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View Full Version : OT: peak oil - a myth or a real threat?



rotate
05-30-2008, 12:21 PM
There's been numerous discussions here on alternative fuel as it related to the emission of CO2 and rising fuel cost. I was talking to a colleague at work on this topic and he told me that peak oil is a much greater threat to humanity than any environmental issues.

http://en.wikipedia.org/wiki/Peak_oil

Normally I'm very skeptical of any claims that the world is coming to an end, but after doing some research, I can't find any real sound argument against the theory of peak oil. The peak may not happen for 15-50 years (some claim it's already happened, but I dismiss that), depending on who's making the prediction but I was shock to learn that the known reserve is so low even if you include the tar sand in Canada.

I'm hoping that some enlightened individuals on this board can help dispel this myth. I'm kinda of sitting on the fence with this one.

Evan
05-30-2008, 01:19 PM
We have a 200 year supply for North America at current rates of consumption. More will be developed.

[edit]

At today's prices any supply is cost effective to exploit.

winchman
05-30-2008, 01:26 PM
I've never heard anything that even hinted at new deposits of oil being formed, so there must be a finite amount in the ground. The conditions that led to the deposit of huge quantities of biomass in a way that results in oil haven't existed for many millions of years.

Given that, it makes sense that the oil production will peak at some point, and decline thereafter. Of course, there will be minor swings in the slope of the decline as higher and higher prices drive the development of reserves that are now considered too difficult (read: expensive) to extract. New fields may even be found. The invention and development of alternatives will slow the decline, too. There may even be some huge catastrophe that reduces the demand for oil.

I think "peak oil" is a fact, but I don't think anyone can know exactly when it will happen. I suspect that the "gas tax holiday" being suggested by the politicians and Dodge's "refueling America" program will hasten it's arrival.

Roger

garyphansen
05-30-2008, 01:28 PM
It is a myth! I heard the president of Shell oil say thet the proven reserves in the USA contain more than three times as much oil as has been used in the histroy of the world. That did not include things such as shale oil, coal gasification, and of course unknown oil waiting to be discovered. The problem is that the government will not alow the oil companes to explor, drill, produce, and refine.

ANWR in Alaska is the size of lower Michigan and the oil companys want to drill in less than six square miles. Ninty percent of the native people that live in ANWR (around 500) want them to drill. Seventy percent of all Alaskens want them to drill. Why has the government not allowed drilling? Why are the three people running for President against drilling in ANWR? Why can China drill in between FL. and Cuba but we are not? Why are our leaders driving us to a new Great dreppression? Gary P. Hansen

Evan
05-30-2008, 01:32 PM
George will have his finger on the trigger if this turns to politics.

rotate
05-30-2008, 01:35 PM
So is it just the definition of known oil reserve? We're not counting what's really below the ground, and only the oil reserve in places where we're already drilling?

I'm glad to hear that most of you think it's a myth.

Evan
05-30-2008, 01:49 PM
Definition of a reserve depends on who you talk to. "Conventional reserves" are pools of oil under the ground that come up as liquid without help other than a pump and have been proven to exist. If you go by that definition we have very little oil left. Unconventional reserves such as tar sands aren't counted in that but if you do count them we have huge amounts of oil left. Considering that tars sands oil has been exploited for decades it seems ridiculous to leave it out of the tally. Canada has enormous reserves in the tar sands, enough to supply North America for a long time. At current prices there is no problem with extracting that oil even with the strictest environmental considerations.

yeehaanow
05-30-2008, 02:28 PM
Oil HAS already peaked in the US, it's been declining ever since the 70's. In the 50's, DR. M. King Hubbard predicted this decline would happen, he was laughed out of town, then it DID happen. Once Saudia Arabia has peaked, the world is toast. Some say this is happening now, but we'll never know for sure until after-the-fact.

In regards to Un-coventional oil, including shale, bio, coal to liquids, etc... there is a little thing called EROEI. Energy Return on Energy Invested. If it takes 1 barrel worth of oil to squeeze 1 barrel of oil out of rock, then you can see how it wouldn't be a very profitable undertaking, not to mention all the environmental costs. It takes A LOT of water to make this unconventional oil.

There's a great website on this very topic. http://www.theoildrum.com/

When you look at the so-called "Alternatives", most are nothing more than derivitaves. Hydrogen is the biggest sham ever.

Peak oil is no myth, even Darth Cheney spoke about it before the Iraq oil-grab/ war. We are in big trouble already, and I believe (and hope) that there will be no easy way out. The world does not work without oil. I'm using it right now just typing this.

Guido
05-30-2008, 03:00 PM
Information being generated by today's media, can excite any 'chicken little'.

Take an ordinary world map and put a blue pin in any world area where there are 100 producing wells. Use same map, red pins to define each 500 wells, etc. Now look at map to see bookoo pins in our Gulf Coast, same for Alaska, California, Colorado, Montana, Oklahoma, Texas and a few pins in the areas of the Persian Gulf, Venezuela, Canada-----

Question: By counting the pins, why did mother nature deposit 90% of the worlds' oil under America but only 10% under the balance of the earth's surface/water?

Dr. John M. Campbell, head of Oklahoma's Petroleum Engineering school, about 1958, said: 'You Petroleum Engineers better learn at least four foreign languages'.

Pull up www.rigzone.com/news/ to see where your next tankfill is coming from. Sleep tight tonight-----

G

Evan
05-30-2008, 03:40 PM
Oil HAS already peaked in the US, it's been declining ever since the 70's. In the 50's, DR. M. King Hubbard predicted this decline would happen, he was laughed out of town, then it DID happen. Once Saudia Arabia has peaked, the world is toast. Some say this is happening now, but we'll never know for sure until after-the-fact.

In regards to Un-coventional oil, including shale, bio, coal to liquids, etc... there is a little thing called EROEI. Energy Return on Energy Invested. If it takes 1 barrel worth of oil to squeeze 1 barrel of oil out of rock, then you can see how it wouldn't be a very profitable undertaking, not to mention all the environmental costs. It takes A LOT of water to make this unconventional oil.

Canada has more oil than Saudi Arabia. They are exploring using nuclear energy to process the tar sands. That would make the process far more efficient.

If it "cost a barrel of oil to make a barrel of oil" available (it doesn't) the you end up with a net gain of a barrel of oil. You haven't lost something. You pump two barrels for an extraction cost of about 3 to 20 dollars per barrel and sell one for $130.

Evan
05-30-2008, 03:44 PM
Question: By counting the pins, why did mother nature deposit 90% of the worlds' oil under America but only 10% under the balance of the earth's surface/water?

Because there was an enormous shallow inland sea that stretched from the Yucatan to Northern Alberta and from the Rockies to the Appalachians.

MickeyD
05-30-2008, 04:43 PM
What we are running out of is the easy to get up sweet crude that we are so dependent on. There is a lot of sour heavy crude but it is harder and more expensive to refine into gas, diesel, and plastic feedstocks. Sour crude is what generally comes from our friends in the middle east, Mexico, and Venezuela, and a lot of the tar sand/shale deposits. The US was lucky enough to have a large amount of light sweet crude, some of it so light that you could burn it in a car without refining, just filtering (anyone remember white gas or wellhead gasoline?). A lot of those original deposits are running out or are out for practical purposes, and new ones are not coming online fast enough to make up for them.

Besides increased drilling in the US (a lot of reserves that are marginal at $40 bbl oil are well worth producing at $100) and reworking older wells, we will see refineries get updated to be able to process the heavier supplies, so eventually prices will stabilize for a while. But with the decline in the dollar, fewer sweet reserves, and the developing world starting to use cars and electricity, I seriously doubt that we will ever see $2 gas again, much less the $.88 gas that we loved just a couple of years ago.

Lew Hartswick
05-30-2008, 05:19 PM
The US was lucky enough to have a large amount of light sweet crude, some of it so light that you could burn it in a car without refining, just filtering (anyone remember white gas or wellhead gasoline?). A lot of those original deposits are running out or are out for practical purposes, and new ones are not coming online fast enough to make up for them.
Yep! there was quite a bit of that "collecting" from a seep in PA back
quite a spell ago. I have heard of people running a car on it right out
of the ground. This was up in northern PA . Everyone should know
about the PA oil business, Drakes Oil Well is still a tourist attraction.
...lew...

NickH
05-30-2008, 05:51 PM
Oh perleeeze, everyone knows the oil can never run out and that all the free energy scams are set up by the oil companies to scare us poor simple end users:D

NOT

People who are really worried (i.e. with kids/grandkids) would do someting (drive a car with a smaller engine etc. etc.) those who don't give a crap drive a big car & whine,

no,

really,

it's true:D

Rustybolt
05-30-2008, 06:54 PM
There are places on the planet that have not been explored for oil. There are places that have been explored and oil found , but the location makes it unfeasable to drill.
"peak oil"is a catch phrase. Nobody knows how much oil is still in the ground worldwide. Phrases like "Peak oil' are political ploys to get people to change their behavior. Sorry I'm not buying.
The Russians are drilling over 40,000 feet and finding oil.

MickeyD
05-30-2008, 10:08 PM
Exactly. What do you think the cost difference between a 40,000 foot well and a 650 foot well is? How much more does it cost to move oil from the middle of Siberia than Pennsylvania or East Texas? If you really want to see high cost gas, wait until they move a lot of production to the arctic ocean. It is not cheap to build a deep water platform that can deal with ice bergs and arctic cold, much less underwater pipelines to get it out. At least in Saudi you don't have to worry about your pipes being too cold to pump oil through or getting crushed by a berg.

Mad Scientist
05-30-2008, 10:40 PM
If oil is a fossil fuel and



The Russians are drilling over 40,000 feet and finding oil.

Then how did all those old plants and dinosaurs get that far under ground?
If I remember correctly Titan a moon of Saturn has bunches of frozen methane. Are we to believe that there were once plants and dinosaurs on Titan?

Or could it be as some had speculated that the earth and other planets are continually making new oil deep underground and it slowly seeps to the surface.

lane
05-30-2008, 10:56 PM
Its not the amount of Oil are lack of it .but the lack of refineries we have. They are running full blast and we need to build more . The biggest percent of them are in Louisiana and Texas. We need to get some built on the west coast in California . And the great lakes area. Then our oil problems will be over.Most of our Alaska Oil goes to Japan .needs to be shipped to Cal .to be refined. Their is plenty in Utah and Nevada but Government wont let the oil Company`s drill for it.

Rich Carlstedt
05-30-2008, 11:39 PM
Peak Oil is another scare tactic by the Media ,
Folks that want higher oil prices,
and Folks that want us to NOT use oil
There is oil all over the world.
It is not from dinosaurs guys..thats bogus.
There is oil under the artic ice cap...how did it get there?

Back in the 70's I invested in 3 oil wells in Southern Illinois.
We hit oil and pumped 15 barrels a day, but the General Partner
was sticking it to the IRS ( 1 Mill +)and the Feds came in and shut down the wells and plugged them.. And I lost my butttt in the deal
There is sweet oil in Illinois..believe me

Our News Media hides information !
Noooo...do you think that ??? YES,Yes, Yes
Because it doesn't flow with the agenda Fellows !
They don't want us to drill !!! get it ?
Without oil. we turn to the Government for solutions (and controls !)

