Oil Rises, Gasoline Climbs to a Record, on U.S. Supply Decline


(Bloomberg) -- Crude oil rose above $111 a barrel in New York and gasoline surged to a record after a government report showed that U.S. supplies unexpectedly dropped.

Crude oil inventories fell 3.15 million barrels to 316 million last week, the first decline since February, the Energy Department said. A 2.3-million-barrel gain was forecast, according to a Bloomberg News survey. Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell.

``The crude stock draw was obviously the big surprise and leaves supplies too tight for comfort,'' said Antoine Halff, head of energy research at New York-based Newedge USA LLC. ``Refineries are operating at a very low rate and we still didn't get an inventory gain.''

Nate adds (Source EIA):

There is a HUGE disparity in DOE vs API numbers (NB, Yergin uses API)

DOE: Actuals
Crude oil: Down 3.1 million barrels
Motor gas: Down 3.4 million barrels
Distillates: Down 3.7 million barrels
Complex: Down 10.3 million barrels

API: Actuals
Crude oil: Up 6.0 million barrels
Motor gas: Up 1.8 million barrels
Distillates: Down 0.2 million barrels
Complex: Up 7.6 million barrels

Below is the Bloomberg survey of analyst’s expectations:

Crude oil: Up 2.5 million barrels
Motor gas: Down 2.8 million barrels
Distillates: Down 1.5 million barrels
Complex: Down 1.8 million barrels

Some selected graphics below- (thanks to Ken Carroll at Johnson Rice)

Does anyone have a history (i.e., stats, graph) on the accuracy of DoE vs. API 'actuals'?

It looks like the Bloomberg analyst survey is a rough average of the two.

I have this data going back to the start of 2004. The standard deviation of the DOE vs Bloomberg estimate is 2819k over that period (222 weeks). The standard deviation of the API vs Bloomberg estimate is 3949k.

So the estimate is significantly closer to the DOE number over the long run.

Interesting the DOE number is closer to the estimate than even the average of the DOE and the API. If you take the average number each week, then the standard error is 3012k.

Hope this helps.

Declining Net Oil Exports Versus “Near Record High” Crude Oil Inventories: What is going on? (September, 2007)

As noted in the linked article, I don't think that US crude oil inventories are telling us that much. Regardless of the actual number, we are, IMO, simply seeing some minor fluctuations in a thin, Just In Time inventory (best measured in hours of supply) in excess of the Minimum Operating Level of about 270 mb.

The key problem that US refiners are facing is a squeeze between ever more expensive crude--as importers bid for declining net oil exports--and the volume of refined product that consumers can and will buy, as the prices of refined products increase.

This somewhat analogous to the problems that airline are having. They have to balance ever more expensive jet fuel against the volume of tickets that consumers can and will buy as the price of airline travel increases.

What we are seeing is progressive forced energy conservation moving up the food chain.

With continued apologies, "Ask not for whom forced conservation comes, it comes for thee."

Looking at the product supplied data instead of the amount in storage, it looks like consumption has changed little since last year. Here's a quote:

Total products supplied over the last four-week period has averaged nearly 20.5 million barrels per day, down by 0.4 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.2 million barrels per day, up by 0.3 percent from the same period last year. Distillate fuel demand has averaged 4.3 million barrels per day over the last four weeks, unchanged from the same period last year. Jet fuel demand is 0.4 percent lower over the last four weeks compared to the same four-week period last year.

In other words, the increase in price at the pump is having little effect so far. That's happening in spite of deteriorating economic conditions, which might be expected to result in reduced demand. With the problems in the airline business (another one went under yesterday), how many folks will switch from air travel to automobiles for this year's vacations? This summer's driving season is likely to get interesting, even without some further "events" in the Persian Gulf.

E. Swanson

BTW, Dan Yergin "warned" us of what was coming. Copy of a note I posted on TOD and sent out to joint venture partners, for the benefit of oil trader types:

June 28, 2007

To: Interested Parties

From: Jeffrey J. Brown


CNBC just quoted Daniel Yergin as saying that, without the "fear premium," oil prices next year should be down to $60.

Most of you probably recall Daniel Yergin's previous predictions for lower oil prices. Based on prior experience, once Yergin issues a prediction for lower prices, one should expect oil prices to be 100% or more higher than his predicted price, within one to two years of his prediction--think $120 or more within one to two years.

Regarding his $38 prediction, do a Google search for Daniel Yergin and click on "Daniel Yergin Day."

Yergin lives on another planet and has done so for quite some time.

