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Beware ... the Lunatic Fringe

 

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 TrendLines  Research  ...   Long Term Perspectives by Freddy Hutter
 
what's new, eh? ... .Peak Oil Depletion

[New!]January Update of our Peak Oil Depletion Scenarios Presentation 20-Model Tier-1 Avg indicates Peak Oil Target is 92-mbd in 2022

[New!]January Update of Freddy Hutter's Peak Scenario 2200 Model:  Underlying Decline Peaked @ 3.1% in 2008 Recession (Peak: 100-mbd in 2030)

[New!]TrendLines Barrel Meter Compared to Recognized Long-Term Crude Oil Price Forecasts

[New!] TrendLines Barrel Meter:  1-yr, 5-yr, 10-Yr & introducing new 25-Yr Price Target

[New!]TrendLines Tracking of Projections for Regular Conventional Crude ... the Light Sweet Oil

[New!]Update of TrendLines URR Linearizations chart

[New!]Tracking Update for the Colin Campbell ASPO-IE Depletion Model 1989-2009

[New!]World Production Records ~ 2008 sets New Annual,  Quarterly & Monthly Supply Records ~ Q3 Down 2.7-mbd from 2008Q1 Peak

~ McPeaksters Declare Top for 20th Year ... 1989 to 2008 ... Milestone to Celebrate?  Or Peak for theOilDrum?

~ 2009 Update of 21-model URR Estimates chart & URR Annual Growth vs Annual Consumption chart

~ Growth Rate of URR since 1957 ~ 150-Gb in 2009

Scroll down for this month's newest TrendLines charts ... or click "what's new" links to go to direct to topic desired, or visit our major venues:

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what's new, eh? ... .Climate change , Economics & Politics

[New!] USA Recession Meter ~ BEA says Q4 GDP growth was 5.7% ... but stay tuned for Downgrade to 0.5%

[New!]econ USA Real Unemployment Rate down to 16.5% in January from Post-Depression Record High of 17.4% in October 2009

[New!]econ USA Realty Price Correction Scenario Indicates both Existing & New Home Prices are within $3,000 of Long Term Price/Income Ratios

[New!]econ Canadian Recession Meter ~ 6.2% Target for Q4 GDP

[New!]econ Global Q4 GDP is 4% & only 3 G-20 nations remain in Recession

[New!]poli   MP Seat Projection for 2010 UK General Election for the House of Commons ~ Conservative Party Poised for Governance

[New!]poli    MP Riding Projection plus Momentum Trend for the 2012 Canadian Election ~ Prospect of Majority fading

~ TrendLines Debt Meter ~ Structural Budget Deficits Poised to Double USA National Debt by 2019

~ Freddy Hutter of TrendLines Research proposes the Yukon Protocol to create a Climate Change Mitigation fund for Developing Nations

~ science ~ Alarmists Warn of "Polar Ice Caps Melting" but Sea Level Rise does not Reflect Dramatic change in Rate

 Scroll down for this month's[New!]TrendLines charts ~ click graph for more background or topic venue

Looking at quarterly data, this was the severest economic downturn since 1980.  But, based on annual data it was the worst since 1946.

Feb 7th ~ BEA's December economic data continues to confirm our declaration made on May 29th:  the Recession is over!  But, just as our two month lead prediction that the NBER would be announcing the commencement of the  Recession on the 2008 Thanxgiving weekend, TrendLiners will have to wait 'til Monday May 3rd 2010 for their official proclamation that the Recession indeed ended in April 2009.

The past downturn escalated to a Severe Recession in September 2008, after entering a Technical Recession in December 2007.  The TrendLines Recession Meter Index set a record low of -6.4% in February 2009, smashing the -3.0% marker of January 1975.  It is apparent that the defined Recession ended in April 2009, with a wind-up of the contraction following in November.

We are much less enthusiastic as to the strength of the Recovery under way, and continue to be troubled by BEA's announced Q3 & Q4 numbers.  Last week, BEA announced a highly generous 2010Q4 GDP growth rate of 5.7%.  This varies widely from the 0.5% inferred by our Recession Meter Index and continues a major divergence between official GDP figures and our Index that commenced in April 2009.

The Coincident & National Activity indices for December suggest Q4's GDP was only 0.5%.  Our recent disgruntlement began with Q3 being originally announced at 3.5% whilst our calculation is -1.1%.  BEA later lowered Q3 to 2.2%.  We are confident that both Q3/Q4 will be downgraded with time.

These troubling numbers may be signaling a reoccurrence of the episode to which we drew attention on the way down.  The original 2008Q3 GDP announcement of -0.5% distressed us 'cuz our Index was inferring -3%.  We were overcome with satisfaction when BEA later downward revised to -2.7%!  Shortly thereafter 2008Q4 was announced at -3.8% compared to our Meter Index inferred -7%.  BEA later did a downward revision to -5.4%.

Real Unemployment of 16.5% in January far exceeds the post-Depression record of 14% set in 1982, albeit down from 17.4% in October.  With Inventories at business cycle lows, average weekly hours will be on the increase, followed by overtime and finally new hiring.  The Unemployment Rate is in secular decline mode.

This comes about mainly from our determination that both New & Existing Home Prices returned to their secular Price/Income trend level in January 2009.  The collapse in crude oil prices and gasoline was also quite helpful.  As we forecast in late 2008, the finding of a Housing Price bottom has halted the general deterioration due to Wealth Effect and substantial upticks in Confidence levels.

