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Oil To Reach $125?

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http://news.bbc.co.uk/1/hi/business/5225236.stm

This story on the BBC has probably been posted already, but I was talking to a chap at work who is reponsible for the vehicle fleet (we run some very big sites and we have 100's of vehicles, including some big specialist types). Fuel costs are a major issue and we are currently trying to reduce fleet size and efficiency. As part of the review this chap I work with went to a conference and got talking to an energy futures trader. Apparently many traders are expecting the price of oil to be comfortably over $100 a barrel. This trader even used the word "peak oil". :o

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IMO we have not even begun to feel $70 bbl yet. The lag is long because, up to now, most companies have had to absorb the cost being unable to pass it on to consumers. They have been doing this by reducing employees, cutting inventories and switching suppliers to overseas where they can.

The US GDP has dropped 50% in the last Q and much blame is being placed on increased fuel costs. The seeds of reccession are already beginning to sprout. $100 bbl could make the recession very painful indeed.

IMO, the optimism in the markets is unfathomable. Stocks and houses will not do well in a recession.

Edited by Realistbear

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http://news.bbc.co.uk/1/hi/business/5225236.stm

This story on the BBC has probably been posted already, but I was talking to a chap at work who is reponsible for the vehicle fleet (we run some very big sites and we have 100's of vehicles, including some big specialist types). Fuel costs are a major issue and we are currently trying to reduce fleet size and efficiency. As part of the review this chap I work with went to a conference and got talking to an energy futures trader. Apparently many traders are expecting the price of oil to be comfortably over $100 a barrel. This trader even used the word "peak oil". :o

The trader referred to is well informed - many oil industry followers now believe the sweet light crude (the kind best suited to producing high quality transportation fuel) has already peaked globally and is now in decline. We know without a doubt that oil provinces such as US and North Sea have peaked; the N Sea is experiencing particularly steep declines. There are also increasingly credible reports that some of the largest oilfields on the planet have also entered their decline phase; specifically Cantarell (Mexico), Burgan (Kuwait) and Ghawar (Saudi Arabia's 'king of kings'). As a consequence the 'all liquids' peak cannot be long delayed; a recent conference on the subject in Pisa, Italy (which I attended) heard analysis from a number of oil industry experts who believed we are now within 4 years of the overall peak.

This analysis by Dr Ali Samsam Bakhtiari, former senior advisor for National Iranian Oil Co. presented recently to the Australian Senate Committee provides a good insight into the coming oil crisis and suggests a price of $100 - $150/bbl quite soon with prices in due course rising much further. The consequences for the housing market (and a lot more besides) are profound - industrial societies are ill prepared to address the tripple issues of sharply rising oil prices, rising demand and (soon to be) falling supply.

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The US GDP has dropped 50% in the last Q and much blame is being placed on increased fuel costs.

Nothing to do with IR doubling then?

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I used to think that Peak oil was the cause of high oil prices, i think this excuse is given to throw us off the scent.The real reason is the fact that the dollar is declining due to over inflating, especially after 911 and the extra dollars required to pay for the subsequent wars, more dollars are reqired to purchase raw materials especially OIL.The traders who make money on these markets are not fools and they fully know the real reason while the rest are all kept in the dark.

Edited by crystal ball

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I used to think that Peak oil was the cause of high oil prices, i think this excuse is given to throw us off the scent.The real reason is the fact that the dollar is declining due to over inflating, especially after 911 and the extra dollars required to pay for the subsequent wars, more dollars are reqired to purchase raw materials especially OIL.The traders who make money on these markets are not fools and they fully know the real reason while the rest are all kept in the dark.

US does indeed spend huge amounts on oil imports - approx 14m bbls/day @$75/bbl i.e. approx $1.05 billion per day. On a per capita basis US oil imports amount to just under $1300 pa. The vast majority of oil traded worldwide is traded in dollars with result that importing nations are forced to buy dollars to pay for their oil; this system actually helps support the dollar.

