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By Robert Rapier on Sep 10, 2010 with 50 responses

Why Oil Prices Aren’t Going Down

I saw a humorous story a few days ago:

Oil Should Be Around $10 a Barrel

The price of a barrel of oil would be closer to $10 if the commodity wasn’t traded as an investment instrument, given the record-high levels of U.S. oil inventories, Peter Beutel, president of Cameron Hanover, told CNBC Monday.

“I honestly think that if there were no investors using oil as an asset that the price of oil right now would be $10 or $15 or $18, but it wouldn’t be anywhere near where it is,” Beutel said.

First off, the cost of production for most producers is significantly higher than that. The easy, cheap oil is gone. That’s why we are drilling a mile deep for oil in the Gulf of Mexico. But the other reason that oil prices aren’t going down soon is because demand has been recovering. Courtesy of the EIA:

U.S. Petroleum Demand

U.S. Petroleum Demand

That shows that petroleum demand has been steadily climbing for a year, and has recovered to levels last seen two years ago.

This one shows a similar story for imports, albeit with an even steeper rate of increase:

Crude Oil Imports

It is hard to imagine oil prices softening with demand again rising, much less trading at $10/bbl. This is why I am not optimistic for an imminent recovery from the recession. Oil prices are at $75, and demand is rising. And we know what happens to oil prices as demand continues to climb…

  1. By Mercy Vetsel on September 10, 2010 at 4:19 am

    I agree. Peter Beutel is either crazy or shilling to support a short position. $50 million barrels of inventory in two years? That’s a rate of inventory accumulation of 68,000 barrels per day or about 0.3% of the 20 million barrels per day we consume.

    The price elasticity of oil is about -0.4 so the price decrease that would increase demand by 0.3% is 0.3%/-0.4 = 0.75% or about $0.56 per barrel.

    So subtract 56 cents from a barrel of crude and you have the natural price that uses up the excess supply.

    I don’t know what contorted logic uses to get to a $10 natural price, but at that price we would start using up the inventories at a rate 100x faster than we’re accumulating them.

    Maybe he doesn’t believe in supply and demand.

    -Mercy

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  2. By Mercy Vetsel on September 10, 2010 at 4:23 am

    I agree. Peter Beutel is either crazy or shilling to support a short position. $50 million barrels of inventory in two years? That’s a rate of inventory accumulation of 68,000 barrels per day or about 0.3% of the 20 million barrels per day we consume.

    The price elasticity of oil is about -0.4 so the price decrease that would increase demand by 0.3% is 0.3%/-0.4 = 0.75% or about $0.56 per barrel.

    So subtract 56 cents from a barrel of crude and you have the natural price that uses up the excess supply.

    I don’t know what contorted logic uses to get to a $10 natural price, but at that price we would start using up the inventories at a rate 100x faster than we’re accumulating them.

    Maybe he doesn’t believe in supply and demand.

    -Mercy

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  3. By Denny A. on September 10, 2010 at 10:53 am

    I agree with your conclusions, Robert, ut don’t you think your argument would have been a bit stronger if you used world oil demand figures instead of just (silly old) American ones?

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  4. By Perry on September 10, 2010 at 12:16 pm

    Production costs didn’t stop the tumble to $35 a couple of years ago. Luckily for producers, the oil market isn’t subject to things like inventory any longer. The Dow goes up, oil follows. Markets may never recover, because a 12,000 Dow would mean $150 oil. And business wouldn’t be good for anyone but Exxon with $150 oil.

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  5. By rrapier on September 10, 2010 at 1:21 pm

    I agree with your conclusions, Robert, ut don’t you think your argument would have been a bit stronger if you used world oil demand figures instead of just (silly old) American ones?

    Hi Denny,

    I agree that it would be better to use global demand numbers, but they are never as current as U.S. numbers. Right now, the EIA has U.S. numbers through the summer, but global numbers only through April. So it is a compromise on using a more outdated, but more complete picture versus using one of the largest consumers and current data.

    RR

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  6. By OD on September 10, 2010 at 1:35 pm

    I think prices could and very well may go down again, although I seriously doubt they will retest the $35 low. The economy is on the cusp of another downturn, and I dare to think this one will be more severe.

    I completely agree Perry. Oil is taking huge swings up and down depending on what the DOW is doing.

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  7. By Optimist on September 10, 2010 at 2:56 pm

    Perry,
    Got any data that shows how strong the correlation between the Dow and oil prices is? I very much doubt that oil prices are limiting either the recovery or the Dow. But perhaps you can convince me with facts.

