Peak Oil

[lpetrich]

I've tried to imagine Charles Koch and Vladimir Putin calling up King Abdullah and asking him why Saudi Arabia is flooding the oil market.

CK: Greetings, Your Majesty King Abdullah, Custodian of the Two Holy Mosques. I hope I got that one right.
Abd: Greetings, Charles Koch, Chief Executive Officer of Koch Industries. You did. What brings you here?
CK: Your price reductions on oil.
Abd: Oh?
CK: It's hurting oil exploration here badly. You can survive low oil prices, but all it's doing for us is create a lot of turmoil. Why are you doing that?
Abd: We are very threatened by Iran and we wish to deprive it of income.
CK: Threatened by Iran?
Abd: Yes. It's right next door to us, and it's been aggressively increasing its influence. A military buildup, nuclear-weapons research, and getting influence over my nation's neighbors.
CK: I can understand that, but is it really worth the trouble? You are depriving yourself and your subjects of income also. You are also hurting your OPEC partners like Nigeria and Venezuela.
Abd: This is war. George Bush II did a monumentally stupid thing in Iraq. Saddam Hussein was a secularist and a thug, but at least he was a Sunni and he kept Iraq's Shiites down. Now the Shiites are dominant there and Iran's getting influence over them.
CK: I didn't think that it would be that horrible. George is a fellow oilman, and I hoped that we could get some business in a liberated Iraq.
Abd: To put it in terms that you might understand, didn't you ever feel threatened by Russia about Alaska during the Cold War?
CK: Yes, it's right next door, and it used to be Russian territory. We bought it from them in the nineteenth century. But during the Cold War, we never had a confrontation there. Not much to fight over.
Abd: On the subject of Russia, my little price war is hurting it also. I like the sight of its economic turmoil.
CK: It's hurting us also, and there's a further problem. As you might know, I have a big political and ideological machine, and I use it to support politicians and positions friendly to us fossil-fuel capitalists. Loss of oil revenue may crimp our efforts to finance oil-friendly politicians and to stave off global-warming concern. So it may get in the way of financing your defense.
CK: We've had a fair amount of effort in convincing people that burning fossil fuels is nothing to be concerned about, but not enough. We haven't been able to keep the politicians from subsidizing alternative energy, and our worst nightmare about them is starting to come true: they are starting to become economically competitive.
Abd: I wouldn't knock renewables so quickly. Oil isn't going to last forever, and neither is natural gas or coal. It's good to be prepared for a future without oil.
CK: There's still plenty of oil in the ground, even if it's hard-to-extract forms like tar sands.
Abd: That's dangerous complacency. It's been hard to find any more easy-to-extract oil, so you people have had to resort to harder-to-extract oil. It's best to diversify in advance, while we have the resources to build alternatives. We Saudis also don't want to sacrifice a lot of our oil. So we've invested in solar power, and it's been doing well.
CK: This isn't getting very far.
Abd: I'm afraid that we won't be seeing eye to eye here. We have to take care of ourselves.
CK: We also.

 

[Togo]

Prices are given in MWh, so you need to divide by 1000 to get kwh. You'll see prices ranging from 2.5 to more than 7 cents.

There is one price at 7 cents which could be due to outages or weather.

The others are 2.5 to 3.5 just like I said.

No, they aren't. New York at 4, and a few at 3.6.

Compared to 2.1 for one of the wind purchases mentioned in the article. Where is your 'gulible fool' accusation coming from?

 

[dismal]

There is one price at 7 cents which could be due to outages or weather.

The others are 2.5 to 3.5 just like I said.

No, they aren't. New York at 4, and a few at 3.6.

Compared to 2.1 for one of the wind purchases mentioned in the article. Where is your 'gulible fool' accusation coming from?

Can you explain to me how the laws of physics operate differently in New England or New York so as to make a natural gas CCGT so much more expensive?

 

[lpetrich]

Now Vladimir Putin.

