DrumBeat: July 15, 2008

Where Americans will (and won't) cut back

Concerns about inflation, U.S. dependence on oil and rising unemployment spanned all income groups and age brackets, according to Jon Berry, vice president of GfK Roper Consulting.

Of course, some are harder hit than others. Because of the heavy dependence on driving, less affluent consumers living in rural areas and parents with children under the age of 18 living at home were among the most impacted from high gas prices, the report said.

What If the Pain Isn’t Temporary?

Most of the people I know are convinced that the current high fuel and food prices are temporary. “Surely the bubble will burst soon,” they say. “It won’t be long before we can resume living the way we were before,” they proclaim. “A new president will fix things,” they believe. They continue spending and living as they have before, making no changes, certain that things will get back to the way they were.

American Airlines to cut 200 pilot jobs

American Airlines Inc. said Tuesday it will cut 200 pilot jobs as part of its efforts to reduce expenses in the face of sharply rising fuel costs.

Biggest oil price drop in 17 years

NEW YORK (CNNMoney.com) -- Oil prices plummeted by the second-largest margin on record Tuesday as investors feared a further decline in U.S. demand after hearing comments from Federal Reserve Chairman Ben Bernanke.

Light, sweet crude fell $6.44 to settle at $138.74 a barrel in trading on the New York Mercantile Exchange.

The drop in oil was the largest single-day slide in dollar terms since Jan. 17, 1991, when oil fell by $10.56. On that day, President George H.W. Bush withdrew oil from the Strategic Petroleum Reserve ahead of the first Gulf War.

But in 1991, oil was trading at just $32 a barrel, so the more than $10 slide in dollar terms represented a record 33% drop. Oil fell 4.4% Tuesday, which does not even crack the top 100 price declines in percentage terms.

Pricey gas: Fewer cops, more potholes

NEW YORK (CNNMoney.com) -- In what seems to be a perverse reaction to high gas prices, some cities are cutting back on public transit - at a time when their citizens need it most.

Due to skyrocketing fuel costs local governments are being forced to trim all sorts of services - not only busses - but police departments and road repair crews too.

A Shortage at the Pump: Not of Gas, but of 4s

If one is the loneliest number, then four is the hottest — at least when it comes to gasoline.

With regular gas in New York City at a near-record $4.40 a gallon, station managers are rummaging through their storage closets in search of extra 4s to display on their pumps. Many are coming up short.

Platts Survey: OPEC Crude Output Rises to 32.47 Million Barrels Per Day in June, Up 230,000 b/d from May

"The Saudis did their part, raising their output precisely to the levels they promised," said Platts Global Director of Oil John Kingston. "It isn't clear whether this additional Saudi crude is going to go into consumption or inventory, but either way, it should find a home."

Oil firms accused of price fixing in Russian aviation fuel market

MOSCOW (RIA Novosti) - The Russian Federal Antimonopoly Service launched proceedings Tuesday against Russia's five largest oil companies over high prices for aviation and diesel fuel.

LUKoil, Gazprom Neft, TNK-BP Holding, Rosneft and Surgutneftegaz are suspected of price fixing, in violation of the law on the protection of competitiveness.

Britons shine a light on energy use at home

HOVE, England: A retired customer service representative for the local power company, Jeffrey Marchant, admits to a lifelong obsession with household energy, born originally of thrift rather than green environmental consciousness.

"I'm like one of those fellows who stands at the station spotting trains, only what I do is electricity," he says.

Country, the city version: Farms in the sky gain new interest

What if "eating local" in Shanghai or New York meant getting your fresh produce from five blocks away? And what if skyscrapers grew off the grid, as verdant, self-sustaining towers where city slickers cultivated their own food?

Dr. Dickson Despommier, a professor of public health at Columbia University, hopes to make these zucchini-in-the-sky visions a reality. Despommier's pet project is the "vertical farm," a concept he created in 1999 with graduate students in his class on medical ecology, the study of how the environment and human health interact.

U.S. electric utility has 12-year plan to shape debate on carbon emissions

Exelon, the largest U.S. operator of nuclear power plants, said Tuesday that by 2020 it would cut its greenhouse gas emissions by an amount larger than its total emissions in 2008, in a bid to shape the debate on carbon dioxide rules and to get a jump on compliance.

Colleges should plan - and teach - for an oil-scarce world

Robert K. Kaufmann, director of the Center for Energy and Environmental Studies at Boston University, recently gave a seminar for journalists on the economics of the oil market. As oil goes up, the value of the dollar against the euro goes down; other energy sources, meanwhile, become expensive as they substitute for more-expensive oil. Today's oil prices may be inflated, he said, but they will not collapse as they did in the 1980s. Because demand is going up worldwide, uses for oil have concentrated in transportation and manufacturing (where alternatives to oil are difficult to come by), and oil fields outside of OPEC are in a production decline, what we are experiencing now is very likely a permanent trend.

Mr. Kaufmann gave no date for a world production peak, offering various possibilities between 2014 and 2032. (A report by the U.S. government released last year said that oil production will probably peak sometime before 2040, but it was vague.) According to his analysis, within 10 years of the peak, alternative fuels would have to rise to the equivalent of 10 million barrels a day, or the current production of Saudi Arabia, the world's largest oil producer.

Most campuses plan to be up and running long after 2040. Consider the pain campuses are feeling now and how much worse it could be. Some colleges — like state colleges in Oklahoma — are already raising tuition to cover energy costs.

Eight Reasons to Release Oil from the Strategic Petroleum Reserve

A Department of Energy analysis determined that opening the OCS to offshore drilling “would not have a significant impact on domestic crude oil and natural gas production or prices before 2030.”

A much faster, more effective action to reduce oil prices would to sell a half million barrels of oil per day from the Strategic Petroleum Reserve to increase supply, reduce prices, and burst the “speculative bubble” that leads speculators to buy oil futures based on the assumption that supply will remain fixed and prices will escalate.

Ukraine hopes for access to Russian pipelines

KIEV (Reuters) - Kiev hopes a deal to allow Russia to join the World Trade Organisation will enable Ukraine to secure direct access to Russian pipelines carrying gas from Central Asia, a senior official said on Tuesday.

Libya to Cut Oil Production Because of Pipeline Work

(Bloomberg) -- Libya will reduce crude oil production this week by 100,000 barrels a day, or 5.7 percent, because of maintenance work on a pipeline, the North African nation's top oil official Shokri Ghanem said.

Shell lifts force majeure on Nigeria Bonny Light

LONDON (Reuters) - Royal Dutch Shell on Tuesday lifted a force majeure on Nigerian Bonny Light crude.

"As of 6 pm (1700 GMT) Nigerian time today, we lifted the force majeure on Bonny Light exports," a Shell spokesman in the Hague said.

UK: Farming industry reeling as key input costs double

Diesel oil, which the agricultural industry is heavily dependent on, has risen from approximately 40p to 70p per litre in the last 12-15 months, while compound feed prices have increased from approximately £140 to £220 per tonne in the same period. In line with rising oil and energy prices, Nitrogen fertiliser costs, previously £130 to £150 per tonne in 2006/7, will have hit £350 per tonne and above this summer.

ANALYSIS-Chile's government battered by protests, polls

SANTIAGO (Reuters) - Students and teachers clash with riot police in clouds of tear gas, a minister is sacked by Congress over a funds scandal and soaring inflation stirs anger -- President Michelle Bachelet's government is in trouble.

New Zealand Inflation Accelerates to 18-Year-High

(Bloomberg) -- New Zealand's consumer prices rose at the fastest pace in 18 years in the second quarter, fanned by fuel and food costs, adding to signs the economy is facing stagflation as it slips into recession.

Chrysler aims to have electric cars in three to five years

DETROIT (Reuters) - Chrysler LLC is planning to launch all-electric vehicles in the next three to five years, the latest automaker to join the race to produce cars with fuel-saving technologies.

Bush touts mortgage plans, offshore drilling

NEW YORK (CNNMoney.com) -- Under the backdrop of a deteriorating economic picture, President Bush said Tuesday he is taking action to help people with falling home prices and high gas prices.

Bush highlighted plans to stabilize the mortgage lenders Fannie Mae and Freddie Mac and lift the ban on offshore oil drilling as two steps his administration is taking to address some of the nation's economic ills.

'It's been a difficult time for American families," Bush said at a press conference. "We must ensure we can continue providing credit during this time of stress."

Global demand blamed for rising oil prices

Oil prices have been spiralling due to the “inexorable” rise in global demand rather than because of speculators, British MPs were told today.

At a hearing into regulation of the oil markets, a number of industry experts told the Treasury Select Committee in England that never-ending political crises were also more likely to have an effect on soaring costs.

Malaysia's Petronas posts record profit

Malaysia's national oil company, Petronas, reported a record annual profit Tuesday and said it is assessing the viability of a proposed gas project in Iran following the pullout of French energy giant Total SA.

Iraq elections law delayed over Kirkuk dispute

BAGHDAD - Iraq's parliament failed to approve a draft provincial elections law on Tuesday because of disagreement over what to do about voting in the disputed oil city of Kirkuk, lawmakers said.

Exxon moves ahead with disputed Alaskan gas field

Exxon Mobil Corp. has hired contractors with plans to begin work on an oil and gas field the state of Alaska wants to take back.

Fiji: Boy’s death concerns Qarase

OUSTED Prime Minister, Laisenia Qarase, has expressed concern about the electricity supply problem at Taveuni Hospital which led to the death of a 14-year-old boy last weekend.

Qarase questioned whether the problem was mechanical or was it due to non-acceptance of the Government LPO’s by fuel suppliers.

'The best thing that could happen to the country is if no oil is found'

Luis Prazeres was the first native-born airline captain in São Tomé and Príncipe, and the country's first minister of natural resources. He knew a lot about flying and nothing about oil. But neither did anyone else in the tiny African island nation, which had just been told it was on the verge of a petroleum boom.

"There were all these foreign companies telling us that we had huge oil reserves, and bringing us agreements to sign," said Prazeres, who took up his minister's post in 1999. "Nobody here understood how complex it was."

Fears for British Economy as Inflation Soars to 11-year High

FEARS for the British economy mounted today as surging food and and petrol prices pushed inflation to a 11-year high of 3.8 per cent.

Families who are feeling the squeeze were dealt another blow as the Consumer Prices Index (CPI) jumped this month from 3.2 per cent in May.

The highest increase in more than a decade was worse even than the 3.6 per cent expected by City economists and is almost double the Bank of England's 2 per cent target.

Gas at $39.26 a gallon not funny

MORRISON — At a time when reaching for the pump has become a royal pain in the gas for every motorist, nobody has a sorer wallet than John Force.

When his Ford Mustang gets thirsty for fuel, Force is paying $39.26. Not to fill the tank. Per gallon.

But here's the real bummer. Force races dragsters for a living. He might own the heaviest lead foot in America.

On his work commute, when the light turns from red to green, Force can burn 10 gallons in 4.2 seconds. Quicker than a guy can reach for his credit card, nearly 400 bucks are gone in a puff of exhaust smoke.

Architecture: Bulgarian eco town 'the biggest mistake of Norman Foster's career', say protesters

On Karadere beach, in north-east Bulgaria, a smattering of families have set up camp for the summer, as they have done for years. But this year the happy-go-lucky mood has been punctured by fears that the small corner of paradise is under imminent threat by Bulgaria's first carbon-neutral resort.

Shell boosts stake in Iogen cellulosic ethanol

WINNIPEG, Manitoba (Reuters) - Oil major Royal Dutch Shell Plc said on Tuesday it will make a "significant investment" in Canadian cellulosic ethanol maker Iogen Corp, increasing its stake in the company to 50 percent from 26.3 percent.

Shell also said it would consider investing in a full-scale commercial plant for the Iogen technology, which makes ethanol from wheat straw. It did not disclose how much it will invest in the privately held company.

Lester Brown: Higher food prices are here to stay

In a misguided attempt to reduce its oil insecurity, the US is creating global food insecurity on a scale not seen before. Even if the entire US grain harvest were converted into fuel for cars, it would still only supply 18% of the US's automotive fuel needs at most. At the individual level, the grain required to fill a SUV's 25-gallon tank with ethanol would feed one person for an entire year.

Ethanol, which is projected to consume over one-fourth of the US grain crop in 2008, will supply scarcely 5% of the US's automotive fuel needs. But this demand for grain is the proverbial straw breaking the camel's back.

It's not a choice between food and fuel — we'll need more of both

The real threat is to remain caught up in the blame game while actually buying into the misguided notion that farmers are forced to choose between delivering food or fuel. Much more of both will be needed. The critical choices have to do with how we can provide more food and energy while using fewer resources. And in the spirit of the current campaign season, part of the answer can be framed by modifying a sage piece of political counsel: It's the yield, stupid.

Asphalt deficit gives Colorado DOT a bumpy ride

A shortage of liquid asphalt is occurring, in part, because oil refiners are concentrating on producing more profitable finished products from crude oil, such as diesel fuel, said Tom Peterson, executive director of the Colorado Asphalt Pavement Association.

Refiners also are processing more light crude petroleum, which produces less asphalt than heavy crude, Peterson said.

Gas prices are taking a toll on state road funding

OKLAHOMA CITY (AP) — High gasoline prices that are taking their toll on motorists could soon begin hampering the agency in charge of maintaining Oklahoma’s roadways.

State Transportation Director Gary Ridley expressed concern Monday a federal trust fund fed by sales of gasoline and diesel fuel could have an $8 billion shortfall that would trickle down to Oklahoma.

Sen. Jim Inhofe, the author of the federal legislation, has said the impact on Oklahoma next year could be a $172 million shortage.

Fuel costs strain towns

BENNINGTON, VT — The new fiscal year is only in its early days but several Bennington County towns are already looking ahead with caution after finishing the last fiscal year with greater-than-expected spending for gas, heating oil and road salt.

Demand growing bigger for smaller used cars

As gas has rocketed from less than $3 a gallon in January to more than $4 now, demand for fuel-efficient small cars has climbed as dramatically as the value of high-priced trucks and SUVs have fallen.

"There's a shortage of [small] cars all across the spectrum," said Mark Scott, a spokesman for AutoTrader.com, a national online automotive marketplace which has about 4 million vehicles listed on its site at any given time.

Mr. Scott said that listings for large vehicles like trucks and SUVs have grown by 20 percent in recent months on the company's Web site as more consumers try to get out of their large vehicles.

Gas crisis kindling new interest in bicycles

SALEM, N.H. — After years of stagnant national sales, the gas crisis may be pumping some new life and changes into the bicycle industry.

"We're seeing more and more people buying bicycles for doing errands," said John Maurice, bicycle manager for Buchika's on South Broadway in Salem, N.H. "The bike industry says 60 percent of all car trips are for 2 miles or less. Because of that figure, people are buying bikes to go to the library or grocery store. If it's two to three miles, people are interested."

Cement shortage spurs black market

DUBAI — A black market for cement, where prices hover upto 60 per cent above the price ceiling fixed by the government, is thriving in the UAE on the back of an acute supply shortfall and rampant hoarding activities.

...While most cement factories in the UAE abide by the official price cap, some leading building materials traders take undue advantage of the supply shortfall to charge up to Dh29 per 50-kilo bag for Ordinary Portland Cement through mostly under-the-table transactions for which no proper cash bills are issued. However, some industry sources said certain cement suppliers are demanding more than Dh400 per tonne as a result of a steep rise in clinker, diesel and manufacturing costs.

Why OPEC will not increase crude oil supplies

If oil consuming nations think that the Organisation of Petroleum Exporting Countries (OPEC) would start pumping crude oil into the market to cushion the effect of the spiral cost of the product at the international market then they better have a rethink.

The organisation is not willing to concede to pressure from the consuming nations for increased supply. It has consistently maintained that it is not convinced the crude supply to the market is not sufficient for the consuming market.

Mauritius: Country Proposes Orgn., Fund for Non-Oil Producing Countries

It is high time that non petroleum producing countries created their own organization and an oil fund with the objective countering effects of soaring oil prices on their development endeavors, ambassador of Mauritius to Ethiopia proposed on Thursday.

Does Your Financial Adviser Know What Jeffrey Brown Knows About Mexico’s Oil Exports? (If Not, Listen Up)

How much does your financial adviser really know about oil? Does he know, for example, that Mexico, one of the top oil exporting countries in the world and a key source of oil for the United States, could see its net oil exports hit zero in late 2010?

That’s the forecast of Jeffrey Brown, the Texas-based petroleum geologist who is one of a small group of unaffiliated energy analysts whose collective research serves as a warning to financial markets to beware unexpectedly sharp falloffs in the amount of crude available to the U.S., China and other giant oil-importing nations. Brown’s work highlights in part how rising domestic oil consumption in big oil-exporting countries such as Saudi Arabia and Mexico can cause those countries’ oil exports to fall faster than would be indicated from a straight analysis of production rates.

Heedless Rush to Oil Shale

To hear Bush touting Western oil shale as the answer to $4 per gallon gasoline, as he did again yesterday in the Rose Garden, you would think it was 1908 . . . or 1920 . . . or 1945 . . . or 1974. Every couple of decades over the past century, the immense reserves of the oily rock under Colorado and Utah reemerge as the great hope for our energy future.

Bush and his fellow oil shale boosters claim that if only Western communities would stand aside, energy companies could begin extracting more than 500 billion barrels of recoverable oil from domestic shale deposits. If only the federal government immediately offered even more public lands for development, the technology to extract oil from rock would suddenly ripen, oil supplies would rise and gas prices would fall.

If only.

Towns look at 4-day workweek to save

Gas pangs at the pumps, coupled with Utah's move to put most of its state workers on a four-day week, are driving more Connecticut cities and towns to reconsider whether a similar schedule makes sense for them.

Plans Unveiled For Four Billion Dollar Coal To Liquid Fuel Plant

A one year study shows the Big Shoal site in Pikeville is the best spot, and now state and federal officials are jumping on board, saying Monday we need to build this to slash gas prices, and help the Appalachian economy.

Pike County and state leaders say billions of tons of coal leaves the region.

“We want that to change,” says Wayne T. Rutherford, Pike County Judge-Executive.

Instead, the plan is to keep it in eastern Kentucky, and go to Pike County and turn into liquid fuel.

Kerry eyes clean energy

America can restore its world-class economic strength, U.S. Sen. John Kerry (D-Mass.) said yesterday, if it directs its technological and entrepreneurial drive to producing clean energy.

“We need a massive new Manhattan Project for alternative energy,” Kerry said in an hour-long interview with Boston Herald editors and reporters.

Bush has Congress over a barrel

WASHINGTON — By lifting a long-standing White House ban on new oil and gas drilling off the nation's coastlines Monday President Bush pressured Congress to take a similar step, stoking the battle over how the U.S. should respond to high gasoline prices.

Welcome To The Frozen Economy

The Polar ice cap may be melting, but the U.S. economy is frozen, starting right here in my small town. Gradually rising levels of dismay at the gas pump and in the supermarket gave way to paralytic shock last week when "lock-in" notices from the local fuel company arrived. This year's advance price for home heating oil is nearly twice what people paid last year. A collective gasp of disbelief from my tough, resourceful Maine neighbors echoed across the meadows and up the rocky coast. Many claimed they would never sign the contract. "What's your alternative?" I asked a friend.

"I don't have one," he muttered.

Power cuts turning Pakistanis ‘green’

ISLAMABAD // Homeowners in electricity-starved Pakistan are turning to wind and solar power in a bid to overcome a crippling power shortage that is causing deep dissatisfaction with the country’s civilian government.

Pakistan sits on the brink

The rupee is in a tailspin, the Karachi Stock Exchange is in a steady decline and food and fuel prices are soaring, contributing to power shortages, rising unemployment and an unprecedented trade deficit. By any measure, the Pakistani economy is in deep trouble.

Violence by militants in the country’s northwest may have captured the headlines, but some economists are now predicting fiscal instability will cause more turmoil here than the pro-Taliban extremists.

Saudi says 12.5 mbpd oil capacity sustainable

DUBAI (Reuters) - Top oil exporter Saudi Arabia will be able to pump at 12.5 million barrels per day for as long as the market needs when new capacity comes online next year, a Saudi oil official told Reuters on Tuesday.

BusinessWeek magazine reported last week that the kingdom would only be able to produce oil at maximum capacity for a short period of time before scaling back output.

"This is sustainable for as long as the market needs it," he said. "We are on track to reach production capacity of 12.5 million bpd by the middle of next year and we will do it."

Good news about oil, but for our grandkids - not us

A comment on this site said ”The data really do speak for themselves if given a chance.” Unfortunately this is not so. Change can disorient us, making it difficult to clearly observe and analyze the situation. Lawrence Solomon demonstrates this for us in his article about peak oil. Too many people make his mistakes, and we will pay dearly as a result.

Let's meet the energy challenges

The full story about peak oil -- its causes and consequences -- may elude us until well after the dust (or feathers) settle. What we do know is that we should expect -- and plan for -- a period of discomfort. The lives of all but approximately 2.4 billion of the world's people are dependant upon oil and other fossil fuels. We, who depend on them, do so for every economic decision we make, from boardroom to breakfast table. Renewables are not going to ramp up in such a manner as would sustain our current way of life (though this shouldn't prevent us from investing in them). Ours is a culture that will have to shift from energy arrogance to energy modesty. That shift requires imagination, innovation, new notions of achievement and bold leadership. It is not impossibility.

