Joined: Oct 23, 2004 Posts: 5500 Location: New Jersey
Posted: Sun May 18, 2008 2:03 pm Post subject: Re: The Oil Nonbubble
shortonoil wrote:
DantesPeak said:
Quote:
As I have explained in the Housing Collapse thread, the US dollar - which actually is a Federal Reserve paper note and not issued by the US treasury - is now more than 50% backed by assets of dubious and uncertain value. This debasement may have gone unnoticed by oridinary folk and even some economists, but a debasement of this magnitude must result in rapid price increases in basic commodities - of which oil is the most important.
There are several forces pushing up oil prices and they will continue to do so. The declining dollar is certainly having an affect, falling AvailableEnergy is significant and amounting to an annual loss of 5% of oil’s energy contribution. J. Brown’s Export/Import Land model is now becoming reality, as exports are beginning a precarious decline. The present price increases we are seeing in crude are not strictly an oil production problem. To view them as such would be naive and it would ignore what is probably the most significant aspects of this crisis.
I agree.
With the dollar/energy cycle feedback loops so interconnected, its hard to tell at times if oil is going up in price because of dollar debasement - or falling net energy - or both.
The ability of the US economy to deal with a 5% annual decline in net available energy remains to seen. While net productivity could increase as fast as 2% per year - and offset part of that, it's possible that current economic and energy policies are counter-productive and will actually worsen the economic rate of decline. Granted the US economy is barely holding its head above water now, but that is mostly based upon the cost of embedded energy being much lower. In fact for the 2007 year through September, the average price of oil imports was only $60 - half of where it is now! Even as late as March, the cost of oil imports was only about $90.
Posted: Sun May 18, 2008 4:01 pm Post subject: Re: The Oil Nonbubble
DantesPeak said:
Quote:
With the dollar/energy cycle feedback loops so interconnected, its hard to tell at times if oil is going up in price because of dollar debasement - or falling net energy - or both.
Thanks for the feedback Dantes. A problem that I have entertained is that until the present the US has only needed to outbid poor 3rd World Countries to attain adequate oil supplies. In the near future, as oil becomes scarcer, it will become necessary for it to bid against the other G7 nations. It appears that the other central banks have recently gone out on a limb to support the dollar. When the battle for oil supplies begins in all seriousness, what is the possibility that they will dump the dollar, thus damaging it, to gain an advantage in the quest to obtain oil?
Also, China is sitting on a dollar war chest of $1.6 trillion. It is a potential financial weapon of mass destruction. To obtain oil that is now going to the US, they could liquidate their bonds and equities, and collapse the dollar’s purchasing power. What could the US do to mitigate the damage from such an attack?
As a cravat for the forum's hawks, I’m sure that going to war with China would be worse than tolerating oil shortages, and its only affect on the oil supply situation would be to exacerbate it.
Quote:
The ability of the US economy to deal with a 5% annual decline in net available energy remains to seen. While net productivity could increase as fast as 2% per year -
Agreed. Conservation measures and intelligent allocation of coal use could lessen the impact considerably. However, if the contemporary history of Washington is any example, the coal in the above sentence won’t be the problem.
Joined: Sep 25, 2005 Posts: 1972 Location: Waiuku, New Zealand
Posted: Sun May 18, 2008 6:21 pm Post subject: Re: The Oil Nonbubble
shortonoil wrote:
The present price increases we are seeing in crude are not strictly an oil production problem. To view them as such would be naive and it would ignore what is probably the most significant aspects of this crisis.
Production has lagged consumption for most of the last 18 months. Whilst export quantities is an important aspect of the problem, it's certainly true that worldwide production sluggishness (for whatever reason) is at the heart of the problem, and will continue to be so.
Joined: Oct 23, 2004 Posts: 5500 Location: New Jersey
Posted: Sun May 18, 2008 7:05 pm Post subject: Re: The Oil Nonbubble
threadbear wrote:
DantesPeak wrote:
Graeme wrote:
Excess Money, Deficits and the High Price of Oil
Quote:
Paul Krugman (“The Oil Nonbubble,” column, May 12) refers to a statement I made two and a half years ago that the oil surge was a “huge bubble.” It was — and still is.
And it is not only oil — we are experiencing a commodity bubble not seen since the 1970s and early ’80s. The cause of the commodity bubble then, and now, was excess money creation by the Federal Reserve.
Exactly. People think that money flowing into oil and other commodities is somehow divorced from the reality of diminishing supply, when they are actually tandem forces that act synergistically. (I hate that buzzword, but in this case, it's the only one that works!)
As I have explained in the Housing Collapse thread, the US dollar - which actually is a Federal Reserve paper note and not issued by the US treasury - is now more than 50% backed by assets of dubious and uncertain value. This debasement may have gone unnoticed by oridinary folk and even some economists, but a debasement of this magnitude must result in rapid price increases in basic commodities - of which oil is the most important.
