Crude Oil and Commodity Prices
United Shades of America. On the other hand, investigative journalist Greg Palast argues that oil companies have an interest in making oil look more rare than it is, to justify higher prices. The New York Times. Reserve estimates are based on the oil price. An introduction to Petroleum.
Average yearly gains in global supply from to were 1. The Association for the Study of Peak Oil and Gas agreed with their decline rates, but considered the rate of new fields coming online overly optimistic. Entities such as governments or cartels can reduce supply to the world market by limiting access to the supply through nationalizing oil, cutting back on production, limiting drilling rights, imposing taxes, etc. International sanctions, corruption, and military conflicts can also reduce supply.
Another factor affecting global oil supply is the nationalization of oil reserves by producing nations. The nationalization of oil occurs as countries begin to deprivatize oil production and withhold exports.
Kate Dourian, Platts' Middle East editor, points out that while estimates of oil reserves may vary, politics have now entered the equation of oil supply. Major oil companies operating in Venezuela find themselves in a difficult position because of the growing nationalization of that resource. These countries are now reluctant to share their reserves. Saudi Arabia is also limiting capacity expansion, but because of a self-imposed cap, unlike the other countries. OPEC is an alliance among 14 diverse oil-producing countries as of May OPEC's power was consolidated in the s and s as various countries nationalized their oil holdings, and wrested decision-making away from the " Seven Sisters " Anglo-Iranian, Socony, Royal Dutch Shell, Gulf, Esso, Texaco, Socal , and created their own oil companies to control the oil.
OPEC often tries to influence prices by restricting production. It does this by allocating each member country a quota for production.
Members agree to keep prices high by producing at lower levels than they otherwise would. There is no way to enforce adherence to the quota, so each member has an individual incentive to "cheat" the cartel. Commodities trader Raymond Learsy, author of Over a Barrel: To back his argument, he points to past false alarms and apparent collaboration. In , Hubbert predicted that world oil production would peak at a rate of However, a number of industry leaders and analysts believe that world oil production will peak between and , with a significant chance that the peak will occur before Papers published since have been relatively pessimistic.
A Kuwait University study predicted production would peak in A validation of a significant study in the journal Energy proposed that it is likely that conventional oil production peaked, according to various definitions, between and A set of models published in a Ph. Major oil companies hit peak production in The Coming Saudi Oil Shock and the World Economy , "peaking is one of these fuzzy events that you only know clearly when you see it through a rear view mirror, and by then an alternate resolution is generally too late.
The wide use of fossil fuels has been one of the most important stimuli of economic growth and prosperity since the industrial revolution , allowing humans to participate in takedown, or the consumption of energy at a greater rate than it is being replaced. Some believe that when oil production decreases, human culture and modern technological society will be forced to change drastically.
The impact of peak oil will depend heavily on the rate of decline and the development and adoption of effective alternatives. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.
The oil price historically was comparatively low until the oil crisis and the energy crisis when it increased more than tenfold during that six-year timeframe. Even though the oil price dropped significantly in the following years, it has never come back to the previous levels.
It is generally agreed that the main reason for the price spike in — was strong demand pressure. The consumption rates were far above new discoveries in the period, which had fallen to only eight billion barrels of new oil reserves in new accumulations in Oil price increases were partially fueled by reports that petroleum production is at    or near full capacity. Besides supply and demand pressures, at times security related factors may have contributed to increases in prices,  including the War on Terror , missile launches in North Korea ,  the Crisis between Israel and Lebanon ,  nuclear brinkmanship between the U.
Department of Energy and others showing a decline in petroleum reserves. This price drop has placed many US tight oil producers under considerable financial pressure. In the past, sudden increases in the price of oil have led to economic recessions , such as the and energy crises. The effect the increased price of oil has on an economy is known as a price shock. In many European countries, which have high taxes on fuels , such price shocks could potentially be mitigated somewhat by temporarily or permanently suspending the taxes as fuel costs rise.
A baseline scenario for a recent IMF paper found oil production growing at 0. Researchers at the Stanford Energy Modeling Forum found that the economy can adjust to steady, gradual increases in the price of crude better than wild lurches. Some economists predict that a substitution effect will spur demand for alternate energy sources , such as coal or liquefied natural gas.
