Author Topic: Are you prepared for the price of oil?  (Read 4904 times)

Offline alexlindsay

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Are you prepared for the price of oil?
« on: November 06, 2017, 02:23:43 PM »
Everyone now seems to believe the price of oil will be low forever, which almost certainly means it will go higher, possibly drastically higher. Are you prepared for that eventuality? Will you be in financial trouble if the cost of gas doubles or triples? What if the cost of heating your home doubles or triples? Does your job or business depend on low energy costs?

Offline KellyAnn

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Re: Are you prepared for the price of oil?
« Reply #1 on: November 06, 2017, 02:52:06 PM »
Actually I'm pretty sure we'd ok with all of that.
My spouse can walk to work, I don't own a car and instead ride a bicycle as my primary transportation.  Our car gets about 50 mpg, and we actually don't drive very much at all.  My spouse's company wasn't affected by the downturn in the economy did the last time the price of oil/gasoline was high.   We live where it's fairly warm most of the year and we're good at ways to utilize passive solar heating.
The wrench in the works would be the increase in the cost of food, but I think we could probably deal with an increase there too.

But I suspect that "yes we'd probably be fine" not the answer you're looking for.

Offline alexlindsay

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Re: Are you prepared for the price of oil?
« Reply #2 on: November 06, 2017, 03:52:06 PM »
Oh no, I'm not crying doom for everyone. Just throwing out some food for thought.

Sounds like you are pretty energy independent, which is great.

Offline surfivor

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Re: Are you prepared for the price of oil?
« Reply #3 on: November 06, 2017, 04:03:34 PM »

 I think oil prices are manipulated by bankers and traders. Gerald Celente however said that the Chinese are trying to destroy the petro dollar system and that could wreck our economy according to him

Offline KellyAnn

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Re: Are you prepared for the price of oil?
« Reply #4 on: November 06, 2017, 04:03:53 PM »
We use about 5 gallons of gas a month :) since switching to a Prius and moving closer to my husband's work.
Before that we were using about 20 gallons a week for his V6 station wagon.  Getting rid of that car made a HUGE difference.  Especially since gasoline here in the People's State of California is already pretty expensive.  If we had to, we could probably live without a car at all.  But it would make it difficult to pick people up at the airport ;)

Offline fritz_monroe

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Re: Are you prepared for the price of oil?
« Reply #5 on: November 06, 2017, 04:18:33 PM »
We'd have to make some adjustments.  I can't decrease my daily commute without moving.  However, I can change over to 10 hour days, that would be 100 fewer miles per week, or about 3 gallons of gas. 

My wife would need to change the most.  She has the truck that gets about 16 mpg.  Right now, she goes grocery shopping with her mother.  It's about a 60 mile round trip.  She says it is because the food is so much cheaper, but I know it's to spend time with her mom.  I have no issues with that, but if gas doubled or tripled in price, I'd have to insist that her shopping trips be much more local.  She also attends church at her mother's church which is about 25 miles away.  She's been looking for an excuse to change churches and prices like that would do it.

Online David in MN

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Re: Are you prepared for the price of oil?
« Reply #6 on: November 06, 2017, 05:12:24 PM »
Beyond getting rich off my oil stocks, I'd be fine. We set up our lives to minimize commutes. Sure retail would go up (shipping costs for groceries and all) but we're still way in the safe zone there.

But....

This won't happen. I've discussed this elsewhere around here. We know oil will float between a $25 minimum (Saudi minimum) and $80 maximum (when North American Oil Sands become profitable). I doubt runaway oil is in the near future.

While I expect oil to go up due to a higher economy I doubt it goes past its upper bound.