The bottoming of New Home Sales in January 2009 and subsequent 4% rise in unit sales is also starting to contribute to the economic recovery.  Car & Light Truck Sales also bottomed (in February 2009) as consumers were hopeful that the recent collapse in Crude & Gasoline Prices was genuine and long term.  That faith may be misplaced.

Animal Spirits activity deems no double-dip is on the 12-month horizon,  However, whilst the normal business cycle would indicate that the next cycle high should occur in 2013Q1, it is becoming increasingly clear that this path will be significantly truncated in 2011Q4.  Our Barrel Meter projection suggests that at that particular juncture the USA's contract crude price will re-attain the same oil/GDP ratio that caused the collapse of New Car & Light Truck Sales in 2007Q4.  At that time, the Demand Destruction Barrier will translate to $93/barrel crude or $3.28/gallon gasoline.

Matters get worse in 2012Q3 when contract crude breaches the oil/GDP ratio threshold ($105/barrel) that saw the onset of Recessions across the globe in 2008Q1.  This will cause a substantial downturn in exports, and the Fed will have to navigate its monetary policy delicately to prevent a pause in the Recovery from blossoming into a full fledged Recession.  Perhaps fortunately, this event will occur when critical mass of the economic recovery provides good momentum.  Similar mitigation activity by the Fed & Treasury Secretary implementation of Fiscal Policy will determine whether the next cycle's contraction bottom in 2017Q3 is a hard or soft landing.

click charts for more...

 

Tier-1 Scenarios Jan 31st ~ This month's Tier-1 revision introduces the Richard Miller Outlook  & updates our own Hutter Peak Scenario 2200

Based on 20-model Avg:

          Peak Oil:  92-mbd in 2022

          Post-Peak Production Avg Decline Rate to 2050:  0.7%/yr

          The year 50% of URR/EUR has been extracted:  2039

          The year flow is under today's 85-mbd:  2040

          The year we run out of oil:  2287  (less than 5mbd)

          Global URR/EUR:  4,415-Gb

          Global Depletion:  28% of URR  (net rate:  0.9%/yr)

click chart for more...

 

For the realty sector to recover completely, we've been awaiting four bottoms.  Two are Existing Home transactions/month & Existing Home Median Prices.  Done - January & January respectively.  The other pair are New Home monthly sales & Prices.  Done - January & March respectively.  The increase in monthly transactions is important to the Economy 'cuz it brings on increased revenues in furnishings, landscaping/gardening, appliances, etc.  And for New Homes, rising sales mean "jobs".  The passing of the bottom of Prices for both categories is important 'cuz the subsequent "wealth effect" affects consumer demand and durable good sales.

Jan 30th ~ Since May 2008, the original version of this scenario has been predicting the return of the USA Existing Home Median Price to its 2-Income Family Income trend.  The correction plunge was swift and deep ... much faster than originally forecast, and resulted in a return to the trend line in January 2009.  It is no accident that the 2009 Severe Recession came to an abrupt end in April ... prior to delivery of the first fiscal policy stimulus cheques.  Nasty real estate & mortgage practices caused the economic contraction, and the return to norms also got it out of the downturn.

Prices peaked for both New Homes & Existing Homes in 2007Q1, and the completed correction exhibits a classic "return to the mean".  The irrational exuberance commenced in 2002 and culminated in a break from the Existing Home Price norm to 2.8 x's Working Couples Family Income.  Similarly, New Home Price drifted from its long term metric (2.5) to an unsustainable 3.1 x's Income.

The Existing Home Price monthly median dropped 28%, from $229,000 (June 2007) to $164,800 in January 2009.  This is far less than the silly 40% prediction (2008/11/18) by McDoomer Nouriel Roubini.  But then, he also forecast (Nov/2008) that 1,400 banks would "go bust in 2009".  He was out by 1,250 on that call.  But i digress!  Existing Home Sales are up 24% from the January low.

In turn, the median New Home Price decreased 22%, falling from $262,600 (March 2007) to $205,100 in March 2009.  Unit sales are up 4% from the January low.

Existing Home Prices are up $14k from the January bottom.  New Home Prices have recovered $16k from the bottom in March.  The 2009 Avg Existing Home Price exceeded our 2009 target support level of $171k by a mere $3k.  2009 Avg New Home Prices were in breach of the $214k support level by only $1k.

Looking forward to next year, the December $178k median Existing Home price exceeds by only $2k the 2010 target price.  Meanwhile, the $221k December New Home median price is only $1k shy of the 2010 target.

As seen in the chart, it is probable that new highs for New Home Price will not be set 'til 2014.  Existing Home Price records should be stalled 'til 2017.

click chart for more

 

Jan 30th ~ PS-2200:  Underlying Decline Peaked @ 3.1% in 2008 Recession

          The Peak:  100-mbd in 2030

          Post-Peak Production Decline Rate:  1.7%  ('til 2050)

        Worldwide Surplus Capacity:  6.3-mbd (exhausts in 2025)

          The year flow breaches 2010 levels:  2046         

          URR/EUR:  7,584-Gb  (consumed to 2009/12/31:  1229-Gb incl 4Gb BTL)

          Depletion of URR:  16%      Annual Gross Depletion Rate:  0.4%  (Net:  0.5%)

          The year 50% of URR consumed:  2108

          The year oil (excl BTL) runs out:  2344

       Underlying Decline Rate Observed for 2009 All Liquids -  2.7% (2.28-mbd) Worldwide 

click chart for more...