Team focuses on future of agriculture

AN ORGANIC farming expert spoke about how agriculture might work in a post-peak oil world at the latest meeting of a Harborough environmental group.

Canton Has A Vision

Fiction collides with reality as I walk around Collinsville listening to First Selectman Dick Barlow's grand idea.

Restored turbines in the power station along the Farmington River would generate power for hundreds of homes in Canton, which includes the village of Collinsville. The old ax factory building is finally reborn, providing affordable homes and jobs. People live, work and play by the river as a community revives a backyard economy.

Dreaming again, you say? The truth is that rising energy prices are going to change the way we do everything. Barlow and Collinsville are in the vanguard.

Global warming may raise kidney stone risk

Global warming could do more than hurt polar bears: It could force a rise in kidney stones, scientists warned Monday.

"We see a relationship between kidney stones and temperatures everywhere," says study co-author Margaret Pearle of the University of Texas Southwestern Medical School in Dallas. "Even in places with air conditioning, warmer temperatures mean more stones."

Scotland: Carbon ration cards demanded

SCOTS should sign up to the idea of emissions rationing in order to become a zero-carbon community, according to the scientist behind a radical new environmental campaign.

Dr Justin Kenrick believes climate change should be approached in a similar manner to living through a war – and our use of should be rationed in a similar way to food during the Second World War.

Björn Lomborg: The green inquisition

We're being force-fed vastly over-hyped scare stories which block out sensible solutions to climate change.

Oil market to tighten again after 2009/10: IEA

ALGIERS (Reuters) - Oil markets are expected to tighten again after easing in 2009/10 so producer countries should increase investments, the head of the International Energy Agency (IEA) said on Tuesday.

"The situation could be better in 2009/2010 but after that the situation will be getting tighter again," IEA executive director Nobuo Tanaka told reporters on a visit to OPEC member Algeria.

"We want producing countries to increase investment."

OPEC revises 2008 world oil growth forecast down to 1.20%

VIENNA (AFP) - OPEC on Tuesday revised down its forecast for growth of world oil demand this year to 1.20 percent from 1.28 percent, citing the economic slowdown and high fuel prices.

"The new price structure and slower world economy have helped dampen oil demand growth in many regions," it said in its monthly report.

Brazil oil workers may extend strike to refineries

SAO PAULO (Reuters) - Oil workers in Brazil may extend a five-day strike that started in the country's main production hub to the rest of the country and include refineries and shipping terminals, union officials said Tuesday.

Iranian national oil company: Total to remain committed to Iran projects

TEHRAN (Xinhua) -- National Iranian Oil Company (NIOC)on Tuesday rejected reports about French energy giant Total's withdrawal from the nation's South Pars gas deal, saying it has officially announced that it would carry out its commitments in Iran's oil industry.

GM announces job cuts, suspends dividend

DETROIT - General Motors Corp said on Tuesday it would cut salaried employment costs by 20 percent, sell up to $4 billion of assets and borrow at least $2 billion in a bid to bolster its liquidity by $15 billion through 2009.

GM also said it would suspend its common stock dividend in a restructuring driven by high fuel prices, a shift away from trucks and SUVs, and the lowest U.S. industrywide auto sales in a decade.

Japan's fishing industry hit hard by rising fuel prices

Fishermen say it's too expensive to take out their boats. They plan a strike Tuesday, sparking fears of a food crisis in a nation where seafood is a staple.

Côte d'Ivoire: City on Go-Slow as Residents Protest Sudden Fuel Price Rise

Thousands of business-owners have closed down their shops across the capital today and several of the city's main roads have been blocked in protest of a government decision to stop fuel subsidies, which caused prices to rise steeply overnight.

Nigeria will subsidise petrol, diesel prices

Abuja - Nigeria's petrol tanker drivers suspended a nationwide strike that had sparked panic fuel-buying, after the government pledged to lower the cost of diesel, a senior union official said on Monday.

"We suspended our action on Saturday night after promises from the oil minister that he would find a way to subsidise fuel prices," said Pius Ikechi, the deputy president of the Nigerian Union of Petroleum and Natural Gas workers.

Throwing gas on the oil fire

Contrary to nearly all received wisdom in Washington, not to mention the rhetoric of the presumptive nominees of both major parties, the scariest moments in American politics are often its most bipartisan. Some would say that this was demonstrated in the wake of 9/11, when all those allegedly terrible national security laws were enacted by both parties, or in the run-up to war, when Democrats and Republicans alike united to topple Saddam Hussein. But I find it is most true when Washington takes a populist turn, which it is doing now with pugnacious stupidity, attacking that classic populist boogeyman: the "oil speculator."

Energy-addicted U.S. can learn a lot from Europe

PARIS - A few days before we flew to Barcelona last month to attend a wedding, international headlines filled with news that truckers had blocked roadways leading to Spain's major cities, leaving some store shelves bare.

The wildcat strike passed, and the wedding went off without a hitch. But the independent truckers' protest – and subsequent efforts by Spanish farmers to block roadways in protest – bear testament to the pain inflicted by diesel fuel prices that have passed $8 a gallon and continue to climb.

That's right, $8 a gallon.

Canada's Boreal forest gets some protection

OTTAWA(AFP) - A huge swath of Canada's northern Boreal forest will be permanently protected from tree harvesting and mining as part of a plan to combat climate change, Ontario province's premier announced Monday.

EPA experts detail global warming's health risks

WASHINGTON - Government scientists detailed a rising death toll from heat waves, wildfires, disease and smog caused by global warming in an analysis the White House buried so it could avoid regulating greenhouse gases.

In a 149-page document released Monday, the experts laid out for the first time the scientific case for the grave risks that global warming poses to people, and to the food, energy and water on which society depends.

OPEC’s Monthly OIL Market Report (large PDF) is out this morning. Crude production for June was 32,290 kb/d, up 124 kb/d from May but that was after May production was revised downward by 28 kb/d.

Big changes were Saudi Arabia, up 171 kb/d and Kuwait up 23 kb/d. Downs were Iraq down 36 kb/d and Venezuela down 54 kb/d. All other changes were smaller. Nigeria was unchanged.

Saudi 2008 production looks like this, in thousand barrels per day:
Jan. 9,075
Feb. 9,090
Mar. 9,031
Apr. 8,984
May. 9,179
Jun. 9,350

All other OPEC nations seem to be holding their own, either up or down only slightly. Venezuela, who produced 2,720 kb/d as late as March 2005 is now down over 400 kb/d since that date. Indonesia is also in long term decline though their production has been relatively flat for about 15 months.

Ron Patterson

Hi Ron,
Just wondering is that a normal variance in monthly production figures for the Saudis or are the figures hiding something unusual?

Tremain, yes such variation is pretty well normal for Saudi. I think they are pumping as much as they possibly can so their production figures reflects new oil here and declines there. According to Wikipedia Oil Megaprojects Saudi is supposed to have 908 kb/d of new oil coming on line in 2008. I think that is an exaggeration however no doubt they will bring, and have already brought, some new oil on line this year. Remember most of this new oil will simply replace declines elsewhere.

That is the real story. In fact, that is the story all over the world.

Ron Patterson

Rounding off, this is a first half average of 9.1 mbpd. If they were to match their 2005 annual rate of 9.6 mbpd, they would have to average 10.1 mbpd in the second half of the year. In other words, it seems likely that Saudi Arabia will show three straight years of crude oil production below their 2005 rate.

Meanwhile, on a total liquids basis, their consumption in 2008 will probably be up by about 500,000 bpd over their 2005 rate. So, I estimate that if they wanted, in 2008, to simply match their 2005 annual net export rate, they would have to average about 12.6 mbpd, total liquids, in the second half of the year--versus their 2005 annual rate of 11.1 mbpd.

From the Saudi announcement linked above:

"This [12.5Mbpd] is sustainable for as long as the market needs it."

I would assert that the "market needs it" in perpetuity, which renders such a production rate NON "sustainable." Do these people even bother to read or think through their announcements?

Where "the market needs" are defined by Saudi Arabia, after having looked at what they can actually produce.

It was only a few months ago that they were saying "there is no call for more oil" - right up until they got a new field working, when production jumped. Reality is mutable to Aramco.

on the other hand, 500kbpd means that roughly 70 milion dollars a day will stay in developped countries, instead of going to saudi arabia.

that's a lot of money. maybe some of that money will go into renewable energy

"that's a lot of money. maybe some of that money will go into renewable energy'

Now if Joe SixPack would only think of that while walking to work tomorrow, since there isn't enough mass transit to go around.

i must say, the reinvestment part hit me like a brick when reading the article about pakistan turning "green", mostly by needing it.

let joe sixpack freeze a winter, and he'll start digging into solar power / electric heaters / wood burning. he'll also start noticing the latest and greatest architectural wonders: bus stations
necessity is the best teacher, afterall.

In my neck of the woods, bus ridership has doubled in the last few months. I found that out talking to a bus driver who said: "I can't afford to drive anymore."

Here's the OPEC production table extracted from the report

And here's the world production according to OPEC.

Memmel, if you read this, can you suggest what you believe the real production figures to be based on your analysis?

Here's the statement from the report supporting the news item in yesterday's drumbeat. Yesterday's MEES report said demand would fall 500k/day but the actual published OPEC report is even worse and says 710k/day (although the difference between 32.0 and 31.2 is 800k so I presume there's some rounding going on)

The demand for OPEC crude in 2008 is estimated to average 32.0 mb/d, a decline of 90 tb/d over the previous year. In
2009, the demand for OPEC crude is expected to average 31.2 mb/d or 710 tb/d lower than in the previous year.

Thanks Undertow, got a link for that?

It's at the bottom of page 3 (physically numbered page 1) of the OPEC PDF you posted, with further details on page 7 (numbered page 3)


The important thing to look at is how oil is moving month to month what you see is that the surge months seem to always be lead by decline months and more importantly any increases seem to be temporary i.e less than sixty days followed by a slow down. And as noted overall production with a running average is lower.

My conclusion is that changes in production reported are actually changes in storage levels in the producing counties real production is probably pretty much flat out.

Understand that before this year seasonal demand fluctuations resulted in demand still dropping below production capacity in the spring and fall. Starting last fall the seasonally caused spare capacity seems to have evaporated.

I do get a tanker tracker report and from it it seems that exports have been pretty much flat but with ships taking turns sailing east then west. So you have a number of temporary storage shell games in progress.

1.) Production is pretty much flat out but.

1.) For two months send excess to storage and claim higher production numbers.
2.) For two months claim even higher production numbers as storage is drained.
3.) Send extra oil east for a few months refilling storage in asia
4.) Send extra oil west for a few months refilling the EU/US ( lower imports to Asia )

However overall this year your seeing a persistent storage drain.

To me at least its really hard to split out the lower production from export land however I believe that lower production is playing a big role because fungible side products of refineries like bunker fuel are in short supply globally. Part of this of course is a move to complex refining but even with that if KSA was refining the oil you would expect them to be taking a larger role in the Bunker fuel market.
But we have no sing of excess production from Export Land refineries this is not definitive because they could be burning residuals for electric generation. But bottom line is we seem to have both production and export land problems even though splitting the two is very difficult.

So it looks like we probably have a combination of a slow decline in production of good grades of crude and export land.

Finally I mention good grades because it looks like some heavy sour crudes are not being purchased so some spare capacity exists for those and this is also contributing to changes in the numbers as these are discounted enough to sell. This is my heavy-sour/ NG problem.

Every thing seems to be on various 2 month like time tables so you have sort of a natural 4-6 month cycle with real inventories lower if smoothed over say 3 months and production lower. Whats critical is that you have no signs of any sustained production increase and plenty of indications that storage is being manipulated world wide to stave of shortages.

My best guess is we are down about 2mbpd in production from the real peak in 2005 with the recent reported peaks a figment of OPEC's imagination they don't even show in the ship tracking. I think export land has us down on top of this at least 1mbpd for a net decline from a 2005 peak in exports of about 3mbd. This is sufficient to initiate real post peak problems I have that at 4mbd down from real peak and we are if you look around rapidly approaching post peak like symptoms. Also 3mbd fits very well with the current price levels and storage levels.

My best guess is that by this winter serious shortages will develop somewhere in the 2nd/1st world that cannot be papered over by this shell game.

The increase in complex refining capacity and even using cokers on the residuals from light sweet refining is probably all that has kept up running this year and its taken its toll on NG prices. Given that the biggest oil users now pretty much all have complex refining I don't expect significant gains from more complex refining to help in fact we have excess refining capacity this year. Next of course the death of the housing industry in the US and world wide will act as a fairly big demand drop thats helping and will continue to help some even into next year. Thus the only good news as the continued popping of the global housing bubble is reducing demand to some extent. This is at least temporarily lessing the impact of what I believe is a real decline of 3mbd and of course initial conservation efforts are playing a role.

Thus it seems the first big peak oi/export land event besides rising prices will probably be a fuel shortage esp diesel in the southern hemisphere as they enter their growing season and summer.

Our diesel shortage should become acute and demand for heating oil and diesel for planting in the south clash. And a chance for a silent spring in the Northern Hemisphere as the sound of diesel trucks and farm tractors does not fill the air.

My best guess is we are down about 2mbpd in production from the real peak in 2005 with the recent reported peaks a figment of OPEC's imagination they don't even show in the ship tracking. I think export land has us down on top of this at least 1mbpd for a net decline from a 2005 peak in exports of about 3mbd. This is sufficient to initiate real post peak problems I have that at 4mbd down from real peak and we are if you look around rapidly approaching post peak like symptoms. Also 3mbd fits very well with the current price levels and storage levels.

My best guess is that by this winter serious shortages will develop somewhere in the 2nd/1st world that cannot be papered over by this shell game.

Thanks. I have to say your "best guess" seems to fit in with the oil price a lot better than OPEC's figures. If you believe OPEC, recent prices seem almost directly proportional to production (rather than the inverse).

Thanks the fact that misinformation seems to be happening is itself a important piece of information.
The evidence points to OPEC being unable to make any serious sustained production increases
and more importantly they are lying about it.

"I do get a tanker tracker report..."

just curious, about how much crude is in transit at any time ?

A lot :)

Seriously though shipping is a big part of the storage of oil.

You don't need the tanker report for this say 40 mbd is shipped then at any one time say on average 2 weeks of oil are at sea so 120mb or so are in transit on the ocean at any given point in time. Or about a 5 weeks of usage by the US.

Take a look at this image from New Scientist (June 2008):

Click for a larger version

Oil market to tighten again after 2009/10: IEA

"We want producing countries to increase investment," IEA executive director Nobuo Tanaka told reporters on a visit to OPEC member Algeria.

This goes back to what we were talking about yesterday here on TOD.

If the goal of OPEC countries is to make the most money, why should they?

As Bassam Fattouh concluded, "it is more profitable for OPEC to err on the side of under-investing in new capacity as opposed to expanding capacity as the decline in oil sales can be compensated for by the increase in oil price in tight market conditions."

There is a delicate balance which will force consumers to make changes which will have the long term effect of reducing their uses of oil. Once forced to do so, it will be very difficult for the producing nations to keep demand up. While that may not be a problem right now, if Exxon has in fact made a breakthrough in battery technology which will make electric cars practical, and if one or more of the huge car manufacturers actually takes advantage of that technology, who will want to go back?

The balance is not super-delicate, and it will take additional price increases to get consumers to make the switch. Opec and Russia, for instance, will need to watch this situation very closely if they are to keep the world from making these changes.

Investment is not the only answer however. Drilling only counts if it results in production. Nothing is a slam dunk for any of them at this point, in spite of the impression one might get reading the link yesterday about Kurdistan.

Unfortunately, I have yet to figure out how to quote someone, so I will just use brackets:

[As Bassam Fattouh concluded, "it is more profitable for OPEC to err on the side of under-investing in new capacity as opposed to expanding capacity as the decline in oil sales can be compensated for by the increase in oil price in tight market conditions."]

Wouldn't this statement be similar to the whale hunters in the 1900's saying that a scarcity of whales is a good thing? As we know, whale oil became more expensive and rock oil became less expensive which lead to a collapse of a way of life to thousands of people.


Your analogy would hold if there were an alternative transportation fuel, competitive in price, in the offing.

Hmmm... I wonder how much it costs to produce a barrel of whale oil?! I'm not serious, obviously!

You don't need perfect substitution a partial substitute is fine.

The long years of low oil prices was in my opinion driven largely by the availability of cheap NG that acted as a substitute and replacements for many uses of oil dropping demand and specializing oil usage in the transportation sector.

Enough alternative transportation such as electric rail or EV's could theoretically reduce demand for oil enough to ensure low oil prices and a mix transportation network with oil used where electricity did not work well.

We would party like it was 1990 until we ran low on something else most probably NG. But NG is not easily replaced esp worldwide.

Next of course the move to electric cars is really a US thing Electricity is not cheap in most of Europe.
The second and third world don't have the infrastructure etc etc.
Cheap oil would spur growth swamping any gains in efficiency in the US as Chindia demand would overwhelm US efficiency gains. Rising NG costs in North America threaten our ability to produce cheap electricity increasing costs esp for EV's.

Pop goes the dream bubble.

I find the common assumption on TOD that "Chindia" demand will continue to surge very suspect. Those economies are more fragile than is generally suspected.

The evidence you have presented is overwhelming. Also, linking China with India is illogical-they really don't have that much in common economically.

The linking of China with India was not mine, hence my putting it in quotes. Assembling and presenting the evidence would be a task beyond my capacity. In all seriousness, have you been paying attention to the economies of these two countries under the impact of oil prices? Do you continue your optimism?

I actually do agree that India looks like some cracks might be showing-IMO China is growing as well as any country right now.

D&G dad;

"China June auto sales up 15.35 pct yr-on-yr at 836,800 units - assn"


It would be good to see collected together the bits and pieces one comes across on the prospective situations of India and China. Much is made of the effect of their booming economies drawing on world oil production. One tends to notice data that supports ones underlying assumptions. I tend to think that India and China are following the industrial/economic path taken by the more "developed" countries and that this path leads over the cliff. Hence, I guess, I look for signs of them going over said cliff. don't, don't, don't go that wayyyyy
China may look very good for now but to me it seems they are heading for serious food and energy imports.

It would be good to see collected together the bits and pieces one comes across on the prospective situations of India and China.

There is too much 'information' and some of it is hard to catagorize as valuable/not valuable without very specialized knowledge.

You worry about oil, I'd claim oil is the least of the issues, I'd say the water tables will have a population impact. Totaliana on TOD would claim the I-PNK would have the bigger impact. Others might claim GMOed food, or U99, the way even rice was rotated causing insect pest populations to bloom, just plain old overpopulation, or believers in conspiracies have other versions.

Next of course the move to electric cars is really a US thing Electricity is not cheap in most of Europe

Running a car on electricity in Europe is a darn sight cheaper than running it on petrol.
It would use up some of France's off-peak production of surplus nuclear energy very well.


In recent months Renault-Nissan has teamed up with Project Better Place, a Silicon Valley start-up, to introduce all-electric vehicles and a network of charging points in Israel and Denmark by 2011.

Perhaps you mean a US and European thing?


Mitsubishi had been planning to start leasing its i MiEV electric car to commercial and government fleets in 2009, with a Japanese retail launch following in 2010. It now looks like that plan might be accelerated by a year.

Or perhaps it should be a US, European, and Japanese thing?


The F3DM uses BYD's self-developed iron batteries, which the company said could be recharged for more than 2,000 times and can power the car to run over 600,000 miles. The car equipped with BYD's batteries can travel as long as 100 miles after one charge, much longer than the 25-mile duel model vehicles offered by other automakers.

BYD Co., the automaker's parent company, is the world’s second largest rechargeable battery producer. BYD entered the automotive industry in 2003. The automaker announced earlier that it will sell rechargeable hybrid vehicles in China this year.

So maybe it is a US, European, Japanese and Chinese thing - although of course many taxis in Nepal run on electricity.

However, you argue:

The second and third world don't have the infrastructure etc etc.


21 million e-bikes in 2007
19 million e-bikes in 2006.

With the build up in e-bikes up to 2005 then there were probably 60 million e-bikes and scooters at the end of 2007. There will likely be 83-90 million e-bikes and scooters worldwide by the end of 2008.

The infrastructure seems to cope alright with these.

I don't think it is the electric vehicle bubble which has burst.

Dave I've said my piece on electric cars. Time will tell who is right.
I'm not going to argue with you on the matter.
They are a sideshow.

The problem we face is not a personal transportation issue.

The problem we face is not a personal transportation issue.

Yep, folks can always walk. LOL With regard to the type of economic structure we've built, the issue most certainly IS personal transportation, its costs, and the lack of viable alternatives.

If personal transportation was NOT the issue, then The End of Suburbia and Mr Kunstler would have NO pot to piss in.

Yes, people CAN walk. Which is how I commute, 1.7 miles each way, every work day. Ha, ha!

