It looks like yoy mileage has been decreasing all year, but the price per gallon was going up for the first 6 months. Then it pretty much collapsed.
If the gas price is so sensitive to the miles driven why did it take six months to react?
Maybe the price per gallon is tied more to the price per barrel of oil and this price is able to be manipulated by the hedge funds. If the latter, then the pricing mechanism needs to be fixed /regulated
better.
Hopefully the American consumer has had his fingers singed and will be wary of going right back to his old profligate ways. If we can all stay out of the SUVs and off the highways we might see gas pump prices below $1.00 a gallon by next spring. That would go a long way toward breaking the back of OPEC and also loosen up a lot of cash for more productive uses - and I don't mean buying more big screen TVs from China.
Oil is not the only factor affecting driving patterns. Any thoughts on relationship between miles driven and employment situation? People who lost their jobs do not have to commute to work again, but probably will drive more in searching for job?
What about those areas of our country that have held up in the recession due to the price of oil and gas? Dakotas, Texas, Alaska and other states...what will the impact be on them?
OK, CR Companion insterted the extra space, and just did it again. Sigh. PapaSloth | 12.07.08 - 3:42 pm | #
I assume you're using the 'experimental' version, 1.0b1. Did you create the url using the hyperlink button (from the toolbar), or type it into the text directly? Did you copy and paste from somewhere?
purely anecdotal. we were driving this morning and the wife noted that there were a lot more SUVs on the road than there had been last month. She thought people with 2 cars had been keeping the gas-guzzler parked, and now it is unleashed (or it could just be holiday shopping?)
" aClem writes:
Chinese exports may be less expensive to produce, but I wonder who is going to buy them.
aClem | 12.07.08 - 4:54 pm | # "
Could be a nativist reaction as well. People start looking at simple-minded plastic doo-dads in the stores for 3 bucks and ask, why wasn't that made here insteady of China?
In many cases, the answer is that it could have been, and profitable. Just wouldn't have been as much profit.
I expect vehicle miles to start increasing again - or at least stop declining.
I agree with that. AFAICT, the locals are already beginning to drive more with less concern about fuel prices.
On the global perspective, its always fun to take a peek at what TankerWorld is reporting...
MEG-East VLCC rates set to surge Fearnleys on Thursday pegged WAF-US Gulf voyages to have moved from WS 72.5 last week to WS 110 this week, while MEG-East voyages picked up close to 10 Worldscale points to stay around WS 70 for double hull fixtures.
IOW, the tanker owners are getting better rates for moving crude from West Africa to North America, than they are from MEG to the far east.
Then we read... According to ACM Shipping CEO Johnny Plumbe, as many as 12 VLCCs and four suezmaxes have been booked with options to use them as floating storage.
So someone is buying up excess cheap crude and stuffing it into floating storage... and expecting what shoe to drop next ?
Given that oil prices have dropped 72% from their peak while demand has dropped less then 5%, I don't see how anyone could argue with the assertion that $100+/barrel oil was primarily a speculative bubble.
The Ethanol States (NB,Iowa,etc..) have had strong Housing markets and economies despite nationwide weaknesses, I foresee a significant reversal of that trend.
Alaska has already had it's budget kicked in the head by declining oil/gas prices. Now we get to find out if Governor Palin is really the competent executive that her supporters claim - can she handle bad times as easily as good? The Governator has already found out that things aren't as easy as they look - wonder if he has offered Gray Davis his job back yet?
"First, I think it will be interesting to see if U.S. vehicle miles driven increases with gasoline prices now below $2 per gallon. Or will households just save the difference?"
CR, What do you mean be save? In an actual non-interest bearing account, or spend on things like heating, shelter and food?
My area has some of the largest oil and gas reserves in the country (unfortunately its crap oil, priced 10-15 bbl below high quality oil). Oxy, XOM, Chevron, Haliburton, etc...have been hiring every man in sight.
Now that the price has plummeted they have slowed hiring. Some have even stopped. They recall what happened in the late 90's and they know how prices can plummet over night.
I think the peak oil crowd also fails to take into account the ability of consumers and business to adjust to falling prices. With this soon to be bust, that will be 4 busts where peak oil was going to be proven correct, only to be cast aside like other peak xxxx theories....
Any price under $70bbl and they may as well just shut down.
A good friend of mine is the corporate controller for a US based oil company with tar sands interests, they are pulling back significantly right now...If prices start moving back up they will ramp up production again, until then they will lose money on those projects....
OPEC nations would be foolish not to slash production. Expalin it away as re-tooling, conservation, etc. As was noted, it would be an investment. $40 now or wait until next summer and shoot for $60. A 50% premium.
Free advice first..never use Crisco all natural cholesterol free pure vegetable oil in bed.
Mish Book Review: Clean Money - Picking Winners in the Green Tech Boom Mish's Global etc.
Nat Gas to Oil price ratio (MMBTU basis) getting very tight after being very wide this summer. Any views whether NG prices will chase oil price declines soon or stay propped up?
I paid 1.69/gal in NJ last week. That was a big relief. $4.00/gal gas was a budget killer.
My gut tells me oil is going lower. Under $30/gal seems about right. I doubt the low prices will last long though.
The next bout of Central Bank engineered prosperity (aka inflation) should send oil soaring.
I really don't see how indebted Americans can afford more prosperity. The last up cycle put most in the poor house. That should cause the fed to reconsider this stupid debt wealth system, but it won't as those that benefit do so immensely.
The impact I am seeing across a wide range of energy companies is a decline in new investment and a stretched-out timeframe for new projects. In addition, many of the weaker companies in the energy supply chain are likely to be forced out of business by the credit crisis.
When energy production is viewed for all companies combined, the below analysis suggests the credit crisis will cause the production of virtually all fuels to be in decline, relative to what they otherwise would have been. I expect production of oil will decline (in absolute terms, not just relative terms) in the years ahead. Since oil production was already on a plateau, this decline is expected to bring about "peak oil". Because of long lead times, uranium production seems likely to fall short of what is needed by nuclear power plants, within the next few years.
This is one facet of the deflation-inflation discussion that we were having on the prior thread.
I expect vehicle miles to start increasing again - or at least stop declining. I think the impact of price declines on driving behavior will more than offset higher unemployment and the weaker economy.
CR, lots of demographers were predicting a leveling off and slow decline in VMT for exactly this period of time. Several factors combine for this. First the echo babies who peaked in 1990 births are now all driving. New entry drivers are down from here for a very long time. Second elder drivers have finished stretching out their safe driving age. No longer and that means less driving in proportion to their age rather than the last few decades of their failing to "age out" of the driving population. Then there are issues of deterrent congestion and higher barriers to entry with purchase prices and fixed costs like insurance.
Oil prices and recession just forced what was happening to happen faster and that means I disagree that VMT will resume anything like past trend. That I think unemployment will peak far above your 8% adds to all the previous reasons as well.
I heard some nat gas E&P companies (not the majors) are having financing issues and are reluctant to scale back exploration and production too much in response to lower price as they worry about the implications of making debt service in the future if they cut too much now. Any thoughts?
"this decline is expected to bring about "peak oil""
I would think it would delay the event (or the recognition of it). It seemed like Hubbert's model was based around the milkshake-drinkin' energy thirsty American 1950s.
Oil firm sidesteps sanctions on Iran - The Boston Globe
Oil firm sidesteps sanctions on Iran
High-tech tool poses 'dirty bomb' risk; Legal loopholes frustrate US efforts
(Having grown up in Houston I'm almost always bullish on Schlumberger stock. And, don't miss a tour of the Menil Museum founded by John & Dominique de Menil (Schlumberger money) if ever in Houston.)
The Menil Collection link: The Menil Collection
So what happens to most large companies IT, cust services, etc departments when India and Pakistan go at it? Seems like all that outsourcing to a volatile region might not have been a good idea.
Enjoy the cheap oil while it lasts. BB is about to inflate away through the printing presses, driving the dollar down and oil prices up.Add to that new production falling off line, and we'll be back at $100/ barrel + within a year IMO.
I suggest adjusting the VMT numbers to reflect population change. (A running 1%/yr is reasonably close.) When you do that and compare against inflation adjusted prices, you find that there are both a direct and lagged response to oil prices.
Shown this way, you find that the prompt response per capita VMT holds steady at about $1.75/gal gasoline. The lag response is in that vicinity, but it is further affected by other economic choices. I think that this reflects choices of work and home location, convenience vs car pooling, type of work, etc.
VMT does isolate out the variation in choice of automobile purchases.
Oh man, we trashed the World Bank report last weekend. Time to have another go?
Ray on the farm - nice to see another shipping news guy.
Lloyd's List - Home has some good stuff. Well, good reporting on bad situations. Does that make it net good? Guess so, otherwise I wouldn't be reading CR.
And OT, I found a nice Tolstoy Syndrome piece too, which more relates to the Taleb theme of the last thread:
Wallie - look at CHK...they are getting ready to flood the market with a new offering, clearly their stock is saying commodity prices are going lower and their costs could be above this price. They are a strong company, what happens to the weaker players, how will they get financing?
It is becoming clear that nobody now is certain about what is going to happen, and, by extension, what we should do about it.
But, I was wondering if anyone has come across an article that constitutes an overview and explanation of the competing economic frames prevalent in discussion (such as Mish's/Ron Paul's, Bernanke's, Krugman's [is this the same as Bernanke's?], and others that are distinct), the future economic trends that adherents of each frame foresee, and the recommended policy responses. Please share if this exists. If not, perhaps we should begin working on such a document.
I am tired of reading blog posts since I don't understand the premises underlying the arguments that are being put forth.
I have self-interested reasons for inquiring. Mostly, I want to know if I should buy a foreclosed condo next year should interest rates remain low, based on the anticipation that hyper-inflation is probable in the near term future. Or, alternatively, whether the crushing load of my academic debt ($175,000) is going to bury me under a mountain of persistent deflation. Or, if I should forget about working as a litigator and return to Iowa to squat on some farmland until I am allowed to grow corn and raise chickens.
http://tinyurl.com/5nxsuy
New oil production and refining projects are being cut back right and left due to low prices, lack of demand, and the inability to borrow money. It will take several years for these cutbacks in investment to affect oil production; in the meantime, depletion will take over and cause irreversible declines in oil production in the next five to ten years.
In the three-way struggle among worldwide oil depletion, new oil production projects, and the global recession, we have a pretty good handle on depletion and new projects, but appreciation of the depth and length of the recession is not well understood. What was widely believed last year to be a couple of weak quarters is now generally acknowledged to be the worst economic slump since World War II. Optimists, especially on Wall Street and in Detroit, are saying that by 2010, or 2011, or 2012, the recession should be over and economic growth will return. There is great faith that the world's governments can manage a recovery by lowering interest rates, pumping trillions of government money into the financial system, loaning money to failing corporations, and instituting massive stimulus packages. Some are not so sure.
Whatever the root causes of our new recession - bad lending practices, leverage, too much debt, lax regulations, or as some believe, high oil prices - it is clear that it is going to be worldwide, serious and will take some time, perhaps years, to work itself out. The last recession of this scope went on for ten years and picked up the name of "the great depression" somewhere along the way.
RE is the least likely asset to absorb inflation at these prices, IMO. if a condo is at a price where the total cost is cheaper than renting, then consider purchasing. incomes are also unlikely to absorb inflation. as for the last part, I'd suggest focusing on bankruptcy law if you don't already.
in my unprofessional and speculative opinion, if you want inflationary protection, but a little GSG every week and don't watch it.
I think people are driving less, even with the decline in gas prices, simply because there is hardly any place to go that doesn't cost money once you get there. Even going to the park isn't free anymore, as there is a charge to park the car.
What I question is why food prices, which supposedly had their dramtic jump in cost due to increased transportation costs and increased use of corn for ethanol rather than for animal feed, have not declined.
The Democrats said drilling wouldnt help because it would take ten years and the problem is now. Well guess what, we have time now, so let's start drilling. Oh sorry, that's not a PC make-work project.
I'm watching CHK with interest. But also interested in the nonpublics if their woes are such that cutting E&P too deep today is sure suicide tomorrow. Some cuts are certain, just wondering how deep they can go. Hearing about a glut of gas this spring including LNG imports as Qatar redirects vols to US to prop up Europe prices.
Mostly, I want to know if I should buy a foreclosed condo next year should interest rates remain low, based on the anticipation that hyper-inflation is probable in the near term future. Or, alternatively, whether the crushing load of my academic debt ($175,000) is going to bury me under a mountain of persistent deflation.
Buy the condo, HELOC to pay off the school loans, and default. Never pay another mortgage and stay for free as long as possible. Jingle mail at the last minute and in 3 years and you'll have clean credit and probably a year of payments saved from pre-eviction.
Or... Centralized verus Peer-to-Peer model. A centralized model is most efficient for transaction costs up until the central node is over-loaded. But it's also the most prone to failure.
It's a trade-off in a lot of software, too. It's easy to design software for the most likely case but increased flexibility means increased complexity and cost. So there's a trade-off point.
The most resilient systems take the middle ground, that is, they trade some efficiency (and market share) to new systems which are oriented around a much shorter timeline and experience.
It's easy to create something.
It's hard to create something which will last over unpredictable environment changes.
I watched a show last week, "After Humans Are Gone", the gist being that the only thing remaining of our modern society after 1000 years would be the Hoover Dam.
I often wonder what cultural value we've added in the past thirty years. Britney Spears?
On December 5, 2008, Chesapeake Energy Corporation issued a press release announcing plans to hold a conference call to discuss updated financial and operational plans through 2010 that will include a reduced capital expenditure budget and details of Chesapeake's plans for building substantial cash resources over the next two years. The press release also provided information for accessing the related conference call. A copy of this press release is attached hereto as Exhibit 99.1.
Where is this condo?? Condo prices, except in condos with a lot of paid off old people have much further to fall in Florida, in my opinion. You prolly wouldn't want to live in those anyway.
Houses are getting within striking range of affordibility/bottom, if only someone would finance them.
War will get the price of oil up quickly. Economic collapse is in evidence around the world. Conflict follows. Anyone of you mathematical modelers modeling war into the equation?
"The Mumbai attacks may have begun with Lashkar-e-Taiba, a Pakistani guerrilla group known in the West mostly for its preoccupation with Kashmir. But by the time the crisis finally ends, foreign policy experts say, the fallout may have expanded to include the United States, NATO, Afghanistan and Iran."
Given that oil prices have dropped 72% from their peak while demand has dropped less then 5%, I don't see how anyone could argue with the assertion that $100+/barrel oil was primarily a speculative bubble.
Primarily? Consumption was riding the line of production, so it doesn't take but a small swing to have a huge impact on pricing. [Oil's like housing; the action's on the margins.]
We are at Peak Oil -- production has topped. It's just that demand destruction has put demand firmly back under supply for the time being.
Given the exploration and development of both petroleum and alternative energies that can't happen at these prices, the endgame's actually getting closer.
Obviously speculation was a factor, but you could argue the dollar was a larger factor. Regardless, if supply vastly exceeded demand there wouldn't have been a run up.
bgates - are your views on the inflationary tendencies of real estate prices and income a reflection of the particular characteristics of those markets at this moment in time? That is to say, do you think real estate is not likely to inflate even in the midst of hyper-inflation because, for example, prices are already temporarily inflated still? And incomes are likely to continue to be sticky because of new pressure on wages from workers abroad? But wouldn't these restraints be too little in a true hyper-inflationary period?
Nah, my architect daughter tells me the Empire State Building will still be standing. The highway system will be traceable. The Great Wall and the Gothic Cathedrals will still be there.
That is a good argument for China not cutting their purchases of U.S. assets, but what about oil producing countries? That has the same impact on demand for dollar denominated assets (just further down the chain).
THAT's the question. If the Middle East (et al) are selling at or below their production costs simply to keep the wheels greased, what's left to buy Treasuries? Obama's "short term deficits don't matter" might matter if you can't sell the paper.
I am tired of reading blog posts since I don't understand the premises underlying the arguments that are being put forth
These young guys. They want the answers but they won't do the work.
I say you go back to school and learn a new trade for another $250K in loans. That would boost the economy AND double your chances of being employable.
Real estate, even tho within striking distance of a bottom, will continue to go down for at least another year and perhaps 2. Perhaps Cobra Driver can comment about his Fla County, which I refer to as the Inner Circle of Doom?
FFDIC,Crisco is fine for preventing flashover in cap and ball revolvers,not so good in bed.If Ed-u-kink is active in your area they have excellent safety classes....
We are at Peak Oil -- production has topped. It's just that demand destruction has put demand firmly back under supply for the time being.
The Peakenese have always had an excuse every time for the last 150 years as to why they spectacularly fell on the faces this time and how next time they'll be right.
Next excuse for their failed predictions will be the reemergence of private resource development in the failing nations of Russia, Mexico and Venezula. Couldn't happen to a nicer bunch.
Pakistan is done. Who is controlling the nuclear weapons there? Pretty clear where the war is starting. How big will it get?
"More than 100 trucks loaded with supplies for American forces in Afghanistan were destroyed Sunday by militants in Peshawar, the city that serves as an important transit point for the Afghan war effort."
Ain't gonna study way no more, ain't agonna study war no more.
I think what we have vis a vis India/Pakistan is a peak human population experience. Terrible, terrible. Power law population increases in a linear/less than linear world.
Some have mentioned the effect of lower oil on oil states (TX, AK, etc.) What about the effect on the markets? The energy & commodity companies were the last pillar under the major indices.
Nah, my architect daughter tells me the Empire State Building will still be standing
Sorry, they showed a very cool computer animation of both the Empire State building and the Space Needle collapsing based on rusted out girders after exposure to the elements from lack of paint.
The highway system reverts to meadows and the bottom of riverbeds.
The good news is that cats survive and mutate into flying squirrels.
Dogs survive but only the junkyard variety.
Conjure survives but he's really pissed off about it.
My God - its been a long time since I've seen the phrase "back bending supply curve"
Oil is a commodity - subject to booms and busts. It is also a "utility" in that the western world and now Asia and India moving to the auto mode of transport. Further, some developing counties are now reducing subsidies (aka Pakistan, Indonesia) and therefore the real price/value has changed.
