How then, do we move backwards? How does a society, with most of the people having no clue of future events, move from being dependent on a vast and intertwined network of goods and services produced by the indigenous people of whereever, to a local resource and renewable energy based society, and do so in the timeframe available (20-30 years using the most liberal extimates, 10-20 with resonable estimates, 5-10 with worst case scenarios), all the while prices on everything increasing, world politics getting more militaristic, governments continuously reducing civil liberties, shortages of goods on the market and weather patterns resembling bad Hollywood movies?
Joined: Oct 23, 2004 Posts: 5348 Location: New Jersey
Posted: Sun Apr 27, 2008 7:00 pm Post subject: Economist Verleger Says Oil to Hit $200 in 2008
Yes - this is prediction for 2008 - within 8 months he expects oil to go to $200.
Verleger hits upon a subject which I have frequently discussed here before in the last few months - the role of diesel demand in pushing up the price of oil. Well at least someone else outside of PO.com and the Oil Drum (and similar web sites) gets it.
I won't say I completely agree with everything Verleger recently says, but he does provide one of the most realistic explanations around on the role of 'speculators' in the oil market. Frankly I don't think anyone that can read the writing on the wall should be called a speculator, but that's where we are today.
Quote:
Oil May Hit $200 as Refiners Buy Costlier Crude, Verleger Says
By Robert Tuttle
April 25 (Bloomberg) -- Crude oil may rise to $200 a barrel by the end of the year as refiners increase purchases of low- sulfur oil to make diesel fuel, economist Philip Verleger said.
Ultra-low-sulfur diesel powers most U.S. trucks and diesel- burning cars. To make the fuel, refiners are buying more-costly low-sulfur oils such as the West Texas Intermediate crude traded on the New York Mercantile Exchange, said Verleger, president of PKVerleger LLC, in an interview.
``It's conceivable'' oil could rise to $200 a barrel by the end of the year, he said. If economic ``growth resumes, we are short diesel and no way we are going to fill the gap.''
Lower-sulfur crude is easier to refine into ultra-low-sulfur diesel than heavier, higher-sulfur oils, said Verleger, who, in 2005, predicted oil would rise to $100 a barrel. The diesel was introduced to the U.S. in 2006 to cut air pollution.
Toil and Trouble: Is Crude Oil a Good Hedge Against Inflation?
Ronald Bailey | April 18, 2008, 2:51pm
The best argument against “speculation” in the subsequent price spiral is offered by oil economist Phil Verleger, a fellow I think quite highly of. Verleger believes that, whatever truth there might be to the simple “supply-and-demand” story I offered above, those price increases were greatly exacerbated by a huge move of dollars into commodity futures. That influx of cash was not driven by speculation (classically defined). According to Verleger, it was driven instead by the market recognition of the fact that, historically speaking, (i) commodities provided better returns over long periods of time than provided by equities, and (ii) returns on commodity investments are negatively correlated with returns on equities.
Hence, market actors thought they found an investment vehicle that provided a hedge against volatility in stock markets while also promising excellent long-term returns to boot. Even more interesting for our purposes, however, is the fact that this huge flow of cash into commodity futures (with a very large share of that investment going to oil and gas) came primarily from large institutional investors such as pension funds, university endowments, and the like. Those investments tended to be fully collateralized (that is, institutional investors were not borrowing to invest) and they are buy-and-hold investments for the long term. Neither of those two investment strategies is consistent with the popular vision of what constitutes “speculation.”
Joined: May 10, 2007 Posts: 2616 Location: The Entropisphere
Posted: Sun Apr 27, 2008 8:33 pm Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
Something has to break, I mean ~$8.00 a gallon diesel? Trucks will surely go idle before that.
One thing is for sure I better get the chickens a hatching and the rabbits a breeding, time to make some money selling chicks and kits. _________________ "Against stupidity the gods themselves contend in vain."
Joined: May 10, 2007 Posts: 2616 Location: The Entropisphere
Posted: Sun Apr 27, 2008 8:50 pm Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
Quote:
Philip Verleger:
Dr. Philip K. Verleger, Jr. is president of PKVerleger LLC and a Senior Advisor to The Brattle Group, a Cambridge, Massachusetts economics consulting firm, Dr. Verleger specializes in the study of energy commodity markets.
The author of over 100 articles and books on energy economics, Dr. Verleger has testified frequently as an expert witness for parties in private disputes and as an independent authority to the U.S. Congress. His testimony before Congress has addressed regulation, taxation, the behavior of markets, and most recently, mergers.
Dr. Verleger has held positions at the President's Council of Economic Advisers, the U.S. Treasury, the Institute for International Economics, Yale University, the University of California, and various firms in the private sector. He is a member of the National Petroleum Council and the Council of Foreign Relations. Dr. Verleger received his Ph.D. in economics from the Massachusetts Institute of Technologoy in 1971.
