Peak Oil, Reloaded?

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Meta4
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Peak Oil, Reloaded?

Post by Meta4 » Tue Jul 24, 2018 1:03 pm

Roughly a decade ago Peak Oil was of major concern for many investors as any sustained shortfall in the growth of oil supplies would most likely cause significant negative economic fallout. In fact there is evidence suggesting it did play a roll in the 2008 meltdown and the 2014 dip in recovery. Then of course the "fracking revolution" happened and everyone seemed to forget all about impending oil shortfalls. What hasn't gotten much press is that the many in the shale oil/gas business aren't actually making a profit and have borrowed heavily to keep the drills turning. Many of those IOUs will be coming due soon and there is some question as to how much of it will actually get paid back. This fiscal pickle combined with the rather steep depletion rates of shale plays (often 70% in first year) suggests that the revolution may well be short-lived and in so ending this decade-long stretch of market growth, possibly for a sustained period if no other significant oil sources come on line.

Anyway, what's the plan for Bogleheads? Staying the course when the rules have fundamentally changed seems like a bad idea to me and apparently many others; there has been a significant moving of assets out of equities over the past year. I'm also losing confidence that my VG Total Bond fund will be a safe port to ride out the storm should it materialize.

Refs:
https://en.wikipedia.org/wiki/Peak_oil
https://www.bloomberg.com/news/articles ... t-payments
http://euanmearns.com/us-shale-oil-dril ... ine-rates/

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Re: Peak Oil, Reloaded?

Post by alfaspider » Tue Jul 24, 2018 1:20 pm

Personally, I have a built-in hedge against high oil prices in the form of oil company RSUs. However, I wouldn't advise anybody straying too far from a BH mindset to play the oil price rise. There are just so many variables in trying to predict where oil is going such that even people who do it for a living rarely get it right.

A few variables to think about: Shale gets a lot of press, but at the end of the day it's still a small portion of global oil production. What happens in the Permian is no more important than what happens in Venezuela (or Mexico, or West Africa, or Brazil for that matter)- let alone Russia and Saudi Arabia. It's not clear how the Saudis and Russians will react over the next few years if supply seems constrained, and it's also not clear how much excess capactity they have. Nobody knows whether Venezuela gets back on its feet or faces total collapse of the oil industry. Then you also have the demand variable. Will it continue rising quickly as countries like India industrialize, or will a global trade war grind demand down? Hard to know.

I've previously stated on the forum that if you do want to speculate on oil prices, I think the way to do it is to buy a basket of 5 or so large-cap E&P companies. They are closely correlated with oil prices but aren't as subject to debt pressures or single-play risk as smaller companies. Unlike the majors, they don't have to worry about crack spreads and and other factors outside of oil prices. Unlike pure oil derivatives, you don't have to worry about decay.

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Re: Peak Oil, Reloaded?

Post by JoMoney » Tue Jul 24, 2018 1:30 pm

Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
...Staying the course when the rules have fundamentally changed seems like a bad idea to me ...
You seem to be playing a different game. Whatever the stock and bond market returns are, is what they are. Investors in aggregate aren't going to add anything extra to it by trying to beat themselves trading. For those aiming at getting the markets return, "the rules" haven't changed.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Peak Oil, Reloaded?

Post by alex_686 » Tue Jul 24, 2018 1:40 pm

Let me say no for 2 reasons.

The first is that there is a low correlation between the performance of extraction industries and the underlying commodity. Often companies will hedge prices for years. Even over a decade. So you shouldn't bet on the oil producers for the short term - but by short term I mean under 10 years. By close reading of the annual reports you might be able to figure out a company or 3 to invest in, but we are not out of passive investing.

The second is that wind and solar are finally becoming economically viable without massive subsidies, electric cars are becoming a thing, etc. What will energy market look like in 10 years?

So, you are going to need to guess correctly on both of these things.

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Re: Peak Oil, Reloaded?

Post by PVW » Tue Jul 24, 2018 1:46 pm

Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
Anyway, what's the plan for Bogleheads?
Same thing I did during the last peak oil panic. Stay the course.

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Re: Peak Oil, Reloaded?

Post by alfaspider » Tue Jul 24, 2018 1:48 pm

alex_686 wrote:
Tue Jul 24, 2018 1:40 pm


The first is that there is a low correlation between the performance of extraction industries and the underlying commodity. Often companies will hedge prices for years. Even over a decade. So you shouldn't bet on the oil producers for the short term - but by short term I mean under 10 years.
Long-term hedging of this nature is not common in the oil industry. Most of the very heavily hedged companies are smaller ones that have to hedge to satisfy debt covenants. E&Ps are pretty strongly correlated with crude prices.

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Re: Peak Oil, Reloaded?

Post by JBTX » Tue Jul 24, 2018 2:07 pm

I don't know what will happen. I have been hearing for years the fracking boom will eventually run itself out. But it hasn't happened yet. What has happened is the new technologies have developed that have allowed them to take existing wells and either dig deeper or go different directions, thus decreasing the incremental cost of fracked oil. I am hesitant to bet against technology being able to solve any shortfalls, whether through superior extraction methods or alternative energy energy.

https://www.google.com/amp/s/business.f ... hale-1/amp

https://www.the-american-interest.com/2 ... 0-percent/

https://shipandbunker.com/news/emea/911 ... l-fracking


Any more, high oil prices seem to be a relative push in the US markets. They do hurt consumers, but benefit the oil companies, and we actually do export quite a bit these days (more of industrial crude I think). The tar sands is always sitting up there to tap in Canada if oil prices get high enough.
Last edited by JBTX on Tue Jul 24, 2018 2:14 pm, edited 1 time in total.

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Re: Peak Oil, Reloaded?

Post by bottlecap » Tue Jul 24, 2018 2:12 pm

Everyone who wants to be “proactive” when investing always pretends that “this time it’s different” and thinks they are the only one to realize it.

If things truly ever become different, it is extremely unlikely that you will make the right call.

You will probably make the wrong call 9 times out of 10. At that point, you won’t have much left anyway.

JT

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Re: Peak Oil, Reloaded?

Post by nedsaid » Tue Jul 24, 2018 2:56 pm

You hear a lot about peak demand nowadays, not so much about peak supply. We have been running out of oil since the oil business started. Somehow technology makes more oil available.
A fool and his money are good for business.

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Re: Peak Oil, Reloaded?

Post by alfaspider » Tue Jul 24, 2018 3:11 pm

nedsaid wrote:
Tue Jul 24, 2018 2:56 pm
You hear a lot about peak demand nowadays, not so much about peak supply. We have been running out of oil since the oil business started. Somehow technology makes more oil available.
It's a product of the cycle. When oil prices are low, you hear about peak demand and calls of "lower for longer." After a while, lower for longer becomes "lower for ever." Then, the low oil prices cure the low oil prices through under-investment and you start hearing about peak oil supply again. People have a way of adjusting the narrative to fit current market conditions.

