Possible corollary: "Tesla stock rises in response."
We may be heading towards a world of permanently low oil prices, as rising prices will cause more people to switch to electrics or plug-in hybrids.
Car buyers exhibit amazingly lemming-like behavior, switching to more fuel-efficient cars as prices rise and switching away from those fuel-efficient cars as prices fall. That process is likely to become more pronounced as electrics become more available and affordable.
What kinds of car people use is irrelevant as long as the power grid is predominantly powered by fossil fuels. The number to watch is percentage of "green" power generation, which changes far too slowly to respond to market lurches like this.
Major energy sources and percent share of total U.S. electricity generation in 2015
Coal = 33%
Natural gas = 33%
Nuclear = 20%
Hydropower = 6%
Other renewables = 7%
Biomass = 1.6%
Geothermal = 0.4%
Solar = 0.6%
Wind = 4.7%
Petroleum = 1%
Other gases = <1%
An electric fleet (powered by coal, natural gas, and nuclear) will reduce demand for oil, so movement in that direction is likely cause falling oil prices. Which could lead to more people buying oil-powered cars again.
I think the genie is out of the bottle with regards to electric cars. They've proven they work and can compete with internal combustion cars on most metrics that people care about and exceed ICEs in a number of ways. Battery capacity generally increases 8% per year, and battery production is ramping up in ways never seen before. The mindshare has already left Gas cars, it's just a matter of time before sales slip to electric, a bit like Nokia compared to the smartphone, Nokia were still shipping millions of units but consumer demand was waiting for cheaper smartphone units, once it did Nokia was destroyed.
By the time electric cars are ready for ubiquity, transportation-as-a-utility will have exploded thanks to autonomous vehicles. Why buy an electric car with less maintenance than a gas one when you can just skip out on owning a car entirely? Governments and/or insurance can directly or indirectly subsidize this move for the sake of safety.
Risk versus technological change is a dynamical system, yet many of the sky-is-falling estimates for the insurance industry myopically forecast assuming an invariant risk set-point.
Any large scale car accidents will be re-simulated, analysed and scoured until they are fixed, the general public will not permit them to persist. This means a complete collapse of the entire industry except for enterprise scale underwriting of the car manufacturers which they may already have for recalls.
Russia, Saudi Arabia, USA, and many of the oil producers also produce natural gas. Oils can also be refined into natural gas. So countries who produce oil are not always dependent on it as their only energy export.
But when Tesla sells you a BEV, the solar roof array and household battery, and allows you to go "off-grid" with that car, the kind of car you use is relevant.
Yes, we saw people switch to more efficient transport in the US at $4/gallon. I think this is the long term ceiling, where people will switch to at least a plugin hybrid and cover 90% of their driving on electricity.
You've got OPEC a collection of countries that don't all like each other, trying to agree to lower their individual production knowing that they can't trust each other.
At the same time this exact group of countries are running deficits and any cut's they make will increase those deficits in the short term. Keep in mind these are countries who can't be described as stable. In many the only thing keeping the government in power is they oil money they sprinkle on their populations.
You've got oil producing countries outside of OPEC who would love to see the price of oil rise so they can expand their production of oil that's more expensive to produce. Keep in mind there is a prominent theory that OPEC flooded the market with cheap oil to drive these countries out of the oil producing business.
You've got world economies that depend on oil, all of which are using cheap oil to prop themselves up to differing degrees. A return to $100/barrel oil would be short term trouble for many 1st world economies.
I love the oil market. I can't figure it out, but I love trying:)
> "...love to see the price of oil rise so they can expand their production of oil that's more expensive to produce"
Yeah, it's a weird dynamic. For example, the higher the price of oil, the less dependent the US is on the rest of the world. Lots of oil in that $60-$80+ range in and around the US.
The 60-80$ range US Oil only lasts for a few years at US consumption rates, but that's plenty to influence OPEC. The real issue is Expensive Oil has a lot of competition but Cheap Oil does not. Further, it takes years for substitutes to get onto the market. So, OPEC is better off with large price swings than a steady state which causes long term demand to fall off a cliff or uses up their supply at very low prices.
On top of that, politics can make price swings a useful weapon. Cheap Oil makes Russia for example far weaker.
PS: IMO, small scale Russian aggression actually fits as a 'wag the dog' distraction from how bad things are going for them.
