High Oil Prices Becoming Herd Mentality

I'm very much pro oil & gas.  And currently I am very much knowingly biased in favor of oil & gas over "renewable" energy, which I tend to view as unsustainable economically without heavy government subsidies.

So I'm trying to be an oil price realist here.  A "moderate" or "centrist".  Neither a bull nor a bear.

Yes, I see the current bull run herd running toward $100 oil.  And I don't agree that $100 is sustainable, at least for now, barring black swan events (which by definition are not able to be predicted).

My own opinion is oil should be around $65.  No, I don't view that as bearish, I view that as realist.  2 or 3 years ago, $65 oil would have been too bullish. (2 and 3 years ago I was hoping for $50 oil.)

Anyway, here is a short interview I found interesting.  I don't agree with all the points, but at least this is not another lemming article with herd mentality of oil bull pricing.

High Oil Prices Unsustainable

" ...Really, you can create incredible scenario either for undersupply or oversupply in the next 12 to 18 months. But going beyond that, you really need the prices to move lower or you will be just handing too much share to the shale producers and sending them the wrong price signal to accelerate growth when it's not required. 

... In the long run, we think the marginal cost of supply is about $55 a barrel. I think over in the next, let's say, 12 to 18 months, you will see prices drift lower"

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Back in the day you could do a lot with 25 cents.  You could catch a street car to a movie theater.  Pay 5 cents for the trolley ride and 10 cents for a movie.  5 cents for a candy bar.  5 cents for a trolley ride back home.  Anybody remember those days?  Oil was over 100 forty years ago and remained there for quite a time.  There has been rampant inflation over the past forty years and yet there oil sits at 72 for now.   Your thoughts?

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I don't think that the notion of "fair" really enters the equation. It's just free market economics, albeit highly politicized and somewhat manipulated.

I really have no idea what it should be. It appears that it sets its own price. 

I think that it's going to go much higher, as do many others recently. It doesn't mean that I think that's a good thing, or a bad thing, it's just looking at the supply vs demand coupled with difficult circumstances in many producing nations. 

 

 

 

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Given that hydropower is "renewable energy," it is the logical and ultimate resource for generation of electricity in areas where there are rivers.  It is also cheap, both to buy and to build. There is an awful lot of untapped hydro out there, not used mostly due to the dysfunction of obtaining government permitting.  

While some hydro is destructive of fish passage  (and thus now being torn down, in order to preserve another resource),  there is lots of hydro potential off the Eastern Canadian Shield.  What you have is the entire top of Quebec and Labrador sitting as a plateau about 1,000 feet above sea level, and then the rivers cascading down off that escarpment drop that thousand feet, sometimes straight down (as at Churchill Falls).  Note that Niagara is only 177 feet and you get an idea of the potential.   Hydro will beat fossil all day long. 

The other big power source out there, which today is ignored, is nuclear. For those of you utterly convinced that nuclear comes from the bowels of hell, I would point to the packaged plants manufactured for the US Navy by General Atomics.  G.A .has been providing these simple steam plants for a half century, with zero failures.  The Navy typically installs two 100-MW units in a sub, and four in a carrier. Fifty years later and they are still running just fine.  The histrionics that nuclear attracts has to do with the runaway minds of the public, and not the technical aspects of the machinery.  Cheers.

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Renewables will continue to gain market share as they work towards becoming more economically viable, and they will only truly challenge oil and gas when they can be economically viable without government subsidies, so we're still probably a long way off from this. Nuclear could also revive a bit and is unfortunately governed, as you say, by psychology rather than fundamentals. (Nuclear deserves its own thread, so maybe we can discuss that elsewhere). But I agree that $100 oil won't do anyone any favors unless independent shale producers are turned into state-run producers :)

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I wonder if oil is not the most subsidized energy of all. Our military protecting the shipping lanes of the Middle East all these years. Maybe we should spend that money on windmills. Just kidding of course, but I think there is a point to be made here. 

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The French made a hard run at standardized McNuke plants. With the obvious required safety and security features, they don’t make financial sense. Yes, in most respects they are clean, and operating cost are quite low. But the sunk costs can only work with governments subsidizing something. Pure commercial entities have tried and went bust. I happen to think there are strong arguments for governments running things like this. But politically, untouchable. 

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11 hours ago, Jan van Eck said:

The other big power source out there, which today is ignored, is nuclear. For those of you utterly convinced that nuclear comes from the bowels of hell, I would point to the packaged plants manufactured for the US Navy by General Atomics.  G.A .has been providing these simple steam plants for a half century, with zero failures.  The Navy typically installs two 100-MW units in a sub, and four in a carrier. Fifty years later and they are still running just fine.  The histrionics that nuclear attracts has to do with the runaway minds of the public, and not the technical aspects of the machinery.  Cheers.

Hmm... I'm not sure "runaway minds of the public" is entirely fair. The nuclear power plant not too far from me was shut down 6 times in a single year due to "leaks". LEAKS, I say!  Not cool. Fukushima? Chernobyl? It's the stuff horror movies are made of. Statistically speaking, the actual number of incidents are low, yes. But the risk of something going wrong with a nuclear plant is scary. 

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1 hour ago, Rodent said:

 But the risk of something going wrong with a nuclear plant is scary. 

Nah, not really.  Don't confuse old designs with what is developed today.  That industry has had a long learning curve. Leaks in the secondary circuit are meaningless. The new stuff, such as the thorium reactor, would be built on an assembly line as a packaged power unit. Anything goes wrong, you take the plant out on a flat-bed truck and drop a replacement back in. You don't see this outside of the hush-hush military because the public is so spooked.  In reality, nuclear power is benign.

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3 hours ago, Tom Blazek said:

I wonder if oil is not the most subsidized energy of all. 

Nothing like a fat depletion allowance to warm the hearts of even the most flinty accountants!

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