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Report Projects 4% Shrinkage of US Vehicle Fleet in Face of $7/Gallon Gas by 2012
26 June 2008
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| CIBC’s Rubin projects a decrease in the US vehicle fleet of 10 million by 2012 as scrappage overtakes new sales. Click to enlarge. |
CIBC World Markets Managing Director/Chief Economist and Chief Strategist Jeff Rubin is projecting a shrinkage in the US vehicle fleet of 10 million vehicles in light of projected $7/gallon gasoline by 2012. A decline on that order would represent approximately a 4% reduction in the overall fleet—the largest such adjustment yet.
In the 26 June 2008 issue of the StrategEcon newsletter, Rubin lifts CIBC’s target for West Texas Intermediate by $20 per barrel to an average price of $150 in 2009 and by $50 per barrel to an average price of $200 per barrel by 2010. “Under prevailing refinery margins” he writes, “that should translate into a near-$7 per gallon pump price within two years, a 70% increase from today’s already record levels.”
As gasoline prices climb inexorably, American driving habits are going to have to undergo a massive change, mimicking the driving habits long adopted by Europeans who have faced much higher gas prices. Average miles driven will likely fall by as much as 15%, while the market share of light trucks, SUVs and vans will be literally halved, reversing the trend of the last fifteen years. But the most fundamental, and unprecedented change will be in the number of vehicles on the road.
...By 2012, there should be some 10 million fewer vehicles on American roadways than there are today—a decline that dwarfs all previous adjustments including those during the two OPEC oil shocks. Many of those in the exit lane will be low income Americans from households earning less than $25,000 per year. Incredibly, over 10 million of those American households own more than one car. Soon they won’t own any.
To come up with the 10 million reduction, Rubin assumes an increase in the scrappage rate—the percentage of existing vehicles that every year are retired from service—to 6% (last year’s rate was 5.2%). Past experience has shown that scrappage rates rise with surges in oil prices, because older cars typically average much poorer fuel economy than newer cars and thus become increasingly expensive to run as pump prices rise.
A 6% scrappage rate would take roughly 14 million vehicles off the road every year. Coupled with decreasing new vehicle sales—Rubin forecasts those will drop to 11 million vehicles by 2012—the result is a reduction in the US vehicle fleet of about 10 million units by 2012. While some of the current weakness in vehicle sales can be attributed to the economic slowdown, Rubin estimates that higher gasoline prices have had almost twice the effect, and thus concludes that new vehicle sales will continue to decline.
Our analysis suggests that about half of the number of cars coming off the road in the next four years will be from low income households who have access to public transit. At their current driving habits, filling up the tank will have risen from about 7% of their income to 20%, an increase that will see many start taking the bus.
Among the other projected results by 2012 of the ongoing rise in gasoline price, Rubin lists:
Average miles driven will shrink by more than 15%. While Americans are already driving about 4.3% less than last year, they still drive today about 30% more than they did before the OPEC oil shocks. The elasticity of driving to gasoline prices is estimated to be around the 0.06—a 10% rise in gasoline prices will eventually lead to a 0.6% reduction in miles driven. Using that rule of thumb, the 280% cumulative rise in gasoline prices between 2004 and the target $7 per gallon target price should induce more than 15% reduction in miles driven. That will turn back the clock to the mid 1980s as far as average mileage driven is concerned.
SUV and other light truck sales, which until 2006 accounted for almost 60% of total motor vehicles, will plummet to less than half that level, reversing the last fifteen years growth in market share.
Japan is also beginning to experience a slight “demotorization”—a decrease in its fleet size—caused by high fuel prices. (Earlier post.)
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Heading for the Exit Lane. StrategEcon, 26 June 2008
June 26, 2008 in Fuel Efficiency, Fuels, Market Background | Permalink | Comments (63) | TrackBack (0)
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Contrary to what US Energy Secretary Samuel Bodman says I don't think supply and demand are really causing the problem. There are to many other factors at play here. Too many middle men skimming profits. Too much manipulation of supplies and inventories. The price of oil nearly doubled and gas went up a third in just one year and yet figures are coming out that indicate we are using less gas, not more, probably because people are cutting back on gas. That clearly means supply and demand have nothing to do with these prices. Speculation is driving prices !!! Lawmakers blame loopholes in commodities trading like the Swaps loophole or Enron Loophole. Whatever you want to call it, It's a get rich quick scheme and not much less obvious than a pyramid scheme. There is no way supply is causing this gas crisis. I put the full blame on speculators and commodities traders and I am sick of the smoke and mirrors. The meeting in Saudi Arabia hasn't achieved any substantial results from what I can see. The price of oil is still going up. There must be something else that's driving prices up and I think I know what it is. Although il appears to be a good hedge against inflation, a lower dollar and a low oil supply, in reality nothing could be farther from the truth. The main thing driving inflation is oil prices and as inflation goes higher investors buy more oil driving inflation higher again. Some experts predict this will trigger the worldwide recession. This will result in lower gas consumption and it will free up more gas supplies.. I am no expert but even I can see the writing on the wall. Investors are going to loose their shirts on oil. We may be looking at another ENRON. Hedge funds will topple leaving old age pensioners with nothing. The government won't be able to bail them out this time because the cost would be far to great. The CFTC and ICE will be too slow to react to the cracks forming in commodities trading so the govenment will finally step in. By that time it will probably be too late. www.nbtv.ca
Posted by: Ted McKeown | Jun 26, 2008 3:27:31 PM
Oil hit $140 today. The situation is very volatile, even with the surprise crude supply gain reported yesterday. Right now it's about the dollar, it's about a supply threat from Libya, it's about OPEC mouthing off, it's about the ongoing credit crisis. It's about a lot of things.
This study is likely correct. Traffic around here in San Diego is noticeably decreased. The number of hybrids, scooters, motorcycles, and small cars is proliferating.
Posted by: Cervus | Jun 26, 2008 3:30:09 PM
It has been truly odd. People who were normally driving to work in their SUVs are using mass transit as least 2-3 times a week. Whatever is the reason why gas prices are high, it's got to stop.
Posted by: Gerald Shields, Seattle, WA | Jun 26, 2008 3:47:17 PM
I've barely used my car this whole month. I only drove it to work on Sunday and Monday because it was too hot to ride. Every other opportunity I've used my scooter or carpooled. I've actually carpooled more often than I've ridden.
No matter how much I tried, I can't use mass transit to work. The routes just aren't there. I'd have to move closer to work, which would cost me more than the gas, even at these prices.
Posted by: Cervus | Jun 26, 2008 3:52:03 PM
Ted,
Good points. I pulled my money out of the oil market from my 401k at 80 because I can't see economies being able to make it after that. There is definetly something up with the stock piles as well. Our gas consumption has dropped and so has the inventories over the last month. Not including last week. Makes no sense.
Refineries where running at 84% months ago before the driving season not building inventories. Refineries don't want the heavy sulfur oil, the are ordering the sweet crude. How many billions of gallons of ethanol are we adding to gas these days. That has to have reduced our oil demands by a small margin but that should have also created an even demain on gas. These numbers don't make sense. I also agree that some people are going to loose their shirts and to bad. You play hard you loose hard. No bail out because we would have to have paid for it twice.
Posted by: Paul | Jun 26, 2008 5:50:22 PM
Ted,
There is no evidence whatsoever for speculation affecting prices. For that to happen, some of the production would have to be stored by speculators, and that's not happening at all. Production is flat-out, and it's all going into consumption.
