April 24, 2008
$225 Per Barrel Oil Seen By 2012

Jeff Rubin of investment and merchant bank CIBC World Markets says a continuing world oil production plateau combined with growth in demand will double the price of oil in the next 4 years. Ouch.

Increasingly tight oil supplies will continue to push the price of oil higher with the cost of crude hitting US$150 a barrel by 2010 and soaring to US$225 a barrel by 2012, forecasts a new energy report from CIBC World Markets.

This will result in skyrocketing consumer gas prices in the U.S. with the national average price easily topping $4.00 this summer, reaching $5.50 in the summer of 2010 and hitting close to $7.00 by 2012.

Mexico has joined the list of states with declining oil production and Russia may soon. I think Rubin might be optimistic to see a world oil production plateau lasting all the way to 2012.

Rubin claims that the International Energy Agency has been overstating the production of oil because they've counted natural gas liquids that are not useful for all the purposes (e.g. making gasoline) that regular oil gets used for.

The report finds that current oil production estimates produced by the International Energy Agency (IEA) overstate supply by about nine per cent since it counts natural gas liquids in its numbers. The report notes that natural gas liquids, while valuable hydrocarbons, are not a viable substitute for oil and cannot be economically used as a feedstock for gasoline, diesel or jet fuel.

"While natural gas liquids only account for 10 per cent of total supply, they account for virtually all of the increase in petroleum liquids production since 2005," says Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets. "Stripping out natural gas liquids, oil production has not grown for over two years, which certainly goes a long way to explaining why oil prices have doubled over that period.

Oil consumption in the developed nations will decline due to increased competition coming from developing nations. A smaller fraction of the limited supplies will flow to the US, European countries, and other OECD members.

The report also notes that while production increases are at a virtual standstill, global demand continues to grow. While higher prices and a weak economy have seen demand drop in the U.S. - as it has in other OECD nations - this has been more than offset by demand growth outside the OECD.

"Car purchases in Russia, for example, are exploding as U.S. sales stagnate," says Mr. Rubin. "While in India the advent of the TATA, a car that will sell for as little as US$2,500, will allow millions of households in the developing world to own automobiles when they otherwise could not. Millions of new households will suddenly have straws to start sucking at the world's rapidly shrinking oil reserves."

I agree with Rubin's analysis unfortunately. Also, I do not see development of substitutes happening fast enough. So the 2010s look to be a period of declining living standards in Western countries. We'll eventually turn the corner as new energy and materials technologies mature. But the transition period will impose hardships on many. My advice: Buy a hybrid or diesel or very small gasoline car or a combination thereof. Also, choose jobs and residence addresses to minimize the need to travel. Also, try walking and bicycling. Most of all, mentally prepare yourself for the need to restructure your life as oil prices keep going up.

US oil consumption probably has already peaked. More new cars in other countries mean fewer miles traveled in the United States.

"In order to accommodate more drivers on the road in Russia, China and India, there must be fewer drivers in the U.S. and the rest of the OECD. And so there will be. U.S. oil consumption is likely to fall by over two million barrels a day over the next five years as retail gasoline prices rise from their current US$3.60 a gallon mark to almost US$7 a gallon.

Here is the full report (PDF).

Share |      Randall Parker, 2008 April 24 11:04 PM  Energy Fossil Fuels


Comments
David Govett said at April 24, 2008 11:15 PM:

The important question is whether the doubling will be due to increased demand or depreciation of the dollar (or both).

HellKaiserRyo said at April 25, 2008 1:07 AM:

Randall, I am not taking any drugs now. I want to shake you and yell "We are soooo fucked!!!" Do you have anything to say to calm me down?

Ned said at April 25, 2008 6:34 AM:

Personally I welcome the higher gas prices and hope they keep going up. Fewer proles in their econoboxes and junkers on the highways means less congestion for my big Lexus. Ditto for air travel - higher fares equals fewer travelers equals less congestion equals more on time arrivals. The Lefties should be happy - more folks walking, biking or using public transportation to get to work means decreased CO2 emissions to stoke their bogus claims of global warming. A new Golden Age is dawning, and I'm loving it.

cancer_man said at April 25, 2008 6:53 AM:

"I agree with Rubin's analysis unfortunately. Also, I do not see development of substitutes happening fast enough. So the 2010s look to be a period of declining living standards in Western countries. We'll eventually turn the corner as new energy and materials technologies mature. But the transition period will impose hardships on many."

