Why Peak Oil Will Never Lead To $500/bbl Crude Oil

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  • Mon, May 03, 2010 - 09:10am

    #21
    Peak Prosperity Admin

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    Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil

[quote=piquod12]Please don’t even consider investing in either futures or futures-based ETF’s unless you fully understand the implications of contango and backwardation.

Seriously, take care with this.

[/quote]

+1, piquod. The first draft of the article contained an explanation of how to use a calendar spread to bet on contango expansion (to hedge the downside potential from economic weakness). I intentionally took that section out because I didn’t want to give anyone “enough information to be dangerous”.

Mesaboogieman,

Unfortunately, I can’t think of a good way to play peak oil with ETFs at this time, short of a very complex hedged pair trade that I would not recommend for the same reasons as above. The problem is that there’s a HUGE chance that crude oil prices will go way down before they go way up. The reason hedge fund managers charge such outrageous fees for setting up trades that hedge out the downside is that they are very complex and really easy to screw up when you do know what you’re doing, never mind when you don’t.

I’m not offering any investment advice, neither here nor in the article. But if I were an ETF investor, I would wait until after the election and see where the economy goes. Nobody has a crystal ball and knows for sure whether or not we’ll have a double-dip recession, but I think the odds are very strong we will, and that will mean oil prices take a beating. If you have a chance to buy an ETF that tracks crude prices in the $50 range, that would be attractive to me. But I wouldn’t touch a long position at this point in the economic cycle without a downside hedge.

Also, for reasons piquod alluded to, a crude-tracking ETF that rolls its positions every month is bound to have a huge tracking error due to contango in the age of peak oil awareness, where contangos are sure to blow out again. For that reason, unfortunately I don’t think I can see a really efficient way to play peak oil with ETFs, even if you had a more advantageous entry point. Sorry.

Erik

  • Mon, May 03, 2010 - 05:29pm

    #22
    Peak Prosperity Admin

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    Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil

[quote=Ruhh]

For what it’s worth IMHO I’m not that crazy about the intent of the article as it seems heavily influenced by greed which is apparent by a large focus on investment. Perhaps I’m biased as I don’t have much money and would rather focus on steering readers towards finding solutions or ways to physically survive the tough times ahead. But then again I would imagine it would be hard for people to set their minds on finding solutions when they are too busy worrying about their investments.

[/quote]

I understand your point Ruhh,but let me offer another perspective.  While life ultimately comes down to physical survival, financial assets and the things they can buy can have a large infulence on the physical aspect.  Does this gives some people an advantage?  Yes.  Is this “unfair”?  Well it sure isn’t equal.  On the other hand when people are old, or ill, or tied to high risk locations because of family, job, etc. they are at a serious disadvantage as well.  Having children is the ultimate liability and responsibility. 

We could lose most or all of our financial assets, through no fault of our own, in a coming storm.  If we can use our awareness to preserve some assets to protect the people we care about, then that is what we need to do.  True survival mode is harsh and merciless.  If it comes,   “fair” wil be an early casualty.  I think financial preparations are an important compliment to physical preparations.  Both are necessary.

PS – is there a spell-check function for posts?  I can’t spell worth a darn.

 

  • Mon, May 03, 2010 - 05:52pm

    #23
    Peak Prosperity Admin

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    Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil

Wow, I just fell in love with this web site all over again.

 

THANKS Erik!

  • Mon, May 03, 2010 - 08:42pm

    #24
    Peak Prosperity Admin

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    Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil

[quote=Erik T.]I also submitted this one to FinancialSense and TheOilDrum. It’ll be interesting to see who picks it up and how it does.[/quote]

 

FYI – there is a link to your article on the oil drum: http://www.theoildrum.com/node/6426 along with some discussion in the comment section.

  • Mon, May 03, 2010 - 10:38pm

    #25
    Peak Prosperity Admin

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    Re: Why Peak Oil Will Never Lead To $500/bbl Crude Oil

Eric,

I wonder if you similarly believe that gold will never be allowed to reach $5,000/oz or $20,000/oz without some government interference and controls, or, even a return of something like the Gold Reserve Act of 1934 or Exec Order 6102?

There are plenty of pundits predicting such high prices for gold, and even higher.

