It depends on how governments and institutions handle the crisis. If they let the marginal bank and hedge fund fail, this will have a domino effect on consumers and demand will drop - this would probably be best for long term financial health (if thats a valid word combination...;) This would be deflationary

Alternatively, they could refuse to let any banks fail - and provide liquidity at the discount window whenever necessary. These billions don't come out of thin air - well actually they do. So there are more dollars/Euros/Yen chasing fewer barrels of oil and MCF of gas - hence inflation.

Were I running a hedge fund, I would be a huge buyer of 'vol', as I expect some 3-4 standard deviation events in energy and financial markets in coming years - we've never been dealt a hand quite like this one and people normally underreact to large themes.

If there were a pure play on a company that made tranquilizers and sedatives, I might buy that...

the problem with the poll is that we are looking at a recession in 2008, but possible hyperinflation after that. if I was asked for the next 6 months, the answer is very different from the answer for two years.
I think that $60 is possible in 2008, but $200 is also possible in 2010. It all depends in too many longer term variables that are currently unknowable. The only fact is that a constant is that oil production will be declining in the future.

"Monetary purists object to my characterizations, but my best estimate is that we should expect to see deflationary trends in the auto/housing/finance sector and inflationary trends in food & energy."

WT! You got the lingo! You sounded just like an economist there for a minute.

:) :) :)

Jeffrey - I think you are spot on here. And the evidence is already there in UK equities for all to see. Banks and house builders have been hammered, energy and resource stocks have carried on up. And the market moves side ways - and down.

Monetary purists object to my characterizations, but my best estimate is that we should expect to see deflationary trends in the auto/housing/finance sector and inflationary trends in food & energy.

You are exactly right, all else being equal. With zero change in the money supply, that is just what we would expect to see.

However, I don't expect to see zero change in the money supply. The government will inflate the money supply to obfuscate the true situation.

I've just posted on RGE Roubini's blog (under the nickname "RealThink") the following analysis about the "inflationary trends in food & energy".

Professor Roubini wrote:

"The arguments against policy rate easing by central banks are thus threefold:
...
c) it may lead to higher inflation."

Not "may". Last week's PPI and CPI data shows that the easing so far already "has". And further easing can only be expected to bring more.

"There are at least four reasons why these global inflationary forces will abate once this US hard landing occurs:
...
d) a sharp fall in oil, energy, food and other commodities prices as a global slowdown emerges."

To assess the validity of the statement in item d), let's first look at the current situation and prospects of world crude oil (actually "All liquids", i.e. including biofuels) production and demand as depicted in page 48 of the OECD IEA Nov. 13 monthly report at http://omrpublic.iea.org/currentissues/full.pdf, updated with the figures from the highlight of the Dec. 14 report at http://omrpublic.iea.org/ , and projecting a December 2007 production slightly higher than November's.

World oil total demand (actual and projected):
1Q06 2Q06 3Q06 4Q06 2006 = 85.5 83.5 84.3 85.7 84.7
1Q07 2Q07 3Q07 4Q07 2007 = 85.8 84.7 85.3 87.1 85.7
1Q08 2Q08 3Q08 4Q08 2008 = 88.2 86.5 87.2 88.9 87.8
World oil total production (actual):
1Q06 2Q06 3Q06 4Q06 2006 = 85.4 84.9 85.5 85.3 85.3
1Q07 2Q07 3Q07 4Q07 2007 = 85.4 85.0 85.0 86.5 85.5

After looking at these numbers, it takes an extraordinary degreee of optimism to expect that production will "surge" in 2008 to meet the currently projected demand.

To see what kind of price action can be expected from these projections, let's compare global demand averages for whole years and their increases:
for 2006: 84.7 mb/d
for 2007: 85.7 mb/d (+1.1%)
for 2008: 87.8 mb/d (+2.5%)
with price action from the past year:
On Dec 18, 2006 WTI = $63 and EUR = $1.31, so WTI = EUR 48.
On Dec 17, 2007 WTI = $90 and EUR = $1.44, so WTI = EUR 63.
That's for a WTI price rise of 43% in dollars and 30% in euros in a year.

Thus, if a 1.1% increase in demand against almost constant production over Dec 2006 - Nov 2007 caused in 30% increase in price in euros, a 2.5% increase in demand against constant production over Dec 2007 - Nov 2008 can be expected to cause a 30 x 2.5/1.1 = 68% price increase in euros, to a price in Dec 2008 of EUR 106. Assuming EURUSD stays at 1.44, that's $153.

