Assuming PEAK OIL fundamentals cause the price trend, what is causing the huge dip recently?

[Leopolds Ghost]

"Gas Prices PLUNGE Below $120 A Barrel"

http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20080804/oil_prices_080804/20080804?hub=World

If "speculators" are causing the recent huge dips, does that mean they are entirely responsible
for the recent run-up? Do most DUers not believe (or not care about) peak oil?

According to the Oil Drum, only a tiny minority of commodity traders actually believe in peak oil,
and the majority of non-users (i.e. people buying futures contracts with no intention of delivery)
were short on the market (betting oil would fall). So how can they be responsible?

On the other hand, nothing has changed since last summer -- we are still "running out of oil"
in the sense that world oil has plateaued for years. Assuming an Oil Plateau instead of an
Oil Peak, does this mean that Demand Destruction alone will solve the problem of peak oil
for the next five years or so, causing fluctuating prices as demand chases supply downwards?

In other words a global Reagan-style economy, like the US post-peak, where the poor lose
purchasing power and the rich (incl. liberals) buy hybrids and keep driving like it's no tomorrow?

I am not what you'd call a capitalist, BTW. But I find this all fascinating
since most Americans (sadly including most Dems) are so unwilling to change
their lifestyles and perhaps, will not actually have to; until it's too late,

thanks to what a geologist relative of mine says is an Oil Plateau, not an Oil Peak.

Assuming continued high prices and volatile demand causing huge dips and spikes
centered around $4 for the next 5 years, we could be burning ourselves into
terminal environmental decline by using the gas money to finance massive strip
mining of unconventional oil and burning off the gas fields to process it, and
using the resulting gas to continue encouraging third world nations to double
their populations every 15 years to provide us with cheap sweatshop labor
that makes our goods and lives off grown in the US. I am beginning to think
an oil shock would be more desirable than a sustained plateau that encourages
nations to continue exponential growth, hoard and burn every last drop of the resource.

[rwenos]

1. Don't You Recall 1973?

"I am beginning to think an oil shock would be more desirable than a sustained plateau that encourages nations to continue exponential growth, hoard and burn every last drop of the resource."

Spoken like someone who does not remember 1973, 1979 and 1981.

Also spoken like someone who does not have to drive to work. I live in LA. No trains to take me to work, 'mon. Only hope is good gas mileage, a hybrid or a plug-in. I'd buy one tomorrow if I could.

[Leopolds Ghost]

10. There are trains in LA, you know. Maybe you guys shouldn't have ILLEGALIZED rapid transit.

You passed a law banning subway construction in a city that was built on rail corridors (LA). You get what you ask for.

On Edit: not you personally of course. But I don't hear anyone clamoring to repeal that law.

I ask this of everyone I meet who complains about gas or the environment.

Dems are not serious about building transit. They claim money is too scarce
to waste on transit in "cities where it isn't warranted" and have no problem
when far more money is spent on road widening in the same cities.

They also claim their city will "never" be suitable for transit. They said
the same thing about cities with successful rapid transit systems that actually
got built out. The key is to build the fucking thing and make sure it goes
more than 15 miles per hour, which requires grade separation.

[melody]

16. Do you know why we banned subway construction?

Hmm?

[conscious evolution]

26. I would think it is

because of the same people who destroyed the mass transit system y'all had decades ago.

[melody]

29. No, the mass transit system was over-ground, not underground

Yes, I've heard wondrous stories from my mother of the red car.

That said, underground construction is very precarious in earthquake country. There are all manner
of considerations.

[Leopolds Ghost]

42. So you take credit for banning it. Los Angeleans are part of the problem.

You probably don't know much about subway construction. I do.

You and the folks who banned the Seattle elevated
(monorail). I bet you opposed that too.

Do you oppose any mass transit that goes over 25 mph
as unnecessary/too expensive/unsightly/dangerous?

Answer the question.

[melody]

82. I didn't do jack, Leopold. I was a kid when it happened.

I was merely giving a reason.

Yet another LA-phobe. Oy.

[Leopolds Ghost]

43. The red car was too slow in shared traffic. It would have had to be grade separated

To survive.

That is what LA residents who don't bother to use transit,
and therefore know nothing about subway construction in
other cities (including San Francisco and Tokyo) utterly
fail to understand.

They pass by a 25 mph trolley to Pasadena in their car
on the way to work and think something is being "done"
about the problem "unlike in other cities where they
don't support rail at all". Because success is measured
as 5% improvement in free flow of CARS, i.e. the primary
benificiary is the automobile.

[melody]

83. LA residents use MetroRail and MetroLink consistently

You clearly hate Californians for your own reason.

[nadinbrzezinski]

80. One city: Mexico City

if it is properly engineered it can survive an 8.1 in the Richter Scale that lasts a minute and a half... wait... the Mexico City extensive system did.

Nah, rapid transit in the LA Area went the way of the dodo due to pressures from the auto and oil industries, who BOUGHT the red line.

And now Angelinos don't get it... the lifestyle is doomed

[melody]

84. Angelenos don't have a "lifestyle"

I'm a born and bred Angeleno. I don't even own a car. I get everywhere on my feet or rapid transit.
Once again, I am the norm not the exception among my friends.

Mexico City made its own choices, LA made its. I didn't make any of them. I would LOVE to have extensive
rapid transit. I was merely giving the frickin' reason.

BTW, FYI, I am serious in this post, not sarcastic. I went through a whole sarcasm thread with you, thinking
you were playing along. It wasn't till the end that I realized you'd been serious.

[nadinbrzezinski]

85. And I am serious, the reason usually given

quakes (that is a very popular one) does not wash once you see the MULTIPLE systems across the world BUILT on quake faults

Hell, if that was the reason... a certain nuke plant (san onofre) would have never been approved... after all it seats smack dab on the damn fault

it is all about who owns what... and unlike Mexico City... where citizens have precious little say... in LA you have a little more.

And yes, Los Angeles, San Diego, and the rest of So Cal DO HAVE a lifestyle... and it is a car centric one

I live in SoCal, the lifestyle IS doomed

[melody]

86. I live in SoCal, there is no set lifestyle among my friends

Yet again, sounds like you need to find some more progressive/green oriented friends. You're seeing
patterns that just aren't there to my eyes.

