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View Diary: The 4 biggest oil fields in the world are in decline (197 comments)

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  •  True (none)
    But I don't see how this answers the question.  Traders act out of self interest.  The fact of the matter is the economy needs the oil right now to run, well, everything.  How is demand going to drop, especially with India and China coming on line.  No, this just isn't possible.  More people wanting fewer resources - that spells higher prices.  The markets should be reacting if all this were true.  It all sounds logical and there's no doubt that we'll eventually hit this wall.  But sometimes it makes sense to follow the money.  Are we just being selective with evidence?
    •  No. (none)
      Here's the best analogy I can think of.  The guy who cut down the last tree on Easter Island could see the entire island from where he was standing.  He knew it was the last tree and he cut the damn thing down anyway.

      That's how markets react to a declining natural resource.  Markets are based on immediate scarcity.  Literally, sometimes scarcity won't happen until the damn stuff is just about gone.  Increasing prices will cause a drop in consumption, thus a drop in price.  We'll never have cheap oil again, but we will have periods of tolerably priced oil.  The winter wasn't too bad this year and people pulled back on their driving.  But this summer we could see $3.00 a gallon if people are running air conditioners and taking advantage of an early spring to do a little vacationing.  Not to mention the results of a hurricane season that has never really ended.

      I don't the the global economy - it least in the next decade - could handle $100 a barrel oil.  As soon as the price of oil begins to drain the economy people will curb their driving - the biggest depleter of the resource.  

      Unlike that guy on Easter Island, we really don't know how many trees we have left.  We might have ten, we might have a thousand.  Because of that, the market will react as if we have more, not less.  

      No one can terrorize a whole nation, unless we are all his accomplices. - Edward R. Murrow

      by CrazyHorse on Thu Jan 26, 2006 at 07:41:29 AM PST

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      •  Obviously (none)
        Its not going to run in one straight line upwards, and there will be variations in different places, times, etc.  But NOBODY is projecting world oil demand to decline, under any foreseeable scenario.  In fact quite the opposite, with dramatic, impossible to satisfy, increases expected by 2025.  In order to react to higher prices, don't you first need to see higher prices?  

        The world economy is an oil economy, and taking less family vacations to the Jersey shore in the SUV is not going to lower global oil demand.  If supply is peaking now, how does this add up to lower prices?  I don't know enough about it, maybe there already is an inflationary premium built into the current price.  But the standard line is that the market accepts the Saudis assurances of almost unlimited increasing production.  If so, then all this news should be cracking that facade.

        •  We can cut back a lot... (none)
          I think the world economy can easily handle $100 oil.  It's not going to fall apart.  But we're going to need to develop alternatives fast.  Adjusted for inflation oil was about $80 a barrel in the 80s.  

          Now, when we're talking about $200-$300 oil, yes that could be a problem.  But you could make a lot of profits before then.

          I think the reason that "traders" are not interested is because most traders are short-term oriented and peak oil is still perceived as a ways off.  Also many people still don't believe in peak oil, etc.  

          This is just an example that contrary to the utter BS spouted by some economists, the markets are not all knowing and all seeing.  They'll recognize the problem eventually, but it may take a while.  And when it does it will turn into a panic and oil will sky rocket.  

          In Britain they admit to having royalty. In the United States we pretend we don't have any, and then we elect them president.

          by Asak on Thu Jan 26, 2006 at 04:18:35 PM PST

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      •  Last tree (none)
        No, the last few trees on Easter Island were carefully preserved, tended, worshipped even. But there were too few of them to have the genetic diversity needed to survive mutations in common tree pathogens, so they died out anyway.

        That's close to where we are with nature now.

        (Yes, I just made that up. But it's likely-enough true. It was a lost cause by the time they were down to one tree anyway.)

    •  I don't think so (none)
      If 20% of the currently employed people in this country lose their jobs, you will see a significant reduction in oil consumption in the US.  People will also stop buying imports and 100 million people in China will no longer have a job.

      This will cause panic selling of oil contracts, and the price of oil will drop to $30/barrel.  The low price may only last a few months, but if you are betting on prices only going up, you are screwed.

      In spite of what I just wrote, Traders have decided that prices are increasing permanently.  Until just recently, futures prices reflected the expectation that prices will go down and were lower than the current prices at that time.  The market has now reacted, and future prices are as high or higher than current levels.

      •  Futures Prices (none)
        Yesterday's settlement prices for light sweet crude on the NYMEX:

        FEBRUARY , 2006  68.35
        MARCH    , 2006  65.85
        APRIL    , 2006  66.48
        MAY      , 2006  66.93
        JUNE     , 2006  67.28
        JULY     , 2006  67.54
        AUGUST   , 2006  67.75
        SEPTEMBER, 2006  67.90
        OCTOBER  , 2006  68.02
        NOVEMBER , 2006  68.11
        DECEMBER , 2006  68.18
        JANUARY  , 2007  68.23
        FEBRUARY , 2007  68.24
        MARCH    , 2007  68.24
        APRIL    , 2007  68.23
        MAY      , 2007  68.19
        JUNE     , 2007  68.14
        JULY     , 2007  68.09
        AUGUST   , 2007  68.00
        SEPTEMBER, 2007     67.89
        OCTOBER  , 2007     67.76
        NOVEMBER , 2007     67.60
        DECEMBER , 2007     67.44
        JANUARY  , 2008     67.29
        FEBRUARY , 2008     67.15
        MARCH    , 2008     67.02
        APRIL    , 2008     66.89
        MAY      , 2008     66.76
        JUNE     , 2008     66.64
        DECEMBER , 2008     65.84
        DECEMBER , 2009     64.44
        DECEMBER , 2010     63.22
        DECEMBER , 2011     62.37
        DECEMBER , 2012     61.87

        Not making any particular point here, just thought folks would like to see them.

        Our planet's youngest civilization has invaded its oldest... this can't be good...

        by Irfo on Thu Jan 26, 2006 at 01:08:25 PM PST

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        •  What's with the steep fall off at the end? (none)
          •  Beats Me (none)
            But they trade pretty actively even that far out, so that's where the market's really valuing oil years from now.

            Our planet's youngest civilization has invaded its oldest... this can't be good...

            by Irfo on Thu Jan 26, 2006 at 05:39:31 PM PST

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          •  Not steep at all (none)
            Until a copule of years ago, long term oil futures always drifted down back to 20$ or so, the expected long term price. In 2000, when there was a first spike in spot prices, the long end did not move. The fact that long term prices are expected to remain above 60$ for the foreseeable future is a HUGE change in market perception. Now 65 or 62 is a very tiny difference so many years away.

            In the long run, we're all dead (Keynes)
            Read more on the European Tribune - bringing dKos to Europe

            by Jerome a Paris on Fri Jan 27, 2006 at 12:49:23 AM PST

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