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By Robert Rapier on Jun 11, 2012 with 29 responses

Future Direction of Oil Prices May See a Major Shift

Steady Climb

Since I first started writing about energy in 2005, I have said many times that my view on oil prices is long-term, and that if I projected five years into the future, I foresaw oil prices being higher than they were in the present.

The chart below — using spot prices from the Energy Information Administration (EIA) for both Brent and West Texas Intermediate (WTI) crudes — shows that this has held true since 2001.


The annual average price of crude (source is again EIA) rose every year from 2001 ($25.98 for WTI) through 2008 ($99.67), fell back to $61.95 in 2009 (which was still above the price of five years earlier), and then climbed again in 2010 and 2011.

Starting from 2001, the average annual five-year increment on price through 2011 was $38.66. In other words, that’s how much WTI in this case had appreciated in price five years into the future. Over that same time period, the lowest five-year increase was $20.44 (2004 to 2009) and the highest was $68.59 (2003 to 2008).

However, I believe that trend may break in 2013.

Why We May See a Break in the Recent Trend

A number of developments point to this possibility. The most important driver is that oil companies have made record investments into finding and producing new oil in the face of rising prices. As a result, oil production both globally and domestically in the U.S. has been on the rise. BP will release their 2012 Statistical Review of World Energy on June 13th, and I believe that it will confirm that this trend of rising production continued through 2011. (The Statistical Review will be the topic of next Monday’s post).

Future oil production is likely to continue to rise somewhat in my opinion, as the fracking revolution that has increased tight oil production in the U.S. has yet to spread across the rest of the world. There are other tight oil formations like the Bakken in North Dakota, and some of them are enormous. As those formations are fracked, oil supplies will grow. (My prediction for global oil production has been that it would peak in the vicinity of 90 million bpd).

Economic weakness in many countries (partially brought on by higher oil prices) is another major factor. Countries are broke, and will be increasingly forced to implement austerity measures. This favors a lower oil price. The Western world has responded to higher oil prices, lowering their consumption over the past several years. This is true for North America, the EU, Japan (although their oil consumption is currently on the rise due to the shutting down of their nuclear reactors), and many other developed countries.

There are a number of factors working in the opposite direction to raise oil prices. The most important factor there is near insatiable demand for oil by developing countries — even in the face of $100 oil. However, those developing countries consume a lot of oil to supply goods to developed countries, and the belt-tightening going on will reduce demand for those goods. Recent reports indicate that China’s growth is slowing. On the other hand, China is still growing, so unless they rapidly improve their GDP efficiency, their oil consumption will continue to rise, albeit more slowly than in recent years.

The other major factor that will work to keep oil prices propped up is OPEC’s desire for high oil prices. Regardless of the growth in oil production outside of OPEC, they can cut production to compensate. A number of OPEC members have indicated that they are happy with oil at $100/bbl, and they have gotten accustomed to the revenues provided by high oil prices.

Put all of those factors together, and I believe that oil prices will remain high, but that 2013 could see a lower average price than we saw in 2008. The price for 2012 will almost certainly be above the $72.34 from 2007, but 2013 may not average the $99.48 seen in 2008. Further, I think it is unlikely that we will see prices spike as high in 2013 as we saw in 2008 when WTI spiked to nearly $150/bbl (barring of course major events like war with Iran or widespread unrest in Saudi Arabia).

Excess Energy?

There have been numerous stories in the media recently about how we now have an excess of energy (see here, here, or here). The following graphic has gotten a lot of attention recently:

It expresses graphically what I have stated above: Higher oil production and lower demand have led to the first oil production surplus since 2005. I have consistently stated that I believe the rise in oil prices over the past decade was precisely due to the erosion of spare production capacity, and it looks like for 2012 we are back into (slight) surplus territory. So do those trends continue, or does the surplus look like it did in 2005, when it vanished quickly?

However, we must not allow complacency to creep in. Even if prices are beginning to moderate and the outlook is for oil to stabilize at $80 to $90 a barrel (as forecast in one of those stories), that still stresses the economy. A decade ago we could not have imagined oil at those prices, and yet now $80 oil is a relief. But $80 oil is still a strain on developed countries, it enriches many countries that are hostile to U.S. interests, and it is still dependent upon the whims of OPEC.