[nadinbrzezinski]

91. News to you, you are the exception

I have plenty of very progressive friends alas they need to DRIVE to get to work.

Perhaps the one that needs to open her eyes about So Cal's lifestyle is you. Perhaps you should start by readying some statistics on car ownership in this part of the country.

It is no hate of So Cal to state that yes, indeed... we live a certain very car centric lifestyle

It is not hate to say that this is unsustainable

Alas... this is called reality.

By the by... thanks for insulting my firends and by your logic I am not porgessive enough since the horror we OWN two vehicles, average for socal

Granted one is mostly parked these days... but I realize I am the exception and that others may follow, if they can...

I don't expect this to happen anytime soon by the way...

Nor do I say a friend of mine is progressive or not on whether they drive to work or not.

[melody]

99. You're presuming to insult an entire state and you talk about me dissing your friends?

You throw out these huge, blanket condemnations of people and then get prickly when someone suggests your friends aren't "green" if they use their cars too much. You insult me and then balk at my "insulting" your friends?

Never mind ... not worth the argument. Namaste.

[nadinbrzezinski]

102. lifestyle is not condemning anybody

anybody with their heads in reality KNOWS that So Cal has a car centric culture

Again, LOOK THE DAMN STATS UP.

I am not condemning anybody... just stating a reality you seem unable to accept

The good news, I am now in YOUR IGNORE LIST, since you cannot deal with facts

[cherokeeprogressive]

33. Subways vs. Rail corridors. Apple, meet Orange. n/t

[Leopolds Ghost]

44. 25 mph street-running Rail corridors DO NOT WORK over long distances.

You fail to understand what transit is for. RAPID transit is for
moving LARGE numbers of people at 55 mph speeds.

Not your puny and poorly connected system which you voted to oppose
any upgrades to.

Like I said, you guys are just proving my point with your opposition
to rapid transit.

You don't want subways, you don't want elevated. but you are fine
with 10-lane freeways and don't seek to have those removed, like
your Democratic counterparts in Chicago and Boston. And you are
fine with 4-car trolleys because they do not get in your way.

[Leopolds Ghost]

48. Sensible people in DALLAS, KANSAS CITY, CINCY, NOVA want to upgrade to subway.

Conservative areas. People who are new to the discussion
and unselfconscious about being labled "radical hippies"
for asking the state to spend a few billions on subways
as a practical alternative. They are unapologetic because
for them it is an issue of practicality. Light rail in a
spread-out city like Houston or LA does not work. Unless
the trunk lines are essentially grade separated.

Meanwhile, supposed environmentalist Dems don't even know
what grade separated means.

Meanwhile DEMS in SEATTLE, LA, NY, NJ, MARYLAND are trying to go back to a picaresque gentrified version of the cityscape with cute little trolleys for moving their maids and nannies around at low speeds.

Dems and neoliberal (gentrification-and-development) new urbanists
argue against "wasting" money on ANY subway or elevated project
ANYWHERE in the country.

They want to spend it all on rebuilding stuff like the
double-decker Alaskan Highway in Seattle. To be earthquake proof.

And the transit-free 10-lane monstrous new Bay Bridge to replace
the transit-compatible span built in the 1930s!

THOSE projects they have no problem with. Why?

Because 95% of liberal environmentalists DRIVE EVERYWHERE
and don't understand what is needed to make transit useful
because they only use it for ball games.

[wvbygod]

36. A subway in a major earthquake zone is suicide

Maybe if it was encased in a 10 feet thick carbon fiber steel tube but the cost is out
of line. Electric or hydrogen cars fueled by renewable electricity would be nice.

[Leopolds Ghost]

45. Actually, WRONG. Underground is the safest place you can be.

Ask the engineers who designed BART or the Tokyo Metro.

This is the time when Dem/Repub rail opponents trot out cost
as an overriding factor.

They want to spend billions on car infrastructure.

Stop clogging my public streets with more cars!!!

that have no viable replacement energy source --
unless you want to build 50 nuke plants.

[nadinbrzezinski]

81. Mexico City... 8.1 in the Richter Scale that lasted a minute and a half

the system not only survived but was part of the response system

It is a very solid piece of engineering by the way

[melody]

88. If done correctly

The MXC tube was built substantially after the LA subway system was first conceived.

[nadinbrzezinski]

92. What part of that system survived are you missing

it was done correctly

And that is a very good example of why you CAN build a subway system in an active earthquake zone....

And for the record that has been the system to survive the worst quake ever... yes, Tokyo has had terrible quakes, but nothing reaching 8.1

The major infrastructure in that developing world city survived with flying colors... a quake of that magnitude in LA will do far more damage given what Northridge did (7.1 and fifteen seconds) for those keeping tract) Not that this quake was a walk in the park... and there were major failures, but not in the transportation infrastructure, which is what we are talking about here... it failed during Northridge. You may remember a certain bridge on I-5 to be exact that failed... that is a major failure in the transportation infrastructure.

I'd hate to think what an 8.1 that lasted a minute and a half would do to the LA Basin, given Northridge.

[melody]

100. Oh, that was polite.

Keep up the good thoughts -- maybe the LA Basin will be utterly destroyed and then it'll work its
way out to the whole country. You'll have escaped, of course, and since you are the ONLY aware,
conscious person in the US, you are all that matters.

Yes, that was catty and inappropriate, but so are most of your posts these days.

Welcome to my ignore list.

[nadinbrzezinski]

101. Talking reality was inappropriate?

I had that talk with an ARC disaster manager who had NO FUCKING CLUE what a quake of 8.1 magnitude is.

That was 20 years ago.

Funny thing, HE apologized last time I saw him... the reason... Northridge

[napoleon_in_rags]

2. That's the tricky aspect

Its Nash equalibrium stuff. Basically, suppose we did the Pickens plan, and put 1 trillion into wind and solar right now, and got off the foreign oil. The results would be the cheapening of the foreign oil due to the loss of our demand, and corresponding economic productivity increase in China while we eat 1 trillion dollar cost. The optimal outcome for all countries would be if we ALL got off oil, but our current political values are too rooted in deception to allow this to happen. In terms of A Beautiful Mind, we're all going for the blond and therefore nobody is going to get laid.