VP: Greetings, Your Majesty King Abdullah, Custodian of the Two Holy Mosques.
Abd: Greetings, Vladimir Vladimirovich Putin, President of the Russian Federation. What do you wish to talk about?
VP: Your oil price war. It's hurting us.
Abd: What am I supposed to do about it?
VP: It's causing economic turmoil in my country and my citizens might start blaming me for it.
Abd: You think you've got troubles? We have trouble right next door. Iran.
VP: Iran?
Abd: Yes, Iran. Thanks to those foolish Americans, we now have another Shiite-dominated neighbor, and it's suspiciously friendly to Iran. Those Americans. What did they think that Iraq would become?
VP: I understand. Americans can be incredibly foolish. They often seem to think that everybody else in the world wants to be like them.
Abd: Yes, Americans sometimes seem to have a messiah complex.
VP: Back to the main subject, that price war is not something that you should be doing. You are hurting yourself, and you are hurting your fellow oil exporters.
Abd: Yes, I understand your concern, but we can easily survive it.
VP: But there is one little thing. Your family. You have a huge family, and one that lives very lavishly. Without oil income, it will be hard to support them.
Abd: So?
VP: I knew about your family even in my KGB years. Your country is in danger of becoming top heavy with Saud princes.
Abd: And you think that you don't have problems?
VP: What do you mean?
Abd: Ukraine. You thought that you could do to it what you did to Georgia, but the Ukrainians have been fighting back. You wanted it to seem like a rebellion by disgruntled ethnic Russians operating without your help, but your cover has been blown. The Western nations are not exactly very happy with what you've been doing to Ukraine.
VP: So? We don't want ethnic Russians to be treated as second-class citizens, which was what was happening in Ukraine.
Abd: You ought not to make too many enemies, even if you thought that it was a worthy cause. But look at what you've done. Made life more difficult for yourself.
(the two bicker about the Saud royal family and Ukraine's ethnic-Russian rebellion)
VP: This is getting nowhere.
Abd: Fair enough.

 

[Derec]

I've tried to imagine Charles Koch and Vladimir Putin calling up King Abdullah and asking him why Saudi Arabia is flooding the oil market.

Well Saudi Arabia is not exactly flooding the market, they are just not reducing their output.

I must say I am a bit baffled by KSA's strategy here. Hurting Putin and the Ayatollahs is fine and good, but it's akin to the guy who asked to be beaten half to death for his final wish because the genie told him his ex wife would get twice of what he wished for himself. In other words, Saudi Arabia is hurting too. That said, this part makes at least some sense.
The other idea that KSA is trying to drive US shale producers out of business and trying to protect their market share. If they are trying that, it won't work. The oil will still be there, the technology is still there. What will happen is a slowdown of production that can be ramped up once prices go higher again.

 

[Derec]

Solar and Wind Energy Start to Win on Price vs. Conventional Fuels - NYTimes.com

The article admits that they are not taking into account wind and solar power's intermittency which is a big drawback and increases effective price significantly.

It's harder to compete with crude oil for making liquid hydrocarbon fuels, however. The liquid state has the best features of the solid and gaseous states: the density of the solid state and the fluidity of the gaseous state. Hydrocarbons have the highest combustion-energy density of any sort of room-temperature liquid fuel composed of common elements.

Yes, gasoline and diesel are very practical fuels indeed. But electric vehicles are making big strides both in regard to technology and market share (although they are still a tiny piece).

But if one can make electricity cheap enough, then one may be able to make electricity-produced synfuels cheap enough to compete with crude oil. We are not quite there, however.

A nuclear power plant or a utility sized solar thermal plant can generate enough heat to aid generation of hydrogen. That hydrogen can either be used directly in fuel cells or bound with carbon to form synthetic hydrocarbons. Or, for that matter, bound with nitrogen to make fertilizer sans natural gas. Natural gas is still a much cheaper way to make hydrogen though, but will not always be.

 

[Derec]

That's like taking candy from a baby with a stork's foot up its butt.

I was going to say something similar. Except maybe for the stork and butt thing.

Basically, if x = the price of oil and y is some number. there is a 50% chance x will get to x+y before it gets to x-y. In this case y for me = about 12 and y for you = 53. Oil has to go up almost 50% before I have a 50% chance of losing.

You are treating movement up and down as equally likely, with no regard with what the numbers actually represent.

We'll keep it friendly though

$20 sound friendly enough for you?
I was going to say "price of a barrel of oil" but realized that that would give me odds and I do not want you to misinterpret that as a lack of confidence. I am quite happy with even money.

 

[Derec]

The peak-oil idea does not exclude market fluctuations. I don't think that we should start getting complacent about oil.

The purpose was not to point out that markets fluctuate but that there are negative feedback loops.

I also don't think that the oil is going to be gone tomorrow -- or anytime soon. But there will be noticeably less and less of it, and the remaining oil will be harder and harder to extract.

True enough. But proven reserves are not a static thing. They are a function of technology and price even within existing fields and basins - not to mention brand new fields or basins that were not practical to produce decades ago. Saudi Shaybah field is a case in point - found in the 60s, didn't go into production until 1999 due to remoteness (and harsh desert conditions) and difficult reservoir. Arctic drilling and deep water are other examples.

alternative sources of combustible fuels have come along slowly.

The idea should be to get away from combustion whenever possible.

 

[Derec]

I was going to say something similar. Except maybe for the stork and butt thing.

Basically, if x = the price of oil and y is some number. there is a 50% chance x will get to x+y before it gets to x-y. In this case y for me = about 12 and y for you = 53. Oil has to go up almost 50% before I have a 50% chance of losing.