Let's now be optimistic and assume that 2008 production will rise 1.4% over 2007, leading to 2.5 - 1.4 = 1.1% as the differential increase of demand vs production in 2008, which is the same value as for 2007. The expected price increase would thus be a further 30% in euros, to a price of EUR 82 and $118.

And obviously, for the oil price to stay at current levels, the world needs for 2008 both an increase in production over current levels AND a decrease in demand from current projections for a combined total of 2.5%. I.e., if demand does rise 2.5% as currently expected, so should production, which looks extremely unlikely.

Therefore, for the oil price to remain in the current range, even optimistic projections for oil production lead to the need of at least a deceleration in global economic growth from current projections. And given the ease and gusto with which OPEC and Russia would cut production levels should a fall in demand take place out of a hypothetical deep recession, it's very unlikely that, even in that case, the oil price would drop substantially.

Now let's take a closer look at where the increases in demand came or are expected to come from, in order to evaluate then the likelihood that they could be prevented or even reversed by way of a hypothetical recession. From page 50 of the OECD IEA Nov. 13 monthly report, annual changes in Mbpd were/are projected to be for the key players:

Player 2005 2006 2007 2008
------------------------------
N.Am. 0.12 -0.21 0.21 0.22
Euro. 0.12 0.01 -0.25 0.21
APac 0.07 -0.16 -0.05 0.18
------------------------------
OECD 0.32 -0.36 -0.09 0.61
FmrSU 0.06 0.18 -0.18 0.14
China 0.27 0.46 0.39 0.42
Ot.Asia 0.17 0.07 0.26 0.19
LatAm 0.14 0.18 0.20 0.16
MEast 0.26 0.29 0.30 0.29
------------------------------
World 1.41 0.84 1.01 1.94

It's evident that the main culprit in the projected jump in demand for 2008 is the OECD, followed by the reversal of the 2007 FSU demand contraction, which the report itself describes as "an outcome that goes against the trend of strong economic growth, but could also reflect efficiency improvements or data quality issues." And within the OECD, the problem is that demand in Europe and Asia Pacific will switch to growth while US demand is staying its growth course.

Thinking now the other way round, if a reduction in global demand growth must be achieved, what are the likely candidates for it? Obviously the OECD, with a recession arising from the unfolding financial crisis. So we have a match here.

And it is easy to see that, even if that OECD recession materializes, the other players are extremely unlikely to reduce their oil demand. The reason for that being:

- For non-oil exporters like China and East Asian countries, the huge foreign exchange reserves that these players have accumulated over the last years, which make their situation entirely different from that in 2000-2003: having already saved for a rainy day (or rather decade), they can now afford to keep growing their internal consumption even if half of their customers curtail the demand for their products.

- For oil exporters like the FSU, ME and several LatAm countries, the fact that it is just not reasonable to expect they would refrain from growing the consumption of their own product.

To sum up, a prompt OECD recession is the only way to avoid triple digit oil prices in 2008 and will most probably result in oil prices staying in the current range. (This of course does NOT mean that such a recession is the long-term solution to the energy problem. It just provides a window of opportunity for addressing the problem in a decisive yet orderly way.)

As for food, the possibility of a fall in prices is even more remote. In the first place for its low elasticity of demand. Secondly because, with a reasoning analogous as that for oil, it is not reasonable to expect that countries that have amassed huge forex reserves or oil exporters would hesitate to draw from their reserves/revenues and skimp on food. Not to speak of food exporters. And thirdly because, with oil prices staying in the current range, the worldwide implementation of biodiesel production will most likely proceed, keeping the pressure on food prices.

Now, are there any other potential benefits from an OECD recession apart from preventing disruptively high oil prices and a likely consequent collapse in the dollar value and the loss of its role as the international trade and reserve currency? Yes, there are a couple of them, and probably of even greater importance.

1. As stated by Matthew Simmons in pages 35 and 36 of his Oct 23 presentation at CalTech ( http://www.simmonsco-intl.com/files/CalTech.pdf ) , allowing demand to follow the current growth path poses a significant risk of shortages in some finished products, likely followed by hoarding behaviour by users, which in turn creates a "run on the petroleum bank." (An ironical but wholly logical side effect of trying to prevent a run on financial banks or quasi-banks when the world starts hitting the physical limits to growth.)

