365. MASSIVE DROP IN U.S. DEMAND IN APRIL
On Monday (6/30), the EIA reported a gigantic drop in U.S. oil demand. And the figures are for April -- way back in the good ol' days when crude prices ranged between $110-$120.
EIA revises down U.S. April oil demand by 4.2 pctThe size of this drop (down 811,000bpd, year-on-year) is massive. Indeed it's almost enough to wipe out total worldwide growth in oil consumption from 2006 to 2007 (990,000bpd, according to the BP Statistical Review 2008). It is enough to wipe out two years worth of consumption growth from China:
WASHINGTON, June 30 (Reuters) - U.S. oil demand in April was 863,000 barrels per day less than previously estimated and down 811,000 bpd from a year earlier, putting petroleum consumption at the lowest level for any April month in six years, the Energy Information Administration said on Monday.
The lower oil demand was due to rising fuel prices and a faltering U.S. economy that has cut into petroleum use.
U.S. oil demand in April was revised down 4.2 percent from the EIA's early estimate of 20.631 million bpd to the agency's final demand number of 19.768 million bpd, and was 3.9 percent less from 20.579 million bpd a year earlier.
The final numbers were included in the EIA's monthly petroleum supply report and are always different than the initial estimates in the agency's weekly petroleum report.Source
So it strains credulity in the extreme to say Chinese demand is behind the run-up in prices since March. The drop in U.S. consumption in one year (April 2007 to April 2008) was more than twice the rise in Chinese consumption from 2006 to 2007 (325kbd, according to the BP Statistical Review 2008). In other words, the April drop in U.S. consumption wiped out one year's worth of growth from China (325kbpd), Saudi Arabia (149kbpd) and India (168kbpd) combined, and then some.
Furthermore, Chinese demand can't be fingered for price rises in April because Chinese imports were down year-on-year, as I noted earlier:
A decline in China's oil imports in April, the first year-on-year drop in 18 months, also raised questions over demand. China is the world's second-largest oil consumer after the United States. [...] China's April crude oil imports fell by 3.9 percent from a year ago to 3.47 million bpd, and were also down from the record of 4.07 million bpd in March, official Chinese data showed.SourceThere's been no serious decline in supply. We're on the same old plateau, and in fact the IEA reports that supply was up considerably in the 1Q 2008:
Put it all together, and the "demand outstripping supply" theory of the feverish price action since March is emanating an extremely fish-like odor. U.S. demand down by a whopping 0.8mbd year-on-year. That's the elephant in the room now.
posted by JD @ 9:43 PM
63 comments
63 Comments:
As usual, please use the Name/URL option (you don't have to register, just enter a screen-name) or sign your anonymous post at the bottom. The conversation is better without multiple anons.
Thank you! JD
P.S. We had a bit of an outbreak of anon's in the last article, so I will reserve the right to skeet shoot anonymous posts with the delete key, particularly if you're an asshole. :-)
Wow, this is really some good news even in spite of much of the gloomy news as of late with the ecnomy and all..This has officially made my day better. That is amazing that we've cut that much fat that quickly. I am impressed and not only that but I feel much lighter and better about our future, thanks JD!
-Justin
So this was just a great revision of april, not the whole year? Let me guess something rather special happened in april if both US and Chinese imports were down a lot that month.
JD,
We're not really on a plateau. Supply has been has been up 2% YOY for the past 6 months and is set to go higher for the rest of the year according to the IEA and EIA.
As of right now, the incremental increase in supply is the largest increase in 5 years.
JD, are you familiar with Amory Lovins' HyperCar designs? He said we could switch to these carbon-fiber hybrid cars and cut consumption of fuel by upwards of 80 percent without costing more than it already does to make cars. 70 percent of our oil goes to our gas-guzzlers. I wonder how much of that we really "need"
Peak Oil alarmists seem to ignore the fact that we don't need every drop of oil we use. If oil prices stay we could really be on to a path of cutting consumption significantly. What do you think?
There are a couple of trolls relentlessly spamming the comments, so unfortunately I've had to turn on the moderation filter. I'll pass legitimate comments through as quickly as can. Sorry for the inconvenience.
JD
The first thing I saw in the news this morning was this: http://money.cnn.com/2008/07/01/news/economy/oil_speculation/index.htm?cnn=yes
It seems the conclusions of the IEA report which you quote are that supply and demand IS causing the prices, and that speculation is not. Whats with the contradiction?
