A View From the Peak

Written by Dave Cohen

Wednesday, 16 July 2008
It ain’t over ’til the fat lady sings
— anonymous

The fat lady is warming up
— anonymous

I now believe that the hypothesis of a near or medium-term peak in the world’s oil supply is confirmed beyond any reasonable doubt. A shift in emphasis that speaks to reducing our demand for oil and examining alternatives to oil is now required. I will be taking that road in the future, leaving specific concerns about the oil supply behind.

Today’s story briefly summarizes why I believe “peak oil” is a done deal. The forecast¹ below reflects my own view. This analysis does not necessarily reflect the view of ASPO-USA.

Global oil (crude + condensate) production will peak at 76.5 ± 0.5 million barrels per day (b/d) in 2011, ± 1 year, with a probability of 80%. There is a 20% likelihood that output will peak at another level—not 76-77 million b/d—between 2009 and 2013.

This estimate intentionally says nothing about the shape of the production curve after the peak. I stand by this forecast and will not be revising it in the future. A “peak oil” forecast examines the supply-side of the oil market, but reality dictates that high prices will affect demand. My estimate can thus be viewed as a “low price” or “reference” case that ignores the effects of rising prices. See the Summary for a brief discussion.

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By Andre Angelantoni

This advertisement, sponsored by Shell and CNN’s Principal Voices Series, appeared in Time and Fortune over Easter and was written by Jeremy Leggett, the climate change and peak oil activist.

“The bad news is that no combination of technologies can plug the energy gap if the peakists are correct. There will be a third, and last, global energy crisis. It will dwarf previous crises. Profound economic dislocation will result. The challenge for human civilization will be how we rebuild post-peak.”

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Guest Essay by Ron Cooke, author of “Oil, Jihad and Destiny” and “Detensive Nation”

Does Iraq have anything to do with the price of gasoline? Diesel fuel? Heating oil? Propane? Let’s examine what Hillary and Barack don’t want you to know and John is reluctant to reveal.

Let’s start with a statistic. At least 42 percent of the accessible conventional oil we humans need is located in one relatively small region on our planet. The Middle East. And the people who run this region do not seem to be in any hurry to send it our way. Get used to it. These people will produce their oil on their schedule. They are not going to produce their oil on our schedule. Existing drilling programs guarantee demand will exceed supply. Sometime between 2010 and 2017. Perhaps sooner. And they really don’t care if we do not like the price of gasoline.

Get the picture?

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Guest Post by Andre Angelantoni

My peak oil interview is now up on Living Green.

In it, I discuss:
* when peak oil is likely to occur
* what specifically people should do to prepare
* what I’m calling “The New Game for Humanity”
* the role business can play in a post-peak economy
* the Relocalize and Transition Towns Movements
* and more…

You’ll find the interview at http://www.livinggreenshow.com. Scroll down until you see “Latest Podcast Episodes” and click on Listen Now beside #32.

The only thing I would change is that at one point I say that oil is running out, which technically is true (that started the day we began to use it) but the more important concept is that production is about to decline. Oh, well.

I hope you get value out of the podcast.

-Andre’
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Guest Post By Andre Angelantoni

In a wide-ranging speech on March 13, 2008, James Schlesinger starts out with:

“We face a challenge, an immense challenge, both foreign and domestic.

The question is our ability to respond effectively to that challenge and that remains a bit problematic. In his study of history, a 12-volume study of history, Arnold Toynbee examined I think it was 27 civilizations and why some of them had failed, why they had collapsed and it was in response to a challenge that they could not handle, some specific challenge. And a question about which we might brood is whether the combination of energy and environmental challenges will be ones that we can handle, handle with severe damage or fail to handle.”
— James Schlesinger’s Speech at The National Academies Summit on America’s Energy Future - The Geopolitical Context of America’s Energy Future; Day 1, Part 3, March 13, 2008

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As shown on Weekly chart on the right side of the diagram, oil continued trending upward in the first week of March, surging to an all time high of $106.54 - breaking the upper trend line from May 2006 - on the last day of the month before dropping to close the week at $105.15. The week ended with oil above the upper Bollinger Band. Resistance is at $106.54 and support is at $103.64 which was the midpoint of last weeks candlestick body.  The next support is at $100.09 which was the previous high a month ago. Since crude passed $100.09 two weeks ago, it appears to have set up for a double bottom (12/06/2007 and 1/22/2008). If oil is to complete this pattern, it will reach approximately $115 probably riding the upper Bollinger band up over the next month or two. Now, it must break Friday’s resistance at $106.54.

From a candlestick, the last four weeks are three advancing soldiers plus two which presages more strength.

As shown in the Daily chart on the left, oil continues in a upward channel (shown by the yellow straight lines) and ends up between the Upper Bollinger and the 5 day moving average. The last candlestick was almost a long legged doji with the upper and lower shadows both longer than the body. Resistance is $105.97 and $106.54. Support is at $103.91 to $103.95. Next support is at $102.49.

As shown on Weekly chart on the right side of the diagram, oil was trending upward the entire month of February, surging to an all time high of $103.05 - hitting the upper trend line from May 2006 - on the last day of the month before dropping to close the week at $101.84. The week ended with oil slightly above the upper Bollinger Band and comfortably above all the weekly moving averages. Resistance is at $103.05 and support is at $100.09 which was the high when oil first broke the $100 benchmark and also is the mid point of last week’s green candlestick. The next support is at $97.75 which is last week’s low and the mid point of the previous week.Since crude passed $100.09, it appears to have set up for a double bottom (12/06/2007 and 1/22/2008). If oil is to complete this pattern, it will reach approximately $115 probably riding the upper Bollinger band up over the next month or two. But first, it must break Friday’s resistance at $103.05.

