Sorry. I meant rockman who posts regularly here. I haven't heard much from rockdoc of late.

I only found some older paper about the oil classification of the BGR: everything below 20 API is non-conventional. So AFAIK deep-sea will contribute to the expected moderate rise, but not any tar sands or Venezuelan heavy oil.

Sorry yes to be clear by wrong I mean that surges of stored Saudi light sweet crude played a critical role in collapsing prices. On that note if you look you will find that Saudi Arabia also developed significant end production storage facilities for internal use. These would also have been drained to supply the local market and free up oil for export. I post a few times that Saudi Asphalt was in short supply one reason could be declines another is that the refineries where not being run and instead stored product was drained down.

As far as economic volatility as far as I can tell you generally end up with stagnant demand unless we see some sort of massive depression. The example I like to use for this is someone making 90k a year and someone making 30k a year used about the same amount of oil. So you can see a substantial economic drop before you actually see significant declines in oil usage. This is outside of course of the collapse of a particular industry such as housing which stands as a unique case.

If I'm wrong about the reasons underlying the price collapse then we probably have plenty of oil for a stagnant economy. A lot of people attribute the price collapse to economic factors they certainly played a large role no doubt about it but oil is a consumable product and I simply can't see oil able to drop on economic games alone supply had to exist and in particular ample quantities of light sweet. Given that I've not heard of a new Nigeria then the oil had to come from somewhere else.

On the economic front the fact that gold prices are starting to move I take as a indicator of the end of unwinding by hedge funds. This dumping played a role for sure in the price movements along with oil supply so now the economic pressure seems to be ending and thus we will find out if the market is well supplied which means it was not a Saudi dump.

I think that part of what happened in 2008 was a misunderstanding by the Saudi and the Administration of the role high oil prices where playing in the world economy. I think they felt they where the cause of increasing economic problems along of course with the belief that "speculators" where to be blamed. Thus the decision by KSA to dump light sweet on the market.
This of course played a big role in blowing out the hedge funds that where long oil and short the dollar fueling the financial collapse. One part of the vicious cycle the world found itself in.

In reality as long as the Saudis where recycling their petro dollars buying treasuries it really did not matter.

However rising oil prices not high oil prices played a role in the real collapse back in 2005 since the combination of spiraling housing costs and higher living expenses via more expensive gasoline and food not the actual change in costs insured that people had less to spend on housing. If you housing costs are increasing and your disposable income is decreasing then your buyer market simply could not keep up. A change in disposable income of a few hundred dollars was all that was needed to force people to look for slightly cheaper houses as prices where way beyond sustainability. This slight increase in frugality was sufficient in my opinion to pop the bubble. But understand that all happened several years ago. By 2008 the party was over and fuel prices no longer played a role they had done there job. For that matter if I'm right about the economics I don't expect increasing fuel prices or decreasing for that matter to have a big economic impact of the short term. Only if we hit 200 dollar oil and it makes exsurbia less desirable than the cities will we see oil prices play a role.

Housing costs will simply continue to fall matching the real disposable income but other economic factors such as job loss, job security or lower wages would play a much larger role than nominal fuel costs. This high fuel costs would only serve to make geographic issues important for those that can afford housing they do nothing really to encourage people who are unstable to commit most of there salary to a long term loan.

I think that as times get harder the return of households to a effective single income as households regardless of composition deal with one member unemployed are under employed will be the issue.
This gets into longer term debt aka housing prices.

But the point is KSA messed up and I suspect by now the realize they made a mistake and I seriously doubt they will flood the markets with light sweet again this was a one shot deal.

Or as I said I'm wrong and demand really contracted and we really have plenty of oil if so then peak oil is a non-event.

Well with the exception of Mendelbrot :)

Generally everything I say you can assume he said better.

But yes your correct price elasticity declines sharply as you try to force demand destruction on the wealthier fraction of the population. Also in general they can lose 50% or more of there wealth before they reach a point that price becomes a issue.

