Editore"s Note
Tilting at Windmills

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May 22, 2008
By: Kevin Drum

PEAK OIL WATCH....Why have oil prices doubled, doubled again, and then nearly doubled yet again over the past six years? Hedge fund speculation? A "risk premium" due to the Iraq war? Or genuine supply restrictions caused by the declining output of old oil fields?

I've long thought it was the latter — though I admit that the most recent doubling, which took place over a mere 12 months, looks so much like a bubble that it's given me pause. Today, though, the Wall Street Journal reports that even the International Energy Agency is getting gloomy. In the past, they've simply projected demand and basically assumed that OPEC could keep up, but now they've decided to take a closer look at that assumption:

The decision to rigorously survey supply — instead of just demand, as in the past — reflects an increasing fear within the agency and elsewhere that oil-producing regions aren't on track to meet future needs.

....The IEA's pessimism over future supplies has been building for some time. Last summer, the agency warned that OPEC's spare capacity could shrink "to minimal levels by 2012." In November, it said its analysis of projects known to be in the works suggested that the world could face a shortfall by 2015 of as much as 12.5 million barrels a day, unless there was a sharp drop in expected demand. The current IEA work aims to tally the range of investments and projects under way to boost production from the fields in question to get a clearer sense of what to expect in production flows.

"This is very important, because the IEA is treated as the world's only serious independent guardian of energy data and forecasts," says Edward Morse, chief energy economist at Lehman Brothers. Examining the state of the world's big oil fields could prod their owners into unaccustomed transparency, he says.

The IEA's concern is with both the absolute condition of the world's oil fields and the amount of investment being made in new projects. Either way, though, a shortfall of 12.5 million barrels is huge. If that's an accurate assessment, prices are going to have to double another couple of times to bring demand into line with supply. $500 oil, anyone?

Kevin Drum 1:55 AM Permalink | Trackbacks | Comments (106)

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I've long thought it was the latter — though I admit that the most recent doubling, which took place over a mere 12 months, looks so much like a bubble that it's given me pause.

Isn't this exactly what's predicted by peak oil/Hubbard Theory? Not a rhetorical question. Does this mean we're over the hump?

I remember being shocked when gas hit $1.60 a gallon after the outbreak of the Iraq War in 2003, now I don't blink at $4.00 for regular.

My ex-hippie, materialistic stepdad traded in his obnoxious gas guzzling Nissan SUV the size of an aircraft carrier and got a Nissan hybrid sedan. For what it's worth.

Posted by: No Car, Too Expensive on May 22, 2008 at 2:06 AM | PERMALINK

It does seem bubblish, what with food and commodities. A bit like the 70-80s. It went on for a while before turning.

By Saudi logic, even with the shortfall, they'll be noone asking for oil they can't supply.

I think the poorer nations are going to be choked off well before $500/barrel oil. Their per capita GNP and foreigh currency balances won't bear it for regular use.

But, hey, always look on the bright side. If, for once, liquid and gaseous fossil energy prices are sustained at ridiculously high levels, the USA may finally create a real energy plan and adopt policies to develop alternative and ecology friendly sources of power.

This will go down as another item this administration never saw coming, didn't have a clue about, and didn't develop any policy for. And, as a priority, they kicked off their first term with an energy policy completely divergent from the future interests of this country as a whole, taking all their advice from big energy.

Posted by: notthere on May 22, 2008 at 2:26 AM | PERMALINK

We underestimate how flexible we can be with gasoline use, I predict a fall back to $3.25. We are already down by 5%, we could easily do another 5%, bringing back 3 to 4 million barrels a day.

Unless China find a market on Mars, China will stabilize. Europe is now producing ultra lights vehicles. Europe and China could generate 2 million barrels in savings, even today, much less 5 years.

Price elasticity, the sensitivity of demand vs price is very low, meaning, up to this point the cost of gas has not been a terrible concern.

Now that we are concerned, see, we simply dropped usage by about 5% (I think). Easy, very little hardship.

Posted by: Matt on May 22, 2008 at 2:40 AM | PERMALINK

What's shocking to me is that the IEA could ONLY NOW be getting around to actually checking out supplies, as opposed to taking anyone's word for it. That hints at the incredibly blinkered worldview all these oh-so-serious energy analysts have historically carried around with them. Apparently, they have just blandly assumed that demand could pitch upward forever and ever and ever, amen, with never an end in sight. Idiots!

Environmentalists have been predicting this for a very long time. I remember back in the early 1980s listening to someone -- maybe Amory Lovins -- discussing peak oil, and noting that while utter precision was impossible one could with some assurance project peak oil to a period falling somewhere between 1995 and 2010. In fact, over the years I heard that general estimate many times. The specific years might change, but the range was about the same: 2000 to 2015, 1990 to 2005, always about like that. And of course, I think they have been proven right.

Posted by: Roger Keeling on May 22, 2008 at 2:53 AM | PERMALINK

Oh for Pete's sake! When I read things like this, as though peak oil is conjecture, it makes me want to beat my head against the wall. The Hubbard Theory is a theory the way gravity is. All this was predicted scientifically decades ago. The only thing in question was the exact date. As we have gotten closer, we now know that yes, indeed, the peak has come and gone. Demand has exceeded supply. Several fields are in decline. Prices can be artificially manipulated but no one's getting gas for cheap, and in the near future they'll be happy to have fuel to heat their homes.

Tapping environmentally sensitive regions and fighting over arctic reserves is just prolonging what anyone with foresight saw years ago: oil is depletable. In 100 years we pissed away what took millions of years to create.

The tragedy is that our government corporatocracy would rather have squeezed every buck out of oil without bothering to prepare us for a world without oil. And we cruised right alongside in our Alfred E. Newman SUVs (What, me worry?). There are some government that are preparing, Sweden for instance. China, too. We could join the club if the lobbyists would let us.

Try http://www.lifeaftertheoilcrash.net/

And you thought terrorists were your problem?

As Pogo said, "We have met the enemy, and he is us." The American laissez faire attitude toward any problems that require real sacrifice is astounding.

Posted by: Everyman on May 22, 2008 at 2:54 AM | PERMALINK

Timely post. A lot has transpired in the past week to make me rethink what's going on. I no longer believe that oil and gas prices are mainly a result of excess liquidity in the money supply, although that's still a factor.

A couple of things affected my change of thinking this week. First, I heard T. Boone Pickens say in an interview yesterday that he was wrong to have attributed what's happening in the oil market to speculation or the falling dollar. That it was simply a supply-and-demand issue.

Pickens noted that demand has now outstripped supply and shows no sign of slackening. The increase in demand for all the types of petroleum products has pushed average daily demand for oil to 87 mgpd, while world production has failed to stay above 85 mgpd.

Then I read American Airlines is parking 10% of its fleet, saying they just can't afford to operate those planes at today's fuel prices. Aloha Airlines just shut down for the same reason. Ditto ATA.

Today, I saw the same thing Kevin saw but stated differently:

The world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.

The Paris-based International Energy Agency is in the middle of a large study of the condition of world's top oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude-oil supplies could be far tighter than previously thought.

But the topper for me was a post about the futures markets by jeffvail on The Oil Drum.

To the greatest extent in the history of oil futures trading, oil prices are now in continuous contango--that is, oil futures get progressively more expensive each year into the future.

On the bright side, T. Boone Pickens offered a hopeful solution in his interview, leveraging a two-phase solution that incorporates a combination of wind, solar and natural gas to supply both electrical generation and transportation fuel. It's here if anyone is interested: http://www.cnbc.com/id/15840232?video=747990771

Posted by: DevilDog on May 22, 2008 at 4:42 AM | PERMALINK

Roger Keeling:

-- "What's shocking to me is that the IEA could ONLY NOW be getting around to actually checking out supplies" --

Many of the major oil producers treat information about their true production rates and future capabilities as secrets at the level of national security, not just commercially confidential. The Saudis are famous for this -- there are "rumours" the biggest Saudi fields are being steam-injected, but nobody knows for sure or at least they aren't talking publicly if they do. Steam injection means a field is tapped out, pretty much. They're big fields though so even in decline they're still a major producer on the world stage.

As for the concept of "peak oil" that is not a theory (oil will run out eventually) but it is simplistic. There's a lot of oil around, already surveyed and dialled-in but not being exploited because it costs too much to bring on stream. The oil from those reserves would cost a lot at the wellhead and can only be economically harvested if oil prices are high *and stay high*. The second factor is important -- spending fifty billion bucks and five years to start tapping, say, the oil around the Falkland Islands in the South Atlantic is only going to be justified if the oil delivered in five years time can be sold on the market at a hundred bucks a barrel plus. The peak of "peak oil" can be moved into the future quite a long way as prices rise. I don't think the proponents of the theory back in the 80s really envisaged 120 buck/barrel prices (and rising).