Actually your right you can walk or buy a 50 dollar bicycle. Or pay 50k for a EV of course they are now working for 5 bucks a hour so not sure how they will pay for that EV.
The problem we face is not a personal transportation issue.

Electric EV's are 100% a sideshow and are not relevant.
I'm not saying they won't be produced and used by whoever is still wealthy enough to one one.
I suspect they will but its as important as the supply of Mercedes in the US.
Its a side show.
The fact that EV promoters think they will have enough money to buy one is amusing.
Maybe all you guys own Mercedes so you really don't understand. So a let them eat cake
style solution from a certain class of people is not surprising.

What you might see a fair amount of, though, is people converting their compacts and subcompacts into EVs. They might only be able to afford a half-dozen lead-acid batteries in the trunk, but that might be just enough to get them to the grocery store and back. Any wheels will be considered to be better than no wheels.

memmel: The problem we face is not a personal transportation issue.

WNC Observer: enough to get them to the grocery store and back

To me, the problem we face is having sufficient food in the grocery store, and everyone having enough money to buy it.

To me, the problem we face is having sufficient food in the grocery store, and everyone having enough money to buy it.

Yes, food supply and its affordability are big issues both effected by rising oil and NPK prices. Unfortunately, it is quite likely that as the economy runs down and people lose their ability to buy prices will continue to rise. In this event, Nixonian price controls and preferential fuel and NPK allocations make sense. However, most current congressional members and political party managers must be replaced as ideologically unsuitable for such a task. Neither are the Dem. or Rep. presidential candidate, although McKinney of the Green Party would be as would Nader.

US presidential elections always boildown to interests, level of ignorance, and future expectations based on the intersection of interest and ignorance. Those more informed are likely to make better choices, not that their choices will win. Based on your sentiment quoted above, assuming it reflects your interests, you ought to vote Green or write-in Nader as the two corporate party candidates have only BAU to offer, with perhaps some very minor tweeking. At least for now you can be thankful you are lucky enough to afford food, drink, shelter, transport, and still have your job; millions of Americans do not have such luxuries already.

If you live in the 3rd world this has always been the problem.If however, you live in Europe or US, Canada or Australia adequate food supplies or prices have not been a problem for 50 years. The problem has been low prices and surplus food. If you look around any one of these countries, you will not find ANY food stores with empty shelves. Food accounts for 15% of average incomes. Thats including beef, sea food, coke, and lots of food luxuries.
While people pick up 10-20Kg of food in a 2,000 Kg vehicle we have a lot of fat to trim. When food starts to be delivered by bicycle powered carts like we used to see in China, start to go on a diet. While people use more gasoline to cut the lawn than is used to provide them with staples( grains, potatoes, legumes) don't worry, but buy an electric mower.
In Sydney its still hard to get into many restaurants on Saturday nights.
The first sign of real food stress should be McDonalds, KFC, etc having shorter opening times.

As it happens I'm near Sydney. I totally agree with you - in the affluent west we've been spoiled for a long long time.

But that's the very crux of the problem. We won't adapt to a world of "less" in a peaceful, orderly fashion, simply because we've grown accustomed to having so much more. You and I might expect a decline in food supply (along with fuel, medicine, you name it) but the average person will not. When faced with supermarket shelves with large empty spaces, and the food that's there being of poorer quality and priced very high, what will they do? Will they say "hey its really alright, people in poor countries have it far worse and we need to learn to live with less", or will they get angry & start taking matters into their own hands? I know which I'd bet on.

Consider too the food supply aspect. Crop farmers take a risk whenever they plant a crop, because there's significant up-front expense (usually funded by borrowing) that can only be met if the crop comes to harvest and if they get a decent price. Now take into account skyrocketing fuel, fertilizer, herbicide and insecticide costs, and just for fun throw in higher interest rates & increasingly cautious lenders. In times of severe & unpredictable climate change and long-term drought, how many farmers will be able to keep taking that risk? For Australia at least, I believe we'll be growing less & less food, even assuming that what is grown can still be transported to the cities in the PO era.

Sorry, didn't mean for that to turn into a semi-rant ;)

Nice "semi-rant." What do you make of the Murray-Darling crisis since it's right next door? Is your rant fed by that crisis?

Its an unmitigated disaster, a testiment to man's short-sighted exploitation of a fragile resource without thought for the consequences, and to the inability of bureaucratic government to address the problems. The Federal Govt are making noises about buying back water rights from irrigators, but that's really just tokenism.

Apart from the river's lifeblood being sucked out by widespread damming of inflows, including massive reservoirs in Queensland for cotton farming, the Murray in particular has a series of weirs that were installed during the last century. These were used to keep the river level at a more constant height for irrigation & other purposes, but the effects are terrible. Not only have they drastically reduced the numbers of migratory fish in the river, they've also caused the buildup of deep layers of silt rich in iron pyrite. Now that the river levels are so low due to drought, the silt is being exposed to the air. Oxidation of the pyrite results in concentrated sulphuric acid and iron, poisoning the river & its surroundings and killing everything.

The Murray Darling basin accounts for (I've heard estimated) about 40% of Australia's food production. It also contributes to the fresh water supply for Adelaide, a city of over a million people.

The system really needs a substantial flow of water again, from its sources to where it once met the ocean, and the weirs would have to be removed. I don't know how the acid problem can be fixed; whether good water flows would do the trick or dredging is required. I honestly can't see any of that happening though, as there's far too much vested interest in trying to preserve the status quo. Irrigators will keep desperately pumping until they can't, by which point much of the best farmland in Australia will have been permanently ruined.

This all sounds, and is, incredibly doomerish. I am not an expert on any of this, but I really want to believe that the rivers could feasibly be saved. Its the non-action of governments combined with the short-sighted self interest of those who use the river system that makes me despair of anything being done.

Here's a good video on the subject: http://www.abc.net.au/catalyst/murraydarling/

As Bruce Sterling said, "No civilization can survive the physical destruction of its resource base".

Thanks for reporting the unpleasant. I know the Howard govt was in denial about it all. From what I've read, Rudd isn't much better. Techtonics are slowly moving the whole Australian continent northward into the massive desert zone, which Climate Change is expanding. Techtonics have killed rivers before; the Sarasvati, which was located where the border between Pakistan and India is, supported the vast Vedic civilization that was responsible for a large amount of human cultural development. Removing the toxic sands and then blasting the dams will help, but I'm afraid in the millenial longterm, the whole of South-Eastern Australia is doomed by planetary forces humans have no control over.

Fine, as long as your comments are moderately accurate.
Your characterisation of interest in EV and hybrid vehicles as being peculiarly American is wildly inaccurate, and since in the past you have characterised any support for EV's as being stupid, it would perhaps be good if your own assessments were based on a rather more intelligent and fair look at what is going on.

I don't have the link but one of the EV's being touted as the next big thing is being sold as a inner city commuter car. Last time I checked most people who live in the city did not have parking garages and certainly did not have access to electricity when they could find a parking place.

I stand by everything I've said personal EV's are a side show being sold as a solution. Nothing I've said is inaccurate and we don't have a single commercially successful EV in the market right now.

I will take just one of your links that "proves" me wrong.


Mitsubishi had been planning to start leasing its i MiEV electric car to commercial and government fleets in 2009, with a Japanese retail launch following in 2010. It now looks like that plan might be accelerated by a year. The Nikkei business daily is reporting that Japanese drivers may be able to get their hands on the electric kei car by next summer. The combination of record oil prices and good test results so far has evidently given Mitsubishi the confidence to get the ball rolling sooner than planned. The company could produce as many as 2,000 i MiEVs in the first year, and ramp that up to 10,000 within two years. And what of U.S. availability? Sorry, no word so far.

At best this indicates production of around 10,000 cars in 2010-2011 at the earliest.
Ramp times to serious production in the millions needed to make a significant dent in the ICE fleet is reasonably out to 2020.

Its a irrelevant side show. It has zero impact and importance in the peak oil time frame sometime post peak EV's will have a market in my opinion focused on getting to train stations and back and potentially as taxi's. And of course for the wealthy but its not important.

Electric rail is proven technology and can be put in yesterday. The EV crowd is claiming that that EV's will save us but for now and in the near future out to at least 2015 EV's are not important.

And given that few would claim our current economic system will be working well by 2015 by the time its possible to mass produce them its not clear we will even be able to buy them. Suburbia will be dead by 2015.

I said in one of my responses if I have the money when this technology becomes available I'll buy a EV but also I recognize that this would mean I would be part of a much smaller upper middle class that could afford the luxury of my own personal EV. I'm personally very interested in them but it does not cloud my judgment from recognizing they are what they are a side show.

The California Enviromental Protection Agency Air Resources Board seems to be even more pessimistic than you Memmel.


The line labeled FPBEV means full performance battery electric vehicle and won't be mass commercial till 2030.

PHEV or Plugin hybrid electric vehicle won't be commercial till 2015.

Its a sideshow.


Funny that.

With electric rail in place and the amount of long distant road traffic reduced electric car won't need the performance of ICE powered cars. They actually work pretty well for bringing people in close in suburbia to the rail head. A fifty mile range is plenty for this use case and this can be done with todays technology.

In general its getting the core infrastructure of rail and trolley cars in place for the majority that won't be using electric cars that are important but on the same hand once thats in place using some sort of personal electric car to get to a trolley stop or rail head makes a lot of sense.

Although Alan does not talk much about it in the old trolley rail days horse where used extensively for a lot of trips. EV's replace some of these use cases.

But so do diesel etc so its a real tossup which one will be the winner. We could very well see a resurgence in horse and buggies. Esp if road conditions deteriorate outside the major towns.

But overall I expect we will see a rich variation in transportation away from the core trolley rail network.

My own opinion is that a solid oxide fuel cell system that can burn anything from syngas to vegetable oil with on board batteries or add on batter pack and or super capacitors will probably be the the choice.
In fact the power modules might be interchangeable with battery pack for in town driving and fuel cell for out of town. Also if the roads are bad these may well be fairly large all terrain type utility trucks.
This sort of thing is what couples the farms to the rail network it replaces the small diesel truck of today.

In town small EV's with top speeds less then 50mph make sense or better taxis as I mentioned before.
These can be really lightweight however.

All of this however sets outside the core rail system. Look at India for example at all the different modes of transportation used around the core rail network. Certainly EV's will have a place in this rich collection. And I think peak oil will hasten their acceptance but more importantly we don't need FPBEV's so 2015-2020 is realistic and inline with most of the projections. Full market penetration is probably closer to 2025-2030. I'm not agianst EV's or other alternative transport concepts more power to them but selling them as our savior is wrong. I could well be wrong but the free market should make that decision the focus should be on electric rail and trolleys so poorer people can get to work without a car and people that have more money and don't want to wast it on private transportation can live without a car regardless of how its powered.

You really should take a hard look at oil production etc with export land and peak oil and more importantly look at the NG situation in 2015. And our financial system. People will be selling these things in the midst of the greatest depression of the 20th century. I expect the destruction of the middle class and suburbia will be fairly well advanced by 2015 so not sure who will be buying. We need to focus first on running our core economy using rail.

I would agree that EV cars at any rate are not going to have a major impact anytime soon in most places in the world - at least physically, but it should become clear relatively early that they are a possible means of providing extensive mobility in the future, and so may influence expectations.

You simply ignore electric bikes and trikes, and the fact that although many Chinese live in apartments, far more than in America, they manage perfectly well to charge them up.
Extensive networks of chargers are also being put into whole countries, Israel and Denmark amongst them, and many modern batteries can charge speedily.

It is not a case of 'either/or' vis a vis railways - in Europe the systems are being designed to match rail transport for longer distances - EV's as opposed to hybrids are limited anyway for long journeys, so their adoption would actually encourage rail.

You also very carefully selected the link you chose to criticise, which in any case was intended to show that your statement that EV's and hybrids are mainly an American interest rather than more universal, rather than show that vast numbers of EV's would be cranked out instantly.

In any case that discussion was about Japan, and I simply chose Mitsubishi as being of more interest as some may not be aware of their efforts rather than the obvious one of Toyota, which is planning to crank out 1 million hybrids a year early in the next decade, which is a not insubstantial number, although far from a BAU with ICE scenario.

The question is not whether you think that EV's and hybrids will have a major impact, but whether you stand by your statement that interest in them is mainly confined to America?

You appear to have no evidence at all for the statements you made, but are in fact arguing against a strawman of your own creation, the idea that BAU will continue seamlessly using EV cars and plug-ins, which I am not aware that any sensible person is seeking to argue.

Personal mobility using a variety of less expensive and easier to build electric vehicles should continue at relatively high levels though.

Electric delivery vehicles should also provide a means to get goods form the railhead to the shop and home, and are of major importance as they mean that the transport possibilities for this are far higher than would be the case without them , and hybrid emergency vehicles should also mean that the prospects for these services are far better than they would otherwise be.

This is a not unimportant contribution, although of course not a magic bullet.

There are over 850 million cars in the world (as of 2007). While 21M e-bikes is a lot, it's a mere c. 2% of the car fleet in size.

It's true that while traveling in Asia one cannot but notice how much people can do with a scooter or a moped alone (transport up to five people, haul food, construction gear, etc.)

Still, the issue is mainly with diesel shortages and price of our road based truck transport infrastructure that accounts for the majority of our land based food and daily consumables logistics.

That is the Achilles heel, especially when it competes with other mid-distillates in the power generation sector.

Ramping up e-bike production would not impose unacceptable strains on manufacturing capacity, unlike a switch to full EV production.
You are also comparing yearly production of e-bikes with the existing fleets of cars.
In practise as fuel gets more expensive, a lot of people particularly in places like the States would likely change to commuting by petrol-driven motorbikes and scooters at first, so the handover to electric bikes would be fairly gradual.

You are correct that road-based haulage and the consequent siting of many of our facilities is the biggest transport problem.
Rail and water seem the only answers to this, but they have an upside in that much of the damage to roads would be radically reduced - costs are not as high in the swap as they seem on the face of it, as road haulage is effectively subsidised.

For shorter runs from the railhead then EV delivery vehicles are possible:
2008 Electrorides Zero Truck Test Drive: All-Electric Heavy Hauler’s 100-mile Range Costs $3 to Recharge - Popular Mechanics

Buying them will not be cheap, and the costs of the infrastructure and running costs of switching modes will be very large.

Still, looking on the bright side, depression should mean that a lot of the transport journeys won't be needed anyway!

Dave your latest comments are far more balanced and sensible. I don't disagree.

The problem is that Americans have this hope that they will just switch to a EV and continue on the Happy Motoring lifestyle like the used to.

This demand for no change is whats kept electric transportation out of the mainstream even though it would have been compelling just because of air quality issues inside and around cities.

The real answer has always been to develop a extensive electric rail and trolley network and then fit around it a variety of transportation with EV almost certainly a prominent part of the solution.

But because of the American mindset you have to be almost brutally clear where these fit and when they can fit.

Also on eTrikes and eBikes the batteries are removable and you can carry them into your apt thats why they are viable.

From a big picture perspective what happens is electric rail and trolleys can carry most of the traffic and take the pressure off of the system opening up opportunities to explore a wide and rich range of transportation options that have been neglected since the car took over.

Well, since my position has not changed I find it difficult to imagine why you find my latest comments far more balanced and sensible!
Perhaps this could more properly be said of the nature and tone of your own commentary on this issue, which has tended to take the form of caricatured glosses on support for EV production, mixed with a certain amount of denigration of those who you conceived held opposing views.

I take it you now accept that your comment that EV and plug in options are chiefly of interest to the US is entirely erroneous and unsupported by any data?

Bikes are indeed easier to charge the batteries, but the notion that EV cars are not practical if many people live in apartments as they could not be charged simply ignores the fact that cities as diverse as Tel Aviv and Copenhagen which have a very high proportion of apartment dwellers intend to move rapidly to electric.

What may not be possible or desirable is for most apartment dwellers to own an EV.
Arrangements are being put in place to pick up an EV as needed, charged up and ready to go.
For an insight into how it might work see the already existing system here:

Paris is also to operate a similar system, with around 4,000 EV's currently planned, and charging points throughout the city.

However much it may be the case that American's will have to change their view of car use, in Europe at least it should be possible to maintain adequate personal mobility with a relatively modest level of EV build.

For a city like Paris, for instance, perhaps 20,000 EV taxis and 20,000 hire EV's would provide a good level of personal transport, so that when you wanted to pick up something heavy from the shops that would be easy enough, whilst an electric bike if you are old enough that pedalling is inconvenient supplementing public transport should be fine for most others.

For this sort of use the 2 million or so EV's and plug-in hybrids likely to be turned out a year by 2012 or thereabouts would be fine.
Companies such as Peugeot already have EV versions of several of their present cars, including the 106, so switching the production line would likely only be limited by the availability of batteries.
This number could ramp rapidly, but any notion of EV's being turned out in the sort of numbers needed to replace America's transport fleet as it presently exists is probably not possible until around 2018 or so, if it can be done at all for financial reasons.

With a lot of freight moved to rail then the cost of maintaining roads will also decrease greatly in Europe at least, and in much of it freeze-thaw cycles are much less severe than in North America, and the use of concrete as well as asphalt is well established so it would not seem difficult to maintain the road network to an adequate standard.

Good point, I had misinterpreted the e-bike data. My point was not about mfg capacity per se, more about replacement rate.

I'm not against e-vehicles per se, it's just that I'm not as optimistic about them replacing the car fleet at very rapid rate some believe.

In 20-30 years yes, but not in 5-10 years. Then again, I've been wrong before, etc...

Next of course the move to electric cars is really a US thing Electricity is not cheap in most of Europe.

The cost of electric transport, is the sum of the incremental cost (battery mainly), and the cost of the power. The savings is the cost of the fuel. Even though the cost of the power is higher in Europe, the cost of the fuel is very high, in most places more double the US price. And the amortized cost of the battery is currently the biggie. This implies that the economics are much more favorable in Europe than in the US.

This page has concise instructions on formatting HTML.


phreephallin writes:

This page has concise instructions on formatting HTML.

Humm. I want to see tables used effectively at TOD. This argues for a small HTML utility that allows us to dummy up HTML and see the presentation. We can then copy and paste the HTML into a reply.

Would that work with Drupal? Does anyone have a suggestion for that small, preferably free HTML editing utility?

There is also BBComposer, which integrates as a plugin to Firefox and its derivatives. This allows you to WYSIWYG edit any text box, in XHTML, BB Code, or Wiki syntax.

This makes it useful across a range of web sites, from wikis to forums to blogs like this that just do simple HTML edit boxes.

Just Curious Again:

Since pretty much the entire energy industry is geared to a large economy-of-scale, would anybody want to venture as to how difficult downsizing to meet localized demand would be.

Is it even practical to consider?

I ask because I don't see anyone in the industry addressing this issue on any level.

General Motors appears to be downsizing rather dramatically and rapidly.

They will save as much as possible -- possibly even remain relevant in the post peak world. No guarantee, but worth watching. One of the things to see is that workforce and pensions will be expendable in saving the Company.

Maybe they should invest in buggywhips.

Or maybe pedicabs?

"Or maybe pedicabs?"

What's the distance between GM/Firestone destroying Los Angeles' trolley system and pedicabs?


That was the saddest event ever - I wished Red line was in public hands.

And yet I can recall bitter comments from old-timers who lived in the area, slamming the way the Pacific Electric (Red Cars) limited and scheduled where and when they could go, what events they could attend at what hours, and even where they could live. Lots of people deeply resented that, just as they now resent gas and electric utilities whose effect on their lives (so far) is not nearly as blatantly intrusive. So there were plenty to cheer and to wholeheartedly embrace the car-and-freeway system, shouting "good riddance" to the Pacific Electric all the while. They would have danced on the corpse with glee, had there been one.

Now, times change and new generations may well come to feel differently. But should something like the trolleys be restored (the lines built recently are beneath notice compared to the scope and breadth of the old system), and especially if that is seen to be at the expense of the car-based system rather than as an additional choice, then the old issues and resentments will resurface and the anger will have to be coped with somehow.

Note well that long-term changes in life patterns rarely owe to anything quite so clear and simplistic as shadowy conspirators swooping in unbidden out of the clear blue sky for no purpose save to ruin paradise simply for the sheer joy of it.

NO, what GM is doing is much too little, much too late. Still in denial, still trying to hang on to the BAU status quo. We may look back in the future and see today as their last, squandered opportunity to make the real changes necessary to survive. They should have announced the axing of half or more of their divisions today at the very least. Fold GMC & Pontiac into Chevy, fold Buick into Caddy, kill Hummer, and unload Saab. Come up with a real plan to make Saturn swim instead of sink.

That would have required competent leadership, though.

I work in the GM towers, and many people are saying, "WTF is GM thinking?" Even here people think that brands need to be merged. As you said, BAU thinking... Every quarter they tell us things will improve, and then every quarter they are "surprised" by the poor results. I've been screaming at management to change for years, but management, being management, never listens. After all, what does a guy in the trenches know about how to fight a war?

Durandal, could you give me an idea on why GM doesn't want to sell something like the Vauxhall Agila here in the states? I think a lot of my friends would snap up something like that. Too hard to convert to US standards? Not much profit in an economy car?