Ehh let’s see ehh, think of a number ... shoot wrong again !
Anyone, what is this guesswork good for? Is this guesswork (on an average) good or bad for the stock-exchange? Why not skip these utterly stupid exercises and just face reality every Wednesday?

95% of all financial media is total BS-why should energy reporting be any different?

But Sir, these data are from our democratic government!! Surely you aren't implying that Gee Dubyah would actually LIE to the 'merikan sheeple! Wouldn't that be grounds for impeachment?

{sarcasm off}

E. Swanson

BrianT, see my question - do you have any proposals.

What is this oil-stock-guesswork once a week good for?
Why not every day (more detail) or every month (less noize) ??

(Suggestions appreciated)

I have far more confidence in the reporting of the data from the EIA than most other sources. As they stressed, over and over again during the two-day Conference in DC, their data gathering procedures (and the statistical approach they take) is pretty straight forward.

It's their projections that leave something to be desired.

Great data, not so great projections in a number of areas. They (the EIA, and Guy Caruso in particular) offered some reasons as to why this has been so and what they are doing to address a projection approach that is and has been dominated by demand side factors as opposed to the supply side.

Yesterday afternoon, there was some fairly technical and astute observations of the macroeconomics trends, why some "signals"s seen in the past aren't having the same the effect (or perhaps it was more accurate to say a greater delay)that they did in the past.

Those of us whom stayed to the "bitter-end" heard some interesting observations on vicious cycle (sounds like positive feedback) that we are now in.

New record:

Oil prices above $112 as supplies fall

NEW YORK - The price of oil has surged to a new record, with a barrel a crude trading above $112 a barrel on the New York Mercantile Exchange.

$2 to Triple Yergin (Tapis is already over Triple Yergin).

(just for the record)

We have a local Yerginite in Norway as well.
Mr Arnstein Wigestrand in SEB Enskilda (a bank) and he is naming himself "an expert in the field of oil-price-analysis" (hehehe, good one )

Now, Mr Wigestrand's AVERAGE prediction for the "year of the lord" 2008 , is 55$. That number was decided late 2007. Now, as of April 3rd, he has index-regulated this due to the falling dollar, so running average is set to 65$ for the year 2008(!)

(norwegian language alert, but you will understand the word kollaps and recognize those numbers..:-) )

Crude buying is still being driven by dollar weakness as the greenback searches for new lows against the Euro today.

As for Yergin, I strongly suspect that the sophisticated model on which he projected his $60 price (I am kidding) did not also project a 20% drop against the Euro over the last 12 months, or a flight to commodities by fund managers hoping to protect capital against inflation of the U.S. dollar and a falling stock market.

Should the U.S. dollar correct itself, crude will fall quickly and hard on the reduced demand for product by a U.S. economy in recession. Prices will reflect the fundamental balance of supply and demand. At some point, they always do.

The spec long position in crude oil is tiny as a % of total position. I will try and find graphic and or link. Far far higher on gold and grains.

I don't doubt that as a % of trading volume, there is less spec in crude than gold or grain right now. (I suspect that that's always been the case with gold, but that grain is a new development.) However, I don't believe it's a "tiny %". I'd love to see the data.

Should the U.S. dollar correct itself,

That's what it's been doing.

Now you know why the UK didn't join the Euro.

Just like in the USA, the exchange rate is good for some states and very bad for others - expect the Euro to disintegrate if this carries on for very long.

So right, DD. Even then, I had a good chuckle. Thanks.

Prices will reflect the fundamental balance of supply and demand.

Supply has been flat for several years and demand has continued to increase. In my book, that means the fundamentals support rising prices. Which is good because that theory matches reality, so I can't share your cognitive disconnect.

"Should the U.S. dollar correct itself, crude will fall quickly and hard on the reduced demand for product by a U.S. economy in recession"

Currencies do not have a history of "correcting themselves". Currency being inanimate has no ability to care whether it is correct or not.

Currency values have to be corrected by policy correction and market action. Right now there is no sign of policy correction as the American taxpayers are being given a token check of some $600 to shut us up and keep us happy (talk about your silver bb, fuel and food prices have increased enough to swallow that up),and we are still carrying the 1 trillion dollar "war of weeks, not months" on our backs.

But, when that golden day comes when we do see a rebound in the dollar, your right, commodities of all types will fall, and possibly very fast and hard (ala 1982). The only way that will happen of course is if end the cost of the war (one way or the other, win lose or draw, the currency don't care, just end the cost) and per Paul Volker's example in the early 1980's go to a high interest policy to shake out the excess.