One of the major points I try to drive home when writing and speaking about energy is the risk factors involved in our energy policy. As long as global oil prices are dictated by OPEC’s decisions, and as long as high oil prices threaten the U.S. economy, we must not become complacent about our oil consumption (or more appropriately, our oil imports).

We must continue to work hard to reduce oil’s stranglehold on our economy, while simultaneously working to ensure that to the greatest extent possible our oil needs are supplied domestically or by friendly countries. But the good news (for most people) is that oil’s stranglehold is at least temporarily easing up.

Link to Original Article: Future Direction of Oil Prices May See a Major Shift

By Robert Rapier

  1. By Alice Finkel on June 11, 2012 at 3:10 pm

    Robert, I would respectfully suggest that it is better not to make predictions as to either the timing of peak oil production or as to the actual level of peak production.

    If you insist on making a prediction, at least be very specific about what you are predicting. Are you predicting peak crude oil production, excluding natural gas liquids and bitumen to oil conversion? Or are you talking about all liquids, including GTL, CTL, BitTL, KTL, BTL, gas hydrates to liquids (GHTL) etc.?

    Some of the hydrocarbon deposits are so massive, that if we develop cheap high temperature process heat from gas cooled high temperature nuclear reactors, converting these non-oil hydrocarbons into high quality liquid fuels will be economically viable — given the very cheap cost of nuclear fuels and the very high efficiencies they will be burned at in the future, causing their prices to stay relatively low.

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    • By Robert Rapier on June 11, 2012 at 3:47 pm

      I have always been quite careful with my predictions. When peak oilers were insisting that oil peaked in 2005 at 85 million barrels per day and that Saudi was on the cusp of decline, I wrote several articles challenging this. (At the time, I was called some pretty nasty names at TOD as a result). So I have never been the sort of “imminent peak, disaster tomorrow” kind of person.

      I have always couched my predictions in terms of probability. Such as, I think there is a 90% probability that oil production — and by that I mean “all liquids” as reported by the EIA — will peak in the next five years at around 90 million barrels per day.

      Personally, I think there is great utility in knowing this information. If liquid energy peaks sooner rather than later, we are in for some very high and volatile prices because most of the sources you mention will not make a contribution in the near future. If the peak is later and we see a plateau for several years, that bodes well for our ability to adjust. 

      But I always emphasize that we do not know the future; we can only project and try to develop contingency plans. In that case, projecting the peak timing and amount is very important.

      RR 

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  2. By BS on June 11, 2012 at 6:44 pm

    The graph Ed Morse presented on discoveries vs consumption does not support his contention. 2010 did show and increase in discoveries, but the total from all sources still barely reached the consumption level. Crude discoveries drive the supply/consumption relationship and that is still not a good story even given several years of high prices.

    Cheap sweet crude is losing ground and all the “new” fracked tight oil and deepwater which make up the majority of “new” discoveries will not keep prices stable going forward. Maybe/probably…

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  3. By ben on June 12, 2012 at 12:22 pm

    I can’t pretend to have much in the way of insights on Peak Oil’s role in current energy prices, but my opinion on some of the major oil producing countries may be at odds with RR and his readers.  

    One of our associates is close to an advisor on Africa investments to Prince AL-Waleed bin Talal, and in his recent exchange on the subject of OPEC’s stance on oil pricing/production, it was made clear by the principal of Kingdom Holdings that there is a preference in Riyadh for incrementally lower, but more sustainable, oil prices.   This view remains consistent with a similar outlook shared in the fall by the prince and it aligns with the downside bias that we have been witnessing this year.  ”The world’s major economies need a counter-cyclical stimulus to offset the systemic deleveraging in private markets and the deficit reduction preoccupation of the governments” is how it came back from the exchange.  