"but what about oil producing countries? That has the same impact on demand for dollar denominated assets"
CR I respectfully submit that the ME money is different in the intention to find yield. There are not billions of people to feed at "home" rather there is a push for growth beyond their borders...dollar denominated investments can be mitigated by buying assets that deploy/receive international income. While the HQ of an asset is in the US and hence dollar denominated, revs can be from say the EU or India. The complection is much different today than say the 1970s when the ME went on a binge of buying UK assets (and lessons learned, too)
And read the great Wave which doesn't even include the fall of Rome. And Collapse. This stuff is real. 150 years is a short time. Luckily collapses are not experienced often.
Lawyerliz, my thoughts as well. I can remember even as a youngster thinking how we can possibly stain growing and growing and growing. I felt the same way about our economic system. At what point does it get silly? When bread is 3K per loaf and we take half a million per week? Doesn't the system need a reset?
Ken Cooper(Unrated) writes: \tOK, CR Companion insterted the extra space, and just did it again. Sigh. PapaSloth | 12.07.08 - 3:42 pm | #
Iassume you're using the 'experimental' version, 1.0b1. Did you createthe url using the hyperlink button (from the toolbar), or type it intothe text directly? Did you copy and paste from somewhere?
Yes, experimental version. Copied and pasted rather than using hyperlink button. Thanks for a great add-on (other than this minor issue).
HaHa you guys paint such a horrible picture of Conjure...I picture him as a benevolent older gentlemen of great class and taste, with some "rough" edges.
lawyerliz - it was a rational choice at the time for the law school I am attending. Though if a deflationary trend takes hold, perhaps I should have chosen differently. I'll be in Chicago after graduation. I work a lot with foreclosed properties in Dorchester, Mass, so I know that the banks are getting desperate and some of the prices are not too bad. So I don't think it is out of the realm of possibility that in six month's time the prices of a few distressed condos in Chicago might make sense, presuming interest rates stay low. But I think the vast majority of what is on the market is still overpriced based o historical price to rent and price to income ratios.
rob dawg - not a bad plan. I work with people who are doing exactly what you propose, but for different reasons -- they can't afford to move. Still, I think what you are proposing is fraud.
Nobody knows of a compendium of currently prevailing views on the crisis? Why don't we create one at this fascinating moment in time with so much uncertainty about the future?
"are your views on the inflationary tendencies of real estate prices and income "
a mixture of the factors you mentioned. and demographics. there are many, many more boomers than kids born in the 70s. that's the nail-in-the-coffin of the move-up market which is part of the dynamic in a healthy, functioning market.
I agree that real estate is the end game. but that could be all the way out in 2030, when the boomers finally start kicking it (thank God).
how can you be intersted in a company that is led by a guy so clueless that:
he didnt see any of this coming
he got so geared up on his own stock that he got a margin call and lost (almost?) all of it
i am by no means an energy sector expert, but every time i saw that guy grinning ear to ear, buying CHK all the way up, i thought "wow, your day is coming"
...I picture him as a benevolent older gentlemen of great class and taste, with some "rough" edges.
Wow, Kristina...sounds JUST like me!...(except for the "benevolent" part...and maybe somewhat less class and taste...right on with the "rough edges, though..)
There is more money to be made (and more social good to be done) developing alternative energy technology that can substitute for the energy contained in a barrel of oil rather than investing that capital in pulling it out of the ground, bulk transporting it, refining it, and then burning it.
And what Comrade Bear said about prices being made at the margin, though I do believe I owe Dawg an acknowledgement for being correct that the $100+ price level was unsustainable. I think I argued against that, or something close to it, in the past but being able to buy gas under $2 now is in fact educational.
That's one of the things that really annoys me about the current period of "free market" worship.
It's chasing after ever-decreasing marginal gain at the expense of increasing fragility.
The free marketeers don't see it that way but I see it as 'centralized vs peer-to-peer'. You purposely give up some efficiency in a centralized system to buy some redundancy.
HaHa you guys paint such a horrible picture of Conjure...I picture him as a benevolent older gentlemen of great class and taste, with some "rough" edges.
Comrade Kristina | 12.07.08 - 6:01 pm | #
And you can imagine me as the back up center for the Lakers.
Like I said before I'm buying oil at 35$ . At some point these other countries will not want to trade dollars for oil .World trade is coming apart because of trust issues . Mostly no one trust the US Government or the cronies in congress .Unlike my gold position ( physical ) my oil trade will be in paper form. By feb I'll be in only oil , gold , and silver .
Like a lot of other Peak Oilers, I am not surprised that we are seeing price volatility, but I am surprised at the scale of current price decline, but every Peak Oiler I know argues about flow rates first, and then discusses rising oil prices and price volatility. Notice that the Cornucopians are treating numerical flow rate data like the data are radioactive? Instead, they are framing the argument purely in terms of price.
After two years of slight declines, through August of this year (average to date) world crude production (C+C, the stuff that accounts for about 98% of the input into refineries and the stuff that we use for the index price) is up by about one half one percent over the 2005 annual rate. Basically, we will have seen four years of flat crude oil production, with 2006 and 2007 showing declining net oil exports(EIA). Total liquids is up a little more than crude, but Simmons attributes a good deal of the NGL bump to the dying gasps of many large oil fields as the gas caps are blown down.
My guess is that the production drop due to reduced demand will be from October forward, but in any case if we take the 2008 EIA data (subject to revision, frequently downward) at face value, the 2005, 2006, 2007 and 2008 annualized production volumes are as follows (C+C, using 365 days for 2008):
2005: 26.9 Gb
2006: 26.8
2007: 26.6
2008: 27.0*
*Based on preliminary data through August
If we round off to the nearest billion barrels, it's four years at 27 Gb per year. Alternatively, the cumulative shortfall between what we would have produced at the 2005 rate and what we actually produced would be 300 mb, using 27 Gb for 2008.
Of course, different crude oils trade at different prices, but if we use Brent as an index price for comparison purposes, the total dollars paid for crude would like like this (assuming $100 for 2008):
This pattern of flat to declining production versus rising oil prices is exactly what we saw in the initial Texas and North Sea declines, two regions developed by private companies, using the best available technology, with virtually no restrictions on drilling:
If we use 27 Gb for 2008, we would have increased annual production by 100 mb (per year) relative to 2005, so we paid (for comparison purposes) $1.2 trillion more for an incremental increase of 100 mb, or about $12,000 per barrel of incremental production.
However, the reason for using cumulative production is because that directly relates to the area under the production rate versus time curve, which is the argument that Hubbert made back in 1956. The bottom line is that the crude data show a cumulative shortfall relative to 2005, even with the contribution from unconventional production.
I live near a freeway ramp. It's a lot noisier now. When gas was $4 it was much quieter. Now all the motorcycles and V8s with loud mufflers are racing around. They aren't conserving gas now. I didn't hear them when gas was $4. Just my observation, so I think that demand has gone up with gas prices down.
I'm not pushing war. I am pointing towards a flashpoint heating up rapidly.
Scanning news from around the world is showing increased social unrest and conflict. Economies crashing have immediate effects on the people and behavior.
War is coming, regional and nonnuclear is my fervent prayer. Hard to believe otherwise.
ullpointer - Yes he is an idiot. However, he controls a large company and I am sure he is a peak oil believer and he thought his product would replace all the lost oil...bahahaha...yeah, another peak oil believer will soon lose it all.
This lull, for that is all it is, in oil and gas prices, is really our last
opportunity to get a handle on energy.
I'd prefer the USG putting a floor under energy prices via a variable tariff on imported oil and gas so as to maintain our own domestic production and use the revenue derived from the tariff to expand alternative energy production.
We don't want to build a bunch of natural gas fired electric power plants that can only be operated at a low gas price level. Nor do we want to encourage the purchase of V-8 gas
guzzling automobiles.
CHK is poor argument for the entire commodities complex - there are better things to hang your hat on - but first and foremost, the bulk commodity handling characteristics of natural gas currently preclude it from participating in a global market ala crude oil. Additionally, CHK consistently overpaid for leases and has a history of high marginal cost production (shutting in production when gas went under $7/mcf IIRC in a previous price cycle).
c&c,
Ain't it true that the new Kern owners have identified more extractable oil than was thought to even exist when they bought the closed fields? Hoocoodanode?
I am going to school now, Mommy, and If I do not hurry I will not be there by 9:00.
Ok, sweetie, I will see you in an hour and what course do you download this morning?
We get 2 courses this morning, Mommy. The school just received new double headsets which allows each student double downloads at once.
I am getting " The 10,000 Year History of Commodity Extraction" and a obscure download issued from Artificial Intelligence "X4T34 Recommends Inflation targetting of 0.25 to 0.30 percent for next 5 years.
That US production has peaked, is no longer a debatable point. Only the most geologically challenged will continue to deny that planet Earth will peak someday.
July 15th marked the top in oil and the bottom of the US dollar index. Since crude is priced in dollars, it's self evident that the two will be inversely correlated. Forty dollar oil isn't all that unusual considering the dollar index hasn't hovered around 88 since early 2006. A 50% drop in the S&P 500 might just indicate a bit of sluggishness in the economy as well.
This is how energy scarcity will unfold. Severe volatility, followed by complacency and denial, followed by another price run up. This time I think the brakes may have been applied on purpose.
I read through the comments, including the links, and this tinfoil inspiration lit the inside of my head.
I am an evil Muslim terrorist leader. My goal is to kick American ass.
I shut down the Kyber pass. Choking off American supplies.
I jumpstart an India and Pakistani war. Pakistan pulls its troops from the pass and Afganistan side of the border. This makes my Kyber pass lockdown even easier.
In Afganistan my minions lead a Tet style offensive. At the same time terrorist attacks rock the supposedly safe parts of Iran.
If I could figure out how to get Iran to close the Gulf with tacit Russian help I would be very happy.
Goal: Regime change in Pakistan. Comes with access to real WMD
Over run US and NATO forces for major propaganda points. Maybe even get to Karzai.
Drive up oil prices and reward Iran and Russia for support.
Imagine how busy one is when being kept by six cats...
Lawyerliz, I love homemade chicken soup, although I do prefer the turkey soup, I just made a huge batch of that last week and froze it. Tonight is grilled Tuna steaks.
Might not be a bad idea for the USG to throw some TARP funds at the oil market too.
US SPR is only 700 million barrels.
That's just $28 billion to fill it with WTI at today's prices.
We'd do ourselves a favor and probably earn some brownie points with the GCC countries if we doubled
it. Further we could use the second tranche as a counterweight to another price bubble.
Copied and pasted rather than using hyperlink button. PapaSloth | 12.07.08 - 6:00 pm | #
The html editor appears to have some problems with pasted text (and backspace too...). I'll see if I can come up with a workaround. In the meantime, the hyperlink button does seem to work well (and I'm guessing because it uses an anchor tag, it should fix the broken link problem I've seen so often here).
I'm glad you like it! And please, let me know of any other problems you experience, however minor. I hope to give the 'all clear' within the next week or so if I can.
Broward Horne: I watched a show last week, "After Humans Are Gone", the gist being that the only thing remaining of our modern society after 1000 years would be the Hoover Dam.
I sometimes toy with a question of why we think we are the first civilization to inhabit the Earth. Come to think about it, this statement is darn hard to prove
lawyerliz - So did mine. I know there are more than a few on this blog who have seriously pondered the more creative ways of capitalizing on this mess. So I know I'm not pointing anything out that hasn't already been said.
Ken Cooper writes: I'm glad you like it! And please, let me know of any other problems you experience, however minor. I hope to give the 'all clear' within the next week or so if I can. \t Will do, thanks again!
Nullpointer: My interest in CHK is from a production standpoint not an investment. Agree on the idiot part. Still, they remain a big potential producer affecting price.
Unit472 - fossils of what? You only get fossils of not very bright animals to wandered in tar pits, no? Think how difficult it is to find human fossils from more than a few millenia back even if you where to look.
And yes, this is totally OT, OT^2
Whoohoo! Wonder why that return email address indicates it is from Argentina?
Attn: Please,
We wish to notify you again that you were listed as a Heir to the total sum of Five Million British Pounds (Ј5,000,000.00) in the codicil and last testament of our deceased client. Name now withheld since this is our second letter to you.
We are reaching you the second time because her instruction stipulates that this funds should be paid directly to you upon her death.
If you receive this notice, we request you to kindly acknowledge officially to enable us file in all necessary legal documents to the paying bank for the release of your inheritance.
Please call urgently or contact us via a reply email to enable us process your inheritance.
Yours Truly,
Roland Frankie, Esq.
AresHg Ltd (Legal Consultant)
50A Allen Rd London, N16 8RZ, United Kingdom.
Tel: +447045781482
Ken Cooper, if you are still around, I have a suggestion... When stepping through posts for an Author, can you change the visual appearance of the bar that represents the current post?
citizen energyecon: CHK may be the poster child of what I'm trying to determine with them and other independents. In the past, they shut in production at $7. Is the story different now given credit challenges--produce below cost to secure cash flow?
You suggested that there may have been
earlier 'civilizations. Now one thing we know about all human civilizations is that they love graffiti.
Archeologists find it in ancient ruins and Paleontologists on cave walls.
If the dinosaurs were smarter than we
imagine whose to say that they didn't also have language and make graffiti.
Some giant clawed dinosaur might have carved a heart with "T. Rex loves Alice Saurus" into a ancient redwood tree.
nova@ 6:20 pm I am an evil Muslim terrorist leader. My goal is to kick American ass.
1. I shut down the Kyber pass. Choking off American supplies.
If you couldda, you wouldda. 2. I jumpstart an India and Pakistani war. Pakistan pulls its troops from the pass and Afganistan side of the border. This makes my Kyber pass lockdown even easier.
Here is a real danger. Not the Khyber Pass lockdown, but a nasty theater nuclear war.
3. In Afganistan my minions lead a Tet style offensive. At the same time terrorist attacks rock the supposedly safe parts of Iran.
The OEF command element positively dreams of such stupidity. This would play right into NATO strengths, and result in wholesale destruction of said "minions." This isn't a SE Asia jungle with open lines of communication to a primary (N VietNam) and secondary (China) logistics base. This is open (albeit mountainous) terrain that enables application of unbelievable force against a massed enemy. 4. If I could figure out how to get Iran to close the Gulf with tacit Russian help I would be very happy.
Look up the words "vital national interest." In English and in Hebrew.
Since we can't climb inside the heads of Saudi princes to find out what they think and it's doubtful that they are going to make an appearance on Oprah to reveal their plans, it seems that Krugman's analysis is nothing more than maybes and possibilities.
The reality persists that, absent any other considerations, from a present value perspective you pump oil as fast as you can. If you layer on top of that the reality that most of the revenue goes to an assorted list of dictators with little reason to believe in their own long-term survival then leaving it in the ground makes even less sense. Better to pump it now and get the money safely to Switzerland before the mob is as the gates.
That spot price rocket shot is indicative of a speculative bubble of very short duration. It seems those who can spot a real estate bubble years before anyone else can't seem to recognize a bubble in a commodity price.
The price of oil has been manipulated in a very destructive way since the early 1970's, this is no different except in magnitude and it's occurrence in a recessionary year.
OPEC and the futures traders have control of this market. Oil prices are not determined by supply and demand. Oil futures trading collapsed the oil price when margin requirements were raised, not as a result of the reduction miles traveled.
Let's support our troops protecting the Opium Trade and Pipelines in Afghanistan and killing innocent men, women and children in the process.. Woo Hoo!!
Anyone who cares to operate on data rather than the throwaway lines of bloggers on the intertubz, please avail yourselves of the 13 page pdf summary of the International Energy Agency World Energy Outlook 2008. For the first time they have not only forecast oil demand trends, they made a study of the largest oil and gas fields and proposed projects to develop a supply forecast... http://www.iea.org/Textbase/npsum/WEO2008SUM.pdf
IIRC CHK has a majority of production hedged, between $8 and $9 - they were pretty well hedged out for three years? I'd have to go look it up on their web site - as long as the counterparty can perform...
My take on the much maligned SUV as gas-guzzling conspicuous consumption is that most auto manufacturers designed them for women or for their "sensitive" manfriends. Cars like the Toyota Highlander: ungainly, poor-handling behemoths that auto magazine writers have decried for years. The later ones abandoned truck chassis underpinnings, and any remaining off-road capability, and used passenger-auto frames. Women especially seem to like them for the feeling of power it gives them in the additional height off the ground and heft. So most SUV owners, I would guess, are insecure and seek reassurance. Sort of the profile of an Obama voter, IMHO. Certainly not car people.
I owned an early SUV, before they were prettied up, a stick 1991 AWD Jeep Cherokee. Definitely not designed for women. No cup holder and you had to lift and brace the hood before checking the oil. Rough riding (solid rear axle) and definitely tough enough to take off road whenever the mood suited. This true off-roader did not catch on as the Ford Explorer et al did because of the difference in engineering and hence target audience. (Chrysler eventually followed suit with its later Jeep models.)
I do not know of any driving enthusiasts who would say they would enjoy having an Explorer/Highlander in their driveway. The blame, if there be blame, for the popularity of the SUV lies elsewhere.
citizen energyecon: Thanks for the info. I'll go look for it. I thot I read where a good chunk of their hedges were knockout hedges--some sort of derivative that got knocked out of fixed price at some low price.
"Since we can't climb inside the heads of Saudi princes to find out what they think and it's doubtful that they are going to make an appearance on Oprah to reveal their plans, it seems that Krugman's analysis is nothing more than maybes and possibilities."
citizen energyecon writes:
Anyone who cares to operate on data rather than the throwaway lines of bloggers on the intertubz...
Would that be the same intertubz where your side said; " Only the most geologically challenged will continue to deny that planet Earth will peak someday?"
See the problem? We can discuss the likelihood of nations lying about proven reserves (in both directions) or elasticity on the marginal cost or whether extraction is getting more expensive faster than price but no matter the level of discourse there will be the children throwing stones. Personally, I would be satisfied with merely new stones rather than replicated mush from peakoil dot com.