This is proven here, because you guys have not mentioned 'Bakken"
You have
NO HINT OF THE GREATEST OIL FIND IN THE USA
There is more oil there than in ....ready?,,,,,Saudia Arabia !!!!
go here for a start..
http://www.youtube.com/watch?v=S2OJTIKdijc&feature=related

And Evan, I don't think the reserves end at the Candian Border at all as shown in the map!
By the way, the "New" technology they talk about is horizontal drilling.
One hole down into the ground and you can go for miles in any direction.
Its awesome

Rich

tattoomike68
05-30-2008, 11:43 PM
Jack field may have as much as 15,000,000,000 barrel's. Its not a big deal at all...

America will do just fine, the punks will need grow a nut sack...

wierdscience
05-31-2008, 12:21 AM
A there and here comparison-

There-Russia offering tax incentives to boost production.
http://sg.news.yahoo.com/rtrs/20080514/tbs-putin-taxes-7318940.html

Here-US Congressional moonbats "grilling" oil execs for the second time this year and accomplishing nothing.
http://sg.news.yahoo.com/rtrs/20080514/tbs-putin-taxes-7318940.html

barts
05-31-2008, 12:46 AM
> Our News Media hides information !
> They don't want us to drill !!! get it ?
> Without oil. we turn to the Government for solutions (and controls !)

Hmmm... So let me get this straight. It's a combined secret oil industry/government/media plot to prevent oil drilling so that prices will rise and everyone will be pissed about $5.00+/gallon diesel, and vote the current government out of office. That seems a little... dubious, and self-defeating on the part of the government.

Well, I can't imagine that the current administration is in favor of high oil prices - or was that image of our leerless feeder begging his friends at the House of Saud for more oil production just part of the plot.

Come on - you really don't seriously believe this stuff - right?

I'd plan on oil & derivatives being rather more expensive than it was in the past:

* work near where you live or vice versa, or use mass transit.
* choose an energy efficient house, wood heat or a comfortable climate
* buy more energy efficient cars next time around or park that pickup
except for when you really need to carry 2000 lbs.
* avoid using cars if you can (driving to the gym to work out seems weird).
* install energy efficient lighting

dfw5914
05-31-2008, 01:38 AM
Don't forget, there was life on this planet before Exon.

Evan
05-31-2008, 02:54 AM
There is oil under the artic ice cap...how did it get there?
Surely you have heard of plate tectonics? The continents float around on a sea of magma. There is incontrovertible evidence that the Antarctic was once tropical as well. There is probably oil under the Antarctic ice cap somewhere.

The Russians haven't found any significant amount of oil at 40,000 feet. There are traces of primordial methane on this planet but most of the light elements from the formation of the planet were blown away during the formation of the moon by the impact of a very large body. Water arrived later as comets during the cleanup stage known as the late heavy bombardment.



When the Soviet Union collapsed in the early 1990s, oil production in Russia collapsed as well, for reasons entirely related to the then-prevailing unstable economic and political conditions. This decline in political stability, economic conditions, and total oil and gas production caused great hardship in Russia, and directly led to significant personal hardship to many of the Russian people.
There were no "super wells" to come to the rescue of the Russians from the collapse of their previous governing system, or their mismanaged economy. Hint: There is a lesson in this for the West in general, and for America in particular.
In the past decade or so, Russian oil production has recovered to some extent, but for reasons that have nothing to do with "abiotic" oil and everything to do with investing big chunks of capital in new conventional drilling projects for oil wells.
All of the increase in Russian oil production appears to be from known and conventional, if not mundane, geological sources. That is, there are no known deep Russian "super wells" producing "abiotic" oil or gas from the base of the Earth's crust or from the top of its mantle.
http://www.howestreet.com/articles/index.php?article_id=2142



The Russian scientific establishment has frequently bought in to some very unscientific and even ridiculous propositions. A particularly good example is the works of Trofim Lysenko. He rejected standard genetics and maintained that if you cut the tail off a dog and it's generations of decendents eventually the dogs will be born without tails. This dogma took hold in Russia and held back genetic science there for decades. The same applies to the unfounded rumours of vast quantities of super deep oil. It doesn't exist.

Sophiedoc
05-31-2008, 10:34 AM
Having spent time in the USAF 57-59 and in a private venture 61-62 I was familiar with the tar sands in western Co and the shale oil project which was abandoned when the bottom dropped out of the price.In the 50's the project @ Rifle said they could produce shale oil if the price of crude went to $3.50/barrel.It would seem to me nuclear powered heat producers would be just the thing for shale and tar sand oil production and would decrease the cost of production considerably.( By the way a lot of natural gas is coming from CO but so far very little if any oil.)

J Tiers
05-31-2008, 11:59 AM
Someone mentioned (someone always does) the "enormous amount of water that is needed to....(insert process here)"....

Unless you are electrolyzing the water, (and really even then) the water is not "destroyed"......... If you have the common sense of a flatworm, you re-use it. That is in most cases just another of the tired old "arguments against everything" that are brought up by the people who actually hope that most of the world population dies off.

Now, there ARE places where there isn't much water, or much fresh water, and it can be a problem due to distribution..... how do you get the "starter quantity" of water in place?

it seems obvious that there must be a finite quantity of oil. So at some time there will be much less than now.

Many would have you think that each and every person in china and india will have 3 cars and 2 boats, and will be competing for that oil, burning it at an accelerating pace until it's gone.

Reality is that price controls usage. $130 oil already controls usage..... how many chinese peasants will be fueling their SUVs with $4 gas?

Evan has already dealt with the "it takes a barrel of oil to get a barrel of oil" deal....

Oil itself, and the society built on it are the product of its cheapness.

If you want to know what will control oil pricing and oil usage, it is "carbon credits....."

There will be plenty of oil and coal, BUT YOU WON'T BE ALLOWED TO USE IT.

The chinese etc WILL be allowed to use oil and coal. They don't have any serious carbon credit /control legislation pending, and no prospect of it.

Mad Scientist
05-31-2008, 01:44 PM
Why are gas prices so high?
We are told it is simply a matter of supply and demand. But is it?

On the supply side we told that the supply of oil is limited and we are about to start running out, thus we must expect to pay more for it. However we have had individuals telling us this since the early 1900’s and we have yet to run out, but nonetheless we do always wind up paying more for it.

It is said that oil is a fossil fuel. So why is it being found were we would not expect to find any fossils? Of course those that claim the planet might be continually making new oil they are typically ridiculed.

By declaring that vast areas are off limits to drilling does not help the supply problem. However it does allow the oil companies to claim a shortage and thus raise their price. Same thing goes for the building of new refineries, the environmentalists will not let us build new ones so when one break down we are forced to raise our price.

On the demand side. We are told the demand for oil has increased, which it has, and we need to conserve and use it more efficiently, which we should. But that alone will not solve the problem.
We are told that India and China are using more oil now then in the past, which is true, but does their increase in usage directly and proportionally compare to our spike in prices? Or is there something else going on under the radar that we are missing?

Consider the recent debacle with the banks and their sub-prime loans. Here we are being told we need new laws to prevent this from happing again, well duh yah. But why were the old laws repealed in the first place? Oh I guess we are not suppose to ask that as it might embarrass some politicians. Anyway the Federal Reserve Bank then steps in to save us by reducing interest rates. This of course devalues the dollar, thus those evil foreigners are now demanding more of them to supply the same amount of oil.

So thank you congress for giving up your control of our money and removing us from the gold standard and then allowing the FRB, which is a nothing more then a group of impendent banks and not part of the federal government, to take over control of our money.
Where might we be if it were not for your sterling leadership?

Carld
05-31-2008, 02:34 PM
I totally agree with Mad Scientist, he is spot on. Anyone that believes the US government dosen't control oil and other things is a fool. They get their pockets lined by all the lobyists and companies.

In the 1960's I read that we had enough oil in the 48 states to last for over 300-400 years at the projected usage. That didn't include Canada or Alaska.

Why do you think we buy foreign oil? He who has the oil has the power and we will end up with most of the oil at the end. We may not have the same form of government in 100 or 200 years but the oil will still be here for several centuries to come.

Last fall NPR had a article on about the Middle East oil fields and how they are starting to pump salt water and the fields are drying up and not producing what they once were. Good, maybe they will go back to being nomads. I say buy ALL their oil as fast as posible.

Governments rise and fall and seldom last more than 300 or 400 years. Lets see, 1776 to 2006 = 230 years. Look at the corruption and decadance around the USA, remind you of Rome, hmmm.

aboard_epsilon
05-31-2008, 03:05 PM
It's De beers syndrome

a gallon isn't forever though

all the best.markJ

Paul Alciatore
05-31-2008, 05:59 PM
There is a simple fact that most people don't realize here. The US (probably in league with Canada also) does not want to use up all it's reserves. The government controls the oil leases and limits the amount we pump from domestic sources. Why? In case of war, we will still have the reserves to fuel the planes, ships, and tanks. The atomic bomb may have ended WW2, but denying oil to the Germans and probably the Japanese as well, is what actually won that war. We are deliberately using the South American and Mid Eastern oil first so the rest of the world runs out before we do.

A consequence of this is we, the American and Canadian citizens are paying more for oil than if a less conservative policy were being followed. In the long run, it is probably the best strategy. He who laughs last, laughs best.

A by-product of the rising gas prices is innovation in better fuel economy and the development of alternative energy sources. This also is a good thing, but it's cost must be paid. That is what we are doing at the pump today.

Rustybolt
05-31-2008, 06:30 PM
Oh brother.

"It's a conspiracy!"


No it's not.



Somebody lock this before the UFOs show up.

Evan
05-31-2008, 06:52 PM
The simple fact is that the US cannot supply it's own demand from North American supplies, not even close. Canada is self sufficient plus a net exporter but cannot make up the entire difference, not even close. The US has no other option, it must import oil regardless of the price.

There is no current supply shortage. The price of oil is being driven by other factors including geopolitical events and good old fashioned speculation. The lack of refining capacity in the US does not drive the world price of oil. It's a cyclical business. The price of a barrel of oil right now is only slightly higher than it was around 1980 in inflation adjusted dollars. Based on the likely business cycles and the inevitable adjustments that are going to occur to rebalance world trade we can expect the price of oil to fall in real dollar terms, in Canada at least. That may not be readily apparent in the US though since the cost base for oil is very likely to shift to the Euro or some other currency as the Gnomes lose faith in the US and it's ability to repay it's debts and address trade imbalances.

Rustybolt
05-31-2008, 07:28 PM
Yes of course,Evan, but Canada has, what, one tenth the population of the US and a lot of resources for sale.
The refining capacity in the US only helps to drive up the price of US refined products.
The price of oil is primarily driven by demand. Speculation is an effect not a cause.
The cost base isn't going to change anytime soon. US growth is .9 so far this year.

J Tiers
05-31-2008, 08:45 PM
The simple fact is that the US cannot supply it's own demand from North American supplies, not even close.

That is of course, discounting the un-used oil locked in sand and rock across 8 or 9 western states....... most of which the tree-huggers would die rather than use. I will hug trees, but I also have some streak of practicality.

Evan
05-31-2008, 09:48 PM
That is of course, discounting the un-used oil locked in sand and rock across 8 or 9 western states.......

If they start this evening to exploit it it will be from ten years to forever before it comes on line.


The price of oil is primarily driven by demand. Speculation is an effect not a cause.

There are three commodities that do not follow conventional supply and demand economics. Gold, diamonds and oil. The price of each of these products does not reflect the amount of the commodity in existence, the availability of the commodity on the market or the potential end uses of the commodity.

Gold trades on some days up to ten times more gold on paper than actually exists. To explain how and why is beyond the scope of this post. Diamonds are no longer hard to find or rare as virtually any size of flawless gem quality diamond can be manufactured at will. Oil exists in quantities that far exceed current demand and the oil suppliers have the capability to increase production well beyond demand at any time. The price of oil is constantly manipulated by the major players in the market, both suppliers and buyers. The US government in particular is active in intentionally keeping the price high. I won't offer any speculations why but the result of numerous actions taken by the US gov make it clear that their interest is in a high oil price.

