Oil Price Rock and Roll

It’s hard to believe today that in May, 2008, Goldman Sachs analysts were forecasting that oil would reach US$200 a barrel within two years, or that the late Matt Simmons, founder of the energy investment banking firm Simmons & Co. International Inc., predicted oil could zoom to US$300.

Simmons even wrote an influential book in 2005, Twilight in the Desert, predicting the decline of the Saudi oil industry because of overproduction from shrinking pools. As it turned out, the Saudis are still pumping oil to their heart’s content, and in fact producing at record levels today. __ Predicting Anything is Hard … Especially the Future

Taking the Long View on Oil Prices

Oil Prices 1861 - 2015 All-Time Peak Was in 1864 http://dadaviz.com/i/4852

Oil Prices 1861 – 2015
All-Time Peak Was in 1864

Oil prices peaked in 1864 (in constant $USD) and have never reached that level since. Prices in the oil and commodities markets tend to follow global demand, which is a reflection of global economic activity.

A closeup view of a single decade reveals even more ups and downs, which can be somewhat correlated with global economic trends.

Strong demand from China in the late 20th and early 21st centuries pushed oil prices upward, and thrilled the hearts of peak oil doomers worldwide. But something happened on the way to Peak Oil Armageddon.

Whatever happened to China’s insatiable demand for commodities, which for years supported oil prices and drove investment in places like Canada? The Chinese came, invested, and lost their shirts. And no one seems to care today about growing Chinese demand for oil. The worry now is China’s slower rate of growth.

Meanwhile, oil prices bounced constantly over the years on fear of supply disruptions in the Middle East. At one point, the risk premium stretched to as much as US$15 a barrel. Today the Middle East is engulfed in war, yet traders couldn’t care less. They are too worried about Iranian barrels re-entering the market to pay attention. __ Financial Post

High oil prices over much of the past decade led to rapid exploration, discovery, and technological developments — all creating the potential for large new flows of oil production from the four corners of the world. At the same time as new production was set to come online, demand from China slowed appreciably — leading to a “price collapse” that continues through the present.

There are reasons to believe that a slow upward trend in oil prices is likely to occur. The following reasons for an oil price rebound are interesting and provocative but also partially illogical:

Producers won’t keep producing and investing in oil at a loss because it just doesn’t make sense, so excess supplies could dry up sooner than many think;
Tight oil’s growth has been spectacular but its track record remains short; the Middle East is a mess, and the risk of oil facilities being blown up is rising;
The lifting of the U.S. oil ban introduces American oil to the global market and could force OPEC to regroup;
The Obama era, with its emphasis on environmentalism at the expense of energy security, is coming to an end. __ Claudia Cattaneo

But Claudia’s training is in journalism and political science, so much of what she thinks and writes will necessarily be in the form of a non sequitur.

Chemical engineer Robert Rapier, on the other hand, provides good reasons for his claim that global oil reserves are set to drop significantly. But neither author truly provides solid ground for predicting next year’s oil prices. Rapier has already missed the boat on some earlier predictions, so is likely to be more cautious in the future.

World Energy Resources are Massive

Global Hydrocarbon Endowment http://gswindell.com/endow.htm

Global Hydrocarbon Endowment

Humans have barely scratched the surface of the global supplies of hydrocarbons. And hydrocarbons are a small proportion of the global energy endowment. Oil prices are driven largely by economic demand and politics — with politics being a significant factor behind artificial demand, such as was recently seen in China and previously in the US.

Politics has played a significant role in holding down production of energy and commodities in the US since the 1960s. US economic production and employment could be significantly boosted by pro-growth governmental policies. What effect do you think such changes in policy would have on commodities prices?

Peak Oil Now?

The Peak Oil Armageddon Crusade continues to claim that “Peak Oil is Now!” But the exact form of “peak oil” seems to be changing to better fit the facts on the ground — rather like climate records and model projections that are craftily “retrofitted” to better match actual climate observations, after the fact.

Tverberg is an actuary, so much of her analysis is numerically supported — but ideologically driven. Her real world experience is not of the robust type to allow her to break out of her long-standing, strongly-held belief system.

The real universe does not care what humans believe, or think they want. The real climate follows changes in solar insolation and the locked ocean and atmospheric responses to those variations. Useful energy supplies in an energy-rich world, depend upon human initiative and technology innovations.

Ideological beliefs do not signify, except in the sense that they affect governmental policies, which impact on human initiative and technology development and implementation.

When advanced nuclear technologies are finally unleashed from their ideological restraints, crude oil will become far less important a commodity. Electricity will slowly intrude upon internal combustion in transportation applications, and better types of fuels will be produced more economically using production heat from nuclear energy processes.


Consider various substitute combustion fuels in place of hydrocarbons. Such substitutes are not yet economical, but different technologies are converging which will cause drilled and mined hydrocarbons to be less important to tomorrow’s advanced economies.

A million developing factors could influence the oil prices of the future. In general, it is best to push for creative innovations which will lead to an abundant and expansive human future. That is the world where human problems can be solved, or best mitigated.

This abundant and expansive human future is the opposite of what lefty-Luddite green faux environmentalist dieoff.orgiasts are promoting, from their luxury suites at global climate conferences and while jetting from one continent to another, promoting energy conservation and austerity for the masses.

Too much time and too many resources are wasted on the Climate Apocalypse Cult and the Peak Oil Armageddon Echo Choir. Those who can actually solve problems should be encouraged to do so, and others who would otherwise stand in the way should be given ample supplies of opiates, benzodiazepines, soporifics, and artificial reality forums where they can “save the world” without being allowed to destroy it.

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2 Responses to Oil Price Rock and Roll

  1. NekasM says:

    Sveik, Well at least they have a purpose in they life, save something more important than they own life’s. Commodities markets are so heavy manipulated(most likely) that who knows how long this can continue!?. Any way- Luckily, healthy and interesting New year, to every one 🙂
    Ar Diev palīg.

    • alfin2101 says:

      A healthy, prosperous and fulfilling New Year to you!

      Commodities markets are manipulated to specific ends, by particular people.

      One must ask, “Cui bono?” Who benefits? In an inflated price scenario it is clear who is benefiting. In the current “low price” scenario, the benefit is spread out so widely and to relatively powerless people.

      Another question that is rarely asked is: “Who is harmed?” Saudi Arabia has not blinked in its production, which is deliberate. It is claimed that the Saudis “do not wish to lose market share.” But at the same time, they would like to reduce competition from unconventional non-OPEC oil. The Saudis would also like to reduce Russian power in the middle east, particularly via Russia’s ally Iran. KSA thinks, perhaps, that it can hurt its enemy Iran by hurting Russia? Mere speculation.

      But in this scenario, the form of “manipulation of markets” is of an entirely different kind than in other market scenarios.

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