The Hairless Prophet of Doom on CNN this morning was saying that what's happened to GM wasn't their fault. They were steamrolled by high oil prices, and "No one expected oil prices to rise as much as they have."

Some of us expected it...

Feigned surprise is the last refuge of scoundrels

That is my quote of the day. Thanks!

I wonder if Ford, Chrysler, & GM were modeling future automotive trends based on CERA's energy analysis studies? If so, CERA will have managed to do untold damage to our economy. I've read parts of their 2005 report on petroleum & NG and it reads like it came from another dimension.

I agree. You'd think that since even someone with a rudimentary knowledge of investing knows they need to have a hedge in case the economy doesn't do so well, GM would too. If Hummer was expected to be their cash cow, where was GM's hedge against high gas prices? Honda and Toyota both seemed to have a hedge in the form of the hybrids and they seem to be paying off for them since they can't sell them fast enough. (I mean here real hybrids designed for fuel efficiency, not slapping a battery pack on a Ford Exploder, er, Explorer.)

That would have required competent leadership, though.

I wonder how much of this is due to the specialization of management? That is, my impression is that managers in this day and age are often people who are formally trained in management rather than consisting of people who have risen through the ranks. I think these management majors seem to know a lot about politics and about making things look good for the stock market but very little about technical things like say, peak oil.

In reality we are today in the midst of a theology of pure power - power born of structure, not dynasty or arms. The new holy trinity is organization, technology, and information. The new priest is the technocrat - the man who understands the organization, makes use of the technology and controls access to the information, which is a compendium of facts...

... No member of this priesthood would call himself a technocrat, although that is what he is. Whether graduates of Harvard, ENA, the London Business School or any of the hundreds of similar places, they are committeemen, sometimes called number crunchers, always detached from the practical context, inevitably assertive, manipulative; in fact, they are highly sophisticated grease jockeys, trained to make the engine of government and business run but unsuited by training or temperament to drive the car or to have any idea where it could be steered if events were to somehow put them behind the wheel. They are addicts of pure power, quite simply divorced from the questions of morality which were the original justification for reason’s strength.

John Ralston Saul, Voltaire's Bastards: The Dictatorship of Reason in the West (Penguins Books, 1993), 22

Thanks for the description. I would say those described are the real Joe Six Packs.

In a book review of Voltaire's Bastards, Scott London highlights J. Ralston Saul's thoughts on the disconnect between the technocrat and the people:

The great schism between the principles of democracy and the practices of modern rational governments has brought about not only widespread public frustration and anger, but also a general contempt among the ruling elites for the citizenry. While they cooperate with the established representational systems of democracy, Saul says, they do not believe in the value of the public's contribution. Nor do they believe in the existence of a public moral code. "This means that in dealing with the public, they find it easier to appeal to the lowest common denominator within each of us. That this often succeeds reinforces their contempt for a public apparently capable of nothing better."


Voltaire's Bastards has been sitting on my bookcase gathering dust for a while. Picked it up and began reading it again yesterday. IMO, more apt today than when it was first published.


You got that right about managers trained in managing only. I see that in the high tech industry as well. These senior leadership types actually admit that they are waiting for engineers to develop the company saving product in a back room. I think this type of mentality is a major flaw in American industry today and through the current upheaval - should be fixed.

I briefly considered the MBA and looked at the course work required. I thought it was a joke with course titles like 'how to entertain a client', etc.

Without the technical knowledge base in the leader, the company will slowly fall into oblivion. The reason why company leaders should be so highly paid is because they have the rare combination of technical know-how for the industry and effective leadership skills. Hopefully there are enough leaders like this out there to allow us to innovate our way out of our current failing life style.

Good observations. This guy named Joe Warren used to write a column in the Journal of Petroleum Technology (JPT) He summed up the life cycle of an oil company as follows:

Birth/Youth- Geologist, Entrepeneur/Risktaker

Maturity- Engineer, Planner/Manager

Senility- Accountant/Beancounter/MBA

Death- Lawyer

The 2 qualities I think that mask all others in a leader are integrity and competence.


I read an article (Mechanical Engineer magazine?) suggesting the life cycle was
1. Engineer. Made better products.
2. Accountant. Made cheaper products.
3. Marketer. Made sexier products.

I can't help but agree with most of your analysis, denial has a strong grip on GM but with good reason.
Up to and including now the GM I know has shown remarkable concern for their employees.
I know many coworkers who were offered new positions in the Co. when their job classifications were outsourced.
Kind of schizophrenic, I know but in a good way.
Any reducing of brands will eliminate thousands of jobs permanently not to mention wreak unimaginable havoc with our dealer network, virtually ALL of them privately owned.
So in this, most important sense, GM differs widely from the common perception of some posters on this site, in showing genuine concern for people!
Many here(myself too, on occasion) berate GM for its insistence on putting the emphasis on its large trucks, SUV's and luxury vehicles but it is not hard to see why, people were buying them!
Until now.

IMO the culture prevalent in GM management tends to focus their efforts on vehicles they themselves want to drive.
IMO since most managers are handsomely rewarded and receive vehicles and fuel at a nominal cost, vehicle development tends to reflect those managers interest, the high end market.
Not many managers, if any, are "forced" to drive an Aveo.
$4 a gallon seems to have been the tipping point for GM and now they find themselves replete with vehicles no one wants to buy.
To me this situation was totally forseeable and totally avoidable.
And THAT is where the notion of competent leadership comes into question.
True competent leaders with vision are a rare breed in society in general and its no different at the General.

IMO the culture prevalent in GM management tends to focus their efforts on vehicles they themselves want to drive.
IMO since most managers are handsomely rewarded and receive vehicles and fuel at a nominal cost, vehicle development tends to reflect those managers interest, the high end market.

When GM talking heads are quoted about how American consumers WANT to drive big, powerful 'cars' - they are right. What they don't say is - want to drive without any external responibilites. $4 a gal gas is now a big responsibility.

That's all commendable. But sometimes the general leading a retreating army has to sacrifice a platoon or brigade in order to save the bulk of his army. Failure to do so might mean the loss of the ENTIRE army. Generals guilty of such failures are usually not commended by history for their compassion.

I don't believe that they have yet grasped the reality that it is quite possible that there will be no GM within just a few years unless something very drastic is done.

I think GM management are focused where they have always been, on the shortest possible time horizons and extracting as big a payoff as they can.

The American and British system now rewards management which sacks the companies they 'manage'.
This would seem fairly easily avoidable, if duties of reasonable care were inserted as a legal requirement so that their booty would be taken from them.
Of course, the rich and powerful have done very well form this, and that is why no such legislation exists and they depart many millions of pounds or dollars better off after destroying shareholder value.

My favourite US motor gem this week is from Ford:

Ford, which is building 20 plug-in hybrid SUVs on a demonstration basis, has said it expects to have a mass-market car in five to ten years.

Chrysler aims to have electric cars in three to five years | Environment | Reuters

There's a fine sense of urgency there, then!
I think the US manufacturers have given up, and plan to relax into the arms of Chapter 11 as fast as possible.


Do you mean just the oil/gas extraction side or all energy producing activities? On the O&G side overall the industry is not the massive ExxonMobil style operation many folks envision. Just a guess but about 95% of the oil patch works for smaller companies developing reserves on a failry local basis. The majors/big independents get headlines for Deep Water/international projects but you need to remember that the average oil well in the US makes less than 10 bbl per day. Thousands of oil companies you never heard of produce more oil in this country then all the major oil companies combined. I know operators who run their business off their kitchen table but cumulatively they provide us with oil the majors could never produce because of they are to large to function at that level.

As far as electrical, etc others can chime in but I would think any project that requires a large capital expense would also require the economy of size you mention.

Rockman, you come close to addressing my question.

What I was asking about were new (smaller) economies-of-scale.

For instance, today's large refineries would be totally useless if they had to supply products for only a town of 10,000. The start-up and shut down procedures wouldn't be covered by any reasonable cost of the product. GM's current technology is no good if the requirement is for only 10 cars per month; their present business model wouldn't cover it.

Today, all our plants are great at producing LARGE amounts of a product cheaply... but are incapable of producing small quantities (without risk of damage to equipment in many cases).

If/when we begin to localize, will we be able to make smaller refineries (in areas that might still have access to oil)... or is it just time for everyone to say good-bye to oil and head back to learning how to hitch a horse to what's left of the car?

Well, there are tons of what they call "teapot refineries" in China that IIRC churn out maybe up to 10000 bpd of finished product. They're hard pressed to stay profitable right now though, with the Chinese government freezing fuel costs so a lot are apparently shut in. But if they could charge their customers a fair price evidently it can be done.

I think with appropriate electrical grid tie in (likely no more complex than getting power to a large business) that wind-power could be built and supported by small scale enterprises as well. In fact, I would think you could put wind-turbines next to many small rural-lease wells, and the same guy that checks the oil pump and tanks could check the power stats and any maintenance issues for the turbine as well.

As I noted before, there are 59,000 oil wells in Oklahoma, and if you could add a windmill to even a fraction of them you'd have a pretty good impact without new roads, right-of-ways, leases, etc.

Coming up now!

Fed Chairman Bernanke’s Monetary Policy Report to Congress, July 15 - 16

Federal Reserve Chairman Ben Bernanke will give his semi-annual testimony before Congress today and tomorrow. Today (July 15) he will appear before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate at 10:00 a.m. EDT. Tomorrow (July 16) Dr. Paul will get his opportunity to question the Chairman, when he appears before the Committee on Financial Services, U.S. House of Representatives, also at 10:00 a.m. EDT. (See the Fed’s complete schedule here.)

Considering the recent financial turmoil, Bernanke’s testimony will be closely scrutinized. It will be carried live on CNBC, Bloomberg, and CSPAN. To watch online, tune into CSPAN.org.

Maybe his opening statement will be:"Members of the Congress-we are entering into an inflationary depression of massive proportions. I regret to inform you that I have been offered a position at Goldman Sachs and I have accepted-Goodbye and good luck."

His opening remarks are now online and he mentions oil a lot. Here's an extract

On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years. Much of the subdued supply response reflects inadequate investment and production shortfalls in politically volatile regions where large portions of the world's oil reserves are located. Additionally, many governments have been tightening their control over oil resources, impeding foreign investment and hindering efforts to boost capacity and production. Finally, sustainable rates of production in some of the more secure and accessible oil fields, such as those in the North Sea, have been declining. In view of these factors, estimates of long-term oil supplies have been marked down in recent months. Long-dated oil futures prices have risen along with spot prices, suggesting that market participants also see oil supply conditions remaining tight for years to come.

The decline in the foreign exchange value of the dollar has also contributed somewhat to the increase in oil prices. The precise size of this effect is difficult to ascertain, as the causal relationships between oil prices and the dollar are complex and run in both directions. However, the price of oil has risen significantly in terms of all major currencies, suggesting that factors other than the dollar, notably shifts in the underlying global demand for and supply of oil, have been the principal drivers of the increase in prices.

Another concern that has been raised is that financial speculation has added markedly to upward pressures on oil prices. Certainly, investor interest in oil and other commodities has increased substantially of late. However, if financial speculation were pushing oil prices above the levels consistent with the fundamentals of supply and demand, we would expect inventories of crude oil and petroleum products to increase as supply rose and demand fell. But in fact, available data on oil inventories show notable declines over the past year.

Interesting Bush is talking at exactly the same time about oil. He repeated his "No Magic Wand" solution statement. Bush pre-empted coverage of the section of the speech above I quoted so it wasn't carried by the networks (but was carried on c-span3).

This is why I like Bernanke. This testimony is honest, and correct.

This testimony is honest, and correct.

Agreed. Surprisingly so.

Though I still don't like Ben "the subprime crisis is well-contained" Bernanke. :)

Moe, I hope you were jesting? Bernanke's testimony has been purchased and paid for. Bernanke is part of the problem, not part of the solution. No one in this administration is free of influence from the Admin Branch. Therefore, they will continue this charade and attempt to keep the lid on untill Shrub is gone. Counting the days...

It does seem that THEY are letting some truthieness out however.

Interesting the subject of the truthieness.

What part of that testimony referenced above seems "bought and paid for?" He's basically saying what most here believe - that the dollar weakness and so-called speculation are minimal factors and red herrings and that the primary dynamic is supply/demand for the foreseeable future.

This poor guy is really boxed in. Normally a devaluation of the dollar would make us more competitive, increasing exports, decreasing imports and lowering the trade deficit.

But we're pegged to the oil standard. With crude oil already at record highs, every tick lower in the dollar produces another disturbing headline about crude oil and the trade deficit marches upwards. Double checkmate!

Ben is not only handcuffed; he's straitjacketed, shackled, locked inside a chest, and sinking (glub-glub-glub) to the bottom of the sea. If he surfaces, it will be a bloody miracle for all of us, I'm sure. (hat tip to annonymous poster on Naked Capitalism)

Good point-I nominate Chris Angel as the new head of the Fed.

LOL...I had the same thought...Criss Angel for Fed Chair, David Blaine for Treasury Sec!

I got your new fed chief right here:

Banker Cat

I think we'd see much improved fiscal policy and lending standards.

Note how bush is now stepping on Bernanke's head!?

I've never seen this before.

And down/up Volume is horrendous.

Was 247 to 35. 8-1.

Normally a devaluation of the dollar would make us more competitive, increasing exports, decreasing imports and lowering the trade deficit.

One reason for this is that even though we can technically increase exports because of the weak dollar, we produce so few of the raw materials here in the U.S. that it doesn't help. E.g., the clothes manufacturer needs to import the cloth to make the clothes, etc.

The cloth that is made from exported cotton. We export the cotton to countries to make the fabric that we either then import and make clothes, or just import the clothes. With out cotton base, we should be making it all here, but as always, it's about labor costs..

we produce so few of the raw materials here in the U.S. that it doesn't help. E.g., the clothes manufacturer needs to import the cloth to make the clothes, etc.

There are still clothes made in the U.S.? I thought they were all made in China, India or elsewhere. However you picked the one raw material product where the U.S. is a net exporter. The US is the world's second largest producer of cotton, (behind China), and the world's largest exporter of cotton. We export the cotton and import the clothes made from cotton.

Double-digit growth in China's textile industry forces the People's Republic to rely on cotton imports from the United States...

Top Ten Cotton Countries, U.S. Exports Lead Competitive Advantage over Chinese Imports

Ron Patterson

Normally a devaluation of the dollar would make us more competitive, increasing exports, decreasing imports and lowering the trade deficit.

But we're pegged to the oil standard.

The dollar IS being devalued as we speak. However it is being devalued by market forces not by the Fed Chairman. No one has the power to directly devalue the dollar because it floats. Though the Fed's action on interest rates certainly does, indirectly, affect the value of the dollar. Lower interest rates causes the dollar to fall verses other currencies because people unload dollars in favor of higher interest paying currencies.

I don't understand how you figure the dollar is pegged to oil. That is the first time I have heard that one. But obviously the dollar is not pegged to oil because if it were the price of oil, in dollars, would not change. Pegged means pegged, not going from $24 a barrel to $145 in just a few years.

Ron Patterson

Don't worry-imports are going to decrease eventually-the hard way.

I came up with that one other may have also.

The reason the dollar is pegged to oil is that oil prices have effectively taken control of the dollar
away from the fed.

In general rising commodities prices because of supply problems work as a hedge against attempts to inflate the currency so money can flee other markets and retain its value in the commodities markets. Given massive losses in other equities you also get a net profit but thats a side point.

Next attempts to lower interest rates to inflate wipe out debts and spur growth fail since this just intensifies the price increases for critical commodities in short supply which bleeds through the entire economy as price inflation.

Increased costs for basic goods and services needed by individuals and companies lowers the amount of free money for spending and profits further weakening the economy.

This forces the Feds into a strong dollar policy and eventually will force them to raise interest rates to slow the non critical parts of the economy. Right now they can effectively do nothing. They cannot lower and although they should raise interest rates they are scared to death to do it.

Most people noticed the headlines about the economic stimulus package now having now effect a lot of that money went into purchasing basic commodities food/gasoline or making a few debt payments.

Finally on the debt side not only are we coming off a bubble of epic proportions but rising costs esp for food and fuel will force more and more people in having to decide to make a mortgage payment or pay for food and gasoline to go to work. Food and Gas win in the game of Food,Gas,McMansion.

This debt deflation enforced by rising food and fuel prices prevents creative stimulus plans from the Fed from having any real effect is debt is destroyed by default far faster then the Fed can create it and as people wishing to take on large amounts of debt diminish because they are either unwilling or unable to service more debt.

This is what pagged to oil means. In fact the gold standard was really nothing more then a way to manage a economy that was pegged to scarce commodities in the past. Its important to realize that until oil became cheap and the green revolution occurred that previous economies where limited and controlled by food availability gold was a way to store excess grain for a hot dry day. Underlying the gold standard was the real peg to grain.

The Fed can do nothing to prevent the world from returning to this economic form in this case its a peg to the oil standard fiat currencies offer no advantage over oil in manipulation of the economy as the rapidly have become pegged to oil. Eventually the fed will be forced into a strong dollar high interest rate policy and accept the peg as any fiat currency that does not will be destroyed.

Other countries that formerly kept their curriences low by printing are finding that they are using dollars bought to keep their currencies devalued flowing out to buy oil and they cannot prevent internal inflation since they have no dollars to exchange for the currencies when they return home. Right now most are playing the game of continuing to print but raising interest rates in an attempt to stench internal inflation since they have no dollars.

This won't last and the exporting economies are going to have to decide between keeping the currency cheap to spur rapidly dwindling exports to the US or allow their currencies to strengthen to keep the internal economy from failing. Obviously they will soon be forced int a strong currency move and give up on US exports in favor of cheaper oil imports.

The US will of course resist but although probably one of the last will realize it has no choice but follow the rest of the world.

If you agree with this then you will see that the EU decision to raise interest rates first was probably the biggest economic event of the decade as the EU chose Oil over trade with the US in particular and exports in general. Given that its impossible to export if your internal economy collapses its not exactly rocket science but given the stupidity of our leaders making a right move and making it at the right time is rare.

Memmel: The reality is that the USA no longer can handle a high interest rate policy to support the currency. The level of debt is too large in relation to the size of the overall economy. High interest rate debt could not be serviced for any length of time-the USA guv would be similar to IndyMac giving out above market rates right until implosion.

The US has no choice. Thats the point. Other countries esp the EU in slightly better economic condition will recognize the need to toughen and streamline their economies as growth slows stops and reverses.

Although over the short term its painful for the EU as exports fall if they also tie their strong currency policy with a tough import policy forcing people to buy EU goods for Euros then they will succeed.

Obviously the Euro itself becomes the EU's number one export like the Dollar was the US's number one export.

But unlike the exports of dollars from the US based on a ponzi growth scheme that allowed printing the petroeuro is more like a real currency and store of wealth. By defending its currency the EU has stolen the pole position from the dollar. Given that trade in the ME and Africa is EU centric and thus Euro centric the higher costs of EU goods is offset by being in the same economic region as most of the worlds oil exporters.

Also of course export land is causing these economies to grow and they are far more interested in thing like factory tools etc to grow their core economies then cheap plastic toys from China. The balance of trade is weighted away from the consumer goods that China specialized in for the US and EU markets.

In short the US really has no choice but to go through a austerity program and see whats left if anything.
Its still a strong food exporter for example so this part of the economy which employees very few people will survive. But people that love to point it out don't recognize that its of no use for keeping people employed.
Next Canada, South America and Russia can and will become competitive with the US for food exports as prices increase.

Bottom line is yes the US implodes it has no choice and it has to soak up the excess dollars floating around the world or it won't be able to buy oil.

The mistake I think your making is assuming that the US can prevent going into default it cannot.
Whats important is that the US manage its default to ensure that the economy is wiped out a sector at a time.
Only certain sectors can be allowed to fail and default one at a time.

Thus the plan the US will be forced to follow goes like this.

1.) Default on housing debt both personal and bonds.
1.5) Default on all commercial construction debt and commercial building loans
2.) Default on Corporate debt as needed.
3.) Default on various banking debt consolidating banking and eliminating most of the financial economy not needed by people worried about buying food and gasoline.
4.) Default on automotive debt and crash the auto industry.
5.) Default on credit card debt withdraw unsecured debt from the masses.

The trick is of course to ensure that these default happen at a steady pace.
Once we have defaulted enough we have a workforce competitive with Mexico and can finally
expand our manufacturing base to compete with Mexico and China for cheap exports.
This is not competition with the EU we can and will compete for high value items but
the combination of the EU, Japan and America can make more factory machinery and heavy
equipment then can be absorbed by the growing Export Land economies. They simply
cannot absorb all the excess production capacity of goods and services formerly sent to the US.

Like during the depression we have massive overcapacity in every sector of the economy every where in the world with the exception of food and oil.

The EU is dealing with it correctly by working towards reducing its imports to oil and NG and exporting a strong Euro and forcing exchange for Euros via exchange of some goods. The real export is Euros
the goods are to keep the Euro strong by keeping the EU together.

But yeah the US is toast thats in the past but the trick will be if we can manager to keep defaults going at a steady pace.