When the price of oil started going up last autumn the Saudis announced they had another 200 billion barrels in reserve. That was oil they knew about but couldn't afford to drill, pump and ship at the old price of 35-45 bucks a barrel, because of the cost of infrastructure and problems with geology.

Posted by: Robert Sneddon on May 22, 2008 at 5:56 AM | PERMALINK

Garrett Hardin made the Hubert curve a main element of his book about Living Within Limits, first published in 1993. It's interesting that even as we are beginning to feel the effects of peak oil passing, we continue to ignore the driving force of human population growth.

Posted by: Bob G on May 22, 2008 at 5:57 AM | PERMALINK

I am conducting my personal life under the assumption that gasoline will be $15 per gallon in ten years - buying two hybrid cars, a scooter, new bicycles, and putting solar panels on my house. I am also learning to eat more of a vegan diet, recycling and composting more, etc.. I urge everyone to do the same.

The days of cheap oil are over, folks. I hope President Obama initiates a crash program to develop new alternative energies - tidal, hydro, anti-matter, etc. The future is bright - but not with tired old Republican ideas....

Posted by: The Conservative Deflator on May 22, 2008 at 5:59 AM | PERMALINK

"Examining the state of the world's big oil fields could prod their owners into unaccustomed transparency"

I'm not quite clear why one follows from the other. As has been mentioned many, if not most, producers keep this information secret. There is every reason to believe that they do this to hide lower reserves than assumed, not the reverse.

As for the argument that higher prices will bring more production online, this is true, as far as it goes, but first there needs to be sufficient potential reservers available for development for this to lower prices. Despite news to the contrary, one simple cannot know in advance how much oil there is—and at what cost it will come—from any given field until it is actually tried.

Posted by: jhm on May 22, 2008 at 6:36 AM | PERMALINK

Actually there is a third reason. As Shell USA President Hoffmeister told the Senate JUDICIARY [?] Cte yesterday, over the last thirty years, the number of permits and EPA hurdles to surmount has prevented developing ANWR and other plays that would cushion the shocks we are feeling now

Blame for today's quandry should be shared by tree-hugging EPA & regulatory extremists and Bobo Boxer.

Posted by: daveinboca on May 22, 2008 at 7:02 AM | PERMALINK

"developing ANWR and other plays that would cushion the shocks we are feeling now"

Complete and utter bullshit, anyone who believes this is too stupid to comment on the issue.

Posted by: Rick DeMent on May 22, 2008 at 7:44 AM | PERMALINK

http://jameshowardkunstler.typepad.com/

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Jim Kunstler has been on this beat for years. His comment section is riddled with what is the typical reaction of most Americans. "Much ado about nothing" "The oil companies can turn it on and off at will" "The left wants to drive us back to a grazing, nomadic, tree hugging society" "The filthy Arabs are trying to break our backs". Drilling domestic reserves will struggle to produce from a few months to a few years of additional supply, forestalling by a relatively short period of time the day of reckoning. Many of the yet to be developed sources are astronomically expensive to extract, refine and distribute. Americans focus so much on the price of gas they scarcely realize how much oil permeates their existence otherwise. Plastics, fertilizer, lubricants, paints, solvents, fabrics, tires, asphalt, medicines and hundreds of other commodities and products will rise in price just as precipitously as gas and diesel. We are well and truly fucked. You just don't know it or won't admit it.

Posted by: steve duncan on May 22, 2008 at 7:47 AM | PERMALINK

What Roger Keeling said. Or rephrased, WTF?

For at least a couple of decades there have been credible estimates of a total supply of conventional oil of 2 trillion barrels. Not consensus estimates, but credible ones. As we closed in on 1 trillion barrels extracted and used, a continued exponential growth of demand pretty obviously leads to about 25 years of continuously expanding growth, followed by a tremendous crash. Since that seemed an unlikely scenario, it wouldn't take a genius to conclude that supply would actually start shrinking long before all the conventional stuff was gone.

I'm ruefully tallying how much time I've spent taking seriously and trying to counter optimistic scenarios about future oil, when the jackasses weren't even looking at supply to start with. Un-frickin-believable.

Posted by: Karl on May 22, 2008 at 8:01 AM | PERMALINK

"What's shocking to me is that the IEA could ONLY NOW be getting around to actually checking out supplies."

Why so shocking? What European bureaucrat is going to leave gay Paree to wander around an isolated oil field to get some stupid production figures? Pah!

Posted by: Bob M on May 22, 2008 at 8:14 AM | PERMALINK

DevilDog, T Boone Pickens keeps saying that oil can't go over 85 million barrels a day, but you can get stats that show it firmly over:

http://www.worldoil.com/INFOCENTER/STATISTICS_DETAIL.ASP?STATFILE=_WORLDOILPRODUCTION

I'm still a skeptic on this. It reminds me of sugar going from 3 cents in 1974 to 65 cents by May of 1975. A slow inexorable rise would be more scary. A rapid rise like this is often a blow off.

Posted by: Bob M on May 22, 2008 at 8:30 AM | PERMALINK

"developing ANWR and other plays that would cushion the shocks we are feeling now"

Complete and utter bullshit, anyone who believes this is too stupid to comment on the issue.

What Rick DeMent said.

Can't be said too many times. Well it can, but it never gets old. Well it does. But it never gets wrong.

"I'm still a skeptic on this. It reminds me of sugar going from 3 cents in 1974 to 65 cents by May of 1975." Bob M

Nonrenewable oil = renewable sugar? I guess if you could new grow oil fields every year, I'd be a skeptic too.

Posted by: Everyman on May 22, 2008 at 8:42 AM | PERMALINK

The IEA's concern is with both the absolute condition of the world's oil fields and the amount of investment being made in new projects.

So how high does the price of oil have to go for the invisible hand of the market to make people invest in new projects?

Posted by: anandine on May 22, 2008 at 8:57 AM | PERMALINK

The price of gas where I live has more than tripled since the invasion of Iraq ($1.30 to $4.11). Oddly enough, so has Exxon's profits ($11.5 billion to $40.6 billion in the past five years). While there has never been any doubt in my mind that we (and I do mean WE) have been recklessly profligate in our consumption of the stuff and the party was bound to end, there is something about the velocity of this surge in price, in such a relatively brief space of time, that is very fishy. If it's primarily a natural supply/demand spike, it's hard to believe that oil futures weren't sky high 5 years ago, unless short-sighted incompetence reigns in the industry and on Wall St.—which is not necessarily out of the question. But like the mortgage "crisis," I do think an investment market awash with cash garnered from vast increases in productivity, globalized cheaper labor costs, tax cuts and the like, has affected the market for virtually everything, including oil.

That said, it's about time for some serious conservation measures, but I don't hear anyone talking about bringing back the 55 mph speed limit, or raising CAFE standards, or no longer exempting 6,000 lb. SUVs from the gas-guzzler tax, etc., etc. We will, however, pass laughable bills in the House to sue OPEC for anti-trust. This is an area where truly Presidential leadership is required, especially after our recent catastrophic reign of blinkered, self-interested Oil Men.

Posted by: R. Porrofatto on May 22, 2008 at 9:08 AM | PERMALINK
Blame for today's quandry should be shared by tree-hugging EPA & regulatory extremists and Bobo Boxer.
Hee hee ha ha ho ho ho! Nice try, though.

Here, try this.
Jimmy Carter was right. Reagan's decisions to roll back alternative energy promotion and development were a bad mistake that has adversely affected US security and the economic prospects of future generations.
Sorry daveinboca, but that's the fact. We lost 30 years due to "conservative" intransigence and foolishness, and it's becoming more apparent each week that we can't catch up in time. Hope you're proud that you helped fuck your grandchildren.
By the way - my comment above completely disregards the long-term environmental impact of development based on fossil fuel use. Something else we lost 30 years on.

Posted by: kenga on May 22, 2008 at 9:16 AM | PERMALINK

There's this thing called the first law of thermodynamics, the law of conservation of mass/energy. Applied to oil, this means there's only so much to start with, and unless we start making more, it'll be gone at some point.

The faster we expand drilling, the quicker we run out of oil. Time to come up with alternatives before the wells runs dry.

