Doesn't high school economics state something more than supply and demand? I'm pretty sure it mentioned the elasticity of demand. Maybe our demand for oil is totally inelastic. Maybe we can't easily reduce our demand. What then?

Jim Kunstler has been banging this drum relentlessly for some time. No one wants to listen. It's going to be like the frat party panic when the keg runs dry at 3AM and there's no place to get more. There'll be a few surly louts wanting to break furniture and the rest of the crowd is depressed and refusing to believe the party is really over.

Excellent point by Tripp regarding inelastic demand. People with long commutes are really trapped these days; fuel prices keep going up but they can't sell their houses for enough to be able to afford to actually move closer to work. Buying a more efficient car helps only some.

So let's just look at this on an individual level.

Oil prices have gone up, but I still live where I live, and I still work where I work, so how exactly do I curb my demand? It's not like I am taking cross-country road trips every month and now I need to scale back. I have to go to work everyday, right?

Sure, maybe I could buy a hybrid car, but uh ... I am not exactly in the economic position to buy a new car right about now either.

I think there are a lot of people, like me, who would LOVE to bring down our demand, but I am open to ideas as to how I can actually do it in a way that does not involve 1) selling my house in the worst housing market ever or 2) buying a brand new car when I have no money because of @#(*)@( gas.

How much of Kunstler's reputation (in the circles of serious people) is damaged by being wrong on Y2K and the Dow? I'm just asking, I don't know. Is he a fear monger? I'm reading The Long Emergency right now and it fits with my gut feeling on things. Maybe I'm prone to fear...but I rejected my Christian faith anyway.

Where is the part within basic economics which states that if the seller can double or triple their profits by doing nothing (ie. without investing any additional resources or capital) that is what they will naturally do?

It seems like a "duh" moment, to me.

If one assumes that the oil producers are the keepers of a finite (and eventual dwindling) resource, and that it costs enormous capital to explore, or develop, or distribute, or refine - those functions necessary to increase supply into the market - then it should follow that the producers have one built-in driver to hold the system at status quo.

But, if they can be rewarded while doing so by seeing their revenue rapidly rise then, DUH!, status quo it is. They protect their position AND improve returns.

BombIranForChrist,

I lived through the last oil scare. What can you do? Siphon your neighbor's gas (I assume you don't want to do this). Carpool.

That's about it. Soybean oil is about $10 a gallon, and Corn oil about $12, so biodiesel won't help yet.

Public transportation is good if you can get it.

Telecommute?

Kevin,

If there is more supply to be brought to market, it might take a decade or more of these prices to see it happen. Part of what we are seeing today is a result of the declining market prices of oil between 1984 and 2000.

In addition, it also takes time for adjustments in demand to occur, as some of the commenters above have pointed out.

I think there are a lot of people, like me, who would LOVE to bring down our demand,

Although it may not be a practical option, the other variable is to find a place of employment closer to home.

I've got just the solution: Peke Oil.

Just squeeze those little nasty ubiquitous yappy dogs.

Oil prices have really spiked only for a few years. But it can take years to develop new sources. Is it really so surprising that supply has not gone up yet? In the 70'/80's, it took either 6 or 12 years (depending on if you date the oil price shock from 1972 or 1978) to the point in the early 80's when the price bubble burst, and oil then dropped to under $20 and stayed there for well over a decade (though stupid price controls and windfall profit taxes surely slowed increases in supply). And that was when more of the oil was in control of western capitalists, who are fleeter about making such investments, than today where most of the oil is in the hands of bureaucratic autarchs or put off limits by the US government.

As a data point (god forbid anyone produce data rather than perceptions off the cuff) note that offshore rig utilization has risen from 75% to 90% over the past five years, and that is on a base of more rigs today. (90% is near full capacity - some rigs are always going to be in refurbishment or between assignments). To say that prices are not affecting the supply side of oil is silly, at least in terms of activity. Reasonable people, of course, may argue that these efforts may not pay off with much new oil.

Some commute options:

Carpool. In the SF Bay Area there is a website that can help you set up carpools, and van pools.

Telecommute. Just 1 or two days per week can save a lot of gas.

Public transit. One or two days per week. Usually takes more time than driving, but combined with telecommuting, not so bad.

High milage car. Buy used if you can't afford new.

Drivers are efficient. They use the existing system as it was intended to be used, then they quit using the system at all and we get a depression.

It is easy to see why. If I drive zero miles, my payments to the total infrastructure are the lowest, nearly zero.

The first mile I drive, suddenly I have all these cops and transportation workers on my salary, the cost of one mile per day is astronomical, inefficient. I am better off not working.

the keg runs dry at 3AM and there's no place to get more.
Permanent bases. Iraq. Contingency planning so that the Saudis can continue horizontal drilling to tap Iraq's unproved,undeveloped reserves.

It isn't US demand that's driving prices higher, it's India and China expanding their economic growth. These are the countries we should bomb back to the Stone Age,although strictly speaking,it doesn't have to be the Stone Age,Iron or Bronze do just as well.

SoCalAnon has a point. Why do anything if you can just set there and rake in the dough. If there is no elasticity of demand, the suppliers control the market.

But this begs the question: where is all the extra money going? Is it going into research into new sources of energy? Is it going into exploration for new oil? I don't see any evidence of that. It looks like the huge profits -- dare I call them "windfall profits" -- are going into the pockets (i.e. foreign bank accounts) of the already super rich.

It's like Enron only on a global scale.

But aren't all those oil revenues paying for the reconstruction of Iraq?

Normally as demand increases, supply follows. In this case we have demand sky rocketing while the supply remains about the same. Either the supply can't increase (production is already at or close to maximum) or the producers, acting as a cartel, are intentionally refusing to increase production. Oil producing countries are smart. They realize that bleeding the world's economy white, risks possible invasion by user countries. I am inclined to believe supply has reached (or is damn close to )a physical limit. It is way past time to begin thinking about conservation. The country that first seriously deploys alternative energy wins the 21st Century.

