Triple-Digit Oil Prices Back Within a Quarter

Recent Blog Post

What the leaders need to understand about Canada’s shifting economy

As Canadians are becoming all too aware, the spectre of a recession, no matter the definition, looms large during an election campaign. Despite such prominence, the recent debate made it abundantly clear that none of the candidates understand why the economy stopped growing in the first half of the year and they have even less [...]

Read More...

Triple-Digit Oil Prices Back Within a Quarter

Posted by Jeff Rubin on December 8th, 2010 under SmallerWorldTags: china, IEA, Saudi Arabia, triple-digit oil prices, Venezuela • 31 Comments

The strongest manufacturing numbers coming out of the Chinese economy in a seven-month period, coupled with plunging oil inventories in the world’s largest energy consuming economy, have sent oil prices to a 25-month high. With no let-up in China’s fuel demand, the world should be looking at triple-digit oil prices again within a quarter.

That may come as a shock to those who thought the bloated oil inventories that came in the wake of the last recession would provide a buffer against future oil price spikes. Suddenly that buffer has literally gone up in smoke.

Refined oil stocks held by China’s two largest oil companies have fallen for eight consecutive months, while diesel stocks in the country fell 14 per cent in October. And the tightening oil market won’t just be felt in China. The 140 million barrels of international oil inventory sloshing around in floating storage on the high seas is also all but gone.

With oil prices within striking distance of triple-digit levels, don’t look for any price relief at the upcoming OPEC meeting in Ecuador. Venezuelan energy and oil minister Rafael Ramirez was recently quoted as saying that $100 per barrel was a fair price for both consumers and producers. (But not for cab drivers in Caracas, who will continue to be able to purchase their fuel at 20 cents per gallon, the equivalent of a little over $8 per barrel). Meanwhile, King Abdullah of Saudi Arabia has already served notice that, without triple-digit prices, there is little incentive for new oil exploration in his kingdom.

In other words, without the return of the kinds of oil prices that put the world economy into the deepest ever post-war recession, we shouldn’t expect major oil producing countries to find and develop new supply. Yet according to the recently released World Energy Outlook from the International Energy Agency (IEA), world oil demand has never been more dependent on finding new supply.

How the goal posts have moved when it comes to oil prices and supply forecasts. Just as the IEA has finally recognized the reality of peak oil—at least insofar as affordable conventional oil is concerned—triple-digit oil prices have become the new normal in OPEC’s price expectations.

When both OPEC, an organization representing 40 per cent of world oil production, and the IEA, representing countries that consume roughly 50 per cent of the world’s oil, both now acknowledge the imminent return of triple-digit oil prices, perhaps it’s time our policy-makers should as well.

Our last encounter with those prices was brief but decisive. Oil demand collapsed, and, since oil powers our economy, so did GDP. What steps we have taken to ensure the same thing doesn’t happen again is far from clear.

cleitophon

It is simply infuritating to see mainstream politicians trot along in the usual tired old policies. Anybody with half an eye can see that the system of the world is taking a completely different trajectory than what is proposed in the growth rhetoric to the left and right in the political spectrum!.

In Denmark where I live, nobody's ever heard of peak oil. They keep jabbering on about windmills. Given that we are having a cold and non-windy winter we have seen electricity prices skyrocket to 15 kr pr kw hour between 5 and 7 pm. Thats almost 3 US$!

The level of incompetency at the higher political levels is simply scary.
Artreides

cleitophon, i understand that 80% of your power comes from burning coal, and I'd seen that the government was talking about converting coal generators to biomass burners or something. are your rates increasing in order to subsidize the phasing out of coal?
cleitophon

You are right about the coal, but we also (and hypocritically) buy Swedish & German nuclear – and Norwegian Hydro-energy. Biofuels are a huge pipe dream if there ever was one. Biofuels are practically an energy sink as Jeff describes in his book. I think electricity is very price sensitive – it only takes small reductions in production for the prices to skyrocket. In fact the incompetency is so huge that the government recently published a report stating that the shift to green fuels was going to be cheap HA what a joke.

Not only that, Denmark has been a net oil exporter for two decades, but next year the country will be a net importer because of plummeting north sea production. Its gonna cost a fortune. In fact everything here is going down the shitter. They are building motorways, bridges, Mega-malls and god knows what and theres not going to be enough money and energy in the world to run the whole damn thing in just a few years.

Woops you got me started on a rant – sorry about that
Bellerophon

Is this global warming causing colder weather? I understand Britain is having a cold, snowy fall as well.
Smilingjoe

Bang on and on
JB

Dear Jeff,

Your analysis is correct so something is bound to give in but what?

