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Saturday, April 04, 2009
The Joy of (re)Discovery.
You would think that a principle as simple and obvious as the Law of Supply and Demand would be assimilated along with mother's milk, and yet some people seem to rediscover the damned thing every fifteen minutes.
JD Rockefeller cornered the huge dome field of NW Ohio. He intended to tap it over the course of a century, using natural gas pressure to save on pumping.
The President of the United States made it his personal crusade to force Rockefeller to pump off that oil into the market as fast as it would breach. Congress agreed. They blew off the gas pressure in a couple of years, and now you have to go down and get it. Largest oil field in the world, always has been, always will be, and almost inaccessible because the US government wanted boom and bust.
For some reason (his chair at NRA?) we think back on that President as one of our great he-men. And everbody knows how we remember Rockefeller.
Yup. I'm thinkin' we're gonna get the double whammy this year; the traditional Memorial-Labor Day price jump and another run-up when Light-Bringer™ announces even more restrictions on domestic oil production.
Be interesting to see WHERE these restrictions are applied, mmmm say maybe in a state governed by a former political vice-opponent?
I seem to recall some hair-twirler in college declaring to the Prof: "But if the price goes down, the supply will increase! They have to make more in order to make the same amount of money!"
I snickered then, but I think we are seeing the consequences of that sort of logic with some oil producing countries. If your entire economy is based on oil production, then there is inelasticity of supply -- they believe that they can't reduce production. So you have an unstable market: a large amount of demand is inelastic, a large amount of supply is inelastic, and the good isn't durable. Thus the price fluctuates wildly on small changes in supply and demand by the elastic market players.
Then we add a government that threatens to tax "windfall profits" and you take away the price increase for the elastic suppliers.
Folks, that is the recipe for a command economy. I predict rationing in 12 months.
Oilfield production declines are ongoing. While the demand has dropped, the drop is but a temporary thing. At some point, the supply curve decline is steeper than the demand curve and crosses it. At that point, hang onto your ass.
The only major large-volume undeveloped fields are in the deepwater offshore finds. These take ten to twenty years to develop. I figure that the curves crossing will be maybe two to three years--but that's sorta optimistic, really.
We've legislated ourselves into a Doomsday scenario.
Google for Matt Simmons and spend some time reading what he's said. He's among the world's most knowledgeable people on the issue.
what's needed here is a bit of good old regulation, standardization, stabilization, and...nationalization.
it worked in oldmedia, the financial sector, the housing market, it's working great in the car biz, and it's moving right along in health care...why should natural resources be any different?
do no try to resist the O-rganization...it is futile.
next up: that unwieldy intertoobz thingy...algore will make a great 'netczar, he brought it into this world, and he can by God take it out...
To add to the gloom and doom, courtesy the Doug Casey folks:
"Mexico's oil exports could decline by 18% in 2010, driving crude production below 2.5 million barrels per day next year, a Mexican finance ministry report said. The report projected exports to drop to 1.125 million barrels per day in 2010 from 1.370 million forecast for this year."
We import one million bbl/day from Mexico. I note that 2010 is followed by 2011, and that is followed by 2012. The word "inexorable" comes to mind.
The latest price bubble was super-charged by a bunch of investor meddling(some which was probably very shady), prices kept climbing like crazy while demand was going down(the investors had basically broken supply and demand).
So, that the bubble would burst is hardly surprising... especially when the rest of the economy did.
I don't know about you, but I can't help thinking that demand for oil going down is a GOOD THING. Wether you subscribe to global warming or not, oil reserves are finite, and we have to start weaning ourselves of oil out of sheer necessity. I doubt we'll have more than token amounts left in 50 years, and if it's anything the last 20 years have shown us, it's that the process of finding alternatives is going damn slow.
Or I should say, instead of finding alternatives, switching over to them is damn slow(and so is the process of making more of them viable, and as a whole, making them large scale viable).
Well Mikael, if you use artificial means to tie up more than half the resources in a market, put extraction off limits, then regulate their production and distribution at every stage, I wouldn't exactly say it's "supply and demand" that's broken.
The day after GM and Ford announced their total commitment to electricity for future products, BMW and VW revealed a few internal-combustion tricks they've been up to, wringing another 20% or so efficiency out the old thrashing piston. Somebody's been had.
I don't know about you, but I'm swimming in petrocarbons around my place. Is it possible the transition we're so hungry for is more of what we might call a "lifestyle choice"?
staghounds, the cost of getting oil out of the ground goes up--and up and up. So, it doesn't matter about "good" or "bad" for the consumer: If you can't make a profit on a new oil-production deal, you don't do the deal.
