Peak oil hits the air waves

[Starving Steve]

Re: Peak oil hits the air waves

Trust me on this:

The Islamo-fascists now running Iran are crazy enough to use an atomic bomb. These fundamentalists are living in the next world, not this world.

Think about this for a while, and have a nice day.

[*T*]

Re: Peak oil hits the air waves

Trust me on this:

The Islamo-fascists now running Iran are crazy enough to use an atomic bomb. These fundamentalists are living in the next world, not this world.

Think about this for a while, and have a nice day.

Why should I trust the opinion of someone whose justification for attacking a country is because 'they might have funded al-Qaeda'? A country who has not invaded any other, in modern times, for that matter? Unlike some I might mention.

If you are going to take a position that would involve massive loss of life, I would hope for something more substantial than wild accusation (though I admit is was enough in the case of Iraq)

[Wild Style]

Re: Peak oil hits the air waves

I think your point is well taken: The flyers who flew perpetrated 9/11 were from Saudi Arabia, not Iran.

However, the Iranians have been aiding the Islamo-fascists in Iraq, Syria, Lebanon, and Gaza. They fund Hesobollah and Hamas. And they might be funding Al Qaide, as well.

Trying to pin-down who is responsible for what is problematic in the Middle East, so I think you have made your point: Who do we give the bill for terrorism to, and for exactly what deeds?

If we might give a bill for 9/11 to the Saudis, they would answer that the 9/11 terrorists were criminals and not acting on behalf of the Saudi Arabian government.

So, here we are now, summer 2008, and no further ahead in solving the crime of 9/11 than on the day it happened. And for this lack of progress, one can blame the ineptness of the Bush Administration.

But this is the nature of the game with the terrorists in the Middle East: They all work more or less together, but as guerillas and in independent groups; they act covertly; they lie about everything; they are brutal; they take responsiblility for nothing; and they can act independent of a host nation's armed forces, often without even the knowledge of a host nation. And the terrorists move from state to state, committing crimes in one nation and then fleeing to another nation as a refuge.

This is how the terrorists fight..... Bush should have known this from the start and before he committed troops to Iraq.

Thank you for your post.

Al Qa'ida is a extreme wahabi based movement who abhor Shi'a Islam and think they are heretical. Iran = Shi'a so the Al Qa'ida/Iran theory doesn't make much sense in that regard.

[Verrocchio]

Re: Peak oil hits the air waves

Why should I trust the opinion of someone whose justification for attacking a country is because 'they might have funded al-Qaeda'? A country who has not invaded any other, in modern times, for that matter? Unlike some I might mention.

*T*, you and Wild Style, Shakespear, and others have adequately -- and perhaps necessarily -- disposed of SS' artless contentions about Iran. Perhaps we can now return to the more difficult task of speculation versus peak oil, the implicit question posed by Krakknisse as he began this thread. To put it directly, how much of the current price of crude is due to speculation? Speaking of Iran, recent reports indicate that Iran is leasing oil tankers to stockpile some of their crude instead of sending it to market, thus nudging pricer higher. What do you think?

[krakknisse]

Re: Peak oil hits the air waves

*T*, you and Wild Style, Shakespear, and others have adequately -- and perhaps necessarily -- disposed of SS' artless contentions about Iran. Perhaps we can now return to the more difficult task of speculation versus peak oil, the implicit question posed by Krakknisse as he began this thread. To put it directly, how much of the current price of crude is due to speculation? Speaking of Iran, recent reports indicate that Iran is leasing oil tankers to stockpile some of their crude instead of sending it to market, thus nudging pricer higher. What do you think?

Thanks! I was hoping to avoid going a debate on the unwinnable war on terror. I don't have a lot of data on peak oil. The North Sea has peaked, and individual peaks are not hard to find. But the trillion dollar question is whether the new price impetus will lead to new mega-reserves being found. Tupi is significant, but the technical challenges are very significant. My $0.02 is a hunch that a large portion of the current action is a flight to real value, i.e. "speculation". But I don't think we'll ever see USD 50/barrel again (2008 dollars). That's the peak oil putting a "floor" on the price.