I assume this is the guy we are talking about. _________________ "Against stupidity the gods themselves contend in vain."
Joined: Oct 23, 2004 Posts: 5348 Location: New Jersey
Posted: Sun Apr 27, 2008 9:55 pm Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
wisconsin_cur wrote:
Quote:
Philip Verleger:
Dr. Philip K. Verleger, Jr. is president of PKVerleger LLC and a Senior Advisor to The Brattle Group, a Cambridge, Massachusetts economics consulting firm, Dr. Verleger specializes in the study of energy commodity markets.
The author of over 100 articles and books on energy economics, Dr. Verleger has testified frequently as an expert witness for parties in private disputes and as an independent authority to the U.S. Congress. His testimony before Congress has addressed regulation, taxation, the behavior of markets, and most recently, mergers.
Dr. Verleger has held positions at the President's Council of Economic Advisers, the U.S. Treasury, the Institute for International Economics, Yale University, the University of California, and various firms in the private sector. He is a member of the National Petroleum Council and the Council of Foreign Relations. Dr. Verleger received his Ph.D. in economics from the Massachusetts Institute of Technologoy in 1971.
I assume this is the guy we are talking about.
Yes, he is a little inconsistent in his outlook, but lately has come around to a more pessimistic view of the future.
At least he explains things on some kind of rational basis, which is lacking in much of the discussions about high energy prices and peak oil.
Joined: Dec 18, 2004 Posts: 4053 Location: One Mile From the Columbia River
Posted: Sun Apr 27, 2008 10:22 pm Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
wisconsin_cur wrote:
Something has to break, I mean ~$8.00 a gallon diesel? Trucks will surely go idle before that.
One thing is for sure I better get the chickens a hatching and the rabbits a breeding, time to make some money selling chicks and kits.
No way. $3.00 diesel didn't stop any trucks... $5.00 diesel isn't slowing down very many trucks... and neither will $8.00 diesel. They'll just keep on a truckin' no matter what the price is... until there ain't no more diesel at any price. THAT will be what finally stops the trucks.
.... and you're right about the chickens. The disaster has started. _________________ Everything is Impermanent. Shakyamuni Buddha
Joined: Oct 27, 2006 Posts: 680 Location: Soviet Canada
Posted: Mon Apr 28, 2008 12:19 am Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
It's funny, I don't own a car, I walk and bike everywhere. I live in a relatively small city, but I know for a fact that I will probably lose my job once gasoline becomes so expensive that people will forgo fast food for gas.
I am exploring some way to find a job that will survive gas shortages, and high food prices.
Question is, what kind of job is safe in a depression?
People need to eat, but where will they eat in a depression? I am in a kind of transitional phase (career wise) and am trying to figure out what kind of trade, or skills might be indispensible in a serious economic Fark.
I work in the "hospitality" industry at the moment. (I am a short order cook)
I wonder if people will be eating out much in the near future.
Joined: Apr 05, 2005 Posts: 1599 Location: Springsteen Country (NJ)
Posted: Mon Apr 28, 2008 12:26 am Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
Geko45 wrote:
Back in 2006, I posted the following price projection and was lambasted for my "hockey sticks" graph.
Us Cassandras are always lambasted or worse, since people just don't want to hear it. That's one heckuva graph, Geko. Can you extend it out a few more years and a few tens of dollars up? _________________ Joe P. United Political Debate
"Only when the last tree is cut; only when the last river is polluted; only when the last fish is caught; only then will they realize that you cannot eat money." - Cree Indian Proverb
Posted: Mon Apr 28, 2008 12:31 am Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
Good call Geko.
Gampy, maybe you should get into the morturary buisness. They should be really busy in the years to come. Better, the crematorium buisness.
Joined: Oct 27, 2006 Posts: 680 Location: Soviet Canada
Posted: Mon Apr 28, 2008 12:40 am Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
manu wrote:
Good call Geko.
Gampy, maybe you should get into the morturary buisness. They should be really busy in the years to come. Better, the crematorium buisness.
Lol...my back is Fark. Lifting caskets isn't an option. Sadly, my physical condition precludes any kind of "real" work.
I have found that being a cook is pretty recession proof, but if the crap really hits the fan, I wonder.
I suppose no one is safe. Except politicians. Well...maybe not, that could wind up being a very dangerous profession in a few years.
Posted: Mon Apr 28, 2008 12:45 am Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
Geko45 wrote:
Back in 2006, I posted the following price projection and was lambasted for my 'hockey sticks' graph.
Ah yes, it was Spartacus that was trying to explain to me how wrong I was. To bad he isn't active anymore. Seems like a lot of those 'unlimited growth' people aren't around anymore.
