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More oil price speculation

Back in February, I wrote that "oil prices will continue to rise until they have suppressed demand back to match supply", and forecast a headline barrel price of $120 in June and $145 at year end. Now it's June and $139.69, what's next?

My contention that there is more fundamentals than speculation in the current price has got a lot more backing lately, eg Today's SMH: "Oil woes not just speculation".

The most high-profile backing comes from the CEO of BP, in BP's latest Statistical Review of World Energy 2008:

"The defining feature of global energy markets remains high and volatile prices, reflecting a tight balance of supply and demand. … the continued weakness in oil supply and increasing demand outside the OECD also highlight the challenges we all face in maintaining secure energy supplies. Maturing basins in the OECD, limited access elsewhere, constrained capacity, higher costs and rising resource nationalism challenge consumers and producers alike."

We're running into the interesting end days of the July futures contracts. Options trading on NYMEX closes tonight, and the actual futures contracts themselves close on Friday night. Now, I contend that the period between these two closes is dominated not by speculators, but by oil consumers: speculators will have to sell by Friday night or find somewhere to put the oil they're now contracted to actually buy and take delivery of. If the price falls sharply, then Monday's peak of just under $140 was speculative: if it rises, or frankly if it stays anywhere above $130, than that is the "real" price in today's market conditions.

What does this mean for my predictions? Recall that the core principle in them was "oil prices will continue to rise until they have suppressed demand back to match supply". Promised supply increases from Saudi (and Russia) will bring less than 1mbd into the market, and some other producers are perforce dropping production as older fields are played out. Meanwhile the BP review gives detail on a 1.1mbd increase in demand in 2007 over 2006, and a likely similar increase this year – possibly much higher as China gears up for huge imports of energy and steel to rebuild Sichuan. So, supply and demand are pretty close to balance, and there's no room for demand growth to be met, and we're still looking for the price to go high enough to stop growth. Is $135 high enough?

Well, it is a bit early to say, since we have to remember that the price dropped below $100 as recently as April Fool's Day, so the impact of $130-or-so crude prices and the concomitant A$1.70/litre ULP / US$4/gallon have only had a short while to impact on consumer behaviour, and some of the resistance to change will come from people's relative faith in promises from politicians that this can be "solved" by big actions like 5¢ off excise duty or speaking nicely to the Sauds.

On the other side, there is a suggestion here that the consumers are still looking to continue to consume fuel and tighten their belts elsewhere – which will still come back to reduced demand from the producers of the stuff they didn't buy, but over a longer lag period. This potentially keeps the demand high in the short term, and that can only drive the prices higher. Interim consumer response actions such as truckers blockades seem to have generally driven short-term demand higher with hoarding behaviours and so on.

So, I'll probably stick to my $145-150/barrel for the year end, but see prospects for that to be reached much sooner (maybe even in July – maybe even this Friday) – and a very real prospect of Goldman Sachs' much-quoted $200 'super-spike' at some point in the US driving season if there is any significant supply interruption. Anyone betting against Hurricane Edouard, Gustav, or Ike?


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Oil subsidies increasing demand for oil.

In all, the I.M.F. says that 48 countries are shielding consumersfrom high energy prices with subsidies. As a result, while demand foroil in the rich world is expected to fall about 1 percent this year,consumption in emerging and developing countries is forecast to rise 3percent, according to estimates by I.M.F. economists.

Governmentsin developing countries say they must shield the poor from high energyprices. They worry that eliminating subsidies might lead to inflationat a time when prices are rising broadly. But these subsidies aremisguided and mainly benefit the well-off, who own big cars and fly injets, as well as energy-intensive industries, which are not usuallythose that create most jobs.

They are expensive, sucking inpublic money that might be better used on, say, health care oreducation. And they get costlier as the price of oil rises, whichexplains why some countries, including China and India, have alloweddomestic energy prices to rise somewhat.

Many developing countries are subsidising the price of oil. While demand is falling in developed countries demand is increasing in the countries that are subsidising energy prices. In many countries if the price of oil was not subsidized there would most likely be political disruption and riots. The price of food and fuel for cooking would skyrocket. Many governments are between a rock and a hard place.

Who's making a killing now?

Shell Australia is questioning why some petrol stations have not slashed prices following a corresponding drop in world oil prices.

Shell said it had lowered its wholesale fuel price early this week and had expected its retail outlets, which include Coles Express, to follow suit.

The claim comes as the profiteering, telling News Limited on Wednesday that prices should be $1.35 a litre.

Instead of declining, the average price across Sydney remained steady at $1.55 a litre, with some outlets selling at a heavily inflated $1.69.

With the price of world oil dropping the price of petrol should be $1.35 a litre. Who is making a profit out of Australia's suffering motorists? It seems the retailers are quick to raise prices but very slow to drop them when the price falls.

David R: well, except that the NRMA is completely wrong. The oil price now is the same as it was in mid-June, having gone up a lot and down a lot since then. In mid-June the petrol price was in the $1.55 region, which was where it was round here yesterday. It never actually went up to the levels that the $147 barrel would justify, so to expect it to come down with the fall from that level is just misleading motorists.

Not yet the Germany of the Middle East

John Pratt, now find what percentage of export earnings is derived from oil - even excluding associated carbon based products. You'll find one cannot live on gherkins, and carpets, alone.

The global boomerang

John Pratt: "Iran is threatened with international isolation. The US and Britain raise the possibility of an oil embargo. The US and Britain depend on oil imports: an embargo would push the price of oil up further, hurting the US and Britain more than Iran. I am sure Iran would find other markets for its oil."

Iran, like all oil producing Middle Eastern nations, imports almost everything of value. Such things as food, medicine, machinery etc. It pays for such things by selling a product (oil). That's why in the Middle East we are seeing such things as food riots - and double digit inflation. The higher oil price results in higher prices of everyhing imported. Oil is exported, only to be re-imported in another more expensive form.

Iranian exports

Paul, Iran exports everthing from carpets (Persian of course) through to copper and Iron.