[Leopolds Ghost]

12. Nash equilibrium sounds like the econ version of prisoner's dilemma

Altruism (reprioritising the interests of others above the interests of me, me, me)
is the only solution to such a dilemma, but the current candidates for office are
refusing to advocate for altruism like JFK did. They saw how Kerry and Carter got
trounced and have seemingly decided that altruism is one of those discredited liberal
notions, like welfare and banking regulation.

Not that I look to politicians for moral leadership but other people
seem to, which is why the history of this country is periods of stagnation
as our ruggedly independent citizenry constantly wait around for a leader
to set an example for them and preferably spend money to get someone
else out of their cars.

The FTC actually expressly internalizes this philosophy of selfishness
in their "cost effectiveness" rating for new transit lines, which is why
the US doesn't build transit -- it has to free up traffic on adjacent roads
or else it is considered, as a planner here on DU called rapid transit,
"a solution looking for a problem".

Are the adjacent roads free-flowing? Then there is no need for a transit
line in the same corridor, per the FTC and liberal planners. Except to
gentrify certain areas, of course. But not to move large numbers of the
great unwashed. It all comes back to classism and resource hogging.
Cars get all of the right of way and it's a big deal to use right of way
for any other purpose.

And of course cities across the country have also formulized selfishness
in the mathematical calculations for defunding schools and welfare in
blue urban areas -- the rich pseudo-Dems who control the local party in
all the major cities are doing this. It's called cap rates and the
purpose of the calculation is to have jurisdictions compete with one
another to minimize the number of poor people and families with children
living in close-in, transit accessible neighborhoods. This is termed
"revitalization". The areas to which the poor people are expected to
move and the schools they are expected to move into are termed
"still depreciating" and "eventually ripe for reinvestment" whereupon
they will be forced to move even further out. The building trade
associations and urban planners have done papers essentially advocating
this as the best way to provide for the poor, since 80% of all new
housing is built for the top 10% income bracket thanks to the cost
of raw materials needed for all that parking.

[napoleon_in_rags]

67. Smart posts LG, good to read.

You don't hear a lot of people talking about this stuff.

Anyway, regarding altruism, per the Nash theories and some other stuff, it takes open free flow of factual information for it to work. People need to be able to trust that their "opponents" won't defect (in the prisoners dilemma sense of the word) so that doing the right thing pays off, and they know the other guy knows this as well. But somehow, we've ended up with a culture of deception, a culture of information warfare. Lies have become accepted as a means to an end. An example would be with the DC sniper years ago. When he was at large the news reported he shot an FBI agent. When he was captured, we learned that he wrote the FBI claiming that he would stop killing people when he shot an FBI agent, so the FBI had the news lie to millions of people so he would stop. (he didn't) And this was totally accepted, the idea that those in power have to lie to the people for their own good. In that case it seems innocuous, but once that principle is accepted it turns into a virus, with everybody else lying to everybody, it gets ridiculous. Like calling an exit from Iraq "redeployment", lest Al Qaeda" hear and think they won, like AQ are a bunch of little kids that can't understand what the average American can. Silliness.

There's historical precedent for all of it, and it always leads to economic collapse. It did in the Soviet Union, it did in Mao's China. It will here if it goes on unchecked.

Anyway, I don't know what the deal is with all the liberals who throw Al Gore out the window the second they have to pay a little more for gas, but they're for real. I have truly leftist friends griping about "how there need to be alternatives in place" before they can drive less etc. So the sad fact is our Dem leaders really are playing to a good chunk their base. Its a bigger problem than just spinelessness, though it would be nice for them to show a little more leadership here.

Again, the problems, I believe, are cultural. The left has really lost its identity in this country, we've lost the timeless ideals behind unions and socialism, the spiritual ideals that guide us. A lot of it comes from the collapse of the Soviet Union, which the right continues to spin as a "failure of communism/leftism" even while selling their firstborn grandkids into debt to COMMUNIST China to float our failing system. But its our fault, on the left, for failing to see leftism as a mutable and evolving system, rather than in terms of the historical absolutism of authoritarian Soviet rule the right casts it in. We've let them define the words again.

The other problem we face is a new right with seemingly NO desire for fight for the commonwealth. During the cold war, there was at least some sense of a "war of ideologies", a competitive process or experiment where we looked at what really works as far as systems go, with the right advocating free markets as a device for the prosperity and well being of a the whole commonwealth, including the working class, and a left that claimed they were against working class. The new right is a secretive heirarchical system, with most of them inner sanctums seeming to embrace overt class warfare, even at the cost of effective leadership or the well being of the commonwealth. Its a new culture that wants to win at almost any cost, even if they destroy the system they are trying to gain control of.

So that's what makes it all tough. When I look at our problems, the solutions the left can offer are powerful and obvious. Most of them stem from variations of Metcalfe's law, or basically that when a certain critical mass of people collaborate within a system, its value to each member of the system passes beyond what can be attained by a system of people not collaborating. However such systems promise to make the left very powerful, and therefore those working on them meet violent opposition from the right. Tapped phones, harassment etc. The problem with the secretive win at all costs right described above is that there is no sense of what the rules are, how somebody can develop these solutions in a way that won't piss them off (as corporations or whatever) so the result is that our solutions to optimal economic performance stagnate while we fall deeply into debt to foreign countries and await them to develop the new solutions that will finally hand us our asses for good.

So what do you do? I have no idea.

[madeline_con]

3. Ariel Sharon died, Ahmadinejad started running his mouth about

attacking Israel, and oil prices hit $100 a barrel. All these things happened in January, 2006.

Edit: In December, 2005, Sharon had a stroke and oil went to about $90 a barrel.

The climb has coincided with events in the Middle East.

[Lilith Velkor]

95. Sharon is technically still alive. n/t

[magellan]

4. Read the article here:

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=389&topic_id=3718694

[madeline_con]

6. Semgroup's "aggressive growth plan" b egan in the wake

of the M.E. events that shook up the market.

[Leopolds Ghost]

14. Yes, that is proof that the evil speculators were net short, ie lost their ass betting the wrong way

They were betting the price would fall and the collapse of their chits
caused the recent correction by forcing a virtual profit-taking on the
part of all the long investors who they suddenly owed delivery of $15 billion worth of oil to.

Hardly a vindication of the "there is no shortage of oil" theory.

[magellan]

68. I wasn't trying to vindicate the "there is no oil shortage" theory

I only felt that article might be an answer to the OP's query about the sudden price drop. Peak Oil and speculation are both affecting prices; it just seems that speculation is responsible for the sharper ups and downs.