PS-2200's 2035 Outlook Jan 30th ~ This higher resolution of PS-2200 illustrates two hypothetical scenarios:

(a)  an ultra conservative All Liquids trajectory with an apparent 88-mbd Peak in 2013, declining to 28-mbd by 2035 (hashed lime line), assuming an Avg 3.4% Underlying Decline Rate Observed.  As a Worst Case Scenario, it assumes that the oil & gas sector will never augment the announced-to-date MegaProjects.

(b)  the more probable production profile whereby the present Megaproject trend of 3.5-mbd/yr is deemed to continue unabated 'til resource constraints impede new additions after 2044 (post-2012 solid lime line).   End-of-Year Supply surges to a 100-mbd Peak in 2030.

In practical terms, history (since 1970) has shown that the pessimistic projection line incrementally rises thru time to meet the growth trend line.  Hence The Wedge shown continually gets pushed into the future.

Viewing the future by our measure, 75-mbd of new capacity will be required to attain our 2035 target of 100-mbd.  15-mbd of this will raise production from 85 today to 100-mbd. The other 60-mbd will address UDO loss over the next 21 years.  Added to the 78-Gb to cover 1970-2009, we calculate a total 138-Gb of Capacity will be dedicated to this loss phenomenon over the full six decades.

click chart for more

PS-2200's 2009 Underlying Decline Rate Observed Jan 30th ~ 2.7% (2.28-mbd) Worldwide

Flow from global New Capacity in 2009 was a record 4.1-mbd.  This year's loss from Underlying Decline Observed (UDO) was a lesser 2.28-mbd.  Some of the difference was responsible for raising production, but most helped raise Global Surplus Capacity to 6.3-mbd by year end.  The current 7-yr trend for installed New Capacity is 3.5-mbd/yr.  Based on present URR Estimates and subject to capital availability, Industry can maintain this new installation activity level until inevitable resource constraints begin to restrict new development (blue line in chart inset) in 2045.

My March 2009 analysis revealed that Global UDO first became significant during the 1970 American Recession.  Chart#3 illustrates long term global annual UDO, but it is the UDRO inset (annual rates) that is most instructive.  I have found that the Underlying Decline Rate Observed exhibits a tendency to ebb and flow.  Further study in October revealed that these cyclical crests correlate with all six USA Recessions of the past four decades.  These cycle tops appear to reflect reduced EOR activity during economic contractions, no doubt due to Capital/Cash Flow limitations, as well as reduced Demand realities.

These crests (orange line) further coincide with depletion rate peaks of  the major petroleum provinces:  the Persian basin (Iraq/Iran) in 1977, USA/Russia All Liquids in 1984, the North Sea in 2001 & the present deterioration in Mexico.

The highest annual surge was 6.3% of All Liquids production in 1984 in the wake of the double-dip 80's recessions.  The recent cycle top of the 2001 Recession was followed by an UDRO trough of 1.9% in 2006, then the 3.1% high of the 2008 Recession.  The loss factor was 2.7% in 2009, and is projected to bottom @ 2.6% in 2012 before its next cycle high (3.7%) during a probable 2017 Recession.  Extrapolation of the general trend (including its 8.5 year cycles) should see UDRO rise to 5% by 2050.

Over the last 40 years, UDRO has averaged 2.7% annually.  From 1970, this necessitated the construction of 119-mbd of new facilities:  78 to address UDO & 41-mbd to raise Extraction Capacity from 51 in 1969 to 92-mbd today.  In short, the oil sector has been adding 3-mbd/yr ... or a new Saudi Arabia every three years!  Terminal Global Production Decline will commence upon Annual New Capacity no longer exceeding the UDO trend line.  This intersection is set to occur in 2031.

click chart for more...

 

Jan 29th ~ Figures released by StatCan today reveal that GDP growth averaged 4.8% over the 90 days ending Nov 30th.  This compares well with the 5.3% inferred by the leading indicators shown by our Recession Meter Index.  As predicted, StatCan has upward revised Q3 from 0.4% to 1.6%, comparing better with our 5.2% number.  Stay tuned for more revisions to the upside down the road, along with our 6.2% outlook for Q4.

Looking forward with the aid of Animal Spirits and the back half of stimulus cheques still coming, GDP should stay above 4.1% 'til year end.  Unfortunately, shortly thereafter things are likely to get messy.  As described down in the USA Realty Correction Scenario segment below, the American Recession has its roots in the Real Estate Bubble ... unsustainable home prices robbed folks of disposable income.  But that economic downturn was in part precipitated by rising energy prices that caused a collapse of USA New Car Sales in 2007Q4 when USA contract crude price broke the $85/barrel ($3/gallon gasoline) threshold.  On its present path, crude and gasoline will breach that same oil/GDP ratio in 2011Q3 @ $92/barrel ($3.25/gal).

Upon that occurring, USA New Car & Light Truck Sales risk another collapse.  And since a significant volume of those vehicles (or parts) are assembled/built in Ontario, an export hiccup is in the cards.  Whether the economy (USA or Canada) suffers a hard or soft landing will depend on Monetary Policy mitigation.  Upon recovery, GDP should drift back to its mean, before finding bottom again as the current business cycle comes to its natural end in 2017Q3.