2. Although a recession would certainly curtail demand for electric cars, energy-efficient houses and solar panels, a cursory look at the real world should be enough to notice that the current profile of aggregate demand includes, in a scale ORDERS OF MAGNITUDE greater than those above, things which not only waste fossil fuels but also leave society in a state of ever greater vulnerability to the unavoidable coming energy decline, suburban and exurban construction being the most conspicuous example, followed by production of inefficient vehicles, precisely the two items whose construction/production would be most affected by a recession. So we have another match here.

And I will end with a paragraph from past posts, which seems all the more relevant in view of proposals like Professor Roubini's.

There are a few big mountains in the world where you can drive to the very top. Those who have done that know quite well that it would be very unsafe to drive on the way down in the same way as on the way up. They make a driving paradigm change when they start the descent. In contrast, today's economists are severely paradigm-challenged. They have known nothing but the way up (to Hubbert's Peak), and they don't seem to be able to make the mental adjustment to the way down. As a result, their driving paradigms are becoming unsafe.

Nate -- "volatility" -- for me that is the one word that continues to sum up our prospects.

I have a notion that our world is "ungovernable" and so geopolitical concerns will add to volatility of oil price, as will various economic woes.

The underlying geological supply constraints will be a major driver in geopolitical chaos, as will the severe consequences of GW.

Water and food shortages and massive refugee problems will stoke the fires of conflict as more people feel victimized and excluded and intentionally abandoned by the bigger powers.

The more heavy-handed the big powers get, the worse the explosions of asymmetric resistance will get. A new kind of "arms race" and escalation of conflict has already emerged.

I keep thinking that many people will cry out for very authoritarian government simply to help stabilize or regularize the violence in some way. However, there will be plenty of powerful pockets of resistance to that as well.

So unless we figure out a way to make the powerdown process more equitable and peaceful, I think that volatility is the key word for the price of oil -- and maybe for a number of other aspects of life as well?

There's really no way for oil prices to drop down to $50 after peak unless we have a global collapse IMO. Even a severe recession in the USA wouldn't cause prices to drop much because the Chinese would buy the excess. And a global collapse would be so catastrophic I doubt you'd have any real global trade in oil at all so you still wouldn't see a "market" price of $50.

Capitalism can't run in reverse. Our social safety nets can't handle millions and millions of unemployed/homeless people. And its not like people can go back to the family farm like they did during the depression. There's no farm to go to.

A global collapse that would lead to a large price reduction therefore means complete social breakdown and dieoff (e.g. people shooting each other over heads of lettuce, etc.). Or it means a global WW3 with WMD. Either way there would no longer be a real oil market. So I expect to see oil prices continue to rise - until we reach such a collapse.

Nate I have a very hard time convincing myself that fuel prices will fall due to a lack of demand re economic recession/depression.

Would not cheap fuel stimulate the economy again?
Cheap fuel would allow more travel to search for work, increased farm production, a lowering of production costs to re-stimulate consumerism etc.

IMO the major trigger for a recession/depression will be the high cost of fuel.
Fuel in all forms will continue to rise as production falls and stoke the fire of economic collapse.

The collapse of consumerism won't lower the price of fuel due to a lack of demand, we will still be using as much as we can get hold of, in last ditch attempts at mitigation.

I voted for number 2, the time scale is the unknown for me.

Nate:

I listened to your interview with Jason on the Reality Report so I think I understand your argument. Of course, anything is possible. If we get 25% unemployment, like in the 30's, demand for oil may drop faster than production even with the developing world still growing.

I think that Nouriel Roubini's outlook seems very likely: hard landing in the US (maybe very hard) and slower growth, but not outright recession, in China and India. These would seem to balance out a bit and keep petroleum demand at least equal to output.

The key factor I don't think you address sufficiently is the dollar. With our massive trade deficit and weakening economy, the dollar could easily fall to 60 which would put another $25 on the price of oil.

Ultimately, I think the more serious problem in the credit crunch is who is willing to loan Americans the $60 billion they need every month to buy oil and various other items from abroad? Right now it is the foreign central banks doing the lending. Tomorrow?

And if no one does, how far does the dollar need to fall to balance out trade including oil?

Scary thought.

This is why I don't worry about under-investment in alternatives. Americans at any rate will be looking for alternatives, even if the Chinese and Indians are still focused on the internal combustion engine.

Just my view. Great show with Jason, enjoyed it very much.