Of course it is also in the best interest of the suppliers that the price be as high as possible. Greed is a very reliable human trait and can always be depended upon when money and power are at stake. The markets are controlled by the wealthy and you don't become wealthy by worrying about the welfare of your fellow man. Once wealthy then you may be inclined to indulge in such philanthropism but you won't see it during the accumulation phase.

Markets can be manipulated and so they are. Supply and demand are secondary factors and are manipulated at both ends as well. The taps are turned on and off for reasons that have nothing to do with demand and often not the price either. One only need look at the history of the markets to see enless examples of wholesale market manipulation. Some is under the table and illegal and some is above board and legal even if not ethical. The attempt to corner the silver market by Bunker C. Hunt is an excellent example.

Milacron of PM
06-01-2008, 12:54 AM
The price of oil is primarily driven by demand. Speculation is an effect not a cause.
Total commodies investment in oil in 2000 was 9 billion dollars. Just 8 years later, it is now 250 billion dollars. In this case, speculation is a cause and effect.

==========================================

Commodities bubble brews?

By John Waggoner, USA TODAY

Potash (POT) isn't what you would call a glamour stock: It makes fertilizer. Nevertheless, the stock has soared 203% the past 12 months.
The world isn't running short of potash. At current consumption rates, there's enough to last 300 years, according to the International Fertilizer Industry Association. But there does seem to be limitless optimism about future fertilizer use — as well as the upward spiral in the cost of potash itself, up 150% over the past 12 months.

It's not just potash. Across the board, commodities prices are soaring. On Wednesday, light sweet crude oil closed at $133.17 a barrel, more than double the price 12 months ago. Overnight it topped $135.

Commodities are the first growth industry of the 21st century. The prices of energy, basic metals and foodstuffs have soared, and so, some say, has speculation. This year alone, cocoa is up 40%, copper has soared 24%, and corn has risen 33%. And the price charts for some commodities are beginning to look suspiciously like the Nasdaq fever line in 1999, just before the tech-laden stock index crashed in March 2000. And, as the economy continues to work through the more recent crash in home prices, the question inevitably arises: Is there a commodities bubble brewing?

Possibly, say many experts.

"Certainly, we're seeing a lot more interest (in commodities) across the board," says Barry Cronin, chief investment officer at Taylor Investment Advisors, a Greenwich, Conn., money management firm. "There's no mistaking that there's a significant amount of speculative money in the market." But is it a bubble? "That's the $100,000 question," Cronin says.

Price bubbles involve irrational behavior by investors drawn to the prospect of quick profits. But such manias aren't entirely measurable. There's no magic indicator that flashes bright red when a reasonable investment trend suddenly becomes unreasonable. Instead, you have to look at several different ways to measure bubble behavior. By those measures, the bubble in commodities is forming, but it's not at full froth.

Nevertheless, new signs of commodities mania keep bubbling up. The basic sign is a near-vertical rise in prices, says Ben Inker, director of asset allocation for the GMO funds. "If you look at the way oil has been moving lately, it's almost inconceivable that there is information about the future supply and demand of oil that's driving this," Inker says. "It cannot be the case that, relative to three weeks ago, we have information that would make the price of oil go up that significantly." The price of a barrel of light, sweet crude oil has soared 17.4% the past three weeks.

And Wall Street, for one, thinks that the market for commodities is hotter than the market for stocks.

Responding to price run-ups, the mutual fund industry has in the past 12 months rolled out dozens of commodity-related exchange traded funds, with tickers such as MOO— a fund that specializes in agricultural stocks. Others include a coal fund, KOL, and a raw materials fund, RAW. The funds typically invest in commodities futures contracts and have attracted billions in new investments the past 12 months.

Top financial exchanges

The world's largest financial exchange company as measured by market capitalization is no longer NYSE Euronext (NYX), which deals in stock trading. It's the CME Group (CME), formed from the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade. The CME now has a market capitalization of $25 billion, vs. $19 billion for NYSE Euronext. CME averaged 10.2 million futures contracts a day in April, up 30% from a year ago.

Assets in managed futures programs, limited partnerships for the wealthy that invest in futures, total $218 billion and are up 6.3% this year, according to BarclayHedge, a Fairfield, Iowa, company that tracks hedge funds. True, $218 billion is minuscule in comparison with stock funds, and not all managed futures programs are in commodities. But assets in managed futures pools are up 474% from 2000, when they had just $38 billion. And interest in commodities is "at a level I've never seen before," says Sol Waksman, president of BarclayHedge.

Pension funds and other big, institutional investment pools are starting to pour money into commodities, too. Calpers, the California public pension fund, announced in March that it's devoting $1 billion to commodity investments, up from $450 million in past years. It's part of a long-term, inflation-linked strategy, spokesman Clark McKinley said.

Unlike the wealthy investors who choose actively managed commodity pools, pension funds and other public entities tend to prefer passive, indexed investments. Index funds have no manager and simply follow a commodity index, such as the Standard & Poor's GSCI Commodity Index (GSG)— the index that most of Calpers' commodity investments follow. The index soared 18.7% this year through April.

Individual investors, too, are choosing commodity index funds. PowerShares DB Agriculture ETF (DBA) has seen $22.5 billion in new money flow through its doors the past 12 months. Investors poured $1.2 billion into its more diversified twin, the PowerShares DB Commodity Index ETF (DBC).

Until commodity ETFs came along, average investors were largely excluded from the commodities markets. "It's not just for the ultrahigh-net-worth investor anymore," says Robert Maroney, principal at Connecticut Investments, an investment advisory service.

In fact, the mutual fund industry has rolled out 52 new exchange traded funds that invest in diversified commodities, energy or precious metals in the past 12 months, according to industry tracker Morningstar.

That's rarely a good sign: Fund companies are notorious for rolling out many sector funds at the top of a bubble. By the time fund companies identify a trend, put together a fund and get approval from the Securities and Exchange Commission to sell shares, the trend is often on its last legs. For example, the fund industry rolled out dozens of new Internet and technology funds in 1999 — just before the tech bubble collapsed.

Every bubble starts with a rational investment thesis and, in this case, it's the roaring economies of India and China, whose voracious appetites for steel, copper and oil have been pushing up the prices of raw materials. Improved diet and nutrition in emerging markets, as well as U.S. mandates for biofuel use, have driven up the cost of food. And India and China seem to be in the throes of a wage-price inflation cycle. China's inflation rate rose to 8.5% the past 12 months ended April, vs. 3.9% in the USA for the same period. India's inflation rate rose to a 3½-year high of 7.6%. Wages in both countries have skyrocketed. As a result, the prices of Chinese imports — long an important method of controlling price inflation here — have started to rise sharply.

Normally, whipping inflation is a job for a nation's central bankers. They push up interest rates to slow down the economy and cool off demand, shutting down inflation. But most central banks are doing the exact opposite.

China and many of the oil-rich Persian Gulf states, for example, have been buying dollars — and to do that, they have been creating money. "The Saudis and the Chinese have flooded their economies with their own money," says Paul Kasriel, chief economist for investment bank Northern Trust.

And U.S. central bank policy, at the moment, is aimed at avoiding recession, not taming inflation, says David Wyss, chief economist for Standard & Poor's. The Federal Reserve has pushed its key short-term fed funds rate down seven times since September, to 2%, its lowest level since 2004.

The question, then, is whether the rush of money into the commodities markets has helped push prices higher than they would be otherwise.

Lucjan Orlowski, professor of economics at the John F. Welch College of Business at Sacred Heart University in Fairfield, Conn., thinks so. "Without a doubt, that's propelling prices," he says. For example, Orlowski estimates that, given current supply and demand, a barrel of oil should cost about $70 a barrel.

The answer to the bubble question, at least for now, may be somewhere in the middle. Craig Caudle, a principal at Liberty Funds Group in Dallas, says only crude oil has reached its inflation-adjusted high. So he doesn't think that wild-eyed speculation has set in yet.

But he does see the impact that big money flows are having on the commodities markets. Normally, financial advisers recommend commodities because they aren't closely correlated with stocks and bonds. And, in fact, many commodity prices move independently of each other: Wheat doesn't necessarily rise when oil does, for example. Putting 5% of a portfolio's assets into commodities tends to reduce the portfolio's overall volatility.

Because many institutional investors are pushing money into commodity indexes, however, many commodities are starting to move much more in lock step, Caudle says.

Rich Carlstedt
06-01-2008, 12:56 AM
Governments want higher prices, because the tax rate rolls in more Revenue ! (taxes.) without legislative action !
(Look at Chicago Folks , if you don't believe it.)
Government restricts exploration which controls the supply side
Define tougher MPG standards which looks like good to some folks, but is an excuse so they can say "Not my fault, you are not reducing demand !
The Demand side is further hurt, because the Government does not run a balanced budget, thus devaluing the dollar, that directly leads to higher prices, because we have to go oversea's

I am not a conspiricey theorist, but all the above looks like a back handed slap to me.

If we had a balanced budget and a real Energy policy, we would not be here.

Striving for Ethanol is not only stupid, as most are suddenly (sic) realising, but does not give us what we need for our FACTORIES and for JOBS!

Carbon Credits,,will send more jobs and work to China, and you will have to pay for it---- double down the road.

Rich

Carld
06-01-2008, 12:27 PM
I agree with Rich and Milacron of PM, the market price is driven by speculation and demand. A problem of taking away the speculation now is the suppliers won't drop the price and in fact may continue to raise the price as they see fit. If they know their fields are running out of oil the price will go up.

Conspiricy, I guess some think so but it is really greed and profit and governmental taxing.

lazlo
06-01-2008, 12:51 PM
There is no current supply shortage.

Evan, everytime you post that, I post the following:

OT: Fuel Price Hikes... (http://bbs.homeshopmachinist.net/showthread.php?t=28707&page=9)

"According to all accounts, including the US Department of Energy, the world-wide production of crude oil peaked in 2005 at 85.24 million barrels per day, and has been flat ever since. US oil consumption has been increasing at 3%/year. But India and China's consumption of crude has increased 35%/year since 2005. Note that 2005 is when gas prices started to rise explosively.

This chart is from the US Department of Energy:"

http://upload.wikimedia.org/wikipedia/en/thumb/8/8f/World-oil-support-1997-to-2007.svg/800px-World-oil-support-1997-to-2007.svg.png

lazlo
06-01-2008, 12:56 PM
That is of course, discounting the un-used oil locked in sand and rock across 8 or 9 western states.......
If they start this evening to exploit it it will be from ten years to forever before it comes on line.

The US won't touch the tar sands in Colorado and Utah because we're not willing to pay the ecological costs to get to it. As we established in the "tar sands" thread, the majority of Canadian tar sands is processed by strip mining (62% of the total tar sands crude yield in 2006):

http://i164.photobucket.com/albums/u15/rtgeorge_album/CanadaStripMining2.gif

Carld
06-01-2008, 01:34 PM
Lazlo, I assume the oil production chart is from all the fields EXCEPT the USA because I don't think the USA sells oil outside the USA. If so that means the oil sources other than the USA are running out or they are cutting production. Which is it? Whatever the reason it along with speculation is causing the rise in cost.

I feel certain when we NEED the shale oil the greenies and environmentalists will go for the oil. Very few will go back to horses or walking or bicycles.

