Gregor.us

My sense is that the world is getting sick and tired of the boom bust cycle in oil driven substantially by hedge funds and futures traders.

In a rational market oil never would have gone north of $100 or south of $60.

I'm sure that's true that people are sick of the amplitude. But, imo, that's a direct result of peak oil--not speculation. As I have talked about in the past, Open Interest on the NYMEX reached a peak not last Summer, but in the Summer of 2007. And OI declined all the way into the price high of 2008. My view is that the volatility comes from less speculators, not more. There is much disagreement on this point. And people often invoke the OTC market as the place where speculation drove the price.

I just keep coming back to the simple facts: non-OPEC production has been flat for 6 years. Global production has been flat for 3.5 years. No response whatsoever to the higher prices. None. Excepting the original increase from 1999-2002/3

G

the peal oil,... sorry, Peak Oil,... whatevers.

energy is infinite. have you ever seen what the graph of peak nuclear looks like?

In 1998, oil hit $10 a barrel. Could happen again. Demand could fall by 10-15 percent. L-shaped recession.
The Mother Of All Gluts.

Hi Ben. Good to see you. I was thinking that maybe after your years on the WSJ blogs, that you might start your own blog. After all, you could have been sharing your Peak Demand thesis, which looks pretty good right now.

As for gluts, however, I don't see any evidence of a glut. Lots of supply destruction already underway.

The incremental bbl is now gone, Ben. At 40.00, we are starting to chew our way into the cash-cost levels.

40.00 now means we re-test the old high by late Q3 2009
If we go to 30 or 25, then we will go to 200.00 in one year.

G

heh, seems that there will always be those who think along the lines that we're doomed if we do, and doomed if we don't.

it's noting new here. nothing unheard of or surprising. business is always tough. the worlds CB's and competitive currency devaluations are hard to plan for.

business, and those who run them, no matter what the sector we operate in know that it is a fact of life, and we do the best we can. cyclicality sucks.

I believe that when it comes to "bubbles" it is important to analyze how they actually happens. To illustrate, let's look at a type of "bubble" that we are all familiar with: Traffic jams. When we go from "dense traffic" @ 45 mph to "stop & Go" @ 10 mph, you only increase the number of cars on the road from 99% of capacity to 101% of capacity.
What I'm trying to say here is: There is little relationship between price movement and supply/demand (ratio) movement.
When prices went from $50 to $150 (a 300% increase) the supply/demand ratio only changed from .99 to .101 (yes those are only guesses, I can't prove the numbers).

What this means now, is: We have NOT seen that much of a demand destruction, but as Gregor points out: at $4x/bbl we have seen significant production destruction, since it's hard to restart a well head.

don't get me wrong, bellanson, i'm not saying cyclicality sucks so much that it should be or ever will be done away with. i'm just saying, cyclicality sucks. deal with it.

BTW, a simple heads-up, mates. Google C&H Capital. backtest all those past "results".

and don't forget to check the disclaimer of that pump & dump facilitator, Qualitystocks.net with their imbedded buttons on many an InvestorVillage message board.

when prices were soaring, Brazil busted out with so very expensive exploration in deep water, through difficult salt layers. and they hit back to back to back home runs. estimates of the reserves discovered just keep going up, and it appears that at least 150 Billion Barrels of oil will be recovered. soon after these discoveries, Brazil ordered big..... 30 Billion Dollars worth of off-shore drilling ships to develop these finds. the Brazos are not stupid nor wasteful with there dough. these ships will be not be allowed to sit idle, regardless of how low the price of oil goes. in the mean time, Shell has started developing a 485 Billion bbl field in Canada. and Canada holds masses of goo. more oil than Saudi Arabia. in the past, the 485 Billion barrels of goo was not worth processing. but, today it is. and it's largely because of new technology. Shell has learned how to refine the oil by cooking it in place for about a year. new nuke technology allows Shell to heat this goo for 70% less than it would have cost with natural gas. hey, all 485 Billion Barrels will not be recovered with this technology but a couple of million barrels per day should be bloody easy.

and guess what, new technologies still being developed (most likely the digestion of goo by tiny microbes that produce natural gas) will ultimately allow the use of most of this oil.)

massive quantities of oil will begin to flow from these discoveries and from many others around the globe just when CAFE standards cut demand. CAFE standards go into effect in 2011 and they ratchet up for many more years. this round will produce the same results as those in the past.... and by the time the standards are fully implemented the amount of fuel being used will have gone down, even while available supplies have gone up!

the marginal cost of the last barrel produced is likely to fall to around $35.

and guess what, it's all good, mate.

so, don't worry about the price, and digging for goo, gas, and energy in general. i see you Gregor.us on the Investor Village boards. good on 'ya! what one needs to keep a look out over there is all the freaky penny stocks and the people who pump them on IV. think Qualitystocks.net. think MDVX, and the pump house crew working that pile of a hopeless hole in the ground.

