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Thread: Oil is at a 12-year low

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Oil is at a 12-year low

    So...oil is down to just over $31 a barrel. It's at the lowest point since 2004. It could go down even more.

    Here are some questions:

    1. If oil is running out, why do we have so much of this stuff?

    2. Why don't those who believe oil is running out invest in oil?
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Senior Contributor SteveDaPirate's Avatar
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    This seems like a troll post, but there is currently an oil glut due to a slowdown in the global economy, while geopolitical factors have tied the hands of OPEC and other oil producing nations and prevented a drastic cut in production.

    I haven't heard any serious arguments that oil is running out. I have heard some rather compelling ones that suggest that there is a limit to what can be extracted easily.

    If you look at most newer oil operations, they are becoming quite a bit more intensive than the ol' stick a pipe in the ground in Texas model. Newer oil projects involve either getting nasty oil from tar sands, cracking shale formations, or drilling beneath the sea.

    These newer projects can still be profitable, but require a much greater investment into infrastructure, and involve much greater risk should the price of oil take a dive since the margins are thinner. Notice all the idling fracking operations, while easy to pump Saudi Oil is still being sold at a profit.

    There probably aren't any more equivalents to the Saudi oil fields out there waiting to be found, and with the increasing effort required to extract oil, it becomes less appealing as an energy source. Thus the emergence of renewable wind and solar projects that couldn't hope to compete with oil in the past. Personally I'm hoping for a renewed interest in nuclear.
    Last edited by SteveDaPirate; 11 Jan 16, at 22:36.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    You haven't heard people say oil is running out? Peak oil theory?

    Regardless of how tough it is to get oil out of the ground, the price of it represent everything invested into getting it out. A $40 barrel of oil is easier to get onto the market than a $80 barrel of oil. I don't care what kind of technology is involved.

    The only constraint of oil is not how much there is on this planet, but how much are we willing to extract. Oil, by all intents and purposes, is near infinite. There will always be oil. It's not running out.

    Ask anyone in 2007 what he thinks the oil price will be at the beginning of 2016, the answer would not be $30. Ask anyone in 2014 the same question, the answer would not be $30.

    Here we are, with oil priced at near $30. One must ask, "are we really running out of this stuff?" Sure, there's a glut on the market. But there must be a lot of this stuff around in order to have a glut. Can't have a glut of something that doesn't exist in abundance.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Senior Contributor bonehead's Avatar
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    I remember that theory way back in the 1980's. Since then we found a way to unlock trillions of barrels of formerly non recoverable oil. At 100 dollars a barrel everyone and their mother was drilling and continued to drill even though the demand fell. Now they are looking at where to put all the crude. I think a lot of the invisible pressures to artificially keep oil high finally collapsed. Speculation and whatnot. Another thing you can count on in times like this is that the big oil companies can sit around and wait for all the little guys to go belly up, then you will see the price of oil moving up again. Oil has a limit it is just down the road farther than we thought.
    Removing a single turd from the cesspool doesn't make any difference.

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    Senior Contributor SteveDaPirate's Avatar
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    Quote Originally Posted by gunnut View Post
    Oil, by all intents and purposes, is near infinite. There will always be oil. It's not running out.
    You are right that we won't run out of oil, but not because there is an infinite supply. We won't run out, because it will get increasingly expensive to extract oil. The easy stuff will get used up and alternative sources of energy are constantly becoming more competitive. Oil will just reach a point where it isn't competitive with new energy sources and the world will transition away from it.

    The eventual transition away from oil will be similar to the the one we are undergoing with coal right now. We aren't running out of coal, it just isn't as competitive as it used to be and we don't need it as much since better options (cheap natural gas) have become available.
    Last edited by SteveDaPirate; 12 Jan 16, at 14:36.

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    Contributor DarthSiddius's Avatar
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    ^This

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    Padishah Shahanshah Senior Contributor xerxes's Avatar
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    The super shock of the early 80s let to the development of Brent off the North Sea causing a glut that gradually eroded price. In 86, Saudi unleashed havoc worsening the situation causing a 10 year glut which persisted until major players capitulated and thrown in the towel.

    We are going through the same thing again. And until there has been capitulation and a understanding that it will not recover, there will not be closing the tap and price recovery. That is the basis of Goldman and Citigroup (Ed morse) thesis and I agree. Unless Saudi turn stupid and reclaim the role of price swinger and start manage production. Unlikely.

    Average folks might think, Saudi is pissed at not having $100 prices anymore. I disagree. OPEC (saudi) was more concern about not causing long term demand destruction (with 100 price) and actually prefer price in 60 or so band.

    There is no shortage of oil. That is a fantasy. There is oil everywhere; key question is if there is more value with that oil in the ground or extracted; and that is dependent on price. Also, I will add that oil market have very long lead time. US shale production started to increase in 2011 but only 3 years later (July 2014) did it start to unbalance the market and cause the WTI and Brent to drop from $100.

