Wow, that's some kind of price jump. You might even file it under scarcely credible alarmist prognostications. But there it is. "Options to buy oil for $US200 on the New York Mercantile Exchange rose 10-fold in the past two months to 5533 contracts, a record increase on any similar period." The Sydney Morning Herald casts its journalistic net to find experts who say you ain't seen nothin' yet. "One hundred dollars a barrel is actually 14.9 cents a cup, so we're still talking about oil being remarkably cheap," said investment banker Matthew Simmons. Inventories "are tight as a drum and I don't see how we get out of this box." It's all about rising demand chasing static supply. "We haven't got to $US100 on just a whim," said Paul Horsnell, the head of commodities research at Barclays Capital in London. "This is at heart also about longer-term concerns that supply capacity investment needs higher prices to keep up with demand growth." Needless to say, if U.S. oil prices spike to $200 a barrel (29.8 a cup), truck-heavy U.S. automakers will go to the wall, double-quick. Detroit is a city of crossed fingers… [thanks to David Holzman for the link]
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How great of system we have when the price we pay for oil is based on what people “think” it will cost in the future and not what it is currently.
Great if you are one of those speculators, or an oil company.
Here is a story about a guy who artificially jacked up the oil prices just to tell his kids he caused it.
I’m willing to bet a barrel of oil that in 20 years oil is worth less than $100/barrel.
Oil will self-regulate well below that level for the foreseeable future (barring WW-III). Most people probably have 25-50% of their energy use discretionary. If it gets too painful we’ll cut back long before it spikes to 200/bbl.
Now if the value of US dollar drops by another 50%, then that’s a different story.
Link to Matthew Simmons’s Powerpoint presentations directory
Here in the Greater Toronto Area its around 1.O3 a litre =3.82 a US gallon.Unless your rich it hurts. It impacts what you drive,and where you drive.
If fuel was to double,a couple of car makers going belly up would be the least of our problems.
I just returned last week from Austria and Germany, where fuel in Germany was 1.50 Euros per liter, that is around $8 a gallon in dollars.
I am one who firmly believes oil prices can and probably will hit well over $100 a barrel, possibly $140-$150 a barrel within 12 to 24 months.
Why?
1) China’s massive consumption (they will use as much as the U.S. in three to four years)
2) I believe we have or are close to peaking in production
3) The cost of production and exploration continues to escalate
4)Historical suppliers of oil are more unstable to us (Nigeria, Venezuela, Iran for example)
5) China is cutting long term deals with our historical suppliers
6) Any political disturbance in the middle east (such as Iranian gunboats firing on the US ships) if that escalates, watch out on the price of oil
There are other reasons, but that is why I believe is it going to get way more expensive. And yes, the 2.8 are woefully unprepared and will be decimated from their lack of foresight.
The percentage of disposable income Americans spend on fuel is lower today than any other period in the past century other than the mid 1990’s.
As Dr. Perry is oft to say “The good old days of cheap gas are here now”.
You guys are scaring me by making too much sense.
Somebody debunk hltguy’s logical argument with some simplistic gibberish… OR turn my attention to something else by preying on my fear of death or gay marriage or tarantulas or something. I’m not being picky! I’ll take either one at this point!
hitguy is making eminent sense.
¨
As to guyincognito, I’m more than willing to take up the challenge. Twenty years from now, a barrel of oil will be over 1000 dollars,measured in today’s dollars.
Just imaigine, $130 to fill up your Prius. If that doesn’t get you hot under the collar, I don’t know what will.
@ Stein X Leikanger – You’re on! In 20 years if oil is $1000/barrel we shall convene on TTAC and I will arrange the transfer of said oil. However, if it is less than or equal to $100 I shall transfer said oil to you!
Of course there is also the rapid decline of the value of the United States Dollar, which seems almost directly inverse to the rise in the value of a barrel of oil.
Go figure.
–chuck
http://chuck.goolsbee.org
Bah, even at $200/bbl our gasoline will still be cheaper than European gasoline prices today. It will be ~$60 to fill up a car like a Civic. People will be able to eat these costs if the increase happens over 10 years.