The supply\demand explanation now seems to be favored by numerous big oil companies as well: http://news.yahoo.com/s/nm/20080630/bs_nm/energy_congress_speculators_dc
Since these organizations have done more than anyone else to refute peak oil over the last decade, and this blog seems to more or less trust them as legitimate sources, its hard for me to keep faith in the "speculation" arguement.
JD, are you familiar with Amory Lovins' HyperCar designs?
Hi Zach,
Amory Lovins is a genius and I really admire him. Smaller, lighter, more aerodynamic vehicles are a huge chunk of the PO solution. Personally, I'm a big fan of scooters and electric scooters for the near term. Or lightweight "buggies" which work like EV cars, but are much lighter with bicycle wheels instead of tires. The hypercar seems over engineered, and too expensive.
If oil prices stay we could really be on to a path of cutting consumption significantly. What do you think?
Yes, I agree. I think people will be surprised how quickly oil demand can slip away, and never come back. The last time oil spiked hard like this (in 1979) world demand plunged by 14% over 4 years, and didn't regain its previous peak until 1993, 14 years later.
Year-on-year drops for U.S. oil consumption so far in 2008:
Jan.: Down 445,000bd
Feb.: Down 756,000bd
March: Down 797,000bd
April: Down 811,000bd
Jan. - April: Down 700,000bd
For comparison, US oil consumption was basically flat from 2006 (20.687mbd) to 2007 (20.698mbd).
So that 700,000bd is a big net minus from world oil demand this year.
Stats from this updated Table
Looks like world growth in demand may be coming to a standstill then too, and perhaps even start declining in the near future. Would be nice to know if this really has been the result of people driving less though. I'm always skeptical of too good news :)
JD---ever thought of writing a book (and having it translated into Japanese)? It would make for an interesting read of course, but, aside from a single book by a prof at Tokyo University, there aren't any books on the subject here. If you could get it promoted, it could help get the local/organic farming movement reenergized. IT would certainly help that you are a gaijin in Japan. Just look at the press CW Nichol gets here. Once you got the PO concept (and some inspiring ideas for mitigation/solutions) into the minds of the Japanese, some change could actually happen here. Right now, people are completely oblivious to PO and its ramifications for the country. Scary.
Anyway, if these figures are referring to lower orders of gasoline from refineries, I'd be curious to know how much of this drop came from voluntary cutbacks in driving and simple economic destruction--how many people simply can't afford to drive like they used to and/or are out of work?
Lastly, are the figures here related to lower imports of crude or an actual rise in gasoline stocks, because of lack of demand?
To put it another way, how much of this drop in demand could be attributed to use of existing oil in storage (with less crude being imported to refineries).
Amory Lovins negawatt BS set the stage for Enron's abillity to profit from artificial scarcity and his reasons for opposing nuclear and for supporting "micropower" are based on cherry picking, obfuscation and optimistic projections instead of actual data.
I wouldn't take anything the man says on face value.
markus,
I agree that Amory Lovins has said a lot of stupid things, and I don't like his stance on nuclear either. I do like his idea of taking capitalism to the next level with light/small vehicles, and extreme efficiency.
Once again the IEA is overestimating demand at these high prices. High prices are rationing oil demand in the US and OECD and will create significant headwinds in emerging market demand (cf. China this year).
I won't disagree with their supply outlook. I think it's about as close as one could get. (Although their 2013 spare capacity is projected at 1.93 million/day, similar to today's levels).
During that period, however, I think they are underestimating the potential contribution of second and third generation biofuels (cellulosic ethanol/algae)which I think will start to show up in significant commercial volumes between 2010-2013.
But overall, this is not new information
I'm a/bemused by the increasing number of European car designs being rebadged and sold in the North American market, es[ecially by GM who have but to leaf through their Opel catalogue. Slap a Saturn or Chevrolet or Pontiac badge on the Astra and call it the Astra or Cobalt or G5. Similar things with the Vectra.
Still, Europeans have bought cars like this because they've had 'outrageous' fuel prices for years as a way of life. Carbon fibre (or another light material) could well be the next step.
Everyone back in Canada was whining that their gasoline was $1.30 per litre. In the UK, it's almost £1.30 per litre. You don't know how good you've got it.
What a great post. Dead-on perfect JD.
Again I say it: If we assume every nation follows its national interest, then you would have to assume that oil-producing nations wish to increase the price of oil.
Okay, then further assume they will do so by every means available, from limiting supply (OPEC), to cornering options and futures markets. We know the soveriegn funds have hundreds of billions of dollars to play with. And they can leverage.
Maybe the huge sovereign funds can, or cannot, rig the crude futures market. But you have to admit -- you have to EXPECT -- they will try.