Let's hope they keep it small and don't try to covertly start a big fire that will drive oil prices back up. It's scary to see a world economic situation where starting/fueling wars starts to make more and more economic sense... I can almost imagine a future "WarEnron" selling the future profits indirectly caused by future wars :)
We should find a way to make sure we have profits aligned with peace and abolish the concept of "wars that make economic sense"! The US and EU at least do this (more or less unintentionally) by keeping weapons and military operations very expensive. Russia probably has more practical means for "cheap destruction" and this is dangerous because at some point some will start placing bets on this and then try nudging world events in the direction of their "win".
> I can almost imagine a future "WarEnron" selling the future profits indirectly caused by future wars
Pretty sure you just described every fund that's big into Honeywell, General Dynamics, Lockheed, etc. Many of these companies profits depend on the US insisting on maintaining the largest military in the world (by a lot) as a hedge against just these sorts of "profit wars" from being waged.
But you can't exclude the natural gas that's also part of fracking. The reserves of it in the US are incredible, and have a large impact on energy prices.
Natural gas is often burnt off as not worth recovering in many places. It's valuable in the US largely due to low transportation costs, but on it's own is generally not worth it.
But you can't exclude the natural gas that's also part of fracking. The reserves of it in the US are incredible, and have a large impact on energy prices.
The Iran deal was win/win in many ways from what I can tell. They agree not to pursue their nuclear program and as a result they get sanctions lifted allowing them to sell oil through OPEC, bringing prices down further. Cheap oil hurts Saudi Arabia, Russia, Venezuela, ISIS, etc.
You might want to fact check everything I just said though, it has been a while since I've looked at this.
The most optimum thing (or one of the optimums) is for them to do, Game Theory wise, is to announce a deal and cheat unofficially! The only way to check this is to see their shipment numbers on the importing side, after the fact.
They've cheated before..
The benefits come from the market expectation of lower output, immediately gaining higher revenue.
The US producers have promised they would turn fracking back on if oil crossed above the mid-40s. Canada will also be back online as the wildfires have burned out.
These prices need to show some resiliency before any producer is going to throw serious cash towards more production. There is a pretty large lag time to build back all the services and bring new wells "online", 6-12 months?. Producers need to be confident that those prices will maintain at $45+ before you'll see any major activity.
Smoke & mirrors. Art Berman has shown that none of the Tight&Shale producers are/has been profitable. They are largely there because of credit/debt (which of course can't grow for ever)
"Tight oil companies outspend cash flow by an average of 120%: spend $2.20 for every dollar earned from operating activities."
"Tight oil company debt-to-cash from operating activities ratio averages 3.3: would take more than 3 years to pay down debt if all cash flow was used."
I have seen (unsupported) estimates for the quantity of zero-coupon debt that's most likely just evaporated since 2014 in the Eagle Ford shale alone run in the low trillions - maybe one, two or four or something.
One thing to consider ( although it's pretty different ) - the 1980s oil crash was in around 1983; the S&L bailout (FIRREA) was in 1989. Six years' latency.
Is it possible that oil prices will never be that high again due to renewables? Part of me feels like the games OPEC members are playing will be to their long term detriment. Renewable cost is only going down year after year, really the oil states have a limited time to extract as much money as possible before alt energy kicks into high gear. By the time they're done fighting with each other it may be too late to get the money that they are banking on.
Also bets on whether any member countries actually follow this?
Renewables depend on oil. You can't make renewables with renewables energy, because their overall EROI is insufficient to both maintain the current standard of life, and make them. The other issue is mobility, oil has the best volume/energy content ratio of all energy sources we know (except uranium). Renewables can only make electricity and you need about 10x the same battery volume (and weight) to move a vehicle, compared to oil. Unfourtunately for all of us, fosil fuels are here to stay for a while, until they run out. Or until the economy crashes. Or until climate change kicks in real bad.
Hydrogen is a nightmare to work with, and store. Other high energy-density chemicals tend to be complex hydrocarbons... So you're still burning oil - it just happens to be made from coal, or algae slush, or whatnot.
Algae slush is carbon coming from our current system, our current atmosphere, it is renewable. Fossil fuel is releasing carbon from and external source (external on a human timescale at least). It will be essential in creating a renewable replacement for oil.