And example is that demand is very inelastic for gasoline in the 200k-100k salary range. People that make 200k could lose 75% of their salary before gasoline prices became a issue. 50% for the 100k range. While someone making 50k that dropped to say 30k would become sensitive to gasoline prices.

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

Median household income in the US is 50k a decline back to 30k is a 40% decline in income this is the level that 5 dollar a gallon gasoline would become a serious issue.

http://www.eia.doe.gov/kids/energyfacts/saving/efficiency/savingenergy.html

This give gasoline usage at 500 gallons a year lets multiply by 2 for a household so 1000 gallons or 5,000 dollars at 5 dollars a gallon which is equivalent to oil at over 200 a barrel.

I generally use 15% of income as the point at which fuel prices become a very serious issue. This works out to 17% of 30k

The bottom 20% earn about 20k and these people would be at 25% of income if they used 1000 gallons a year obviously they would have to conserve. However
even this group would need only half its oil usage easily doable although potentially disruptive. This would take it to the 12% or survivable threshold.

Thus something near 5 dollar a gallon for gasoline is needed to cause a 50% reduction to 20% of the us population or a overall 10% reduction.

Thats about 2.5 mbpd of reduced demand that could happen at 5 dollars a gallon. I suspect that this is probably and overestimate the reason being even at 3 dollars a gallon these people would be filling the pinch so I suspect the poorest people don't actually consume 500 gallons of gasoline per capita.
Even at 2 dollars a gallon your at 10% of income which is well within the pain threshold for this group.

So better to assume lets say that the lowest 20% probably use more like 500 gallons per household and that at best they can cut say 50% this is a 5% reduction at five dollars a gallon and thus about 1.25 mbpd and we have another 1.25mbpd of discretionary driving that could be trimmed.

On the high side you could even make a good argument for 15% reduction or about 3.75mbd but its not clear that you would get that steep a reduction at 5 dollar a gallon for gasoline. In general we would not have to cut that much.

In any case its fairly obvious that to get significant decreases in gasoline usage we would have to hit the 3-5 dollar range a gallon just to effect the bottom 20% of households in the US. Based on price alone.

However we have to wonder how poor a lot of these poor people are.

http://mjperry.blogspot.com/2008/11/how-poor-are-americas-poor.html

Although it fairly easy to figure that gasoline what have to hit five dollars a gallon to elicit any serious demand destruction its interesting that it become very difficult to estimate the magnitude of such destruction.

Its somewhere between 2% to 15% of our current consumption.

Demand suppression is a bit different from demand destruction and would include conservation amongst most of the income groups driving smaller cars carpooling etc. This is choosing to spend money on somethings besides gasoline not that you can't afford the gas. This would of course bounce back fast the moment gasoline prices lowered so its not a good indicator in general of overall changes. Even if you bought a fuel efficient car if gasoline prices dropped you would take longer trips for example.

The destruction of a entire industry like the loss of the housing industry is a quite different form of demand destruction and does result in a fairly permanent drop however over time I assume that the people formerly working in housing will find other jobs and the demand will slowly rebound. My best longer term guess for the absolute drop in demand from the death of house construction is quit low on the order of 1%-2%. Or like 250kbd to 500kbd or so. As we head into December the seasonal housing industry is not becoming a factor and we seem to be heading towards a YoY monthly change approaching 2% right now. I think we get something like this for every 2-3% increase in general unemployment.

But again the real question is how much gasoline do the poorest segments of society use and how inelastic is the demand in this group ?

Given their actual relative wealth its hard to say. They can't quit driving to work but they can carpool or potentially buy a more fuel efficient car.

A better link to the full report on America poor.

http://www.heritage.org/research/welfare/bg2064.cfm

Just reading it suggest that if gasoline usage is primarily for work many could adjust other parts of their lives if needed to get pay for gasoline.

Like I said its really tough to figure but 5 dollar a gallon gasoline seems to be a good benchmark.