"This will come at a bad time: we need strong market (or other) incentives to continue exploration, scaling up of alternatives like wind, better battery technology, etc."

With all due respect. I don't think so. I think this is the exact wrong way to pray for things. That is my humble opinion.

What I wish for is that humans suffer a shock that induces a 'eureka' moment for mankind. Kinda like Hiroshima.

I'm not sure if anybody noticed. The 'Let's have a Manhatten Project' approach isn't really working. Nobody out there understands peak oil. I don't know about anybody else here, but I usually don't run into people who understand peak-oil(everybody has 'heard' about it, that's because people always shake their heads yes when they get asked questions like that, they don't want to sound like idiots, right?). That's because you can take the daily readership here and multiply it by how many sites there are like this and you can quickly figure out the probability of somebody around you having the first clue about what is coming out of your mouth when you talk about peak-oil.

And that's a failure on our part. That's a failure of the peak-oil community. It has had years but its impact has been minimal. Not enough to have a jump on the problem.

Maybe Mother Nature or God will help us out this Christmas season. Kunstler is beside himself. He doesn't know what to do.

Maybe Santa will send us that oil-shock we've always wanted. Needed.

I didn't pick any point, about the only thing I can say is that I doubt either of the last three will happen. There is just to much noise out there to really have an opinion for sure.

the old hermit

"you can cure ignorance, but you can't educate stupitidy"

Regarding net vs gross, you are preaching to the choir. I guess a good question to ask the oil optimists is: If we do eventually see 100 mbillion barrels per day (via ethanol, CTL, tar sands, oil shale, etc.), will costs of oil and basic goods be about the same as now, lower? or significantly higher? Lower net energy for the whole system means higher prices - because non-energy society has to compete (via bidding or rationing) for the BTUs left.

But for a while, we can substitute nat gas for the lower net from oil. Nat gas is around 85% of the energy input into oil and gas production/refining - so we are trading NG for oil BTUs.

I have a question: How much of that 'total liquids' is counted more than once? The Products that go into oil sands/ethanol, or even the refinery outputs that are then added back in again? Even more important for the people who believed that we had already hit peak: is there now enough of this double-counting to discount this peak?

From the lows of 1999, we are up 800% ($90-$10=$80 = 800%)
It is much easier to forecast things we are used to seeing. We have become habituated to $90 oil, even though $80 was a shocker just 2 short months ago.

Based on long experience with economists and expectations, I expect oil will do what is least expected and then the reverse...:0) (I'm serious - Im long oil and have been for years, but Im paring down positions to almost nothing right now - if we bust through $100, I will get back in).

=======[MY EXTRAPOLATION]
2007 $95 (48%)

The average (world) price for 2007 is going to come in very close to $69.

From that data series, 2006 was $60, 2005 was $50, 2004 was $35, and 2003 was $27.

Oddly enough, despite the sharp runup in prices we've just seen, this year has seen the smallest absolute increase in average price in several years, and the smallest relative increase since the recession in 2002.

What I don't think the futures markets are getting:
1) the numbers are 'fudged' to make conventional oil mopre abundant than it is.

To a large degree, oil is oil - it doesn't matter to a consumer whether it's "conventional" or not, and too much "unconventional" is only a problem if it impacts flow rates. (Which it may already be.)

2) demand for petroleum products is less elastic than economists assume

The EIA's stats on US oil consumption show that every 4-week average is lower than the corresponding 4-week average in 2006, all the way back to late August when the price runup started. Consumption over that period is lower by about 25Mbbl, so there's certainly a level of elasticity in there.

Roughly speaking, the price is up 50% and demand is down 3% (down 1.5% instead of up 1.5% as expected), suggesting a short-term elasticity of around 0.06. Oddly enough, that's quite well in line with a paper on price elasticity of gasoline that was posted here some months ago, so I'm not sure it's clear that economists don't have a fair idea of the price elasticity of oil.

5) governments/corporations continue to subsidize and manipulate prices of gasoline to keep consumers consuming.

More to keep them happy and supportive - witness Saudi Arabia, Iran, and Venezuela.

Go with the flow. The trend is your friend. etc. etc... but I hear you - that why nothing will surprise me - except status quo.

everyone (ignoring the 5% that think it will be above 150, and the 5% that think it will be below 50) thinks it will be 110(+ or - 40%), the futures curve think it'll stay the same price (85), but the largest vote is for volatility around the current price. (i voted 150) (the 110 is based on twice as many people choosing 150 over 50)

I will do a follow up poll in next week or so on avg price for 2008 - after reading Stoneleighs finance round-up yesterday, 'volatilty' was the word shaping in my mind so I posted this poll just as a discussion piece.