One thing is for certain: there will be a day of peak oil production and a day of peak oil demand. The timing of those days is so so speculative that they aren't particularly useful for making investment decisions. There will also be a day when the sun no longer burns, but I don't worry about that too much either :happy

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Re: Peak Oil, Reloaded?

Post by Wakefield1 » Tue Jul 24, 2018 3:20 pm

I understand that different crudes vary greatly from one another in their hydrocarbon and impurity makeup and that there is evidence that some but not all crude came from non biological sources -like polymerization of primitive materials such as those that make up much of the planet Jupiter and may have been part of primitive Earth. So there could be a lot of the stuff in the ground
Did Rockefeller (Senior) once say that the price of oil is uncontrollable and/or unpredictable and that to make money in the oil business he would have to be able to operate regardless of whether the price was high or the price was low?

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Re: Peak Oil, Reloaded?

Post by Valuethinker » Tue Jul 24, 2018 3:54 pm

Wakefield1 wrote:
Tue Jul 24, 2018 3:20 pm
I understand that different crudes vary greatly from one another in their hydrocarbon and impurity makeup and that there is evidence that some but not all crude came from non biological sources -like polymerization of primitive materials such as those that make up much of the planet Jupiter and may have been part of primitive Earth. So there could be a lot of the stuff in the ground
Did Rockefeller (Senior) once say that the price of oil is uncontrollable and/or unpredictable and that to make money in the oil business he would have to be able to operate regardless of whether the price was high or the price was low?
Vaclav Smil is the academic who is also the most cited by Bill gates on his blog. He has written a number of books about energy.

In his earlier books he suggested this theory, advanced by Soviet geologists, might have some veracity.

In his latest book, on Natural Gas, he now says the evidence does not support it.

I therefore pretty much discount it.

There are methane clathrates under pressure at the bottom of the sea. A virtually inexhaustible supply of methane which can be converted into liquid fuels.
Via Gas-To-Liquids technology.

This bad news is that if this is all released, or the methane buried in the permafrost is released in a short timeframe, then the planet will undergo an extinction similar to that of the Great Permian Extinction (much worse than the KT extinction which finished off the dinosaurs) which killed 99 per cent of all living species. You are talking about truly huge amounts of methane.

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Re: Peak Oil, Reloaded?

Post by Valuethinker » Tue Jul 24, 2018 3:57 pm

JBTX wrote:
Tue Jul 24, 2018 2:07 pm
I don't know what will happen. I have been hearing for years the fracking boom will eventually run itself out. But it hasn't happened yet. What has happened is the new technologies have developed that have allowed them to take existing wells and either dig deeper or go different directions, thus decreasing the incremental cost of fracked oil. I am hesitant to bet against technology being able to solve any shortfalls, whether through superior extraction methods or alternative energy energy.

https://www.google.com/amp/s/business.f ... hale-1/amp

https://www.the-american-interest.com/2 ... 0-percent/

https://shipandbunker.com/news/emea/911 ... l-fracking


Any more, high oil prices seem to be a relative push in the US markets. They do hurt consumers, but benefit the oil companies, and we actually do export quite a bit these days (more of industrial crude I think). The tar sands is always sitting up there to tap in Canada if oil prices get high enough.
Other than USA and Canada fracking has not really been tried in the rest of the world. Poland had disappointing results, China is trying but lacks the technology and has water supply issues in its oil producing regions.

All the evidence suggests there are fast new reserves of oil now extractible albeit requiring high oil prices in historic terms to make them viable.

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Re: Peak Oil, Reloaded?

Post by Valuethinker » Tue Jul 24, 2018 4:03 pm

Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
Roughly a decade ago Peak Oil was of major concern for many investors as any sustained shortfall in the growth of oil supplies would most likely cause significant negative economic fallout. In fact there is evidence suggesting it did play a roll in the 2008 meltdown and the 2014 dip in recovery. Then of course the "fracking revolution" happened and everyone seemed to forget all about impending oil shortfalls. What hasn't gotten much press is that the many in the shale oil/gas business aren't actually making a profit and have borrowed heavily to keep the drills turning. Many of those IOUs will be coming due soon and there is some question as to how much of it will actually get paid back. This fiscal pickle combined with the rather steep depletion rates of shale plays (often 70% in first year) suggests that the revolution may well be short-lived and in so ending this decade-long stretch of market growth, possibly for a sustained period if no other significant oil sources come on line.

Anyway, what's the plan for Bogleheads? Staying the course when the rules have fundamentally changed seems like a bad idea to me and apparently many others; there has been a significant moving of assets out of equities over the past year. I'm also losing confidence that my VG Total Bond fund will be a safe port to ride out the storm should it materialize.

Refs:
https://en.wikipedia.org/wiki/Peak_oil
https://www.bloomberg.com/news/articles ... t-payments
http://euanmearns.com/us-shale-oil-dril ... ine-rates/
Read Spencer Dale, Chief economist of BP, on the new economics of oil (Google that title). There is likely an inexhaustible supply of oil now available, with supply highly responsive to higher prices. The energy industry is profoundly changed, forever.

The Saudis are telling you that they see this, by privatising Aramco, world's biggest oil company. They are trading off future revenues against current injection of cash by sale to foreign investors. The fix is in.

Both Dieter Helms books The Carbon Crunch and Burn Out: the endgame for fossil fuels, are bracing reads on the huge implications of all this. Bottom line: don't be Russia. Or Alberta.

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Re: Peak Oil, Reloaded?

Post by thx1138 » Tue Jul 24, 2018 4:08 pm

Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
Anyway, what's the plan for Bogleheads?
Stay the course, of course.
Staying the course when the rules have fundamentally changed seems like a bad idea to me and apparently many others;
What rules have fundamentally changed??? Peak oil has been talked about, and been wrong, more times than we have fingers for over a century.

You are currently fussed about debt issued to frackers? Seriously? Go back and read about all the hand-wringing over the endless problems the North Sea was going to have way back when it was first starting. All the hand-wringing that amounted to nothing of course...

You do realize fracking has only been applied to a small fraction of likely reserves around the world?
there has been a significant moving of assets out of equities over the past year.
And this is different than so many past years in which assets moved out of equities only to be followed by new market highs?

Not to mention all the times assets moved *into* equities only to be followed by a horrible crash?
I'm also losing confidence that my VG Total Bond fund will be a safe port to ride out the storm should it materialize.
My goodness. You need to help yourself here or you are going to make some serious and costly mistakes going forward.

Step one: Stop watching the shouting heads on TV. They have no knowledge and listening to them will only lose you money.

Step two: Stop reading market blogs. Same story as above.

Step three: Write down a plan (specifically a savings rate and an asset allocation) and then stick to it. Don't change it based on news items. Some folks that have trouble getting spun up by the financial press like you have set a sensible rule of not allowing themselves to execute a change in their AA for some period of time like a year. Sounds like that might be a good discipline to use for yourself.

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Re: Peak Oil, Reloaded?