.Name Of GoodsWeight(Kg)value(Rial)value ($)%Value
08025000pistachios, fresh or dried163,463,3369,341,775,346,4071,017,891,3857.82
27111290propane , liquified in containers of >=1000 cm31,416,817,0536,017,186,767,978655,988,7725.04
72082500flat/hot - rolled iron/steel, in coils, width>= 60mm pickled , >=3 mm but <4.75 mm1,098,979,1394,514,426,908,286492,252,3883.78
74031100unrefined copper, copper anodes for electrolytic refining82,687,4074,390,201,256,965478,329,1163.68
57011000carpets and other textile floor coverings , of wool... knotted14,899,5294,004,766,432,678436,723,7483.35
27075000aromatic hydrocarbon mixtures which >=65% distils653,149,7792,813,784,980,957306,877,7332.36
27111390butanes , liquified in containers of >=1000 cm3556,854,9522,514,986,206,681273,846,5632.11
27111190other liquified natural gas in containers of >=1000 cm3772,580,6002,166,926,912,332237,954,5281.81
76011000unwroght aluminum , not alloyed109,759,3432,036,430,230,344222,130,4791.71
72061000ingots of iron and non-alloy steel , nes582,546,6931,901,064,201,891207,512,8121.59
27111910petroleum gases and other gasseous hydrocarbones liquified , nes in containers of <1000 cm3107,809,7061,838,826,151,305199,856,4441.54
39076010textile grade193,277,0301,574,975,478,582171,808,1991.32
79011100zinc, not alloyed , >=99.99% pure66,969,2621,531,567,371,360166,825,4751.28
29051100methanol (methyl alcohol)919,012,2781,501,944,312,835163,880,3051.26
27101910engine oils220,067,0551,426,649,626,287155,785,4361.19
71131900articles of jewellery and parts thereof of precious metal (Excl. silver)8,2611,204,824,006,086131,807,6121.01
27132000petroleum bitumen712,233,3511,166,493,926,995127,312,0420.98
28141000anhydrous ammonia346,381,1611,096,871,148,579119,785,1710.92
07070000cucumbers and gherkins , fresh or chilled89,467,143986,047,297,342107,726,0740.83
 Sum Of Main Items8,377,274,04653,293,092,696,2015,812,100,90444.62
 Other Goods19,559,797,97366,140,134,769,4987,212,600,04755.38
sum Of Exportation27,937,072,019119,433,227,465,69913,024,700,951100




Scott: well that's one way of making your point John.


Is Iran really worried by an oil embargo?

Iran was given a fortnight to agree to freeze its uranium enrichment programme yesterday or face further international isolation.

After a day of inconclusive talks in Geneva, a six-nation negotiating team warned the Iranian delegation that it had run out of patience and demanded a 'yes or no' answer to a proposal it put forward five weeks ago...

The US and Britain have also raised the possibility of pursuing an embargo of Iran's oil industry, including a block on imports of petrol and diesel. And the breakdown of talks is likely to strengthen the urgings of hawks in Israel for pre-emptive military action to halt Iran's nuclear programme.

Iran is threatened with international isolation. The US and Britain raise the possibility of an oil embargo. The US and Britain depend on oil imports: an embargo would push the price of oil up further, hurting the US and Britain more than Iran. I am sure Iran would find other markets for its oil.

If the US and Britain want Iran to give up its nuclear dream they should look at their own nuclear stockpiles. The NPT said we would get rid of all nuclear weapons, not just Iran's.

The NPT's Article VI elaborates on the preamble's language, urging all State Parties to the NPT, both nuclear-weapon states and non-nuclear-weapon states, "to pursue negotiations in good faith on effective measures relating to cessation of the nuclear arms race at an early date and to nuclear disarmament, and on a treaty on general and complete disarmament under strict and effective international control."

Until nuclear weapon states give up their nuclear weapons other states will want to join the club.

CSIRO warns petrol could go to $8 a litre.

A new report by the CSIRO has warned the cost of petrol could rise to as high as $8 a litre in the next 10 years.

What would our lifestyle be like if petrol reached $8 a litre? It would cost $480 to fill the average car. People would not be able to afford to drive to work. Our public transport system would be overwhelmed, the world economy would collapse. The cost of everything would be at least 500 percent higher than what it is today. Millions would starve, millions would be plunged into poverty. Flying will be only for the very rich.

This has to be the biggest threat to the world. We should be moving now to alternate fuels. Why are we focused on terrorism when peak oil and climate change are the biggest threats? We need to move to an emergency footing to cope with the challenge. We need a "war" on petrol.

$145 oil is here ..

Just the six months early for my original prediction, but then an efficient futures market should prefigure anticipated prices ...

Therefore expect pump ULP prices to go over $1.80 within the next two weeks ... 

Increased living standards for Irish means a decline for French

F Kendall: "Who could disagree?"

Well, anyone who realises that economics is not a zero-sum game, and economists haven't thought that since the demise of mercantilism

The idea that the emergence of richer Chinese and Indians will mean a gradual decline in the American and Western living standards is no more meaningful than the idea that an increase in the living standards of the Irish would mean a decline in the living standards of the English or French.


Eliot, you've capably demonstrated that you're a lot better than this.

"economics is not a zero-sum game, and economists haven't thought that since the demise of mercantilism"

 Well just for starters, you can't get two economists to agree about anything but if you do, they're both invariably wrong. I freely confess I wouldn't have the first clue what "mercantilism" is but it doesn't make any difference; I recognise academic claptrap when I see it.

Simple logic, it's not complicated, think of planet earth as a pie of fixed dimensions. Finite resources (already well depleted), and ability to sustain  a certain biomass of all life forms. Increase the biomass, less for everybody else. Change the proportions, same result; (what you've got, nobody else can have). In the end economics is a zero sum game.

Are you bored, Eliot? There's got to be more in life than this diversion.

And now a comment from the USA right wing

as in The Weekly Standard.  Irwin Stelzer (I can't imagine that I have to link to such icons).

"We are witnessing a massive transfer of wealth from American consumers to oil producers.....My guess is that the emergence of richer Chinese and Indians.....will mean a gradual decline in the American and Western living standards."

Who could disagree?