If you say oil-producing nations are not even trying to manipulate futues markets, then you are assuming they are not acting in their national ineterst. They believe so much in fair play they will reduce their incomes to honor free and open markets. Oh yes.
Really, given the large, and growing drops in demand, it strains credulity that supply and demand is clearing the market at $140+.
The BIG Q is: How long can this go on? Sooner or later, it will break, and prices will be years or decades in recovering. Demand too -- people are not going to forget $5 gasoline. Scooters etc. once in use, tenmd to stay in use.
Peak Demand. You have seen it -- and Peak Oil? Maybe next year. Or the year after that. Or the next one....the next,next,next,next one....
JD,
Don't you get it though? It has to be the fault of those assface 3rd worlders for daring to have a halfway decent standard of living.
It just HAS to be.
Personally, I've come to the conclusion that a lot of the hand wringing over peak oil has nothing-- absolutely NOTHING-- to do with solid economics or concerns over the Western standard of living. It's at least some part voodoo over concerns of the Third World and its brazen attempt at modernization.
For whatever reason, my links don't seem to work. Regardless, Googling "IEA Report" clearly shows that the report itself, while stating that demand is indeed down, maintains that there is still a fundamental supply\demand cause to oil prices.
I am utterly confused. I cant see any evidence of supply shortfalls anywhere. No queues at the gas pumps. Supply seems to be going up (so this doesnt appear to be peak oil despite the rabid claims of such). Demand seems to be coming down. Even the IEA report said there wont be an actual shortfall until 2013, five years away. What the hell is happening here? Why is the price still rocketing in the face of reduced demand and increased supply?
you seem to be focused on US consumption and production. you need to remember that this is a global issue. Peak oil hit the US in the 70's, and it's going to hit the globe very soon. is the majority of the oil price spike speculation? yes. but similar to LNG, other countries are prepared to pay more for oil than we are in the US and that is what is going to be the major price driver in the future.
Thanks for picking up on a very important trend, JD.
The very idea of "demand destruction" caused by high fuel prices has been the object of derision by professional analysts for a long time.
Now analysts are deriding the very idea that easy speculation in the index fund commodities markets can help drive oil prices up, despite involving hundreds of billions of dollars or more rushing into the fray.
A lot of jerks at Morgan Stanley and Goldman Sachs are going to go down hard. Too bad many tens of billions of dollars of pension funds are going down as well.
Kyle
I think the reason why JD has focused on the the U.S. is for two reasons.
1) the U.S. is the largest consumer of oil.
2) The U.S. is down by over 800,000 bpd.
JD said it in his post that the growth coming from China, India, and the Middle East this year does not even add up to the cut in demand that we're seeing in the U.S. right now.
JD is well aware that other parts of the world are growing, but now since India and China cut subsidies it'll take a while to show a drop in demand from them because I believe they will keep cutting subsidies as they claimed they would do so. So how long can everyone blame China and India for unprecented growth?
-Justin
The big question is will these oil prices come down soon before causing a major impact on the economy? Any thoughts?
babcock, In my opinion they will not be coming down soon. I see the economy as already being hurt by the prices. Case in point is the demand reduction in oil, which is representative of decreased production and transport in the US. Since alternative sources of energy are not (yet) filling that energy gap, its a clear reduction in economic activity that is going on.
I'm not an expert, but because I trust the experts in the energy industry who say that prices aren't coming down. I know I sound like a broken record, but the biggest of anti-peak oil sources, large oil companies, are of the opinion that this is a genuine supply and demand issue. That is significant to me.
This isn't Peak oil, but it is an oil crisis. And its not just because of greedy speculators. Demand has consistently outpaced supply for the last decade, and increased conflict in oil-producing nations has made people (rightly, in my view), skeptical of future production from those nations.
If demand reduction continues, and includes most of the world, then prices can readjust. But, in my view, the only thing that will cause oil demand to fall to the level necessary for that is a huge boom in alternative energy to compete with oil. Luckily, I'm a bit more optimistic about that.
Isn't it the case that any reduction in demand by the US is being soaked up by the rest of the world. In essence the level of stockpiles around the world is not increasing - according to IEA. So won't this just continue to push the price right up putting us at higher rise of financial turmoil.
"This isn't Peak oil, but it is an oil crisis. And its not just because of greedy speculators. Demand has consistently outpaced supply for the last decade, and increased conflict in oil-producing nations has made people (rightly, in my view), skeptical of future production from those nations."
Justin, I know I'm picking on you but the general public really needs to pull their head out of their ass on this.