See for example: http://www.nytimes.com/2008/05/12/opinion/12krugman.html
[q->t to email]
Posted by: Adam | Jun 26, 2008 5:50:48 PM
I'm as right-wing a Republican as you can get and I
don't like getting raped by big oil any more than anyone
else. I've been ENRONed before and I know this is all
about GREED. Nationalize the oil companies. Obviously,
that's the only way to stop the raping of this economy.
Investigate, prosecute and send these boys to the slammer.
Posted by: swen | Jun 26, 2008 6:01:49 PM
@ Ted McKeown
Ted you are spot on, but I would like to take this analysis a bit deeper.
From the mid 1920’s to the end of last century, a series of financial regulations was instituted in response to such things as bubbles and depressions. At the beginning of the Bush administration these regulations were systematically removed in response to the limited government laissez faire philosophy that was espoused by the neo-cons.
Reference:
http://www.bucknell.edu/x40027.xml
Excerpt:
Enlightened capitalists
In the end, he (Jim Cramer, the investing guru and host of CNBC's "Mad Money," )said, laissez faire policies are but a "fraud meant to get around the true role of a government in promoting the general welfare and enriching a select few" and called on enlightened caring capitalists to reassess the abilities of an unregulated marketplace and for the country to readdress the role of regulators "who would leave us at the hands of predator capitalists."
As a result, many of the old disasters reoccurred such as the housing market collapse, and the tech and oil bubbles.
What has happened? Our houses have lost money, prices are up on everything, our investments are in the tank, public and private debt is out of sight: In general we have lost a major fraction of our wealth and our predominance in the world.
From another informed observer:
Mr. Michael Greenberger
Professor
University of Maryland School of Law
Reference:
http://marketplace.publicradio.org/display/web/2008/06/16/cftc/
Excerpt:
Greenberger: From my own experience as a commodity regulator, I believe that if the Bush Administration were serious about its regulation, we could begin seeing prices drop within a month. If we don't get the kind of regulation that has been done for decades and the market proceeds along the pace its proceeding, we will have to go through a very, very serious recession. The question is do you want to deflate the bubble by that kind of suffering or do you want to deflate the bubble by applying tight U.S. regulatory controls?
"Notable Quotations from George Santayana
'Those who cannot remember the past are condemned to repeat it.'
Posted by: Axil | Jun 26, 2008 6:05:22 PM
However, you don't want to over-regulate the economy, though. Too tight control on our economy will have just as bad effects as no control on our economy.
I do think that with developments in making motor fuels from biomass (especially algae) and the enormous promise of carbon nanotube supercapacitors, we can start the transition away from gasoline-fuelled automobiles to automobiles that either run on all-battery power or plug-in hybrids that use advanced, clean-burning diesel engines as part of the drivetrain.
We are very fortunate that most trucks, locomotives and ships run on diesel engines. Because these engines can be modified to run off biomass-derived diesel fuel, that means with improving production technology we can have essentially a totally-renewable supply of diesel fuel in the long run.
Posted by: Raymond | Jun 26, 2008 6:27:51 PM
@Raymond
I have some words from Michael Greenberger for you
As long as the commodities markets are corrupt, any type of energy, including biofuels, will be subject to hording and speculation driving the prices up well beyond what they should be.
Posted by: Axil | Jun 26, 2008 6:39:24 PM
Raymond hasn't been paying attention. He wants to replace all fossil fuels with bio fuels, thus causing food prices, which are soaring because of a little bio-fuel, to really skyrocket, when you can't find an ear of corn to eat because its in a gas tank.
As for Supercapacitors....anyone hear from EEstor lately?
As for diesels, no aftermarket DPF is capturing fine & nano particles.
Posted by: litesong | Jun 26, 2008 6:45:44 PM
Since when does algae compete with food crops?
Posted by: Cervus | Jun 26, 2008 6:53:55 PM
You are all wrong pointing at speculation as being responsible of the soaring oil price, the market is doing his job, period. If the speculation can push the price of crude to 140$ it is just because the supply can't meet the demand. We have either to increase the supply,( but there is no margin on this side)or decrease the demand, but demand keeps growing. OK america reduces it's consumption by 1.5% but china and india are growing 10% a a year.
to control the price the oil you need at least 5Mbd extra capacity, the world doesn't have this capacity and won't have it any time soon. So bye bye chip gas, gone for ever, in the wind...
Drastic improvment in fuel efficiency (100MPG), alternative fuel, transition to electric, electrified mass transportation, work from home, carpool, Cycling, shrinking of urban sprawl, 4 days week work, you will need all this together to survive declining oil production.
Ha I forgot, less kids, since more than 2 you won't be able to afford it to grow them.
Posted by: Treehugger | Jun 26, 2008 7:38:51 PM
What I want to know is:
At what point does the price of oil negatively impact Asian demand? India, China, Malaysia, and a few other countries are reducing the subsidies they give gasoline and diesel. Demand can't keep growing 10% per year if they abruptly raise the price 40% like they did in Malaysia.
Posted by: Cervus | Jun 26, 2008 8:04:38 PM
Ted:
Multiple factors contributed to tight supply/demand: low oil prices of 90s reduced investment in exploration and infrastructure (hence falling production from Russia, Mexico, etc.), and no one could predict that economies of China, India, etc. will hold their 10%+ growth rate year after year. Plus, of course, SUV craze and suffocating of domestic oil and energy sector by US government.
Now, where market is tight, speculation goes out of control. Two things to note: oil companies do not make price of crude: futures stock exchanges (like NYMEX) do. Second, nothing wrong with speculation per se, it is how free market works.
However, current situation is way out of control. Two factors distorting oil price upward precipitously: falling dollar makes oil futures good investment to hedge against inflation and falling dollar, and even can yield good money. Second, huge money of mutual funds, first of all gigantic pension funds, are able to buy oil futures and they do. They do not even think to receive delivery of physical oil, they just hope to resell oil futures later at higher price. That’s how pyramid scheme creates bubble. Hedge funds will be fine: they will short the market in time. But pension mutual funds can not substantially short, and when amount of future holders will exceed future’s buyers, crush will be imminent. You bet who will be hit hardest.
Neither sharp increase of oil price, nor sharp drop is good for economy.
Posted by: Andrey Levin | Jun 26, 2008 8:08:17 PM
@Treehugger
Suppose your boss decides you’re a luxury he can’t afford anymore; he would rather heat the office with your salary then give it to you.
goodbye work from home,
goodbye carpool,
goodbye 4 days week work,
don’t need electrified mass transportation anymore,
sell that $6,000 Specialized bicycle and get a 40 year old Schwinn varsity out of the trash,
loss the house, go live in the woods, and hug some trees.
Posted by: Axil | Jun 26, 2008 8:15:04 PM
@Cervus, Andrey Levin
If not by regulation, this situation will be resolved by the “tipping point”: The old fashioned way of resolving economic imbalances. One day in the not to distant future, one Asian stock market will crash, then another, then another, then the USA: an unstoppable economic chain reaction. It has happened before: 1929, 1987, and 2000. But this time there will be no FED to bail everybody out; they will have used up all their bullets. It will be over. I don’t want to be an alarmist here; just a realest; a student of history.