    What I see in those graphs is how rapidly US demand can shrink given sufficient motivation, i.e. high enough gas prices. What? Looks like ~3 million bpd drop. Almost a 15% drop in 12 months.

    In spite of all the wailing and silly ideas the prostitutians put out there (remember the gas tax holiday?), the free market mechanism is working fine. If high oil prices return, we’d use less. Which would bring prices down a notch. Can’t see the crisis.

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  8. By Perry on September 10, 2010 at 3:52 pm

    Oil remains trapped in tango with equities

    The authors admit the recent period of positive correlation between commodities and equities is “unusual in its strength and duration, but then so was the crisis that preceded it”. They conclude “it seems premature to draw conclusions about permanent changes in asset class behaviour based on the extreme events of the past two years”.

    But for at least one component of the GSCI, crude oil, it is hard to deny there has been a profound change in pricing behaviour since the fall of Lehman Brothers in the autumn of 2008. The attached chart shows the 30-day moving average correlation between front-month oil prices and the S&P 500 index since 1990.

    The structural break from late 2008 onwards (through both the downswing and subsequent recovery) is unmistakable; correlation coefficients from late 2008 onwards do not even appear to belong to the same series as the earlier data.

    Historically, correlation coefficients cycled between +/- 0.4 and exceptionally +/- 0.6. But since late 2008, the coefficient has never been lower than +0.2, almost always above +0.4, and much of the time above +0.6. Strong positive correlation has become even more pronounced and consistent in 2010. Even as the immediate crisis fades, the correlation remains strong and consistent, and shows no sign of weakening.

    http://www.commodities-now.com…..ities.html

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  9. By OD on September 10, 2010 at 4:06 pm

    Not sure I would call 10+ million new people going on unemployment ‘sufficient motivation’. When the economy is in the shitter, so is oil demand, big surprise.

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  10. By Rufus on September 10, 2010 at 7:48 pm

    We’ve brought about 150 Million Barrels of Oil, and Products out of “Floating” Storage. We still have some of the overhang in onshore storage, but not nearly 150 Million Barrels.

    Put me down for $3.00 gasoline in the Spring.

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  11. By Rufus on September 10, 2010 at 8:18 pm

    I don’t have the computer chops for this, but if you’ll go back a year, and a half, or so, and chart the retail price of gasoline, overlaid by the weekly unemployment claims you will see that the best leading predictor of unemployment claims has been the rise, or fall of gasoline prices.

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  12. By Optimist on September 10, 2010 at 9:03 pm

    Oil remains trapped in tango with equities

    Hard to visualize without the graphics.

    Even as the immediate crisis fades, the correlation remains strong and consistent, and shows no sign of weakening.

    Until it does. With all due respect to the wizzkids, this is just statistics. “Past performance is no guarantee of future results” and all that.

    It’s the classic cause-and-effect confusion: is oil following the Dow, or the Dow following oil. My theory: both are following the general economic sentiments out there.

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  13. By Benny BND Cole on September 10, 2010 at 10:20 pm

    Oil prices are set on the NYMEX, and the NYMEX can be gamed. I suspect $75 is higher than a “natural” price, but in the long run, that may be a good thing. Demand for oil probably will not get back to 2007 levels until 2017, and then only if oil does not run up in price from here.
    Oil is “hard” to find in the United States, but not in Venezuela, Iran, Iraq, Libya or possibly even Russia. Oh, and Saudi Arabia and Kuwait. Even Mexico has oil.
    So, whether or not oil is cheap in the future depends on oil-exporting nations. Sadly, all of the mentioned oil-exporting nations are thug states. Thus, oil production is crimped for thug-political reasons, not for geological reasons.
    Even so, oil demand is faltering so much, we may see gluts anyway. Demand for oil in Europe and Japan has been falling for decades. In the USA we could see oil demand fall also for decades, depending on price and policy. If China were to mandate PHEVs and BEVs, the expected run-up in demand from China could fizzle. China is a fascist-mercantile nation, so this option is not so far-fetched.
    With just a mediocre oil policy, the US could decrease oil demand continuously for decades, much like Europe or Japan. I expect Japan and France to move to a post-fossil economy in 20 years, between nukes and PHEVs.
    The “problem” of Peak Oil is really one of huge opportunity. We could emerge in the next 20 years more prosperous and with a cleaner climate, if we adopt sensible energy policies.
    Impossible? Well, for 20 years, oil demand has been falling in Europe and Japan, even as living standards rose and they become more environmentally advanced.
    It can be done, and I suspect it will be done.

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  14. By Rufus on September 11, 2010 at 1:27 am

    The “Floating” Storage got us through 2010. Saudi Arabia’s excess capacity might get us through 2011. But, 2012 is looking mighty tough.