Oil at under $50 a barrel isn't enough to cover today's costs of deepwater offshore exploration/production and show profit.
"...oil reserves are finite, and we have to start weaning ourselves of oil out of sheer necessity. I doubt we'll have more than token amounts left in 50 years,..."
Actually, no, the Mother Gaia has shown to be the source of the oil, as a natural product of pressurization and heating of her crust...not from the ridiculous dinosaur theory. She replenishes the stuff continually.
And that bit about not having any in 50 years, that was also said twenty years ago about how much we'd have, RIGHT NOW, and before that, we had the same song sung to us in the 20's, 30's and 40's, and then the fucking hippies got hold of the reins in the 60's, and have done NOTHING except harp on and on about, "OIL!, IT'S KILLING US ALL, AND IT'S ABOUT TO RUN OUT!"
I'm sick of it all, and I wouldn't mind shutting up a BUNCH of people who just can't resist keeping their mouths shut about a subject that so clearly, they know nothing about.
arch, ISYN, they were teaching this in Kindergarten--15 years ago! We're asking a lot of the young, not to swallow it. They learn it in school, they learn it in church, in countercultural art, in pop music, from government, hell from the oil companies. The guys working in refineries believe it. There's just no one arguing the other side. What can you expect? It's like the contratenor of the times.
Art, I know that- I was speaking sarcastically about the way our trained news professionals seem to tell us we should feel contradictory ways about the same event, or the same way about contradictory events- "Oil is killing us all, and oh no, it's about to run out!"
Two years ago, those people in Pennsylvania were evil exploiters who should have their greedily gouged windfall profits taxed away. But they didn't write that story about Mr. Keane and the Kline Corporation, but about the executives of Exxon, and the Saudis. No, actually, just "big oil".
You know the price hikes are coming....
ReplyDeleteSure they are.
ReplyDeleteWe knew that, back when gas was $4/gallon.
Which would cause the rush to drill and buy.
Which would cause the glut.
Which would cause the price to drop.
It's almost like it's a... a cycle, or sumpin'...?
Man, that new Tesla car looks really good right now! :-)
ReplyDelete(The touring car, not the goofy roadster)
Too bad Obama is going to tax the crap out of coal . . . in order to save the world, of course.
Shootin' Buddy
Perhaps our Dear Leader will hear the cries of us lowly consumers, regulating and legislating those nasty oil spikes right out.
ReplyDeleteFor the children.
JD Rockefeller cornered the huge dome field of NW Ohio. He intended to tap it over the course of a century, using natural gas pressure to save on pumping.
ReplyDeleteThe President of the United States made it his personal crusade to force Rockefeller to pump off that oil into the market as fast as it would breach. Congress agreed. They blew off the gas pressure in a couple of years, and now you have to go down and get it. Largest oil field in the world, always has been, always will be, and almost inaccessible because the US government wanted boom and bust.
For some reason (his chair at NRA?) we think back on that President as one of our great he-men. And everbody knows how we remember Rockefeller.
Yup. I'm thinkin' we're gonna get the double whammy this year; the traditional Memorial-Labor Day price jump and another run-up when Light-Bringer™ announces even more restrictions on domestic oil production.
ReplyDeleteBe interesting to see WHERE these restrictions are applied, mmmm say maybe in a state governed by a former political vice-opponent?
I seem to recall some hair-twirler in college declaring to the Prof: "But if the price goes down, the supply will increase! They have to make more in order to make the same amount of money!"
ReplyDeleteI snickered then, but I think we are seeing the consequences of that sort of logic with some oil producing countries. If your entire economy is based on oil production, then there is inelasticity of supply -- they believe that they can't reduce production. So you have an unstable market: a large amount of demand is inelastic, a large amount of supply is inelastic, and the good isn't durable. Thus the price fluctuates wildly on small changes in supply and demand by the elastic market players.
Then we add a government that threatens to tax "windfall profits" and you take away the price increase for the elastic suppliers.
Folks, that is the recipe for a command economy. I predict rationing in 12 months.
Oilfield production declines are ongoing. While the demand has dropped, the drop is but a temporary thing. At some point, the supply curve decline is steeper than the demand curve and crosses it. At that point, hang onto your ass.
ReplyDeleteThe only major large-volume undeveloped fields are in the deepwater offshore finds. These take ten to twenty years to develop. I figure that the curves crossing will be maybe two to three years--but that's sorta optimistic, really.
We've legislated ourselves into a Doomsday scenario.