JB
Bellerophon

Nothing like a good dollop of enviromentalism to ruin an economy.
Rojelio

I'm wondering that also about the US government. It must start defaulting on things soon. Who gets whacked first, social security, medicare, pension funds? I'm sure the military will be the last to go down at the expense of the working poor.
Rojelio

It's not only the politicians that are so infuriating. The citizenry here in the USA does not understand that there is no recovery, that the dollar is collapsing, climate change is not just politics, and most have no peak oil awareness. It's like being with a bunch of people in a car speeding towards the cliff and you're the only one who sees it.

At least in the Soviet Union before their collapse, they knew their news and politicians were bullshit, they had some form of mass transit, they had poor folks working in agriculture. We could be screwed.
cleitophon

Tharts pretty much it, the cold there is gets stored over russia, scandinavia and northern europe, while the arctic anf greenland melts. In fact arctic sea ice levels are at a record low now. This is caused by something called the North atlantic oscillation:

http://www.cpc.noaa.gov/produc…
cleitophon

Environmentalism (at least in Denmark) is such a sham. With one hand they keep building 8 lane motorways, bridges and hideous Corbusier wannabe buildings and on the other they talk about windmills and being green. Its all surrounded by Orwellian New Speak vocabulary. In reality the green discourse is a mode of marketing for the hugely subsidised green tech industry, which is anything but green. There is only one thing that counts here and that is growth, growth and more growth.

In fact we have a general election comming up soon and the politicians seem to be stuck in cloud cuckcoo land. Even diagnosing the nature and character of the global economy is beyond these people (in an economy where 50% of gdp stemms from exports). These people don't even understand the basic workings of an eksponential function. I mean if energy demand follows target gdp growth of 4 %, Denmark would be in a situation where it would have to generate twice present levels of energy in 17 years because of eksponential doubling times. ITS JUST NOT HAPPENING and yet here they are talking about growth!

http://en.wikipedia.org/wiki/D…
Bellerophon

As the crunch approaches more coal will be burnt and nuclear will be introduced in a big way.
Bellerophon

There is a recovery in Maui. Twice as many people where I stay compared with last year.
bobby j.

We find ourselves in a very strange situation a conundrum. Our economy evolved in an environment of scarcity ,basically an agrarian society.Scarcity and growth go together like a horse and carriage,can't have one without the other. In such a low energy society there would result a relative state of dynamic balance of supply and demand. But then man learned how to harness energy and increasingly replaced the man hour with the kilowatt hour and eventually was able to achieve abundance. The money system ,economy ,price system needs to have that scarcity to keep the flow lines of money and goods and services operating. War is a great method to create scarcity you destroy what you produce ,have to rebuild , built in obsolescence is great .Then of course the government we the people can achieve greater debt levels ,we used to talk billions but now that's just bonus money.Of course one of the most outlandish schemes was the whole housing bubble ,making one marvel at the ingeniousness of man. One has to look at the bigger picture to see the road ahead. The economy is in essence attempting to reset itself back into the low energy ,agrarian scarcity environment in which it works best. Give us things lots and lots of shoddy things ,so we can keep up to our neighbour.Now that we are past peak in oil and having wasted other resources that a high energy technological society requires to function , the reset can begin. The man hour will increasingly replace the killowattt hour and scarcity can once again reign in the kingdom. Unless one is a complete fool we have seen by now that the economists and politicians have no clue how to operate the world we are fast leaving behind. Happily their thinking is from the past to which we are heading .The question is can they lead us into the past without too much chaos. Happy Landing
Bellerophon

It will be all papered over and you won't notice a thing.
Ipbxg

How can you say we wasted resources. Everybody had a good time. Life is ephemeral. What's next is next!
Bellerphon

According to Piers Corbyn (astrophysisist) who seems to consistently provide the most accurate long range weather forecasts, the main driver is Solar activity and moon interaction affecting the jet stream. He says that there is no global warming and CO2 makes no effect.
If so, the energy solution will be nuclear, oilsands , more drilling and crushing the enviromentalists who have grossly distorted the free market with politically popular silly solutions. Big changes coming as the wheels come off and the blame game starts. I wouldn't be caught with pants down wearing a green underware in the next 10 years.
bobbyj

Indeed we had a wonderful time but the party is winding down.The party isn't over till the fat lady sings,what the h does that mean?
http://www.facebook.com/profile.php?id=100000231558654 Jonny Mnemonic

Too bad Piers Corbyn has no experience in climatology, so taking his advice on climate issues is a bit like asking a chiropractor to perform your brain surgery. Obviously, he's gonna suck, and clearly he does. Perhaps he – and you – are confusing weather with climate. Climate trains the boxer. Weather throws the punches. The only climatologists that deny anthropogenic warming are the folks paid by Big Oil and Big Coal to disseminate misinformation to the gullible. Follow the money – who's got *trillions* at stake? It sure isn't a few thousand scientists – it's the fossil energy cartels with the trillions. And even so, they can only get 2% of scientists to agree with them. The fact that they can only get such a tiny percentage to agree with them, despite budgets that dwarf entire continents, shows something.