Memmel: No-the USA federal government has lost the ability to raise interest rates to strengthen the dollar as the economy is not large enough in relation to the debt to be serviced. What you are talking about is ramping up the Ponzi scheme-pay more interest to lenders while speeding up the timing of default on government debt. When the debt is defaulted on, how is that going to have strengthened the dollar? There is no easy way out but a massive devaluation of the currency is coming one way or the other, either through gradual devaluation or sudden default on the government's debt obligations-so far it looks like it will be steady devaluation.

What your not understanding is that the Saudi's have no real problem with the US defaulting on all debt except what they own. And they are quite willing to except dollars if we don't devalue them.

All the rest is of little importance. What your mixing up is the huge amount of debt in the world with the actual amount of real cash. Cash is right now a small percentage of the worlds economy and most of the cash is in the ME. Thus defaulting is not a issue as long as you don't issue new debt and as long as you don't default on Saudi debt.

The increase in interest to the Feds is just a way to soak up cash and stop the use of debt inside the US.
And of course strengthen the dollar.

But really its 99.999% defaulting on all debts and as far as possible protecting the Saudi's and preventing the purchase of goods and services so the Saudi's who have cash are favored.

Government debt of course plays a role and it will have to decrease but this can be readily done with internal taxes and defaulting on Social Security for example. Stopping internal programs like Medicare etc and concentrating government spending on critical military needs.

Throughout all this its not the defaults that are important but who the counter party is.

Only a few will be left standing and this is selective. Obviously Goldman and Sachs is one of the chosen few.

The problem is your still thinking that the Wealthy give a rip about the current economy they don't they are already battling to see who will rule the next economy.

They are not going to inflate the real money supply for the same reasons the Saudi's no longer want inflation cash is king and holding cash and forcing others into default is the new black.

memmel - Sounds like you might have gotten a early peak at the latest Project for the New American Century manifesto;)

The problem is that we faced the same arguments in the 70's and the answer is always the same. It takes a strong FED Chairman to correct the imbalances that have been created. High interest rates did not cause a depression in 1980. 20% FED rates did cause a recession. Today interest rates should be at least 7%. Yes we wold have a bigger recession, but a stronger dollar, lower cost commodities and lower housing prices. Today we suffering the malaise of stagflation with no end in sight. Both are ugly, but if the interest rates were higher, the future would be better.

Thus the plan the US will be forced to follow goes like this.

1.) Default on housing debt both personal and bonds.
1.5) Default on all commercial construction debt and commercial building loans
2.) Default on Corporate debt as needed.
3.) Default on various banking debt consolidating banking and eliminating most of the financial economy not needed by people worried about buying food and gasoline.
4.) Default on automotive debt and crash the auto industry.
5.) Default on credit card debt withdraw unsecured debt from the masses.

The trick is of course to ensure that these default happen at a steady pace.

Memmel,if this is the game plan -- and from my perspective, you've summarized it better than most experts I've heard lately -- does this mean that we can expect a controlled crash of the system rather than a free-fall? In your humble opinion, do TPTB have what it takes to pull this off? Or will the rest of the world get tired of the charade and change the rules of the game mid-way? Or is this somehow coordinated?

Sad thing is that this could be an impressive, dare say heroic sight to behold if it wasn't so self-serving and rapacious.

Yes I've said this several times and its why I don't think we will see a drop in oil prices.

It does neither the Saudi's or the US any good to allow the US economy to simply crash.
On the US side they can choose to print or not print.
On the Saudi side they can choose to withhold oil or not accept dollars.

Both sides are capable of taking out the world economy if they wish to. Also on the US side they can stop the stock market seize all the banks etc etc. Plenty of moves the US can make if it has to.
Bottom line is the US has the power to destroy itself if its not allowed to do what it wants.

Elimination of the debt based economy in favor of those who have the cash is in the best interest of both the elite in the US and the Saudi's. The Saudi's cannot really pump more oil but they can keep pumping close to peak production and the can keep accepting dollars so far they have done both.

On the US side they can control the crash of the US economy although they cannot prevent it and they can ensure that anyone holding cash now will be able to purchase as much of the US as they wish in the future.

Eventually after all the debts have been destroyed the dollar will be strong in the sense of purchasing stuff made in America or America itself.

In the interim if the dollar devalues no problem TPTB will begin to not devalue the dollar on purpose but thats not the big problem right now right now the focus is on a orderly defaulting of debt and protection of debt owned by the Saudi's and other chosen wealthy people.

Its not about money since both sides have effectively infinite money its about taking control of everything.

So its not so much how much the super rich and Saudi's actually pay to buy all of America its the fact they will and can buy it all once they eliminate debt and the ability to take on debt by all the other players and take most of there money.

If its 1000 trillion dollars or 1 dollar does not matter the game ends with the super rich having taken control of all assets.

So the destruction of debt and use of a dollar as a fiat fractional banking currency is part of the concentration of wealth into the hands of a few.

Bottom line is the US has the power to destroy itself if its not allowed to do what it wants.

If its 1000 trillion dollars or 1 dollar does not matter the game ends with the super rich having taken control of all assets.

In other words, the 800 pound gorilla (guerrilla?) gets to do whatever and go wherever it wants.

Thanks memmel. Sobering reflection.

Here is a very simple way to look at it.

Manhattan Island is up for sale but this time we are the Indians.

Found this perfect quote on mishs blog.

Thomas Jefferson: "If the American people ever allow the banking system to control their money, first by inflation, then by deflation; their children will one day wake up homeless on the continent their fathers conquered."

I don't think I'm the first to figure this out.

The idea of a "petroeuro" is hogwash as the EU is in an even greater energy hole than the USE. The USE can also right its foundering fiscal ship by simply shedding its external Imperial edifices--a savings of over 1 Trillion dollars annually.

Memmel, I agree with everything you say here except you are using the wrong term. "Tied" would be better but even that is not really a good term. Perhaps someone could come with a word to better explain the dollar's connection or relation to oil. But "pegged" is definitely the wrong term.

Pegged, definition

One currency is said to be pegged to another when the exchange rate between the two is fixed and the market forces do not influence the exchange rate. For instance the chinese yuan is pegged at 8 yuan to a dollar which means that one dollar will buy 8 yuans no matter what the markket conditions are.

Rewording that to use oil instead of another currency (oil pegged to the dollar): The exchange rate between oil and the dollar is pegged at $130 per barrel and the market forces do not influence that exchange rate. As you can plainly see, that statement would be false. In other words, you are creating your own (new) meaning for the word "pegged". That would be okay if its current definition were not in such widespread use and means something entirely different.

But you have a great theory there, one that I think is correct. Just pick another word and it might catch on.

Ron Patterson

I don't know what to call it. Although I've read that people obviously recognized the tie between
grains and gold in the past. I've not heard of a word to describe it. The gold standard misses the point completely its actually a grain standard so saying oil standard give the wrong impression.

What countries want to achieve is really barter they want to exchange a constant amount of value added goods for oil. Currencies play a secondary role and also most importantly must act as a store of wealth which is radically different from how we use money today. The use of money in arbitrage is irrelevant since the only transaction that matters is for oil you don't need currencies or money.

I agree peg does not describe correctly nor does standard.

The oil barter economy ?

How about "married"? The dollar is married to oil, one always influences the other however they usually move in opposite directions. ;-)

how 'bout connected with a rubber band ? or elastically tied ?

or correlated ?

or how 'bout rube goldberged to ?

Let me try and explain it this way.

The new Export Land economy works like the following.

Import land has no oil so all it can do is import oil and export finished goods and services.
Oil exporters refuse to accept fiat currencies that can be devalued for oil.

Import land strikes a pact with the devil and agrees to ensure that its fiat currency can always
be exchanged for the same or more ( very important ) goods and services in the future.

Export land gives import land oil and now gets a stable currency in return. However this does not
prevent oil from increasing in price in the future ( as you note its not a real peg ).

Import land can only export a finite amount of goods at a lower price since oil is part of the production so it has to exchange something else for oil to keep its agreement.

This is the really important part what import land can do is eliminate the use of debt internally for the purchase of goods and services. Export land or the oil exporters have no interest in taking on debts denominated in the currency they have cash to pay for anything.

Now by elimination of internal debt the prices for houses land and buildings fall dramatically as only cash buyers are allowed. The citizens have to compete with the Sheiks for their land and dwellings.

This firesale of assets that cannot be exported keeps the trade of balance going until of course the region is effectively a province of the oil exporters.

No matter what of course you have to eliminate internal long term debt but you can stop the conversion to a province by moving off of oil. But buy choosing this path they buy time to eliminate oil usage.

There is a lot more but this is the basic exchange.

memmel, great post. Ron understands what you are saying, BriaT does not. I do. Ron is right about the use of the word 'pegged' but everything else, as you mentioned some time ago, is right out of econ 101. The reason that econ 101 doesn't encompass the current situation completely is that PO or Peak Anything that did not have a readily available substitute was not covered.

I will go one step further and say that oil has, or will soon, become the defacto world currency that all fiat currencies will adjust their value around. Any fiat currencies strength will depend on it's countries ability to gain the greatest gdp from a barrel of oil. Only the shell of 'Bretton Woods II' is keeping the dollar in place as world reserve currency. So, I am saying that oil is tied to the dollar but this situation cannot last. Oil has effectively outpaced all other commodities for a good reason. Oil will be the first commodity to become scarce and then unavailable while other commodities will dwindle after the demise of oil. After oil is effectively gone, the other commodities will assume the role that they have historically played prior to the oil age.

You are absolutely correct about what forces will come into play to drive the Fed to increase interest rates higher, regardless of the short term consequences. Volker was the last totally independent Fed Chairman and he had the courage to do what was necessary to clense the economy and let the markets redirect capital to effecient effort. The people in charge now have the stupid idea that they can direct capital to inefficient uses, like home construction, that adds nothing to gdp. They will learn a hard lesson but the public will pay for their tutoring.

The destruction of money is currently outpacing the creation of new money at a ratio of 14:1...and that is with Fed interest rate at 2.25%. When the Fed is forced to raise rates that 14 number will go way up. Anyone that cannot understand where that will lead is not looking past 2009. Demand destruction will reduce all prices, including oil. As my father told me when discussing the great depression...'There was simply no money in circulation. I couldn't find two nickles to rub together no matter how hard I worked...We were paid for work by barter...sometimes a rental house, sometimes in farm produce, sometimes with a side of beef. If it wasn't for a few sales of butter, eggs, and truck garden produce in town we couldn't have paid the taxes on the farm, bought a gallon of coal oil per month to run the lanterns, and a new pair of brogans and overalls when needed.' The point to remember about dad's comments is 'There was no money in circulation'. My dad watched his father and brother die of pneumonia in the same week in 1933 because they had no money for medicine or a doctor. Buddy, that's tough times. Once the Fed is forced to raise interest rates money is going to become extremely hard to come by. Asset values are falling now and they will plummet as interest rates rise. Few people will have credit cards. Few people will travel. Valuations of assets will continue to decline as we progress down this road. Demand destruction will increase as unemployment rises and people are forced to pay more for necessities. Eventually even the necessities will fall in price due to demand destruction. People need to see past the end of their noses to understand the likely outcome of this situation.

Inflationary recession, in the long view, is about as likely as peace on earth and goodwill toward men.

I am getting scared. I am getting really scared. And I believe those who are not scared, which is just about everyone I know, really do not understand the situation. To paraphrase Kipling:

If you can keep your head when all about you are losing theirs...
Then you just don't understand what's going on.

Ron Patterson

Ron, you are not alone. Anyone with half a brain will look into what is happening and be frightened. By 'looking into' I do not mean listening to what our leaders are saying, but looking at world events and listening to what leaders everywhere are saying. Americans are, for the most part, America centric. Most have never traveled abroad and if they have it's been on a chartered tour. So these travelers have seen the Great Pyramid, the Parthanon, etc...they have not learned anything about the culture that they are visiting briefly.

I became frightened long ago because I was fortunate (?) to know people that lived through the great depression...and I personally saw the end of the last great depression. This happened because I was born into an area that emerged from the catastrophy after many parts of the US had experienced substantial recovery. Being born into a depressed situation meant that things might get better, and fortunately, things did get better for me. Good times came too late for my grandparents and some aunts and uncles to enjoy.

I am frightened for America, not myself. I am frightened for my children and grandchildren. Hopefully they will learn to cope as bad situations evolve into new unknowable new realities. It will not be easy and some will not make the leap.

The fear of fiat currency was instilled into me at an early age. I lived in Japan when the Yen was fixed at 360 to the dollar. Everything in Japan was rediculously cheap for Americans during those days. Times have gotten better for the Japanese since then even though they suffered 'the lost decade' and zombified banks. I do not trust any fiat currency unless it is expressly backed by gold and is redeemable in gold on demand. I have a Confederate $100 bill from the NO mint printed during the uncivil war. I keep it as a reminder of where all fiat currencies finish...Zero value. Fiat currencies are similar to the game of musical chairs. I refuse to play the game and have seated myself in a chair that contains gold and I watch the game with amusement. Occasionally I trade some gold for currency on a run up and buy back in gold on the dips. It works for me but I do not recommend it for everyone. It is not a big money maker...gold is a store of value, a bridge across inflation, but it has to be considered in the long term, not just a couple of years.

Listen to WT...get thyself from the discretionary side of the economy...get thyself out of debt. I have been teaching my children those invaluable lessons forever. I can only hope they have learned. Hey, the worse that can happen is they will avoid becoming wage slaves.

Ron & River,

Fear, like everything else, is both good and evil. Fear let's us know when there is danger to be avoided and can propel us to get out of the way or avoid maximum damage.

It is one thing to fear if you're standing on a railway track and see an on-coming train. It is quite another to fear a bully who is trying to intimidate you into compliance.

It is refreshing to hear both of you express the first kind of fear. My hope is that this may prevent harm.

Unfortunately, we live in fearful times. Seems like all too often the bully tactics work. How else to keep the public compliant?

Thanks guys for keeping us focused.

It has long (last 2 years since I started tracking oil) that America has been playing a Ponzi game internally while also spending its equity to buy oil and Chinese goods. There are two rackets in the Ponzi scheme of eternal GDP growth, with one being the service-economy transition (you can always make a bucket-brigade one link longer and claim that the added person is "doing work") and the other being the oil-based multiplier. I think the collapse of cheap oil is the inciting action that brings down the other charades.

As for trade deficits and dollar devalution, on the one hand, you can say "we send them paper, and they send us worthwhile stuff", but that argument only holds water if you intend to default on debt and nationalize assets.

Otherwise, what we end up doing is selling America at fire-sale prices to the highest bidders. I imagine this is the plan, and the buyers are already standing ready.

I can see some things that COULD have been done to prevent or limit the damage:
1) Invest heavily in energy conservation and all forms of domestic energy production to eliminate the oil-based import imbalance. I think we could afford to buy expensive wind and solar products from each other better than we can afford to buy oil from the rest of the world.
2) Decrease the focus on service-industry jobs and increase real manufacturing production. This could easily go hand-in-hand with the above. To have a standard of living increase, you have to on average MAKE MORE STUFF for everyone to enjoy.
3) Defend the dollar while protecting internal growth by lowering gov't spending while increasing interest rates. This is going to be excruciating, I imagine. We need to retool industry yet deflate the dollar - what a trick that will be!
4) Increase the value of food exports to help offset energy and product imports. This is one thing that Ethanol has done. I think it was on purpose, but I'm funny that way. The only thing somebody will gladly trade oil for is food.

It seems to me that we're either going to pay off our debts through wealth collapse or inflation, or some of each. Either way there won't be much left, since our leverage is so high already. Maybe we'll hit bottom when people are too poor to buy imports and hungry enough to work in manufacturing jobs, and the rest of the world is hungry enough to trade their goods and oil for grain. Maybe we'll renege on our agreements and shaft the rest of the world?

And who knows, maybe in three more generations we'll have another bunch who will forget the dangers of leverage and think they can live an entitled life of consumption, and we can do it all over again!

"no money in circulation"

that was then, this is now. won't the next, or current president, fire up the helicopters ?

actually, the current president already has. maybe we are looking at ever bigger "economic stimulus packages"

apparently, a lot of wall street types agree with you. a wild ride on wall street today wahoo! ride'em cowboy.

Exactly I agree one the destruction of debt begins to slow and it will eventually then they will start increasing interest rates.

Two powerful forces are behind this.

Globalization on one side ensuring wages cannot rise. Not that globalization won't slowly unwind but only as local wages are driven to some very low common denominator.

Peak Oil.

Memmel, River, and Darwinian,

Great thread on the correlation between dollar/fiat currencies with the present day underlying controlling commodity store of value in oil and the macroeconomic choices that are available to the Fed. Memmel, consistent with your theory saw these two related reports: http://www.cnbc.com/id/25706076 and

Darwinian, I found interesting the description from your dad of the Great Depression, "There was simply no money in circulation. I couldn't find two nickles to rub together no matter how hard I worked."

Karlof1, I really appreciate your links on MDO historical retail prices, "Alaska prices vary by location--4.04 at Ketchikan to 5.80 at Dillingham shown here from this parent. Further West Coast data is available at the parent." The figures at that link are for 2000 to 2008. I have been doing research in this area, and that information is useful and interesting.

Mahalo, Brad

On a different note the EU has effectively chosen to sell its sons and daughters in exchange for oil the US is planning on taking a different approach. The US will kill its sons and daughters in wars for oil.

Bush like the Saudis is not telling the entire truth. The American Dream is non-negotiable but only for the rich. The former American middle class will serve as cannon fodder to ensure that the rich can keep their Mansions and Ferrari's. Its really a game of carrot and stick with the former middle class in the EU and America serving a dual role of carrot and stick to ensure that the wealthy can maintain the lifestyle they have grown accustomed to.

That is their plan but I honestly don't think that it will work out well for the crony capitalists. The plan has been humming smoothly but if they overstretch and bomb Iran I don't think that things are going to work out for them. Even Blackwater won't be able to protect them from the angry masses.

Revolutions that are not led by the intelligentsia do not work out well. Angry mobs might be able to destroy but they are not capable of ruling in the aftermath.

The US Government has been very carefull to favor and co-opt the academics and the wealthy that are well educated and have served in some medium or high government post. This class always have lucrative teaching or consulting jobs available when they are not employed at high level government posts. If enough jobs are not available more 'think tanks' are created.

My question neoconned: Who would lead an insurrection and who would govern in the aftermath? Destruction for destructions sake will not help any of us, rich or poor. If it's pure vengance or venting of anger then it's a waste of time.

The Beatles had it good handle on the subject... partial lyrics...

You say you want a revolution
Well, you know
We all want to change the world
You tell me that it's evolution
Well, you know
We all want to change the world

But when you talk about destruction
Don't you know that you can count me out
Don't you know it's gonna be all right (3x)

You say you got a real solution
Well, you know
We'd all love to see the plan
You ask me for a contribution
Well, you know
We're doing what we can

But if you want money for people with minds that hate
All I can tell is brother you have to wait / Don't you know...

I never said that I wanted a revolution. I just said that if there is a greedy class that is destroying the society and they expect to have the same privileges as they have always exercised then things will not necessarily go as they planned them.

The parents of the middle class that have dropped into the lower classes are not going to willingly send their children off to fight wars to ensure the wealth of a parasitic class. I don't necessarily see all rich people in this light but there is a group of war profiteers who have benefited tremendously from the Iraq war. These same people are pushing hard for the war in Iran and frankly I don't think that things are going to go as they have planned. I have no idea how it will all play out but I have a feeling that it will be messy.

The parents of the middle class that have dropped into the lower classes are not going to willingly send their children off to fight wars to ensure the wealth of a parasitic class.

Ahhh, but such assumes that people look at class arguments VS race VS education VS U R lazy VS ..... arguments.

For your position to be true, you'd have to have a thinking and informed 'middle class'. Do feel free to show that the 'middle class' is thinking and informed.
(I went digging for the studies showing how so many are delusional about their 'middle class' status and had trouble finding data to back up what I remember. Found this however: http://www.delusionaldemocracy.com/ )

Class consciousness in the United States is hard to imagine but I think that when people continue to lose their homes and can no longer drive their cars we are going to see a middle class with a growing understanding that "We have been screwed." How that is focused is not clear.

Historically, it has been focused on Blacks, Jews, Asians and Mexicans. Conservatives want to use "Islamo-fascism" as the boogie man this time around but I don't foresee it working. Hopefully that will not be the focus this time around but their are no guarantees.

The book that you suggest looks very interesting--- I feel that there is a strong push among middle class whites for a third party. The popularity of Ron Paul and Jesse Ventura is a reflection of that. I can see a populist Huey Long type emerging if there is another Great Depression--- hopefully he/she wouldn't be a closet fascist.

I don't think that history offers a lot of predictive value for life after the peak. It's going to be a wild ride. We are going to see an acceleration of history with unpredictable outcomes. It will be a contingent moment much like 1968 but much more high stakes and crazy.

memmel and River, a sincere thanks to you both!

I read a lot of macroeconomic analysis and commentary, but you two have just elaborated on a scenario I haven't seen anywhere else.