All those large projects you refer to are now closed. They won't be going forward, and the announcements have been made--from Petrobras to Shell. You have to understand the rigs that Petrobras hired were to prove out the oil. Not to pump it. As for the oil sands, the list of cancelled projects is now running to around 6-10 large projects, and of course myriad small projects. The Shell project you refer to is canceled.

At 42.00 bbl, even some existing production from Alberta will come into question and below 38.00, it will start to go offline.

>>the marginal cost of the last barrel produced is likely to fall to around $35. <<

People use the phrase marginal cost or last bbl differently. When oil goes below 90.00 and hits every level down from there, more supply goes offline.

gregor,

noting new, every producer has different costs. at 40 bones, plenty of folks still have comfortable margins. at $40, oil dirt, producers of all sorts, foreign and domestic, still make money. and peak oil? sorry, Peak Oil, (it's always so much more dramatic to capitalize it,), is still, just a theory. supply meets demand at a price. with as always, a little psychology and speculation thrown into the mix.

crude at $50, $45, $40? it's a good thing. prices for everything start to adjust. the savings to consumers is huge. the number of things effected are mind boggling. many people win, and some actually lose. the mullahs of Iran for one. their fascist regime is getting drilled.

BTW, great site you have!

Bob, when the data starts to come through on non-OPEC production for SEP, OCT, NOV, and DEC you will then see a direct line between price and supply. It doesn't matter that lots of producers can make money at 40.00 dollar oil. The point is that a TON of producers cannot. The dividing line is between OPEC with its cheaper conventional oil--and non-OPEC oil.

As for Peak Oil, it's not really a theory. It's an observation about geology. Peak oil has been observed in myriad oil producing regions and countries in the last 40 years. It's not a "chain letter" or a religious concept. Though, it certainly can be used that way and no doubt has been used that way. But that has no material implication for the concept. It doesn't change the fact that the USA peaked 38 years ago, or that the UK, Norway, and Mexico have now peaked.

Oil at 42.00 is very, very bad news for supply. Yes, it's true as you say, costs will drift downward some. It's also true that as oil goes higher again, more reserves are brought into play. But reserves do not equal flows. Alberta has lots of oil, but it's unlikely they could ever produce more than 5 Mb/day and one would have to get an army of labor to build out all the projects over years, just to get to 5 Mb/day.

Oil's next move higher will be really nasty.

the only thing that has peaked south of the border is that Mex has peaked in the way PEMEX runs their ops. not in the amount of goo and gas that remains trapped and untapped.

when one runs a company like a socialists piggy bank, investing a very minor percentage of cash generated back into E&P, it merely makes it look like MEX has peaked.

instead of tweaked and peaked, the good folks in Mexico should be geeked. and from what i've heard, they are working towards this as we type.

peak oil is a theory. and what has been perceived as the current, or future peak, has been revised upward since the beginning of such peaks in product were theorized. and like every theory, it's up to the theorists to prove it as fact. not for the skeptics to prove it wrong.

BTW, there is no peak in technology, or human's capacity to improve in everything we do.

good on 'ya.

Hi Bob. I'm enjoying your poetry. However, even the best poetry cannot change the fact the peak has already occurred in distinct regions or countries around the world. So as a geological phenomenon it's not really in dispute.

Let me state how this works: the USA peaked in 1971, and it never exceeded those production levels again. The UK and Mexico will never eclipse their production levels from this decade. Same with Norway. All these countries can find more oil, use more technology, capture more stranded oil, and drill offshore. It will not result in a production increase that eclipses their peaks.





G

Which might be just about right for a world in recession. But as development picks up again in the BRICs, and infrastructure projects kick in around the world, watch out! Then we are going to feel the pain of having shut down new resource development!