[seahorse2]

My biggest fears were always that we would have a depression. My second fear was if we didn't have a depression, then PO would cause one.

So, it looks like we are going into a depression. The question is, how does this affect PO or oil prices in general. This is truly a thread to get ideas back and forth. I will ask questions and pose possibilities, please do the same.

The general consensus would be that a depression would reduce demand and thus reduce oil prices, thus, delay PO. I sometimes wonder if that is true. Here's why: I believe the evidence is pretty strong that we have passed a peak in light sweet crude, probably back in 2005. Let's assume this is true. It means that in order to sustain oil production, more unconventional oil production has to come on line or even heavier grades of oil. This is more expensive and I wonder if the world can afford to "retool" or continue to build the necessary infrastructure to either bring on the heavier crudes, unconventional oils, or even the deep water crudes to offset normal declines? So, this depression/economic contraction is hitting at a time when the world needs credit and money to at least transition to heavier different types of oil. Bad timing. What are the thoughts here?

If the money isn't available, the cost of crude will continue to remain high bc investment to bring heavier grades of crude into production may not happen. Further, although a depression reduces demand, there is only so far demand can be reduced in a place like the US where we are not prepared to do anything but survive in our cars. What ever that point is that the US has to maintain, dropping below it would cause all kinds of social and economic disruptions that are unthinkable except in places like Zimbabwe.

[Revi]

I think that the depression is a symptom of peak oil. The prices of things are down, which means that people aren't buying them. The price of oil is one of the things that is down. Opec may even cut production to support the price. Any way you slice it, we are using less of the stuff.

People aren't even using their sea-doos and their RV's.

The party's over.

[Loki]

My biggest fears were always that we would have a depression. My second fear was if we didn't have a depression, then PO would cause one.

Agreed. I don't think this particular recession/depression is directly caused by PO, but I agree that we are either at Peak or near it (within a few years).

It's definitely a complicated feedback loop. On the one hand, the current crisis may delay the major effects of PO, at least here in the US, where demand will/is declining and there isn't enough capital available to waste on economically and ecologically unsustainable alternative sources like oil shale and CTL (thankfully).

On the other hand, from a long-term perspective, PO will probably exacerbate the current financial crisis, which seems to me to be caused primarily by the insatiable greed of the Wall Street parasites, the shameless corruption of federal politicians, and the gluttony of Average American Joe ("buying as much house" as they can, whether they can afford it or not), in that order.

If not for PO, I could see us recovering from the current crisis in the next few years. But with PO in the mix, not to mention global warming, things may be pretty damn iffy for a very long time. The rest of my life maybe (I'm in my mid-30s). Yay for us.

[Gebari]

The past few weeks have been momentous - because we have now crossed the Rubicon - crossing from the age of growth to age of decline. I've been saying for a few years that "the next recession will be our last recession" (if you define recession as a short period of contraction on a background of growth).

I say this because should a recession/depression develop this would indeed "delay" the effects of peak oil, but normal recovery will not be possible because as soon as the economy attemps to recover a few years down the road, it's going to run into the wall of peak oil. This financial crisis could also seriously cripple alternative energy advancements, investment in oil production, exploration etc. Also, it's a few more years for the old fragile oil fields to degrade more. It may mean more oil is left in the ground. So although the oil price may well fall, it may be worse in the long run.

I think this is as good it's ever going to get. We have now just peaked in our wealth and prosperity and are now beginning the long and terminal decline into the future post-oil world. It is really momentous.

What is happening is what I feared... it's the worst case scenario. Perhaps those crazy doomers were right after all.

[deMolay]

I agree with Revi. The high costs of oil was added to the operating cost of every business in the world and passed onto the consumer. And the bottom line of every family budget in N. America. The reason we rode so high was cheap oil. The reason that we fell off the horse was expensive oil.

[Gebari]

I agree with Revi. The high costs of oil was added to the operating cost of every business in the world and passed onto the consumer. And the bottom line of every family budget in N. America. The reason we rode so high was cheap oil. The reason that we fell off the horse was expensive oil.

