Speculators will once again take all the fire for high oil prices while

[Subdivisions]

the decline in production and natural depletion receive no press at all.

Figures.

[Ozymanithrax]

1. They must refute the peak oil myth at all costs.

Why, if people begin to accept peak oil then they might start accepting global warming. Can't have that. It is better, and easier, to convince the world that mean old wallstreet is driving up prices.

[LiberalLoner]

2. It's high time we had a real conversation about peak oil because

it's pretty much here and if we don't prepare for it we are going to be really hurting.

[Wapsie B]

3. You're right. Who would buy these SUVs and huge pickups

if peak oil was opening discussed?

[sandnsea]

4. Oh please. We can see. We can count.

We can see oil at over $100 two years ago. There was certainly no drastic change in resource depletion or production to cause a 50% drop. And there's no drastic change to start the price going up now.

It's probably 30% economic improvement, and 70% speculation.

[Subdivisions]

7. Wrong on every single count. n/t

[Statistical]

9. You are aware that even small supply /demand inbalance causes huge price swings.

This applies to any commodity.

The idea that it takes a 50% production decline to move prices is silly at best. If we had a 50% production decline and stable demand you would see prices move couple hundred percent.

Even small inbalances between supply & demand (say demand exceeding supply by 5%) will have a substantial effect on price.
Say

[sandnsea]

20. Due to speculation

We had a drop from $140 to below $50 in less than a year. That was not due to production decline or demand decline, because as you and I both know, that would have been an economic holocaust.

Yes, slight imbalances cause huge price swings - due to speculation.

If we regulated oil trading, we'd have a much more stable economy and it would be better for everybody.

[Subdivisions]

22. That decline in price was caused by plummeting demand as a result of the

housing market bubble popping and the economy sinking to near-depressionary levels. Demand in this country alone fell 2 million barrels - PER DAY.

[Statistical]

23. Even without speculation a small inbalance of supply & demand results in larger price swings.

Look at the fall. Demand fell roughly 7% however prices fell 66%.

Lots of speculators got destroyed on the decline. Even major companies. Southwest airlines used oil contracts to hedge rising oil prices and it help protect profits (hard to guess what price of oil will when plane actually flies when you sell tickets in advance).

Then the fall came and Southwest took a loss on their oil hedges.

It doesn't take much for commodity prices to move a substantial amount.

DOE estimate is oil will exceed $100 consistently by 2012 and exceed $150 (inflation adjusted) by 2020 (that $250 if inflation is 3%).

Higher and higher oil prices are coming. There is no new supply to meet rising demand. Either accept that reality or roll around and gnash your teeth when "speculators" drive price of oil to $150 then $200 then $250.

You will see $10 a gallon gasoline in your lifetime if you are under 50 years old. The question is will you prepare or will you just curse speculators.

[sandnsea]

31. 7% vs 66% - Speculation

Otherwise there would be a more consistent rise and fall in prices.

[Statistical]

33. There has never been and never will be a linear relationship between supply & price.

So it was speculators who drove price of oil down from $146 to $35 and not a 7% drop in demand? I hope you sent them a thank you gift.

Say price of gasoline rises 5% ($0.15). Do you cut back on driving? Or do you like 99.9999% of Americans grumble about it but drive the same.

There is some oil that has an extraction cost of $80, $90, $100 a barrel. Price of oil rising 5% isn't going to make 5% more supply come online.

It takes a massive increase in price for marginally valuable oil reserves to be exploited.
It takes a massive increase in price to make even a small change in demand.

Your belief that it is speculation isn't supported by any economic theory.

[protocol rv]

35. my analysis shows

It is caused by lack of elasticity, but speculators do have a positive feedback loop. This what I call the herding instinct of guys sitting in front of computer screens watching the market move. Think about this. You are a young guy sitting in front of the screen, the price has been going up for a while, and the delivery price for real oil is tied to the market. So you tell yourself, what the hell, I'll just take this escalator and hope I can get off before the other fools do.

[sandnsea]

37. Exactly. Because it's driven by speculation

You laid it out yourself. I can't make the case better than you just did.

[Statistical]

38. No. Not even close.

Keep telling yourself it is speculation.

Oil will be >$100 this year or next.
>$200 by end of decade.
>$250 within 20 years.

It has nothing to do with speculation but if that is the security blanket you need then cling to it.

[protocol rv]

40. I doubt it because as the price increases, consumption decreases

The price will not remain at $150, because when the price is that high, there will be moves made to increase fuel efficiency, crude will be hydrogenated even more to make gasoline and diesel, coal will be converted to synfuel, etc etc. In other words, oil will put itself out of business. Why do I know this? Because I have studied the subject ;-)

Thus, peak oil will indeed happen, but it will be peak oil for conventional oil, but the price will not remain high for a long period of time, because we will replace oil with something else. This means countries such as Venezuela who are sitting on their heavy oil reserves will have a difficult time producing them, unless they change their conditions.