Posted by: Axil | Jun 26, 2008 8:40:50 PM
Axil
in case things turn really bad, life in the woods could be more interesting than in a suburb devastated by the hedge effect of peak oil. But that was not the point of my previous message, I don't think I was as negative as you are in your message, I listed a long lists of solutions that we will need to strive in an environment of world oil declining production, it was not all about dooming, a modern civilization that is less energy intensive is possible but need profound change.
Also I think this discussion about how much the speculation is responsible for the price of oil is totally futile, when oil price was down to 10$ a barrel, nobody was blaming the speculation right ? and it was even more crazy than oil at 140$, how can something as precious as oil be sold at only 10$/barrel, but nobody was blaming speculation a a the time.
Posted by: Treehugger | Jun 26, 2008 8:40:54 PM
Axil:
The whole US energy sector is about 5% of the economy, three times less than in 1970. Oil crush (if any) most probably will be on pair with housing bubble: not catastrophic.
And Asian markets have very limited exposure to oil speculations; the bubble will burst (or deflate) right here, in US.
The bad news is that government intervention in oil (and other commodities) futures markets is 3 years late, and will not be effective today.
Posted by: Andrey Levin | Jun 26, 2008 9:17:39 PM
Oil prices have become so volatile the past few months it's become impossible to predict just how quickly they'll keep on rising. I read tonight that the House overwhelmingly passed some (supposedly) speculation-restricting measures with a veto-proof majority.
Right now I'm inclined to think that speculation is a minor component, given the facts: 1) We're almost 50 million barrels under last year's crude stocks, and 2) We lost 24 million barrels in just five weeks. Now, at the same time gasoline supplies are a bit higher than they were last year, and diesel has had some robust supply growth as well.
But compare this to 2006, when the storage facilities were full to bursting and prices kept rising. I did read that in April the Iranians were storing oil they couldn't sell in tankers, which also happened in 2006. At this point, it would take many weeks of bearish inventory reports to change direction. Given the current supply threats, I consider that unlikely.
Last year oil prices were low and gasoline high due to refinery problems. Refinery utilization remains low due to gasoline demand, but oil supplies have continued to drop. We did have a supply rise of 800k barrels last week, but one week does not a pattern make.
Posted by: Cervus | Jun 26, 2008 9:38:50 PM
Andrey Levin: They do not even think to receive delivery of physical oil, they just hope to resell oil futures later at higher price.
Only a very tiny fraction of all the futures contracts lead to the delivery of black, stinky, ooze. The rest is speculation in its purest form. Thats a dirty word though. Please use "price discovery" in formal discussion.
treehugger: when oil price was down to 10$ a barrel, nobody was blaming the speculation right
Well, when the price of oil was $10, was it $5 the previous year? Was there a massive, unprecedented, capital flight from credit to commodities? Was there a calumny of apologetics from the speculators about "hedging inflation" (their code word for "causing inflation" -- self-fulfilling prophecy at its finest!)? News releases, studies, and sound-bites from traders about the inevitability of high prices for the remainder of all time? Chief Economists standing up and predicting $20-$30 a barrel in the next 18 months, 5% draw downs in car populations? People getting on the Internet and posting at www.greencarcongress.com that until there is a 5 million bpd over-capacity, the price will not come down? (5 million barrels is 6% of current production ... can you say "flabbergastingly huge inefficient use of resources"? The big joke with that one being these speculators actually tout themselves as breathtaking engines of economic efficiency ... where would we be without these selfless workers to the common good?) Exasperated OPEC ministers goading the speculators on with talk of $15 a barrel in a few months? (Can you say 'oil troll'? I _knew_ you could!) Libya looking down at the stupid 'lawsuits', coming out of the US congress, against "limiting oil production by OPEC states", and probably thinking "If that's what they want, then that's what they'll get! Bring it on, suckers!"
Was any of this present at those times?
Posted by: | Jun 26, 2008 9:39:26 PM
I have a question for any remaining right wingers who think that all regulation is bad and the unfettered free market will solve all problems: How's that workin' out for you now?
Posted by: George | Jun 26, 2008 9:43:05 PM
Andrey Levin
Like many economist you fail to understand the present crisis, you said the US energy sector is 5% of the economy ? yes but this is the wrong to look at the problem : it is only 5% of the economy because the price of energy has been grossly understimated these 30 past years anad we are due for a severe correction, because the origin of the crisis is underground. Last but not least, energy might be 5 % of the economy, but energy run 100% of the economy, the suffering of the housing bubble is nothing compared to what the end of cheap oil will be. The bubble will only deflate when demands will collapse, but even if the demand collapse in US, prices will ease, yes but temporary since it will then in turn boost the demand in emerging market.
Stop thinking that US is still controlling the whole world economy, that we can depreciate our dollards and the whole world just have to accept it.
Posted by: Trehugger | Jun 26, 2008 9:43:54 PM
@Andrey Levin
Andrey , I hope it is only speculation, but if it is a rapid decline in oil production then our oil hungry world will transform in a very painful way. Think about what economic segments will suffer: trade, farming, air travel, trucking, rail transportation, retail, and manufacturing… on and on.
I vacillate between dreamer and realist, this thread has pushed me to realest. Rollingstone has said it better then I can.
Reference:
http://www.rollingstone.com/news/story/7203633/the_long_emergency
Excerpt:
…. the Long Emergency will require us to make other arrangements for the way we live in the United States. America is in a special predicament due to a set of unfortunate choices we made as a society in the twentieth century. Perhaps the worst was to let our towns and cities rot away and to replace them with suburbia, which had the additional side effect of trashing a lot of the best farmland in America. Suburbia will come to be regarded as the greatest misallocation of resources in the history of the world. It has a tragic destiny. The psychology of previous investment suggests that we will defend our drive-in utopia long after it has become a terrible liability.
Before long, the suburbs will fail us in practical terms. We made the ongoing development of housing subdivisions, highway strips, fried-food shacks and shopping malls the basis of our economy, and when we have to stop making more of those things, the bottom will fall out.
The circumstances of the Long Emergency will require us to downscale and re-scale virtually everything we do and how we do it, from the kind of communities we physically inhabit to the way we grow our food to the way we work and trade the products of our work. Our lives will become profoundly and intensely local. Daily life will be far less about mobility and much more about staying where you are. Anything organized on the large scale, whether it is government or a corporate business enterprise such as Wal-Mart, will wither as the cheap energy props that support bigness fall away. The turbulence of the Long Emergency will produce a lot of economic losers, and many of these will be members of an angry and aggrieved former middle class.
Posted by: Axil | Jun 26, 2008 10:12:34 PM
If The Long Emergency is right...
Billions are going to starve.
But it isn't like we aren't looking for alternatives:
http://www.ls9.com/
Posted by: Cervus | Jun 26, 2008 10:24:42 PM
Axil
This is the black scenario we are heading at if our polticiam keep denying or ignoring peak oil then we will be trapped in a spiraling depression that slip out of control, if we accept the problem and engage actions right now, things will turn different, energy will be much more expensive but gain in efficiency as well as development of alternatives can turn to a soft landing. if we invest massively in the green stuff we will not only counter depression but also avoid the shock of peak oil, the problem is that we are already so much in debt with a weak currency and we are giving away our last money in a stupid and useless war. to day they voted 162 billions$ for this f*king war when this money could be spent on wind mill installing heat pump . Shame on our politics
Posted by: Treehugger | Jun 26, 2008 10:26:57 PM
Why don't you guys look at actual figures? It tells the story fair and plane. Production has been essentially flat but exports are dropping. There is decreasing oil on the market for increasing demand. Market fundamentals pure and simple.
http://europe.theoildrum.com/node/4179#more
Posted by: | Jun 26, 2008 10:54:08 PM
So much talk I think I have carbon monoxide poisoning...I'm really dizzy. Why did everyone laugh for 35 years at my 35, 50, 53, & 75 MPG vehicles.