George Bush/Neo-con style global resource imperialism is horse hockey. We have just wasted 8 years, 4000 American and countless Iraq lives along with a whole lot of resources that could have been better employed elsewhere invading Iraq in a futile effort to secure a stable oil supply.

Oil has been an inelastic commodity for years. I had assumed this was common knowledge. Sure, we're going to find more oil, and oil will be around and used for a LONG time, but the cheap (i.e.easy to drill), sweet crude is going to become expensive. The low prices America had enjoyed are gone. It's difficult to say just how much of this is caused by Bush making a huge mess of the Middle East and the US dollar, but he's certainly accelerated the process.

I don't know why Kunstler characterizes hybrid cars and compact fluorescent lightbulbs as for granny. It's all about saving bucks. I just bought a new car and the biggest decision factor was total ownership cost of a small commuter. So I could not just quite justify a hybrid (since these cost $10 grand more), but I ended up with Toyota Yaris which is one of the most efficent cars sold in the US right now (for carbon footorint or MPG). I don't need to drive my Ford F-150 everywhere.

For those of you that wonder, I already vanpool and ride my bike to/from work, but I do have to drive into work on occasion.

"Supply" and "Demand" are not single numbers. They are *functions* of price, and of time -- short term vs. long term elasticities. Take a look at what happened after the oil price increases in 1979 -- it took a few years for demand to adjust, and then the price collapsed in 1984 or thereabouts.

I think the explanation for supply inelasticity is obvious. Peak Oil. Whether you agree with the theory or not, the oil companies obviously do. There isn't much reason for them to create more infrastructure to support a dwindling supply. It takes a long time to pay of a refining facility. If it closes down before it's paid off, it's a loss. So you wouldn't make such an investment if you didn't think their would be enough oil to refine.

Actually, a sudden decline in the demand for food will be followed by a sudden decline in the demand for oil. We won't like it much, though.

"where is all the extra money going? ... It looks like the huge profits are going into the pockets (i.e. foreign bank accounts) of the already super rich."

Totally, then the petro-dollars get reinvested in equities and treasuries in the US (and secondarily, in the EU and emerging markets), for a store of value and to avoid domestic inflation.

Oil-producers fund capital flows into the US second in size only to China. They keep our dollar relatively strong, and our interest rates relatively low. If these capital flows shifted away from US$ suddenly, our dollar would really crash, while interest rates spiked.

Glen, none of us wonder, but you bring up a good point. I have read that the great motivator the Saudi's have had to keep prices down over the years is the real fear that high prices will drive us to alternatives. If they could increase production to lower costs, they would.

The hybrids will be more expensive for a while, but supply will increase as demand goes up. Unlike oil the supply of hybrids is elastic.

Tripp got it.

And BTW -- how cool is that there's a discussion of price inelasticity of demand on a blog comment thread?

Funny, I was commenting during our morning walk about the number of mega SUV's still dotting the neighborhood. Either I have very wealthy neighbors or the average American consumer is going to hold on to their status symbol Excursion until it is pried from their cold, bankrupt hands. I actually saw someone with a brand new Hummer the other day, temporary tags and all. The mind boggles.

I have a theory that there are a whole lot of people who think these gas prices are a "temporary" thing and we'll get back to $2.50 a gallon any day now.

... then the petro-dollars get reinvested in equities and treasuries in the US (and secondarily, in the EU and emerging markets), for a store of value and to avoid domestic inflation.

That's no doubt true. But I didn't think free market capitalism was about using excess profits to invest in equities. I was somehow under the impression that it had to do with re-investing in new production, improved productivity, and innovation. I don't see much evidence that that's happening.

I wouldn't mind contributing to reducing oil/carbon based fuel demand by buying a more efficient car. My current Saturn is 10 years old and gets 26/32 city/highway. I looked at new vehicles - they get the same mileage my old clunker does. Buying a hybrid is not a solution at the moment because you can't get one, you can order one to take delivery in 16 - 20 months, that's all. Besides Hybrids still need to be plugged in, and if your local electricity source is a coal burning plant then you aren't doing much to reduce your CO2 emissions.

So what have I been doing? I have been combining trips and plotting routes to reduce miles driven. And it has worked, I used to fill up every 2 weeks (and my car has a 10 gallon tank) and now I have stretched that out to close to 3 weeks.

I dunno. I lived in California in 2001 and the conventional wisdom was that demand was out of control which accounting for the huge spike in energy prices and rolling blackouts. But son of a gun, don'tcha know it turned out to be the boys from Enron, etc. gaming the system. I believe rising global demand for oil accounts for maybe a third of the price increase. The rest is the oil companies gaming the system. That's why they put Bush in office -- so they could have license to rob us blind. That's the real "freedom" Bush has been defending these past eight years. It amazes me that people accept the oil industry's numbers on faith. Does anyone else really have access to the true figures on supply and demand? Or do we know only what the oiligarchs want us to know? If Bush could lie us into war, what makes you think the oiligarchs can't lie us into bankruptcy?

I was in Shanghai about six months ago, had dinner in town then about 7pm called a taxi to go back to the hotel. The taxi driver didn't bother to take the freeway -- it was completely jammed. So we took surface streets, jockeying for space fender-to-fender, poking along. An hour or so later we completed the ten mile trip.

China is producing cars, mostly German marques at this point, and every Chinese wants one, or soon will. There are 1.3 billion Chinese people. Vehicle production and sales both surged more than 20 percent to a record 8.8 million units in China last year.

Also, PetroChina became the world's most valuable company in November when its market capitalization briefly rose above US$1 trillion — more than double No. 2 Exxon Mobil Corp.'s US$488 billion at that time.