Savings rate

John Pratt, hello. That Forbes article makes a really interesting point. Because of increased costs to consumers and businesses...

"From April through June, the inflow into savings and investment vehicles was $35 billion per month, down 43% from $61 billion per month in the same period last year. In other words, the U.S. will generate almost no savings if the price of oil stays at $135 per barrel."

That means, investment sources dry up.

As I recall it, the savings rate in Australia is already chronically low, which is why we need so much foreign investment.

So, I hate to think what petrol prices are doing to our savings rate now.

Although, this Wall Street Journal article and discussion suggests that as a problem, a negative savings rate may be overstated.

Then add a couple more per cent for Fuel Watch and Carbon Emissions Trading...

and the rest of the world would be sure to follow.

John Pratt says:

"Hold on for a very interesting ride over the next few months."

Oh, the ride of our lives.

Because the USA  is China's biggest market for everything, "and the rest of the world would be sure to follow" would include Ruddland.


The U.S. will be broke long before oil prices hit $200 pb.

What is happening now is not demand destruction, it is a financial disaster. The U.S. consumes 21 million barrels of per day. At $135 per barrel, the U.S. spends $1.0 trillion per year on oil, which is equal to 15% of the $6.8 trillion in take-home pay of everyone who pays taxes. If oil prices rose to $200 per barrel, the U.S. would spend $1.5 trillion per year on oil, which would be equal to 22% of take-home pay. Moreover, those percentages of 15% and 22% do not even include the cost of coal or natural gas. In other words, the U.S. will be broke long before oil prices hit $200 per barrel, and the rest of the world would be sure to follow.

Forbes Magazine predicts the financial collapse of the U.S.

Hold on for a very interesting ride over the next few months.

US broke? I don't think so

John Pratt, I can well imagine that before the sheiks put the oil up to $200 the rest of the world will decide that they have had enough and will go and take what they want.

Yes there are interesting times ahead. I hope the sheiks have been building bomb shelters: they are going to need them.

Invasion impact on oil production

I imagine those highly competent invaders will have as positive an effect on the oil production of other OPEC states that they have had on Iraqi oil production.

Five years of halved production by Saudi etc would indeed have an enormous effect on oil prices ... 

And I'm sure US troops occupying Mecca and Medina will finally put an end to all that Islamic unrest.

 Do you ever think before you write, Alan, or does it just dribble out?

Oil on its way to $170 a barrel.

World oil prices have smashed through the $US140 a barrel barrier for the first time after the president of OPEC, Algerian Energy Minister Chakib Khelil, predicted fresh price spikes.

Mr Khelil said crude, which has already rocketed in value in the past year, could hit $US170 later this year because of the ailing US dollar and geopolitical unrest.

"I predict probably prices of $US150 to $US170 this summer," Mr Khelil said.

Don't worry this is all just speculation the bubble will bust one day.

In the meantime may I suggest we sell the gas guzzlers and move to more efficient cars.

Rejoice in the fact that the price of oil is helping us meet our Kyoto target.

However, the report card also indicates Australia faces steeper challenges in the years beyond 2012.

It demonstrates that Australia's ability to meet its Kyoto commitments has been due almost exclusively to reduced land clearing and reafforestation. By contrast, greenhouse gases produced by electricity generation will have grown by more than 50% during the Kyoto period, even with the Mandatory Renewable Energy Target, while emissions from cars and other transport will have risen by more than 40%.

Trade deficit in oil could blow out to $28 billion pa by 2017.

Belinda Robinson in yesterdays SMH:

Our trade deficit in petroleum liquids blew out from a surplus of $0.9 billion in 2000 to a deficit of about $13.7 billion in 2007. Assuming no increase in refining capacity in Australia, that could blow out to $28 billion by 2017 if no major new discoveries are made.

To characterise the state of play another way, our oil consumption is about 900,000 barrels of oil equivalent a day and domestic production stands at about 413,000 barrels a day.

To illustrate how exploration can help improve the picture, you only need to consider the Vincent oilfield off the coast of Western Australia.

Discovered in 1998 by Woodside, it is expected to come into production this year and will initially increase Australia's production by up to 100,000 barrels a day, or 25 per cent.

The key challenge in exploration is to determine whether any of Australia's underexplored sedimentary basins, both onshore and offshore, contain new hydrocarbon (oil and gas) provinces.

Offshore, the areas identified by geologists as holding potential for new discoveries include: the southern and south-western continental margin; the Arafura Sea and parts of the north-western margin; the remote eastern frontier regions such as the Faust, Capel and Fairway basins of the Lord Howe Rise; and the continental shelf area south of Tasmania, the South Tasman Rise.

Onshore, they include the parts of Central Australia with characteristics that are similar to oil-rich basins in North America.

Belinda Robinson is chief executive of the Australian Petroleum Production & Exploration Association.

A trade deficit of $28 billion pa would put a big hole in our surplus. Belinda is correct when she says we need to look in our own backyard. With oil at about $140 a barrel you would think that is enough incentive for companies to carry out the required exploration. We will never know how much oil we have in Australia unless we go and have a look. The government should be doing this as a matter of priority. Why are we giving billions of dollars to OPEC countries when we have been too lazy to find our own oil?

We need to reduce our demand for oil by efficiency measures and the use of home grown energy. If there was an economic downturn and our exports were no longer in demand how would we pay for imported oil?

Trade deficit

John, maybe this is the answer,

A solution for the energy crisis:
"OPEC is selling oil for over US$135.00 a barrel.
OPEC nations buy our grain at about US$7.00 a bushel.
Solution: Sell grain for US$135.00 a bushel.
Can't buy it...Tough...Eat your oil."

This could also apply to other things they want to buy from us.

You say "We will never know how much oil we have in Australia unless we go and have a look. The government should be doing this as a matter of priority. Why are we giving billions of dollars to OPEC countries when we have been too lazy to find our own oil?" How likely is it that the oil companies will go looking now that Barmy Bob Brown has some control of the Senate, everywhere the oil companies go looking the Greens will object.

However now that Martin Ferguson has applied the blowtorch to OPEC we should see the price of oil come tumbling down, that combined with Rudd's Fuelbotch should see petrol at the pumps around 60 cents a litre.