    At least some of OPEC’s leading members see the merits of a de facto tax cut  in the form of lower energy prices as an antidote to what some will increasingly argue in this election year is nothing less than a self-inflicted dose of economic Father John’s; a prescription that is key to the weaning of a bloated public sector from an insatiable appetite for political pork.   Perhaps there is some logic to the proposition, but one also notes that past designs in countering the vagaries of the business cycle have often met with disappointingly poor results.   It is probbaly fair to sat that recent reductions in energy costs has been both timely and welcome.  One expects that a  penchant on the part of politicians to press on the fiscal accelerator will combine with the current reductions in energy costs to avert the much feared ”double-dip” not to mention the Euro meltdown for at least the next turn of the cycle.   The specter of a sustainable recovery ought to encourage, but somehow I sense a fair chunk of the electorate isn’t wishing too much good news between now and November.   I find that sort of unsettling, but such are the partisan times in which we find ourselves.  As for the prospects of an enlightened energy policy that purposefully aims toward America’s security and economic competitiveness, well, we remain much like another prince of our youthful memory; we are searching the countryside with the glass slipper and wondering how that beauty called liberty with propserity managed to slip from our grasp.                       

    Ben        

     

     

     

     

     

     

      

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    • By Robert Rapier on June 12, 2012 at 2:16 pm

      “…it was made clear by the principal of Kingdom Holdings that there is a preference in Riyadh for incrementally lower, but more sustainable, oil prices.”

      I think that opinion varies even within Saudi Arabia. I just saw one of the higher ups in government there just a couple of days ago state that oil at $100 to $120 was a fair price. In reality, they will charge whatever the market can bear to the extent they can control prices.

      RR

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  4. By Optimist on June 12, 2012 at 3:08 pm

    RR,

    I think you overstate the role OPEC plays. For example: “Regardless of the growth in oil production outside of OPEC, they can cut production to compensate. A number of OPEC members have indicated that they are happy with oil at $100/bbl, and they have gotten accustomed to the revenues provided by high oil prices.”

    Well, they can’t have their cake AND eat it: to use round numbers: if any country (or OPEC as a whole) cut their production by 50%, they lose 50% of their income, while they wait for oil prices to pick up the slack. A doubling of oil prices is NOT going to happen, so cutting production means less income.

    I believe past events supports this view: when prices fall OPEC tends to aggressively cut production quotas. At the business end, however, individual memebers tend to cheat, in order to maximize income. I see this pattern repeating in future.

    OPEC certainly influences oil prices. OPEC does not control oil prices.

    We must continue to work hard to reduce oil’s stranglehold on our economy…

    Oil has a stranglehold on our economy? Have to disagree. It’s a commodity, like many others. We probably use more of this commodity than any other, reflacting how cheap it has always been, in spite of recent increases. Once it gets expensive enough, our consumption will go down. No sooner, though.

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    • By Robert Rapier on June 12, 2012 at 3:46 pm

      Well, they can’t have their cake AND eat it: to use round numbers: if any country (or OPEC as a whole) cut their production by 50%, they lose 50% of their income, while they wait for oil prices to pick up the slack.

      If OPEC as a whole cut production by 50%, that would take around 20% of the world supply off the market. In that scenario, oil prices would more than double from current prices. And it would happen overnight. 

      Oil has a stranglehold on our economy? Have to disagree.

      Americans are getting relief in the way of low natural gas prices. If not for that, high oil prices over the past year would have kept us in recession IMO. Just calculate the amount of money flowing out of the country now versus 10 years ago.

      RR

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      • By CarbonBridge on June 12, 2012 at 10:00 pm

        One of the major points I try to drive home when writing and speaking about energy is the risk factors involved in our energy policy. As long as global oil prices are dictated by OPEC’s decisions, and as long as high oil prices threaten the U.S. economy, we must not become complacent about our oil consumption (or more appropriately, our oil imports).  We must continue to work hard to reduce oil’s stranglehold on our economy, ……  R.R.

        Good ‘predictions’ R.R.  -Deep strokes.
        Amid both Peak Oil & Global Warming projections:    What might happen to citizen economies when water soluble, biodegradable Oxycarbons profitably begin displacing hard-won float-on-water Oil planetary volumes? 

        Your prognostications concerned only global crude oil volumes and price trends.
        Perhaps the little “x” intersection on the graphic chart will become most telling?

        -Mark

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      • By Optimist on June 13, 2012 at 2:39 am

        If OPEC as a whole cut production by 50%, that would take around 20% of the world supply off the market. In that scenario, oil prices would more than double from current prices. And it would happen overnight.

        Maybe I slept through one too many economics class: Hoe does a 20% reduction in supply cause a 100% increase in price? And why would it happen overnight, other than irrationality.