Offline Stwood

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Re: Are you prepared for the price of oil?
« Reply #7 on: November 06, 2017, 05:47:55 PM »
We'd be ok, a few changes here and there. We don't make many trips past going to town and church anymore. My tractor I use here could be curtailed somewhat if I had to.
We could up the use of firewood for heat instead of propane as a backup. We tend to get a tad lazy sometimes and just turn the propane on for heat.  ::)

Offline alexlindsay

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Re: Are you prepared for the price of oil?
« Reply #8 on: November 06, 2017, 09:19:30 PM »
Dave. I think the view that unconventional sources of oil will limit prices in the future are incorrect at least in the short and medium term. It takes three years to bring on new oil sands production even with the shortest lag time projects (SAGD). mining projects take minimum 6-8 years. No new oil sands are planned or in the works so there will no new oil sands production for about 3 years at the absolute least even if oil were 150$/bbl. US shale production increases will be limited by available services and most importantly by limited capital for development. The good land in the permian and bakken have been drilled, they are declining or will be declining soon.

Don't drink the media coolaid on unconventional oil

Online David in MN

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Re: Are you prepared for the price of oil?
« Reply #9 on: November 07, 2017, 07:44:06 AM »
Dave. I think the view that unconventional sources of oil will limit prices in the future are incorrect at least in the short and medium term. It takes three years to bring on new oil sands production even with the shortest lag time projects (SAGD). mining projects take minimum 6-8 years. No new oil sands are planned or in the works so there will no new oil sands production for about 3 years at the absolute least even if oil were 150$/bbl. US shale production increases will be limited by available services and most importantly by limited capital for development. The good land in the permian and bakken have been drilled, they are declining or will be declining soon.

Don't drink the media coolaid on unconventional oil

I prefer Johnny Walker Black.  ;)

I look at more as a conventional support/resistance trading chart. We know that north of $80 per barrel North America "turns on". Doesn't matter if there is a lag. It has to be priced in. We're talking about a commodity priced in futures contracts after all.

I could be dead wrong. But just looking at the numbers tells me we've entered a bounded market. There is still a lot of volatility between my proposed basement and ceiling. But a breakout seems unlikely.

Offline alexlindsay

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Re: Are you prepared for the price of oil?
« Reply #10 on: November 07, 2017, 08:41:24 AM »
I do think you have a point that at a high enough price point a whole bunch of mediocre assets will get produced. My point is for that production to catch up with demand usually takes years.

I don't think we'll see oil that consistently costs 200$/bbl, there is enough potential supply to clamp down on That. But it could make it That high for 6-18 months that it might cause problems in peoples lives.

A war in the middle East could easily see 200$ oil. The price of oil is not about whether there is enough oil, there always has been enough oil, it's really about supply risk and things hampering that supply from getting to market.

Online David in MN

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Re: Are you prepared for the price of oil?
« Reply #11 on: November 07, 2017, 09:06:27 AM »
Could be. I think future supply is "baked in" to the price.

To be fully honest, I actually see long term prices dropping. Oil demand isn't growing like it used to and several European countries are already on track to phase out the internal combustion engine. Elon Musk is doing everything possible to give each home its own energy independence.

I could be all wet and I do hold a lot of XOM without a near term plan to sell but I feel like the writing is on the wall. "Energy" as a whole is undergoing a fundamental transformation.

Offline alexlindsay

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Re: Are you prepared for the price of oil?
« Reply #12 on: November 07, 2017, 09:54:35 AM »
Oil demand is growing at the fastest it had ever grown. Elon musk is a fast talking hustler who is incapable of following through on his outlandish plans. Chinese and Indian oil demand continues to grow much faster than people have predicted, Americans continue to Binge on SUV's and trucks, plans to eliminate gas powered vehicles mostly are 25 years out. Oil demand has grown 1.6-1.8 Mmbbl per day last year and for the two previous years and there is no sign of that slowing down. Everyone who says demand is peaking doesn't seem to have any evidence except other articles about things politicians promise at some future date. All of the actual numbers point to people using more oil and buying more things that use more oil

Offline Smurf Hunter

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Re: Are you prepared for the price of oil?
« Reply #13 on: November 07, 2017, 10:35:55 AM »
I remember over a decade back when gas at the pump increased $2/gal for several months.  At the time I was taking a fairly new commuter train into Seattle for work each day.
That summer ridership doubled and full size truck and SUV prices dropped.  A friend of mine picked up a 6 month old (sitting unsold on the lot) Ford F-150 for 20% off sticker back when 87 octane gas was selling for $4.50/gal at the pump.  He was a fellow train commuter and only used the truck for weekend recreation. 