Google for Matt Simmons and spend some time reading what he's said. He's among the world's most knowledgeable people on the issue.
Art
now, now...nothing's awry!
ReplyDeletewhat's needed here is a bit of good old regulation, standardization, stabilization, and...nationalization.
it worked in oldmedia, the financial sector, the housing market, it's working great in the car biz, and it's moving right along in health care...why should natural resources be any different?
do no try to resist the O-rganization...it is futile.
next up: that unwieldy intertoobz thingy...algore will make a great 'netczar, he brought it into this world, and he can by God take it out...
jtc
To add to the gloom and doom, courtesy the Doug Casey folks:
ReplyDelete"Mexico's oil exports could decline by 18% in 2010, driving crude production below 2.5 million barrels per day next year, a Mexican finance ministry report said. The report projected exports to drop to 1.125 million barrels per day in 2010 from 1.370 million forecast for this year."
We import one million bbl/day from Mexico. I note that 2010 is followed by 2011, and that is followed by 2012. The word "inexorable" comes to mind.
Art
The latest price bubble was super-charged by a bunch of investor meddling(some which was probably very shady), prices kept climbing like crazy while demand was going down(the investors had basically broken supply and demand).
ReplyDeleteSo, that the bubble would burst is hardly surprising... especially when the rest of the economy did.
I don't know about you, but I can't help thinking that demand for oil going down is a GOOD THING. Wether you subscribe to global warming or not, oil reserves are finite, and we have to start weaning ourselves of oil out of sheer necessity. I doubt we'll have more than token amounts left in 50 years, and if it's anything the last 20 years have shown us, it's that the process of finding alternatives is going damn slow.
Or I should say, instead of finding alternatives, switching over to them is damn slow(and so is the process of making more of them viable, and as a whole, making them large scale viable).
ReplyDeleteWell Mikael, if you use artificial means to tie up more than half the resources in a market, put extraction off limits, then regulate their production and distribution at every stage, I wouldn't exactly say it's "supply and demand" that's broken.
ReplyDeleteThe day after GM and Ford announced their total commitment to electricity for future products, BMW and VW revealed a few internal-combustion tricks they've been up to, wringing another 20% or so efficiency out the old thrashing piston. Somebody's been had.
I don't know about you, but I'm swimming in petrocarbons around my place. Is it possible the transition we're so hungry for is more of what we might call a "lifestyle choice"?
Wait a minute! BI seem to remember that a year or two back, high oil prices and high oil use were BAD.
ReplyDeleteNow they are GOOD?
I can't keep up. I suppose we HAVE always been at war with Eastasia.
staghounds, the cost of getting oil out of the ground goes up--and up and up. So, it doesn't matter about "good" or "bad" for the consumer: If you can't make a profit on a new oil-production deal, you don't do the deal.
ReplyDeleteOil at under $50 a barrel isn't enough to cover today's costs of deepwater offshore exploration/production and show profit.
Art
"...oil reserves are finite, and we have to start weaning ourselves of oil out of sheer necessity. I doubt we'll have more than token amounts left in 50 years,..."
ReplyDeleteActually, no, the Mother Gaia has shown to be the source of the oil, as a natural product of pressurization and heating of her crust...not from the ridiculous dinosaur theory. She replenishes the stuff continually.
And that bit about not having any in 50 years, that was also said twenty years ago about how much we'd have, RIGHT NOW, and before that, we had the same song sung to us in the 20's, 30's and 40's, and then the fucking hippies got hold of the reins in the 60's, and have done NOTHING except harp on and on about, "OIL!, IT'S KILLING US ALL, AND IT'S ABOUT TO RUN OUT!"
I'm sick of it all, and I wouldn't mind shutting up a BUNCH of people who just can't resist keeping their mouths shut about a subject that so clearly, they know nothing about.
arch, ISYN, they were teaching this in Kindergarten--15 years ago! We're asking a lot of the young, not to swallow it. They learn it in school, they learn it in church, in countercultural art, in pop music, from government, hell from the oil companies. The guys working in refineries believe it. There's just no one arguing the other side. What can you expect? It's like the contratenor of the times.
ReplyDeleteArt, I know that- I was speaking sarcastically about the way our trained news professionals seem to tell us we should feel contradictory ways about the same event, or the same way about contradictory events- "Oil is killing us all, and oh no, it's about to run out!"
ReplyDeleteTwo years ago, those people in Pennsylvania were evil exploiters who should have their greedily gouged windfall profits taxed away. But they didn't write that story about Mr. Keane and the Kline Corporation, but about the executives of Exxon, and the Saudis. No, actually, just "big oil".