Yes, this is a manifestation of Peak Oil (Good grief Kevin, how could you not mention it in this post? You have posted interesting essays with good commentary followup on this subject before.) Worse, there are similar Hubbert style peaks for other resources like copper and even uranium; it's just a matter of the details and timing being uncertain. For oil it means that supply (in the "flow" sense used in economics, not the "warehouse" sense of the total in the Earth) is leveling off (more or less) while demand rises (think not just more people, but more per capita drivers in China, India, etc.) The price will keep going up and up. Over decades the supply will actually go down, barring dramatic events or advances.

This won't just be a matter of "How can science and technology help us use energy more efficiently and find new sources." The increasing cost of oil will impact the ability of science to be done, through increased energy costs, and all the indirect impact of petroleum prices. We need an Apollo-program style initiative to tackle this before it gets really difficult and increasingly hard to alleviate. We already lost valuable time since the 70s or so through indulgence and resistance of various kinds, you know who they are.

However, the recent price spikes aren't just from "market fundamentals" applied to the latest demand over supply tensions. Much (how much hard to pin down?) comes from trading and hoarding. We shouldn't stand for our oil prices being gamed up by trading interests. Wouldn't a little sales tax on commodity transfers be a start at doing the trick? Finally, so many businesses are hurt by these prices that it isn't proles versus "the rich"/employers etc. We can find common cause with most productive Main Street businesses against the Wall Street trading/manipulating factions. IOW, we are fighting a powerful but actually very small minority over oil prices.

Gas prices are currently around $8.40 a gallon here in Germany, yet there is no shortage of traffic (or traffic jams) on the Autobahns. True, the cars here are generally smaller and more fuel-efficient. However, there are many more options as far as public transportation is concerned and you still have roads full of cars. Based on that, I'd say the US has a ways to go before prices really start to seriously affect behavior. I mean, given the state of public transport in most American towns and cities, what other options do folks have but to grit their teeth and pay at the pump?

optical weenie, you don't have to plug *hybrid* cars in. They charge a generator off the gasoline (if you have it of course.) You must have been thinking of pure electrics.

arteclectic at 6:01: the number of mega SUV's still dotting the neighborhood

I wonder how many people are just stuck with their Ford Extinctions at this point. I have a reasonably efficient car (Subaru Impreza wagon) which I mostly own, but if I was halfway through paying for an Extinction I might figure I'd take less of a bath on gas than I would trying to trade it in.* But jeebus -- it's like the Land of the Giants in any parking lot around here, and they're burning gas that I'm going to need some time in the future.

*None of which explains the morons with the new Hummers...

In my city I have noticed the freeway traffic jams have diminished. I think it is because of the recession. Probably mostly a slow down in new home construction. Unfortunately for Americans, our oil consumption is no longer the primary market for oil in the world. As America uses less oil, Asia uses more. World wide demand will continue to increase regardless of what happens in the US. Those wind turbines MIT has developed for poor, rural Guatemalans, will come in handy here at home.

Doesn't high school economics state something more than supply and demand? I'm pretty sure it mentioned the elasticity of demand. Maybe our demand for oil is totally inelastic. Maybe we can't easily reduce our demand. What then?

Seems to me that the very first post nailed answer and I have skipped everything in between then and now.

I'll back up now and see what everyone else has to say.

I'm going to bet the under as well.

I have a theory that there are a whole lot of people who think these gas prices are a "temporary" thing and we'll get back to $2.50 a gallon any day now.

Bingo. I don't think the average 'murikin has the tiniest idea that:

• Oil takes millions of years to form
• Thus, practically all the oil we will ever have in our lifetimes already exists, and when we burn it up, there ain't no more.
• We are entering a time of permanent resource shortages, especially for cheap energy.

It's really stupid to take a finite resource like oil (useful for everything from materials production to fertilization) and just burn it up moving multiton metal boxes around. It's criminally stupid to burn it up to move around Hummer-size metal boxes.

I agree with the poster above that physical limits on oil production are only part of what's pushing up prices right now; I'd be amazed if there isn't some major market rigging going on too. But I also think the sooner we can drive my three bullet points above through the heads of the sheeple, the sooner we can actually try addressing reality. And $5 to $10/gallon gas will drive that message pretty hard.

In much of Europe gas costs $8-10 per gallon, and traffic hasn't changed much from just a few years ago, when it was roughly at current US levels. People will gripe, but if the price plateaus for a while they will get used to it. In India the price is $5 or more, and their demand is rapidly increasing, so if $5 isn't too much for an Indian driver, ours will likely just keep coughing up the bucks. The problem is that the worlds consumers are all daring the other guy to conserve, and we will all end up paying a very high price for our obstinance.

Someone mentioned that hybrids are unobtainable now, and need to be plugged in. The later is false, hopefully the former is as well.

What are the (exporters) doing with the money? Hopefully they are investing it for the future when they no longer have oil to export. The Gulf countries are making some pretty big investments in solar as well. I can't say we would make better use of the money if we had it. Heck we would buy more weapons, and invade yet another country that we were mad at "cause it's our oil under their sand".

Weenie at 6:07:

In other words, Men are from Hummer, Women are from Saturn?

Whoa whoa whoa! Now hold on here Kevin, and Scott; I'd like to hear some particulars of this bet - I just got my tax "rebate" and I'm thinking that while it may take 4 years to mature, 25% annual return will look pretty good when the time comes.

If it hits $200, at all, ever, between now and then?
Or does it have to be over $200 when Jan. 1, 2012 rolls around?
I will gladly take your money!

And I have a minor quibble with Tripp's thread-winning comment.
There's no "Maybe".You shoulda started with "Our demand ..." and then subbed "highly" for "totally". But, yeah.

I reduced my personal demand by moving much closer to work. I rent, and have no dependents, so it was low hassle - your mileage may vary.(Har har har.)

Speaking of inelastic resources, the same thing that's happening with gas is about to happen with water. You can reduce your dependence on oil by walking more, but hydration is essential to sustaining human life.

In 2004, oil was at about 30$/barrel. Now, four years later, it's at more than 90 bucks, an increase of 200%. 2012 is another four years away, so I'll take the over 200$ bet.