Oil could be $200 a barrel by next year, or $2 a litre.

Caltex' chief Des King says it is not out of the question that crude oil could hit $US200 ($210) a barrel by next year.

"In terms of where the price of crude oil could be going, nobody would have thought that by today we'd be in the ($US)130 range, so it's very difficult to speculate that people's thoughts of going to ($US)200 are inconceivable," he said.

He says he sympathises with motorists.

"We're with them. We buy 240,000 barrels a day of crude oil. We sincerely hope the price of crude oil comes down," he said.

Mr King says in the meantime, people have to start using oil more efficiently to reduce demand.

He has suggested they buy more fuel-efficient cars and adjust their driving habits.

Nelson's five cents a litre cut in excise will look a bit sick when we are paying $2 a litre for petrol.

Des King is correct: we should buy more fuel efficient cars. It would be nice if the government gave us a tax incentive to move to more efficient cars. They could pay for this by adding a carbon tax to the price of fuel.

John Pratt wonders

John Pratt wonders where the tax incentives are for more fuel efficient cars. Most recently a number of people wondered why the new government wasn't firmer on 4 wheel drives in the last budget and the "blowtorch" advocacy for more oil production, flying in the face of the peak oil problem and developing environmental mess defies imagination.

But what I also wonder is what was going on during the Howard years, as to getting local manufacturers to produce more advanced automobiles and trucks ready for the anticipated crisis.

It's true that the above only follows the pattern demonstrated involving several other notorious problems like Tasmanian wood chipping, Murray-Darling vandalisation, and the starving of funds for public transport in favour of freeways, which included the collusion of state governments.

Neoliberalism provided the ideology of privatisation and deregulation to alibi ppps, FOI and Commercial in Confidence and in failing to encourage the auto manufacturers, the government and its state counterparts faithfully followed the hands off directives of the ideology.

Parallel to this, education and media were dumbed down, CSIRO funding cut and AQIS knackered to cut the information flow from the other end that could lead to rorts to be questioned and potential problems identified. Finally, the legal frame work of the country was changed under cover of ideological darkness via the AUSFTA.

So now an ill-prepared civilisation prepares for a disaster created by criminals who will never be tried and regarded by some even as "reformers", for encouraging the self first / self will run riot ideological version of the old Satanic exhortation: "Do What Thou Wilt ".

Looks like the blow torch didn't work.

KEVIN Rudd stands accused of "squibbing it" on his pledge to apply the blowtorch to pressure oil producers to consider measures to put downward pressure on fuel prices at the Jeddah energy summit.

Australia, represented by Energy Minister Martin Ferguson, is publicly pushing for oil-rich nations to increase production but failed to mention it in a speech at the summit overnight as OPEC’s president rejected any push to boost supply.

The price of oil has risen again after the Jeddah energy summit, making Rudd's blowtorch look like a dudd. Is it starting to become a pattern. 

WORLD oil prices rose in Asian trading today after Saudi Arabia said at a weekend summit that it had raised output, and said speculators were partly to blame for higher prices.

New York's main oil futures contract, light sweet crude for August delivery, was 29 cents higher at $US135.65 ($141) per barrel. 

When will the Rudd government realise there is no short term solution to the problems caused by the high price of oil? We should be looking at alternatives. We need leadership not spin. 

LNG could help Australia to beat the high price of oil.

India's desire to gain access to Australia's reserves of liquefied natural gas (LNG) will be one of the main topics discussed today at a meeting between the Australian and Indian foreign ministers.

India is keen to import LNG to satisfy its growing need for energy resources.

Australian Foreign Minister Stephen Smith is hosting his Indian counterpart Prana Mukherjee for talks in Canberra.

Mr Smith says he hopes the two countries are able to develop a stronger trade relationship.

Australia is looking to export more LNG this time to India.

Why export a commodity with an important domestic use, especially with gas exports projected to increase to around 60 per cent of production by 2020. ..

Natural gas remains relatively cheap in Australia. Prices are much lower in Australia than in the United States and Europe where gas prices tend to follow oil price trends. This has not been the case in Australia where domestic prices have reflected local supply and demand fundamentals, characterised by low consumption and high reserves.

If the government really wanted to reduce the cost of transport we could encourage the roll out of infrastructure and switch our transport fuel of choice from oil to LNG.

Natural gas can be used as an alternative fuel for transportation in the form of compressed natural gas (CNG) or LNG. Use of these fuels is becoming increasingly more common in the public transport and freight sector. Currently these fuels are available from a small number of centralised filling stations.

The fact that gas is less environmentally polluting than other fossil fuels means there is scope for the expansion of both gas-fired power plant and the use of natural gas or LNG for vehicular fuel. Combined cycle gas-fired turbines can have efficiencies of over 70 per cent compared to around 40–45 per cent for the best coal-fired plant. The additional efficiency is gained where excess heat from the gas-fired cycle is captured and used for an additional steam generated turbine at the back end of the plant.

Oil barons control the media

Alan Curran says:

"As for Israel blowing up Iran, they are only going to take out their nuclear installations not the whole of Iran as you state."

I doubt even that. Unless Mahmoud Ahmadinejad is completely mad and keeps on with the bomb factory and stupid threats to wipe Israel off the map (sorry, but let's stop pretending he doesn't keep saying that).

By the way, I had to smile at this item..

"Iran's press commission on Saturday withdrew the license of local daily Tehran Emrouz after it published a special issue on the third anniversary of Ahmadinejad's election Friday that contained numerous articles criticizing the government's economic policies, Press TV said.

The newspaper published an apology in its Saturday edition, citing "journalistic adventurism" as the main cause of its "mistake," but it was too late to prevent the cancellation of the publication's license"

That's the same Ahmadinejad who openly mocks the "hypocrisy" of western democracies. Literally dozens of Iranian media have been shut down under Ahmadinejad's regime for "mistakes".

Now, imagine the effects on world oil prices if there was a coup or something in Iran?