Well, we could be drilling off the coast of florida, but that is off limits to US companies. Meanwhile the Chinese are going on in to drill there.
Funny, the oil companies have almost eliminated the environmental effects of drilling, but the ethanol guys are ruining the gulf coast with run off from their farms coming down the river. I should buy some gulf coast property and sue the whole ethanol conspiracy!
part of the rise in the price of oil is that oil is denominated in dollars. As the value of the dollar falls in relation to other currancies, the price rises, consumption notwithstanding. There is a move afoot to demoninate oil in euros. This wil be a BIG problem when it occurs. The US dollar will loose alot of prestige if that happens making it even less desirable for investors. Will the price of oil go down if it is demonated in euros? it will in euroland i think. Not for us. Rmemeber that modern currancies are backed by economies and prestige, not gold or silver. It’s a beauty contest mostly. And we could loose big time.
Because gasoline is so price inelastic, I do not believe that $4 or even $5 fuel is going to significantly change much in the way Americans transport themselves. (I drive 4 cyl 5 spd mid sized sedans and another buck or two will not change my ride.) Our increasing demand for fuel will eventually get us there. Once we get to $6 gal fuel, the rather large core of SUV driving lard asses (who need the “wider, higher seat” at any price) will do us all a big favor by assuring that prices remain high.
$6/gal fuel means America is a more energy efficient nation. Most consumers and producers make better choices. (At $6/gal I am driving a compact sedan.) If Hybrids really are “the answer” then we will be driving diesel hybrids.
Manufacturers with excess capacity of the wrong kindas vehicles either change or perish. Manufacturers with the correct product mix are rewarded and prosper.
Those businesses that are highly dependent on fuel (agriculture, transportation) will not like it and cry foul, but their competitors will be in the same boat and they will all have to live with an altered supply-price curve. (The price increase is passed along to the end user; that would be you and me.) If Airlines can no longer offer “weekend getaways” RT for $99.00 then what loss is it to us? And what will be so terrible about three people moving out of a 5,000 sf home to live in a 1,500 sf home because of the cost of heating fuel? We will get over it, as we discover that quality of life issues do not really revolve around whimsical use of liquid energy.
I do not fear $6/gal fuel, I welcome it. I am still young enough to be able to witness this transformation, and it will be interesting to watch it unfold.
Yes, all it takes is one rogue nation in the middle east or Asia to detonate a nuke in an act of aggression, and oil will hit $200. Instantly.
Yes, all it takes is one rogue nation in the middle east or Asia to detonate a nuke in an act of aggression, and oil will hit $200. Instantly.
Matthew Danda: This can very well happen, and sooner than later, because of the situation in Pakistan.
If Pakistan’s political instability gyrates out of control then we may have to commit legions divisions of centurions soldiers to do a military occupation of Pakistan just to keep those weapons from changing hands, and there still is no assurance that one or two missiles will not be “re-allocated”.
If $100/barrel=$3/gal fuel, then in my highly simplistic reasoning $200/barrel=$6/gal fuel, and this is not such a terrible thing for America.
Don’t get me wrong, increasing demand would be the preferred method to get to $200/barrel oil, not terrorist activity. I am not advocating, or wishing for, terrorist activity.
Let’s hope that these drastic series of events never happen.
So much doom and gloom. Trying to project what the cost of oil will be even a few years down the road is an exercise in futility.
No one knows what the relationship of dollars to Euros will be in five years. Stating as “fact” that the demand in India and China for oil will continue to rise inexorably flies in the face of historic reality. We simply do not know what the future holds in any economic scenerio. If it was so easy to predict the future, those of us in the markets would all be rich.
Will we be required to “bail-out” all the oil speculators the same way we are expected by some to “bail-out” sub-prime lenders and borrowers?
Jimmy2x: Will we be required to “bail-out” all the oil speculators the same way we are expected by some to “bail-out” sub-prime lenders and borrowers?
Probably.
No matter what happens to the price of oil, our military entanglements in the ME at the very least remain stable. So the “true cost” of oil is not only the world spot price, it is the WSP plus our military obligations (present costs plus all future costs such as lifetime care for the wounded, etc…).