Burning hydrocarbons is not the issue. Burning hydrocarbons that were extracted from the atmosphere millions of years ago, is.
If I had to insure transportation of a gas for energy storage, I'd make it methane. LNG is pretty safe. But right now, there's plenty of natural gas around.
Renewables depend on oil. You can't make renewables with renewables energy, because their overall EROI is insufficient to both maintain the current standard of life, and make them.
Currently, sure, but in the long term? How so?
The other issue is mobility, oil has the best volume/energy content ratio of all energy sources we know (except uranium).
I'd say say that transport electrification is going to be more directly responsible for reducing oil demand. It's very important to the climate that electric vehicles get charged with low-emissions sources, but the petrostates are equally in trouble whether people are driving EVs charged with wind power or coal power.
It's hard to tell when electrification is going to kick into high gear. Projections for numbers of EVs sold ten years from now vary widely. I'll say that if oil did go back over $100/barrel that would provide an incredible tail wind for PHEV and BEV adoption in the US. Cars last 20+ years but buyers are oddly sensitive to recent pump prices.
I don't expect my 2015 LEAF to be on the road in 2035. The current generation of battery electrics do not have 20 year battery packs, and I don't know that it will be worthwhile to re-battery the car twice to get to the 20 year mark with good range and the way the battery tech is improving. (I'd probably rather buy a new BEV 8 years from now, even though I'm normally the guy who buys a 6-10 year old car and drives it 6-10 years.)
I do agree that people all but throwing away large SUVs when gas hit the mid $4 range was mystifying to me. I work with and hang around generally smart people and I saw people trading in 2-3 year old cars for brand-new fuel efficient cars.
There are a couple of dynamics at play. In the long term (10+ year range), I believe you are correct, that renewables will begin to have a significant effect on oil prices as natural gas power plants are shut down and replaced with solar and wind (oil is used primarily for transportation, not energy production; natural gas is replacing coal as the primary fossil fuel used for generating electricity as natural gas prices remain lower than coal for extended periods). For the short term, though, I think fracking has a bigger impact on prices.
Traditionally, oil prices had a long-term boom-bust cycle that lasted about 30 years...15 years of boom followed by 15 years of bust. This has been going on since the dawn of the oil industry, and is largely systemic: business cycles tend to be around 15 years, as in it takes about 10-15 years to go from discovery to production (gather data, drill exploration wells, drill production wells and production infrastructure). I'm not sure of any other industry with so long of a systemic business cycle.
Now, however, fracking has changed the game. So far, since "tight gas" is so new, we're able to use fracking in oil fields that have already been developed, to extract gas and oil from areas we knew it was at before, but thought it was too hard to extract (the term for where fracking is used--"tight" refers to the permeability of the rock...traditional oil comes from sources measured in the 10s of darcies...fracking is often employed in areas with <0.001 darcies, like shale rock). This means that production facilities, like pipelines and whatnot, are already in place. Furthermore, the discovery process is shortened, as these are already fields with known reserves, just in areas that we could not extract from efficiently before. Now, with fracking, we can. This means the investment cycle has been reduced from 10-15 years to 1-2 years.
With the old business cycle, new technology typically would be invented any time prices got high enough--generally following a business cycle where all of the "easy" oil has been found and extracted. New technology allows new fields to be produced "easily", causing a surplus of oil and a crash in oil prices. This continues until all the "easy" oil has been found, and the cycle continues. This cycle goes all the way back to the 1860s (whale blubber -> oil wells -> oil wells with pumps -> basic geology (drilling under hills) -> 2D seismic -> 3D seismic -> deep-sea/sub-salt -> fracking; pretty much follows a 20-30 year cycle). The concept of "peak oil" isn't new--people have been worried about peak oil since the mid-1800s.
Analysts aren't sure if the new reality we're in has fundamentally changed the markets. I say it hasn't--the cycles will return after all of this new "easy" oil, in the form of shale gas/tight gas, has been exploited. But we're only somewhere about 2-5 years into a 15-year bust cycle, if you ask me. I would expect prices to hover in the $40-$50 range for the remainder of this bust cycle, with a few rare exceptions (wars, disasters, etc). After that, I think you'll see prices return to the $100+ level (in 2016 terms--since the 1860s, prices have cycled pretty consistently between $10 and $100 for a barrel of oil, in 2016 terms) until the next technological revolution in oil exploration and production occurs. But it does mean less volatility in prices as business cycles shorten--at least for the remainder of this bust cycle. Maybe peak oil will become a reality right as demand for oil drops, making the next round of technology advances unnecessary.
