[You can get that oil price widget here.]
Just one year ago I had a contest — When will oil hit $100 a barrel?
I picked the end of June this year, to coincide with my 50th birthday, but it looks like this could happen sooner, based on this WSJ article, “Oil Prices: Is OPEC Looking for $100 Crude?“:
Crude may be taking a breather Tuesday, down about $1 a barrel, but some OPEC countries appear to be giving oil traders a-wink-and-a-nod for pushing crude prices higher.
Earlier Tuesday, Kuwait’s Oil Minister Sheikh Ahmad Abdullah al-Sabah told reporters that $82 oil was “fantastic” and said the Gulf state doesn’t think OPEC needs to change production in March at its next policy meeting based on current prices.
An official in Kuwait’s Supreme Petroleum Council then told Zawya-Dow Jones that OPEC “will not consider it an alarming event even if oil hits $100…” Last week, Libya’s top oil official, Shokri Ghanem, said, “As long as (oil prices) are under $100 there is no need for (OPEC) action.”
… Olivier Jakob, an analyst with Swiss-based Petromatrix, thinks the recent the recent OPEC chatter is basically talking up prices. “While OPEC will blame higher oil prices on speculators, they are trying to sponsor the same speculation by making the rounds saying that OPEC will not move a finger unless [West Texas Intermediate] rises above $100 a barrel,” Mr. Jakob said in a research note Tuesday, referring to the U.S. oil-price benchmark.
Moderate voices within OPEC–such as Saudi Arabia, which holds most of OPEC’s spare production capacity–recoil at suggestions that OPEC wants higher prices and say they’re genuinely pleased with prices hovering between $70 and $80.
At that level, OPEC crude is still the best game in town compared with many of the high-cost oil-drilling projects in non-OPEC states, like Canada, that usually require a sustained oil price of at least $75 to be profitable.
And consumers will still fill up their vehicles at $75 crude; when crude hits $100, that equation changes substantially, as seen in 2008, when high prices at the pump poleaxed demand for oil. Remember: OPEC worries about “security of demand” the same way Western countries worry about security of supplies.
I don’t think the tipping point for demand is $100 in “normal” times– I think it’s a bit higher than that. But we are just beginning to come out on a deep global recession, so $100 a barrel may well start to bite — although I’m not certain how one could easily distinguish the impact of the oil price on demand from general skittishness about the economic recovery.
The problem for OPEC: The group’s more moderate voices usually don’t talk down the more hawkish OPEC elements, at least publicly. That leaves the impression to most outside observers that OPEC as a group is bent on squeezing consumers.
The big unknown is at what point OPEC will formally start to use some of its substantial overhang in spare oil-production capacity after keeping its production target unchanged since Dec 2008.
Saudi Arabia has around 4.5 million barrels a day of idle capacity–more than the total pumping capacity of OPEC’s No 2. producer, Iran–and some oil analysts think the kingdom will be reluctant to see oil prices move far above $80 a barrel over a sustained period.
Stay tuned. It looks like we are going to have a contest winner this year.
- Deutsche Bank: Oil to hit $175 a barrel by 2016, which “will drive a final stake into long-term oil demand,” spurred by a “disruptive technology” — “the hybrid and electric car, that will very likely have a far greater positive impact on oil efficiency than the market currently expects”
- World’s top energy economist warns peak oil threatens recovery, urges immediate action: “We have to leave oil before oil leaves us”
- Merrill: Non-OPEC production has likely peaked, oil output could fall by 30 million bpd by 2015
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As oil supplies become harder to get, a low price for oil is good for reducing emissions since it keeps sources like tar sands out of production. We should therefore be aiming for $20/barrel or lower. And, we have a gasoline rationing plan, approved by congress, that we could use to cut the price of oil by cutting demand. It is very unfortunate that the DoE is not recommending anyone to fill the position of Administrator of the Economic Regulatory Administration, a position that the President is required by law to fill. This is the section of the DoE which worked out our rationing plan which includes tradable rations in what is called a “White Market.” We already have cap-and-trade on the books for gasoline yet we don’t implement it. We could be fixing our balance of trade with a low oil price, but just twiddle our thumbs instead. Very sad. http://mdsolar.blogspot.com/ 2008/ 06/ oil-is-too-expensive.html
Take all those claims about spare production capacity with several grains of salt. The market is global, so it is global production that counts. The only way to demonstrate the alleged spare production capacity to outsiders (most of the world) is to use it, raising global production. The last time yearly production rose enough to bother noticing was from 2004 to 2005.