        Irrationality makes for great headlines, but (fortunately) it won’t last.

        Just calculate the amount of money flowing out of the country now versus 10 years ago.

        True, but irrelevant. As reported by your buddy, Andrew Holland, the average American household spends only $40/week on fuel. Not enough to cause a crisis, even if it were to double, even overnight.

        Now, you are always pointing to the people outside the average numbers, who are hurt disproportionally. Rightly so. Some will be hurt more than others. Farmers and transportation will get hurt and get creative.

        But for the most part, Americans will complain, and then move on to talking about American Idol…

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        • By Robert Rapier on June 13, 2012 at 3:49 am

          Maybe I slept through one too many economics class: Hoe does a 20% reduction in supply cause a 100% increase in price? And why would it happen overnight, other than irrationality.

          We have seen prices spike numerous times, overnight, as a result of some piece of news. Prices jumped quickly during Desert Storm, and the amount of oil at risk was a minor portion of world supply. The supply that was lost when Libya was at war was only about 2%; prices went up far more than 2% to compensate. During the OPEC embargo, the amount of supply that was restricted was under 20% of world supplies, and oil prices quadrupled. And over the past decade, oil prices quadrupled even though the erosion of spare capacity was only around 5%.

          So history has shown again and again that the oil markets make big moves when supplies are impacted. If you took 20% of world supply off the market, I would bet everything I own that the price of oil would more than double.

          As reported by your buddy, Andrew Holland, the average American household spends only $40/week on fuel. Not enough to cause a crisis, even if it were to double, even overnight.

          It’s a slow squeeze; a strangulation as I called it. If prices doubled overnight it would be something entirely different. People would stop spending money on other things. And lots of other things are impacted by high fuel prices than the fuel bills of a household — and those effects trickle throughout the economy.

          RR

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        • By Andrew Holland on June 13, 2012 at 10:26 am

          Only $40 per week- yes – but that is marginal income, which pretty much must be spent. So, that’s less money that would otherwise be either saved or consumed in something else. 

          And, there’s some very good evidence that the burden is not shared equally: some families pay almost nothing, while others are stuck paying hundreds a week. 

          And – Americans will complain, as you say, then move on. But – their political representatives won’t move on. There’s a good chance that Congress would choose from some particularly stupid or destructive moves if prices remained high.

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          • By Optimist on June 13, 2012 at 6:05 pm

            We have seen prices spike numerous times, overnight, as a result of some piece of news.

            Maybe.

            Prices jumped quickly during Desert Storm, and the amount of oil at risk was a minor portion of world supply.

            Prices also tumbled pretty quickly once it became clear Desert Storm was not Oilmageddon. And with ~40% of the world’s oil shipments moving through the Strait of Hormuz (maybe less in 1991?), Desert Storm had the potential to make a HUGE dent in supplies.

            The supply that was lost when Libya was at war was only about 2%; prices went up far more than 2% to compensate.

            Blaming the entire price increase on Libya is a bit of a stretch, isn’t it? There was a LOT going on at the time, including fears that the Arab Spring could spread to the big producers…

            During the OPEC embargo, the amount of supply that was restricted was under 20% of world supplies, and oil prices quadrupled.

            Panic? Lack of leadership?….Oops! Nevermind, we’re screwed…

            And over the past decade, oil prices quadrupled even though the erosion of spare capacity was only around 5%.

            Ah yes, but the decade started with oil prices still lingering at artificial lows from the days that the Saudis used their spare capacity to spank other OPEC members into compliance.

            I don’t know. Maybe you’re right: there is so much emotion when it comes to oil that we can’t even get good energy policy off the ground in times of peace and stable prices.

            There’s a good chance that Congress would choose from some particularly stupid or destructive moves if prices remained high.

            Now there’s a reason to be worried. A bunch of prostitutians falling over each other to show they care about an issue they don’t understand, and won’t take the time to be educated about. Even the Party of Cowards become rabid dogs when the topic is high oil prices…

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    • By Tom G. on June 12, 2012 at 5:55 pm

      I don’t know how much of the Pickens Plan website reflects correct data, but it appears we have not done a very good job at decreasing oil consumption.  Here is a quote from the Pickens Plan website.  