[Pale Blue Dot]

5. There have been a lot of false dichotomies lately.

For instance, EITHER peak oil is real OR the recent price increase was due to speculation. Why can't they both be true?

In fact, isn't it more likely that both ARE true?

The scientific rationale behind the concept of peak oil is pretty well established. We will, sooner rather than later, reach a point at which our energy needs for exceed what we can pull out of the ground. An intelligent society would be investing heavily in alternative fuel sources in order to face that reality.

In this case, however, the recent run-up in fuel prices does seem to mostly be a function of speculation.

"I am beginning to think
an oil shock would be more desirable than a sustained plateau that encourages
nations to continue exponential growth, hoard and burn every last drop of the resource."

Unfortunately, as a society, we are not learning our lessons. Hard choices have to be made regarding climate change, peak oil, and our economy. However, we are not (again, as a society) hearing the warnings. Unfortunately, I don't think we will understand what's happened until it's far, far too late to stop it; I believe it may already be too late, whether this run-up in oil prices was caused by peak oil, speculation, both, or neither.

[CrazyDude]

9. Speculation is the market's answer for conservation

People speculate oil will be in short supply in the future, so they drive up the price today.

[Leopolds Ghost]

15. Good point. Why do some Dems assume that "expensive" oil (1/2 cost of pro-transit Europe) is bad?

[wvbygod]

38. USA infrastructure requires cheaper oil unlike Europe

That will not change overnight. The price of food and other life requirements would
be out of reach of most Americans so we need cheap oil. America was not created to
mimic Europe.

America will get cheaper oil if we have to drill our own while we upgrade to a better
energy source. Americans will not stand for instant destruction of their way of life.

It is not a Dem/Repub thing.

[Leopolds Ghost]

46. I am sick of hearing how "Americans don't want to live like Europe" and "destroy our way of life"

You're going to have to live with CUTTING YOUR VMT IN HALF.

You'll accept it and like it, or live in denial.

Or you can continue to advocate $$billions for new hydrogen
highways consuming more of the landscape than the rail and
the awful densely packed small towns you so despise.

America's aversion to small town living comes from rampant
industrialism (which we tend to hate and want to wish away,
to other countries) combined with RACIAL hostility towards
the poor people left behind in the older areas.

US cities with no significant black population
NEVER EXPERIENCED white flight.

Do you know when the last time US VMT (Vehicle Miles Traveled,
the core measure of auto use) was half of what it was today?

That's right, 1980.

American way of life my ass.

More like waste of life -- and resources -- since Reagan.

[melody]

87. Now this I totally agree with

But calm down, Leo, you're going to explode something vital.

[wvbygod]

89. Focus

But I like small towns. And I respect the big cities because they contain the
masses that would fill up the small towns and rural areas.

Anyway, white flight, Reagan, (Racism???) etc have nothing to do with energy independence and future energy needs.

[Baby Snooks]

7. The fluctuating market...

The fluctuating market at this point is indicative of two things. That traders have artificially created a new market for themselves and that the market will fluctuate with regard to demand.

Either way you look at it, $120 a barrel is not cheap. And will not significantly reduce the price at the pump. Adjusting for the eurodollar puts the price per barrel where it should be. But it is still not cheap. The days of cheap oil are gone.

The oil and gas industry admitted we are in the depletion cycle not so much as a result of dwindling supply but increased demand. But reality is the supply is dwindling. And we are faced with a world without oil for most of the world. It is becoming a commodity to be traded on the basis of its growing scarcity. And the price will continue to rise accordingly. Demand may drop but that is balanced against supply.

There is a lot of denial at this point. Particularly on the part of Americans. Who probably won't accept reality until the price at the pump hits $10 a gallon and their utility bills are so high most cannot even afford a car any longer. By then most of this country will be in total shambles. We do not have a bright future. And it is too late to suddenly develop an alternative energy plan. Despite the delusion that it is not too late. Most expect shortages in the next five years. At which point there will be oil and gas wars. Thems that's got the oil and gas will have lights on in their cities.

The government of course is still spinnning its "we have domestic energy sources to last us 200 years." The problem is their projection doesn't match the projections of the oil and gas industry.

[CrazyDude]

8. Inherent volatility

Oil is still very high BTW

[Monk06]

11. Because Wall St can smell a crackdown on the derivative market and the last thing they want is

GOVERNMENT REGULATION

[leftofthedial]

13. why, for the last year or so, do gas prices jump 5, 10 or 20 cents

every time there is a rumor that crude prices might rise a buck or two a barrel, but now that the price per barrel has fallen radically, gas prices (after a couple of weeks) drop a few cents?

[tama]

18. As a matter of fact

Cost of barrel of crude has risen two time more than a gallon at pump. Margins are so bad that huge amount of gas stations have been and are getting out of the business.

But facts like these only matter if there is willingness for "reality based" politics and life attitude, instead of cornucopian fantasies of continuous greedy consumption and the usual blame games when those fantasies are challenged by reality.

[leftofthedial]

103. cumulatively, yes. My post referred to the last year, when upward trends,

or even *rumors* of upward trends, in crude prices or in crude futures, were met with immediate gasoline price increases. The recent declines in crude, on the other hand, have not resulted in the same kind of gas reductions, or in as timely a manner.

I have no fantasies of consumption whatsoever. I think gasoline should cost $20 a gallon, if it would mean a more rapid transition to renewable energy. I don't think the big oil corporations, who are grotesquely and obviously manipulating markets, deserve the windfall.

[tama]

17. Peak plateau

The current consensus (among the non-denial crowd) is that we have been on undulating global *peak plateau* in oil production since 2005; when the real downhill starts production wise is anybody's guess, but in a few years anyway (Russia announcing having peaked this year with Mexico dropping fast should be enough evidence of global peaking; ie. global production is never ever again going get much above current production with great likelihood of global production starting to decline during next few years).

To complicate the picture, it is important to understand what is the "country export model", ie. what amount of oil is available for importing countries on the global market (net exports of oil). With flat production together with increasing domestic consumption in exporting countries, net exports decline and have been declining since 2005.