Posted by: RepubAnon on May 22, 2008 at 9:19 AM | PERMALINK

At the risk of sounding like a broken recordecordecord, Kenneth Deffeyes, the Princeton geologist who knows more about oil than anyone in the White House, says that we passed the peak in 2005 or early 2006.

"In 1997 and 1998, a few petroleum geologists began examining world oil production using the methods that M. King Hubbert used in predicting in 1956 that United States oil production would peak during the early 1970's. These geologists indicated that world oil output would reach its apex in this decade - some 30 to 40 years after the peak in American oil production. Almost no one paid attention.

I used to work with Mr. Hubbert at Shell Oil, and my own independent research places the peak of world oil production late this year [2005] or early in 2006."

http://www.princeton.edu/hubbert/current-events-05-03.html

American oil production peaked in 1970. Hubbert's estimate erred on the side of generosity.

Posted by: Jeffrey Davis on May 22, 2008 at 9:26 AM | PERMALINK

I don't think it's an either-or situation. The Iraq War has exacerbated the problem. Where demand is strong, you can count on over-speculation, price gouging and other forms of consumer exploitation, too.

Congress is way behind the curve on investigating, on fuel standards, on other conservation measures and on pursuit of sustainable energy alternatives.

It's moved me to the most extreme political position of my life. I now support complete nationalization of the entire oil industry.

Posted by: Kevin Hayden on May 22, 2008 at 9:33 AM | PERMALINK

$500 oil, anyone?

Gas tax anyone (increasing by $.04/month for the next twenty years)?

No, didn't think so.

We're doomed.

Posted by: PeakVT on May 22, 2008 at 9:39 AM | PERMALINK

I left off the kicker:

In the January 2004 Current Events on this web site, I predicted that world oil production would peak on Thanksgiving Day, November 24, 2005. In hindsight, that prediction was in error by three weeks. An update using the 2005 data shows that we passed the peak on December 16, 2005.

http://www.princeton.edu/hubbert/current-events-06-02.html


Posted by: Jeffrey Davis on May 22, 2008 at 9:41 AM | PERMALINK

I posted this yesterday but it hasn't shown up. Maybe if I post it in sections...

Allow me a slight paranoia. Since W & Co. have been in office there have been some disturbing but coincidental tragedies and other bad news that seem to result in neo-con policies that turn out to be ''just what they wanted all along''. 9/11 resulted in an invasion of Iraq which we now know was what they planned even before that day [http://downingstreetmemo.com/archive/2004-10-31- HoustonChron-Herskowitz/].

Posted by: Agnostic on May 22, 2008 at 9:42 AM | PERMALINK

Remember that the nine largest private oil companies hold less than 5% of the entire world's proven oil reserves. The remainder is owned by governments. The US government controls about 20%. Best yet, on the average, 15% percent of the cost of gasoline at the pump goes for taxes, while only 4% represents oil company profits. So while the oil companies are making those "huge" profits, the taxes are almost 4 times that. Now who is doing the gouging ? It may be nice to believe that the American oil companies are to blame, but that misses the real culprit.

I think that most Americans just don't understand that the Democrats in Congress are busily implementing Kyoto .. on their dime .. even when the global temperatures have been more or less steady during the Bush years and are now dropping (Al Gore, venture capitalist, inconviently forgot to tell you that). This means that all solutions that involve adding to CO2 output are off the table .. even if that means super high prices and eventual rationing.

By the time any of the alternative energy products, that the Democrats in Congress are pushing, are ready for wide spread public use as a replacement for gasoline (after OHSA, FTC, DOE, EPA, the Serra Club, Public Citizen, AFSCME, Environmental Defense Fund, Earthjustice, GreenPeace et al are done with them), most of us will be long dead.

This means that, in the short term, we're all screwed. Then we die.

Posted by: Neo on May 22, 2008 at 9:42 AM | PERMALINK

In the case of oil & gas hard line conservatives have tried just about every trick in the book to obtain drilling in ANWR, National Parks and offshore but have been consistantly stymied by environmentalists and the general populace. Now that W has just months left in his reign suddenly oil prices shooting up (it does seem rather sudden, and apparently the price of gas has been manipulated in the recent past for W's benefit with the help of the Sauds [http://money.cnn.com/2004/04/19/news/ international/election_saudi/][http:// www.democracynow.org/2004/4/20/ did_bush_cut_secret_oil_deal]).

Posted by: Agnostic on May 22, 2008 at 9:43 AM | PERMALINK

Predictably the neo-cons are using the present price hikes as an excuse to demand drilling previously denied http://www.youtube.com/watch?v=IWGsnW_NnxE. A false Peak Oil (which, of course, will happen efentually) would benefit the oil companies.

Posted by: Agnostic on May 22, 2008 at 9:46 AM | PERMALINK

Though there have reportedly been some huge finds lately in [http://business.timesonline.co.uk/tol/business/ industry_sectors/natural_resources/ article3964957.ece Iraq], [http://in.reuters.com/article/oilRpt/ idINN1436789420080414 Brazil]

Posted by: Agnostic on May 22, 2008 at 9:50 AM | PERMALINK

[http://www.canada.com/topics/news/story.html? id=7534c4de-0c21-4653-a06b-112bc96b2708&k=6345 the Arctic] and [http://nextbigfuture.com/2008/04/usgs-bakken-oil- study-released-365.html the US], in a peak oil scenario they'd be able to charge 2 to 3 or more times what they charged just a few years ago for the very same quantity of gas - which is exactly what they are doing - and blame it on Peak Oil).

Posted by: Agnostic on May 22, 2008 at 9:52 AM | PERMALINK

"...it's hard to believe that oil futures weren't sky high 5 years ago, unless short-sighted incompetence reigns in the industry and on Wall St.—which is not necessarily out of the question."
Posted by: R. Porrofatto on May 22, 2008 at 9:08 AM
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Incompetence events occur and astound in the financial/commodity world. You'd think having
nominal control of trillions in assets would imbue a profound sense of responsibility in the players involved. Yet you have Moodys issuing faulty ratings on billions in financial intruments, costing thousands of investors a very tidy sum. Their explanation amounts to "The dog ate my homework" and everyone moves on to the next fiasco. Brilliant!

Posted by: steve duncan on May 22, 2008 at 9:52 AM | PERMALINK

"The US government controls about 20%"

Try 2%. Unless of course your including the oil we control in Iraq and Saudi Arabia . . .

I'm at a turning point in my career right now and have to decide whether to reenter the petroleum industry. Any opinions?

Posted by: asdf on May 22, 2008 at 9:54 AM | PERMALINK

Another example is the current world food price crisis which seemed to come out from nowhere. Europe has steadfastly refused GMOs despite the fact that the US has been trying for years to ram it down their throats. But now with this sudden crisis they are being almost forced to accept it [http://www.nytimes.com/2008/04/21/business/ 21crop.html?pagewanted=print]. It's the suddeness and timing of these events that has got me suspecious. Brother, can you spare a dime?

(P.S. sorry about those brackets around the links just cut and paste in your address bar then remove the brackets and they'll work)

Posted by: Agnostic on May 22, 2008 at 9:54 AM | PERMALINK

Neo wrote: "... global temperatures have been more or less steady during the Bush years and are now dropping ..."

That's a lie.

Posted by: SecularAnimist on May 22, 2008 at 9:54 AM | PERMALINK

Some one in Washington needs to ask those oil executives TODAY if they attended Cheney's still secret energy meeting way back when. Imagine the angst.

Posted by: slanted tom on May 22, 2008 at 9:55 AM | PERMALINK

Some one in Washington needs to ask those oil executives TODAY if they attended Cheney's still secret energy meeting way back when. Imagine the angst.

Posted by: slanted tom on May 22, 2008 at 9:55 AM
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Cheney would just issue a blanket "Fuck You" to all such queries and go hunting.

Posted by: steve duncan on May 22, 2008 at 9:59 AM | PERMALINK

The optimists (referred to as cornucopians), have blind sided themselves by only thinking of total reserves. We have 1.7 trillion barrels in unextractable oil shale, and maybe another trillion in almost unextractable oil sands. So we have simply been assuming we could just use this stuff as well. The problem is that it takes energy to extract the tougher grades of oil, so we end up burning oil just to extract more oil. Before long we might need to use two barrels to extract one, economics 101 says that won't happen. So we allowed CERA and IEA to let us sleepwalk into this crisis. The scary thing I read yesterday (unverified) is that 1 year old SUVs have now lost half their value. If owners of these vehicles who are seriously underwater on their car loans start mailing in the keys to the car, the finance crisis could be st to escalate.