      BEGIN QUOTE

      U.S. Spent Nearly Half-Trillion Dollars on Foreign Oil in 2011

      In his monthly update on the level of foreign oil imports in the U.S., energy expert T. Boone Pickens said that based on the latest figures from the Energy Information Administration, the U.S. imported 60 percent of its oil, or 345 million barrels in December 2011, sending approximately $37.2 billion, or $833,058.54 per minute, to foreign countries, including OPEC nations that ultimately threaten U.S. national security.

      In 2011, The U.S. imported 4.1 billion barrels of petroleum accounting for 60 percent of the U.S. supply. The total cost of those imports was $453.6 billion. That represents an increase in cost of 34.6 percent over 2010 and a whopping increase of 71.8 percent over 2009.

      END QUOTE

       

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  5. By mac on June 13, 2012 at 12:24 pm

    It’s  over for……………..

      “Oil Alone, …………. Just Oil……………. and……………. Oil Only”

    Thank Goodness……………………

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    • By Tom G. on June 13, 2012 at 12:43 pm

      Mac:

      What are you trying to say?  Are ………………… periods some new form of shorthand, LOL.  

      I also hope that someday we see a more speedy transition to some other form of fuel for our  transportation sector. 

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    • By Optimist on June 13, 2012 at 5:45 pm

      I guess mac is the new Kit P: always ready to share what he is (not) thinking…

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  6. By ben on June 13, 2012 at 5:40 pm

    I can’t speak for any of the “higher ups” in Riyadh, or anywhere else in the Middle East for that matter, but I will note that Saudi Oil Minister Ali al-Naimi has consistently been calling for high(er) production levels and has made little secret of the fact that his government remains very concerned that the fragile state of the world’s largest economies–and the attendant risk of another global recession–pose a genuine threat to the welfare of all economies in this age of global interdependence.   

    I very much share the minister’s misgivings even as I remain of the opinion that icrementally lower prices will ultimately benefit the longer-term interests of producers and national economies.   Alas, such prospective benefits also introduce the likelihood of sending less than inspirational signals to the renewable energy marketplace.   And there is good reason to have concerns about the impact that significantly lower fossil fuels prices will have on renewable energy sources; the prospects of crude oil under $75 bbl and natural gas well under $3.00 MM certainly promises to have a significant influence on project development pro formas and corresponding investments.   This is, howver, not to suggest that there’s a zero-sum game between the two fundamentally different sources of energy, but there remains an inflexible view out here among the pundits and hand-wringers that what is good for the Oil Patch is necessarily lousy for the Green Team.   I’m of the opinion that until will transcend the Pushme-Pullyou paradigm of contemporary energitical (energy/political) logic, we will continue to view the relative decline or increases in oil/gas prices as the barometer that actually causes the weather rather than a measurement of forces that transcend the temporary pulse of today’s market conditions. 

    Let’s hope we begin embracing some Third Way of thought and action that allows us to move beyond the stale arguments and unimaginative policy prescriptions that pose sort of a Gresham’s Law of energy policy in our capital cities.

    Thanks for resisting the temptation to say ”hey, but that’s the way it’s always been.”   

    Ben

             

     

                  

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  7. By Benjamin Cole on June 14, 2012 at 1:44 am

    Glad to see RR coming around to my point of view.

    As for energy policy, long I have advocated a gasoline tax. 

    Beyond that, we are vigilant as long as oil prices are high.  The price signal is a wondrous thing.  I expect abundant energy going forward, and I hope it can be cleaner energy.

    The globe’s economic problems are rooted in an suffocating monetary policy, not oil “shortages.” 

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    • By Tom G. on June 14, 2012 at 2:58 pm

       To: BENJAMIN who said: “As for energy policy, long I have advocated a gasoline tax.”

      Tom G. responds to Benjamin’s well written posting.

      I can’t count the number of times I have written about gas taxes.  At one point in time I could even paste in links from memory of individuals like Bill Ford, Lee Iaccoca and even the Chamber of Commerce who supported an increase in the gas tax.  

      However, our political system today is so toxic that even trying to talk to your congressional representative about increasing the gas tax is about as productive as trying to paddle up a river full of  rapids.  