There's always an upside to every crisis.

Offline LodeRunner

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Re: Are you prepared for the price of oil?
« Reply #14 on: November 07, 2017, 12:42:21 PM »
Everyone now seems to believe the price of oil will be low forever, which almost certainly means it will go higher, possibly drastically higher. Are you prepared for that eventuality? Will you be in financial trouble if the cost of gas doubles or triples? What if the cost of heating your home doubles or triples? Does your job or business depend on low energy costs?

I think if we experience an "oil shock" in the next year or two, it will be because of a war...  not that there's a lack of possibilities for such happening.  Iran/Saudi-Arabia (with Lebanon and Syria in the mix) is a growing concern, with events over this past weekend.

Otherwise I don't expect to see the price of oil go very far out of the $40~$50/barrel range in the near future.  Of course, I could be wrong, and we always keep a 'safety margin' in our budget - which goes to preps (so long as the savings account doesn't suffer).

Long-term, with the possibilities of Inflation/Deflation as the central bankers tinker further with the economy?  Who knows.

Cheers

Online David in MN

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Re: Are you prepared for the price of oil?
« Reply #15 on: November 07, 2017, 08:44:28 PM »
Oil demand is growing at the fastest it had ever grown. Elon musk is a fast talking hustler who is incapable of following through on his outlandish plans. Chinese and Indian oil demand continues to grow much faster than people have predicted, Americans continue to Binge on SUV's and trucks, plans to eliminate gas powered vehicles mostly are 25 years out. Oil demand has grown 1.6-1.8 Mmbbl per day last year and for the two previous years and there is no sign of that slowing down. Everyone who says demand is peaking doesn't seem to have any evidence except other articles about things politicians promise at some future date. All of the actual numbers point to people using more oil and buying more things that use more oil

You might well be right. Angela Merkel won't sign on to going electric because she has an election coming. So the Germans at least doubt it.

The engineer in me screams that energy creation and transmission need to be minimized for efficiency and the old model of centralization is destined to be replaced.

Yes demand is growing (in a sense). But these days each mile driven costs less oil. So I'm actually using less oil than my father did at my age. And that's soup to nuts. Every system is more efficient (there's a hybrid V4 Mustang) and it's the direction we're going in. UPS has a "right turn" policy to minimize idling. The rails are using cloud computing to be more efficient.

We're maximizing every ounce of oil. Your modern car might even take synthetic. The work being done by a barrel of oil has never been greater. And for the first time in over a hundred years the battery people are starting to make a challenge. Electric vehicles offer a number of advantages.

I guess this is the argument. Demand is high and efficiency is high. How do we square that circle?

Offline Smurf Hunter

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Re: Are you prepared for the price of oil?
« Reply #16 on: November 07, 2017, 09:58:27 PM »
You might well be right. Angela Merkel won't sign on to going electric because she has an election coming. So the Germans at least doubt it.

The engineer in me screams that energy creation and transmission need to be minimized for efficiency and the old model of centralization is destined to be replaced.

Yes demand is growing (in a sense). But these days each mile driven costs less oil. So I'm actually using less oil than my father did at my age. And that's soup to nuts. Every system is more efficient (there's a hybrid V4 Mustang) and it's the direction we're going in. UPS has a "right turn" policy to minimize idling. The rails are using cloud computing to be more efficient.

We're maximizing every ounce of oil. Your modern car might even take synthetic. The work being done by a barrel of oil has never been greater. And for the first time in over a hundred years the battery people are starting to make a challenge. Electric vehicles offer a number of advantages.

I guess this is the argument. Demand is high and efficiency is high. How do we square that circle?