As illustrated in our new long term chart, the 2009 Recession was the 4th deepest Canadian economic event since WWII ... and it turns out it was a double-dipper (as in 80-81).  Revised GDP stats indicate that Canada entered a Technical Recession in February 2008, eight weeks later than the USA ... not October 2008 as originally assumed.  Originally, StatCan reported a slight early 2008 downturn followed by a very robust Summer.  Newer figures show the first dip to be much deeper accompanied by a mere Summer spurt.  This sheds a whole new complexion on the discussions surrounding the 2008 Election campaign, where Harper and Flaherty were adamant that there was no Recession in play and there would be no chance of a Deficit; while the Opposition used anecdotal evidence to "talk things down".

Although we didn't know it at the time, Canada was in a Technical Recession thru most of 2008.  And within days of Election Day, it suffered a swift and deep plunge right into a Severe Recession.  As mentioned, this clarity was unfortunately absent during the critical Fiscal Update period in November 2008.  The reported apparent Summer Recovery (via GDP & Leading Indicators) was downgraded a year later, and the second major downturn was not reported by StatCan 'til January 30th 2009.

Understandably, these reporting inaccuracies sent mixed signals and resulted in the failure to address stimulus in the infamous November 2008 Fiscal Update by the Federal Gov't.  This misunderstanding was compounded by actions (or inaction) of the Bank of Canada, which made no effort to use its monetary policy privilege to reduce interest rates after March 2008.  The Bank Canada finally reduced rates by 0.5% on Oct 8th 2008, but only as part of a concerted effort by six Central Banks to address the international liquidity crisis.  At the time, it was not aimed at any perceived critical Canadian softness.

Like Canada, the USA contraction found its bottom in January 2009.  The American slowdown in the sales of new home construction & autos devastated imports from Canada of softwood lumber, auto parts/vehicles, and the general manufacturing sector.  It is little known that more cars & trucks have been assembled in Ontario than Michigan since 2005.  Fortunately, as we predicted in Autumn 2008, a Spring recovery for both homes & cars came as scheduled in 2009.  American New Home sales are up 22% from the January low.

Back on August 19th we declared that the Canadian Recession had ended in July.  The StatCan GDP figures are now confirming the essence of that prediction.  Using industry definitions, the Recession was over in June, and the economic contraction completed its cycle in August.  Down south, we expect the NBER to announce February 1st that the USA Severe Recession was over in April and its economic contraction ended in November.

click chart for more macro economics...

 

Global GDP:  2009Q4 +4.0%    2009Q3 +4.7%    2009Q2 +3.6%

Year 2009 -1.3%     Year 2008 3.1%     Year 2007 5.1%

 

G-20 Nations in Technical or Severe Recession:

2009Q4 2009Q3 2009Q2 2009Q1

2008Q4

2008Q3

2008Q2

2008Q1

2007Q4

 

stats pending: Russia Mexico Turkey

7% of Global GDP

 

UK Turkey Mexico Russia

 

10% of Global GDP

    UK     Russia  Italy Canada Mexico SouthAfrica Turkey

 

29% of Global GDP

USA    Japan Germany UK     Russia France Brazil   Italy Canada Turkey Mexico SouthAfrica

53% of Global GDP

  USA   Japan   Germany UK     Russia France Brazil   Italy Canada Turkey Mexico SouthAfrica

53% of Global GDP

USA Japan Germany UK France   Italy Mexico

43% of Global GDP

USA Japan Germany France Italy

38% of Global GDP

 USA

21% of Global GDP

USA

21% of Global GDP

And Not in Recession in Q4:  USA, China, Japan, India, Germany, UK, France, Brazil, Italy, Canada, South Korea, Indonesia, Australia, Saudi Arabia, Argentina & South Africa (in order of GDP & comprising 70% of worldwide GDP;  excludes 20th membership, courtesy to EU)

Remaining 160 nations comprise only 23% of worldwide GDP

Jan 29th ~ 2009Q4 GDP was 4.0%, down slightly the 4.7% of Q3, confirming a major recovery from the -6.3% in 2009Q1.  Only 3 G-20 nations (Russia, Mexico & Turkey) remained in Technical or Severe Recession.  Together, they represent about 7% of global GDP.

The duration of the global Recession was 2008Q3 to 2009Q1.  Despite the Mainstream Media hysteria, at its worse only 12 G-20 nations (representing 53% of global GDP were in Recessions.  2009's -1.3% GDP decline was the first contraction in the last four decades. This economic episode was in part precipitated by rising energy prices that caused a collapse of USA New Car Sales in 2007Q4 when USA contract crude price broke the $85/barrel ($3/gallon gasoline) threshold.  On its present path, crude and gasoline will breach that same oil/GDP ratio in 2011Q3 @ $92/barrel ($3.25/gal).

The long term effect of this downturn will be an acceleration in China's overtaking the USA as the largest Economy.  We determines that this event will  occur in 2051 ... a mere 40 years away.  In turn, India's demographics create the situation whereby it is poised to take the title of largest economy in 2075.

World trade in July 2009 was down 16% from its record peak in February 2008.  The trough (-19%) was January 2009.

click chart for more macro economics ...

 

Jan 28th ~ Less than 18 weeks to the UK Election ...

Brown's Labour Party would have commenced a hypothetical early December election campaign with a lead in 191 Seats, 32 less than thirty days prior.  The Liberal Democrats are ahead in 56 (up 4).  Cameron's Tories have gained 23 potentials and sit with 366 MPs.  Based on the underlying long term momentum, TrendLines Research projects that the Conservative Party is poised for an ultimate 385 MP Majority victory upon expiry of the current Parliament in June 2010.

click chart for more

 

TrendLines Research commenced monthly tracking of available Canadian Riding Projections in April 2004.  Over the past four major Elections, our multi-model methodology has proved the most accurate forecasting tool available.

click chart for more...

