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There is very little oil in stable and friendly countries. I know of only one reliable source that has significant amounts of the stuff and that is Canada. Even so, most of its oil is not the cheaper crude but comes from tar sands. The production from those is being increased in Alberta province but hasn't quite gained momentum yet. Then there's Venezuela (which can probably be "befriended" due to its relative geographical and cultural vicinity) and Mexico (but its oil production has peaked).
The other places where the oil is are as follows: Middle East (unfriendly and unstable), Nigeria/some some Subsaharan African countries (unstable) and Russia (indifferent). Even if these far away places can sustain steady oil output, there is no reason for them to sell it for the same amount of dollars that they used to sell it for. The global economy is just that-- global, meaning that US is not the only player and therefore is not the only one needing oil. US makes less things and services, which means that it needs to give more to get them from far away. The weaking of USD is a necessary outcome of that.
So here you go: the fact that there's physically little oil in the realm of influence of the US, as well as the equalizing of global economies make oil inevitably expensive for America. I think it's ridiculous to say that there's an "oil bubble"-- it's more of an "oil crunch". It's a (very) finite resource with a (very) high demand.
In the longer term, oil doesn't have any future as the engine of world economies. Even if we can continue pumping oil in the Middle East for a reasonable price (looks like we can't), that oil will run out even there. Maybe in a couple of decades, maybe in half a century but it is certain that if not you, then your children will live in a world without oil.
Thats New York, not most of America. Urban living and new urbanism is a growing niche market, usually affluent young professionals, but the VAST MAJORITY of Americans abhor inner city living and prefer suburban or exurban living and the car culture that goes with it.
If they prefer that then they can prefer to pay high gas prices with it.
There is very little oil in stable and friendly countries. I know of only one reliable source that has significant amounts of the stuff and that is Canada. Even so, most of its oil is not the cheaper crude but comes from tar sands. The production from those is being increased in Alberta province but hasn't quite gained momentum yet. Then there's Venezuela (which can probably be "befriended" due to its relative geographical and cultural vicinity) and Mexico (but its oil production has peaked).
The other places where the oil is are as follows: Middle East (unfriendly and unstable), Nigeria/some some Subsaharan African countries (unstable) and Russia (indifferent). Even if these far away places can sustain steady oil output, there is no reason for them to sell it for the same amount of dollars that they used to sell it for. The global economy is just that-- global, meaning that US is not the only player and therefore is not the only one needing oil. US makes less things and services, which means that it needs to give more to get them from far away. The weaking of USD is a necessary outcome of that.
So here you go: the fact that there's physically little oil in the realm of influence of the US, as well as the equalizing of global economies make oil inevitably expensive for America. I think it's ridiculous to say that there's an "oil bubble"-- it's more of an "oil crunch". It's a (very) finite resource with a (very) high demand.
In the longer term, oil doesn't have any future as the engine of world economies. Even if we can continue pumping oil in the Middle East for a reasonable price (looks like we can't), that oil will run out even there. Maybe in a couple of decades, maybe in half a century but it is certain that if not you, then your children will live in a world without oil.
Uhm, the global market place has been around for awhile and the unstable areas have been unstable for awhile. Besides the obvious influence from the dollar, (supply and demand is moot since the US significantly reduced demand, while yes China, et Al. increased demand -- let's just say they both equal out). Then the cause for Oil to increase is the shrinking dollar and speculation.
Why not take speculation out of the picture for a few months and see what happens to prices? If it doesn't do anything, we'll open up the NYMEX and foreign markets and say we were wrong.
Of course NOT!, "Investors" would say NO and are the ones most subscribed to the Supply and "crunch" theory.
Do they realize, that the gains they have on OIL prices now... just fluttering about in the 130-140 range is minuscule compared to the losses they face to have on the rest of their portfolio when High Oil prices tank economies? Why the huge FEAR of halting speculative trade? If Oil prices subsides that should give a huge boost in consumer confidence and cause the rest of their portfolio to rise!
There's still alot of oil out there. The problem is that demand for it is growing at a much faster rate than what can be supplied to the market. This is what peak oil really means. It's not that we're running out. It's that supply can no longer keep up with global demand. That's the concept anyway, though I'm not entirely convinced that we are at this point yet, considering the bureaucrats wont even let oil companies poke a hole in the ground without massive regulation and mother earth worshiping fascist enviornmentalists throwing a fit.
I say cut the subsidies and let the free market sort it out. I say we restore some property rights. The bureaucrats create two more problems everytime they try to fix one. Ethanol from corn? wtf...
