[Hughj]

This is from wtrg.com - Demonstrates how oil, in 2008 dollars has averaged 22 dollars per barrel for the past 140 years.

Since 1869, US crude oil prices adjusted for inflation have averaged $22.52 per barrel in 2008 dollars compared to $23.42 for world oil prices.

Fifty percent of the time prices U.S. and world prices were below the median oil price of $16.71 per barrel.

If long-term history is a guide, those in the upstream segment of the crude oil industry should structure their business to be able to operate with a profit, below $17.65 per barrel half of the time. The very long-term data and the post World War II data suggest a "normal" price far below the current price.

Crude Oil Prices 1869-2009 http://www.wtrg.com
The results are dramatically different if only post-1970 data are used. In that case, U.S. crude oil prices average $32.36 per barrel and the more relevant world oil price averages $35.50 per barrel. The median oil price for that period is $30.04 per barrel.

If oil prices revert to the mean this period is likely the most appropriate for today's analyst. It follows the peak in U.S. oil production eliminating the effects of the Texas Railroad Commission and is a period when the Seven Sisters were no longer able to dominate oil production and prices. It is an era of far more influence by OPEC oil producers than they had in the past. As we will see in the details below influence over oil prices is not equivalent to control.

Crude Oil Prices 1970-2008

Click on graph for larger view

[Pops]

Yep, certainly points up the fact that our economy, and society too, is built on cheap oil.

[Hughj]

Yep, certainly points up the fact that our economy, and society too, is built on cheap oil.

Indeed, like capital, labor, and entrepreneurship, natural resources are required for an industrialized economy to function. When OPEC places contrived and artificial constraints on supply, bad things happen. Remember when Jimmy Carter had interest rates at 20 percent? Similar results.

[Pops]

When OPEC places contrived and artificial constraints on supply,

Interesting choice of words, I guess that means you think the whole problem is that Saudi Arabia (who ostensibly holds the worlds only spare capacity) is holding out and that's causing oil to be what, 7 times its "historical" price?

Really, if anyone else had the capacity don't you think they'd be opening the valves wide?

"Conventional" oil has peaked, it's in decline, in the US we're making up for that by burning half-baked bitumen steam cleaned from strip mined sand up in Canada, mixed with lighter oil and synthesized into "artificial" crude using large amounts of both water and energy - do you think that can be accomplished at $17 a barrel? Ditto Fracked oil, deepwater, arctic, etc. Take a look at the chart I posted in your other thread, it shows the cost for "New" oil, second half oil, post-peak oil.

It goes like this, all oil is priced at the value of the last barrel needed to satisfy demand. So even though KSA may be able to lift oil for $10/bbl it gets to sell it for $90 because there is no longer enough $10 oil to satisfy demand. Producers need $90/bbl to steam clean sand and drill 5 miles down in 5 miles of ocean and make a profit.

[Pops]

Oops, premature submission there...

.... Producers need $90/bbl to steam clean sand and drill 5 miles down in 5 miles of ocean and make a profit. If we are going to consume oil at the record levels you were crowing about elsewhere, we will pay at the price level that makes the last barrel of oil profitable.

[Hughj]

Don't shoot the messenger, Pops, but oil is down again today. Sure sign of a shortage wouldn't you say? If it costs 90 bucks, that's where it will stabilize.. wanna bet it goes lower much lower?

[ian807]

Don't shoot the messenger, Pops, but oil is down again today. Sure sign of a shortage wouldn't you say? If it costs 90 bucks, that's where it will stabilize........wanna bet it goes lower much lower?

Hugh, The price will undoubtedly go much lower, and then much higher, and then much lower again. And we've just started with that one. When oil demand becomes very inelastic and oil price feedback (i.e. when high oil prices themselves raise the price of everything, including the price of getting oil from well to gas tank) starts, the oscillations between high and low prices over time are going to be mind boggling.