Chris Dudley, #1: So, if I read you right, you imply that IF we use less fuel we…
A. Lower the demand we can bring down the price of fuel.
B. Improve our balance of payment.
C. Make it impractical to “harvest” tar sands.
D. Provide less money to prop up hostile regimes.
E. Have more money to spend on personal discretionary personal spending. Like Food and housing..
F. Lower CO2 output , thus improving long term survivability of humanity.
Gosh, Gee, Whiz! I think I will do it!
Joe I agree with $100 a barrel oil by, but maybe not because of, your 50th birthday.
And Chris I like your gas rationing in some way at some time, though the plan might have to be in place for when the stuff really hits the fan, because it will be political suicide for any politician to even suggest before that time.
As Matt Simmons says, there are about 170,000 gas stations in America with X amount of oil in their tanks. The average American vehicle holds 16 gallons and has 7 gallons average at any time (figures are my own approximations – feel free to adjust these figures). If for any reason Americans make a run on gas stations as they did in the 1970s and like they made a run on banks in the 1930s, the gas stations would soon run dry.
At that point immediate rationing would need to be in place to allow food deliveries to groceries and all other food outlets, which to me should be a higher priority than say, powerboating your kids around a lake on a tube (but that’s just me).
The triggers for this panic could just be peak oil supply and demand over time, or the overthrow of the Mexican or Saudi Arabian governments, or war or terrorism blocking the Straits of Hermuz, etc.
So Chris I think having a rationing plan in place, while also trying a carbon tax, but until circumstances make either of those politically feasible we need to do the best we can with cap and trade, while always being prepared for the “fire next time” that will allow greater change in the right direction.
But Chris (#1), $20 a barrel oil is right out of Bjorn Lomborg’s “Skeptical Environmentalist,” which was out of date when it was published in English in 2001 and Danish in 1998, and is the best book to be most skeptical about. In that book he predicted oil would be $20 a barrel through 2020, I guess part of his severe allergic reaction to making a lick of sense.
On the other hand Richard, a rational endeavor to use less fuel does appear to have advantages. Perhaps a gallon less this week or month and a gallon more next? Even a gallon a month over the course of a year would be almost $40 per month per family and climbing at ~$3.00 a month. Not an insignificant amount when factored Nation wide. Disruption might be kept in check to minimize bloodshed.
Yes Leif, I agree – that’s a good idea. If I somehow implied that it wasn’t, then I miscommunicated.
I think Leif that first you state the ideal and then you try to see how to work toward attaining it and all the political and economic realities of the current landscape make this immensely difficult, though I agree we should try everything we can.
To me educating the public, media and policy-makers about what’s really going on with climate change and resource depletion is the first and most important task, but we also need to be working on all fronts all the time. Thanks for your ideas and I’ll be e-mailing as well!
Rearrange your life so that you use your car three times per month instead of three times per day.
Richard (#4),
There is quite a lot of oil that can be produced for less than $20/barrel. For that matter, if we cut all future investment in oil, pretty much all currently produced oil can be produced for $5/barrel, investors just eat the sunk capital costs. There is a figure on supply vrs cost to produce here: http://mdsolar.blogspot.com/ 2008/ 11/ oil-is-still-too-expensive.html
Just so long as we are providing the Saudi’s enough spare capacity that they would rather sell oil than see other OPEC members sell while they hold back, the price will fall to where it used to be. We have to keep cutting demand since investment will fall off and supply will shrink, but it does make our transition off of oil cheap. And, it is pretty stupid to invest in tar sands from a climate perspective, so shrinking investment in future oil supply is really just what we want to do. Doing it worldwide can only really be done by making oil too cheap to invest in.