You seriously see a decade long depression in the West? You might want to go back and review the computer chip roadmap out to 2018. Look at one technology that will be here by 2015 - early VR. So people would feel less need to drive especially if oil hit the price you claim just because *one* analysis wants to make a statement.

Randall, you should check out a good site called "futurepundit." They discuss emerging technology over there , which is a good reminder when you assume nothing much will change in energy or virtual reality for ten years.

Oh, don't read the peak oil stuff, though....errors in every post on that topic.

Alex Holt said at April 25, 2008 9:51 AM:

It think it is possible to oil at $225 in 2012. It is also possible to see oil at $10. It could also be at $100. What I think is lacking for this post is following:

1) At what price of oil does it cause the Western Nations to have a recession. Assume this is range. It could be argued that we are starting to see that now. What will a recession do to oil demand? Down 10%? Down 2%?
2) Oil is a community that has short term inelastic on demand side. The same does not old true over the long-term. How are companies responding?
3) To what extent do producer nations under-investment cause higher oil prices. We are seeing that today all around the world - Russia/Venezuela in nationalizing oil companies. Brazil restricting promising oil regions to Petrobas, is yet another example. In the past (aka the 70's) this was broken by new production in Norway and other countries. We also had major underinvestment during the 90's in the Energy sector.
4) A recession in the West, will cause what effect in developing countries demand pattern.
5) Hoes the regulatory environment affect or oil prices. New refinery techiniques, drilling locations, mandatory catalytic converters, mandatory coal scrubers, et cetera. If energy cost is truly become a critical factor, what do the the regulations.


How does that intersect with Randall's claim that "2010s look to be a period of declining living standards in Western countries" Are we going to know it when are in it? We could have a huge recession. The US has not a truly deep recession since the great depression. We have also not had declining living standards for even longer. Let's say oil got $225, how quickly could most people buy a new car that gets 40 mpg or even a motorcycle? Pretty quickly is my guess. What about doubling or tripling the insulation in my house? Or installing a wood stove. Replacing the 20 year old fuel oil (diesel) burning furnace. My spending would change. My standard of living? Not so sure.

We have to remember the greatest resource in the world is people. The more education, opportunity, and even income improve world-wide, the more likely that problem is going to be solved. Also this goes double true if there is huge financial incentives.

Jimmie said at April 25, 2008 12:50 PM:

I see oil being around $70 by 2012 and more like $30 by 2020. Eventually it will be down around $10 or so, mostly just for non-energy requirements. The future is right around the corner.

David Gobel said at April 25, 2008 1:31 PM:

I use near zero gallons of gas per day. All of my work is performed at home. At $3.50 per gallon, mid-level managers and bosses begin to feel the pinched purse themselves and become more willing to allow telecommuting - so THEY can do it. Such is happening in the federal govt more and more rapidly.

The current generation of vehicles depend on liquids and their physical delivery/logistics. Next gen is electric which utilizes nearly any sources for power and delivers electrons not needing physical incremental delivery. I have a 1997 Oldmobile Aurora which will not be replaced until I can purchase a $35,000 or less electric or plug-in hybrid. In other words, I'm personally boycotting liquid fuels. At $4.00 per gallon or greater, companies dependent on vehicles for their business will rapidly drive the shift to non-liquid consuming vehicles in order to reduce the perceived or actual open ended risk to their profit margins. I'm thinking USPS, UPS, FedEx, and later, municipalities, police departments etc. The statements above are my beliefs - your KwHrs may vary.

Alex Holt said at April 25, 2008 3:07 PM:

I would also point out this article in business week on the price of gasoline - http://www.businessweek.com/magazine/content/08_18/b4082000518114.htm. Note how drastically sales of SUV's are down.

Alex

TTT said at April 25, 2008 4:12 PM:

This sounds like people in March 2000 who said that 'Nasdaq would hit 10,000'.

Or that 'Home Prices will rise 10% a year forever - the longer you wait, the more equity buildup you miss'.

Over a few years, demand elasticity takes over, and people reduce oil consumption. This has not even begun in earnest yet.

