Are the new Peak Oilers right?
Hi folks. Sorry for the long hiatus, but life's been quite busy as of late.
Anyway, lots of oil news of late, not necessarily China related but still important:
Some links from
Energy Watch
and
The Guardian
Crude surpassed $90/barrel (US nominal) for the first time ever. That's an increase of more than 6-fold from where prices were only 9 years ago at their cyclical low in 1998. Once upon a time, less than 5 years ago, the prospect of $100/barrel oil was openly and universally mocked as alarmist nonsense. Today, it's only another 11% increase - which is what has happened every six month for the last nine years! Besides the psychological effect of entering the realm of triple digits and an all time high real price that surpasses that experienced during the oil shocks of the 1970's, the prospect of $100 oil is no longer shocking or unexpected.
Of course, OPEC blames everybody else, but also of course, they always have legitimate, if incomplete, arguments. First, there's this big problem with Turkey and PKK "insurgents" reportedly based in Kurdish Northern Iraq. Turkey's parliament, well-aware that it controls the well-to-market pipelines, has approved authority for an open invasion of that oil-rich territory.
Speculators are either "spooked" or "gouging" or "allocating premiums for self-insurance" depending on your point-of-view. OPEC always blames almost everything on "speculators", but students of the economics of the free market know that argument to be fallacious if the prices are sustained for an extended period - as they have been.
But then there's this whole issue of declining non-OPEC production. Here's where OPEC has a better point. For decades, peak-oilers have warned of the day when increasing global production rates would no longer be possible and, they predict, will decline precipitately. Many of the old production regions, like the coterminous US, have experienced just this phenomenon as all the low-hanging fruit has already been picked. Non-OPEC production pumps 60% of world crude, but it appears to have peaked and OPEC will be expected to make up the shortfall.
But the $3 TRILLION/year question is, if OPEC is trying to manage oil prices in a way that prevents volatile cycles of price fluctuation following scarcity and surplus, how can they let prices rise so much so fast knowing the increasing risk of unleashing a 1970's style recession on the global economy? One answer is that they actually know that they cannot expand production but are terrified of what would happen to global markets were that to become generally known.
OPEC says that the world economy seems to be accommodating higher prices just fine, and that it's a fair price given the explosion in demand in developing countries. They have a point.
They also say that higher prices also provide incentives for improved efficiency, the development of alternatives, conservation of a precious exhaustible resource and help provide the funds needed to "stabilize" the economies and societies in the prickliest parts of the world.
Not much evidence of that last one, but the others are true. Then again, it's worth asking what happens when the stuff runs out which it inevitably will - probably before 2050. Oil has allowed the populations of inhospitable deserts to rapidly expand far beyond the hydrological and agricultural carrying capacity of their territories through trade. In 1950, Saudi Arabia had only around 3 million people. By 2050, at present growth rates, it is projected to top 60 million. Yemen goes from 4 to 100 million. Egypt and Iran from 20 to 120. Kuwait from 150 thousand to over 4 million!
How do you feed and water that many people in the desert without oil to trade or energy to desalinate the oceans? Could Saudi Arabia be thinking of saving so much money that the dividends alone are sufficient to support its exploding population? If not, then, well, it's a scary and Malthusian thought.
Anyway, lots of oil news of late, not necessarily China related but still important:
Some links from
Energy Watch
and
The Guardian
Crude surpassed $90/barrel (US nominal) for the first time ever. That's an increase of more than 6-fold from where prices were only 9 years ago at their cyclical low in 1998. Once upon a time, less than 5 years ago, the prospect of $100/barrel oil was openly and universally mocked as alarmist nonsense. Today, it's only another 11% increase - which is what has happened every six month for the last nine years! Besides the psychological effect of entering the realm of triple digits and an all time high real price that surpasses that experienced during the oil shocks of the 1970's, the prospect of $100 oil is no longer shocking or unexpected.
Of course, OPEC blames everybody else, but also of course, they always have legitimate, if incomplete, arguments. First, there's this big problem with Turkey and PKK "insurgents" reportedly based in Kurdish Northern Iraq. Turkey's parliament, well-aware that it controls the well-to-market pipelines, has approved authority for an open invasion of that oil-rich territory.
Speculators are either "spooked" or "gouging" or "allocating premiums for self-insurance" depending on your point-of-view. OPEC always blames almost everything on "speculators", but students of the economics of the free market know that argument to be fallacious if the prices are sustained for an extended period - as they have been.
But then there's this whole issue of declining non-OPEC production. Here's where OPEC has a better point. For decades, peak-oilers have warned of the day when increasing global production rates would no longer be possible and, they predict, will decline precipitately. Many of the old production regions, like the coterminous US, have experienced just this phenomenon as all the low-hanging fruit has already been picked. Non-OPEC production pumps 60% of world crude, but it appears to have peaked and OPEC will be expected to make up the shortfall.
But the $3 TRILLION/year question is, if OPEC is trying to manage oil prices in a way that prevents volatile cycles of price fluctuation following scarcity and surplus, how can they let prices rise so much so fast knowing the increasing risk of unleashing a 1970's style recession on the global economy? One answer is that they actually know that they cannot expand production but are terrified of what would happen to global markets were that to become generally known.
OPEC says that the world economy seems to be accommodating higher prices just fine, and that it's a fair price given the explosion in demand in developing countries. They have a point.
They also say that higher prices also provide incentives for improved efficiency, the development of alternatives, conservation of a precious exhaustible resource and help provide the funds needed to "stabilize" the economies and societies in the prickliest parts of the world.
Not much evidence of that last one, but the others are true. Then again, it's worth asking what happens when the stuff runs out which it inevitably will - probably before 2050. Oil has allowed the populations of inhospitable deserts to rapidly expand far beyond the hydrological and agricultural carrying capacity of their territories through trade. In 1950, Saudi Arabia had only around 3 million people. By 2050, at present growth rates, it is projected to top 60 million. Yemen goes from 4 to 100 million. Egypt and Iran from 20 to 120. Kuwait from 150 thousand to over 4 million!
How do you feed and water that many people in the desert without oil to trade or energy to desalinate the oceans? Could Saudi Arabia be thinking of saving so much money that the dividends alone are sufficient to support its exploding population? If not, then, well, it's a scary and Malthusian thought.
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