I wouldn't be so confident about naming a particular ceiling price, but as oil becomes more expensive demand will fall and individuals and industries will move to other sources of energy. In particular within the next 5-10 years it looks as if electric vehicles are going to be a growth area, mainly driven by rising costs on conventional fuel.
Why Peak Oil Will Never Lead To $500/bbl Crude Oil
41–50 of 72 posts
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#42I 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.
Very little electricity is petroleum based anymore. Depending on region it's mostly coal, hydro, or nuke.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#43We 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?
Monetization of massive US debt, particularly due to the present value of the future liability of social programs. If current spending patterns don't change, monetization is the only alternative to defaulting on Treasury obligations, unless we begin cutting programs (ex. military spending) to help fund those liabilities or reduce those liabilities by reducing social program benefits.
Given what just happened in the RMBS and CMBS market, it's hard to claim that we live with an efficient market, particularly with respect to long-term trends.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#44I would like to see some sources for the "more than 100 years of oil left" claim. If it's at all based on 'public reserve levels' declared by oil producing countries, those are basically totally fabricated.
http://www.telegraph.co.uk/finance/newsbysector/energy/oilan...
In any case, it's the first claim in the article, he should back it up.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#45Earlier quoted context omitted.
> Market demand for oil collapses (read: recession) long before it gets anywhere close to $500/bbl. Above $80 a barrel, alternative fuels (such as liquid fuels from coal) becomes profitable. I sincerely expect that this will expand extremely rapidly in the next 15 years.
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.
the price driver is not so much the cost to produce as it is the rate of production.
Neither of these are ever what determine the price. Price is determined by the intersection of what buyers are willing to pay and what sellers are willing to accept in payment.
Now, the cost to produce, as well as the production rate (in relation to the consumption rate at a given price) may well feed into the seller's decision about what they're willing to accept. But that's a second-order effect. Sellers charge what buyers are willing to spend. They'll make more of it if there's a good profit to be made; if nobody will pay very much, they'll invest their money in producing something different.
The price that a buyer is willing to pay is influenced by how important is the goal for which he wants to use the product, but also how readily he use an alternate product in substitution for this primary one.
Thus, he may be willing to forgo the purchase of a vacation trip, because it's just not worth the money.
He might also, in the longer term, substitute different goods. So in a longer time horizon, he might change jobs to one that allows him to telecommute, in order to circumvent gas prices. Or car manufacturers might see that they themselves are having trouble selling gas-guzzlers, and change production to alternate-fueled cars, like electric (whose power is ultimately generated by coal or nuke), or maybe engines fueld by natural gas, or something.
So in the big picture, there are many safety valves allow this pressure to be dissipated.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#46No one with any credibility actually believes he can forecast the price of oil. Oil is very inelastic in the short term, which is why small drops in supply lead to massive price increases. The long-term effect of unavailable or expensive oil will be "demand destruction"-- many of those who currently use oil will either move to alternatives or go out of business-- and political fallout with unpredictable results.
You can manufacture oil for around 100$ a barrel from coal. So the chances for inflation adjusted oil above 200$ / barrel lasting for more than a few months within 50 years is tiny. The best way for current suppliers to maximize profit is to occasionally spike prices, and then drop them before alternatives start to diminish demand.
What are the inputs into this manufacturing process? The $100/bbl figure is meaningless, unless we know what the specific inputs are and how stable their prices and availability are. Energy of some sort is obviously a major input, and it's unlikely that oil will spike without having a similar effect on the overall energy market.
So the fact that oil could be manufactured from coal at $100/barrel now doesn't mean that we'll be able to do so when we need it most.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#47No one with any credibility actually believes he can forecast the price of oil. Oil is very inelastic in the short term, which is why small drops in supply lead to massive price increases. The long-term effect of unavailable or expensive oil will be "demand destruction"-- many of those who currently use oil will either move to alternatives or go out of business-- and political fallout with unpredictable results.
People investing in futures do this every day, and some of them are most certainly credible. Southwest Airlines, e.g., seems to be pretty good at saving a buck with aviation gas futures (though that is a step removed from crude oil).
There's a difference between buying futures (which may or may not pay off) and reliably predicting the price of oil.
Also: Southwest buys fuel futures to hedge its exposure, which is different from speculation. People hedge because they don't know what the price will do, and want to be OK regardless of price movements.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#48Earlier quoted context omitted.
You can manufacture oil for around 100$ a barrel from coal. So the chances for inflation adjusted oil above 200$ / barrel lasting for more than a few months within 50 years is tiny. The best way for current suppliers to maximize profit is to occasionally spike prices, and then drop them before alternatives start to diminish demand.
What are the inputs into this manufacturing process? The $100/bbl figure is meaningless, unless we know what the specific inputs are and how stable their prices and availability are. Energy of some sort is obviously a major input, and it's unlikely that oil will spike without having a similar effect on the overall energy market. So the fact that oil could be manufactured from coal at $100/barrel now doesn't mean that…
"Energy of some sort is obviously a major input,..."
Unless, of course, the chemical process that converts coal to oil is exothermic, which is not impossible in principle. In this case, the energy conversion efficiency would be less than one, but it still might cost less than changing the oil-based infrastructure so that it consumes coal directly.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#49Dick Cheney returns to political power as an American Hitler laying waste to sovereignty in the Middle East!
Very imaginative. But not very likely.
I think peak cheap oil is likely within the next decade. What a person thinks happens after that says more about the person than it does the future.
Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil
#50No one with any credibility actually believes he can forecast the price of oil. Oil is very inelastic in the short term, which is why small drops in supply lead to massive price increases. The long-term effect of unavailable or expensive oil will be "demand destruction"-- many of those who currently use oil will either move to alternatives or go out of business-- and political fallout with unpredictable results.
People investing in futures do this every day, and some of them are most certainly credible. Southwest Airlines, e.g., seems to be pretty good at saving a buck with aviation gas futures (though that is a step removed from crude oil).
People investing in futures do this every day, and some of them are most certainly credible.
If it were possible to do significantly better than blind luck in speculation about future prices then there'd be nobody around to take the other side of the contract.