The rise in oil prices since a low of around $12/bbl occurred in 1999 has been more or less relentless to approx $75/bbl which applied last week. While political factors, security risks and market action by hedge funds and other speculators have undoubtedly played a part in the price rise the bulk of the rise can only be due to one thing - a change in the balance between supply and demand. This makes sense given that virtually all global spare capacity for oil supply has been eroded in recent years due to a large part by surging demand growth in India, China etc (including the US itself).

Far more fundamental factors than politics or actions by market traders are at work, however. Consider the following:

1) Global oil discoveries peaked in 1964 and have declined relentlessly since despite application of new oilfield technology and extensive exploration.

2) Since 1981 the world has failed to replace annual consumption by reserve additons due to new discoveries.

3 In recent years the gap between consumption and new discoveries has been as high as 5:1 i.e. 1 barrel discovered for every 5 barrels consumed.

4) The area under the production curve cannot, after a timelag, exceed the area under the discovery curve.

This chart sums up the situation and is quite compelling; my view is that the big price run-up is due to the world approaching the production peak. The area shown in pink is the potential gap which will open up between supply and demand; given that demand cannot exceed supply the market's way of dealing with such a gap will be to increase the price of oil until sufficient demand destruction occurs (consumers / consuming nations unable to afford the high prices simply withdraw from the oil market). Given that oil demand tends to be very inelastic the market imposed price rises are likely to be dramatic.

picture2ok1.png

Edited by zceb90

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Not quite.

GDP growth has halved.

Thereby signalling the end of the IR raising cycle.

Not if inflation remains a worry.

The FED may tack on a couple of 0.25% rate increases if they remain worried about inflation. A high oil price would fuel inflation.

:huh:

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One reference in particular stands out in Dr Bahktiari's analysis (linked in post 4 above):

My WOCAP model has predicted that over the next 14 years present global production of 81 million barrels per day will decrease by roughly 32 per cent, down to around 55 million barrels per day by the year 2020.
Such a decrease in supply would have quite a dramatic impact on the housing market, among other things. Given that a sizeable proportion of oil consumption is for essential services, agriculture / food production, emergency vehicles and the military where cutbacks would only occur as a last resort it therefore follows that private vehicles would take a disproportionate share of the pro-rata cuts. In other words for each litre one buys today one could well be bidding (or queuing) for somewhere between 0.25 and 0.4 litres in 2020.

Fuel shortages on anywhere near the above scale would lead to a complete reversal of trends which have existed for past 50 years. There would no longer be a premium assigned to houses with 'easy access M4'...etc'; instead houses with good public transport links or within walking / cycling distance of local shops, schools and local workplaces would attract a premium. Houses in car dependent suburbia would crash in value following the end of (relatively) cheap and abundant fuel supplies.

I'm not certain that supply will actually fall to the level indicated by Dr Bahktiari but the effect would be similar even if supply were to fall to 70m bbls/day due to demand growth, mostly in south Asia. Currently India and China use under 2 bbls per capita pa v 13 bbls pcpa in EU and 26 bbls pcpa in US. With population of 2.5bn in India and China an increase to just 1/3rd of EU levels against a background of static or falling supply would be more than enough to trigger the above scenario.

I would be extremely wary of buying a house in an area with a totally car-dependent lifestyle at the present time but I appreciate that only a tiny minority are following the energy situation right now....and Governments are virtually silent about the situation, tending to hide behind (grossly over-optimistic imo) forecasts by agencies such as IEA and USGS. In due course we'll surely find out who's right....but don't expect the politicians to stick around and fix things up if their forecasts turn out to be wrong. My gut instinct and oil industry career tell me there is plenty to be concerned about.

Edited by zceb90

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zceb90,

Thanks for the insights.

I have been watching the peak oil story for about 1.5 to 2 years now, and if i have spotted one trend it is that theestimates for peak oil are getting closer. I noted a few weeks ago that the Saudi field was in trouble, Kuwait put their hands up late last year...