You are treating movement up and down as equally likely, with no regard with what the numbers actually represent.

We'll keep it friendly though

$20 sound friendly enough for you?
I was going to say "price of a barrel of oil" but realized that that would give me odds and I do not want you to misinterpret that as a lack of confidence. I am quite happy with even money.

Getting cold feet?

 

[semiopen]

I was going to say something similar. Except maybe for the stork and butt thing.

Basically, if x = the price of oil and y is some number. there is a 50% chance x will get to x+y before it gets to x-y. In this case y for me = about 12 and y for you = 53. Oil has to go up almost 50% before I have a 50% chance of losing.

You are treating movement up and down as equally likely, with no regard with what the numbers actually represent.

We'll keep it friendly though

$20 sound friendly enough for you?
I was going to say "price of a barrel of oil" but realized that that would give me odds and I do not want you to misinterpret that as a lack of confidence. I am quite happy with even money.

I'll have to check with my backers. Are you saying the bet includes an actual barrel?

I have an acquaintance who is an oil trader and he wasn't effusive in his praise of your bet, although he thought last week that there were signs of firmness. However we both agreed that the $35.x low on the charts is like the beacon in Alien - almost certain to be revisited. Also with his short term optimism (brent is firming - blah blah blah) we both agreed that the little break to the downside on Friday was not encouraging.

Meanwhile March oil is a little bit below 45 at the moment, so all your fans who bought at the 48 something you mentioned last week can console themselves with the fact that it's not real money they are losing, etc.

 

[Medicine Man]

Oil is a global commodity and much of it is in the hands of dysfunctional governments, some of whom attempt to collude with varying degrees of success to keep prices high. So it's fair to say it's not a market that responds to supply and demand signals all that quickly.

Oil did briefly get into the $30s in 2008. I also recall it being around $10 in 1998.

This short period of time will probably be remembered as our last chance to catch our breath and change direction. Of course we didn't take the opportunity. We never do.

There is something ironic to the problem of expensive new extraction techniques boosting US oil production, just as political events trigger an oil price crash. There is still a lot of oil deep under Louisiana, but until prices go back over $85/bbl, we really can't afford to pump it out.

Not a prob.​

Tesla's "Insane Mode"
January 28, 2015

*​

"The most super-charged version of Tesla's Model S electric car comes with something called "insane mode" that apparently lives up to its name, if the reactions of several unsuspecting passengers in the below video are any indication."

 

[Derec]

I'll have to check with my backers. Are you saying the bet includes an actual barrel?

No, my idea was the price of one. Payable by Paypal or something, not delivering an actual 42 gal oil drum to one's doorstep. I dismissed it though as you would stand to lose $100 while I only would have $35 on the line. Even money is fairer so I suggest $20 even.

I have an acquaintance who is an oil trader and he wasn't effusive in his praise of your bet, although he thought last week that there were signs of firmness. However we both agreed that the $35.x low on the charts is like the beacon in Alien - almost certain to be revisited. Also with his short term optimism (brent is firming - blah blah blah) we both agreed that the little break to the downside on Friday was not encouraging.

Not 35.x, but $35 even. $100 even.

Meanwhile March oil is a little bit below 45 at the moment, so all your fans who bought at the 48 something you mentioned last week can console themselves with the fact that it's not real money they are losing, etc.

Well I wasn't aware anybody was buying oil futures based on what I write on this forum.
In any case I am still very optimistic. Rig counts keep falling after all.
The only thing we have to agree on is WTI or Brent.

 

[semiopen]

Thanks for clarifying this Derec,

March Oil is hovering around $44 at the moment. In round numbers, assuming you thought oil would go up at 49, it has dropped $5. That would be a $5000 loss to your hypothetical fan who bought a futures contract based on your advice. That would also have generated a margin call I think. Consider a hypothetical well off fan and you see we could be talking about real pain. Not to mention that this all took place in about a week.

Meanwhile the trip from $49 to $35 was $14, but now that trip is only $9. We call that negative feedback. Doestoevsky writes about how a convict feels before his execution, how at first it seems totally far off and then gradually gets closer and closer. Sure maybe Saudi Arabia will do something, blah blah and there is a turn around. But at the moment your position is much more precarious than when you suggested this a few days ago.

Regarding the $20. my life will not be much better when I receive your $20 in a few weeks and consider how annoyed I will be if you don't pay... my potential loss is way out in the future, like the convict before the appeals process... is it really worth the effort

 

[Derec]

March Oil is hovering around $44 at the moment. In round numbers, assuming you thought oil would go up at 49, it has dropped $5. That would be a $5000 loss to your hypothetical fan who bought a futures contract based on your advice. That would also have generated a margin call I think. Consider a hypothetical well off fan and you see we could be talking about real pain. Not to mention that this all took place in about a week.