David R: I'd imagine that such a coup would have the same beneficial effect on Iran's oil production as has US control of Iraq's production. And that's what the dealers imagine too, which is one of the things already to some extent factored into the current price. 

Mercedes, BMWs, Porches, Audis, Volkswagens, Opels, etc

Paul Walter: "How can I ever face life with confidence again, in the wake of Eliot Ramsey and Marilyn Shepherd agreeing?"

Scary, I know. I still maintain that the earth is round, however.

David Roffey: "Remember that Germany's investment in solar has not only meant that they use less energy every year while their GDP grew at the same rate as Australia's in 2007 (2.7% real), but they're building huge new business in wind and solar generation at the same time, exporting these to the whole world."

If you go back to the link I provided about the oil burden being exagerated, you might note this point:

"There are two main reasons. First, cars are more fuel-efficient than they used to be. Second, in the past 20+ years, our real incomes have risen, but we have not increased the distance that we drive nearly so much."

So, we experienced real GDP growth during the whole of that period, as did the USA, Japan and EU. And used proportionally less oil.

Despite this oil shock, too, China and India are experiencing huge GDP growth. As are we, the USA and EU.

And since Germany is the world's leading exporter of manufactured goods, and the world's third largest economy, it's hardly surprising they exported "wind and solar generation". Along with Mercedes, BMWs, Porches, Audis, Volkswagens, Opels, etc.

So, basically, what you are seeing are market led adjustments to resource supply. And business as usual.

Can you see why China and Russia have dumped socialism now?

David R: nonetheless, the key point remains that Germany reduced its energy consumption by 9% in 2007 over 2006, according to the BP energy report, while still doing all that stuff and growing at the same rate as the "miracle" Australian economy. So the whining about what sensible energy policy would do to the economy is also wasted breath and time. 

David Roffey is right about Eliot and Marilyn being right

Have read this thread several times now and yes, am as disturbed now as I was when I read through it the first time.

This fact is the most dramatic change in cosmology since the "fixed stars" got done over by Copernicus and Galileo and  Columbus proved the world wasn't flat.

How can I ever face life with confidence again, in the wake of Eliot Ramsey and Marilyn Shepherd agreeing?

Do high petrol prices mean the end of suburbia?

When James Howard Kunstler describes the future of American suburbs, it sounds like he's describing a disaster movie.

The housing crisis, he says, isn't just a low point in a real estate business cycle; high gas prices aren't just a temporary problem for suburban commuters. Neither of those problems will go away; instead, they'll get worse, growing into long-term catastrophe.

We're at the end of the suburban phase of American history, he says. "We've invested all of our post-World War II wealth in an infrastructure for daily life that has no future."

As we get used to ever increasing fuel prices, will the way we live change? Will it mean the end of suburbia?  When the cost of getting to work combined with  housing costs and food prices are more than our wages, how will we survive? It seems to me that we may be living on a wing and a prayer. How would we cope if petrol was, say, $10 a litre. Could we still live the way we live today? 

Politicians are beginning to realise that they have no control over the price of fuel. However, they do have control over the money spent on public transport and alternative energies. It seems to me we are at the mercy of the rulers of Saudi Arabia and what amount of oil they decide to produce and what price they will charge. They have us by the balls. 

I can't understand why we aren't marching in the streets demanding that our politicians act. What price will people accept before we get mad enough to do anything about it?

Saudis Will Melt Back Into The Sands

John, I don't think that we will worry about fuel prices for much longer. By that I mean that within a 100 years there will not be any oil left in the ground and Saudis and other Middle Eastern residents will go back to what they have done for centuries.

We can protest all we like but the future of oil is in its end times.

We will have to change our ways. No more international travel, no more global conglomerates producing our food. The suburban veggie garden will be back. Holidays will be taken at the local beach. Queensland will become a ghost-state because the tourists are what drives their economy. At $10 per litre and a really fuel efficient car at say 4 litres per 100 kilometers, a trip to the Gold Coast from Melbourne would cost $1600 in fuel alone. 

John, we have been suckered by the world's biggest con job. An ever expanding stockmarket, driving the retirements of hundreds of millions of affluent Western schmo's but  all based on the fallacy of eternally abundant cheap fuel. We were warned by people like King Hubbert 35 years ago but lil' ole' greedy us didn't listen. Now we are going to pay. Oh shit, there go our balls!

Fox – the news that pays

Michael de Angelos: “And back in 2004 we had Rupert Murdoch being exclusively interviewed by Alan Jones. ‘The Iraq War is going swimmingly and by next year oil will $20 a barrel.’

Fortunately for the company shareholders he kept at what he does. During that time frame, Fox has not only become the number one news outlet, Fox has become the number one network. An amazing feat, and something thought to be an impossibility up until only recently.

That was the claim of the man who dominates and controls the media throughout Australia, the US & UK.

He doesn't control media in the United States. The company News Corp is a large player, no doubt; however, it's not the number one. News comes in about fourth, with fifth spot being held by NBC Universal, a subsidiary of much larger parent GE.

It's a fallacy that Rupert Murdoch or anyone else "controls" the media. Media is a highly competitive and consumer driven industry. The success of Fox is not in what they tell viewers to watch, it's in showing viewers what they want to watch. Fox News has always understood that simple rule, and it went out directly to find that large (and wealthy) lost market.

For Fox the "truth" is whatever the viewer wants the "truth" to be – and of course it is shown from that perspective. It's a business not unlike any other, and one doesn't get rich selling the consumer shit on a stick, and telling them it's ice cream. If people don't like Fox they can always support a competitor.

If Fox would have taken to the Al Jazeera concept of Iraq, nobody would've watched it. A network with no viewers doesn't pay the bills. It really is that simple.

Marilyn is correct

Marilyn Shepherd: "The dumb part is that people are not paying as much for their petrol as they did during the last two oil shocks on a per income basis."

Marilyn is absolutely correct..

"The “burden” of the increased cost of petrol is commonly exaggerated by stories of how many dollars it takes to fill the family car (imagine that, a problem exaggerated by the media!!). The chart shows the ratio of consumer spending on gasoline to total personal income. It shows that, as of the December quarter last year, this ratio was 2.8%. Data for 2008 are not yet available, but this share is still likely to be little more than 3%. Note that the share was higher for almost the whole time from the onset of OPEC II until early 1987."