[Guest]

Re: Peak oil hits the air waves

... Perhaps we can now return to the more difficult task of speculation versus peak oil ... how much of the current price of crude is due to speculation? Speaking of Iran, recent reports indicate that Iran is leasing oil tankers to stockpile some of their crude instead of sending it to market, thus nudging pricer higher. What do you think?

John Mauldin's "Outside the Box" called in some interesting opinions on the price quotient inherent in "speculation". The conclusion of Bob Greer from PIMCO was that they notably add to volatility, but a great deal less than expected upon price. An interesting explanation of why futures markets impinge upon physical stockpiles only marginally, and this is a point to take note of:

Those Nasty Index Speculators

....

So, a hedge fund could buy $500 million worth of wheat, which would be way beyond the actual market position limit, through a swap with a Wall Street bank, without having to worry about position limits. And there is no doubt that large purchases of any commodity will drive up prices, at least in the short term.

What does Masters think Congress should do? Prohibit pension funds from commodity index buying, close the swaps loophole on speculative positions, and make the CFTC (Commodity Futures Trading Commission) provide more transparency as to who is buying commodities. That would stop those nasty index speculators from driving up food and energy prices. Prices would come back down and we could all go back to driving our SUVs without having to worry about the cost.

Well, then, maybe not. It is not that simple. While there is no doubt that excess demand in the form of index buying can have a very real effect -on prices, it is not the whole story.

What an index funds does is buy a futures contract for a given commodity when money is first invested. Say that contract is six months out. When the contract is one month from expiration or delivery, the index fund sells that contract and buys another contract six months out. They sell before the contract could have an effect on the cash price of the physical commodity. The cash price is determined by supply and demand.

Let's look at supply. Masters mentioned wheat. Yes, the index speculators have built up a large futures position. But that is not the same as a large physical position. With demand soaring abroad and droughts crimping supply, the world's wheat stockpiles have fallen to their lowest level in 30 years, and stocks in the United States have dropped to levels unseen since 1948. That could go a long way to explaining rising wheat prices.

Corn? The USDA is expected to report corn stocks for the year ending Aug. 31, 2009, to fall to 685 million bushels, according to analysts surveyed by Thomson Reuters, down 47% from 1.283 billion bushels in 2008. The corn crop season ends on Aug. 31. (They expect wheat and soybean stocks to rise, for which we can be thankful.)

Bob Greer, executive vice president at PIMCO, rebuts Masters arguments in a very cogent paper recently sent to me. He argues that index funds do not affect the price but may contribute to volatility.

"Some market observers have tried to tie the level of inventories to index investment, most notably in crude oil. Their arguments take one of two forms:

"1) The indexer's act of selling the nearby and buying the distant contract forces the futures curve to be upward sloping (future price is higher than nearby price). This creates an incentive to own inventories and earn the "return to storage" represented by the slope of the futures curve. The act of increasing inventory keeps the commodity off the market, thus decreasing supply.

"2) A variation of the above argument is that the short seller, who takes the other side of the indexer's purchase, needs to protect their position by buying and holding the physical commodity.

"It would be nice if either of these arguments were true, in which case, the developed world would not be hostage to the Organization of the Petroleum Exporting Countries (OPEC). Any time we needed to increase crude inventories, we need merely to bring in more indexers, and the inventory would appear. In fact, the explanation for inventory levels of any commodity is much simpler. If, in the cash markets, production exceeds demand, inventories will rise. Otherwise they will fall.

That is why, in six of the last eight years, global wheat inventories fell, regardless of index investment (USDA). That is why from 2006 to 2008, crude oil inventories declined and the crude oil curve went from upward sloping to downward sloping, in spite of increasing index investment (EIA). Furthermore, the second argument above breaks down when applied to non-storable commodities such as live cattle."

