actual increases in demand or declines in production.

And how exactly did you reach this conclusion?

That the price of oil was affected by speculation? Hmm... well, I read newspapers, I look at economic reports, I read articles talking about how speculation affected the price... it was pretty earthshaking stuff, really. I suspect by your response that you're all prepared to offer some lecture, so why don't you just post the whole thing... I'm waiting with baited breath.

[J]

And how exactly did you reach this conclusion?

That the price of oil was affected by speculation? Hmm... well, I read newspapers, I look at economic reports, I read articles talking about how speculation affected the price... it was pretty earthshaking stuff, really. I suspect by your response that you're all prepared to offer some lecture, so why don't you just post the whole thing... I'm waiting with baited breath.

You're the one making the claim, it's your job to find and post the supporting evidence, not mine.

[Admiral Valdemar]

I remember your peak oil tirades with fondness... although breadlines and suburban wastelands still takes the cake in my book

Ah, well actually, those things do exist. They're just not the sort of thing we focus on in the news so much when we have volcanoes and stock market drops and sticksaves. But they exist, if not to the extent that some would imagine. I'm waiting for my time to buy a V8 Interceptor and fight off biker gangs in a desolate wasteland... Australia.

Volatility seems to be on the menu for the immediate future in all sectors of the economy - nobody knows what's coming, despite opposing predictions of gloom and doom or everything coming up roses - and the price of oil is far from logical, which was what I was addressing. Given that the global demand for oil hasn't dropped in half since 2008, there's no logical reason for the price to be so "low," unless it was artificially "high" in 2008 due to speculation. Of course, markets don't operate on the basis of logic or perfect knowledge, so weird shit tends to happen... like the price of oil hitting $35/barrel a few months back.

The thing to remember here is that there is no relationship between supply and price when you reach the limits of what is being produced. For instance, say I have ten people and ten sacks of rice, with a third party also selling. The price sold would reflect that which the market would dictate was a fair price to turn a profit, but also keep the ten customers firmly on my side. There is excess supply to demand, and the price is fairly stable. Now the third party supplier goes broke, or his supply falls off, whatever. Demand is now in equilibrium, no major changes so far, except I could charge more and watch as they have to pay what I dictate is the best price. I could even go so far as to take a bag away and say that I can't bring that to bear just now. No cartel would ever do this in a million years, of couse...

But say that becomes the status quo and is down to the reality that, yes, I don't have that bag to meet customer number 10's needs. And now 9 is fucked. And 8. Now the supply has fallen a good deal, just over a fifth, yet you watch as that price goes high from speculation down simply to the remaining parties using all their possible capital to secure the commodity. It is at this point it is most obvious that one thing will happen: the price will charge up until the winning bidders are all that are left for the amount available, and the losers are destitute and price out of the game. If it's a constant supply thing, then a second event will occur whereby even those with the capital to outbid others, will soon hit a horizon where return on investment takes a dive because, oops, all your money is going to acquiring a resource, not a productive economy. This happened in 2008, just it did it at a much lower level to that which many investment banks and analysts expected, because people didn't think the housing bubble would really burst. It was "different this time".

As soon as you reach a situation where supply and demand are just out of balance, into the negative, then there are really no limits to the price rise from normal trading. Speculation without merit would be where there is ample supply and demand isn't rising at some logarithmic rate. In that instance, the FDIC etc. would come down hard on those making a buck off something that SHOULD be cheaper.

[Starglider]

It's amusing to reread this thread.

$300 oil will be next spring if this continues. In ten years, you're looking at well over $1000 for a barrel, if not more. $200 is well within our sights for autumn this year... In short, things are unravelling far faster than anything I've ever predicted on here.

$135? Let's make another run of bets now, guys, what would the price be in July, say, on July 15.

They're certainly never coming down below $100.00 now.

The speculative bubble was good in that it was a wakeup call for some, but bad in that future price rises based on real supply issues are likely to be written off as 'another bubble'. That said, $1000/barrel is never going to happen as long as we still have coal.

[Admiral Valdemar]

I very much doubt 2008's $147 will happen again. We know the limits to the system now, and that price level is certain doom for any economic activity, with a much lower price now having a harder impact. The idea that limited output means ever increasing prices forever is now put out to pasture as we've firmly tested that hypothesis. While a higher average price has been the trend, we won't get spikes like we had two years ago, and additionally, we can surmise that "peak demand" is a more likely impact on energy as the financial sector shows it is far less resilient and prone to collapse before supply gets seriously constrained (that is until geological or export declines catch up with this decline, if they can).