Uhm, the global market place has been around for awhile and the unstable areas have been unstable for awhile
Maybe what you're saying is correct here and now. But the big picture is that oil IS running out, slowly but surely. Remember, up until a few decades ago US was a net exporter of oil but they pumped it all out. Mexico (responsible for about 15% of our oil supply) is also peaking. Same with North Sea (there was an article in the Economist last month). It also appears that Russia is unable to increase its production. Face it-- all these things you are talking about, such as consumer confidence, speculators, weak dollar etc are secondary in the long term. What's primary is that there isn't that much of the stuff left in the ground.
Globalization (poorer countries getting richer and thus needing more oil) expedites the price increase. Supply is the fuel for the crisis, while globalization is the fan. The world is growing unsastainably, with no planning of even a decade ahead.
Regardless, there is an obvious but a hard-to-accept truth: there is a definite number of barrels of oil under our feet. No matter what we do, it's on the decrease. Every time I get into that car to go to work or get that plastic bag in Safeway, I make that number of barrels smaller. Maybe there's enough oil for half a century. Maybe if there was no China it would last for a century. But in the longer (not even long!) term what is inevitable is that our grandchildren will only find crude oil in museums.
Maybe what you're saying is correct here and now. But the big picture is that oil IS running out, slowly but surely. Remember, up until a few decades ago US was a net exporter of oil but they pumped it all out. Mexico (responsible for about 15% of our oil supply) is also peaking. Same with North Sea (there was an article in the Economist last month). It also appears that Russia is unable to increase its production. Face it-- all these things you are talking about, such as consumer confidence, speculators, weak dollar etc are secondary in the long term. What's primary is that there isn't that much of the stuff left in the ground.
Globalization (poorer countries getting richer and thus needing more oil) expedites the price increase. Supply is the fuel for the crisis, while globalization is the fan. The world is growing unsastainably, with no planning of even a decade ahead.
Regardless, there is an obvious but a hard-to-accept truth: there is a definite number of barrels of oil under our feet. No matter what we do, it's on the decrease. Every time I get into that car to go to work or get that plastic bag in Safeway, I make that number of barrels smaller. Maybe there's enough oil for half a century. Maybe if there was no China it would last for a century. But in the longer (not even long!) term what is inevitable is that our grandchildren will only find crude oil in museums.
I already subscribed to that truth awhile ago and it's one of the main reasons we bring our own reusable bags to the grocer and that I drive a hybrid and occasionally take the train. Americans also have been subscribing to that truth as shown by our reduction in driving miles and our switch to more economical vehicles and even scooters!. Over time yes, I agree Oil will no longer be a major factor. But supply diminishing (a trend we all foresaw) in the long? run doesn't explain the rapid run up in Oil prices today.
And why can't anybody reply as to why not? suspend Oil speculation for a few months? Are they too afraid to admit that prices would decline substantially?
Please support your assertion. Feel free to link to a reliable internet source.
Also, realize that the devaluation of the US dollar due to our credit crisis is a MAJOR contributor as is some measure of speculation and don't forget seasonality.
Show me the truth of this statement first....then you actually have some legs to stand on as to WHY.
P.S. If you just wave your hands and say it's "obvious" or link to some guys editorial blog it's not going to fly and I will consider that you really have made a major assumption and are just wildly speculating at conspiracy. You said it has passed the point of supply and demand dynamics which means you have reviewed a credible economic analysis by an actual economist and can point me to said review.
According to these and many more articles, demand is falling as Americans are driving millions of miles less per day than 1 year ago. SUV production is being cut drastically and Ford and GM are going to be producing 50 mpg diesel versions of their most popular European models for U.S. consumption, Toyota is ramping up production of the Prius due to overwhelming demand, millions of construction related vehicles and pieces of equipment are sitting idle that were in use just last year, and yet prices continue to rise on speculation. The question is who is behind the speculation and why. Speculators are usually very jumpy due to the leverage of their positions, but for some reason the oil futures speculators are ignoring much of the news which is pointing at least the possibility if not probability of lower prices due to less demand. The fact that demand is and may continue to drop should be outweighing the over reaction of rumors of "peak oil" as that is something which has not been proved. I never said anything about a conspiracy, but this market appears to be being manipulated in much the same way as the housing market was a few years ago. The dollar has been blamed for higher prices but, is now rising in value against other currencies without any affect on oil prices. If it works in one direction, it should work in the other.