Marilyn and Eliot are right!

In a rare three-way concurrence, I agree

The petrol price isn't worth worrying about. As Eliot points out, Brendan Nelson is a complete tosser who should go and worry about something real instead of wasting Parliament's time concentrating on trivial arguments about an excise cut that would save $1.50 on a $50 tank-fill. Get some debate on how to use less oil and how to make money out of renewables. Remember that Germany's investment in solar has not only meant that they use less energy every year while their GDP grew at the same rate as Australia's in 2007 (2.7% real), but they're building huge new business in wind and solar generation at the same time, exporting these to the whole world. Jeez, when it's not only good for you but makes money, what's so hard about deciding to go for it?

Anyway, worrying isn't ever worth doing. If you can do something about it, do that instead of worrying. If, as in the case of the petrol price, you can't do anything about it, worrying is a waste of time and energy. 

People are coping

The dumb part is that people are not paying as much for their petrol as they did during the last two oil shocks on a per income basis. On average it is only 2.9% of disposable income.

Everyone here needs to to stop whining [Fiona: Who on Webdiary is whining, Marilyn?] and think about the hundreds of millions elsewhere who are going hungry because of speculation by greedy Wall Street bankers and Israel's continual threats to blow up Iran and even war gaming.


Marilyn Shepherd, as per usual I suspect you are are using dodgy figures "2.9% of disposable income", I suggest you go down to your local petrol station and tell people to stop whining as they fill their cars up.

As for Israel blowing up Iran, they are only going to take out their nuclear installations not the whole of Iran as you state. However I think it it would be a good idea if they did. You had also better keep your fingers crossed that your friends in Hamas behave themselves in the coming weeks, because I think when they start to break the truce Israel will lose their patience with them.

There is an answer

I am one of the fortunate few who run on LPG. I can fill the Falcon for around $40.

However, that will change in the next few years so I was interested to see what the petrol-heads are up to.  I have taken to walking around the pumps at my local Shell Express/Safeway for the past month to see what the 'poor people' are doing.

It is very instructive.Out of 12/18 pumps, on average only two have a price that represent a fill-up. People are buying $5, 10, 20 etc at a time. Today the garage operators PR body said that volumes have dropped significantly. 

But how much the times have changed was evident graphically on Thursday night. A young guy put $20 in his hotted-up rev-machine and then proceeded out the drive at a pace that would have made a little 'ole lady proud. God bless him.

Times are a-changing. Japan Airlines announced Friday that the cost of a Sydney-London airfare was going up $1000. The fools at Qantas are still pretending that they can justify cheap airfares. The days of global tourism are coming to an end. That will put a million or two out of work in Oz.

I sympathise with the plight of the farmers. The price of diesel is a complete rort. Diesel is cheaper to produce than petrol but no government cares, yet. 

 Of course, we have plenty of expensive fossil fuel to extract. The Alberta tar sands hold around 30 billion barrels and Australia has 3 billion barrels in shale oil deposits. But then there is that pesky Global Warming thingy to take care of as well.

As usual Alan Curran blames Rudd which myopically localises a global problem but why spoil a good rant. The real pity is that Howard did not fix this problem when he had 12 years to do it. I guess Howard was a bigger goose than Rudd.

Fiona: I wouldn't dream of calling you misogynist, Roger, but surely Howard would be a gander, Roger?

Mixed messages from July close

Well, having hoped for some signals from the three-day trading period after options closed, it all got confused by the Chinese move to raise controlled consumer prices by 18%.

Crude dropped nearly $5 on Thursday, as people decided that would reduce demand (handily ignoring the fact that it wasn't anything like that big a move after discounting Chinese inflation), and then rose back more than $4 on Friday while a) people thought about it some more, and b) (not so far mentioned by MSM commentaries) a lot of options traders realised that if it settled below $134 they were going to be out of the money on a lot of contracts..

So, a tie on the speculator / real market  World Series so far, and Monday we move onto the August contract - which being already 74¢ more expensive than the July contract is likely first move upwards ...

... oh, and c)

Guardian: Economics Editor Larry Elliott

Crude oil prices rose sharply on the world's commodity markets tonight after the head of Opec dismissed as "irrational and illogical" a call by Gordon Brown for the cartel to pump more oil.

Chakib Khelil said the near doubling of oil prices over the past year was due to geopolitical tension, speculation and a shortage of refining capacity rather than a failure by producers to supply enough crude.

When it costs more to get to work than the job pays; what then?

David, this from an archaeological dig into the ancient world circa 2005:

"Yamani points out that, for now, $50 [per barrel] oil is a joy to the Saudis and their OPEC colleagues -- as well as to the big international companies. Just as in the 1970s, the economic pendulum will swing back to buyers once again, but it may take years."

Yamani, you will recall, was the Saudi Oil Minister who famously said during the crisis of supply in 1973-4 after OPEC turned the taps back from 'gush' to 'modest flow' that his country could not lose, because although the number of barrels sold was down, the elevated price per barrel meant that Saudi net revenue was unaffected.

Much the same, by the way, could be said by Martin Ferguson, Minister for Energy and Resources, should measures to counter global warming dictate a cutback in Australian coal exports.

A conversation with the embittered owner-driver of a small commercial diesel lorry last night (we were both parked at the same diesel bowser) convinced me that there is method in the Federal Opposition's campaign to lower taxes on fuel. If they haven't already got him, they will certainly win that fellow to their side come next election. I would bet my shirt on it.

Part of the art for OPEC is keeping the prices optimal: high enough to maximise profits, but low enough to keep alternative energy in the doldrums.

In the current liquid fuel environment in Australia, people are moving from congested roads to jam-pack into what public transport there is, and where possible, rearranging their lives to minimise the impact of oil prices. Car-sharing for rides to work, more trips by bicycle, seeking work closer to home, and so on. We should be seeing steadily more of it in days to come, particularly if a deep supply crisis emerges. Currently, one can buy any amount of fuel as long as one has the cash to pay for it.

