Posted: Fri Sep 10, 2004 4:11 am Post subject: The oil *price* peak
Thinking about this logically, it is evident that the price of crude oil cannot keep rising forever. At some point, the price of crude oil will reach a maximum, which will never again be exceeded. So here's my question:
In constant 2004 dollars, what is the highest price that will ever be paid for a barrel of crude oil, and in what year will that transaction take place?
FWIW, here's my guess: The peak price will be reached shortly after the production peak in 2010, and will be $90.
(By the way, did you folks check out that whale oil graph in the latest ALPO newsletter?
http://www.energybulletin.net/1830.html
I quote: "From the figure, it is evident that the production of whale oil followed a bell-curve according to Hubbert’s theory, modelled with a simple Gaussian curve, albeit showing strong oscillations. These data are in excellent agreement with the report on Right Whale abundance by Baker and Clapham (Trends in Ecology and Evolution Vol.19 No.7 July 2004), indicating that the fall in production after the peak was caused by depletion and not by the switching to different fuels.
<snip>
Finally, we can derive insight into crude oil price trends from the figure. Whale oil prices started to increase approximately at the inflection point of the curve well and before the production peak,. An upward spike in prices took place a few years after the peak, being also detectable in the non-inflation corrected price data (see Coleman, ibid.). A somewhat surprising result is that the inflation corrected prices remained approximately constant after the peak despite the progressive depletion of whales.")
I seem to recall that, in constant dollars, the crunch in the seventies was equivalent to $100 per barrel today.
You're exaggerating.
"In real terms, adjusted for inflation, oil prices are still well below 1980's peak of $80 a barrel, following the Iranian revolution."
http://money.cnn.com/2004/08/17/markets/oil/
Joined: Aug 10, 2004 Posts: 1104 Location: San Diego, CA, USA
Posted: Fri Sep 10, 2004 8:34 am Post subject:
I am not sure one should be comparing whale oil with petroleum. Was whale oil the force that drove the economy at that time? I think not. If whale oil was expensive, did people have alternatives, e.g. candles? I think so. They could also choose to read by the fire.
I think there are quite a few possibilities to consider.
Oil is the fuel for the world economy. I think the price dynamics will be much different. I think the price of oil is going to oscilate upwards in price and will far exceed a price of $100. This is all intuitive guess on my part, but I'll wager that oil will, in the next few years, break $100, then will drop back down when demand destruction sets in, but not below $50, then it will eventually drift higher. I'll bet that with the appropriate demand destruction in place--people are carpooling or using rapid transit--a price of $250 is easily sustainable.
As oil depletes, there are some uses that will always exist, the oil is a small part of the overall price, and it will always be cheaper to buy the fossil fuels rather than some synthetic alternative. I think the sky is the limit.
Joined: Jul 25, 2004 Posts: 34 Location: Toronto Canada
Posted: Fri Sep 10, 2004 8:39 am Post subject:
I think the peak will be around 2006 and that the price will be closer to $200.us/b
The price has to be high enough to force a reduction in demand that matches the available supply.
Contrary to whale oil, alternatives for transportation will not be available in
sufficient quantity that fast to avoid the high price.
Countries that have less dependency on oil for transportation will fare better economically. Europe extensive electrified rail network will be a tremendous
advantage to them.
$500. In 2015. (I think global recession and political instability will delay the peak beyond 2008.)
I figure there will be a point where suddenly, everyone realizes oil depletion really is a problem that cannot be fixed by the market. At that point, governments will try to hoard oil in their strategic reserves - to feed their people, and to fuel their military as long as possible. And to use to build nuclear power plants, windmills, solar panels, etc. Industry may do the same. Hoarding is at least partly to blame for the huge run-up in steel prices over the past year.
The spike will be brief, though. As panic-driven price increases usually are. Once the mania passes, the price will drop down to a more reasonable $100-$200 a barrel.
This may seem extreme, but look at what happened when natural gas peaked in the U.S. (Unlike oil, it's not easily shipped. So the natural gas peak is likely a better model for the world oil peak than the U.S. oil peak in the '70s.)