Posted by: litesong | Jun 26, 2008 11:00:42 PM
Only needed 14MPG trucks 3 times during those 35 years & my neighbor helped me.
Posted by: litesong | Jun 26, 2008 11:03:50 PM
@Treehugger
You are now a kindred soul; your words may have come out of my own brain.
John Jay Chapman: “Politics is organized hatred…”
Posted by: Axil | Jun 26, 2008 11:04:59 PM
I agree with some posters here that the price of oil is really just "correcting," in that it was always too cheap. Everyone's just waking up to this a little faster than we thought they would, but at least they are waking up. I think if we can make it through without a total collapse, the "Long Emergency" will mark the emergence of a better world, cleaner, sounder and more stable. Everyone on this site knows that electric cars would not be happening without $4 gas and the threat of $7-10 gas on the horizon. Yet I've wanted an electric car for years, because I'm convinced they will be better cars. Along those lines, we've just got to make it through the next 10-15 years until the efficient solutions start to kick in, and then we'll all be better off for having gone through it. So as I pull up to the pump I try to keep smiling even as I bite my lip...
Posted by: Jeff R | Jun 26, 2008 11:07:00 PM
Axil:
It takes 7-10 years from initial investment into oil field until oil will hit the market in quantities. No amount of money or multiplication of oil price can change this. Well, drilling ANWR could yield additional 0.5 Mbbl/d in 3-4 years, because most of the infrastructure is already in place, but that’s about it. How long ago oil price began to rise and capital began to flow into new projects? 3 years? Hence the flat production, despite high price. Same, BTW, is true to almost any mining project, hence 3-5 times higher prices for metals and other mined commodities. It is not peak oil, it is not enough time to ramp-up production, by large.
Most credible economists (credible IMO, of course) place “fair” price of oil at 70-80 dollars (current dollars, not 5-years old dollars). “Fair” price means enough anticipated profit to investors to begin massive investment in oil industry and alternatives, and enough price pressure to curb additional demand until new projects will come on line. Additional 60 dollars per barrel we see today is speculation, oh sorry, price discovery.
As any massive speculation, it could burst violently, and consequent disruption of financial system could throw us into REAL recession.
The worst possible thing that could happen right now is sharp drop in oil prices. Let’s hope that correction will be gradual.
Posted by: Andrey Levin | Jun 27, 2008 1:00:10 AM
“…to an average price of $200 per barrel by 2010. “Under prevailing refinery margins” he writes, “that should translate into a near-$7 per gallon pump price within two years….”
Rubin assumes prevailing refinery margins. Margins are percentage markups of prices. This assumption is wrong because competition will eventually decrease these margins when the price of crude oil increase. A better proxy for the relation between crude oil price and the US retail price of a gallon of gasoline is to divide the price of crude oil by 42 to obtain the per gallon crude oil price and then add $1 for refinery and distribution costs. That gives:
Crude oil at $140 per barrel: (140/42+1) = $4.33 gallon of gasoline.
Crude oil at $200 per barrel: (200/42+1) = $5.76 gallon of gasoline.
Crude oil at $300 per barrel: (300/42+1) = $8.14 gallon of gasoline.
I find Rubin’s projection of crude oil prices likely in a business as usual scenario where global economic growth continues to drive crude prices up because the supply appears to be fixed at the current 85 mbd. The biggest uncertainty is what happens if Israel destroy Iran’s nuclear program. Or what happens if Israel does not destroy Iran’s nuclear program and Iran subsequently obtain atomic bombs and launch an attack on Israel to destroy it completely as they have repeatedly said they would? Alternatively, Iran may give in to economic sanctions and abandon their program in a verifiable manner. Is that likely? Or is Iran just making jokes about the destruction of Israel?
My bet is that Israel will destroy Iran’s nuclear ambitions and that it would be wise for any company to make contingency plans for oil at $300 per barrel because it may happen for a limited time or as long as that war rages. On the other hand, war is like love in that it newer really turns out the way it was planned. Therefore, what we can do is to hope for the best and prepare for the worst. To prepare for the worst is to eliminate oil and natural gas use wherever it is possible as quickly as possible. One measure would be for all OECD countries, China and India to build a quick charge network for EVs. This is more important than any other measure and it can be done in a very short time (3 years) if we have the will to do so.
Posted by: Henrik | Jun 27, 2008 3:29:58 AM
I love the "expert credible" economists that say that the fair price of oil is $70-80. I suppose they thought that when oil was $20. I suppose they know more than the collective market made up of millions of investors. They probably would say that the Dow should be 12,500 - that is the "fair value".
I don't see how any person could look at all the supply issues (and potential problems) and look at the demand of 7 billion people. Think for a second and come up with a figure. That is truly knowledge of a deity. Do they have "fair value" for a bushel of corn?
People who are experts love to get in front of a camera and say the price of oil should/will be $X. Makes them feel important and knowledgable. Just like the media stock pickers. The world is too complicated for that.
Nationalizing oil companies is actually a bit of the problem. Like in Russia because it limits outside investment and expertise leading to less production than possible. Nationalizing companies in the US is a ridiculous joke and the idea really speaks to ignorance. It is as if the oil companies in the US control production of a global commodity - and somehow if we nationalize them we can lower the price of a GLOBAL commodity.
Speculation = price discovery. Yes - in a way. If $140 barrel oil = gas at $4.50 and that keeps demand equal to supply then yes - we have discovered a price. But - the US usage is only minimally down so I am not sure that we have discovered a price. If what we need to do is decrease 5% per year in the US to make up for the rest of the worlds growth and we aren't there yet --- then maybe it is $5 a gallon or $6. Everytime the price goes up and we don't decrease usage - the price goes up more.
Axil - Tech Bubble = neo cons fault. Wow - that idea is fixed by looking at a calender.
Conservative here - yes the markets are working. Just fine. Funny how the most powerful force to improve the environment is market driven. Give us $5 gas and I'll continue to breathe easier, the sky will be cleaner and we might yet kick the SUV/truck habit.
Posted by: 300TTto545 | Jun 27, 2008 3:49:14 AM
1) Most people agree that using conventional crops to produce biofuel is NOT the way to go, since that takes too much energy to do so. The way to go is to using oil-laden algae, which won't interfere with food growing demands and oil-laden algae can use even seawater as a medium to grown in, which avoids the issue of fighting for fresh water resources. There are multiple companies around the world working on using oil-laden algae as a biomass fuel base.
2) EEStor is not the only company working on advanced supercapacitor technology. There are other American companies and European companies exploring this technology, mostly because of the huge promises of longer range, smaller battery pack size and very fast charge times, all very necessary for a true, practical BEV.
3) Cities may drop in physical size horizontally, but only up to a certain point, mostly because humans can't tolerate living in high density conditions (you do notice how stressed-out humans are in the world's biggest cities).