In 2004, oil was at about 30$/barrel. Now, four years later, it's at more than 90 bucks, an increase of 200%.
http://en.wikipedia.org/wiki/Oil_price_increases_of_2004-2006

2012 is another four years away, so I'll take the over 200$ bet...

Part of what we are seeing today is a result of the declining market prices of oil between 1984 and 2000.

Insofar as that's true at all, its a negligible part of what we are seeing today; even adjusted for inflation, current oil prices are about as high as oil prices have ever been since petroleum was recognized as useful for much (about equal to the all-time high in the 1860s); the long decline from 1979 to 2000 brought prices back to slightly more than the level they'd been steady at for about 40 years prior to the 1970s crises.

Now, arguably, one might argue that today's prices are again (as in the 1970s) a result, at least in part, of conflict in the Middle East, but while that certainly affects production in some places, the cost effect isn't as great as the embargo and related direct artificial price increases imposed by the Arab states in the 1970s. Its pretty clear that the main contributor to present oil prices is the inability of producers to expand production in the short term. What remains to be seen is whether producers can economically expand production even in the long-term except at much higher and continually rising prices; the peak oil argument is that they will not be able to do so.

"In much of Europe gas costs $8-10 per gallon, and traffic hasn't changed much from just a few years ago, when it was roughly at current US levels. People will gripe, but if the price plateaus for a while they will get used to it. In India the price is $5 or more, and their demand is rapidly increasing, so if $5 isn't too much for an Indian driver, ours will likely just keep coughing up the bucks. The problem is that the worlds consumers are all daring the other guy to conserve, and we will all end up paying a very high price for our obstinance."

I'd really like to see the data on that. It may be true for the UK, but my impression of mainland urban and rural Europe was that there was much less traffic, much more use of both trains and buses and a lot more people walking and bicycling. I'd also bet that commuting distances are far short, on average, than Europe.

Even if none of that is true, house sizes are smaller there. That means lower heating costs.

No one has mentioned that our dollar is worth quite a bit less now than even 10 years ago. That's still another reason why the price of energy is up: the value of the dollars used to pay for that energy are down.

Adam Smith, hell.

Kevin, this would have been a great opportunity for you to tell people more about behavioral economics.

BE, and not neoclassicist economics, knows that we homo sapiens are largely irrational actors and works from that starting point.

The Financial Times carried a fascinating report a couple of days ago of how oil companies have cut back on exploration and have been putting their resources into stock buy backs.

"One could argue that companies spending this amount of money buying back stocks are slowly liquidating themselves," said Robin West, chairman of PFC Energy, the consultancy.

http://www.ft.com/cms/s/0/86436dae-1260-11dd-9b49-0000779fd2ac.html?nclick_check=1

Chris, how does buy-back affect voting of shares? I always wondered about that.

Higher prices have done little to attract new production or to suppress global demand, and the resulting mismatch has sent oil prices spiraling upward.

No question demand continues to increase, and in the long term prices will go up. However, here's more going on at the moment; from the OPEC March 5 meeting (e.g., see here):

OPEC said it "highlighted the economic slowdown in the U.S., which, together with the deepening credit crisis in financial markets, is increasing the downside risks for world economic growth and consequently demand for crude oil."

"Crude oil prices are being strongly influenced by the weakness in the U.S. dollar, rising inflation and significant flow of funds into the commodities market," it said.

Key cartel members said this week that prices in the $85 to $90 per barrel range would be optimal.

..."If you're OPEC, you see ample supplies and questionable demand," he said.

Schork gave OPEC credit for not pushing through a cut in output, which "would legitimize the bullish speculation we've seen since February" and risk sending oil to $120 a barrel or higher.

Crude inventories are growing, including "a massive increase" in U.S. stocks, Schork said.

"...how does buy-back affect voting of shares?"

Well I know nothing of these matters but I assume that should a company buy back shares then the voting rights to those shares accrue to the company's board of directors.

Just a guess.

Ya want growth? Ya want immigrants, illegal aliens, and a third world 2.1 fertility rate? Then don't whine as shortages of 1. oil, 2. water, and 3. farmland (food) come up.

The shares from a buy-back go on the shelf; no one votes them.

I told you I know nothing of the subject. Here is an explanation of stock buy backs that even I could understand.

http://beginnersinvest.about.com/cs/newinvestors/a/060401a.htm

Im gonna become a politician, do some corrupt things that'll get me tossed in a white collar low security facility [3 hots and a cot] and I will also save a bundle on fuel while laying around watching TV and playing dominoes all day.

snark

Hey, I heard that some new large wells were found off the coast of Brazil.[Tupi] Except its 500 degree oil!! And wont happen intil 2012, if that.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aoC91kszkcf4&refer=home

No start date has been set for Carioca, which Petroleo Brasileiro said will take at least three months to evaluate. A Brazilian regulator said this month the reservoir may have 33 billion barrels.

This is the same reporter that did an article last year on how old oil fields never die. Completely missed the point and read like a oil company's annual report.

http://www.nytimes.com/2007/03/05/business/05oil1.html?scp=11&sq=old+oil+field&st=nyt

They've got us by the neck and they're squeezing for all they've got and asking, "Why are they still breathing? I mean, if I was being squeezed that much I'd cut back on my breathing."

Sometimes demand is inelastic.

Of course, we've known this day would come and all those who have opposed alternative energy source research & development should pay dearly for stopping that. Look back to 1981, Ronald Reagan and how they killed the research Jimmy Carter started.

The worse this mess goes the more I think the Bushies, the Crazies, the Neo-Cons and their Base, the Rich and the Super Rich deserve to be lined up and mowed down. They're killin' us.

But then, Nancy hasn't set the table and there's nothing on it, so we can't even begin. Is this some kind of San Francisco values I don't understand?

Hmmh, if Adam Smith was right, the oil companies would be sinking billions into alternative energy research or looking into new fields in every unexplored corner of the world. Instead they're apparently putting the money into ever more lucrative exec pay packages. I bet the CEO of Exxon makes FIVE HUNDRED million a year this year instead of the paltry $400 million a year he has been getting. Now remind me again what brilliant feat of entrepreneurship he has been doing to get all that money.
I expect to be falling asleep to the sound of crickets.................

