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Countdown to $100 oil (26) - Time to bet again

by Jerome a Paris Wed Apr 19th, 2006 at 03:58:45 AM EST

With oil prices now above 70$/bbl, and 25 diaries later, it's time to take a look back at the "Countdown to $100 oil" series and see if we can learn anything - and update your bets.

graph from wtrg.com

from the diaries


I started the series on June 20 last year, as oil prices were about to reach 60$/bl:

Countdown to 100$ oil (1) (eurotrib)
Countdown to 100$ oil (1) (dKos)

So, going from 60$/bl to 70$/bl in a year doesn't seem too impressive, right? Should we expect to need another 3 years or so to get to $100? Another way to look at it is that oil prices increased for a short two months after my first diary, and have since been moving sideways, which means that we may never reach $100. Of course, one could also consider that we are now due another spurt of growth of the price, and thus $100 is just around the corner...

Or you can take a longer perspective...

I'd like to point out a few things, though:

- one is that prices have not been lower at any point than what they were when I started the series (57-59$/bl). So we're getting close to a full year at $60+ oil prices, and that level now seems "normal". As I noted in Diary 24, what has been remarkable is how quickly the financial world has accepted significantly higher prices as a reasonable long term hypothesis. The future markets are still pointing to $60 oil for the foreseeable future, and investors and financiers are willing to provide money for projects on the basis of such high prices for income modellisation purposes;

- the second item is that the man cause of the oil price tensions a year ago - tightness of supply, an increased sensitivity to any disturbance to supply shocks, and an apparent inability by the main producers to boost their production - are still with us; if anything they have all gotten worse. Nigeria was a problem then, it is a problem today. OPEC has not increased its production in the past year:

(both tables from CGES);

Overall production seems to be plateauing, as discussed over at the Oil Drum

:;

- the last item to note is that despite such high ol prices, not only has demand not plateaued, but it is expected to increase at an even faster pace in  2006 than in 2005, according to the latest estimates by the International Energy Agency, thus guaranteeing more strain on the supply side.

- also, we can note that a number of commodities are reaching record high prices, and these increases feed one another in a vicious circle.

As a note, we haven't yet had a really big external shock on the oil market - i.e. an event (strike, weather, accident, political decision) that would take out a couple million barrels per day of production from the markets. We've had a number of smaller events (strife in Nigeria, Katrina) that have each brought prices up brutally when they took place, but none was of a scale to completely destabilise the market. The shananigans around Iran clearly have the potential for that, and the markets reflect that as well (a probability of the event taking place multiplied by its potential impact brings a real price increase).

So, all things considered, would you like to update your bets? The existing bets are in these threads: they will be honored unless updated in today's thread (under the same screen name, of course).

Countdown to 100$ oil (19) - Your bets for 2006 (Eurotrib)
Countdown to 100$ oil (19) - Your bets for 2006 (DailyKos)

Same questions as last time:


- 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 was as follows, and I'll stick to it:

- 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 (25) - Iran vows that oil prices will not go down
Countdown to $100 oil (24) - What markets are telling us about future energy prices
Countdown to $100 oil (23) - Running out of natural gas in North America
Countdown to 100$ oil (22) - gas shortages in the UK - 240$/boe
Countdown to 100$ oil (21bis) - long term vs short term worries (dKos)
Countdown to 100$ oil (21) - 8-page extravaganza in the Independent: 'we're doomed'
Countdown to 100$ oil (20) - Meteor Blades is Da Man in 2005
Countdown to 100$ oil (19) - Your bets for 2006 (Eurotrib)
Countdown to 100$ oil (19) - Your bets for 2006 (DailyKos)
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 (eurotrib)
Countdown to 100$ oil (9) - I am taking bets (dKos)
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) (eurotrib)
Countdown to 100$ oil (1) (dKos)

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Crossposted on dKos: Countdown to $100 oil (26) - Time to bet again

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Apr 18th, 2006 at 05:39:45 PM EST
This being a diary, so it can be recommended, why do you need a statistical tip jar?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 05:45:59 AM EST
[ Parent ]
For statistical purposes!

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 19th, 2006 at 06:10:26 AM EST
[ Parent ]
But you could just count recommendations, the lack of recommndations for front-page 'stories' was your original justification ;-)

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 06:36:31 AM EST
[ Parent ]
True. This was meant as a front page story, but got posted as a diary because the FP was then full. And then I don't control what the gnomes do...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 19th, 2006 at 07:26:56 AM EST
[ Parent ]
I am of the opinion that you should just write diaries and let other front-pagers promote them. Or just promote your own diaries, what difference does it make, other than to give people the chance to recommend?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 07:29:18 AM EST
[ Parent ]
you have all bet already and are all happy with your existing bets?

Remember there's a bottle of champagne to be won!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Apr 19th, 2006 at 05:36:38 AM EST
I'll stick to what I said back then...
This is just because I have to choose something different from your bet, which I find completely reasonable except for the $240...


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 05:44:53 AM EST
[ Parent ]
Now you tell me. True to cultural heritage I must place a bet when there is alcoholic beverages at stake, even if I lack knowledge of what I am betting at. Is the winner chosen based on one or more of this numbers?

  • Highest: 105.23$/bl, just before US backs down from its threathening posture versus Iran. Late september.
  • Year-end 78.34$/bl
  • Natgas highest: 25$/mbtu after a cold spell in March. Year-end: 15.33$/mbtu
  • 100$/bl oil reached September 23rd.

Kept your highest on natgas, as I presume that cold spell actually happened.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!
by A swedish kind of death on Wed Apr 19th, 2006 at 07:53:24 AM EST
[ Parent ]

High oil prices curbing growth, warns Opec

Opec warned on Tuesday that soaring oil prices were slowing global economic growth as one of its most vocal members admitted there was little the group could do to reduce prices from yesterday's record highs.