[Statistical]

43. You are forgetting China & India.

China & India have roughly 2.2 billion people still living in the the past. The govt will lose control of the people if they don't get power, running water, infrastructure, high speed roads, vehicles (both personal for some and mass transit for others).

Any efficiency demands by the developed world will be offset by the tens of millions of people joining the modern lifestyle.

China has passed the US as worlds largest market for autos now. By 2020 they will be adding 15 million additional vehicles every single year. 300 million vehicles over next 2 decades. That is an entire "US" worth of cars entering the demand side of the equation.

Of course maybe you are right and the people in DOE who study these kinds of things are wrong.

http://www.eia.doe.gov/oiaf/aeo/overview.html

Projected price of oil:
2020 - $108
2030 - $123
2035 - $133

Now these prices are nominal in 2008 dollars so they aren't adjusted for inflation. Say dollar inflates at only 2% annually the "real" (economic term) prices in current year dollars would be
2020 - $132
2030 - $183
2035 - $218

Still 2% inflation is unlikely. If we use more like 3.5% inflation:
2020 - $152
2030 - $245
2035 - $314

But hell what do they know they are only the Department of Energy.

[RUMMYisFROSTED]

5. Not a bad point...but...

The "Speculators" are the same same people that they're trying to deflect attention from.

A puzzle within a conundrum. :think:

[TheKentuckian]

6. Peak oil is a medium to long term issue the speculation is driving much of the

price today.

Ignoring either gives a very false picture of the issue.

[Subdivisions]

8. How is a decline in oil production beginning in 2005 a long-term issue? n/t

[TheKentuckian]

16. I'm talking price. The rise in cost don't match up with what is in the market

we know its going away but there is no shortage at this time.

[Subdivisions]

19. That's correct. The speculation is in the possibility that there will be supply

challenges as demand begins to increase as the economic recovery continues and seasonal demand sets in.

[zipplewrath]

10. Markets don't respond to long term trends

The month to month fluctuations in oil prices aren't particularly sensetive to the current production levels. They look 6 months out. The flip side is they don't look much BEYOND 6 months either. Oil futures don't care much about when oil runs out, they care about the absolute demand vs. supply in 6 months.

[Subdivisions]

11. Oil production has been in decline since 2005. That's a NOW issue, not

a long-term one.

[zipplewrath]

12. Not in a declining market

The week to week variations in price won't be driven by long term declines in production. People buying oil futures for 6 months out don't really care what the supply will be in 5 years, and the nominal production levels are already built into the basic price. The fluctuations are primarily driven by demand(or predicted demand), unless there is a threat of sudden change in supply (such as a war or a natural disaster).

[Subdivisions]

13. 'nominal production levels are already built into the basic price'...

That's correct. Hence the basic price being at $75/barrel before it began climbing in the past couple of weeks. It's now $86.89. I agree with everything you've said and add that, during the run up to $147/barrel in 2008, the actual guys in the pits were saying that peak oil was here and that was the primary driving factor that was causing that price increase at the time. Chances are, they haven't forgotten that as the economy begins to improve and we move into the high-demand months in the northern hemisphere.

[zipplewrath]

17. And they were wrong

The speculators way over bid the price. It went way to high and the demand side reacted. The decreasing supply (which will actually fluctuate over the short term) is not going to move as fast as the speculators bid it up. Truth is, if the price rises too fast, marginal wells come back on line causing short term increases in production. Changes in demand move much faster. The base price of oil will continue to rise over the decades. That's actually a good thing. The short term fluctuations are generally a negative for the consumer.

[Subdivisions]

18. Were you not following the weekly petroleum reports at the time of that

price spike? Were you not aware of the supply shortages, even right here in the U.S. Yes, perhaps the price did get carried away, but there was a supply challenge at the time and the oil producers were pumping as fast as they could to keep up with demand. And, I saw several reports and interviews with the guys trading oil contracts and they were saying there was a supply/demand issue and that oil production was reaching a peak. The chart below bears that out.

But, I digress. I've got to step out for awhile. Thanks for the conversation. :)

[zipplewrath]

21. It was demand driven

No particular change in supply occured. It was the demand that was elevating quickly. But the speculators misunderstood what was going on and over reacted. The demand couldn't tolerate prices that high and would, and did, react. Then the economic collapse came and completely under cut the price. We are only seeing rising prices now (in oil futures) because of anticipated increase in economic activity. NOT because of any anticipated change in the supply side. Even at that, one could over speculate again. Most production is not at peak levels, and the demand side can STILL only tolerate so much of a price increase before reacting.

[Subdivisions]

24. What do you mean

"Most production is not at peak levels"? Production peaked two years ago. And that peak in price was reached only by virtue of the high price allowing the oil producers to produce more oil on the price upswing leading to the new peak. Otherwise the peak would have been in 2005. And the only way that 2008 peak can be exceeded is if the price per barrel goes up dramatically.