This article agrees with what we said, although I think it is said more precisely that the US dollar is being debased at the very same time the Fed is coming up with new ways to produce (and also conceal) a rapid explosion in the monetary base:
Quote:
Post Traumatic Oil Price Disorder
Posted May 18, 2008 | 05:25 PM (EST)
You know you live in a decadent country when basic facts of life are greeted with jeers and calls for excommunication from the realm like Paul Krugman is getting pilloried for his recent NYT piece on oil price inflation. Here's the deal folks, oil is priced in dollars and to bail out the U.S. banking system America's central bank is flooding the market with record amounts of dollars. What happens when too many dollars chase too few barrels of oil? Well, believe it or not, the price of oil goes up. Now this is not a political statement. This is a statement of fact. Speculators in the oil market (and the agriculture market) are a mere subset of the irresponsible credit expansion crazy people who run the Fed. And yes, the world has hit 'peak oil.' All three of the biggest oil fields in the world are now in decline. Demand for oil is rising toward 100mn. barrels a day, while production has peaked at around 86 mn. barrels a day. Too much money chasing too few barrels means the price goes up. And the Chinese are happy to pay. Seems simple enough...
But does this stop America's pundits from trying to avoid this economic reality, that oil is probably going to $160 in the near term and $200 in the medium term? No, they love to pretend that economics has nothing to do with the price of oil going up and that it's the fault of speculators and OPEC. You see the same myopic, "What me, worry?" Alfred E. Newman thinking on display in almost every facet of American political and economic life.
Posted: Sun May 18, 2008 7:08 pm Post subject: Re: The Oil Nonbubble
TonyPrep said:
Quote:
Production has lagged consumption for most of the last 18 months. Whilst export quantities is an important aspect of the problem, it's certainly true that worldwide production sluggishness (for whatever reason) is at the heart of the problem, and will continue to be so.
Between the decline in AvailableEnergy and the decline in net export volume, total energy delivered to the part of the world that imports oil has decreased by about 8% in the last year. This is considerably more than the .5% decline that we have seen in production.
Joined: Jan 14, 2008 Posts: 321 Location: The Yukon
Posted: Sun May 18, 2008 7:24 pm Post subject: Re: The Oil Nonbubble
mididoctors wrote:
FreddyH wrote:
A fair query, Boris.
have you some sort of answer or place we could find one?
Boris
London
As well as the future production forecasts, i track the 21 providers of URR Estimates. If one looks at only the studies that are less than four years old, the Avg of their findings reveals that URR is 4001-Gb of which 1180-Gb has been consumed. Both compilations are at my website...
But a high URR does not mean Peak will come at the half way crossover. That basically works for Regular Conventional Oil only. I calculate its part of the URR to be 1846-Gb of which 1047-Gb is gone. Its Peak was 69-mbd in 2005. The 50% threshold was passed in 2003.
My present forecast for All Liquids Peak is 2013. The Avg of 24-models indicates 2019. _________________ www.TrendLines.ca/scenarios.htm Home of the Real Peak Date ... set by geologists (not pundits)
Last edited by FreddyH on Sun May 18, 2008 9:55 pm; edited 1 time in total
Joined: Jan 14, 2008 Posts: 321 Location: The Yukon
Posted: Sun May 18, 2008 8:13 pm Post subject: Re: The Oil Nonbubble
shortonoil wrote:
Also, China is sitting on a dollar war chest of $1.6 trillion. It is a potential financial weapon of mass destruction. To obtain oil that is now going to the US, they could liquidate their bonds and equities, and collapse the dollar’s purchasing power. What could the US do to mitigate the damage from such an attack?
Wrong premise. The Chinese have no such ability. Their reserves are less than 5% of global reserves. Their holdings as a percentage of total dolllar circulation is insignificant. The Fed addressed this urban legend last Autumn.
Further, considering their gold assets against their GDP, their liquidation of US Dollar and Certificate Reserves would serve to collapse their own Currency. _________________ www.TrendLines.ca/scenarios.htm Home of the Real Peak Date ... set by geologists (not pundits)
Posted: Sun May 18, 2008 9:09 pm Post subject: Re: The Oil Nonbubble
Quote:
Wrong premise. The Chinese have no such ability. Their reserves are less than 5% of global reserves. Their holdings as a percentage of total dolllar circulation is insignificant. The Fed addressed this urban legend last Autumn.
Further, considering their gold assets against their GDP, their liquidation of US Dollar and Certificate Reserves would serve to collapse their own Currency.
Again, one of the most ignorant, absurd comments that has ever been made. If the Chinese announced that they were dumping the dollar, the FOREX market would crash through the floor. Half of Wall Street would be jumping out of buildings, gold would go to $3000/oz in an hour and the LIBOR would look like a Chinese new year skyrocket. The 10 year T-bill would be worth about 15 cents at closing.
You must have absolutely no knowledge of the world’s financial system to make a ridiculous comment like that!
Posted: Sun May 18, 2008 9:13 pm Post subject: Re: The Oil Nonbubble
FreddyH wrote:
shortonoil wrote:
Also, China is sitting on a dollar war chest of $1.6 trillion. It is a potential financial weapon of mass destruction. To obtain oil that is now going to the US, they could liquidate their bonds and equities, and collapse the dollar’s purchasing power. What could the US do to mitigate the damage from such an attack?
