The End of Oil

[AJoD]

Guess its good to see that we are better off than many of our "peers".

Not much, though.

Kansas City is 38.

[aknowledgeableperson]

I've read opinions that the rise in oil is attributable more to speculators and that this is a temporary bubble that will burst just like internet stocks and real estate. If so, how much will oil prices fall at that point? Will people think the problem is solved? Will that kill efforts to find alternative sources of fuel/transportation?

Also, since oil is priced internationally in US dollars the fall of the dollar has, at least, caused the cost of oil to increase for the states.  It might not be proportional but if the dollar's value were to increase 10% the cost of oil for the states may decrease 10% and the cost of gasoline would fall 10%.

Oil is a commodity much like gold, silver, food crops, and so on.  Some money has shifted from stocks to the commodities, oil in particular, so it is possible that the bubble may burst like in the real estate markets and tech stocks.  What I found interesting was a discussion on gas prices and price points.  At $3 people didn't adjust too much but as it approached and went beyond $4 behavior changed.  That may not be much of an answer but given the past if prices do drop look to see a change back to the old ways.

[LenexatoKCMO]

They have been claiming for the better part of a year that this pricing is the result of speculators (and not related to supply and demand) and will colapse any day now.  How many more months will people keep trying to sell that theory and just acknowledge simple economic laws?  If there really was plentiful supply to significantly exceed demand, the speculators would have lost their ass many months ago. 

[Highlander]

Also, since oil is priced internationally in US dollars the fall of the dollar has, at least, caused the cost of oil to increase for the states.  It might not be proportional but if the dollar's value were to increase 10% the cost of oil for the states may decrease 10% and the cost of gasoline would fall 10%.

Oil is a commodity much like gold, silver, food crops, and so on.  Some money has shifted from stocks to the commodities, oil in particular, so it is possible that the bubble may burst like in the real estate markets and tech stocks.  What I found interesting was a discussion on gas prices and price points.  At $3 people didn't adjust too much but as it approached and went beyond $4 behavior changed.  That may not be much of an answer but given the past if prices do drop look to see a change back to the old ways.

First of all, the price of oil is not proportional to the value of the dollar.  The value of the dollar makes a difference but it's not a 1:1 relationship.  The falling dollar and oil, however, are involved in a positive feedback loop with the value of the dollar being impacted by the high price of oil.  Oil is very different from other commodities.  The demand for oil has increased inexorably since 1950 to the point supply has not been able to keep pace.  All major economies on the planet are very much linked to oil unlike precious metals and a particular food item.  Whereas gold and silver are valuable commodities, they have limited necessity.  Corn and wheat are valuable and renewable.  Oil is a necessity for modern economies, in short supply and, most importantly, it is finite.  

There may be a bit of a bubble, in fact there is no doubt in my mind that there is a bubble but it probably isn't going to drop prices much below 100$/barrel if that.  Whatever the result of a bursting bubble, just look for prices to almost immediately start to rise again.  

[LenexatoKCMO]

Also, since oil is priced internationally in US dollars the fall of the dollar has, at least, caused the cost of oil to increase for the states.  It might not be proportional but if the dollar's value were to increase 10% the cost of oil for the states may decrease 10% and the cost of gasoline would fall 10%.

How in the heck do you propose instituing a 10% rise in $ valuation?  It sure as hell isn't compatible with the fiscal policy of the current administration and probably not with either of his potential successors either.  The Fourth Pillar of Reganomics is apparently dead.  You speak as if we should all just magically expect a 10% rise.  

[Highlander]

They have been claiming for the better part of a year that this pricing is the result of speculators (and not related to supply and demand) and will colapse any day now.  How many more months will people keep trying to sell that theory and just acknowledge simple economic laws?  If there really was plentiful supply to significantly exceed demand, the speculators would have lost their ass many months ago. 

I tend to agree here.  High prices suppress demand and that will be what drives prices down.  Nonetheless, mankind used 30 billion barrels of oil per year.  Demand may slow but I doubt if it decreases markedly and the worldwide petroleum industry comes nowhere close to replacing that production.  So, even with slowing demand or decreasing demand (unless it drastically decreases), we will still have supply issues into the future. 

[KCMax]

They have been claiming for the better part of a year that this pricing is the result of speculators (and not related to supply and demand) and will colapse any day now.  How many more months will people keep trying to sell that theory and just acknowledge simple economic laws?  If there really was plentiful supply to significantly exceed demand, the speculators would have lost their ass many months ago. 

Well I think you're absolutely right when it comes to macro trends in oil prices. But that $10/barrell spike last week was due to speculating due to a Goldman Sachs report and Iranian saber-rattling. You're right though that prices are generally being boosted by high demand, low supply. But they may also be artificially raised on top of that by speculators. I'm wondering aloud how much of that is attributed to speculators, and when the bubble bursts, how low will oil prices go? Not much?