Jan 27th ~ The Harper Conservatives ended the year with a potential seat count equal to their status after the October 2008 election ... 143 seats.  Pacifists from both the Opposition and the mainstream media have hijacked political discussion for yet another month in their irrational quest to lay war crime charges against a score of members the Canadian military operation active in Afghanistan in 2006.

Core support for the Ignatieff Liberals seems to have been established in low 80's.  Unfortunately for the Liberals, we're predicting StatCan will shortly announce a 2009Q4 GDP growth rate of 6.2%, as the economic recovery lays the foundation for further reductions in the Unemployment Rate.  If that's not enuf bad news in the short term, layered over this will be the patriotic enthusiasm surrounding the Vancouver Olympics.

The TrendLines Research composite Riding Projection has been Canada's most accurate forecast tool, measured over the last four Federal/Ontario elections.  Each month, its chart depicts the average of currently available seat projections from across Canada & the UK.  One of the models included is our own conversion, which on its own was the most accurate in the 2008 Autumn Election.  It indicates that the Conservatives would have started a hypothetical January 1st Election Campaign with a lead in 142 Seats, followed by:  92 Liberals, 30 NDP, 43 BQ & 1 Indep't.

When our own study is blended with other available models for a broader analysis, the findings as featured in our headline chart result.  Today's presentation is based on the conversion of 4 national polls conducted Dec 9-20 2009 by 5 active projection models (along with practitioner canvassing).  It reveals that the governing Conservative Party would have commenced an early January Election Campaign with a lead in 143 Ridings ... no change from thirty days prior.  The Bloc & NDP would start a late Autumn campaign with 47 & 32 Ridings respectively.  Albeit Ignatieff's standing rose only three Members to 86, long term momentum continues to indicate that the Liberal Party will eventually take the projection lead (January 2012), and is poised for an ultimate 112 MP Minority victory upon expiry of the current Parliament in October 2012.  This marks the third time since April that a Liberal Majority was not in the cards long term.

 

Jan 10 2010 ~ Yesterday we expanded our Barrel Meter presentation to introduce a 25 Year Target for Crude Price.  This was accomplished by importing data on Extraction Costs & Surplus Capacity from our Peak Scenario 2200 into the model.  The result is a projected $218/barrel in 2035.

Last month our première Price Forecast compilation chart introduced Adam Sieminski's price study, it mirrors our sentiment that current crude prices are poised for at least a 15% downward correction to better reflect underlying fundamentals.  The chief energy economist of Deutsche Bank (Washington) projects contract prices to reach $182/barrel by 2035.

Seeing the global Recession subsiding more quickly, IEA bumped up its 2015 forecast seven bucks to $73 this week.  Their long term targets mostly skim a tad below Deutsche Bank, rising to $158 by 2030.  EIA released its 2010 AEO in mid-December.  Converse to IEA, its path straddles above the Deutsche Bank course, rising to $203 in 2035.

For a reference point, we've inserted our Demand Destruction Barrier (DDB).  It demarks the apparent Oil/GDP ratio where rising prices eventually attain critical mass leading to sea changes in conservation and substitution.  This invisible ceiling halted the epic 2008 spike at $131/barrel, and should thwart the current price run at $157 in 2014Q4, followed again by a very major correction, according to the Hutter Barrel Meter.

Disagreement that such a constraint mechanism exists separates conventional price forecasting from those within the McPeakster fraternity.  For illustration purposes, we include their three showcase predictions to demonstrate the divergence.  Monthly updates by a "joker" over at theOilDrum (aka Ace) have been trimmed recently, but still warn the cult following of a $179/barrel spike within 40 months!  From here, we deteriorate to contributions by two members of the Lunatic FringeJeff Rubin (ex-CIBC World Markets) foresees "sustained pricing" of $205 in 2012 & Matt Simmons (investment banker) sports infamous speculation of $300 by 2014 & $546/barrel ($600 WTI) in "much less than 20 years".

click chart for more...

 

Today, we're pleased to introduce this enhancement of the Barrel Meter.  By incorporating surplus capacity data from our Peak Scenario 2200 study, we are able to expand the model's Price projections to 2035:

Jan 9th ~ The USA Contract Crude Price averaged $71 in December, down $3 from November, and almost double the $37/barrel four year low of December 2008.  Including spikes, Crude Oil should settle into a general trading range of $60 to $76/barrel thru Q1/Q2.  The present spiking activity is completely detached from fundamentals.  As seen in the chart, Prices during the last three seasons have been hugging the Unconstrained Spike Potential line (dashed red line).  An $11/barrel downward correction to $60 appears imminent.

With December's fundamentals-based Crude Price (yellow line) at $41/barrel, the contract price averaged 1.7 x's fundamentals.  This is down slightly from 1.8 in July, but for both figures point to unduly inflated prices considering the average margin over the last five years:  1.4 x's fundamentals.  The high for this metric was 2.1 in y2K, and it slipped to 1.6 during the July 2008 spike on its way to "0" upon the collapse later that year.

These unsupported Prices reflect relative bullishness not seen since 2002.  The current spike activity, which began in May, seems to have at least some foundation in mostly false rumours rampant within the futures fraternity of a colder than average Winter approaching.  However, there has been no basis for this within recognized seasonal forecasts.  This suggests manipulative speculation behaviour.  As reality becomes evident, the Monthly Contract Price should slide to $60, before resuming its secular uptrend.