Right now, gasoline is about $3.80 at the pump. People have not begun major carpooling, making their next car purchase a Prius, taking the bus, biking, etc. When does this happen? At $5? $6? $8/gallon?

Today, there are a good number of car choices that give over 40 mpg. Soon, there will be some that give over 60 mpg. The option to shield oneself from high oil prices does exist, for those who can adapt and make sacrifices.

Randall Parker said at April 25, 2008 6:13 PM:

cancer_man,

I only wish I had the opportunity in 2000 to ask you what the price of oil was going to be in 2008. You probably would have guessed a much lower number and if I'd guessed a $100+ number you would have told me how much technology is advancing.

Computer chip road map: I write embedded ARM for Linux in my day job. I understand Moore's Law and similar patterns with hard disks and fiber optics. But to argue that computer processor power is going to be decisive here you have to explain how. Will a couple more orders of magnitude of computational power make it easy to do materials simulations that lead to cheap photovoltaics or cheap light weight batteries or cheaper and faster ways to build nuclear power plants? What's your mechanism?

David Govett,

Most of the oil price run-up has not been due to depreciation of the dollar. That will continue to be the case.

Ned,

So you are upper class? Cool. I'm not quite there but I'm trying really hard and getting closer.

Alex Holt,

Of course an economic depression can cause a drop in oil prices. But then we'll use less oil because we have less money to spend rather than use less oil because we have more money but oil costs much more. What matters is that either way we are going to use less oil. The price of oil is less important than production and consumption trends. For Western countries and the undeveloped countries the consumption trend is going to continue downward. For the rapidly developing countries and big oil exporters the consumption trends will be upward. But eventually global production decline will pull down consumption in all countries.

TTT,

Sure, we will car pool, bike, bus, drive a Prius, move closer to work, take jobs closer to home. While we do that the Chinese and Indians will buy millions and then tens of millions of more cars. Their oil consumption will rise as our falls.

Oil consumption reduction has begun in earnest. Writing in February 2008 John Kemp of Sempra Metals sees signs of large amounts of demand destruction in the United States with oil products consumed down over 4% while population grew 1%:

The total volume of petroleum products supplied to the domestic market (refinery production + imports - exports - inventory build) averaged just 20.676 million b/d in the four weeks ending Feb 15.

Total products supplied was down -4.22% compared with the same four week period in 2007 (21.590 million b/d) and down -1.1% compared with three years ago in 2005 (20.906 million b/d).

In fact, the total volume of product supplied understates the actual amount of conservation because the population of the United States has expanded significantly in the last few years owing to immigration and the high birth-rate among some first-generation immigrant communities. The combined effect has added roughly +1% to the population of the United States each year, and roughly the same amount to the working-age population (18-64 years).

So product supplied ought to have been rising about +1% per year or +3% in the last three years just to keep pace with population increase. Instead, total product supplied is down -1.10% since 2005. Gasoline supplied has risen (+1.67%) but less than the population increase, while distillate supplied has been flat (-0.08%). Per capita consumption of crude oil and products is falling sharply. Fuel conservation seems to have started in H2 2006 and intensified since the start of 2007 in response to the surge in crude oil prices above $60 per bbl.

We can also find evidence of fewer miles driven and a shift to smaller cars:

For 20 years now, county workers in Palm Beach County, Fla., have been counting cars with sensors at strategic points along its 4,000 miles of roads. Nearly every year traffic volume has climbed at least 2%. But in 2007 there was a slight decline in the number of vehicles on the roads. This year traffic is down 7.5% through March. "We're seeing a very significant change," says county engineer George Webb. "We're having a good time speculating why."

It's not just Palm Beach. Traffic levels are trending downward nationwide. Preliminary figures from the Federal Highway Administration show it falling 1.4% last year.

...

Just look at the latest auto sales figures. Sales fell 8% overall during the first quarter of 2008, and those of gas-hungry SUVs and pickup trucks dropped off a cliff, down 27% and 14%, respectively.

Rapidly developing countries and big oil exporters have booming oil consumption growth in the face of much higher oil prices. And this willingness of these countries to buy more as prices rise means we in OECD countries are going to get less and less oil each year.

China, of course, is often blamed for the increase in global oil demand, given its huge population and emerging economy.

