
Oil soars 6 percent as OPEC reaches deal to limit output in November - uptown
http://www.reuters.com/article/us-global-oil-idUSKCN11X03E
======
chollida1
The game theory on this is awesome.

You've got OPEC a collection of countries that don't all like each other,
trying to agree to lower their individual production knowing that they can't
trust each other.

At the same time this exact group of countries are running deficits and any
cut's they make will increase those deficits in the short term. Keep in mind
these are countries who can't be described as stable. In many the only thing
keeping the government in power is they oil money they sprinkle on their
populations.

You've got oil producing countries outside of OPEC who would love to see the
price of oil rise so they can expand their production of oil that's more
expensive to produce. Keep in mind there is a prominent theory that OPEC
flooded the market with cheap oil to drive these countries out of the oil
producing business.

You've got world economies that depend on oil, all of which are using cheap
oil to prop themselves up to differing degrees. A return to $100/barrel oil
would be short term trouble for many 1st world economies.

I love the oil market. I can't figure it out, but I love trying:)

~~~
strictnein
> "...love to see the price of oil rise so they can expand their production of
> oil that's more expensive to produce"

Yeah, it's a weird dynamic. For example, the higher the price of oil, the less
dependent the US is on the rest of the world. Lots of oil in that $60-$80+
range in and around the US.

~~~
Retric
The 60-80$ range US Oil only lasts for a few years at US consumption rates,
but that's plenty to influence OPEC. The real issue is Expensive Oil has a lot
of competition but Cheap Oil does not. Further, it takes years for substitutes
to get onto the market. So, OPEC is better off with large price swings than a
steady state which causes long term demand to fall off a cliff or uses up
their supply at very low prices.

On top of that, politics can make price swings a useful weapon. Cheap Oil
makes Russia for example far weaker.

PS: IMO, small scale Russian aggression actually fits as a 'wag the dog'
distraction from how bad things are going for them.

~~~
nnq
> small scale Russian aggression

Let's hope they keep it small and don't try to covertly start a big fire that
will drive oil prices back up. It's scary to see a world economic situation
where starting/fueling wars starts to make more and more economic sense... I
can almost imagine a future "WarEnron" selling the future profits indirectly
caused by future wars :)

We should find a way to make sure we have profits aligned with peace and
abolish the concept of "wars that make economic sense"! The US and EU at least
do this (more or less unintentionally) by keeping weapons and military
operations very expensive. Russia probably has more practical means for "cheap
destruction" and this is dangerous because at some point some will start
placing bets on this and then try nudging world events in the direction of
their "win".

~~~
jballanc
> I can almost imagine a future "WarEnron" selling the future profits
> indirectly caused by future wars

Pretty sure you just described every fund that's big into Honeywell, General
Dynamics, Lockheed, etc. Many of these companies profits depend on the US
insisting on maintaining the largest military in the world (by a _lot_ ) as a
hedge against just these sorts of "profit wars" from being waged.

------
jorblumesea
Is it possible that oil prices will never be that high again due to
renewables? Part of me feels like the games OPEC members are playing will be
to their long term detriment. Renewable cost is only going down year after
year, really the oil states have a limited time to extract as much money as
possible before alt energy kicks into high gear. By the time they're done
fighting with each other it may be too late to get the money that they are
banking on.

Also bets on whether any member countries actually follow this?

~~~
_FKS_
Renewables depend on oil. You can't make renewables with renewables energy,
because their overall EROI is insufficient to both maintain the current
standard of life, and make them. The other issue is mobility, oil has the best
volume/energy content ratio of all energy sources we know (except uranium).
Renewables can only make electricity and you need about 10x the same battery
volume (and weight) to move a vehicle, compared to oil. Unfourtunately for all
of us, fosil fuels are here to stay for a while, until they run out. Or until
the economy crashes. Or until climate change kicks in real bad.

~~~
danmaz74
> Renewables can only make electricity

If renewable energy becomes abundant/cheap enough, you can convert electricity
into hydrogen or other high energy density chemicals.

~~~
vkou
Hydrogen is a nightmare to work with, and store. Other high energy-density
chemicals tend to be complex hydrocarbons... So you're still burning oil - it
just happens to be made from coal, or algae slush, or whatnot.

~~~
Neeek
Algae slush is carbon coming from our current system, our current atmosphere,
it is renewable. Fossil fuel is releasing carbon from and external source
(external on a human timescale at least). It will be essential in creating a
renewable replacement for oil.

Burning hydrocarbons is not the issue. Burning hydrocarbons that were
extracted from the atmosphere millions of years ago, is.

------
jseliger
Possible corollary: "Tesla stock rises in response."