Regardless, market price is not the physical world. The simple math of oil extraction, however its done, guarantees liquid hydrocarbon depletion over time. Economically this raises the price and contributes to price inelasticity. Moreover, as it slowly penetrates the minds of politicians worldwide that their militaries can't function without oil, you'll see large chunks of oil suddenly become unavailable as Iran, Russia, the USA, and so on suddenly stop selling their oil on the world market and hoarding it. At that point, the price will become permanently high and oil will leave the stage as a major energy player.

[Pops]

Did I say shortage?

No, looking back at my post I don't see shortage mentioned. I see an explanation of why oil is 4x your historic average and why it won't ever be down there for any significant period ever again. I'm thinking the historic average price of oil has no more to do with it's future price now than the historic average population of dodo birds has to do with it's future population.

Although I don't pay much attention to the day to day price, here is what the oracles have to say about todays price:

Oil dropped to its lowest level in four months in New York on concern the Greek debt crisis will derail Europe’s economic recovery, curbing fuel demand.

Futures pared an earlier loss of 3 percent as German Chancellor Angela Merkel moderated earlier conditions for supporting a Greek rescue plan. Crude is down 5.2 percent this week as data showed U.S. manufacturers turned pessimistic in June and demand for diesel declined. Prices will slide further next week, according to a Bloomberg survey of analysts.

“Oil demand growth has slowed in the second quarter with a weakening of the economic recovery,” said Harry Tchilinguirian, London-based head of commodity-markets strategy at BNP Paribas SA. “The recent oil move is forex-driven. Past the current soft patch, we expect growth to pick up as we move into the fourth quarter.”

I like that last bit, aimed at the gamblers.

But hey if this is your argument against PO, more power to ya.

[Hughj]

OK Ian, I'll bite. So it is your considered opinion that these large price fluctuations are caused by Peak Oil and not OPEC's supply constraints? Got any proof of that?

[vision-master]

Peak Oil and not OPEC's supply constraints

How about we define 'peak oil' and 'supply constraints' 1st?

Yer turn.

[kublikhan]

Yep, certainly points up the fact that our economy, and society too, is built on cheap oil.

+1
Pops nailed it here. Hughj, your post suggests our industrial society was built and run on cheap oil, something that peakers have been saying for years.

Indeed, like capital, labor, and entrepreneurship, natural resources are required for an industrialized economy to function. When OPEC places contrived and artificial constraints on supply, bad things happen. Remember when Jimmy Carter had interest rates at 20 percent? Similar results.

Exactly, bad things happen to the economy when a critical component skyrockets in price for an extended period of time. However I do not share your view that the cause of this skyrocketing price of oil is all OPEC cackling maniacally as they turn off the oil taps. Indeed, Russia's oil tsar recently delivered a warning not to put your faith in this view that OPEC can relieve these high prices anytime they wish simply by opening up the taps:

Following the collapse of OPEC talks on a potential supply increase to help struggling consumer economies, Russia’s powerful oil tsar Igor Sechin warned against reliance on the oil club’s capacity to ramp up production in times of need. “OPEC does not have as much spare capacity, is not that big, and we need to open up new fields, and we need to cooperate on that.”

Russia courts oil investors with warning on OPEC's capacity

OK Ian, I'll bite. So it is your considered opinion that these large price fluctuations are caused
by Peak Oil and not OPEC's supply constraints? Got any proof of that?

I assume when you say "supply constraints" you are implying OPEC has lots of spare capacity but simply refuses to release it because they want to drive up prices? And you do not believe the supply-demand fundamentals of oil are tightening? If so:

OPEC yesterday forecast a "tightening" oil market as demand for its crude rises, two days after members of the producer group failed to agree on output increases. "Global inventories could continue to decline as the market enters a period of high seasonal demand," the group said in the report. "This would result in much higher demand for OPEC crude, reaching a level higher than current OPEC production and implying a draw in inventories."