Another factor for the relatively higher Price could rest with renewed speculation/hedging activity.  A new record of 285 thousand long futures contracts was set in late October, breaking the March 2008 volume.  When we add total non-commercial contracts, the long/short volume has just passed the former record May 2008 mark.

The TrendLines Research price targets are based on our projections of future Avg Extraction Cost, Currency Debasement, Hedging Activity, National Inventories & Surplus Capacity.  The Media Noise-du-Jour component reflects its cyclical nature.

Jan/2011 - TrendLines Research 1-yr Target for USA Contract Crude Price:  $75/Barrel

Jan/2015 - 5-Year Target$156/barrel

Jan/202010-Year Target$173/barrel

June/2035 - 25-Year Target$218/barrel

 

Re-collapse of USA New Car Sales:  2011Q4 @ $93/barrel crude & $3.28/gal gasoline

Return of G-20 Recessions 2012Q2 @ $104/barrel crude

Potential Spike to $100/barrel:  2011Q2

Sustained Prices over $100:  2012Q1

Next Potential Spike to record $131/barrel:  2012Q2

Sustained Prices over record $131:  2013Q1

 

click chart for more

 

Using the proper historic narrow definition of RCC, these production profiles exclude NGL, processing gains & the non-conventionals (Bitumen, X-heavy, Arctic, Deep Sea, Biofuels, GTL, CTL & Kerogen).  Hence, we have excluded "conventional" projections by Guseo, Korpela, Laherrère  & Walsh.

Regular Conventional Crude (RCC) peaked @ 68-mbd in 2005, and terminal decline has brought extraction down to 62-mbd in 2009.  It comprises only 74% of All Liquids production today, and it is clear that NGL & the non-conventionals play an ever increasing role.  The PS-2200 model projects RCC will be a mere 58% of 2030 All Liquids, and will fall below 50% in 2044 ... a significant threshold for posterity.

Regular Conventional Crude Scenarios Nov 30th ~ There have been only 4 modellers worldwide that study Regular Conventional Crude ... the light sweet oil:  Albert Bartlett (USA), Colin Campbell (Ireland), M King Hubbert (USA) & TrendLines' own Freddy Hutter (Yukon Canada).

Hubbert's initial projection commenced the discourse on Peak Oil in 1956.  It's Y2k Peak Date was intuitive but the model was flawed with its lowly 1,250-Gb estimate of URR.  His 1974 update boosted resource to 2-Tb, a figure that is still relevant by modern standards, but the path met its demise in a collision with OPEC the following year...

A later effort was the forecast of a 73-mbd peak in 2004 by the 1998 Bartlett model.  In fact, RCC crossed the midpoint of its URR a year later in October 2005.

Jean Laherrère & Colin Campbell have been the sector's most stalwart peak oil practitioners.  Both have shared their annual analysis for two decades.  Campbell's 2009 Depletion Model foresees a continuation of RCC's dramatic 2.4% production decline until 2030.  Conversely, the Hutter Peak Scenario 2200, the only other current profile, projects a softer 0.3% Decline Rate to 2033.  On the longer term, whereas Campbell predicts annual Decline will soften after 2030, Hutter sees major resource constraints, especially after 2042, resulting in serious deterioration that culminates in an R/P 9 environment.

2010 is the watershed.  If Campbell's hypothesis of continued aggressive decline is in play, RCC will dwindle to below 61.0-mbd next year.  OTOH, if RCC stays above that threshold, then the Hutter premise is superior.  And by extension, the scenario with the correct interpretation will be likely be rewarded with the more accurate All Liquids projection as well.

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Linearization Method: URR/EUR Comparisons

Geo/Tech Method:

4,775-Gb All Liquids (incl BTL) 7,689-Gb
2,000-Gb Regular Conventional Crude 1,914-Gb
270-Gb Saudi Arabian Crude

900-Gb

300-Gb NGL-GTL-Ref/Gain 1,630-Gb
310-Gb Bitumen/X-Heavy-CTL-Kerogen 3,858-Gb
225-Gb Deep Sea & Arctic 244-Gb

Nov 14th ~ Linearization analysis is a guiding counterweight to our geology/technology based Estimates of Ultimate Recoverable Resource (URR/EUR).  When compared, All Liquids succumbs to a 3,563-Gb differential, mostly attributed to Bitumen, GTL, CTL & Kerogen not yet reflecting their potential flow rates.  OTOH, this shortfall is somewhat mitigated by the tainted BTL influence.  Biofuels-to-liquids are not included in our URR tally, but its 2-mbd flow is indeed reflected in All Liquids production data.

Based on these linearizations, the world won't run out of light sweet oil (RCC) until Year 2089, and there's enuf of the other stuff to take us to 2146.

 

Tier-2 Scenarios:  Oct 31st ~ Faults within this month's update of the Rembrandt Koppelaar Outlook cause its downgrade (again) to Tier-2 status.  Its failure to reconcile with minimum recognized URR estimates place its production profile on the wrong side of the Worst Case Scenario ... joining similarly deficient efforts by Jeff Rubin & Fredrik Robelius.