Using this although not sure its right.

http://answers.yahoo.com/question/index?qid=20080909134754AAc3D9N

5 dollars a gallon translates to about 208 a barrel.

Also it implies the potential for anywhere from 500kb to about 3mbd change in demand weighted towards the low end. But whats interesting is if demand did drop most of the change is still demand suppression like car pooling that could return quickly if the oil prices dropped. Car pools disbanded drive the car more etc.

So what really interesting is assuming that the world could produce enough oil to intially meet the demand at five dollars a gallon and this caused demand to drop by 1mpd or so and say prices to drop to 150 a barrel then demand would pick right back up. You get some interesting price bounces at this point as you cross back and forth across the pain threshold.

You could easily see price bounce between 150-250 at this point. Thats a lot of volatility still in the system. However using the above if prices rose to 8
dollars a gallon or about 330 a barrel then we would be in true demand destruction range. My 400 as the next big point pretty much comes out of this with gasoline at 10 dollars a gallon a household making 50k a year and using 1000 gallons would be paying 10,000 a year for gasoline or 20% of their income. At this point your finally seeing some serious lifestyle changes.
People would have no choice but to conserve and a real 10% drop in gasoline usage at this point is certain if not more so 2.5-5mbd drop assuming usage is now down to 20mbd or so.

Now it can and will go higher but the remaining households that can afford more expensive gas is also matched with real conservation this is why I put a high point of about 15 a gallon at this point daily gasoline usage would probably drop to 5-10mbpd and substitution becomes very viable.

Needless to say as you cross over 8 dollars a gallon and into this range Americans can and will seek other means of transport. But note the 100k a year crowd is just getting into the 15% danger zone at 15 dollars a gallon.

http://en.wikipedia.org/wiki/Personal_income_in_the_United_States#Income...

You can play around with it but its pretty clear that remaining demand and viable substitution works at about 15 dollars a gallon. You can even double the efficiency of use and support more people on less oil etc.

Whats even more interesting is this gets per capita oil usage down near that of other wealthy countries. Not surprising since the 8-15 dollar range matches well with fuel costs in Europe. They also imply a real sustained reduction in oil production of at least 2-3mbd globally probably a bit higher say 5-10mbd drop from our present production levels. Sorry for the long ranges but its hard to gauge how inelastic demand will be in other countries. Europe for example probably will roll back its fuel taxes as oil prices increase eventually having no taxes. Extensive subsidies are also highly probable
in many areas keeping demand robust in the face of rising prices. Its not
clear at what price points these moves will break down. The US probably would
for example would probably increase the minimum wage to 10 dollars and hour or
more under these conditions.

I could easily see a lot of scheme to effectively subsidize oil usage for the poor that simply make matters worse and spike the price higher by delaying demand destruction.

Back to the economic side you will probably see a lot more people in the higher income brackets move to the lower as the economy declines so this would
also help decrease demand.

In any case as we cross 300 a barrel we finally start seeing the point that supply and demand begin to become fairly balanced exactly how this plays out is tough to figure but 800 a barrel is 20 dollars a gallon and you can bet at that point demand for oil will be very low and just about any conceivable alternative is viable. The key point is not really price but the price point at which usage drops to a level that viable substitutes are possible.

And last but not least this is using today dollars its becoming pretty obvious that we will see our governments inflate the fiat currencies a lot in and attempt to keep deflation at bay. This probably won't translate into salaries rising anywhere close to whats needed to stay level with inflation but oil prices will be very sensitive to monetary printing. This could easily lead to a sort of price shock as the inflation attempts simply drive up the price of oil. So we could see prices rise in this range well before underlying supply was inadequate. This of course makes life even more interesting since it would then act to cause oil prices to decline as demand declined from the artificial
increase in prices even though supply was adequate forcing down the price of oil and causing a real loss to oil producers as they fail to keep up with inflation.

I suspect that simply leads to them curtailing production but in any case regardless the real post peak fireworks start as we pass 200 dollars a barrel
thats when thing get serious.