But when it costs more to get to work than the job pays; what then?

David R: I'll come back for a more considered reply, but the three immediate factors that come to mind are: 1) by the time of the next election I only see two likely outcomes: either the price of petrol is so high that 5¢ is seen as completely meaningless, or it's all blown over and forgotten; and 2) the whole basis of my thesis on pricing is that the price will rise until world economic growth is underpinned by energy efficiency not by new energy use: at the edges of that, some companies and people will go out of business or lose their jobs: 3) in the medium term, your lorry-owner will be able to put his prices up to recover the added cost, because all of his competitors will be doing the same: he has to decide if he can afford to survive until the metaphorical rain comes.

Liberals still don't understand the high price of oil is good.

The Liberal Party just does not understand that a high fuel price is good for the country.

A Liberal backbencher has called for Opposition Leader Brendan Nelson to double his promise to cut fuel excise from five cents a litre to 10 cents.

Speaking to ABC Radio's AM, MP Christopher Pearce has asked Dr Nelson and his colleagues to consider the proposal.

With the high cost of fuel most of us are switching to more fuel efficient cars and using more public transport. This is reducing our import of petroleum and helping our balance of payments. It is also reducing our GHG footprint.

The figures from the Australian Bureau of Statistics indicate that the rising cost of motoring is forcing people to drive less and use more fuel-efficient vehicles.

Petroleum imports in May were 28 per cent lower than a year earlier, casting doubt on the long-held view that Australians are unable to kick their "addiction" to fuel-guzzling cars.

Ferguson will sort 'em out!

I see Martin Ferguson is off to Saudi Arabia to attend the OPEC summit, and to read the Riot Act I have no doubt. Those blasted sheikhs have no idea what's about to hit them over their burnouses.

It's not before time for us to load and fire a big cannon over these fuel prices. I'm heartily sick of paying them, and I can't wait for Martin to return proclaiming "Cheap Petrol in Our Time!"

Quaking in their shoes

Ian MacDougall, as Martin Ferguson heads off to Saudi Arabia the sheikhs will be shaking in their shoes - Martin will have learnt from boss Rudd. Look how Rudd had the Japanese choking on their sushi when he told them to stop whaling: the Japanese told Rudd to stop wailing.

Fiona: Very punny, Alan.


And back in 2004 we had Rupert Murdoch being exclusively interviewed by Alan Jones.

"The Iraq War is going swimmingly and by next year oil will $20 a barrel"

That was the claim of the man who dominates and controls the media throughout Australia, the US & UK.

Fiona: I can remember wondering at the time what substance he was abusing, Michael. 

Algae produces 50 to 140 tonnes of ethanol per hectare.

– in laboratory conditions at least – the powers of Botryococcus braunii are astonishing. A field of corn, when converted into biofuel ethanol, may produce about 0.2 tonnes of oil equivalent per hectare. Rapeseed may generate around 1.2 tonnes. Micro algae can theoretically produce between 50 and 140 tonnes using the same plot of land.

With the cost of corn reaching record levels, it looks as though a better crop to produce ethanol would be algae. It seems algae may be able to produce more than a thousand times more ethanol to the hectare than a field of corn.

For industries that need to use liquid fuels such as the aircraft industry this may be a way to a sustainable future.

Mr Gittins joins the club

"At its most elemental, the world price of oil is rising because demand for the stuff is outstripping supply. Temporary disruptions to supply add to the price from time to time and speculative investment in oil futures contracts by pension funds may be adding to demand - though I wouldn't hold my breath waiting for that price "bubble" to burst."


Recession the short term answer?

I pretty much agree with the thrust of Gittens’ article. However, while the growth in third world consumption is important the actual figures are still heavily skewed toward the first world as the current driver of oil prices and pollution generally.

Current figures from the US Energy Information Administration still have the US and European countries such as Germany as much bigger consumers. Eg. just in terms of imports, China is around 3.3 million barrels a day, India 1.7 million, France 1.8 million, Germany 2.5 million, Spain 1.5 million, the United States 12.3 million. (For the record Australia imports 368 thousand barrels a day.)

Current oil prices are now greater than they were when the combination of a credit financed war in Vietnam and an oil price shock created years of stagflation in the West in the 1970s. Arguably there is actually less dependence specifically on oil as an energy source now so the ride has not got so rough so quick. Also the 3 trillion dollar fiasco in Iraq and elsewhere is probably somewhat less in terms of US GDP than the criminal fiasco in Vietnam. (I haven’t done the figures so I’m willing to stand corrected.)

In the short term an oil price provoked deep recession in the United States and Europe could, along with increased refining capacity, move the price downwards. This might be combined over time with successful technology switching to new sources of mobility and energy that eventually also help drive new growth. A market based solution. However, where the growth will come from and how long it will take may produce new winners and losers. China and India and Europe, not to mention say Sth Korea, all have better capital reserves and good profiles suited to being the leaders in this. The American long century may be as good as over after all.

Australia may, if China and India don’t stumble into a recession caused by contracting Western consumer markets, ride out much of problem. We can both keep exporting and cheerfully polluting, taking our usual more or less free ride. We can then dig more stuff out of the ground to pay for the new technology that uses new energy sources for mobility. This may or may not also be greenhouse friendly; bio-fuels for example are of little use in this area.

In Australia even in this optimistic scenario those at the bottom, who are disproportionately young and live on urban fringes with little public transport, will no doubt endure the most pain. However that is hardly surprising given our economic system. And the electoral system of the two tweedles offers them little policy choice. Hopefully they will be angry enough to produce some voice, maybe even breaking up the current system of “little choice” at some point. As the population ages and those now young remain of working age they might have had some leverage for this, but with the massive amounts of skilled migration now being brought in under Labor (about 2 million new Australians every 10 years is a not unlikely result, ie a city almost two thirds the size of Melbourne every decade) their future bargaining power as workers and tax-payers is even now being undermined.

In the medium term I also think oil will become more expensive for the reasons of demand and supply David and Gittens point out. How long is a speculator’s time horizon? If it’s long enough even the above mentioned recession won’t be proof against them betting on this outcome and bidding up current prices. A recession would therefore not produce much oil price relief.