Let me make this very very very clear. Demand is NOT outstripping supply. It hasn't for the last decade, it's not right now. If what you just said is truly the case, then you and I would be fighting at the gas pump to fill up b/c we wouldn't have supply.
The "experts" that show up on tv all the time don't even read the data that's being produced by the respected agencies. It's really not rocket science
What is happening is a combination of a lot of things. Some of them are speculative in nature, others are not:
1. Inflationary monetary policy means that people fear holding dollars b/c they are worth less every day you hold them. Oil is one of several hedges being used right now. This is the big boy in the room.
2. Geopolitical issues: Iran/Nigeria/Venezuela/Russia/
Mexico. These are definitely legitmate concerns.
3. Futures contracts with no recourse for rolling forward.
4. Speculative Premium: The CFTC NYMEX data used to describe the situation has holes in it the size of a mack truck. CFTC data does not include ICE transactions, which oh by the way, is where 60-80% of the paper oil transactions take place anyways. Even the CFTC knows this.
The speculation argument gets confused alot in the media. When someone talks about this bubble element to the price, people assume its basically Goldman Sachs and others being greedy and hoarding paper oil barrels and distorting the market. This is really not the case.
It is much more of a herd mentality where people buy because others around them are buying. Nothing illegal is being done, but it is more of a market psychology.
Fundamentally, OPEC is spot on in their analysis. The market is well supplied. Inventories in OECD countries are well above average at 53.5 days of forward cover. There are no gas lines in countries that use market pricing. Demand destruction in market priced economies is accelerating at an increasing rate (Down 4% from last year in April).
So far, the elasticity of oil, in the last year is that once you hit $60/oil, you don't get demand growth in the US. Past that point, every $10 increase in the price leads to a 1% drop in demand in the US. The May/June numbers, according to my calculation, should have demand destruction in the 5-6% range instead of the 4%.
IEA/EIA data for the full year assumed that US demand destruction would be roughly 400k/day. For the first 4 months of the year, we're at nearly 700k and this is accelerating. I think that by the end of the year, we will have US/OECD demand destruction in the neighborhood of 1-1.75 million/day, which will basically wipe out demand growth for the year.
lol - love the picture:)
What about another big elephant in the room - Iraqi oil could add up to 3mbpd to the world supply when it manages to go online at full capacity. Not insignificant. Also at that rate, could keep going for 60-70 years.
It seems the conclusions of the IEA report which you quote are that supply and demand IS causing the prices, and that speculation is not. Whats with the contradiction?
I haven't seen the report yet, but the IEA was singing a different tune in April:
"The impact these [investment fund] flows have had in recent years also remains unclear. An IEA Expert Roundtable in March discussed the many aspects that feed the current oil price. There were vastly different views on the effects of money flows on the oil market. In the IEA’s opinion, the limited information available makes it impossible to account meaningfully for the cross-market interactions that routinely take place between different futures exchanges and over-the-counter (OTC) markets. Further, what information there is fails to capture the true split between commercial and non-commercial activity.
However, while the weight of money debate remains open, there is an almost unanimous agreement among analysts that the oil price has recently been compensating for the weakness of the US dollar - indeed, stripping out the currency impact since 2007 shows a much closer fit between oil prices and global balances."Source(pdf)
It's important to realize that there are certain people who refuse to consider the possibility of financial factors (weak dollar, inflation hedging, geopolitical worries, "dot commodity" mania, speculation, hoarding etc.) because of their agenda. For example, the Oil Drum and other peak oiler sites are adamantly opposed to accepting any evidence of financial factors, no matter how well-founded. They welcome the high oil prices as confirmation of peak oil, and fear a price drop because people will backslide. The IEA may be adopting a similar advocacy-based approach, and it's perfectly understandable. On the other hand, it's a bias, and not the best approach if you want to actually pursue the truth.
The supply/demand explanation now seems to be favored by numerous big oil companies
There are many other big oil companies which say exactly the opposite, like Aramco, for instance. And they've got a point -- there is a glut of heavy oil in KSA, Iran and Kuwait right now (see 362).
Here's some others:
Larry Chorn, Chief Economist of Platts: "says the actual costs incurred in producing the most expensive oil is only around $70 or $80 a barrel, meaning that about $50 of the current price represents 'the market's risk premium plus speculation.'" [ BusinessWeek, 5/13/08]...
J. Stephen Simon, Executive Vice President, Exxon-Mobil: the price of oil should be $50 to $55 per barrel based on supply and demand fundamentals. [House Testimony, 4/1/08].