Errol in Miami

Posted in the past, yes, but perhaps worth taking another look:

Reflections on Bernanke

From the Beat-bank .... http://www.guardian.co.uk/business/feedarticle/7652575

DUBAI (Reuters) - Top oil exporter Saudi Arabia will be able to pump at 12.5 million barrels per day for as long as the market needs when new capacity comes online next year, a Saudi oil official told Reuters on Tuesday.

... and that's exactly what I needed to hear .... snark.. today !

1. Here's a link to the TOD Readers Group on Linkedin:

Linkedin is basically a networking site that allows folks to connect with people who are thinking about or working on similar things.

Other social media links: http://twitter.com/theoildrum and http://friendfeed.com/theoildrum.

Twitter is a mini-blogging site that allows folks to text. Friendfeed is a social media accumulator. Any further explanation would take a page. :)

2. Thanks for helping spread our work and efforts around. If you have a blog, or are a member of a messageboard, or play at a link farm like metafilter or anything else, the more you plant links to our stuff that you like, the more eyes it gets...it's that simple. Every little bit helps. Submit our stuff to those link farms or use the ShareThis buttons found around each post, they're simple (as long as you are logged in to the respective sites).

3. We really do need and appreciate your support. That and educating folks about the problems we face is what keeps us all going.

Thanks for hanging out, and thanks for making this all worth doing. I learn something here every day--and I apologize for these incessant reminders of things.

Oops, the LinkedIn URL doesn't do what you wanted.

I searched for "The Oil Drum" with Groups selected, and came to the correct page and sent a request to sign up.

Not sure how to create a correct URL on the LinkedIn site. "Cookies. Very dangerous. You go first."

try this?


or just go to the search menu, change drop down to groups, and search for The Oil Drum.

The item about the Japanese Fishing Industry cites its price for fuel at $3.95/gallon, which implies almost pure crude. Marine diesel here in Oregon is about $4.40, depending on location. Alaska has about 20% of its commercial fleet rumored to be on the beach at any one time due to high diesel costs. Current Alaska prices vary by location--4.04 at Ketchikan to 5.80 at Dillingham shown here from this parent. Further West Coast data is available at the parent.

The LA Times item ends with an odd, counterintuitive quote: "This time we can't wait that long,[compared to a previous political problem with Korea]" said Yasuo Ito, president of a fishing operation here. "The fish will be gone."

Yes the fishermen on strike over high fuel prices was featured on the NHK news last night. BUT I felt like saying, "Come on guys, there were people fishing for over a thousand years without oil, They've been using oil for the job for only about (less than) 75 years. Why all the FUSS???"

The oil age is just (in Orlov's words) a TRANSIENT CONDITION". We can all understand these two words, right , "TRANSIENT CONDITION".
I suppose they have big debts on their big boats, but that should not stand in the way of comprehending this simple concept. I mean REALLY!!!!!

Labor Dept released June wholesale price numbers this morning. 1.8% is the highest since June 1981.


The USA is facing extreme price inflation combined with falling median wages-a deadly combo.

Last night an oil and energy debate took place in the House of Representatives. It was called a 'colloquy' and included Dems and Repubs. These house legislators paid special attention to two issues: domestic production and speculation. Dan Burton (R) called tonight's meeting "a bi-partisn group that started meeting tonight" that should be "done on a regular basis." Peak oil presenter Roscoe Bartlett (R) was not in attendance.
7/14/08 8 pm to 10 pm

A sample of what was said lastnight:
Bart Stupak (D) - chairman of oversight investigation
-we blame excessive speculation - oil has morphed from commodity into financial asset
-more than enough supply, high gas price caused by speculation
-crude should be no more than $60 per barrel
-there is a 22 million barrel inventory for refineries and this represents an over-supply of product in the market
-he asks, why high gas prices?
-we are exporting 300,000 bpd of diesel and it should be used domestically instead, to lower prices
-we believe in a "use it or lose it" policy for IOC's and domestic drilling
-for example: 22 million acres can be leased today in Alaska
-chart: oil company profits - "staggering numbers", "energy kills our economy"
-chart: 'Evolution of speculative trading WTI average open interest on NYMEX (Long and Short Positions)'
- oil trading is compared to the year 2000, today's market is saturated with "swap dealers and hedgers"
Joe Barton (R)
-if Dems will agree to pass drilling legislation on ANWR, then Repubs will agree for ANWR oil to be used only in the US
-there is recent legislation, enacted 20 months ago(?), prohibits high sulfur diesel use in US and therefore diesel is exported
-22 million barrels inventory of oil, available for refineries, is only two or three days of supply and therefore not an over-supply of oil product
-releasing oil from SPR will only impact prices if 2 million bpd are released
- there is 1 year worth of oil releasing it at 2 million bpd
-he says that Repubs are willing to discuss SPR release
Lynn Westmoreland (R)
-chart: "drill more, use less"
-3 specific responses to "drill more, use less"
-use less: (1)plug in cars; there is excess electricity
-drill more: (2)offshore drilling, (3)oil shales
-chart: total of non-conventional oil production in US could be 10 million bpd
-compared against foreign oil imports from Nigeria, Saudi Arabia, Canada
Phil Gingrey (R)
-if the countries that hate us cut off from 12 million bpd then we must use SPR as an emergency
-do not release from SPR now
-a non-starter for Dems: drilling off-shore legislation
-Repubs will consider looking into the speculation issue
-ANWR is 2000 acres with same amount of potential oil production as 22 million acre patch that is an acceptable place for drilling by Dems
-"Why destroy 22 million acres (in Alaska) when you could get the same amount from 2000 acres (in ANWR).
John Hall (D)
-we are "at the mercy of oil" - we need to "break the oil monopoly in America"
-we should release from the SPR - not the answer, but a tool that can temporarily lower prices
-alternative energies needed to create competition in market
-chart: record oil company profits - an 8% increase YOY
Tom Price (R)
- we want a comprehensive solution, not a targeted solution
-supply is important - increase supply utilizing the outer continental shelf
-"we haven't talked about oil shales at all" - he states that America has 2 trillion barrels reserves from oil shale
Christopher Murphy (D)
-my constituents say, "get us relief today"
-we propose immediate relief and a long term strategy
-address speculation in commodities market
-address demand and supply
-he says the simply announcing new domestic drilling projects will not lower prices
- for example, Tupi field announcement was followed by higher prices
Dan Burton (R)
-20% of world oil supply through strait of Hormuz
-"a bi-partisn group that started meeting tonight" that should be done on regular basis

I suppose that if someone were to murmur the word "conservation" in the presense of these guys, they would be clamoring for him to be burned at the stake for such heresy.

For Lynn Westmoreland (R), using less doesn't necessarily imply conservation, rather plug in cars. Christopher Murphy (D) did express need for long term strategy by addressing demand, but he did not elaborate further.

Joe Barton (R)

-if Dems will agree to pass drilling legislation on ANWR, then Repubs will agree for ANWR oil to be used only in the US

So, would Rep. Barton advise oil exporting countries to use all of their oil production domestically and stop exporting?

That part made me laugh. Since we're a net importer, it seems meaningless to say that the oil will only be used in the US. So the republicans wouldn't really be agreeing to do anything. It would be funny to see democrats accept an offer like that. It wouldn't surprise me.

Funny or sad, there were several moments during the debate when members were decidedly misinformed, confused or lacking knowledge of this issues. Bart Stupak has been studying this issue for 4 years, yet he and others were in disagreement about US diesel quality legislation as well as refinery inventories.

That part made me laugh. Since we're a net importer, it seems meaningless to say that the oil will only be used in the US. So the republicans wouldn't really be agreeing to do anything. It would be funny to see democrats accept an offer like that. It wouldn't surprise me.

The real irony would be if we did it with that stipulation (can't export it), and we found only heavy sour oil, that could only be refined overseas.

Tom Price (R)-"we haven't talked about oil shales at all" - he states that America has 2 trillion barrels reserves from oil shale.

Folks the link up top: Heedless Rush to Oil Shale is really good.

Since the 19th century, we in the West have been trying to extract oil from the vast oil shale riches that lie under our feet. It is no easy task, and past efforts have failed miserably. Commercial oil shale development would require not only immense financial investments but also an undetermined quantity of (scarce) water from the Colorado River basin and the construction of several multibillion-dollar power plants.

Shale oil is a fantasy and a boondoggle.

Ron Patterson

‘Tabloid’ spam is worm’s newest turn

A recent Microsoft update nuked hackers' botnets, and they are trying to rebuild them with a wave of spam with fake "news" headlines. Apparently, oil is now right up there with Lindsay Lohan in getting people to click.

Here's a sampling of subject lines:

"Bill Clinton in today's Times - thank god Hilary didn't beat Obama."
“Beijing Olympics canceled upon the death of China's president."
"Obama bows out of presidential race."
"Scandal rocks Obama as lurid sex video leaked?"
"Dog digs grave for owner."

And perhaps the most fantastic of all,

"Oil falls below $100 a barrel.”

Other examples:

"Scientists estimate oil to run out earlier than expected in 2012.”
"Invest in oil to make tons."
"World powers accept oil prices increases."

Let's add "Up, up, up..." to this list, a piece of cornucopian piffle that appeared as the lead editorial in Canada's Financial Post's July 12 weekend edition. The FP claims to be Canada's leading financial newspaper and the views it espouses tend to be the same as Canadian Prime Minister Harper's minority right-wing government.

Readers of the Oil Drum will be amused and horrified in equal measure as Lawrence Solomon makes claim after claim that somehow growing stated oil reserves, rather than productive capacity, will save the current version of economic growth. This oil future is a "table set by environmentalists", like himself (presumably Far Right kind of environmentalists), without other players like NOC's and oil companies.

Is this the next wave of the pro-CO2 lobby? Now that nearly all sensible GHG policies have been monkey-wrenched, there is a real need to roll back peak-oil "theorists" and redouble a future based on trucks, SUV's and cities built for cars. Oil addiction has certainly worked well for GM, the US economy and the US dollar (at least if you stayed short...).

TOD readers could skim "Deniers", Mr. Solomon's intellectually dishonest recital of GHG skeptics in which he fails to distinguish between critics and straight-up pro-CO2 propagandists. I would like to ask Mr. Solomon directly to produce a similar volume "demolishing" peak-oil and its science. He would do quite a remarkable job. $5 says Mr. Solomon may have his eye on replacing the old head of the IEA, once their heretical November report is issued.

APPGOPO Report: Peak Oil & International Development

We are pleased to announce the publication of the first APPGOPO report, 'The Impact of Peak Oil on International Development' co-written with RESET and Practical Action . The report urges policy makers to look on post-disaster relief operations as opportunities to build truly sustainable low-carbon communities. It demonstrates how non-fossil fuel dependent energy generation, construction and farming methods will be essential if communities are to become resilient to energy price rises.

I couldn't get that link to work. Try plain



That's strange. It still works for me even if I reset my browser cache. Anyone else having problems?

The reason for linking directly to the article rather than the front page is it might not be on the front page in the future.

The first paragraph from the reports Forward.

The limits to growth in global oil production are becoming increasingly evident. Gordon Brown and George Bush can persist with their efforts to pressure Saudi Arabia to increase production, but sooner or later they will have to square up to reality and accept that oil is a finite resource, and that production of all finite resources must decline.

Last paragraph of the Conclusions

We live in an era of supreme comfort and technology – on an unmatched pinnacle of energy
consumption and resource use. Looking forward, we can either plan an orderly energy
descent strategy or we can refuse to accept that the era of cheap energy is drawing to a
close and continue business as usual. Either way, energy policies and funding choices made
now will have lasting consequences for future generations.


For those who don't know, APPGOPO is the UK "All Party Parliamentary Group on Peak Oil and Gas". Here's another quote from the document.

Many cities, and some nations, realise that global Peak Oil is not only inevitable, but imminent. This paper argues that contingency planning now – and subsequent mobilisation of training and adaptation of programme design – must be seen as a high priority.

This paper looks initially at Peak Oil and the likely political and economic impacts. Next it presents a series of proposals for practical strategies to build resilience in a time of sharply rising energy prices. Viable alternatives are offered in food production, human settlement design and local energy security.

Global oil production is reaching its peak, critical decisions are needed to prepare communities everywhere for the dramatic and irreversible changes ahead. Carrying on with ‘business as usual’ is no longer an option.

Of the ~11 mbpd of 'unconventional production' ~8 mbpd or ~70% is 'natural gas liquids'.

Does anybody know when 'natural gas liquids' are expected to peak?

Is this why Matt Simmons thinks we will have 'all liquids' fall away so quickly?

It would appear that banks are scrambling for cash. Oil prices have dropped big time, as financial institutions sell assets to raise cash.

At first I thought there was a SPR release. It'll be interesting to see if the price support tested last week (around $135) can be broken. I used this dip as a buying opportunity.

This is options expiration week, and that's always a good time to look for buying opportunities on a dip.

$146 to $136 in less than an hour? That's one hell of a dip!

Nah, these kinds of moves are pretty common within trading ranges, especially during options expiration week.

Options expiration brings a whole new bunch of profit takers into the market. They sell, the price drops, and it starts running through everyone's stops, triggering more sell orders. This is absolutely normal predictable action at this price level.

Awww, Moe, you're spoiling the fun. Up top we now find "(Bloomberg) -- Crude oil tumbled the most in three years on concern that a slower U.S. economy will curtail demand for oil and gasoline."

Now that's real gravitas. Surely every jot and tittle of random noise requires considered explanation extended to the widest possible scope. Have pity on all the poor pundits who would be out of work if it weren't so!

Actually, I'd like Moe_Gamble to write newscopy that actually reflected the realities causing the price movement, perhaps including a chart depicting prior price movement on privious options expiration days to illustrate the text. Perhaps ASPO-USA could then pick-up his copy and distribute it in one of its newsletters.

I bought into the DBC at last week's dip to $135. I figure that's the floor for now, unless something dramatic happens.

I keep hearing that the speculators are not to blame. Futures cannot affect the spot price.
So why does the oil spot price fall big time when the futures are cashed in?

At $145, oil has actually been above the recent 6% per month trend. To stay "on trend," oil prices would need to average $140 in July. We shall see what happens.

The futures price does affect the spot price, because why deliver now if you can get more in a month (after whatever storage costs you have to pay, and lost interest, etc.)?

But speculator-related swings in the price are relatively small, like today's dip. They aren't what has caused the rise from $85ish in Feb. to the $140s in July.

The futures price does affect the spot price, because why deliver now if you can get more in a month

That would only be true if futures prices were higher than spot prices. Otherwise, why deliver in the future when you can get more now? The chart Krugman linked a while ago showed the reverse, at least for most of the past year or two. In any case, a drop in futures prices would alter that dynamic in favor of spot prices.

Is there a ticker symbol for spot prices? If the rise in futures prices on Thursday & Friday of last week outran spot prices, then you would expect futures to fall to catch up as settlement day approaches.

Is there a ticker symbol for spot prices?

No, as the spot (actual oil) is not traded on any exchange.

If the rise in futures prices on Thursday & Friday of last week outran spot prices, then you would expect futures to fall to catch up as settlement day approaches.

That would be the case for every commodity....except WTI Cushing crude oil. I cannot explain why, but the relationship between WTI Cushing spot and WTI NYMEX is different from any other commodity, even natural gas. The spot and near contract futures is seldom together during the day but they always settle the day at the exact same price! Well, that is except the first three days of a new contract. Then the two settle at different prices.

At the end of the day, after the NYMEX has settled, then WTI Cushing marks the spot price at the exact same prise as the NYMEX settling price for the near term contract. I have, for years, searched the internet for an explanation of why this is the case but I have never read the explanation. No other commodity, traded on any exchange, follows this pattern. For all others, the spot and futures price comes together only at expiration.

Of course most actual oil is traded by contract with the price negotiated between the producer and the buyer. They follow their own pricing scheme according to grade and the general price of the benchmarks with WTI being only one of them.

Ron Patterson

What I've been trying to do is figure out mechanisms by which the futures & spot prices are linked. Since you can convert futures into oil, that explains how the spot price can affect the futures price. If you write a contract to sell oil in the future rather than sell it now, that is a mechanism by which futures can affect the spot price. So it is easy to understand why the futures price would move to the spot price. But what mechanisms (other than deferred selling through futures) could cause the spot to move to the futures?

Shargash, the officials in Cushing, after the close each day, simply set the spot price to the price that WTI closed at. I have no idea why, or what kind of arrangement the NYMEX has with the officials in Cushing, but that is the way it works. If that price is too high and they get few buyers, then a glut will develop. This news will cause the speculators to sell, driving the price back down.

But you are laboring under a false assumption when you say: If you write a contract to sell oil in the future rather than sell it now, that is a mechanism by which futures can affect the spot price. 99.9 percent of the people who trade futures have no oil to sell, either now or later. They are just betting, (guessing), on which way the price of oil will move. They will close their contracts before expiration at either a profit or loss.

The market for oil is worldwide. If Brent or Tapis gets too far out of sinc with WTI then speculators will see that gap and either buy or sell and profit when the gap closes. Of course different oil markets always trade at different prices because of grade and location. But traders know what this gap should be and trade accordingly.

Supply and demand are what moves the oil market. Futures traders try to guess which way supply and demand will move the market. But speculators often cause wide swings in the day to day movement. This leads some people to mistakenly think that speculators can cause long term trends in the market. This simply is not so. If speculators bit the price to high, then a glut will develop, driving the price back down. Supply and demand are, in the long run, the sole arbitrator of the price of oil. It is as simple as that.

Ron Patterson

the officials in Cushing, after the close each day, simply set the spot price to the price that WTI closed at

If I read what you are saying correctly, no actual oil needs to have traded at that price. It is simply a bookkeeping device to keep the two in synch. Is that basically it?

But you are laboring under a false assumption when you say: If

I wasn't talking about speculators. Are you saying that no producers write futures contracts for oil? Speculators could do that, but they'd have to buy and store the oil first. It is unlikely that anyone is doing that, because specs don't care about the actual oil. In any case, neither action (the producer version or the spec version) makes sense unless futures are higher than spot.

Supply and demand are what moves the oil market.

If you've been reading my posts the past few weeks, I've said exactly that numerous times. What I've been trying to do for thoroughness is to figure out every mechanism by which futures trading could possibly affect supply and demand. They seem to be extremely limited, there is no evidence that they are happening, and they don't make sense in backwardation.

If I read what you are saying correctly, no actual oil needs to have traded at that price. It is simply a bookkeeping device to keep the two in synch. Is that basically it?

Yes, that is basically it. The NYMEX has no control over actual oil. At expiration they only put the buyers in contact with the sellers and let them settle it. That is unless it is settled in cash then they make sure the correct accounts are debuted or credited. The NYMEX acts only as a clearing house in that case.

Are you saying that no producers write futures contracts for oil?

"Write is not the correct term. You may be thinking of "writing options." Futures contracts, on the NYMEX, whether long or short, are either bought or sold, not written. And yes, producers often hedge, selling futures contracts. And actual buyers of oil often hedge, buying futures contracts.

Speculators could do that, but they'd have to buy and store the oil first.

No they would not. Speculators have no need to buy the actual oil. Whatever gave you that idea?

It is unlikely that anyone is doing that, because specs don't care about the actual oil. In any case, neither action (the producer version or the spec version) makes sense unless futures are higher than spot.

You are dead wrong on that account. Speculators are guessing where the price of oil will be in the future, not where they are right now. The spot price of oil, for the near term contract, is always within a few cents of the futures contract. Speculators do not follow the minute by minute spot price because they have no way of doing that. They are only concerned with the futures contract and which way they THINK it is heading.

What I've been trying to do for thoroughness is to figure out every mechanism by which futures trading could possibly affect supply and demand.

Futures trading CANNOT affect supply and demand. That is the point I have been trying to get across for years. Futures traders are trying to guess which way supply and demand will push or pull the price of oil, then the BET accordingly.

They seem to be extremely limited, there is no evidence that they are happening, and they don't make sense in backwardation.

Backwardation or contango, it makes no difference. Both backwardation and contango are what speculators and hedgers THINK is going to happen. Everyone is just making an educated guess. If they are correct they make money, or hedgers do not lose money. That is what it is all about.

Ron Patterson

No they would not. Speculators have no need to buy the actual oil. Whatever gave you that idea?

Supply and demand drive the price of oil. Unless you can alter the demand or the supply, you will not have a significant effect on price. Unless you actually buy (or sell) the actual oil, you have not affected supply. That seems pretty straightforward to me. I'm not sure what you disagree with in that.

Now the vast majority of speculators have no need or reason to buy the actual oil. They do not want the oil. They wouldn't know what to do with it. They are just making a bet. If oil goes the way they bet, they make money; if not, they don't.

If, however, someone (call him a "speculator") wanted to manipulate the market, as opposed to just profit from it, that person would have to actually buy or sell oil. To do this they would have to get themselves a storage facility and take delivery of the oil. That way they would be affecting the supply of actual oil and could have an effect on price. This is essentially what the Hunt Brothers did with silver. However, storing any significant amount of oil would show up in inventories, so we can be pretty sure this is not happening. Furthermore, it makes no sense to store oil for future sales unless the future price of oil is higher than the current price of oil (i.e. contango). Again, I'm not sure what you disagree with in that.