[tim31]

I honestly don't know what's more disappointing; the fact that it's 2010 and we're not using our flying cars on the moon, or that the peak doom scenarios have been revised downward into something more 'realistic'. Influence from film and television, I expect.

[Admiral Valdemar]

I honestly don't know what's more disappointing; the fact that it's 2010 and we're not using our flying cars on the moon, or that the peak doom scenarios have been revised downward into something more 'realistic'. Influence from film and television, I expect.

They've been revised to something closer than expected from the big organisations that poo-pooed the idea originally, and to something less likely to harm society right now than the economic problems, but acting more as a barrier to any future growth out of slump.

[Big Phil]

It's amusing to reread this thread.

$300 oil will be next spring if this continues. In ten years, you're looking at well over $1000 for a barrel, if not more. $200 is well within our sights for autumn this year... In short, things are unravelling far faster than anything I've ever predicted on here.

$135? Let's make another run of bets now, guys, what would the price be in July, say, on July 15.

They're certainly never coming down below $100.00 now.

The speculative bubble was good in that it was a wakeup call for some, but bad in that future price rises based on real supply issues are likely to be written off as 'another bubble'. That said, $1000/barrel is never going to happen as long as we still have coal.

Oh man, I sure do miss those threads. It's too bad nobody here is dumb enough to take up a Mayan Apocalypse-type thread - that would be high comedy.

I very much doubt 2008's $147 will happen again. We know the limits to the system now, and that price level is certain doom for any economic activity, with a much lower price now having a harder impact. The idea that limited output means ever increasing prices forever is now put out to pasture as we've firmly tested that hypothesis. While a higher average price has been the trend, we won't get spikes like we had two years ago, and additionally, we can surmise that "peak demand" is a more likely impact on energy as the financial sector shows it is far less resilient and prone to collapse before supply gets seriously constrained (that is until geological or export declines catch up with this decline, if they can).

The positive effect that $150/barrel oil had was that it changed people's behavior and forced governments and companies to seriously contemplate peak oil and other sources of energy. Once the price of oil dropped, the urgent demand for nuclear, solar, wind, etc., went away, although I've seen reports arguing that consumer behavior has been modified somewhat (i.e., more people are cycling or taking mass transit, people are driving less, etc.) and didn't just revert back to old behavior. How much of that is a result of oil vs. a shitty economy, I couldn't tell you.

[Iosef Cross]

Oil prices will never reach the 20-30 dollars level again. But they wouldn't probably reach 200 dollars for sustained periods.

The fall in oil prices from the ~100 dollar level is the result of market adjustment.

[J]

Hey Sanchez, are you going to present evidence for your claims on the effects of speculation or what?

[Admiral Valdemar]

The positive effect that $150/barrel oil had was that it changed people's behavior and forced governments and companies to seriously contemplate peak oil and other sources of energy. Once the price of oil dropped, the urgent demand for nuclear, solar, wind, etc., went away, although I've seen reports arguing that consumer behavior has been modified somewhat (i.e., more people are cycling or taking mass transit, people are driving less, etc.) and didn't just revert back to old behavior. How much of that is a result of oil vs. a shitty economy, I couldn't tell you.

I don't know how extensive that transition was, because it's hard to focus on what is an efficiency saving and what is simply some poor bastard losing his job after finding his mortgage and petrol costs sunk him (a commuter not travelling is certainly an energy saving just as a pensioner unable to pay for heating is). If this happened without the recession that was inevitable anyway, regardless of energy pices, then we'd maybe have a clearer picture of just how much demand was destroyed via improving BAU, rather than outright bidding people out of the game. There's been a huge drive for cost savings in my company over the last 18 months since our sales took a cliff route to the bottom.

Oil prices will never reach the 20-30 dollars level again. But they wouldn't probably reach 200 dollars for sustained periods.

The fall in oil prices from the ~100 dollar level is the result of market adjustment.