Its consumption will rise almost 5 percent this year, according to the agency. So will India, which by year end will be using more oil than is produced by Venezuela annually.

The agency predicts a larger rise almost 6 percent in the Middle East, a region that for years produced much of the world's oil, yet consumed little.China, of course, is often blamed for the increase in global oil demand, given its huge population and emerging economy.

Its consumption will rise almost 5 percent this year, according to the agency. So will India, which by year end will be using more oil than is produced by Venezuela annually.

The agency predicts a larger rise almost 6 percent in the Middle East, a region that for years produced much of the world's oil, yet consumed little.

Get a Prius to make room for the Chinese of the next 5 years. Get a 50cc scooter to make room for the Chinese of the following 5 years. After that, start bicycling.

Randall Parker said at April 25, 2008 6:17 PM:

HellKaiserRyo,

No, the proper thing to yell is "We are so fracked!".

But my advice is make as much money as possible and live as cheaply as possible.

Bob Badour said at April 25, 2008 6:48 PM:

Randall,

Cancer_man already explained his mechanism. He thinks we will spend all our time in VR environments with no desire to burn liquid fuels getting from place to place.

Cervus said at April 26, 2008 12:16 AM:

Basically, it's going to take a worldwide recession to reduce oil demand, and thus prices, at this point. I see new technology announced in batteries and biofuels almost daily these days, but few have yet moved out of the lab. This needs major acceleration so we can get these alternatives into the marketplace. Fast.

cancer_man said at April 26, 2008 12:35 AM:

"Cancer_man already explained his mechanism. He thinks we will spend all our time in VR environments with no desire to burn liquid fuels getting from place to place."

That all-or-nothing kind of wording is how people make fun of all any technology. Of course, I didn't say anything close to this. But some VR by mid 2010s would naturally _lessen_ the demand for driving. Faster computers will lead to cheaper ways of extracting oil just as the previous years have. Randall, would you have laughed at offshore drilling in 1950 as a fantasy? Or ultra deep drilling in 1975?

Most scientists refuse to learn elementary economics so that we will probably have a couple more years of these oil crisis articles, just as we have every few years going back to 1890. The high price today is caused mostly by OPEC. This is not a market anywhere near perfect competition but driven by a cartel. Prices matter, and there is no reason demand will just keep rising if prices climb.

aa2 said at April 26, 2008 1:32 AM:

I believe America could cut 7 million barrels a day of consumption without lowering the standard of living significantly.

But I also understand Randall's point.. even if we cut consumption by 7 million barrels per day, there are so many people drastically improving their standard of living in the developing world, that they would eat that 7 million bpd up. What our falling consumption will do is moderate the price rises.

If production can't rise anymore then as time goes by more dramatic changes will be needed. Like rail and sea shipping trips replaces almost all long haul trucking, the basically death of air travel for weekly meetings, plug-in hybrids, phasing out all heat processes from oil, aggressively phasing out oil burning for electricity worldwide.

SKurdakov said at April 26, 2008 2:18 AM:

the calculations of Greg Clark

http://economistsview.typepad.com/economistsview/2007/12/life-after-peak.html

$500 bbl oil will not harm economy a lot.

Randall Parker said at April 26, 2008 10:46 AM:

Cervus,

I real a lot of press releases by companies and universities on biomass energy, batteries, photovoltaics, solar thermal concentrators, etc. I do not see most of these announcements as major. The major ones substantially cut costs. If more of those were happening we'd expect to see substantially lower prices than we see now.

aa2,

We are going to see all the adjustments to use energy more efficiently. Some of them will be costly to make. Others will be cheaper. As for whether our living standards will be lowered substantially: I guess it depends on your definition of substantial.

cancer_man,

We did deep offshore. Now we need to do very deep offshore. Isn't that telling you something? Sometimes big technological advances bring only small incremental increases in utility. Look at Tupi and Jack 2. Very deep water finds. Oil companies can probably eventually get them into production in 5 to 10 years from now. But together they make up less than a year of oil consumed in the world. Well, we need to see announcements of 4 Jack 2's per year to allow us to break even with production, let alone increase production in response to growing demand. But those announcements are not coming that fast.