The public cutting gas consumption is what we need and have needed for years now. Both for the price and for the environment. We will never see $20.00 a barrel oil again. How about this, there is a severe drought in Venezuela (in the news last week) they are in a rolling brown-out situation right now. Chavez has demanded that all sectors of the country cut their electrical use by 20%. This is because the biggest river in Venezuela has dropped so low that the dam on said river, which supplies over 70% of that country’s power is drying up. If the rainy season doesn’t start in a big way sometime in the next 4 months, big cuts will have to be made in oil production or risk a total loss of said electrical production. On the world oil stage there is no producer/producers that have current reserve production capacity to fill that hole. If OPEC says they can their liars, just like they are about the figures on in the ground reserves. Oil production capability around the world is going down at a steady rate and new finds are few and far between, any new finds now aren’t even going to be able to replace what we are currently losing in production of existing wells. There is not enough oil left on the planet to continue the consumption level as it currently stands for more than another 40yrs. And as it gets scarce the price will go up, and up. What will happen to the ports and production plants of Ras Tanura when sea level rise makes them unusable. What happens when the wells of Safaniya are under water? What happens when in 10yrs the North Sea wells are pumped out, or hit by a GW enhanced storm, production is down some 40% already.. What happens when Iran runs out of drinking water and civil war breaks out, production drops that’s what happens. When Climate Change meets oil production capability in the near future it will be a classic head-on collision.
Looks like I blew it, I predicted an Obama bounce to the economy. That did not happen so my 100 day figure fell by the wayside.
Me thinks I agree with Ric Merritt, I am suspicious that some of that idle capacity does not exist. I am also suspicious of never reducing reserves.
Even though the US economy is a little sad, and probably will remain so, some of the rest of the world is showing signs of recovery. So yes by your fiftieth birthday, $100 a barrell is on.
One of the most interesting things that happened at Copenhagen was when Tuvalu proposed that there be a discussion about possible legally binding treaties under the convention. Apart from China and India, the only countries that blocked discussion on this were OPEC members.
Anyone wants to know more about what is going on on Tuvalu right now?
Check this maps:
http://coralreefwatch.noaa.gov/satellite/e50/e50_baa.html
http://coralreefwatch.noaa.gov/ satellite/ e50/ e50_hotspot.html
http://coralreefwatch.noaa.gov/satellite/e50/e50_dhw.html
http://coralreefwatch.noaa.gov/ satellite/ e50/ e50_sstanom.html
Their coral reefs are cooking under the El Niño Area Hotspot.
Learn from they: they are boiling, and ARE NOT BRAINLESS FROGS.
But the Tuvalians are inside a Cooking Pot too BIG to escape…
…the entire Tropical Pacific Ocean!
(YES, They could flee to Australia or Indonesia…but this is like jumping out of a BOILING WATER inside a Big Pot only to fall … in the the BURNING EMBER that sorrounds it!)
Tuvalu Sea BOILING OF HEAT NOW…
and also BOILING IN PEOPLE’S ANGER, after being completely HUMILIATED by the Big Powers at Copenhaguen…”Summit”
(I would call it a Deep Abyss instead of “summit”, a VERY Deep Moral Abyss!)
But their fraction of World GDP is measured in ppm units, or even in ppb or ppt…so what could a 350ppm GDP fraction Country agaist an entire “Atmosphere” of greedy people that doesn’t even know what 350 ppm CO2 means?!
This is a very, very toxic Atmosphere made of Capitalist Greed, and that “Atmosphere” must be transformed, and that is a thing that
All People around the World must do, BEFORE WE BEING TOTALLY COOKED ALIVE!
STAND WITH TUVALU!
AND WITH BANGLADESH, PAKISTAN, EGYPT,IRAQ,BRAZIL…
…well the ENTIRE WORLD!
TURN OFF THE OVEN!
KICK OFF THE CAPITALIST CHEF FROM THE KITCHEN, BEFORE WE GET ALL TOASTED!