Oil Shockwave

[tomahawk6]

http://www.washingtonpost.com/wp-dyn/content/article/2005/06/23/AR2005062301896.html

This was an interesting exercise which unforunately was flawed. The exercise required internal strife in Nigeria and attacks upon US infrastructure to create the dynamics for an economic meltdown. Many of us could create a much more realistic
scenario. The bottom line though is that no matter what factors trigger a world wide oil price shock countries like China would be catastrophically affected. The west can pay increased oil prices [not without an economic hit] , the developing world could not.

 

[openclass]

This exercise, as well as most discussion centres on the 'crisis' of high oil prices.  I would argue that it not possible for there to be long term high oil prices as the subsequent reccession would drive down demand for oil.  Even if the world did not sink into a major recession/depression high energy prices will encourage conservation and alternative energy sources. 

The real crisis will be when oil prices collapse.  Saudi Arabia, Iran, and Venezuela in particular have been spending money like there is no tomorrow in order to make their governments more popular.  This is not sustainable.  At least when the next revolution in Iran comes, the new government is likely to be pro US.

 

[Armymedic]

I would argue that it not possible for there to be long term high oil prices as the subsequent reccession would drive down demand for oil.  

Even if the world did not sink into a major recession/depression high energy prices will encourage conservation and alternative energy sources.  

I disagree with with the first sentence, and hope the second comes true.

Much of the demand is in fueling electric power and vehicles, this type of demand is a not temporary, and can't be easily turned off with out signifcant disruption to a struggling economy.

I also hope high oil prices will fund other more enviromentally friendly  fuel sources such as bio fuels or hydrogen based power systems

 

[TCBF]

Hydrogen is a non-starter, and judging by the taste of the water in my cup, my cold fusion experiment isn't going to fill the gap soon either.

ULSD - Ultra Low Sulpher Diesel - is a safer bet.  The gas/electric hybrids are mere curiousities still, lets see how they pan out after a few Cdn winters.

Tom

 

[Dare]

http://www.realcities.com/mld/krwashington/11979395.htm

Another perspective on this event.

 

[Dare]

This exercise, as well as most discussion centres on the 'crisis' of high oil prices.  I would argue that it not possible for there to be long term high oil prices as the subsequent reccession would drive down demand for oil.  Even if the world did not sink into a major recession/depression high energy prices will encourage conservation and alternative energy sources. 

The real crisis will be when oil prices collapse.  Saudi Arabia, Iran, and Venezuela in particular have been spending money like there is no tomorrow in order to make their governments more popular.  This is not sustainable.  At least when the next revolution in Iran comes, the new government is likely to be pro US.

I disagree 100%. The real crisis is when prices fly past a certain threshold. From there it's a point of no return, even an opening of the US strategic reserves or drilling in ANWAR would not stop the fall. The economy would collapse to a standstill in where it is too late to switch to alternative means just as the means to produce these systems will also be at a standstill. It's one of those events that can easily spiral out of control. The truckers feel it first, so watch what they say about prices. When they stop transporting goods, it'll be a good sign of Impending Doom. It doesn't take a whole lot either to cause this cascade failure. So little, in fact, that I believe if most westerners understood how close to the line we are, they'd be demanding wars for oil. Maybe that's on the horizon too..

As for the devaluation of oil. That rebalancing and it's effects would be highly welcomed by me.

 

[openclass]

I do not believe there can be a doomsday scenario caused by high oil prices for the following reasons.

1).  Alternative energy does not mean fuel cells and bio-fuels.  IF the price of oil stays at its present levels for much longer. new infrastructure in form of coal, natural gas, and nuclear power stations will relplace oil fired generators.  This is already happening.  The automobile fleet in North America will also be much smaller.  Americans won't be paying $75 to fill their SUVs because they won't be driving SUVs.

2).  More expensive sources of oil are becoming, well, not so expensive.  I am referring mainly to the Alberta tar sands, but fields in Siberia and Africa are also being developed. 

3).  Some of the major oil producers really need the money from selling oil.  Take the case of Saudi Arabia.  Basically they are using oil money to provide jobs for its citizens.  When the price starts to fall, in the order to keep paying the bills of  bloated state enterprises, they will have to maintain revenue by increasing exports.  This in turn will dpress prices further. 

4).  High oil prices will cause a slow down in the economies of every country that consumes it (except some oil exporting nations).  This in turn will depress demand for expensive oil.  I also think that we are headed for a major recession anyways.  With the US by almost every measure in debt or in deficit (trade deficit, current account deficit, federal budget deficit, defined pension liabilities, consumer debt, etc...)  there is going to be a hard landing no matter what.

5).  Historically, whenever high commodity prices got out of hand, whether it be gold, oil, grain, copper, steel, or whatever else you can think of, there followed a long period of depressed prices. 
   

 

[Dare]

I do not believe there can be a doomsday scenario caused by high oil prices for the following reasons.

1).  Alternative energy does not mean fuel cells and bio-fuels.  IF the price of oil stays at its present levels for much longer. new infrastructure in form of coal, natural gas, and nuclear power stations will relplace oil fired generators.  This is already happening.  The automobile fleet in North America will also be much smaller.  Americans won't be paying $75 to fill their SUVs because they won't be driving SUVs.

2).  More expensive sources of oil are becoming, well, not so expensive.  I am referring mainly to the Alberta tar sands, but fields in Siberia and Africa are also being developed. 

3).  Some of the major oil producers really need the money from selling oil.  Take the case of Saudi Arabia.  Basically they are using oil money to provide jobs for its citizens.  When the price starts to fall, in the order to keep paying the bills of  bloated state enterprises, they will have to maintain revenue by increasing exports.  This in turn will dpress prices further. 