The problem is, it is going to HURT LIKE HELL. High interest will surely sink the economy into a hard recession, and the collapse in commodities prices will leave many financial houses, hedge funds and LLP's holding the bag...many of these are the same ones who just got short on the housing crisis, and before that the dot com crisis and before that the Asian bond crisis and before that the S&L crisis...and before...well you get the picture.

The good news is that oil consumption should see a collapse in demand the likes of which has not been seen since the early eighties, and for awhile we will be swimming in the stuff. and Yergin will finally be right, but a decade late, making his advice worth nothing. The bad news is, even though swimming in oil, probably relatively cheap oil (in real, not nominal terms), not many of us will be able to afford to buy much of it. Many of us will have already found alternatives to it in the one remaining area that it matters in, being transportation. By the way, natural gas, the fuel that matters most in the long view...as of an hour ago, nat gas was up 3.70% to over $10.00, while crude was up "only" 2.98%. Ahhh, natural gas, the fuel that is now used to cleanse Diesel fuel and fuel the ethanol future...it's starting to look like time to build that electric car even if you have to build it yourself out of the scrap pile.

RC: Yes, it is just like 1982. Once the USA straightens up, everything will be A-OK. China is just a rice bowl economy and India is nothing. We will be swimming in crude as those economies are totally reliant on our greatness-if China would just strengthen the Yuan quicker (currently at a 17% per annum clip) everything would be rosey as the trade deficit does a 180. Don't worry about the effect on crude prices of a dramatically strengthened currency of the world's most dominant industrial economy-that is just negative thinking.They don't have what we have (whatever that is).

Roger has been singing this song for at least three years now. He used to predict Saudi Arabia would "open the floodgates" "real soon now" and flood the world with cheap oil again but he's quietly been backing away from that absurd prediction for the last 18 months or so. KSA may not have yet collapsed as some here expected but it sure as hell isn't flooding the world with cheap oil. And under the circumstances I am not sure why KSA would even do such a silly thing. Most of KSA's oil can be produced very cheaply so at $112 per barrel, KSA appears to be profiting $100-$105 per barrel. KSA loves it when demand shoves prices higher and brings marginal producers onstream. KSA can make tons more money selling 8.7 mbpd at $112 per barrel than they can selling 12 mbpd or even 15 mbpd at $38 per barrel (or whatever other "cheap" figure Roger might throw out there).

Wow. 345 billion a year in pure profit.


Grey, how ya' been?

Well, I'm afraid you may have stepped in it again when you said,

"KSA may not have yet collapsed as some here expected but it sure as hell isn't flooding the world with cheap oil. And under the circumstances I am not sure why KSA would even do such a silly thing."

Am I to assume that you now accept my original argument that KSA may be willfully restraining production so as not to undercut oil prices, and that is possible (though by no means assured) that they may have the ability to raise production after all? Hmmmm...

That's eerily like my original contention, although my argument alwas was that they don't have to withhold oil per se, they just have to stall making needed capital investment for awhile in new projects and reworking of oil fields...

Nice to see you and I are on the same side in this discussion, Grey.

The Saudi's are doing what we would do in similiar circumstances...what any bird hunter would call "flushing" out the prey. KSA will soon be able to tell who the competitors are, how much oil they can deliver, how much it will cost them to deliver it, and what alternatives to oil may be out there that have a chance of gaining investment.

If they have the possible production to spare, we will know it when we reach the maximum level of pain we can bear, and make the sacrifice to invest in alternatives. They need to make sure we are fully committed to the expensive alternatives, and cannot back out easily. Then they will pull the trigger, and we will see if they have any ammo left in the oil gun.

I don't know much, but I do know this: We are NO WHERE NEAR the level of maximum pain yet. If you don't believe me, go and drive down any interstate highway, or go by your local Mercedes Benz dealer and shop for the C class car with the 451 horsepower engine (and that's the middle of the range, the mass market car...don't even ask about the really powerful S class stuff!)

"KSA can make tons more money selling 8.7 mbpd at $112 per barrel than they can selling 12 mbpd or even 15 mbpd at $38 per barrel (or whatever other "cheap" figure Roger might throw out there)."

That may be a number that Yergin would throw out there. Roger never would. If there is one thing I pray for it's that we never see the catastrophic effects of $38 oil. $200 per barrel oil would do the nation and the world far less damage than $38 per barrel oil.

And the Saudi's know it. That's why their ability to produce big, if it exists (and we have absolutely no way to know), is a more dangerous thing by far than the immediate risk of them peaking.