According to these and many more articles, demand is falling as Americans are driving millions of miles less per day than 1 year ago. SUV production is being cut drastically and Ford and GM are going to be producing 50 mpg diesel versions of their most popular European models for U.S. consumption, Toyota is ramping up production of the Prius due to overwhelming demand, millions of construction related vehicles and pieces of equipment are sitting idle that were in use just last year, and yet prices continue to rise on speculation. The question is who is behind the speculation and why. Speculators are usually very jumpy due to the leverage of their positions, but for some reason the oil futures speculators are ignoring much of the news which is pointing at least the possibility if not probability of lower prices due to less demand. The fact that demand is and may continue to drop should be outweighing the over reaction of rumors of "peak oil" as that is something which has not been proved. I never said anything about a conspiracy, but this market appears to be being manipulated in much the same way as the housing market was a few years ago. The dollar has been blamed for higher prices but, is now rising in value against other currencies without any affect on oil prices. If it works in one direction, it should work in the other.
Thanks Jimhcom,
We both agree. I suspect investors are in oil and other commodities because the money managers of the hedge funds, etc. want to "diversify" their holdings. At least that is what I saw a talking head on Bloomberg say as a reason to invest into commodities (of course showing some graph of some X% returns in the last X months for indefinitely). Not to mention pension funds like Calpers is increasing positions into the whole Commodities "investing". The major money holders might be the foreign banks which are moving out of treasuries (making mortgage rates go up?) and into commodities?
Pension funds boost commodity stakes - and consumer prices (http://www.palmbeachpost.com/business/content/business/epaper/2008/06/01/sunbiz_beckcol_0601.html - broken link)
Business - Rising commodity prices bring a windfall to CalPERS - sacbee.com (http://www.sacbee.com/103/story/1027383.html - broken link)
I'm just curious as to whether or not they realize that the returns in Oil in the short and long haul are nothing compared to the effects of their actions on economies (US and Internationally) and their overall portfolio.
I'm a little baffled at how it got this way. Equity and bond trading doesn't really affect the real world since it's pretty much isolated until there's an IPO or share buyback. Commodity trading on the other hand affects the real world as we all can see when we buy groceries and fill up our tanks.
If I had no conscience sure, let's put "All In" into commodities. Of course, I realize though, that the markets are being manipulated and that adding fuel to the flame only makes the overall economy worse. If we see some major funds start pulling out from Commodities, that's when we'll see the pop in this bubble. Otherwise we'll need government intervention since the people are getting weary.
I agree with the above except for the Peak Oil theory which is debatable. Of course there's going to be a peak, but when is the debatable part. And even if it did peak, is the rapidness of Oil's accent justifiable? Not sure..
Supply Disruption? As far as I know Oil prices didn't peak as high even during Katrina, which was truly a supply disruption.
I think most of us agree that the causes listed above are the issues causing oil to go up. So, how do we address them?
Reduction in demand - which as we saw yesterday there's an increase in supply in the US... and a fall of ~2% in demand (which we all know the US is the largest importer of Oil so even if the developing nations increase 1-5% or even ten percent they are far from using the amount we do).
Furthermore the elimination/reduction in subsidies should reduce demand although a lot of "Analysts" say it will actually increase demand? Not sure how that would work...
Other than reducing demand, which doesn't seem to do anything, IMO, the easiest is to reduce the damage caused from speculation.
Long term wise we can try to increase supplies by drilling etc.... but I think that would be a futile waste of time (as we already know there's always going to be some "peak"). Namely, long term we have to ween off the stuff.
There are geologist out there with same findings. I will post their names later, IF I am not busy tonight.
Hi Wild Style,
I have no qualms about Oil supplies dwindling recently or in the mid/near future. It's something everybody has been preaching and working on for awhile. I'm just trying to point out and justify the "excessive" increases in Oil prices. Which will ultimately stymie our/and other economies because of too many people rocking on the same boat.
If investors truly see Oil as something that reached peak, and demand out weighs supply etc. Then the recent gains in Oil prices are short term. They should realize that Oil isn't a good long position and invest into something that makes the World less dependent on Oil. That's where the "Smart" money should be heading... not into a dwindling resource with no future. Could that be why the BPs (-7% YTD) and the Exons (-7.7% YTD) aren't doing so hot these days? Why aren't they exiting Oil Futures itself? I see that will happen in the short future. And that's when the bubble will pop.
Remember the Fad on rice a few weeks a month ago? Now look at what's happening:
Rice futures decline on Asian market downturn - Forbes.com (broken link)
-chuck22b
Last edited by chuck22b; 06-26-2008 at 04:24 PM..
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