[JR: Thanks.]

It means that must less oil going into the world market while world oil production increases.

Maybe that is a good thing since cheaper oil prices will: cause SUV owners to wait it out a bit longer; boosts SUV sales; and, fry our children’s future.

John McComrick

Primo, the post should be titled $2 gasoline, not $3. We are likely going to a see gas in the $2 to $3 range for a long time. Why?

Incremental US demand destruction.

The US demand destruction is being caused by US consumers moving off giant SUVs, and marginal changes to driving behavior. The SUVs are gone and not coming back. Marginal changes in behavior may or may not revert back if gas goes below $3.

The current spike is non-US demand will also abate. Sinopec just announced they are not importing any gasoline. The Chinese stockpiling which has been going on for six months will stop after the Olympics. The margin of surplus oil is now running about 3 million b/d. Yes, Saudia Arabia and the Gulf states will continue to enjoy massively cheap oil. If we took every large SUV and gave it to the Saudis, their increase in demand will still be a small pond compared to our ocean.

I am all for plug in hybrids. If you want them, tax the hell out of gasoline. According to Joe, plug in hybrids won’t require us to radically shift our electric infrastructure, so I don’t see the “radical” shift that requires government intervention.

Instead of more subsides, we need a real conservation policy: drive down our gasoline use 1% a year. Real time MPG gauges, tire pressure monitors, reducing congestion, variable insurance based on miles driven, and traffic monitoring could do that.

You said:

[The US demand destruction is being caused by US consumers moving off giant SUVs, and marginal changes to driving behavior. The SUVs are gone and not coming back.]

Do you get outside much? SUVs are not gone. They are being filled at the pump just like they will be when the price goes down.

Come on. Think what driver reaction is now and will be in the future as prices drop.

John McCormick

But are high prices down to Peak Oil? Maybe. Oil production has to peak sometime. And yes, I’ve read Blood and Oil and listened to Matt Simmons.

Then again, maybe not. For one angle on the “maybe not” case, built on a principle that is usually pretty reliable (follow the money), see http://www.gregpalast.com/ obama%E2%80%99s-secret-war-profiteering-tax/ #more-2026.

The USA needs to speed the switch to coal based fuels to balance trade and lower the need to pander to various tyrants and terrorist funders.

[JR: There probably isn’t enough coal to make up anything but a small fraction of oil supply, so it won’t set the price, but will follow it. And of course it would destroy the climate for the next 50 generations.]

In 2005, at the height of the giant SUV boom, Harpers estimated that an improvement of 1 MPG by every SUV in the country would result in an 900K b/d a saving. Granted, that is a rough estimate but it is a start.

VMT is down by about 10 miles/month for every car in the country. Again, not a perfect measurement, but gives you a sense of the size of driver behavior is in current demand destruction.

Given than large SUVs used market value is down by 50% since last year, that is a strong marker that something is going on with SUV sales. And yes, those SUVs have to go somewhere but anecdotal evidence is they are being shipped overseas (latin america and middle east)

And yes, I get outside. Granted in Arlington, VA, not a typical community. But SUVs/CUVs as a whole are less than 1/4 of cars I see daily, and I see maybe one large SUV a day. Other data points: F150 fell from best selling vehicle in 2008 (where it has held place for 20+ years) to fifth. Other SUV sales are down 30-40%. So yes, I am confident in saying large SUVs are going and will soon be gone.

I also picked up a Toyota Landcruiser for myself as a third car- used, but the price wasn’t as low as I hoped. So large SUVs are being also moved to non-commuting driving. I expect to put 2000 miles a year on it.

Did you read the post? It’s not about what’s happening in the US — as the rest of the world adopts our lifestyle, they replicate our consumption patterns.

You can have all the demand destruction you like in the US — incremental or otherwise — and with $2,500 cars for sale in India, global demand will outstrip supply from now on.

The only way we will get $2.00/bb oil is if the world gets serious about carbon and gets of the stuff …

This seems like an appropriate moment to bring Partnership for a New Generation of Vehicles (PNG) that George Bush killed in 2001 at the request of GM, Ford and Chrysler. These were magnificent cars made of the latest carbon fiber and light metal alloys that were unmatched for strength to weight. They were all hybrids. The GM Precept got 80 mpg. The Ford Prodigy got 72 mpg and the Chrysler ESX-3 got 72 mpg. The car companies said they were too expensive to manufacture and that the public would not go for them. My question for you is could these cars have been built using these light weight materials with hybrid drive trains and still have been competitive with conventional cars?

We rebound up to $150/bbl again and setup a double top in oil before it drops below $100/bbl though.

Then we’ll probably see it ping-pong around doing a dance between supply and demand and recession and expansion for the next decade or two.

Peak oil only suggests that we’re going to see an absolute peak in supply at some point (my bets are that 90Mbd will never be exceeded on a yearly basis). It doesn’t say anything about what will happen to prices, since that is dependent upon how much demand there is for oil. Peak oil does not suggest that oil prices must monotonically increase for ever. At some point there will become a peak price beyond which the economy simply has to contract. Personally, I think that $150/bbl is around that point.

[At some point there will become a peak price beyond which the economy simply has to contract. Personally, I think that $150/bbl is around that point.]

Middle East countries and China (and likely India and Russia, though I am not certain about that) subsidize gasoline purchase. One estimate has Saudi Arabian pump price at 42 cents/gallon. If the subsidizing governments who are also oil exporters do not end that destructive practice, their exports generating much internal new wealth will finance more car purchases, more driving. And, as their populations acquire electric gadgets including air conditioning, their electricity demand will grow and be met by new oil and natural gas-fired capacity.

I rarely, if ever, see any reflection on exporter nations’ increasing domestic demand in projections on peak (plateau) production and price.

Put that into your equation and see if a contracting global economy is enough to offset the growth in exporter demand.

John McCormick