Be very careful of both scenarios.




The difference I see in your view and my view is that you seem to think that when I say commodities prices could collapse and at least for some time we may well end up with a glut of oil brought on by a hard recession as me predicting good times.

My view is a bit different. I see a decline in oil prices and oversupply of oil as a bad thing, and if it is large enough in magnitude and occurs in too short a time, a very bad thing.

We know what happens in periods of that type. Again, look at the 1980's. The U.S. had less than one trillion dollars in debt when Ronald Reagan took office. Over 200 years, less than a trillion dollars debt. Following 8 years, about 4 trillion. Could we survive economically if a rise in national debt were to occur of that magnitude from the current high levels we already carry? What do you think, BrianT?

If oil prices fall dramatically, do you think ANY of us can resist that nice RV or that great sexy high speed cabin cruiser yacht with the twin turbocharged engines...or at least a 12 cylinder car, 'ell, you only live once! $38 per barrel oil, hell, I admit it, I would go shopping for one last gasp of the great internal combustion romance! If the last of the cheap fossil fuel era lasted only another decade, that would be longer than most of the gas engined powered junk lasts nowadays anyway! Put it on my tab, I'm an old man anyway, what do I care about debt?

If one believes that carbon release is a problem, how in the world can one hope for cheap oil? $38 per barrel oil would set off the great final "carbon luxury bath" that would make the 1980's and 90's look like the "green" era, and this time it would be worldwide, with China and India trying to look like 1980's New York or So Cal in the "glory days" of turn of the century America.

We have not even discussed the investment community, who now finding out that the safest investment in the world, that being real estate, which WOULD NEVER DECLINE IN PRICE, did in fact decline in price, has now ran like cowards to the NEW safest investment in the world, WHICH WILL NEVER DECLINE IN PRICE, that being raw materials, commodities, and best of all oil and gas. Hey, how can you lose on oil and gas, God ain't making any more of it! Sound familiar?

Of course, the problem is, they are not putting their own money into this new SAFE investment. By conduit of the hedge funds and the buyout LLP kings and the mutual fund genuises, the banks and brokers and "advisors" have the endowments of Universities poured in, the retirement funds of city workers, the funds of charitable foundations, and the average schmuck who has never bought an oil future in his life and the office girl who says to her broker, "here, you invest it, I know you know what your doing." All pouring billions into the wacky world of oil futures. Does any of this sound familiar? (sigh)

What is needed is some sanity. Some stability. When oil was around $85 or $95 dollars per barrel, I said then what I will say now. I would be perfectly content if it stayed within a couple of bucks of that range, inflation adjusted, for the rest of my natural life. What IDIOT wants oil back at $38 bucks a barrel, killing the possibility of alternatives, killing the incentive to at least be sensible, killing the return on investment for E&P in the energy industy?

No BrianT, when I describe the possibility of a commodities price collapse and a possible glut (albeit temporary)of oil, I am NOT describing everything "A-OK" as you so flippantly say. Just the opposite. The least of our problems will not be China or India or the Yuan. China and India with two billion plus mouths to feed, all hungering for USA 1990 will be THIER problem, and the worlds.

Our problem will be an economic wipeout that will make this whipped up "sub-prime" hysteria look like the dog and pony show that it is when we see trillions of dollars of "commodity" investment disappear overnight and oil consumption shoot through the roof as the alternative renewable energy programs, our only avenues into the future collapse into bankruptcy.

There are events that can occur in the world that are EVERY BIT AS DANGEROUS AS PEAK OIL.

It may not seem like it now, but the day may come when we pray for oil at $100 per barrel. All I ask is for folks to realize that we may be praying because oil is so much higher than $100. Or because it is so much cheaper. One is as dangerous as the other if it happens too fast. The difference is this: The hapless public is at least made aware of possible danger by expensive oil. Cheap oil is like an anesthetic that knocks us out so that our throats can be slit in our sleep. In which case do you think we at least have a fighting chance?


RC: You could give Alan Greenspan a run for his money.

Agreed that currencies to do correct magically. However, I foresee a time in the near future when the ECB and BoE are going to have to start/accelerate the rate cutting. That will weaken the Euro and Pound against the U.S. dollar sending it back up.

Prices will reflect the fundamental balance of supply and demand. At some point, they always do.

I agree. I expect to see a continued accelerating decline rate in net oil exports, and as forced energy conservation moves up the food chain, I expect to see an accelerating increase in prices, as the bidding between oil importers gets tougher. If we "only" see a 24%/year rate of increase, half of what we are currently seeing, oil prices would double every three years.

