380. A TRIP DOWN MEMORY LANE WITH MATT SIMMONS
We like to wax nostalgic from time to time here at POD, and I thought you might enjoy an amusing little nugget from July 14, 2008. It features our old buddy Matt Simmons making yet another astute call on the oil market:
To help you put this in context:
The commentator's remark toward the end of the video that "commodities are cyclical" triggered the usual subthread of ridicule over at The Soiled Rump, and of course that has long been a staple of PO rhetoric. The peak oilers believe that, aside from some negligible superimposed noise, PO will cause never-ending price escalation, and bring an end to cycles. For example, here is Robert Rapier rejecting a journalist's comment that oil is cyclical:
Journalist (in an article called "What Goes Up Must Come Down"): The length of the cycles may vary, but in the end, oil, too, is a cyclical business.This has been consistently rejected by the grizzled old veterans who run the oil business:
Robert Rapier: Encouraging signs that we are reducing our consumption, but I think the author misses the mark with that last statement. Oil has historically been a cyclical business. This will change when supply growth can no longer outstrip demand. This is going to be the case when oil production peaks, and all signs indicate to me that the erosion of excess capacity is driving the current surge in prices. Unless we have enormous demand destruction (and how is that going to occur other than through very high prices?), or there are a couple of Saudi Arabia’s hiding in the Arctic and soon to be discovered, I can’t easily see supply getting far ahead of demand. That is what would be required to continue the cycles - an oversupply situation.Source
"We're a cyclical business," David J. O'Reilly, chief executive of ChevronTexaco, the second-largest American oil company, said in a telephone interview, "and at the high end of the cycle it makes sense to get the company in good shape and strengthen our balance sheet.I think we're going have to step up to the plate and admit it here folks. Any company which greenlighted its projects according to peak oil theory (i.e. assuming high oil prices) is now getting seriously reamed. The grizzled old veterans were right. Oil is a cyclical business.
"History tells us that what goes up also goes down."Source
So why do the peak oilers keep getting this wrong? My answer is the same as always: Peak oil theory has a systemic bias which prevents its adherents from clearly understanding the demand side.