A barrel of oil has about six times the energy content of a thousand cubic feet of natural gas. The graph below compares the dollar price of a barrel of oil with the oil-equivalent cost of natural gas, calculated by multiplying the price (in $/1000 cu ft) by six.
Based on the NG equivalence, oil should be about 6 times the price of natural gas and given today's price of natural gas, that means oil should be $23 a barrel. That is another fact for the oil bulls to ignore, link found here. _SeekingAlpha
There are two common questions regarding the price of oil: "Why is the price so high?" and "Why is the price so low?" With the ascendancy of Peak Oil Orthodoxy, a variant of the latter question is more common, "Why doesn't oil cost more?"
John Galt is suggesting in a Seeking Alpha article that oil is likely to sink into the $20 to $40 price range:
The fact is that the world is NOT running out of oil. World oil reserves have gone up every year, year over year since 99' to 00'. I've done my due dilligence and and know why, but I doubt many of the oil bulls have even bothered researching the data. They've all read TIME, Newsweek, and maybe even a book or two about peak oil. To them it's the alarmist, " where are we going to find more oil? We are running out!". If they ever bothered to look at the data they'd see 10 years of increased World oil reserves.
US Oil Consumption
2005 = 20.80 mbpd
2006 = 20.60 mpbd
2007 = 20.68 mpbd
2008 = 19.50 mpbd
2009 = 18.77 mpbd
2010 = 18.93 mpbd ( predicted)
2011 = 19.06 mpbd ( estimated)
So American oil consumption peaked in 2005, dropped 5 years in a row and "might" increase this year to 18.93 mbpd which is what we consumed over a decade ago in 1998. (Link to the EIA data.) The idea that we are using more and more and have less and less is simply not true.
...Why is it $70-$80 now? The reason is contango. If you can buy oil now at $70 today and sell it for $85-$90 in five years, the price is going to stay around $70. Somebody is betting on higher oil prices in five years.
Supply and Demand
I've seen this movie before. Supply and demand dictate that when prices soar demand goes down but we are told, "Nope, oil demand is inelastic." MasterCard (MA) showed a huge drop in gasoline sales in the Spring and Summer of 2008, miles driven were way down, even mighty China was using less oil but people still believe in peak oil and inelastic demand. If the "rich" US consumer is going to cut back on expensive oil, then why wouldn't the "poor" consumers in the emerging markets cut back?
On top of that, oil was over $100 for only five months and then promply crashed after that. Once oil hit $100 a barrel, demand dropped. The $70-$80 range seems to be the highest price oil majors can get without demand dropping off and without huge hits to world GDP. _SeekingAlpha
Mr. Galt is correct to focus on the demand side. Historically, the price of oil has gyrated wildly due to fluctuations in supply -- the discovery of vast new oil fields as the industry matured and oil exploration went "global." Now that OPEC has achieved a fairly stable price structure along with supply quotas, oil prices have remained within a fairly narrow range -- when looked at historically (most people are incapable of looking back further than 20 years or so).
The hyper-inflated sense of urgency over the impending shortage of oil supplies tends to cast a sense of doom over most energy analysis. A multi-$trillion transition from one energy infrastructure regime to another would normally take a number of decades. If the public (and many other people who should know better) can be railroaded into believing that the energy infrastructure regime transition ABSOLUTELY HAS TO occur over the next 5 years to avoid doom, then over half the battle is won for the doomers.
And never forget this: Peak Oil Doom only works as long as the ruling class accepts the idea of Catastrophic Anthropogenic Global Warming. Because if the ruling class is not drunk or paralysed by Carbon Hysteria, there are huge quantities of substitute fuels just waiting to be used cleanly and economically.
What you can see within the ruling class is stupidity piled upon stupidity. Obama Pelosi has nearly destroyed the economy, and is hard at work creating energy starvation by any means necessary.
By. Al Fin
Al Fin runs a number of very successful blogs that cover, energy, technology, news and politics. More
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