4).  High oil prices will cause a slow down in the economies of every country that consumes it (except some oil exporting nations).  This in turn will depress demand for expensive oil.  I also think that we are headed for a major recession anyways.  With the US by almost every measure in debt or in deficit (trade deficit, current account deficit, federal budget deficit, defined pension liabilities, consumer debt, etc...)  there is going to be a hard landing no matter what.

5).  Historically, whenever high commodity prices got out of hand, whether it be gold, oil, grain, copper, steel, or whatever else you can think of, there followed a long period of depressed prices. 

Oil is not comparable to gold or grain. Our entire economy is dependent on cheap oil. Even if we manage to get all cars down substantially. The trucks, planes and ships that keep our economy flowing are heavily reliant on it. There is no sign of a slow down in consumption there. We also assume in the above scenario that the oil producing countries would not, for their own sake, wish to do anything that would cause our destruction. I would not take that for granted as there are growing tones in all oil producing nations. Even in not-so-often talked about nations like Nigeria (as mentioned in the article). In order for a nuclear/coal/hydro/geothermal station to be built, you need oil. By the time the need is seen and observed to be a true threat to the nations interests by the masses, it will be too expensive to do realisticly provide for demand building anything such as that. While there are pre-emptive actions already being taken, I do not believe it is sufficient to prevent a collapse. The best, I think, that we can hope for is drilling in ANWAR in the near future and perhaps some lucky finds off the coast. As the oil-producing regions of the world are becoming less and less viable/stable, we could see this commodity being used more and more as a weapon. The wests enemies know that there is one sure way to grind the US military/government/economy to a standstill and that is to stop or thin the flow of oil. To view it in a strictly economical perspective is not putting enough variables into the mix. Nor does talking about "American SUV's" really get to the heart of it. Which is, almost every product we use required oil at some point along distribution chain. There is a tremendous cost to replacing every single thing/method we currently use to an alternative fuel/lubrication/petroleum byproduct. For instance, I love my WD40, but what am I (and all other WD40 users) going to use instead? Canola oil? Where are we to get that much? What would be the economical effect of that move? That's just one of the many petroleum products. I won't even get to the manufacture of plastics. That combined with the price of oil not entirely being connected to supply and demand. It is an artificially manipulated price that often depends more on public perception that day or political events. We'll see how it turns out. Personally, I hope it does turn into a slight market correction and easy switchover, I just find it unlikely.

EDIT: Spelling error.

 

[Sheerin]

patrolem products surround us.  if the price of crude rises to a point where we can no longer afford to make things we're screwed basically!

Ever hear of the Hubbart Peak?  http://www.hubbertpeak.com/

Unfortuantely I don't believe any of the alternative forms of energy production we've come up with are ready to be fully implemented.  however some can be used on a limited scale to help curtail our crude usage.  We also have to begin figuring out which alternatives we should focus on and divert funds from other sources to find ways to exploit that source.  I think the first on the chopping block should be ethanol.  Thats just a giant cheque for major coprorations.  The production of ethanol requires roughly the same amount of fossil fuel energy as it produces. 

Maybe if we were able to get most transport trucks to use Bio Deisel that could help?

 

[Roger]

The bottom line though is that no matter what factors trigger a world wide oil price shock countries like China would be catastrophically affected.

Actually the Chinese government does not tax fuel, hence very cheap gas in China. In Montreal today gas was $1.02 cdn a liter; it sells for about $0.60 a liter (3.90 Yuan a liter) today in China. Also they are getting wealthier in China, 20% of the population now makes $100.00 cdn a month where as 5 years ago it was $10.00. So don't look at China suffering due to the price of a barrel of oil. It will be us.....

 

[Dogboy]

their was a big truckers strike in vancover this week over needing more pay so they can pay for more gas so they can run the trucks.
our whole sistum is Dependant on oil not just for us to get around but our food to
if the truckers stop running the city's will starve within a week.

 

[a_majoor]

The nice thing about Capitalism is that resources will flow to where the money is. There are tons of ideas out there being R&D'd right now with investors and entrepreneurs hoping oil will become so expensive that their schemes will pay off. As prices rise, more money will flow there.

As well, even now, money and resources are flowint into Alberta to develop the tar sands, with something like $25 billion dollars a year being spent on new capital investment, everything from shovels and trucks to dig the stuff up; to the special plants required to extract the bitumen and "crack" it into usable oil products. There is also a big flow of investment into conservation.

True, the picture is not all great, but when the time comes, there will be a shock, then a dusting off period and a flow to new technologies. My advice is to invest in a wide portfolio of alternatives, and spends some of your money on conservation.

 

[tomahawk6]

Ultimately the end user will pay for the increased cost of fuel. The shipper usually pays a fuel surcharge to the carrier. As costs increase the cost of fuel will be added to the price of the product so the consumer in the end will pay the increase.

 

[tomahawk6]

As I expected high oil prices will begin to affect the developing countries far more than the west.

http://news.yahoo.com/s/ap/20050629/ap_on_bi_ge/asia_oil_threat

 

[Bert]

Part of the problem is understanding the nature of the high cost, current demand, and future
viability of oil.  It is a finite resource and countries/regions will fight over it.  Already, the EU,
China, Russia, and the US are juggling for influence in various regions of high resource and
shipping gateways.  The sooner the issue globally understood, the sooner solutions can be
integrated.  I

From my limited understanding of global oil usage, the high demand for and the dwindling of easy
to drill oil reserves equates to the need for energy source migration.  Not to get into science fiction
too much, but as future populations may fight over non-renewable resources, the viability of off-planet
resource collecting may be on the horizon.