Wasnt it Adam Smith that noted that no nation had ever paid off their foreign debt?

slanted tom made an important point - oil is priced in US dollars and the dollar has lost 40% of its value (vs a basket of world currencies) since January 2002. So 40% of the price increase since Jan 2002 has been due to the collapse of the dollar. Oil in Jan 2002 was $20 a barrel, and roughly $120 now. So that means that if the US dollar today had the same relative value as it had in Jan 2002, oil would be roughly $80 per barrel. Higher indeed, but much 'cheaper' than today.

In the same vein, if I were an oil exporting country I would think long and hard about exchanging my precious, finite, and irreplaceable asset (oil) for a currency with terminal rot. The King of Saudi Arabia said a few weeks ago that their most recent large discovery will not be developed for export.

The last time oil was $20 a barrel was right after 911, and just before the smirking chimp (the decider) took a vow to throw the American dollar under the bus (ie. invade Iraq with inadequate planning, with insufficent personnel, with ulterior motives, and almost zero care for the financial repurcussions).

In 1999 I read a book (can't recall the title), written by a guy who was very involved with politics in Texas, and the book predicted that George W. Bush, if elected president, would destroy this country. That book is probably a collectors item today.

We need a leader who can restore America's rightful place in the standings of world countries. Go Obama!

Given that a large amount of driving in this country is done to get to and from work, I'm suprised that conservation groups are not talking up the need to increase telecommuting.

There are huge numbers of people out there who are forced by their employers to commute to a central office every day even though they could probably do their job just as effectively from home.

Not only would this reduce the number of miles driven, but it would also save energy in other ways by reducing the need for companies to build, heat, and light office buildings.

We've been so solidly stupid about cars for so long (encouraged by the oil and car megaliths) that it seems nothing can turn us around. The only creepier thing is seeing photos of traffic jams in overpopulated India. Traffic jams. They'll all have cars like us. So the emerging third world nations are as stupid as us, with exponentially huger numbers.

The answer is revealed: why and how did the great civilizations of the past die out? Peak stupidity.

We've been so solidly stupid about cars for so long (encouraged by the oil and car megaliths) that it seems nothing can turn us around. The only creepier thing is seeing photos of traffic jams in overpopulated India. Traffic jams. They'll all have cars like us. So the emerging third world nations are as stupid as us, with exponentially huger numbers.

The answer is revealed: why and how did the great civilizations of the past die out? Peak stupidity.

Well Bush is a spectacular failure, and the dollar's decline--almost 200-percent against the Euro, almost completely explains the pricing along with rising Asian demand. Bush is really in unexplored territory as far as ineptness goes. "No one could have predicted the greed and sloth of the richest companies and countries in the world." --Ms Oil Tanker

Enabled by even more spectacular Congressional ineptness, this is looking like a death spiral. No economists are needed to declare a patient dead. And yet we still have McCain and Hillary fighting to preserve America as a time-share.

We could have had all battery-powered cars 10-years ago; zero population growth thirty years ago. Populations collapse when they are governed as fruit flies.

garberpog: Peak stupidity.

Love it; that's a winner. But don't be too hard on India. They've managed to achieve one of the best energy/GDP growth rates in the world, with GDP growth of 1% and 0.4% increase in primary energy consumption. They expect to do better in the future. (China has not been doing so well, with 1% GDP growth requiring 1.5% increase in energy consumption.)

"We can't solve problems by using the same kind of thinking we used when we created them."
-- Albert Einstein

There are huge numbers of people out there who are forced by their employers to commute to a central office every day even though they could probably do their job just as effectively from home.

Ahh. A chance to engage in my favorite rant that ends in "and this is why I am self-employed and work from home."

The entire "work" system is built on stupid processes based on herding sheep. Get your troops to show up at the same time every day, wear the uniform, sit down, and churn out as little work as they can and still get paid. What happens when you get a self-starter who completes their work early? Why, you give them more work and now they are doing more work than their peers for the same money. No incentive there for the worker to put forth one iota more of work than required. The incentive ought to be that once the work has been completed and approved, worker gets to head home. This rewards the competent and gives incentives to the less competent to improve.

But no. Business wants to pay people to NOT perform. They want butts sitting in chairs from 9 to 5, regardless of what the actual work output is. Give someone till Friday to complete a project and it will be completed on Friday at the last possible moment. Tell them they can take Friday off if they complete the project by Thursday noon and it meets approval and watch your staff fly.

The last time I had an "office" job I did what everyone else does - complete my tasks and spend the rest of the day on the internet or playing solitaire.

Quit mowing those giant suburban lawns lawns twice a week? If you don't confront reality...

I dunno about this peak oil stuff. I actually agree with the Saudis that the market seems adequately supplied right now. What's pushing the price up is the sliding dollar and a lot of speculation. Raise interest rates and the price of gas will go down. Also, the commodities market is the new bubble. First it was the dot-com bubble, then the housing bubble, and now commodities. It's not just energy commodities, it's food also. Hopefully once either Obama or Hillary beats McCain, they will ratchet down international tensions and strengthen the dollar, and we should see the price of oil slide. I doubt if it will ever go back to $30 a barrel, but it will come down.

I think looking at the price of a gallon of gas that is the wrong measurement to compare the US and Europe. Their life style is much less energy intensive, so it doesn't cost them as much (on a yearly basis) to operate their vehicles. They don't drive as far to work or to do anything else. So, they don't have nearly the gasoline multiplier effect that we do, as everything is more compact and centered around where they live. We, on the other hand, think nothing of driving several hours to work and back every day.

It is why I live in the Chicago 'burbs. Ride the commuter rail and watch the thousands of cars stuck in traffic. While they are burinig gas and having road rage, I am reading the Trib. Chicago would not be half of what it is without commuter rail.