Energy markets are a bit complicated. Wind energy has a localized value that depends on local supply and demand supported by the associated transmission line. In any case, the price of any energy resource is based on what technology is "on the margin", i.e. what is the cheapest form of energy available at a specific time to satisfy demand. It turns out that US natural gas prices are driving all the renewable energy economics due to their current historically low price. Arguably, oil prices have less of an influence on renewables than the cost of natural gas.
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[ 2.9 ms ] story [ 110 ms ] threadWe may be heading towards a world of permanently low oil prices, as rising prices will cause more people to switch to electrics or plug-in hybrids.
Car buyers exhibit amazingly lemming-like behavior, switching to more fuel-efficient cars as prices rise and switching away from those fuel-efficient cars as prices fall. That process is likely to become more pronounced as electrics become more available and affordable.
Coal = 33% Natural gas = 33% Nuclear = 20% Hydropower = 6% Other renewables = 7% Biomass = 1.6% Geothermal = 0.4% Solar = 0.6% Wind = 4.7% Petroleum = 1% Other gases = <1%
An electric fleet (powered by coal, natural gas, and nuclear) will reduce demand for oil, so movement in that direction is likely cause falling oil prices. Which could lead to more people buying oil-powered cars again.
For an alternate perspective of a potential (lucrative) future for insurance, see my post here: https://news.ycombinator.com/item?id=12245312
Any large scale car accidents will be re-simulated, analysed and scoured until they are fixed, the general public will not permit them to persist. This means a complete collapse of the entire industry except for enterprise scale underwriting of the car manufacturers which they may already have for recalls.
People started trading in their SUVs last time, this time they will be getting something that doesn't need gasoline at all.
I don't think OPEC realizes how dangerous of a game they are playing.
You've got OPEC a collection of countries that don't all like each other, trying to agree to lower their individual production knowing that they can't trust each other.
At the same time this exact group of countries are running deficits and any cut's they make will increase those deficits in the short term. Keep in mind these are countries who can't be described as stable. In many the only thing keeping the government in power is they oil money they sprinkle on their populations.
You've got oil producing countries outside of OPEC who would love to see the price of oil rise so they can expand their production of oil that's more expensive to produce. Keep in mind there is a prominent theory that OPEC flooded the market with cheap oil to drive these countries out of the oil producing business.
You've got world economies that depend on oil, all of which are using cheap oil to prop themselves up to differing degrees. A return to $100/barrel oil would be short term trouble for many 1st world economies.
I love the oil market. I can't figure it out, but I love trying:)
imagine all the countries that won't have oil money
that has so many implications
Yeah, it's a weird dynamic. For example, the higher the price of oil, the less dependent the US is on the rest of the world. Lots of oil in that $60-$80+ range in and around the US.
On top of that, politics can make price swings a useful weapon. Cheap Oil makes Russia for example far weaker.
PS: IMO, small scale Russian aggression actually fits as a 'wag the dog' distraction from how bad things are going for them.
Let's hope they keep it small and don't try to covertly start a big fire that will drive oil prices back up. It's scary to see a world economic situation where starting/fueling wars starts to make more and more economic sense... I can almost imagine a future "WarEnron" selling the future profits indirectly caused by future wars :)
We should find a way to make sure we have profits aligned with peace and abolish the concept of "wars that make economic sense"! The US and EU at least do this (more or less unintentionally) by keeping weapons and military operations very expensive. Russia probably has more practical means for "cheap destruction" and this is dangerous because at some point some will start placing bets on this and then try nudging world events in the direction of their "win".
Pretty sure you just described every fund that's big into Honeywell, General Dynamics, Lockheed, etc. Many of these companies profits depend on the US insisting on maintaining the largest military in the world (by a lot) as a hedge against just these sorts of "profit wars" from being waged.
[1] Price of Oil Chart: https://fred.stlouisfed.org/series/DCOILWTICO [2] Dolar Chart: https://fred.stlouisfed.org/series/DTWEXM
You might want to fact check everything I just said though, it has been a while since I've looked at this.
They've cheated before..