The run up over the last two months to near $90 was likely due to factoring in potential growth in Chindia continuing and anticipation of this driving recovery in the West. Since the Eurozone crisis started, all these gains have been wiped out, copper is falling and gold is going for a Moon shot. The deal with gold and the dollar rising is indicative of a loss of confidence in the other currencies and any real recovery as everyone with assets makes the safest investment and becomes a gold or other commodity bug (but apparently not oil, because few big investors are privy to it being a rarer substance of use or can't safely hold it in enough volume).

If oil ever reached $20-30, then the economy is in Great Depression mode again. At $60/bbl. most renewable and heavy oil projects cease to be profitable, and exploration drops off a cliff. You also can't do much with the harder to get to seams of coal or deeper gas fields too, unless you take a big haircut on it. This is what the Law of Receding Horizons does: you need these projects to transition to a sustainable, cleaner economy, yet they are too hard to achieve without a lot of subsidizing and oil use, given you have to use energy to get more of the stuff. It's a situation that leads to any boom time for these things meaning people use more of what they already have, but can afford to invest in new projects only until the limits on energy imposed already hit again and force the renaissance to collapse again.

[Starglider]

We know the limits to the system now, and that price level is certain doom for any economic activity, with a much lower price now having a harder impact.

Disagree. The 2008 oil bubble occurred just as the financial meltdown was really picking up. That meltdown would have occurred anyway. Meanwhile transitioning some industries away from oil fuel (e.g. more electric trains and delivery vehicles) increases overall tolerance for higher prices. Genuinely sustained $200/barrel prices are unlikely because of the sheer amount of unconventional oil that becomes economic at that price, but if (a) an economic recovery occurs after a mass debt writeoff and (b) underinvestment in unconventional oil continues we could easily see $200/barrel sustained for a year plus (in a 2020 timeframe).

[Iosef Cross]

Interesting news... what's far more interesting to me is how much the price of oil was affected by speculators over the past decade, as opposed to actual increases in demand or declines in production.

There is no linear relationship between price and demand when it comes to essential resources like crude oil. If demand is slightly higher than supply, the prices will rise very sharply until the demand goes away, or is "destructed" as some economists call it.

Oil demand is very inelastic in the short run (elasticity is the degree of variation of quantity in relation to price). That means that to decrease the total quantity of oil demanded we need a very large price increase. Hence a small reduction in supply will cause prices to skyrocket.

In the long run oil demand becomes more elastic. People start to adjust their lifestyles to higher oil prices. Fuel efficient cars start to be made instead of SUVs. Industry and transport utilize more energy efficient methods of functioning to reduce costs. As result demand for oil falls and prices fall.

That means that a small reduction in supply, or small increase in demand for oil, in the short run will cause a very high price spike. While in the long run the consumption of oil will decrease with the adjustments of the economy to higher oil prices and this reduction in demand will drive prices downward. Hence, if oil prices rise steeply, they will gradually fall.

However, this does not tell us much about the causes of the oil spike in summer 2008, because demand remained at fairly high level until the financial crisis was already well in progress, even if some segments of the economy were already going towards recession before that.

The market takes time to fully respond to all the macroeconomic changes. If the market was infinitely fast there wouldn't be economic crises (they would take an infinitesimal amount of time to pass).

In this case it took time before the production plans of all the entrepreneurs adjusted their oil demand for the new macroeconomic situation.

There is also at least one error in the article is: at $70 many deep water producers will only be making a fairly meager profit and some projects currently in development would not be profitable at all. Furthermore, for shallow water producers it means that there will be much less money for infrastructure maintenance, which is not a good thing in the long run.

Here in Brazil your state run oil company can only turn out profits from it's new deep water wells if oil prices are higher than 85 dollars.

[Iosef Cross]

We know the limits to the system now, and that price level is certain doom for any economic activity, with a much lower price now having a harder impact.

Disagree. The 2008 oil bubble occurred just as the financial meltdown was really picking up. That meltdown would have occurred anyway. Meanwhile transitioning some industries away from oil fuel (e.g. more electric trains and delivery vehicles) increases overall tolerance for higher prices. Genuinely sustained $200/barrel prices are unlikely because of the sheer amount of unconventional oil that becomes economic at that price, but if (a) an economic recovery occurs after a mass debt writeoff and (b) underinvestment in unconventional oil continues we could easily see $200/barrel sustained for a year plus (in a 2020 timeframe).