Just today I read in the Courier-Journal of Lou. Ky that Germany is stripmining lignite coal, the highest in carbon output. They are going against GREEN and in the Rhine Valley stripmining and building huge coal powered electric plants. Germany is a country that supports Green but they need electricity and will get it despite the greenies. It's an article out of the Los Angeles Times by Kim Murphy.

When you need food or fuel your attitudes change.

Evan
06-01-2008, 02:25 PM
I don't think the USA sells oil outside the USA.

The oil business is much more complicated than you think. The US exported over 1 million barrels per day in 2004 and nearly 1 million per day in 2006.

lazlo
06-01-2008, 04:23 PM
Lazlo, I assume the oil production chart is from all the fields EXCEPT the USA because I don't think the USA sells oil outside the USA. If so that means the oil sources other than the USA are running out or they are cutting production.

That data is from the "Energy Information Page" at the US Department of Energy, and it includes all countries, including the US.

There's a good summary page here:

http://tonto.eia.doe.gov/country/index.cfm

This part of the US country summary is fascinating:

Country Analysis Brief


The United States of America is the world's largest energy producer, consumer, and net importer. It also ranks eleventh worldwide in reserves of oil, sixth in natural gas, and first in coal.
U.S. oil production has been declining for years. In 2005, Hurricanes Katrina and Rita slashed oil output from the Gulf of Mexico.
The U.S. is the world’s largest consumer and second-largest producer of natural gas.
The U.S. has the world’s largest coal reserves, with the Western U.S. accounting for 55 percent of current U.S. coal production.
U.S. electricity demand is increasing, as are prices.


The US is also the world's third largest oil producer, at 8.3 Million barrels/day, ranking behind Saudi Arabia and Russia.

You can look at the monthly DOE updates in Excel here:

www.eia.doe.gov/emeu/ipsr

To re-create that chart I posted, download the May 2008 .XLS file from the DoE, sweep the summary column, and click the Chart Wizard icon.

Like Evan mentions, the US exports around 1.3 Million barrels/day of crude, which is really odd, since the main importers of US crude are Mexico and Canada, which are also the largest exporters of crude into the US. The conspiracy enthusiasts could go nuts on that one ;), but I'm guessing it's a combination of multi-nationals like Exxon/Mobil transferring crude from country to country, as well as shipping crude to externally-owned refineries:

http://www.eia.doe.gov/emeu/aer/pdf/pages/sec5_14.pdf

http://i164.photobucket.com/albums/u15/rtgeorge_album/USOilExports.gif

andy_b
06-01-2008, 10:10 PM
a couple of points here. the chinese govt controls the price of gasoline in China, so it doesn't matter what we are paying in the U.S., the chinese consumers are paying MUCH less. in fact, one of China's largest oil companies (it is Sun-something or other, i'm too lazy to look it up), is constantly trying to cut production because it actually COSTS the company money to refine and sell gasoline in china. the chinese govt has to heavily subsidize Sun-???? or they would stop refining.

i don't understand Evan's explanation of "drilling two barrels and selling one". if it takes one barrel of oil to extract and refine one barrel from the tar sands, then it doesn't matter if you extract 5 billion barrels, because it will take 5 billion barrels to extract and refine it. the only "extra" they will be selling will be to themselves to continue the extraction and refining process.

the U.S. uses somewhere around 8 BILLION barrels of petroleum products per year. if there are 16,000,000,000 barrels of reserve in Alaska, that is only two years worth.

http://www.eia.doe.gov/emeu/aer/txt/ptb0511.html

andy b.

Evan
06-01-2008, 11:22 PM
a couple of points here. the chinese govt controls the price of gasoline in China, so it doesn't matter what we are paying in the U.S., the chinese consumers are paying MUCH less.

No they aren't. Price now is $5.62 US per US gallon in Hong Kong. The US, Canada and just about every country in the world controls the price of gasoline in thier country. In most western countries it is controlled via gas taxes.


i don't understand Evan's explanation of "drilling two barrels and selling one". if it takes one barrel of oil to extract and refine one barrel from the tar sands, then it doesn't matter if you extract 5 billion barrels, because it will take 5 billion barrels to extract and refine it. the only "extra" they will be selling will be to themselves to continue the extraction and refining process.

First, it doesn't take a barrel equivalent of energy to produce a barrel of oil. Second, note I said "energy", not oil. Tar sands oil is produced with the main energy input being natural gas which is abundantly available in the tar sands fields. They are trading a source of low density and energy poor hydrocarbons for another. The first source is abundant and easy to process but hard to store or deliver to market and sell and the second has high energy density and is easy to sell and store.

The actual cost of energy is reflected in the cost to extract the product. In Saudi Arabia it is only a few dollars per barrel. Even in the Alberta tar sands it ranges from around $30 to as low as $15 or so per barrel. The real current dollar value of a barrel of oil is around $60 to $70 dollars so there is a very long way to go for the extraction cost to come close to the energy value of a barrel of oil.

Carld
06-02-2008, 12:48 AM
:eek: complicated is an understatement.

Why in the world would we sell oil and buy oil? I don't understand that at all.

Why would we buy oil from a country we are selling oil to?

Why don't we just trade credits? What is the point of buying oil from Mexico and selling oil to Mexico?

All this sounds very stupid to me.

Is there something to be gained from moving oil back and forth between countries?

.RC.
06-02-2008, 05:43 AM
:eek: complicated is an understatement.

Why in the world would we sell oil and buy oil? I don't understand that at all.



Oils ain't oils is the reason....One country may have a surplus of oil suitable for making lathe gearbox oil while another may have a surplus of oil suitable for making diesel...

Rustybolt
06-02-2008, 08:14 AM
Carl. Most refineries are built around a specific kind of crude oil. Saudi, Texas light-sweet , etc. A lot like asking a scotch distillary to make bourbon. Very few refineries can make product reliably from different crude oils. There are a couple in Texas, and one I know of in Canada. The more processes you add to the distillation process the more expensive it becomes.

Evan
06-02-2008, 10:16 AM
Most US oil exports are to Eastern Canada. It is much cheaper to import oil there from the US than it is to build a east/west pipeline across Canada. Most pipelines in Canada run south to the US. Also, Irving Oil has the largest refinery in Canada there which then exports refined oil products back to the US. Also, we are building new refineries in this country. In particular, Irving is well along on plans to build a second refinery in St. John, New Brunswick. The major customer for the products is the north eastern US.

http://www.irvingoil.com/company/erock.asp

Carld
06-02-2008, 10:22 AM
Ok, I understand it now.

lazlo
06-02-2008, 11:48 AM
Also, we are building new refineries in this country. In particular, Irving is well along on plans to build a second refinery in St. John, New Brunswick.

I don't understand that aspect that -- why is it so hard for the oil companies to build new refineries in the US? Someone here posted that the Saudis are building a multi billion-dollar expansion on one of the (American?) refineries in the Gulf of Mexico.

With Exxon making $45 Billion profit each quarter, you'd think they'd be inclined to build another refinery with the spare change. If it's just EPA regulations, why isn't Exxon building refineries in other countries? Are the new Canadian refineries being built by American companies?

Evan
06-02-2008, 12:15 PM
Nope. Irving is Canadian.



Founded in 1924 by K.C. Irving, Irving Oil is a family-owned and privately-held regional energy processing, transporting, and marketing company headquartered in Saint John, New Brunswick, Canada, with US marketing operations in Portsmouth, New Hampshire.
With over 7,000 employees, over 700 retail sites, operations from 13 marine terminals, and a delivery fleet of tractor-trailers, we serve wholesale, commercial, and retail customers in Eastern Canada, Quebec, and New England.

w_hartung
06-02-2008, 12:27 PM
No they aren't. Price now is $5.62 US per US gallon in Hong Kong. The US, Canada and just about every country in the world controls the price of gasoline in thier country. In most western countries it is controlled via gas taxes.


Yabbut Hong Kong isn't really China is it? Being a special administrative region and all..

According to CNN, gas is more like $1.50 or so in Shanghai, and most likely so in the rest of China also.


http://money.cnn.com/pf/features/lists/global_gasprices/price.html

So, I'd say yes, the Chinese are paying much less than we are, due to gov't price controls.

lazlo
06-02-2008, 12:37 PM
According to CNN, gas is more like $1.50 or so in Shanghai, and most likely so in the rest of China also.

http://money.cnn.com/pf/features/lists/global_gasprices/price.html

So, I'd say yes, the Chinese are paying much less than we are, due to gov't price controls.

We should send all the Hummers, Chevy Suburbans and Ford Excursions that the dealers can't give away in the US to China. Let the Chinese government deal with subsidizing SUV's with 14 MPG :p

camdigger
06-02-2008, 02:40 PM
Sorry for the late reply, but as far as water consumption, water used in most extraction processes is logically, what is most readily available- potable drinking water from on or near surface.
All extraction processes currently in use have the potential to contaminate the process water beyond what anyone is willing to drink or let animals drink so the waste water is typically disposed of by injecting into a deep salty formation. Water is NOT destroyed by the processes, it is contaminated enough that it is uneconomic to clean up enough to return to the fresh (drinking water )cycle.

andy_b
06-02-2008, 04:16 PM
Yabbut Hong Kong isn't really China is it? Being a special administrative region and all..

According to CNN, gas is more like $1.50 or so in Shanghai, and most likely so in the rest of China also.


http://money.cnn.com/pf/features/lists/global_gasprices/price.html

So, I'd say yes, the Chinese are paying much less than we are, due to gov't price controls.


exactly. HK isn't exactly mainstream China. also Evan said



If it "cost a barrel of oil to make a barrel of oil" available (it doesn't) the you end up with a net gain of a barrel of oil. You haven't lost something. You pump two barrels for an extraction cost of about 3 to 20 dollars per barrel and sell one for $130.

i was disagreeing with the statement that if it cost a barrel to make a barrel, you end up with a net gain of a barrel. that just isn't so. if it costs a barrel to make a barrel, your net gain is zero. as for using natural gas or some other energy source, again it doesn't really matter. if the equivalent of a single barrel of energy is used, you have used it, and it must be replaced by the same energy equivalent. saying "well, i used natural gas so it doesn't count", isn't exactly true (or realistic).

as for the actual extraction costs, i have no idea what they are. i was only replying to the "cost a barrel of oil to make a barrel" statement.

EDIT - oh, Sinopec was the company i was thinking of.

andy b.

Rustybolt
06-02-2008, 07:21 PM
#55
Not entirely true. most of the new refineries in N. America and Europe have to have effluent water clean enough for a trout to survive.


lazlo. It is the cost of compliance and the cost of labor. Union pipefitters make a hell of a lot of money. Steel gluers in other countries, not so much.

Evan
06-02-2008, 08:43 PM
According to CNN, gas is more like $1.50 or so in Shanghai, and most likely so in the rest of China also.
I have no idea where that number comes from. It hasn't been that cheap in years and they have recently lowered the price in time for the Olympics to make sure cabs are available. Current price in Beijing is $2.49 US per US gallon. That's about what it would be here if you removed the taxes, so it isn't exactly a subsidy. For instance, Alberta doesn't charge sales tax on anything so it's a bit hard to complain when somebody else doesn't either.

Also, China doesn't buy all of it's oil at world prices. They have some long term deals with African producers that don't follow the world pricing.


i was disagreeing with the statement that if it cost a barrel to make a barrel, you end up with a net gain of a barrel. that just isn't so. if it costs a barrel to make a barrel, your net gain is zero.
Not if you are using an equivalent amount of energy from another source, which is what is done in the tar sands. They use natural gas to make oil. Oil is what is needed, not natural gas. It doesn't cost anywhere near a barrel of oil worth of energy to make a barrel of oil from tar sands and far less than that for conventional oil sources.