Posted by: bigTom on May 22, 2008 at 10:05 AM | PERMALINK

Speaking of Peak Oil issues, here’s my take on the stupidity and pandering of Congress wanting to sue OPEC, complete with poll (on the low side, it now seems), of where you think oil prices will be by Labor Day.

(Early June, in my newspaper company, I’m going to do an op-ed suggesting we need to increase the gas tax.)

Posted by: SocraticGadfly on May 22, 2008 at 10:10 AM | PERMALINK

Regarding temperatures during the Bush Admin:

http://data.giss.nasa.gov/gistemp/2007/Fig1_2007annual.gif

As you can see, temps are still climbing. The assertion that temps have stalled has become a staple in recent months, but the assertion is coupled with examining temps beginning with 1998, an abnormally strong El Nino year. As you can see from the graph, 1998 was indeed a hottie, but 2005 was hotter and had no particular boost from El Nino. January of 2008 showed a sharp decline (which, I suspect, gave a boost to that line of cant), but temperatures quickly recovered and March was the second warmest on record.

Advice to Bozos #1: time series arguments that include LOTS of data are always stronger than time series arguments that truncate the set.

Advice to Bozos #2: don't bring parrot points to an argument where people with the facts will point them out. Save the parrot points for echo chambers and talk radio.

Posted by: Jeffrey Davis on May 22, 2008 at 10:16 AM | PERMALINK

Neo:

Is your point that global warming is unfairly sucking attention away from straight-up fuel shortages? That's not so much wrong as irrelevant. You can shift the political priorities around, but either way, it creates no new fuel supplies. And the kicker is that if you do increase supply, those new supplies simply accelerate consumption (absent, of course, central regulation and massive investment in alternative sources), so that there is no fundamental change in whether/when Peak will occur.

Posted by: biwah on May 22, 2008 at 10:19 AM | PERMALINK

Oil's great stuff. Gasoline is only one of many things you can make from it.

The world is finally realizing how valuable this stuff is.

Too bad we thought low mileage cars were "cool."

Maybe what we are seeing is the "bush premium."

Say... $100.00/barrel. Great legacy George.

And, yes, he is partly to blame since his administration has done zip to wean us from oil (ethanol is not carbon neutral, nor fossil fuel free).

Great bumper sticker:

If you don't believe in fossils, get rid of your car. *
(In other words, all creationists need to stop using fossil fuels)

*unless no petroleum was used during it's manufacturing.

Posted by: Tom Nicholson on May 22, 2008 at 10:24 AM | PERMALINK

I explained yesterday that simple issues of supply and demand don't account for all the runup in oil price. The Chinese et al have been wanting more, but not some big spike that would explain going up as much as it has so fast. What happened: traders have started to think of oil and futures (and worse, derivatives of same) as something to invest in, as a "hold". This has been acknowledged by the best economists and came out in recent testimony before the Senate. It may account for about 60% of the recent increase. The fundamentals just don't explain it, that might have led to around $90/bbl by now. The market is no longer ruled by fundamentals, but by speculators - it's like a housing bubble, indeed like the price of a stock going up on momentum and not fundamentals. This is something we can stop by for example taxing trading etc.

Everyone should let their fingers run not walk to see this fabulous post that explains how the rise of unregulated futures trading (and worse, futures derivatives - the ultimate "paper oil" market) is driving oil prices way up (estimate: about 60% of the recent price rise is due to speculation and not fundamentals - maybe with pure supply/demand and even peak oil, we'd be around 80-90/bbl.

Here is the link to the Senate testimony:
http://hsgac.senate.gov/public/_files/052008Masters.pdf
It is stunning to read.

One memorable line, paraphrased: We'd be up in arms if speculators were hoarding and trading futures in medicines and driving the price up, but speculation in oil hurts us too.

Posted by: Neil B. on May 22, 2008 at 10:32 AM | PERMALINK

Get a horse.

Posted by: Mike Meyer on May 22, 2008 at 10:33 AM | PERMALINK

Per IEA worries, I think the eventual 300,000 bbl/day that KSA offered Bush was worse than no offer at all.

Posted by: SocraticGadfly on May 22, 2008 at 10:34 AM | PERMALINK

Many of the yet to be developed sources are astronomically expensive to extract, refine and distribute. Americans focus so much on the price of gas they scarcely realize how much oil permeates their existence otherwise. Plastics, fertilizer, lubricants, paints, solvents, fabrics, tires, asphalt, medicines and hundreds of other commodities and products will rise in price just as precipitously as gas and diesel. We are well and truly fucked. You just don't know it or won't admit it.
Posted by: steve duncan

Add to the very tip-top of that list: Food and the energy to move it around. To say nothing of water.

Had a physicist pal in college waaaaaay back in the 70's who said that it was idiotic to frivolously burn up such a valuable resource. Fred is doubtless still laughing at the idiocy of species which posits infinite growth based on finite resources.

'At this point, you might be asking yourself: When oil becomes scarce, how will I get food? That's a very good question. Here are a few more: Will my garbage get picked up? How will my water district purify and deliver water and treat sewage without petrochemicals? What if I need an ambulance? What if my home is one of the 7.7 million that rely on oil for heating? Which of my medications are made out of petrochemicals? How will I get to work? Will I even have a job anymore?'

After oil supplies dry up, what's Plan B?
Extreme scarcity could be disastrous for U.S. economy
Erica Etelson
Sunday, August 26, 2007
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/
2007/08/26/INF7RM3OC.DTL

Posted by: MsNThrope on May 22, 2008 at 10:39 AM | PERMALINK

It's ironic that global warming will cure itself as the world runs out of oil.

But seriously, this is a massive failure of leadership. The Saudis, who have been lying about their reserves for years, and the oil companies are getting what they can while they can. No one, least of all BushOil, wanted to upset the apple cart by preparing the rubes for the end of the Age of Oil.

The coming disruption on every level could have been averted by leadership and planning.

Dust off that brick wall and clean the rifles. Somebody needs to pay.

Posted by: Paul in NC on May 22, 2008 at 10:42 AM | PERMALINK

Bob M,

I'm still a skeptic on this. It reminds me of sugar going from 3 cents in 1974 to 65 cents by May of 1975.

Sweet! I'd like to buy some oil futures from you at today's current price. How much would you care to sell? C'mon Mr Skeptic, care to risk your own money?

Aw shoot, since I'm not a Republican I can't take money from gullible ignorant people. I can't do it. Instead I'll give you clue - for free!

Now what is different between now and the 70's? Think the US and the world. Think oil production. You can do it. Try to use your brain . . .

Posted by: Tripp on May 22, 2008 at 10:43 AM | PERMALINK

3 Simple Facts:

1) There is a fixed supply of crude oil.
2) There is tremendous demand against a declining supply.
3) We will eventually run out of oil.

Before we either run out or develop alternative energy sources the price will go sky-high as users compete for the remaining resources. No rocket science is required.

We are seeing the begining of the end of the petrolium age. Disruptions will be massive.

Posted by: Buford on May 22, 2008 at 10:44 AM | PERMALINK

It's ironic that global warming will cure itself as the world runs out of oil.

Well, no. There's lots of coal and other forms of carbon. What might help is that the rising price of oil will make other forms of energy competitive.

Posted by: Jeffrey Davis on May 22, 2008 at 10:44 AM | PERMALINK


"So, after all this, we end up with the same old story. Whenever you see a financially driven boom and people tell you, "This time it's different," don't listen. It's never different. Sooner or later, the bubble pops, as it has now. And you and I end up paying for it."
- Allan Sloan

'We're all freaking doomed.' - The Mugambo Guru

Posted by: MsNThrope on May 22, 2008 at 10:57 AM | PERMALINK

The US is facing an existentialistic threat. The nation's completely dependent upon easy access to 1/4 of the world's daily production of petroleum, at an affordable price. This kind of vulnerability is usually something that an enemy will do to a polity - but the amazing willingness to look at the world with blinkered eyes, demonstrated regularly by Americans, is why the US is now in a corner it's painted itself into.

Up until very recently, Detroit was churning out land cruisers that slurped gasoline. Now, no one wants them as the threat is sinking in.

Oil should be at 5000/barrel as long as we keep burning it up in humongous, inefficient gas guzzlers. We are completely dependent upon a plethora of petrochemicals, down to the valves in an artificial heart or your replacement hip. And we have choses to squander this essential resource on driving a three-ton vehicle to the supermarket to get a sixpack of beer and a bag of chips.