Oil futures market was driven by leverage and a surplus credit glut (some called it the saving glut)which allowed the participants to push the price of oil futures beyond it's spot and contract pricing. Now leverage and credit are both in short supply and we can see quickly that leverage speculation was the significant factor in the oil run up rather then demand/supply issues. This will be a on going issue in commodity futures pricing the availability of leverage and credit for hedging/speculating vs using real dollars for collateral. If the recent past is any indication I would say that commodity markets will be severely impacted by world wide credit rationing which will have a long term effect of pushing oil prices closer to there spot cash pricing.
The other impact is that even though gasoline prices are down credit availablity to the consumer is declining which cuts their overall spending budget. Spending $2. a gallon for gas rather then $4 a gal sounds like a big savings but lets not forget the consumer was accessing a variety of asset inflated borrowing channels before and now is left with their earning power for spending so cash expense for gas will impact most consumers by driving less to conserve dollars.
CHK has derivative exposure it seems...there are seven footnotes under the hedging strategy (i)swaps, (ii)basis swaps, (iii)knockout swaps, (iv)written call options, (v)cap swaps,(vi)collars, and (vii)three way collars. Didn't catch any data about the volume associated with each type of hedge, but the one that might bite hard is the knockout swap...depending on the knockout price (if prices fall low enough, it triggers the 'knockout' and the hedge goes poof - gone)...that and counter-party performance in general.
Oil prices will not stay below $40 for long because ... depletion will keep doing its ugly work, no matter what Opec does.
Depletion will take 5-7% of production off line within 12 months. At current prices folks may produce, but they won't have the capital to drill. Hence...falling production, perhaps within 6 months falling faster than demand.
Its been years since the subject has come up here but one interesting aspect of the mainstreaming of the SUV coincided with the rapid deterioration of the US roads infrastructure and public services like snow removal. If we are expected to pile into clown cars the asphalt better be glassy smooth and the roads clear of any hazard.
Heck, I know how to sve tthe auto industry. Promise to let the roads rot. Before you know it everyone will be bidding up H1s on eBay an lining up or the next 2010 Ford F-550 Excessive. Turrets optional.
I worked for an old oil lease broker once. He repeatedly told me that the major oil producing companies flooded the US market with crude three times during his carear forcing the price down to $1/ bbl. from $10/ bbl. The drop would force many marginal producers to sell their production to the stronger majors who would then cut production and the cycle would start again. It seems to me that this time, the price decline is forcing ethanol producers to consolidate and may drive many of them BK. My bet: only then will prices start to raise again. (Remember that the "ole peckers" have over 100 years of production at current levels of consumption. There's still plenty of time for the cartel to run prices up and down...)
That's a point we've both made before. If gas goes ballistic again for any reason, transportation will have to be capable of carrying a lot of people & things (and probably towing things) over rough terrain. A fully-loaded expedition is far more efficient than a Prius, and it won't get gutted by an LA pothole.
In 2007, the [Texas oil]industry accounted for 15.7 percent, or $179 billion, of Texas' gross state product.The industry hit a peak of 26 percent of gross state product in 1981.
About 226,000 Texans were employed in the state oil and gas industry during September
The Peakenese...
Rob Dawg | Homepage | 12.07.08 - 5:56 pm | #
Knew I could count on you RD -
there will be the children throwing stones
Rob Dawg | Homepage | 12.07.08 - 7:12 pm | #
As I stated, datapoints rather than throwaway lines. The International Oil Agency decided it needed to do a petroleum supply forecast for the first time since its founding - with summary results in the pdf offered - but that is 'replicated mush'...guess there is at least one old Dawg who can't learn any new tricks. http://www.iea.org/Textbase/npsum/WEO2008SUM.pdf
The second link was to the National Petroleum Council study - yet another bit of 'mush' - again, I suggest anyone who cares to acquire an understanding on a factual basis review the list of participants in the producing that report. National Petroleum Council: Facing the Hard Truths About Energy
I simply pointed towards factual sources for informed debate on the topic at hand...I would be satisfied with merely factual responses and sources of data rather than ad hominem bloviating but I guess YMMV...
I would be satisfied with merely new stones rather than replicated mush from peakoil dot com.
"Your brother share any salient thoughts regarding that part of the world?"
GM | 12.07.08 - 7:09 pm | #
He doesn't really talk much about it. The one thing he always reminds me of is for everthing you hear about, something is happening that you will most likely never hear of until wayyyyyy after the fact.
Special Ops is spread out pretty good over there...
"Oh, my nephew is incountry with the Marines."
nova | 12.07.08 - 7:11 pm | #
nova,
Give him an Ooo-rah from me. There are few of us old Jarheads around.
My former manager has both his boys deployed currently with the Corps. One to Iraq and the other just left 2 weeks ago for A-stan.
That's a point we've both made before. If gas goes ballistic again for any reason, transportation will have to be capable of carrying a lot of people & things (and probably towing things) over rough terrain. A fully-loaded expedition is far more efficient than a Prius, and it won't get gutted by an LA pothole.
Will be no credit available for folks to pile into rough terrain vehicles of any kind and the cash necessary to pay for the gas will be beyond most average American's future budget.
A co-worker, and my former raquetball partner, just came back. SOF. Went for 1 year, came back 3 1/2 years later. I laughed when his cuz told me 2 years ago that they told him it was going to be "just 1 year" He did get to go to South America for 6 months as part of it. That is all he wants to talk about. Life was good there.
Yeah ron. I bought a new Nissan Titan this summer when gas was at $4 and the dealer was giving them away but I want to add one of those diamond steel
bed tanks I see on construction pickup trucks.
I see Northern Tool and Equipment stocks them but they are for US F-150,Dodge and Chevy pickups. You can buy them with a capacity of up to 90 gallons which, with the internal tank of 28 gallons gives one an awesome rolling 'reserve' but do they fit the Japanese big trucks.
BTW I also have a Corolla for more mundane driving purposes but I do like
sitting up high in a 4wd truck that can tow things and go where cars just can't.
10 times more effective methods for drilling are now being employed
Basic economics come to bear every time the fear of peak oil rises. Alternative products. Altering demand. New discoveries. More effective methods. 101.
Yep, the decline of roads and snow plow services clearly explains the rise of the average SUV with its crappy suspension, inch and a half extra ground clearance and summer tires. And don't forget: the incredibly inefficient use of space. If you want to move people get a minivan.
Who will buy?
Demand for oil is fairly inelastic, and is a function (among other things) of economic activity. With the world apparently going into severe recession, they won't be able to sell more even if they want to. If they attempt to increase supply, it might just result in lower prices rather than higher consumption.
They're great in roll-overs. Anyone ever seen one of those things roll over? I have...and man, do they roll. They were born to roll. Ever notice how the operators can't even handle them? Without fail they are crossing the double line and heading straight for you....and Nova's right, it's the diminutive woman on her cell phone putting on her make-up and yelling at her 1.2 children in the back seat.
There is more money to be made (and more social good to be done) developing alternative energy technology that can substitute for the energy contained in a barrel of oil rather than investing that capital in pulling it out of the ground, bulk transporting it, refining it, and then burning it.
There is certainly more money to be made, because compared to drilling, it will probably cost 10 times as much R&D to produce a quarter as much energy from solar or wind or biofuels as you would get from a barrel of oil.
We will be researching and tweaking the improvements for centuries, but what is going to be the actual return on the investment?
And no, I'm not a member of the "more drilling" crowd... it's just that all of the energy sources that give a good marginal return on investment have been tried already: wood, coal, oil... "Mining" for solar and wind power is going to remain very expensive. So yeah, a lot of money can be made chasing after this. Go for it!
I find the entire thesis of China continuing to buy treasuries through this deep recession to be complete and utter nonsense. I don't think they will be dumping them, but I see the import numbers of the US from China dropping precipitously over the next 2 years.
Coming soon to U.S., 1 million jobs lost every month: ReportStephen C. Webster
Published: Sunday December 7, 2008
London-based GFC Economics is making a frightening prediction: By spring 2009, the United States could be facing more than 1 million layoffs every successive month.
I have heard that the OECD data are good, but I really wouldn't know.
Why should a cartel produce reliable information if they aren't forced to do so, anyway?
Based on my experiences in the oil patch, the truth is a scarce commodity but the stories are great.
Anyone know that in 1929 90% of all the private automobiles in the world were in the US?
It is reasonable to assume that just as the US went from trains,bikes and animal powered conveyances so too will
the rest of humanity just as soon as they can.
Now the US has reached its saturation point as far as motor vehicles goes.
Not so for the rest of humanity. Its not rocket science to understand that if you need the entire historic production of GM ( 445 million vehicles) just to allow India and China to reach American 1929 levels of vehicle ownership that oil production cannot keep up. Even if every new car is a Prius. But they aren't!
Yancey Ward - What will China do with maturing Treasuries? If the USA trade deficit with China stays at the same level, then China will roll over Ts. But if the trade deficit declines, what will China do with a pile of cash?
It takes a great deal of energy to get that oil out of the tar sands and it is an ecological nightmare. By the way, Palin's pipeline deal was a backroom understanding to divert natural gas to Canada to be used for the tar sands rather than selling it directly into the U.S. as is.
That was the deal she scotched brokered by her predecessor Murkowski, the incumbent she knocked off...though the part about tar sands being an huge water and energy hog with marginal EROEI is spot on.
As a thought experiment, consider the mobility structure of Ch labor, the millions upon millions moving to factory jobs, legally and illegally, in companies which are now tanking and laying off those millions. Then consider the provincial repatriation problem and inter-provincial potential for autarkic responses, through tariffs and other means. Then consider whether sending villages are really set up to receive an influx of previously employed national diaspora, how they'll fit back in, what will they do, what expectations they might have had and now may be dashed, in a prevailing "shame" culture. Inter-provincial remittances have been critical for maintaining bare-minimum spending power and stability in numerous provinces.
I think I'd be commissioning a social impact assessment and vulnerability assessment right about now, for those who stay and can't go home to the laojia, and those who go home and can't fit in or have no prospects.
"London-based GFC Economics is making a frightening prediction: By spring 2009, the United States could be facing more than 1 million layoffs every successive month."
Just to be clear... I don't have an opinion one way or the other on if the world is at 'peak oil' (can one really believe much of the data on 'known oil reserves'?). What I do have an opinion on is that it was silly to think, peak oil or not, that $100+/barrel was sustainable. There are too many other energy sources, some renewable, some nonrenewable, most technologies currently available (oil shale, wind power, natural gas, Concentrated solar, cellulostic ethanol) that could compete favorably with oil at sustained price points from $60-$140/barrel. It was inevitable that the price of oil would drop below that of potentially competing energy platforms. Some really smart people made a lot of money on oil on the way up, the suckers got left holding the bag on the way down.
It appears even those who collect plastic bottles, aluminum cans and the other detritus of modern man are hurting.
Cardboard is 1/4 of the price it was a few months ago.
Perhaps that is good news. Cardboard makes an excellent temporary shelter.
While big sheets of it, the kind that a major appliance arrived in might be scarce, smaller cardboard boxes of the type that people being forceclosed upon might need to pack their belongings in might be in abundance.
A little duct tape, some breaking apart of the cardboard and a decent hovel that can survive for several days might be constructed.
GFC Economics is an independent economic consultancy established in 1999 and based in London. We provide economic research - on US, UK, Japan, and Eurozone to institutional clients on a subscription basis.
Run by former City economist, Graham Turner, GFC Economics provides timely analysis of the economic issues affecting global financial markets. As an independent entity we are free to express our views without the intervention of any vested interests.
Maturing treasuries can and will simply be rolled into new treasuries. This is what happens with most treasury debt that comes due- the face value (and the interest) is loaned back so that we don't actually have to send cash.
The real question is just how able the Chinese will be able to lend completely new money for US Govt spending. This depends on how many dollars they accumulate from trade with the US, and I expect that amount to fall significantly. I think Obama is going to have to find some other lender to lend money for these "infrastructure" spendings. My guess is that retirement accounts will be the source finally identified.
Pavel Chichikov writes:
"London-based GFC Economics is making a frightening prediction: By spring 2009, the United States could be facing more than 1 million layoffs every successive month."
"As many as a million American jobs could be lost every month by next spring as businesses struggle to raise capital in financial markets consumed by fear, according to a new analysis. November was the worst month in the US labour market since the oil crisis of 1974, as more than 500,000 US workers were laid off, according to official figures released on Friday.
But Graham Turner, of consultancy GFC Economics, says the rising cost of corporate debt is now flashing a red warning signal that far worse is to come over the next few months and job losses are heading for levels last seen in the 1930s Great Depression. Corporate bond yields have rocketed since the credit crisis began as investors flee risky assets in search of safe havens such as US Treasuries. That effectively means many firms are being forced to pay eye-watering interest rates to borrow funds.
Turner says when the gap between the yield on high-risk company bonds and US Treasuries widens sharply, unemployment tends to shoot up - and current credit conditions are pointing to a doubling in the pace of layoffs, to more than a million workers a month, by spring. 'The correlation is holding up all too well,' he said. 'It's very disconcerting.' He added that the pace of layoffs already happening in the US 'is indicative of panic'. During the 1970s oil crisis the panic was relatively short-lived, he says. 'But the worry now is that this will just roll on and on.' On Friday alone, embattled car firm General Motors, fund manager Legg Mason, and motor parts supplier Gentex announced plans to shed staff."
"Pavel Chichikov writes:
"London-based GFC Economics is making a frightening prediction: By spring 2009, the United States could be facing more than 1 million layoffs every successive month."
No, I quoted that from another post and requested a link.
As a last desperate measure, maybe we would borrow in other currencies, but I would doubt that will happen. I think (hope is probably a more appropriate word?) if it came to that, we might pull back from the brink and start getting our finances in order as a country.
It is the ultimate loss of national sovereignty. I can't see it happening in anything other than token amounts, and not because the US cannot borrow in it's own currency. Once your debt is denominated to any great extent in another's currency, you have given up quite a lot of control over your country. If this comes to pass, then I would think seriously about preparing for the collapse of the US government.
"It is the ultimate loss of national sovereignty."
My impression of the new president is that he's gong to fight like hell to prevent any such thing from happening. This is apart from any policy debate.
Yancey Ward - If the Japanese have plenty of savings that they do not know what to do, and the Americans have a need to borrow capital, why does this transaction have to be denominated in USD? Why is this situation so asymmetric for Japan?
I understand that Argentina has been suffering because it borrows in USD and not in its peso. But this is essentially a reflection of the messy state that its economy is in.
So, is Conjure a real flesh-and-blood person after all? I had imagined him as an imp that only mp could see or hear, sort of like the Great Gazoo on the Flintstones.
The idea of investing by not pumping is interesting and or hilarious. I know I wouldn't be able to sleep with ideas like that lurking. First I am curious as to when we have had any shortages during this "latest" Peak Oil. At least in the 70s they made folks wait in lines.
Every 35 years we have Peak Oil. We may drown in the stuff yet if we are still able to breath. This country is running out and then that country is low, low, low. Ten years later you look at the petro industry's reserve figures they are up for all around. The damn stuff is everywhere. Like dinosaurs evolving into birds instead of herding themselves into tar pits to provide our future reserves, oil will be found to be percolating deep beneath the earth way below the ocean of natural gas just below our feet.
But wait, I have to believe in something besides investing by doing nothing, hey I was doing that before Krugman had is deliriums. So I am a proponent of:
And I swear I believe in Peak Wages. And in what we call Capitalism, that happened 40 years ago didn't it.
So bless the Philips Curve and perceived shortages. The sad thing is that we watch millions suffer malnutrition, starvation, and disease regardless of the time in history or state of the economy.
By the by, it is quite apparent that the ruling class in China may well have more that just an edge or the supply siders, forgive me I meant capitalists, we're shipping around the world. And how would one screw with our economists or our economy: I suggest by simply watching. China will most likely help us and when you stop and actually think you know this is the case. They actually understand their national interests from what I can tell.
Before I slip away who came up with the idea of that the olympics really would effect the supply of oil? Must be the same folks that figured field corn went up because of ethanol. It is cattle feed before and after the alcohol goes into the tank.
Dear CR
While I sincerely enjoy the commentary and discussion on this blog I really have to comment on your graph oil prices vs. PCE gasoline, ...
The two quantities are not what we want to compare, they are not on the same scale. Graphs that would be more informative would be looking at the derivatives of the two series, and possibly the cross correlation of the two series. If you can point to the source of the data I can generate an example that would be perceptually more correct. Also, though not as potentially misleading the use of bar plots to represent series, such as weekly gasoline prices is not recommended, we are interested in viewing both the actual values and the voilatility, the bars conceal some of the up/down trends. Ok am I being to didactic? Anyway thanks for the exceptionally informational blog.
Yancey Ward writes:
"The real question is just how able the Chinese will be able to lend completely new money for US Govt spending. This depends on how many dollars they accumulate from trade with the US, and I expect that amount to fall significantly. "
If the Chinese trade surplus with the U.S. drops suddenly, their economy will suffer a massive drop in growth. (Change in net exports is a source of GDP growth.) There is no sign that the Chinese leadership will accept such a slowdown.
But people worry far too much about foreign demand for U.S. bonds. If the U.S. is heading into a deep, long, recession, it is because the private sector is retrenching and saving. Those savings have to go somewhere, and since the private sector will be saving, that leaves the government as the entity that will have to absorb those savings.
If you let the roads go to crap, all those big heavy SUVs are not going to be in high demand. Ever notice that when you see them doing rock-crawling and stuff, they're going about 2 mph? Go price out the parts needed to make one of those things survive the Baja or Dakar. It's not cheap. Keep in mind that the Baja still has a stock Volkswagen Beetle class.
I'm pretty sure that the result would be a lot like what much of central America looks like - modern economy cars turned into SUVish vehicles. Do a Google search for Ford Ecosport- it's basically a Fiesta with extra ground clearance and 4-wheel drive (and some new body panels). All the manufacturers have something similar. I think that the goal is to be lightweight so the suspension doesn't have as much energy to absorb when it's driving over crap roads at 20-30 mph.