    2013 might be the year that makes Brave men cry.

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  15. By mac on September 11, 2010 at 1:47 am

    Ben said:

    If China were to mandate PHEVs and BEVs, the expected run-up in demand from China could fizzle. China is a fascist-mercantile nation, so this option is not so far-fetched.

    “A report from the Chinese-based Global Times suggests that the automotive industry in China is about to take a dramatic turn. As reported, Chinese lawmakers are discussing a revamped automotive policy that includes a requirement for all new passenger vehicles to come equipped with hybrid technology beginning in 2012.”

    These would be “mild” hybrids like the GM hybrids and represent appx 5 % fuel savings.

    Like they say, “When the politburo speaks ……. the peasants listen.”

    http://green.autoblog.com/2010…..new-vehic/

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  16. By Perry on September 11, 2010 at 2:10 am

    “If China were to mandate PHEVs and BEVs, the expected run-up in demand from China could fizzle. China is a fascist-mercantile nation, so this option is not so far-fetched.”

    The US may not be Socialist or Fascist, but we do have something called CAFE Standards. Raise those high enough and it will have the same effect as mandating electric vehicles. I’m hoping after the Volt, Leaf, and Prius PHEV debut, Congress will reach down and grab their nuts. Raise the CAFE 1 or 2 MPG each year and we’ll be off the oil tit before you know it.

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  17. By armchair261 on September 11, 2010 at 2:13 am

    “I honestly think that if there were no investors using oil as an asset that the price of oil right now would be $10 or $15 or $18, but it wouldn’t be anywhere near where it is,

    I don’t think $15 +/- oil can be sustainable for very long in even a weak recovery. That exceeds operating costs per barrel in many areas. We had some modest flashes of good economic news here and there over the last 6 months that drove oil up into the $80′s. A full fledged recovery would almost certainly take it higher. An oil producer might rather build storage tanks and ride it out rather than sell at a loss for $15, if he thinks a recovery will be coming soon. For the same reason that many underwater Las Vegas homeowners might prefer to hang on to their homes in the hopes of future price strength rather than collectively dump their inventory into a down market. Maybe it has more to do with reluctant sellers than investors, or maybe there’s a thin line separating the two.

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  18. By Al Fin on September 11, 2010 at 7:55 pm

    There are two questions: Why oil prices can’t go up, and why oil prices can’t go down. The answer to the first question is that the global economy is still experiencing de-leveraging. The world is in no condition to go on a big spending spree.

    The answer to the second question is not so much rising demand in the sense of consumption demand, as in rising demand for oil as an investment. Oil is seen by mega-pension and mega-hedge funds as better than gold, since oil is consumed and gold is not.

    To that end, floating oil storage is going up big time, as East Asian firms get into the act of large scale oil storage. Contrary to what Rufus is implying, the glut of oil in storage continues to accumulate.

    The big investors, gamblers, speculators, sovereign funds, etc. want the price of oil to go up. They want it so badly that they are currently making a difference of roughly $20 a barrel — instead of around $50 a barrel oil is in the $70s.

    That artificial elevation in prices is enough to pay for a lot of production which is not actually needed now, but may be needed later if the global economy ever actually does recover. As long as producers make a profit, who cares why prices are that high, really?

    It is not high oil prices that are depressing the world economy, it is incompetent government. There is never a shortage of that.

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  19. By armchair261 on September 11, 2010 at 9:11 pm

    The big investors, gamblers, speculators, sovereign funds, etc. want the price of oil to go up.

    Couldn’t they just as easily make money if the price is going down by shorting oil?

    they are currently making a difference of roughly $20 a barrel — instead of around $50 a barrel oil is in the $70s.

    Who bought at $50? Prices were below $50 only between Nov 2008 and May 2009. I doubt that all crude now in storage was bought in those 6 months. And how do they all know they’ll get $70 when they sell? Folks who put oil in storage in 1982, for example, had to wait about 20 years to make a profit. Suppose a conspiracy takes crude off the market at $50 in order to reduce supply and thereby drive prices up to $70. What’s going to happen when they want to sell that crude to make their profit? How can they be sure it will stay at $70, or even remain above $50? If storage can drive prices up $20, then perhaps dumping the inventory can reduce it by $20. It sure doesn’t seem like a low risk strategy to me.

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  20. By Rufus on September 12, 2010 at 9:29 am

    This Great Article by Rune Likvern at The Oil Drum

    http://europe.theoildrum.com/node/6945

    has a wonderful set of graphs, one of which shows that Consumption in the Non-OECD countries has gone up by almost 5 Million Barrels/Day since 2007.

