Oil at $220 barrel?

[hankster]

Some analysts fear we could see this with continued unrest in the Middle East. I don't like thinking about what this could mean for our economy.

Ziggy, you're our only hope

http://www.early-retirement.org/forums/f28/its-official-the-oil-boom-is-over-36710.html

 

[MasterBlaster]

They worry about Saudi and others undergoing revolution and the flow of oil slowing/stopping.

They worry about something like what happened in Iran in 1979 and the subsequent drop off in production.

Right now there is plenty of supply. But we are seeing the "what if" risk premium ruling the market.

 

[BigNick]

I stopped paying attention to what "Some analysts" think, some time ago. Where did they pluck that figure from? Probably because it's exactly 2.0 times today's peak. In other words, they have no clue.

If oil went to $200/barrel and looked like staying there, alternative technologies would be rolled out very quickly. Right now, the "low" (yes, everything's relative) price of oil is the single biggest obstacle to "clean energy" (if you're Green) or "removing dependence on foreigners for our energy" (if you're on the Tea Party side of the aisle).

 

[MasterBlaster]

I stopped paying attention to what "Some analysts" think, some time ago. Where did they pluck that figure from? Probably because it's exactly 2.0 times today's peak. In other words, they have no clue.

If oil went to $200/barrel and looked like staying there, alternative technologies would be rolled out very quickly. Right now, the "low" (yes, everything's relative) price of oil is the single biggest obstacle to "clean energy" (if you're Green) or "removing dependence on foreigners for our energy" (if you're on the Tea Party side of the aisle).

After the 1973 embargo, the price of crude rose by a factor of around 4.5 X. So a factor of 2 is nuthin'. The factor 2 they use is a guess but a guess supported by historical evidence.

The other technologies are around. But they certainly can't be rolled out "quickly" to the scale that we will need them to be. Disruption will be everywhere should the worst case scearios come to be.

 

[brewer12345]

I would imagine that oil woud not stay at 220 long. Between the demand destruction and the rollout of alternatives (we are floating on a sea of natural gas), it would not last long at that level.

I also have yet to see signs of trouble in Saudi.

 

[RetiredGypsy]

I say get those e. coli bacteria they've gotten to produce crude oil into production.

Scientists find bugs that eat waste and excrete petrol - Times Online

 

[dgoldenz]

Good thing I got in on that BP stock when it dropped to $30/share and Transocean at $43/share...

 

[Independent]

"Some analysts" think almost anything.

Certainly, enough political upheaval in the ME would cut production and raise prices. Since the short term demand for oil is pretty inelastic, prices could go up a bunch (as in multiples of the current price for a short period). But remember, those people trying to replace Gadhafi in Libya don't want to turn off the oil. They simply want to pump it, sell it, and redirect the profits into their own pockets. So long term the oil starts flowing again. The same is true in the other oil producing countries.

Yes, any spike in oil prices is bad for the US, especially since we're on very thin ice economically. But at this point there's no way of knowing whether we've already seen the peak price (since the market is already discounting some restrictions) or whether it will get a lot worse.

The only "analysts" I'd trust would be those who accurately and publicly predicted Tunisia, Egypt, etc. Here's the complete list that I've been able to find: { }

I'll agree that long term we'll adapt to any sustained price change. I think random rapid fluctuations (which are most commonly caused by politics) would do more harm since we don't adapt as well.

 

[teejayevans]

The two best jobs in the world are: analyst and critic. You can be wrong all the time and still keep your job.
TJ

 

[ziggy29]

Someone in the middle east breaks wind or one piece of economic data comes in that suggests the economy doesn't *totally* suck, and in come the speculators. Makes a solid recovery challenging if even possible at all.