    Lastly, US Dollar matters. The higher it is the lower commodities drop as they are traded in in USD. The recent report by Moran Stanley attribute the current drop in the 30s mainly to rise in US Dollar.
    If we contrast the rapid progress of this mischievous discovery of gunpowder with the slow and laborious advances of reason, science, and the arts of peace, a philosopher, according to his temper, will laugh or weep at the folly of mankind. - Edward Gibbon

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    Padishah Shahanshah Senior Contributor xerxes's Avatar
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    Folks
    The go-go days of the commodity ended in 2008-09 when the crisis took the wind out of it.
    And it has been deflating ever since. It's deflation is in terms of years rather months due to what Goldman calls negative feedback loop effect.

    The lower iron ore and oil drops, more the local currencies drop, and more the cost structure of the producers drop as well, thereby causing the produce to increase production since its revenues are in USD and its cost are in its local currency. This effect stretches the tail end of the super cycle. So even though prices have dropped the producer can still make money and keeps producing worsening the glut.

    You need full and complete capitulation
    Last edited by xerxes; 12 Jan 16, at 18:23.
    If we contrast the rapid progress of this mischievous discovery of gunpowder with the slow and laborious advances of reason, science, and the arts of peace, a philosopher, according to his temper, will laugh or weep at the folly of mankind. - Edward Gibbon

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    Senior Contributor antimony's Avatar
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    Quote Originally Posted by gunnut View Post
    You haven't heard people say oil is running out? Peak oil theory?

    Regardless of how tough it is to get oil out of the ground, the price of it represent everything invested into getting it out. A $40 barrel of oil is easier to get onto the market than a $80 barrel of oil. I don't care what kind of technology is involved.

    The only constraint of oil is not how much there is on this planet, but how much are we willing to extract. Oil, by all intents and purposes, is near infinite. There will always be oil. It's not running out.

    Ask anyone in 2007 what he thinks the oil price will be at the beginning of 2016, the answer would not be $30. Ask anyone in 2014 the same question, the answer would not be $30.

    Here we are, with oil priced at near $30. One must ask, "are we really running out of this stuff?" Sure, there's a glut on the market. But there must be a lot of this stuff around in order to have a glut. Can't have a glut of something that doesn't exist in abundance.
    Fair enough. But even you should admit that a lot of the oil is held by nasties and undesirables. Think about it - if Saudi Arabia had less of petrodollars to spare then they would have to fund the acquiescence of their own populace through welfare measures rather than Wahabbi schools worldwide. Iran, Venezuela and Russia would be more manageable too, or at least less obnoxious.

    All in all, if we have cheap ass versions of Teslas and Faraday's running around, the oil dictators and camel driver sheikhs would be left with a whole lot less resources to spare; there is not much demand for desert sand.
    "Is God willing to prevent evil, but not able? Then he is not omnipotent. Is he able, but not willing? Then he is malevolent. Is he both able and willing? Then whence cometh evil? Is he neither able nor willing? Then why call him God?" ~ Epicurus

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    Defense ProfessionalSenior Contributor tbm3fan's Avatar
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    Quote Originally Posted by gunnut View Post
    Can't have a glut of something that doesn't exist in abundance.
    Sure you can right up to the moment it disappears.

    Oh, and on a side note the Royal Bank of Scotland is telling their clients to head for the hills and sell everything.
    Last edited by tbm3fan; 12 Jan 16, at 19:03.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by SteveDaPirate View Post
    You are right that we won't run out of oil, but not because there is an infinite supply. We won't run out, because it will get increasingly expensive to extract oil. The easy stuff will get used up and alternative sources of energy are constantly becoming more competitive. Oil will just reach a point where it isn't competitive with new energy sources and the world will transition away from it.

    The eventual transition away from oil will be similar to the the one we are undergoing with coal right now. We aren't running out of coal, it just isn't as competitive as it used to be and we don't need it as much since better options (cheap natural gas) have become available.
    Then what's the hurry to develop expensive alternative energy? By switching too early, we are actually losing money and competitiveness.

    Coal is not economically uncompetitive. Coal is environmentally uncompetitive. Coal still has its place, just like oil. We should use up oil as fast as we can so it makes alternative energy more competitive. Until then, alternative energy is a big waste of time and money.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by antimony View Post
    Fair enough. But even you should admit that a lot of the oil is held by nasties and undesirables. Think about it - if Saudi Arabia had less of petrodollars to spare then they would have to fund the acquiescence of their own populace through welfare measures rather than Wahabbi schools worldwide. Iran, Venezuela and Russia would be more manageable too, or at least less obnoxious.

    All in all, if we have cheap ass versions of Teslas and Faraday's running around, the oil dictators and camel driver sheikhs would be left with a whole lot less resources to spare; there is not much demand for desert sand.
    Then we are talking about something much more grand, a complete revolution is electrical technology. I don't see that happening any time soon.

