Just wanted to see if we could get a think thread going here on a possible scenario.
Lately it has been my perception that we might see an oil price superspike this summer signalling the arrival of 'practical peak oil.'
Here are a few terms (use your own terms if you wish)
Peak Oil - [geologic peak oil] 2005? historical moment at which physical global production in barrels per day is higher than it will ever be after that, roughly corresponds to mid-point of a gaussian curve.
Net Oil - [thermodynamic peak oil] 2004? Point at which energy content of daily production is the highest it will ever be
Per Capita Energy Peak - [lifestyle peak oil] global1970? point at which per capita energy consumption is the highest it will ever be
Geo-political Peak Oil - 1940? point at which scarcity begins driving international relations
Economic Peak Oil - 2008? point at which the markets universally accept that oil will now be more scarce with every successive year as a result of supply demand issues (there could be phases to this.)
My understanding of dynamical systems is pretty good, even into the areas of stochastic processes. It has occured to me after learning more about the Great Depression that once we see economic peak oil a price superspike could emerge. Timing is everything but the superspike would basically be an overshoot on price caused by re-enforcing feedback loops, sort of like a run on the bank in a time of fear. After the price spike to somewhere around $250 a barrel (a guess, the level at which major demand destruction sets in) it will settle again in to a range somewhere around $130 to $150 per barrel.
Let's talk about this and the terms and concepts, how do they fit into the dynamics of this issue we call Peak Oil?
Are the dates right?
What does it mean to nations, states, and individuals?
How likely is the price superspike scenario and are we seeing it emerge right now? _________________ I return to you now at the turning of the tide.
I think we might see the spike. Utilization rates are extremely low right now. Lowest since Katrina hit the Gullf. As we head full swing into driving season and utilization picks up to meet demand and oil prices are too high for refiners we will see what's up. Refiners don't want to produce as much because of refining margins so gasoline prices are higher along with oil prices. Or refiners produce more but raise prices to cover costs so gaosline and oil are higher as well. That's how I have been seeing it with the coming summer. Let alone Hurricane season. Imagine if we have at least 1 storm come through the gulf again like katrina then it will get really ugly.
Geo-political Peak Oil - 1940? point at which scarcity begins driving international relations
I'm not convinced we've seen geo-political peak oil yet. With all the oil held by the nationals, that one could be the final shoe to hit the floor. _________________ Business as usual is about to get unusual.
First the superspike... while a hurricane can really cause havoc, they usually only mess things up for a few days or a weak. Yes, there have been some recent exceptions, there always are, but typically a hurricane rips through and things are back up in a few days.
So a hurricane is possible but it would be so much more effective to couple that some other event. Such events could be a new front on the war, people suddenly figure out this PO thing and go ape, a big refinery fire, a terrorist incident, a sudden drop off of oil production due to depletion, Saudi Arabia finally admitting Ghawar has peaked and they won't be able to exceed current production levels, ever. I don't forsee a superspike this year without at least two mid to long term events happening close together.
Second, will a super spike signal the arrival of 'practical peak oil'...
The short answer is 'maybe'.
The long answer is 'maybe'.
Remember there are a lot of people working very hard, trying to become the next Bill Gates by inventing some sort of gasoline replacement. While I do not think much of their short term success and am somewhat suspicious now of their long term success, miracles do happen. With that said, a superspike could simply be some of the above stated factors coming together or it could be the public finally allowing the idea of peak oil to sink in and take a moment from their telly to contemplate the ramifications. If that happens, yeah, that's it. _________________ When somebody makes a statement you don't understand, don't tell him he's crazy. Ask him what he means. -- Otto Harkaman, Space Viking
Lets not forget the Olympic Games in China. That's bound to have an effect on Chinese fuel needs. _________________ Bugger me, I hear oil's runnin out mate!
If you look at the direst predictions from the 2003-2005 period, they described a "super spike" scenario (usually political/military events) as taking oil all the way in the $60 range, maybe even briefly into the $70s.
So what a "super spike" looks like depends on where you are standing.
$120 a barrel sure looks like a super spike, given how quickly we've gotten here. Also, the fact that there has been no significant international political or weather event driving it is cause for a lot of concern, I think.
It can always go higher, but $120 feels a little frothy. I think $100 is probably the floor from here on.
I was convinced the floor was $90 I am still sure that once everyone burns through there hedging and credit that airlines and consumers will start dropping out of the market and dropping the price. That and people buying smaller cars.
On the otherhand eportland is going to be a kick in the proverbials. There economies are flush with money, or would be if they did not have the dollar chained round there currencies necks.
Why don't we just keep things simple and just call it "peak oil".