Yes. The world will transition to an oil free economy when oil prices become unbearable. Currently, the ecologists should have a party, since a average of 70-90 dollars per barrel creates a lot of incentives for people to substitute oil for alternative energy. Compared to the 20-30 dollars of the 90's.

[Admiral Valdemar]

Disagree. The 2008 oil bubble occurred just as the financial meltdown was really picking up. That meltdown would have occurred anyway. Meanwhile transitioning some industries away from oil fuel (e.g. more electric trains and delivery vehicles) increases overall tolerance for higher prices. Genuinely sustained $200/barrel prices are unlikely because of the sheer amount of unconventional oil that becomes economic at that price, but if (a) an economic recovery occurs after a mass debt writeoff and (b) underinvestment in unconventional oil continues we could easily see $200/barrel sustained for a year plus (in a 2020 timeframe).

I don't rule out the idea completely that we could hit triple digits in the future at some point, I just find it highly unlikely with the reactions from the economy in general now and how even approaching $90 has led to a pull back, albeit, this time it was European sovereign debt, not US housing and banking concerns. We have a Catch-22 where higher prices enable more resources to be added to reserves at the same time as harming the potential to grow due to said higher pricing in the markets affecting everything else. A lot of fossil fuel companies came close to bankruptcy when prices crashed after having some of their best spurts in exploratory growth in decades, it's a model that you really can't adapt to as you need to have, like with nuclear, a guaranteed return on such large investments to make them worth the initial cost. New refineries have been rare as gold dust thanks to this, as while some may come out and say they don't believe oil will peak, their actions say otherwise. What use it spending several billion on a refinery for WTI grade oil when you already know by the time it's built, it'll be useless? Even the Saudis get this, and they're the most vocal anti-peakers for obvious reasons (although grab one or two ex-ARAMCO officials and they'll tell you how screwed Saudi and why they're working on alternatives full steam).

I think price is way too nebulous an indicator now with the current economic factors hammering all commodities and currencies and becoming more volatile. It may have been more indicative of the scheme of things years ago, but now it comes off as rather less useful. That really only leaves official production data and economic reports. Non-OPEC have added a lot of capacity over the two years since the crash started, and we could see a new record just over the one for all liquids from before the crash, if not by a whole heap that wouldn't be classed as anything but noise in the overall picture. As hilarious as it was when I first heard it, peak demand is probably the new peak oil, because even if oil is gushing out at 100 Mbpd and costs $10/bbl., if you have no job, you're not going to be using very much of it. The alternative is a healthy economy where higher price and eventually production does become the limiting factor, rather than who can afford it because they happen to be able to print money.

Yes. The world will transition to an oil free economy when oil prices become unbearable. Currently, the ecologists should have a party, since a average of 70-90 dollars per barrel creates a lot of incentives for people to substitute oil for alternative energy. Compared to the 20-30 dollars of the 90's.

There will never be an oil free economy. The industry I work in alone uses a significant amount of oil globally for everything BUT burning it. Putting crude as refined product into an ICE to combust is seen as a rather wasteful use for such a precious resource. Make no mistake, the oil age won't end from lack of oil or an alternative energy source taking the brunt of it for liquid fuels.

[Marcus Aurelius]

I very much doubt 2008's $147 will happen again. We know the limits to the system now, and that price level is certain doom for any economic activity, with a much lower price now having a harder impact. The idea that limited output means ever increasing prices forever is now put out to pasture as we've firmly tested that hypothesis. While a higher average price has been the trend, we won't get spikes like we had two years ago, and additionally, we can surmise that "peak demand" is a more likely impact on energy as the financial sector shows it is far less resilient and prone to collapse before supply gets seriously constrained (that is until geological or export declines catch up with this decline, if they can).

Why do you conclude that there will be no new spikes? I don't think there is sufficient reason to believe that there will necessarily be another financial crisis in the near future which would curb the demand. There very well might be one, but it is not given. In general I think the "whale oil model" is still quite valid and it predicts several price spikes and high volatility after the peaking of production:

http://www.theoildrum.com/node/3960

Yes. The world will transition to an oil free economy when oil prices become unbearable. Currently, the ecologists should have a party, since a average of 70-90 dollars per barrel creates a lot of incentives for people to substitute oil for alternative energy.