This substitution can be only temporary, as coal and natural gas are finite resources as well. Prior to the run-up in fuel prices, many motorists opted for larger, less fuel-efficient sport utility vehicles and full-sized pickups in the United States, Canada, and other countries.
This trend has been reversing because of sustained high prices of fuel. The September sales data for all vehicle vendors indicated SUV sales dropped while small cars sales increased.
Hybrid and diesel vehicles are also gaining in popularity. In , a report by Cambridge Energy Research Associates stated that had been the year of peak gasoline usage in the United States, and that record energy prices would cause an "enduring shift" in energy consumption practices.
The Export Land Model states that after peak oil petroleum exporting countries will be forced to reduce their exports more quickly than their production decreases because of internal demand growth.
Countries that rely on imported petroleum will therefore be affected earlier and more dramatically than exporting countries. Internal consumption grew by 5. Canadian economist Jeff Rubin has stated that high oil prices are likely to result in increased consumption in developed countries through partial manufacturing de-globalisation of trade. Manufacturing production would move closer to the end consumer to minimise transportation network costs, and therefore a demand decoupling from gross domestic product would occur.
Higher oil prices would lead to increased freighting costs and consequently, the manufacturing industry would move back to the developed countries since freight costs would outweigh the current economic wage advantage of developing countries. Since supplies of oil and gas are essential to modern agriculture techniques, a fall in global oil supplies could cause spiking food prices and unprecedented famine in the coming decades.
The largest consumer of fossil fuels in modern agriculture is ammonia production for fertilizer via the Haber process , which is essential to high-yielding intensive agriculture. The specific fossil fuel input to fertilizer production is primarily natural gas , to provide hydrogen via steam reforming.
Given sufficient supplies of renewable electricity , hydrogen can be generated without fossil fuels using methods such as electrolysis. For example, the Vemork hydroelectric plant in Norway used its surplus electricity output to generate renewable ammonia from to Iceland currently generates ammonia using the electrical output from its hydroelectric and geothermal power plants , because Iceland has those resources in abundance while having no domestic hydrocarbon resources, and a high cost for importing natural gas.
A majority of Americans live in suburbs , a type of low-density settlement designed around universal personal automobile use. Peak oil would leave many Americans unable to afford petroleum based fuel for their cars, and force them to use bicycles or electric vehicles. Additional options include telecommuting , moving to rural areas , or moving to higher density areas, where walking and public transportation are more viable options. In the latter two cases, suburbs may become the " slums of the future.
Stressing the energy component of future development plans is seen as an important goal. Rising oil prices, if they occur, would also affect the cost of food, heating, and electricity. A high amount of stress would then be put on current middle to low income families as economies contract from the decline in excess funds, decreasing employment rates.
Methods that have been suggested for mitigating these urban and suburban issues include the use of non-petroleum vehicles such as electric cars , battery electric vehicles , transit-oriented development , carfree cities , bicycles , new trains , new pedestrianism , smart growth , shared space , urban consolidation , urban villages , and New Urbanism.
An extensive report on the effects of compact development by the United States National Research Council of the Academy of Sciences , commissioned by the United States Congress, stated six main findings.
Third, that higher density, mixed-use developments would produce both direct reductions in CO 2 emissions from less driving , and indirect reductions such as from lower amounts of materials used per housing unit, higher efficiency climate control, longer vehicle lifespans, and higher efficiency delivery of goods and services. Fourth, that although short term reductions in energy use and CO 2 emissions would be modest, that these reductions would become more significant over time. Fifth, that a major obstacle to more compact development in the United States is political resistance from local zoning regulators, which would hamper efforts by state and regional governments to participate in land-use planning.
Sixth, the committee agreed that changes in development that would alter driving patterns and building efficiency would have various secondary costs and benefits that are difficult to quantify. The report recommends that policies supporting compact development and especially its ability to reduce driving, energy use, and CO 2 emissions should be encouraged.
An economic theory that has been proposed as a remedy is the introduction of a steady state economy. Such a system could include a tax shifting from income to depleting natural resources and pollution , as well as the limitation of advertising that stimulates demand and population growth.
It could also include the institution of policies that move away from globalization and toward localization to conserve energy resources, provide local jobs, and maintain local decision-making authority. Zoning policies could be adjusted to promote resource conservation and eliminate sprawl.