    The problem is oil is literally free energy. Dig a hole in the ground and energy comes out. The energy expended to extract it is miniscule compared to the energy we get out of it. Not so with electricity.

    Electricity has to be converted from another form of energy. This extra step, plus the difficulty in storing electrical energy makes our vehicles dependent on oil.

    I've advocated this for years. Let's use up oil as fast as we can to render our eternal friends irrelevant. Better yet, use up their stuff first and then we tap our reserve.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by tbm3fan View Post
    Sure you can right up to the moment it disappears.

    Oh, and on a side note the Royal Bank of Scotland is telling their clients to head for the hills and sell everything.
    Sell because?

    If it's going to disappear, shouldn't people buy low and then sell high?

    Isn't it the perfect time to invest in oil if you believe that it will disappear? That's my main question in this thread.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Senior Contributor SteveDaPirate's Avatar
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    Quote Originally Posted by gunnut View Post
    The problem is oil is literally free energy. Dig a hole in the ground and energy comes out. The energy expended to extract it is miniscule compared to the energy we get out of it. Not so with electricity.
    I guess I don't understand that line of argument. By your logic...
    Build power station > insert uranium > Free Energy!
    Build Solar Panels > Free Energy!

    My whole argument is that digging a hole in the ground to get oil isn't going to work going forward. The investment required to access new sources of oil are growing, as it requires either fracking or offshore operations.

    Quote Originally Posted by gunnut View Post
    Better yet, use up their stuff first and then we tap our reserve.
    So you are in favor of bans on US oil exports and against drilling in Alaska I assume?

    Quote Originally Posted by gunnut View Post
    Then what's the hurry to develop expensive alternative energy? By switching too early, we are actually losing money and competitiveness.
    The hurry was that for decades, oil prices were marching steadily higher, while new tech continues to make the cost of alternative energy sources steadily lower. It was pretty easy to look at those trends and decide where to invest long term. The fact that oil has a lot of associated negative externalities makes moving capital into alternative energy a nice PR boost as well.

    Quote Originally Posted by gunnut View Post
    The difficulty in storing electrical energy makes our vehicles dependent on oil.
    This I agree with. Battery tech has not kept up with consumer demands, and there is going to be a HUGE market for whoever can come up with a significant improvement in battery chemistry and performance. This is going to happen regardless of oil prices, as so many consumer electronics are currently limited by their batteries.
    Last edited by SteveDaPirate; 12 Jan 16, at 19:37.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by SteveDaPirate View Post
    I guess I don't understand that line of argument. By your logic...
    Build power station > insert uranium > Free Energy!
    Nope. Nuclear energy is very expensive because of the constant monitoring going on. When you can fuel up your nuclear car and drive it for 12 years before taking it in for overhaul, then we talk.

    Quote Originally Posted by SteveDaPirate View Post
    Build Solar Panels > Free Energy!
    YES!!! But only for 4 hours a day, and only in sunny lands, without much dust.

    Build a solar plant and we know that it operates at full capacity for only 4 hours a day, and only in very sunny areas in low latitude. And we come back to the storage problem. How do you store electricity economically? A gas tank is a fraction of the cost of a battery pack.

    Quote Originally Posted by SteveDaPirate View Post
    My whole argument is that digging a hole in the ground to get oil isn't going to work going forward. The investment required to access new sources of oil are growing, as it requires either fracking or offshore operations.
    That's represented by cost. I don't care what technology is involved, a barrel of oil at $40 is easier to extract than a barrel at $80. And they both are cheaper than alternative energy. Use up oil, let the price go up naturally, and we switch to another form of energy which will be competitive because oil is so expensive. Until then, oil is literally free.

    Quote Originally Posted by SteveDaPirate View Post
    So you are in favor of bans on US oil exports and against drilling in Alaska I assume?
    I'm not for banning anything. I just want to encourage people to use more foreign oil. The market will decide, like now. Cheap oil drives US producers out of business and we use more Saudi oil.

    Quote Originally Posted by SteveDaPirate View Post
    The hurry was that for decades, oil prices were marching steadily higher, while new tech continues to make the cost of alternative energy sources steadily lower. It was pretty easy to look at those trends and decide where to invest long term. The fact that oil has a lot of associated negative externalities makes moving capital into alternative energy a nice PR boost as well.
    People have been researching and talking about alternative energy since the 1970s. What have we achieved? How much money did we waste? I mean including government wastes on "green" bullshit plus the artificially high gas tax to steer us away from oil.

    Quote Originally Posted by SteveDaPirate View Post
    This I agree with. Battery tech has not kept up with consumer demands, and there is going to be a HUGE market for whoever can come up with a significant improvement in battery chemistry and performance. This is going to happen regardless of oil prices, as so many consumer electronics are currently limited by their batteries.
    It will happen when oil becomes scarce enough to make battery tech worthwhile. Until then, it's a half-assed effort to extract money from the public by the brute force of the government.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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