World oil discovery peaked in 1964. Production has been above discovery for decades. That production rate that exceeds the discovery rate is the bottom line here. Decades of technological advances haven't fixed that fundamental problem.

SKurdakov,

Solar costing 5 times oil: But Clark misses why it is that, for example, heating oil costs more than twice as much per million BTU as natural gas. Oil is more useful. If oil was not more useful it would not be able to sell at such a large $/BTU premium. But natural gas powered cars have smaller usable trunks, shorter ranges, and poorer performance (but you can special order them for most Honda models btw).

We can switch to pluggable hybrids. But they'll cost more, take more time to deal with plugging in every day, and not avoid higher costs for longer trips.

Wolf-Dog said at April 26, 2008 12:58 PM:

Here is the inflation adjusted long term chart of the price of gasoline. Right now the inflation adjusted price is the same as in 1981, which was the peak at that time. In a few years we shall see if the doubling of the price of gasoline in the US will really change its inflation adjusted price.

http://inflationdata.com/inflation/images/charts/Oil/Gasoline_inflation_chart.htm

aa2 said at April 26, 2008 2:07 PM:

Randall said, "We are going to see all the adjustments to use energy more efficiently. Some of them will be costly to make. Others will be cheaper. As for whether our living standards will be lowered substantially: I guess it depends on your definition of substantial."

I'd look at switching heat processes from oil to natural gas for example as no decline in standard of living in the actual heating. But the cost of the change over will reduce spending in other areas.

For cars same thing a 45 mpg prius is more costly by a few thousands then a 28 mpg car.. so it decreases spending elsewhere. On the other hand people could choose the prius over a more expensive base car. The utility of driving isn't much different.

For air travel teleconferencing seems even to be a gain, but I'm sure the hotels, restaurants and taxis would disagree. But more expensive flights for tourism is a lowering of standard of living.

For shipping more expensive long haul shipping reduces how much people can buy, especially for heavy or bulky products. Otoh moving the miles more by rail or ship the customer doesn't care. But the capital cost for the rail upgrades could be spent elsewhere. Once the capital is built it doesn't matter anymore.


My definition of significant was a radical change in the way of life. But maybe that is too easy a bar to pass.

Randall Parker said at April 26, 2008 2:41 PM:

aa2,

My guess is that more cars sales are for used cars than for new cars. A car gets sold 2-3-4 times as a used car but only once as a new car. Well, those used car buyers will have a hard time finding fuel efficient used cars to buy since 4-6-10 years ago people were less worried about fuel efficiency.

This difficulty for used car buyers illustrates a larger problem: Lots of ways to increase energy efficiency cost more in initial outlays. Take ground sink heat pumps. I'm a big fan of their increased use. But how many home owners have an extra $20k+ to spend installing one?

Teleconference: We already do that. I have frequent teleconferences with people in a few different countries. But many things are (unfortunately) more productively done in person. People are more motivated to help you if you are physically present. They are more honest and forthcoming. A reduction in travel will cost efficiency.

Switching from oil to natural gas: That'll drive up the cost of natural gas of course. It only works where natural gas is available.

simon said at April 26, 2008 2:44 PM:

we are in deep trouble if politicians and experts try to dictate our future. I remain optimistic. Baby boomers are aging and will be stepping aside and we can bring leaders who are young enough to hope. Baby boomers are now acting like the doom and gloomers who ran the 70s

Engineer-Poet said at April 26, 2008 5:22 PM:

Quoth aa2:

if we cut consumption by 7 million barrels per day, there are so many people drastically improving their standard of living in the developing world, that they would eat that 7 million bpd up. What our falling consumption will do is moderate the price rises.
There's another side to that coin:  as the balance of demand shifts to the third world, the oil producers have to settle for third-world products in exchange for their oil.  This will seriously reduce the net wealth transfer to the oil producers.