Members of the Tier-2 & Hail Mary presentation exhibit one or more deemed flaws.

click chart for more & Tier-2 footnotes

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Sept 15th ~ This update of Colin Campbell's Depletion Model tracks two decades of revisions.  Its forecasts of Peak Year have ranged from 1989 to 2012.  In fact, December marks the 20th anniversary of Campbell's initial All Liquids declaration that oil had Peaked.  His Peak Rate spans the virgin call of a 66-mbd sub-peak (to 1979) to last year's 97-mbd.  The underlying All Liquids URR estimates range from 1575-Gb in 1989 to 2900-Gb.

The new chart excludes Campbell's 1991, 1996, 1997 & 1998 projections as those studies have been determined to forecast RCC (Regular Conventional Crude) ... not All Liquids.  Campbell's current forecast for RCC can be compared to the only three other such projections for light sweet here.

The highlighted years of distinction are: 2008 (highest peak 97mbd), 2002 (2900-Gb URR high), 2009 (current update), 2004 (Colin Campbell's dark days call:  80mbd peak coming in 2006) & 1989 (Campbell's initial 66-mbd scenario which declared that All Liquids would never break the 1979 record).

Because the Depletion Model newsletter graphic ends in 2050, it was unapparent that many of his early All Liquids projections failed to exhaust Campbell's designated URR.  The expanded post-2050 view in the TrendLines chart exposes the methodology errors of the Depletion Model in 1999, Y2k, 2002, 2003 & 2004 via compensating plateaus or "doglegs".  In short, these particular production profiles employed peaks that were too low and/or decline rates that were too harsh.

In the dark days of 2004 episode, it seems that Campbell was unduly influenced by zealot members of the McPeakster fraternity.  He slashed 500-Gb from his URR estimate, reducing it from 2900-Gb to 2400.  He advanced his All Liquids Peak from 2012 to 2006.  Peak Rate was reduced to 80-mbd from 87-mbd.

Sept 11th ~ A new Annual Supply record of 85.4-mbd was set in 2008.  The year-to-date pace of 2009 Extraction (to Sept 11) is  83.7-mbd.

The Quarterly Supply record of 85.8-mbd was set in 2008Q1 July 2008 continues its distinction for the all time global Monthly Supply record:  86.6-mbd, 2.4-mbd above today's monthly pace of 84.2-mbd.

The Quarterly record for Demand of 86.9-mbd was set in 2007Q4 (with difference of 1.7-mbd drawn from inventories).  High Demand Month is February 2008's 87.7-mbd.

TrendLines Research's All Liquids Underlying Decline Rates Observed in 2009:  3.2% Worldwide & 2.5% in Saudi Arabia

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Invalidated Outlooks Archive:  Aug 31st ~ The Club of Rome's 1972 "Limits to Growth" is introduced today.  This depiction reveals alarmist claims after its release that "the world will run out of oil by the end of the century" were unfounded.  Its URR exhausts in 2075.  Both its All Liquids 117-mbd Peak preceded Hubbert's Conventional 111-mbd Peak were to occur in 1995.  Hubbert's effort was released two years later.

Invalidated Outlooks in general forecast low Peak Rates and/or harsh post-peak Decline Rates.  Typically they are constructed on URR/EUR platforms less than the geology-based Worst Case Scenario.

Current Production exceeds Outlook Peak Rate:  Hubbert 1956 (34mbd), Matt Simmons (84.4), Bakhtiari (81), EWG-LBST (81) & Campbell (66)

Outlook's Peak Date surpassed Hubbert-'56 (Y2k), Hubbert-'74 (1995), (Duncan-Youngquist (2007), Matt Simmons (2007), Bakhtiari (2006), EWG-LBST (2006) & Campbell (1989)

Guess which one predicts $600/barrel crude prices?

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Aug 25th ~ The social engineering agenda of the Pelosi/Obama Democrats will double the last year's USA National Debt by 2019, and triple by 2025.

Already a staggering 96%, the National Debt to GDP ratio is poised to attain the 200% threshold in 2030.  This reality has played heavy in the USDollar's secular decline of 3.2%/yr from 2004 to 2007.  Interrupted by Russia's incursion into Georgia and the Credit Crisis, the long term pattern re-emerged in April 2009 and it is probable that the USA:EUR index will drop to 0.57 over the next five years from 0.71 today.

Rising Debt interest, unfunded Social Security liabilities, Entitlements for Medicare/Medicaid and the strive for Universal Health Care will drive the National Debt to $68 Trillion over the next 30 years.

On a brighter note, albeit the $1.6 Trillion Budget Deficit represents 13% of GDP, it will decline to 4% by 2013.  This metric virtually guarantees future Treasury sales on both the domestic & International stages, although at perhaps ever rising yields to investors.  Not so pretty is the escalation of that ratio to a horrendous 17% by 2039.  Somewhere along the way, Congress is likely to have its credit card cancelled...

On the positive side, the string of Export records seen in 2007 should continue as importers see nicer prices.  Manufacturing could also surprise when domestic consumers start to shun high priced foreign goods.

The Pelosi-Obama Budget has shined a light on the structural deficit issue.  The problem started long ago.  Hopefully, closer Media & think-tank scrutiny will spawn anticipatory action by a more fiscally responsible Congress. If not, current CBO data indicates that left unchecked, the annual Deficit rockets to $7 Trillion & $23 Trillion by 2050 & 2080 respectively.  Meanwhile, the National Debt surges to $127 & $543 Trillion respectively...

click chart for more...

 

 

 

theOilDrum Peak

With their misinformation agenda revealed, hits are down over 50% at theOilDrum this year!