      I am a firm believer that at some point in time [a gradual transition I think is best]; we need to transition away from our current fossil fuel mentality. So here are some my radical thoughts, LOL  

      + Double the current gas tax to $.34/gallon.

      + Increase the gas tax $.10/year for the next 10 years.

      That would add $.44/gallon to the current cost of about $3.69 per gallon or about $4.13/gallon.  Now if you really want to get serious about paying what gasoline costs you should add in the cost of our military interventions around the world.

      That has been reported on several website at about $.56/gallon depending on which wars you include.  

      So here we are $4.13 + $.56 = $4.69/gallon.  

      Now add in some spikes due to troubles around the world and you could easily see prices in the $5-6.00 range.  To fill my diesel truck at $4.69/gallon would cost about $160.  

      To fill an economy car with about 10 gallons @$4.69 would ONLY cost about $47 bucks.  It that 10 gallons went into a Prius or other economy vehicle the 10 gallons would allow you to drive about 500 miles which is about 100 miles further than my truck would travel.  What a difference;  $47 vs $160.  Now I love my truck but it stays PARKED a whole lot more NOW than it used to.  

      I encourage everyone to study the effects of LIGHTER and more AERODYNAMIC vehicles.  Aren’t you getting sick and tired of driving the same old square steel box with the only change being a different hood/grill and some new tail lights?  I mean seriously – the same thing for 50 years?    

      As far as raising the gas tax – I just don’t see that happening even though I do believe it is the RIGHT thing to do.

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      • By Optimist on June 15, 2012 at 2:06 pm

        Now if you really want to get serious about paying what gasoline costs you should add in the cost of our military interventions around the world.

        I see: the only thing preventing World Peace from breaking out everywhere is our addiction to crude? Yeah right!

        Prediction: we’ll be going into Syria soon, for purely humanitarian reasons, in spite of our jellyfish Commander-in-Chief’s best efforts to procrastinate.

        That has been reported on several website at about $.56/gallon depending on which wars you include.

        That’s it? Now you’re making war sound like a bargain…

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    • By Optimist on June 15, 2012 at 2:02 pm

      Glad to see RR coming around to my point of view.

      Don’t flatter yourself, Benny.

      As for energy policy, long I have advocated a gasoline tax.

      I see, it was you who convinced RR on this issue? Don’t make a fool of yourself, Benny.

      Beyond that, we are vigilant as long as oil prices are high.  The price signal is a wondrous thing.  I expect abundant energy going forward, and I hope it can be cleaner energy.

      That paragraph is an excellent showpiece of your ability to take facts, and then come up with a concclusion that bears no relevance. A talent of sorts…

      The globe’s economic problems are rooted in an suffocating monetary policy, not oil “shortages.”

      Just to clarify: the globe’s problems started with monetary policy that was WAY too lose. Now the idiot bankers have gone to the opposite extreme.

      The real problem is Uncle Sam: from one side of his mouth he talks about financial reform. Then he enacts bankrupcy reform that basically ensures that no matter what happens, the poor worker WILL pay off his debts to the rich banksters.

      And, of course, all those bank bailouts, which is Uncle Sam’s way of saying: “All is forgiven! Go do it again! I will always be here if things go wrong.” In the unlikely event that things go right, financial reporters will be falling over each other to tell us how great those geniuses are.

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      • By Tom G. on June 15, 2012 at 3:39 pm

        @Optimist:

        Can you please tell us how you really feel about gas taxes.   I can’t separate out from all the sarcasm what points you are trying to make.  

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        • By Optimist on June 15, 2012 at 4:35 pm

          Good question, Tom G!

          To be in favor you’d have to assume that:

          (1) the politicians were willing and able to invest the proceeds wisely. Score me 2/10 on that.

          (2) we know with a high degree of certainty that there is a supply-driven shortage coming in the medium term. Score me 4/10 on that.

          (3) we can get this done politically. We have two opposing views from our two main political parties when it comes to energy: the blues who think we can scrap oil and replace with green fuels, and the reds who think any attempt by Uncle Sam to influence the market is bound to fail. Pains me to admit it, but I’m with the reds on that one. Score me 1/10.

          So, I guess I’d be against. Points where I’d disagree with RR, include that IMHO:

          1. Oil prices by themselves don’t have the ability to put us in a recession. And with American oil production growing, while American oil use is declining, the danger is receeding by the day.