    Since Consumption in OECD countries (another graph) has fallen by the same amount it’s been pretty much a “wash.” The question is: with flat production, and, maybe 1 1/2 million barrels of “spare” production in Saudi Arabia, Kuwait, and the UAE, and the Non-OECD countries growing demand at close to 2 Million bbd/annually, and with then OECD countries at the end of their rope, “What Next?”

    Btw, as of a week ago, the Big Banks, and Hedge Funds were about 80% “SHORT” in the Oil Market.

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  21. By paul-n on September 12, 2010 at 4:30 pm

    Rufus, I thought you didn’t bother reading with TOD anymore? – don;t see you posting there (at least,not as Rufus).

     

    Indeed a very good article, China + India grow at the rate we save.  I find the graph particularly interesting;

     

     

    An increase of 38% (from 29mbd to 40mbd) in just seven years, and no real sign of slowing down.  I see no reason why oil should be $10/barrel, it is priced at what people are prepared to pay, and, clearly, some people/countries are prepared to pay a lot.

     

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  22. By Rufus on September 12, 2010 at 8:04 pm

    Actually, Paul, I read there every day. There are some very good posters, and commenters. I used to post there under “kdolliso” – Don’t ask, long story. Anyways, after a very long thread in which I made many comments pooh-poohing CO2 derived Global Warming I found that the site no longer recognized my moniker. I was already very unpopular due to my defense of ethanol. I guess the GW “denial” put them over the top.

    Anyway, one doesn’t have to be loved, to love; right? :)

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  23. By paul-n on September 13, 2010 at 12:42 am

    Rufus – you defending ethanol –   I find that hard to believe!  I’m not touching the “love” comment!

     

    What is interesting from those graphs, as West Texas always points out on TOD, is that for the five years while the price was steadily rising, OPEC production, and S. Arabia in particular, hardly increased.  Doesn’t fit their claim of all that spare capacity.  And certainly doesn;t show that “speculators” are responsible for the price increases, it’s just that there are more people chasing the same barrels, and after a brief respite in 09, that trend would appear to have resumed.

    Have you got any chart type data re ethanol price vs oil/gasoline price?  Did it follow the same peak?

     

     

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  24. By Perry on September 13, 2010 at 2:14 am

    California has a $5000 rebate for electric and PHEV’s. That will bring the Volt’s price down to $27,000 after the $7500 federal tax credit. Which will California buyers prefer, the Chevy Volt or a Prius with leather seats? Then again, the Prius PHV will be here in another year or so. It will go about 13 miles in EV mode, and is supposed to start at $27,000. If the same incentives applied, it would only cost $14,500 to drive off the lot.

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  25. By Perry on September 13, 2010 at 2:57 am

    Turns out the Prius plug-in only qualifies for a $2500 federal tax credit, because the battery is smaller. I noticed Hawaii has a $4500 rebate. That would put a Leaf in the $20,700 ballpark. With $3.50 gasoline, the Leaf and Volt should do well in Hawaii. The Coda EV is supposed to go on sale around Christmas. I don’t know if a lot of folks will pay $35,000 (after rebates) for a Chinese car though.

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  26. By mac on September 13, 2010 at 5:46 am

    Perry,

    In regard to what Ben said about the Chinese mandating electric vehicles here’s an interesting quote from an August 13, 2010 article in the People’s Daily on-line.

    “An electric auto union consisting of 16 Chinese central state-owned enterprises (SOEs) will be officially founded in Beijing next week, which will help China develop more internationally competitive electric car brands, Guangzhou Daily reported today.”

    Back in 1998 the Chinese embarked on a plan to replace gas powered scooters in their cities with electric bicycles and scooters because of pollution. In 1998 only about 48,000 e-bikes were made when the plan was first inaugurated, but last year the Chinese manufactured about 22 million e-bikes and at the end of 2009 there were cumulative total of about 125 million of them on Chinese roads.

    These bicycles are used to commute to work, go to school and to go shopping, or run errands etc. Bicycles in the far East and many other parts of the world are considered transportation and are regarded as a part of the transportation infrastructure. The Light Electric Vehicle Assoc. predicts that there will be about 455 Million e-bikes and small 50cc (gas equivalent) electric scooters on the road worldwide by 2014.