Since aviation relies mainly on jet fuels derived from crude oil, commercial aviation has been predicted to go into decline with the global oil production. To avoid the serious social and economic implications a global decline in oil production could entail, the Hirsch report emphasized the need to find alternatives, at least ten to twenty years before the peak, and to phase out the use of petroleum over that time.
Such mitigation could include energy conservation, fuel substitution, and the use of unconventional oil. The timing of mitigation responses is critical. Premature initiation would be undesirable, but if initiated too late could be more costly and have more negative economic consequences.
Permaculture sees peak oil as holding tremendous potential for positive change, assuming countries act with foresight. The rebuilding of local food networks, energy production, and the general implementation of " energy descent culture" are argued to be ethical responses to the acknowledgment of finite fossil resources. The Transition Towns movement, started in Totnes , Devon  and spread internationally by "The Transition Handbook" Rob Hopkins and Transition Network, sees the restructuring of society for more local resilience and ecological stewardship as a natural response to the combination of peak oil and climate change.
The theory of peak oil is controversial and became an issue of political debate in the USA and Europe in the mids. Critics argued that newly found oil reserves forestalled a peak oil event. Some argued that oil production from new oil reserves and existing fields will continue to increase at a rate that outpaces demand, until alternate energy sources for current fossil fuel dependence are found.
Another argument against the peak oil theory is reduced demand from various options and technologies substituting oil. The president of Royal Dutch Shell 's U. Hofmeister also pointed to unconventional sources of oil such as the oil sands of Canada, where Shell was active. The Canadian oil sands—a natural combination of sand, water, and oil found largely in Alberta and Saskatchewan—are believed to contain one trillion barrels of oil.
Another trillion barrels are also said to be trapped in rocks in Colorado, Utah, and Wyoming,  in the form of oil shale. Environmentalists argue that major environmental, social, and economic obstacles would make extracting oil from these areas excessively difficult.
He thought in that high energy prices would cause social unrest similar to the Rodney King riots. Christoph Rühl, chief economist of BP , argued against the peak oil hypothesis: Physical peak oil, which I have no reason to accept as a valid statement either on theoretical, scientific or ideological grounds, would be insensitive to prices.
In fact the whole hypothesis of peak oil — which is that there is a certain amount of oil in the ground, consumed at a certain rate, and then it's finished — does not react to anything Therefore there will never be a moment when the world runs out of oil because there will always be a price at which the last drop of oil can clear the market.
And you can turn anything into oil into if you are willing to pay the financial and environmental price Global Warming is likely to be more of a natural limit than all these peak oil theories combined.
Peak oil has been predicted for years. It has never happened, and it will stay this way. Rühl argued that the main limitations for oil availability are "above ground" factors such as the availability of staff, expertise, technology, investment security, funds, and global warming, and that the oil question was about price and not the physical availability.
In , Daniel Yergin of CERA suggest that a recent high price phase might add to a future demise of the oil industry, not of complete exhaustion of resources or an apocalyptic shock but the timely and smooth setup of alternatives. Each time-whether it was the 'gasoline famine' at the end of WWI or the 'permanent shortage' of the s -technology and the opening of new frontier areas have banished the spectre of decline.
There's no reason to think that technology is finished this time. In , Clive Mather, CEO of Shell Canada, said the Earth's supply of bitumen hydrocarbons was "almost infinite", referring to hydrocarbons in oil sands. In attorney and mechanical engineer Peter W. Huber asserted that the world was just running out of "cheap oil," explaining that as oil prices rise, unconventional sources become economically viable.
He predicted that, "[t]he tar sands of Alberta alone contain enough hydrocarbon to fuel the entire planet for over years. Environmental journalist George Monbiot responded to a report by Leonardo Maugeri  by suggesting that there is more than enough oil from unconventional sources for capitalism to "deep-fry" the world with climate change.
From Wikipedia, the free encyclopedia. Point in time when the maximum rate of petroleum extraction is reached. Cummings, Exxon-Mobil company spokesman, December . Oil reserves and List of largest oil fields. Petroleum , Means of production , and Extraction of petroleum. Nationalization of oil supplies. Organization of the Petroleum Exporting Countries.
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