I'll attempt to answer your first question as I think I have some insight to the known unknowns - but how does anyone know about the 'unknown unknowns', by definition?

Cry Wolf
"And whatever happened to SAT?"
I've been asking myself this for months
please sat grace us, grace us

I think we have seen or are seeing a shift in power towards a much more multi polar world and this would play out in a way that is very much location dependent.

Agreed. The world has effectively become 'smaller' over the the last few decades due to the availability of cheap and reliable energy supplies. IMO it is about to become 'larger' again. There's plenty of scope for local variation.

seconded!

Good questions for a poll.

How do you heat your house?
With wood. It pains me to know this is polluting, regardless of how efficient the heater is. It is a good incentive to maximize the insulation efficiency of the house. Am looking into ground source heat pumps for later when old age renders chopping wood less attractive.

What mileage does your car get?
Honda Insight ~65mpg. Nissan pickup ~22mpg seldom driven

Is alternative energy produced near you?
Not that I know of.

Do you live in the country or in town?
Rural. ~7 miles from a small (9000 pop.) town. IMO an ideal situation. Within easy bicycling distance of town services but relatively far (30 mi) from an urban environment.

Addendum:
Another item for the poll might be what the primary budget items are for people. Our budget consists mainly of gasoline and groceries on a monthly basis with gasoline being about $40/month. Yearly, land taxes and IRS taxes would be the big ticket items.

I agree with Smokey. I'm no economist, not by a long shot, but I do believe that we'll see some serious demand destruction in 08', especially the latter part of 08. I think it's nearly impossible for us to avoid a fairly nasty recession at this point with the current credit crisis unfolding. I've read many stories detailing how Americans are cutting back on their spending. Holiday spending is looking lackluster at best.

Also, this idea that China and India can continue their gangbuster growth with the big spending US in a nasty recession is ludicrous. Granted, we're not the mega player that we used to be, but we spend a ridiculous amount of money, more than we make in fact. And so with the major credit "haircut" we're in the process of getting, well, there's a lot of Americans who are just plain tapped out.

I struggle with this. I know my reading and research of the last 4-5 years has me ahead of the pack in terms of energy/human biology interaction. And what we write about at theoildrum is like a 5-6 sigma event - PEAK OIL - the vast majority of people don't know what it is or what monumental impacts it will have on society.

And now the credit situation. Am I smart enough to forecast TWO 5-6 sigma events that will both have monumental impacts on society?

A more likely explanation is that me, and others, LOOK for these 5-6 sigma events, and then construct evidence for them - this is how it would likely be seen to people outside this community anyways. If my doctor told me I had dengue fever, I'd be in disbelief. If he said I had ebola too, I might ask for a second opinion...

After all - there are thousands and millions of professional investors, who do a pretty good job of managing money (by historic rules) and the markets collectively are still up for the year and at multi year highs.

Still, as Stoneleigh mentioned to me, Peak Oil and the credit crisis are NOT independent events - they are linked by a Tainter-esque thread - that a social organization will expand complexity once a large energy subsidy is found - part of that complexity is scaling up of all sorts of 'maximum power machinery' - the leverage in the system to build more 'perceived power' in the form of digits. So I do see linkages between the two. I need to think on it some more.

SCT, great turn of phrase, "approaching crush depth".

IMO, the Fed is freaked out about the potential for that crush. Don Sailorman (our resident lurker/sometime poster economist) has repeatedly maintained that the Fed has both the tools and the will to prevent a deflation form getting out of hand. I'm not so sure: their "Term Auction Facility" is a new invention. If their existing tools were sufficient, why would they be trying out new ones?

It does appear the real problem in the US financial sector is concealed solvency issues. More credit probably won't help, its probably time for the banks to do the writedowns and the Resolution Trust Corp be set up to transfer money directly from the taxpayers to the 'players'...

My point: it appears that up to this point that the OECD central banks don't seem to be able to stop the credit contraction. If they can't stop it, the resulting economic contraction will surely reduce oil demand. Lower oil prices and scarce credit will reduce investment in renewable energy. Sad news, but I'm adjusting my investments accordingly.