Quoth RP:

We can switch to pluggable hybrids. But they'll cost more [1], take more time to deal with plugging in every day [2], and not avoid higher costs for longer trips [3].
In order:
  1. Just about any fuel-saving technology costs more.  Diesels are more expensive to make than SI engines.  The great thing about PHEV is that it radically cuts the variability of costs.
  2. It would cost me far less time to plug in every day than to fuel up every two weeks.  As for unplugging, there are auto-eject systems for vehicle chargers already; just get the vehicle ready to move, and it ejects the cord.
  3. This is offset by several factors:
    • the 75¢/gallon equivalent cost for local trips
    • the ability of rail and such to substitute for longer trips
    • the ability of bio-fuels to cap liquid fuel prices if total demand isn't too great.
This doesn't include the cost savings in the electrical grid which PHEV can produce.  Utilities currently have to maintain spinning reserve and deal with "firming value" (see page 5 of this report on CAES), but these costs can be slashed if PHEVs can provide hundreds of GW of extremely flexible demand and even (through V2G) spinning reserve.  These savings can pay for the batteries.

cancer_man said at April 26, 2008 5:55 PM:

Randall, previous offshore drilling yielded huge resevers. deepshore drilling has just started. Also look at the potential of the tarsands which has only just begun.

"Baby boomers are now acting like the doom and gloomers who ran the 70s"

This has really struck me over the past few years. I wonder what the psychology behind it is.

Randall Parker said at April 26, 2008 6:14 PM:

cancer_man,

Offshore reserves never stopped the decline in US production since 1970. Again, the previous technological advances did not prevent US production from declining.

Tar sands only add a Saudi Arabia's worth of reserves. Another Saudi Arabia would not delay peak production by many years because our rate of consumption of oil is so much higher now than 20-30-40 years ago.

Look at the evidence. The key piece of evidence is the rate of discovery over time.

cancer_man said at April 27, 2008 6:32 PM:


"Teleconference: We already do that. I have frequent teleconferences with people in a few different countries. But many things are (unfortunately) more productively done in person. People are more motivated to help you if you are physically present. They are more honest and forthcoming. A reduction in travel will cost efficiency."

We don't have _telepresence_ and won't for a few more years. You just had a post on how the holodeck may be here quicker than most realize. But it isn't all or nothing, and it will feel like you are talking to a real pesron soon enough with holograms. That would reduce the demand for oil, especially if prices were high, which you mistakenly think is guaranteed.


"Offshore reserves never stopped the decline in US production since 1970. Again, the previous technological advances did not prevent US production from declining."

It doesn't matter that US production declined since there is nothing special about US oil. It is also inaccurate to say a certain amount only equals Saudi Arabia's amount of reserves because neiter amount is accurately known. Ultra deep oil will be found in more places as well, and it doesn't matter where they are found.

The "key piece of evidence" is not the rate of discovery time because for years there was no incentive to seek out new oil. And the price of oil neither reflects the cost or scarcity of oil since the price is heavily influenced by a cartel.


Engineer-Poet said at April 27, 2008 8:42 PM:
The "key piece of evidence" is not the rate of discovery time because for years there was no incentive to seek out new oil.
If the incentive is so important, why did world oil discovery peak in the 1960's, and never reach that peak again even after the OPEC price shocks?

To be found, oil has to be there.  The kind of big deposits which can replace major producers like Saudi Arabia have one major feature:  they're big, and thus easy to find.  The first discoveries when exploring new areas are usually the "king" or "queen" fields, simply because they stand out more.

We've been over the world.  We're down to drilling the extreme continental shelves.  Just how much "incentive" does it take to conjure another East Texas field between the dry holes we've already got?  Is it the same amount that it takes to run a car on water?

There comes a point when the rational thing to do is to go on to the next prospect.  Forests are all cut down; switch to this combustible black rock (and switch all the furnaces, stoves and plants).  Coal gets harder to dig and militarily disadvantageous; switch to this black ooze, rock-oil and its relative, natural gas (and switch the hardware again).  Petroleum running out?  We've got nuclear, wind, solar, biomass... not so convenient for the systems built to take the 160 quads/year of petroleum, but they'll do and there's a lot less competition for them.