[aknowledgeableperson]

First of all, the price of oil is not proportional to the value of the dollar.  The value of the dollar makes a difference but it's not a 1:1 relationship.   

I know it is not proportional and said so in the post.  But since nobody actually knows the exact affect and to keep things simple I used a 1:1 relationship.

Is oil that much different than the other commodities?  Well, yes, it is not renewable but for the most part it can be replaceable and can be conserved.  Food stuff can be replaceable but in the short term can be very scarce and recent price spikes reflect the fear of how scarce it might be, at least until the next crop.  And even the next crop may not fill the entire demand for it.

Oil is a necessity for economies but so are foodstuffs, especially when they may be used for items other than for human consumption.

[KCMax]

Oily Speculations

    If speculators aren’t at fault, why have oil prices spiked so high? Fundamental reasons aren’t hard to find. Between 2000 and 2007, world demand for petroleum rose by nearly nine million barrels a day, but OPEC has been consistently unable, or unwilling, to significantly increase supply, and production by non-OPEC members has risen by just four million barrels a day. The prospect of military action against Iran, which would disrupt global supply, seems greater than it did a few years ago. And the plunging value of the dollar has meant that the cost of oil has jumped more in the U.S. in the past year than it has in countries with healthier currencies.

    But there’s also something else at work, which the oil guru Daniel Yergin calls a “shortage psychology.”

    The price of oil—more than that of many other commodities—isn’t based solely on current supply and demand. It’s also based on people’s expectations about future supply and demand, because those expectations determine whether it makes sense for oil producers to sell their oil now or leave it in the ground and sell it later. Currently, the market is assuming that oil will become scarcer, and that global demand will keep rising, especially in rapidly developing countries like China and India. As a result, producers are asking very high prices to pump their oil. Now, it could be that these assumptions are all wrong—that the supply of oil will not be constricted going forward, that concerns about the Middle East are exaggerated, and that higher prices will lead people to cut back on energy consumption, shrinking demand. In that case, oil would turn out to have been hugely overpriced. But that won’t be because of sinister speculators; it will be because oil producers and oil users collectively misread the future.

[anniewarbucks]

Here is a wild idea for renewable motor fuel. We all know that restaurants and food processing facilities generate gallons of grease from frying meat to the used fryer oil. Not to mention the packing houses that trim fat off of roasts and steaks just to send to places like Darling International. I know that some of this is used for biodiesel already but like the petrolium equivalent there should be a way to refine an unleaded gasoline from this grease and oil. This would make gasoline a renewable resource that would last for years and years.

[LenexatoKCMO]

This would make gasoline a renewable resource that would last for years and years.

Americans consume over 20 million barrels of oil a day - how many barrels of steak trimmings and cooking oil do you figure we go through in a day?

[enough]

^ ^^ ...and it's not a good idea to build an energy future on a waste stream -- i.e., animal fats and cooking oils -- that we should get away from in favor of a diet that is lower in animal protein and lower in fried foods.

[anniewarbucks]

Americans consume over 20 million barrels of oil a day - how many barrels of steak trimmings and cooking oil do you figure we go through in a day?

This fuel could be mixed with ethanol to boost its bulk and provide a petroleum like consistency that older cars need to run.. I have also seen on the Internet a modification that can be done on a car to burn straight water. These 2 methods would cut our dependency on crude oil almost 75%.

[KCMax]

This fuel could be mixed with ethanol to boost its bulk and provide a petroleum like consistency that older cars need to run.. I have also seen on the Internet a modification that can be done on a car to burn straight water. These 2 methods would cut our dependency on crude oil almost 75%.

No. It wouldn't.

[K.C.Highrise]

"straight water" lol. You continue to amuse me annie.

[LenexatoKCMO]

Highlander must be on vacation - i was hoping he could provide some insight into whether petroleum scentists have explored the steak trimmings solution yet. 

[phxcat]

I read that last night, thought about responding, but after the eviction thread, I just don't know what to say.

[K.C.Highrise]

lol. wow. We are in deep trouble.

[Tosspot]

Highlander must be on vacation - i was hoping he could provide some insight into whether petroleum scentists have explored the steak trimmings solution yet. 

Highlander has been on vacation here in Kansas City. Odd how he has no access to this Kansas City-oriented site while in Kansas City, but does have access back in the UK. 

[KCKev]

Highlander has been on vacation here in Kansas City. Odd how he has no access to this Kansas City-oriented site while in Kansas City, but does have access back in the UK. 

Damn computer that use PAL only!