The benefits come from the market expectation of lower output, immediately gaining higher revenue.
http://www.cnbc.com/2016/02/29/us-shales-message-for-opec-ab...
"Tight oil companies outspend cash flow by an average of 120%: spend $2.20 for every dollar earned from operating activities." "Tight oil company debt-to-cash from operating activities ratio averages 3.3: would take more than 3 years to pay down debt if all cash flow was used."
Please see: http://www.artberman.com/wp-content/uploads/The-Shale-Revolu...
Meanwhile: http://fortune.com/2015/12/10/oil-zombies-debt/
One thing to consider ( although it's pretty different ) - the 1980s oil crash was in around 1983; the S&L bailout (FIRREA) was in 1989. Six years' latency.
Also bets on whether any member countries actually follow this?
If renewable energy becomes abundant/cheap enough, you can convert electricity into hydrogen or other high energy density chemicals.
Burning hydrocarbons is not the issue. Burning hydrocarbons that were extracted from the atmosphere millions of years ago, is.
Currently, sure, but in the long term? How so?
The other issue is mobility, oil has the best volume/energy content ratio of all energy sources we know (except uranium).
"Sustainable fuel for the transportation sector": https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1821126/
It's hard to tell when electrification is going to kick into high gear. Projections for numbers of EVs sold ten years from now vary widely. I'll say that if oil did go back over $100/barrel that would provide an incredible tail wind for PHEV and BEV adoption in the US. Cars last 20+ years but buyers are oddly sensitive to recent pump prices.
I do agree that people all but throwing away large SUVs when gas hit the mid $4 range was mystifying to me. I work with and hang around generally smart people and I saw people trading in 2-3 year old cars for brand-new fuel efficient cars.
Traditionally, oil prices had a long-term boom-bust cycle that lasted about 30 years...15 years of boom followed by 15 years of bust. This has been going on since the dawn of the oil industry, and is largely systemic: business cycles tend to be around 15 years, as in it takes about 10-15 years to go from discovery to production (gather data, drill exploration wells, drill production wells and production infrastructure). I'm not sure of any other industry with so long of a systemic business cycle.
Now, however, fracking has changed the game. So far, since "tight gas" is so new, we're able to use fracking in oil fields that have already been developed, to extract gas and oil from areas we knew it was at before, but thought it was too hard to extract (the term for where fracking is used--"tight" refers to the permeability of the rock...traditional oil comes from sources measured in the 10s of darcies...fracking is often employed in areas with <0.001 darcies, like shale rock). This means that production facilities, like pipelines and whatnot, are already in place. Furthermore, the discovery process is shortened, as these are already fields with known reserves, just in areas that we could not extract from efficiently before. Now, with fracking, we can. This means the investment cycle has been reduced from 10-15 years to 1-2 years.
With the old business cycle, new technology typically would be invented any time prices got high enough--generally following a business cycle where all of the "easy" oil has been found and extracted. New technology allows new fields to be produced "easily", causing a surplus of oil and a crash in oil prices. This continues until all the "easy" oil has been found, and the cycle continues. This cycle goes all the way back to the 1860s (whale blubber -> oil wells -> oil wells with pumps -> basic geology (drilling under hills) -> 2D seismic -> 3D seismic -> deep-sea/sub-salt -> fracking; pretty much follows a 20-30 year cycle). The concept of "peak oil" isn't new--people have been worried about peak oil since the mid-1800s.
Analysts aren't sure if the new reality we're in has fundamentally changed the markets. I say it hasn't--the cycles will return after all of this new "easy" oil, in the form of shale gas/tight gas, has been exploited. But we're only somewhere about 2-5 years into a 15-year bust cycle, if you ask me. I would expect prices to hover in the $40-$50 range for the remainder of this bust cycle, with a few rare exceptions (wars, disasters, etc). After that, I think you'll see prices return to the $100+ level (in 2016 terms--since the 1860s, prices have cycled pretty consistently between $10 and $100 for a barrel of oil, in 2016 terms) until the next technological revolution in oil exploration and production occurs. But it does mean less volatility in prices as business cycles shorten--at least for the remainder of this bust cycle. Maybe peak oil will become a reality right as demand for oil drops, making the next round of technology advances unnecessary.
http://seekingalpha.com/article/3960625-prisoners-dilemma-oi...