Insane.

The times ahead are going to be trying. The IEA doesn't dare state what it's found. It's pulled back from its 120mbpd prognosis by 2036, and is now stating a ceiling of 100mbpd.
Well, there are bets in the oil industry that we'll never crack 90mbpd, we've fallen back from 86, and it doesn't appear we're going above 90.
Once that realization sinks in, life as we know it will change in ways you won't believe. And you will be telling your grandchildren about things we did with oil that they can only dream about.

As a final thought to ponder: we built our infrastructure and societies with cheap oil. Everyone stating that China and India will catch up with the West and surpass "us" are missing the crucial point that they'll have to do that with USD200/barrel oil as the average price. Never going to happen.

Posted by: SteinL on May 22, 2008 at 11:01 AM | PERMALINK

The well-named Tripp says,

"Bob M,"

---[quoting me] I'm still a skeptic on this. It reminds me of sugar going from 3 cents in 1974 to 65 cents by May of 1975.---

"Sweet! I'd like to buy some oil futures from you at today's current price. How much would you care to sell? C'mon Mr Skeptic, care to risk your own money?"

Hey, you don't need me to make a market for you. If you want to buy oil futures, you can do so with a broker who will buy on the NYMEX. Here it is:
http://www.nymex.com/index.aspx

If you want to speculate in oil futures, be my guest. I'm a skeptic on the sidelines, not a lunatic speculator. Only a nut would buy oil at this price.

Think for a minute. A Saudi prince could short the oil futures market big time just after he persuades the king or whomever to raise production. And it's even legal, for no conflict of interest could ever be proved. How could he lose? That is what you would be up against with your piddling trade. Markets are very dangerous, not for excitable chappies like you.

Posted by: Bob M on May 22, 2008 at 11:12 AM | PERMALINK

The American laissez faire attitude toward any problems that require real sacrifice is astounding.

Well, the alternatives would require work, and you can't expect an infantile society to go that route.
.

Posted by: Grand Moff Texan on May 22, 2008 at 11:21 AM | PERMALINK

From what I understand shale oil is extracted with microwave emitters in the well. The microwave heats up the oil to make it flow, I suppose. The energy cost may depend on how microwaves are pumped into the surrounding strata.

Posted by: Mike Meyer on May 22, 2008 at 11:23 AM | PERMALINK

Since oil shortages are now the conventional wisdom, especially on the left, this would be the perfect time to create an artificial shortage.

Who would investigate?
.

Posted by: Grand Moff Texan on May 22, 2008 at 11:25 AM | PERMALINK

It's ironic that global warming will cure itself as the world runs out of oil.

At first glance, yes that could be right. On second glance - why are there so many trees in the northeast now as opposed to the late 1800s? Because people stopped burning hardwood for heat and switched to oil, coal, natural gas.

As the price of heating oil and gasoline goes up, people will switch to natural gas (which will have its own peak) then to coal (which is a hideous environmental problem, and then to hardwoods. They'll switch to whatever is cheaper regardless of the true cost.

And since there's no energy policy in place, it will happen. Burning tons more coal to heat homes in the winter and cool homes in the summer will have a serious impact on the environment.

Posted by: on May 22, 2008 at 11:29 AM | PERMALINK

Some one in Washington needs to ask those oil executives TODAY if they attended Cheney's still secret energy meeting way back when. Imagine the angst.

Posted by: slanted tom on May 22, 2008 at 9:55 AM
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Cheney would just issue a blanket "Fuck You" to all such queries and go hunting.

Posted by: steve duncan on May 22, 2008 at 9:59 AM


But oil execs will be under congressional oath. (?) If they lie, they are guilty. If they refuse to answer, they are in contempt.

Posted by: slanted tom on May 22, 2008 at 11:29 AM | PERMALINK

Thanks for the link, Grand Moff.

Posted by: Bob M on May 22, 2008 at 11:33 AM | PERMALINK

Interesting fact:
The US military in Iraq is using 7% of our entire national demand. Equal to what ANWR would produce when fully tapped!!!
--

The US military is the biggest purchaser of oil in the world.

American GI is the most energy-consuming soldier ever seen on the field of war

“The Army calculated that it would burn 40 million gallons of fuel in three weeks of combat in Iraq, an amount equivalent to the gasoline consumed by all Allied armies combined during the four years of World War I.”

The U.S. military now uses about 1.7 million gallons of fuel a day in Iraq. … each of the 150,000 soldiers on the ground consumes roughly nine gallons of fuel a day. And that figure has been rising.”

http://www.energybulletin.net/13199.html

Posted by: Jay in Oregon on May 22, 2008 at 11:45 AM | PERMALINK

The oil from those reserves would cost a lot at the wellhead and can only be economically harvested if oil prices are high *and stay high*. - Robert Sneddon

...like the mortgage "crisis," I do think an investment market awash with cash garnered from vast increases in productivity, globalized cheaper labor costs, tax cuts and the like, has affected the market for virtually everything, including oil. - R. Porrofatto

Agreed. After reading the WSJ article I now believe that speculation/market manipulation and a falling dollar are responsible for 57% of the runup in price instead of 60% (snark). IEA is focused on the big fields. That's not where the new oil is going to come from. It's going to come from numerous smaller fields and will cost more to extract. As others have mentioned, developing countries are going to be cutting back demand and China will cut back as well when their economy finally slows because of sluggish exports. Something tells me that prices are going to drop signficantly, oh sometime in September/October this year, like just before the ELECTION.

Posted by: Doc at the Radar Station on May 22, 2008 at 11:47 AM | PERMALINK

Sneedon:'The peak of "peak oil" can be moved into the future quite a long way as prices rise.'

S. hasn't really read the peak oil theory...P.O. posits that you could have a dozen exploited ANWRs at this point and it *still* wouldn't keep things at peak or go higher...because the overwhelming number of existing fields' rapidly declining yields would pull the overall output down....and the cost of oil will be based on a double whammy: 1) soaring spiking price as inelastic and declining supply hits inelastic demand 2) The oil we get from new sources will have *much* higher production costs

Posted by: Stewart Dean on May 22, 2008 at 11:53 AM | PERMALINK

Grand Moff: Who would investigate?

Short answer: Nobody, of course. Your Congress; bought and and paid for by ExxonMobil etc. Grandstanding optional.

I'm no economist, but I always understood that with the law of supply and demand, for the price of something to double in a year either a) the demand has to double or b) the supply has to be cut in half or c) something combination.

I know that we're hitting a wall soon but I do wonder if the supply has been halved in the last year. Did't think so. Someone is playing games.

Posted by: thersites on May 22, 2008 at 11:54 AM | PERMALINK

As a movie buff, this is all reminding me of that movie Conan the Barbarian, in which they had to transport things on horse-drawn carts, abd power their mills by barbarian-power.

Posted by: Swan on May 22, 2008 at 11:56 AM | PERMALINK

All this idol chit-chat about whudunnit - and yet not a single mainstream media source points to the TRUE culprit: a rancid government which stole its way into office, then proceeded to devalue the entire country in order to pay for a war against dark-skinned people who happened to sit on top of a big pool of black gold. You know, “terrorists”. Give me a break.

From yesterday's LA Times joke of a tabloid, which pinned the blame squarely on evil commodities speculators:

“The American people are about to take out pitchforks” because of the cost of groceries and gasoline, Sen. Claire McCaskill (D-Mo.) said during a Senate hearing on whether commodities are being pushed higher by investors’ high-stakes bets that prices will keep going up. Given the uproar from consumers, McCaskill warned an official from the U.S. Commodity Futures Trading Commission, “if you don’t do something, Congress will.”

Like what, continue to sit on your fat butts while BushCo, Inc. takes the dollar all the way down to “completely worthless” vs. “almost worthless”? Not a single stitch of truth in the midst. Blame the random, easy to target source for the issue YOU created through your continued 7+ year appeasement of GW’s dollar destruction policies, wink wink, nod nod.

Want to know more about the dollar collapse? Follow this:

http://angrycitizen.com/?cat=18

Posted by: angry citizen on May 22, 2008 at 11:59 AM | PERMALINK

All this idol chit-chat about whudunnit - and yet not a single mainstream media source points to the TRUE culprit: a rancid government which stole its way into office, then proceeded to devalue the entire country in order to pay for a war against dark-skinned people who happened to sit on top of a big pool of black gold. You know, “terrorists”. Give me a break.