Wrong premise. The Chinese have no such ability. Their reserves are less than 5% of global reserves. Their holdings as a percentage of total dolllar circulation is insignificant. The Fed addressed this urban legend last Autumn.
Further, considering their gold assets against their GDP, their liquidation of US Dollar and Certificate Reserves would serve to collapse their own Currency.
Freddy, If there holdings are near 5%, (I presume from your wording) and held in instruments that can be dumped at the drop of a hat, that's real power, if they wish to shoot through their own foot to kill the U.S.
Posted: Sun May 18, 2008 9:32 pm Post subject: Re: The Oil Nonbubble
threadbear said:
Quote:
Freddy, If there holdings are near 5%, (I presume from your wording) and held in instruments that can be dumped at the drop of a hat, that's real power, if they wish to shoot through their own foot to kill the U.S.
When it comes to oil, the life blood of modern civilization, is it so unreasonable to assume that they might shoot through their foot to shoot through our head.
We are entering a period of scary, and unpredictable events; potentially catastrophic. The world has never seen such a precarious situation in its 10,000 years of civilization!
If it is handled poorly, and so far it has been, the consequences could be drastic!
Joined: Sep 25, 2005 Posts: 1972 Location: Waiuku, New Zealand
Posted: Mon May 19, 2008 12:15 am Post subject: Re: The Oil Nonbubble
shortonoil wrote:
TonyPrep said:
Quote:
Production has lagged consumption for most of the last 18 months. Whilst export quantities is an important aspect of the problem, it's certainly true that worldwide production sluggishness (for whatever reason) is at the heart of the problem, and will continue to be so.
Between the decline in AvailableEnergy and the decline in net export volume, total energy delivered to the part of the world that imports oil has decreased by about 8% in the last year. This is considerably more than the .5% decline that we have seen in production.
I didn't mention decline, I was referring to the gap between production and consumption. As long as there's a gap, the price will rise. I'm not denying the export problem.
Joined: Mar 04, 2005 Posts: 2571 Location: New Zealand
Posted: Mon May 19, 2008 4:00 am Post subject: Re: The Oil Nonbubble
Oil Bubble: How Speculation May Contribute to Recent Moves in Oil Prices
Quote:
Let me repeat here that I do not believe that speculation is the reason oil went from $60 to $120 a barrel. The biggest part of that longer term trend is due to fundamentals, not speculation. Notwithstanding, it does appear that speculation has gotten ahead of those fundamentals in the most recent developments.
For the bubble to continue, we would need to see ever-increasing volumes of investment money pouring into the futures markets, and continuing stagnation in global production to ratify them. Even if the former occurs, my best guess is that the latter will not.
seekingalpha _________________ Human history becomes more and more a race between education and catastrophe. H. G. Wells.
Fatih Birol's motto: leave oil before it leaves us.
Posted: Mon May 19, 2008 4:23 am Post subject: Re: The Oil Nonbubble
Boris
I was talking with Steve Alderman about this very issue and we share a similar out look, that if oil and gas have caused a boom in living standards and population growth and you then lose or drastically decrease the amount of these natural resources just as other areas such as China are demanding more. My premiss is that the scarcity is most likely to increase conflict throughout the world as few so called civilised countries will be willing to give up there way of life.
I heard it somewhere that we are just three meals away from anarchy. That is to say that you only have to go with out food for a short period of time before all hell brakes loose. (How do you sustain the billions of people that natural resources put there when those resources run low, it is a scarey thought!).
Posted: Mon May 19, 2008 9:24 am Post subject: Re: The Oil Nonbubble
TonyPrep said:
Quote:
I didn't mention decline, I was referring to the gap between production and consumption. As long as there's a gap, the price will rise. I'm not denying the export problem.
I agree that this is probably happening, but we don’t have good information to confirm it. World inventories would have to be falling for this to occur, and that means the sum of all crude and finished product. Most of the world doesn’t report their finished product inventory, or if they do it is dubious at best. I think that to be certain we will have to wait for the reports of shortages to show up, although significant energy shortages in general are showing up all over the place.
Shortages
Posted: Mon May 19, 2008 12:14 pm Post subject: Re: The Oil Nonbubble
mididoctors wrote:
desyk wrote:
Boris
With the massive population growth that fossil fuels have facilitated over the last century world wide, do you or anyone else have any imformation as to what measures there are or indications there may be to the amount of oil/gas reserves that remain and what the forecast might be in terms of decades or centuries before this stuff runs out?
How far away from complete anarchy are we?
no idea.. ... well thats dishonest
complete anarchy may never occur... your asking an agnostic non doomer.
some claim we are 1 cubic mile from total exhaustion.
I think in terms of significant figs they are correct.
time wise is a different kettle of fish. the whole anarchy thing is predicated on declining states of consumption feedbacking into socio-political effects... which is a very speculative arena.
however I get the feeling things could get rowdy even if i find many predictions overly detailed.
Boris
London
Boris
what is an agnostic non doomer it sounds like a double negative, give me a chance here.
Also where are you getting your source material on predictions? could you send me a P.M. with the details.
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