Theoretically yes. However, no good substitutes for petroleum based transportation fuels currently exist. Trucks, airplanes and ships can't run on batteries and in any case battery production and scarce lithium resources are already a huge bottleneck even for passenger cars. It will take more than a decade to replace a significant percentage of cars with electric or hybrid vehicles. The technology required for hydrogen based economy is far (as in decades) from being ready for really wide deployment, and in any case hydrogen is still just an energy storage. The energy will first have to be produced somehow. First and second generation biofuels do not scale well enough to replace more than a single-digit percentage of gasoline and diesel. Third generation biofuel (algae fuel) is still basically science fiction and nobody knows if it is workable at all above lab scale.

So the transition for lower oil usage will not be a smooth ride, we already know that for certain. The only question is how bad the economic and societal disruption will be.

[Starglider]

As hilarious as it was when I first heard it, peak demand is probably the new peak oil, because even if oil is gushing out at 100 Mbpd and costs $10/bbl., if you have no job, you're not going to be using very much of it.

Declaring 'peak demand' based on a mere two years of recession in the US & Europe is ridiculous. If the whole world fell into a persistent slump even after all the financial bullshit has been cleared (to say nothing of the baby boomer demographic hump), then you could reasonably blame it on resource costs.

There will never be an oil free economy. The industry I work in alone uses a significant amount of oil globally for everything BUT burning it.

'Never' is a long time. There is no near-term substitute for oil as feedstock for a huge amount of industrial chemistry, but further in the future we might see biotech or nanotech alternatives to those processes.

[Admiral Valdemar]

Why do you conclude that there will be no new spikes? I don't think there is sufficient reason to believe that there will necessarily be another financial crisis in the near future which would curb the demand. There very well might be one, but it is not given. In general I think the "whale oil model" is still quite valid and it predicts several price spikes and high volatility after the peaking of production:

http://www.theoildrum.com/node/3960

There may be new spikes, but their intensity likely not as high as in 2008. The ever increasing average price is something I expect far more, given energy inflation while the economy experiences massive deflationary pressures. We can see this happening today, and the next economic crisis is already here. If you think the unwinding of US housing was bad, you'll love the unwinding of global sovereign debt. Additionally, remember that the price spike was at a time when a flight to commodities (food too) was happening as the banking system teetered on the edge, gold, too, rose. Over the last two years, we have had OPEC hold back production to keep prices within an acceptable range they speak of, usually between $60-80 now, while US demand fell along with Europe, Chindia kept strong. There is nothing to say that this growth in Asia will continue for much longer with the very real bubbles growing in the Chinese economy, that could easily wipe a large chunk of demand off the map as they find their stimulus ends at a time when the economies elsewhere slide into a double dip of the Great Recession (or so they call it now).

The majority of this is down to the capitalistic system in place and monetary policy affecting the real economy. 2008 wasn't a crash caused by peak oil, indeed, energy price spikes were one of the thousand cuts that killed it.

Declaring 'peak demand' based on a mere two years of recession in the US & Europe is ridiculous. If the whole world fell into a persistent slump even after all the financial bullshit has been cleared (to say nothing of the baby boomer demographic hump), then you could reasonably blame it on resource costs.

Technically, from a shadow stats perspective, the likes of the US and UK have been in recession for a lot longer. The official figures blow, frankly. In any case, I'm not basing this on past performance, but future expectations. Demand from China vanishing will call time to this should it occur.

'Never' is a long time. There is no near-term substitute for oil as feedstock for a huge amount of industrial chemistry, but further in the future we might see biotech or nanotech alternatives to those processes.

In my lifetime, of course. But even then, there will ALWAYS be tar sands, and they will always be better than any bio- or nanotech fantasy idea. We can handily make oil from sucking gases out of the air we breathe today. We don't because it's a piss poor thing to do when the aim of the game is to make money. Likewise, vats of microbes or nanomachines making the oil the world uses for non-energy use is just not happening. We'll be mining Titan before that. Anyway, that was beside my point. You made the distinction I didn't between natural crude and oil in general. We will always have oil, whatever form it comes in, because it is just that useful.