A modern compact car at idle will burn less than 1/2 gallon every 2 hours.  Add an AC inverter and that's a reasonable generator in a pinch.  The same car will function for 300,000 miles if maintained. People today replace cars when they tire of them, not out of necessity.

Offline iam4liberty

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Re: Are you prepared for the price of oil?
« Reply #17 on: November 07, 2017, 10:02:20 PM »
If the price of oil doubled we would do what we did from 2008 through 2014 when it was over $100 a barrel. Actually it wouldn't be nearly as bad as we have diversified production and grid energy heavily with natural gas.

Worldwide oil consumption is down.  It is not a myth.  See charts for 2016/17. 

Electric vehicles are gaining market share and are over 20% in some countries (e.g. 37% for new vehicles now in Norway).  Why?  Because they are simply better than ICE vehicles in almost every way.

Online David in MN

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Re: Are you prepared for the price of oil?
« Reply #18 on: November 08, 2017, 08:50:31 PM »
I don't want to get drawn into a debate over whether demand is up or down. I can see cases for each. I do fall on one side but that doesn't mean I'm correct.

But for the first time electric vehicles make sense. Americans would be amazed but some European and Asian drivers just need a 30 mile round trip commuter car if they live in a city.

Even for those who don't opt electric the internal combustion is getting more and more efficient. The energy that used to get me to the mailbox now gets me down the block. This will continue.

So from a macro level we're looking at a market that's doing all it can to win by efficiency against the improving battery technology.

All the while more oil reserves are being proven. And as we get smarter we learn it isn't a "fossil fuel" after all. [I owe great thanks to the Principal Chemical Engineer who turned me on to this.] It's less limited than we predicted.

At the end of the day we're talking about a commodity that exists in greater number than we thought and is being replaced faster than we thought. Hardly a pinch.

But, I've been wrong before....

Offline LodeRunner

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Re: Are you prepared for the price of oil?
« Reply #19 on: November 11, 2017, 02:12:54 PM »
Yes demand is growing (in a sense). But these days each mile driven costs less oil. So I'm actually using less oil than my father did at my age. And that's soup to nuts. Every system is more efficient (there's a hybrid V4 Mustang) and it's the direction we're going in. UPS has a "right turn" policy to minimize idling. The rails are using cloud computing to be more efficient.
We're maximizing every ounce of oil. Your modern car might even take synthetic. The work being done by a barrel of oil has never been greater.

I agree with the above statements, but the question is, does this increased efficiency offset population growth, and the explosion in demand for power and transportation in India/Africa/China.  The painful answer here is, "Increases in efficiency are not even close to offsetting the increase in population and per-household demand"... nor will efficiency increases ever 'catch up with' the surge in demand.  Increases in demand will only be offset by increases in cost as production tapers.

Human nature is immutable - People want what other have, and they follow where others lead.  Thus the 'undeveloped world' is racing towards, and will continue to race towards the exact same (scarcity) cliff as the industrialized world... until they can't any more.

Folks posting here on TSP Forums are __way__ to the right on the Bell Curve, so you can't consider yourselves a "good model" of what typical understanding or behavior is. 
You have to look at the third Quintile - the overall population that fit between the 40% and 60% points in terms of IQ and productivity, because they represent about 60% of the adult population, and their opinions and behaviors dominate the economic and cultural 'tide' of their society. 
That 'tide' in demand for oil has only begun to swell in India, Africa, and China - setting aside any probable reduction in available capacity - that demand will not peak for another three or four **generations**.  But it is very likely that oil production will have peaked, and be tapering off before that happens.

In short, people aren't going to change their behavior until costs and scarcity force them to,  because "Human Nature".  IMHO.

Cheers
/LR

Offline iam4liberty

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Re: Are you prepared for the price of oil?
« Reply #20 on: November 11, 2017, 05:06:23 PM »
  The painful answer here is, "Increases in efficiency are not even close to offsetting the increase in population and per-household demand"... nor will efficiency increases ever 'catch up with' the surge in demand.  Increases in demand will only be offset by increases in cost as production tapers.