From a candlestick, the last four weeks are three advancing soldiers plus one which presages more strength.

As shown in the Daily chart on the left, oil has been riding just below the Upper Bollinger for four weeks. It is now below the Upper Bollinger but right above the 5 day moving average. Resistance is $103.05. Support is at $101.25. Next support is at $100.09.

The Oil Independent Oakland by 2020 task force’s draft final report has been released and will be presented at The Special Public Works Committee meeting on Tuesday, February 26, 2008, which begins at 10:30 am. The OIO Action Plan is item 5 on the Agenda. If you wish to speak on the item, you must submit a completed Speaker Card to the Clerk at the meeting before the item is called, or you may sign up to speak online. You may also download the Legislative Analyst Memorandum, which summarizes the Action Plan.

On October 17, 2006, the Oakland City Council adopted legislation, sponsored by Councilmember Nancy Nadel, creating a Task Force to help make Oakland oil independent by 2020. The legislation was endorsed by various groups, including the Ella Baker Center for Human Rights, the Oakland Apollo Alliance, and Bay Localize. [Press Release]

Inspired by Sweden’s landmark national action plan that articulates programs and policy measures expected to reduce Sweden’s oil consumption by 40-50% by 2020, Oakland hopes to provide a similar model for cities in the U.S. which are facing an absence of state and federal leadership on sustainable energy policy.

The Oil Independent Oakland (OIO) By 2020 Task Force, composed of local, regional, and national experts including Richard Heinberg, developed a robust oil independence plan, consolidating measures from around the world that can be used locally to reduce oil consumption citywide. The action plan recommended bold initiatives to not only reduce emissions of greenhouse gases, but to also establish Oakland as a national leader in the green economy and green jobs creation, while seeking to reduce Oakland’s energy dependence.

Top Recommendations

1. Adopt the Oil Depletion Protocol, thereby committing the City of Oakland to reduce oil consumption in the entire city of Oakland by 3% per annum
2. Reconfigure the city into multiple Urban Villages that co-locate residential, commercial, retail, and possibly light industrial. This involves and number of steps including updating the General Plan, design review guidelines, and zone.
3. Develop and implement a Public Transit Master Plan. This also involves an update to the General Plan and the task force strongly urges Oakland to consider a municipal streetcar system.

Enabling Recommendations

1. Establish and Oil and Gas team charged with management of Oakland’s oil independence activities
2. Develop financing options including a local carbon tax and regional congestion charging
3. Embark on a massive public outreach and education campaign

Preparedness Recomendation

1. Develop Contingency Plans for oil price and availability shocks

Some minor tweaking of the report is expected after the report is presented to Council. For information updates or to download the draft final report and appendix (right click and Save Link As…), visit the Oakland Oil Independent by 2020 task force page at EnergyPreparedness.net.

Overall

As shown in the monthly crude oil chart below, the price and volume traded in crude oil has been growing exponentially since 2003. As indicated by the widening of the upper and lower price trend lines, the volatility is increasing. For the past six months, prices have been above the 5-period moving average (show in white) and been riding up the upper Bollinger band (two standard deviations above the mean, shown in pink). While it would not be surprising, if prices touched down to the lower Bollinger band in the next year, it seems highly likely given it’s trajectory that prices exceed $150 per barrel in the next couple of years.  A target of $150 per barrel within several years seems conservative given the solid fundamentals for oil demand overreaching oil supply in the upcoming years. Given the supply and demand situation and assuming continued global oil dependence, prices may soar only beginning to stabilize when significant “demand destruction” occurs, mostly likely in the form of a severe economic recession or depression, deeper than any most of us have experienced.

Monthly Chart

Crude dropped more than 4% from last years close at $95.98 to January’s close at $91.75. Last month’s candlestick (the second to last bar above) was solid red with long upper shadow and an even longer lower shadow. The RSI touched 70 and dipped below the overbought zone.   Crude is now at the 5 month moving average which appears to have peaked.

Weekly Chart

As shown in the weekly chart on the right, Crude oil dropped $1.75 last week ending at $88.96. I went as high as $92.71, leaving an upper shadow.  The red solid candlestick did not confirm the bullish reversal hanging man from the previous week.  The 5, 10, and 20 week moving averages are converging at about $91 right below resistance at the half way point of the the solid red candlestick three weeks ago.  Next resistance is last weeks upper shadow at $92.71.  Support is at about $85.

Daily

As shown on the daily chart on the left, the uptrend ended mid week and crude has moved down the past two days.  Crude ended the week right around the support at $89.11 and below the 5,10,and 20 week moving averages.  Additional support is at $88.46 and below that at the lower Bollinger Band (about $86.50).  Resistance is now at $90.22, the midpoint of Friday’s solid red candlestick. Next resistance is at $92.19/$93.02.

Final Thoughts for Crude

Crude is on a four downtrend.   Support is at $85, resistance at $91 and $92.71.

Disclaimer: this technical analysis is provided as a public service so that people start to understand that oil prices go in cycles and that volatility is increasing which means we may see some drops here and there but the trend is upward and for wider swings. It is not intended to be investment advice. Note also that technical analysis is solely based on chart patterns and that changes in fundamentals such as oil stock inventories can easily overwhelm and alter technical trends.