Exactly. If you look at history, while not every recession was caused by an oil price spike, every single oil price spike caused a recession. 1973, 1979, 1990... nasty recessions immediately followed. I was saying when the oil price was going up and up.. "there's no economic crisis yet... but it's only a matter of time before bodies start floating to the surface". Of course this whole mess has its root in the huge debt bubble that has been building, but it was cheap plentiful oil that allowed that to build. When oil became scarce and expensive, the system buckled and the business model failed... and the bubble is bursting. It was predicable. I'm surpised so few people connect oil to this crisis. It was the trigger.

[TheDude]

Hmm, already posted a few thoughts and a list of tar sands companies in another thread: Post.

One thing I did come across searching for 'tar sands price floor' was an NYT article from '94 about companies being ready to do business there, thanks to overcoming $12/bbl production costs (!) and Cat's computer controlled dump trucks. The Jan '95 price: $15.53/bbl.

Looking at Suncor's 2007 Annual Report they don't look to be smarting - E&P is well taken care of. Allusions to the healthy market in Asia are there. Nothing about overall decline in supply worldwide of course, who ever heard of such a thing?

Al-Naimi said this summer that the price floor for unconventional was about $50/bbl. They've already stated they'll defend $100/bbl I think.

An aside: This is odd, EIA offers crude price data for 1978-2008, by which they mean they list the Jan price for 1978 - and then Jan prices for 1989 through 1996, afterwards you get monthly figures. WTRG has long term Oil Price History and Analysis, with a caveat: "World Price - The only very long term price series that exists is the U.S. average wellhead or first purchase price of crude. When discussing long-term price behavior this presents a problem since the U.S. imposed price controls on domestic production from late 1973 to January 1981."

[rockdoc123]

Exactly. If you look at history, while not every recession was caused by an oil price spike, every single oil price spike caused a recession. 1973, 1979, 1990... nasty recessions immediately followed.

True but in each case the Dow Jones nearly tripled within the subsequent ten year period. You can argue, of course, this time is different but that same argument was used in each and every previous recession. My view at this point in time is it is extremely difficult to tell exactly how bad the situation is simply because the press in it's infinite wisdom loves to spread the spectre of imminent doom and investment pundits who were lucky enough to get mostly in a cash position spread the notion we are headed for the greatest collapse of all time because they realize that most wealth is created in the first few months of a recovery and the more panic they can create the lower the buy-in price. Once the panic is out of the market and we reach total capitulation it will be a much better time to assess overall damage and the length of time this recession will take to recover from. My guess is it largely depends on how much cash was lost by the big investment houses. If many are still in a cash rich position they are not going to want to sit on those dollars for very long once they realize the bottom has been reached as very few belief we are headed into a deflationary period.
Note that the definition of depression is a drop of GDP by 10%. The worst drop since the great depression was in the early seventies recession and I believe then it only dropped about 4%. I believe it is way too early to be declaring we are headed into a depression.

[Plantagenet]

I'm surpised so few people connect oil to this crisis. It was the trigger.

Exactly right.

The mainstream media remains clueless about the importance of oil to the world economy, and about the critical role that high oil prices played in triggering this economic mess, and about peak oil just down the road.

[Pops]

In a perverse way I see the oncoming recession/depression as easing the shock of a true geologic peak.

An economic peak in production, i.e. increased cost reducing consumption and so production, as opposed to a geologic peak, would smooth what we were heading for: a "Drill Baby Drill" rush to the cliff.

I'd rather roll down a bumpy slope than run off a cliff.

[rockdoc123]

Pops....I see the opposite as being possible. Market collapse cause oil prices to drop to the cost of a marginal barrel, costs eventually drop so the cost of a marginal barrel falls as well, demand collapses to a point where we don't recognize a potential supply/demand gap, oil prices stay too low to encourage conservation, oil prices rise again precipitously as a consequence. This might be a cycle we go through every few years going forward.

[PenultimateManStanding]

It's awfully hard to call this stuff. Currently the dollar is charging ahead and the Euro is collapsing. It's all quite bizarre. Everybody wants Treasuries and the money pouring into the Treasury is pouring out in Federal bail-outs. Round and round it goes, where it stops, nobody knows. Suppose all the available money in the world goes into US Treasuries and the Feds try to bail out everything under the sun with it but it doesn't work. Everybody loses their money, everybody is flat broke. Game Over. Peak Oil? What's that?