Not to mention that it's pretty unlikely that the fuel delivery vehicles we use in the US could handle the roads - we'd have to use the smaller fuel trucks that they use down there. So gas would be more expensive and possibly even harder to find - another strike against the massive SUV.
Oil is not a manufactured item as Krugman's model would apply to. The debate will be over within 3 years once Mexico starts to import oil. Anyone not familiar with this rubicon moment, really has not right to be speaking on it from a position of authority. It is really that straight forward.
I expect vehicle miles to start increasing again - or at least stop declining. I think the impact of price declines on driving behavior will more than offset higher unemployment and the weaker economy. And gasoline prices are still falling in December!
I saw anecdotal pickup in driving back in September, October, and November when the prices first crashed. The last couple of weeks have been S L O W E R. Christmas shopping was kind of frantic Thanksgiving weekend and somewhat afterwards, but seems to be fizzling like last year. The "impact of price declines on driving behavior will more than offset higher unemployment and the weaker economy." Yes! Why not just say that the price collapse in gasoline is a major stimulus like Edward Leamer asserted?
I suspect the whiplash in oil prices might well cause as much pain as that in housing prices, in terms of the long term viability of investment in oilfield development.
As well, we're probably pretty close to a tipping point where the percieved wisdom will be that the whole peak oil thing, and the attendant need for more efficient use of resources or different resources, is just a fantasy of tree-hugging liberals. Yet another whiplash in the making.
It didn't take much of a change in demand - maybe 2% worldwide - plus 1% increase in supply late summer to cut price of an inelastic commodity 70%. It won't take much change in supply - maybe 3% - to push price back up. OPEC's last cut of 1.5Mb/d was only 2/3 implemented, i.e. about 1.2% of world supply. Another 1.5Mb/d cut, if implemented, might do the trick.. all Saudi wants, after all, is 75/b. We'll see what comes out of the Dec. 17 meeting.
Meanwhile, non-OPEC projects in Canada, as well as some in Saudi, are postponed or cancelled, while production in Mexico, Venezuela and Russia continue falling.
Enjoy the price crash... IMO the current low prices present a fabulous opportunity for investment in small US e&p's such as ARD/GPOR, just as did earlier price crashes in 1998 and 2006. Note that some companies, including the two mentioned, have hedged most of 2009 production at 88-100/b. Some sectors will recover fairly soon, some later, some never. Right now I like energies, and I'm putting my money where my mouth is. IMO Investing in energies is a hedge against future price surges.
For those that think current low prices validate their hopes that peak oil is not here or near, remember that peal oilers never said anything much about price, or how price would be affected by recession; their main point is simply that world production is at or near peak. Saudi did not even like it when prices went above 100 - they, like every other producer, brought every barrel possible to market, certainly to maximize revenue but also to restrain price. Many peak oilers have said for some time that peak is probably in 2008, and this year production is in fact up maybe 1% over 2005, the first year of the bumpy plateau. Meanwhile, exports have been falling since 2005 as exporting economies boom...
I just can't see a situation where oil revisits its previous highs. I think there is a valid argument for peak oil theory, but in relation to the price per barrel, I feel many people discount how market forces will find a solution.
It seems obvious in retrospect that $150 per barrel was an anomaly -- it has also spurred serious consideration of alternatives. Every dollar oil creeps back up is that much closer we get to using something else.
If you let the roads go to crap, all those big heavy SUVs are not going to be in high demand...
I'm keeping mine. But my SUV is the old-fashioned truck-based off-road capable kind: just the type of vehicle needed to crash through barricades when the unfed mobs start blocking intersections.
The future of passenger cars for bad roads? Look at Mexico. The sedans (typically) have about an inch or two more ground clearance, a little simpler emissions systems, and attention to dust/dirt conditions for various mechanical parts.
Actually works out pretty good, and cost not nearly as high as the big SUV. It gets the job done for a LOT less money and hassle.
A few years back, there was some off-road (closed course) racing using Front Wheel Drive small sedans (mostly cheap, older stuff). Great fun to watch, and fewer break-downs than many of the "purpose built" racers (but not as fast, of course).
That was a lesson in physics, wherein smaller hits equals smaller damage, in proportion to strength of tires and suspension parts. Part of the VW beetle success story, in fact.
I believe the United States has a window of opportunity to reap environmental, economic, and national security benefits from a multiyear tax on gasoline. I understand that in the midst of this recession we are trying to pump money into the economy to stimulate investment and employment and taxing people seems to be counterintuitive. But there are so many benefits to this action and the political context may never be as favorable as right now.
Despite the severe economic downturn that Americans are experiencing, one can almost sense the collective sigh of relief on Americas roadways. When gasoline hit $4.09 per gallon nationally in early July, Americans could probably never imagine that we would currently have gasoline prices under $2 per gallon. Yet, many people correctly realize that the current decline in gasoline prices is only temporary.
Even though the entire world will experience some form of an economic slowdown, global economic activity will eventually pick up led by the emerging economies in Asia and Latin America. Their thirst for oil and gasoline will only exert upward pressure on crude oil prices and eventually our increasing reliance on imported oil will make us vulnerable again.
As a society, if we were willing to look ahead and sacrifice for the future, we would support a gradual, multiyear increase in federal gasoline taxes. An increase of 10 cents per year for ten years seems affordable with some of the revenues going into the highway trust fund for the repair of roads and bridges and some used to create an alternative energy trust fund to finance wind, solar, or even help automakers produce compressed natural gas vehicles. Congress could make sure that many alternatives receive funding. This way, competition would keep a lid on price increases for any one alternative. We could distribute the money to the states (maybe each state should get the same percentage revenue it generates in gas tax collections) and let them decide which type of alternative energy source makes sense for that state.
Imagine the benefits of extra billions in capital every year! Employment in alternative energy industries would soar. We would reduce our carbon footprint significantly. We would more steadily pressure Russia, Iran, and Venezuela to avoid risky foreign adventures. In fact, speculators would stay out of the oil markets knowing the worlds largest oil consumer was determined to lower its demand. In this way wholesale oil prices would remain lower and we would feel less impact from the increased taxes.
We probably should initially exempt diesel fuel from the new taxes because of its impact on truck drivers and the cost of basic goods like food. Using some of the new tax revenues to support a new trucking fleet based on compressed natural gas, which burns cleaner than gasoline and is more widely available domestically, would further enhance employment and energy security. We could phase in the tax on diesel more slowly.
Finally, for those who chant drill, baby, drill, and think that domestic offshore drilling is the answer to our problems, how many oil companies are going to employ the capital needed to drill in deepwater and other expensive, hard-to-reach fields with gasoline under $2 per gallon? Many unconventional oil projects from Canada to Asia and Africa have been postponed in the last six months due to lower oil prices Do you think Americans are going to buy American-made small cars with gasoline under $2 per gallon. What are the prospects for a return on the bailout of the auto companies under these circumstances? It would be rather foolish of us to bail out the auto companies only to have Americans shun fuel-efficient cars because of low gasoline prices.
Now is a very propitious time to enact this measure. A very large stimulus package is about to get passed and there is an urgency about improving the economy. Why not enact a multiyear gas tax as part of a package? It could be sold as part of a down payment on paying off the debt from the stimulus and a gasoline tax would subsidize the types of spending going into the stimulus. Americans would hardly notice a small increase in the gasoline tax at this point, especially if it took effect on January 1, 2010 when the economy should be more stable. Are we going to wait until the economy starts growing again and the urgency is gone and the dramatic decrease in gasoline prices has worn off?
The big question is whether America is up to the task. The new administration will have to act decisively and creatively to avoid a severe recession in 2009. Similarly, will we support bold and innovative ideas to secure our energy future? Will we have the attention span to keep our eye on the ball now that gasoline prices are much lower? Will we be smart and start to wean ourselves more aggressively away from an oil-dependent transportation system? Or will we wait until the next run-up in oil and gasoline prices and then whine and complain when it is clear we have very little control over our destiny and we are even more vulnerable to OPEC and Russia?
It's going to take a decade to bring material amounts of BTUs from other sources, e.g. nuclear , online to replace what is generated from oil. Within that time, Cantarell and Burgan will be depleted as well most of the rest of the lower half of Gharwar. Northern tip is now depleted. Unless this worldwide recession continues for that decade, debate about what happens to oil prices is as silly as debating the eventuality of death.
I think the peak oil crowd also fails to take into account the ability of consumers and business to adjust to falling prices. With this soon to be bust, that will be 4 busts where peak oil was going to be proven correct, only to be cast aside like other peak xxxx theories....
crispy&cole 12.07.08 5:07 pm |
I am not sure that you have this right. True, people who believe in peak oil (including me) thought a consequence of peak oil would be high oil prices.
We were wrong as now seems clear with 20/20 hindsight. The most notable consequence of peak oil is a price of oil that is too low -- measured across the cycle, spike to spike, or trough to trough.
My new model of peak oil is as follows: high priced oil (caused by an inadequate supply of oil, i.e. peak oil) leads to recession. Recession leads to a fall in demand for oil and to a fall in price. Low priced oil means inadequate investment in high (post peak) marginal cost oil.
But then, inadequate investment in oil supply means that the economy, upon recover, soon hits the constraint once again of insufficient oil, and everything that follows.
The link between oil and economy becomes a hole that cannot be climbed out of. Or to say the same thing another way: an economic environment always unfavorable to adequate investment in oil supply IS peak oil.
Krugman suggested the oil price peak was mostly based on real fundamentals, and then elaborated possible wrinkles like this one: ...given the backward-bending supply curve and a steep demand curve, there are stable equilibria at both the low price PL and the high price PH."
But those who simply read extensively in market reporting in various media sources could learn that the price was driven up through more and more "investors, funds, etc" folks piling into the trade.
It was similar to any hot stock, and entirely a stock market like run up and fall, and you can see that same graph over and over.
In other words, the fun theories on this from Krugman are only entertainment, but not the best explanations.
That said, I did enjoy his theories. I would just like to see him say, "whoops" or some such, and admit the obvious.
"An increase of 10 cents per year for ten years seems affordable with some of the revenues going into the highway trust fund for the repair of roads and bridges and some used to create an alternative energy trust fund to finance wind, solar, or even help automakers produce compressed natural gas vehicles."
I've proposed similar plans, and the time to increase gasoline taxes is of course right now while the price is so low.
Also, the plan should start with a bigger step in the initial year, such as: 20 cents increase in 2009, then 10 cents/year for 10 years.
With a rebate also -- the idea being not to increase taxes a great deal, but rather to internalize the real costs of gasoline.
For instance, adjusting the mileage deduction for businesses, and also having a simple $80 gas tax rebate on federal taxes for individuals each year, etc.
I feel the need to point out that the poster Jeffrey J. Brown, above, is a regular contributer to theoildrum.com, and is quite well respected in those circles.
I personally feel that The Oil Drum will turn out to be to Peak Oil, what Calculated Risk has turned out to be to the "subprime" meltdown. Many will no doubt scoff at the notion - but please remember that CR and Tanta were similarly scoffed at for a long time (not that this proves anything of course).
Nemo
How is peak coal and peak natural gas working out? And what about peak uranium?
I will take the bronze
I will take food stamps.
Chinese exports may be less expensive to produce, but I wonder who is going to buy them.
It looks like yoy mileage has been decreasing all year, but the price per gallon was going up for the first 6 months. Then it pretty much collapsed.
If the gas price is so sensitive to the miles driven why did it take six months to react?
Maybe the price per gallon is tied more to the price per barrel of oil and this price is able to be manipulated by the hedge funds. If the latter, then the pricing mechanism needs to be fixed /regulated
better.
Hopefully the American consumer has had his fingers singed and will be wary of going right back to his old profligate ways. If we can all stay out of the SUVs and off the highways we might see gas pump prices below $1.00 a gallon by next spring. That would go a long way toward breaking the back of OPEC and also loosen up a lot of cash for more productive uses - and I don't mean buying more big screen TVs from China.
The Chinese could devalue the yuan by 20-40% to boost exports.
Oil is not the only factor affecting driving patterns. Any thoughts on relationship between miles driven and employment situation? People who lost their jobs do not have to commute to work again, but probably will drive more in searching for job?
I hate to say this, but I think I miss the high gas prices. Traffic was so much better in the summer.
What about those areas of our country that have held up in the recession due to the price of oil and gas? Dakotas, Texas, Alaska and other states...what will the impact be on them?
OK, CR Companion insterted the extra space, and just did it again. Sigh.
PapaSloth | 12.07.08 - 3:42 pm | #
I assume you're using the 'experimental' version, 1.0b1. Did you create the url using the hyperlink button (from the toolbar), or type it into the text directly? Did you copy and paste from somewhere?
purely anecdotal. we were driving this morning and the wife noted that there were a lot more SUVs on the road than there had been last month. She thought people with 2 cars had been keeping the gas-guzzler parked, and now it is unleashed (or it could just be holiday shopping?)
" aClem writes:
Chinese exports may be less expensive to produce, but I wonder who is going to buy them.
aClem | 12.07.08 - 4:54 pm | # "
Could be a nativist reaction as well. People start looking at simple-minded plastic doo-dads in the stores for 3 bucks and ask, why wasn't that made here insteady of China?
In many cases, the answer is that it could have been, and profitable. Just wouldn't have been as much profit.
Shoes for Industry, dude.
I expect vehicle miles to start increasing again - or at least stop declining.
I agree with that. AFAICT, the locals are already beginning to drive more with less concern about fuel prices.
On the global perspective, its always fun to take a peek at what TankerWorld is reporting...
MEG-East VLCC rates set to surge
Fearnleys on Thursday pegged WAF-US Gulf voyages to have moved from WS 72.5 last week to WS 110 this week, while MEG-East voyages picked up close to 10 Worldscale points to stay around WS 70 for double hull fixtures.
IOW, the tanker owners are getting better rates for moving crude from West Africa to North America, than they are from MEG to the far east.
Then we read...
According to ACM Shipping CEO Johnny Plumbe, as many as 12 VLCCs and four suezmaxes have been booked with options to use them as floating storage.
So someone is buying up excess cheap crude and stuffing it into floating storage... and expecting what shoe to drop next ?
With regard to miles. I think those miles driven by truck-drives carrying freight will continue to decline in 2009
crispy&cole, this is clearly bad news for Texas and other oil producing areas.
Best Wishes
12-01:
Saudi Aramco has canceled the planned redevelopment of the Dammam oilfield.
11-19:
Saudi Aramco has announced that it has canceled a contract for the development of the Manifa oil field
If the price of oil doesn't head back up soon, we're going to see shortages.
Given that oil prices have dropped 72% from their peak while demand has dropped less then 5%, I don't see how anyone could argue with the assertion that $100+/barrel oil was primarily a speculative bubble.
The Ethanol States (NB,Iowa,etc..) have had strong Housing markets and economies despite nationwide weaknesses, I foresee a significant reversal of that trend.
Alaska has already had it's budget kicked in the head by declining oil/gas prices. Now we get to find out if Governor Palin is really the competent executive that her supporters claim - can she handle bad times as easily as good? The Governator has already found out that things aren't as easy as they look - wonder if he has offered Gray Davis his job back yet?
"First, I think it will be interesting to see if U.S. vehicle miles driven increases with gasoline prices now below $2 per gallon. Or will households just save the difference?"
CR, What do you mean be save? In an actual non-interest bearing account, or spend on things like heating, shelter and food?
My area has some of the largest oil and gas reserves in the country (unfortunately its crap oil, priced 10-15 bbl below high quality oil). Oxy, XOM, Chevron, Haliburton, etc...have been hiring every man in sight.
Now that the price has plummeted they have slowed hiring. Some have even stopped. They recall what happened in the late 90's and they know how prices can plummet over night.
Summer 1986: Houston & Harris County, TX 'official' unemployment rate: 12.6%
JD - Agree! Pure speculation.
I think the peak oil crowd also fails to take into account the ability of consumers and business to adjust to falling prices. With this soon to be bust, that will be 4 busts where peak oil was going to be proven correct, only to be cast aside like other peak xxxx theories....
I think there might be some misplaced thoughts about how China will behave going forward.
How does most of the oil moving from export to import countries get there?
How many missiles and machine guns does the average oil tanker have on board?
How many potential Somali pirates are there?
If you can bank oil in salt pits underground indefinitely, and prices are low, why wouldn't you?
Pardon me for going OT, but did anyone else see this?
AP IMPACT: How mortgage giant Freddie Mac waged a war of influence that co-opted Congress
Maybe we'll finally get to see some perp walks?
Anyone see if the Petroleum Reserve is being re-filled?
We were lucky....almost ran out of all commodities
What about the tar sands in Canada?
Any price under $70bbl and they may as well just shut down.
A good friend of mine is the corporate controller for a US based oil company with tar sands interests, they are pulling back significantly right now...If prices start moving back up they will ramp up production again, until then they will lose money on those projects....
OPEC nations would be foolish not to slash production. Expalin it away as re-tooling, conservation, etc. As was noted, it would be an investment. $40 now or wait until next summer and shoot for $60. A 50% premium.
Free advice first..never use Crisco all natural cholesterol free pure vegetable oil in bed.
Mish Book Review: Clean Money - Picking Winners in the Green Tech Boom
Mish's Global etc.
amazon.com
Amazon.com: Clean Money: Picking Winners in the Green Tech Boom (9780470283561): John Rubino: Books
CR, What do you mean be save?
I think CR was talking about religious salvation.
.
Nat Gas to Oil price ratio (MMBTU basis) getting very tight after being very wide this summer. Any views whether NG prices will chase oil price declines soon or stay propped up?
Greece burns. Gasoline usage in molotov cocktails spur increased sales.
Massive Riots Cripple Greece's Main Cities
I think we all fail to take into account just how far the PTB will go to prop up the system.
I paid 1.69/gal in NJ last week. That was a big relief. $4.00/gal gas was a budget killer.
My gut tells me oil is going lower. Under $30/gal seems about right. I doubt the low prices will last long though.