John Hofmeister, President, Shell Oil Co: The proper range of crude oil is "somewhere between $35 and $65 a barrel." [Financial Post, 5/22/08].
It's a polarized issue, and I don't think it's been settled by a long shot.
Personally, I think it's obvious that financial factors are a large component. Everyone agrees that the weak dollar plays a large role. James Hamilton agrees that hot money is playing some role. How could it not? Or listen to the reasons given for price surges... dollar down, worries about Iran etc. From June 4-6, WTI spot prices rose $16 in two days on the basis of no supply/demand event whatsoever.
I didn't see the report but read an article saying they said supplies will remain tight through 2013.
Yet they did say that SA would bring up production by 4mbd but that in 2013 it would mysteriously drop to where it is today, don't know where they got this conclusion from, also they seem to not have any clue what the demand side will be like, they claim that demand won't be down too much by then, I'm not an expert, but I say wanna bet.
People will not just go and blow with these prices and the higher they all get...yeah.
-Justin
forgot to add, JD.
Yeah that makes no sense as the other day Oil was down by three dollars on supply worries in the U.S....WTF?
I thought the whole reason why oil was so high in the first place was supply issues, this clearly shows that it isn't all related to supply concerns at all it's speculation and fears....
I have an idea...
What if oil stays about like this and everyone switchs over to cars that get 50-150 mpg and all of that I think if so that we're looking at some minor duress given this trend keeps up and demand keeps going down...Just thinking out loud.
-Justin
Seriously. As much as I've liked this blog and tried to remain optimistic;
One report after another, every single day, has OPEC leaders, world energy leaders and organizations pretty much saying the reason for high prices is the falling ability to add supply. And every single day it seems a new record is set for the price. And this demand destruction hasn't done a damned thing.
I like you JD. Your bouyant optimism is refreshing. But just talking about your life in Japan being oil free doesn't change a lot of these cold hard facts. If the answer were simply speculators and the falling dollar, then there really wouldn't be any public debate. Seems all I can do now is hope to hell you're right about something.
I don't know much of the ecnomy but I've been reading that it'll crash.
Is the economy that bad off?
-Justin
Thanks for responding. First, I certainly believe that the weak dollar is playing a large role in prices. I forgot to mention that.
Secondly, I have no clue if supply and demand are or are not in play here. All I know is that the IEA, the source that JD used to point out dropping demand here in the US, said so.
I'm open minded about what might happen here, since it seems that there is a lot of disagreement among economists about what is going on.
So the US demand for oil is elastic after all -- responsive to changes in price -- and hence, is plummeting. Meanwhile gas-guzzling SUVs and pickups are piling up on car lots nationwide, and you can't beg, borrow, or steal a Ford Focus, new or used. The US fleet is set for a complete makeover. How did that happen without taxes and mileage standards mandated by the government? Ain't free markets wonderful?
marc: One report after another, every single day, has OPEC leaders, world energy leaders and organizations pretty much saying the reason for
Actually, marc, OPEC's position is completely uniform: there is no problem with supply.
Indeed, they are as mystified as the rest of us as to why their customers are crapping their pants in abject fear.
ryan's analysis (above) is more or less dead on. I would only amplify the effect of FUD being pushed onto the market by the speculators:
http://arxiv.org/PS_cache/arxiv/pdf/0806/0806.1170v2.pdf
If there was a supply vs. demand issue, at this point, a year later, there would be fuel riots in North America. Right now. Today. Right outside your window. The price of oil would be in the high three digits (if not higher), and likely the only prospect of it coming down would be looming, devastating, economic collapse.
None of this is even close to coming true. Not even on a horizon a full megaparsec away.
Take very careful note: even the doomers know this, as none of them appear to be committing suicide. In fact, most of the mouthpieces for this overtly hostile philosophy seem to be writing books, collecting speaking fees, and generally fueling the cycle of fear.
I need a new car because the SUV I have now sucks way too much gas but here's the rub. I normally would have sold my car for $35000 now I will be lucky to get $25000. I just lost 10 000 that i don't have to buy a smaller more efficient car. Its easy to say get more efficient but now I will owe $35000 on a 25000 car that I will be busting my balls to make repayments on.
The f..ing government should step up and take control! There is only so far I can go before I go under. Its got me f...ing worried.
Of course there is a supply issue, it is just in other poorer countries. Many African countries are rationing fuel or you just can't get it. Supply hits the poor first and works its way up the list. I'd put money on shortages within a year unless we go into the Strategic reserves.
mike
Ted Said-
Man, I have been down before, had to negotiate with credit card companies, default on debt, everything. I started up a money-losing company, and didn't know when to quit. I still think it was a great idea and it bankrupted me.
