Well, barring a major geopolitical event in the next two days, it looks like my bet on 100$/bl oil by the end of this year will be conclusively lost. I will announce the winner of the price forecast contest (from both the DailyKos thread and the Eurotrib thread) from last August this weekend or early next week, but, undaunted, I'd like to take bets on 2006.
This time, I have four questions. Each will have, like this year, a prize consisting of a bottle of, at your choice, French champagne or whiskey.
I'll kindly ask that you recommend this diary so that as many people as possible can take the bet.
Oil is currently around 56-57$/bl (the above graph is for Brent, from oilnergy.com), and briefly touched 70$/bl right after Katrina hit. So, pretty impressive prices, but not quite 100$/bl yet. Natural gas prices got closer, with prices briefly going over 90$/boe (barrel of oil equivalent - use the price per mbtu and multiply by 5.9) in early December, but that's not what we bet on...
With hindsight, the natural gas story has been even more dramatic than the oil one, with still a fairly high probability of shortages this winter in both the USA and the UK, following the faster than expected decline of domestic production and the extensive damage to Gulf of Mexico infrastructure by Katrina and Rita. This year is the year that the bright future of gas-fired power plants met an untimely death, which begs the question of what will replace it - wind (but to what extent?), coal (but whither emissions and global warming?), nuclear (but what do we do with the waste?).
But the lessons on the oil front are not very encouraging.
- first, the trend, taken over a long period, looks pretty bad:
- second, the price increases, unlike in previous years, have been caused by demand growth, and not by (mostly artificial) supply shortages. Supply is now barely coping to follow demand, and spare capacity remains extremely low, thus putting the markets in danger from any crisis or unexpected event (terrorist attack, strike, accident in a critical facility, weather event, etc...). OPEC is enjoying its relative powerlessness to bring prices down, and is not investing to add capacity, and neither are, it seems, many other countries. Oil majors are being squeezed increasingly by host countries, and are having a difficult time replacing their reserves;
- third, the price increases this year have not prevented demand from still growing. This confirms the expectations that oil demand is very much price-inelastic (i.e. it varies little with price), and thus that much bigger price increases will be needed if we end up needing actual demand destruction. 2005 has seen very mild demand growth from China after the records in 2004
but this is unlikely to last with the continuing strong growth of that country and the increasing numbers of Chinese people able to afford a car.
- What will be the highest price for oil in 2006? (As usual, you may choose your benchmark. If not provided, WTI will be the default option). And as an additional twist to that question (to be used to determine the winner if needed), what will be the proximate cause of that high?
- What will be the year-end price for oil in late December 2006?
- Same questions for natural gas: year high, and end-year prices, in $/mbtu, using Henry Hub (prices in $/boe will be accepted as well)
- On what date will 100$/bl oil be reached? And same addendum - what will be the proximate cause?
My own bet:
- Highest: 240$/bl, after a US bombing raid on Iranian nuclear facilities, in October
- Year-end 90$/bl
- Natgas highest: 25$/mbtu after a cold spell in March. Year-end: 17$/mbtu
- 100$/bl oil reached in October
Earlier "Countdown Diaries":
Countdown to 100$ oil (18) - OPEC happy with oil above 50$
Countdown to 100$ oil (17) - Does it matter politically? A naked appeal for your support
Countdown to 100$ oil (16) - We'll know on Monday
Countdown to 100$ oil (15) - the impact on your electricity bill
Countdown to 100$ oil (14) - Greenspan acknoweldges peak oil
Countdown to 100$ oil (13) - Katrina strikes / refinery crisis
Countdown to 100$ oil (12) - Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) - it's Greenspan's fault!
Countdown to 100$ oil (10) - Simmons says 300$ soon - and more
Countdown to 100$ oil (9) - I am taking bets
Countdown to 100$ oil (8) - just raw data
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1)