I believe the overvalued US dollar IS currently correcting itself...

There is a pattern of lies coming out of all Federal US agencies, and the discrepencies shown here are no different. We are constantly being lied to about everything from the war in Iraq to oil data. The trouble is lies do not change reality, but I think the Govt. thinks they do help shape perception and that's why they do it. They obviously figure it's better to err on the side of lying rather than on the side admitting a not so rosey truth.

And speaking of truth, is anyone else on here as alarmed as I am regarding the constant rise in oil prices? My wife is a sculptor and the cost of bronze has risen every quarter over the past 5 years. The suppliers of bronze say its due to rising demand from China. However, if the price of oil does the same thing as bronze and increases in price every quarter for 5 years, what will be the price of oil and what will happen to the economy.

In a general sense it's like we got lazy about making everyday products and let China take that, and in response their economy is increasing by an average of 10% per year! The result is their breathtaking expansion is consuming more and more of the world's commodities. We may actually just be starting the early stages of what will be a run on oil by China that could last as long as the run on steel (bronze) has, and that will be disasterous for this country.

But now that China is raging ahead and this country is sinking fast, what do we do about it? At this ongoing rate it's only a matter of time before we turn into a 3rd world economy with a worthless buck.

The trouble is lies do not change reality, but I think the Govt. thinks they do help shape perception and that's why they do it.

Don't call it "lies." It's just "not talking down the markets." :)

But now that China is raging ahead and this country is sinking fast, what do we do about it?

Just as the 19th century belonged to the UK & the 20th to the US, the 21st belongs to China. My son's girlfriend was born in Guangzhou. Her parents brought the family to the US for the sake of economic opportunity. I tell my son that should she & he have kids, they may end up returning to China for the same reason.

Just as the 19th century belonged to the UK & the 20th to the US, the 21st belongs to China.

If they continue their current path of economic growth on the expense of their environment, I don't think they will dominate this century for very long.
Neither will anyone else as our whole economic system is set on self-destruction.

"is anyone else on here as alarmed as I am regarding the constant rise in oil prices? "

why would anyone be alarmed ?

Fuel/energy prices will continue to rise and the recession will continue for the rest of our times .... there is no energy fairy

"is anyone else on here as alarmed as I am regarding the constant rise in oil prices? "

That's a funny question to be asking on TOD :)

Alarmed that they are increasing no. Alarmed that we will see large swings in price as the market slowly prices in peak oil and that it will take years yes.

We have a long way to go before the market correctly prices oil to the level needed to force conservation or demand destruction into the future. Once it finally correctly prices oil which means it needs to overshoot on the topside quite a bit we will see basically steady prices for oil as demand destruction matches up with supply.

Given how inelastic demand is and that in the interim prices will make wide swings around the upwards trend I don't think the market will correctly price oil until 2015 or so.

We have a long long way to go before we have a stable post peak oil price.
Until its high enough to cause steady and significant demand destruction we don't have a stable oil market.

You don't even want to know what that number is.

You don't even want to know what that number is.

Yes. I do. Only I want to know what it is in something other than a fiat currency.

Man thats a tough one actually. I've thought about that. One part of the problem is that price inflation is really hard on the poor so I expect a lot of price inflation or in effect all fiat currencies are going to lose purchasing power for food/energy etc. In general this means the poor are going to see a much higher real price for oil/gasoline then a wealthier person that has a bit of leverage in their salaries or investments that can make up somewhat for price inflation.

The problem is you really don't have a good equivalent to oil thats not influenced by the price of oil itself. Even gold is not good since its pricing is sentiment driven.
Its a sort of semi-currency. Maybe electricity/coal is better ?

So maybe the right answer is to look at oil vs electricity/coal and gold is a fair measurement.

A lot of science fiction books use energy credits as currency and some form of basic energy is the backing for the currency. You can see the obvious problem is that for the most part oil is our real money and everything else if you look is measured in terms of oil not the other way around. Thus I'm saying electricity and coal as a energy credit equivalent thats fairly independent and gold is in the mix since its the other quasi-real currency although its sentiment driven and of little real value.

But in the end this is not all that important because what matters to us is when the real price for gasoline exceeds the ability of the lower middle class to pay.
Since they suffer the highest inflation levels and have the least amount of wage arbitrage its when they become truly poor that the Western nations changes. If anything trying to figure out a "real" price hides the issue.