Post by Iridium » Tue Jul 24, 2018 4:30 pm

Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
Staying the course when the rules have fundamentally changed seems like a bad idea to me and apparently many others;
Beyond the typical Bogleheads arguments: this statement only makes sense if the rule is exceptionally important. Back in the days when oil = energy, you could make that case. However, the US has more natural gas than it knows what to do with (and plenty continues to get flared off oil rigs), and a lot of our energy infrastructure has already converted over to natural gas. A jump in oil would squeeze consumers and have some effect on transportation cost. However, there are plenty of ways to squeeze consumers. Nothing fundamentally different there. Transportation is important, but does not seem to be an enormous component of the cost of most goods, if the far flung supply chains are anything to go by. In addition, it is not impossible for transportation to switch over to NG. In my area, the buses and garbage trucks are already CNG. Presumably, if oil got high enough to create an economic shock, other transport companies would look into doing similar conversations (I am assuming there is a good reason why the long haul truckers and trains have not switched, but the UPS/FedEx/USPS delivery van would seem to be a prime candidate).
Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
there has been a significant moving of assets out of equities over the past year.
Given that the market is near all time highs, it would seem that such a move out would be relatively modest. Someone has to be buying the equities. Granted, stock buybacks are a lot of it, but companies couldn't afford to offset what I would call a 'significant' move.

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Re: Peak Oil, Reloaded?

Post by Valuethinker » Tue Jul 24, 2018 4:44 pm

thx1138 wrote:
Tue Jul 24, 2018 4:08 pm
Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
Anyway, what's the plan for Bogleheads?
Stay the course, of course.
Staying the course when the rules have fundamentally changed seems like a bad idea to me and apparently many others;
What rules have fundamentally changed??? Peak oil has been talked about, and been wrong, more times than we have fingers for over a century.
One part that is (sort of) true. Generally oil extraction proceeds from cheapest sources to most expensive at least within a country. Given that and rising emerging market demand, it's unlikely we will see 10 dollars a barrel again. That was a product of the Asia crash of 1997. Even granted continual technological improvements, US trackers don't seem to be able to make money below say 40 dollars. And if price falls below that, frackingg activity responds thus reducing supply.

That's different from history where the cost of new fields was a fixed cost in the billions or 10s if billions, and thus production continued even at very low prices.
You are currently fussed about debt issued to frackers? Seriously? Go back and read about all the hand-wringing over the endless problems the North Sea was going to have way back when it was first starting. All the hand-wringing that amounted to nothing of course...
Piper Alpha. Santa Barbara. Deep water Horizon. Turned out offshore drilling is fraught with peril.

And the North Sea is in steep decline. Less than half its peak production and falling fast. So there is a limit to these things.
You do realize fracking has only been applied to a small fraction of likely reserves around the world?
That's the key. This revolution has likely only just got started.

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Re: Peak Oil, Reloaded?

Post by LadyGeek » Tue Jul 24, 2018 4:54 pm

Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
Roughly a decade ago Peak Oil was of major concern for many investors as any sustained shortfall in the growth of oil supplies would most likely cause significant negative economic fallout.
Several years ago, we removed "peak oil" from our list of Non-actionable (Trolling) Topics:
If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
  • US or world economic, political, tax, health care and climate policies
  • conspiracy theories of any type
  • discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.
At that time, oil prices were stable and contentious disagreements no longer occurred.

Please stay focused on an actionable discussion, as we may also reload our forum guidelines as appropriate.
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Re: Peak Oil, Reloaded?

Post by JBTX » Tue Jul 24, 2018 4:55 pm

When you look at future potential trends- automation, robotics, artificial intelligence, creation and growing of human tissue, increasing life spans, resource issues such as water, whatever impact climate has, these can all be disruptive, both from a positive and negative perspective. In my mind running out of oil is well down that list. I'm not sure how one can "proactively" invest for any of that. Generally the broad market should reflect those trends and future problems can also be investing opportunities.

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Re: Peak Oil, Reloaded?

Post by roymeo » Tue Jul 24, 2018 5:40 pm

No business has changed in the past 30 years; Peak Oil is the only change on the horizon?

Or is the business environment for every sector and industry constantly changing, sometimes small, sometimes large?

Applying a sexy name to it makes it easier to paint yourself into a conceptual box I suppose.
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Re: Peak Oil, Reloaded?

Post by munemaker » Tue Jul 24, 2018 5:41 pm

Relax. Saudi Arabia is picking up the slack:

https://www.aljazeera.com/news/2018/07/ ... 50335.html

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Re: Peak Oil, Reloaded?

Post by jharkin » Tue Jul 24, 2018 5:50 pm

*This* boglehead will be thrilled to see the shale promise of “oil forever” not materialize. It means there is a chance we just might manage to NOT make the planet uninhabitable for my grandchildren.

Unlimited growth forever on a finite planet is physically impossible. That’s not politics, that’s math. Sooner society starts to accept it, the better.

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Re: Peak Oil, Reloaded?

Post by jminv » Tue Jul 24, 2018 6:27 pm

Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
What hasn't gotten much press is that the many in the shale oil/gas business aren't actually making a profit and have borrowed heavily to keep the drills turning. Many of those IOUs will be coming due soon and there is some question as to how much of it will actually get paid back. This fiscal pickle combined with the rather steep depletion rates of shale plays (often 70% in first year) suggests that the revolution may well be short-lived and in so ending this decade-long stretch of market growth, possibly for a sustained period if no other significant oil sources come on line.

Anyway, what's the plan for Bogleheads? Staying the course when the rules have fundamentally changed seems like a bad idea to me and apparently many others; there has been a significant moving of assets out of equities over the past year. I'm also losing confidence that my VG Total Bond fund will be a safe port to ride out the storm should it materialize.
Many of the shale producers are making a profit at current prices. They cut costs and increased the efficiency with which they complete the wells during the oil downturn. For those drillers that aren't, as oil prices increase it will encourage them to drill, bringing on more supply.

There's a thought that the shale drillers are the new swing producers and have displaced Saudia Arabia/OPEC in this position. It does seem to be the case. Saudis tried to force out the shale drillers by increasing supply/decreasing price but that just made them more efficient and better able to produce at lower prices. In any case, the price of oil is not that high at the moment.

Maybe you haven't thought about how a 70% well depletion can actually help stabilize prices. As oil prices increase, shale drillers drill more. The increase in oil supply and broader trends in the overall economy will eventually lead to a price decrease. Because the shale wells deplete quickly, this leads to a rapid drop off in supply if the shale drillers don't keep drilling ahead because prices have dropped. Conventional oil wells, on the other hand, are run until they're dry, normally, since most of the cost was in drilling the well which is a spent cost but the reservoirs they're tapping can last many, many years. This can lead to a prolonged supply overhang. The rapid drop off of individual shale wells means that a fall in price might not be as severe as before. This can decrease the cyclicality of the oil industry. If the prices justify it, shale drillers will continue drilling to create new wells to pump. Shale drillers will also take advantage of the decrease in input prices during a downturn to drill more wells and then wait to extract until the price rebounds, which they did in the recent past to some extent. Price goes up, they start producing quickly and then start drilling even more.