Even if it did it's the oil that is the most valuable per BTU. Why do you think natural gas isn't a world commodity? Because it cannot be shipped in large quantites economically because of the very low energy density. Using it to make oil is a much better use than flaring it off because it can't be stored. It comes up with the oil like carbonation in a soft drink and there is always more available than can be processed and sent to a market via pipeline.


as for using natural gas or some other energy source, again it doesn't really matter. if the equivalent of a single barrel of energy is used, you have used it, and it must be replaced by the same energy equivalent. saying "well, i used natural gas so it doesn't count", isn't exactly true (or realistic).
See above. Again, it doesn't cost a barrel to make a barrel and there is no reason that should change.

camdigger
06-02-2008, 11:16 PM
Rustybolt

It is true. Refining is just that, refining, not extraction. The two operations are separated by a few miles of pipeline or a few hundred miles of open water. The water you're referring to is largely cooling water and is not used in direct contact with the hydrocarbons or rock.

Comparing the two is a lot like lumping the foundry and mine with the machine and fab shop.

AFAIK, anyway...

NSB
06-03-2008, 02:24 PM
"Oil is what is needed, not natural gas. " [snip] "Why do you think natural gas isn't a world commodity? Because it cannot be shipped in large quantites economically because of the very low energy density."

Unfortunately things are changing for those countries now running out of gas :-

http://news.bbc.co.uk/1/hi/wales/south_west/3555564.stm

Evan
06-03-2008, 03:25 PM
"Oil is what is needed, not natural gas." In the tar sands fields. I expected that to be understood. My mistake.

dp
06-03-2008, 04:41 PM
Turns out all you need is a little air: http://www.popularmechanics.com/automotive/new_cars/4217016.html

Another ridiculous attempt at denying (or not recognizing) where energy comes from. I wonder how much energy is wasted in heating up the electric motor, pump, air lines, and air tanks. And, as an aside, who is going to invest in the infrastructure to make this happen. At $2.00 for a recharge over a period of 5 minutes, I don't see a lot of room for profit. And what is going to happen to all the water compressed out of that air? It's going to be pretty cruddy stuff.

Rustybolt
06-03-2008, 06:59 PM
Cam. You're right I was referring to cooling water. The good news is that there are processes out there that can take nearly all the oil out of the slop oil, or slop water if you prefer.

Carld
06-03-2008, 09:09 PM
So, what is the real assumed/computed years of oil left at projected usage???

lazlo
06-03-2008, 10:48 PM
The fundamental concept of Peak Oil isn't that we've used up the world's oil reserves per se, it's that we're hitting the limits on how much crude we can pull up and process in a day.

There are complicated economics associated with how expensive it is to extract the crude: i.e., you can extract more crude from a reserve that's drying up by injecting with steam, but then you have to factor in the added complexity of the process, and the oil you have to burn to generate the steam, the energy required to filter the effluent, etc...

As oil prices skyrocket, reserves that were expensive to extract earlier suddenly become financially viable. That's where "unconventional sources" (heavy crude, tar sands, shale oil, etc) start becoming more of a factor.

Then, like MickeyD mentioned earlier, there's the issues associated with converting the extracted crude into gasoline, diesel fuel, etc. Sweet crude is much easier to refine into gasoline than heavy sour crude, and tar sands and shale oil are even more complicated to refine.

The bitumen extracted from tar sands is a thick semi-solid that looks like chunky oatmeal, and doesn't flow at normal oil pipeline temperatures. So a lot of the Canadian tar sands are refined on-site by specialized refineries into synthetic oil or directly into petroleum products. In that picture I posted in the tar sands thread, there's a giant yellow pyramid next to the processing plant -- that's the sulfur that's extracted during the filtering and refining process.

Rich Carlstedt
06-04-2008, 12:16 AM
George Soros was on this morning, in front of a Senate committee
investigating Oil Prices.
Several things.
Oil is purchased one third by consumers, One third by companies (distributors etc) and One third by speculators.
George said the market is a 'bubble" and will burst.

Seems one of the problems is that Buyers do not have to take delivery !!
In other markets they do, (Like Gold)
SO the specultors keep it all in limbo.
They are talking about raising the margin to 50 % to force out the speculators
Oil Industry folk have said a real price is from 40$ to 70 $ a bbl

Rich

gmatov
06-04-2008, 01:00 AM
And to add to the equation, whether the price is being manipulated or not, 1, the CFTC announced a 6 month old investigation, oil dropped near 5 bucks, that day, 2, today's paper says that Iraqi oil production is at its highest in 5 years.

2.9 million BPD, about 2 million on the world market. That should have made up much of the "increased demand" that is thrown about.

Forget who said that refineries are running "flat out". Exxon-Mobil says they are running at 84% and have no intention of raising that level. They refine to meet a profit goal, not to meet demand.

Us producers not only refuse to build new refineries ( and it's not treehuggers stopping them, unless they hire the treehuggers to demonstrate against them ), they refuse to sell closed refineries to anybody who wants to buy and run them.

If you can control the supply, ala DeBeers, for so many years, you ARE setting the price.

Over on PM I have been trying to say this to Don, and keep getting my ass kicked.

"Because they CAN." That is all there is to it.

I really hate when all you guys say that, when you take inflation into consideration, oil is NOT any higher priced than it was in 1980.

By God, it IS. In the 90s it was back down to 10 to 20 bucks a barrel. AND the refiners and producers made profits. NOT45 billion per quarter, but still profits.

Only the Right Wing media, limbaugh and Honsberger and the like make the spiel that oil is just catching up to inflation. And there AIN'T no Left Wing Media.

Noone will believe anything anyway, they have read all the propaganda, and believe that!

"lazlo. It is the cost of compliance and the cost of labor. Union pipefitters make a hell of a lot of money. Steel gluers in other countries, not so much."

Funny that all them foreign firms are coming here to build plants of many types. They all say that wages are so much lower here that any factory is a bargain to operate.

I'd wager that any of the refineries built in Middle East countries cost at LEAST as much as in the US, they hire all their work done by Germans, Brits, French, Americans, whoever. Ex-pats don't work for peanuts.

Everything has to be imported from industrialized nations. That, too, doesn't make anything cheaper.

I think you are deluded if you think you are highly paid as far as other industrialized countries workers. Ask the Brits what their labor rates are. I don't know if it has been mentioned here, but a lot of the Forum also habituates PM, and we have been told that the Brit minimum wage is about 11.50 USD per hour. Others have mentioned 28 buck machinists.

Those jobs are few and far between in the US and almost always in a Labor Union represented shop. Most of the industrialized world, with the exception of the US, IS Unionized.

Here is a link from 6 years ago, when the Euro was worth less than a dollar, I think. Look at the pay scales in those countries at that exchange rate, and consider what they are with a buck 56 Euro and a near 2 buck pound.

We would now be a 3rd world country, in a Depression, did we not have so much credit worthiness that all the world will accept our IOUs, about 4 trillion of them since the present admin came into power.

Rich,

"Governments want higher prices, because the tax rate rolls in more Revenue ! (taxes.) without legislative action !"

States, some of them, PA, mine own included, do place sales tax on gasoline sales. So they have tripled the State's sales tax take. I don't know how many states charge sales tax on oil products, at least those at the pump. If a state has a sales tax, I would bet you pay it when you buy a quart of oil at the auto parts or Wallymart.

My State and Fed gasoline taxes have been the same over the last 5 years or so, posted on most pumps, so if gas is 1 buck or 10 bucks, the Gov does not get an automatic increase.

If you recall, in the 2000 Presidential election, Al Gore was put down quite a bit because he had, in 95 or 96, proposed raising the federal Tax 5 cents per year, to a max of 50 cents, to try to curtail consumption.

That did not fly, and the years since have proven that it would not have worked. (It might have worked with the rich, witness the billionaires who refused to buy new yachts when the Excise Tax on yachts was set at 10%.)

I forget what gas was in 95-96, 85 cents? make it a buck 35 and cut consumption in half? Hell, 4 bucks is just starting to get people to get rid of 10 MPG vehicles.

GM just announced they will shut down large vehicle lines, quit the Hummer, sell it if they can, quit production regardless.

With the devalued dollar, 60 bucks a barrel is about the sweet spot. Still too high, but the oil companies will still make their 40 billion per year profit.

Cheers,

George

wierdscience
06-04-2008, 01:04 AM
I don't understand that aspect that -- why is it so hard for the oil companies to build new refineries in the US? Someone here posted that the Saudis are building a multi billion-dollar expansion on one of the (American?) refineries in the Gulf of Mexico.

With Exxon making $45 Billion profit each quarter, you'd think they'd be inclined to build another refinery with the spare change. If it's just EPA regulations, why isn't Exxon building refineries in other countries? Are the new Canadian refineries being built by American companies?

To build a refinery here a pile of paperwork and permits equal to the weight of the refinery is required before the first weld is made.This doesn't even begin the hurdles with the NIMBY's and parsite lawyers.

Chevron did just complete an expansion of their Pascagoula,Ms refinery boosting it to 600,000 barrels per day of capacity and several others are doing the same.Shell is more than doublingthe TexasCity,Tx refinery to 600,000bpd as well,but it won't be online until 2010.

gmatov
06-04-2008, 01:26 AM
Rich,

Where do you come up with the idea that you have to take delivery of a gold contract? You bought or sold a 1,000 ounces of gold, near a million bucks, you don't have it dumped in your drive, just as you don't have a ton of pork bellies dumped in your drive.

All this stuff is kept where it is. You have control, you don't have possession unless you want it. Most people do not want to have a 1,000 ounces of gold at home, nor a ton of pork bellies, nor a 1,000 barrels of crude or gas or heating oil.

If you are a heating oil distributor, you may buy a bunch of contracts to assure your price should oil rise. You make profit from the price you bought at and the spot price plus the markup for delivery.

Oil delivery people in my area are, or were, signing people up to long term contracts for homeowners. 10,000 gallons at 2.89 per gallon, say. If the price rose, the distributor fulfilled the contract, he bought at a price to allow for profit at 2.89, and the oil is in the oil companie's tanks, all paid for.

By the same token, should the price of oil crash, the homeowner is locked into the contracted price. If your neighbor is getting oil for 89 cents, tough. You bet the wrong way. You either buy from a vendor who has a lower price, and reserve your contracted price till the cost goes over that or you keep paying through the nose.

Ain't no easy way out with monopolies, and all power companies are monopolies.

Cheers,

George

derekm
06-04-2008, 07:36 AM
Rich,


...
Oil delivery people in my area are, or were, signing people up to long term contracts for homeowners. 10,000 gallons at 2.89 per gallon, say. If the price rose, the distributor fulfilled the contract, he bought at a price to allow for profit at 2.89, and the oil is in the oil companie's tanks, all paid for.

...

The oil is not neccessarily in tanks at all but marked down as the reserves the oil company owns or the oil futures contract it holds with the refiners.
To translate this to a simpler market model its the same as hoarding. In a simpler world the rumour would go round "there's a problem with the salt mines in Siberia" so everyone would start buying and hoarding salt, there is a salt shortage, The price goes through the roof. There was a problem in Siberia but it was fixed in a week and people panicing didnt even get their Salt from there.

The modern method does away with all the inefficiency of actually moving the stuff so we can actually buy and sell salt that is still in the ground and have faster and deeper panics (we dont have to wait for it to be mined, delivered or gold to be sent by armed guards on horseback to pay for it)and even higher prices before reality sets in again.

