We will reach $500/bbl eventually after the US dollar is hyper inflated away.
Why Peak Oil Will Never Lead To $500/bbl Crude Oil
31–40 of 72 posts
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#32I think the Internet will do a lot to lessen the effect of this when it does happen. People who can work from home probably will, when it costs a quarter to half your days wage just to make it to work it will offset any benefit you get by having a team in the same building. Also online distribution, things like books might become prohibitively expensive in the physical form and drive everyone to ebooks, all creative…
But the electricity powering the Internet is also somewhat oil-based, depending on exactly what fuels you local plant runs.
It may not impact the individual homeowner, but the costs of the data centers and network providers will increase alongside oil prices.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#33Earlier quoted context omitted.
Demand has been lower due to the global recession -- there is no indication that oil production can't go higher than ever before, once demand starts picking back up.
And what do you think triggered the global recession, if not an oil price that spiked to an economy-busting $147/bbl in the two years after production peaked at 85 mbpd?
In many ways it was a final inflation of the bubble, as profit-takers getting out from a structurally unsound housing & CDO market looked for somewhere to park their excess cash and found a delightfully under-regulated exchange on which to do so. A great number of the oil future contracts were traded on an exchange called ICE, which had managed to set itself up in such a way that both US and UK financial regulators each thought the other was supervising it, when in fact neither were. It's a rather convoluted story that hasn't really been told yet, as it was overshadowed by subsequent events. the reasons I don't think it directly caused the full-scale market collapse are that a) no big banks got massively exposed to the oil price inflation - they could see it was speculative, and it inflated and popped so quickly that they never structured their positions around it; and b) the subprime market and all the other distortions (zero down, stated income, etc.) were already looking ropey by then.
Soaring oil prices might have pushed a few consumers over the edge into mortgage default, but even if that hadn't happened I think the market would have imploded within a few months of the 2008 election anyway. Recall that Bear Stearns had to put up $3.2 bn to rescue its two hedge funds in June of 2007, and Merrill Lynch's inability to sell more than about 12% of the CDO assets it seized was the first clue (for the public at large) that the financial industry had a systemic rather than a localized problem - and this was almost a year before the oil price spike. By the time that occurred, the stock market was in decline, Bush had already administered a $145 bn stimulus (remember that $800 tax rebate in 2008?), Bear had collapsed, the NY Fed had underwriting their acquisition by JP Morgan to the tune of $25 billion. So our economy was already in poor shape by March of 08, which was when oil prices suddenly took off like a rocket. At the time, I wondered if the sudden rise was in response to the structural weaknesses in the US and European economies, which shared both enormous housing booms and huge amounts of counterparty risk: it seemed as if traders were looking at oil as a substitute currency (energy is a much better candidate for solid money than gold) and using it to impose a sort of reverse devaluation of the dollar and euro. With hindsight I don't really think so, though - it was a simple pile-in rather than the dawning of a new economic concept.
BTW thanks for that CIBC paper you linked to below - although I don't quite agree with the 'big picture' analysis it's still a great read.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#34Executive summary: The author expects "government intervention of some kind to occur before prices get much above $200/bbl."
government intervention is of course a euphemism for rationing. Rationing creates shortages which in turn causes steeper rationing, with the result being the economy slows to whatever pace is consistent with the limited supply of energy. For the USA that looks to be a lonnnng way down from here.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#35We will reach $500/bbl eventually after the US dollar is hyper inflated away.
I keep hearing about how hyperinflation is about to hit. Surely in an efficient market, if this was truly likely, its effects would already be being felt? What is the rationale behind its prediction?
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#36Executive summary: The author expects "government intervention of some kind to occur before prices get much above $200/bbl."
government intervention is of course a euphemism for rationing. Rationing creates shortages which in turn causes steeper rationing, with the result being the economy slows to whatever pace is consistent with the limited supply of energy. For the USA that looks to be a lonnnng way down from here.
Not just rationing. TFA talks about price controls, nationalization of oil companies, and even outright invasion of other countries to obtain "cheap oil".
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#37I think the Internet will do a lot to lessen the effect of this when it does happen. People who can work from home probably will, when it costs a quarter to half your days wage just to make it to work it will offset any benefit you get by having a team in the same building. Also online distribution, things like books might become prohibitively expensive in the physical form and drive everyone to ebooks, all creative…
But the electricity powering the Internet is also somewhat oil-based, depending on exactly what fuels you local plant runs. It may not impact the individual homeowner, but the costs of the data centers and network providers will increase alongside oil prices.
True, without any specific knowledge I would guess that power online services would still be more economical than revering back to an offline business model. Sure the costs will go up but freighting costs will go up more.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#38We will reach $500/bbl eventually after the US dollar is hyper inflated away.
I keep hearing about how hyperinflation is about to hit. Surely in an efficient market, if this was truly likely, its effects would already be being felt? What is the rationale behind its prediction?
Goldbugs think any fiat currency will eventually hyperinflate. Note this is an unfalsifiable hypothesis.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#39Earlier quoted context omitted.
When demand becomes tight, the price driver is not so much the cost to produce as it is the rate of production . Can we produce five or ten million barrels of oil-from-coal a day? Can we replace a two or three percent annual drop in oil production rates through some combination of conserving and replacement without recessionary demand destruction? I'm not so sure.
We'd switch to more mundane substitutes long before oil got to $500/bbl. Just the spike to $130/bbl in 2006 saw people switching away from SUVs to Priuses in droves. If that were sustained for any length of time, everyone would be driving a plug-in hybrid to work. The technology exists today, and the production capacity would ramp up pretty quickly. If every switched from a 20mpg car to a 50mpg car where the first 10…
That might work if the developed world was driving the increase in fuel consumption, but that hasn't been true for quite some time. North American oil consumption is already going into decline, but global demand pressure is coming from the developing world - China, mainly, followed by India - as well as all the oil-producing countries with nationalized industries and artificially low domestic prices (Venezuela, most of the Middle East).
Those consumers will not be buying plug-in Priuses; and with consumption growing rapidly in the oil exporting countries, once they pass their national production peaks their export rates will decline faster than their own production rates.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#40Earlier quoted context omitted.
Demand has been lower due to the global recession -- there is no indication that oil production can't go higher than ever before, once demand starts picking back up.
Which has the higher bound -- the amount of oil we can pump out of the ground in a given day, or the demand for that oil given that we have 1 billion new members of the middle class over the last 25 years alone? What about the next billion?
Wrong question - 25 from years from now, our aggregate energy needs will certainly have increased, but we will have had ample time to adjust for the decline in oil reserves by substitution and per-capita demand reduction, which is relatively elastic over longer terms.
If we wanted - and anyone who questions the existence of political will is right to be worried - we could replace our oil fuel use almost entirely over that timespan with nuclear power. I know, there's a peak uranium issue as well.
On the other hand, Europe and the US now find themselves awash in natural gas, which is a pleasant reversal of where we expected to be a few years ago; and renewable power generation is becoming price-competitive and deployed in sufficient volume to yield economies of scale, so we can reasonably hope for that trend to continue over the next 25 years too. I don't think we need to resurrect Thomas Malthus just yet.