Ken said at April 28, 2008 5:09 PM:

$225 in 4 years? I don't have any problem believing that or that people will still be driving guzzlers when it hits that price. Demand is going up, no really big finds to increase supply, but people will sacrifice a lot of other expenditure in favour of their car, and the mobility and perceived freedom it brings. I do wonder at the psychology of the Wall Street guys who cheer every time oil hits a new peak price. Presumably their vested interest in oil is sufficient to overshadow any concerns, economic or otherwise for the downside of oil depletion, and it isn't causing them to invest heavily in alternatives -- why would they when the profitability of oil is so high? Maybe others, who have investments that respond negatively to more expensive oil simply haven't got the windfall profits to put into developing alternatives. So where are the oil profits getting invested? Sure, the harder to get to reserves are worth more effort to tap and money will go there, but the real insiders are perhaps more aware than anyone that oil is headed for declining output. I do worry that some weigh it up and decide alternatives are potential competitors, at least for the next decade or so and actively seek to inhibit their development? That kind of shortsightedness, sadly, has a powerful logic when we start talking about trillions of $US. Hell, wars are started for less, with less logic.

Randall Parker said at April 28, 2008 7:55 PM:

Ken,

People will still be driving older big cars. But sales of new big cars will continue to decline and once people realize that gasoline prices really aren't coming down again they will massively shift toward smaller cars.

Oil sheikdoms and investments: They have huge growing populations. Some of the money is going to raise living standards. Some is going into equity markets.

cancer_man,

The oil discovery rate is still below the oil consumption rate. We had low oil prices in the early 1960s and yet discovery surged. We had high oil prices in the 1970s and yet the rate of discovery never reached the heights if the mid 60s?

cancer_man said at April 29, 2008 12:15 AM:

"The oil discovery rate is still below the oil consumption rate. We had low oil prices in the early 1960s and yet discovery surged. We had high oil prices in the 1970s and yet the rate of discovery never reached the heights if the mid 60s?"

Randall, there was no OPEC in 1960. This is a critical difference because once a cartel formed, the participating countries had no incentive to go out to find more oil. Saudi Arabia is a prime example of this.

Carter and the CIA said the world's oil wells were drying up in 1979. That doomsday prediction was 30 years ago.
As one oil economist points out, the world had 200 billion barrels in "proven reserves" in the early 1970s. By 2003, the world used 460 billion barrels and 210 billion remaining.

There are many basic economic textbooks out there. Some good ones on energy economics as well. Geologists know geology. I bet less than 5% understand oil economics. They also consistetly undersestimate technological change.

hiatt65 said at April 29, 2008 3:26 PM:

They are asking for better gas mileage vehicles because oil demand is so high. If i get a vehicle that gets around 50 mpg, i am surely gonna drive just as much and more. So, if we drive more, where is the demand for oil gonna decrease? I don't think it will and the price per gallon will still keep going up, so what is the point. If it's based on global demand what will a better car in America do after all?

Engineer-Poet said at April 29, 2008 6:19 PM:
If i get a vehicle that gets around 50 mpg, i am surely gonna drive just as much and more.
Just to clarify your position, are you saying that if you went from $2.50/gal and 25 MPG (10¢/mile) to $5.00/gal and 50 MPG (still 10¢/mi), you'd drive MORE and spend MORE money on fuel?
So, if we drive more, where is the demand for oil gonna decrease?
Apparently, it is already decreasing:  US gasoline demand is down about 200,000 bbl/day year over year.  Whatever reasoning led you to your conclusion appears to have some serious errors.
Paul F. Dietz said at May 1, 2008 7:17 AM:

Just to clarify your position, are you saying that if you went from $2.50/gal and 25 MPG (10/mile) to $5.00/gal and 50 MPG (still 10/mi), you'd drive MORE and spend MORE money on fuel?

Yes, because apparently the more efficient, and hence expensive car, will make his per-mile depreciation and insurance costs even... higher...

Help me out here...

Bob Badour said at May 1, 2008 9:55 AM:

The driver of the fuel-efficient car also has to fuel up less often which makes driving more convenient and pushes the cost further into the future on average. Humans are bad at evaluating future costs, which is why so many smoke or gamble away the rent money etc.

While not enough to draw a firm conclusion, there is enough there to reasonably speculate about people with fuel efficient cars spending more on fuel than people with guzzlers.

Since guzzlers currently outnumber fuel efficient cars by some orders of magnitude, their decreased use would predominate as far as overall gasoline demand goes.

Randall Parker said at May 1, 2008 6:40 PM:

Guys,

If the cost of the car, gasoline, and insurance was free to me I still wouldn't drive that much. My biggest restraint is competing uses of my time. I figure I'm not alone in this.

I flash on Buckeroo Banzai saying "Remember, wherever you go - there you are".

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