The market is supposed to be a control system that adjusts price and the supply to meet demand.

For those old enough to have played/worked with analogue control systems with proportional, integrating, and differential controls, we have at moment in oil have/had the integrating wound right down (investment in refining/extracting capacity) and the differential full on (investments in oil futures). Adjusting the integrating takes a long time to have effect, and if governments are unable or unwilling to adjust the differential control, they are left with only the proportional (increased production on existing plant/wells).

Days of fiddling/commissioning such things controlling electric arc furnace pressure, Refuse incinerator outlet temperature and large A/C plant, Tell me we are in for large control excursions. That means big big price fluctuations up and down. It will make the damage I could do seem like a speck of sand in a Universe of Stars, full of planets, full of beaches.

My damage would have been limited to collapsing the arc furnace roof or melting the electrostatic precipitators, or causing an entire car factory workforce walkout - all of which I was able to avoid.

It will not be like making millions starve.

Evan
06-04-2008, 08:38 AM
There is a very large physchological element to how the markets work. A number of such factors play a big part in many investors and traders strategy even though they may not realize it. A big one is the "bandwagon effect". If a big trader makes a move it will be noticed by automated systems at all the trading houses as well as by more sophisticated private day traders. Within minutes others will make the same moves hoping to catch the same advantage that the first trader seems to know about but the rest don't. This can swing the market a great deal in a short time.

On many days this will be seen as a good approximation of a sine wave with a decreasing frequency and amplitude that contimues through most of the day making three to four cycles in a trading day.

There are also strong effects produced by "round numbers" such as any number ending in zero and especially ending in two zeros, such as 100. These values are frequently associated with automatic buy as sell orders that have been set by traders and investors to take place when ever that particular value is reached. These orders are executed by computer when the threshold is crossed.

The effect is that the other computer programs watching the trading values can all be triggered at once as the trading values cross these round numbers causing a flood of buy or sell orders depending on the direction the market is moving.

Like a poorly damped control system it causes large excursions which is why the markets are so volatile in recent years.

Another major factor is that the traders and other players have virtually no memory. Only a very short time ago $70 oil was considered "too high" by the Saudi oil minister because of the damping effect on the world economy. Now however the $100 ceiling has become a new floor and $70 oil is long forgotten.

Probably the largest effect is the "self fulfilling phrophecy". If a major trader or analyst makes a pronouncement it is taken by many as gospel and they act accordingly. This will move the market further and faster than almost anything else other than large disasters.

Right now the market price of oil is extremely overvalued and a number of reliable indicators are showing that we are due for a possibly large collapse in the markets. One of the most reliable of these indicators is the Bandwagon effect. When the Bulls are in control and the Bears are quiet you see stories like "Get ready for $200 oil". Predictions that "you ain't seen nothing yet" abound and "the only way it can go is up" is heard. This is a sure sign that the market is in a bubble and ready to fall but is frequently ignored by many who are swept up in the frenzy.

I'm currently out of the market and will buy back in when it falls. The most often ignored investing advice is something a broker once told me. "You can make money on a rising market (Bulls) and you can make money on a falling market (Bears) but remember: Pigs get eaten."

A.K. Boomer
06-04-2008, 11:05 AM
I'm currently out of the market and will buy back in when it falls. The most often ignored investing advice is something a broker once told me. "You can make money on a rising market (Bulls) and you can make money on a falling market (Bears) but remember: Pigs get eaten."



Im reminded of one of the 7 blunders that plaque's mankind; "wealth without work", at least for me - with the little examples that iv had in my life there is definitely some merit in those words, or at the very least its worth it for me to pay attention from where it came from..

That Gandhi dude was very insightful and pretty cool.

Carld
06-04-2008, 06:51 PM
Today in the news someone is going to spend 10 billion dollars to build a new refinery here in the USofA.

No one gave a total of what is left in the ground and I don't think anyone really knows. I believe it's all guess work as in Sophisticated Wild Ass Guess.

I have not heard of any one traveling underground to inspect the oil pools. I guess some one could contract Superman to do it for us.

Rich Carlstedt
06-04-2008, 11:38 PM
George
You said
"Rich,
Where do you come up with the idea that you have to take delivery of a gold contract?

Testimony in the Senate Hearings on Tuesday Morning is where I heard it.
They really said "unlike other comodities"..oil is not delivered "
The recomendation to the Senate was to raise margins and force delivery

Rich

PS
If gold was a poor choice for a commodity, I appoligise

Rich Carlstedt
06-05-2008, 12:16 AM
George
You said
" US producers not only refuse to build new refineries ( and it's not treehuggers stopping them, unless they hire
the treehuggers to demonstrate against them ), they refuse to sell closed refineries to anybody who wants to buy and run them. "

Totally bogus George !
Please do some real research before making such rediculas, uninformed comments
Evan has made some very insightful postings, please listen to him and not political hacks
Rich

FYI. There are two refineries sold in this news article alone
and there are others if you look

http://www.bizjournals.com/dallas/stories/2008/05/05/daily40.html


To get a new refinery after 30 YEARS.
It takes a "Vote" in South Dakota
Please see

http://www.siouxcityjournal.com/articles/2008/06/04/news/top/4e608d46402d5adb8625745e00110beb.txt

Rich Carlstedt
06-05-2008, 12:33 AM
Carld
It's not a SWAG projection
There is a scientific method based on rock strata formation and soundings .
There also are Magnetic reflection ,Gravatational scans and mapping that point to "possibilities" of oil containment.
Having been in the oil patch in the 70's, I really appreciate the tremendous
progress made in exploration and projections.
It is extremely scientific and not like dowsing as many portend it to be !
There are those who don't honestly know, and it is important that they understand that
oil does NOT accumulate in a big "hollow" dome shaped chamber that schools show in books
It is contained in porous rocks and loose strata, and while the field may have a "cap" on it,(usually)
It can be in several sandwiched layers, each with it's own ramifications and reserve potential.

There is brand new data released this week by the Federal Government Energy Department
that spells out Energy Reserves, proven and unproven and the numbers will stagger a few folks out there.
Can I say that Chicken Little will have to go home.
I'll post it when the link is sent to me as i doubt the news media will publish it.

The problem we have is governmental.
Our elected leaders are preventing this natural resource from helping our economy.
They "benefit" by gaining tax revenue.
When will we wake up to the scam ?
Again, I post this .
Please read it...Chicago has 10 levels of taxation on gas.
At 79 cents, Chicago makes 10 times the profit of Exxon ...PER GALLON !

http://cbs2chicago.com/politics/gas.prices.taxes.2.729939.html

Believe the BS and you will inherit 5 dollar gas !
Politicians have never met a tax, they didn't like.

Rich

JCHannum
06-05-2008, 08:51 AM
A very nasty side effect of those taxes is that once the government gets the money, it becomes incorporated into the budget. If the price of gas does fall, or consumption is significantly reduced, a budget shortfall will exist, and those tax dollars will then be raised in other areas to compensate for it.

wierdscience
06-05-2008, 09:34 AM
I have no problem paying fuel taxes,in fact I believe all motor vehicle taxes should be paid at the pump.However if those taxes are collected to build and maintain roads then that is what they should be used for.This many times is not te case,road work funds are routinely raided to finance other pet projects.

As for taxes increasing with the price of fuel,well they should.Reason being is the cost of road construction goes up with the price of oil so the increase really does need to be keyed to the cost of fuel.It's only fair that people who use the roads share n the costs/savings as they arise.

AZSORT
06-05-2008, 10:47 AM
Here is the best chart on Peak Oil I know of:

http://oilposter.org/posterlarge.html

Notice how the last year the world discovered more oil than it consumed was 1983.

Always remember that the issue is the rate of oil production - not reserves.

The problem should be called Oil Inflection not Peak Oil as the important thing is that demand is outpacing demand and the market is flipping over from a buyer's market to a seller's market. (priced not at the cost of production but the value to the marginal consumer)

The scariest part of the chart is how progress has followed the growth of cheap fuel. World population has tracked it precisely. What will happen when we go down the other side?

For all you that say there is plenty of oil out there, I expect a rebuttal to the book "Twilight in the Desert" which pulls the wraps off the reality of Arab oil depletion. All the super giant oil fields in the world are now in depletion meaning they produce less and less each year. You can say what you want, but there are no sources of energy which can produce the tremendous prosperity those supergiant fields gave to mankind.

Did you notice how the Saudis couldn't give their buddy Bush any increase? Politics aside, they can't do it even if they wanted to.

Thanks in no small part to what I've learned from you machinists, I converted a little 2-door to electric last year and am having a great time thumbing my nose at gas stations.

The age of oil is nearly over. Get over it!

rotate
06-05-2008, 11:12 AM
Here is the best chart on Peak Oil I know of:


That chart is not showing the real picture. For example, Canada has the second largest "oil reserve" (i.e. including tar sand) and yet the bottom chart shows Canada as having relatively meager amount.

lazlo
06-05-2008, 11:45 AM
That chart is not showing the real picture. For example, Canada has the second largest "oil reserve" (i.e. including tar sand) and yet the bottom chart shows Canada as having relatively meager amount.

How can you even read what that bottom inset chart says? There's a footnote next to the Canada figure, which probably says something about how they're tabulating tar sands versus crude oil reserves.

Evan
06-05-2008, 12:11 PM
The problem should be called Oil Inflection not Peak Oil as the important thing is that demand is outpacing demand and the market is flipping over from a buyer's market to a seller's market. (priced not at the cost of production but the value to the marginal consumer)

Supply and demand do not control oil prices.

The best evidence of that is this chart of inflation adjusted oil prices since 1946. The two large peaks in the price do not correspond with any particular enormous increase in demand, especially not in the 1970s. OTOH, periods of high growth and high demand in the 50s and 60s result in no change in prices. It isn't until the 1980's that the markets suddenly become volatile, long before China or India become factors.

http://vts.bc.ca/pics4/oilprice.jpg

The one thing that corresponds with the sudden volatility of prices in the early 80's is the introduction of computer trading and the ability to make rapid and speculative buy and sell decisions on an intraday basis. It's called Day Trading and without computers it isn't possible. As soon as day trading enters the picture physchology starts to play a much bigger role. This effect becomes even more exaggerated as the development of instant world news begins to affect trading on a minute by minute basis. If you visit any broker's work station he will have several monitors that are tuned to news sources from around the world. Nothing is more important.

The price of oil is driven by what the traders think it will be in the future. The numbers you hear on the news are not today's prices, those were set three months ago. They are the futures contract prices for the next three months. The spot market price doesn't have much meaning since almost nobody is ever paying spot market price.

Deja Vu
06-05-2008, 12:11 PM
Thanks in no small part to what I've learned from you machinists, I converted a little 2-door to electric last year and am having a great time thumbing my nose at gas stations.


Is there some web site that provides the details of your conversion? I would be interested in seeing/reading at least a few details surrounding the project?

...In short, does a "log" of this conversion exist for us readers?

AZSORT
06-05-2008, 01:57 PM
No, I have no website for my conversion, although there are quite a few out there. See evworld.com kta-ev.com electroauto.com or get one of the books like 'convert it' . Any of you guys could do it. Just get the series DC motor kit and make or buy a motor to transmission adaptor, cram as many batteries as is practical, and be careful about the wiring. Needs to be a manual tranny though.

Even though there is some production coming out of the Canadian tar sands now, no one really expects it to be significant and therefore does not include it in the recoverable reserves catagory. Remember, it is not the quantity of reserves that count but the rate of production! There is no way any alternative or newly discovered source of liquid fuel is going to compensate for the loss from the great oil fields going into depletion. Oil is and will get progressively more expensive until enough demand is destroyed to meet supply. Yes, there will be wild speculative swings etc., but the primary trend will be up.