    From what I understand, the Chinese government basically mandated e-bikes to happen by banning internal combustion engined scooters in many Chinese cities. In China, it’s cheaper to use an e-bike than it is to take the bus to work. China could end up doing something similar in regard to hybrids and electric cars. If you are interested, here’s a link to an interesting color graphic showing the spread of the e-bike phenomenon.

    http://www.levassociation.com/…..2010-1.pdf

    Concerning the Leaf, I just read somewhere that Nissan has 300 reservations for the car in Hawaii. Supposedly, they have 19,000 pre-orders in all, but the original production run was only supposed to be 10,000 cars. We’ll have to wait and see what happens I guess,

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  27. By Perry on September 13, 2010 at 6:20 am

    I rode one of those once Mac, but I prefer peddling. I’ve been spending the last couple hours trying to find out what became of the Ford Escape PHEV. In ’08, they were being tested. Got 30 miles on battery power. Now, the Escape is being killed altogether. What a waste. Ford blew a great opportunity imo.

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  28. By Benny BND Cole on September 13, 2010 at 1:38 pm

    Here is the USA, we could just about kill off the ICE if we went ahead and approved a $4 a gallon gasoline tax, phased in at 25 cents per gallon every three months.
    I would cut Social Security taxes to balance the impact on the economy.
    Obama promised leadership…but I don’t see it.

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  29. By Wendell Mercantile on September 13, 2010 at 1:56 pm

    I was already very unpopular due to my defense of ethanol.

     

    Rufus~

    Perhaps ’twas because you never bought into the theory of “Peak Ethanol.”   Wink

     

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  30. By Perry on September 13, 2010 at 2:16 pm

    Benny, first we need to do away with the Truck and SUV exemption on the gas guzzler tax. That would hike the price of a Hummer $7500. I like the idea of Hummer buyers subsidising Volt and Leaf buyers. Take away the exemption and buyers would shift enmasse to hybrids. The tax kicks in on cars that get less than 22 MPG city/highway combined. The Cadillac Escalade, GMC Yukon, and Chevrolet Tahoe hybrids each get 21/23 MPG. Compare that to the 13 MPG the Escalade gets in the city and you’re looking at a 50% improvement.

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  31. By paul-n on September 13, 2010 at 2:40 pm

    Benny, you live in California don’t you?

    Why not get the Ca government to do this – they have never been shy about doing this sort of thing when the feds won’t.

    See if you can get it on the Nov ballot.  

     

    An increasing gas tax + an increasing per head payout.

    For most voters, especially lower income ones they will gain more than they lose

    For high fuel users, they will lose more than they gain

    For companies, well, they won;t gain anything, but their tax will go to everyone.

     

    So, there should be lots more  voters who would be winners, than loser, and so it should have not trouble making it through. 

     

    I’m sure Zap, Aptera etc would love this.

    Actually, even Rufus (i.e. the ethanol industry) would love this, since biofuels would (presumably) be exempt, or is your idea to force the ICE off the road, regardless of fuel?

     

    I have posted this before, but here’s an electric car that makes sense, put your tax in place and you’ll sell lots of them;

     

    http://www.unisa.edu.au/solarcar/trev/

    It weighs 700lb, uses a 5.5kWh battery (would cost $2500 at today’s prices), and gets 17 mi/kWh  in city driving, almost triple what the Leaf gets.

    By making a 1/4 the weight, they need 1/4 the battery for the same range, and it could be built for 1/2 the price, less in volume.

     

    There is an interesting article there about building this car – they did it with aircraft style aluminium honeycomb, but it could equally be done with marine plywood or foam core board.  They are planning to make it a web based open source design

    Some one who is a backyard boatbuilder, or furniture maker, could build this car, with some help from a mechanic/car guy for the

    suspension etc.

    Winter project for you?

     

    This prototype is currently in a race around the world – will be coming through LA in Niovember.  

    http://www.zero-race.com/en/route/

     

     

     

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  32. By savro on September 13, 2010 at 2:53 pm

    The Trev two-seater has interesting specs, no doubt. But why does it have to look as ugly as sin? Is there no way that they can make it look more like a traditional vehicle and less like a vehicle that’s driven by martians?

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  33. By Perry on September 13, 2010 at 3:08 pm

    They spent $33 to go 1876 miles. How cool is that?

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  34. By Perry on September 13, 2010 at 3:26 pm

    And that was with a rate of .18 per kwh. Most states( I count 38) average 9 cents or less per kwh. That means most of us could travel that 1876 miles for less than $17. Less than a penny per mile.  

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  35. By Benny BND Cole on September 13, 2010 at 3:41 pm

    Samuel-
    You have slandered Martians.

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  36. By paul-n on September 13, 2010 at 3:49 pm

    Sam, I guess the beauty of the car is in the eye of the beholder.  To be fair, this was a bunch of mech eng university students, not world class industrial designers like the car companies have.  The car is built with an internal frame, so you could make some variations to the body shape and style.  The Smart car is considered ugly by many, but not those who buy it, and that’s all you have to please.