If this trend continues it could turn out that we simply have no time left, hence Blair pitching for Nuclear? :ph34r:

2007 is shaping up to be a bad year IMO.

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IIRC one of the big oil companies were saying that prices are going to drop in the near future as their technologies/techniques for new discoveries had improved

There are some big spikes in 'past discoveries' on that chart...

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Serious question: what it the best way of having a punt on the price of crude oil, if I wanted to?

I believe the easiest way to make a long term punt on oil is to buy something like ETFS BRENT OIL (OILB), but of cause that's quoted in US Dollars so you also need to believe that the dollar isn't going to take a nose dive against the pound. To make a short term punt in pounds I think the only way is to open a spread betting account, but that sort of thing is not for the faint hearted!

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I believe the easiest way to make a long term punt on oil is to buy something like ETFS BRENT OIL (OILB), but of cause that's quoted in US Dollars so you also need to believe that the dollar isn't going to take a nose dive against the pound. To make a short term punt in pounds I think the only way is to open a spread betting account, but that sort of thing is not for the faint hearted!

You don't need to believe the dollar isn't going to take a nose dive against the pound at all, you just need to believe that the value of oil is going to increase; the value of the dollar is irrelevant.

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You don't need to believe the dollar isn't going to take a nose dive against the pound at all, you just need to believe that the value of oil is going to increase; the value of the dollar is irrelevant.

The value of the dollar (federal reserve note) is relevant. The more federal reserve notes produced the weaker it becomes hence raw materials become more expensive because you need more federal reserve notes to buy the product.

You know the end game is upon the dollar (federal reserve note) when they stopped releasing The m3 figures as of 23 march 2006.

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One reference in particular stands out in Dr Bahktiari's analysis (linked in post 4 above):Such a decrease in supply would have quite a dramatic impact on the housing market, among other things. Given that a sizeable proportion of oil consumption is for essential services, agriculture / food production, emergency vehicles and the military where cutbacks would only occur as a last resort it therefore follows that private vehicles would take a disproportionate share of the pro-rata cuts. In other words for each litre one buys today one could well be bidding (or queuing) for somewhere between 0.25 and 0.4 litres in 2020.

Fuel shortages on anywhere near the above scale would lead to a complete reversal of trends which have existed for past 50 years. There would no longer be a premium assigned to houses with 'easy access M4'...etc'; instead houses with good public transport links or within walking / cycling distance of local shops, schools and local workplaces would attract a premium. Houses in car dependent suburbia would crash in value following the end of (relatively) cheap and abundant fuel supplies.

I'm not certain that supply will actually fall to the level indicated by Dr Bahktiari but the effect would be similar even if supply were to fall to 70m bbls/day due to demand growth, mostly in south Asia. Currently India and China use under 2 bbls per capita pa v 13 bbls pcpa in EU and 26 bbls pcpa in US. With population of 2.5bn in India and China an increase to just 1/3rd of EU levels against a background of static or falling supply would be more than enough to trigger the above scenario.

I would be extremely wary of buying a house in an area with a totally car-dependent lifestyle at the present time but I appreciate that only a tiny minority are following the energy situation right now....and Governments are virtually silent about the situation, tending to hide behind (grossly over-optimistic imo) forecasts by agencies such as IEA and USGS. In due course we'll surely find out who's right....but don't expect the politicians to stick around and fix things up if their forecasts turn out to be wrong. My gut instinct and oil industry career tell me there is plenty to be concerned about.

I suspect that necessity will be the mother of invention on the oil situation - that is that for land transportation and power generation alternatives abound, that only need to be seriously developed. There are already cars and buses running on various alternatives in this country, with others in development - it is just a shame that we are decades behind where we could have been. Presumably anything that can be made to work in a lorry could be adapted for railways / maritime applications.

The only major concern with oil would be with air transport - to my knowledge there is no credible alternative yet devised.