Except that I never offered financial advise nor did I hazard an opinion of where the oil prices would be at the end of January.

Regarding the $20. my life will not be much better when I receive your $20 in a few weeks and consider how annoyed I will be if you don't pay... my potential loss is way out in the future, like the convict before the appeals process... is it really worth the effort

That's the whole point of a friendly bet. You put something on it to make it more interesting but it neither "makes your life better" to win nor worse if you lose.
So, shall we make it official or not?

 

[Derec]

"The most super-charged version of Tesla's Model S electric car comes with something called "insane mode" that apparently lives up to its name, if the reactions of several unsuspecting passengers in the below video are any indication."

They should have called it "ludicrous mode".

 

[Derec]

March Oil is hovering around $44 at the moment. In round numbers, assuming you thought oil would go up at 49, it has dropped $5.

It's above $50 again and even the gas prices around here have gone up.
Still feeling cocky?

 

[semiopen]

March Oil is hovering around $44 at the moment. In round numbers, assuming you thought oil would go up at 49, it has dropped $5.

It's above $50 again and even the gas prices around here have gone up.
Still feeling cocky?

As Angel Eyes says in the Good, the Bad, and the Ugly

People with ropes around their necks don't always hang. Even a filthy beggar like that has a protecting angel. A golden-haired angel watches over him.

I imagine the hypothetical Derec fan freaking out and selling his crude oil futures contract at $44 or so and then seeing the positive move buying in again at $52 or so.

Today would be sobering though because it is below $48.50 at the moment. And your poor fan would be close to another margin call.

I'm not sure if cocky is the word for it, it's just probabilities. The decent up move gave me some negative feedback for a change. Had we bet our hypothetical $20, I think I would have maintained my equanimity.

 

[Derec]

People with ropes around their necks don't always hang. Even a filthy beggar like that has a protecting angel. A golden-haired angel watches over him.

So are you saying that perhaps the unlikely will happen and the oil will drop to the $35 level you predicted?
Sure, but I put the chances of a Warren presidency higher.

I imagine the hypothetical Derec fan freaking out and selling his crude oil futures contract at $44 or so and then seeing the positive move buying in again at $52 or so.

I am still baffled that you somehow think I offered an opinion about short term movements of the oil markets or that I suggested people buy or sell at certain points in time.
I merely expressed utter disagreement with your prediction of $35 oil.

Today would be sobering though because it is below $48.50 at the moment. And your poor fan would be close to another margin call.

Short term trading is always a risky proposition because you are basically trying to win on noisy short term fluctuations. I never expressed an opinion suggesting that so how about you retire this "fan".

I'm not sure if cocky is the word for it, it's just probabilities. The decent up move gave me some negative feedback for a change. Had we bet our hypothetical $20, I think I would have maintained my equanimity.

Of course it's probabilities. And we assess the probabilities very differently. I think the likelihood of oil going back to $35 is very remote. You think it's likely. We shall see which comes to pass.

 

[semiopen]

Derec,

I'm neutral in the price of oil... your bet was outrageous in that you're giving me odds that a swing up must be much larger than a swing down.

Regarding the current action, a natural move would have been to pentetrate the previous major low of 50.55 from Jan 2007; January 2007 had a high of 60.05. Although action yesterday held above that 50.55, the violence of the reversal down leaves the seriousness of that move in doubt. It shows heavy sellers at prices over 50. That's a little negative, but maybe if oil stabilizes for a month you're bet has a snowball's chance.

If you win, the humiliation of losing to a mind of your caliber will be extreme, but fortunately this possibility is many months away.

 

[Derec]

I'm neutral in the price of oil...

So you are backing away from the $35 prediction?
Funny that many non-investor people are already heavily betting on price of oil staying this low or going lower since the demand for SUVs and light trucks is increasing. Suckers, the lot of them!

your bet was outrageous in that you're giving me odds that a swing up must be much larger than a swing down.

Not really. The price of oil is not a random walk, it's based on a physical commodity with its own complicated mechanisms. Including the negative feedback mechanism I explained before.

Regarding the current action, a natural move would have been to pentetrate the previous major low of 50.55 from Jan 2007; January 2007 had a high of 60.05. Although action yesterday held above that 50.55, the violence of the reversal down leaves the seriousness of that move in doubt. It shows heavy sellers at prices over 50. That's a little negative, but maybe if oil stabilizes for a month you're bet has a snowball's chance.

My bet has a snowball's chance in a freezer. Also:

If you win, the humiliation of losing to a mind of your caliber will be extreme, but fortunately this possibility is many months away.

The insult aside, you seem to have an overinflated sense of your own mind's caliber. Especially since you completely ignore the fundamentals and solely focus on technical analysis.