From yesterday's LA Times joke of a tabloid, which pinned the blame squarely on evil commodities speculators:

“The American people are about to take out pitchforks” because of the cost of groceries and gasoline, Sen. Claire McCaskill (D-Mo.) said during a Senate hearing on whether commodities are being pushed higher by investors’ high-stakes bets that prices will keep going up. Given the uproar from consumers, McCaskill warned an official from the U.S. Commodity Futures Trading Commission, “if you don’t do something, Congress will.”

Like what, continue to sit on your fat butts while BushCo, Inc. takes the dollar all the way down to “completely worthless” vs. “almost worthless”? Not a single stitch of truth in the midst. Blame the random, easy to target source for the issue YOU created through your continued 7+ year appeasement of GW’s dollar destruction policies, wink wink, nod nod.

Every commodity is booming, the entire sector is in a bull market. There's one reason for this, and one reason only: The Treasury has been printing massive quantities of U.S. Dollars in order to pay for trillion dollar wars of choice. In effect, we're all being taxed on a "de facto" level. Wake up, sheeple.

Want to know more about the dollar collapse? Follow this:

http://angrycitizen.com/?cat=18

Posted by: angry citizen on May 22, 2008 at 12:01 PM | PERMALINK

Something tells me that prices are going to drop signficantly, oh sometime in September/October this year, like just before the ELECTION.
Posted by: Doc at the Radar Station


Good grief! I go away for all this time and what do I find: Doc's getting a cynical as me. Eat more fiber, Doc.

(And Brojo still doesn't get that apples aren't oranges - some things haven't changed an iota.)

>grins

'There is a flaw in our precious Constitution, and I don't know what can be done to fix it. This is it: Only nut cases want to be president'. - Kurt Vonnegut
Posted by: MsNThrope on May 22, 2008 at 12:07 PM | PERMALINK

The sooner oil hits $500/barrel, the better off the world will be. Oil is wretched stuff, as I heard some bloke on Bloomberg say.

I saw something on one of the network news programs last night that said US speculators have purchased as much oil as through the futures markets as China uses in a year. The network intimated pension funds were the reason behind the speculation and oil's rising price. The networks have to blame people's retirement savings for the problem of higher gas prices, not the devaluation of the dollar by the Fed.

Posted by: Brojo on May 22, 2008 at 12:09 PM | PERMALINK

Public goods, like education, do not follow the same economic rules of supply and demand like commodities do.

Posted by: Brojo on May 22, 2008 at 12:13 PM | PERMALINK

I'm no economist, but I always understood that with the law of supply and demand, for the price of something to double in a year either a) the demand has to double or b) the supply has to be cut in half or c) something combination.

I know that we're hitting a wall soon but I do wonder if the supply has been halved in the last year. Did't think so. Someone is playing games.

Posted by: thersites on May 22, 2008 at 11:54 AM

Thersites (same as blogger and "Thers" I presume), please read my post upthread from at 10:32 AM. No the supply and demand didn't get that far out of balance that fast, it is now clear enough that speculation and a move to using oil as an investment hedge like houses or gold is running the price way up lately. Those games are costing us dearly and the better anger should be focused against that and not oil companies as such. BTW, of course the usual lifting of regulatory oversight and merry-go-round between industry and regulators (and don't be complacent about Democrats ...) is much to blame.

tyrannogenius

Posted by: Neil B. on May 22, 2008 at 12:21 PM | PERMALINK

Thersites, I saw your note elsewhere that you aren't the "Thersites" blogger, who is also I suppose the one who signs "Thers" on various blogs. BTW those are interesting posts, from he/she and yours as well.

PS: The article about the oil trading scam etc. (and the preparatory debasing of oversight that enabled Enron etc.) at http://www.star-telegram.com/ed_wallace/v-print/story/651928.html is absolute dy-know-might! The next installment comes out soon.

Posted by: Neil B. on May 22, 2008 at 12:37 PM | PERMALINK

There are two different sets of questions to be addressed. First there is the set of questions about the long term slow moving peak oil crisis. There is no doubt that peak oil is real, and that we have already passed it, but peak oil doesn't mean we have run off a cliff. As peak oil sets in there should be a long relatively slow but steady price rise. The effects of peak oil will be measured in years, not weeks. Peak oil is important and needs to be addressed. Frankly peak oil will require new leadership both political and economic. The "personal greed is good" crowd currently running America is not up to the task. The more I look at the problems associated with peak oil the more I think they can be solved. Of course we do have to stop doing stupid things like driving giant SUVs and burning heating oil. The long term solution includes the reintroduction of passenger railroads. Cities are going to have to install alternative or complementary public transportation systems. The Europeans have been doing both trains and light rail for years. I don't see their standard of living in decline.

The second set of questions has to do with the immediate crisis. The 30% increase in the last few months smells like a bubble. I get the feeling that the "greed is good" crowd is taking advantage of the rest of us just like the Enron people did to California a few years back. If the current problem is a bubble, it will burst in a few months. In the meantime, since the oil bubble helps only a few and hurts most, the world economy is going into the toilet. A lot of folks in 3rd world countries are going to starve to death.

Oh, as to the cost of extraction, oil sands and oil shale are expensive to extract. The last I looked they both cost about $60.00 per barrel, as opposed to about $10.00 a barrel for lite Saudi crude, but not much more than the cost of the deep ocean wells. The current price of oil is about $135.00, or more than enough to give people an incentive to mine the oil shales and tar sands.

The first thing we have to do is stop driving low mileage SUVs to the grocery store. The second thing we have to do is stop using oil to heat our homes. The third thing is to start using mass transit where possible. Where not possible we need to use commuter electrics. We have to improve our road and energy infrastructures. We have to stop using oil and natural gas to make electricity. High speed passenger rail will go a long way to solving the high cost of jet fuel. We have to use our new communications infrastructure to move from an office building based economy to a home based economy.

Our oil problems are hard but not impossible. To the guy above who said the sky is falling, just remember Chicken Little was wrong. On the other hand if we continue to let Dick Cheney and his posse run America's energy policy we are well and truly fucked.

Posted by: Ron Byers on May 22, 2008 at 12:38 PM | PERMALINK

My money is on Hedge fund speculation?

Anyone remember Enron? Rolling Black outs!

What we need is some trust-busting.

Posted by: antiquelt on May 22, 2008 at 12:46 PM | PERMALINK

Well, the CO2 problem seems to have its own cure....

Posted by: Jet on May 22, 2008 at 12:46 PM | PERMALINK

Ron, I wonder how the cost of extraction of oil will itself increase with increasing energy costs. Also, note that Europeans pay more for refined gas at the pump, but industrial users pay approx. market bbl cost so it isn't like a German plastics maker pays about double what ours pay for petro raw material.
I wonder if progressive types can team up with the vast base of industrial and commercial users of oil against the market trading blocs, since we need that sort of teamwork between blue-color and real-value business to win.

Posted by: Neil B. on May 22, 2008 at 12:46 PM | PERMALINK

Good post Ron.

Posted by: optical weenie on May 22, 2008 at 12:48 PM | PERMALINK

Oh, Angry Citizen: "There's one reason for this, and one reason only: The Treasury has been printing massive quantities of U.S. Dollars in order to pay for trillion dollar wars of choice. In effect, we're all being taxed on a "de facto" level. Wake up, sheeple." - No, too simple minded. Fundamentals and dollars can't account for all of the recent steep rise. Don't you understand bubbles, speculation, etc? The way you blow off critical regard of the trading pits is naive (well, those scrappers on the floor aren't at the top, it's hedge fund managers and derivative traders that really run things up.)

Posted by: NB on May 22, 2008 at 12:50 PM | PERMALINK

Told you so. Dumbasses.

(of course, much of this has to do with the declining value of the dollar due to lowering of the Fed rate - as a cushion for declining home values!)

There are really two options:
either the petroleum supply industry is RIGGED.
(in which case, they need to be lined up against a wall and shot)
or - they are unable to increase the supply to meet the demand.
(in which case, alternate-energy opposers need to be slapped, and told; "I told you so, you big jackass!")

Even if we had dumped BILLIONS into alternate energy in the 1970's, we'd still have a really serious shortfall today. But at least it would not be the huge shock to our economy, because we'd have a technology and an infrastructure to act as a cushion. Now we've got to try to build that technology and infrastructure at a historical time where BILLIONS won't be enough (because the dollar has dropped like a rock - BILLIONS could not reconstruct Iraq!) - My guess is that our opportunity to maintain some semblence of a modern economy has passed, and we will now revert violently into barbarism as the world's oil supply runs out, and no available alternatives exit.