Here is Paul Krugman describing the hypothetical process in a post titled Speculative nonsense, once again:

Well, a futures contract is a bet about the future price. It has no, zero, nada direct effect on the spot price. And that’s true no matter how many Joe Shmoes there are, that is, no matter how big the positions are.
Any effect on the spot market has to be indirect: someone who actually has oil to sell decides to sell a futures contract to Joe Shmoe, and holds oil off the market so he can honor that contract when it comes due; this is worth doing if the futures price is sufficiently above the current price to more than make up for the storage and interest costs.

All I'm trying to do is understand the points of interaction between futures contracts and actual oil. It seems there are two: futures contracts can be converted into oil by the buyer's taking delivery of the oil. And oil can be converted into futures contracts by the holder of oil selling a contract. And you seem to be a very hostile listener tonight.

Supply and demand drive the price of oil. Unless you can alter the demand or the supply, you will not have a significant effect on price. Unless you actually buy (or sell) the actual oil, you have not affected supply. That seems pretty straightforward to me. I'm not sure what you disagree with in that.

I don't disagree with that one bit. That is what I have been preaching for years. However I have problems here: Unless you actually buy (or sell) the actual oil, you have not affected supply. Which ties in with this theory of yours.

If, however, someone (call him a "speculator") wanted to manipulate the market, as opposed to just profit from it, that person would have to actually buy or sell oil. To do this they would have to get themselves a storage facility and take delivery of the oil. That way they would be affecting the supply of actual oil and could have an effect on price.

A speculator would have to take delivery of about a million barrels of oil in order have even the slightest effect on the price of oil. A change of one million barrels in inventory, up or down, moves the market very little either way. And, the speculator, would have to pay the full price for that oil, not just the margin price. (He actually bought the oil.) That means it cost him $140,000,000 or somewhere pretty close to that. Then he must store it until the market moves, that cost him a bundle. And one million barrels of inventory is such a pittance that there is just as good a chance that the price will go down as up. so he could easly lose five million before he could unload the oil. There is simply no way a speculator has enough clout or storage space to influence the price of oil.

All I'm trying to do is understand the points of interaction between futures contracts and actual oil. It seems there are two: futures contracts can be converted into oil by the buyer's taking delivery of the oil. And oil can be converted into futures contracts by the holder of oil selling a contract. And you seem to be a very hostile listener tonight.

I am not at all hostile. I just think you are making it much more complicated than it actually is. A person who deals in both the physical oil and futures contract is called a hedger. For a seller to hedge is to accept a guaranteed price now instead of risking a lower price down the road. For a buyer to hedge is to pay a guaranteed price now and not risk having to pay a higher price later. To hedge is to reduce your risk. To speculate is to increase your risk in hopes of a higher profit. You should never confuse hedgers with speculators, they are different animals altogether.

The world oil market is truly enormous. No one trader, even the Hunt brothers, has the power to manipulate the oil market. A major producer, like Saudi Arabia, can manipulate the market by holding several million barrels off the market but no speculator has that power. The oil market is not being manipulated, except perhaps by the likes of OPEC, so you do not even need to think about that. Supply and demand are the sole arbitrators of the price of oil. But I said that already didn't I.

Ron Patterson

Speedy is not paying attention. Speculators are causing this $10 or so swing, during an options expiration week. That's it. That's the size of speculator action, about $10 or so max. The rest of the move, as Moe notes, from $85 in February to $140 now, is all supply-demand. So knock out the $10 speculator premium and supply-demand is responsible for about $40-$45 per barrel price increase. Thus, even if you did get rid of all the speculators, you'd still have $130-$135 per barrel oil.

Speculators cannot create the wave; they can only ride it. Speculators are the "froth" that George Soros noted sits atop the current supply imbalance. Removing speculators does not restore the "driving dream" at all.

Speedy is not paying attention.

Sorry for not paying attention, but with all the information to read here, sometimes it is difficult not to miss something.

My post did generate some interesting discussion though. I find the point made about WTI Cushing setting the spot price to the near term futures price at the end of the day very interesting. This implies that the spot price is following the futures price and not the other way around. Now if the spot price goes too high, nobody buys the oil and inventories increase. This would then affect the futures which would drive the spot price down again.

But, we have no choice in whether we buy the oil, we need it to keep our economies running. So as the speculators push up the price and WTI Cushing keeps setting the spot price based on the near term futures (possibly Brent and Tapis work that way too), the price will keep rising until we can no longer afford to buy it.

Sorry for being dumb, but I am still having problems following how this works.

But, we have no choice in whether we buy the oil, we need it to keep our economies running.

And yet, the economic collapse looks to be a bubble in real estate that took private gain and pushed it to the public sphere in the form of freddy mae freddy mac.

Oil price hurts - but the 'economic killer' is gonna be the debt.

I'm with ya
I think we should lose the word speculator and just resign to the fact that the financials have moved into the oil market/commodities. There is a huge pool off money out there and it needs a roi

I keep hearing that the speculators are not to blame. Futures cannot affect the spot price.
So why does the oil spot price fall big time when the futures are cashed in?

Speedy, you simply have not been paying attention. No one has said that futures cannot affect the spot price. They very much affect the spot price. But that does not mean that speculators are to blame for the high price of oil.

Speculators affect the short term swings in the price of oil but the general trend is affected by supply and demand. When speculators bid the price too high, then the fundamentals eventually pull the price back into line and the speculators that were long get burned. And vise versa when speculators short oil and drive it down below the fair price. The shorts get burned when supply and demand pulls the price back in line.

Ron Patterson

This is just options expiration week, westexas. Profit-taking by speculators today. Look at a chart for June 16-20 (last month's options expiration week). You'll see exactly the same price action. The "correct" price right now is around $140-142.

Moe - Thanks for the clarification.

Anyone think that crude falling while bush stepping on bernanke's head is an accident?

CNBC saying banks are the liquidators.

So all we have to do is put banks out of bizness and the price of oil will fall?

And just exactly who was/is speculating on rising energy prices

Can you make this up?

Two of the questions I have asked over the years:

What is the objective value of the 100 largest financial institutions, without the 100 largest oil fields?

What is the objective value of the 100 largest oil fields, without the 100 largest financial institutions?

Damn good questions WT. I'm sure you know this fact but many here may not: during the last 20 years efforts to expand led many oil companies to buy the producing assets (if not the whole works) of other oil companies. PO (or reserve replacement as we tend to call it) was a big factor in these efforts. Companies had a limited growth potential from drilling alone. Thus smaller companies would buy fields from big companies and redevelop what they could or big companies bought smaller companies to aid in their asset growth (remember: public oil companies are valued by their increasing reserve growth...whether the drill for it or buy it). Just two weeks ago Hunt Oil was bought by XTO for $4.7 billion. The key players in many of these efforts were the financial institutions. Some times stock is used for the acquisition but often cash is king. I can't begin to guess the actual amount of money the financial institutions have supplied to the process but it has been many trillions of $'s. And companies were glad to pay high premiums and then some. Not just 8% interest or so. A "net profit interest" cut of the deal often meant a return exceeding 20% wasn't uncommon.

That’s why we’ve been waiting for quit a while to see who ExxonMobil or Shell tries to buy. As both those companies are essentially at PO themselves they are going to have to acquire someone very big to offset their declining reserve base. It might be the first trillion $+ acquisition in history. If they don’t then they’ll just continue to shrink their reserve base with no future potential at least in the E&P sector.

"That’s why we’ve been waiting for quit a while to see who ExxonMobil or Shell tries to buy."

The reason for:

Khodorkovsky's arrest broke the back of the
US/Russia relationship


the Invasion of Iraq.

Note Timezone. 15:30 is 11:30AM EDT

Question for Moe_Gamble and/or others who know about such things:

What do you think about the OIL ETF as a substitute for going long actual futures. I realize you have to buy with cash, not margin; but for those of us who are intimidated by futures trading, is this a reasonable replacement?

My understanding is that they just go long next month contracts and roll it over every month. This ETF would be easy for me to buy in my online brokerage account.

EDIT: What about OIL vs. USO?


Consumer, regarding the OIL etn, be aware that it doesn't actually buy oil futures. (http://seekingalpha.com/article/15917-barclay-s-launches-oil-etn-market-...) Instead, you're buying debt notes from Barclays, and Barclays promises to pay you a return according to whatever the underlying commodity does. This can be good--no losses from rolling over contracts in contango markets, for example--but I don't know what happens to you if Barclays goes under.

If you want ETFs that actually buy real oil futures contracts, you'd want USO or USL, or DBO (or DBE).

The problem with USO is that they roll over contracts every month, on either a specified day or within a specified few days (can't remember offhand which it is). Because everyone knows they're rolling over their contracts at this specified time, they routinely pay a "premium" for rolling over contracts--in other words, they get whacked by other traders. Also, when the market is in contango (the next month's contract is higher than this month's contract), you really get creamed rolling over contracts month by month.

USO is good for actively-managed short-term trading. If you don't want to actively trade these futures, USO is not good for you. If you want a long-term buy-and-hold investment in oil, you'll do a lot better with DBO or USL (I prefer DBO because they have better volume right now.) These etfs use a formula to find the optimal way to roll over a contract, rather than just buying the next month's contract. They're good at capturing the long-term rise in the price of oil, without killing you with rollover premiums in contango markets.

There are management fees for both funds, but these are largely or wholely covered by interest you earn on the account.

I have DBO in my own retirement accounts, and in the retirement accounts of everyone in my family. I also recommend it to friends who ask for my advice.

DBE is from the same firm as DBO, and has the same intelligent rollover policy. While DBO buys futures in West Texas Intermediate, DBE buys futures in WTI, natural gas, gasoline, heating oil, and Brent.

Thank you very much for the helpful reply. Is the monthly rolling the reason there is so much volume difference between DBO and USO? USO trades 14 million "shares" per day, while DBO is doing just 85,000; this makes me wonder if there is a liquidity problem with DBO.

I looked at the historical performance on Google Finance, and it looked as if DBO was a couple percentage points higher.

Also, is there such a thing as an open-ended mutual fund for oil?

This is interesting, but if I look at USO vs DBO over the last year, it appears that DBO is lagging, apparently due to something bad that happened to them last September or so...

I see that too. If you look YTD, they cross again in June 08, and DBO pulls ahead. Maybe I will split my position between them, just in case.

I need a hedge on my SPY, which I will soon be asking for in the form of certificates, which I will burn to heat my house.

While researching DBO I ran across this article on seekingalpha.com which might be of interest:



Gas lines are coming this fall based on inventory depletion. Watch World Oil Exports [WOE] and EIA’s TWIP report as leading indicators of when shortages will develop. Debt, politics, weather and unknowns are wildcards, able to create instant and very large-scale outages.

On a personal level, self-reliance is a great investment. Plant a garden. Invest in an emergency food shelter. Invest in your local community.

Permanent solutions must start immediately. A leadership call to self-reliance and Victory Gardens can have an immediate effect. Aggressively exploring alternatives will give more time to create and implement solutions. Most solutions are local. Like planting a garden, local action can create an economic lifeboat for each economic community.

We can re-tool transportation to operate with about 15% of current oil consumption. We will have to work hard for the next 15 years to accomplish this.

Kudos to Bill James - nicely done.

I buy mainly futures, and hold USO to a lesser extent (mainly for the longer term). I prefer futures because they are leveraged and with USO, there is a management firm between me and the futures, which adds more expense and theoretical risk. A few months ago I switched to buying mini-futures contracts, which are half the size of the full contract. I prefer the flexibility of buying and selling $70k worth of oil at a time versus $140k of oil. E.g I might buy 4 minis at $142, 140, 138, and 136 instead of 2 big contracts at say $142 and $140 (and miss out on the lower prices).

A ha! Those nasty speculators driving up the price of oil are right here on TOD! Watchout...the US Congress is after you!

'It's been a difficult time for American families," Bush said at a press conference. "We must ensure we can continue providing credit during this time of stress."

Because the solution for families under stress is to take on more debt?

Go shopping. It's your patriotic duty.

Let's hope J6P is shopping for a bicycle, wheelbarrow, garden tools, NPK, seeds, and a vasecotomy.

Just did that very thing. Bought a new wheelbarrow and a pitch fork. Pretty much have (or had) everything else :)

Sorry, no can do. Just spent my "Stimulus Check" paying off my heating oil bill. ;-/

Looks like a lot of people are in the same boat:

Retail sales barely budge, disappoint

WASHINGTON - Retail sales edged up by a weaker amount than expected in June as sales at auto dealerships plunged.

It would have been worse, except for the jump in sales at gas stations:

Overall retail sales were supported by a big 4.6 percent jump in sales at gasoline stations, an increase that largely reflected the huge jump in pump prices.

So, high gas prices are good for the economy. They boost retail sales!

It would have been worse, except for the jump in sales at gas stations:

Overall retail sales were supported by a big 4.6 percent jump in sales at gasoline stations, an increase that largely reflected the huge jump in pump prices.

So, high gas prices are good for the economy. They boost retail sales!

This well illustrates how rising gas price maintains GDP level.

So my mental recession is excused by the gas pump. I suspect food costs are helping out with this too. Can we sort out a run on the bank from people depleting their savings to live as they used to?

Bernanke, in his testimony before congress avoided using the word 'money'. Music is made of notes and pauses. What economists do not say is usually more important than what they do say. From Mish...

'Money Supply and Interest Rates

There was not a single peep out of Bernanke about money supply. In fact the word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates.

How can you have any reasonable economic policy when the chairman is scared half to death to discuss interest rates and money supply?

Here is a summary of Bernanke's testimony in one word: "Hogwash".'


Yea, curiously, they ommitted that during that same period the price increased by 9% for a volume decrease of 4.4%.

Absolutely. It worked really well for some lucky people in the 1970s runup. Take on debt before interest rates rocket, and pay it back later in inflated dollars earned on your secure government or union job. Many struck gold that way, getting nice houses for, in effect, about half-price. Since it worked back then, and since past performance guarantees future results, and since politicians of every stripe are promising free rides, what could possibly go wrong?

PaulS...What worked equally well was buying 30 Treasuries in 1983 that pay a 17% interest. The folks that bought those beauties will continue to collect 17% untill 2013 (assuming that the government does not default on its paper). Please let me know if you find an investment that is as safe as 30 yr US long bonds paying 17%. I would like to have some. Last I checked current 30 yr longs are paying a little over 4%. Timing is everything, eh?

China June auto sales up 15.35 pct yr-on-yr at 836,800 units - assn

Note that this is commercial (248,400 units) and passenger (588,400 units) - totalling 836,800 new units.

If the average usage of these vehicles is only two gallons per month, they will consume 1673600 gallons or 39848 barrels per month. That would be fully one fourth of KSA's entire output increase. And this presumes a ridiculously low usage rate of two gallons per month! Also, China's auto sales are continuing every month and total vehicle ownership is rising at double digit rates annually. Even if the Chinese only drive a few miles a few times per month, there is no way that the existing oil infrastructure can support that rate of growth. Thus, either that rate of growth will slow or the price of oil will rise in response (and quite possibly both).

The average usage of a vehicle in China is approx. 45'000 kilometers per year. That's huge. On the other hand, China is a very big country. Anyway I was surprised by that figure. Too bad, that I lost the link for that.

I bet the cars are shared a lot. A lot of taxis and company cars. And in We Were Warned, they showed a young couple buying their first car. They couldn't afford it without help from both of their families. You have to figure - if the families gave them money to buy a car, they will probably be borrowing it.

In a 1999 paper, I reviewed the literature then extant and wrote about what was bankrolling the "China Miracle," which concluded it was the Chinese Diaspora that far outweighed any multi-national corporations, or groups of them. I then predicted that the 21st Century would be the Chinese Century, which would in turn become the Asian Century. Events till now have only served to solidify those conclusions. Taken as a whole, the Eurasian Economy [this includes Australasia] does NOT need any imputs from North America--NONE. This is the fundamental problem faced by US Imperialists. Plus, their Asian beachhead is untenable, rendering the failure of their plan complete.

During its 19th Century rise as a Continental Empire, much of the United States was owned by British and other European interests, the two subsequent Great Wars shifted that balance, but as we now see, it was only a temporary shift. The "Default Plan" noted in the thread above will not occur; rather, it should be termed the Sell Off Plan as US assets once again become mostly owned by foreign interests. The great irony is that the situation was/is supported by ubernationalist rightists from Reagan/Bush to whomever next. The Great Prize is the Military Industrial Complex, or whatever remains, as it will either be destroyed by war or sold.

The Neocons who early-on trumpeted the US Empire as the next Rome didn't know they would be correct, only that the Rome materializing is the one tottering on the edge of collapse from its fantastic number of internal contradictions.

There will probably be good future opportunities for the USA in the rent-a-military business. That's a tried-and-true means for has-been states with an exceptional martial tradition to make a living.

We've gone full circle, from fighting the Hessians to BEING the Hessians.

The American Empire seems doomed and so people are naturally drawn to look at who will replace us. To look at number 2 and assume that it is their time seems logical. But China seems equally if not more screwed by Peak Oil than the United States.

All of China is not booming. The coastal regions of China with it's approximately 300 million people are experiencing a meteoric rise but the prosperity hasn't filtered out very well to the rest of the population. By some estimates there are about 70,000 major protests in the country every year and this is with 10% growth a year.

We at TOD know that the world will soon be experiencing negative growth. Will China be able to keep social order with negative growth? Every year millions of people migrate from farms to the cities--- so far there has been 200 million people. What are they going to do with the new immigrants when all the new jobs dry up? I argue with my friends about this all the time. They always say that China will adjust but I am not convinced. I wouldn't want to be in China when the price of oil reaches $300 dollars a barrel. I haven't even touched on the environmental and food problems that China faces. I just get the impression that China has entered the world economy at the very worst time in history. I could be wrong.

I think people should be learning French(with their amazing transportation system and nuclear power) rather than Chinese.

China presents an interesting case regarding Peak Oil; it's the only country in a position to "buy" its way out for some unknown amount of time. If the Oil Depletion Protocol or something like it is implemented, then China's financial condition puts it in the best possible position; this will be true even without such a protocol. Regarding the challenge of Climate Change, I think China does have critical issues, as do most countries. Both exacerbate the food issue, but China has always lived with the food issue.

When I wrote in 1999, it wasn't nearly as clear that "The American Empire seems doomed" as it does today. Nor was Peak Oil or Climate Change as consuming issues for me as now. Education sometimes works. Today, I look at the combined financial and resource strengths of Eurasia and meld them with MacKinder's "Heartland" thesis. Further, China, Russia, and India have proximal advantages the USA does not. A better strategy for the USA would have been to conquer Equatorial West Africa instead of Iraq and kept hold of South America. But the Neoliberalcons were/are consumed with their Cold War fetishes, have acted them out instead, and lost. The PNAC is a failure, and good riddance.

The future is dark and foggy, but some trends are visible in the mist. By century's end, the current paradigm will be history, and something else (or elses) will have replaced it. It/They must function without our current liquid transportation fuels, excepting biofuels and some synthetics. Commerce will continue as it has for millenia, unless we have an all out nuclear exchange. Accomodations will be made to Climate Change, unless... And global population is likely to be about the same as now, but down a billion or so from its peak, unless... I realize this doesn't conform to the Olduvai Gorge hypothesis because my historical training makes me an optimistic doomer. As for learning French, I found its pronunciation rules innane despite already knowing Spanish and took Russian instead.

Then number 2 must surely be Russia, net oil exporter with a large & experinced military.

China also has a large and experienced military. It beat the USA in Korea, if you recall, and Mao's tactics won again in Vietnam.

Hello Leanan,

Thxs for your toplinks on Pakistan. Their ag-problems look to be getting worse rapidly:

Fertilizer shortage to affect crops

LAHORE - President Pakistan Kissan Movement, Ch Ashfaq has strongly criticized the non-availability of fertilizer in the market by saying that the shortage would badly affect the yields of different agricultural crops.

...said that the farmers are running from pillar to post to find fertilizer but certain black marketers and dealers of fertilizer have hidden their fertilizer stocks in their secret godowns and are indulging into black marketing...
Since job specialization depends upon food surpluses: Pakistan's wealthy would be better served by becoming biosolar investors with the farmer vs trying to screw the farmer; in essence, the black marketeers are shooting themselves in the foot by increasing cascading blowbacks vs mitigation. Additionally, if Pakistan still has sufficient wealth to build it: IMO, they should stocking a multi-year supply of I-NPK in their version of my speculative 'Federal Reserve Banks of I-NPK'. As we go postPeak: I-NPK will not get cheaper.

You may want to generously hug your bag of NPK today:

OCP agrees H2 Russia sulphur at $350/tonne rise
14 July 2008 15:22 [Source: ICIS news]

LONDON (ICIS news)--Moroccan phosphate fertilizer producer Office Cherifien des Phosphates (OCP) has agreed a second-half 2008 supply contract for Russian sulphur at an increase of around $350/tonne over January-June prices on supply and demand issues, market sources said on Monday.

OCP took 1.5m tonnes of Russian sulphur annually through trader Solvadis and the price for July-December 2008 was agreed at just below $800/tonne CFR (cost and freight), a company official confirmed.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

We're overdue for a street-level update from Wisdom From Pakistan. Sounds like the Arab support for the Pakistani stock market is slowly ebbing away as the real economy falls apart.