5 years ago being a PO believer was not a sexy thing to be; 90% of everybody laughed at you. The naysayers said PO was a 100 years away or we'd all be driving electric cars by then. It's nice to be vindicated. IMHO I think the reason why words like "political peak oil" is being tossed around so much these days is because the naysayers were WRONG and they just have trouble admitting it. So they feel compelled to backpeddle by inventing new words. Sheeesh! Why can't people just admit it when they are wrong? I'd have more respect for them.
I won't name any naysayers: you guys all know who you are.
Consider this: every dollar in crude oil price represents about 2.4 cents. So a superspike of a mere $250 means another $2.88 added to the price of finished products like gasoline, diesel. So that puts the US at around $6.40 a gallon on gasoline. Still lower than almost all of Europe today. We will certainly see some demand destruction at that price, but I think only enough to bring us closer to European numbers. But even at that level, we probably won't reach the Euros on consumption because we simply don't have the mass transit infrastructure, or the close proximity of work, home, family, as is the case in Europe.
Of course it would be myopic to look at the situation purely from an Ameri-centric vantage, so what about the rest of the world? Non subsidized developing nations will be hardest hit. They're already grappling with high food costs, so the little bit of disposable income will not go far and they will flee from their cars in droves. Latin America and most of the far east and eastern Europe will be hit hardest. I can easily see a 3 or 4 million bbl/day drop in consumption from those countries if we hit $250 oil. Then you've got China, India, and the Middle East that subsidize oil. Won't matter to the consumer what oil costs so long as the governments are picking up the tab. But those nations, particularly India and China, will not stand for long, forking out tens or hundreds of billions of dollars in subsidies each year. They'll have to eliminate or at the very least, reduce subsidies.
So, long story short, I think we'll see sufficient global demand destruction at $250 to lower consumption 5 to 10% That gets through year 2 or 3 of the post-peak world. Further out, we'll need higher prices than that to adequately destroy demand to levels of greater than 10%. Confounding factors as we get much past 2 or 3 years out will be: a) global economic health (or lack of) and b) any reasonable, suitable sort of replacement fuel that may be able to usurp current petroleum based transportation fuels.
maybe there won't be a lot of summer driving season this year at least in the US?
A superspike won't be that bad as it makes people wake up, and maybe change habbits organize their lives in a different way etc.
Posted: Fri Apr 25, 2008 12:54 am Post subject: Re: Coming Oil Price Superspike
alokin wrote:
maybe there won't be a lot of summer driving season this year at least in the US?
A superspike won't be that bad as it makes people wake up, and maybe change habbits organize their lives in a different way etc.
I think there will be more of a summer driving season. Americans in the middle class used to fly the family down to some tourist trap like Orlando for a week, rent a car and waste money on hotels, amusement parks, and theme restaurants.
With the purse strings tightened, the debt-laden middle class will pile into the minivan or SUV and head for a national park, Aunt Edna's house, etc. Gasoline consumption might be higher this summer because the road trip vacation is cheaper.
Even a peasant like me will drive to visit relatives, probably in the fall. Why spend $310 on a plane ticket to Detroit, and $40 on an airport shuttle to Ann Arbor, when I can just drive straight through in a day for $160? _________________ http://www.ronpaul2008.com/
"We are building a religion; we are building it bigger. We are widening the corridors and adding more lanes."
Cake - Comfort Eagle
Posted: Mon May 05, 2008 12:02 am Post subject: Re: Coming Oil Price Superspike
Actually, don't think we will be seeing superspikes.
There are 4 variations superimposed onto the oil price behavior.
1 is the business cycle in which recessions occure every 9 years or so these days.
2 is the annual variation with the oil stocks climbing in late winter through early summer, becoming very volatile in July, and then declining into the fall.
3 is the investment cycle which runs around 20 years. The late 80's through the early 00's were a period of very low investment.
4 is the ramp up (not a spike!) due to the effects of peak oil. When world production peaks we will see a sharp increase in the slope of the price increase in oil. That will be an inflection point.
People frequently have difficulty in noting upward trend-lines when they are superimposed on oscillatory behavior (See global warming.)
Geoff
Pulling Rank
MS Physics, UC Davis, 1996
MS Electrical Engineering, UC Davis, 2001
279 Units as a Graduate Student there
Have been investing in oil stocks, particularly deep-water drillers for the past 3 years now.
Posted: Mon May 05, 2008 12:24 am Post subject: Re: Coming Oil Price Superspike
BigTex wrote:
$120 a barrel sure looks like a super spike, given how quickly we've gotten here. Also, the fact that there has been no significant international political or weather event driving it is cause for a lot of concern, I think.
I think it isn't considered a super-spike because the only groups getting shafted are those who hold dollars. The rest of the world has seen an increase, but not nearly as much as we have seen, thanks to the fiscal policies of our government. _________________
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