The Cost of Oil And Hubbert's Peak

The Record, Bergen County, NJ ^ | Tuesday, August 16, 2005 | William Tucker

[rockthecasbah]

World oil prices pushed up to $67 a barrel last week. Is it just a seasonal phenomenon, a reflection of summer driving patterns, a sign of Saudi intransigence, a conspiracy by the oil companies? Perhaps. But far more likely, it has something to do with Hubbert's Peak.

In 1956, Shell Oil geologist M. King Hubbert made a startling prediction. Judging from the rate new oil was being discovered, he calculated that American oil production would reach its peak in 1969.

The prediction received little attention. After all, people had been predicting that oil would eventually run out since Colonel Drake drilled the first well at Titusville in 1859. These pessimistic forecasts had always proved wrong.

But Hubbert had some logic on his side. A veteran prospector, King had noticed that - largely because of requirements by the Securities Exchange Commission - oil companies did not immediately add new discoveries to their official "reserves" as soon as they were found but parceled them out year by year. This created the illusion that new oil was continuously being found.

[rockthecasbah]

"Passing over Hubbert's Peak doesn't mean we're "running out of oil." It means we're running out of cheap oil. Saudi wells, Caspian wells, Nigerian wells, Texas wells - all will continue to pump oil. But like Alice and the Queen of Hearts, we'll have to run as fast as we can just to stay where we are."

[OXENinFLA]

Oil has dropped over $2pb today........

[Brilliant]

We've been running out of oil for more than 100 years. The fact that the reserves will not be completely exhausted for decades really does not comfort me if the price is $3.00 a gallon, and it certainly won't comfort me if the price goes to $5.00 per gallon or more in the next couple of years.

I doubt that there will be any significant relief from escalating prices until consumers reduce their consumption. It's supply and demand. If you're not bothered by the high prices, then the price will have to go up a lot in order to clear the market.

And there really isn't any limit on the amount that it could go up, except the unwillingness or inability of consumers to pay for it.

[cake_crumb]

The Caspian was a wash from the start. Russia(n oil companies) was(were) earning oil vouchers from Saddam so that the shortfalls could be better hidden, but even then it was still a big disappointment.

Right now the biggest factors are the consumption of fuel for the war on terrorism and the effect predicted US oil reserves vs. overall consumption two months from now (military, travel and heating) have on the futures market. Prices always this time of year. It's just that they don't normally spike so MUCH.

[cake_crumb]

"And there really isn't any limit on the amount that it could go up, except the unwillingness or inability of consumers to pay for it."

Yep. The rule with gas has always been "charge what the market will bear".

[RightWhale]

Don't know why Tucker would want to time his rehash of Peak Oil theory on the very day oil drops. It would have been sufficiently alarmist a week ago, but now it is just packing material.

[.cnI redruM]

The gasoline market is not completely transparent to the oil market. Four things cause the two not to exactly map.

1) Environmental policy. Every US state has a different mandated formula for gasoline. Texaco has to sell 50 different formulas during the summer.

2) Taxation. Gasoline is taxed to pay for highways and public transit and God knows what else.

3) Refining. There is a shortage of refinery capacity in the US. This leads gasoline prices higher.

Make our environmental policies more logical, find other methods of taxation to pay for highways and public transit(tool booths, higher subway fares e.g.)and build the economically efficient refining capacity for the US, and we could have even less oil than we do now and still have much cheaper gas.

[JamesP81]

We need to be going to ethanol. Unlike hybrids or hydrogen gas motors, a simple switch out of the ignition computer chip and the addition of a sensor to the fuel tank will allow a standard internal combustion engine to burn any conceivable mixture of gasoline and ethanol. By having vehicles that can use either, you ease the transition from one fuel to the other. With much less demand, and thus lower prices, crude products can continue to be used to power aircraft, ships, locomotives, and other heavy industrial machinery and be used in the construction of roads, as it always has been, at a much reduced price.

And it will allow us to poke the Saudis in the eye. Which gives a warm-fuzzy feeling.

[MNJohnnie]

really does not comfort me if the price is $3.00 a gallon, and it certainly won't comfort me if the price goes to $5.00 per gallon or more in the next couple of years

Never going to happen. Tell you what. I bet you the price of a gallon of gas will be CHEAPER Aug 15, 2006 then it is today. I just paid $2.65 a gallon. We can use that as a bench mark.

[ExitPurgamentum]

if the price is $3.00 a gallon, and it certainly won't comfort me if the price goes to $5.00 per gallon or more in the next couple of years.

Most people disagree: July sales of SUVs were very strong.

[jpl]

It's pathetic, the lack of even the most basic understanding among liberal reporters of how supply and demand market economics work.

The current price of oil has nothing to do with Hubbert's Peak. There is no issue whatsoever on the supply side, it's being entirely driven by the skyrocketing demand, especially in the U.S., China, and India.

[ExitPurgamentum]

The rule with gas has always been "charge what the market will bear".

Are you telling us that this is different in any other market?

[MNJohnnie]

Here is why gas will be cheaper a year from now. See that number for Canada? If oil stays over $55 a barrel that oil suddenly is economically viable to pump. Because of the geology of most of the Canadian Oil reserves, it has never been able to be economically feasible against cheap mid east oil.

Greatest Oil Reserves by Country, 2005
Rank Country Proved reserves
(billion barrels)
1. Saudi Arabia 261.9
2. Canada 178.81
3. Iran 125.8
4. Iraq 115.0
5. Kuwait 101.5
6. United Arab Emirates 97.8
7. Venezuela 77.2
8. Russia 60.0

[RightWhale]

The current price of oil has nothing to do with Hubbert's Peak.

True. The Peak has not yet arrived.

[Glenn]

it's being entirely driven by the skyrocketing demand

I have yet to see quantified proof that the increase in demand is commensurate with the increase in price.

The price of oil is speculative and does not obey all the rules of supply and demand.

[Outland]

"...a simple switch out of the ignition computer chip and the addition of a sensor to the fuel tank will allow a standard internal combustion engine to burn any conceivable mixture of gasoline and ethanol."

For most vehicles on the road, it's not that simple. Some components of the fuel system such as hoses and gaskets may not be compatible with high concentrations of ethanol. The fuel injectors may also need upgrading.

[RightWhale]

63.75 -2.33
Yet, oil production is about what it was at the market open today.

[chaosagent]

"We need to be going to ethanol."

That's a no-win idea.

It takes more energy to plant, fertilize, harvest, and refine the corn into ethanol than you get from burning the ethanol in your car.

[No.6]

Meanwhile said oil leaks out of natural fissures and rolls up on shore. No end of fun removing this from feet and/or shoes.