No one has mentioned that our dollar is worth quite a bit less now than even 10 years ago. That's still another reason why the price of energy is up: the value of the dollars used to pay for that energy are down.-slanted tom

That's why you aren't seeing riots or protests in Europe over fuel prices-the price of oil in Euros hasn't increased as much. We had a for real supply problem (esp. with gasoline) after Katrina and we bought gasoline like crazy everywhere to make up the shortfall and it drove up the price *everywhere* and everybody got a little unhinged. However, now we are intentionally devaluing our currency to solve our financial crisis right now because it just has too many lucrative short-term benefits:
* House prices don't fall as quickly
* Exports are boosted-which helps mfg sector
* High oil prices encourages development / exploration / extraction esp. domestic sources which increases supply over long term
* Sustained high gas prices changes car buying behavior - structural changes that reduce demand over long term
* It makes it easier to pay off old debt

BUT... everybody else (besides the US) is going to get hammered sooner or later by our relatively cheap exports. Hmmm. If China and the EU go into recession next and we still haven't recovered yet, that will force them to devalue their currencies with respect to ours to stimulate their own domestic economies. If *everybody's* currency is cheaper, oil will get cheaper and the commodities bubble will pop. Call me crazy-but I'm starting to see an optimistic side to this. It just depends on whether or not US-China-EU,etc, can keep employment levels up throughout all of this.

Gas may be $8 a gallon in Europe, but -- guess what -- they're not paying for it in dollars, but in Euros, or pounds which is even better.

Pocket Rocket nails it. Raise interest rates, thereby reducing the money supply, and the dollar will stengthen. That is, a dollar will buy more oil (or gas, or wheat, or any other commodity).

Coyote noted above the collapse of oil prices in 1984. Just happens to coincide with Paul Volcker's term as Fed Chair, when he raised interest rates up to 18%, I believe. Painful? Yes, for a relatively short time, but it was followed by 10 years of lower oil prices.

No one has the guts to do that now, especially Bernanke, enemy of Main Street and protector of Wall Street and investment bankers.

The 12:44 post was mine, not sure why it didn't flag me.

Tips I'm sure everybody knows. Proper tire pressure,buy reg.(only older 20 year+ engines need prem.),drive with your foot on the gas pedallike it was on a carton of eggs, don't push gas pedal past point of engine accelerating(in other words...don't floor on hills and from stops), don't charge and brake and charge and brake(steady speeds), let off gas and coast with stop ahead,change or clean plugs and tune-up as needed,keep gas tank full and don't fill up during heat of day,change or clean all filters as needed, if possible no AC...if you use it,turn it off a few blocks/miles from where you're going..........Do all of these and you'll increase mpg 15-25%.

It's definitely more fun for the Peak Oil types to hype doom and gloom, but when the dollar stabilizes, oil prices will stabilize.

Europe is more prepared for an energy constrained future, former third world countries like india will go back to their agrarian lifestyle, but the U.S. is totally addicted to cheap energy, nobody knows how to farm, knit, or live cheaply. We are the least prepared of anyone , and have the farthest to fall.

Except for the Saudis who will go back to riding camels in the desert. Can you blame them for wanting to stretch out their supplies a little bit?

For those with Kroger stores in your area. They have a deal where you can use your tax rebate checks to buy Kroger gift cards and get 10% more....$330 gift card for 300,660 for 600,990 for 900 and 1320 for 1200. Use gift card to buy gas at Kroger and get 10% more gas or save on food.In my area(Lou.ky.)we have 10 % off on senior's day(you can punch in a senior's phone number) so you can save 20% on food. I'm 65 and see REAL bad times acoming. I see the whole country like the LA in Blade Runner and then it'll get worse. Road Warrior anyone? People will take the engines(Hummer owners will leave them in) out of their SUVS and use mules to pull them and use solar panels for the DVD players. You want to get ahead...get into mules,draft horses,harness and buggy whips. Thats the future! $2.50 a gal. gas and the US as it once was are LONG gone!

DevilDog & Pocket Rocket, I wonder if either of you is old enough to remember what happens when they spike interest rates.

I am - I was attempting to start a career in the early 1980's. At that point, to curb the hyperinflation of the 70's, the Fed had pushed the prime rate up around 20%. It produced the steepest recession of the postwar era. The economy fell off a cliff, and there were simply no jobs to be had. It was very very bad.

Eventually the strong medicine wrung the inflationary psychology out of the market - at a very high price. It wasn't the Great Depression, but it was not at all fun to live through. (And I suspect the economy at the time was a considerably friendlier one than we have now, with unions not completely dead and companies not yet realizing they could outsource everything that wasn't nailed down, and health care costs a fraction of where they are these days.)

Be careful what you wish for.

JimBOB, I lived through it, too. I thought getting a home loan at 11.5% was a great deal . . . and that was when you actually had to make a downpayment.

Yeah, it was tough, but the recovery was long. I guess there's a choice between letting it string out, like it is now and watch food prices, oil prices and the rest increase month after month, or take the hit and get it over with.

You're probably right, however. The situation was different in many ways. In addition to the issues back then you mentioned, there were no derivatives and credit swaps, CDOs and SIVs and other exotic, unregulated financial instruments. We didn't have a subprime problem, because if you couldn't afford a house, you rented until you could save up enough for a downpayment and prove to the bank your income was enough to make the mortgage payments.

I'm afraid we're in a no-win situation now. If they raise rates enough to kill inflation, all the banks who are in trouble from their bad decisions and fraud will go down and the financial system will collapse. If not, we can continue to be squeezed harder and harder by rising prices in things we need every day, while our homes are worth less and less.

Either way, the taxpayers and the middle class will end up getting the short end of the stick.

R.L. 1:40am...
"You want to get ahead...get into mules,draft horses,harness and buggy whips. Thats the future! "

Buggy whips are the future? Ok... now I'm scared.

