Oil Report / Are you adjusting travel plans?

Submitted: Monday, May 19, 2008 at 10:05
ThreadID: 57760 Views:2715 Replies:3 FollowUps:5
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This is a lengthy read, but for those interested in the issues it is worthwhile.

It is worth noting that since this report was prepared oil has gone up another 26% to USD 126 per barrel.

The implications are far ranging for us four-wheel drivers, not only is the cost of taking part in our recreation going up, but also many facilities and outback communities rely on diesel to run electricity generation etc. At what point does the cost to them become to great to pass on, or the travellers simply stop going to their favourite spots?

I'd be interested to hear what effect it is having on travel plans of EO contributors or if you have noticed any significant cost increases (not just fuel) and facilities provided at various locations.

The Future of the Global Oil Market?

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Reply By: Member - Wim (Qld) - Monday, May 19, 2008 at 10:12

Monday, May 19, 2008 at 10:12
Morning Landy.

I have been wandering the same thing for some time now.
I have spoken to caravaner's who will only travel if there is no wind or it is blowing in the right direction.
Talking to couple of guys in the last few weeks who have indicated that this year will be their last long trip. They expect to have fuel bills of approx $6,000.00 for there trips.
Maybe people will still travel but not as far.


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Reply By: Member - John G- Monday, May 19, 2008 at 11:40

Monday, May 19, 2008 at 11:40
G'day Landy

Your thread raises a number of issues.

To keep it simple, and to answer your question, we are now looking at estimating the cost of our trips and then considering options.

e.g. we want to "do" the Kimberly from Canberra. Taking a flash 4WD 16-day tour with airfares to get to Darwin and say a week in Darwin = approx $15000 for two people for three weeks. Towing the camper and taking 2-3 months = approx $10000. But I estimated that two month's ago on the basis of an av diesel price of $1.80 and last week we were 800km north of Perth and the cost of diesel was $1.86 per litre. Even so, three weeks vs three months seems like a no brainer.

If the cost of fuel continues to rise then I think it is inevitable that some people will revise and restrict thier itineraries significantly. Perhaps that seems like not necessarily a bad thing for budgets and the environment, but it does reduce choice, and it will put greater pressures on fewer 'favourite places'.

We may be reaching that point where it is no longer the case that the cost of fuel is a relatively small cost in the overall cost of motoring.

AnswerID: 304685

Follow Up By: The Landy - Monday, May 19, 2008 at 12:33

Monday, May 19, 2008 at 12:33
Thanks for the comment. Over time it may become uneconomical for people to provide services in remote areas as the number of travellers potentially drops and the cost of good, transportation, and the cost of diesel for electricity generators becomes too great. As you say this may put pressure on other more accessible places.

Time will tell, but if the vibe on this site is anything to go by the than four wheel drive tourism is likely to be in for a rough ride.
FollowupID: 570734

Follow Up By: Member - Roscoe ET (QLD) - Monday, May 19, 2008 at 12:40

Monday, May 19, 2008 at 12:40
John G,

I've been looking at it from the same perspective as you, still more economical to do your own thing for 3 months than pay big $ for a 3 week tour.

Besides your dead for a long time.
FollowupID: 570735

Reply By: Saharaman (aka Geepeem) - Monday, May 19, 2008 at 20:27

Monday, May 19, 2008 at 20:27
Hi Landy,
Thanks for the Link to the Emerson Report - very interesting reading. I agree with some of her points but not all. below are a few comments:

While the Emerson report is interesting and contains some useful information there would also be some areas where her views would differ from other Oil Analysts.

In her report Sarah Emerson says (quote):
“In response to these oil market realities, a pure market economist might contend that high oil
prices will spur conservation and temper demand growth while encouraging investment in crude oil production. The result will be more supply and less demand and oil prices will fall signaling the end of the current cycle”.