If debt comes due and a shale driller can't make payment, they will declare bankruptcy. They will either work it out in the bankruptcy process or their drilling rights will be sold onto a driller that can make it work. Debt coming due isn't really relevant. If you believe the oil price will be elevated for some time, then there would be even less debt concern as they would have the cash flow to meet their debt repayment schedule.

The economy is also less oil dependent than it was before. This has been a long term evolution.

What generally causes the party to start ending is the fed raising interest rates to cool the economy, not oil prices. Since the fed targets core inflation, they've stripped out the volatile oil part of it.

I don't think the next recession is going to occur because of oil. I'd suspect something else.

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Re: Peak Oil, Reloaded?

Post by ClevrChico » Tue Jul 24, 2018 6:55 pm

Last week someone stopped me at the pump to ask how much it cost to fill my fuel efficient car. That hasn't happened in a while, and I consider it a sign. :-)

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Re: Peak Oil, Reloaded?

Post by thx1138 » Tue Jul 24, 2018 8:12 pm

Valuethinker wrote:
Tue Jul 24, 2018 4:44 pm
One part that is (sort of) true. Generally oil extraction proceeds from cheapest sources to most expensive at least within a country. Given that and rising emerging market demand, it's unlikely we will see 10 dollars a barrel again. That was a product of the Asia crash of 1997. Even granted continual technological improvements, US trackers don't seem to be able to make money below say 40 dollars. And if price falls below that, frackingg activity responds thus reducing supply.

That's different from history where the cost of new fields was a fixed cost in the billions or 10s if billions, and thus production continued even at very low prices.
The flip side of the past mega-capital intensive fields was that they were extremely slow to respond to supply or demand shocks and so prices could really soar for awhile. Fracking being more incremental can produce smoother prices in the short to medium term.

Forty dollar a barrel oil in *nominal* terms is incredibly cheap. Let's not fall into the classic failure to not think in real terms.

Image

In real terms there was oil before 1973 and oil after 1973. Nothing in the recent price trends is at all "new" for the post 1973 market. Thus the OP should not be thinking there is some sort of crisis afoot.
Piper Alpha. Santa Barbara. Deep water Horizon. Turned out offshore drilling is fraught with peril.
Indeed it was. Despite that it was still successful, and total offshore production has continued to climb essentially every year currently representing 30% of global production.
And the North Sea is in steep decline. Less than half its peak production and falling fast. So there is a limit to these things.
There is a limit to every field of course. The fact the "impossible" North Sea has produced successfully for a few decades was my point. People are always crying the sky is falling in the oil industry and the OP is falling for it. He should go look at historical articles claiming the sky is falling to better appreciate how silly it would be to listen to the same kind of folks today.
You do realize fracking has only been applied to a small fraction of likely reserves around the world?
That's the key. This revolution has likely only just got started.
Yep! And likely it will last more than long enough that demand will be steadily falling well before we get even close to a supply peak.

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Re: Peak Oil, Reloaded?

Post by Valuethinker » Wed Jul 25, 2018 3:00 am

thx1138 wrote:
Tue Jul 24, 2018 8:12 pm
Valuethinker wrote:
Tue Jul 24, 2018 4:44 pm
One part that is (sort of) true. Generally oil extraction proceeds from cheapest sources to most expensive at least within a country. Given that and rising emerging market demand, it's unlikely we will see 10 dollars a barrel again. That was a product of the Asia crash of 1997. Even granted continual technological improvements, US trackers don't seem to be able to make money below say 40 dollars. And if price falls below that, frackingg activity responds thus reducing supply.

That's different from history where the cost of new fields was a fixed cost in the billions or 10s if billions, and thus production continued even at very low prices.
The flip side of the past mega-capital intensive fields was that they were extremely slow to respond to supply or demand shocks and so prices could really soar for awhile. Fracking being more incremental can produce smoother prices in the short to medium term.

Forty dollar a barrel oil in *nominal* terms is incredibly cheap. Let's not fall into the classic failure to not think in real terms.
Agreed. The frackers have achieved amazing reductions in cost, and I would probably have written that number as $60/bl 2-3 years ago. But it seems they can keep going at $40. For short term movements it does not hurt too much to use nominal numbers.

I agree re the insensitivity of production to price under the old model of megafield extraction. And yes that cut both ways-- on the downside and the upside. The behaviour of OPEC (Saudi Arabia, really) as a swing producer trying to stabilize oil prices had a big impact, but SA's influence on production and prices is probably far less important in the future. They need to keep the cash flow coming to support a burgeoning population (so just cutting production is not as feasible as it once was), and the frackers provide a relatively quick supply response to a change in price.
Image

In real terms there was oil before 1973 and oil after 1973. Nothing in the recent price trends is at all "new" for the post 1973 market. Thus the OP should not be thinking there is some sort of crisis afoot.
Agreed re crisis. If something took Iran and Venezuela, say, out of supply sources for the world market, then we would see a real spike. Maybe back to the summer 2008 $150/bl level.

I suspect if we run the oil price back to the 19th century, the anomaly was the period of stability enforced by the 7 Sisters i.e. say 1930-1973. Oil was a very volatile commodity in its early days, but monopolistic vertically integrated companies came to dominate the industry and stabilized prices (to their advantage). The only modern equivalent of that I can think of is Gazprom's relationship with Western Europe - the existence of pipelines gives them market dominance.

In an industry where new resources cost tens of billions to access and demand is relatively price inelastic, you are going to get these swings in price.
Piper Alpha. Santa Barbara. Deep water Horizon. Turned out offshore drilling is fraught with peril.
Indeed it was. Despite that it was still successful, and total offshore production has continued to climb essentially every year currently representing 30% of global production.
And the North Sea is in steep decline. Less than half its peak production and falling fast. So there is a limit to these things.
There is a limit to every field of course. The fact the "impossible" North Sea has produced successfully for a few decades was my point. People are always crying the sky is falling in the oil industry and the OP is falling for it. He should go look at historical articles claiming the sky is falling to better appreciate how silly it would be to listen to the same kind of folks today.
Fine. I don't recall that sort of criticism of the North Sea (which had the advantage of being relatively shallow, albeit with severe sea conditions) but I probably was not paying much attention at the time. The Norwegians saved their oil revenues, the British spent them ...
You do realize fracking has only been applied to a small fraction of likely reserves around the world?
That's the key. This revolution has likely only just got started.
Yep! And likely it will last more than long enough that demand will be steadily falling well before we get even close to a supply peak.
[/quote]

That's the change - the minimum investment and size of new oil reserves has shrunk dramatically. Oil has become more like an agricultural commodity, where price swings more rapidly bring a supply response.

At the moment, that is at the margin. But that's enough.
Last edited by Valuethinker on Wed Jul 25, 2018 3:33 am, edited 1 time in total.

AlohaJoe
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Re: Peak Oil, Reloaded?

