Greenspan on PO...

As Mike Watkins says in the comments below: "PO folks should also read the comments of Federal Reserve Chairman Alan Greenspan in his semi annual testimony on Monetary policy before Congress today" (thanks Mike):

Selected snips below the fold...

In recent weeks, spot prices for crude oil and natural gas have been both high and volatile. Prices for far-future delivery of oil and gas have risen even more markedly than spot prices over the past year.

Apparently, market participants now see little prospect of appreciable relief from elevated energy prices for years to come.

Global demand for energy apparently is expected to remain strong, and market participants are evidencing increased concerns about the potential for supply disruptions in various oil-producing regions.

But, going forward, because of the geographic location of proved reserves, the great majority of the investment required to convert reserves into new crude oil productive capacity will need to be made in countries where foreign investment is currently prohibited or restricted or faces considerable political risk. Moreover, the preponderance of oil and gas revenues of the dominant national oil companies is perceived as necessary to meet the domestic needs of growing populations. These factors have the potential to constrain the ability of producers to expand capacity to keep up with the projected growth of world demand, which has been propelled to an unexpected extent by burgeoning demand in emerging Asia.

Now Mr. Greenspan is not signalling he's a peak oil believer at all, only identifying what he sees as the major risk - geopolitical turmoil preventing adequate investment overseas to find and develop more capacity.

This just underscores something we all likely intuitively know...Peak oil has an additional time pressure working against it - if its too hard to get at some of the remaining capacity, PO time frame advances...

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I've updated my weekly demand chart off this mornings EIA report:

Gasoline caught up to jet fuel and distallates this week and is now officially running higher than projections. At current rates (likely) total US demand growth is going to far exceed that which was planned for this year.

If the one of the worlds most transparent economies can't forecast demand growth closer than this, imagine how hard a job it is in a country like... China?

And China GDP growth just "surprised" analysts.

Gross domestic product rose 9.5 percent from a year earlier after climbing 9.4 percent in the first quarter, the National Bureau of Statistics said in Beijing. That beat the median 9.2 percent gain forecast in a Bloomberg survey of 13 economists.

They use more oil to grow GDP than we do...

PS, related to world economies -- Japan and a number of asian economies are being hit particularly hard by the recent run up in both oil and the US dollar.

The notion of "asian contagian II" - a repeat of the 1998 financial crisis, keeps swirling around in my head.

Consider this: the Japanese would welcome a weakening US dollar right now, as the cost of US dollars (which oil is bought in) is up over 8 percent in the last three months while at the same time oil itself is up over 22 percent leading to an approximate real price increase of 37%. *Since May*.

Often its not a price change which sinks an economy but the rate of change...

all we need is Michael Buffer and a "Sunday, Sunday, Sunday" reference...

From Mike's page, commenting on Greenspan today: "Unexpected? [burgeoning demand in emerging Asia] I don’t see how this could be so. Emerging economies are merely following in our footsteps".

Why would Greenspan have downplayed Asian demand before and be caught unawares that it is increasing rapidly now? Has he been in touch with GDP growth in China and the concomitant increasing energy demands? Is he senile? Did the world just pass him by? Is he baffled by the actual effects of globalization and our trade relations with China? What the hell is a reference to "Sunday, Sunday, Sunday"?

you know, just about every cheesy commerical for a concert/Harley show/car show with an announcer with a really deep cheesy voice, yelling "Sunday, Sunday, Sunday!"...

Dave - Greenspan has spent a lifetime choosing words very carefully; I doubt there is a single speech or prepared statement he has made in recent years that isn't very thoroughly combed and preened for nuances.

The 'street' spends an enormous amount of energy parsing much of what he says, although if it isn't directly related to interest rates I've noted they frequently give him a pass.

Perhaps they truly were caught by surprise but I can't imagine much slipping by them - not when it comes to raw data and facts anyway. We can argue at length as to how good a job Mr. Greenspan and cohorts have done in terms of managing the US / world(!) economy but that's not relevant to my point as I assume he at least is not blind to information.

China I view as a billion plus people all trying to fit through a too-small hosepipe that they are desperately trying to upgrade to a water main. The pressure for reform (which frequently means more consumerism than any real reform - gotta keep the massses happy or they will dethrone you after all) is enormous.

Back to Greenspan's speach - perhaps in one of his last testimonies before Congress he is sending a message. This one reads a little more like a warning than in the past; in previous reports to Congress and the Senate he's likened our current situation to history - how the world moved from wood to coal; coal to oil; and now... oil to the next thing, driven by the market place.

There wasn't any of that day dream prattle in this missive.

Speaking of Greenspan and risks he alluded to, there are reports in Middle Eastern news of an attack on oil pipeline in southern Iraq:

“Due to the explosion of a heavy bomb along the route of Mahmoudiyeh-Latifiyeh oil pipeline on early hours of Wednesday evening a part of it was set ablaze and the high flames due to the burning of the leaking oil covered a vast area for six hours.

Greenspan keeps us on the right track.


Greenspan may not be attuned to Peak Oil, or, given his bias to economic theory and history, may be fully relying on the "market" to solve all.

I'm not so sanguine... and the primary problem is lack of transparency in reserve figures and lack of openness in the big producing areas. We are left with "trust us" being the only way to deal with the big M.E. producers.

Hard to swallow.