Minnesota – four '100-year floods' in seven years. Farmers devastated. Russia with their temps and fires unlike anything ever seen before in any historical record going back many hundreds of years. Coral die offs growing horrifyingly frequent with three massive die-offs in the last 13 years. Phytoplankton – the base of the food chain – 40% gone since the 1950s. Waves of sea mammals washing ashore, dead of starvation. Strange disease outbreaks all over, from bat fungus to malformed beak syndrome. Lizards going extinct. ALL species going extinct at a rate 1000 times the norm. Ice shelves the size of big cities cracking off in the north. Glacier melt accelerating. Earthquakes increasing significantly (water mass on the thinner tectonic plates of the oceans). Droughts growing widespread, along with terrible fires in new and unexpected places. Beetles that eat trees no longer sleeping in the winter, hastening the decline of forests everywhere. Ocean acidity increasing. Record high temps worldwide double the number of record lows. Food production beginning to suffer. Methane bubbling up from the permafrost and the East Siberia Ice Shelf. And on and on and on and on…

Seriously, anyone who's paid attention to what's happened the last two or three years in terms of climate effects worldwide who *doesn't* see something unprecedented and catastrophic happening must be blind, or watches too much Fox News instead of the real world. And the scary thing is, if climate change is a five-speed car, we've just barely shifted into second gear. We ain't seen nuthin' yet.
Bellerophon

How does the dirty thirties fit into your rant?
Bellerophon

Keep a cyanide pill in your medicine chest just in case.
Artreides

Yes but even assuming a favourable regulatory environment it takes fifteen years to install nukes – longer if they're contemplating newer more efficient tech due to licensing, etc. They could always switch from coal to gas generators (much better than coal anyway due to recent improvements) and throw themselves on the cold mercy of the Russians for the fuel.
Bellerophon

The US is blessed with lots of coal and should keep improving the burning technology. When things get tough the nuclear regulations will ease at a rate inversely to the increasing rage of the populace when they increasingly notice the bloom is off the rose.
This tech in a much refined form would be widespread today were it not for the last 40 years of lobbying by your favorite green organization. They are at it again with climate change hysteria and anti- CO2 disinformation & etc. Read Jonny Mnemonic for the typical Suzuki Foundation talking points.
Bellerophon

The fat lady may sing then lose a lot of weight along with the rest of us.We will all survive, however, although I worry about Rojelio. Maybe a shrink would help.
cleitophon

Lets get real here! These discussions about energy are hoplessly shortsighted. We have built a world that is fundamentally unsustainable beyond even the very shortest term. I mean, even if we can trust the inane optimism of the latest IEA reports we are looking at a world that in a decade from now will look VERY different through mere population growth. If the many critics are correct this will be a more violent affair and perhaps sooner than the IEA thinks.

If the Peak Oil debunkers are correct this will not happen for maybe 40 or 50 years. 40-50 years is the very best case scenario and this seems utterly improbable if you ask me! Let us say that we want to implement something that can last in the grand scale of things this is the timeframe needed just to turn this ship around as it is, if we set in with a collective global effort to control population an growth, energy expenditure and growth based economies.

Somebody ought to scream with the utmost power of the human voice: “Human civilization is 10.000 years old; the human race has been around for 100.000 years, and fossil records of life go back, what 570 million years? Even our most optimistic day dreaming cannot go beyond 5 years. Through shortsightedness and lack of perspective, we have built a death trap out of our planet. Earth is utterly unable to sustain these numbers or energy levels for any meaningful length of time in the grand scale of things. What sad creatures humans turned out to be.”

In reality we should be looking at much longer time lines

But this has become impossible since politicians can't see past the next election or party congress, free market systems can't see past the next batch of goods. People can't see beyond the bonnet of their cars let alone the borders of their countries.

Sigh – what a sad state of affairs! We are speeding towards a cliff and the driver is afflicted by utter paralysis.
Bellerophon

I really worry about a meteorite impact like the Yucatan or Hudsons Bay. What we have going on here is trivial in comparison.
Bellerophon

Nice cold punch being thrown right now worldwide! You've got to love that global warming.
Bellerophon

Manatees dieing off in Florida due to cold water….species reduction. More global warming. Any comment?
pathrik

This would lead to a double dip recession no doubt. Its positively scary how clueless the political and economic elites are about the current state of the world.
Bellerophon

Snowing in Australia at the start of summer! More global warming? Where are you?
Bellerophon

Coldest December in 100-110 years in Uk, Germany, Sweden. Where are you, you lickspittle.

Recent Blog Post

What the leaders need to understand about Canada’s shifting economy

Triple-Digit Oil Prices Back Within a Quarter