[Big Phil]

Why do you conclude that there will be no new spikes? I don't think there is sufficient reason to believe that there will necessarily be another financial crisis in the near future which would curb the demand. There very well might be one, but it is not given. In general I think the "whale oil model" is still quite valid and it predicts several price spikes and high volatility after the peaking of production:

http://www.theoildrum.com/node/3960

There may be new spikes, but their intensity likely not as high as in 2008. The ever increasing average price is something I expect far more, given energy inflation while the economy experiences massive deflationary pressures. We can see this happening today, and the next economic crisis is already here. If you think the unwinding of US housing was bad, you'll love the unwinding of global sovereign debt. Additionally, remember that the price spike was at a time when a flight to commodities (food too) was happening as the banking system teetered on the edge, gold, too, rose. Over the last two years, we have had OPEC hold back production to keep prices within an acceptable range they speak of, usually between $60-80 now, while US demand fell along with Europe, Chindia kept strong. There is nothing to say that this growth in Asia will continue for much longer with the very real bubbles growing in the Chinese economy, that could easily wipe a large chunk of demand off the map as they find their stimulus ends at a time when the economies elsewhere slide into a double dip of the Great Recession (or so they call it now).

The majority of this is down to the capitalistic system in place and monetary policy affecting the real economy. 2008 wasn't a crash caused by peak oil, indeed, energy price spikes were one of the thousand cuts that killed it.

Another issue is that, adjusted for inflation, oil hit an all time high in 2008 - the last time oil hit a similar peak, in the 70's and early 80's, the economy was in crappy shape. Oil is simply unsustainable above $150/barrel or below $30/barrel, based on historical trends, and I agree with your position that it really has to be above $60/barrel in order to justify the cost.

http://inflationdata.com/inflation/infl ... _chart.asp

[Admiral Valdemar]

Another issue is that, adjusted for inflation, oil hit an all time high in 2008 - the last time oil hit a similar peak, in the 70's and early 80's, the economy was in crappy shape. Oil is simply unsustainable above $150/barrel or below $30/barrel, based on historical trends, and I agree with your position that it really has to be above $60/barrel in order to justify the cost.

http://inflationdata.com/inflation/infl ... _chart.asp

There is the added problem of the positive feedback loop regarding energy prices. Since energy is the most important part of the economy (regardless of what economists may say), it underlines everything else, and so adds to costs across the board. If prices spike again, then that spike will kill off demand and add further downward pressure again. We're already at the point where global efforts to save the economy of the world via bailouts are waning. They can't keep throwing trillions at the problem, so it will HAVE to unwind naturally somewhere down the line, be it next week or 2020, though I'd be amazed if the Ponzi scheme carries on past next year. QE and other tricks have failed to bring about any real growth that isn't down to public sector spending which, if you look at the US, is going to nosedive this year as whole states are bankrupt. How on Earth does anyone expect demand to rise when the governments and the people relying on them propping up the real economy, are unable to pay down debt obligations? China is no different, even if their structure is with respect to these economic worries. If they have enough internal demand to satisfy their growth, then bully for them. I don't see that at all, and without the likes of Europe buying up their tat en masse, they will also flounder. We've debated the idea of whether we need China more than they need them before, and it's clear to me that China only managed the stellar growth they have no via selling salad bowls and cheap electronics to the rest of the world. That will end with the Eurozone crisis, ignoring any contamination spreading as it will with the markets already showing a loss of confidence in the shell game played now.

There will always be an increasing baseline for oil price once geological and export declines take sway, but I can't say that fills me with dread as much as the idea that we'll have little of an economy left by that point to make use of the oil anyway. The whole capitalist system needs redressing before any of the concerns of peak anything are looked at seriously. All this time wasted going up and down the price spectrum, turning on and off investment in new projects, is basically fiddling while the ship sinks. There needs to be real change (and I loathe to use that word Cameron has now milked to death) right here, right now for us to deal with the eventual real peak oil, rather than the phony one of economic disaster.

[Arthur_Tuxedo]

Never say never. In 2007 and 2008 the board consensus was that oil prices were quickly skyrocketing to the point where we would soon be back to the horse and carriage. Now the wisdom is we'll never see those prices again. These are both pure extrapolation from current trends with no rational analysis. We all chuckle at the doomsaying in those old threads, but the facts they highlighted were real, if exaggerated. China and India are still going to generate huge demand growth that can't possibly be matched by a supply increase, there are still no realistic alternatives within sight, and there is still no political will to begin the decades-long process of preparation until disaster has already struck. A couple of years of economic crisis and collapse followed by (most likely) a lost decade of low first-world growth will kick the can down the road, but it doesn't change the basic reality.