PLAN, PLANt, PLANet
Errol in Miami

IF they tighten enough to get the inflation genie back into the bottle the dollar will go WAY UP, and a barrel MIGHT drop to $40, but it will not be going down much(if any)in absolute terms.

You would be better of comparing oil to say grain or wood or something. Using your $1000 dollar estimate for slave food to get the equivilent of a barrel of oil and assuming the inherent lack of efficiency in human labor ( we sleep eight hours). Then you figure oil is probably worth half of what your estimating so $500 a barrel. Next oil is energy not work and needs a machine to power to create something useful so again you could half the value of oil so $250.

So I think that $250 a barrel is probably close to the real value for oil right now if it was priced correctly.

But I'm not sure this is the correct way to value oil. For example the value of a grain crop can be calculated with confidence based on past demand but if you new that a devastating event was going to wipe out the grain crop for a region then the value of the last grain crop far exceeds its fair market value. People that are peak oil aware recognize this sort of valuation and from this perspective I'd say that 500-600 dollars a barrel is not unreasonable if we where facing a steep drop in production in the near future.

Of course the barrels of oil sold before such a drop will be viewed as having been sold insanely cheap. This leads into your sort of valuation but I think its a better way to put it.

I think $25,000 for a barrel of oil is too high. Take the following replacement calculation:

Four people want to go 100 miles with a car that gives 50 miles per gallon. This will take them 2 hours and 2 gallons of gasoline.

Alternative: go by bicycle. This will take approximately 10 hours (allow for breaks and one tire repairs - I tried this once when I got kicked out of a train and had to bike the whole 100 miles with baggage in back etc.). 8 hours longer for 4 people = 32 hours. Divide by 2 gallons and get

16 hours per gallon. How many $$? Depends on how much the work is valued. Take minimum wage, then it's $96 per gallon or

$ 4032 per barrel gasoline

This would equal about $3600 per barrel cruder, something like that.

I am hearing on the podcasts from financialsense.com that markets will tumble till mid 08, then markets are expected to rebound the second half of the year. And I am hearing also that oil will likely drop to the mid 80's and hang awhile but then will rise much more.

If there's a massive recession, it will only keep more oil in the ground, and this soften the shoulder of the depletion curve, giving us more time to prepare.

It could well keep more oil in the ground for the time being, but IMO this doesn't give us (as ordinary people) more time to prepare. The more oil is perceived as scarce (perception being more important that reality as far as determining the actions of great powers) and strategically vital, the more likely it is to be commandeered by central authorities for (pre-emptive?) military adventures.

Arguably Iraq is an exercise in keeping oil in the ground as a military reserve (while addressing westexas' export land theory by getting rid of inconvenient domestic demand), but such activities could hardly be said to cushion the depletion curve from the point of view of ordinary citizens.

I would say the opposite is likely to be true - freedom is expensive in energy terms, so freedom is curtailed when energy is scarce. The collapse of the credit markets is likely to result in a huge curtailment of freedom, due to the lack of money and credit. I would suggest that if you value your freedom in the future, then you would do well to preserve your capital now.

Ok lets say it works. Hell, lets make it create power too cheap to meter *wink*

1) Doesn't address 'peak Phosperous'
2) Is not a high-energy liquid (like oil) AKA not 'portable'
3) Does not address oil->material processes that bring us plastic, tires, et la.

We are no where near the death spiral that most here see.

The 'death spiral' is how others react - as some express it - a mosh pit with machetes.

Lyrics to the song 'Suicide is Painless'

Through early morning fog I see

visions of the things to be

the pains that are withheld for me

I realize and I can see...

[REFRAIN]:

that suicide is painless

It brings on many changes

and I can take or leave it if I please.

I try to find a way to make

all our little joys relate

without that ever-present hate

but now I know that it's too late, and...

[REFRAIN]

The game of life is hard to play

I'm gonna lose it anyway

The losing card I'll someday lay

so this is all I have to say.

[REFRAIN]

The only way to win is cheat

And lay it down before I'm beat

and to another give my seat

for that's the only painless feat.

[REFRAIN]

The sword of time will pierce our skins

It doesn't hurt when it begins

But as it works its way on in

The pain grows stronger...watch it grin, but...

[REFRAIN]

A brave man once requested me

to answer questions that are key

is it to be or not to be

and I replied 'oh why ask me?'

[REFRAIN]

'Cause suicide is painless

it brings on many changes

and I can take or leave it if I please.

