The concept of market saturation should apply as much to the demand for oil as it does for any other product in demand.
Harry ----- Original Message ----- From: Jones Beene <[EMAIL PROTECTED]> Date: Monday, December 8, 2008 12:07 pm Subject: [Vo]:Beyond Hubbert: Peak-Oil Update > There are a number of free-market reasons behind the recent drop in > oil to a four year low: one is slightly lower demand - but demand > is still way too high for this kind of drop with normal market > dynamics. > > Demand is off maybe 5% year-to-year while the price is down to $40+ > from $140+ per barrel. Actual demand was greater 4 years ago than > today, yet the price is the same while output is not off at all. Go > figure! or read on. > > [BTW: One barrel (bbl) is equivalent to 42 US gallons or 117 > liters. The common word 'barrel' aka "drum" which is used in > industry here, is a different measure and actually holds 55 gallons.] > > The second free-market force is that the supply of oil, which can > be effectively controlled by an illegal Cartel, has not changed > very much - because of Arabia and Kuwait. Their politics and other > strategies are well thought-out and go beyond market forces. You > have to admire the insight and sophistication of their greed. They > should call it Gekko-land. > > The two big Arab swing producers would need to cut production far > more than normal, and do it alone, to maintain a higher price - and > they could easily do so - but are choosing not to for now. And they > also are (probably) using this lack of action on supply front to > impress a new US administration, and to ultimately influence > Obama's future policy for their region (quick removal of our > troops). > > These rich and savvy people realize that the PAC money which has > flowed from oil interests to the 'other party' in the past 8 years > is of no influence now, and that the first 100 days of the new > administration is of highest importance - and will be when the most > dramatic new legislation can come in easily - and they do not want > to see that legislation be negative to OPEC, or even mention them > by name. > > Another market reason for the price drop is that non-OPEC members > in the over-populated third world still keep finding more oil, and > they can ill-afford to cut output, due to debt and poverty at home. > > A fifth but minor reason is that coal-to-oil technology is > contributing more than ever to supplies (in a few regions with lots > of coal like South Africa). However, coal prices have risen like > oil, but have not fallen as fast in recent months. > > Here is a decent article - and refinement of the expected date for > Peak-Oil: > > http://seekingalpha.com/article/106191-peak-oil-s-bell-is-ringing > > > A few further points to consider: > > Coincidentally, the best estimate for exact date of the Hubbert > peak looks pretty close to December 2012 <g> > > The sixth and most important factor in oil pricing, but not a > direct implication of the article above - is that the recent > downturn in OPEC-permitted pricing was carefully *planned* to some > extent, due to the miraculous trend in biofuels, and due to a > strategy to influence that next year. This factor might override > all the others in importance. > > IOW the present drop was planned (but may have gotten out of hand) > to counteract the monster boost in biofuel production which > followed the 2008 record grain harvest in the USA, and the massive > amount of new money put into conversion plants here. That really > means that this drop is (partly) artificial, which has some degree > of real market influence as well - but accelerated for a specific > anti-competitive purpose. With plausible deniability, of course. > > The 2008 harvest numbers are still not firm, as there was a lot of > late grain crops planted, which are easier to harvest when the > fields freeze, so they are still coming in at a record pace and > this will be ongoing all the way up to new year's day, before the > final tally is known. But even the low range of numbers is > incredible. The American farmer is prospering like never before in > our history and without this we would be in one hell of an economic > fix. > > The Oil-Cartel strategy is that keeping the oil price down this > winter will influence the 2009 planting season - since the price of > biofuel will determine the profit potential of the crops (mainly > corn) to the American farmer; or stated another way, the price of > the grain crops is dependent to some extent on the pump price of > petroleum. Most crops are presold, and the present price declines > in corn futures for instance, are reflected directly in planning > for next year's plantings - since the options price is off > significantly. > Bet you have not seen this suggestion in print, however, although > the rumors are circulating ... But it stands to reason that if the > *perception* is that low oil price will be off for several years, > then that will seem too low for the farmer to profit in 2009, as > they have in 2008. Ergo less acreage will be planted and some of > the ethanol processors will go belly up as well. And the