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This has all the appearance of a bubble. Short term prices and long term trends need to be thought of differently just like there is a distinction between weather and climate.

Fossil energy sources will trend upward for some number of decades if present consumption and production trends continue, but there will be ups and downs along the way.

At some point in the near future the warring factions within Iraq will decide that they would rather have a piece of the oil pie and stop fighting. This will be followed by development of the oil resources and, eventually, an oil glut. We will also see some behavioral changes.

High fuel prices in the US will feed the recession which will lower demand for some time as well. I'm guessing that all those who are buying contracts at this moment won't be happy with their decision.

I look at just the behavior in a place like NYC and I can easily see many places where energy use could be cut with no impact on anything of importance. This includes simple things like reining in Christmas decorations, turning off office building lights at night and cutting down decorative illumination on bridges and buildings.

The NY Times killed a few trees this morning by publishing an extra section on energy savings. The advertisers are starting to show an interest in greenwashing, but actual change has not happened yet. It will.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Wed Nov 7th, 2007 at 10:36:30 AM EST
This has all the appearance of a bubble

Sure it's a speculative bubble - hedge fund money has to go somewhere - but that's only part of the story. A significant piece of the price rise is due to the decline in the dollar.

This will be followed by development of the oil resources and, eventually, an oil glut.

This is wishful thinking, IMHO: you can forget oil gluts. Ever.

Sure the price will come off once the bubble is pricked, but in the medium and long term US demand is only a relatively small part of the big picture.

While I see the growth in Chinese and Indian demand slackening in a global recession, that's all it will do - their demand will continue to rise, but at a slower rate.

Any increased Iraqi production will only help to replace declining production in the mega fields elsewhere.


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Nov 7th, 2007 at 11:01:00 AM EST
[ Parent ]

At some point in the near future the warring factions within Iraq will decide that they would rather have a piece of the oil pie and stop fighting. This will be followed by development of the oil resources and, eventually, an oil glut.

No way. Let's imagine that, indeed, all suddenly goes well, Iraq becomes peaceful, investment is made and production goes up. An extravagantly optimistic scenario would be Iraq's production jumping up by 4mb/d. That's 2.5 years of global demand increase, at current rates. Not quite enough for a "glut".

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

by Jerome a Paris (etg@eurotrib.com) on Wed Nov 7th, 2007 at 11:18:15 AM EST
[ Parent ]
Well I think both of you are using a different meaning of the word "glut".

I mean that when conditions change over the short term, whether from Iraq coming on line or a recession or whatever there will be more supply than demand. This may be short lived, but it will be a "glut" at the moment.

Speculators don't care what happens after tomorrow, tomorrow is when they place their next bet.

We have a "glut" of ethanol in the US, even while we could actually be using more. Why? Local conditions - feedstock price rises, poor distribution facilities, over building in the short term and perhaps other factors.

Remember the oil companies have a vested interest in creating a "glut" when alternative fuels start to challenge their dominance. You can drive a small firm out of business relatively quickly by lowering prices below their cost of production. You don't even have to do it globally, just in the region in which they operate.

This technique is why we have seen little innovation over the past 50 years. Every time something appeared on the horizon (say electric cars) fuel prices suddenly dropped and the technology was abandoned.

I think we all agree on what will happen over the long term, but that doesn't mean things won't happen in counterintuitive ways along the way.


Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Wed Nov 7th, 2007 at 12:02:21 PM EST
[ Parent ]
On a hedge fund's time horizon, sure, there may well be a "glut".

The only question is whether the market will beat an orderly retreat or not.

No prizes for my view on that...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Nov 7th, 2007 at 12:49:17 PM EST
[ Parent ]

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