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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: zebra4o1 who wrote (128170)	6/10/2008 10:28:33 AM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 306849

you could argue that this graph could still just be showing a speculative price spike as i see it, the problem with that argument is all we can see is a spike, no speculators. net open interest in crude futures has been declining, and dumb money (small specs) have been short this entire rise. it is hard to deny that the crude price has gone parabolic. what's open to discussion is the reason(s) why. people tend to just look at the charts and say "It's a bubble" very dismissively. but if it's a bubble, where are all the specs? it was easy to find the housing speculators, the tech bubble speculators, the tulip speculators. in oil, not so easy. in my opinion what's happened is peak oil is causing chaotic price action. i expect lots of volatility both ways, with continued upward bias. i think the Export Land Model helps capture some of the counterintuitive and asymmetric effects that are occurring: Export Land Model From Wikipedia, the free encyclopedia (Redirected from Export land model) Jump to: navigation, search The Export Land Model, or Export-Land Model, refers to work done by Dallas geologist Jeffrey Brown, building on the work of others, and discussed widely on The Oil Drum. It models the effects of the decline in oil exports as a result of the peak in oil production in oil exporting countries while at the same time domestic consumption increases in those same countries. This combination of declining production and increasing domestic consumption leads oil exports to decline at a far faster percentage rate than oil production itself is falling. Contents [hide] * 1 Statement of the theory * 2 The effect of peaking oil exports * 3 Real-world application * 4 Links * 5 References [edit] Statement of the theory Assume that an oil producing country --Export Land-- produces 2 mbpd (Million Barrels Per Day), consumes 1 mbpd, and exports 1 mbpd to oil consuming countries around the world. Export Land hits the point of Peak Oil production, and over a five year period production drops by 25%. Over the same time period, Export Land's consumption increases by 20% to 1.2 mbpd. This causes Export Land's net exports over the five year period to fall from 1 mbpd to 0.3 mbpd, a decrease of 70% -- resulting from a combination of increasing domestic consumption in Export Land and a 25% drop in production. Counter-intuitively, the fractional decline in exports is much greater than the sum of the fractional increase in domestic consumption and the fractional decline in production. [edit] The effect of peaking oil exports As world oil exports approach (or pass) a global peak, the price of exported oil increases and further stimulates domestic economic growth and oil consumption in all Export-Land countries, creating a positive-feedback process between declining exports and higher prices. However after some point the declining level of exports outpaces the increasing oil price and domestic growth will slow. In some cases Export Land eventually becomes a net importer. It is unlikely that Export Land would constrain domestic consumption to help importing countries, in fact many oil exporting countries actually subsidize domestic consumption. [edit] Real-world application The rapid decline of the UK from peak exports to net oil importer in just six years is sometimes referenced as an example of the Export Land Model in real-world action. Mexico's domestic consumption and net exports appear to be closely corresponding with the expectations of the Export Land Model also. Within 5 years, Mexico (the second biggest exporter of oil to the US) may become a net oil importer. This has already happened to Indonesia, and may soon happen in Iran, Algeria, Malaysia, and Norway.[1]. A recent report from CIBC World Markets also indicates that as much as 40% of Saudi Arabia's expected production increases will be offset by rising internal demand by 2010, and Iranian exports will decline by more than 50% for similar reasons. This report indicates that similar market pressures could reduce net world-wide oil exports by 2.5 million barrels per day (about 3%)[1]. Analyst Jeff Vail, in an April 2007 posting on his Energy Intelligence blog, titled Five Geopolitical Feedback-Loops In Peak Oil, explained the Export Land Model concisely thus: “Export-Land” Model: Jeffrey Brown, a commentator at The Oil Drum, has proposed a geopolitical feedback loop that he calls the “export-land” model. In a regime of high or rising prices, a state’s existing oil exports brings in great revenues, which trickles into the state’s economy, and leads to increasing domestic oil consumption. This is exactly what is happening in most oil exporting states. The result, however, is that growth in domestic consumption reduces oil available for export. In states, such as Mexico, where oil production is also in decline, the “export-land” model predicts that oil exports will decline much faster than oil production—and this is exactly what is happening, with the latest PEMEX report showing 5% production decline year-on-year, but 11% export decline. Ultimately, the effects of the “export-land” model itself suffers from diminishing marginal returns—when exports shrink sufficiently, the oil-export revenue per capita will actually begin to decline (eventually reaching zero, no matter how fast prices rise), at which time the force behind rising domestic consumption will be eliminated. [edit]