And, yes, demand does indeed have an effect on price. If demand is higher than supply, then we have a problem. That causes the economy to bog down.

Ok, I really have to get going or I'm going to be late for an appointment.

[zipplewrath]

27. They don't always pump everywhere they can

And they don't always pump at the maximum rate they can. Furthermore, they can pump and store so to speak. Some pumps are taken out of production until the price can justify their operation. "Peak Oil" isn't just about production, it is also about total supply. Peak oil is based upon a reasonable prediction about the availability of oil in the future. The current prediction is that there isn't enough new sources to be found to keep up with the demand. That doesn't mean we're currently pumping all the oil we can at any price.

[Statistical]

25. The problem is supply and demand are not decoupled.

If demand is rising 10% and supply is rising 10% also you wouldn't see a rise in prices.

However oil supply ability to increase production is tapped out.

Sure there will be a couple new well here and there but over time the new supply won't even equal the supply being lost as existing well run out. The amount of "cheating" OPEC nations are doing is on a decline. They are exceeding quotes less and less. Saudi Arabia doesn't even cheat anymore. Likely pretty soon they won't be able to even meet their max quota.

Supply doesn't have to fall to create an imbalance. The fact that demand is rising and projected demand is even higher and nobody is expanding production is going to create an imbalance.

Peak oil doesn't mean a rapid decline in production. It doesn't require a rapid decline. We are at or near the peak but just like any peak (stock market, unemployment) it will be bumpy before a downward trend is established. The fact is production isn't keeping up with demand.

The only way to resolve a supply/demand imbalance is a change in price. Demand exceeds supply for that inbalance is going to be resolved with higher prices. The bad news is oil use is very inelastic. Demand doesn't get cut by very much as prices rise so it takes a massive rise in prices to bring demand back down to production levels.

[zipplewrath]

26. And all of this is built into the base price

The fluctuations we see right now from week to week have nothing to do with overall ability to pump oil.

As you say, they are coupled. As prices rise, it affects demand. If the price rises too quickly, the demand will rapidly respond, really over respond. The price fluctuations are based upon anticipated changes in demand, not supply.

[Statistical]

44. Actually oil is very inelastic.

Demand doesn't "really respond" to rising prices. Demand drop off is tiny until prices move massively and even then the relationship between price & demand is minimal.

[county worker]

14. They have a roll to play in pricing oil.

[Subdivisions]

15. As they do in any commodity market. Thanks for commenting =) n/t

[taterguy]

28. Natural depletion my ass

We can't run out of oil.

How am I supposed to get work?

[protocol rv]

42. I can think of some alternatives

But I can't discuss them. They're secret stuff I'm working on.

[robertpaulsen]

29. Jesus Fuck! My recommendation raises the total to ZERO?!

Shame on DU. http://www.postcarbon.org/press-release/85743-obama-administration-cops-to-likelihood-of">WAKE UP!

[Statistical]

30. Don't you get it?

If it is all all the speculators fault then we don't need to accept cold hard reality that the world and American lifestyle will change radically in post peak oil world.

So crank up the SUV, make your "fuck the speculators" banners and don't let those peak oil loons get you down!

[robertpaulsen]

34. And when all else fails...

Bomb, bomb, bomb. Bomb, bomb Iran!

[Statistical]

36. Well sadly if we don't start being proactive...

Our species has "solved" more problems by war/violence than any other means.

Peak oil is based on the demand requirements of 6 billion and growing people. If a billion or so were killed in some future world war it would give the planet some breathing room. Same supply projections and 1/6th less demand for a couple generations. :(

Push comes to shove humanity always solves its problems, however unless we tackle this now the "solution" is unlikely to be non-violent.

[Sebastian Doyle]

32. Speculators are financial terrorists

The oil companies have always been greedy thieving bastards, but the extreme artificial price increases didn't start until the Wall Street criminals got involved. Why is that fucking piece of shit Jamie Dimond allowed to own oil tankers? Think about it.

[protocol rv]

41. What does the price of oil have to do with oil tankers?

Very little. Speculators, one may say, provide market liquidity and insurance. As I mentioned before, they do cause a slight feedback loop effect, but anybody who thinks they drive the price up, is free to bet on a lower price, and drive the price down. And this is exactly what happened in 2008. Those who bet for the price drop made a very handsome profit.

The swing in 2008 was caused by a very unique set of circumstances, an oil shortage followed by over supply as the US economy crashed due to poor regulatory practices.

If you want to point fingers at price swings, point it at the Americans who drive those very large vehicles, all by themselves. USA should have more rational energy policy, including a nice fuel tax, about $2 per gallon, to make the American public save fuel. But we know it's difficult to expect a rational economic policy from the US government, don't we? They spend too much, tax too much in the wrong places, and they have created a byzantine system.

[Strelnikov_]

39. Peak oil = peak profits

Can't have the addicts kicking too soon.