Some economists are predicting $10/gallon gasoline by 2010. Get used to a larger and larger percentage of your income going to oil companies - By the way, Royal Dutch Shell just announced record quarterly profits of $9 billion.

Welcome to your future - thanks to the Republican Party!

Just to put it in context.

Matt Simmons 'gasoline is the cheapest liquid you can buy at your gas station'.

Coke, orange soda, bottled water, they all cost considerably more per gallon than a gallon of gasoline.

If Europeans can live with $8/ gallon gasoline (half of which is tax) then Americans can learn to live with $8/ gallon gasoline (10-15% of which is tax).

Now remind me again what brilliant feat of entrepreneurship he has been doing to get all that money.

My best guess?
He has been taking the record profits, and using them to invest in commodities, as many other investments are shaky due to instability in the financial markets.
Commodities such as gold, and perhaps ... oil.
That buying oil futures is contributing to a steady rise in prices, above and beyond inflation-adjusted record prices, is just happy coincidence.

Maybe our demand for oil is totally inelastic. Maybe we can't easily reduce our demand. What then?

We're screwed?

Don Bacon

2. the pound is at a record low against the Euro

1. we pay for it in pounds/ euros, but the currency translation of the price means that that effect is already included

All that the currency means is that our price has not gone up as fast as yours.

But 'paying for it in Euros' (or in Yen) has no effect on what it costs us, as a use of our income, relative to what you pay for your gas in dollars.

The real point is that we pay twice the price of gas that you do, we drive more efficient cars (particularly more diesel cars), and we drive smaller distances per year.

But we are still getting hurt. That doesn't matter which currency you pay for it in.

Yes, I think we're screwed. This will define the rest of our lives. I would not bet that oil will be under $200/barrel by 2012. I would hope not, but the signs are not that good. Hell, $300 barrel/oil may not be that far away. James Howard Kunsler may not be the extremist some think. The world-wide demand for oil will increase 50% in the next 25 years; that we know. It seems unlikely the supply is there.

Again to quote Matt Simmons

"People in London pay nearly $9 a gallon for gasoline (we're probably over that now: we pay £5.00 per Imperial gallon).

But you don't see society coming to an end. In fact their biggest problem is traffic congestion."

Gas consumption is actually falling. LINK

U.S. drivers are doing something they haven't done for nearly two decades: consuming less gasoline.

Gas consumption so far this year is down about 0.2 percent compared with last year, according to the Energy Information Administration. The federal agency is predicting that gasoline demand will be down 0.4 percent this summer and 0.3 percent for the year.

That may not sound like much, but it would be the first time since 1991 that there's been a decline in annual gasoline consumption. And it would be only the eighth year since 1951 in which demand for gasoline has declined.

My guess is we are a the pivot point re: demand for gasoline. People are starting to drive less as a result of the high price of gas. It may be a while before this decrease in demand affects the price but it will.

I am thinking that can do one of two things about the ever rising price of oil. We can pay, and watch as our standard of living declines as the oil producers grow ever richer, or we can change by adapting different ways to move from point to point. We can do more telecommuting. I don't see much upside for large office buildings attracting tens of thousands of commuters when teleconferencing is absolutely possible. We can redefine our cities. Mostly we can focus on alternatives to oil. Using oil to heat our homes is stupid in the extreme. Solar, Wind, even Nuclear, need to be exploited. Change is hard but the alternative is a terrible die off and poverty for the survivors. Anybody want to go back to the world of Charles Dickens?

Hmmh, if Adam Smith was right, the oil companies would be sinking billions into alternative energy research or looking into new fields in every unexplored corner of the world.

Um, no, if Adam Smith was right, oil companies would, given the chance, collude and corruptly influence governments for their own immediate financial benefit at the expense of the long-term common good. I direct you, for instance, to the very end of Book I of An Inquiry into the Nature and Causes of the Wealth of Nations:

The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

The idea that left alone, capitalists will devote their investments to the best long-term result is a consequence of taking the perfect information element of rational choice theory as an article of faith, rather than merely a sometimes useful counterfactual simplifying assumption. It has little to do with Adam Smith; I think the closest Smith comes to endorsing that view is stating that capitalists will naturally invest where the current returns are the best, stating further that this coincides, generally, with the common good where agriculture is favored, but not otherwise (see the final paragraph of Book II of An Inquiry into the Nature and Causes of the Wealth of Nations.)

There are certainly areas where Smith's arguments may be validly disputed or at least seen as irrelevant to modern circumstances, but it is certainly a mistake to project the bizarre views of modern corporate capitalism fundamentalists into the writings of Adam Smith. Smith would probably be as appalled by his association with the modern practice of capitalism as Marx is apocryphally described as having been with his association with the practice of Communism.

It is getting more and more obvious that Kevin is writing for Republican interest.

...if 2012 were an over/under bet for oil to hit $200.

Higher prices have done little to attract new production

Gee, why is that? Must be because there is no competition when all the oil is controlled by very few companies. Kevin knows this but he doesn't want you to know it, and no spokes person for Republican interest does want the public to know it. The oil companies are force Americans and other nations too to pay more and more for oil by controlling production. This is why, like Ma Bell, they need to be broken up and sold and new laws created for citizen held hostage to corporate interest.

Kevin has started pushing more and more Repug talking points with a lossing parties desperation even as the RNC lawyers try to keep the DNC ad about McCain's 100 year war comment off the networks with intimidation tactics.

There is where you fight for your freedom are lose it.

Take a look at what happened after the oil price increases in 1979 -- it took a few years for demand to adjust, and then the price collapsed in 1984 or thereabouts.

In point of fact, there was a several year run up in prices due largely to events in the Middle East from the early seventies through 1979; the prices began a rapid decline following the Soviet invasion of Afghanistan when the Gulf States turned started looking to the US more for security and thus became more responsive to US interests in their policies, including when it came to oil prices.