The next bout of Central Bank engineered prosperity (aka inflation) should send oil soaring.
I really don't see how indebted Americans can afford more prosperity. The last up cycle put most in the poor house. That should cause the fed to reconsider this stupid debt wealth system, but it won't as those that benefit do so immensely.
Debt prosperity is a sham.
From the Oildrum
The Oil Drum | Impact of Credit Crisis on the Energy Industry - Where Are We Now?
The impact I am seeing across a wide range of energy companies is a decline in new investment and a stretched-out timeframe for new projects. In addition, many of the weaker companies in the energy supply chain are likely to be forced out of business by the credit crisis.
When energy production is viewed for all companies combined, the below analysis suggests the credit crisis will cause the production of virtually all fuels to be in decline, relative to what they otherwise would have been. I expect production of oil will decline (in absolute terms, not just relative terms) in the years ahead. Since oil production was already on a plateau, this decline is expected to bring about "peak oil". Because of long lead times, uranium production seems likely to fall short of what is needed by nuclear power plants, within the next few years.
This is one facet of the deflation-inflation discussion that we were having on the prior thread.
I expect vehicle miles to start increasing again - or at least stop declining. I think the impact of price declines on driving behavior will more than offset higher unemployment and the weaker economy.
CR, lots of demographers were predicting a leveling off and slow decline in VMT for exactly this period of time. Several factors combine for this. First the echo babies who peaked in 1990 births are now all driving. New entry drivers are down from here for a very long time. Second elder drivers have finished stretching out their safe driving age. No longer and that means less driving in proportion to their age rather than the last few decades of their failing to "age out" of the driving population. Then there are issues of deterrent congestion and higher barriers to entry with purchase prices and fixed costs like insurance.
Oil prices and recession just forced what was happening to happen faster and that means I disagree that VMT will resume anything like past trend. That I think unemployment will peak far above your 8% adds to all the previous reasons as well.
Chinese exports may be less expensive to produce, but I wonder who is going to buy them.
aClem | 12.07.08 - 4:54 pm |
c&c
I heard some nat gas E&P companies (not the majors) are having financing issues and are reluctant to scale back exploration and production too much in response to lower price as they worry about the implications of making debt service in the future if they cut too much now. Any thoughts?
"this decline is expected to bring about "peak oil""
I would think it would delay the event (or the recognition of it). It seemed like Hubbert's model was based around the milkshake-drinkin' energy thirsty American 1950s.
Oil firm sidesteps sanctions on Iran - The Boston Globe
Oil firm sidesteps sanctions on Iran
High-tech tool poses 'dirty bomb' risk; Legal loopholes frustrate US efforts
(Having grown up in Houston I'm almost always bullish on Schlumberger stock. And, don't miss a tour of the Menil Museum founded by John & Dominique de Menil (Schlumberger money) if ever in Houston.)
The Menil Collection link:
The Menil Collection
Coming back to the discussion on Taleb.
Consider the following:
Optimization vs. Redundancy
The Problem of Induction places limits on our ability to optimize.
Three generic business models or individual behaviors fall from it:
1- Sell Puts
2- Be at Toll Taker
3- Buy Calls
Sellers of Puts face a higher risk of blow-ups that commonly modeled.
Buyers of Calls need to have strong hands that bleed slowly in order to reap the potential rewards.
Judgment is making the winning trade-off between optimization and redundancy.
How good is your judgment as evidenced by your track-record?
As the value of the dollar rises, the price for oil drops. Oil is bought and sold using US dollars.
If the value of the US dollar falls, the price for oil rises...
Oil prices and recession just forced what was happening to happen faster and that means I disagree that VMT will resume anything like past trend
That can't be right, Dawg. It would mean vast amounts of Obama gov't $ spent on infrastructure would have ...
diminishing value.
.
OT: A crank call to Pakistan from India almost sets off WWIII...
http://hobochili.org/chili/?p=190
So what happens to most large companies IT, cust services, etc departments when India and Pakistan go at it? Seems like all that outsourcing to a volatile region might not have been a good idea.
Enjoy the cheap oil while it lasts. BB is about to inflate away through the printing presses, driving the dollar down and oil prices up.Add to that new production falling off line, and we'll be back at $100/ barrel + within a year IMO.
"Three generic business models..."
I'm just glad I never made a hobby of the first one. That would have made 2008 a true disaster, instead of just a crappy year.
I suggest adjusting the VMT numbers to reflect population change. (A running 1%/yr is reasonably close.) When you do that and compare against inflation adjusted prices, you find that there are both a direct and lagged response to oil prices.
Shown this way, you find that the prompt response per capita VMT holds steady at about $1.75/gal gasoline. The lag response is in that vicinity, but it is further affected by other economic choices. I think that this reflects choices of work and home location, convenience vs car pooling, type of work, etc.
VMT does isolate out the variation in choice of automobile purchases.
My gas bill at >$4 gal was $10k annually. Driving miles cut in half as result. At
Oh man, we trashed the World Bank report last weekend. Time to have another go?
Ray on the farm - nice to see another shipping news guy.
Lloyd's List - Home has some good stuff. Well, good reporting on bad situations. Does that make it net good? Guess so, otherwise I wouldn't be reading CR.
And OT, I found a nice Tolstoy Syndrome piece too, which more relates to the Taleb theme of the last thread:
Bush's Tolstoy Syndrome -
The Daily Dish | By Andrew Sullivan
C
Wallie - look at CHK...they are getting ready to flood the market with a new offering, clearly their stock is saying commodity prices are going lower and their costs could be above this price. They are a strong company, what happens to the weaker players, how will they get financing?
I will agree that trucker miles will probably stay down for awhile. But in most parts of the country, Americans have to drive to survive.
Even if they are unemployed, even if they stop shopping, they have to keep driving.
They are like gasoline-fueled sharks.
If they stop driving, they will die.
YouTube - John Mayer - Slow Dancing in a Burning Room
Apropos thread music.
It is becoming clear that nobody now is certain about what is going to happen, and, by extension, what we should do about it.
But, I was wondering if anyone has come across an article that constitutes an overview and explanation of the competing economic frames prevalent in discussion (such as Mish's/Ron Paul's, Bernanke's, Krugman's [is this the same as Bernanke's?], and others that are distinct), the future economic trends that adherents of each frame foresee, and the recommended policy responses. Please share if this exists. If not, perhaps we should begin working on such a document.
I am tired of reading blog posts since I don't understand the premises underlying the arguments that are being put forth.
I have self-interested reasons for inquiring. Mostly, I want to know if I should buy a foreclosed condo next year should interest rates remain low, based on the anticipation that hyper-inflation is probable in the near term future. Or, alternatively, whether the crushing load of my academic debt ($175,000) is going to bury me under a mountain of persistent deflation. Or, if I should forget about working as a litigator and return to Iowa to squat on some farmland until I am allowed to grow corn and raise chickens.
http://tinyurl.com/5nxsuy
New oil production and refining projects are being cut back right and left due to low prices, lack of demand, and the inability to borrow money. It will take several years for these cutbacks in investment to affect oil production; in the meantime, depletion will take over and cause irreversible declines in oil production in the next five to ten years.
In the three-way struggle among worldwide oil depletion, new oil production projects, and the global recession, we have a pretty good handle on depletion and new projects, but appreciation of the depth and length of the recession is not well understood. What was widely believed last year to be a couple of weak quarters is now generally acknowledged to be the worst economic slump since World War II. Optimists, especially on Wall Street and in Detroit, are saying that by 2010, or 2011, or 2012, the recession should be over and economic growth will return. There is great faith that the world's governments can manage a recovery by lowering interest rates, pumping trillions of government money into the financial system, loaning money to failing corporations, and instituting massive stimulus packages. Some are not so sure.
Whatever the root causes of our new recession - bad lending practices, leverage, too much debt, lax regulations, or as some believe, high oil prices - it is clear that it is going to be worldwide, serious and will take some time, perhaps years, to work itself out. The last recession of this scope went on for ten years and picked up the name of "the great depression" somewhere along the way.
And the Chinese are using up their country at a rapid pace due to pollution, etc.
I have noticed that while the roads aren't more congested on my weekly trek from Dade to Brevard, that the speeds have gone up noticeably.
Some people developed some gas saving habits. Some of those will continue them.
markar- "BB is about to inflate away through the printing presses,..."
Maybe, maybe not.
That can't be right, Dawg. It would mean vast amounts of Obama gov't $ spent on infrastructure would have ...
- Broward Horne
diminishing value.
OMG, its almost like... you know, an addict who needs to shoot up more and more often to get the same effect. We know how that ends.
"Mostly, I want to know if I should..."
RE is the least likely asset to absorb inflation at these prices, IMO. if a condo is at a price where the total cost is cheaper than renting, then consider purchasing. incomes are also unlikely to absorb inflation. as for the last part, I'd suggest focusing on bankruptcy law if you don't already.
in my unprofessional and speculative opinion, if you want inflationary protection, but a little GSG every week and don't watch it.
I think people are driving less, even with the decline in gas prices, simply because there is hardly any place to go that doesn't cost money once you get there. Even going to the park isn't free anymore, as there is a charge to park the car.
What I question is why food prices, which supposedly had their dramtic jump in cost due to increased transportation costs and increased use of corn for ethanol rather than for animal feed, have not declined.
The Democrats said drilling wouldnt help because it would take ten years and the problem is now. Well guess what, we have time now, so let's start drilling. Oh sorry, that's not a PC make-work project.
c&c:
I'm watching CHK with interest. But also interested in the nonpublics if their woes are such that cutting E&P too deep today is sure suicide tomorrow. Some cuts are certain, just wondering how deep they can go. Hearing about a glut of gas this spring including LNG imports as Qatar redirects vols to US to prop up Europe prices.
Dawg - I think I hear you.
Opium addiction cannot be cured by moving to heroin.
C
Mostly, I want to know if I should buy a foreclosed condo next year should interest rates remain low, based on the anticipation that hyper-inflation is probable in the near term future. Or, alternatively, whether the crushing load of my academic debt ($175,000) is going to bury me under a mountain of persistent deflation.
Buy the condo, HELOC to pay off the school loans, and default. Never pay another mortgage and stay for free as long as possible. Jingle mail at the last minute and in 3 years and you'll have clean credit and probably a year of payments saved from pre-eviction.
Optimization vs. Redundancy
Or... Centralized verus Peer-to-Peer model. A centralized model is most efficient for transaction costs up until the central node is over-loaded. But it's also the most prone to failure.
It's a trade-off in a lot of software, too. It's easy to design software for the most likely case but increased flexibility means increased complexity and cost. So there's a trade-off point.
The most resilient systems take the middle ground, that is, they trade some efficiency (and market share) to new systems which are oriented around a much shorter timeline and experience.
It's easy to create something.
It's hard to create something which will last over unpredictable environment changes.
I watched a show last week, "After Humans Are Gone", the gist being that the only thing remaining of our modern society after 1000 years would be the Hoover Dam.
I often wonder what cultural value we've added in the past thirty years. Britney Spears?
On December 5, 2008, Chesapeake Energy Corporation issued a press release announcing plans to hold a conference call to discuss updated financial and operational plans through 2010 that will include a reduced capital expenditure budget and details of Chesapeake's plans for building substantial cash resources over the next two years. The press release also provided information for accessing the related conference call. A copy of this press release is attached hereto as Exhibit 99.1.
Summary
of
CHESAPEAKE ENERGY CORP - Yahoo!
Finance
You borrowed all that to go to law school???
I never would have.
Where is this condo?? Condo prices, except in condos with a lot of paid off old people have much further to fall in Florida, in my opinion. You prolly wouldn't want to live in those anyway.
Houses are getting within striking range of affordibility/bottom, if only someone would finance them.
War will get the price of oil up quickly. Economic collapse is in evidence around the world. Conflict follows. Anyone of you mathematical modelers modeling war into the equation?
"The Mumbai attacks may have begun with Lashkar-e-Taiba, a Pakistani guerrilla group known in the West mostly for its preoccupation with Kashmir. But by the time the crisis finally ends, foreign policy experts say, the fallout may have expanded to include the United States, NATO, Afghanistan and Iran."
South Asia's Deadly Dominoes - NY Times
Given that oil prices have dropped 72% from their peak while demand has dropped less then 5%, I don't see how anyone could argue with the assertion that $100+/barrel oil was primarily a speculative bubble.
Primarily? Consumption was riding the line of production, so it doesn't take but a small swing to have a huge impact on pricing. [Oil's like housing; the action's on the margins.]
We are at Peak Oil -- production has topped. It's just that demand destruction has put demand firmly back under supply for the time being.
Given the exploration and development of both petroleum and alternative energies that can't happen at these prices, the endgame's actually getting closer.
Obviously speculation was a factor, but you could argue the dollar was a larger factor. Regardless, if supply vastly exceeded demand there wouldn't have been a run up.
bgates - are your views on the inflationary tendencies of real estate prices and income a reflection of the particular characteristics of those markets at this moment in time? That is to say, do you think real estate is not likely to inflate even in the midst of hyper-inflation because, for example, prices are already temporarily inflated still? And incomes are likely to continue to be sticky because of new pressure on wages from workers abroad? But wouldn't these restraints be too little in a true hyper-inflationary period?
Nah, my architect daughter tells me the Empire State Building will still be standing. The highway system will be traceable. The Great Wall and the Gothic Cathedrals will still be there.
That is a good argument for China not cutting their purchases of U.S. assets, but what about oil producing countries? That has the same impact on demand for dollar denominated assets (just further down the chain).
THAT's the question. If the Middle East (et al) are selling at or below their production costs simply to keep the wheels greased, what's left to buy Treasuries? Obama's "short term deficits don't matter" might matter if you can't sell the paper.
I am tired of reading blog posts since I don't understand the premises underlying the arguments that are being put forth
These young guys. They want the answers but they won't do the work.
I say you go back to school and learn a new trade for another $250K in loans. That would boost the economy AND double your chances of being employable.
ha!
Real estate, even tho within striking distance of a bottom, will continue to go down for at least another year and perhaps 2. Perhaps Cobra Driver can comment about his Fla County, which I refer to as the Inner Circle of Doom?
GM- "Anyone of you mathematical modelers modeling war into the equation?"
Gee, I'm busy just trying to figure out the next six months.
mp, what are your thoughts on the developments in Pakistan/India? Surely they wouldn't...?
FFDIC,Crisco is fine for preventing flashover in cap and ball revolvers,not so good in bed.If Ed-u-kink is active in your area they have excellent safety classes....
We are at Peak Oil -- production has topped. It's just that demand destruction has put demand firmly back under supply for the time being.
The Peakenese have always had an excuse every time for the last 150 years as to why they spectacularly fell on the faces this time and how next time they'll be right.
Next excuse for their failed predictions will be the reemergence of private resource development in the failing nations of Russia, Mexico and Venezula. Couldn't happen to a nicer bunch.
Pakistan is done. Who is controlling the nuclear weapons there? Pretty clear where the war is starting. How big will it get?
"More than 100 trucks loaded with supplies for American forces in Afghanistan were destroyed Sunday by militants in Peshawar, the city that serves as an important transit point for the Afghan war effort."
100 Trucks Of Supplies Destroyed In Pakistan - NY Times
Ain't gonna study way no more, ain't agonna study war no more.
I think what we have vis a vis India/Pakistan is a peak human population experience. Terrible, terrible. Power law population increases in a linear/less than linear world.
Kristina- "mp, what are your thoughts on the developments in Pakistan/India?"
Kristina, I have no particular thoughts concerning Pakistan and India.
Some have mentioned the effect of lower oil on oil states (TX, AK, etc.) What about the effect on the markets? The energy & commodity companies were the last pillar under the major indices.
Nah, my architect daughter tells me the Empire State Building will still be standing
Sorry, they showed a very cool computer animation of both the Empire State building and the Space Needle collapsing based on rusted out girders after exposure to the elements from lack of paint.
The highway system reverts to meadows and the bottom of riverbeds.
The good news is that cats survive and mutate into flying squirrels.
Dogs survive but only the junkyard variety.
Conjure survives but he's really pissed off about it.
My God - its been a long time since I've seen the phrase "back bending supply curve"
Oil is a commodity - subject to booms and busts. It is also a "utility" in that the western world and now Asia and India moving to the auto mode of transport. Further, some developing counties are now reducing subsidies (aka Pakistan, Indonesia) and therefore the real price/value has changed.
"but what about oil producing countries? That has the same impact on demand for dollar denominated assets"
CR I respectfully submit that the ME money is different in the intention to find yield. There are not billions of people to feed at "home" rather there is a push for growth beyond their borders...dollar denominated investments can be mitigated by buying assets that deploy/receive international income. While the HQ of an asset is in the US and hence dollar denominated, revs can be from say the EU or India. The complection is much different today than say the 1970s when the ME went on a binge of buying UK assets (and lessons learned, too)
And read the great Wave which doesn't even include the fall of Rome. And Collapse. This stuff is real. 150 years is a short time. Luckily collapses are not experienced often.
Lawyerliz, my thoughts as well. I can remember even as a youngster thinking how we can possibly stain growing and growing and growing. I felt the same way about our economic system. At what point does it get silly? When bread is 3K per loaf and we take half a million per week? Doesn't the system need a reset?
Conjure survives but he's really pissed off about it.
Broward Horne | Homepage | 12.07.08 - 5:58 pm | #
First laugh out loud of the day. Thanks.
Ken Cooper(Unrated) writes:
\tOK, CR Companion insterted the extra space, and just did it again. Sigh.
PapaSloth | 12.07.08 - 3:42 pm | #
Iassume you're using the 'experimental' version, 1.0b1. Did you createthe url using the hyperlink button (from the toolbar), or type it intothe text directly? Did you copy and paste from somewhere?
Yes, experimental version. Copied and pasted rather than using hyperlink button.
Thanks for a great add-on (other than this minor issue).
Do not insult cats.
I have to check on my homemade chicken soup.
HaHa you guys paint such a horrible picture of Conjure...I picture him as a benevolent older gentlemen of great class and taste, with some "rough" edges.