But this analysis doesn't include competitive energy trends.  Energy has become more fungible.  The amount of consumption by source is driven by price signals.  As oil rises in price, consumption shifts to other sources.  The reason oil has been used more in India lately is because oil prices collapsed.  If oil prices rise, demand will shift to other sources (especially natural gas).  Here is the global share by energy source over the last 50 years.



Net, for oil consumption to rise precipitously requires maintaining an attractive price point relative to other energy sources.  For the last three decades it has been losing this battle.

Offline alexlindsay

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Re: Are you prepared for the price of oil?
« Reply #21 on: May 06, 2018, 10:52:18 PM »
When i originally posed this question oil was around 53 a bbl for WTI. It just hit 70 today. I could easily see 200 a bbl in the next few years, likely preceding an epic world economic crisis. Demand has been soaring and much large scale production declining (venezuela, angola, north sea). We'll have to check back in a while and see what happens but you heard it here first.

Offline LvsChant

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Re: Are you prepared for the price of oil?
« Reply #22 on: May 07, 2018, 04:13:14 AM »
Yes... the gas prices at the pump seem to be generally rising. I live in oil-producing country and have seen a huge upsurge in development and production in the oil industry in the region. The oil production was very stagnant when the price per barrel was lower and it was a huge economic hit for the region. I know the oil producers are hoping it will continue, but I share your concern.


Offline alexlindsay

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Re: Are you prepared for the price of oil?
« Reply #24 on: May 07, 2018, 10:16:02 AM »
I work in oil and gas upstream. 200 a bbl means 1500 a day for me so I'm not worried. I'm more worried for others not insulated from it

Offline Smurf Hunter

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Re: Are you prepared for the price of oil?
« Reply #25 on: May 07, 2018, 04:30:17 PM »
I work in oil and gas upstream. 200 a bbl means 1500 a day for me so I'm not worried. I'm more worried for others not insulated from it

How does that work?  Unless you own the well (source of the oil), isn't your margin more or less static?

Offline alexlindsay

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Re: Are you prepared for the price of oil?
« Reply #26 on: May 07, 2018, 05:38:34 PM »
If the oil price gets really high everyone wants to drill, they won't have enough guys and can't train them fast enough, they then have to raise wages high enough to attract back qualified people. There is a job I'm fully qualified for that formerly paid 1500 a day and will again if oil gets over 100 a bbl. I'll be able to pick what i want to do again.

Offline LvsChant

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Re: Are you prepared for the price of oil?
« Reply #27 on: May 07, 2018, 07:03:06 PM »
DH and I see the need for providing more self-sufficiency in the years to come... while times have been good, we have procrastinated on the solar panels.


Offline Dave in Broadway, NC

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Re: Are you prepared for the price of oil?
« Reply #28 on: May 07, 2018, 07:19:35 PM »
Most of the decisions my wife and I have made over the past 10+ years have been based on the supposition that we're on the cusp of peak everything--oil included. For a good read check out the books "Long Emergency" and "Deep Economy." These are the two books that did the most to prod us to embark on this journey of self-sufficiency.

Offline Alan Georges

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Re: Are you prepared for the price of oil?
« Reply #29 on: May 07, 2018, 08:31:06 PM »
For a good read check out the books "Long Emergency" and "Deep Economy."
I'm finally sinking teeth into Kunstler's Too Much Magic, sort of a follow-on to The Long Emergency.  It's a little dated (written late 2011), but the main points still stand.  I've heard mention (maybe on his most recent podcast?) he's working on another follow-on.

Oh man, oil up 40%+ since September.  Something's afoot, though it's not time to panic.  I suspect this runs deeper than just rumblings with Iran and Venezuela.

Back to the original question, what if the price doubles or triples?  I'd be OK, though it would pinch to take road trips.  Driving is not optional in this neck of the suburban coastline, but if the traffic cleared out the way they did in 2008-2009, that would be at least some consolation.  Easier to get good milage under those conditions too.
« Last Edit: May 07, 2018, 08:37:13 PM by Alan Georges »