A hijack of the site by the lunatic fringe is virtually complete...

common sense prevails

June 1at ~ In 1989, McPeaksters proclaimed that All Liquids would never exceed that year's 66-mbd flow rate.

They repeated the declaration in 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Y2k 2001 2002 2003 2004 2005 2006 & 2007

July 2008 production smashed monthly records with a new marker of 86.7-mbd

It is indeed ironic that as McPeaksters announced for the 20th time last Summer that 2008 was Peak "for sure" ... annual flow rate was a full 20-mbd over their virgin declaration!

Pundits at theOilDrum, PeakOil.com, Jeff Rubin & forecaster extraordinaire Matt Simmons were the main originators/disseminators of the disruptive 2007/2008 rumours that both the giant Ghawar well & general Saudi Arabia production were in Terminal Decline.

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TrendLines Research URR Highlights

Oil Initially in Place (OIIP):  19-Tb.

URR avg:  3,785-Gb (doubled since 1992)

Remaining Resource:  2,582-Gb (doubled since Y2k)

Remaining Resource/Annual Production Ratio:  86  (record low of 43 in 1996)

Proved Reserves: 1,131-Gb (double since 1982)

Past Consumption:  1,203-Gb  (to 2009/2/28)


March 22nd (rev 2009/3/24) ~ Today's version introduces URR studies by BGR of Germany & Peter Wells of the UK. It updates figures from IEA, Laherrère, BP, Koppelaar, Campbell, OGJ, World Oil, EWG/LBST & my own (Freddy Hutter's Peak Scenario 2300). The estimate by WEC has been deleted due to its redundancy to BGR. Samuel Foucher's linearization methodology is deleted in favour of a similar but more robust model by Jean Laherrère.

Chart-2 compares growth rates of the 21-model AVG with OGJ & BPThe recent pricing regime fuelled favourable economics of previously thought fringe contingent resources. Non-conventionals have been growing at a 124-Gb/yr pace (4.9%) since 1996. This far surpasses RCC's growth rate of 30-Gb/yr (2.3%) from 1957-1995.

URR ain't growing like the good ol'e days.  Unsustainable crude prices drove discoveries, exploration, and conversion of sub-commercial (contingent) resources over to the economic side of the ledger. But sub $50/barrel pricing has been a real dampener of that headiness. Based on our 21-model Avg, 2009 is on pace for a 165-Gb augment to URR, compared to 290-Gb last year. Annual augments to URR have exceeded Annual Consumption (30-Gb in 2009) since 1997. There are 2,582-Gb (billion barrels) of oil resource left...

This explains the recent hiatus from exploration.  The Remaining Resource/Annual Production ratio is generational record 86 in 2009.  Back in 1996, available Resource would have serviced only 43 years of current production.  This ration is a guide to long term supply chain infrastructure needs.  The historic Avg is 61 yrs.  A similar metric, the Reserves/Production Ratio is currently 38 and has been in this vicinity for three decades.

click charts for details

Evidenced in brown, green & blue lines in the chart, the terminal production decline scenarios by Stuart Staniford & Ace at theOilDrum illustrate the dangers of listening to agenda-driven pundits...

Pundits at theOilDrum, along with forecaster extraordinaire Matt Simmons were the main originators/disseminators of the disruptive 2007/2008 rumours that Ghawar & KSA went into terminal decline in 2006. Their common error was inability to distinguish real decline from production decline. The latter is not probable 'til 2024, in large part due to Aramco's unrivalled Surplus Capacity.

Feb 10 2009 ~ A review of select Crude Supply Outlooks:

Sadad al Husseini's 2008 target was overly generous, a result of Saudi Aramco's unpredictable compliance with OPEC-mandated quota restrictions. He foresees a 2020-2023 Peak Plateau of 10.9-mbd.

The current Scenario-2200 Outlook projects a 2014-2023 Peak Plateau of 10-mbd based on a much reduced 212-Gb URR.

theOilDrum targets from both 2007 & 2008 would be hysterically low, had the Kingdom not shuttered capacity in substantial fashion due to the aforementioned OPEC cuts. As Aramco resumes normality in 2012, the growing divergence will again become apparent.

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Feb 9 2009 ~ Saudi Arabia's Maximum Sustainable Capacity (MSC) will be a record 13.05-mbd in 2009. Enjoy it.  Peak Oil has arrived in the Kingdom.  From 2004 to 2007, Saudi Aramco had bettered its self set targets. It didn't happen in 2008. Fortunately, the miss was due to outside forces! By June, Saudi supply had attained last year's goal of 9.5-mbd and was on the verge of busting the nation's 2006 All Liquids record. But within 30 days, Contract Crude was selling at a record $134/barrel and Demand Destruction was kicking in. By year end, OPEC members had agreed to pare down global quota by 4.2-mbd.

In compliance, Saudi production was ratcheted down to 8.5-mbd and the 2008 year-end targets set back in 2004, 2006, 2007 all came up shy. A similar circumstance occurred in 2006 albeit not as dramatic. Fortunately, these are merely asterisk events, and not a sign of terminal production decline.

click chart for more 

Feb 3 ~ The recent OPEC quota restrictions are unfortunate as Saudi Arabia missed its 10.68-mbd  Annual Record (set in 2005) by a mere 50-kbd.

Russia has an insurmountable lock on second place (10.0-mbd) for national suppliers. The USA has recovered well from Hurricane repercussions (7.4-mbd). Following are China (3.9), Iran (3.8), Canada (3.3) & Mexico (3.1-mbd).

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