 

[JOHNNIE36]

DW and I were talking about this the other day. If and when gas hits $5/gal, there will be the wailing and gnashing of teeth in this country. From the average worker on down, they won't have enough money to get to work so they will stay home. Crime will increase as the desperate people will start stealing, including gas. Any thoughts on this subject or am I over reacting? Cross that bridge when we get to it or start planning now? I don't think that high a price will happen as this country won't let it happen.

 

[REWahoo]

This is the very real possibility that could be only hours away:

Gaddafi's Next Move: Sabotage Libya's Oil and Sow Chaos?

 

[travelover]

DW and I were talking about this the other day. If and when gas hits $5/gal, there will be the wailing and gnashing of teeth in this country. From the average worker on down, they won't have enough money to get to work so they will stay home. Crime will increase as the desperate people will start stealing, including gas. Any thoughts on this subject or am I over reacting? Cross that bridge when we get to it or start planning now? I don't think that high a price will happen as this country won't let it happen.

This sounds bad, but what if we had to pay what Europeans pay now?

 

[dgoldenz]

This sounds bad, but what if we had to pay what Europeans pay now?

Europeans have easier access to mass transit. A two-hour drive to work here in Northern VA with an SUV would cost ~$30-50/day just in gas cost at $5/gallon, plus the cost of parking or metro. If you're making $100-150/day at work, gives you a little less incentive to roll out of bed...

 

[BigNick]

Europeans have easier access to mass transit. A two-hour drive to work here in Northern VA with an SUV would cost ~$30-50/day just in gas cost at $5/gallon, plus the cost of parking or metro. If you're making $100-150/day at work, gives you a little less incentive to roll out of bed...

But at $3/gallon, those people are already paying $20-35/day, plus parking or metro. So $5/gallon - which, let's just remind ourselves, didn't happen even when oil hit $148 - is not such a huge marginal increase.

Seriously, how many people with a 2-hour commute and an SUV are going to start stealing gas? I agree that it will take some money out of people's pockets, but we have to get away from this idea that if you take $50/mo extra off employed people, it will cause the economy to collapse.

If we ever did get to $220/barrel, I would also hope that some people might just think "Well, the reason we are here is that several hundred human beings are dying every day in bloody violence. Maybe the passing of my cheap commute just means I have one fewer blessing to count."

 

[ziggy29]

Europeans have easier access to mass transit. A two-hour drive to work here in Northern VA with an SUV would cost ~$30-50/day just in gas cost at $5/gallon, plus the cost of parking or metro. If you're making $100-150/day at work, gives you a little less incentive to roll out of bed...

Yep -- when I was in England, there was a bus that took you to the downtown area that ran every six minutes and trains that connected to much of the rest of England every hour (we took one such train from Liverpool to York). And these were all primarily used by, shall we say, "regular" people who didn't look homeless or scary.

When something runs every six minutes, you don't even need a bus schedule. You just walk to the stop.

 

[kyounge1956]

DW and I were talking about this the other day. If and when gas hits $5/gal, there will be the wailing and gnashing of teeth in this country. From the average worker on down, they won't have enough money to get to work so they will stay home. Crime will increase as the desperate people will start stealing, including gas. Any thoughts on this subject or am I over reacting? Cross that bridge when we get to it or start planning now? I don't think that high a price will happen as this country won't let it happen.

I think a "golden age of telecommuting" would be more likely. How many of these people need to be physically in their offices to do their jobs? The employers would still want the work done, and the employees would still want their paychecks. IMO, it's more likely the employer & employees would agree on some way to eliminate part or all of the commuting, than that there would be a rapid descent into crime. I listened to an audiobook last year called "$20 a Gallon" or something along those lines. The author projected many changes in American life that he expected to come about as the cost of petroleum products goes up. Anarchy wasn't one of them.

 

[sailor]

DW and I were talking about this the other day. If and when gas hits $5/gal, there will be the wailing and gnashing of teeth in this country.

Same sentiments were worded when gas prices first crossed $1/gal.
It's over $3.20 right now and people in US drive annually more miles than ever. Life will go on. We'll adjust.
Maybe buy/rent properties close to places of work.
Maybe bicycle, carpool, vanpool or mass transit?