[seahorse2]

Pops....I see the opposite as being possible. Market collapse cause oil prices to drop to the cost of a marginal barrel, costs eventually drop so the cost of a marginal barrel falls as well, demand collapses to a point where we don't recognize a potential supply/demand gap, oil prices stay too low to encourage conservation, oil prices rise again precipitously as a consequence. This might be a cycle we go through every few years going forward.

Rockdoc,

That is my concern. It is also a concern/prediction made by Colin Campbell in his 1999 book called "The Coming Oil Crisis" wherein he predicts exactly what you have expressed.

[PenultimateManStanding]

Do you guys really feel any confidence in your ideas about how a depression will affect energy markets? I don't see how you can. My impression is that we are in uncharted waters and nobody can with any certainty at all tell in even the broadest terms what's going to happen. How does "the cost of a marginal barrel" fall? The costs of the marginal barrel can only rise now. If the price in the market falls to that cost then the market is dead. And the global economy, too. Famine time.

[Pops]

Do you guys really feel any confidence in your ideas about how a depression will affect energy markets?

I'm much more confident about Doc and Horse's opinions than mine, especially since that is sort of the bumpy plateau scenario I've thought most possible for a long time.

Having said that, when one adds in the escalation in commodity prices across the board, real and perceived decline in personal net worth, increases in unemployment and most lately, a tightening of credit markets I wonder how long it will take for demand to get back to where it was 6-months ago, let alone continuing the climb?

I really don't know, just throwing stuff at the wall.

[PenultimateManStanding]

Having said that, when one adds in the escalation in commodity prices across the board....

I really don't know, just throwing stuff at the wall.

commodity prices are on the same wild ride as everything else. Way up then way down. I don't think anybody knows and they are all just throwing stuff at the wall.

[TheDude]

Note that the definition of depression is a drop of GDP by 10%. The worst drop since the great depression was in the early seventies recession and I believe then it only dropped about 4%. I believe it is way too early to be declaring we are headed into a depression.

In the States the early 80s recession was worse - 13.5% inflation in 1980, Volcker's no-you-don't 21.5% interest rates in 1982.

The differences in re: oil consumption with our current predicament are striking; for one thing, in the US from 1979-1984 about 1.7 mb/d of electrical generation using oil was phased out. Around Sept '82, right in the depth of the recession, VMT took off again. Crude prices were still fairly overheated at the time. The 80s oil glut was a whopper as well - we sure don't see the like on the horizon now. All these factors shore up my impression that OECD "demand destruction" is far from permanent and that roc/Colin's cycles of price rallies+temporary behavior shifts will be the rule of the game for a while. The adverse effect on mitigation will be striking. How does a municipality justify issuing bonds or raising taxes to expand MT in an era of wild swings? How will Toyota or GM feel about expanding hybrid production when their stock is down 40%?

[Gebari]

Say we have a massive depression and world oil consumption falls by half (can't see that even in worst case economic collapse, bigger than The Great Depression)... if peak oil is 2 years away now, the depression would only delay it by another 2 years or so. It's not much of a difference. We'll still be burning though Earth's reserves at tens of millions of barrels a day even in the hyperdoom scenario. It wont make much of a difference. And as I said in the posts previously, it may make the oil situation worse... it may even advance the peak and the decline by leaving a lot of oil and liquids in the ground as financing production wouldn't be possible, maybe deferring production forever.

[Pops]

Say we have a massive depression and world oil consumption falls by half (can't see that even in worst case economic collapse, bigger than The Great Depression)... if peak oil is 2 years away now, the depression would only delay it by another 2 years or so. It's not much of a difference. We'll still be burning though Earth's reserves at tens of millions of barrels a day even in the hyperdoom scenario. It wont make much of a difference. And as I said in the posts previously, it may make the oil situation worse... it may even advance the peak and the decline by leaving a lot of oil and liquids in the ground as financing production wouldn't be possible, maybe deferring production forever.

OK,
First, if oil consumption were to fall by half then lots of other consumption would fall as well; a good chance for our bloated economies to make changes.

Second, 4 years to make those changes in habits is better than 1.

Third, there will be no oil left in the ground until the EROEI in things like crosscut saws and tallow candles exceed that of petroleum.

[mos6507]

I feel that the current economic trend is an economic false flag-9/11 event and also a perfect elite level response to PO.

NO CONSPIRACIES