$300 oil, very soon?

[BiscayneSunrise]

Re: $300 oil, very soon?

So the answer is: yes, we will see $300/bbl oil.

Given that the industry needs $100 Trillion in infrastructure spend and that the Obama administration is more likely to divert gov't resources and tax policies towards alternates; fossil fuel R&D, exploration and infrastructure will be neglected so the price skyrockets.

Rising fossil fuel costs drives even more people into alternates and conservation which is exactly what the current administration wants.

$300 oil. QED

[c1ue]

Re: $300 oil, very soon?

No, have you read about pebble bed reactors?

Know what happens when you have an accident?

They SHUT DOWN PASSIVELY, unless the laws of thermodynamics breaks down.

JT,

I don't want to be living in an area with no power for weeks when some idiot stumbles through the half dozen errors needed to screw up the plant.

I'm not saying this can't be prevented - but I am saying that it is unrealistic to expect to be able to cleanly shift into a brand new nuclear power paradigm without years of preparation and training.

Hundreds of mini plants might be somewhat safer, but as one in the military surely you've seen some examples of idiot-proofing being purely an imaginary capability?

The Mito incident is a fine example. 2 workers with clear instructions managed to start their very own nuclear pile in a barrel. Yes, they were stupid. Yes they were not well educated. But this was with only 55 nuclear power plants.

1000 nuclear plants or 100,000 pebble bed reactors - well, there are a lot of idiots out there.

[Sharky]

Re: $300 oil, very soon?

In other words, storage is currently going for $1.10 per barrel per month! The math is: $75,000 x 30 days = $2.25 million / 2 million barrels per tanker = $1.125 per barrel per month.

The Apr / May contango has narrowed from $2.26 on March 3 to $0.98 on March 13 (Friday's close). That's now under the per-month storage costs. Hard to imagine how oil companies will be able to continue to justify offshore storage at this point.

I'm assuming most of the oil that's being stored has already been sold into the futures market for delivery this month or next. It will be interesting to see what happens as it hits the market.

[GRG55]

Re: $300 oil, very soon?

The Apr / May contango has narrowed from $2.26 on March 3 to $0.98 on March 13 (Friday's close). That's now under the per-month storage costs. Hard to imagine how oil companies will be able to continue to justify offshore storage at this point.

I'm assuming most of the oil that's being stored has already been sold into the futures market for delivery this month or next. It will be interesting to see what happens as it hits the market.

Why do you think "the oil companies" need "offshore storage"? The producers have the cheapest storage of all...leave it in the ground. Let's understand how this game is being played here.

It was the trading entities, like Morgan Stanley, Goldman Sachs [using TARP funds ] Vitol, Glencore, etc. that were the big buyers of short term storage. Yes the trading arms of the major oil companies, such as BP, Exxon and Shell, forward sold oil and took some storage, but you need to recognize that these companies not only own storage at the key nodes, but can sell oil today for delivery next winter, and have ample opportunity to bring it out of the ground closer to the date of delivery, unlike Morgan, Goldman, etc., who have to bear the risk of buying it from one of the producers, or one of the other traders.

Every barrel that was put into floating storage was sold into the contango for future delivery. As that oil gets delivered to the end customer that already paid for it, it gets consumed. It does not "hit the market"...unless, the end users find they overcommitted the barrels they purchased, and then choose to resell some at a loss on the market. Now that is an entirely possible scenario given the widespread and chronic underestimating of the severity and rapidity of this economic decline. Further, to the degree that playing the contango caused production in late 2008 to be brought forward from 2009, the market set itself up for another leg down, especially if demand keeps shrinking because of the economic and credit situation.

[Sharky]

Re: $300 oil, very soon?

Why do you think "the oil companies" need "offshore storage"? The producers have the cheapest storage of all...leave it in the ground.

I was responding to the article on Yahoo:

http://news.yahoo.com/s/ap/20090303/...e/awash_in_oil

So oil companies and investors are stashing crude, waiting for demand to rise and the bear market to end so they can turn a profit later.

Of course who knows what they really mean by "oil companies" -- as you said, it could well be the trading entities. I'm not sure the difference really matters.

Every barrel that was put into floating storage was sold into the contango for future delivery. As that oil gets delivered to the end customer that already paid for it, it gets consumed. It does not "hit the market"...unless, the end users find they overcommitted the barrels they purchased, and then choose to resell some at a loss on the market.

My assumption was that the oil was sold into the paper market, by way of futures contracts. Not all buyers of futures contracts actually take delivery. So when I said that it "hits the market," what I meant was the effect on spot prices when paper longs sell their contracts while the holders of oil-in-storage are actually making deliveries. If there is a lot of speculation on the long side of the market, I would expect prices might decline as a result.

Also, if there is in fact a lot of oil in storage (something that I am by no means sure of), that means it has effectively been withheld from the spot market. It seems to me that would effectively create an artificial shortage, and therefore artificially high spot prices -- which would correct when supply and demand once again equalize.

Now that is an entirely possible scenario given the widespread and chronic underestimating of the severity and rapidity of this economic decline. Further, to the degree that playing the contango caused production in late 2008 to be brought forward from 2009, the market set itself up for another leg down, especially if demand keeps shrinking because of the economic and credit situation.

Good point.

[GRG55]

Re: $300 oil, very soon?

...Of course who knows what they really mean by "oil companies" -- as you said, it could well be the trading entities. I'm not sure the difference really matters...