Further, Greer shows a chart from Deutsche Bank which highlights the fact that many commodities which are not in the index fund portfolios have risen higher than exchange-traded commodities (rice, for instance). Look at the chart below:

Greer concludes with these important paragraphs:

"Regarding intrinsic value, commodity futures prices converge to cash prices, and cash prices are set by the level of demand to consume physical goods such as steak, gasoline, and Wheaties. The price setting mechanism is not based on possibly erroneous assessment of a financial statement, nor on irrational exuberance. In commodities there is an outside measure of intrinsic value--the cash market--that is not dominant in equity, real estate, or tulip bulb markets. As actual commodity prices go higher or lower, they reflect consumption requirements for actual products, many of which are not very storable.

"This is a sharp contrast from internet stocks or vacation condos, which are subject to speculative bubbles. Unfortunately, our conventional wisdom regarding factors that create bubbles is rooted in asset classes like stocks and real estate, asset classes that have fundamentally different characteristics than physical and futures markets.

"Coincidence is not the same thing as causality. It is a coincidence that commodity index investment has increased in the last few years just as commodity prices have increased. If there is any causality, it is the other way around. Rising commodity prices have caused an increased interest in commodity investment. And it is certainly causality that fundamental supply, demand and inventory factors have driven commodity prices in many markets higher, whether or not those are markets in which index investors participate. This is the same causality that has driven commodity prices both higher and lower for many decades."

[Slimprofits]

Re: Peak oil hits the air waves

To put it directly, how much of the current price of crude is due to speculation?

How much confidence can one have in the validity on the production data from both OPEC and non-OPEC countries? That question should be dealt with first.

[Verrocchio]

Re: Peak oil hits the air waves

How much confidence can one have in the validity on the production data from both OPEC and non-OPEC countries? That question should be dealt with first.

Validity of data is a prior question when entering a serious discussion, indeed! Oil production can be observed, either when it appears on the market or otherwise consumed. The fly in the ointment in estimating validity of data for this question seems to me to concern data on oil reserves. Saudi stated oil reserves, for example, have been called propaganda. Perhaps the new study by the International Energy Agency will shed some light on this.

[Shakespear]

Re: Peak oil hits the air waves

As a petroleum engineer I tend to work on the micro scale of the industry. Namely the field level. 40 to 100 wells perhaps in the field.

Thus my view of the Oil and Gas Industry was narrow. However in 2000 I happened on the curve that is show at this link and is titled Fig. 4.

http://www.theoildrum.com/node/3623

Fig 4 - World Discoveries (source ASPO Ireland Newsletter No. 80, August 2007)

The above mentioned figure was updated obviously however seeing the trend in decreasing cumulative discoveries with time convinced me that we had a serious problem. Within the industry no one was getting worried as at my level and somewhat above nothing was heard. At least I never heard anything from my friends about Peak Oil issue.

Then about 2003 my manager asked me to find information about world production and discovery trends. He asked me this as we discussed this once over lunch. I am convinced that around this time within my company this topic was of interest. It may have been just to see what level of activity to expect in the future, but never the less this sort of data was being looked over withing the company. I worked at that time for the industry leading oil service company.

I recall that I directed him to the dieoff.org web site which was the first place where I saw this topic discussed. The site had graphs of production trends by country which showed the issue even better.

I would not put my money on USGA , IEA or such think tanks. They are politicized too much and will not ring alarm bells when need to. They have done sh*** all this time in my opinion so I don't expect timely warning from them. When they do it will only be because the problem can not be hidden. At this moment I would say the issue can not be hidden or ignored any longer as the price of oil will not allow it.

We have a problem my friends !!!

[Guest]

Re: Peak oil hits the air waves

As a petroleum engineer I tend to work on the micro scale of the industry ... in 2000 I happened on the curve that is show at this link and is titled Fig. 4. ... At this moment I would say the issue can not be hidden or ignored any longer as the price of oil will not allow it. ... We have a problem my friends !!!

Hear hear. And what you describe will likely emerge to be a problem of such a scale (and potential havoc) as to make the collapsing dollar and all it's hugely over-studied corollaries look about as significant as a gnat's fart in the course of the next 20 year's history.

[Shakespear]

Re: Peak oil hits the air waves

Sarkozy: "Demand for oil is stronger and stronger and supply is increasing very little, if at all"