This decline in net exports (and consequent supply demand crunch with exponential rise in prices) has been met with demand destruction in oil importing OECD countries, latest data showing that US oil consumption is currently declining 5% compared to year ago (HUGE!), wich would mean that US oil imports drop from about 5 billion barrels in 2007 to 4,5 billion in 2008 (which does not help much the trade deficit situation where 100% increase in oil prices from 2007 to 2008 is anyhow adding 200-300 billions to 2007 US trade deficit of about 800 billion, making it (probably close to 10% deficit of GDP in 2008) wildly unsustainable given the allready escalating economic crisis).

The current decline in oil prices from the latest peak is just a normal correction, a temporary relief from general tendency of rising prices - product of "usual" market volatility and demand destruction.

The crux of the matter is that very soon the peak plateau ends and oil production falls into final decline (at what pace we don't know; most likely somewhere between 2-8%). And when that happens (my WASG: 2010-2012 optimistically supposing that OPEC can still increase it's production a bit to balance out declining non-OPEC production for a few years), the current HUGE level of demand destruction will seem just like a gentle warning. The perfect storm, systemic crisis of global capitalism, EOTWAWKI.

[Leopolds Ghost]

47. EOWAWKI?

[tama]

60. Sorry, misspelled:

EOTWAWKI = End Of The World As We Know It

[conspirator]

19. the speculators have no more space in their vaults for the cash? nt

[AllentownJake]

22. No they are doing what they did with stocks

in the late 90s early 00s. Pump up the value than dump.

[grannie4peace]

20. speculating

about a week or more ago i heard a news report about speculators getting busted. i only heard it once & the story disappeared

[muriel_volestrangler]

56. Maybe the story in reply #4?

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=3731909&mesg_id=3731934

Though I don't really know if one company can have that much of an effect on world prices.

[AllentownJake]

21. That's all well and good

However no one is getting elected saying oil being $4 a barrel is a good thing or more expenive gas is a good thing. People are suffering right now and it isn't the people who got us into this mess.

We spent 80 years on an oil based economy. We aren't going to get off an oil based economy that easily either. Its a 10-20 year transition plan.

As someone who used to work in Finance I believe that speculation has a huge role to play in this. When you need to only finance 5% of your bet on a commodity trade (its 50% on an equity trade) that creates the enviroment where an organized group of people can bid up the price of a commodity to a point where they make very nice profits with out having to utilize much capital to get it.

Those people shorting the market right now are probably the same people who were betting up the market earlier this year. Same with the stock market in the tech stock boom. They call it pump than dump. Personally I don't see why Margin sales are allowed at all but I digress.

[jazzjunkysue]

31. Right. If you had to actually fund your purchase, and then deliver and store it,

the market would settle down to something approaching realistic.

I'd like to see us all back up our stock purchases with bank accounts. The interesting thing is, a person cannot declare bankruptcy yet a corporation can get a government bailout.

So, if investors had to risk their future credit and current real estate to trade, they'd be far more realistic and the bubble wouldn't kill us on the burst.

[Leopolds Ghost]

52. But the majority of DUers oppose taxing gas and spending money on RAPID transit.

Which is the only model ANYONE outside the US uses
to get where they are today, with respect to transit
vs. auto use.

Just poll this site or post about subway/rapid rail
and you'll get nothing but criticism/opposition.

DUers and other Dems want to spend money on hydrogen
highways and token streetcars for niche market areas
occupied by the less fortunate

(and they only put light rail in gentrifying areas
due to common liberal and conservative fear of race/crime,
so the poor don't benefit either).

Just ask folks on DU where they want rail to go.

Many Environmentalists are talking out of their ass.

They want guilt-free hydrogen highways to assuage
their energy-intensive lifestyles that involve
driving across the street from one big box store
to another.

They consider such a sterile, lazy, un-self-reliant
existence to be the "American way of life"

and drive twice as much as we did in 1980.

The recent correction in demand due to $4 gas is a mere blip --
caused by leaving the Hummers parked and taking the old car.

the loss of exponential growth is all it takes to stall a
hypercapitalist economy, but the amount of driving done
remains twice as much as 1980.

[tama]

62. In this mess

Of course it's the people who got us into this mess - especially people working in Finance ;-)

[AllentownJake]

69. Left that industry far behind

Jobs you can get when you first get out of college...I was on the compliance side so I had to deal with the idiots who cause these messes internally.

[On the Road]

23. If Peak Oil Fundamentals Had Been Behind the Rise to $150/Barrel

There would have been no dip to below $120.

Bubbles usually form on top of legitimate trends when there is excess money looking for an investment. We won't know the underlying trend until things stabilize a little. But Fibonacci numbers suggest that over the short term, prices will fall to about $112, $100, or $88.

[masmdu]

24. Assuption is wrong ..."Assuming PEAK OIL fundamentals cause the price trend"

Technical Analysis indicated that Oil would be soon complete an up leg and ... it did.

[masmdu]

30. And further T/A says that there will be a new High coming on USO (Oil ETF)/oil starting from HERE

That is to say the current down leg has come to an end an now we head up

[Leopolds Ghost]

49. That is not due to fundamentals? (loss of monopoly pricing power/no more excess capacity ever)

Like when excess capacity of domestic profitable wells
permanently ended with the removal of the Texas Railroad Commission
production caps in 1971, right?

Now OPEC no longer has the power to regulate excess capacity either.

Isn't that Peak Oil?

[JCMach1]

25. The inconvenient fact that there is still a lot of oil out there

and we have been had by price and market manipulation a la California

[Leopolds Ghost]

50. Do you believe Americans have the right to consume twice as much oil/VMT as we did in 1980?

You guys'd be opposed to taxing it like cigarrettes
and using the money to build transit then.

You know, like Europe and Asia and Ulaanbataar do.

Doesn't that make us part of the problem?

[sentelle]

27. why is it

That gas prices always go down when a republican president is running for re-election, or attempting to get another republican in the presidency?

Enquiring minds want to know.

[mmonk]

28. Peak oil is more gradual. To know how much peak oil

affects price, one has to look at extraction costs. There are a lot of factors recently including speculation in the oil futures market, saber rattling and the fear of shutting off supply, and a weak dollar. The oil companies making record profits shows the price is outstripping costs associated with peak oil.