It probably doesn't matter to you or me, because neither of us are USA taxpayers. But if we were, and we discovered that Morgan Stanley, Goldman Sachs, et al, which were allowed to convert to regulated, potentially deposit-taking banks last year, are still speculating in the oil market, and using our tax dollars in the form of TARP funding to do it...well then it might matter to us.

What happens if their speculative positions go bad? Do the US taxpayers bail them out of those losses because they are now regulated banks, and still cannot afford to be allowed to go under?

When real oil company trading desks take speculative positions and lose, rightfully nobody is expected to bail them out.

To call what is going on scandalous is an understatement.

I've posted this sentiment before, but as an outsider looking in, it's long past time that the citizens of the United States took back their republic.

[Sharky]

Re: $300 oil, very soon?

It probably doesn't matter to you or me, because neither of us are USA taxpayers. But if we were, and we discovered that Morgan Stanley, Goldman Sachs, et al, which were allowed to convert to regulated, potentially deposit-taking banks last year, are still speculating in the oil market, and using our tax dollars in the form of TARP funding to do it...well then it might matter to us.

You're quite right. From that perspective, it definitely matters. I was thinking about it more in terms of the impact of their actions on price trends.

[Glenn Black]

Re: $300 oil, very soon?

Nuclear construction is a very specialized business. The market for nuclear rated & approved valves, pipe, etc. is very expensive & limited. How long for suppliers to get up to speed? Construction companies have to have very specialized skills to build nuclear. Or perhaps we plan on issuing $500 million construction contract to Bill & Jim's Home Renovation & Construction Co.? We saw what happened at 3 Mile Island and Chernobyl, easy repeated if we go too far or too fast.

Fastest way is to take 1 standard design and duplicate it, just like building McDonald's restaurants. You better hope the design is perfect before you start or you will be having the same expensive mistake multiplied everywhere.

[Supercilious]

Re: $300 oil, very soon?

But if we were, and we discovered that Morgan Stanley, Goldman Sachs, et al, which were allowed to convert to regulated, potentially deposit-taking banks last year, are still speculating in the oil market, and using our tax dollars in the form of TARP funding to do it...well then it might matter to us.

What happens if their speculative positions go bad? Do the US taxpayers bail them out of those losses because they are now regulated banks, and still cannot afford to be allowed to go under?

When real oil company trading desks take speculative positions and lose, rightfully nobody is expected to bail them out.

To call what is going on scandalous is an understatement.

I believe you are absolutely correct here. The commodities classic speculators had an essential role for price discovery, making in most cases both producers and consumers happy, and insuring price stability.

The new financial commodities speculators (banks and hedgefund cooperatives) are a different breed. They have huge financial resources backed by the government and have overpowered the old breed of commodities speculators, they have destroyed the price discovery process and they have actually imposed a private tax on commodities which everybody else has to pay.

This couldn't have been done without at least complicity from the Fed and CFTC. And the financial commodities scam hasn't stopped when the oil price went down.

[Glenn Black]

Re: $300 oil, very soon?

Algae biofuel is still experimental, will need another 20 years for commercial production, and is significantly more expensive than $150/bbl, but after another decade (ie. 30 yrs from now) could get close to an inflation adjusted $150/bbl of 9 months ago. We're talking about huge acreage and millions of gallons in clear sky zone (ie. SW USA), with high evaporation rates. Where will the water come from?

Other areas (eg. midwest & rustbelt) only get 50% sunshine due to cloud cover, and algae biofuel is light limited. Less light, less algae, less biofuel.

Maybe farmers in arid SW will give up 50% of their water rights in trade for diesel for their tractors. But then again, most fertilizers for their crops are fossil-fuel based (oil, gas). There is a limited use for the spent algae. We need R&D on that too.

Best use is to burn dried algae as fuel in boilers, ash is left over, make electricity, use excess heat to dry/dewater algae before feeding it to boilers.

Around and around we go, where she'll stop, nobody knows.

[loweyecue]

Re: $300 oil, very soon?

bill, we all know you are correct that nuclear is the only large scale alternative at the moment.

But let's think through the possible ramifications of a carbon tax implementation. Let's assume that any such tax structure, regardless of the specifics, is motivated by a genuine desire by policy makers to discourage the use of high carbon fuels. That means that the tax has to ultimately be experienced in the retail price.



If people see their power and heating bills rising, might not this sequence happen:

1. People blame the utility company for the rising price [which suits the politicians just fine];
2. Ratepayers refuse to support the rate increases for installing new capacity including nuclear; after all who is going to support a utility that just keeps hiking your prices?
3. The desire to find a way to be independent of the utilities, already underway, accelerates further;
4. The prime beneficiaries are purveyors of microturbines, solar power systems, wood stoves, ground source heat pumps, energy conservation technologies, and so forth;
5. Nuclear continues to languish; after all who is going to support a utility that just keeps hiking your prices?

Easy isn't it? Let the Canadians do it and we'll buy it from them. So far they take all the environmental impact of producing oil so we can consume it, why not do the same for nuclear energy?

[due_indigence]

Re: $300 oil, very soon?

Don't know if it's been posted earlier, but here's the latest presentation (in PDF) from Matthew Simmons. Lower prices are catastrophic and, paradoxically, will only sling-shot prices higher. Of course peak oil is still a minority view in the industry, as I understand it.

http://www.simmonsco-intl.com/files/...f%20Boston.pdf