Post by AlohaJoe » Wed Jul 25, 2018 3:15 am

Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
What hasn't gotten much press is that the many in the shale oil/gas business aren't actually making a profit and have borrowed heavily to keep the drills turning. Many of those IOUs will be coming due soon and there is some question as to how much of it will actually get paid back. This fiscal pickle combined with the rather steep depletion rates of shale plays (often 70% in first year) suggests that the revolution may well be short-lived and in so ending this decade-long stretch of market growth, possibly for a sustained period if no other significant oil sources come on line.
I'm confused. Are you suggesting that you've stumbled on some secret information the thousands of analysts who work 12-16 hour days covering these multi-billion dollar companies and markets don't know about?

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Re: Peak Oil, Reloaded?

Post by Valuethinker » Wed Jul 25, 2018 3:36 am

AlohaJoe wrote:
Wed Jul 25, 2018 3:15 am
Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
What hasn't gotten much press is that the many in the shale oil/gas business aren't actually making a profit and have borrowed heavily to keep the drills turning. Many of those IOUs will be coming due soon and there is some question as to how much of it will actually get paid back. This fiscal pickle combined with the rather steep depletion rates of shale plays (often 70% in first year) suggests that the revolution may well be short-lived and in so ending this decade-long stretch of market growth, possibly for a sustained period if no other significant oil sources come on line.
I'm confused. Are you suggesting that you've stumbled on some secret information the thousands of analysts who work 12-16 hour days covering these multi-billion dollar companies and markets don't know about?
It's such a nice demonstration of Econ 101.

The fracking industry is fragmented, and outsourcing means that anyone with money (pretty much) can enter by buying in equipment and services on a rental model. Thus, these companies compete away excess profits. You will have some lucky or skilful ones that make a superior return, but on average the marginal firm is only just profitable (just covers its cost of capital).

Oil producers as the wheat farmers of Econ 101. Who'd a thunk it, eh? ;-).

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Re: Peak Oil, Reloaded?

Post by Grt2bOutdoors » Wed Jul 25, 2018 6:14 am

What does oil have to do with Total Market Index investing or even factor investing? Nothing has changed, stay the course.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: Peak Oil, Reloaded?

Post by Grt2bOutdoors » Wed Jul 25, 2018 6:17 am

ClevrChico wrote:
Tue Jul 24, 2018 6:55 pm
Last week someone stopped me at the pump to ask how much it cost to fill my fuel efficient car. That hasn't happened in a while, and I consider it a sign. :-)
Of course it’s a sign, when it costs them $500 a month to lease their Ford F-150 that takes 80-100bucks a week in gas! Ford is laughing all the way to the bank.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Peak Oil, Reloaded?

Post by thx1138 » Wed Jul 25, 2018 6:20 am

Valuethinker wrote:
Wed Jul 25, 2018 3:00 am
Agreed re crisis. If something took Iran and Venezuela, say, out of supply sources for the world market, then we would see a real spike. Maybe back to the summer 2008 $150/bl level.
Agree, definitely still plenty of scenarios in which we get supply shocks causing large volatility in the market. Fracking provides a new shorter term supply response that should reduce the impact of smaller supply shocks compared to the past but at least at present it can only go so far so fast. So if enough conventional oil leaves the market in a hurry we will still get price spikes.
That's the change - the minimum investment and size of new oil reserves has shrunk dramatically. Oil has become more like an agricultural commodity, where price swings more rapidly bring a supply response.

At the moment, that is at the margin. But that's enough.
Yep, and of course it is the margin that matters with prices. The huge price spikes of the past have been the result of smallish losses of supply percentage wise. Any marginal production added that is easy to throttle can have an outsize impact on price. Like you said in a later post, becoming more akin to wheat farming almost!

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Re: Peak Oil, Reloaded?

Post by Grt2bOutdoors » Wed Jul 25, 2018 6:23 am

PVW wrote:
Tue Jul 24, 2018 1:46 pm
Meta4 wrote:
Tue Jul 24, 2018 1:03 pm
Anyway, what's the plan for Bogleheads?
Same thing I did during the last peak oil panic. Stay the course.
Frack all you want I say, all this fracking is releasing vast quantities of gas, the same gas that is used to power electric generating plants, heat houses, supply our domestic chemical plants.

Stay the course and oh, for those who don’t mind dabbling in beat up stocks get ready, following the bubble popping the party begins.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Valuethinker
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Re: Peak Oil, Reloaded?

Post by Valuethinker » Wed Jul 25, 2018 7:39 am

Grt2bOutdoors wrote:
Wed Jul 25, 2018 6:17 am
ClevrChico wrote:
Tue Jul 24, 2018 6:55 pm
Last week someone stopped me at the pump to ask how much it cost to fill my fuel efficient car. That hasn't happened in a while, and I consider it a sign. :-)
Of course it’s a sign, when it costs them $500 a month to lease their Ford F-150 that takes 80-100bucks a week in gas! Ford is laughing all the way to the bank.
Ughh.. are those really the numbers?

$4.00/ gal => 20 gals pw => 300-400 miles per week? Guessing (I stress guessing) that that's the sort of number for some kind of small contractor?

Would people who just commute to a single workplace drive an 18 mpg vehicle? As opposed to needing a carrying vehicle for tools etc? I always think of the US pickup truck market as the ultimate measure of how the small businessperson is really doing -- they only buy when things are looking up?

Pickups don't work well here (UK). It rains too much and they are too insecure. It's white vans all the way (I understand "white van man" has a different connotation in America, here it means self employed contractor). I know contractors who have a guard dog like a Rhodesian Ridgeback that they bring with them to work and leave in the van to stop people stealing tools, etc.

Main problem is they were encouraged to go diesel, and now it turns out that the PM 2.5 particulate problem is really bad (as well as the NOx problem), and it's the criterion on which diesel can never beat a gasoline engine. Crackdowns on diesels in urban areas coming.

alfaspider
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Re: Peak Oil, Reloaded?

Post by alfaspider » Wed Jul 25, 2018 8:01 am

thx1138 wrote:
Wed Jul 25, 2018 6:20 am

Agree, definitely still plenty of scenarios in which we get supply shocks causing large volatility in the market. Fracking provides a new shorter term supply response that should reduce the impact of smaller supply shocks compared to the past but at least at present it can only go so far so fast. So if enough conventional oil leaves the market in a hurry we will still get price spikes.
Yes, and I think people over-estimate how nimble fracked wells will be in terms of responding to supply deficits elsewhere. While it's true that fracked wells can be developed quickly, entirely new fields take time. For example, Permian production has flat lined over the last few months because there is limited pipeline infrastructure. You can truck away oil in absence of a pipeline, but you run into legal limits on how much gas you can flare in absence of sufficient gas gathering facilities.

As far as global shale development. It's certainly happening, but there are a lot of obstacles to it matching U.S. shale. Shale requires fairly robust infrastructure. A fracked well requires dozens of truckloads of various items of materials and equipment before it is ready to produce, and it requires good sources of water. There are places like the Mexico-side of the Eagle Ford shale with plenty of potential but almost no production due to political, security, and infrastructure issues. Then you have Western Europe, where fracking is still politically toxic. Finally, you have investor sentiment. Right now, investors (I mean the wall street analysts the key decision makers are listening to) want so see profits from shale producers- most were just breaking even in the $60 range. There's not a lot of appetite for new investment until they have proven themselves profitable.