Posted by: osama_been_forgotten on May 22, 2008 at 12:52 PM | PERMALINK

I still think speculators arent helping by helping to drive prices up and congress needs to enforce the CFTC and regulate the greed.

A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “…there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”

What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.

The Senate report was ignored in the media and in the Congress.

The report pointed out that the Commodity Futures Trading Trading Commission, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, “Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.”

Further, the CEA directs the CFTC to establish such trading limits “as the Commission finds are necessary to diminish, eliminate, or prevent such burden.” Where is the CFTC now that we need such limits?

They seem to have deliberately walked away from their mandated oversight responsibilities in the world’s most important traded commodity, oil. -F William Engdahl
http://www.globalresearch.ca/index.php?context=va&aid=8878

Posted by: Jet on May 22, 2008 at 12:59 PM | PERMALINK

There are really two options:
either the petroleum supply industry is RIGGED.
(in which case, they need to be lined up against a wall and shot)

or - they are unable to increase the supply to meet the demand.
(in which case, alternate-energy opposers need to be slapped, and told; "I told you so, you big jackass!")

I work in the domestic oil exploration business. I can tell you that it is the latter. We are spending more and hitting less. The major plays on the shelf are done. Either you are in ever deeper water, or you are going after plays that were considered marginal just a few years ago.

The other kind of drilling is to punch holes in producing formations to drain them faster.

Buy a bicycle.

Posted by: SnarkyShark on May 22, 2008 at 1:12 PM | PERMALINK

Eat more fiber, Doc.

Hmmm. Maybe that's the problem! I've cut back on my favorite Nabisco Triscuit™ snack crackers of late due to a 50% price increase over the last few months. As far as oil goes... I'll play Devil's Advocate here and say that demand for gasoline IS higher in the Spring/Summer and that could account for a lot of run up in current price. When Summer driving season is over prices tend to drift down in the Fall. Seeing that seasonal price trend being magnified over the past few years would indicate a tightening of real supply and spare capacity which would lend weight to the ("it's all supply/demand") argument.

Posted by: Doc at the Radar Station on May 22, 2008 at 1:19 PM | PERMALINK

In November, it said its analysis of projects known to be in the works suggested that the world could face a shortfall by 2015 of as much as 12.5 million barrels a day,

What's the forecast of alternative fuel generation by 2015? What's the forecast for CO2 sequestration (permitting synfuels generation) by 2015? If you are going to torment yourself with forecasts, you should at least think about a lot of them at the same time.

Note the phrase "projects in the works". consider how many projects are prohibited by law.

Posted by: spider on May 22, 2008 at 1:20 PM | PERMALINK

PEAK OIL WATCH

Amazing ain't it that there are no gas pumps running out of gasoline, like there was in the 70's, just a price peak.

And there is talk from oil people saying peak is 50 years from now, but what the hey. When it does crash, and it well - it's bubble, and it isn't anything else. The oil companies can push it up - it gets closer and closer to the breaking point, and US citizens already are not buying as much. Something will give - panic.

It's like how the war in Iraq is actually about oil - and not anything else. But we know that, don't we.

Posted by: Me-again on May 22, 2008 at 1:22 PM | PERMALINK

The head of the D.O.E. Sam Bodman was venture capitalist for Fidelity Investments.The acting Dep.Sec. of Energy -Jeff Kupfer was with the Justice Dept., Treasury Dept. ,legal advisor for W's tax overhaul. And Bud Albright-Under Sec. of Energy, was V.P. Federal Affairs for Reliant Energy out of(you guessed it) Texas. Face it kids.The E.I.A. is in the D.O.E.'s pocket.And we are getting S.C.R.E.W.E.D. Follow the numbers. 1977-2004-2007

Posted by: BREEZE on May 22, 2008 at 1:38 PM | PERMALINK

R. Porofatto: If it's primarily a natural supply/demand spike, it's hard to believe that oil futures weren't sky high 5 years ago, unless short-sighted incompetence reigns in the industry and on Wall St.—which is not necessarily out of the question.

It has been surprising how rapidly demand has grown in China and India in recent years. However, the Republican Congress since 2001 has attempted to increase U.S. domestic supplies, and they have been mostly unsuccessful. The exact details of what we now face (gasoline about $4/gal hereabouts) were not predicted, but the basic supply crunch has been anticipated.

Also unanticipated have been the sudden production declines in Russia, Venezuela and (parts of) Nigeria, after years of expansion.

This isn't that unusual in human life: a trend vaguely anticipated has happened more rapidly than expected. It's taking a while for all the details to sink into public knowledge. Lots of behavior (like the U.S. House's bill to sue OPEC) simply has to die away before any clear thinking emerges as dominant.

In the California electricity crisis it took a while for Californians to get their act together and solve the crisis, but they did. I expect the U.S. to take a while longer to get its act together and solve the fuel crisis, but I expect that they will. As the T. Boone Pickens story above illustrates, lots is being done by many people. We'll know that we've "turned the corner" when the Nantucket wind farm finally gets built.

Posted by: spider on May 22, 2008 at 1:41 PM | PERMALINK

Yeah, Good 'un, Ron.

The world simply does not have the resources, renewable or otherwise, to sustain Western lifestyles across the globe. - Eamon O'Hara
Posted by: MsNThrope on May 22, 2008 at 1:51 PM | PERMALINK

doc: Something tells me that prices are going to drop signficantly, oh sometime in September/October this year, like just before the ELECTION.

or perhaps after the summer holiday season.

For Americans who drive to picnics, the gasoline still costs less, in total, than the potato chips or beer.

Posted by: spider on May 22, 2008 at 1:54 PM | PERMALINK

There is just enough oil left to power the last chainsaw cutting down the last tree in the Amazon Desert.

Unless we begin right now to using existing proven technology like Solar One Nevada on a Grand Scale to produce all the electricity we need from non-polluting, non-greenhouse-gas-producing solar-thermal-to-electric generation plants.

We need cover no more than 0.5% of the continental US with these existing collectors to produce twice our current electrical output for all our industry, housing, electric cars buses and trains.

The clock is ticking.

Posted by: on May 22, 2008 at 1:58 PM | PERMALINK

For Americans who drive to picnics, the gasoline still costs less, in total, than the potato chips or beer. Posted by: spider on May 22, 2008 at 1:54 PM | PERMALINK

Wow, that' just...I mean if that's not the most disingenuous thing ever written what is??? Talk about your attempt to crowd out a whole host of uncomfortable issues with a false comparison.

The rising cost of gasoline is literally forcing the poorest among us to choose between driving and eating, or driving and paying their bills. For others it's driving down the price of their suburban homes, raising the cost of every transported good or service, and driving down everyone's net income.

Also unanticipated have been the sudden production declines in Russia, Venezuela and (parts of) Nigeria, after years of expansion

Uh, no. Like the suite of issues around the Iraq invasion, these problems were anticipated by people like US, they were just not listened to by people like YOU, at a terrible cost to EVERYONE merely to satisfy your egos and ideological agendas.

I have to say, I take great satisfaction in the fact that you're forced to post here under as "spider" -- because if anyone reading these comments were to google yours posts as MatthewRMarler they'd see just how utterly and completely wrong you've been in your predictions about the energy situation in the U.S.

Disastrously wrong.

You do not deserve a platform here, you deserve to be run out on a rail for all of your banal , pollyanna propaganda posing as analysis. The happy talk from hell that you've been spewing is a threat to the prosperity, if not the very survival of the human race.

Posted by: trex on May 22, 2008 at 2:39 PM | PERMALINK

Bravo (a?) Trex!

Posted by: MsNThrope on May 22, 2008 at 4:03 PM | PERMALINK

What if we bring back the dinosaurs? They dive into the tar pits and, viola, more oil. No?

Posted by: Dr Wu, I'm just an ordinary guy on May 22, 2008 at 4:51 PM | PERMALINK

We are unbelievably fucked. But! I suppose if 75% of us die the need and ability to pour CO2 into the air will reduce considerably.

Posted by: MNPundit on May 22, 2008 at 5:17 PM | PERMALINK

I disagree about being fucked if oil either becomes too expensive to use or even runs out. People are generally clever and there is so much free, and relatively clean, energy available that they will find countless ways to harness it. What prevents those alternatives from being implemented or discovered are the low opportunity costs associated with cheap oil. Those costs are rapidly rising, both monetarily and in knowledge about oil's environmental costs, and they will drive the innovation needed to make the future much better.