First, stop worrying. It doesn't help.
Second, consider a scooter. You can buy a Chinese cheapie for under $1000. If you pay $50 a week in gas, you get your money back in 20 weeks.
Keep your SUV, and use it only when you gotta haul some big stuff, or its raining etc.
Good luck.
It should be noted that many of the shortages which are spoken of developing countries have a great deal to do with shoddy infrastructure, and little to do with peak oil. One major problem in countries which run oil subsidies: The refiners would make a big loss. Ergo they do Stop making distillates. This is why some analysts are worried that China decreasing its subsidy will actually make the demand problem more acute: the refiners have the incentive to make more!
On another matter, some news outlets have suggested that the now infamous IEA report (on the Wall Street Journal blog about this, one comment suggests that we should join the 'hippies' before the cities break down and people boil our bodies down for the meat and marrow) actually has a caveat at the end that the supply crunch may *ease* after 2013 depending on how well Brazil does with their new deep water fields. I need to get a copy of this report.
Hi JD, just found your site. Great stuff, please keep it up. I've been following peak oil/biofuel bashing and the like at http://timhallbooks.com/wordpress -- I put a link/plug for you at the bottom of my latest post.
Once again, great work JD. I was very surprised about how little play this received over at peakoil.com and TOD. Both of those sites contain some good info, but honestly it's frustrating how certain news is consistently tuned out. We're talking close to a 1 million barrel per day decline in consumption. Had we seen a 1 million barrel per day decline in production it would have received top placement for weeks.
Ted;
Serves you right for having an SUV in the first place. Hope it was worth it. Wait, actually I don't.
Sources? I cant find any myself. Are you sure this isnt more to do with the fact that they simply cant afford to buy the oil anymore?
We shall see, Mike. We shall see.
JD, I apologize if this comment thread got an overabundance of comments yesterday; I posted a link to this story on MarketWatch yesterday. A lot of those guys are under the impression that demand is inelastic and that demand is still growing, and even have the audacity to say 'take a look at the IEA and EIA reports if you don't believe me!' They never get specific about WHAT I'm supposed to be looking for, as the only hint of a shortage seemed to be that, if the growth pattern continued and no new production came online, there would be a shortage in a few years. Yet, speculation isn't really playing a role. Plus, several of them parrot the line about "nobody wants the heavy crude." Uh-huh...right. It's a real shame that people buy that one hook, line, and sinker, because it's simply not true. China's snatching up heavy crude, and 75% of the refineries here in the U.S. can handle heavy crude.
Having said all that, I'm looking forward to oil- and gas-free transportation in the future. I can has Chevy Volt?
If the government tapped into the SPR then I would be thinking we are in deep shit. I doubt it will happen. If it does the oil price would have to be sky high.
jstanley and ted, when I arrived to collect my rental car at the airport they claimed they had no 'intermediate' cars available and offered me a 'free' upgrade to a medium SUV. Because they'd very recently bought loads of Ford Escapes and nobody wanted them.
I accepted, figuring this was my last chance to ever try driving one of these stupid things before it became economically unviable for them to even exist :p
mike,
The question that I have to now ask you is whether or not the shortages in those countries are due to supply in crude oil, due to political policies, a carryover from previously, or a variety of factors converging at a really nasty time in the economic cycle.
It's not as easy as saying "PEAK OIL!"
You the man, JD. I come here, as a media full-timer, for sanity in an otherwise junk-and-cliche-filled energymediasphere. If I hear the "China and India" excuse one more time, I will jump off the top of the Times building. Are U.S., Wall Street and Fleet Street reporters looking at demand numbers in the USA? Do they knpw China subsidizes the price now, and will drop their consumers like a hot potato after the Olympics? Are they listening to recent testimony by Chorn et al.? The bubble is going to cause a lot of heads to roll down the road -- but at least the Oil Shock of '08 has shaken the Yanks out of complacency. Maybe now they will take rail and alternative cars seriously.
Well, guess what. Oil closed at $144 dollars today. Why? Oil stocks were hundreds of thousands lower than expected. Yup; that bubble sure is a-bursting.
marc,
The fact that the bubble doesn't pop in the next 15 minutes while you time with your watch doesn't mean anything. People warned that the dot-com frenzy was a bubble thousands upon thousands of times, but the herd kept piling in and the NASDAQ just kept melting up. And of course this was taken as proof that the vertical rise was not a bubble. The people warning of a fall had thick layers of egg all over their faces, in some cases for years. Until the bubble actually popped and the herd got mauled.