Quote:
The average natural gas price for the past 15-20 years has been about $2.20 per MMBtu (divide the cost per MMBtu by 10 to get the cost per therm of natural gas). The price steadily increased to above $5.00 this past fall and winter and then spiked at a spot price of approximately $19.00 per MMBtu in early March.
The price gradually increased to double the historical price, then suddenly shot up almost 1000%. Then fell back to settle at about three times the historical price.
Joined: May 22, 2004 Posts: 1422 Location: Ottawa, Ontario
Posted: Fri Sep 10, 2004 9:29 am Post subject:
I think one important consideration is that if the economy is shrinking because of lack of oil the price of oil doesn't have to rise to be worth more as a fraction of the GDP. So way down on the down slope of oil production (assuming the economy doesn't find an alternative energy supply) the oil price may never again reach the heights it reaches at the peak because no one is rich enough to pay that price anymore.
So with my optimistic hat on, I'll assume we do find an almost free source of plentiful energy (warp drives ala star trek ) eventually and that the global economy grows a hundred fold. I will then estimate the price of crude oil at $5,000 2004 dollars in 2300 (and it will still be cheap). But that won't be the peak. The peak will be when non synthetic oil is as rare as diamonds and people will collect samples of various vintages like trading cards. Stock up now with samples of famous crude oil from endangered fields. A certified vial of Brent crude will be like a mint Babe Ruth rookie season baseball card . Get a sample now while they're still pumping it.
I figure there will be a point where suddenly, everyone realizes oil depletion really is a problem that cannot be fixed by the market. At that point, governments will try to hoard oil in their strategic reserves - to feed their people, and to fuel their military as long as possible.
That is one of my concerns. If peak oil becomes really mainstream, will we see government hoarding like the private hoarding we witnessed in the 70's, where people kept their cars full and you couldn't buy a gas can to save your ass? What will that scenario do to price, and will it push forward the onset of PO with hoarding raising demand? There is such uncertainty about this that one wonders how the market can ever set a price. According to the 6 month forecast by the Financial Forecast Center, they are predicting a Dec 2004 price of $11.81 a barrel! _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
According to the 6 month forecast by the Financial Forecast Center, they are predicting a Dec 2004 price of $11.81 a barrel!
Wouldn't that be cheaper, in today's dollars, than oil has been since, like, 1970? Does that price include some kind of future worth calculation, or do they really, truly think that a barrel of light sweet crude will be $11.81 if you want to buy one in Dec.?
If so, I have to assume they are expecting sudden, deep recession....
Wouldn't that be cheaper, in today's dollars, than oil has been since, like, 1970? Does that price include some kind of future worth calculation, or do they really, truly think that a barrel of light sweet crude will be $11.81 if you want to buy one in Dec.?
If so, I have to assume they are expecting sudden, deep recession....
It seems to be nothing but market projections based upon hope.
This was done on July13. $31.40 for Sept, 14.24 for Oct, 10.89 for Nov, and 11.81 for dec. West Texas intermediate crude.
http://forecasts.org/oil.htm _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
This may seem extreme, but look at what happened when natural gas peaked in the U.S. (Unlike oil, it's not easily shipped. So the natural gas peak is likely a better model for the world oil peak than the U.S. oil peak in the '70s.)
Quote:
The average natural gas price for the past 15-20 years has been about $2.20 per MMBtu (divide the cost per MMBtu by 10 to get the cost per therm of natural gas). The price steadily increased to above $5.00 this past fall and winter and then spiked at a spot price of approximately $19.00 per MMBtu in early March.
The price gradually increased to double the historical price, then suddenly shot up almost 1000%. Then fell back to settle at about three times the historical price.
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Wouldn't that be cheaper, in today's dollars, than oil has been since, like, 1970? Does that price include some kind of future worth calculation, or do they really, truly think that a barrel of light sweet crude will be $11.81 if you want to buy one in Dec.?