In short, it's like the 1850's all over again, when the rapid decline in the whale population made a lot of people worry about how to light lamps (at the time lamps was fuelled by whale oil). The discovery of using kerosene to fuel lamps eliminated that problem by the late 1850's, which laid the foundation of the petroleum industry (the Standard Oil Company started first as a kerosene production and distribution company). With cheap crude oil production dropping, there is now economic incentive to produce motor fuels from oil-laden algae on a huge scale and finally develop the supercapacitor battery technology that not only makes BEV's truely practical, but also make solar and wind turbine generation on a large scale practical (since there is now a way to store all the power generated for use at night and lower wind conditions).
We are actually fortunate that trucks, railroad locomotives and many oceangoing cargo ships are powered by diesel engines. With large-scale diesel fuel production from oil-laden algae, that means we will eventually substitute petroleum-based diesel fuel for algae-based diesel fuel, which means in the long run the transportation sector will recover since there will now be a true, renewable source of diesel fuel. And it has one big environmental advantage: diesel fuel from algae burns quite cleanly, which means less need for expensive NOx and diesel particulate traps.
Posted by: Raymond | Jun 27, 2008 4:24:19 AM
OK I have a question about refinery capacity. I have read reports that our refineries (here in the US) are making diesel to export to Europe, where individual diesel demand is higher, while at the same time importing gasoline from Europe, here. If this is true, and throwing the current weak dollar, how would this affect pump prices here in the US?? Does this explain the oil company's obscene profit margins? I am no economic expert, but I would think the export/import scenario would be adversely affect pump prices! If this is true, it seems wastefull for a tanker to be going east with diesel, while another goes west with gasoline. Do they pass each other in the middle of the Atlantic and honk their horns at each other?? Back on topic, if all of our US refinery capacity were used for in-country fuel supplies, what would our prices be?? Would we be seeing any cheaper gasoline prices?
At the same time, I feel "price per barrel" numbers are somehow being manipulated to stay high to increase both public and private calls for more domestic oil production, namely in the deep waters off our coasts, anwar, and in the shale oil in Colorado. Cheaper "per barrel" prices do not make going after these reserves profitable. That is my gut feeling, and I have no examples of manipulation to back it up. Just many hours of reading differing articles and energy ideas across many mediums. Price speculating, to me would seem way to risky. But I am sure it also has an effect.
Our country, and the world, will be fine after this mess. There is going to be a major hangover, for which we are starting to feel the pain of. (We are at the point of looking at the runny eggs.) But like all hangovers, things will get better. Thats where BEV, and battery technology, will shine. A priority should be made, in this country, in diesel production for both freight trains and long haul truckers to help deliver cheaper food and goods. Or convert to DME. Future personal transport will be BEV, supported by mass public transport, scooters, bikes, both motorized and humanized. Efficiency gains across the board in batteries, and in freight train technology will return our country back to prosperity. We just need to be able to keep our brightest engineers who want to stay here, instead of letting their visa's run out. But thats an argument for another day and another thread somewhere.
Posted by: Mark A | Jun 27, 2008 5:57:09 AM
300TTto545: People who are experts love to get in front of a camera and say the price of oil should/will be $X. Makes them feel important and knowledgable. Just like the media stock pickers. The world is too complicated for that.
Funny, I say exactly the same thing every time I see an oil speculator furiously apologizing for their price-pumping in the media. "Doom is at hand! My manager says $500/bbl by next Tuesday, or I lose my job!"
Funny how the most powerful force to improve the environment is market driven.
Yes, indeed, we can fix all of the environmental problems more or less tomorrow: just drive the price of oil to $1000/bbl. Civilization as we know it will disappear more or less overnight.
Problem solved!
What a breathtaking innovation! Thinking about this technique, I suddenly realize I can solve my heating bill problem by burning my house to the ground! I think I could do this with extreme efficiency too: a 1 cent match is all it would take. And the gasoline problem I have by pushing my car over a cliff! I suspect this could be done with the energy cost of a single glazed donut. Depends on how far I have to push the car. Can I make a trial run with your car?
So, now that price bubbles are now officially good, are there any other economic concepts we need to learn from the speculators?
Posted by: | Jun 27, 2008 5:58:01 AM
Raymond, I agree with you 100% in regards to battery developemnet for wind/solar energy storage, and in the algae diesel production for freight trains, truckers, and cargo ships. Couple that with biodiesel from soybeans, and we are there. Freight trains have made major efficiency gains, recently, cleaner. Its obscene to know how far a locomotive engine can pull a full load of rail cars on a comparable single gallon of diesel. And more efficency gains forthcoming.
I am excited and about the future. Localized production and refinery of all our fuels is the only way to go. Then let the middle east fight amongst themselves with no intervention needed on our part. Could be a rosy future if we allow aspirations and ideas to flourish.
Posted by: Mark A | Jun 27, 2008 6:20:12 AM
@300TTto545
Axil - Tech Bubble = neo cons fault. Wow - that idea is fixed by looking at a calendar
Let’s pin down the date.
Reference:
http://www.villagevoice.com/news/0203,ridgeway,31534,6.html
Excerpt:
In June 2000, Senator Gramm co-sponsored the Commodity Futures Modernization Act, a measure aimed at deregulating certain kinds of futures trading, but not energy futures. That bill never made it to the floor, and thus quietly died. Six months later, on December 15, Gramm curiously turned up as co-sponsor of a bill with the same name, the Commodity Futures Modernization Act, which did deregulate energy futures and which, without undergoing the usual committee hearings and preliminary votes, was immediately attached as a rider to an 11,000-page appropriations bill. It passed and was signed into law by President Bill Clinton six days later. Few lawmakers had likely perused the rider carefully, if they even knew it was there. And at any rate, Enron had given to the campaigns of over 200 legislators.
It all started on December 15 2000.
Reference:
http://www.washingtonspectator.com/articles/20080415fyi.cfm
Excerpt:
The "Enron exception" that Senator Gramm included in the act protected all on-line derivatives from federal regulation, even when they were designed to defraud investors. It did seem like a conflict of interest that Senator Gramm was passing a law that would benefit his spouse, who was being paid by a corporation that would reap enormous benefits from its passage. And although the glaringly evident conflict was reported in some news outlets, the Gramms emerged unscathed from the situation.
Posted by: Axil | Jun 27, 2008 6:36:04 AM
What is interesting about this impending explosion of old-school energy source costs on the world's economies -is- how its wealth (at least partially when you remove the immense profits going into oil-industry coffers) is APPARENTLY(media hype?) pushing technological innovation. It appears that a lot of systems are getting to almost-retail readiness a lot sooner than many had forecast. What we may have is a huge variety of products from all industries that are dramatically more energy efficient and/or are based on new energy systems. It is a remarkable thing.
The crucial lynch pin will be whether people/companies can actually afford the substantial capital investment in these upgrades and changes after depressed economic numbers. Showrooms full of hybrids, PHEVs, Fuel-cells, windmills, solar panels, etc., all going unpurchased? Will consumers and businesses retreat into a shell of non-consumer/non-fulfilling mediocrity -or- embrace the new technologies and push forward with the lifestyles they want rather than the lifestyles being forced upon them? Can they access any credit - do they have any savings?