Posted by: Brojo on May 22, 2008 at 6:36 PM | PERMALINK

Thirty years ago, when I got my undergrad in Geology and an a M.S in Geochemisty, Peak Oil was well known.

Whether it's today or twenty years from now, the concept is the same. We are running out of easy to find, easy to produce cheap oil. We will continue to find oil. Some finds will be husge. But, worldwide demand is exceeding cheap supply.

And the funny part is, the energy companies will make more money (in constant dollars) on expensive oil than they ever did on cheap oil. Why would they want us to kick our oil addiction now?

Maybe they plan on taking that excess profit and plowing in back into alternative energy or research to fund new technologies to make new finds cheaper to extract (think Brazil).

Or, maybe they will just give the execs mega millions in bonuses for making more money in a game they couldn't lose if they tried.


Posted by: MLuther on May 22, 2008 at 6:40 PM | PERMALINK

get rid of this pathetic of a president. moron doesnt care. and yes, there's cheney. he is making money everytime the oil spikes and all of us know who the real president is.

Posted by: dave on May 22, 2008 at 6:42 PM | PERMALINK

There has been chatter about the infamous Cheney Energy committee, and all the oil execs who sat on it, and how they wont release the minutes.

Thats true, but not why you think.

One of the people on the committee was Matthew R Simmons, who is essentially God on this stuff. He wrote 'Twilight in the Desert', has a great web site at www.simmonsco-intl.com and has a day job as a Houston energy banker.

He thinks Peak Oil is absolutely here, and that as well as the below-ground issue we have an above-ground issue in aging infrastructure - not just the old steel pipe and the old steel platforms, but a rapidly aging industry workforce.

He believes in a massive, immediate move to water and rail, local food for local people and a bunch of other stuff that your average Green party would happily vote for.

He makes essentially the same speech on this to a bunch of people every so often.

A Houston Energy banker demanding conservation and mass transit expansion isn't exactly what Dick wanted the minutes to show.

Therefore, no minutes.

Ian Whitchuch

PS FWIW, he's sticking his money into Ocean Energy.

PPS MLuther, if by 'oil companies' you mean Aramco, Gazprom and the State of Oklahoma, sure.

Posted by: Ian Whitchurch on May 22, 2008 at 7:36 PM | PERMALINK

http://www.financialsense.com/editorials/engdahl/2008/0521.html

Late last month in Dallas Texas, according to one participant, the American Association of Petroleum Geologists held its annual conference where all the major oil executives and geologists were present. According to one participant, knowledgeable oil industry CEOs reached the consensus that "oil prices will likely soon drop dramatically and the long-term price increases will be in natural gas."

Just a few days earlier, Lehman Brothers, a Wall Street investment bank had said that the current oil price bubble was coming to an end. Michael Waldron, the bank's chief oil strategist, was quoted in Britain's Daily Telegraph on Apr. 24 saying, "Oil supply is outpacing demand growth. Inventories have been building since the beginning of the year.”

In the US, stockpiles of oil climbed by almost 12 million barrels in April according to the May 7 EIA monthly report on inventory, up by nearly 33 million barrels since January. At the same time, MasterCard's May 7 US gasoline report showed that gas demand has fallen by 5.8%. And refiners are reducing their refining rates dramatically to adjust to the falling gasoline demand. They are now running at 85% of capacity, down from 89% a year ago, in a season when production is normally 95%. The refiners today are clearly trying to draw down gasoline inventories to bid gasoline prices up.
+++++++++++++++++++++++++++++++++++++++++++++++++
What if we bring back the dinosaurs? They dive into the tar pits and, viola, more oil. No?
Posted by: Dr Wu, I'm just an ordinary guy

Well, there is a recent oil discovery off the coast [150 miles] off Brazil. The oil however is under 6 miles of water and 1 mile of salt. So I dont think oil is fossil, but abiotic in nature.

Posted by: on May 22, 2008 at 9:18 PM | PERMALINK

Are any liberals logical enough to make the connection yet between population and declining natural resources?

Seems like they're forever calling for wave after wave of fecund chamberpot immigrants and illegal aliens who love those Suburbans and minivans to haul around the numerous offspring. Any liberals checked on population projections due to the unparalleled immigration of today?

Posted by: Luther on May 22, 2008 at 10:54 PM | PERMALINK

The oil however is under 6 miles of water and 1 mile of salt. So I dont think oil is fossil, but abiotic in nature.

OK, I have been out of the GeoBiz for a couple of years, but I see the BS abiotic theory still refuses to die. Actually I should say hypothesis, which leads to the questions below:

How many abiotic fields have been identified to date?

Why would a depth of one mile of salt cap preclude it from being organcic?

I will go grap a drink and wait on a reply...

Posted by: MLuther on May 22, 2008 at 11:26 PM | PERMALINK

trex: Like the suite of issues around the Iraq invasion, these problems were anticipated by people like US, they were just not listened to by people like YOU, at a terrible cost to EVERYONE merely to satisfy your egos and ideological agendas.

It is true that capitalists in general believed that the renationalization of the oil industries by Russia and Venezuela would eventually reduce output by those countries. What was unanticipated was the speed with which it happened.

there may be people who are literally forced to choose between eating and driving, but for everyone else the decision is how far to drive, or how long to postpone their next flight. And there are people who spend more on beer than gasoline. These comparisons are unpleasant to you, but that does not make them false. People rank order incommensurable alternatives all the time, but they do not universally agree on the rankings. When you disagree with the resultant rankings, that does not make them "false". If anybody in the U.S. Congress cared about poor people, they'd repeal the tariff on ethanol to tide us through this transient supply crunch.

Posted by: spider on May 23, 2008 at 12:11 AM | PERMALINK

Ron byers: On the other hand if we continue to let Dick Cheney and his posse run America's energy policy we are well and truly fucked.

Don't overlook the role of Congress in energy policy. If Cheney had his way, we'd be pumping from every field within 200 mi of our shoreline.

Posted by: spider on May 23, 2008 at 12:16 AM | PERMALINK

I'll try ro skim through this, but rosey Matt, at 2:40 a.m, sketches a market like the rest of the world depends on the US.

HELLO! The World Is Changing!

India and China can now self-generate growth if they don't overdo it. Europe, in total is a larger market than the US, trades with China too. The US didn't close down, just dropped demand for Chinese goods a wee bit.

Jeesh.

And the sun orbits the moon.

Posted by: notthere on May 23, 2008 at 12:26 AM | PERMALINK

Luther, last time I looked, as on the farms, the destruction of the unionized meat markets and meat packerss, the employment of low-wage illegal immigrants and the destruction of better paying jobs always had more to do withg the Republican party and lobbyists than any number of liberals.

Similarly, the avoidance of dealing with this issue in any forward looking way particularly comes down to this administration and its ignoring of law and its application.

Thirdly, anything Bush says comes out only one side of his mouth. The other side supports the employers and corporate lobbyists, The Republican Party has done the right thing, for once, in exposing the contradiction unsubtlely and directly.

Fourth, it is particualrly the Republican party that continues to put out the lying meme that we need population growth for a healthy economy.

Ugh! Listen to the debate!

Posted by: notthere on May 23, 2008 at 12:38 AM | PERMALINK

Luther,

Are any liberals logical enough to make the connection yet between population and declining natural resources?

Since these mythical "liberals" are all in your head you'll have to tell me.

In the meantime I do a agree with part of what you say.

We push people off their land and take away their livelihood (all for the greater good of "development," donchaknow) and then the ungrateful bastards don't have the common decency to die in peace. Instead they keep living and try to actually go to where the jobs are!

Worse yet we refuse them contraceptives and then the idiots actually BREED! What is wrong with those people?! Don't they understand they must sacrifice so that we can get dollar double cheeseburgers I mean feed the world?

Posted by: Tripp on May 23, 2008 at 12:04 PM | PERMALINK

Luther, go back to Wittenberg and leave the Western Hemisphere to its indigenous people.

Posted by: Brojo on May 23, 2008 at 12:45 PM | PERMALINK

Crude threat
May 15th 2008
From The Economist print edition

'Goldman Sachs reckons that some $3 trillion of wealth was transferred from oil consumers to oil producers between 2001 and 2007 and the pace of transfer is running at $1.8 trillion a year. - http://www.itulip.com/forums/showthread.php?t=4090

That's a lotta dollar cheeseburgers...

Posted by: MsNThrope on May 23, 2008 at 12:51 PM | PERMALINK




 

 

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