Over a period of years, shale can ease supply deficits, but won't necessarily be able to respond quickly enough to offset conventional declines or a sudden supply shock caused by geopolitical events.

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Re: Peak Oil, Reloaded?

Post by Valuethinker » Wed Jul 25, 2018 10:01 am

alfaspider wrote:
Wed Jul 25, 2018 8:01 am


Over a period of years, shale can ease supply deficits, but won't necessarily be able to respond quickly enough to offset conventional declines or a sudden supply shock caused by geopolitical events.
Sudden supply shocks I agree. You lose Iran or Venezuela from world oil supplies, and there's going to be an unholy scramble to cover that shortfall. Particularly as demand is again rising with higher global economic growth plus growth in demand in emerging markets.

On supply deficits the system is to some extent self-correcting. It is always true that

quantity supplied = quantity demanded +/- changes in storage

Thus, supply and demand are always pretty close to balance. Falls in supply cause higher prices, which reduces demand. Because demand and supply are historically very price inelastic, you have *big* changes in price to move the two into balance.

It also stimulates higher production. Historically that was phasing in multi billion dollar offshore production facilities, or new Canadian tar sands plants, etc.

But the scale of the US shale turnaround is staggering. From nearly zero to something like 5m b/d in say 12 years? Granted, fracked wells drop in production quite quickly- these are not conventional oil wells. But the industry has managed to keep the intensity up through its first big test, the drop in price of oil from c. $110/bl to c. $40/ bl.

Electric Vehicles have not yet moved the meter. But they will. That reduces demand. Probably growth in total units means that the impact on petrol demand is not visible for quite a while. So not 2030 ... but 2040 for sure.
Last edited by Valuethinker on Wed Jul 25, 2018 10:59 am, edited 1 time in total.

bhsince87
Posts: 1863
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Re: Peak Oil, Reloaded?

Post by bhsince87 » Wed Jul 25, 2018 10:37 am

Valuethinker wrote:
Wed Jul 25, 2018 7:39 am
Grt2bOutdoors wrote:
Wed Jul 25, 2018 6:17 am
ClevrChico wrote:
Tue Jul 24, 2018 6:55 pm
Last week someone stopped me at the pump to ask how much it cost to fill my fuel efficient car. That hasn't happened in a while, and I consider it a sign. :-)
Of course it’s a sign, when it costs them $500 a month to lease their Ford F-150 that takes 80-100bucks a week in gas! Ford is laughing all the way to the bank.
Ughh.. are those really the numbers?

$4.00/ gal => 20 gals pw => 300-400 miles per week? Guessing (I stress guessing) that that's the sort of number for some kind of small contractor?

Would people who just commute to a single workplace drive an 18 mpg vehicle? As opposed to needing a carrying vehicle for tools etc? I always think of the US pickup truck market as the ultimate measure of how the small businessperson is really doing -- they only buy when things are looking up?

Pickups don't work well here (UK). It rains too much and they are too insecure. It's white vans all the way (I understand "white van man" has a different connotation in America, here it means self employed contractor). I know contractors who have a guard dog like a Rhodesian Ridgeback that they bring with them to work and leave in the van to stop people stealing tools, etc.

Main problem is they were encouraged to go diesel, and now it turns out that the PM 2.5 particulate problem is really bad (as well as the NOx problem), and it's the criterion on which diesel can never beat a gasoline engine. Crackdowns on diesels in urban areas coming.
Those numbers are way off. i drive a 2016 F-150 4X4. Paid cash (about $31k) And I'm not a contractor. I have a 14 mile commute, and average 22 MPG on that. Get about 25 MPG on the highway.

Gasoline is currently about $2.80/gal here, and I'm spending about $75-80 a month.

I could switch to a Prius and save $40 a month, but that's essentially noise floor....
Retirement: When you reach a point where you have enough. Or when you've had enough.

alfaspider
Posts: 1602
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Re: Peak Oil, Reloaded?

Post by alfaspider » Wed Jul 25, 2018 11:49 am

Valuethinker wrote:
Wed Jul 25, 2018 10:01 am
alfaspider wrote:
Wed Jul 25, 2018 8:01 am


Over a period of years, shale can ease supply deficits, but won't necessarily be able to respond quickly enough to offset conventional declines or a sudden supply shock caused by geopolitical events.
Sudden supply shocks I agree. You lose Iran or Venezuela from world oil supplies, and there's going to be an unholy scramble to cover that shortfall. Particularly as demand is again rising with higher global economic growth plus growth in demand in emerging markets.

On supply deficits the system is to some extent self-correcting. It is always true that

quantity supplied = quantity demanded +/- changes in storage

Thus, supply and demand are always pretty close to balance. Falls in supply cause higher prices, which reduces demand. Because demand and supply are historically very price inelastic, you have *big* changes in price to move the two into balance.

It also stimulates higher production. Historically that was phasing in multi billion dollar offshore production facilities, or new Canadian tar sands plants, etc.

But the scale of the US shale turnaround is staggering. From nearly zero to something like 5m b/d in say 12 years? Granted, fracked wells drop in production quite quickly- these are not conventional oil wells. But the industry has managed to keep the intensity up through its first big test, the drop in price of oil from c. $110/bl to c. $40/ bl.

Electric Vehicles have not yet moved the meter. But they will. That reduces demand. Probably growth in total units means that the impact on petrol demand is not visible for quite a while. So not 2030 ... but 2040 for sure.
I think we are talking slightly different time horizons here. I do believe we will see oil prices continue to rise through this year and probably next. $100+ oil is probable within a year. But that near-medium horizon is very different from how things will look in 2030. Shale will likely prevent any long-term shortage, but it won't ensure oil is cheap. While there are lots of profitable Permian wells at $50 a barrel, I have serious doubts that similar efficiency is going to be achieved in fracking outside the U.S. due to infrastructure and political issues. We probably will see fields like the Mexican Eagle Ford explored, but it will take $100+ oil to make it happen.

Electrification may put a significant dent in longer-term demand, but I think more likely it will merely reduce demand growth, at least over the next 20-30 years. You still have plenty of growing economies like India, Brazil, and Africa where electric vehicles face serious infrastructure barriers but are still rapidly mechanizing.

Grt2bOutdoors
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Re: Peak Oil, Reloaded?

Post by Grt2bOutdoors » Wed Jul 25, 2018 2:32 pm

bhsince87 wrote:
Wed Jul 25, 2018 10:37 am
Valuethinker wrote:
Wed Jul 25, 2018 7:39 am
Grt2bOutdoors wrote:
Wed Jul 25, 2018 6:17 am
ClevrChico wrote:
Tue Jul 24, 2018 6:55 pm
Last week someone stopped me at the pump to ask how much it cost to fill my fuel efficient car. That hasn't happened in a while, and I consider it a sign. :-)
Of course it’s a sign, when it costs them $500 a month to lease their Ford F-150 that takes 80-100bucks a week in gas! Ford is laughing all the way to the bank.
Ughh.. are those really the numbers?