Be patient. Even Murti -- the analyst who predicted the $100 super-spike and is now predicting a $200 super-spike -- sees oil falling back to $75 in the long-term Link.
Regarding U.S. stocks: crude stocks were down, and product (gasoline/diesel) stock were up. Just what you would expect in a climate of collapsing demand.
An interesting trackback from Naked Capitalism:
Oil:Goldman versus Faber...
I heartily agree with this sentiment:
"Why are we taking such a skeptical posture? Because there isn't enough skepticism around."
I do think people will forget $5 gas quickly and demand will shoot right back up with a price drop. Right now people are just waiting for things to "get back to normal" so they can buy that new Tundra they have been wanting for so long. People are absolutely convinced there is enough oil out there to supply their needs we just need to "drill here, drill now".
I know this probably would go best in another thread, but since those are dead, I'll post this here.
I have never seen so many people out on scooters, motorcycles, and bicycles in my life. One of the problems of this is, these people don't have the experience of riding, and in the case of the bicyclists, many don't know or follow the rules of the road. Heck people are even walking a couple of blocks to Wal-Mart instead of driving. Did the world collapse? lol
My wife and I have been trying to get a scooter for some time now. Every time they get the ones we're interested in, they manage to sell out before we can make it to the shop. This last week, my wife got there 45 minutes after the salesperson called her, only to find someone was already financing the scooter we wanted. No, we don't drive a whole lot, I only fill up once every two weeks, but gas prices are a good excuse to get a fun toy like a scooter.
On "The Oil Drum", they bring this up, and some jackass posts a picture of an SUV with a huge dent in its hood from a probably deceased scooter rider, with the scooter half under the vehicle. You really can't win with them, you propose fixes to the demand issue, and they post that shit. What exactly are they trying to say with that? Those people are petrified of change, whatever it may be. ZOMG I saw two Smart cars in town! Those poor people, having to drive such small, efficient cars! /sarcasm
One comment,
I've been following the EIA supply report for the last couple of months.
We've actually have been building up supplies of finished product at a pretty decent clip (so much so that we only have 2.8% less oil products on hand now than last year).
A 2.8% year over year drop in oil supplies is not really a big deal right now b/c Demand is down year over year at 4%. This means that on a days supplied basis, we have alot more oil now than last year.
If I had to break down the doubling of the oil price over the past year in percentages it would go like this:
30% Geopolitical tensions
30% Bad monetary policy that has weakend the dollar.
20% Improper capital management of investment banks vis-a-vis securitization of commodities.
10% Oil supply and demand
I can tell you from experience in the real estate industry as a real estate representative for several major development companies, Wall Street and hedge fund models simply fail in the real world.
As the old saying goes, fool me once shame on you, fool me twice shame on me.
Well...we got fooled once by Wall Street with the tech bubble, and then again with the housing bubble.
We should know better by now.
btw...I test drove a smart car the other day for kicks (I personally make enough money that the gas price doesn't bother me). Those things are actually kind of fun. They're alot easier to park in urban centers and they have alot of cool technology in the cabin.
Yah it's small, but hey it gets the job done. :-)
Hi drewboy,
Great stuff, and welcome to POD. We love scooters. If POD was a country, the scooter would be our national bird. ;-)
I am beginning to think those of us in Japan, like JD and I, should actually be sending scooters OVER to America as a side business. Even the little shop down the street has about 10 used and 30 new just sitting there. $800 bucks for a great used one, or $1500 (ish) for a nice new Yamaha or Honda. Let me see...$200 bucks for shipping door to door? Uncle Sam no doubt has some sort of rules about imports of quality Japanese scooters by small companies though... but still, could make a nice side business.
My friend who owns a bicycle store here can't keep his lower to mid price bikes in stock. More and more people riding. Japan is ideal for it for the most part. More demand destruction in the cards here I'd say. The refineries are selling extra oil to China because they have too much in stock.
Oh, and JD, I still think you should write a book about PO and mitigation for Japan. The topic hardly exists here. I asked a big uni class of 4th year science majors about today and not a single hand went up.
The products that seem to be declining most are the low valued products - asphalt and residual fuel oil. Gasoline is only off -1.2% for April, and -1.3% for year to date. The reduction in distillate fuel oil (diesel + home heating oil) on a year to date basis is -3.9%. Asphalt is off -13.1% year to date: residual fuel oil is off -21.6% year to date.
Refineries are refining what used to be low valued products into gasoline and distillate.