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The thing I don't get with the peak oil argument is the oft quoted massive reserves in Canada and such like in the form of oil shales and oil sands. IIRC someone metioned that these become economically feasible at around 80 dollars a barrel. Is this true, or is there something else that will prevent these resources from being exploited?

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The thing I don't get with the peak oil argument is the oft quoted massive reserves in Canada and such like in the form of oil shales and oil sands. IIRC someone metioned that these become economically feasible at around 80 dollars a barrel. Is this true, or is there something else that will prevent these resources from being exploited?

Peak oil is all about the flow rate. We need millions of barrels per day, not a massive potential reserve in the ground (that doesn't help anyone). The problem with the tar sand and oil shale is that they just can't be exploited at the fast flow rates needed to offset the declines in conventional oil.

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US does indeed spend huge amounts on oil imports - approx 14m bbls/day @$75/bbl i.e. approx $1.05 billion per day. On a per capita basis US oil imports amount to just under $1300 pa. The vast majority of oil traded worldwide is traded in dollars with result that importing nations are forced to buy dollars to pay for their oil; this system actually helps support the dollar.

Yes and this is why Israel is bombing the place out of the middle east since Bush is trying to provoke Iran into a war because it intends on selling Oil in euros so Israel as normal is doing the Americans bidding for them using American weapons.

If Russia or China takes sides with Iran then WWIII will break out and all thanks to the greed of Bush’s who profit vastly from Oil prices going up.

$125 per barrel, and the rest if Iran is provoked, well someone has to pay for the war and that someone is you.

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:lol:

With nanotechnology it is possible to create lighter-than-air building materials, so aircraft constructed from these can fly a lot slower - like airships - and use less power, even solar. At least a decade away, I imagine.

It is also possible to ship air freight ballistically (with a big "gun"), where all the energy is used on the ground, and the "craft" (shell) has no engine. This has probably not "taken off" (forgive the pun) because the manufacturing quality, packaging and computer control systems are only recently good enough to ship safely (for products and "target" destinations) and cannot compete with the existing air freight infrastructure (which is also useable for passengers - this is not!). With current computer air-traffic capabilities it is also hard to integrate with ordinary aircraft (without shooting them down!). But I imagine it will appear over the next decade or two as computer mapping of air traffic gets more precise. You might end up with a catch net in the garden to receive small packages fired from the DHL depot in Manchester (where they catch shipments from the big transatlantic guns).

Finally, with full nanotechnology, it is possible to tunnel cheaply, and build an evacuated global tunnel network, where pods can fly from here to NZ accelerating and decelerating at 1g all the way, getting their power from the tunnel walls. This will make everywhere in the world an hour away or less, in home-like comfort, with a pod-stop in every living room.

All this requires vast technical breakthroughs in nanotechnology (and the new power sources, not just delivery mechanisms that will bring). Until then (a decade or two, at least) peak oil will have all the very nasty effects being espoused. And two decades or more is a long time, with wars, terrorists, bio-weapons and national, corporate, racial and religious factions fighting a resource war. So getting from here to there is not straightforward.

What ever youve been smoking can you fire some of it down here, Ill go out and catch it in my garden with me big butterfly net.

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The US GDP has dropped 50% in the last Q and much blame is being placed on increased fuel costs. The seeds of reccession are already beginning to sprout. $100 bbl could make the recession very painful indeed.

IMO, the optimism in the markets is unfathomable. Stocks and houses will not do well in a recession.

It's US GDP GROWTH that has halved in Q2, not GDP itself! Let's not get carried away here. Growth was always going to be a little moderated in Q2 - it couldn't carry on at Q1's 5%+. Get things into perspective.

FWIW, I agree with you that we haven't begun to feel $70pb oil yet. We are only beginning now to feel $40-50 oil. Give it another couple of years.

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IIRC one of the big oil companies were saying that prices are going to drop in the near future as their technologies/techniques for new discoveries had improved

There are some big spikes in 'past discoveries' on that chart...

Like Prudhoe Bay, the North Sea etc which are already past their peak.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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