 

[Brat]

I say get those e. coli bacteria they've gotten to produce crude oil into production.

Scientists find bugs that eat waste and excrete petrol - Times Online

Our forests need thinning, big time, to prevent fires from killing old growth. Maybe there is synergy here.

 

[flyfishnevada]

I think those dire predictions ignore the market forces. Surely if oil went that high, and gasoline in turn, there would be a sharp drop in demand. Oil producers would still need to sell what they produced and the price would come down to a point that they could sell it. I realize its not quite that simple, but market forces are still part of the equation.

Maybe this would be good for the country in the long run. Not only would it make alternative energy sources more attractive to investors and consumers, but we might start drilling fro our own oil as a stop gap. Both create jobs and opportunity here at home. I would rather see the U.S. producing our own energy rather than depending in others, both friendly and unfriendly, for our energy.

 

[ziggy29]

Maybe this would be good for the country in the long run. Not only would it make alternative energy sources more attractive to investors and consumers, but we might start drilling fro our own oil as a stop gap. Both create jobs and opportunity here at home. I would rather see the U.S. producing our own energy rather than depending in others, both friendly and unfriendly, for our energy.

But the question is, when will the economy recover sufficiently that it can start affording these initiatives? All these speculator-driven oil shocks will do is kill any recovery trying to take hold.

 

[MasterBlaster]

Oil is unique in many ways. People don't change their demand for it much as the price goes up. Economists call that in-elastic demand or nearly in-elastic demand.

So when the demand is constant and the supply drops significantly, the price will shoot up.

The other issue is that it can take 10-15 years to bring a known oil field into full production. The lead times for these things are really long.

So even though the demand is there it can take years for the supply to catch up.

 

[BigNick]

The other issue is that it can take 10-15 years to bring a known oil field into full production. The lead times for these things are really long.

So even though the demand is there it can take years for the supply to catch up.

Libya is 2% of world production. Even if that all stopped for a couple of months, the Saudis could turn on the taps a little bit more and compensate for that in about an hour.

There is absolutely no indication that the Libyan protestors, or those in any other country affected by the current demonstrations / uprisings / revolutions, want to drastically reduce the standard of living of everyone by turning off the flow of dollars. People - starting with the media - need to get a sense of proportion: Saudi Arabia isn't about to sink wthout trace, leaving some huge gap in world oil production.

The current jump in oil prices, like the previous one, is almost entirely down to speculation. This bubble will burst, and we can get back to worrying about other minor things - more minor than having anti-aircraft guns fired at us, anyway.

 

[ziggy29]

The current jump in oil prices, like the previous one, is almost entirely down to speculation. This bubble will burst...

Agreed about the speculators. Unfortunately, the way oil prices are tracking the stock market and economic indicators since the crash of 2008, the only way the bubble will burst is if the economy experiences a severe double-dip. That's the only way to get the rats scurrying for cover.

 

[MasterBlaster]

Libya is 2% of world production. Even if that all stopped for a couple of months, the Saudis could turn on the taps a little bit more and compensate for that in about an hour.

There is absolutely no indication that the Libyan protestors, or those in any other country affected by the current demonstrations / uprisings / revolutions, want to drastically reduce the standard of living of everyone by turning off the flow of dollars. People - starting with the media - need to get a sense of proportion: Saudi Arabia isn't about to sink wthout trace, leaving some huge gap in world oil production.

The current jump in oil prices, like the previous one, is almost entirely down to speculation. This bubble will burst, and we can get back to worrying about other minor things - more minor than having anti-aircraft guns fired at us, anyway.

Nobody is that concerned with Libya. What the markets are concerned about is some of the big producers like Saudi Arabia doing a Libya/Egypt and the production slowing or stopping.

That is the risk premium we are seeing now in the oil markets.