Also, the higher costs do not end there. The costly business of installing puppet regimes in banana republics becomes even more costly as these countries become more wary of our intentions (the WoMD thing did a lot of good for our credibility), and become better organized and trained to resist us.
We will be paying a much higher price, and it will not be as simple as the WSP of a barrel of oil.
@hitguy
I am one who firmly believes oil prices can and probably will hit well over $100 a barrel, possibly $140-$150 a barrel within 12 to 24 months.
In the short term this is completely possible, though, as other have said, it will be largely due to the decline of the dollar rather than the increase in intrinsic value of oil.
1) China’s massive consumption (they will use as much as the U.S. in three to four years)
This is often speculated, however, a large portion of the growth in Chinese demand over the last several years has been increased construction as they bring the infrastructure of China up to modern standards. Many experts report that we can expect the growth in demand from China to ebb substantially in the next couple of years.
2) I believe we have or are close to peaking in production
Is that beacsue we have more proven reserves now than at any other point of history? Or is it because we are continuing to develop technological solutions to oil recovery that Hubbert never dreamed of? Peak oil is a nice theory… as long as things are static.
3) The cost of production and exploration continues to escalate
The cost of CONVENTIONAL production and exploration continues to escalate. But new sources (OCS drilling, tar-sands, in-situ oil shale recovery, etc.) are changing the game. Those production techniques are getting cheaper and cheaper.
4)Historical suppliers of oil are more unstable to us (Nigeria, Venezuela, Iran for example)
More unstable as compared to…when?
5) China is cutting long term deals with our historical suppliers
See point #1
6) Any political disturbance in the middle east (such as Iranian gunboats firing on the US ships) if that escalates, watch out on the price of oil
The oil futures market is what responds to these things, so in that sense you are correct. However, this really has little to do with the long-term prospects of the oil economy.
If oil hits $200 then we will telecommute more. We still have a long way to go before telecommuting is fully integrated and embraced in our culture. Look for a massive resurgence in telecommunications stocks and home office supply companies!!!!!
Not only will we telecommute more, we will see more self employment at home, or self employed closer to where they live for shorter driving times, and less burning of fuel. Like I posted earlier, we will become more energy efficient.
“Stating as “fact” that the demand in India and China for oil will continue to rise inexorably flies in the face of historic reality.”
The historic reality is that as nations emerge from poverty and subsistence living into modern industrial economies their energy use per capita sky rockets.
Can you show any historical situation where this has not been the case?
The argument for continued increases in China’s and India’s energy consumption is well founded in historic reality.
“Because gasoline is so price inelastic, I do not believe that $4 or even $5 fuel is going to significantly change much in the way Americans transport themselves.”
It takes a long time for the vehicle fleet to change over as only single digit percentage points of the US fleet are replaced annually. But, higher fuel prices are clearly changing behavior in the showrooms. Our neighbor recently ditched an Explorer and bought a Fusion. Lots of people are making similar moves. In real use the Fusion travels 70% further on a gallon of fuel than did the Explorer. A family member has both a Suburban and an Accord in the family fleet. Guess which one spends more time in the garage than it used to? When said Suburban wears out it will probably be replaced by a Subaru or a cute-ute. Gasoline demand is relatively price inelastic in the short term, but much more elastic over the long haul.
1) China’s massive consumption (they will use as much as the U.S. in three to four years)
This is often speculated, however, a large portion of the growth in Chinese demand over the last several years has been increased construction as they bring the infrastructure of China up to modern standards. Many experts report that we can expect the growth in demand from China to ebb substantially in the next couple of years.
So the Chinese are feverishly building roads and bridges for no good reason other than a public works program to keep their large population employed? They are gonna stuff these new roads and bridges with vehicles, although they will be smaller, more efficient vehicles. Their rush hour traffic in the cities will be no different than the rush hour in NYC, Chicago, Boston.
As far as consumption, I do not think they will be using as much as the US in any number of years, but I believe that in 15 to 20 years they will be using a whole lot more and we will be using a whole lot less.