In other words, is there a price tipping point where the U.S. government (or other govrnments) will succumb to the temptation to confiscate gold, or, make it a criminal offense for U.S. citizens to own or trade gold?

In my opinion, this probably would not happen unless the dollar was rapidly losing value, and, the government felt the imperative to issue a new fiat currency backed by gold. Hmmm…that could happen, couldn’t it?

I’d be interested to hear your take….perhaps there simply is no investment that offers one a means of escaping from the coming loss of wealth.

 

  • Tue, May 04, 2010 - 06:32am

    #26
    Peak Prosperity Admin

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    DISCUSSION MOVED

Everyone,

Chris Martenson has moved this discussion to the main blog.

Please follow This Link to find the continuation of this discussion.

Crash_watcher, I’ll address your question there.

Thanks,

Erik

  • Sat, Apr 02, 2011 - 02:08am

    #27
    hdblue

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    Oil interview questions

[quote=Erik T.]

Everyone,

Chris Martenson has moved this discussion to the main blog.

Please follow This Link to find the continuation of this discussion.

Crash_watcher, I’ll address your question there.

Thanks,

Erik

[/quote]

 

Hi,

Thanks for all. It help me to think about my ideals.

Apart from that, you also can ref more resources at: Oil interview questions

Rgs.

  • Sun, Apr 03, 2011 - 02:46pm

    #28

    Thinkor

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    Thoughts about “peak oil”

* Do not be confused by the correlation of GDP with oil consumption.  GDP is a function not only of oil consumption, but also of technology.   For a long time oil consumption rose at about 1%/year while GDP was rising much faster.  Peak oil per (constant) dollar of world GDP occurred long ago.

* GDP does not measure utility but production.  One can get by adequately at much reduced levels of consumption.  In Chile, the consumption of oil is 1/4 that of the USA and their income is 1/3, yet life expectancy is the same.   As prices of oil rise, people everywhere will be adjusting how they live to use less oil.   There is much room here, too, for technology to advance energy conservation.

* It certainly appears that oil consumption has peaked or will soon peak, but technological improvements could change this picture radically.  Estimates of natural gas reserves have soared since the introduction of new drilling methods.  These are affecting oil production too in the Bakken.  Some estimates for the Monterey shale run as high as 500 billion barrels of oil with MPD (managed pressure drilling) or hydrofracking.   At least some of this technology can be applied also in other oil producing areas of the world.

* I have seen estimates also that their are more than 1.5 trillion barrels of conventional oil remaining and 6 trillion barrels of unconventional oil and that at $120/barrel (2008 dollar), there will be plenty of oil, not that oil that expensive isn’t of deep concern.

* Much of the reason for the decline in US oil production is simply that it can be produced elsewhere at lower prices.

* There are alternative energy sources.  The most obvious is uranium reactors, despite the Fukushima accident.  That will have an effect, but if the alternative is very little energy or uranium reactors, many will continue to opt for the latter.   Also, there is the very near term possibility of thorium reactors, where meltdowns are not possible.  Unlike fusion reactors, experimental thorium reactors were in operation years ago and commercially feasible thorium reactors are seen as an engineering problem rather than a problem where basic research is required.  There is also much more thorium than uranium available.    A breakthrough in fusion reactors cannot be ruled out, where progress toward the breakeven level has been slow but steady.

* The energy problem is mostly due to politicians and the media.  Trillions are spent on wars for oil while very little is done to advance the prospects for thorium reactors.  The media doesn’t even inform us about the prospects of much higher oil prices coming in the near future and remaining in effect for a long time while a transition takes place to new energy sources.

* The EROEI concept is way overemphasized.  We are facing in the short term primarily a liquid fuels problem rather than an energy problem.  If we solve the energy problem via thorium or fusion, we will have gone a long way to solving the liquid fuels problem, because it will not be ridiculous to invest cheap thorium energy BTUs to get more valuable oil energy BTUs.

  • Sun, May 29, 2011 - 09:07pm

    #29
    davidw

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    It’s a good article but I

It’s a good article but I don’t think they’ll change the rules to stop oil costing $500 per barrel, the Saudis and others won’t allow it. I think poor countries won’t be able to afford it.

  • Mon, May 30, 2011 - 06:14am

    #30

    Travlin

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    Welcome

Welcome to the forums David.  You’ll find interesting people and ideas here.

Travlin 

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