[Leopolds Ghost]

55. Marginal oil company profits per barrel of oil dropped from 2007 to 2008

And oil companies are discovering numerous uneconomic fields that
they can't afford to develop due to the EROEI measured in dollars
and risk making it unjustifiable to drill unless price remains
above $100, and in the case of low EROEI, unjustifiable at any
price. You can build a fusion reactor out of a home science kit,
but if it doesn't produce NET ENERGY, it's not scalable. Same
with the $500 million big rigs. There is oil on the other side
of the universe if price is no object, but it is effectively
undeliverable. So the oil cos. are tied down to discovering
replacements for "elephant fields" that cost $4 a gallon to pump.
The vast majority of their profit comes from that cheap stuff
in declining large fields.

That's why all those oil claims in the US don't get developed.

Just saying :shrug:

[mmonk]

75. Because they don't any type of flood of cheap oil

to hit the markets. That way, they maintain the margins on any working reserves I would gather to guess. I see our actions abroad as wanting that control on pricing structure.

[jazzjunkysue]

32. Answer: Gramps is losing.

The GOP has finally woken up to the posibility that they're schemes are about to be revealed.

They'll give up 2% of their profits for a few months to prevent that. Ok. 3%, if it's absolutely necessary.

[Terry in Austin]

34. Floor price and peak oil fundamentals: not short-term blips

These week-to-week fluctuations arguably don't even have a "cause." Markets just do that. Analysts have to make a living, so they crank out their daily explanations. However, oil decline is something that's happening over the course of months and years. Close up, right here at the peak, it does look like a plateau, but it will start dropping off soon enough.

One way or another, though, it's not a straight line. As supplies go down, prices go up, describing a longer-term trend. Within that trend, there are going to be bumps, blips, and "stairsteps." It looks like we've seen several stairsteps in the past few months.

Bottom line, there's a new "floor price" for oil -- about $110 per barrel, according to a recent study by the Dutch energy institute, the Clingendael International Energy Program (CIEP). Their analysis includes a breakdown of the cost components:

Until recently, the oil price was largely underpinned by the marginal cost of the last barrel needed to match demand, with some political and economic conjuncture mark-ups or -downs. This currently puts a structural floor of $110 a barrel under the oil price (WTI). The largest part of the $110 a barrel floor (about 70-75%) is determined by the marginal cost of supply, currently around $80... The remaining $30 a barrel (or 25-30%) is determined by supply-demand fundamentals, a short-term risk premium, and long term scarcity and policy...

• $80 "marginal cost of supply" = cost to produce. In the past, accounted for nearly the whole price.
  
• "supply-demand fundamentals" = demand destruction (via price increases) due to undersupply.
  
• "short-term risk premium" = futures trading manages risk when prices are uncertain.
  
• "long term scarcity" = well, long term scarcity.

Oh, yeah: "floor price" = "get used to it." The sooner we do, the sooner we can start getting serious about a post-oil world.

More analysis of the report at The Oil Drum.

[Leopolds Ghost]

58. Ecxellent and Informative. Thanks.

I had forgotten about how marginal cost of the "market-clearing unit"
is used to establish the minimal cost of a commodity.

If 30 people are trying to buy a product at auction,
they will bid up each other to the maximim price
allowed by excess demand of meeting the needs of the
last 10 people (or forcing them out of the market)

Supply then increase to restore equilibrium
by trying to produce 30 units at the new high price.
Ordinarily this causes demand and price to even out.

But if the marginal cost of that barrel is much
greater than the cost of the first 28 barrels
(i.e. cost of meeting the needs of the last 2
customers) then demand cannot be met by
reducing the price of that increased supply
below the floor point (the cost of the last
2 barrels sold). With excess customers in
the market for the 28 cheap barrels, they will
bid up those 28 barrels until the price matches
the cost of the last 2 identical barrels needed
to clear the market and meet everyone's needs.

Also, if demand simply drops at the new, higher
price, that does not change the floor price for 30
barrels of oil, it simply means the marginal
floor price drops to that of 28 (much cheaper)
barrels, causing demand to rise again, causing
price to spike as the 2 expensive barrels are
re-introduced to the marketplace, etc.

Until such time as Americans start using transit.

Or tearing off mountaintops to power "clean"
vehicles, but this will never happen unless
the marginal cost of 30 barrels-equivalent
of "unconventional energy" (including the
market price for the 1/2 barrels of gas needed
to harvest each barrel-equivalent) is less than
the marginal cost of those 2 extra hard-to-get
barrels. This requires pouring all our cheap
gasoline into building alternate power sources
and using ONLY the expensive stuff in (far fewer)
automobiles.

Or watch American highways crumble as the cheap gas
runs out, which is what probably will happen.

Oh, and there's no cheap gas left in the US.

Simple as that.

[Hannah Bell]

98. here's another version of floor price, & there are others - i've heard as low as $20.

"Deutsche calls the top of the commodity cycle
By Ambrose Evans-Pritchard, International Business Editor

Deutsche Bank has called the top of the commodity cycle. The uber-bulls of the oil, food and metals boom have advised clients to take profits before the downturn engulfing most of the global economy works its inevitable effects.

Oil will slide back towards its "marginal production cost" of $60 to $80 a barrel; gold will slump to $650 an ounce as the dollar recovers against the euro; copper, lead and tin will slowly halve in price; grains will calm down as harvests in Australia and the Eurasian Steppe return to normal."

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/08/04/ccview104.xml
Truth is, unless you're in the field - you don't know. Everything they tell us could be complete bullshit.

[spanone]

35. there's an election on the way.

[DailyGrind51]

37. You are right! Unfortunately, "Americans" are not about "prevention".

"But I find this all fascinating since most Americans (sadly including most Dems) are so unwilling to change their lifestyles and perhaps, will not actually have to; until it's too late,"

"We" eat too much, smoke, drink to excess, engage in unprotected sex, drive too fast, and, if something goes wrong, expect some "Doctor" to fix it. "We" expect America's technological ingenuity to rescue us from the consequences of our own worst tendencies.

[robertpaulsen]

39. Oil Price Falls! Peak Oil a Non-Problem!

Richard Heinberg gives an excellent perspective of the real situation:

Oil Price Falls! Peak Oil a Non-Problem!

Submitted by Richard Heinberg on July 30, 2008 - 4:46pm.

Two weeks ago, oil was soaring toward $150 a barrel; now it’s nosediving to $120 and may even see $100 again. Peak Oil? Humbug! Problem solved. The market works after all.