The fact is demand for oil is extremely inelastic which means the price mechanism is a very blunt instrument to temper demand. There are plenty of oil experts around who say it simply won’t happen (at least not to the required amount). For example

Here is a quote from Energy and Capital Analyst Chris Nelder in April 2008:

“I have written at length about why oil prices keep going higher. Some of it has to do with the usual factors cited in the press: speculation, geopolitical unrest, OPEC announcements, inventory levels, and so on.
But the most important reason usually goes unsaid: peak oil.
Even the IMF has obliquely admitted there is a problem. Recently, deputy director John Lipsky said, "While oil demand has remained robust, the supply side response to rising prices has been disappointing."
And that's the bottom line right there.
You know the old saw: when you point the finger at somebody else, there are three pointing back at you.
While oil production has levelled off, demand has not, and the reduced demand from the OECD is being more than offset by the red-hot economies of the developing world.
For the first time this year, the combined oil consumption of China, India, Russia and the Middle East will exceed that of the U.S.. Even with all our efforts to curb domestic demand, worldwide oil demand will increase about 2 percent this year, according to the IEA.
Until global demand cools off, there's no way out of the oil price trap.
And however we choose to characterize the reasons, oil supply isn't increasing anymore. The tap is wide open.
As Scotty used to say on Star Trek, "She can't take anymore cap'n! I'm givin' ‘er all she's got!"
The world is now perched precariously on the plateau at the top of the global peak in oil production. And it's not a long plateau. We've been on it for about three years, and I'm giving it another two years, tops. After that, we head on down the other side of Hubbert's Peak.
And I am increasingly doubtful that the world will be able to reduce its demand in time to prepare for the second half of the Age of Oil”.

Also Emerson claims that eventually oil prices will moderate (whatever that means) and claims alternatives will boost supply (oil sands, shale oil, bio fuels etc etc). Undoubtedly they will but will they do so in sufficient quantities to offset ultimate falling production from the OPEC countries? The use of shale oil and oil sands to produce crude oil has a high environmental cost – eg to produce 1 barrel of oil from oil sands takes 4.5 barrels of clean water plus enormous amounts of energy. Compare that with pumping out of the ground. Look what happened to the hundreds of millions of dollars invested in the Rundle Shale Oil project at Gladstone in Queensland. Receivers can only get scrap value for it now.

Anyway I guess time will tell – but it appears there is convincing evidence that while oil prices will be volatile they will continue to rise not decline as Emerson contends.

AnswerID: 304750

Follow Up By: The Landy - Tuesday, May 20, 2008 at 10:50

Tuesday, May 20, 2008 at 10:50
Hi Glen

It was an interesting read, and like you I don’t entirely share her sentiments. I note your point on prices not being elastic and certainly that is the case; the issue is that it will always take a reasonable amount of lead time for new supply to come on, and besides OPEC could pump more if they chose to. Increasing speculation over the past few years on the price direction also distorts pricing.

Alternatives will not replace our need for oil and whilst the current high price has enabled some ‘old technology’ to be rolled out the cost of production and carbon foot print just does not make them viable as a replacement source, besides it could never be produced in the quantities required. All that will happen with alternatives is that they will meet some local supply constraints, never make a great impact on overall demand/supply and will be priced in line with the prevailing oil price. They won’t be priced to match the cost of production.

I don’t think that peak oil is too close at present otherwise oil prices would be substantially higher, many times more. However it is always at the back of mind that at some time in the future oil will potentially become scarce. I do think that at some point we will see far greater government regulation (globally) of finite oil resources as issues of national security become more pronounced and to the fore.

Of greater interest to contributors here is the fact that diesel is in limited global supply at present and hence the premium over ULP. This is an interesting development as we head into the Northern Hemisphere driving season as at this time of year ULP typically becomes more expensive than the mid-distillates. In fact, year diesel may keep it premium to ULP.

Diesel prices have reached record highs in the United States this week. This will no doubt be encouraging refineries to switch focus over the next few years from ULP production to increasing diesel production, but that will take time.

I think that mainstream Australia will be paying $2.00 plus for diesel at some point and possibly it will be sooner rather than later.
FollowupID: 570875

Follow Up By: The Landy - Friday, May 23, 2008 at 14:58

Friday, May 23, 2008 at 14:58
Hi Glen

What is your email address; I'll send you an interesting chart that plots the wheat price against the oil price on a 60 day lagging basis...
FollowupID: 571472

Follow Up By: Saharaman (aka Geepeem) - Friday, May 23, 2008 at 18:11

Friday, May 23, 2008 at 18:11
OK Thanks
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