massive > investment into biofuel processing and R&D will die out. That is > the hope of OPEC, and it is not unrealistic. They have done this > once before. > > The desired effect is to put many of the higher cost producers out > of business immediately - even if there is a large 2009 planting. > OPEC did this before in the early seventies with a burgeoning > biofuel industry. It worked then but prices were kept low for a > long time - as we were not close to Hubbert's Peak back then, as we > are now. > > The domestic biodiesel industry is actually approaching partial > collapse now since costs there (soybeans and canola) are higher and > subsidies are less. It has more than 2 billion gallons of installed > production capacity from more than 170 plants in 40 states. They > need to get nearly $2 gallon to expand this further in 2009, and > that price is no longer available to them at a very critical time > unless new legislation *demands* that this price be paid by the > blenders - and that is under consideration. The domestic ethanol > industry numbers is 5-6 time larger than biodiesel and can function > at a much lower price per gallon. > > From 2006 to 2007, ethanol production increased approximately 33 > percent, from 4.9 billion gallons to 6.5 billion gallons. That > increase comes on the heels of a 26 percent increase 8 between 2005 > and 2006. The month to month numbers for 2008 have been 40-50% > higher than 2007 and the annualized rate of production is now > believed to be able to reach the "magic" one billion gallons per > month level early next year! That is a closely watched number as it > represents ten percent of usage. 2008 production will be less than > 11 billion gallons, but current production is .9 billiongallons per > month, that is indisputable. 2009 production will be higher than 11 > billion (unless the OPEC strategy is successful - because of new > facilities coming online (if enough grain is available). Those > kinds of increases are unheard-of in modern ag-business. > > For comparison US consumption of motor fuel is peaked in 2006 at > about 400 million gallons per day - 12 billion per month (which > includes blended fuels) and has dropped about 8% in the two years > since then. When you deduct the ethanol and biofuel contribution at > present rates (year end 2008) then that ratio of fossil to biofuel > in the blend is now about 11:1. Back in 2005, "experts" were say it > would take 10 years to reach the level of 10% contribution, but we > are 'almost there' now after only 3 years - due to the massive > shifts in priorities. > > This is the root cause of the present drop in oil prices IMHO and > normal market forces are secondary. > > With both biodiesel and bioethanol, capacity can be pushed higher > than the officially listed amount fairly easily - if the pump price > is right and the feed stock (grain + biomass in the future) is > fairly priced, since much of the limitation is in intermediate > storage facilities. It is risky for an outsider like OPEC to try to > manipulate this because they could end up boosting production if > they do not get everything right. The American farmer is well known > to take risks that seem unwise in terms of planting more than they > should. > The bioethanol industry is much larger than biodiesel and the > output is more often pre-sold via options to blenders (not always > to big-oil) and this can make getting real numbers harder - but it > will be huge - much more than OPEC thought it would be. This is a > major reason that the Cartel and US big-oil allies, are in no hurry > to lower petroleum production now, to raise prices - since they > want the "perception" of low expected pump prices well into 2009... > plus biodiesel plants which did not presell output (through > futures) are in trouble, and a few are going under already. Moral - > "don't get greedy when times are good" and lock-in those profits. > "Buffet (the new Simon) sez" that rich investors are always the > ones who "sell too soon". > > One goal of the present low price, then, is to influence and to > forestall another massive spring planting of crops in the USA - > which this coming year will make far greater use of formerly > unproductive biomass, such as corn stovers and hay. This is due to > new technology. OPEC is very interested in how this new factor of > lower-priced feedstock will translate into production. They will > not make major supply moves in oil until this factor is known. > > When Saudi Arabia buys a supercomputer - and they own the sixth > most powerful in the world - it is not for military use, but > strictly for economic use for their large cadre of hired guns: > economists from MBA programs in the USA. This computing power is > used primarily for figuring out the supply and demand dynamics in > every market - so as to extract the best possible pricing strategy > and to weigh the repercussions of what they plan in advance. > > The Arabs now are both smart and fortunate (as is the USA) and we > should not look at the present low price of gasoline as any kind of > blessing. IMHO, it is part of a well-thought-out plan. > > Jones >