The same people pushing the India & Pakisatan WW3 scenario are the same people who said Georgia & Russia would start WW3 and drive prices up...
lawyerliz - it was a rational choice at the time for the law school I am attending. Though if a deflationary trend takes hold, perhaps I should have chosen differently. I'll be in Chicago after graduation. I work a lot with foreclosed properties in Dorchester, Mass, so I know that the banks are getting desperate and some of the prices are not too bad. So I don't think it is out of the realm of possibility that in six month's time the prices of a few distressed condos in Chicago might make sense, presuming interest rates stay low. But I think the vast majority of what is on the market is still overpriced based o historical price to rent and price to income ratios.
rob dawg - not a bad plan. I work with people who are doing exactly what you propose, but for different reasons -- they can't afford to move. Still, I think what you are proposing is fraud.
Nobody knows of a compendium of currently prevailing views on the crisis? Why don't we create one at this fascinating moment in time with so much uncertainty about the future?
"are your views on the inflationary tendencies of real estate prices and income "
a mixture of the factors you mentioned. and demographics. there are many, many more boomers than kids born in the 70s. that's the nail-in-the-coffin of the move-up market which is part of the dynamic in a healthy, functioning market.
I agree that real estate is the end game. but that could be all the way out in 2030, when the boomers finally start kicking it (thank God).
ok, i can't keep quiet......
RE: CHK
how can you be intersted in a company that is led by a guy so clueless that:
i am by no means an energy sector expert, but every time i saw that guy grinning ear to ear, buying CHK all the way up, i thought "wow, your day is coming"
...I picture him as a benevolent older gentlemen of great class and taste, with some "rough" edges.
Wow, Kristina...sounds JUST like me!...(except for the "benevolent" part...and maybe somewhat less class and taste...right on with the "rough edges, though..)
Drilling investment is a fool's investment IMO.
There is more money to be made (and more social good to be done) developing alternative energy technology that can substitute for the energy contained in a barrel of oil rather than investing that capital in pulling it out of the ground, bulk transporting it, refining it, and then burning it.
And what Comrade Bear said about prices being made at the margin, though I do believe I owe Dawg an acknowledgement for being correct that the $100+ price level was unsustainable. I think I argued against that, or something close to it, in the past but being able to buy gas under $2 now is in fact educational.
That's one of the things that really annoys me about the current period of "free market" worship.
It's chasing after ever-decreasing marginal gain at the expense of increasing fragility.
The free marketeers don't see it that way but I see it as 'centralized vs peer-to-peer'. You purposely give up some efficiency in a centralized system to buy some redundancy.
Broward Horne - hey! I propose we create a compendium of viewpoints if it doesn't exist already. Luckily, my semester is ending and I'm happy to help.
HaHa you guys paint such a horrible picture of Conjure...I picture him as a benevolent older gentlemen of great class and taste, with some "rough" edges.
Comrade Kristina | 12.07.08 - 6:01 pm | #
And you can imagine me as the back up center for the Lakers.
Like I said before I'm buying oil at 35$ . At some point these other countries will not want to trade dollars for oil .World trade is coming apart because of trust issues . Mostly no one trust the US Government or the cronies in congress .Unlike my gold position ( physical ) my oil trade will be in paper form. By feb I'll be in only oil , gold , and silver .
Like a lot of other Peak Oilers, I am not surprised that we are seeing price volatility, but I am surprised at the scale of current price decline, but every Peak Oiler I know argues about flow rates first, and then discusses rising oil prices and price volatility. Notice that the Cornucopians are treating numerical flow rate data like the data are radioactive? Instead, they are framing the argument purely in terms of price.
After two years of slight declines, through August of this year (average to date) world crude production (C+C, the stuff that accounts for about 98% of the input into refineries and the stuff that we use for the index price) is up by about one half one percent over the 2005 annual rate. Basically, we will have seen four years of flat crude oil production, with 2006 and 2007 showing declining net oil exports(EIA). Total liquids is up a little more than crude, but Simmons attributes a good deal of the NGL bump to the dying gasps of many large oil fields as the gas caps are blown down.
My guess is that the production drop due to reduced demand will be from October forward, but in any case if we take the 2008 EIA data (subject to revision, frequently downward) at face value, the 2005, 2006, 2007 and 2008 annualized production volumes are as follows (C+C, using 365 days for 2008):
2005: 26.9 Gb
2006: 26.8
2007: 26.6
2008: 27.0*
*Based on preliminary data through August
If we round off to the nearest billion barrels, it's four years at 27 Gb per year. Alternatively, the cumulative shortfall between what we would have produced at the 2005 rate and what we actually produced would be 300 mb, using 27 Gb for 2008.
Of course, different crude oils trade at different prices, but if we use Brent as an index price for comparison purposes, the total dollars paid for crude would like like this (assuming $100 for 2008):
2005: $1.48 Trillion ($55 per barrel)
2006: 1.74 ($65)
2007: 1.92 ($72)
2008; 2.7 ($100)
This pattern of flat to declining production versus rising oil prices is exactly what we saw in the initial Texas and North Sea declines, two regions developed by private companies, using the best available technology, with virtually no restrictions on drilling:
http://www.theoildrum.com/files/TexasAndNorthSea.png
If we use 27 Gb for 2008, we would have increased annual production by 100 mb (per year) relative to 2005, so we paid (for comparison purposes) $1.2 trillion more for an incremental increase of 100 mb, or about $12,000 per barrel of incremental production.
However, the reason for using cumulative production is because that directly relates to the area under the production rate versus time curve, which is the argument that Hubbert made back in 1956. The bottom line is that the crude data show a cumulative shortfall relative to 2005, even with the contribution from unconventional production.
I live near a freeway ramp. It's a lot noisier now. When gas was $4 it was much quieter. Now all the motorcycles and V8s with loud mufflers are racing around. They aren't conserving gas now. I didn't hear them when gas was $4. Just my observation, so I think that demand has gone up with gas prices down.
Should be Jeffrey
Volker, hmmm, I really have a thing for AI and somehow I was sure you favored him...
I'm not pushing war. I am pointing towards a flashpoint heating up rapidly.
Scanning news from around the world is showing increased social unrest and conflict. Economies crashing have immediate effects on the people and behavior.
War is coming, regional and nonnuclear is my fervent prayer. Hard to believe otherwise.
Good think piece on the history of war.
E-Diplomacy: Essay- War and Politics
ullpointer - Yes he is an idiot. However, he controls a large company and I am sure he is a peak oil believer and he thought his product would replace all the lost oil...bahahaha...yeah, another peak oil believer will soon lose it all.
JJB, excellent post. when the smoke clears, the oil bulls will indeed have the last laugh.
This lull, for that is all it is, in oil and gas prices, is really our last
opportunity to get a handle on energy.
I'd prefer the USG putting a floor under energy prices via a variable tariff on imported oil and gas so as to maintain our own domestic production and use the revenue derived from the tariff to expand alternative energy production.
We don't want to build a bunch of natural gas fired electric power plants that can only be operated at a low gas price level. Nor do we want to encourage the purchase of V-8 gas
guzzling automobiles.
crispy&cole | Homepage | 12.07.08 - 5:37 pm | #
c&c,
CHK is poor argument for the entire commodities complex - there are better things to hang your hat on - but first and foremost, the bulk commodity handling characteristics of natural gas currently preclude it from participating in a global market ala crude oil. Additionally, CHK consistently overpaid for leases and has a history of high marginal cost production (shutting in production when gas went under $7/mcf IIRC in a previous price cycle).
c&c,
Ain't it true that the new Kern owners have identified more extractable oil than was thought to even exist when they bought the closed fields? Hoocoodanode?
Do not insult cats.
lawyerliz | 12.07.08 - 6:00 pm |
When you own a cat, you are the cat's dog..."What can I do to make you happy, kitty? Do you like the new toy I bought you??"
Note that I did not insult cats. I just question the logic of the slaves who have cats as pets.
Year 2048
I am going to school now, Mommy, and If I do not hurry I will not be there by 9:00.
Ok, sweetie, I will see you in an hour and what course do you download this morning?
We get 2 courses this morning, Mommy. The school just received new double headsets which allows each student double downloads at once.
I am getting " The 10,000 Year History of Commodity Extraction" and a obscure download issued from Artificial Intelligence "X4T34 Recommends Inflation targetting of 0.25 to 0.30 percent for next 5 years.
Sounds nice Sweetie. See you soon.
Dogs have "owners," cats have "staff." God only gave us opposable thumbs to help level the playing field.
That US production has peaked, is no longer a debatable point. Only the most geologically challenged will continue to deny that planet Earth will peak someday.
July 15th marked the top in oil and the bottom of the US dollar index. Since crude is priced in dollars, it's self evident that the two will be inversely correlated. Forty dollar oil isn't all that unusual considering the dollar index hasn't hovered around 88 since early 2006. A 50% drop in the S&P 500 might just indicate a bit of sluggishness in the economy as well.
This is how energy scarcity will unfold. Severe volatility, followed by complacency and denial, followed by another price run up. This time I think the brakes may have been applied on purpose.
Soup coming along nicely.
I visualize conjure as being very short and somewhat plump and very very hairy all over.
I read through the comments, including the links, and this tinfoil inspiration lit the inside of my head.
I am an evil Muslim terrorist leader. My goal is to kick American ass.
Goal: Regime change in Pakistan. Comes with access to real WMD
Over run US and NATO forces for major propaganda points. Maybe even get to Karzai.
Drive up oil prices and reward Iran and Russia for support.
Imagine how busy one is when being kept by six cats...
Lawyerliz, I love homemade chicken soup, although I do prefer the turkey soup, I just made a huge batch of that last week and froze it. Tonight is grilled Tuna steaks.
Might not be a bad idea for the USG to throw some TARP funds at the oil market too.
US SPR is only 700 million barrels.
That's just $28 billion to fill it with WTI at today's prices.
We'd do ourselves a favor and probably earn some brownie points with the GCC countries if we doubled
it. Further we could use the second tranche as a counterweight to another price bubble.
Copied and pasted rather than using hyperlink button.
PapaSloth | 12.07.08 - 6:00 pm | #
The html editor appears to have some problems with pasted text (and backspace too...). I'll see if I can come up with a workaround. In the meantime, the hyperlink button does seem to work well (and I'm guessing because it uses an anchor tag, it should fix the broken link problem I've seen so often here).
I'm glad you like it! And please, let me know of any other problems you experience, however minor. I hope to give the 'all clear' within the next week or so if I can.
ova | 12.07.08 - 6:20 pm
When I wrote a scenerio post like that everyone made fun of me.
[;)
P.S. Who gets custody of the Pakistan nukes?
Cats have evolved to be irresistably cute.
And Tony, I do believe that Dawg's comment had just a wee, itsy bitsy, tiny, just visible under a microscope bit of snark.
Broward Horne: I watched a show last week, "After Humans Are Gone", the gist being that the only thing remaining of our modern society after 1000 years would be the Hoover Dam.
I sometimes toy with a question of why we think we are the first civilization to inhabit the Earth. Come to think about it, this statement is darn hard to prove
ova | 12.07.08 - 6:20 pm | #
Plausible.
Any CR posters retired military? My 4 years of military service doesn't make me a tactics and strategy expert.
lawyerliz - So did mine. I know there are more than a few on this blog who have seriously pondered the more creative ways of capitalizing on this mess. So I know I'm not pointing anything out that hasn't already been said.
MrM, but wouldn't there be fossils?
A 100 million year old fossilized tire track from a Jurassic Jeep left along a muddy road in South Dakota?
Maybe a nuclear waste repository some South African gold mine would stumble
upom?
A heart with the names of two lovers carved into a petrified tree?
Ken Cooper writes:
I'm glad you like it! And please, let me know of any other problems you experience, however minor. I hope to give the 'all clear' within the next week or so if I can.
\t
Will do, thanks again!
NorkaWest writes:
nova | 12.07.08 - 6:20 pm
When I wrote a scenerio post like that everyone made fun of me.
NorkaWest,
I am used to it. What does not kill us, makes us more psychotic. :]
Nullpointer: My interest in CHK is from a production standpoint not an investment. Agree on the idiot part. Still, they remain a big potential producer affecting price.
Unit472 - fossils of what? You only get fossils of not very bright animals to wandered in tar pits, no? Think how difficult it is to find human fossils from more than a few millenia back even if you where to look.
And yes, this is totally OT, OT^2
Whoohoo! Wonder why that return email address indicates it is from Argentina?
Attn: Please,
We wish to notify you again that you were listed as a Heir to the total sum of Five Million British Pounds (Ј5,000,000.00) in the codicil and last testament of our deceased client. Name now withheld since this is our second letter to you.
We are reaching you the second time because her instruction stipulates that this funds should be paid directly to you upon her death.
If you receive this notice, we request you to kindly acknowledge officially to enable us file in all necessary legal documents to the paying bank for the release of your inheritance.
Please call urgently or contact us via a reply email to enable us process your inheritance.
Yours Truly,
Roland Frankie, Esq.
AresHg Ltd (Legal Consultant)
50A Allen Rd London, N16 8RZ, United Kingdom.
Tel: +447045781482
Ken Cooper, if you are still around, I have a suggestion... When stepping through posts for an Author, can you change the visual appearance of the bar that represents the current post?
citizen energyecon: CHK may be the poster child of what I'm trying to determine with them and other independents. In the past, they shut in production at $7. Is the story different now given credit challenges--produce below cost to secure cash flow?
MrM,
You suggested that there may have been
earlier 'civilizations. Now one thing we know about all human civilizations is that they love graffiti.
Archeologists find it in ancient ruins and Paleontologists on cave walls.
If the dinosaurs were smarter than we
imagine whose to say that they didn't also have language and make graffiti.
Some giant clawed dinosaur might have carved a heart with "T. Rex loves Alice Saurus" into a ancient redwood tree.
New York law firm head Marc Dreier was tossed in jail in Toronto earlier this week for impersonating an officer of Ontario Teachers Pension Plan in connection with a loan-deal from Fortress . Lawyer Marc Dreier Busted For Impersonating Official In Fortress Deal
Bob Dobbs,
You just got rated Excellent. Honk, honk!
nova@ 6:20 pm
I am an evil Muslim terrorist leader. My goal is to kick American ass.
1. I shut down the Kyber pass. Choking off American supplies.
If you couldda, you wouldda.
2. I jumpstart an India and Pakistani war. Pakistan pulls its troops from the pass and Afganistan side of the border. This makes my Kyber pass lockdown even easier.
Here is a real danger. Not the Khyber Pass lockdown, but a nasty theater nuclear war.
3. In Afganistan my minions lead a Tet style offensive. At the same time terrorist attacks rock the supposedly safe parts of Iran.
The OEF command element positively dreams of such stupidity. This would play right into NATO strengths, and result in wholesale destruction of said "minions." This isn't a SE Asia jungle with open lines of communication to a primary (N VietNam) and secondary (China) logistics base. This is open (albeit mountainous) terrain that enables application of unbelievable force against a massed enemy.
4. If I could figure out how to get Iran to close the Gulf with tacit Russian help I would be very happy.
Look up the words "vital national interest." In English and in Hebrew.
cd
"Any CR posters retired military? My 4 years of military service doesn't make me a tactics and strategy expert."
GM | 12.07.08 - 6:31 pm | #
My brother who is former Army Special Ops with a shitload of time in A-stan is sitting across from me right now.
Does that work?
Chris
Since we can't climb inside the heads of Saudi princes to find out what they think and it's doubtful that they are going to make an appearance on Oprah to reveal their plans, it seems that Krugman's analysis is nothing more than maybes and possibilities.
The reality persists that, absent any other considerations, from a present value perspective you pump oil as fast as you can. If you layer on top of that the reality that most of the revenue goes to an assorted list of dictators with little reason to believe in their own long-term survival then leaving it in the ground makes even less sense. Better to pump it now and get the money safely to Switzerland before the mob is as the gates.
I figured the futures would be up a bazillion on the auto bailout.
WTF?
Unit472 - How much graffiti has the modern man left in caves? What will become of graffiti when cities become dust?
The plunge in oil prices has got to be making some Dubai developers nervous.
Circling the Drain | 12.07.08 - 6:47 pm | #
My Marines did this a while back...
Marines Prevailed in a Day of Battle
30 on 250. those are O.K. odds for the Corps.
Chris
That spot price rocket shot is indicative of a speculative bubble of very short duration. It seems those who can spot a real estate bubble years before anyone else can't seem to recognize a bubble in a commodity price.
The price of oil has been manipulated in a very destructive way since the early 1970's, this is no different except in magnitude and it's occurrence in a recessionary year.
OPEC and the futures traders have control of this market. Oil prices are not determined by supply and demand. Oil futures trading collapsed the oil price when margin requirements were raised, not as a result of the reduction miles traveled.
Let's support our troops protecting the Opium Trade and Pipelines in Afghanistan and killing innocent men, women and children in the process.. Woo Hoo!!
Very interesting!
Anyone who cares to operate on data rather than the throwaway lines of bloggers on the intertubz, please avail yourselves of the 13 page pdf summary of the International Energy Agency World Energy Outlook 2008. For the first time they have not only forecast oil demand trends, they made a study of the largest oil and gas fields and proposed projects to develop a supply forecast...
http://www.iea.org/Textbase/npsum/WEO2008SUM.pdf
Extra credit for going to the National Petroleum Council report "Facing the Hard Truths About Energy."
National Petroleum Council: Facing the Hard Truths About Energy
Wallie | 12.07.08 - 6:44 pm | #
Wallie,
IIRC CHK has a majority of production hedged, between $8 and $9 - they were pretty well hedged out for three years? I'd have to go look it up on their web site - as long as the counterparty can perform...
My take on the much maligned SUV as gas-guzzling conspicuous consumption is that most auto manufacturers designed them for women or for their "sensitive" manfriends. Cars like the Toyota Highlander: ungainly, poor-handling behemoths that auto magazine writers have decried for years. The later ones abandoned truck chassis underpinnings, and any remaining off-road capability, and used passenger-auto frames. Women especially seem to like them for the feeling of power it gives them in the additional height off the ground and heft. So most SUV owners, I would guess, are insecure and seek reassurance. Sort of the profile of an Obama voter, IMHO. Certainly not car people.