    If it is to be marketed as a kit car, you could have a choice of a few body styles.  A kit car would  be a good way to go – package up the mech and elec parts, and let the builder do the frame/body, though you could do those parts in  CNC cut plywood too, like they do for some boat kits.

     

    Styling aside, it does show the impressive mileage you can get in a vehicle that is optimised for it.  For most people who need to save money on fuel, spending $30k for a Volt or Leaf is not really an option. but if this car could be had for $15k, it would be a great option.  And then at a penny/mile, for the average 15,000 miles that is just $150/year!

    if you wanted to extend your range, just add modules of 50kg of battery (5kWh) and each one gives you another 100 mi.  If this had the 16kWh of the Nissan leaf, it would go 300 miles.

    Alternatively, a 3kW Honda generator would give the car indefinite range, just have it as a removable module, leave at home for city driving and slot in for the road trip.

    I have no problem with a radical departure from conventional styling – electric cars should define themselves, not pretend to be normal cars – normal cars are much better at that.

     

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  37. By paul-n on September 13, 2010 at 4:02 pm

    Or for more retro styling, you can’t beat the original; 

     

    The Messerchmitt Kabinenroller , 1955

    I think the headlights and mirrors make this look like the Martians themselves, or a large red snail on a skateboard

    It had a 0.19L engine, 10hp and could hit 56mph, and weighed 500lbs.  To reverse, you stopped the engine, and ran the engine in reverse, which meant you had all four gears in reverse!

    All the good ideas in cars really have been thought of already…

     

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  38. By OD on September 13, 2010 at 4:06 pm

    Are we going to have enough REE’s and resources to build all these electric cars?

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  39. By mac on September 13, 2010 at 4:11 pm

    Perry,

    From what Rufus and Paul (and the Oil Drum) say it looks like we’re in for a big squeeze on gasoline. No matter how much the West conserves, it’s going to be gobbled up by demand from China and India.— 2 billion people and they all want cars that run on gasoline. It doesn’t compute.

    I’ve often thought “What if the U.S. was completely cut off from all oil imports, from friend and foe alike,,,,,What would we do ?”

    To me the answer seems obvious, We would quickly convert our transportation sector to run on CNG, bio-fuels and electricity. Right now the per mile fuel cost to run a vehicle on either CNG or electricity is actually less than gasoline if you don’t include the cost of a CNG conversion kit or batteries for electric cars. Electricity is 2.5 cents a mile and gasoline 12,5 cents (Electricity 10 cents/kwhr. Gas $3.00/gal). Last time I checked nat gas was also less than petrol per mile. (including the CNG energy penalty) Extra up front costs for electric or CNG vehicles might suddenly become acceptable if people have no other way to get around,

    We already have three energy sources that could substitute for gasoline and all of them have at least an embryonic infrastructure. Natural gas pipelines run all over the U.S. and the electric grid is everywhere. As far as ethanol goes, we could probably grow sugar beets just about any where in the U.S. if we had to. That’s what the English use to make their ethanol. That would eliminate the “pipeline” issue. Without imported crude we only have gasoline from domestic oil production. Not nearly enough. A drop in the bucket even if we were to mandate gas rationing and other draconian measures. No, we would do whatever it takes to keep things going including ethanol. All the ethanol haters would just have to bite the bullet.

    This imaginary scenario where we are completely cut off from all oil imports makes obvious what we would do………..convert to CNG, E-85 and electric vehicles. It’s that simple. Or we can just do without,

    My choice is electric vehicles because of the marvelous simplicity and efficiency of the electric motor, the total absence of point of use emissions, the fact that electricity is ubiquitous world-wide and is not controlled by a small group of arrogant thugs who hate our guts.

    Electricity is a renewable energy source. It can be made over and over again. It can be made almost any where in an amazing variety of ways. In that sense it is probably the most democratic of all energy sources. OPEC cannot boycott the U.S. electric grid. They can’t boycott the sugar beet fields in Idaho or U.S. shale gas deposits either. We need to get away from oil.

    ” If every nation on earth powered their vehicles with electricity, then nobody could be bullied by a bunch of crackpots with an oil can in one hand and a pipe bomb in the other. If we continue to insist on the internal combustion engine and gasoline from made from crude oil we will NEVER get away from OPEC.

    What about “drill baby, drill” ? The oil off-shore and in Anwar is a drop in the bucket, and no matter how much oil the OECD countries conserve it will all end up in the gas tanks of the Chinese until the world’s oil supply can no longer sustain the world’s infrastructure. Then we have the German white paper scenario..