In the longer term - well, if oil prices come down because of deep recession the planet warms up a little slower, though the recession also means less incentive to slow down the warming (how can we afford it with the economy in this state etc.?)

On oil and global warming - I must say I see almost zero political will at this point to do enough about global warming to prevent increasing local major catastrophes and minor widespread catastrophes around the time I’m likely to have recently left the planet (I reckon somewhere between 2015-2030) . So for the sake of my friends’ children and grandchildren I hope the price of oil keeps going through the roof. It is causing me a lot of pain but why should those of us living now, who have been pissing all over the environment all our lives, get off scot free. (I know, I know, the wealthy still will, but they usually do unless we forcibly stop them from doing so.)

Oh and as for Fuel Watch. I’ve always found it amusing to watch and listen to people fulminating over prices at the bowser. Prices that are openly posted on great big signs and that openly fluctuate in accordance with struggles for market share. The petrol market is not a perfect market by any means, especially these days with supermarket chain wholesaler dominance, but it is actually much more of a market than for many other goods and services. Fuel Watch will slow down market fluctuation; I expect it will better suit those who have less market competition in their area and less flexible fill up times. For others it may work the other way. Certainly in the future if the station near you has the bingo price for 24 hours I would still schlep down quickly to grab it. When I worked in a petrol station back in the last oil price shock days our tanks were not kept too full and we frequently had pumps running dry when we were the cheapest around. And petrol from a dry pump is much more likely to contain contaminants such as water. Buyers should continue to beware.

I'm off now to dust off my Mad Max DVD collection...

China's influence on price

Small note to Tony's remarks - although China is outweighed by the US and EU total energy use, it's important to note the directions. According to the BP World Energy Survey, China alone was responsible for 52% of the growth in world energy use last year, while the EU actually used less fossil fuels than the previous year - presumably the fruit of all that investment in renewables, since EU GDP growth continued.


I have to say that if Fuelwatch had been operating lately, there have been some days when I could have saved 14¢ a litre by knowing that one or two stations locally were that much cheaper than the general run - and even today, on that famous low point Tuesday morning, there was a 5¢ difference between the highest and the lowest I passed between the Harbour Bridge and Mosman.

'Course, the lowest was 155.9¢ so 5¢ off the excise would have saved me as much as $2.40 off the $75 to fill the tank, so that would be well worth changing governments for. On the other hand, if I didn't know the price differentials, I could have paid that 5¢ to the highest priced station instead. So, I'd suggest that 5¢ off the excise without Fuelwatch potentially is not as good for me as Fuelwatch without the excise cut would be. But hey, since when did logic have anything to do with statements by Mr 13% or indeed your good self, eh?


David:: “I have to say that if Fuelwatch had been operating lately, there have been some days when I could have saved 14¢ a litre by knowing that one or two stations locally were that much cheaper than the general run - and even today, on that famous low point Tuesday morning, there was a 5¢ difference between the highest and the lowest I passed between the Harbour Bridge and Mosman.”

Log on to Motormouth.com.au and you can search by city and suburb (or group of suburbs) for the lowest fuel price. The site tells you the address, the price, the time the price was collected and even has a link to Google Maps in case the station is not familiar to you. If you register with the site you can get your local fuel prices emailed each morning for free or - for a small charge - have them sent as an SMS to your mobile.

Just like Fuelwatch but without the regulation, cost to taxpayers, questionable constitutionality and government-enforced fixed prices.

David R: my experience locally is that the really big differences arise during the day, as some stations shift to the next part of the cycle while others lag: which is another reason why the cheapest station token repeatedly moves around from one to another during the week.

Hard on the bush

Fuelwatch can do nothing to assist the bush. We just consider ourselves lucky that volunteers have elected to man the pump at the closed local garage, after the CDEP incentive to keep it open flopped. At least that means we don't have to do the round trip of 160 kilometres to get some fuel for farm bikes and trucks. The price of diesel, before the last three weeks' price rises was 1.90 a litre so we expect it is now at least $2. We'll find out soon enough.

There is no cheap fuel option for farmers. They are, as usual, at the end of the line. Unless one is into cropping, keeping large volumes of fuel on farm is not really practicable. New regulations in regard to storage are quite ridiculous, there is the growing risk of theft and fuel deteriorates if kept too long in storage tanks.

It would not surprise me one bit if any savings fuel watch might bring to the city driver will be to the detriment of country users as fuel companies simply load the bush price even further, knowing we have no choice but to pay up.

The price of fuel in the bush is now causing a lot of anxiety, as if the lack of decent falls of rain wasn't enough. I really feel for those trying to dig themselves out of debt through large scale cropping. The potential for financial disaster if the crop fails again has trebled with the trebling of fuel, fertilizer and chemical costs over the past three years. On top of that is the anxiety over the new wheat marketing arrangements. Not a happy picture for many farmers.

Even harder in remote communities

And it is even harder on those in the Torres Strait Islands as no doubt most of you saw on the 7.30 Report tonight with prices pushing toward $3 a litre. And I am sure you all took in the price of food up there: $5 for a bunch of celery, $6 for 2 litres of milk and $3.50 for an iceberg lettuce. So healthy food is priced out of the family budget, which in many cases is probably the benefit income. No wonder these communities have 30% diabetes when essential foods for health are costing so much.

Surely these communities should be getting fuel subsidies and food subsidies as well. Makes the problems for those in the city seem minor in comparison, and even for us in the less remote country areas it is not as bad as that. As Kerry O'Brien, said everything is relative.


 David Roffey, I would have thought it would be logical to know where the cheaper petrol was in the area you live in. I certainly do but it is obvious you do not. So for people like yourself who are incapable of thinking for themselves Rudd's Foolwatch is going to come in handy. I'll bet you cannot wait for Grocerywatch to kick in.

David R: You're assuming that it's the same stations that are cheaper each time, which is very far from the case. Can usually rely on BP being the most expensive, but after that it's an hour-by-hour dogfight and price-change fest between the others. Going up and down for various things I have seen stations near here change their price 5 times in one day. 

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