I owned an early SUV, before they were prettied up, a stick 1991 AWD Jeep Cherokee. Definitely not designed for women. No cup holder and you had to lift and brace the hood before checking the oil. Rough riding (solid rear axle) and definitely tough enough to take off road whenever the mood suited. This true off-roader did not catch on as the Ford Explorer et al did because of the difference in engineering and hence target audience. (Chrysler eventually followed suit with its later Jeep models.)
I do not know of any driving enthusiasts who would say they would enjoy having an Explorer/Highlander in their driveway. The blame, if there be blame, for the popularity of the SUV lies elsewhere.
My Marines did this a while back...
Cobradriver | 12.07.08 - 6:52 pm | #
hehehe
cd
On '60 Minutes' Tonight (Dec. 7) Saudis Not Worried About Oil Production
John, nobody's going to be upset with you because you're gay. Just get it over with and spare yourself all the agony.
citizen energyecon: Thanks for the info. I'll go look for it. I thot I read where a good chunk of their hedges were knockout hedges--some sort of derivative that got knocked out of fixed price at some low price.
"Since we can't climb inside the heads of Saudi princes to find out what they think and it's doubtful that they are going to make an appearance on Oprah to reveal their plans, it seems that Krugman's analysis is nothing more than maybes and possibilities."
Check 60 minutes tonite, could be close.
Chris,
Your brother share any salient thoughts regarding that part of the world?
Circling the Drain | 12.07.08 - 6:47 pm
OK, cd. I still think it has some potential. Tet was a huge loss for NVA but it may have won them the war.
Also, if your primary goal is to find amother safe harbor state, then Pakistan would be perfect.
Oh, my nephew is incountry with the Marines.
citizen energyecon writes:
Anyone who cares to operate on data rather than the throwaway lines of bloggers on the intertubz...
Would that be the same intertubz where your side said; " Only the most geologically challenged will continue to deny that planet Earth will peak someday?"
See the problem? We can discuss the likelihood of nations lying about proven reserves (in both directions) or elasticity on the marginal cost or whether extraction is getting more expensive faster than price but no matter the level of discourse there will be the children throwing stones. Personally, I would be satisfied with merely new stones rather than replicated mush from peakoil dot com.
Circling the Drain @ 6:47, point three riposte, absolutely, god old positional warfare will be a net loss for insurgents. Basically by defition.
C
Oil futures market was driven by leverage and a surplus credit glut (some called it the saving glut)which allowed the participants to push the price of oil futures beyond it's spot and contract pricing. Now leverage and credit are both in short supply and we can see quickly that leverage speculation was the significant factor in the oil run up rather then demand/supply issues. This will be a on going issue in commodity futures pricing the availability of leverage and credit for hedging/speculating vs using real dollars for collateral. If the recent past is any indication I would say that commodity markets will be severely impacted by world wide credit rationing which will have a long term effect of pushing oil prices closer to there spot cash pricing.
The other impact is that even though gasoline prices are down credit availablity to the consumer is declining which cuts their overall spending budget. Spending $2. a gallon for gas rather then $4 a gal sounds like a big savings but lets not forget the consumer was accessing a variety of asset inflated borrowing channels before and now is left with their earning power for spending so cash expense for gas will impact most consumers by driving less to conserve dollars.
CHK has derivative exposure it seems...there are seven footnotes under the hedging strategy (i)swaps, (ii)basis swaps, (iii)knockout swaps, (iv)written call options, (v)cap swaps,(vi)collars, and (vii)three way collars. Didn't catch any data about the volume associated with each type of hedge, but the one that might bite hard is the knockout swap...depending on the knockout price (if prices fall low enough, it triggers the 'knockout' and the hedge goes poof - gone)...that and counter-party performance in general.
About halfway down under "Commodity Hedging Activities."
Rtrk.com: Online Marketing Reporting, Analytics & Call Tracking
Oil prices will not stay below $40 for long because ... depletion will keep doing its ugly work, no matter what Opec does.
Depletion will take 5-7% of production off line within 12 months. At current prices folks may produce, but they won't have the capital to drill. Hence...falling production, perhaps within 6 months falling faster than demand.
Its been years since the subject has come up here but one interesting aspect of the mainstreaming of the SUV coincided with the rapid deterioration of the US roads infrastructure and public services like snow removal. If we are expected to pile into clown cars the asphalt better be glassy smooth and the roads clear of any hazard.
Heck, I know how to sve tthe auto industry. Promise to let the roads rot. Before you know it everyone will be bidding up H1s on eBay an lining up or the next 2010 Ford F-550 Excessive. Turrets optional.
I worked for an old oil lease broker once. He repeatedly told me that the major oil producing companies flooded the US market with crude three times during his carear forcing the price down to $1/ bbl. from $10/ bbl. The drop would force many marginal producers to sell their production to the stronger majors who would then cut production and the cycle would start again. It seems to me that this time, the price decline is forcing ethanol producers to consolidate and may drive many of them BK. My bet: only then will prices start to raise again. (Remember that the "ole peckers" have over 100 years of production at current levels of consumption. There's still plenty of time for the cartel to run prices up and down...)
Rob,
That's a point we've both made before. If gas goes ballistic again for any reason, transportation will have to be capable of carrying a lot of people & things (and probably towing things) over rough terrain. A fully-loaded expedition is far more efficient than a Prius, and it won't get gutted by an LA pothole.
I guess the LA Times, Chicago Tribune and the Cubs are not TBTF.
At least according to the WSJ.
Are there a lot of synthetic CDO's and CDS around on Tribune?
Sort of the profile of an Obama voter, IMHO.
This Obama voter is too cheap to spend 30 or 40 grand for transportation. Pretty simple.
c&c @ 4:57 pm,
from google cached link.
In 2007, the [Texas oil]industry accounted for 15.7 percent, or $179 billion, of Texas' gross state product.The industry hit a peak of 26 percent of gross state product in 1981.
About 226,000 Texans were employed in the state oil and gas industry during September
cache:XlOPQJ1Y1KEJ:www.chron.com/disp/story.mpl/front/6124447.html texas employment oil industry 2008 - Google Search
Tough Times for Texas Oil
The Peakenese...
Rob Dawg | Homepage | 12.07.08 - 5:56 pm | #
Knew I could count on you RD -
there will be the children throwing stones
Rob Dawg | Homepage | 12.07.08 - 7:12 pm | #
As I stated, datapoints rather than throwaway lines. The International Oil Agency decided it needed to do a petroleum supply forecast for the first time since its founding - with summary results in the pdf offered - but that is 'replicated mush'...guess there is at least one old Dawg who can't learn any new tricks.
http://www.iea.org/Textbase/npsum/WEO2008SUM.pdf
The second link was to the National Petroleum Council study - yet another bit of 'mush' - again, I suggest anyone who cares to acquire an understanding on a factual basis review the list of participants in the producing that report.
National Petroleum Council: Facing the Hard Truths About Energy
I simply pointed towards factual sources for informed debate on the topic at hand...I would be satisfied with merely factual responses and sources of data rather than ad hominem bloviating but I guess YMMV...
I would be satisfied with merely new stones rather than replicated mush from peakoil dot com.
Rob Dawg | Homepage | 12.07.08 - 7:12 pm | #
"Your brother share any salient thoughts regarding that part of the world?"
GM | 12.07.08 - 7:09 pm | #
He doesn't really talk much about it. The one thing he always reminds me of is for everthing you hear about, something is happening that you will most likely never hear of until wayyyyyy after the fact.
Special Ops is spread out pretty good over there...
"Oh, my nephew is incountry with the Marines."
nova | 12.07.08 - 7:11 pm | #
nova,
Give him an Ooo-rah from me. There are few of us old Jarheads around.
My former manager has both his boys deployed currently with the Corps. One to Iraq and the other just left 2 weeks ago for A-stan.
Chris
Comrade Bear (tj & the bear) writes:
Rob,
That's a point we've both made before. If gas goes ballistic again for any reason, transportation will have to be capable of carrying a lot of people & things (and probably towing things) over rough terrain. A fully-loaded expedition is far more efficient than a Prius, and it won't get gutted by an LA pothole.
Will be no credit available for folks to pile into rough terrain vehicles of any kind and the cash necessary to pay for the gas will be beyond most average American's future budget.
Chris
Cobradriver | 12.07.08 - 7:31 pm |
A co-worker, and my former raquetball partner, just came back. SOF. Went for 1 year, came back 3 1/2 years later. I laughed when his cuz told me 2 years ago that they told him it was going to be "just 1 year" He did get to go to South America for 6 months as part of it. That is all he wants to talk about. Life was good there.
Yeah ron. I bought a new Nissan Titan this summer when gas was at $4 and the dealer was giving them away but I want to add one of those diamond steel
bed tanks I see on construction pickup trucks.
I see Northern Tool and Equipment stocks them but they are for US F-150,Dodge and Chevy pickups. You can buy them with a capacity of up to 90 gallons which, with the internal tank of 28 gallons gives one an awesome rolling 'reserve' but do they fit the Japanese big trucks.
BTW I also have a Corolla for more mundane driving purposes but I do like
sitting up high in a 4wd truck that can tow things and go where cars just can't.
$2 cost per barrel for Saudis
10 times more effective methods for drilling are now being employed
Basic economics come to bear every time the fear of peak oil rises. Alternative products. Altering demand. New discoveries. More effective methods. 101.
Yep, the decline of roads and snow plow services clearly explains the rise of the average SUV with its crappy suspension, inch and a half extra ground clearance and summer tires. And don't forget: the incredibly inefficient use of space. If you want to move people get a minivan.
SUV's in No. VA = 1 white women, 5'4", 140 lbs, on a cell phone.
They're effective if you plan on crashing and want momentum on your side. The true heir to the Volvo wagon.
I am surprised there hasn't been a post on the proposed merger of GM and Chrysler.
That is a fair amount of jobs and money being talked about.
"He did get to go to South America for 6 months as part of it. That is all he wants to talk about. Life was good there."
nova | 12.07.08 - 7:38 pm | #
My brother has all kinds of cool pictures from all over the world. after a while you just learn to not ask "Why were you in _______".
Chris
Who will buy?
Demand for oil is fairly inelastic, and is a function (among other things) of economic activity. With the world apparently going into severe recession, they won't be able to sell more even if they want to. If they attempt to increase supply, it might just result in lower prices rather than higher consumption.
They're great in roll-overs. Anyone ever seen one of those things roll over? I have...and man, do they roll. They were born to roll. Ever notice how the operators can't even handle them? Without fail they are crossing the double line and heading straight for you....and Nova's right, it's the diminutive woman on her cell phone putting on her make-up and yelling at her 1.2 children in the back seat.
LOL@ "born to roll"...
Rob Dawg,
How accurate is the National Association of Realtors', I mean, the National Petroleum Council's data?
We can trust their data, right?
Open to any better data, walt - or any data - [crickets chirp]
nice throwaway line though, got a smile!
There is more money to be made (and more social good to be done) developing alternative energy technology that can substitute for the energy contained in a barrel of oil rather than investing that capital in pulling it out of the ground, bulk transporting it, refining it, and then burning it.
There is certainly more money to be made, because compared to drilling, it will probably cost 10 times as much R&D to produce a quarter as much energy from solar or wind or biofuels as you would get from a barrel of oil.
We will be researching and tweaking the improvements for centuries, but what is going to be the actual return on the investment?
And no, I'm not a member of the "more drilling" crowd... it's just that all of the energy sources that give a good marginal return on investment have been tried already: wood, coal, oil... "Mining" for solar and wind power is going to remain very expensive. So yeah, a lot of money can be made chasing after this. Go for it!
There is a lot of oil production that becomes significantly less profitable at sub-$40, like the the oil sands (cost $28/bbl according to Wikipedia.)
If that production drops off, eith the price will jump, or we are REALLY in a depression.
I find the entire thesis of China continuing to buy treasuries through this deep recession to be complete and utter nonsense. I don't think they will be dumping them, but I see the import numbers of the US from China dropping precipitously over the next 2 years.
Sam Zell...you were the greater fool...
Tribune Co. Taps Lazard,Weighs Filing for Chapter 11 - WSJ.com
What does it matter.........
Coming soon to U.S., 1 million jobs lost every month: ReportStephen C. Webster
Published: Sunday December 7, 2008
London-based GFC Economics is making a frightening prediction: By spring 2009, the United States could be facing more than 1 million layoffs every successive month.
Will Sam Zell get a bailout?
c&c,
ugh...not sure which turns stomach more, the prospect of a Zell bailout or Crewman's 1 million a month job loss...
I have heard that the OECD data are good, but I really wouldn't know.
Why should a cartel produce reliable information if they aren't forced to do so, anyway?
Based on my experiences in the oil patch, the truth is a scarce commodity but the stories are great.
Watch out for the media credit default swaps!
LOL!!
Yeah Zell believed the "grave dancer" hype to the bitter end...
Oh the irony...LA times.com has a story about, uhh...the La times filing for bankruptcy
Debt-laden Tribune explores bankruptcy - Los Angeles Times
Anyone know that in 1929 90% of all the private automobiles in the world were in the US?
It is reasonable to assume that just as the US went from trains,bikes and animal powered conveyances so too will
the rest of humanity just as soon as they can.
Now the US has reached its saturation point as far as motor vehicles goes.
Not so for the rest of humanity. Its not rocket science to understand that if you need the entire historic production of GM ( 445 million vehicles) just to allow India and China to reach American 1929 levels of vehicle ownership that oil production cannot keep up. Even if every new car is a Prius. But they aren't!
Yancey Ward - What will China do with maturing Treasuries? If the USA trade deficit with China stays at the same level, then China will roll over Ts. But if the trade deficit declines, what will China do with a pile of cash?
Front page of NY Times.com
Tribune May Face Potential Bankruptcy Filing - DealBook Blog - NYTimes.com
So most SUV owners, I would guess, are insecure and seek reassurance.
It's unfair to attack RobDawg like that. You log cabin Republicans have got to rethink your rants.
It takes a great deal of energy to get that oil out of the tar sands and it is an ecological nightmare. By the way, Palin's pipeline deal was a backroom understanding to divert natural gas to Canada to be used for the tar sands rather than selling it directly into the U.S. as is.
MB,
That was the deal she scotched brokered by her predecessor Murkowski, the incumbent she knocked off...though the part about tar sands being an huge water and energy hog with marginal EROEI is spot on.
Yancey Ward -yep.
As a thought experiment, consider the mobility structure of Ch labor, the millions upon millions moving to factory jobs, legally and illegally, in companies which are now tanking and laying off those millions. Then consider the provincial repatriation problem and inter-provincial potential for autarkic responses, through tariffs and other means. Then consider whether sending villages are really set up to receive an influx of previously employed national diaspora, how they'll fit back in, what will they do, what expectations they might have had and now may be dashed, in a prevailing "shame" culture. Inter-provincial remittances have been critical for maintaining bare-minimum spending power and stability in numerous provinces.
I think I'd be commissioning a social impact assessment and vulnerability assessment right about now, for those who stay and can't go home to the laojia, and those who go home and can't fit in or have no prospects.
Jeebus.
C
"London-based GFC Economics is making a frightening prediction: By spring 2009, the United States could be facing more than 1 million layoffs every successive month."
Is there a link?
Just to be clear... I don't have an opinion one way or the other on if the world is at 'peak oil' (can one really believe much of the data on 'known oil reserves'?). What I do have an opinion on is that it was silly to think, peak oil or not, that $100+/barrel was sustainable. There are too many other energy sources, some renewable, some nonrenewable, most technologies currently available (oil shale, wind power, natural gas, Concentrated solar, cellulostic ethanol) that could compete favorably with oil at sustained price points from $60-$140/barrel. It was inevitable that the price of oil would drop below that of potentially competing energy platforms. Some really smart people made a lot of money on oil on the way up, the suckers got left holding the bag on the way down.
Pavel, nice to see you are onboard.
It appears even those who collect plastic bottles, aluminum cans and the other detritus of modern man are hurting.
Cardboard is 1/4 of the price it was a few months ago.
Perhaps that is good news. Cardboard makes an excellent temporary shelter.
While big sheets of it, the kind that a major appliance arrived in might be scarce, smaller cardboard boxes of the type that people being forceclosed upon might need to pack their belongings in might be in abundance.
A little duct tape, some breaking apart of the cardboard and a decent hovel that can survive for several days might be constructed.
Unit472 | 12.07.08 - 8:42 pm | #
A bit more duct tape and a blue tarp and that hovel just might become some fossil evidence for future archeologists!
GFC Economics is an independent economic consultancy established in 1999 and based in London. We provide economic research - on US, UK, Japan, and Eurozone to institutional clients on a subscription basis.
Run by former City economist, Graham Turner, GFC Economics provides timely analysis of the economic issues affecting global financial markets. As an independent entity we are free to express our views without the intervention of any vested interests.
Caveat Emptor
Mr. M,
Maturing treasuries can and will simply be rolled into new treasuries. This is what happens with most treasury debt that comes due- the face value (and the interest) is loaned back so that we don't actually have to send cash.
The real question is just how able the Chinese will be able to lend completely new money for US Govt spending. This depends on how many dollars they accumulate from trade with the US, and I expect that amount to fall significantly. I think Obama is going to have to find some other lender to lend money for these "infrastructure" spendings. My guess is that retirement accounts will be the source finally identified.
Pavel Chichikov writes:
"London-based GFC Economics is making a frightening prediction: By spring 2009, the United States could be facing more than 1 million layoffs every successive month."
"As many as a million American jobs could be lost every month by next spring as businesses struggle to raise capital in financial markets consumed by fear, according to a new analysis. November was the worst month in the US labour market since the oil crisis of 1974, as more than 500,000 US workers were laid off, according to official figures released on Friday.
But Graham Turner, of consultancy GFC Economics, says the rising cost of corporate debt is now flashing a red warning signal that far worse is to come over the next few months and job losses are heading for levels last seen in the 1930s Great Depression. Corporate bond yields have rocketed since the credit crisis began as investors flee risky assets in search of safe havens such as US Treasuries. That effectively means many firms are being forced to pay eye-watering interest rates to borrow funds.
