What we don’t know (but think we do) about oil prices might hurt us 6

Comments View as Flat

1. 

   Bart Anderson Posted 9:44 am
   18 May 2008

   Cottage industryThanks for mentioning the relationship between oil prices and responding to climate change.
   As some Gristmillites know, predicting oil prices has become a cottage industry. Investment analysts, government agencies and oil companies all come up with predictions.  
   In my opinion, the EIA's predictions have not been very good (in Eric's words, "wildly and completely wrong"). I'm not sure exactly why.
   Government and international organizations tend to be very optimistic about oil prices. An agency within the UK government is predicting $70 oil in 2020. The International Energy Association (IEA) had been optimistic, but recently has sounded a much more worried tone.
   The official oil industry view could be summarized as "We're at the end of cheap oil, but don't worry, we'll be able to get oil somehow."  Cambridge Energy Research Associates (CERA) probably represents the official line best. They foresee a plateau of oil production, with unconventional oil picking up the slack from declining conventional oil production.
   Investment analysts are all over the place, with their predictions. However, predictions of high prices are getting headlines, such as those by Goldman Sachs.
   For more coverage and commentary, see The Oil Drum or the site I work for Energy Bulletin
   
   Bart
   
   
   Energy Bulletin

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2. 

   Delay And Deny Posted 11:21 am
   18 May 2008

   Oil Is MasteryThis blog should be required reading for all Peak Oilers:
   http://oilismastery.blogspot.com/
   Example featured link is this article from "Science" magazine:
   http://www.sciencemag.org/cgi/content/short/319/5863/604
   Abiogenic Hydrocarbon Production at Lost City Hydrothermal Field
   Radiocarbon evidence rules out seawater bicarbonate as the carbon source for FTT reactions, suggesting that a mantle-derived inorganic carbon source is leached from the host rocks. Our findings illustrate that the abiotic synthesis of hydrocarbons in nature may occur in the presence of ultramafic rocks, water, and moderate amounts of heat.
   
   Texeme.Construct(Participant)

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3. 

   Rowan Posted 6:18 pm
   18 May 2008

   IncredibleThat's an especially interesting point about lower oil prices raising the predicted costs of climate policy. I have no knowledge of how they arrive at these figures or how transparent the process is, but given the Bush administration's record of political interference in government bodies I wonder if there's been any sort of pressure to deliver this kind of forecast to further put off having to do anything.
   
   greenpictures.wordpress.com

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4. 

   Jonas Posted 12:13 am
   19 May 2008

   Can the dollar weaken forever?The OPEC chief added his own prediction: $200 per barrel 'soon', thereafter, we don't know, but things don't look good.
   OPEC claims the main cause is speculation, fueled by the weak dollar.
   Suppose they're right, then the simple question to ask is whether the dollar will remain forever weak and keep growing weaker.
   The dollar has been falling against the Euro since 2002 - non-stop. Today, it is a virtually worthless piece of paper, worth half of what it used to be worth.
   It seems like there are many factors that will keep this trend going, as America's structural economic fundamentals are quite weak. No new president can change these fundamentals - they have become the essence of the American economic system (spend more than you are worth; become the essential incarnation of the concept of debt).
   So unless OPEC decides to switch from dollars to Euros, the speculative factor which is pushing up oil prices is not likely to go away anywhere soon.
   Add real economy pressures (rapidly growing demand in Asia, some peak oil amongst important producers), and we do have a problem.

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5. 

   Pangolin Posted 6:33 am
   19 May 2008

   Limited oil, infinite money....What do you think the result of that equation is going to be?
   The Fed is handing money over to the large trading houses at below the rate of actual inflation (see http://www.shadowstats.com/) so that Wall Street can cover it's losses on the great real-estate bubble. Of course the majors then turn around and invest it in short-term commodities futures. Since the Fed is inflating the dollar commodity prices go up, they collect, skim profits, repay the Fed....wash, rinse, repeat.....
   It's a free money machine. Does anybody but me see a problem with creating a giant "free money" machine?
   The Fed won't quit because telling the world the US  is broke in an election year is bad news. The world can't quit taking our money because they already hold so much of it. Everybody in the trading chain is trapped because nobody has the ability to sustain an independent economy anymore.
   We're playing "how fast can we spin the merry-go-round" with the world's economy.
   Buy seeds and a good sturdy hoe. Plant some potatoes. Get your teeth fixed NOW; put it on the credit card if you have to. Interesting times for all.
   
   Put the Carbon Back

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6. 

   Sean Casten Posted 7:18 am
   19 May 2008

   EIAIt bears noting that EIA forecasts don't carry a lot of weight in the industry.  In my consulting days, we had a lot of fun also with plots like these, showing actual trends vs. EIA projections, and they generally show the same form as you do: the slope never changes, only the starting point.  
   But this is a function of EIA projection models, and one which energy planners are largely cognizant of.  So yes, their forecasts aren't to be trusted.  But no, it doesn't matter that much.
   Note also that energy markets in general are so volatile right now that no one's really got a good handle on what's coming next.  The fundamentals that used to reliably predict prices have fallen apart lately.  (For example, fuel oil and natural gas used to move in lock-step with one another.  Now the latter costs twice as much as the former on a Btu basis.)  This suggests to many that there is a lot of speculative churn driving the current high commodity prices, which makes sense since there are so few other good places to invest lately.  But lest we all get too happy about rising energy prices (or convinced that they will always be high from now on, creating perpetually great economics for clean stuff), we ought to keep in mind that bubbles do eventually pop.  And when you can't predict price based on fundamentals, that's usually a good indicator of a coming bubble-pop.

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