Yes, China will build more mass transit infrastructure in their largest cities but we have done the same thing in NYC, Chicago, Boston and we still have increasing demand for gasoline.
ret:
It is not simply the dollar lowering against other currencies that is driving oil prices up? Why hasn’t OPEC substantially increased production to keep prices moderated (the price oil went up over $30 a barrel in 2007): Perhaps they can’t? I believe the largest fields they have are peaking out. Besides, why should they? America is paying the amount being charged, and mega cash flow is going right into their coffers.
China: I suggest respectfully you do more reading. They will catch up with the U.S.’s consumption within a few years. Statistics alone telly you they will consumer massive amounts of energy, they must keep an economy growing, and they have over 1.3 BILLION people.
Which specifica oil production techniques are getting cheaper? Tar sands is still very expensive for example.
Of course historical suppliers are more unstable to us now, you think having Hugo Chavez is a friend to the US?, Iran before 1979 was much friendlier. Nigeria is breaking out in civil war and oil terrorism is going on now. Besides China is cutting deals with all of those companies to get more oil, oil that formerly flowed to us.
Is not the North Sea production declining? The largest oil field for Mexico in the Gulf declining?
Situations in the middle east only affect oil futures? You mean a blockage in and around Hormuz (spelling) would not have a serious effect on current and future oil supplies and prices?
I just wonder at what price level the liberal,tree-hugging democrats will cave in to the demands of the working poor in their constituency, cut and run on the greenies, and allow drilling in ANWAR, which, if we had begun to allow such exploration 6 years ago, we would be talking about $70 per barrel gas now, not $100 per barrel.
I just wonder at what price level the liberal,tree-hugging democrats will cave in to the demands of the working poor in their constituency, cut and run on the greenies, and allow drilling in ANWAR, which, if we had begun to allow such exploration 6 years ago, we would be talking about $70 per barrel gas now, not $100 per barrel.
RIIGGGHHHHT!!!!
Of course, you can buy oil for $70/bbl from either Santa Claus or the Tooth Fairy…
ANWAR max estimated capacity ~5% of US consumption. And likely to sold in Japan, as it is closer to the source…
No matter what happens to the price of oil, our military entanglements in the ME at the very least remain stable. So the “true cost” of oil is not only the world spot price, it is the WSP plus our military obligations (present costs plus all future costs such as lifetime care for the wounded, etc…).
Good question. Here’s one answer: the Iraq war apparently costs ~$275 million per day There are many other costs not included in this figure, of course. Nonetheless, US oil consumption is about 20 million bbl/day. US oil imports is about 13 million bbl/day. In the first quarter of 2007 Iraqi crude oil production averaged 1.95 million barrels per day.
So depending how you slice it, here’s what you get:
1. We pay ~$14/bbl of oil consumed.
2. We pay ~$21/bbl of oil imported.
3. We pay ~$141/bbl of oil produced by Iraq!
Bottom line: Next time you get a bright idea, Dick, take someone quail hunting, please!
Oh you naive people! The only reason fuel prices are so high, is because they can! As oil is unsubstitutable item, and increase of price will still make sales of all oil production, the trend is inevitable. That`s why making a photo of your teeth costs 200 bucks( can`t avoid dentists!) but developing a picture just cents( because you can refuse to do it!). So we live in a world of 100 buckd /barrel oil and forever low priced coca-cola, because if they increase price for Coke, you will always find a cheaper substitute, or refuse to buy it! If it had something to do with costs, exxonmobil wouldn`t have 34billion dollars of profit for the previous year! Profit, not revenues! try arguing with me! prove me I am bull!
engineer- we even don`t need to invent how to call names Dick Cheney. :)
Here in the Greater Toronto Area its around 1.O3 a litre =3.82 a US gallon.Unless your rich it hurts. It impacts what you drive,and where you drive.
I beg to differ.
My Civic puts about 550km per week on it. At 7.7 litres per 100km average fuel economy (observed), that’s about $44.00 a week in fuel. We’re hardly rich, yet I consider that a relative pittance. $44.00 won’t even buy you a decent meal for two with drinks and a tip. Besides, even if gas were, say, $0.75 per litre the weekly cost would only be $12 less. Two Venti lattés at Starbucks would cost that, once you include GST and PST.
Gas would need to be a lot higher before I even raised an eyebrow.