1984 was when prices hit the bottom, but it wasn't like prices were high from 1979 to 1984 and then suddenly dropped. The up and down of the 1970s price spike can be largely explained politically, and even its highest point was lower in real (inflation-adjusted) terms than the current prices, which are the highest at least since the early 1860s, perhaps ever.

I have to admit there is a tiny amount of pleasure in driving by an Extinction driver who is trying to wring an extra 2 MPG from his 12 MPG behemoth.

I'm seeing this more frequently now.

US gasoline consumption may be declining, a little, and that might even carry over the peak summer months.

BUT China and India oil demand is rising faster than ours is falling.

New oil fields are opening up but they just barely make up for the decline in existing fields.

Is the US screwed? Not as much as others. Africa will become a hell hole. Indonesia and other food importers will be pretty bad too. In the US the poor are screwed. The higher you are on the economic scale the less screwed you'll be.

For those with plenty of money it will be kind of nice. Road congestion will fall. Airline travel will return to its luxury status. As long as you can avoid the beggars and the news about starving children you'll be OK.

What is the sustainable carrying capacity of the Earth? Two billion? Three billion? You tell me.

What is the sustainable carrying capacity of the Earth?

There is no fixed number; its clearly technology-dependent.

cmdicely,

In point of fact, there was a several year run up in prices due largely to events in the Middle East from the early seventies through 1979; the prices began a rapid decline following the Soviet invasion of Afghanistan when the Gulf States turned started looking to the US more for security and thus became more responsive to US interests in their policies, including when it came to oil prices.

Precisely. What I lived through prior to 1984 was not simply a supply/demand thing, world politics entered as well.

When the US was an oil exporter (imagine that, oil in the US mainland) we kept the price relatively constant for the good of US 'bidness.' In '73 hte US reached its oil peak and couldn't simply open the spigots wider.

Prices then started to rise, and for awhile during the Iran hostage crisis the supply was simply stopped. As you say, the Middle East, and especially the Saudis, struck a deal with the US. We'd protect them and their monarchy against the Soviet Union (and their peasants, while still claiming to support democracy of course). In exchange OPEC and especially the Saudis then took over the role of oil price-stabilizer.

I wonder what libertarian free-market fantasy says about oligarchies and price stabilization? But I digress.

Looking back one can see how the seeds of middle East unrest were sown with our need for a stable oil price and our propping up of non-Democracies as long as they kept a steady price for oil.

So here we are now. Global peak oil, and no new huge supplier who can come on-line and stabilize the price of oil. In some ways we are now beginning to live in a real Libertarian 'utopia.' Market forces are free to unleash their invisible hands and squeeze our balls, hard.

Thinking that our current situation is the same as in '73 and the outcome will be the same is incorrect wishful thinking.

Generally speaking, there's a broad concensus that oil production won't rise much, if at all, but demand will. Domestically, adding $4 trillion to the national debt has weakened the dollar. As we are apparently governed by international gangsters, don't look for the Bushes or any of their friends to propose measures that will reduce the national debt and reduce our per capita energy use.

IOW, the price of gas at the pump is going nowhere but up.

It's like that sign in the dentist's office- "Don't call for your Mommy- she can't help you now".

Personally, having seen prices surge 20% in the past two weeks, I am amazed at the atmosphere of calm among the (obviously clueless) American people. In fairness to the folks around me, they're a lot more perceptive than the WaPo, and small cars and hybrids are multiplying like rabbits. There may be a reservoir of financial acumen and readiness to change among ordinary people that will preserve us from total collapse.

One thing seems sure, though- we have no leadership at the national level. On the plus side, this means that changes will happen at local levels that we can be involved in. And that's gotta be an improvement over what we've seen for the past 30 years.

When OPEC was an oligarchy and acted like one the price rise would have had some producer break ranks and produce more. Given this price why bother?

optical weenie at 6:07: Plug in hybrids are in the future. Current ones use electricity from batteries part time. The electricity is generated by the gas engine and regenerative braking, which generates (partly) electrons instead of heat. Regular car brakes generate all heat. That's why hybrids are lots more efficient in city driving and not much different on the highway. I'm not sure if this came up anywhere, but because of gas prices and low production of the new technology, there is a premium on hybrids that is probably more than you would ever save in gas over the life of the vehicle. For example, Ford SUV hybrids are thousands over the list price vs. thousands under for a regular one. (OK, I didn't actually look this up, just heard it on npr. Check cars.com or edmunds.com) Other hybrid negatives not often talked about: Using and disposing of those metals in the batteries. And the extra weight deducts from mpg. I wonder if anyone has ever compared hybrids vs. regular vehicles in say San Francisco, where dragging the extra pounds up hills all the time should seriously reduce the hybrid advantage. I used to have a '62 Lincoln Continental there (5000 plus pounds powered by ineffecient 430 cubic inch V8.) I never checked city mpg, which would definitely have been in the single digits!

TJM,

The Saudis would pump more oil. They claimed it was to keep the price under $25/barrel to prevent alternatives. Who knows if that was true. Personally I think that was to keep people quiet and the real reason had something to do with a sweetheart deal from the US.

So why won't they pump more oil now? Either they don't need our protection anymore or they simply can't pump more. I'm guessing they can't pump more. Obviously none of the oil producers is afraid of the alternatives we were supposed to get when oil was over $25/barrel.

Where is the money going?

Into the pockets of Saudi and Kuwaiti Sheiks.

And from there into the pockets of their enablers (like George W Bush), and the pockets of the terrorists they pay off to keep the suicide bombers pointed at the US and Israel, instead of the true oppressors of the Arab peoples - Saudi and Kuwaiti Sheiks.

This is how it has always been, and will continue to be, until the oil runs out.

Fostert's "theory" that they're not investing in refining infrastructure, because they *know* that supply is declining, is also true. And as long as they can control distribution through their covert (and not so covert) cartel, they can enforce artificial scarcity to prop-up prices and profits.

We could have developed alternatives if we had started in the Carter era. Then the Sheik's would have to face their own people's wrath. But no. We wanted to elect a president "we could enjoy having a beer with".

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