We may be heading towards a world of permanently low oil prices, as rising
prices will cause more people to switch to electrics or plug-in hybrids.

Car buyers exhibit amazingly lemming-like behavior, switching to more fuel-
efficient cars as prices rise and switching away from those fuel-efficient
cars as prices fall. That process is likely to become more pronounced as
electrics become more available and affordable.

~~~
maxander
What kinds of car people use is irrelevant as long as the power grid is
predominantly powered by fossil fuels. The number to watch is percentage of
"green" power generation, which changes far too slowly to respond to market
lurches like this.

~~~
yessql
Oil is not a big part of electricity generation in most places.

~~~
the_economist
Major energy sources and percent share of total U.S. electricity generation in
2015

Coal = 33% Natural gas = 33% Nuclear = 20% Hydropower = 6% Other renewables =
7% Biomass = 1.6% Geothermal = 0.4% Solar = 0.6% Wind = 4.7% Petroleum = 1%
Other gases = <1%

An electric fleet (powered by coal, natural gas, and nuclear) will reduce
demand for oil, so movement in that direction is likely cause falling oil
prices. Which could lead to more people buying oil-powered cars again.

~~~
drcross
I think the genie is out of the bottle with regards to electric cars. They've
proven they work and can compete with internal combustion cars on most metrics
that people care about and exceed ICEs in a number of ways. Battery capacity
generally increases 8% per year, and battery production is ramping up in ways
never seen before. The mindshare has already left Gas cars, it's just a matter
of time before sales slip to electric, a bit like Nokia compared to the
smartphone, Nokia were still shipping millions of units but consumer demand
was waiting for cheaper smartphone units, once it did Nokia was destroyed.

~~~
wyldfire
By the time electric cars are ready for ubiquity, transportation-as-a-utility
will have exploded thanks to autonomous vehicles. Why buy an electric car with
less maintenance than a gas one when you can just skip out on owning a car
entirely? Governments and/or insurance can directly or indirectly subsidize
this move for the sake of safety.

~~~
blahi
Why would insurance companies do this? They stand to lose a TON by autonomous
vehicles. Estimates are in the 60 to 80% of the market to go away.

~~~
botty_throwaway
Risk versus technological change is a dynamical system, yet many of the sky-
is-falling estimates for the insurance industry myopically forecast assuming
an invariant risk set-point.

For an alternate perspective of a potential (lucrative) future for insurance,
see my post here:
[https://news.ycombinator.com/item?id=12245312](https://news.ycombinator.com/item?id=12245312)

~~~
drcross
I disagree with you, OP mentions 60% reduction in the civilian insurance
market and there's studies to back that up-
[http://www.insurancejournal.com/news/national/2015/10/23/385...](http://www.insurancejournal.com/news/national/2015/10/23/385779.htm)

Any large scale car accidents will be re-simulated, analysed and scoured until
they are fixed, the general public will not permit them to persist. This means
a complete collapse of the entire industry except for enterprise scale
underwriting of the car manufacturers which they may already have for recalls.

------
joezydeco
The US producers have promised they would turn fracking back on if oil crossed
above the mid-40s. Canada will also be back online as the wildfires have
burned out.

[http://www.cnbc.com/2016/02/29/us-shales-message-for-opec-
ab...](http://www.cnbc.com/2016/02/29/us-shales-message-for-opec-above-40-we-
are-coming-back.html)

~~~
_FKS_
Smoke & mirrors. Art Berman has shown that none of the Tight&Shale producers
are/has been profitable. They are largely there because of credit/debt (which
of course can't grow for ever)

"Tight oil companies outspend cash flow by an average of 120%: spend $2.20 for
every dollar earned from operating activities." "Tight oil company debt-to-
cash from operating activities ratio averages 3.3: would take more than 3
years to pay down debt if all cash flow was used."

Please see: [http://www.artberman.com/wp-content/uploads/The-Shale-
Revolu...](http://www.artberman.com/wp-content/uploads/The-Shale-Revolution-
The-Current-Oil-Price-Collapse-21-Sept-2015-copy.pdf)

~~~
emp_zealoth
Does it really matter if you can just print more money? As in borrow
indefinitely at tiny tiny rates?

------
nicholas73
I explained the game theory behind the oil markets, and predicted OPEC would
reach a deal, in this article from March:

[http://seekingalpha.com/article/3960625-prisoners-dilemma-
oi...](http://seekingalpha.com/article/3960625-prisoners-dilemma-oil-prices-
will-rise-60)

------
NikolaeVarius
I wonder if this will be like the Atlantic City Conference. See how long this
lasts before someone breaks the peace.

~~~
AnimalMuppet
My guess: December.