On the price of oil: one of the simple, main tenets of pure market pricing is: that you charge the highest price the market will bear. If sellers believe that consumers are willing to change their lifestyle to continue to pony up cash for something as ubiquitous such as gas - what other 'essential' commodities will suppliers decide is simply priced too low. Geez, why not double the price of fresh vegetables and cereals in G8 countries - those placid citizens won't riot, rebels or significantly complain.. they will simply quietly suffer...Is this a better world?.. Is that the market mechanism that we want? A business community trying to pry every penny out of consumers because hey, why not - the highest price people will suffer to pay is a bit higher. There is no balancing mechanism. If I produce 5 oranges and there is a demand for 6 at cost + reasonable profit... what sort of person/supplier would decide to double that just because people are willing to pay it? Are we really that shallow and soulless? We are not talking about struggling suppliers... We are not talking about a ruthless competition among producers.. we are talking the whole industry getting wealthy without any pretension of 'competition' - no competition means 'silent collusion'.
Also, though no one is planning the steep price increases per se... it is obvious that 'silent collusion' is going on... suppliers are looking at the traditional profit margins before and saying.. why should we settle for that? -- this is the evil that is going on.. as i see it...
Posted by: Jer | Jun 27, 2008 7:08:15 AM
@ et al:
There is nothing as misleading and unfair as 'fair price' or 'fair value'. It means about nothing nowadays.
When so called intelligent persons pay $1000+ for a pair of decorated Jeans, made in China HK for less than $10, who would call that a fair price? The WalMart's $9.95 jeans would last just as long.
When speculators manage to boost oil price ten folds to $140/barrel and predict that it will soon reach $200+/barrel, it is very far from the fair price notion.
Worst yet is when we pay even more (per liter) for a bottle of plain (free) water.
When grain price doubles and triples within the last 15 months, did production cost go up at the same rate? Definately NOT.
When Google's value went up from a few thousand $$ to over $45 billions was this done in the search of fair price. If MS is cracy enough to pay that much, I'll stop using their products.
Buyers are being taken for a ride in most cases and we seem to like it.
Who believes that the made in India $2.5K Tata nano will be allowed into USA? Not unless somebody finds a way to multiply the price 10 folds.
Who believes That the made in China $5K BEV will be allowed in USA? Oh no, we must find a way to multiply the price or block imports to protect our inefficient Big three.
Free market is a fine principle but it is, most of the time, manipulated at will. That's why speculators exist and get rich at it. The official stock market is their main tool. They ride the bubble until it burst and then create a new one.
To burst the oil price bubble we need:
1) massive vehicle electrification, or/
2) lasting economic downturn, or/
3) A progressive but heavy carbon tax on all fossil fuels.
1) + 3) above would be an acceptable processus, if applied over 10 to 20 years, and if we could keep the speculators out.
Posted by: HarveyD | Jun 27, 2008 7:38:30 AM
Just saw an interview with Jeff Rubin on CBC newsworld. He was being interviewed with 3 other economists that tried to put the price in perspective. One, a british guy who was knighted and in the house of lords, took the position that it was pure speculation driving the price. That the fundamentals didn't reflect the price. The middle guy's position was that the price would cause some feedback and create conditions that would eventually cause the price per barrel to drop. The last guy was Mr. Rubin, whose position was that of peak oil. That no matter what, high prices cannot generate more oil and whatever excess there is, is being absorbed by world demand.
As for more oil. From what sources and at what costs. It's becoming fairly obvious that the finds are becoming less accessible and far more costly to get. It isn't feasible or realistic to expect to keep up this amount of consumption or the idiotic uses that we have created for it when it was cheap. Not only that, but many technologies that could cut oil consumption rely on oil itself to be easily produceable in a cost effective manner.
Posted by: aym | Jun 27, 2008 7:59:59 AM
@HarveyD
Some of your economic strategies for busting the oil price bubble are inconsistent with the basic tenet of this thread: The average wealth and prosperity of Americans is declining with accelerating speed.
For example:
Massive vehicle electrification – this will not happen because most Americans consumers can’t afford to invest in this technology going forward.
A progressive but heavy carbon tax on all fossil fuels – This will accelerate the destitution of Americans further limiting their ability to respond.
Lasting economic downturn – This is a realistic economic prediction.
Your basic tenet that people will pay anything for a product is only true if there is unlimited money around: perhaps true in the past.
If the average person is destitute, they will not buy the product at any price: perhaps true in the future.
Posted by: Axil | Jun 27, 2008 8:30:52 AM
aym: Just saw an interview with Jeff Rubin on CBC newsworld.
What Rubin says may be true, but must be weighted in accordance with the fact that he is an employee of CIBC, a bank that has taken a massive hit in the credit markets in the USA.
It is likely they are very long in oil and other commodities at this time.
Which is to say, he is simply a mouthpiece for a group of speculators.
Posted by: | Jun 27, 2008 9:28:25 AM
What we have here is similar to 7 people sharing a 6 pack.
Someone needs to go short.
World oil demand is now greater than world oil supply, and the supply cannot be increased any time soon.
Solution, increase the price till some demand is shed. The fact that Oil companies and various speculators gain a bundle is 'just business' albeit quite profitable for oil companies.
When shorted for his beer, our 7th friend goes looking for another party. Those who cannot afford (or who don't wish to pay) the new high oil prices will go look for an alternative to oil.
As it turns out, there is just such an alternative available. Battery Electric Cars and wind generation make a whole new "Energy-party" that will soon become hot new toys for the "in-crowd" and leave fossil fuels unsold at any price.
The stone age did not end because of a shortage of stone.
Posted by: John Taylor | Jun 27, 2008 10:27:34 AM
It has been scientifically proven to 99% certainty that speculation has caused the oil bubble.
Econophysicists Didier Sornette of ETH Zurich, Switzerland, and Wei-Xing Zhou of the East China University of Science and Technology, together with Ryan Woodard of ETH Zurich, claim that speculation must have driven some of the escalation in oil prices. They have found evidence for a “bubble” — an indicator of speculation — in prices since 2003, when the cost of an oil barrel was four times lower than it is today.
‘99% certain’
Could it be that there is no financial speculation, but that the demand for oil from China and India is growing super-exponentially, like a bubble? Sornette’s group cites figures on world oil supply and demand from the International Energy Agency that suggest this cannot be the case. Sornette told physicsworld.com that he is “99% certain” speculation is influencing current oil prices.
Sornette group first came up with his theory of super-exponential growth as a symptom of economic bubbles in 1996. In 2005, they used it to predict the burst of the US housing bubble.
http://physicsworld.com/cws/article/news/34718;jsessionid=45407E8216E6C46B5B5F1650B740ADEC
Posted by: Berserker | Jun 27, 2008 11:07:48 AM
This isn't that complicated, conservative ideology be damned:
1. There is some data that indicates that speculation has an impact. It's cheap and reasonable to eliminate this possiblitiy. Limit speculation via responsible regulation or transaction taxation for a three year period.
2. Supply and demand are imbalanced in the short term and the long term.
SHORT TERM fixes (you can only drive conservation in short term):
1. Lower maximum speed limits to 65MPH, target 5MPH reduction in average speed nationwide. Not too painful, but will save billions of gallons.
2. fund retrofit mild hybrid drives everywhere feasible - school and city buses, short haul vehicles of all kinds - garbage trucks, delivery trucks, taxis, workplace and construction vehicles. This will save ~500-1000 gal/vehicle/year across 3-5M vehicles nationwide. Subsidies can enable use of simple mild hybrid drives using deep cycle lead/acid batteries, since the subsidy enables 3-4 year life to be acceptable.