$4.00/ gal => 20 gals pw => 300-400 miles per week? Guessing (I stress guessing) that that's the sort of number for some kind of small contractor?

Would people who just commute to a single workplace drive an 18 mpg vehicle? As opposed to needing a carrying vehicle for tools etc? I always think of the US pickup truck market as the ultimate measure of how the small businessperson is really doing -- they only buy when things are looking up?

Pickups don't work well here (UK). It rains too much and they are too insecure. It's white vans all the way (I understand "white van man" has a different connotation in America, here it means self employed contractor). I know contractors who have a guard dog like a Rhodesian Ridgeback that they bring with them to work and leave in the van to stop people stealing tools, etc.

Main problem is they were encouraged to go diesel, and now it turns out that the PM 2.5 particulate problem is really bad (as well as the NOx problem), and it's the criterion on which diesel can never beat a gasoline engine. Crackdowns on diesels in urban areas coming.
Those numbers are way off. i drive a 2016 F-150 4X4. Paid cash (about $31k) And I'm not a contractor. I have a 14 mile commute, and average 22 MPG on that. Get about 25 MPG on the highway.

Gasoline is currently about $2.80/gal here, and I'm spending about $75-80 a month.

I could switch to a Prius and save $40 a month, but that's essentially noise floor....
They’re not off for someone who financed their vehicles and drives more than 7 miles each way which in just about most places in the US especially along the coasts. Seven miles, some folks are driving that just to go to grocery store.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

bowest
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Re: Peak Oil, Reloaded?

Post by bowest » Wed Jul 25, 2018 2:46 pm

You can drop a rig in the Permian for $5 million. By contrast a GOM offshore rig costs at least $500 million.

Shale depletion rates miss the point at these economics. Just drop another rig if oil is above $30 and you should be fine. And the drillers are getting better at idenitfying more productive areas and developing them at lower costs so breakeven costs will continue to drop. You can stop worrying and posting about peak oil.

Valuethinker
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Re: Peak Oil, Reloaded?

Post by Valuethinker » Thu Jul 26, 2018 4:00 am

Grt2bOutdoors wrote:
Wed Jul 25, 2018 2:32 pm
bhsince87 wrote:
Wed Jul 25, 2018 10:37 am
Valuethinker wrote:
Wed Jul 25, 2018 7:39 am
Grt2bOutdoors wrote:
Wed Jul 25, 2018 6:17 am
ClevrChico wrote:
Tue Jul 24, 2018 6:55 pm
Last week someone stopped me at the pump to ask how much it cost to fill my fuel efficient car. That hasn't happened in a while, and I consider it a sign. :-)
Of course it’s a sign, when it costs them $500 a month to lease their Ford F-150 that takes 80-100bucks a week in gas! Ford is laughing all the way to the bank.
Ughh.. are those really the numbers?

$4.00/ gal => 20 gals pw => 300-400 miles per week? Guessing (I stress guessing) that that's the sort of number for some kind of small contractor?

Would people who just commute to a single workplace drive an 18 mpg vehicle? As opposed to needing a carrying vehicle for tools etc? I always think of the US pickup truck market as the ultimate measure of how the small businessperson is really doing -- they only buy when things are looking up?

Pickups don't work well here (UK). It rains too much and they are too insecure. It's white vans all the way (I understand "white van man" has a different connotation in America, here it means self employed contractor). I know contractors who have a guard dog like a Rhodesian Ridgeback that they bring with them to work and leave in the van to stop people stealing tools, etc.

Main problem is they were encouraged to go diesel, and now it turns out that the PM 2.5 particulate problem is really bad (as well as the NOx problem), and it's the criterion on which diesel can never beat a gasoline engine. Crackdowns on diesels in urban areas coming.
Those numbers are way off. i drive a 2016 F-150 4X4. Paid cash (about $31k) And I'm not a contractor. I have a 14 mile commute, and average 22 MPG on that. Get about 25 MPG on the highway.

Gasoline is currently about $2.80/gal here, and I'm spending about $75-80 a month.

I could switch to a Prius and save $40 a month, but that's essentially noise floor....
They’re not off for someone who financed their vehicles and drives more than 7 miles each way which in just about most places in the US especially along the coasts. Seven miles, some folks are driving that just to go to grocery store.
Say gas is $3/ gal. MPG of 20 mpg? Thus $80 pw = 27 gals = 540 miles per week?

Trying to understand where my parameters are wrong. UK gasoline prices are c 2x USA ones, so you can get to those numbers (but it's a much smaller country, and generally our vehicles have higher mpg).

Grt2bOutdoors
Posts: 19337
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Location: New York

Re: Peak Oil, Reloaded?

Post by Grt2bOutdoors » Thu Jul 26, 2018 6:16 am

Valuethinker wrote:
Thu Jul 26, 2018 4:00 am
Grt2bOutdoors wrote:
Wed Jul 25, 2018 2:32 pm
bhsince87 wrote:
Wed Jul 25, 2018 10:37 am
Valuethinker wrote:
Wed Jul 25, 2018 7:39 am
Grt2bOutdoors wrote:
Wed Jul 25, 2018 6:17 am


Of course it’s a sign, when it costs them $500 a month to lease their Ford F-150 that takes 80-100bucks a week in gas! Ford is laughing all the way to the bank.
Ughh.. are those really the numbers?

$4.00/ gal => 20 gals pw => 300-400 miles per week? Guessing (I stress guessing) that that's the sort of number for some kind of small contractor?

Would people who just commute to a single workplace drive an 18 mpg vehicle? As opposed to needing a carrying vehicle for tools etc? I always think of the US pickup truck market as the ultimate measure of how the small businessperson is really doing -- they only buy when things are looking up?

Pickups don't work well here (UK). It rains too much and they are too insecure. It's white vans all the way (I understand "white van man" has a different connotation in America, here it means self employed contractor). I know contractors who have a guard dog like a Rhodesian Ridgeback that they bring with them to work and leave in the van to stop people stealing tools, etc.

Main problem is they were encouraged to go diesel, and now it turns out that the PM 2.5 particulate problem is really bad (as well as the NOx problem), and it's the criterion on which diesel can never beat a gasoline engine. Crackdowns on diesels in urban areas coming.
Those numbers are way off. i drive a 2016 F-150 4X4. Paid cash (about $31k) And I'm not a contractor. I have a 14 mile commute, and average 22 MPG on that. Get about 25 MPG on the highway.

Gasoline is currently about $2.80/gal here, and I'm spending about $75-80 a month.

I could switch to a Prius and save $40 a month, but that's essentially noise floor....
They’re not off for someone who financed their vehicles and drives more than 7 miles each way which in just about most places in the US especially along the coasts. Seven miles, some folks are driving that just to go to grocery store.
Say gas is $3/ gal. MPG of 20 mpg? Thus $80 pw = 27 gals = 540 miles per week?

