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Countdown to $100 oil (26) – Time to bet again
Jerome a Paris, European Tribune
With oil prices now above 70$/bbl, and 25 diaries later, it’s time to take a look back at the “Countdown to $100 oil” series and see if we can learn anything – and update your bets.
…I’d like to point out a few things, though:
– one is that prices have not been lower at any point than what they were when I started the series (57-59$/bl). So we’re getting close to a full year at $60+ oil prices, and that level now seems “normal”. As I noted in Diary 24, what has been remarkable is how quickly the financial world has accepted significantly higher prices as a reasonable long term hypothesis. The future markets are still pointing to $60 oil for the foreseeable future, and investors and financiers are willing to provide money for projects on the basis of such high prices for income modellisation purposes;
– the second item is that the man cause of the oil price tensions a year ago – tightness of supply, an increased sensitivity to any disturbance to supply shocks, and an apparent inability by the main producers to boost their production – are still with us; if anything they have all gotten worse. Nigeria was a problem then, it is a problem today. OPEC has not increased its production in the past year:
(18 April 2006)
Also at Daily Kos
Other recent posts from Jerome:
European energy liberalisation forbids gas deliveries to the UK!
A European government caught being protectionist (on the UK preventing the takeover of Centrica by Gazprom).
Oil: the party is over
Gwynne Dyer, Trinidad News
…This is not about “peak oil,” the notion that we are already at or near the point where total global oil production reaches its maximum and begins a long decline. That may well be true, but the present price rise is just about rising demand for oil as the big developing countries, especially the Asian ones, lift large parts of their populations into the middle class.
…The rising demand that drives the oil price up does not just come from the middle-class Americans (and, increasingly, Europeans) who insist on driving enormous SUVs with macho names like “Raider”, “Devastator”, and “Genocidal Exterminator”. It also comes from the new middle class of unassuming Chinese, Indian, Russian and Brazilian families who only want a modest family car for the school run and the weekend. There are just so many of them. This is the first big price rise that has been caused by rising demand rather than some temporary interruption of supply.
Goldman Sachs also predicted last year that in 20 years’ time there will be more cars in China than in the United States -about 200 million of them. Ten years after that, India’s car population will also overtake America’s. Within 20 years Russia and Brazil will each have more cars than Japan. We are headed for a billion-car world (unless all the wheels fall off first), and that means permanently high oil prices.
Good. If the oil price rises gradually from US$70 to US$100 over the next five years, people and governments will start paying serious attention to energy conservation and alternate energy sources (including nuclear energy). The sooner that happens, the less extreme the global warming that we will have to contend with as the century progresses. But if the oil price leaps to US$100 or more in one swift jump we will have the mother of all recessions, and then there will be a desperate shortage of funding for developing alternative sources of energy.
Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.
(19 April 2006)
Oil and bonds
Stephen Roach, Morgan Stanley
In the macro realm, bad things usually come in pairs. The confluence of yet another surge in oil prices and a long-overdue back-up in bond yields has piqued my interest in that regard. Crude oil prices are back near $70 and bond yields are at important thresholds — closing in on 2% in Japan, 4% in Europe, and slicing through 5% in the US. My concerns stem less from a partial analysis of each development and more from the potential interplay between them. The combined impacts of these two factors raise the odds that a tipping point for an unbalanced global economy could well be close at hand.
I continue to believe that the American consumer is the weak link in the global daisy chain. The combination of rising long-term interest rates and higher oil prices puts an unmistakable squeeze on discretionary income — the last thing overly-indebted, saving-short US consumers need. The higher gasoline prices arising from the recent back-up in crude oil markets unleashes a classic negative income effect on the consumer that, by Dick Berner’s reckoning, could knock about $60 billion, or 0.6%, off disposable personal income this summer (see his dispatch in today’s Forum, “Risks for the Consumer”). At the same time, higher US bond yields could unleash a negative wealth effect — taking a toll on a housing market that is already moving lower and also acting to constrain mortgage refinancing activity and household sector equity extraction. For a US consumer who remains chronically short of labor income but who drew support from more than $600 billion of annualized equity extraction in late 2005, that could be an especially tough blow.
In this increasingly interconnected global economy, America’s problems quickly become the world’s problems. Other consumers will also feel these impacts — albeit to a varying degree, depending on their sensitivity to oil prices and interest rates. But the US, as the world’s heretofore most resilient and dominant consumer, could well be the lightning rod for a broader array of global impacts.
…I am coming around to the view that nonlinear “threshold effects” — the macro equivalent of the tipping point — will probably play an important role in unmasking the endgame in today’s liquidity-driven unbalanced world. The breaking point in this case will probably be determined by a combination of economic and psychological factors. That’s because the sustainability of America’s current account deficit — by far, the most serious imbalance in today’s unbalanced world — is critically dependent on the confidence that foreign investors place in dollar-denominated assets. If that confidence were to falter for any reason, the subsequent venting of the pressures stemming from the massive US external deficit may be swift and severe — with important spillover effects on other markets and wealth-dependent economies around the world.
I honestly don’t know if the bond market and oil prices are now at thresholds that could spark such pyrotechnics.
(18 April 2006)
The oil rush (transforming the petroleum market)
Marianne Lavelle, US News & World Report
How high-tech prospectors are trying to squeeze fuel–and fat profits–out of the earth while transforming the petroleum market
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…The Canadian sands yield fossil fuels nearly identical to those hidden below the drifting sands of the Middle East. But this mother lode lies in a unique geological formation just 500 miles north of the U.S. border, and it won’t surrender its treasure without a lot of labor, vast amounts of energy, and oceans of water. It costs more to wrest a barrel of oil from the ground here than virtually anywhere else in the world.
What’s happening in Canada today may be just the start of a new chapter in the world’s long love affair with oil. Global demand, particularly in China and India, is outstripping supply–an imbalance that has been painfully evident as pump prices climb toward $3 a gallon (box, Page 50). Even the optimists agree that the era of “easy oil” is over. Political risk hovers over most conventional reserves, held by the Organization of Petroleum Exporting Countries (including trouble spots like Nigeria and Venezuela) and Russia. So the United States is turning to new possibilities–the largely untapped resource of “unconventional oil” in North America.
…Within a decade, all unconventional sources will account for some 35 percent of world oil supply, up from 10 percent in 1990, say oil consultants at Cambridge Energy Research Associates.
(24 April 2006 issue)
Long article. Zardoz at peakoil-dot-com appreciates the realism in the reporting. He cites these examples:
Shell expects to process the oil shale in place, using otherworldly techniques that sound like something out of a sci-fi novel…Rand estimates that a single 100,000-barrel-a-day operation would require a dedicated 1.2-gigawatt electricity generating station–a size that would be comparable to one of the nation’s largest power plants…
…Fischer-Tropsch synthesis…The method is so expensive that in the decades since its discovery it has been used only by countries that had no choice, such as Nazi Germany and apartheid South Africa…
…Perhaps the biggest environmental issue for all unconventional oils is that they would be likely to cause a spike in greenhouse gas emissions.