OPEC: Demand outstrips oil supply

JPMorgan Chase & Co. raised its oil- price forecasts because OPEC and other producers aren’t matching rising demand and consumers will take time to react to higher prices. The bank boosted its 2011 Brent crude forecast to $120 a barrel

" with inventories already below the five-year average, any supply gap will have to be balanced by lower demand growth, rationed by higher prices"

JPMorgan Raises Oil-Price Forecasts, Citing Supply Constraint

An OPEC report suggests that world demand for its oil is outstripping the present supply.

Worldwide Oil Demand Outweighs OPEC's Present Supply: Report

Oil edged higher in New York and surged the most in almost two weeks in London amid speculation that an increase in OPEC production quotas will reduce spare capacity and cause tight supplies when demand rebounds. “Adding more crude to the system isn’t making a difference because it’s not crude we need or are going to use,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. “They’re taking away barrels from the spare capacity from the back end and that’s making it bullish rather than bearish.”

With the oil market still digesting the impact of unrest in North Africa and the Middle East, as well as last month's devastating earthquake and tsunami in Japan, the International Energy Agency gave evidence on April 12 of a continued tightening of fundamentals.

But with producers seemingly unable to do much to cool down the market, the IEA suggested that the best remedy for the high prices might be the impact of the price on demand. In the US, the world's biggest oil consumer, the IEA said retail fuel prices may be reaching prices at which motorists start to cut their consumption.

IEA highlights continued oil market tightening

According to the EIA the expected increase in oil demand in the remainder of the year will trump the oil production which could further tighten the crude oil market and reflect on higher prices.

EIA recent outlook oil market will further tighten

[Hughj]

Mr Khan,
Too broad a post for a reasonable man to address And quite far afield of the thread......remember, my topic was historical in nature, and therefore quite impossible to refute. Look at it this way. If oil prices had steadily escalated for the last 140 years, then your contention that "the end is near" would be a little more palatable. The inconvenient truth is......THEY HAVEN'T.

[Pops]

Mr Khan,
my topic was historical in nature, and therefore quite impossible to refute.

And quite irrelevant.

Are you going to address my point that $22 oil can no longer meet demand so more expensive substitutes are required - raising the price of ALL oil to that of the most expensive barrel?

[kublikhan]

Too broad a post for a reasonable man to address And quite far afield of the thread......remember,
my topic was historical in nature, and therefore quite impossible to refute. Look at it this way. If
oil prices had steadily escalated for the last 140 years, then your contention that "the end is near" would
be a little more palatable. The inconvenient truth is......THEY HAVEN'T.

Ugh. You are starting to sound like a certain spammer-troller who was recently banned. You ignore data that contradicts your point. Then you spout off crap like "the end is near". You even have the same damn habit of wrapping your text when it only reaches half of the page. :/

[Hughj]

Demand is falling Pops, read up why don't you. Vertical price spikes and plunges are
not indicative of a natural supply and demand curve, they are the fingerprints of
futures traders and cartels. Sorry Pops, nothing but good news ahead.

Hugh

[Pops]

Demand is falling Pops,

Now Hugh, I think you are getting confused, you're contradicting yourself after only a handful of posts. Here from you other thread:

No sir, demand is up....

So which is it?

[Pops]

Oh, and by the way...

Are you going to address my point that $22 oil can no longer meet demand so more expensive substitutes are required - raising the price of ALL oil to that of the most expensive barrel?

[Hughj]

Like I said Pop, the thread is a historical statement of fact. What more can
I say?

Hugh

[Pops]

Well, OK, if that's all you got...

Cheers

[Pops]

This new troller is typical really.

Yes. I think most people have an optimistic knee jerk reaction and so figure people here are just opinion-spouters too, just of the knee-jerk-doomer variety. I don't think they understand most of us have tried all the easy, off the cuff arguments for ourselves.

Just a FYI, we'll always encourage people to bring their best arguments, facts and opinions to the conversation but we are going to be less willing in the future to give a pass to the casual ad homs that have become common here on all sides. If you can't play nice we'll help you play somewhere else.