...and you can do the same thing if you please.

Funny, hardly any mention of the food prices. They are going thru the roof and rapidly at that, yet almost no conjecture ensues.

I think everyone is trying to not talk about it.

There are two things about life.

You must eat and welll...the rest is just chatter and ego shit.

For those on fixed incomes each rise induces more and more pain...what many here call demand destruction.

Yes it will be destruction for todays folks have forgotten how to feed themselves. They relive on junk food and trash from the carry outs or eating out and letting someone else do the work.

I suspect that it going to perish in the new world order.
Flesh will begin to wither on the bones and we will have plenty of oil but it will cost far more than anyone can pay.

Meanwhile the Amurkan Empire quietly winds down in its continuing death spiral around the toilet bowl.

I sit here in rural Amurka and watch with a bemused eye as next years planting season slowly approaches.

I now live very low on the hog..(an old country expression meaning one eats the lower cuts--fatback,et--...and am surviving but its getting real nasty out there.

I can no longer afford the price of storebrought eggs and right now everyones chickens have quit laying for the winter.

My plans are to build a chicken house next year and start with a small clutch of fertilized eggs. Also beehives.

Maybe store some more of the wheat I will be hauling.

I have no opinion on all the other matters. To me food and shelter are the prime imperatives.

airdale-in the bluegrass

Drip, drip, drip .....

For 2008, oil isn’t going to fall sharply and it’s headed up.

The world key movers and shakers, call them the Market Makers aren’t naive to peak oil and that their wealth is based on energy and growth. At “The Oil Drum” we are preaching to the choir when it comes to this lot. If you see the world from their eyes, move your money out of the US and out of the dollar. Asia is the future. Asia once needed America, but no more. They have internal inertia to keep growth up and the cash to stimulate growth in the regional economies, sustain their growth and protect wealth. It’s been going on for some time now … drip, drip, drip.

The US government has a role to play. The fed isn’t and hasn’t been doing anything to protect the people. It isn’t about protecting the people, it’s about the key banks and their wealth and the wealth of the Market Makers. It’s about protecting the thing that protects their wealth, the US military.

Since The Oil Drum opened the topic of Mega Oil Projects, put the US in the list of Mega Projects. We consume 20 mbpd. Need more oil; it’s easier to cut off consumption from a nation with nothing to give and that is taking everything. It’s easier to do that than drill in super deep water. Our 20 mbpd, now that’s spare capacity for a world economy to tap.

OPEC and others aren’t neive either. They, and other key oil producing nations, have been migrating away from the dollar.

With the sound of drip, drip, drip, the American Dream is being exported to Asia and it isn’t being replaced with anything at home. Sure, we can sell each other groceries and clean each other’s homes, but all we have is our minerals and agriculture to export.

The Market Makers will use Asia and the Fed to project their assets. When the dollar falls, oil and other commodities will rise. If the dollar rises, implied US growth will drive the commodities higher, too. It’s a no win situation.

Lets add to the guarantee of higher oil prices. Throw agricultural production into the mix. The world is peaking on wheat and other agricultural commodities. The southern hemisphere is in drought and the north has its share of it, too. Thanks to global climate change, we will miss our production yields and the prices of grains will keep going up as stockpiles continue to dwindle. Drip … drip … drip.

If you are in OPEC and the price of Ag keeps going up, you are not going to lower your price of crude. Crude and Ag are becoming, every day, more closely linked.

Add to that that even if the US consumes less and we go into recession, how do we dig ourselves back out to consume more? It takes energy to do it and we will never have that much energy again.

If the US consumes less, OPEC doesn’t have a desire to suddenly be making less money due to lower consumption. They will raise the price just to keep their income levels at their current level. …which is pitifully low to begin with for how large the cut of money is everyone else makes of their, economy driving, oil.

A word on have we are haven’t we peaked. Sure, the world may again be producing more and we may not have peaked, but demand is still growing faster than supply. It is the supply and demand equation that really counts, not peak itself. Sure, once peak is established in the record books, it will make things even worse, but until supply and demand come back into balance, oil prices are staying high.

I don’t have a crystal ball for 2008, but I don't think the price of oil is going to drop substantially. There are too many other fundamentals pushing it higher. If the Market Makers feel it time to tip the markets in their favor, which it appears they are doing, expect to have oil going up. Drip, drip, drip ….. before you know it, we have nothing.