GTA
Excellent blog...I have always said and written in my blog that drops in demand in the OECD will overwhelm any growth in the third world..oops...the emerging economies.
Great blog.
I think Ryan really summed up the issues affecting the price of oil quite well. I encourage everyone to re-read that comment so it sinks in. You really can't blame one specific thing (but if I had to I would point my finger right at Wall Street).
I'll add my few rants/comments:
1. The fact that the futures market itself is NOT transparent is ridiculous. We know that a market has the potential for manipulation when the market is not transparent, yet we take no action. My argument to anyone that believes speculation is not the problem is: how could closing the door on unregulated futures trades on the ICE make things any worse? Close this door and see if anything happens. If not, on to the next possible cause. This is by far the easiest solution to the many potential problems. Suddenly republicans don't seem to want a free market after all.
2. I am dismayed at the status quo of futures trading. The fact that an investment bank (say Goldman Sachs, for one) can trade oil futures and at the same time release price estimates that can cause the price to go up or down is a blatant conflict of interest. Why on Earth is this allowed?
3. The banks are in far greater trouble than they would have you believe. They have moved all of their sub-prime garbage into level three assets, which allow them to price them at whatever the hell they feel like (meanwhile the SEC does nothing), rather than what they are actually worth. They are taking billions of dollars of mortgage garbage they have and are claiming it is worth over double (conservative estimate) its going rate. This allows them to show that they do indeed have money. Yet bank after bank has needed to borrow from the FED and raise capital...often days after the CEO denied any such need. This is going to take years to unwind. I believe it has far mare to do with current oil prices than the Wall Street guys would have you believe.
4. Why peak oil believers seem to think that our demand for oil will NOT decrease when prices go through the roof is beyond me. I really don't understand the logic considering the majority of oil consumption is from the US and that majority of US oil consumption is from transportation.
5. This is the big one: You can't call when the bubble will burst. People were calling a tech bubble in '99. People were warning of real estate years ago. One observation I have had is that things you see coming always seem to take longer than you would think to unfold....
If you want to feel even worse about the world, check out the financial ninja blog. If only it could merge with this blog...mwhaahaha.
Keep it up! I'm continually impressed by the intelligent comments from both sides of the fence. The "buy your shotguns and canned food 'cause Mad Max is real" people tend to be a bit grating.
Anyone else see this? Pretty bold move by Mercedes, and I'm sure others will follow. This should reduce demand a bit...
http://green.yahoo.com/blog/ecogeek/603/mercedes-to-cut-petroleum-out-of-lineup-by-2015.html
Mercedes to cut petroleum out of lineup by 2015
By Jaymi Heimbuch Posted Thu Jun 26, 2008 9:23am PDT
In less than 7 years, Mercedes-Benz plans to ditch petroleum-powered vehicles from its lineup. Focusing on electric, fuel cell, and biofuels, the company is revving up research in alternative fuel sources and efficiency.
The German car company has a few new power-trains in the line-up that European journalists have had the opportunity to test out in the Mercedes facility in Spain. One vehicle includes the F700, powered by a DiesOtto engine that combines HCCI and spark ignition to get nearly the same efficiency as diesel, but minus the expensive after-treatment systems.
The engine can run on biofuels, and we may have a purchasable vehicle by 2010 -- a year that seems to be popular for the debut of a lot of new alternative fuel car models, making ’08 and ’09 simply thumb-twiddling years for consumers. I don’t know, maybe car makers just like the roundness of “2010.” The company’s next big step will be to launch a Smart electric car which is fuel and emission-free.
Anyway, Mercedes is looking into electric vehicles, both battery-powered and fuel-cell powered. Not only are models in development, but we’ve also seen the company making steps towards its zero-petroleum goal right now, from better cabs in London to li-ion battery improvements. The company also has about 100 Smart electric cars undergoing testing in London, with that favorite 2010 year as the projected market release date.
Mercedes is making serious investments, already putting nearly $4 million into the pot of its long-term Sustainable Mobility plan, with another nearly $1.4 billion going in before 2014.
While car models may be able to run on fuels other than gasoline or diesel, we have yet to find a method of both running and producing vehicles entirely free of fossil fuels. I’m waiting for a mainstream car line that creates renewable fuel, clean-running vehicles out of 100% recycled materials in plants run on 100% renewable, clean power … Will I even be alive when that finally happens? I have hope.
Via AutoblogGreen, The Sun; Photo Leonid Mamchenkov
"Put it all together, and the 'supply outstripping demand' theory of the feverish price action since March is emanating an extremely fish-like odor."
Don't you mean "demand outstripping supply?"
Nitpicker
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