3. Continue current biofuels initiatives 2 years, then review.
4. Fund route frequency expansion in all transit systems.
5. Subsidize private transport systems for suburban employers, a la google buses.
6. pay bounties for retirement of V8s. Gotta do it.
7. Oh yeah, $2 tax on incandescent light bulbs. No problem if you love them too much, just pay for them.
LONG TERM (3-10 years) you can attack the grid and transportation, and affect supply bottlenecks/fuel choices
Transportation:
1. make all tax incentive programs long term to ensure effectiveness
2. Use taxes to establish 10 year price of petroleum at 80$/BBL to ensure investment
3. mandate mild hybrid on every v6 and v8 via tax penalties
4. Invest in urban, high speed mass transit
5. Tax family vehicles above 3500lbs, aggressively.
Supply Bottlenecks/fuel choices
6. subsidize oil and natural gas production increases in mexico and Venezuela - big bang for 3-7 year time frame
7. Do everything possible to increase natural gas production and LNG transport around the world to US - so much is flared away or ignored right now.
7. Expand refinery and LNG terminal capacity in US
8. Encourage natural gas as a substitute auto/truck fuel for next 20 years.
9. Buyback all oil burning furnaces in US and replace with natural gas/propane
Electrical generation:
1. Drive transport electrification everywhere
2. Solar Thermal, wind, waves for increased total generation
3. clean coal, natural gas for base load increases - never mind nuclear, takes too long to impact, and natural gas is flared around the world.
4. strengthen the grid for when microsolar, cogeneration and BEV can impact supply.
See? This isn't that hard. Funding? $20B/year should do it easily in US. Is that so hard? Just mothball Star Wars and JSF, and you're done. Or withdraw from Iraq - let the Republicans decide which one to do.
Posted by: Dollared | Jun 27, 2008 11:53:06 AM
In 10 years China will surpass the US in cars on the road. The future of energy is in the hands of China now.
Trehugger : “Stop thinking that US is still controlling the whole world economy…”
We’re just along for the ride.
Posted by: Axil | Jun 27, 2008 12:05:42 PM
Axil: In 10 years China will surpass the US in cars on the road.
You doomers are a riot and a half.
On the one hand, we have Peak Oil swooping in for the kill. Run for your lives!
On the other hand, we have China supposedly on the road to out-car Car Heaven. "We’re just along for the ride."
Anyone else looking at this is going to ask: where is all that oil to power them going to come from? Is this peak oil or is it not?
Don't worry -- I know, I ask the impossible of a doomer! -- here is your answer: given your claim comes true, we can confidently predict they'll be using less than half the gasoline the USA is using today. Probably the USA will be well on the backslope of the demand curve too.
The developing world's single advantage right now is that they have not decades of investment in patently inefficient cars and other infrastructure. They aren't going to build SUV's for a generation, they'll just start pooping out super-efficient cars, PHEV's or better.
I wonder if there is "Peak Doomerism". I hope it comes soon...
Posted by: | Jun 27, 2008 12:28:43 PM
It's convenient that while reading this article, two useful graphs appear beside it in the right column. One shows vehicle miles travelled for the past 25 years. It goes up and up and up until suddenly - oops! - it turns around and heads back down. That goes to show how high prices are suppressing demand.
For those who insist that today's prices are "unfair" and that $70 is the right price, you are aware, right, that lowering the price will increase demand? That means, more oil would be consumed and we wouldn't have seen miles travelled come down like it did? And so, where do you think this additional oil would come from? If not enough is being produced at $140, how can you possibly think more will be produced at $70? The math doesn't add up.
The other handy graph is below it, and shows truck/SUV sales versus car sales. The SUVs grow and grow and grow in market share, until again - oops! - suddenly things turn around and now the cars are growing instead. And here, if you click on that and look at it closely, you'll see the "daring" prediction in the article of 30% market share for SUVs is totally conservative. When you look at that graph, the part to the left of the vertical line is in YEARS, while the part to the right is in MONTHS. That means that the decline rate on SUV market share is actually 10 times steeper than it looks on the graph! We're already almost down to 40% market share, and at this rate we'll be down to the predicted 30% before the end of this year! Yet our daring analyst went out on a limb and predicted 2012 for this milestone.
My daring prediction is that a year from now you won't be able to give those dinosaurs away. For years in fact I've predicted that the ultimate outcome is that today's SUVs will become ghetto hotels. All those hyper-expensive, massive vehicles are going to end up parked and undriveable, lived in by poor families as a cheap alternative to rental apartments. Poor people, by choice or necessity, tend to pay less up front in exchange for higher costs later. That's a perfect description of the considerations facing someone who's offered a hundred dollar Hummer.
Posted by: Hal | Jun 27, 2008 12:57:36 PM
Hal,
I agree with you about fuel price and its effects on SUVs. What an incredibly stupid set of policy decisions pushed that one - emphasizing size in safety analysis, exempting SUVs from CAFE, etc. All rigged by the US car companies and the petroleum industry, but aided and abetted by Republicans and Democrats alike.
And price will simply kill them.
But what if we had listened to Ross Perot? Maintaining $3.00 gas (in real terms) from 1985 to today would have meant that our budget would be balanced and we wouldn't be sending $$700Billion/year to fund terrorists in the Middle East.
Seems to me that the Europeans had far more commonsense than we did. And that began with not allowing the vagaries of the markets to dictate conditions in our country.
The world belongs to those who will work to determine their destiny....
Posted by: Dollared | Jun 27, 2008 1:25:33 PM
Massive vehicle electrification – this will not happen because most Americans consumers can’t afford to invest in this technology going forward.
Cost to upgrade all 16m cars sold in the US each year to PHEVs: $80b.
Cost to build 16 GW/year of wind farms to fuel those 16m PHEVs: $30b.
Current annual cost of oil imports: $700b
The question is not whether we can afford to invest in vehicle electrification, it's how can we afford not to?
Posted by: doggydogworld | Jun 27, 2008 2:23:32 PM
I like this idea of SUV used as shelter for poor families who can't afford to drive them anymore and can't afford to rent a home either.
Posted by: Treehugger | Jun 27, 2008 4:58:18 PM
This discussion has seemed to put a lot of things on the table. I guess we can be thankful that at least no-one (yet) has brought up the old chestnut that our petrodollars are supporting arab terrorists. About the last thing we need to be told. Cos' if that's true... that would make just gassing up the car - a treasonous act.
The flaw in this argument of Futures dealers rigging prices is that when the contracts come due why aren't the arabs insisting that deliveries be made ? And if the oil is not delivered because there is no storage for it, then why is OPEC entering into more contracts ? Isn't this collusion on the part of OPEC ? If the spot price for oil can be governed by the dealers running the futures market and that market is managed offshore - at the LSE I believe - then those dealers are proxies for OPEC, and we have a situation here.
I think the arabs should be allowed to charge anything they want for oil - it's their oil.
However perhaps some retail price maintenance policy to discourage futures trading in oil could be formulated at the coming G8 summit. I have no problem with $10/gallon oil in the long term but meteoric rises in the short term undermine global stability and could quite reasonably be considered a provocation justifying some form of US intervention.
@Treehugger LOL that conjures up scenes from "Soylent Green" set in 2022 when the population of NYC was predicted to be 40 Million. Many of whom are now living in their dysfunctional automobiles mostly prematurely aged Pontiacs which being from a pre '73 movie probably came close to an SUV in size anyway. Law and order prevails but the economy is in a continuous downwards spiral as envisaged by a previous poster. Consequently the food source of Soylent Yellow and Red (vegetable concentrates) is to be augmented with (cheaper) Soylent Green derived supposedly from plankton. Which I guess is a form of algae. Ironically this vision espouses the people living from the algae - not their cars !!