That problem price is not all that far off my estimate for the US is around 5-6 dollars a gallon is when the lower middle class starts heading down hill. But it won't be until the price goes over ten dollars a gallon that a majority could be in trouble. And inflation adjustment is not relevant since the wages won't change from todays. Spiraling food prices are however working to bring the painful price threshold down for this group. In general this group has at best a few hundred dollars of disposable income every month say 100-400. So its not going to take much more to send them negative.


The challenge of finding a meaningful currency is in a post peak work is daunting. Representative Roscoe Bartlett put it well: “There is no such thing, ultimately, as sustainable growth.” and “our whole monetary system is based on the premise that we will always have growth.”

I like the idea of pricing things in hours of labor. As all goods and services require labor of some kind as an input The minimum price of any good is the labor that went into making it. Of course the price can be higher than the minimum but it can not be lower. Also, in a very real sense all currencies are a means of storing work because the currency is used to obtain things which required work to create. The majority of the world's people obtain currency by doing some kind of work, but a few are born with trust funds, the stored work done by their parents.

The case of energy is something of a special case because energy can be used to do work. From the Peak Oil Caucus's House Resolution 507

Whereas the energy density in one barrel of oil is the equivalent of eight people working full time for one year

So the minimum price would be the labor required to extract oil and the maximum price for a barrel of oil would be 8 years work or a whopping $97,344 at the US minimum wage of $5.85 assuming 40 hour weeks 52 weeks a year. A barrel of oil can't go over 8 years of full time labor or it would be cheaper to have a person do the work. Pushing SUVs on the freeway, grinding friction pads to heat houses in the winter, turning cranks to generate electricity, etc. The currency valuations between nations shouldn't effect this price even if the dollar tanks, other nations will simply import Americans or out source to America, like we import Latinos and out source to China. The price is unlikely to ever go that high because just about any renewable you can think of would be more cost effective in dollars or hours of time and as representative Bartlett pointed out the monetary system would fail well before that.

For all practical purposes there are three prices that we may see. A short term interruption price, say if W. starts another war in the middle east. A long term shortage price from Peak Oil, ELM and whatnot that does not cause a collapse. And a long term price that causes a collapse.

A short term interruption could go as high as $25/gallon, 5 hours of labor, for up to 6 months before causing a break down. Government would likely step in to ameliorate some conditions in a temporary shortage scenario to preserve order. If the situation persisted longer chaos would ensue.

In a long term shortage scenario you're estimate of $5-6/gallon is about right for economic contraction. That is what gas was at during our last energy crisis (inflation adjusted). But that situation was temporary, after which the real price went down. It doesn't account for food price increases either, as the green revolution was still producing gains at that point. So at an hour a gallon + moderate food price increases we would see demand destruction that didn't wreck the system, we would adapt to continuous depletion.

Personally I think that humanity is above carrying capacity and a collapse is inevitable. Oil prices will lag slightly behind food prices until a messy discontinuity begins to emerge. People working full time will barely be able to afford food and energy but an increasing percent of the populous will be unemployed. Things will get messy and then break down. I put it at 2-3 hours for energy + 2-3 hours for food leaving 2-4 hours for discretionary spending for the better off on the nondiscretionary side of the economy. At that level half of the population would find itself superfluous and catastrophic system failure will bring humanity back to equilibrium conditions.

I agree goghgoner about it being a funny question on TOD (had to laugh when I read that), however there does seem to be a difference between intellectualizing peak oil and feeling it emotionally. So my question arose out of a true emotional response to the sheer speed that the market price of oil is skyrocketing. Intellectualy I know there must be a ceiling or some counter force to drive prices back down at some point, but it sure seems scary, especially in light of this plateau for crude extraction since 05.

I agree goghgoner about it being a funny question on TOD (had to laugh when I read that), however there does seem to be a difference between intellectualizing peak oil and feeling it emotionally. So my question arose out of a true emotional response to the sheer speed that the market price of oil is skyrocketing. Intellectualy I know there must be a ceiling or some counter force to drive prices back down at some point, but it sure seems scary, especially in light of this plateau for crude extraction since 05.

Hi C,

Thanks for bringing this up:

re: "...there does seem to be a difference between intellectualizing peak oil and feeling it emotionally."

I can relate to your question - the speed is increasing the gap for me.

Fuel/energy prices will continue to rise and the recession will continue for the rest of our times .... there is no energy fairy

You mean energy is at a permanently high plateau like housing was?

If by permanent you mean until it is no longer an important source of energy for the planet, yes. With said volatility not to be dismissed. Any significant drops in prices will be short-lived until oil has essentially been replaced.