Here's the quote and original thread. Should be good for a laugh.
Geko45....I have been looking at price forecast charts for the last 25 years. Invariably they are 'hockey sticks' like yours. Try using a longer period (ie: pre 2000 and see what happens). According to pre-86 forecasts, oil price now should be a lot higher than it is.
Your curve-fit to the production data doesn't even have any science, and does not reflect new refinery capacity coming on stream.
Whilst I would agree that oil is a finite resource, I have difficulties with pseudo-science, particularly from MBA's. I got an MBA 15 years ago.....and most of the case studies I did then (ie: how great was Enron etc) show what a limited outlook those schools have in relation to free thought. It's all herd mentality.....like a lot of sheep. Individual thought (that doesn't agree with the lecturer) is likely to see you fail.
I never met a McKinsey person with an original thought.
The last paragraph of my response:
Geko45 wrote:
Then why do I have a 4.0 GPA when I am the only person in my cohort that thinks that we have a problem? During my presentation, I had to field all the usual red herring type questions. I was even asked about the 'giant' discovery off the coast of Louisiana which is now defunct. It sounds to me like you had a bad experience in your MBA program and are now projecting it onto me. I'm not here to deal with your emotional baggage. If you spent half your life living as a 'sheeple' then I'm sorry, but it's not my problem. I might have had some respect for your arguments if they had not turned into an ad hominem attack on MBAs.
_________________ Geko45 - Producer of Doomer Porn
Joined: Dec 07, 2005 Posts: 1647 Location: Australia
Posted: Mon Apr 28, 2008 2:15 am Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
Quote:
No way. $3.00 diesel didn't stop any trucks... $5.00 diesel isn't slowing down very many trucks... and neither will $8.00 diesel. They'll just keep on a truckin' no matter what the price is... until there ain't no more diesel at any price. THAT will be what finally stops the trucks.
Hmmm...yes and no. Mainly No.
In an inflationary environment higher costs can get offset by higher income. But if supply doesn't match demand, price of that product will move ahead more until demand matches what is available.
And don't make the mistake of extrapolating last couple of years events into infinity. At some point you hit a breaking point. We don't know when...but it is there.
First few years, increasing costs can be worn by some companies, tightening the belts and increasing credit.
At some point none of this is going to work.
To illustrate it, let's use this as example.
Company A has increasing transport costs, but in order to stay competative in the market, has absorbed these costs.
Joe Sixpack with $0 savings already barely making even.
In the beginning Joe may(will) increase credit rather than tightening belt.
So when food costs and discretionary goes up, Joe takes this from credit card and from house equity.
Eventually he is juggling credit cards whilst costs keep moving up. He needs to tighten the belt. He cut's back on travel, magazines, christmas presents etc. In order to afford loans, driving and eating.
Meanwhile the companies have reached a level where share holders demand better gross margin on the businesses and/or competition has started dying off (less risk to increase prices). The company therefore decides to push the costs on to the customer.
Now prices jump further.
Next there is a supply crunch and oil prices double.
Joe is maxed out on credit, has resorted to eating instant noodles 5 days a week.
Are you suggesting he will now continue consuming AND driving?
If he stops (or cut's back) consuming, transportation will go down and slowing economy may lead to recessionary spiral.
Alternatively cut back on driving, so he can affort other consumption. Note, this cutting back is just so he can maintain the level of consumption he is used to, so overall oil consumption has gone down.
Now add in the increased cost for production and transportation of food. Can Joe afford this AND maintain consumption and driving?
Now let's assume there is another 10-20-90%, hike in prices whilst income is the same. ....You still don't think this will impact on consumption? Of course it will.
So yes, whilst the trucks will keep driving, there will be less and less of them.
Like with most things however, we just don't notice it until 1) we are affected ourselves or 2) it is in mainstream media. _________________ Lets take a ride, and run with the dogs tonight
In suburbia
You cant hide, run with the dogs tonight
In suburbia
- Pet Shop Boys
Joined: May 18, 2006 Posts: 3832 Location: Minneapolis, MN
Posted: Mon Apr 28, 2008 7:20 am Post subject: Re: Economist Verleger Says Oil to Hit $200 in 2008
gampy wrote:
It's funny, I don't own a car, I walk and bike everywhere. I live in a relatively small city, but I know for a fact that I will probably lose my job once gasoline becomes so expensive that people will forgo fast food for gas.
I am exploring some way to find a job that will survive gas shortages, and high food prices.
Question is, what kind of job is safe in a depression?
People need to eat, but where will they eat in a depression? I am in a kind of transitional phase (career wise) and am trying to figure out what kind of trade, or skills might be indispensible in a serious economic Fark.
I work in the "hospitality" industry at the moment. (I am a short order cook)
I wonder if people will be eating out much in the near future.
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