T2
Posted by: T2 | Jun 27, 2008 6:40:06 PM
"Anyone else looking at this is going to ask: where is all that oil to power them going to come from? Is this peak oil or is it not?"
Well, the natural presumption of Doomerism is that China will manuever themselves into the fabled catbird seat of supply monopoly, thus cueing up the GRAND WAR TO END ALL WARS between whoever and the other guy. As civilization collapses, billions of dollars will be allocated to a grand snatch-n'-grab in Asia, all in the name of some lunatic myopia intended to maintain the so-called "American way of life".
Which is, as it seems, already in a serious state of flux. The Kuntsler Rolling Stone article cited in here was penned by one of the grand architects of the Endgame PO Scenario in 2005; I happen to think he's probably right in a lot of ways.
And I also think that we're seeing the drag-down. The world market's head has hit the ceiling; consumption is dropping accordingly. Let the prices continue to steamroll, and by the time the market stops to soften in the face of the oil-depletion apocalypse, gas will be twelve bucks an hour and nobody'll give a crap. It doesn't take much to mitigate and change one's lifestyle, as even this relatively stunted state of market nonsense is proving.
Cue the ol' "BUT WE CAN'T MAKE ANYTHING TO REPLACE OIL IF WE DON'T HAVE ANY OIL TO MAKE IT WITH" chestnut right here. ;)
Posted by: Michie | Jun 27, 2008 9:29:49 PM
Generally speaking, the key word to describe what to do with troublesome oil situation in US is “TO ALLOW”. Allow private capital to drill, build nuclear power plants, new power lines, expand refineries (especially for heavy crude), new hydro power, coal-to-liquid and other mature technologies. Again, by private capital.
Meanwhile, PROMOTE by government money flow of private capital into R&D and implementation of new promising technologies like solar, wind, geothermal, heat pump heating, energy efficient homes, second generation biofuels, hybrids, PHEV, FC and battery EV, etc. Gradually, combination of winners will appear and fill their niches.
Essentially, it is exactly what China is doing right now, with Western companies supplying advanced technology. So, it is up to Americans, whether to stick to AGW idiocy and environmental extremism (this week US federal government implemented two years ban on development of solar on federal lands, because it could harm desert turtles and squirrels) and lag behind paying premium price for everything, or lead the world out of oil/OPEC dependency.
Posted by: Andrey Levin | Jun 28, 2008 12:26:22 AM
@Axil,
Sorry Axil. The calendar is correct. Clinton and his administration repealed the Glass Steagall act in 1999, before Bush arrived.
The new fortunes of "concerned capitalists" like the Enron boys that supported Clinton, who regularly slept over in the Lincoln bedroom, were the instigators.
The man who finances the leftist extremists, masquerading as Democrats, is a commodity speculator. He made his billions speculating in currencies.
Like the Enron boys, he never made a damn thing except money and his companies like theirs, are hollow shells, that manipulate but produce nothing concrete of value.
They possess no factories, produce no products. Perfect places for the flood of lawyers and financial MBAs flowing from the Ivy League who can produce nothing; but are very good at distributing other peoples wealth.
When the amount of speculation starts to dwarf the real trade in the underlying commodity, it has gotten out of hand, No longer does it acts as a marketstabilizing function. A bubble is then building.
The solution? Raise the margin requirements for commodity speculation. But this has to be done in consort with other foreign exchanges or the speculation goes on unchecked, but just in a different venue. It is reduced some since the speculators will find fewer places from which to borrow the larger amounts of credit needed to finance their speculation. The specualtion would unwind, but probably in a crash, as punctured bubbles are prone to do.
Posted by: stas peterson | Jun 28, 2008 11:56:11 AM
Yup, free enterprise will solve this problem!
After all, it's worked so well in the petroleum market. By golly, I want more of the same.
Leave it in the hands of the oil monopolies, and they will solve the problem. At $10/gallon, they will start exploring again and they will provide us alternative fuels: diesel from coal.
And after the Second Great Depression of '08-'18, and the Great Mideast War of Liberation, we'll get back to our role as a modest agricultural power with two oceans to protect us. It'll be 1919 all over again.
Yes, sir. Why have a sensible government policy that could keep us out of all that? The free market has served us so well.
Posted by: dollared | Jun 28, 2008 10:12:07 PM
There are a lot of doomers here and a lot of people that don't want to look at basic economics - ie supply/demand.
On the doomers - $140 a barrel is not the end of the world. We still spend less % of GDP on energy than 1973 - by a lot. $4 a gallon gas is only really a problem for people who made poor choices on vehicle purchasing or commuting. Buy a motorcycle. Driving around in a car is a luxury. The economy's slowdown is relatively mild and multifactorial.
Supply/demand. No where in the equation of "price finding" is the cost of production. It is based on how much there is of a commodity and how much people want it. It is that simple. If you don't like it then you don't like capitalism. Fine. But don't expect the US to throw capitalism out the window since it has served us so well for the last few centuries.
There seem to be people complaining about high prices when it is what environmentalists have been asking for years. High prices = conservation. We couldn't politically pass high gas taxes but now we have them. Pity the money leaves the US but at least we are finally looking at ending the oil addiction. The speed (of the price increase) was a little disruptive but we will survive!
Posted by: 300TTto545 | Jun 29, 2008 3:45:33 AM
"The long emergency"
ROFL. People seem to forget there is no energy crisis, just an oil crisis. The technology to power our cars on something else than oil is already there. The necessity will force the adoption of this new technology and after that it is the predictable spiral of mass production bringing down prices, fueling innovation and growing the market even further. Look at the bright side.
That people will not be able to afford electric cars is not a good argument. There will always be new cars sold to replace the scrapped ones. The economic downturn will not halt all car sales.
When putting the energy requirement of the car into perspective (powering our cars on electricity will only increase consumption by 15-20%), then we realise that the car is much more a waster of energy than it is a consumer of energy.
My prediction: suburbia will stay.
If that extra 15-20% can only be fulfilled by coal, then that is what will happen and the environment will have to wait. It's not what I would like to see, but when the choice will have to be made that's how I think it will fall.
Posted by: Anne | Jun 29, 2008 2:34:10 PM
$7 per gallon for gas in 4 years actually sounds like an optimistic scenario based on the price rises of the past 4 years.
Posted by: sjc | Jul 5, 2008 5:43:35 PM
Oil prices will continue to drop because this is an election year. Other reasons include the bankrupcy of SemiGroup and legislation to curb speculation. There has also been some movement on a new Drill Bill by president Bush and although this will not hav any immediate effect it will send a message to OPEC and the world that the US is moving towards a more self sufficient stance in energy management. As a side note, civil charges were laid by CFTC against a Dutch firm for manipulation OIL futures contracts in the commodities market. This will also send a message that the CFTC is serious about cracking down on questionable activities of unscrupulous traders. Oil will drop to about $80 a barrel by December 2008 and will continue to drop until it levels off at about $60 a barrel early next year.
Here is the equation simplified:
Slowing demand for oil + New Trade legislation + election year + alternative energy + a stronger dollar = Bad news for Oil speculators…..$60 dollars by April
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