Not so fast.

I can see the headline of the Wall Street Journal a year or two from now: “Oil Price Falls from $300 to $275, Disproving peak Oil Theory.”

For years oil depletion analysts have been painting a consistent scenario that goes as follows. Sometime around 2010 (give or take two or three years), growing decline rates in oil production from existing oilfields will overwhelm new production streams coming online. The price of oil will rise dramatically. However, when it does it will cripple the trucking industry, the airline industry, tourism, agriculture—essentially, the whole economy. A serious recession will ensue, which will reduce demand for oil (among other things). Oil’s price will temporarily drop in response. Then, as declines in oil production worsen, the price will resume its upward march—but again in a
sawtooth or whipsaw fashion.

This scenario is hinted at in the second sentence of the Hirsch Report, which says, “As peaking is approached, liquid fuel prices and price volatility will increase dramatically….”

Volatility is in some ways an even worse problem than high prices, because sustained high oil prices make long-term investments in alternative energy sources and public transportation look sensible—whereas periodically collapsing oil prices discourage such investments.

more...

http://www.postcarbon.org/oil_price_falls_peak_oil_non_problem

[alfredo]

40. They fear Americans might start using less.

[Hannah Bell]

41. The peak oilers who last month were telling us prices would never come down

are now busily explaining why prices have dropped $27/bb off their highs - with nary a mention of their previous prophecies.

[Subdivisions]

54. Price has nothing to do with it. The fact is oil has been on a

production plateau for going on 4 years with the only managed increases in production coming from corn ethanol, which they discovered fairly quick would kill millions faster than oil depletion would.

You know what, Hannah Bell, laugh all you want to. The reason everything is going to shit across this planet has long been described as the consequences of the moment supplies of oil could no longer keep pace with demand. That time has come and, rather than preparing your family for the devastation that lies ahead, you're spending your time laughing at the whole idea. Bush, Cheney, Clinton, Carter, Bodman, Simmons, Obama...they've all been telling us all along. The problem is, the whole idea assaults your entire way of life and so you won't believe that THE finite resource that power this planet will ever become scarce.

I spend very little time now advocating mitigation for this problem because of people like you. Which is just as well because while you're laughing at the idea that life may not always be as bright as you see it, you're not buying up the stuff I'm going to need to survive.

[Hannah Bell]

61. i'm not laughing, simply noting that i was told by some of the same posters

on this thread that prices would "never" come down. & now they're down $27 & the same posters are busily telling me why, & why it doesn't matter, & why they'll soon be up again - $200/bb, like one of these posters said before.

Well, they were wrong when they said "never," but pretend they didn't say it. dishonest.

as for the rest of your post, about "my way of life" & what i know & think, it's so off the wall & off-base, it's ludicrous.

Hint: the fact that i disbelieve that $150/bb oil is entirely the result of supply/demand or "peak oil" doesn't mean that i live in a suburb, drive a vehicle, have a consumer "lifestyle" or whatever picture of me you have in mind.

but carry on beating on your strawman-demon.

[Terry in Austin]

64. "Never" -- Riiight

Speaking of straw men, "Never come down" sounds like one to me.

There is a floor price for oil (see upthread - it's $110), meaning that the price will stay above that level. But now and then somebody claims that the price "should be" $80, and When This Is All Over, $80 is what it will be. Seriously! Those are the ones who should wake up and smell the "never."

If you figure every dip and blip gives you gloating rights, well, go right ahead. Check in a year from now, though, see if the price is something you still want to yippee-ai-yay about.

[Leopolds Ghost]

66. If they don't believe in Peak Oil, shouldn't the floor price be $20 ala Clinton era?

Afer all, there is no progressive change in the
fundamentals right? No Peak Oil = no effective
demand surplus = same market we were in 10 years ago.

Or has inflation quartered the value of the dollar?

Peak Oil skeptics are moving the goalposts asserting
that oil should be $80. They weren't saying that in 2004.

I suppose you could argue that the natural price for houses
should return to $120 K like it was in 1992 (what is that in
2008 dollars, BTW?)

The remaining 100% run-up in home prices since then could be argued
to be a pure speculative bubble set off by a trickle-down Ponzi
wealth distribution scheme as more and more cheap laborers are
imported from other countries and depreciated houses are sold
to them on the conveyor belt, prompting white flight, prompting
huge construction/sprawl in areas with no population growth,
like Philly. All based on a conveyor belt of discarding old
neighborhoods and keeping the population pressure up to ensure
low wages and wealth concentrated in land/houses, like it was
in the Middle Ages, since there is no domestic wage manufacturing
surplus.

But if the price of housing needs to come down by 50%
relative to transit-inaccessible areas, this will only happen
if more walkable neighborhoods stop being torn down and start
being built, because people (upscale liberals mostly) are
paying a premium to live in areas close to transit they
don't even use (they all have two cars because of the high salary
and social expectations needed to afford to even live there,
90% of them drive to the mall that sits atop the train station
even where one exists, and further, liberal homeowners fight
tooth and nail for more parking on top of the development at
said train station, to ensure that the 90% who drive continue
to do so and don't park in THEIR older neighborhoods where
they take up all the on-street parking for their hybrid SUVs.
The notion of encouraging people to use transit by REQUIRING
less parking at the shopping center is alien to them).

But this analysis of housing bubble is not applicable
to a non-renewable consumable resource like oil, unless
exponential waves of new oil and gas come on-line each year
(like houses do, through sprawl) or exponential demand reduction
is possible, like it is in the housing market (through rehab
and economic integration of existing neighborhoods,
i.e. ending white flight,
which is a phenomenon all too many Dems silently accept
for themselves and their children, which is why only the
rich want to live in the city, in areas that have been
thoroughly ridden of the lower classes.)

Ironically, exponential demand reduction of gas and
exponential demand reduction of new home construction
in transit-inaccessible areas go hand-in-hand!!!

Both will be difficult if not impossible,

due to the stubborn masses of people here on DU and elsewhere
who refuse to give up their functionally segregated
living patterns

-- even aspirationally --

(i.e. they don't even say "i'd live in a city / small town
with little parking, if I could only afford to live in the
safe parts of town of such few remaining places.")

Instead most people claim the fact that only the very rich
live in dense parts of the city that are safe is proof
that the middle class don't want to live in those areas --
a ridiculous conclusion.

