The Era of "easy oil" is over

BACKFRMTHEEDGE

Conrad wrote: »

Quite fancy opening a funky sweet shop, employing a sustainable, ethical model where possible, although that will be lost on 95% of the 'Mums gone to Iceland' type customers:rolleyes:

:rotfl::rotfl:Good Luck with that...:rotfl::rotfl:Ethical sweets - whatever next? Ethical Banks - now there's a novel idea!

BACKFRMTHEEDGE

tradetime wrote: »

It's not necessary to store lakes of oil to speculate in it, the speculation is done in futures contracts, the purchaser of the contract has no use for oil other than its speculative value so the contract is rolled over before expiry so no physical delivery takes place. As long as there is real belief that the price will continue to rise. Now make no mistake, this is not speculation that has driven oil from $30 pbl, to where it is now, there is strong demand also, and quite tight supply, justnot to the extent for prices to be up here. IMHO oil should be somewhere around $70 - $90 pbl

But if there wasn't the demand then you would have to take delivery of it. So it's demand driven as there is someone prepared to pay that price (even if they are buying from the speculators), isn't it? The speculators are just taking a cut for their part in the deal?

Oil is now a shade of $145....

harryhound

Hydrocarbons are a necessity of life in most of the world now. Transport, heating/cooling, food (fertiliser & pesticides) and high performance plastics all depend on cheap hydrocarbons.
In the medium term (say 3 years) there is very little, save a world slump, that can reduce demand or increase the availability of these magic minerals.
(It is far from a perfect market - I vividly remember the chaos in the market in the 1970's).
The refinery capacity has not grown in line with demand so even if the producers pumped more it cannot be processed. Lets face it, what is the incentive for a desert country or a multi national oil company to increase supply and reduce the price created by inelastic demand ESPECIALLY WHEN YOU BOTH KNOW THE STUFF IS RUNNING OUT. The logical thing to do is to dribble out just enough of the drug to us consumer junkies to keep the rich amongst us alive and relatively healthy. Don't blame the speculators, they can see that this is the reality and are just trying to get a bit of the action by BRINGING FORWARD IN TIME, by (say) 6 months, the inevitable price rises. The danger of course is that the producers, the refiners and the speculators will so weaken the junky economies that they do indeed become very sick and the demand will fall.
So who has been irresponsible and got us in this position? I think the major blame goes to our governmentS. Who organised a smash and grab raid on North Sea hydrocarbons, switched power generation to gas turbines (and boasted about the carbon savings), and finally organised a war to get more oil and got less.
Back to the 1970's but with 2.5 billion extra mouths to fill (would have been 2.9 billion if it were not for the Chinese birth control policies?).

Must go now, I'm renovating an old bike, so we can become a two bike household; as if that will make much of a difference.

moanymoany

I grew up in the 50's and 60's. My family used very little oil based products compared to now.

Electricity was made by burning coal, Gas was made from coal, our heating was burning coal. While the fire was on we had hot water and cooked in the side oven and kettle and pans over the fire. Shopping was put into paper bags and carrier bags were made from paper. We took shopping bags with us to put purchases in, bottles were glass.

Shopping was done locally, transport was public, walking or cycling. We never went far.

We used very little electricity as we had few gadgets and appliances. We paid by putting shillings in the meter.

Milk was delivered in an battery run milk float.

My dh lived through most of the 50's with no electricity or gas. The only mod con was one tap with cold water. The loo was a 'long drop' which was a hole in the ground with a plank that had a hole in it. This was so his parents could save the deposit for a house.

It can be done, I would rather not, but we could use glass, natural fibres, more bikes, more paper. These are re-cyclable and/or renewable. I hope we can find other ways round any problems than public disorder and mayhem.

harryhound

I don't think there is enough food to go round if we were to try to regress to an "organic" 50's life style.
50% more mouths to feed.

tradetime

BACKFRMTHEEDGE wrote: »

But if there wasn't the demand then you would have to take delivery of it. So it's demand driven as there is someone prepared to pay that price (even if they are buying from the speculators), isn't it? The speculators are just taking a cut for their part in the deal?

Oil is now a shade of $145....

Understand your point, and yes it is demand driven up to a point, but not to the current point. Remember speculators are dealing in derrivatives here, not the underlying. You have to understand the players involved.

1.) The buyers, that is the people who need oil, and will buy the underlying regardless
2.) The speculators, they only require the contracts, they do not want the underlying they have no use for it.
3.) The producers, yes they're actually players in the market too.

So to set the scene, you have strong demand matched by a fairly tight supply, particularly given the bulk of that supply is controlled by a cartel no question about that, anyone who tries to tell you otherwise is mis-guided.

Now let's say, to keep numbers simple that production is 10x and demand is 9x, where (x) is whatever you want it to be, doesn't matter.
Now that demand is real, so you see demand / supply is quite tight, and will obviously vary up and down, but as a producer you will have maybe 2x in storage.
Now enter some speculators, and they add 2x - 3x to the demand, so now demand is 11x - 12x against 10x supply so competition at the bid will push up price.
Now to your point, as the contracts come to expiry, much of them will take delivery because they are real demand, the speculative demand will go one of two ways; in a any speculative market the speculators fall into two groups, those who believe price will rise, and those who believe it will fall, the former are "long futures" the latter are "short futures", as we appraoch expiry they must close those "short" positions by buying contracts. The remainder are simply rolled into the next front month. (there is no requirement for extra demand to roll a futures contract.)
Where are your oil lakes? They're in the ground where they've always been, the producers simply don't pump oil for which there is no real demand, the oil producers such as OPEC have been very clear about this, as Al Naimi has said repeatedly they will not pump oil for which there is no real demand.
All this works, as long as demand / supply remains fairly balanced, and confidence that the price will continue to rise remains intact.

Jonbvn

I find politicians requests to just pump more oil quite laughable. Are they really so naive as to think it is like adjusting your central heating thermostat?

Even disregarding the amount of proven reserves in the ground, it takes years to develop the facilities to extract, store, transport and refine the oil & gas. At present, the majority of oil & gas infrastructure in use was built for $20/barrel oil.

moanymoany

harryhound wrote: »

I don't think there is enough food to go round if we were to try to regress to an "organic" 50's life style.
50% more mouths to feed.

Food in the 50's wasn't organic - never heard of DDT? Also, what we ate was pretty mundane and was mainly what was grown locally and in season. Otherwise it was tinned peas, carrots or tomatoes and dried peas.

Conrad

moanymoany wrote: »

I grew up in the 50's and 60's. My family used very little oil based products compared to now.

And oil is just the tip of the iceberg.

For UK demand alone, several million fish / clams and other marine creatures are taken from the sea every week. People swill back chineese noodles full of marine creatures, health conscious ladies consume Tuna, Mackerel, Sole, Skate and so on without a seconds thought.

Do we not stop for just a second to wonder what will happen if we all keep consuming our tiny planets prescious gifts?:eek:

harryhound

And what a disaster DDT turned out to be - "Silent Spring" style"
In the 50's the typical farmer with his "little red tractor" got about a ton of grain to the acre. Now with huge 4 wheel drive computerised tackle, tax free diesel, fertilisers herbicides and pesticides and special seeds designed for these inputs, 3 ton is perfectly routine.
BUT it is all very high tech and requires constant reinvestment and research.
Are we running to stay standing still and will we always be able to maintain these inputs?
I for one don't want to end up on a diet of porridge like the poor of Africa.