Also, it sounds like Pakistani democracy isn't working any better than it did the last two times it collapsed.

The more I read, the more concerned I get about the effect of Pakistan's instability on India (and other neighbors).

Interestingly, the local press in India has not reported any of this news. With parliamentary elections coming soon, the press is rather internally focused.

CNN ran another story on Hyperion this morning. (Hyperion is that company that's trying to build a new refinery in South Dakota. Someone posted a link to a CNN video yesterday. Here's a text recap.)

It certainly sounds like Hyperion is at best in over its head, and at worst, shady. They've never built a refinery before; their core business is real estate. Their CEO is being sued for mismanaging his wife's trust fund. The suit claims all his businesses have been failures.

The guy they sent to talk to CNN (in a public park, in 94F weather, instead of in their air-conditioned office) admitted there was no financing. Hyperion didn't have any, and when they asked Congress for help, they said no.

Even if they are on the up-and-up...I don't see how they get financing in the current climate.

I especially liked the shot of the four gorillas with caps raising their fists. WTF??

Yeah, that was weird.

Before their refinery plans were revealed, they put a bunch of concrete statues of gorillas up on the land they leased. Nobody knew why or what the project was.

That just seems like...well, like something a real estate company would do. Or a scammer.

It's not a choice between food and fuel — we'll need more of both

Not if the population drops while demand stays the same.

Population must grow, because growth in population is the absolute cornerstone of all growth.

more people = more consumption
more consumption = more profit growth
more profit growth = more tax growth
more tax growth = more spending for politicians
more spending for politicians = higher probability that they are reelected.

Population must grow,

No, it doesn't.

because growth in population is the absolute cornerstone of all growth.

1) Wars do a fine job of forcing growth - replacing the destroyed stuff.
2) Perhaps growth is the wrong model.

The premise is nonsensical and not backed by facts on the ground.

The poorest countries in the world are where population growth is the fastest. Virtually the entire developed world is essentially at zero population growth - these are the WEALTHY countries.

Productivity, the ability to generate more dollars more efficiently is the engine of growth. chinas economy has boomed precisely because they invoked their one child policy and purposefully slowed population growth to zero (excepting for the demographic momentum).

"Population must grow, because growth in population is the absolute cornerstone of all growth."

I an sorry to say this, and no personal offense, but that is one of the single most non-sensical statements I have ever heard.

Just getting the population we have on the planet up to subsistance levels of life will require all the growth we can provide for the next century even if the population stays absolutely in park, with 0.00% population growth. Population growth in most parts of the world does NOT lead to growth, it leads to misery that those of us in the developed nations can barely comprehend.


You guys don't do irony then ;)

No No. You are completely misguided. There won't be misery.

Our corporations need growth. And without population growth, they won't have profit growth.

So, GROWTH is the most important thing on earth.


Next time, make a .GIF of the word growth and GROWTH then keep linking to a bigger and bigger GROWTH.

BBC: Obama vows to end US role in Iraq

In his speech at the International Trade Center in Washington, Mr Obama said: "This war diminishes our security, our standing in the world, our military, our economy, and the resources that we need to confront the challenges of the 21st Century."

He said the conflict in Iraq must be brought to an end as "the central front in the war on terror is not Iraq, and it never was".

Mr Obama said that as president he would take the US in a new direction, and a priority would be to finish the fight against the Taleban and al-Qaeda, which has an expanding base in Pakistan.

He said the troop surge policy had actually hurt America's overall strategic interests, by diverting resources away from Afghanistan, just as the situation there was deteriorating.


Is there an Oscar Award for "Best alternative energy plan" catagory?
If so, the nominee is T. Boone Pickens:


As I said the other day, I am cautious about using natural gas in transportation, but by the time that fork of the plan is underway, the new ultra efficient plug hybrid cars will be available anyway (Chevy Volt or Toyota PHEV with a natural gas engine getting 100 plus mile per gallon anyone?), Pickens has the key to the plan CORRECT, strenthen and re-strenthen the electric power grid. Add in Concentrating Solar Power (CSP) across the South to the wind in the midwest, with PV solar where it works (why aren't post offices all PV electric, they are considered crucial to national communication, they use little energy per office and are never open at night? That would be a nice starting place don't you think? What about libraries...there are dozens of applications such as these...)

The beauty of Pickens plan is that it sees wind and solar in the correct way as at the CORE of our electric power production, not somewhere out on the "marginal" fringe. Read the material, watch the videos. Pickens places the argument exactly correctly...he accepts peak in the near future, but knows that our immediate problem is bankruptcy in the face of exporting our American wealth. Whether the oil is "out there" or not really does not matter. What you drive matters greatly to our national wealth, but not one jot to the issue of peak oil. We must let the Chinese, Indians, and others come to their own conclusions. We cannot tell them what to do. First, we must take care of United States oil consumption. "Physician, heal thyself."


And people will always say, "yes, but what about storage". Without going into all the alternatives, I would say, "but what other choices do we have?" The storage problem may never be solved, but wind and solar will be so miniscule for such a long time, that I would be more than willing to take my chances. I don't want to take my or my children's chances with coal.

Oh, if only we really had a storage problem right now. That would mean we had enough solar and wind to actually make a nickel's worth of difference.

Regardless of how successful Pickens is, he will have made at least one important contribution to the discussion. That is, here is one of the most famous and successful oil men in the world saying we can't drill our way out of this problem.

The sooner the people and the government start ignoring the Saudis constant promise of an abundant future the better. Whether they have the oil or not, it sure would be nice to be in a position not to need it. Our message to SA should be, don't bother with your additional barrels. We don't plan on using it.

Bush thinks he is sending this great message to the markets by opening up more drilling. Exactly the wrong message. That is the message of complacency; that is the message that the oil companies can save us. A pathetic, stupid, short sighted message that will seal our doom.

Wind generation powers the electric rail bringing food from the mid west to the Dallis Ft. Worth area for shiping , if necessary

Wind power also compresses the Nat. Gas and powers the water pumping for the massive pipeling that Pickens is building from the Ogallala Aquifer to Dallas.


"And people will always say, "yes, but what about storage"."

The storage issue as it relates to wind and solar energy is a technical hurdle, but it is not nearly as serious as an issue as some would make it out to be.

First, examples using such nations as Denmark or Holland are not at all applicable to the U.S. situation.

If one looks at Pickens plan, we see a vast geographic area of high wind speed. His idea to distribute the wind turbines widely is central to overcoming the wind variability problem. The same is true with solar, although there you have the night time issue, but this has already been addressed in some systems by using insulated tanks of molten sodium, which has enough heat storage to carry the turbines overnight (and remember that night time demand will be low).

There are already several applications in the utility industry using flow batteries.

Vanadium Redox flow batteies batteries have already been used at utility scale, and one has been installed in the Huxley Hill Wind Plant in Tasmania as well as 1.5 megawatt system used in Japan in a semiconductor fabrication plant for auxilery power. The Vanadium Reox system is very scalable, with plans for a 12 megawatt hour system in Ireland to be used at a wind farm.

Sodium Sulfur batteries offer great promise and have already been installed in pilot programs. Below is a fascinating link to the technology (PDF file but not a real big one):

We have not even touched on the use of compressed air, liquified or cryogenic air or flywheels as options, all of which are out in front of us. As a bridge fuel we can use stored LPG (propane) for back up generation, but as the newer technologies are implemented, the use of LPG would drop considerably (as the use of Diesel has already declined in plants using flow batteries and molten sodium storage) so that at some future point, no fossil fuel backup will be needed at all.

The thing we must remember is this: We are at the very front end of the renewable conversion. This industry is set to deliver value added employment and true wealth that does not require depletion of resources to continue producing power (the bulk of the materials used can be recycled), wealth that will last for decades if not a century out in front of us. This is an industry your grandchildren can work in. EROEI (Energy Returned on Energy Invested) is going down in the fossil fuel industry, while it is going up in the renewable industry.

We must correct the myths about the renewables whenever and wherever we hear them (the first and most damaging one being that renewables are a myth!). I think T. Boone Pickens is working to do just that, but no one wil believe anyone,including Boone, until we build these systems, and publicize them. Thank You.

Roger Conner Jr.

Out farm is in about the middle of a 100 megawatt wind farm now being constructed. We first found out about it in January of 2007. There are about 50 turbines up but none are running yet a year and a half later. A forty mile power line connecting the wind farm is just now being started with only one of 2 substations that up the voltage for transmission apparently nearly finished.

My point is that this is a relatively small wind farm compared to Pickens' ambitious goals. Even so the truck and other equipment traffic this morning was so great as to create a dust cloud that could be seen 10 miles away. It almost looked like smog over a city. And this is out in the middle of nowhere.

Good farm land is being graveled over for access roads which go across country for 2 or 3 miles in some cases. Pickens' proposal will be 40 times this wind farm if I'm not mistaken. Unless huge resources are available it is going to take many years to complete.

It will result in large areas of farm land be graveled over for access roads.

There will have to be a huge investment in transmission lines since the Texas pan handle is relatively unpopulated.

Then comes the hard part. Supposedly the additional electricity will free up natural gas. I doubt it but lets just grant it for sake of argument.

But where are the natural gas filling stations? There aren't any. The problem is similar to the distribution problem ethanol faces.

Then comes the really hard part. Cars and trucks are not easily retrofitted for natural gas since a bulky pressurized tank is required. Not only that, filling the tank is dangerous if not done properly. I doubt many men can do it without squirting some in their face. Little old ladies: forget it.

Then add in the expectation that natural gas faces a peak similar to oil sometime in the future.

So if Pickens' plan is actually undertaken, by the time all the wind turbines are up and running, and gas stations have installed refueling pumps and cars and trucks have been retrofitted the peak of natural gas production will probably be upon us.

Then what?

reply to x,

There will always be need for access roads, but the amount of road needed and amount of land consumed can be kept down with planning. Let's be honest, some wind farms and wind plants are pretty efficient in this area and pretty efficient, while some are very poorly planed:








This one seems to be very densely packed:


At the ground, very large tower, and area around the base:

As far as dust goes, I simply know of no construction project that avoids dust creation. The good part is, the dust production will hopefully not last too long, but it is proabably unavoidable.

As far as natural gas vehicles, your right, the infrastructure will have to built to provide it. I personally think that propane would also be a good choice, but we will need some type of heat type internal combustion engine in the years to come. The good news is that more and more cars will be hybrid and plug hybrids so the amount of natural gas consumption will be small, and hopefully decreasing.

Frankly, I do not see many older vehicles being converted to natural gas. I just don't think that is financially viable. The new vehicles are where the change can be made.

As far as refueling the vehicle, the customers who can refuel with natural gas will do so, but for the ones that cannot, the stores selling natural gas for cars may have to train their employees to assist the customer. The may have to charge for the service, or use it as a service to recruit customers. Hopefully improvements can be made as we go forward in making the refueling process simpler.

On peak natural gas, I think we are within only a few years of plug hydrid vehicles that will reduce the amount of liquid fuel and natural gas consumed down to minimal amounts, and reduce the amount of times the vehicle needs refueling down to only once per every couple of months or less.

The first step is to continue developing the renewable aspect of the electric power grid. The use of liquid fuel for transport can be improved, but first, we must have the grid ready, with solar and wind expanding rapidly. There is no doubt though that this is a project which will take years.


I've done road layout plans for windfarms. Farmers need roads to access their fields, and the amount of land used can be minimized by laying out the turbine access roads over the farm access roads (that are really just compacted dirt).

The natural gas argument is nonsense, but to quote Gilber & Sullivan, "oh, what precious nonsense." Those wind farms will eventually wind up powering electrified rail, which in turn will move a lot more freight and many more passengers.

If it happens at all, dedicated CNG will be relegated to fleet use like taxis. Honda promotes the Phill home refueling station for its Civic GX, but it costs $3400. For anything besides fleets and secondary commuter cars, the short range and lack of fueling stations make CNG too inconvenient.

Dual fuel vehicles are different. They keep the gas tank and have a much smaller CNG tank. If you could buy a cheap dual fuel conversion kit, say under $2000, it might be worth switching some vehicles to natural gas, if only for air quality and to diversify from oil. If the conversion kit cost any more than that, you'd be better off junking your gas guzzler for a compact car than running your gas guzzler on cheap natural gas.

I think the idea is to drive the converted CNG cars until they wear out and hopefully by then we'll have more affordable plugins and EVs. Pickens doesn't state it explicitly, but he can't believe it's anything more than a short term fix to buy us time. Our other options in short term fixes are generally boil down to efficiency and demand destruction through Depression.

I know I'm in the minority (ain't I always??), but there is a CNG public pump 2 mi from my house that sells CNG for $0.95 per gallon equivalent. I could easily see paying $3500 to fill up at home as well, for a similar savings.

A CNG car would suffice for my family to run the kids around town, and even a CNG-only car would be practical for about 90% of our driving, but that last 10% would suck. A duel-fuel car that had a modest gas tank for highway trips would be fine.

Yes, it would be a short-term fix, but it WOULD fix my gas problems for a few years while we turned the economy around and at least started to figur out whether we'd have carbon-fiber EVs or city-wide trams.

Flexibility is good. Technology is good. Efficiency is good. Let's have some of each!

Filling up a CNG vehicle, it's not so complicated:


CNG in buses, an interesting view:

Of course some people still have problems fueling a gasoline car:


I have a friend in Thailand who paid to have her car converted to dual fuel use and it cost approximately $1500 USD. It seems do-able.

And people will always say, "yes, but what about storage".

Electricity is so darn useful, even without storage, people are happy to have it when they can.

The storage issue is a hold over to the 24/7/always on vision of service. If things get as bad as many here think it will, be happy for 4 hours a day of power. Or power when the sun shines/batteries to light up your night/radio to keep "in touch" with the 'outside world'.

For fun reading ...go to the pickens plan web site, select community and then Talk and join in the fun . Kind of interesting to see the cross section of republican and democratic sentiment, and others pushing thier plan, and some truly kooky ideas. Great fun. I wonder how many visitors the pickens plan site is getting vs TOD...I know somebody published a website tracking tool once here on TOD...

Alexa shows a big spike. As you might expect, since Pickens been all over TV, radio, and other news.

wow...yes, quite a spike. Thank you. Will be interesting to see how it sustains.

Inquiring minds want to know. Has the high price of gasoline affected the transportation decisions of local criminals?

"2 shot in bicycle drive-by outside South Los Angeles house."


Gosh--remember Butch Cassidy and the Sundance Kid? How about Jesse James? Tombstone? Cossacks and Progroms?

Low carbon criminals should get a reduced sentence. High carbon, criminals driving large SUVs, get an increased sentence.

The women of Texas are going to have to carpool to run down their drunk husbands and boy friends---
It is getting serious!

An interesting thought - What if they are looking for the same person? Which one has to take him home?

I may have misinterpreted your post, however. I can also picture a carpool full of women looking for either their husbands or their boyfriends, and keeping which ever one they find first.

Of course, that dentist in Houston who ran over her husband several times, with their daughter in the car, leaves even further interpretation of your phrase "run down", since you are talking Texas.

I'll just stay here safe and sound in Oklahoma (although my first ex-wife (and my only ex wife, so far) still lives in Texas) thank you.

These elderly women used cars to kill homeless folks they befriended and took insurance policies out on; a modern day version of Arsenic and Old Lace.

Hello TODers,

Police show up at IndyMac Branches in Encino, Northridge as waiting customers clash
Please make sure you see the embedded video. What is horrifying is that the ATMs and IndyMac Website are shutoff--it won't even show your account balance. The talking hairdo has an IndyMac account, and even he is pissed!

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Nice find, Bob. I needed a schadenfreude fix today.

Can someone explain to me the point of a run on the bank after it's been taken over by the FDIC? At that point, you get whatever they give you, and nothing more. What the heck is the point of waiting in line? The time to do that was last week.

My understanding of the IndyMac situation is that your checking account was transferred to another institution, and you have access to it there. You write a check, it clears, you pay your bills, life goes on.

One guy referenced in the article Bob linked to said he had a half-million dollars in that bank. WHY?!?. America is awash in banks. Walk down the street and stick 95 thousand in each one you come to until your pocket is empty. Is that really so complicated?


Anyone know how long you have to keep up a paint huffing habit before you can be a sheeple?

Hello Greenman,

Thxs for responding. I certainly know very little about banking and banking regs, but you would think the most important thing for the FDIC to do is keep the ATMs working and stuffed full of cash, plus let people easily continue their online tasks.

Making the people queue up in public should be the very last thing the FDIC should want. The people's fears just get magnified, and the cameras broadcasting worldwide only makes things worse for anybody watching.

Unless that is the fast-collapse plan.

No need to huff, just watch TV 8 hrs/day

An example of the BAU/opposition to the need to change our energy habits.


Nothing like a bunch of Crackers to remind one of the successes of the Propaganda and Indoctrination Systems.

It is my divine right to prosperity they are denying me. It costs over a hundred to fill up the F350, and if we could just drill everywhere it would be all right.
I heard that oil is not from dinosaurs, but is produced from inside of the earth from methane anabolic-ally, and the center of the earth is one big nugget of oil--
Billy bob also said that the moon around Uranus called Oily spins off oil through a worm hole that fills the center of the earth

It is a liberal plot to deny me of the wealth Jesus promised was mine.
Kill the commie bastards!

I am scared of possibility that this comment was NOT written by some PO aware provocateur.

I don't know if anyone else caught this or not, but the Pakistani troubles seem to fortell the USA in about 2 to 10 years.

Everyone there is complaining that the ELECTED Government seems to be to blaim for all the hardship going on.

If the names were changed to the US instead of Pakistan, we would be talking about the possibility of Open revolt in the US in our future too.

I know everyone likes to think that it would never happen, but given the same Events, the US would fall the same way.

Older US citizens would "wash their hands of such talk" but I have been on the mean streets of my own city, and know just given enough hardship, the tide would turn. given this is the future that JHK talks about, but just think about Los Angeles versus Maine.

Best wishes for a fast fall.

Hello TODers,

U of IL says production costs to increase dramatically in 2009

The cost increases were projected for central Illinois farms having high-productivity farmland...

"Fertilizer is the input with the large cost increase," said Schnitkey. "For corn, fertilizer costs in 2009 are projected at $215 per acre, an increase of $97 per acre over the 2008 projected level of $118 per acre.

"For soybeans, fertilizer costs in 2009 are projected at $98 per acre, a $53 increase over the 2008 level of $45 per acre."

He noted that projected 2009 fertilizer prices are significantly above fertilizer prices in recent years.
I have long warned that I-NPK will be increasingly expensive due to the postPeak double whammy effect, but I must admit: I am not happy to read more and more confirmation articles in the MSM.

Also, one of my earliest postings on TOD years ago was how I expected war to break out in Sri Lanka over a dispute over control of a small irrigation sluice gate. Sadly, the country has been in a civil war ever since then against the Tamils, but most Murkans are riveted on sport and celebrity entertainment. But now [slow-loading weblink]:

July 14, 2008 (LBO) - Sri Lanka has spent almost a year's allocation for a populist fertilizer subsidy in just five months...

Burning Cash

The finance ministry said the government was now subsidizing 92 to 94 percent of the full cost of fertilizer...

The fertilizer subsidy, along with a fuel subsidy, were the key strategies behind an economic framework popularized by the Marxist-nationalist Janatha Vimukthi Peramuna (JVP) called 'removing the plug' or insulating the country from global forces.

The farmers are now trapped in poverty with the plots too small to make economic sense and form a powerful vote base clamoring for subsidies and high prices for their output.

Hard Lessons

In the past four years, Sri Lanka has printed billions of rupees each year to finance subsidies, driving inflation to very high levels. In April 2008 inflation hit a historic high of 29.9 percent and the government changed the weights of the index.

In the first quarter of 2008, land under paddy had increased by 8.2 percent, the statistics office said, but harvests had increased only 7.8 percent.
With no money to buy much future I-NPK: I would expect harvests to start shrinking towards a Liebig Minimum. The war is already bad enough with suicide bombings, aerial bombardments, etc. How long until we read of machete' moshpits?

IMO, Sri Lanka would have been better served by going to full-on Peak Outreach, then accepting global prices on fuels and I-NPK years ago, plus ramping O-NPK recycling with SpiderWebRiding. Such is life. I wonder how long it will take for them to revert back to a Nuahtl Tlameme backpacking scheme?

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Hello TODers,

SEC issues emergency rule to curb short sales

WASHINGTON/NEW YORK (Reuters) - U.S. securities regulators issued an emergency rule on Tuesday to limit certain types of short selling in major financial firms, including Fannie Mae and Freddie Mac.

The emergency rule applies to 19 financial firms including Lehman Brothers, Goldman Sachs, Merrill Lynch, Morgan Stanley, JPMorgan Chase & Co and Citigroup Inc.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Hi Bob: Great interview on part 2 of FinancialSense re naked short selling-it reminded me of when I first heard about Peak Oil-a real deja vu sense of What the f--? He states that these firms (who were among the ringleaders of the fraud) are now themselves under attack and that is why the corrupt officials have finally stirred http://www.financialsense.com/fsn/main.html