Note that an urban area does not have to be large to be dense,
i.e. transit-serviceable.

Small towns built before 1900 are densely packed
because there is no massive auto infrastructure
taking up space above and below ground.

And they assert that the (continually rising) floor price
they THINK should be, for both oil and housing, which are
of course only achievable way out in the exurbs --

a hidden cost of living there.

Which is why these exurbs are so regimented, else
the housing market and infrastructure would fall apart
because it's so difficult to maintain such a lifestyle
without hiuge energy inputs (fuel, lighting)
regulations on homeowners to restrict the low-end of
the market from diluting the marketplace (because they
are unsustainable unless everyone living there is
paying huge property taxes) and policing requirements
(which go to pay for the cost of all those roads.)

[Hannah Bell]

70. something along the lines of "prices are never coming down again -

get used to it."

but they're down 18%.

big drop.

i wouldn't have commented if it were just a few dollars, but 18% moves don't fit with the supply/demand scenario so well.

[Terry in Austin]

76. Keep it straight

Down from $140, yes. Fine.

Down from $110, no. Won't happen.

That's what "floor price" means.

The trend is upward, but that doesn't mean a straight line. Markets fluctuate. And any price moves that are over $110 actually do fit with the "supply/demand scenario." That's the point they make after conducting the study.

You could even read the report. Or some of the analysis. Do you care?

[Hannah Bell]

77. i've read plenty, i take nothing as gospel but time.

someone tells me $110 is the new floor. i've read other numbers. i believe none of them & file them away for future reference. time will tell.

[Subdivisions]

65. You're absolutely right.

I can't presume to know your life and I should have generalized that particular commentary and I apologize. However, there are many, many people who have their heads in the sand and that is unfortunate. The very reason I spent two years trying to sound the alarm is that I care about people and don't want to see anyone caught unawares. But it's a frivolous exorcise and that is very frustrating. So, I don't speak much about it anymore and probably shouldn't have this time.

As for the price, I don't think I'm one of those who claimed it wouldn't come down. After all, I know where the trend baselines and price support levels are. I have said that, over the LONG-TERM, the price would continue to trend upwards until oil was out of reach for the average person. In the meantime, fluctuations (or "civilizational perturbations", as I call them) will occur.

We're in very serious trouble. Good luck to us all.

[Hannah Bell]

71. thanks for the apology, i appreciate it.

i don't have so much disagreement with the general scenario, but only with the specifics; e.g. prices around '98-'99 were the lowest in something like 40 years, which doesn't quite jive with the "running out soon" thing - & much else i won't bore you with.

but mention these inconsistencies & one gets jumped by the fanatics, who think they're mindreaders & prophets with an inside line & brook no questioning of the party line.

we're none of us that sure of anything. so i appreciate your apology. i've lived at the poverty line most of my life, didn't drive until i was nearly 40, & have never owned a new car.

[tama]

97. General scenario

The genaral implications of the general scenario (I'm not yet convinced you have good grasp of it) are of such nature, that argumentativeness about the specifics - which in your case often sounds like denial - are extremely frustrating, given the categorical imperatives that the general scenario, ie. social system based on unlimited growth on planet with limits of growth, implies.

There are no good reasons to doubt that we are currently in the middle of peak plateau, and very good reasons to act as if we were even in the case we were not. That is the big picture, on which general attitude and rhetorics to accompany should be based on - if one has an ethical bone in her or his flesh, understanding of "holistic" wholes and capacity of pragmatic reason.

[tama]

63. A quote to back your claim?

You provide none so I must assume you are just lying out of short termist spite. See post 39 for what "peak oilers" have been saying for ages.

[CANDO]

51. Big Oil is scared they are destroying the world's economy

So they back off awhile.

[Subdivisions]

53. Hey, look! I've manage to digress from a Peak Oil thread...

Oh! ... Damn!

OOPS!!

[ThoughtCriminal]

57. Seasonal variation - happens EVERY year

prices fluctuate upto 15% from seasonal use. Prices start rising in winter as refineries gear up for the summer spike and begin to fall after the summer peak. This happens EVERY year, but IIRC the significant drop usually happens after Labor Day (you can bet that the Republicans will try to figure out some way to take credit for that and probably the equinox too).

The correct way to look at prices is to compare to the same time the previous year.

[Leopolds Ghost]

59. McCain credits Republicans for winter equinox, claims less sunlight "solution to global warming"

[Hannah Bell]

78. not seeing it here:

http://www.ioga.com/Special/crudeoil_Hist.htm.

[ThoughtCriminal]

90. That is crude oil, not retail gasoline.

And events can overtake the seasonal drop but even then, look at the tables from July-January you will see that it usually drops.

Here is a look at retail gasoline for the past few years. Notice what happens after July:

[ileus]

72. assuming peak oil is wrong.

[NickB79]

73. Oil prices fell from $80/barrel to $50/barrel in 2007

Which was almost a 40% drop in price.

Then, it shot up to almost $150/barrel this summer.

If oil bottoms out at "only" $80/barrel this winter, where would someone logically expect oil to head to next summer?

[Hannah Bell]

79. not seeing it here:

http://www.ioga.com/Special/crudeoil_Hist.htm.

or here:

http://futures.tradingcharts.com/hist_CO.html

[NickB79]

93. I'm sorry, I should have said 2006, not 2007, but my premise still stands

Per Wiki: "A series of events led the price to exceed $60 by August 11, 2005, and then briefly exceed $75 in the middle of 2006."

http://en.wikipedia.org/wiki/Oil_price_increases_of_2004-2006

The 2nd graph located there clearly shows where oil goes over $75/barrel in mid-2006, and then drops sharply to almost $50/barrel in Jan. 2007.

Your two sources give monthly averages of oil prices, which smooths out the peaks and valleys that have become so characteristic of oil prices in the past few years.

[roamer65]

74. The "Iran Premium"

Tensions have somewhat subsided with Iran. We have lost a good chunk of the "Bomb Iran" premium on oil.

[guitarguy420]

94. peak oil is a scam

There's more oil in alaska then the entire middle east. It's a fraud. wake up.

[nadinbrzezinski]

96. I hate to do this, but show me any CREDIBLE geologist that says this

Good luck...

(FYI no, there isn't)