How much is a gallon of super concentrated BTUs worth to you?
How high will it have to go before you use less of it?

rotate
06-05-2008, 02:21 PM
Thanks for all the replies.

So, I think there's a consensus that oil peak will indeed happen. Whether that's just relating to the production alone or the relationship between demand and production.

I guess the real question is, when will we reach this point. Some scare mongers say that it's already happened and that we're on a downward spiral. Let's say it's 50 years away. Is that enough time for our economy and civilization as a whole to finding alternative energy sources of that magnitude, or is the party over and we're doomed to going back to living as we did in 19th centry?

Deja Vu
06-05-2008, 03:46 PM
No, I have no website for my conversion, although there are quite a few out there. See evworld.com kta-ev.com electroauto.com or get one of the books like 'convert it' . Any of you guys could do it. Just get the series DC motor kit and make or buy a motor to transmission adaptor, cram as many batteries as is practical, and be careful about the wiring. Needs to be a manual tranny though.


Thanks AZSORT :)

lazlo
06-05-2008, 03:48 PM
So, I think there's a consensus that oil peak will indeed happen.

I guess the real question is, when will we reach this point. Some scare mongers say that it's already happened and that we're on a downward spiral.
I don't think it's scare mongering. According to DOE and OPEC statistics, world oil production peaked in 2005, which is when oil prices started skyrocketing.
You can argue about the causality, but it seems pretty straight-forward.


is the party over and we're doomed to going back to living as we did in 19th centry?

Humans are very adaptable. If you take the average between the folks who believe that we have infinite oil, and the folks who think we've already peaked, let's say we have 50 years before the world's oil supplies are at a crisis point, and let's assume the oil shortages and the consequent spiraling food prices don't cause a world war. That gives us 50 years to figure out a solution: heavily investing in renewables, biofuels, (much) more efficient cars, or my favorite: a Manhattan Project to make fusion work.

What's interesting is that during the oil shortages imposed by OPEC in the 70's, the spiraling oil prices created a surge in alternative energy programs and research (remember SynFuel? :) ), start-ups and commerical ventures, etc. The often-quoted historical account is that this worried the Saudis enough to stop the oil embargo, and oil prices returned to "normal."

Oil prices since 2005 have jump-started the alternative energy "industry" (community?) again, so if the current world-wide oil production shortfall isn't artificial, it seems like global investment in alternatives will flourish. We all have our favorites: electric cars, fuel-cells, biofuels, nuclear energy, hydro, geo-thermal, ... but if oil prices continue to escalate, it seems likely that some of those alternatives are going to be successful.

Rich Carlstedt
06-05-2008, 05:24 PM
One of the things completely missing here, and "thanks" Evan for posting the chart.....is inflation.
When the dollar is not supported (hasn't been for 3 years ..Coincidence ? )
and we run huge deficits/stagflation AKA Carter years and interest rates than skyrocket (bought a house iin 1981..paid 17 % INTEREST), oil as a comodity will increase in true cost.

Balancing the budget is a mis-nomer.. we need to reduce the National Debt, weither its war cost, or Katrina costs..they must go down.
Our falling dollar means higher prices for oil and anything else.
Europe has not had the runup in gas prices as we have seen, because the Euro has gotten stronger..offsetting the apparent increase.

This is easily seen, if you look at the price of oil in terms of Gold prices!
I don't have a chart, but back when Oil was 40 bucks a barrel in 78, Gold was going to 800
These two move in unison.. Gold comes down when the dollars' value goes up.
OVER SPENDING BY CONGRESS causes the dollar to fall.
Rich

lazlo
06-05-2008, 06:26 PM
One of the things completely missing here .is inflation.
When the dollar is not supported oil as a comodity will increase in true cost.

Sure, the value of the dollar is down 40% against the Euro in the last 6 years, but worldwide oil prices are still at historical highs, even against the Euro, which is why the UK truckers staged a demonstration two weeks ago:

Soaring Oil prices Fuel Jump in European Inflation
May 30, 2008
Andrew McCathie--dpa

BERLIN (dpa) -- Inflation in the 15-member eurozone surged to a record 3.6 percent in May, data released Friday showed, ruling out an early move by the European Central Bank (ECB) to cut interest rates.

The figures, published by the European Union's statistics office, showed soaring food and oil prices driving up inflation in the currency bloc from 3.3 percent in April at the same time as consumer and business confidence fell.

Rising fuel prices: European views
May 28, 2008
BBC World News

BBC News website readers across Europe have been reacting to the continent's surging fuel prices, which have prompted blockades and strikes in Spain, France and the UK.


Balancing the budget is a mis-nomer.. we need to reduce the National Debt, weither its war cost, or Katrina costs..they must go down.

Balancing the budget is hopeless when we're spending $12 Billion a month on Iraq. The total cost of the war is going to be at least a trillion dollars.

derekm
06-06-2008, 05:54 AM
Supply and demand do not control oil prices.

The best evidence of that is this chart of inflation adjusted oil prices since 1946. The two large peaks in the price do not correspond with any particular enormous increase in demand, especially not in the 1970s. OTOH, periods of high growth and high demand in the 50s and 60s result in no change in prices. It isn't until the 1980's that the markets suddenly become volatile, long before China or India become factors.

....

The one thing that corresponds with the sudden volatility of prices in the early 80's is the introduction of computer trading and the ability to make rapid and speculative buy and sell decisions on an intraday basis. It's called Day Trading and without computers it isn't possible. As soon as day trading enters the picture physchology starts to play a much bigger role. This effect becomes even more exaggerated as the development of instant world news begins to affect trading on a minute by minute basis. If you visit any broker's work station he will have several monitors that are tuned to news sources from around the world. Nothing is more important.

The price of oil is driven by what the traders think it will be in the future. The numbers you hear on the news are not today's prices, those were set three months ago. They are the futures contract prices for the next three months. The spot market price doesn't have much meaning since almost nobody is ever paying spot market price.

The solution then is simple - increase the time constant of the system. Get rid of intraday futures trading and get investment money out of price gambling and into investing in reality. Investment in oil should change its emphasis from gambiling on future prices to being more on building refineries, drilling and even other energy sources. It should be done slowly like winding back on the differential of any control system. 1hr 4hr 12 hrs 24hrs 48hr etc...
derek

Evan
06-06-2008, 10:47 AM
The solution then is simple - increase the time constant of the system.
That has been done to a degree. The market crash of Oct 19, 1987 was almost entirely caused as a chain reaction of computer controlled trading. It was the first time that the computer trading system was confronted with a good sized sell order that just happened to trigger one of the systems to take action on a large number of "stop loss" orders. Without any time delay or human intervention the system entered a positive feedback loop that resulted in a 22% loss of market value in just a few hours, the biggest crash in history. There were other factors that led to the crash but it was greatly exacerbated by the computer trading system.

After that they implemented a time delay for certain types of trades including a requirement that those trades be examined and approved by a human before proceeding. Unfortunately the time constant introduced is on the order of minutes instead of days and is only aimed at preventing the sort of crash that was seen in '87.

Implementing a longer time constant and eliminating day trading would wipe out half of the market action world wide. It won't happen. Unfortunately we are stuck with the volatility.

What can be done is to eliminate some of the totally speculative products that currently exist. It is possible to buy such things as index futures which are nothing more than a bet placed on how the market will go for something. An index future has no underlying value and is nothing more than a gambling bet on the future value of an index of almost anything that is traded. There is no actual product involved nor commodity of which to take delivery. It's a price bet only. This sort of futures trading plays a big part in pushing the prices around and serves no useful purpose.

oldtiffie
06-06-2008, 11:48 AM
Capitalism at its best or worst?

"The business of business is business."
http://en.wikipedia.org/wiki/Alfred_P._Sloan

And there are many other similar quotes from those paragons of virtue that got us to where we are today - the "Industrialists".

The fundamentals are the same.

The more things change the more they stay the same.

Rich Carlstedt
06-06-2008, 03:25 PM
Yes OldTiffe
Business is business but..
What we have before us is .....well baloney..
Real business is having a product (which is not imaginary !) and selling it.
These future guys are buying and selling and never taking delivery
This is easily seen in the childs game called 'Musical Chairs"
You want to be moving in the game, but when the music stops.."don't be holding the bag". ( Like Enron ?)
Its fine in the chair game IF there are enough chairs (called demand)
If there aren't enough chairs however, your butt is on the floor.
By restricting Oil Drilling ( greenies/gore/OPEC ) the music keeps playing !

Think about that? both Clinton and Bush have been"very" close friends of Saudia Arabia and dubai, and our Congress is always taking junkets to the middle east. The Arabs don't want us to drill, and neither does Washington, neither does wall street, nor the greenies..they want YOU to keep the music going ...played to the tune of clinking dollars in the tin box

Did you ever stop to think how the Greenies get so much money and influence ? nahhh

Rich Carlstedt
06-06-2008, 03:51 PM
Proof in the pudding
In todays News !

EPA Blocks expansion of Illinois refinery from 60,000 barrels to 500,000 barrels

http://online.wsj.com/article/SB120097424021905843.html?mod=googlenews_wsj

In the mean time, the Royal family today announced a new Refinery to be built in SA

How is this 2006 quote :
"
The United States production of petroleum products continues to fall while use continues to rise. The United State now imports most of her need for petroleum products. Any large-scale disruption of petroleum products to the United States would have consequences so severe to the U.S. that she would face a massive inflationary depression or she would be forced to go to war to secure access to the oil and gas."
This is from
http://www.thepropheticyears.com/comments/Imminent%20Danger%202%20-%20Massive%20oil%20and%20gas%20disruptions.htm

The 4 dollars we pay now, is a warning. We must pay heed, or live by our mistakes

As they say, the writting is on the wall.
Rich

PS. I don't ascribe to the last website, only the logic of oil use consequences they project

yeehaanow
06-06-2008, 04:30 PM
To the peak oil nay-sayers and greenie-haters


Let's say you could have unrestricted drilling and access everywhere, you could dig up all the shale you wanted- EVENTUALLY you're gonna "run out" no matter what. (You'll never run out, it will just be too expensive to produce.)

So, why not, INSTEAD of arranging our lives to be 100% dependant on oil and fossil fuels, arrange our lives to live without it. If we have to anyway at some point, might as well do it now, so what if it MIGHT be fine until after you're gone. What about your grand-kids? Do you really want them cursing your grave for recklessly squandering the worlds energy supply, and causing harm to the environment?

I'm glad this is a hot topic, because it is THE pivitol issue of our time. I feel it is a big area where man has yet-again underestimated his own ignorance. You can't tell me for sure that taking gadzillions of tons of ancient carbon from the ground and putting it into the air won't have serious consequences for the environment. (Unless you have been to the future ;) )

Also, oil in the ground, or rock, under the ocean, or under the ice-caps doesn't count for diddly until it's in the gas can. Haven't you seen the show wildcats? You can't tell me for sure that we will ever be able to produce anything significant from these difficult-to-produce places. ( Unless, of course, while you were in the future you checked on this too :rolleyes: )

To me, if you compare our lifestyle to investing, we have put all our energy-investment eggs in one basket, and you KNOW what a financial advisor would think about that. Don't think this is true? Try to go one day, one hour, or one minute without using anything that has direct or indirect fossil fuel inputs. Chances are, you can't- unless you go naked in the woods. This "lifestyle" did not come about by chance. It was a choice, and we CAN choose differently. I'm not saying we go cold turkey, but let's think about the fact that we really don't KNOW what the consequences of our lifestyle will be.