"It is obvious that Opec does not have a magic wand ... Opec is doing all it can regarding oil production" Abdullah al-Attiyah, Qatar's energy minister, said.

(...)

Oil reached record highs of $72.51 a barrel in London on Tuesday and $71.35 in New York on speculation that Iran's nuclear stand-off with the west could lead to military action, sanctions or a retaliatory oil supply cut-off by Tehran.

Asked whether the US would consider a nuclear strike against Iran on Tuesday, Mr Bush said: "All options are on the table."

(...)

Iran produces about 4m b/d, an amount Opec, which supplies 40 per cent of the world's oil, could not make up in case of a shortfall because its spare oil capacity has dwindled as demand has outpaced investments in new infrastructure over the past six years.

Analysts and oil traders do not see an imminent interruption of Iran's oil supplies. But they said that if it were to happen, it could send oil prices to more than $100 a barrel - a possibility that has prompted a growing number of speculators in the US and Europe to buy oil futures contracts and drive up prices.

Countdown on...
Although one wonders what capitalists are doing - prices are up and yet they are not investing... What is wrong with the markets?!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Apr 19th, 2006 at 05:40:36 AM EST
I'm curious as to your views on yesterday's John Dizard article in the FT, and the WSJ article ( excerpted at oil wars ), both of which are arguing for a collapse in the oil price "bubble".

They strike me as attempts to talk the market down off this week's highs, but I can't really evaluate their assumptions about contango/backwardation.

I'm also curious about the fact that spot prices for Brent  have overtaken the NY price - I can't recall ever seeing this happen.

by londanium on Wed Apr 19th, 2006 at 07:42:38 AM EST
Two questions:

  1. Is the IPE Brent Crude price depicted on the graph in current dollars (adjusted for inflation) or nominal value? If the latter, are there any similar graphs in adjusted for inflation prices (i.e. constant 1998 dollars)?

  2. Taking inflation into account, is this current price higher than the peak reached during the '70s oil embargo?


The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Apr 19th, 2006 at 07:46:03 AM EST
  1. It's all nominal prices.

  2. The difficulty is to choose what inflation index you use to reflate older prices. CPI? Industrial prices? Export price inflation? These bring out pretty different results (I thought I had a graph with each of these, but I can't find it right now). Depending on the index chosen, the 1979 peak was at 60-100 in today's dollars.


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 19th, 2006 at 08:10:26 AM EST
[ Parent ]
Thanks! This explains how different people are claiming different current $ prices for the 1970s peak.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Apr 19th, 2006 at 08:17:18 AM EST
[ Parent ]
Note: the inflation-corrected peak wasn't in the seventies, it was April 1980. WTI was then $39.5; if using CPI for inflation correction, then that is equivalent to $97.43 in March 2006 prices.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Apr 20th, 2006 at 10:51:35 AM EST
[ Parent ]
The futures market says $75 for December 2006. I'll go with the $74.93 number on this chart, although it's probably not Brent crude...
http://futures.tradingcharts.com/marketquotes/index.php3?market=CL
by asdf on Wed Apr 19th, 2006 at 08:25:23 AM EST
Gas prices - what's the right strategy for the Dems?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 19th, 2006 at 10:41:34 AM EST
Yes, there is a big problem with the Democratic establishment. That includes leaders like Kerry and Clinton, who a.) claim that the problem is oil prices being too high

Senate Democrats are accusing President George W. Bush of an "absence of leadership" for failing to slow the rapid rise of U.S. gasoline prices, which now has passed the three dollars per gallon mark in parts of the country. The 15 senators signing the letter include Senate Minority Leader Harry Reid, and senators Joe Biden, Hillary Clinton, John Kerry and Joe Lieberman.

http://www.allheadlinenews.com/articles/7003235222

and b.) forget their environmentalist principals when the going gets tough

California is proposing to mandate reductions of carbon dioxide, which 10 other states, including Massachusetts and New York, want to impose, too. It is not a good sign for Democratic leadership on the issue of climate change that two of its leading potential presidential candidates in 2008 do not have their John Hancocks on the letter, and the leading potential Republican candidate does.

http://www.boston.com/news/globe/editorial_opinion/editorials/articles/2006/04/17/climate_change_no_ shows/

It's so frustrating. This is an issue that has wide support among the scientific realists, the left in general, the environmentalists, and most sensible people, but for some reason (polling and a big vote-counting computer program, I bet) the Democrats simply can't get on board...

by asdf on Wed Apr 19th, 2006 at 09:12:05 PM EST
[ Parent ]
After playing with the rand function of my calculator I get (in 2005 dollars):

  1. 82$ cause: sabre rattling between Bush and Ahmadenijad. I do not think however that the Americans will bomb Iran this year.

  2. 67$

  3. 16$/mmbtu maximum in November, 14$ end of year (I bet on another warm winter)

  4. in 2008
by Deni on Wed Apr 19th, 2006 at 03:27:49 PM EST
It all boils down to if the Americans attack Iran. On one hand, that would be insane. On the other hand, the neocons are insane. But I still can't bring myself to believe they will really attack. So...

Highest: $86/bl in October, after continued nastiness everywhere topped with a big hurricane in GOM.

Year-end: $77/bl

Natgas highest: $21/mbtu after the October hurricane

No $100 oil this year, because there will be no war with Iran (please!)

I might be deluding myself on that one. :(

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Apr 19th, 2006 at 06:10:33 PM EST
Jesus Christ $75 already. There goes my bets.

Hopefully this is just market psychology.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Apr 22nd, 2006 at 06:09:41 PM EST
[ Parent ]


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