    The way to get off the oil Merry-go-round is to power our vehicles with renewable electricity. We can manufacture the stuff ourselves, So long Sheikh whatever your name was….

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  40. By savro on September 13, 2010 at 4:11 pm

    Perry said:

    They spent $33 to go 1876 miles. How cool is that?

    And that was with a rate of .18 per kwh. Most states( I count 38) average 9 cents or less per kwh. That means most of us could travel that 1876 miles for less than $17. Less than a penny per mile. 

    That’s truly amazing. Once you start talking in the range of a penny per mile there’s no longer a need to narrow the exact cost per mile down to the tenth of a penny. A penny per mile means that transportation costs are virtually non-existent. You’d be spending more money on chips and drinks than transportaion costs for a 300-mile/5-hour trip.

    Paul N said:

    Sam, I guess the beauty of the car is in the eye of the beholder.  To be fair, this was a bunch of mech eng university students, not world class industrial designers like the car companies have.  The car is built with an internal frame, so you could make some variations to the body shape and style.  The Smart car is considered ugly by many, but not those who buy it, and that’s all you have to please.

    If it is to be marketed as a kit car, you could have a choice of a few body styles.  A kit car would  be a good way to go – package up the mech and elec parts, and let the builder do the frame/body, though you could do those parts in  CNC cut plywood too, like they do for some boat kits.

     

    I have no problem with a radical departure from conventional styling – electric cars should define themselves, not pretend to be normal cars – normal cars are much better at that.

    True. In this case it was built by students as a concept car. But in general I’m not a big fan of the styling of most hybrids and EV’s. I especially hate when the tires are covered and don’t like the look of the butt of many hybrids and EVs. The Smart Car is a cute scooter, but that’s about it. Unless you’re talking about this Smart Car:

    They have a ways to go in terms of styling. Most drivers care about how their car looks. I know that I do. I don’t have a problem with them taking on a unique look as long it’s appealing to the eye.

    They’re heading in the right direction though.

    Chevy Volt

     

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  41. By paul-n on September 13, 2010 at 4:23 pm

    And the modern version, from VW;

     

     

    This looks more like the rocketship used by the Martians to get here.

     

    This was displayed at the 2009 Frankfurt show and is supposedly going into production in 2013, but that’s just a rumour.

    Has an 0.8L 2 cyl 29hp diesel, a 14hp electric motor/hybrid system, and gets 170 mpg.  0-60mph in 14 seconds, top speed 100mph.

     

    No reason why these, or something similar, couldn’t be built at the Fremont plant that GM/Toyota have shut down.

    If you want extraordinary performance or extraordinary efficiency, you need an extraordinary car – it’s that simple.  The traditional sedan layout is the car equivalent of an overweight middle aged guy – why have that when you can have the athlete’s body instead?  I think the women will probably prefer the latter, too.

     

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  42. By paul-n on September 13, 2010 at 4:35 pm

    Sam, Agreed about the styling – once the engineers have done their thing with the driveline and overall aerodynamics, let the stylists have at it.  

    So the tradeoff for the transport cost is that you can’t transport four people, which for 90% of the time, cars never do.  Won’t suit everyone, but will suit enough people to make a real difference.

    The energy use for the Trev is impressively low.  From the point of view of the economy of a town/city, going from spending $2k/yr on fuel to just $150 per person means everyone has a lot more money in their pocket to spend, and  most of that will be spent locally.  All the gasoline  money today leaves town (and country)  and never comes back.

     

    The only problem I can see might be a new type of car theft – where four guys just pick it up and carry it away!

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  43. By rrapier on September 13, 2010 at 4:43 pm

    mac said:

    I’ve often thought “What if the U.S. was completely cut off from all oil imports, from friend and foe alike,,,,,What would we do ?” To me the answer seems obvious, We would quickly convert our transportation sector to run on CNG, bio-fuels and electricity.


     

    Mac, I have often thought of that too, but my conclusion is different. It would be a catastrophe lasting for several years. Energy transitions do not happen quickly. We have infrastructure in place that can’t be turned over quickly.

    RR

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  44. By savro on September 13, 2010 at 5:01 pm

    Robert Rapier said:

     

    Mac, I have often thought of that too, but my conclusion is different. It would be a catastrophe lasting for several years. Energy transitions do not happen quickly. We have infrastructure in place that can’t be turned over quickly.

    RR


     

    Several years, that’s all? I would think that it would last a lot longer than just “several years” being that so much oil is needed in order to facilitate the transition. If the shutdown happened suddenly, the entire economy would grind to a halt and set back any attempts at transitioning for a long time.