Turner says when the gap between the yield on high-risk company bonds and US Treasuries widens sharply, unemployment tends to shoot up - and current credit conditions are pointing to a doubling in the pace of layoffs, to more than a million workers a month, by spring. 'The correlation is holding up all too well,' he said. 'It's very disconcerting.' He added that the pace of layoffs already happening in the US 'is indicative of panic'. During the 1970s oil crisis the panic was relatively short-lived, he says. 'But the worry now is that this will just roll on and on.' On Friday alone, embattled car firm General Motors, fund manager Legg Mason, and motor parts supplier Gentex announced plans to shed staff."
Yancey Ward - The real question is just how able the Chinese will be able to lend completely new money for US Govt spending.
That was my question. I think that US borrowing in other currencies (especially Yen) is not out of question.
"Pavel Chichikov writes:
"London-based GFC Economics is making a frightening prediction: By spring 2009, the United States could be facing more than 1 million layoffs every successive month."
No, I quoted that from another post and requested a link.
Mr.M,
As a last desperate measure, maybe we would borrow in other currencies, but I would doubt that will happen. I think (hope is probably a more appropriate word?) if it came to that, we might pull back from the brink and start getting our finances in order as a country.
You can always count on Americans to do the right thing - after they've tried everything else.
Winston Churchill
"Pavel, nice to see you are onboard."
Thank you. I just became embroiled in a discussion of religion, God help me. What am I, a cardinal or something?
Yancey Ward - Why do you think that borrowing in a foreign currency would signal disaster for the US? The US did borrow in D-Mark in the '70s, no?
To judge from my inbox we're all going to be selling one another loofas on the Net.
Mr. M,
It is the ultimate loss of national sovereignty. I can't see it happening in anything other than token amounts, and not because the US cannot borrow in it's own currency. Once your debt is denominated to any great extent in another's currency, you have given up quite a lot of control over your country. If this comes to pass, then I would think seriously about preparing for the collapse of the US government.
"It is the ultimate loss of national sovereignty."
My impression of the new president is that he's gong to fight like hell to prevent any such thing from happening. This is apart from any policy debate.
Yancey Ward - If the Japanese have plenty of savings that they do not know what to do, and the Americans have a need to borrow capital, why does this transaction have to be denominated in USD? Why is this situation so asymmetric for Japan?
I understand that Argentina has been suffering because it borrows in USD and not in its peso. But this is essentially a reflection of the messy state that its economy is in.
So, is Conjure a real flesh-and-blood person after all? I had imagined him as an imp that only mp could see or hear, sort of like the Great Gazoo on the Flintstones.
Late to the thread, but has anyone mentioned the impact on state sales tax collections due to low gas prices.
In CA e.g., gas at half price means (for same volume pumped) half the sales tax revenue.
Oil.
The idea of investing by not pumping is interesting and or hilarious. I know I wouldn't be able to sleep with ideas like that lurking. First I am curious as to when we have had any shortages during this "latest" Peak Oil. At least in the 70s they made folks wait in lines.
Every 35 years we have Peak Oil. We may drown in the stuff yet if we are still able to breath. This country is running out and then that country is low, low, low. Ten years later you look at the petro industry's reserve figures they are up for all around. The damn stuff is everywhere. Like dinosaurs evolving into birds instead of herding themselves into tar pits to provide our future reserves, oil will be found to be percolating deep beneath the earth way below the ocean of natural gas just below our feet.
But wait, I have to believe in something besides investing by doing nothing, hey I was doing that before Krugman had is deliriums. So I am a proponent of:
Peak Copper, Peak Corn, Peak Soybeans, Peak Credit, Peak Zinc, Peak Coal, Peak Google, Peak Population, Peak Demgraphics.
And I swear I believe in Peak Wages. And in what we call Capitalism, that happened 40 years ago didn't it.
So bless the Philips Curve and perceived shortages. The sad thing is that we watch millions suffer malnutrition, starvation, and disease regardless of the time in history or state of the economy.
By the by, it is quite apparent that the ruling class in China may well have more that just an edge or the supply siders, forgive me I meant capitalists, we're shipping around the world. And how would one screw with our economists or our economy: I suggest by simply watching. China will most likely help us and when you stop and actually think you know this is the case. They actually understand their national interests from what I can tell.
Before I slip away who came up with the idea of that the olympics really would effect the supply of oil? Must be the same folks that figured field corn went up because of ethanol. It is cattle feed before and after the alcohol goes into the tank.
dunnage
Dear CR
While I sincerely enjoy the commentary and discussion on this blog I really have to comment on your graph oil prices vs. PCE gasoline, ...
The two quantities are not what we want to compare, they are not on the same scale. Graphs that would be more informative would be looking at the derivatives of the two series, and possibly the cross correlation of the two series. If you can point to the source of the data I can generate an example that would be perceptually more correct. Also, though not as potentially misleading the use of bar plots to represent series, such as weekly gasoline prices is not recommended, we are interested in viewing both the actual values and the voilatility, the bars conceal some of the up/down trends. Ok am I being to didactic? Anyway thanks for the exceptionally informational blog.
Yancey Ward writes:
"The real question is just how able the Chinese will be able to lend completely new money for US Govt spending. This depends on how many dollars they accumulate from trade with the US, and I expect that amount to fall significantly. "
If the Chinese trade surplus with the U.S. drops suddenly, their economy will suffer a massive drop in growth. (Change in net exports is a source of GDP growth.) There is no sign that the Chinese leadership will accept such a slowdown.
But people worry far too much about foreign demand for U.S. bonds. If the U.S. is heading into a deep, long, recession, it is because the private sector is retrenching and saving. Those savings have to go somewhere, and since the private sector will be saving, that leaves the government as the entity that will have to absorb those savings.
If you let the roads go to crap, all those big heavy SUVs are not going to be in high demand. Ever notice that when you see them doing rock-crawling and stuff, they're going about 2 mph? Go price out the parts needed to make one of those things survive the Baja or Dakar. It's not cheap. Keep in mind that the Baja still has a stock Volkswagen Beetle class.
I'm pretty sure that the result would be a lot like what much of central America looks like - modern economy cars turned into SUVish vehicles. Do a Google search for Ford Ecosport- it's basically a Fiesta with extra ground clearance and 4-wheel drive (and some new body panels). All the manufacturers have something similar. I think that the goal is to be lightweight so the suspension doesn't have as much energy to absorb when it's driving over crap roads at 20-30 mph.
Not to mention that it's pretty unlikely that the fuel delivery vehicles we use in the US could handle the roads - we'd have to use the smaller fuel trucks that they use down there. So gas would be more expensive and possibly even harder to find - another strike against the massive SUV.
Oil is not a manufactured item as Krugman's model would apply to. The debate will be over within 3 years once Mexico starts to import oil. Anyone not familiar with this rubicon moment, really has not right to be speaking on it from a position of authority. It is really that straight forward.
I was unaware the Rubicon was going to Mexico in 3 years. Nevertheless shouldn't we refer to such as a movement rather than a moment.
I expect vehicle miles to start increasing again - or at least stop declining. I think the impact of price declines on driving behavior will more than offset higher unemployment and the weaker economy. And gasoline prices are still falling in December!
I saw anecdotal pickup in driving back in September, October, and November when the prices first crashed. The last couple of weeks have been S L O W E R. Christmas shopping was kind of frantic Thanksgiving weekend and somewhat afterwards, but seems to be fizzling like last year. The "impact of price declines on driving behavior will more than offset higher unemployment and the weaker economy." Yes! Why not just say that the price collapse in gasoline is a major stimulus like Edward Leamer asserted?
I suspect the whiplash in oil prices might well cause as much pain as that in housing prices, in terms of the long term viability of investment in oilfield development.
As well, we're probably pretty close to a tipping point where the percieved wisdom will be that the whole peak oil thing, and the attendant need for more efficient use of resources or different resources, is just a fantasy of tree-hugging liberals. Yet another whiplash in the making.
dunnage, you misspelled Rubicon: C-A-N-T-A-R-E-L-L...
It didn't take much of a change in demand - maybe 2% worldwide - plus 1% increase in supply late summer to cut price of an inelastic commodity 70%. It won't take much change in supply - maybe 3% - to push price back up. OPEC's last cut of 1.5Mb/d was only 2/3 implemented, i.e. about 1.2% of world supply. Another 1.5Mb/d cut, if implemented, might do the trick.. all Saudi wants, after all, is 75/b. We'll see what comes out of the Dec. 17 meeting.
Meanwhile, non-OPEC projects in Canada, as well as some in Saudi, are postponed or cancelled, while production in Mexico, Venezuela and Russia continue falling.
Enjoy the price crash... IMO the current low prices present a fabulous opportunity for investment in small US e&p's such as ARD/GPOR, just as did earlier price crashes in 1998 and 2006. Note that some companies, including the two mentioned, have hedged most of 2009 production at 88-100/b. Some sectors will recover fairly soon, some later, some never. Right now I like energies, and I'm putting my money where my mouth is. IMO Investing in energies is a hedge against future price surges.
For those that think current low prices validate their hopes that peak oil is not here or near, remember that peal oilers never said anything much about price, or how price would be affected by recession; their main point is simply that world production is at or near peak. Saudi did not even like it when prices went above 100 - they, like every other producer, brought every barrel possible to market, certainly to maximize revenue but also to restrain price. Many peak oilers have said for some time that peak is probably in 2008, and this year production is in fact up maybe 1% over 2005, the first year of the bumpy plateau. Meanwhile, exports have been falling since 2005 as exporting economies boom...
I just can't see a situation where oil revisits its previous highs. I think there is a valid argument for peak oil theory, but in relation to the price per barrel, I feel many people discount how market forces will find a solution.
It seems obvious in retrospect that $150 per barrel was an anomaly -- it has also spurred serious consideration of alternatives. Every dollar oil creeps back up is that much closer we get to using something else.
If you let the roads go to crap, all those big heavy SUVs are not going to be in high demand...
I'm keeping mine. But my SUV is the old-fashioned truck-based off-road capable kind: just the type of vehicle needed to crash through barricades when the unfed mobs start blocking intersections.
Defense and the National Interest » Page not found
The future of passenger cars for bad roads? Look at Mexico. The sedans (typically) have about an inch or two more ground clearance, a little simpler emissions systems, and attention to dust/dirt conditions for various mechanical parts.
Actually works out pretty good, and cost not nearly as high as the big SUV. It gets the job done for a LOT less money and hassle.
A few years back, there was some off-road (closed course) racing using Front Wheel Drive small sedans (mostly cheap, older stuff). Great fun to watch, and fewer break-downs than many of the "purpose built" racers (but not as fast, of course).
That was a lesson in physics, wherein smaller hits equals smaller damage, in proportion to strength of tires and suspension parts. Part of the VW beetle success story, in fact.
History repetas itself.
Look at what happened after the oil shocks of 73 and 79 but it took something like 2 years in 73 and 3 years in 79 to reach the previous growth rates.
I believe the United States has a window of opportunity to reap environmental, economic, and national security benefits from a multiyear tax on gasoline. I understand that in the midst of this recession we are trying to pump money into the economy to stimulate investment and employment and taxing people seems to be counterintuitive. But there are so many benefits to this action and the political context may never be as favorable as right now.
Despite the severe economic downturn that Americans are experiencing, one can almost sense the collective sigh of relief on Americas roadways. When gasoline hit $4.09 per gallon nationally in early July, Americans could probably never imagine that we would currently have gasoline prices under $2 per gallon. Yet, many people correctly realize that the current decline in gasoline prices is only temporary.
Even though the entire world will experience some form of an economic slowdown, global economic activity will eventually pick up led by the emerging economies in Asia and Latin America. Their thirst for oil and gasoline will only exert upward pressure on crude oil prices and eventually our increasing reliance on imported oil will make us vulnerable again.
As a society, if we were willing to look ahead and sacrifice for the future, we would support a gradual, multiyear increase in federal gasoline taxes. An increase of 10 cents per year for ten years seems affordable with some of the revenues going into the highway trust fund for the repair of roads and bridges and some used to create an alternative energy trust fund to finance wind, solar, or even help automakers produce compressed natural gas vehicles. Congress could make sure that many alternatives receive funding. This way, competition would keep a lid on price increases for any one alternative. We could distribute the money to the states (maybe each state should get the same percentage revenue it generates in gas tax collections) and let them decide which type of alternative energy source makes sense for that state.
Imagine the benefits of extra billions in capital every year! Employment in alternative energy industries would soar. We would reduce our carbon footprint significantly. We would more steadily pressure Russia, Iran, and Venezuela to avoid risky foreign adventures. In fact, speculators would stay out of the oil markets knowing the worlds largest oil consumer was determined to lower its demand. In this way wholesale oil prices would remain lower and we would feel less impact from the increased taxes.
We probably should initially exempt diesel fuel from the new taxes because of its impact on truck drivers and the cost of basic goods like food. Using some of the new tax revenues to support a new trucking fleet based on compressed natural gas, which burns cleaner than gasoline and is more widely available domestically, would further enhance employment and energy security. We could phase in the tax on diesel more slowly.
Finally, for those who chant drill, baby, drill, and think that domestic offshore drilling is the answer to our problems, how many oil companies are going to employ the capital needed to drill in deepwater and other expensive, hard-to-reach fields with gasoline under $2 per gallon? Many unconventional oil projects from Canada to Asia and Africa have been postponed in the last six months due to lower oil prices Do you think Americans are going to buy American-made small cars with gasoline under $2 per gallon. What are the prospects for a return on the bailout of the auto companies under these circumstances? It would be rather foolish of us to bail out the auto companies only to have Americans shun fuel-efficient cars because of low gasoline prices.
Now is a very propitious time to enact this measure. A very large stimulus package is about to get passed and there is an urgency about improving the economy. Why not enact a multiyear gas tax as part of a package? It could be sold as part of a down payment on paying off the debt from the stimulus and a gasoline tax would subsidize the types of spending going into the stimulus. Americans would hardly notice a small increase in the gasoline tax at this point, especially if it took effect on January 1, 2010 when the economy should be more stable. Are we going to wait until the economy starts growing again and the urgency is gone and the dramatic decrease in gasoline prices has worn off?
The big question is whether America is up to the task. The new administration will have to act decisively and creatively to avoid a severe recession in 2009. Similarly, will we support bold and innovative ideas to secure our energy future? Will we have the attention span to keep our eye on the ball now that gasoline prices are much lower? Will we be smart and start to wean ourselves more aggressively away from an oil-dependent transportation system? Or will we wait until the next run-up in oil and gasoline prices and then whine and complain when it is clear we have very little control over our destiny and we are even more vulnerable to OPEC and Russia?
It's going to take a decade to bring material amounts of BTUs from other sources, e.g. nuclear , online to replace what is generated from oil. Within that time, Cantarell and Burgan will be depleted as well most of the rest of the lower half of Gharwar. Northern tip is now depleted. Unless this worldwide recession continues for that decade, debate about what happens to oil prices is as silly as debating the eventuality of death.
I think the peak oil crowd also fails to take into account the ability of consumers and business to adjust to falling prices. With this soon to be bust, that will be 4 busts where peak oil was going to be proven correct, only to be cast aside like other peak xxxx theories....
crispy&cole 12.07.08 5:07 pm |
I am not sure that you have this right. True, people who believe in peak oil (including me) thought a consequence of peak oil would be high oil prices.
We were wrong as now seems clear with 20/20 hindsight. The most notable consequence of peak oil is a price of oil that is too low -- measured across the cycle, spike to spike, or trough to trough.
My new model of peak oil is as follows: high priced oil (caused by an inadequate supply of oil, i.e. peak oil) leads to recession. Recession leads to a fall in demand for oil and to a fall in price. Low priced oil means inadequate investment in high (post peak) marginal cost oil.
But then, inadequate investment in oil supply means that the economy, upon recover, soon hits the constraint once again of insufficient oil, and everything that follows.
The link between oil and economy becomes a hole that cannot be climbed out of. Or to say the same thing another way: an economic environment always unfavorable to adequate investment in oil supply IS peak oil.
Krugman suggested the oil price peak was mostly based on real fundamentals, and then elaborated possible wrinkles like this one: ...given the backward-bending supply curve and a steep demand curve, there are stable equilibria at both the low price PL and the high price PH."
But those who simply read extensively in market reporting in various media sources could learn that the price was driven up through more and more "investors, funds, etc" folks piling into the trade.
It was similar to any hot stock, and entirely a stock market like run up and fall, and you can see that same graph over and over.
In other words, the fun theories on this from Krugman are only entertainment, but not the best explanations.
That said, I did enjoy his theories. I would just like to see him say, "whoops" or some such, and admit the obvious.
Don, you have it exactly right.
"An increase of 10 cents per year for ten years seems affordable with some of the revenues going into the highway trust fund for the repair of roads and bridges and some used to create an alternative energy trust fund to finance wind, solar, or even help automakers produce compressed natural gas vehicles."
I've proposed similar plans, and the time to increase gasoline taxes is of course right now while the price is so low.
Also, the plan should start with a bigger step in the initial year, such as: 20 cents increase in 2009, then 10 cents/year for 10 years.
Re above:
With a rebate also -- the idea being not to increase taxes a great deal, but rather to internalize the real costs of gasoline.
For instance, adjusting the mileage deduction for businesses, and also having a simple $80 gas tax rebate on federal taxes for individuals each year, etc.
Anybody have thoughts on last nights 60 Minutes piece?
I feel the need to point out that the poster Jeffrey J. Brown, above, is a regular contributer to theoildrum.com, and is quite well respected in those circles.
I personally feel that The Oil Drum will turn out to be to Peak Oil, what Calculated Risk has turned out to be to the "subprime" meltdown. Many will no doubt scoff at the notion - but please remember that CR and Tanta were similarly scoffed at for a long time (not that this proves anything of course).
We will definitely be driving less but not if prices stay low for six months. We have a short memory.