Nice logical fallacy, though.

"You mean energy is at a permanently high plateau like housing was?"

Hehehe, not bad John15

I love it when the folks pushing commodities say, "hey, they ain't making anymore oil, how can you lose?"

Remember when folks said, "they ain't making any more land, you can never lose on real estate!" :-)

I have learned that when I am ABSOLUTELY convinced of the rightness of my position, I have only one person left to question. Myself.


Oil: old supply, young demand
By Nadim Kawach on Wednesday, April 9 , 2008

The United States, China and India – which account for nearly a third of the global oil demand – must cut their crude consumption to avert a supply crisis triggered by dwindling reserves, according to a Chinese scholar.

Xiaojie Xu, chief professor at the Institute for Geopolitics and Energy Economists at East China Normal University in Shanghai, said efforts by the three countries to ensure their crude oil needs and meet the rapid growth in domestic demand were only temporary solutions on the grounds supply security is weak.

In a study published in a new book obtained by Emirates Business from the Abu Dhabi-based Emirates Centre for Strategic Studies and Research, Xu said the world was heavily reliant on what he described as ageing oilfields at a time when demand was growing fast, especially in China and India.

This study basically endorses Matt Simmons' work, and Matt is referenced in the article. What is interesting is where it the article was published--in the UAE.

Is Yergin still in the USA? Or did he flee to Russia?

He may be in the Federal Energy Analyst Protection Program, issuing pronouncements for lower prices, from a secure location.

Perhaps him and Kunstler are spending quality time there together drinking tea. I assume they keep those in the Federal Stock Market Analyst Protection Program in the same facility.

Of course, the difference is that Kunstler has been as right about this central thesis--that the suburbs represent the biggest misallocation of resources in the history of the world--as Yergin has been wrong about his central thesis--that rising production would drive oil prices down.

Check out Kunstler's comments in the 2004 DVD End of Suburbia, versus Yergin's 2004 prediction for a long term oil price of $38. EOS Trailer: http://www.youtube.com/watch?v=qHr8OzaloLM

Notice how Kunstler Kritics always skirt the issue about his central thesis?

Of course, the difference is that Kunstler has been as right about this central thesis--that the suburbs represent the biggest misallocation of resources in the history of the world

How has he been right? because bubbles in cheap oil and cheap mortgages are correcting themselves? the suburbs will contract, like any bubble does, but they'll still be around. if they become the new slums, so what? the suburbs are like any asset class, they expand and contract. they are hot and they fall out of favor. some suburbs may have not much of a future but then again many companies have the same happen to them. there will always be suburbs.

Put a little more effort into your trolling-the suburbs might become the new slums (your words), which proves that Kunstler was wrong?

John15--Your cavalier attitude toward the people about to get flattened by the effects of Peak Oil is reprehensible.

Yes, agreed, 100% on that point. I was starting to think he was some bizzare human anomalous glitch, because HE'S (Kunstler)BEEN RIGHT ABOUT EVEWRYTHING ELSE!



Yeah right. I still haven't recovered from the Y2K bug. ROTFLMAO.


You won't be ROTFLMAO about the suburbs in a few years

Get up off the floor, that problem didn't fix itself. Course I'll admit, Kunstler had nothing to do with fixing it either.


The Y2k problems where real and serious and since it was primarily issues with our banking systems they where fixed. The only reason that we did not have real problems with that one was because the bankers where the primary ones effected.

I've seen a few posts acting like Y2K was bullshit well your lucky that proactive action was taken. And you really have no idea how bad it could have been. I do, every single banking/transaction system that my employer tested or that I know about had problems with 00. Not one worked. Even the railroad systems had problems.

Here is one that got out.


Your clueless.

memmel- just admit Kunstler was wrong and just copy and pasted his Y2k thesis to peak oil.

the question begs, if kunstler said y2k was a problem and it wasn't, who is to say we won't fix peak oil?

I saw a local tv program where kunstler was asked about his disastrous y2k prediciton. he just bristled and mumbled about $60 billion dollars and some fix. yeah whatever.

Einstein: No one is telling you to follow JHK like the reincarnation of Moses parting the sea. Logical thinking means you examine the argument, not the credentials. If JHK says tomorrow that oil depletion is "fixed", his argument will be examined, not his status. I just realized you don't have a clue what the hell I am talking about-forget it.

Are you dense ? Y2K was a big problem fixing it cost billions.