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  45. By Perry on September 13, 2010 at 5:34 pm

    Couldn’t agree more Mac. The sooner we end our dependence on oil, the better. The first step should be ending exemptions from the gas guzzler tax. Trucks, vans, and SUV’s are exempt, yet they make up more than 50% of new car sales. With hybrid technology now in widespread use, there’s no excuse for any vehicle to get under 22.5 MPG. Second step should be raising CAFE standards. All the automakers have EV’s and/or PHEV’s on the way. They can comply with an increasingly tougher standard by offering an increasingly electric fleet. Finally, we can go with Benny’s plan to raise gas taxes. A $4 gas tax phased in over 4 years sounds a bit drastic though. Too many people are stuck with an ICE for the next 10 or 15 years. An increase of 25 cents a gallon each year for the next 10 years would probably do the trick. Peak oil will probably increase prices more though. At some point, wallet watchers will decide EV’s and PHEV’s are the cheaper way to go, whether we actively encourage the move or not.

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  46. By paul-n on September 13, 2010 at 7:08 pm

    {double post}

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  47. By paul-n on September 13, 2010 at 7:08 pm

    The “what would we do if we are cut off from all oil” sounds like a good topic for a future RR post.

     

    I expect the only thing that everyone  could agree on that will happen is a lot of angry people.

     

    I think a $1 rise in gasoline per year is just fine.  for the average motorist (15,000 miles, 20mpg) that is 750 gal/year, and all of $15/week extra.  

    There is 150bn gal of gasoline used per year, so that is $150bn raised, and then $500/yr to every man, woman and child in the rebate.  There is the same amount again used for diesel, jet fuel etc, so actually you are looking at $20/wk to cover the extra $15cost, and for a family of four, with two cars, they get $80wk to cover $30 – not bad!

    And the next year it is $160/wk to cover $60, and in year 4 it is $320/wk to cover $120.

    I think people will work out very quickly how best to game that system – get your oil use down before asap.  

    Doing it $0.25/yr is too slow the price of a cup of Starbucks a week is not a game changer – many people will wait years to change their habits/vehicles etc.

    Business will complain, but it is across the board – all their competitors are in the same boat.  And for people who import stuff, levy an energy/carbon tax on imports, so they are in the same boat too.

    And just give at least a year’s notice of when it comes in, and leave it at that.  Make the timeframe too long and there is no sense of urgency, and that is what is needed to kick start things. 

    After all, when fuel was rationed in WW2, there was a real sense of urgency, and things happened very fast.  We don;t need to go to quite that extent, but we do need to recognise we can’t just wait for “the government to do something”, it is we that have to do the doing.  Government just needs to put the system in place and let everyone game it.

     

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  48. By rrapier on September 13, 2010 at 8:44 pm

    Samuel R. Avro said:

    Several years, that’s all? I would think that it would last a lot longer than just “several years” being that so much oil is needed in order to facilitate the transition. If the shutdown happened suddenly, the entire economy would grind to a halt and set back any attempts at transitioning for a long time.


     

    I should have said minimum of several years. To be honest, if all of our imports were cut off, recovery would be very painful, and once we recovered things would be very different than they were.

     

    RR

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  49. By Wendell Mercantile on September 13, 2010 at 10:34 pm

    The “what would we do if we are cut off from all oil” sounds like a good topic for a future RR post. I expect the only thing that everyone  could agree on that will happen is a lot of angry people.

     

    Paul N,

    Life could go on. A little more than a hundred years ago, much of America and Canada used very little oil. But it was a very different society than it is today.

    Many people would have to return to the land and again learn to use draft animals and raise chickens in the back yard. Many people would once more have a cow or two to provide milk, and we would all get back to gardening and canning in a big way. (Our entire countries would become much like Amish communities and farms.)

    The biggest disruption would be the lack of land for 300 million people in the U.S. to go back to that rural, sustainable lifestyle.  There would be a period of violence, stress, and turmoil as things sorted themselves out — but eventually people in a United States and Canada with much smaller populations would be living happy, prosperous, and much simpler lifestyles.

     

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  50. By Gabriel B. Atega on September 14, 2010 at 3:11 am

    If the recovery of the US and European economies are dependent upon the going down of the price of oil then the solution to the recession is very simple: produce oil as much as until the inventories outstrip the demand for over five years. And if this recovery is very urgent why are they considering the shutting down of the BP oil in the GOM? With all that oil gushing out of the BP well during the spill, then there is more oil down there much more than the oil appetite of the US economy. A hundred BP like oil wells at the GOM will fill all the tankers and gas stations all over the USA and there will be no need to import from elsewhere and prices of oil will go down.

    The BP oil spill is proof there is lot of oil deep in the GOM.

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