I for one, do not want Exon to have me by the balls because of my lifestyle choices. I have managed to arrange my life so that I don't have to be a slave to the pump prices, but I am one of the lucky few.

You can't ever know for sure until it's too late, so I would advise anyone to err on the side of caution when it comes to personal oil dependency.

Evan
06-06-2008, 09:01 PM
Just a note about the value of oil;

Oil is much more valuable as a feedstock for the chemical industry than it is as a source of energy. It's the basis for everything from plastics to synthesized beta carotene. It's worth far more as a lubricant than a heat source. Without oil your car isn't going anywhere regardless of what powers the prime mover. It's made into dyes, paints, preservatives for lumber and roads. Nearly every machine on earth depends on oil from the ground.

You want to see expensive? Never mind the price of gasoline. Wait to see what happens to the cost of manufactured goods as the price of oil goes up. It's the raw material for the majority of durable goods made today.

Rich Carlstedt
06-06-2008, 10:39 PM
Thanks Evan

Yeehaanow...Atomic Energy, big time

rotate
06-06-2008, 10:53 PM
Funny enough, I haven't seen much change in the price of motor oil in the past year.

Evan
06-06-2008, 10:59 PM
It's already a high profit item. You can see how much by pricing the multipurpose hydraulic oil used in heavy equipment. It is used in systems where it lubricates the transmission, the wet brakes and is also the hydraulic oil. I just picked up a gallon for $7.00 to use in the hydraulic system in my Land Rover and log splitter. The difference between it and the high priced brands is a few cents worth of additives (maybe) and a lot of expensive advertising plus a huge profit margin. They can afford to hold the price line for a while.

oldtiffie
06-06-2008, 11:06 PM
None of all this posturing or pontificating etc. here is going to one bit of good - at all.

Like it or not, we are all going to have to "wait and see", "play the hand/s were are dealt" and learn (and have to) live within our means.

Not liking it will neither make it right nor change it.

Its bit like having a baby in that they can't make you love it, but they sure can and will make you have it and put up with it.

Perhaps some relevant quotes from the "long ago":
"The Rubáiyát of Omar Khayyám"

One of the quantrains from which is:
The Moving Finger writes; and, having writ,
Moves on: nor all thy Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.

see/read "poems" at the end of:
http://encyclopedia.thefreedictionary.com/Omar+Khyam

tattoomike68
06-06-2008, 11:19 PM
The key is to drive smaller rigs, you dont need a 400HP diesel king cab truck to haul your fat ass hog woman through the burger king drive through to get her a triple whopper.

I live in America and see the huge hog bitches who need to get off thier fat asses and walk a block if it dont kill them.

No BS dudes, im not kidding...

rotate
06-07-2008, 01:40 PM
None of all this posturing or pontificating etc. here is going to one bit of good - at all.

Like it or not, we are all going to have to "wait and see", "play the hand/s were are dealt" and learn (and have to) live within our means.


I respectfully disagree. The value of revisiting the past and analyzing it, is to learn from it and alter the course of human destiny.

oldtiffie
06-07-2008, 08:59 PM
Sorry, but .........................

If all anyone, or any of us can do is talk about it and not (be) able to do or get anyone else to do anything positive or constructive, it had been waste of time and effort and an exercises in stupidity and futility.

"Doing something" just for the sake of getting "something" done can be just as counter-productive - as can stirring others up for the same or even less nett tangible result.

I suspect that this is one of those times where we are just going to have to bunker down, adapt as best we can and ride it out.

The solution - and possibly the cause of the problem - is in the hands of others who will take no notice of any of us and who may continue with this scenario as they see it as being in their own best interest and a means to their ends.

All that you will get is useless/symbolic "hand-wringing", empty platitudes, false promises and "spin".

This is in the realm of big money, big business, big government/s and "national/strategic interest/s".

There is a proverb in the East which goes along the lines of: "When the Elephants fight the mice/ants get trampled".

It may be the same if/when the "Elephants" co-operate or copulate -in which case we may see some "big issues" after the gestation periods (of "Big" elephants???).

Evan
06-07-2008, 10:27 PM
It helps to understand the issues. In fact, there is something that us "mice" can do about it. I don't know why but we appear to be on some sort of list that is used to make up lists of people to call when conducting polls of various sorts. I don't mind spending some time answering questions for a poll if I have the time. Because of the way polling works a single person carries a hugely disproportionate amount of influence in those circumstances. Most polls sample only about 500 to 2000 people at the most even for countrywide issues. It can be mathematically proven that increasing the sample size will make little difference to the result.

However, it gives the people polled a rare chance to speak with the voice of thousands. In particular, the statistical result can be significantly skewed ( it's that 1 time out of 20 ) by opinions that are outliers compared to the rest in the poll. It's an opportunity that I don't usually pass up.

Another way to exercise your influence is to meet in person with your elected representatives and tell them what you think about various issues. Very few people do that so the ones that do carry a disproportionate amount of influence once again. And again, this is something I do.

Another way is well written letters to the editor of the local paper. I fought a battle against a non conforming use of a property very close to mine that was proposed by a group that is normally impossible to fight. I spoke for all the residents of the local area with their consent and approval. The proposed use was a group home for young offenders and was not only inappropriate but also allowed under special provisions of provincial law that left no room for input or appeal by nearby residents.

The group in question used every dirty trick they could think of and I stuck to the facts and the real issues. The entire battle was fought via letters to the editor. I made it a point to go to the newspaper and meet with the editor to submit each letter for publishing and made sure that it wouldn't be edited by him. If changes needed to be made I made them, not him, and my letters were published as written.

The net result was that we succesfully opposed the establishment of the group home and also exposed the specific members of the group in question as unfit to operate such an establishment as well as being clearly racist and willing to use defamation to try and further their ends.

I survived the slurs and insults and my business with other members of that identfiable local group actually improved after that episode.

One person can make a difference.

oldtiffie
06-07-2008, 11:33 PM
Yes OldTiffe
Business is business but..
What we have before us is .....well baloney..
Real business is having a product (which is not imaginary !) and selling it.
These future guys are buying and selling and never taking delivery
This is easily seen in the childs game called 'Musical Chairs"
You want to be moving in the game, but when the music stops.."don't be holding the bag". ( Like Enron ?)
Its fine in the chair game IF there are enough chairs (called demand)
If there aren't enough chairs however, your butt is on the floor.
By restricting Oil Drilling ( greenies/gore/OPEC ) the music keeps playing !

.................................................. .............
.................................................. ..........


Thanks Rich.

This is nothing new - just the old dressed up as new - which it isn't.

People have been "investing" for ever it seems. They turn over their money to someone else to "look after" in the hope and expectation of some net future gain and accessibility to their money.

Unless you have "hard cash money in your hands" all you have is a credit and/or a receipt, "scrip"/Share" and a sort of promissory note with little or no lien or claim over the cash or assets in the entity in or with you are investing - nothing more. Unless you are a "secured" creditor at or near the top of the order of preference/claimants, you have little or no chance at all or any of getting your "Money" back in the event of a failure, "crash" or adverse "take over".

Your bank statement is only a statement of your credits and debits as well as a reconciliation of them that is worth nothing in real terms unless or until and when you can or do "cash" any credit balance.

So far as I am aware, having your money in a bank is no guarantee that you will get it as and when you need it at any time let alone when there is a "run" on the bank or it "fails". "Safe as money in the bank" may well be a fallacy. The traditional "put it under the mattress" might not be much better either.

Life itself is a lottery at best.

Many people confuse "having" stuff with actually "owning" it. If you own it out-right and it is unencumbered (loans, mortgages) etc. - you own it and can sell it without recourse or referral to anyone else. If you "owe" on all or part of it you may perhaps only be able to sell it with the approval of others who may have equity or other interests in your "property". Your net worth in these circumstances is only what the market will pay less costs and disbursements - and that may be approaching or less than zero!!!.

People who buy a house (or shares or similar) and finance it through debt (mortgage, "gearing") etc. are often counting on either having a job in that area that pays enough for the house and that house prices will rise such that the house can be "sold on" for a "profit". If any of these assumptions that under-pin the decision to buy or "invest in" that house fail to materialise or be sustained through the "asset" "holding period" the whole "house of cards" (as it were) may well collapse in a cascading effect with (financially at least) catastrophic results. This is even worse again if the "asset" is repossessed and sold at a Mortgagees sale in distressed circumstances. This of course pre-supposes that here IS a market - which there may not be.

Many people do or may not realise that a mortgage is a "trade-able commodity/instrument" and can be sold-on by the provider of the mortgage to others either separately or "bundled" (as in the recent/current "Sub-Prime" catastrophe). A Builder can use his Contract with you to secure/get finance from his finance provider as that contact is a trade-able instrument as well.

"Playing the market" is "futures trading" in one form with the risks involved.

"Playing" with your own money can be bad enough but playing with the money of others is worse - particularly if you are gambling on a net gain after taking out a mortgage financed either with "geared" funds or "unused equity" in your home or assets. It is even worse if you take out a loan with a low "honey-moon" interest period and neglect to allow for the increase/"re-set" that is due.

Any "failure to pay" (default) will almost certainly get you on the "Debtors" listings that many companies use. In that event, your chances of getting credit at all let alone at "good" rates is almost zero.

Having tangible "possession" may not always be or mean the same as out-right ownership.

At every stage of financing there are the "Percentage men" and "ticket clickers" who get a "slice of the action" for not doing much at all - the IRS only one of many.

That "dog" (you/us) has lots of "fleas" (parasites) living off us - believe it.

So, there are any amount of "futures" trades and traders "out there". Future can be as long or as short as you like.

Extending credit to a business customer is no different. You are gambling on being paid within your "terms of trade" and are dependent on that payee/creditor for your livelihood as well as your obligations to your materials provider, credit/finance provider and employees etc.

Buying and selling "futures" or any of their derivatives or similar "products" has been and will go on forever. The Stock and Futures exchanges are a good example.

All of the above is "futures trading" in one form or another. It is also a gamble where you have to assess your "odds" and take your chances.

There are several old dictums that will always apply:
- "You pays your money and you takes your chances";
- don't gamble if you can't afford to lose it.

tmarks11
06-08-2008, 10:45 AM
Many people do or may not realise that a mortgage is a "trade-able commodity/instrument" and can be sold-on by the provider of the mortgage to others either separately or "bundled" (as in the recent/current "Sub-Prime" catastrophe).
Which is why I am willing to pay more interest for a mortgage from my credit union, because they will not sell the mortgage to someone else (unlike most banks).

I have heard a number of horrer stories of people who have had their mortgage to less then honest companies, who conveniently loose mortgage payments, charge late fees inappropriately, etc. Definitely not worth it.

I tried shopping for mortgages using brokers such as LendingTree.com in 2004 when I was buying a house. I had a "mortgage broker" in California screaming at me on the phone because I refused his 1.5% ARM he was offerring. Big money (then); glad I flushed all those offsers and went with my credit union.

NickH
06-08-2008, 02:00 PM
It's all crap.

The oil will never run out.

It's your patriotic duty to burn as much as possible

Bury your head in the sand, buy another truck with an unfeasibly large engine and sh-itty gas mileage & shoot the grandkids, that way whatever comes along to replace the human race (lack of caps intentional) will have a running start,
Kind regards,
Nick

lazlo
06-08-2008, 02:03 PM
LOL Nick -- well said!

It's all pissing in the wind anyway :rolleyes: