free html hit counter Peak Oil Debunked: 393. GLUTS AND MORE GLUTS

Friday, February 06, 2009

393. GLUTS AND MORE GLUTS

The oil glut continues...

Crude Oil At Sea Frustrates Efforts At Price Stability
Every time the oil market attempts to ignite a rally, an upsurge from the sea of crude stored on waterborne tankers snuffs it out.

The accumulation of oil held in "floating storage" gained speed in December, as available space in traditional onshore storage hubs dwindled due to the onslaught of excess supplies in the market. This floating storage is now among the biggest impediments to oil prices recovering any of the ground lost over the last six months. Companies are quick to sell cargoes at the hint of a turnaround in the oil market, unleashing a flood of oil onto a near-saturated landscape.

More oil is being produced than recession-stricken economies need, and oil prices have fallen as the extra crude fills storage terminals worldwide. Crude futures prices are down more than 70% from all-time record highs hit in July 2008. Light, sweet crude oil for March delivery on Tuesday settled 46 cents, or 1.1%, lower at $40.32 a barrel on the New York Mercantile Exchange.

The oil sitting at sea adds an extra layer of uncertainty about the extent of the supply overhang, which traders say must be whittled down for oil prices to rebound.

Tankers carrying up to 2 million barrels each are not counted in government inventory statistics, but can deliver their cargoes anywhere in the world. Ship trackers estimate that up to 80 million barrels may be on the water, or more than twice the amount kept in Cushing, Okla., the largest commercial storage center in the U.S.
An LNG glut seems to be brewing as well. Hate to be repetitive, but whatever happened to that imminent cliff in natural gas that Matt Simmons was hysterically squealing about 6 years ago? With rising domestic production from shale and other unconventional natural gas plays, and now a surge of LNG, we seem to be swimming in the stuff.

Natural gas glut could hit U.S.
As many as seven massive natural gas export terminals are expected to start up overseas this year, expanding worldwide capacity by 20 percent and flooding markets with new supplies of the key power plant and heating fuel. Dozens of new tankers capable of carrying natural gas in a liquefied form are slated to hit the seas.

Just as these new supplies come on line, worldwide demand is expected to drop as the global recession deepens.

Operators of these new facilities are unlikely to cut back production, however, so shipments of liquefied natural gas will most likely head to the deepest markets with the greatest amount of natural gas storage capacity — the United States.
‘Counterintuitive’

“It’s completely counterintuitive,” said Murray Douglas, a global LNG analyst with Wood Mackenzie in Houston, who is predicting U.S. LNG imports will grow 30 percent to 456 billion cubic feet this year and to more than 1.1 trillion cubic feet by 2013.

“We don’t believe Asia and Europe will be in a position to absorb this new production, and the U.S. is the only market that can take it, that has a large amount of storage.”

The wave of imports might even be strong enough to challenge growing domestic natural gas production from various shale formations, including the Barnett Shale near Fort Worth and Fayetteville Shale in Arkansas.

“This can put pressure on U.S. gas prices and could delay the full development of some of the new shale projects,” Douglas said.

Other analysts, including Houston-based Waterborne Energy and Raleigh, N.C.-based Pan Eurasia Enterprises, agree that an American gas import surge may be coming.

Even the Department of Energy updated its LNG import predictions for 2009 recently to include the possibility of such a surge.
And thanks to OilFinder for some more detail:

Surge in US Crude Stocks Blunts OPEC Cuts

OPEC cut crude oil output by nearly 1.3 million barrels a day in January in an attempt to tame the growing supply glut that is anchoring prices near $40 a barrel.

But as the Organization of Petroleum Exporting Countries tightened the taps, crude oil inventories in the U.S. were growing by 700,000 to 900,000 barrels a day. That growth rate, the most seen in the month of January in 85 years, and the highest in any month since at least October 2002, is a serious setback to OPEC's efforts.

[...]

Biggest Surplus Since 1990

That helped U.S. crude oil inventories balloon by the highest level in years. Crude inventories climbed by at least four times the average January rate over the last five years, which is the biggest rise in the month since 1924, EIA data show.

At 346 million barrels, crude stocks are the most since July 2007, when they topped 351 million barrels.

Crude stocks are sufficient to cover more than 24 days of current refinery demand, compared with a five-year average of 20 days, and the highest level since 1995.

What's more, crude stocks are likely to continue to gain. The EIA expects refinery runs in February and March to average 400,000 barrels a day below current levels.

Jan Stuart, economist at UBS Securities, said he expected refineries to slash operations to be below 70% of capacity on occasion in coming months, compared with an 83.5% rate in the Jan. 30 week. That implies a cut in crude runs of about 2 million barrels a day from current rates.

U.S. crude oil stocks haven't peaked in January in 55 years, data from the EIA show, a further indication of likely gains in coming months. Incentives for refiners to bulk up stockpiles are still in place, even as inventory at Cushing, Okla., the delivery point for the Nymex crude contract, stands at record levels.

[...]
by JD

76 Comments:

At Friday, February 6, 2009 at 5:30:00 AM PST, Blogger JD said...

As always, please use the Name/URL option (you don't have to register, just enter a screen-name) or sign your anonymous post at the bottom. The conversation is better without multiple anons.
Thank you!
JD

 
At Friday, February 6, 2009 at 6:18:00 AM PST, Anonymous Anonymous said...

Let's see: now that oil is cheap again and peak is at least a century away, we have an oil "glut" and what appears to be a major economic recession destined to turn into a depression. It would appear that - for the last few years at least - the health of the economy has tracked the price of oil, or vice versa, if you prefer.

So, since "debunkers" seem to think that an oil-glut condition is the natural state of things, then what they are unwittingly arguing for with their deregulated, pro-growth, oil-glut mantra is ever-widening boom-to-bust cycles leading ultimately to long-term economic depression.

Thanks, debunkers. Be careful what you wish for.

IED

 
At Friday, February 6, 2009 at 6:40:00 AM PST, Blogger JD said...

^
This is just a straightforward news item. No one except you has said that peak is a century away, or that glut is the natural condition of things. It would be a lot more interesting if you toned down the histrionics and hyperbole.

 
At Friday, February 6, 2009 at 6:46:00 AM PST, Anonymous Wonderer said...

A thought experiment:
What would the price of oil be now, had Israel not been established by Anglo-American fiat after WWII?
Would there now be oil terminals in the Eastern Mediterranean? Would any of the oil price shocks of 71, 79 or 2002 have happened?
What has the true cost of US mid-east policy been in terms of $$ consumers world-wide spend on oil?
Did not Marc Rich institute the spot market in crude?

 
At Friday, February 6, 2009 at 6:48:00 AM PST, Anonymous Anonymous said...

Let's see: now that oil is cheap again and peak is at least a few years away, we have an oil "glut" and what appears to be a major economic recession destined to turn into a depression. It would appear that - for the last few years at least - the health of the economy has tracked the price of oil, or vice versa, if you prefer.

So, since "debunkers" seem to think that an oil-glut condition is a good thing, then what they are unwittingly arguing for with their deregulated, pro-growth, oil-glut gloating is ever-widening boom-to-bust cycles leading ultimately to long-term economic depression.

Thanks, debunkers. Is that better?

IED

 
At Friday, February 6, 2009 at 7:05:00 AM PST, Anonymous AndrewRyan said...

It's funny you should bring up Matt Simmons and the topic of glut again, JD. Here is Simmons back in December 2008, whoring himself out on CNN/Fortune, saying that there are no evidences of glut.

Simmons full of shit

Oh yea, and don't forget that he predicted $500 a barrel back in September.

"I find it ironic that here we have the biggest industry on earth, and I'm one of the few people to figure out that we have a major problem." -Matt Simmons September 22, 2008.
Source

Ironic, indeed.

Was that "World's Shittiest Forecaster" award that you gave Kunstler only a 1 time thing or a yearly award?

 
At Friday, February 6, 2009 at 7:22:00 AM PST, Anonymous Skeptic said...

Yes indeed, had GWB, instead of attacking Iraq, lifted the sanctions, and in addition, lifted sanctions on Iran, d'ya think the price of oil would have gone below $10/bbl?
It was pretty close to that when President Oil Company came to power....but his Great War put an end to that possibility.
What a waste.....apparently cheap energy is not what the "powers that be" have in mind, especially since oil is so very very cheap to produce in Iraq/SA/Iran...they wish to harvest a profit....

 
At Friday, February 6, 2009 at 8:16:00 AM PST, Anonymous Brother Cadfan said...

This might be of interest to some.

http://www.bloomberg.com/apps/news?pid=20602099&sid=aIKOgp4ZVK1I&refer=energy

Seems not everyone is shelving projects in the downturn!

 
At Friday, February 6, 2009 at 8:56:00 AM PST, Anonymous Anonymous said...

Hi, JD,
no specific connection with the latest post - I just wanted to say well done. Here's another ex-doomer who now has his head on the right way around again. I cannot believe the stuff I was thinking just months ago. Now I can't even read the short "doomer" comments on here any more, that distinctive hate-prose rhethoric makes me feel instantly sick.

My own developing doubts got some vital momentum from your blog, so thanks. I hope you keep posting from time to time.
M.E.A.D.

 
At Friday, February 6, 2009 at 9:06:00 AM PST, Blogger Ari said...

IED,

As I've said before: correlation is not causation. Economic downturns follow commodity upturns, so it may be more interesting to explore whether or not it's the price of a basket of commodities that's important rather than a single commodity.

I also love how you say that "debunkers" are for "deregulation," when I'm calling for MORE regulation. But hey, why have a conversation when poo flinging works as well?

Skeptic,

I've long argued that if Iraq had been about oil alone like so many believed, then we would have actually just lifted the sanctions and sent in the IOCs. We have no problem with letting the IOCs work in KSA, which is a horrifically unfree country. Iraq, like most other things, was a complicated situation that history will take a long time to sort out.

Wonderer,

So... I'm confused. It's the Jews' faults? :-P

Cadfan,

Not shocking. As long as the net present value calculations are positive, companies will continue.

 
At Friday, February 6, 2009 at 9:25:00 AM PST, Anonymous Oilfinder said...

Here's another article on this, out today in Rigzone.

Surge in US Crude Stocks Blunts OPEC Cuts
^
OPEC cut crude oil output by nearly 1.3 million barrels a day in January in an attempt to tame the growing supply glut that is anchoring prices near $40 a barrel.

But as the Organization of Petroleum Exporting Countries tightened the taps, crude oil inventories in the U.S. were growing by 700,000 to 900,000 barrels a day. That growth rate, the most seen in the month of January in 85 years, and the highest in any month since at least October 2002, is a serious setback to OPEC's efforts.

[...]

Biggest Surplus Since 1990

That helped U.S. crude oil inventories balloon by the highest level in years. Crude inventories climbed by at least four times the average January rate over the last five years, which is the biggest rise in the month since 1924, EIA data show.

At 346 million barrels, crude stocks are the most since July 2007, when they topped 351 million barrels.

Crude stocks are sufficient to cover more than 24 days of current refinery demand, compared with a five-year average of 20 days, and the highest level since 1995.

What's more, crude stocks are likely to continue to gain. The EIA expects refinery runs in February and March to average 400,000 barrels a day below current levels.

Jan Stuart, economist at UBS Securities, said he expected refineries to slash operations to be below 70% of capacity on occasion in coming months, compared with an 83.5% rate in the Jan. 30 week. That implies a cut in crude runs of about 2 million barrels a day from current rates.

U.S. crude oil stocks haven't peaked in January in 55 years, data from the EIA show, a further indication of likely gains in coming months. Incentives for refiners to bulk up stockpiles are still in place, even as inventory at Cushing, Okla., the delivery point for the Nymex crude contract, stands at record levels.

[...]

 
At Friday, February 6, 2009 at 9:36:00 AM PST, Blogger Barba Rija said...

Honestly I can't think of any sane person that is worried about peak oil nowadays.

Of course, there's always the TODders and the Kunstlertards but as I've said already, those don't count ;).

 
At Friday, February 6, 2009 at 9:48:00 AM PST, Anonymous AndrewRyan said...

Barba: Have you seen LAOTC recently? I'm not exaggerating when I say that every single article linked on current events now is related to finance. It has nothing to do with peak oil anymore. It's really quite funny watching LATOC transform into a D grade market-ticker.net. Most of the doomers know this, and are trying to ride the PO doom train for as long as possible, even though they know it has lost its steam.

 
At Friday, February 6, 2009 at 10:02:00 AM PST, Anonymous Anonymous said...

"I also love how you say that "debunkers" are for "deregulation," when I'm calling for MORE regulation."

I must have missed that call! Could you paste it in here for me please?

Regulation just seems so wrong doesn't it?

IED

 
At Friday, February 6, 2009 at 10:17:00 AM PST, Blogger Ari said...

IED,

I'm not going through all of my comments. I've said that we need greater regulation of financial markets, particularly in accounting standards. It is my belief that stricter accounting standards, particularly the abolishing of special purpose vehicles, will help stop a future event like the one we're in now.

 
At Friday, February 6, 2009 at 10:46:00 AM PST, Anonymous Benny "MOAG" cole said...

The Mother of all Gluts. MOAG.
I hope I am wrong. I hope dearly the world economy revives quickly. There is pain galore in a deep recession, for families, for workers, for everybody. For me!
Nothing would make me happier than for oil demand to revive pronto.
But this recession looks very bad and comes on the heels of 10 years of oil price hikes. You get a recession on top of accumulating conservation efforts.
This glut will get worse for two years. $10 oil will be seen.
Coming out of the recesion, we may again someday see higher prices. $100 oil? Who knows. But there is a lot of technology that rapidly advanced in the small window of higher prices (2004-2008).
Oil demand may never revive, if the US starts mandating PHEVs, or taxes gasoline. China is rushing ahead with CTLs, biofuels, and PHEVs. India is planting jatropha. Palm plantations planted in earnest will be maturing in a few years. Indonesia is building a 1 mbd CTL plant, and GTL is rapidly growing.
Conventional crude oil demand may see nothing better than a dead cat bounce, say in 2007-8.
IED: An oil glut may not be the norm (though why there was a Texas Railroad Commission, and then OPEC seems to suggest otherwise).
But, after the last spike of 1979, there were doomy predictions, followed by a 20-year glut.
This next glut? Will it last 20 years? You tell me.
But check out global oil demand after the 1979 price spike, and oil prices 1979-1998 first.
One more thing: If there is another price spike, OPEC may find they damage demand not just for 20 years, but forever. The PHEVs are a remarkable technology. A game-changer. The death-ray for OPEC.

 
At Friday, February 6, 2009 at 10:58:00 AM PST, Anonymous Juliet said...

Ari,

Our business in Iraq and with any and everything Bush/Cheney did has to do with Empire and NeoCon agenda, oil having something to do with that. Like you said correlation vs. causation.
As for the glut of oil, this has you do with drop in demand not wealth of supply, yes? Once we're up and running again this glut will work itself out. The pertinent question is are we capable of limiting demand indefinitely. In my experience, people are very stupid and short sighted creatures, practically suicidal (thanks E.O Wilson). As long as we expect to ride Adam Smith’s greed train to neverland, we're screwed.
As to being screwed, accounting standards are all well and good but how about rigorous prosecution of fraud? Vicarious liability of higher ups? I'm talking about jail time in real jails. Can we seriously hope to change anyone's behavior when we wield no stick? We seem to be making liberal use of carrot to no avail.

 
At Friday, February 6, 2009 at 11:20:00 AM PST, Blogger Ari said...

Juliet,

Having actually read the works of the people who spearheaded the neo-con movement, including the "Project for a New American Century," (PNAC) I tend to believe that people oversimplify the (heavily misguided) aims of the Bush/Cheney regime.

It's not as simple as "empire." At least not in the 19th-century British sense. The PNAC was more about creating "fertile soil" to spread American ideals indirectly. The aim was to do what Vietnam was meant to do: create a domino effect, whereby a democratic regime would spark a flurry of grassroots democratization movements throughout the region. Unfortunately for Wolfowitz et. al, we know now that the PNAC was based on the same flawed base of logic that Vietnam was based on: that people necessarily see hardscrabble democracy as a good alternative to the status quo.

I also have no idea what you meant by "correlation vs. causation." Please clarify.

And yes, it's largely demand: but that's the point. Demand is depressed, and may remain depressed for a significant period of time. The problem right now is not that we have too little oil relative to our needs, but that we have TOO MUCH oil relative to what the market equilibrium probably should be.

The pertinent question is are we capable of limiting demand indefinitely. In my experience, people are very stupid and short sighted creatures, practically suicidal (thanks E.O Wilson).

Wow, that's not misanthropic at all. You clearly love thy fellow man.

By the way, you ought to read more EO Wilson. His most recent book has him concluding that people will work things out for the best.

And why should we limit demand indefinitely? To what end? What does that accomplish?

As long as we expect to ride Adam Smith’s greed train to neverland, we're screwed.

Have you... actually read Adam Smith? This doesn't sound like the words of someone who has.

As to being screwed, accounting standards are all well and good but how about rigorous prosecution of fraud? Vicarious liability of higher ups? I'm talking about jail time in real jails. Can we seriously hope to change anyone's behavior when we wield no stick? We seem to be making liberal use of carrot to no avail.

Vicarious liability of higher ups seems good in theory, but what are the limitations? Do we jail a CEO if a Jr. VP is arrested by the SEC for something the CEO was unaware of?

It almost sounds like punishing the father for the sins of the son.

The problem with using the stick is that we already know from violent crime studies that the stick, unless it's wielded almost indiscriminately, does little more than create a society of fear. We wield the stick too much as it is: the US incarceration rate is far too high.

What we need to do is change the motivations. Offering i-banks the option to put bad investments in tax havens was inviting disaster.

I would also be interested in seeing a return to the days of Glass-Steagall. The separation of commercial and investment banking seems to be an important one that was too quickly forgotten.

 
At Friday, February 6, 2009 at 11:45:00 AM PST, Blogger Ari said...

By the way, for those of us who have read Smith, there is this oft quoted line:

"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

Smith, despite his reputation as being all in favor of THE RICHIES, was actually a proponent of progressive taxation.

But, again, that involves reading his works.

 
At Friday, February 6, 2009 at 11:50:00 AM PST, Anonymous Anonymous said...

IED,

Duh.
I'm firmly in the debunkers camp and I think we have either already peaked or we're close to peaking.

I just don't believe we necessarily have to have a huge die-off.

Worst case, I think we have a recession/depression then a recovery based on electrification.

DB

 
At Friday, February 6, 2009 at 11:55:00 AM PST, Anonymous Anonymous said...

Heh Mead,

To further get you off of the doom-wagon, read the following sites:
greencarcongress.com and energy-daily.com in addition to this one.

You'll see that many of the scientific, engineering and technology advances the doomers say are impossible are actually taking place.

For example: Stanford University just invented a cheap process to increase the energy density of li-ion batteries by a factor of ten with no increase in costs. That means batteries in vehicles such as the tesla would cost 2,000 dollars instead of 20,000.

Likewise: Statoil of Norway invented a new process that increases recovery from depleted wells using ionized seawater. It increases recovery by 50% from depleted fields. Google "smartwater Statoil".

If you keep reading the same doomer posts over and over that repeat the same mantra of "no substitutes possible" you will eventually believe it even though it's not true.

DB

 
At Friday, February 6, 2009 at 11:58:00 AM PST, Blogger Ari said...

One thing that I missed in my review of Robin Mills' book, "The Myth of the Oil Crisis," is how much opportunity there still remains worldwide for secondary and tertiary enhanced oil recovery. The problem is not geological limitations, but that oil was too cheap (and is again too cheap) to justify the costs.

Lots of places to dig up oil if we wanted to, including places we currently dig it up. It's just a question of whether or not we're going to leave oil in the coming decades.

 
At Friday, February 6, 2009 at 12:51:00 PM PST, Anonymous juliet said...

Wow.
Yes, I have actually read Smith, Ari. His assertion that by pursuing our self-interest we create optimum outcomes for society as whole is flawed, perhaps mired in world were honor had some value. I was not attempting to show a working academic's understanding of his entire body of work, just alluding to the right wing simplified version that's used to sell their myth.
Suggesting that there is parity in the dissuasive power of taking freedom away from an impoverished black teenager vs. taking freedom from a wealthy white 30-something banker is asinine.
My understanding of Empire is also greater than (it appears) I let on. Are you saying that Empire Building (in all its pernicious forms which I gather I'm required to lay out?) was not at the root of our invasion of Iraq?
I also know what G-S is and I agree, it's "repeal" is part of what got us here along with the Federal Reserve System.
As far as not being a lover of humanity, I have great empathy for the majority of the world that just wants to live its life in peace. I have great animosity for the greedy and short-sighted ideologues that routinely prevent this.
Just for Shits and Giggles, I have a degree in institutional economics and a father who just retired from teaching the same at University 40 years. I grew up with this stuff and still spend a great deal of time reading and thinking about these issues. I have 2 children; this makes it all a bit more than academic for me. I am also a great fan of this blog. Your superior and condescending response to my post is very disappointing.

 
At Friday, February 6, 2009 at 1:15:00 PM PST, Blogger Ari said...

Juliet,

My apologies if I came on a bit... strong. Like I said in the last post, I'm sick and cranky. Mea culpa, and I'll assume better faith in the future.

I daresay, however, that by using the right wingnut view of Smith you are doing damage to what is an impressive, and largely useful, body of work. One of the big problems with reading classics is trying to separate the wingnut interpretations from the reality. In the case of Smith, I tend to think that most people miss the point.

Smith is arguing largely that increased regulation tends to lead to what we now term deadweight loss. This is not necessarily incorrect. However, it's the wingnuts who have somehow decided that Smith was against regulation and taxation in all forms.

I don't know that he's really "mired in a world where honor had some value." I mean, Smith clearly had read Locke and Hobbes, so his view of humanity was not likely to be rosy enough to consider honor as a factor. Smith is clearly not seeing honor in Book IV when he attacks the establishment of colonies. He also advocates in Book IV for public education of poor adults and institutional systems that were not profitable in private industry. Clearly not the Randroid that so many on the Right believe him to be.

And no, it's not asinine. People don't like jail, whether or not they're black teenagers or white bankers. I, however, don't believe that a "more mops" method of stopping malfeasance is optimal when WE CAN SHUT OFF THE TAP. The same thing applies to our silly war on drugs. We spend more time and money finding newer, better mops than we spend finding ways to turn off the damn spigots.

In the case of banking, the easiest method is to require much greater transparency in accounting, separate the commercial and investment banking worlds again, and put greater stipulations on accessing funds from the Federal Reserve. You can make jail as miserable as you want. It won't stop the Madoffs.

The Federal Reserve, in and of itself, is not a net bad. Unless you're arguing from a Jeffersonian plank that it's a central bank?

As far as not being a lover of humanity, I have great empathy for the majority of the world that just wants to live its life in peace. I have great animosity for the greedy and short-sighted ideologues that routinely prevent this.

Well, sure. So do all of us. But you didn't really say that, Juliet. Look, I'm not damning you now, but let's be fair here: you came out with a VERY misanthropic attitude there. You can't expect people to read between the lines and get what you just said out of it.

And yes, I'm sure you have some econ background-- you clearly do. However, that doesn't make any of us right-- only facts and solid argumentation do that. I'm glad to have someone on board who has some training in this area, but I'm going to call them like I sees them. I cannot read between the lines any more than you offer me insight into what is there to be read. I do apologize again for coming down hard on you, but you should know better than to give us the right wingnut chimera version of Adam Smith. We're smarter than that. :-)

 
At Friday, February 6, 2009 at 9:21:00 PM PST, Blogger Bloggin' Brewskie said...

Yup, the world is awashed in goo, the U.S. may be tootin' dimethyl sulfide for a while, and recently, Chevron announced a follow up sequel to the Jack oil field discovered in 2006.

Among this year's more honorable mentions include...

Israel’s whopper offshore gas find.

Petrobra's latest discovery, a possible 10 bb field (these boys could find oil in a fish bowl).

Run for the hills, people.

 
At Monday, February 9, 2009 at 7:44:00 PM PST, Anonymous DoctorJJ said...

This post is obviously fiction, right? I mean, how can this be happening? I thought we were headed toward $500/barrel oil? Simmons said it was going to happen. No price signal could ever even slow down demand, let alone reverse it. Nothing can stop demand for oil It only goes up no matter what else happens.

Hahahahahahahahahahaha!!!!!!

DoctorJJ

 
At Tuesday, February 10, 2009 at 5:37:00 AM PST, Anonymous abarrelfull said...

The current glut is also a function of the market contango we say earlier in the year and in late 2008.

When the future expectation is higher than the current price, anyone with the ability to store oil can make a risk free profit. As falling demand had created extra stock capacity, lots of people did it.

I went to a presentation last week, where a market expert was predicting $80 a barrel by year end. Not sure about that, but expectations medium term are all upwards.

That is driving the interest in expensive reserves.

 
At Tuesday, February 10, 2009 at 1:25:00 PM PST, Anonymous benny "MOAG" cole said...

I today's Wall Street Journal is a reort that Taiwan's exports in January are off 44 percent y-o-y.
This year will see double-digit declines in crude oil demand (sadly).
The only question is whether the price of oil can stay in double digits.

 
At Wednesday, February 11, 2009 at 6:05:00 AM PST, Anonymous Anonymous said...

"The only question is whether the price of oil can stay in double digits."

That's the only question, eh? I guess if you're a self-appointed "debunker," that's the only question you can come up with.

My question is why didn't you "debunkers" just say from the start that what you were really rooting for was the worst financial crisis since the Great Depression, instead of pretending that you were doing us all a big favor with your incisive commentary on a handful of half-witted "doomers?"

It seems pretty obvious that all the gloating over the gluts its just thinly veiled joy over economic misery. What a bunch of ghouls you all are! The only reason we have 'gluts' is because of economic downturn.

The real doomers are the "debunkers."

 
At Wednesday, February 11, 2009 at 9:53:00 AM PST, Blogger Ari said...

Fifi,

My main interest in the glut is its representation of the fact that demand does not inexorably increase no matter what. I don't believe it to be a good thing, and I would much rather see commodity prices somewhere back around previous levels (oil at about $75/barrel would be good.)

As for "rooting" for this recession, nothing could be farther from the truth. I just finished grad school. You really think I wanted to start my career in this market?

But hey, just because I disagree with you I must be a bad person! That's how it works...

 
At Wednesday, February 11, 2009 at 9:53:00 AM PST, Anonymous benny "MOAG" cole said...

Anon:
You are wrong. Nobody wants a recession--on the contrary, most POD'ers love enterprise and better living standards.
You are also wrong in believing this recession alone caused the worsening glut. Even beofre the recession, crude oil demand had flatlined, was probably going to start shrinking. The price mechanism at work.
It is the combination of accumulating responses to higher prices (now embedded into industry and consumer choices) and the recession that will cause the worst oil glut of all time.
There will floods of oil everywhere all the time by 2010.
We will be drowning oil for years to come.
That is a fact. I can't change it; you can't change it.
Sorry if you went long at $200 a barrel....keep reading TOD. Maybe you can get your hopes up again.

 
At Wednesday, February 11, 2009 at 11:37:00 AM PST, Anonymous Anonymous said...

"There will floods of oil everywhere all the time by 2010.
We will be drowning oil for years to come."

God, what a doomer-like prediction. Years of cheap oil, no incentive to drill-baby-drill, economic malaise.

"That is a fact. I can't change it; you can't change it."

You're starting to sound like real doomers here! It was only a matter of time.

 
At Wednesday, February 11, 2009 at 11:58:00 AM PST, Anonymous benny "MOAG" cole said...

Cheap oil is not a doomer vision, last I checked. Unless you are long on oil.

 
At Wednesday, February 11, 2009 at 12:48:00 PM PST, Anonymous Anonymous said...

Cheap oil = economic malaise. It's a fact of life for now. If the economy improves, oil goes up, glut goes away, debunkers dissemble.

 
At Wednesday, February 11, 2009 at 1:17:00 PM PST, Anonymous DoctorJJ said...

"Cheap oil = economic malaise. It's a fact of life for now. If the economy improves, oil goes up, glut goes away, debunkers dissemble."

Who says that oil has to go back up if the economy improves? Sure some projects have been postponed or canceled due to low prices and no demand, but they can easily be restarted if the demand is there. There is still no proof that we haven't hit peak demand, regardless of price or availability. As Benny stated, those consumer choices and other factors are embedded. They aren't going to change anytime soon and they sure won't change if the price starts to go back up.

DoctorJJ

 
At Wednesday, February 11, 2009 at 2:00:00 PM PST, Anonymous Anonymous said...

"Who says that oil has to go back up if the economy improves?"

Who says it doesn't? A rising tide lifts all boats, as they say. Demand and prices go up and down with the economy just as the tide lifts - or beaches - all boats.

Again, if the debunkers had just said that high oil prices were a direct result of an economy on the steroids of insane leverage, I think they could have avoided the hole gridlocked, Hatfield and McCoys battle with their nemesis the doomers.

It doesn't really matter if peak oil is past, here and now, or decades in the future. Oil is still finite, we use lots of it, and the US in particular depends on imports for 2/3 of their supply. Oil price volatility is still a very unpleasant effect.

 
At Wednesday, February 11, 2009 at 3:15:00 PM PST, Anonymous mdf said...

Demand and prices go up and down with the economy just as the tide lifts - or beaches - all boats.

You don't get it.

Decisions are being made today about the future, based on the past.

$150 oil effectively killed the SUV as a viable concept. Even at $1/gal gasoline, no one is going to forget what happened last year when it comes to replacing a vehicle.

If I covered my house with half a metre of thermal insulation, I probably wouldn't need to heat the house anymore with natural gas -- even in the dead of a -30C night. Would I then buy more natural gas if the price went sufficiently low?

Answer: no.

These are examples of "embedded decisions". It's the "price system" at work.

Sad to say it, but doomers are hopelessly stupid because they do not understand these processes.

Right now, because there is no peak in oil in sight anymore, no more fear of oil running out any time soon, TOD is re-running stuff from a year ago on their front page. You look at that demand vs. supply graph and just cringe. "Is such ignorance possible?"

 
At Wednesday, February 11, 2009 at 3:44:00 PM PST, Blogger JD said...

You look at that demand vs. supply graph and just cringe. "Is such ignorance possible?"

I thought the same thing. That graph is probably the purest expression possible of what divides TOD from POD.

 
At Wednesday, February 11, 2009 at 3:51:00 PM PST, Anonymous benny "MOAG" cole said...

MDF and JD: G-d bless you guys. Yes, crude oil demand is rising inexorably at 1.8 percent annually, according to the TOD, and when we don't get that, we will collapse.
Conservation? Substitution? The Price Mechanism? Government mandates? What are those?
Fact is, oil demand is declining, according to the IEA. They said today demand fell in 2008, and will fall even more in 2009. 2010? Who knows.
The experience of the 1980s suggest we won;t get back to 2007 levels of demand until about 2017.

 
At Wednesday, February 11, 2009 at 4:14:00 PM PST, Anonymous Anonymous said...

"Decisions are being made today about the future, based on the past."

No shit? Really??

"$150 oil effectively killed the SUV as a viable concept."

Funny, I could have sworn I saw dozens of them on the road just today. Could it be that with a dismally fucked economy and cheap gas to boot, that SUV owners have figured it's cheaper to repair drive the old SUV than get a loan to buy a Prius?

"If I covered my house with half a metre of thermal insulation, I probably wouldn't need to heat the house anymore with natural gas."

IF?? Why haven't you done it already IF its such a marvelous idea? Could it be that even you have figured out it's cheaper to just keep using NG than taking out a loan to cover a house with a foot and a half of insulation? With 600,000 jobs lost in one month, how many people do you think would even think twice about such an extravagance?

"Fact is, oil demand is declining, according to the IEA."

No kidding?? And I suppose the debunker dittoheads will insist that a massive economic crisis, (which began in early 2008) with skyrocketing unemployment has absolutely nothing to do with that decline in demand? And of course, when the economy recovers, demand will stay low and never increase again?

Where does the money for all those electric cars and Priuses supposed to come from -- the tooth fairy?

 
At Wednesday, February 11, 2009 at 4:50:00 PM PST, Blogger Ari said...

Fifi,

Please note that I would be more than willing to address you by a name of your own choosing. However, if you insist upon being ridiculous and not giving yourself an appellation, I will continue to address you by Fifi. For now.

Funny, I could have sworn I saw dozens of them on the road just today. Could it be that with a dismally fucked economy and cheap gas to boot, that SUV owners have figured it's cheaper to repair drive the old SUV than get a loan to buy a Prius?

Sure, but that's because people are making their decisions based on current gas prices. People make decisions, as far as we know, using all sorts of analyses. In the case of current SUV owners, the logic seems to be "Keep it for now." However, what we saw in 2008 was that gas prices hit SUVs and light trucks first and the hardest. This data was well investigated by Prof. Hamilton at UCSD on the Econbrowser blog.

No kidding?? And I suppose the debunker dittoheads will insist that a massive economic crisis, (which began in early 2008) with skyrocketing unemployment has absolutely nothing to do with that decline in demand? And of course, when the economy recovers, demand will stay low and never increase again?

Let's make a few things clear here:

1. The title "debunker dittohead" doesn't even make sense.

2. Yes, declining demand is necessarily tied to the current economy. NOBODY HAS SAID OTHERWISE. YOU ARE TILTING AT WINDMILLS MADE OF STRAW MEN.

3. As for demand going up, it depends. The 1970s oil crisis showed how long it can take for commodity demand to recover after a slump. Yes, demand will almost certainly recover... but how quickly? And how quickly do alternatives to oil consumption move into oil's market share?

It could be a long and fitful way back to 2007/8 levels of demand.

Where does the money for all those electric cars and Priuses supposed to come from -- the tooth fairy?

Durables purchases will happen eventually. Hamilton pointed this out in a recent post on his blog. Considering that SUV/light truck manufacturing is down to nothing right now, and most people will be likely to make more frugal choices, the likely worst case scenario once durables purchases pick up again is a move toward smaller cars like Civics and Corollas. It's not Priuses, but it's a huge leap from the SUV/light truck.

And yes, unemployment is up: but durables purchases are depressed far beyond the unemployment figures. In other words, people are holding off on purchases even if they are gainfully employed and capable of making purchases (again, based on readings of Econbrowser.) What this suggests is a lot of latent potential for moving people into newer, more fuel efficient vehicles.

 
At Wednesday, February 11, 2009 at 4:56:00 PM PST, Anonymous Anonymous said...

Arid wrote: "Sure, but that's because people are making their decisions based on current gas prices. People make decisions, as far as we know, using all sorts of analyses."

Now that's cutting edge: "people make decisions, as far a we know, using all sorts of analyses."

And current gas prices are a lot less than they were a year ago. And since your ditto heads/echo chamber seem to be in lock-step agreement that the glut will drive oil prices even lower, then can we expect it to become ever more practical to keep the SUV and forget the electric scooter and the half-metre of insulation?

Isn't that one of "all sorts" of analyses that "people use" "as far as we know?"

 
At Wednesday, February 11, 2009 at 5:06:00 PM PST, Blogger Ari said...

Arid?

That's not even clever... Arid is not really that bad of a state. C'mon, man! If you're going to try to be insulting and/or witty, at least... do one or the other! I have faith in you!

Anyway, let me rephrase.

Purchasing behavior, being one of the more difficult and avant garde studies in economics, finds that people make purchases using what boils down to multivariate cost/benefit analysis. Think of it as a multivariable regression of sorts, factoring in current and perceived future needs weighted against current and perceived future costs.

What we find in the middle of recessions, unsurprisingly, is that people become rather conservative with their purchasing behavior. However, people make purchasing decisions as a weighted average cost relative to other purchases.

Yes, it's true that people CURRENTLY are not purchasing durables. That's easy to see: after all, most autos can be stretched much further than they were in the previous decade (no need to lease a new car/truck when your current one suffices.) However, there are limits to this behavior. The recent purchasing suggests that people are flocking back to smaller, fuel efficient vehicles because they do not perceive gas prices as being permanently low. Either that, or they just want to save money on all transportation costs.

What my point was (and perhaps it was obscure) is that despite the lack of durables purchases right now, it cannot be extended indefinitely. People, including those with purchasing power, will have to buy new cars at some point in the future. What we've seen, however, is that people are far less likely to make the SUV/truck purchase than before.

And no, I don't see oil prices going much lower. I've already argued this. Echo-chamber? Hardly. I hold plenty of opinions on issues that others here have disagreed with me on, and I've already told Benny that I doubt prices have much more to fall.

Stick that in your hat, sir!

 
At Thursday, February 12, 2009 at 4:11:00 AM PST, Anonymous Anonymous said...

Somewhat of an ex-"doomer" here although I overcame the overtly pessimistic and illogical rhetoric of "doomer peak oil" relatively quickly by noticing the clear bias and inconsistencies of their "evidence", not to mention their "predictions" reeked of other motives. Just wanted to say that I found your posts here intriguing JD and I hope you keep posting them. Most of them seem to be in line with other strongly founded criticisms of peak oil theories. Keep up the good work.

 
At Thursday, February 12, 2009 at 6:54:00 AM PST, Anonymous Anonymous said...

"The recent purchasing suggests that people are flocking back to smaller, fuel efficient vehicles because they do not perceive gas prices as being permanently low."

Well, we all know how wrong "people" can be with all their various analyses, but this perception that gas prices are not permanently low has some merit. Gloating over the current "glut" of oil is akin to remarking how good it feels when you stop banging your head against the wall.

For the time being, the relative health of the economy will track the price of oil. Gloating over the glut is essentially economic schadenfreude.

 
At Thursday, February 12, 2009 at 8:55:00 AM PST, Anonymous Anonymous said...

What is the point of this post?

 
At Thursday, February 12, 2009 at 9:02:00 AM PST, Anonymous mdf said...

For the time being, the relative health of the economy will track the price of oil.

So what? The same can be said of any commodity.

Gloating over the glut is essentially economic schadenfreude.

No, it's peak-oil schadenfreude.

 
At Thursday, February 12, 2009 at 1:29:00 PM PST, Anonymous Anonymous said...

"So what? The same can be said of any commodity."

Yes, but this is an oil forum, isn't it? We're talking about oil, and oil is the only commodity (besides money) that the US imports in such high percentages of consumption. Two-thirds of US oil consumption comes from outside our borders. Saudi Arabia, that bastion of even-handed progressivness is our second largest provider, as you all know.

Price fluctuations of such a vital necessity have big, nasty ripple effects through the economy that cannot produce enough of its own oil.

Again, it just seems like schadenfreude for the 'bunkers to be so jazzed up for this temporary oil "glut."

It's never just been about "peak oil," it's about oil policy in a world where the largest economy is dependent upon imports for 2/3 of a primary source of energy.

 
At Thursday, February 12, 2009 at 1:58:00 PM PST, Anonymous AndrewRyan said...

It's never just been about "peak oil,

Yes it has been.

You're trying to hide the fact that a glut is the exact opposite of the intended effect that the doomers said PO would have. They have been preaching scarcity for a decade (some even longer), and a glut is the exact opposite of such. That's why it's being pointed out. Just more doomer predictions flopping pathetically.

Go away, stop trolling.

 
At Thursday, February 12, 2009 at 2:42:00 PM PST, Blogger Ari said...

The whole "the US imports _____% of _____" is silly. Here's why: even if the US didn't import _____% of _____, it would still be paying the world prices for oil. Oil is a fungible commodity, and the price paid by the US is the price paid by Iran, which is also paid by New Zealand.

Importation isn't the problem. Sure, Saudi Arabia is run by a-holes-- but they're a-holes who are glad to sell their one thing of value.

The problem is that the market is not efficient (in the economic sense). Even if the US were a net exporter, however, it's likely the price would have surged in 2008, simply because the entire basket of commodities was being gobbled up by speculators looking to hedge against risk.

I also think it's important to note that more of the US's imports are coming from Canada than Saudi Arabia, and that Canada and Mexico combined make up a significant portion of the overall imports. The big myth is that Saudi Arabia and OPEC somehow are the US's sole or majority oil source. They're not. Saudi is a big producer, but it is not the largest by a significant margin.

 
At Thursday, February 12, 2009 at 2:48:00 PM PST, Anonymous Anonymous said...

"Go away, stop trolling."

Now, Andy, you don't mean that. If it weren't for trolling, this site (and yours in particular) would be a total, crashing bore.

 
At Thursday, February 12, 2009 at 2:55:00 PM PST, Anonymous AndrewRyan said...

anon: Great attempt to dodge my point. Typical doomer red herring gibberish, nothing to see here, move along.

 
At Thursday, February 12, 2009 at 3:28:00 PM PST, Anonymous Anonymous said...

"They have been preaching scarcity for a decade (some even longer), and a glut is the exact opposite of such."

OK, Andy, since you asked so nicely, I'm trying to get you to see the bigger picture. Just a few months ago, oil was around $150, now its bouncing around $30-40. I even agree with Ari that it's pretty likely to go to $75 sometime in the next year or two.

Do you think these wild swings in price are a good thing, given the basket case the economy's in? If we had a really big glut, oil could stay at $20 forever. But we don't and it won't and those higher oil prices will have the same downward pressure on the economy they did last summer.

And it's not silly that the US imports 2/3 of its oil - it's tragically pathetic. It makes not one whit difference if oil is fungible or not if you can't import enough of it, especially when it's costing you hundreds of billions in BORROWED MONEY to keep the peace in the ME oil fields.

 
At Thursday, February 12, 2009 at 4:08:00 PM PST, Blogger Ari said...

Do you think these wild swings in price are a good thing, given the basket case the economy's in? If we had a really big glut, oil could stay at $20 forever. But we don't and it won't and those higher oil prices will have the same downward pressure on the economy they did last summer.

Well, let's be fair: we do have a big glut. But gluts aren't good, and the market is acting to reduce the glut and bring prices back to their fundamentals. The question, however, is what the actual fundamental price is. We don't actually know.

And it's not silly that the US imports 2/3 of its oil - it's tragically pathetic. It makes not one whit difference if oil is fungible or not if you can't import enough of it, especially when it's costing you hundreds of billions in BORROWED MONEY to keep the peace in the ME oil fields.

How is it pathetic? Japan imports most of its raw resources, and I don't see people running around saying that Japan is "pathetic."

Personally, if you want to talk about the US's resource state, I think the real problem is that we don't import enough human capital-- or at least we aren't importing it strategically enough.

Also, you say we are spending "borrowed" money to keep peace in the ME oil fields. First off, neither you nor I know 100% for a fact why the Bush administration went to Iraq. But even assuming we didn't go to Iraq, the bulk of our military spending would not have gone to the ME anyway. It would have gone to our forward deployed operations in other theaters.

In any case, importation of resources is not "pathetic" when another country can do it more cheaply through comparative advantage. I mean, I imagine that the US could lift the moratoriums on drilling all over and just produce shale, CtL, BtL, etc. But why? Oil, until recently, was CHEAP. Hell, it was probably more economically troubling that we import many of our final goods from Japan and China.

Or is China also "pathetic" because it's an oil importer? Germany also imports. So does South Korea and France.

Are they also "pathetic?"

My point isn't necessarily to be difficult, but to say that many other major economies buy their oil from abroad, and I rarely see them being called silly names.

http://en.wikipedia.org/wiki/Petroleum#Non-producing_consumers

Those 7 countries produce 10% or less of their oil. And in the case of Japan and France, I know that they aren't exactly protecting any oil through environmental legislation. They just don't have it, shale, coal, etc.

 
At Thursday, February 12, 2009 at 4:15:00 PM PST, Blogger Ari said...

By the way, I'm curious what people think the suitable alternative to importing and exporting is? Import substitution like Latin America had during the 20th century, or "juche"-style self-reliance?

Or is there an allowable amount of imports?

I think it's become a bit of a truism that importing oil is "bad," but when it's fungible what difference does it make? It's the non-fungible goods that really matter. Especially human capital. If anything, Japan and South Korea demonstrate this. Neither have particular resource wealth, but both offer their citizens better standards of living than more closed "self-reliant" societies.

 
At Thursday, February 12, 2009 at 5:15:00 PM PST, Anonymous Anonymous said...

"First off, neither you nor I know 100% for a fact why the Bush administration went to Iraq."

Only the willfully ignorant or naive can deny why the US is in Iraq - Oil. And it is a pointless waste of time to assume what it would be like had we not invaded Iraq; we are there, and we will stay there because Iraq is the geographic center of the largest oil region in the world and it is surrounded by countries who would like to control that oil. This has been the basis of US foreign policy since before Rumsfeld shook hands with Saddam Hussein.

I think Andrew Bacevich says it better than I can:



ANDREW BACEVICH: "The most obvious, the blindingly obviously question, is energy. It's oil. I think historians a hundred years from now will puzzle over how it could be that the United States of America, the most powerful nation in the world, as far back as the early 1970s, came to recognize that dependence on foreign oil was a problem, posed a threat, comprised our freedom of action.

How every President from Richard Nixon down to the present one, President Bush, declared, "We're gonna fix this problem." None of them did. And the reason we are in Iraq today is because the Persian Gulf is at the center of the world's oil reserves. I don't mean that we invaded Iraq on behalf of big oil, but the Persian Gulf region would have zero strategic significance, were it not for the fact that that's where the oil is.

 
At Thursday, February 12, 2009 at 10:06:00 PM PST, Blogger Ari said...

I'll address your arguments about the Iraq war either in a post or later today. I'm curious why you didn't answer my question about why Japan, France, etc. aren't "pathetic?"

What is the point at which a country becomes "pathetic" because it imports a fungible commodity? Why is the importation of human capital not pathetic? Or is it?

What is not "pathetic" to import, anyway?

 
At Friday, February 13, 2009 at 6:47:00 AM PST, Anonymous AndrewRyan said...

What is not "pathetic" to import, anyway?

For doomers, nothing, Ari. Doomers hate globalization and trade. Imports means that people aren't making a "world by hand". Keep in mind, most doomers dress up PO as a return to this way of life(see: mankind taking several steps backwards)

 
At Friday, February 13, 2009 at 8:06:00 AM PST, Anonymous Anonymous said...

"What is the point at which a country becomes "pathetic" because it imports a fungible commodity?"

As I said before, fungibility is not relevant. The pathos comes from the fact that the world's most powerful economy consumes more oil per capita than any country on earth, and more importantly, it depends upon imports for 2/3 of that oil. Canada, Saudi Arabia and Mexico are our number 1, 2 and 3 suppliers, in that order, and we all know what an enlightened, progressive bunch the Saudis are. Eventually the output of all of these suppliers will shrink to the size of their own requirements.

Read Bacevich's quote again. We're spending trillions to police the Persian Gulf region because that's where the oil is. We have no workable plan as a nation to free ourselves from that crippling addiction to imported oil.

France, Japan and the others who import oil are not suffering under the delusions of empire that infects the US, but they too will eventually have to wean themselves from imported oil. At least they have a semblance of public transportation.

Imports in and of themselves are not necessarily a bad thing. The pathos enters when the health and well-being of the economy is so dramatically impacted by dramatic oscillations in the price of the imported commodity.

Again, fungibility means nothing. Fungibility would only be relevant in a world where oil was so plentiful that countries were not fighting over it, or trying to wean themselves from it to protect their environment. As it stands now, the world's major powers are jockeying for position to get their share of a finite and dwindling resource.

 
At Friday, February 13, 2009 at 10:13:00 AM PST, Blogger Ari said...

As I said before, fungibility is not relevant. The pathos comes from the fact that the world's most powerful economy consumes more oil per capita than any country on earth, and more importantly, it depends upon imports for 2/3 of that oil. Canada, Saudi Arabia and Mexico are our number 1, 2 and 3 suppliers, in that order, and we all know what an enlightened, progressive bunch the Saudis are. Eventually the output of all of these suppliers will shrink to the size of their own requirements.

Fungibility is VERY important. The US, if it wanted to, could stop buying from those dastardly Ay-rabs in the near future. Sure, it would have to make up for its Saudi imports, but that could be done at a price.

But why stop buying from the dastardly Ay-rabs when they sell good, cheap, very usable oil at a decent price? Oh, right: oil is a fungible commodity.

Ah, the "Export Land Model" rears its head. And... no. The truth is that we simply don't know what will happen in every case. I think I get what it is that bugs me about how you word things: you don't make predictions. You make proclamations. You claim to KNOW why and how things will happen when NOBODY knows for certain.

Yes, the US is dependent for 2/3 of its oil consumption, but here's where it differs from France and Japan: it actually has energy options in its own borders. The US, unlike Japan, has tons of its own resources. You claim it's pathetic for the US to import 2/3 of its oil resources. How about importing 9/10 of ALL resources? There's Japan for you.

And who cares if the Saudis aren't an enlightened bunch? It was the Bush Doctrine of "spreadin' da democrasees" that helped get us into the Iraq in the first place.

Read Bacevich's quote again. We're spending trillions to police the Persian Gulf region because that's where the oil is. We have no workable plan as a nation to free ourselves from that crippling addiction to imported oil.

Ah, I LOVE buzz words. "Crippling addiction." Heehee.

Anyway, guess what? Robert Jervis, who is one of the most influential and respected international relations scholars, doesn't believe that Iraq was about oil or Israel:

But really, Iraq remains a mystery and my terrible fear is that the next generation is going to believe we fought Iraq for oil and Israel, and I do not believe that is true. I can't say I could disprove it, I don't believe it, but looking back, people are going to say, "Well, can't have been WMD." I don't believe if they believe the al Qaeda connection -- could they really believe that we could transform the Middle East by this? Think what's left. It's a wrong explanation and I think it will produce a sort of cynicism that isn't helpful, but I bet in ten years that'll be the conventional wisdom.

So really, if a guy of Jervis's stature can believe that Iraq for reasons other than oil... I guess I'm not a naive dummy blockhead for certain!

Or maybe I am. I never know with YOU. You're always so sweet.

France, Japan and the others who import oil are not suffering under the delusions of empire that infects the US, but they too will eventually have to wean themselves from imported oil. At least they have a semblance of public transportation.

Hoo boy.

OK, first off, yeah, I guess you're right about the empire thing. Not like France and Japan have had any imperial ambitions. Wink wink. It's not like anyone blamed Japan of becoming a mercantile empire in the 1980s. Wink wink.

But really, the question is not "do they have ambitions," but rather, "do they have ambitions and are simply letting the US foot the bill?"

As a bit of a Japan scholar, I've delved a fair bit into Japanese security matters. A big issue that came up in the 20th century was "checkbook diplomacy," whereby Americans claimed that Japan was using the US's military might via checkbook in order to avoid using its own military power. I'm not sure that I buy the argument (you get into a lot of interesting constitutional issues), but it does bring into question whether or not Japan and other American allies are just letting the US play the role of international cop because it's cheaper for them.

Y'know, that whole "comparative advantage" thing.

Imports in and of themselves are not necessarily a bad thing. The pathos enters when the health and well-being of the economy is so dramatically impacted by dramatic oscillations in the price of the imported commodity.

The health and well-being of the economy WAS affected by oil, but it was affected by ALL COMMODITIES.

Why don't people get this? The price of EVERYTHING shot up in a short period of time. If it had been oil alone, most people could have simply absorbed the cost. The average American spends less per dollar of GDP today than he did in 1960... before we imported a great deal of our oil.

Yep. We spend less per dollar of GDP now on oil than we did in the 1960s.

And yes, oil prices matter. I don't deny that. My point is that the whole system went haywire this around, and you want to believe that it was 1973 all over again. Sure, it was sort of like 1973... except that the Ay-rabs didn't impose an embargo, oil wasn't physically all that scarce, and banks were playing with the market to hedge against an oncoming wave of insolvency.

$2 trillion in swaps from Bear alone, and we're talking oil alone? Craziness!

Again, fungibility means nothing. Fungibility would only be relevant in a world where oil was so plentiful that countries were not fighting over it, or trying to wean themselves from it to protect their environment. As it stands now, the world's major powers are jockeying for position to get their share of a finite and dwindling resource.

It's funny how you say that it "means nothing." You really like superlative arguments, don't you? Binary world for binary thinking. But the fact of the matter is that fungibility DOES matter. Fungible resources can be swapped. It's things like human capital that ultimately become incredibly scarce, because human capital is unique.

Oh, and as for "dwindling," I daresay you have not read Mills' book! You really should. I reviewed it in the previous post, you know. Quite a good read for dashing those arguments that oil is "dwindling" relative to our needs.

Actually, I dare say that in the long run, it'll be demand for the stuff that dwindles. Then those dastardly Ay-rabs will get their comeuppance.

 
At Friday, February 13, 2009 at 11:42:00 AM PST, Anonymous Anonymous said...

"The US, if it wanted to, could stop buying from those dastardly Ay-rabs in the near future."

Really? Please tell us when, and how we'll make up the difference.

"But why stop buying from the dastardly Ay-rabs when they sell good, cheap, very usable oil at a decent price?"

BEcause we can't? Because the economy deteriorate even further if we did? Because the Saudis have us wrapped around their fingers?

"But really, Iraq remains a mystery and my terrible fear is that the next generation is going to believe we fought Iraq for oil and Israel, and I do not believe that is true. I can't say I could disprove it,..."

...and that was Jervis from 5 years ago. I would hope that he has come to his senses by now. It's not that we're fighting Iraq to steal their oil, although one could probably make that case with the evidence we have. No, as Bacevich said, "the reason we are in Iraq today is because the Persian Gulf is at the center of the world's oil reserves."

"I think I get what it is that bugs me about how you word things: you don't make predictions. You make proclamations. You claim to KNOW why and how things will happen when NOBODY knows for certain."

Someone on this list has to stand for something. You string together half-truths and equivocations when it suits your purpose, and you invoke your own binary holy war against the "doomers" when the equivocations fall flat.

"NOBODY knows for certain."

What a lame dodge. If nobody knows for certain, nobody would get out of bed in the morning. Somebody knows for certain, you can bet on that. At least there are those who act as if they know for certain.

"Fungible resources can be swapped."

Only if they can be obtained. Please, I really want to know, when will we tell the Saudis to take and hike and where will we get all that "fungible" oil we used to get from them?

 
At Friday, February 13, 2009 at 11:50:00 AM PST, Anonymous AndrewRyan said...

"The US, if it wanted to, could stop buying from those dastardly Ay-rabs in the near future."

Really? Please tell us when, and how we'll make up the difference.


Anon-scum: Are you really claiming that the U.S. needs every drop of oil that we use?

 
At Friday, February 13, 2009 at 12:22:00 PM PST, Anonymous Patrick said...

The pathos comes from the fact that the world's most powerful economy consumes more oil per capita than any country on earth

Actually, the U.S. is only 23rd on that list.

 
At Friday, February 13, 2009 at 1:13:00 PM PST, Anonymous Anonymous said...

Ah, yes, excuse me. Let's just say the US is the biggest consumer AND biggest importer of oil in the world, and by a substantial margin over second place. And the biggest debtor, while we're at it.

Let's see, the world's biggest debtor and the world's biggest oil user is the same country! -could that be pure coincidence?

http://tonto.eia.doe.gov/country/country_energy_data.cfm?fips=US

 
At Friday, February 13, 2009 at 1:29:00 PM PST, Anonymous Anonymous said...

"Anon-scum: Are you really claiming that the U.S. needs every drop of oil that we use?"

Well, Andy, the debunker's Holy GDP contracted over 3% in the last few months, 600,000 jobs were lost last month alone, and oil consumption has gone down. So no, obviously if people would just quit working so damn much, we wouldn't need so much oil. It's obvious that we're saving a lot of oil when people stay home instead driving to the GM plant to make more gas-burning cars.

But no, Andy, to answer your snotty little question, I don't claim that the US "needs" every drop of oil we use. It's obvious we waste vast amounts of the stuff. The pesky little problem is determining who's wasting oil and who's using it productively. The usual mantra on this list is that whatever grows the Holy GDP is sacrosanct, whether it's NASCAR races, permanently occupying the Middle East, or, God forbid, growing tomatoes in the backyard.

So here's your homework, Andy. You go back and tell us who's wasting oil and who's using it wisely. No gameboy until you're reported your findings back to the group. 'k?

 
At Friday, February 13, 2009 at 1:44:00 PM PST, Blogger JD Walters said...

Simmons is at it again, and he has a point I think:

http://www.forbes.com/forbes/2009/0302/022_crude_cassandra.html

It is kind of scary that so many projects are being put on hold. We have a glut temporarily, but what I really want to see is how long it takes for oil demand to recover. Even if we're not at peak oil, the high price back in the summer did give a good impetus for further exploration and investment.

 
At Friday, February 13, 2009 at 2:05:00 PM PST, Anonymous AndrewRyan said...

anon-douche:
Well, Andy, the debunker's Holy GDP contracted over 3% in the last few months, 600,000 jobs were lost last month alone, and oil consumption has gone down

You're missing the point, per usual. Smoking too much pot I guess. The point was, whether GDP rises or falls, we waste oil. We wasted oil 2 years ago when GDP rose. We wasted oil the year before that and the year before that. We weren't efficient with oil because it was cheap.

There are plenty of posts on this very blog about how oil is wasted. Read JD's post on the Hirsch Report or U.S. gasoline consumption. Are you trying to say that we need that much oil? "67 percent of personal automobile travel, and 50 percent of airplane travel are discretionary", according the Hirsch.

But don't worry, just keep posting under an anon tag, alone and miserable, on this blog. By the rate at which you're posting, I'm guessing you are one of 600,000 which got unemployed last month. Just sit around and bitch, post factoids ripped from LATOC boards, offer no solutions, that's all you're doing. Your existence has really become moot.

Have a nice life, shithead.

 
At Friday, February 13, 2009 at 2:09:00 PM PST, Anonymous Anonymous said...

"But don't worry, just keep posting under an anon tag, alone and miserable, on this blog."

Aw, gee, Andy, you know that if I really wanted to be alone I'd visit your blog.

 
At Friday, February 13, 2009 at 2:22:00 PM PST, Blogger Ari said...

Really? Please tell us when, and how we'll make up the difference.

I can't say when, because it's not something that's really being planned. I'm saying it's technically possible. I don't think, however, that it's necessarily the right thing to do. I'd rather buy Saudi crude for $50/bbl than pay $100/bbl for the American stuff.

BEcause we can't? Because the economy deteriorate even further if we did? Because the Saudis have us wrapped around their fingers?

Why do you say that about the Saudis but not the Canadians, who supply a larger share of our oil? I'm curious about that.

Why is it bad to buy oil from the Saudis, but not the Mexicans and Canucks? I mean, if you're going to hate trade, why not be an equal opportunity bigot?

...and that was Jervis from 5 years ago. I would hope that he has come to his senses by now. It's not that we're fighting Iraq to steal their oil, although one could probably make that case with the evidence we have. No, as Bacevich said, "the reason we are in Iraq today is because the Persian Gulf is at the center of the world's oil reserves."

Actually, I did a paper on a topic that tangentially dealt with the Iraq War and I e-mailed Bob. He still maintains largely the same position as far as I know.

What I'm curious about is why it's Jervis that needs to “come to his senses” rather than Bacevich. I think I know why (Bacevich agrees with you), but I want to read it from you.

See, here's the thing: I don't think that Jervis is entirely right, either. I just think that he's closer to getting it right than Bacevich.

OMG I MUST BE SOOOOOOOOOO STUPID.

ME DUMB DUMB. ME NO AGREE WITH RANDOM ANONYMOUS GUY. DURRR.

Is that what you essentially want me to say? I can e-mail Bob and ask him if he thinks he's stupid, too.

Someone on this list has to stand for something. You string together half-truths and equivocations when it suits your purpose, and you invoke your own binary holy war against the "doomers" when the equivocations fall flat.

Half-truths? Name something I've said that's a “half-truth.” Also, where have I equivocated? I've merely said “I DON'T KNOW FOR CERTAIN.”

You know why? I'm intellectually honest. I've been trained in a very strict school of thought when it comes to predictions: you say what you don't know as you say what you do know. I would rather be accused of equivocating than be accused of cargo cult science any day, and heaven knows that it's VERY hard to not act cargo cult-y when doing social science.

What a lame dodge. If nobody knows for certain, nobody would get out of bed in the morning. Somebody knows for certain, you can bet on that. At least there are those who act as if they know for certain.
Acting and actually knowing things for certain are very different. Bounded rationality tells us as much. Jervis actually made an interesting point a few years back about how little we actually know:

You know, you'd think it's sort of easy to find a country with nuclear weapons. Well, it isn't. They're trying to keep it secret often, or they're trying to bluff you. North Koreans have said they have nuclear weapons. Do they? Well, I've talked to the people who know the most about it in the U.S. government, and they smile, not because they can't tell me what they know -- they can -- but because they can't be sure. They've said it. I mean, how would you know? You'd know if you had an agent who was high up in the program. You'd know maybe if you had someone who was a technician who'd gone in there and patted the bomb and said, "Oh, it's warm. Okay, there's plutonium in there." It could be an elaborate bluff. It's very hard to know that. And in the Iraq case it was all sorts of inner games he was playing, Saddam Hussein; it was very hard to penetrate. So, you need good information and you can't get it, and decision makers psychologically have to pretend they have it because they have to persuade people and they have to act, and they can't psychologically face up to how little they know.

Interestingly, this is something that comes up a lot in other areas where we actually have open access to information. Like banking! If we actually “knew” the future, and all those fancy models were perfect representations of the future, then why are we where we are?

Oh, right: because the models weren't perfect, and we DON'T BLOODY KNOW THE FUTURE.

Now, in the case of foreign policy, we make decisions with far LESS information than most businesses, and get to do it in far more “bounded” situations. So you know what? No, you can't tell me that somebody knows for certain. However, if you'd like, I'd be glad to introduce you to people who are professionally in the business of uncertainty in a variety of fields. Statisticians, economists, foreign policy makers, etc. I doubt any of them would hold the level of certainty about the future that you have.

Only if they can be obtained. Please, I really want to know, when will we tell the Saudis to take and hike and where will we get all that "fungible" oil we used to get from them?

Lift moratoriums on drilling in the US, invest more in shale/tar/heavy, spend more on EOR, buy more from Canada at a higher price (outbid other buyers), buy more from Venezuela. It all depends on cost and willingness to foot the cost.

I think my point is... why does it matter if it's the Saudis that we buy from? What's the difference between buying a million bbl from the Saudi Aramco and buying a million bbl from Canada?

Or, hell, from Exxon?

They're all “evil petrodollars” in the end.

 
At Friday, February 13, 2009 at 2:51:00 PM PST, Blogger Ari said...

Ah, yes, excuse me. Let's just say the US is the biggest consumer AND biggest importer of oil in the world, and by a substantial margin over second place. And the biggest debtor, while we're at it.

Let's see, the world's biggest debtor and the world's biggest oil user is the same country! -could that be pure coincidence?

http://tonto.eia.doe.gov/country/country_energy_data.cfm?fips=US



Actually, it's not clear exactly how much of a relationship there is. There is certainly a relationship, but as always, the proof is in the pudding.

And what a lame pudding it is.

In 2007, according to a DPC (Democratic Policy Committee) report, 41% of the trade deficit was oil import driven. That's a big portion, but that means that 59% is still driven by "other stuff," so to speak. Here's also what we do know for a fact:

21% of foreign debt is held by China. 19% is held by Japan. 10% is held by the UK. Only 6% of foreign debt is held by oil exporters.

Clearly, our t-bills aren't flowing to the big bad OPECkers. They're mostly still going to the "finished goods" trade partners.

But, of course, there's a lot of messiness in measuring how much of that is "due" to buying oil. The DPR claims 41%. That still doesn't account for the majority of the deficit, however.

Tricky business, understanding debt flows.

 
At Saturday, February 14, 2009 at 12:02:00 AM PST, Anonymous econogeek said...

If you want to see a redux of what happened in the oil market, take a look at gold.

Gold prices have started to get bubbilicious b/c:

1. Investor Demand through ETFs...similar to oil futures demand through ETFs.
2. Disconnect between fundamentals of end-users and speculators: Gold end users have dramatically curtailed demand. India, formerly the world's largest user of gold, dropped imports by some 75-80% over the last two years.
3. A cult of hyperinflationisits just like the peak oil crowd.

Honestly, as someone that called the bubble 9 months ago on here, if you don't see the consistent pattern, you're not looking hard enough.

 
At Saturday, February 14, 2009 at 6:58:00 AM PST, Blogger Stellar said...

I am following the discussion but the disagreements are a real hassle to follow with the absence of proper formatting tools. I suppose it has been discussed before and if so what can or can't be done to allow for a more flowing discussion trough the usage of proper quoting of 'disagreeable' material?

Since the topics on POD now very often draw a hundred or more responses this should become some kind of priority!

Thanks....

 
At Saturday, February 14, 2009 at 9:41:00 AM PST, Blogger Ari said...

Stellar,

Unfortunately, most of it comes down to the willingness of people to actually use whatever tools are available. I try to use the italics quote tags as a courtesy to others, but I don't know that some (especially the anons) will be willing to return the courtesy. I'll look into other options for tagging things others said to make it clearer, though.

econogeek,

It's funny that you mention India, because I just recently read an article on the very same topic. Gold seems to do this with every recession, but since this is the "mother of all recessions," it'll be interesting to see how far it goes this time.

 
At Wednesday, February 18, 2009 at 9:18:00 AM PST, Anonymous benny "moag" cole said...

Gotta disagree with people saying $75 oil is coming in a couple of years. Could be longer.
Probably we will see $10 oil in 2009-10. The run-up from the bottom promises to be be slow, based on comparison to 1998, when we last saw $10 oil. It was six years before prices started spiking, after 1998.
This recession looks worse, and we have a lot better energy-conserving technologies coming online.
It might be a full decade before we get back to 2007 global use of crude oil levels, and that long before price pressures begin.
In short, look for $75 oil not in 2010-2011, but maybe 2017 or so.
First we have to see $10 oil. Maybe sooner than later--we may see $20 oil in March. Crickey, there are oceans of oil everywhere, and nowhere to sell it. We are drowning in oil, and several thug states -- Russia, Venezuela, Iran, Iraq, Mexico, Nigeria -- are desperate for cash. They will sell as much as they can. The screw has turned. The way for thug states to make more money is to sell more oil. Until prices cracked, there were perverse incentives to let fields decline--it just make oil even more valuable.
$10 oil oil, and gluts as far as the eye can see.
Peak Oil? Maybe in the next cycle. Maybe in 20 years.

 
At Tuesday, February 24, 2009 at 3:23:00 AM PST, Blogger Stellar said...

I believe this article by Michael Hudson best illuminates the disagreement Ari and Juliet had earlier in this discussion. It comes down to questions of terminology and definition and how progressive history is litterally being written out of existence by the theft and misrepresentation of it's aims.

Not sure what the policy is on posting outside links so here goes. :)

http://www.counterpunch.com/hudson02232009.html

I cover a great deal of ground in terms of article's read and they are not in my experience often more incisive.

Thanks

 
At Friday, May 15, 2009 at 3:46:00 PM PDT, Anonymous Anonymous said...

I saw the powerpoint of a presentation Simmons did recently. In it, he claims there is no natural gas glut and that it's all made up, mainly because of how hard it is to extract. To illustrate that point, he has a picture on the slide to show gas extraction from shales. Unfortunately for him, his picture is actually a proposed way of extracting OIL from shale, not GAS. I thought that was interesting.
-Strangelove

 

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