          2. Peak Oil is a bit of a myth, though a lot more real than other Peak theories (Peak Water, etc.) and, of course, the popular but stupid idea that there are too many people (Mathus has been wrong for two hundred years. His batting average is going nowhere.). No doubt crude oil reserves are finite, but somehow recoverable oil reserves keep increasing. Combine high oil prices with Moore’s law and we’ll likely keep adding to those recoverable reserves for the foreseeable future.

          3. I don’t trust government to address issues of limted resources, if and when such issues arise. Some issues are too big for Uncle Sam, or even the UN (even if the UN was a highly efficient world government, which it thankfully won’t be for several generations). The free market was invented to solve such complex issues as finding the right price for everything, a task too big for any government, as any attempt at price control quickly confirms. Indeed, it is in times of crisis that the free market becomes indispensable: rapidly increasing prices encourages producers to find ways to bring the product to market while encouraging users to conserve. There is no better way to achieve all of that.

          Of course, that’s the beauty of a free country: if you are convinced that resources will be limited in future, you can set yourself up in preparation. You may even encourage friends, family and neighbors to do the same…

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          • By Tom G. on June 15, 2012 at 6:32 pm

            Excellent response.  

            “(3) we can['t] get this done politically. We have two opposing views from our two main political parties when it comes to energy: the blues [Dems] who think we can scrap oil and replace with green fuels, and the reds [Reps] who think any attempt by Uncle Sam to influence the market is bound to fail. Pains me to admit it, but I’m with the reds on that one. Score me 1/10.

            ———————————————————-

            On this point I believe we agree.  Governments are lousy at picking winners and losers.  Washington is comprised of about 40% attorneys who IMO have a hard time even locating a gas cap.

            When it comes to energy I believe the BLUES [Dems] made a serious attempt to do the right thing and the last time I saw some stats, about 70% of the American people seem to agree that some form[s] of renewable energy are desirable.  However, one of the mistakes I believe they did make was to put all their eggs so to speak into renewable energy and the electric car.  Don’t get me wrong; someday almost all vehicles will be electric but we are currently a long way from that reality.  I believe it would have been far better to encourage the use of many different technologies based on where that technology was best suited.  For example:

             1. Placed additional emphasis on NEW more fuel efficient Internal Combustion Engines like the work being done at ecomotors for certain vehicles.  For example, I have a Dodge Ram pickup truck with Cummings 6 cylinder engine.  That truck would do just fine around town on one [two cylinder] OPEC engine.  When I need to tow something – flipping a switch and adding more power would be cool.   

            2.Would have promoted the heck out of hydraulic hybrids for city use since the pumps, tanks and valves for a typical 4 passenger vehicle cost less than $3000 which is far less than current battery technology.  And it’s not as if this is some new technology – we have been using hydraulic power for about what – about 75 years?

            3. Focused on reducing the weight of vehicles by using more aluminum, plastics and carbon fiber.  I would buy a downsized 2 passenger vehicle and believe 20,000,000 other retired people would as well.  I need another 5 passenger vehicle like a new hole in my head, ha ha.  

            4. Encourag additional improvements in aerodynamics for vehicles.  I have been waiting since the 1950′s for one of those cool looking streamlined dream cars.  All I keep getting from any manufacturer in the $18,000-$30,000 price bracket is another square steel box with nothing more that a new grill and some new tail lights every year or two.  I am totally sick of today’s cars.       

            Post is long enough. Over and out.  

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  8. By Benjamin Cole on June 14, 2012 at 7:59 am

    A quibble: The lead chart would look a lot different, adjusted for inflation. 

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  9. By Jim Takchess on June 14, 2012 at 12:32 pm

    This chart regarding change in  oil production and consumption by country is interesting 

    http://www.economist.com/blogs/graphicdetail/2012/06/daily-chart-7

     

     

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  10. By Robert Rapier on June 15, 2012 at 2:14 pm

    Related to this story, the head of OPEC just came out and said that $110/bbl is a fair price for oil.

    RR

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  11. By Vince on December 4, 2012 at 5:19 am

    It will be very interesting to see whether the U.S. actually delivers with the promise of energy independence. It would clearly change the world’s geopolitics!

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