The basis of your argument that Y2K was not a problem is wrong.
I don't give a rats ass about Kunstler I do care that your spreading FUD.
My god on of the few fricken times we actually got of our arse and fixed something before it blew up in our faces and you go around dismissing a ton of hard work.


We are running CICS 4.1 (with all Y2K maintenance applied) in a Y2K environment and we shut down the cics region on the 31/12 1999 normally (Warm keypoint successful). Then we did a warmstart on the cics region 01/01 2000 and got a "DFHSI1561D applid Startup time earlier than shutdown time. Reply 'WAIT' or 'CANCEL' ". We then had to coldstart the cics region to get it up.

You might not have a clue what they are talking about but I assure you that those Y2K patches they are mentioning are really damned important.

Don't be a fool.

he question begs, if kunstler said y2k was a problem and it wasn't, who is to say we won't fix peak oil?

Another logical fallacy. Do you have any other mode of argumentation, or are logical fallacies all you got? Luckily or unlickily for both you and Kunstler, it's going to take some time to know if he's right or not. By the time we get close to that answer, if Kunstler is right, you will be long gone as your entire reason for being on these boards will have been blown to shit. Or should I say, stranded in the 'burbs?

Oh, and btw? I can assure you memmel is right. I was working in the documentation department of a main frame software company at the time. They specifically created a program - though it was never a big seller - for dealing with Y2K.

Had such things not been done, Kunstler would have been right. He *was* right, essentially. As memmel pointed out, that one simply got the attention it needed and got solved.

Arguing that means all of life's problems will get solved is... logically fallacious.


Y2K not a problem? Well, I spent the better part of 1999 replacing a dispatching system on a fuel terminal in the Carribean. Had we not done that, on January 1st that terminal would have stopped its operations, causing major disruptions to that country's fuel supply. And all it took to find that out was doing the easy exercise of setting the system clock to 01/01/2000 00:00 and see if the system worked. Needless to say it didn't, in fact it didn't even boot.
But hey, what do I know, I'm just someone with actual experience with Y2K, not some hotshot armchair expert.

Yergin has started a support group and is working with Baghdad Bob to council people on their troubles.

Throughout my research on peak oil and our future, I continually see something missing from the discussion, please correct me and provide links if I am wrong.

What's missing is discussion on the way money gets created. All money is created when a loan is taken out but the money to pay the interest on that loan is not created. That means for such an economy to survive, we need to be continuously taking out more and more loans (as we have seen happening increasingly in the last years).

The problem with regards to peak oil is that loans are taken out to fund projects that require the use of energy. More and more debt is needed to fuel the economy and more and more energy is needed to fuel the loans. This will be the first time in history where the amount of loans will start decreasing dramatically as the energy is not available to fuel the loans.

This is a disruption of the very basis of how money gets created and could very well make our money, to put it bluntly, as valuable as used toilet paper. One of two things would need to happen, either the whole way money is created needs to be changed or debts pardoned. I personally don't see the later happening any time soon.

I actually don't think the money supply is a real problem in the short term.

You can always just default on the debts. Bad for bankers and bad for people needing credit but it works. And its ok to give a loan out if the borrower can repay so the fact this is ends with a fairly fictitious debt entry is not a huge deal. Although fiat money is great stuff for a expanding economy it also works in a static or declining economy. Money supply and credit can expand and contract with fiat currencies. So they can continue to work in a shrinking economy.
In fact if interest rates are high and borrowing standards are high and the economy is contracting money itself would gain in purchasing power and people would be more apt to save then to borrow since goods would be nominally cheaper later.

The danger with fiat money is not intrinsic in the style of monetary system just that they can readily be abused and destroyed by the issuer in attempts to stave off economic contraction.

What our economic policy should be now is to increase interest rates rapidly up to 10% and cause a real shakeout of weak businesses and over leveraged corporations and people. Then they should leave interest rates at this level. We will find out real quick who makes money and who does not. And no 10% interest rates don't really cause the rich to get richer since the number of loans made and the sizes of loans would be much much lower. Also on the same hand I'd begin upping reserve requirements till the hit 100%. This would cause savings to be the primary source of debt creation which is the way it should be. All of this can be done with a fiat currency so you see its economic policy thats the issue not the nature of the currency.


It's a shame your post comes down at the tail of what is probably an almost dead string. It shows a ton of common sense. The high interest rate proposal, which I agree absolutely with, will be painful, very painful, but the only way to make money worth something is to make people pay to get it. "Cheap money" creates just what the term implies, cheap money. The U.S. dollar should be evidence of that.