Trying to understand where my parameters are wrong. UK gasoline prices are c 2x USA ones, so you can get to those numbers (but it's a much smaller country, and generally our vehicles have higher mpg).
We don’t own a truck, however many in my town do, there are quite a few at town train station too. My spouse had a 300 mike per week commute, on weekends we would add another 25-100 miles+ depending on where we had to run errands. It’s not uncommon for folks to Pluto 15k miles on car/truck per year. People drive in America.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Valuethinker
Posts: 36396
Joined: Fri May 11, 2007 11:07 am

Re: Peak Oil, Reloaded?

Post by Valuethinker » Thu Jul 26, 2018 7:21 am

alfaspider wrote:
Wed Jul 25, 2018 11:49 am


I think we are talking slightly different time horizons here. I do believe we will see oil prices continue to rise through this year and probably next. $100+ oil is probable within a year. But that near-medium horizon is very different from how things will look in 2030. Shale will likely prevent any long-term shortage, but it won't ensure oil is cheap. While there are lots of profitable Permian wells at $50 a barrel, I have serious doubts that similar efficiency is going to be achieved in fracking outside the U.S. due to infrastructure and political issues. We probably will see fields like the Mexican Eagle Ford explored, but it will take $100+ oil to make it happen.

Electrification may put a significant dent in longer-term demand, but I think more likely it will merely reduce demand growth, at least over the next 20-30 years. You still have plenty of growing economies like India, Brazil, and Africa where electric vehicles face serious infrastructure barriers but are still rapidly mechanizing.
I agree with your price analysis. Given the record of oil price forecasts, this should worry us both ;-).

I had a mental picture that the long run equilibrium price of oil is around $60/ bl, the price at which it becomes profitable to create new capacity in the Canadian tar sands (although that's very much a lower band), drill for oil in ugly deep offshore environments or frack some of the less attractive US fields.

The ability of fracking to add incremental capacity, though, and the sheer scale of what has been achieved in the US, suggests that this puts a long run cap on oil prices. However it's perfectly reasonable to argue that, currently, the US is a serious outlier-- except for a bit in Canada, no one else has anything like the technological and industry capacity and opportunity in fracking.

bhsince87
Posts: 1863
Joined: Thu Oct 03, 2013 1:08 pm

Re: Peak Oil, Reloaded?

Post by bhsince87 » Sat Jul 28, 2018 11:01 pm

Grt2bOutdoors wrote:
Wed Jul 25, 2018 2:32 pm
bhsince87 wrote:
Wed Jul 25, 2018 10:37 am
Valuethinker wrote:
Wed Jul 25, 2018 7:39 am
Grt2bOutdoors wrote:
Wed Jul 25, 2018 6:17 am
ClevrChico wrote:
Tue Jul 24, 2018 6:55 pm
Last week someone stopped me at the pump to ask how much it cost to fill my fuel efficient car. That hasn't happened in a while, and I consider it a sign. :-)
Of course it’s a sign, when it costs them $500 a month to lease their Ford F-150 that takes 80-100bucks a week in gas! Ford is laughing all the way to the bank.
Ughh.. are those really the numbers?

$4.00/ gal => 20 gals pw => 300-400 miles per week? Guessing (I stress guessing) that that's the sort of number for some kind of small contractor?

Would people who just commute to a single workplace drive an 18 mpg vehicle? As opposed to needing a carrying vehicle for tools etc? I always think of the US pickup truck market as the ultimate measure of how the small businessperson is really doing -- they only buy when things are looking up?

Pickups don't work well here (UK). It rains too much and they are too insecure. It's white vans all the way (I understand "white van man" has a different connotation in America, here it means self employed contractor). I know contractors who have a guard dog like a Rhodesian Ridgeback that they bring with them to work and leave in the van to stop people stealing tools, etc.

Main problem is they were encouraged to go diesel, and now it turns out that the PM 2.5 particulate problem is really bad (as well as the NOx problem), and it's the criterion on which diesel can never beat a gasoline engine. Crackdowns on diesels in urban areas coming.
Those numbers are way off. i drive a 2016 F-150 4X4. Paid cash (about $31k) And I'm not a contractor. I have a 14 mile commute, and average 22 MPG on that. Get about 25 MPG on the highway.

Gasoline is currently about $2.80/gal here, and I'm spending about $75-80 a month.

I could switch to a Prius and save $40 a month, but that's essentially noise floor....
They’re not off for someone who financed their vehicles and drives more than 7 miles each way which in just about most places in the US especially along the coasts. Seven miles, some folks are driving that just to go to grocery store.

I apologize for not being clear. I drive 14 miles to work, each way. And I am one of those folks who has to drive 10 miles to the nearest grocery store, restaurant, gas station, etc.
Retirement: When you reach a point where you have enough. Or when you've had enough.

Theoretical
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Re: Peak Oil, Reloaded?

Post by Theoretical » Sun Jul 29, 2018 7:47 pm

I consider the risk of high gas prices to be a major risk of the exurbs and distant suburbs of the DFW metroplex where we live. As a result, I deal with it by living in a smaller residence in uptown and going for shorter commutes. Like any insurance, we pay for it, but an extended $4-5/gallon spat will be unusually bad for the area, especially regarding housing prices.

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UpsetRaptor
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Re: Peak Oil, Reloaded?

Post by UpsetRaptor » Sun Jul 29, 2018 10:33 pm

It's not 2006 anymore. Fracking is a thing, and electric cars are coming. Whether they reach mass market in 5 or 25 years is a matter of how good's your crystal ball, but that's just a question of when not if.

Valuethinker
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Re: Peak Oil, Reloaded?

Post by Valuethinker » Mon Jul 30, 2018 3:11 am

Theoretical wrote:
Sun Jul 29, 2018 7:47 pm
I consider the risk of high gas prices to be a major risk of the exurbs and distant suburbs of the DFW metroplex where we live. As a result, I deal with it by living in a smaller residence in uptown and going for shorter commutes. Like any insurance, we pay for it, but an extended $4-5/gallon spat will be unusually bad for the area, especially regarding housing prices.
However US citizens could move to higher mpg vehicles?

I realize there is huge psychology behind all those SUVs (and in parts of USA, the pickups). The sense of feeling safer especially when everyone else is driving one etc.

But it would seem there is a fair bit of slack in the system. By and large, Europeans drive cars which match the high cost of fuel (say $6-$8/ gal). Distances are smaller, yes, but traffic density is very high (it probably takes similar amounts of time to commute). Some German highways even lack a speed limit.

Americans could drive similarly efficient vehicles - or certainly ones which beat the current mpg?

This is one of the side effects of EVs - driving costs will fall and thus the cost effect is lower. Autonomous Vehicles also, because congestion is the main cost of driving for middle class professionals, and if you can work in the car ... you can commute further.

There is an inversion going on in US cities it appears. Where the former city centre dwellers (for example some immigrant groups) move out and the yuppies move in. The exurbs continue to be popular, though, as the suburban dwellers move out in turn.

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