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Yep.  You read it right.
Is this guy crazy – or what??
I mean – oil prices have been hitting records.

By this time next year, oil will have dropped well below $100 a barrel.  Possibly as low as $80.  In the following year it will likely sag even lower.  Why?    Because even though oil is a finite resource, the oil price escalation is a classic example of a speculative bubble – destined to burst.  What’s more, the oil and energy fields – perhaps more than any other fields – have been characterized by boom and bust cycles for more than a century.

The potential impacts for responsible energy use and the environment are calamitous.  Not only will people who predict $200-plus oil be viewed as kids who cry "Wolf!", a collapse in oil prices will also dramatically curtail research and development into alternatives much as happened in the 1980s.

So here’s the dope.

If the oil business has a history of speculative cycles and if the current oil price run-up has all the attributes of a speculative bubble, then what makes this event so very different from previous speculations in the oil business and speculation in general?

The Teapot Dome Scandal of the Harding administration in the 1920s is linked to one of the earliest warnings of oil running out.  Fearing that the easy oil was running out just as the U.S. Navy was converting its ships from coal to oil, Congress created three huge Naval Oil Reserves in the 1910s.  All of that oil proved irresistible to Harding administration officials who offered it to companies in no-bid contracts in return for private favors.


Image - Main Street, Kilgore, Texas - 1939
Public Domain, FSA/OWI Archives

All of that changed, of course, when "Dad" Joiner struck oil in East Texas in 1930 – the biggest oil find until Alaska.  Massive overproduction of this field was not only wasteful, but also helped drive the price of oil down such that a barrel hit ten cents during the Great Depression.


Image - Abandoned Apartments, Jeffrey City, Wyoming
Dr. Phil Roberts, University of Wyoming

Out here in Wyoming there’s a saying about the "Boom and Bust" economy -
"Lord, just give me another boom and I promise not to piss it away."

You see, Wyoming has been through this more than once.  In the late 1970s and early 1980s, there was a huge energy boom that was going to last forever.  It didn’t.  The modern-day ghost town of Jeffrey City is testament to the fact that the then-new paradigm wasn’t worth a pair of dimes.

<<<>>>

Despite this roller coaster history in the energy field, many are talking about sky-high prices that will only go higher.  Yes, oil is a finite resource.  Yes, carbon emissions are a serious problem.  And, yes, Americans are extremely wasteful when it comes to energy.  But the facts suggest that rather than $200 oil, the price of oil is poised for a dramatic collapse, perhaps not as devastating as the 1980s collapse, but substantial nonetheless.

Here are three points to consider.  First, on paper, the dizzying rise in oil prices looks like every other speculative bubble in the history of the markets.  The obligation lies with those who say that oil prices are not speculative to show, convincingly, why this is different.  Second, having witnessed two huge speculative bubbles in the past decade – the dot.com boom and the housing bubble – it seems likely that the current economic climate is speculation friendly. And third, the unique economics of energy markets tend to magnify short-term shortages while producing two delayed responses that intersect at the peak of prices – capital-intensive increased production and conservation or more efficient energy usage.

First, here’s a graph of the recent rise in oil prices –


Crude Oil Prices 1998 to 2008
http://www.cstcharts.com/...

And here’s a graph of the most famous speculative boom in American history,
The Great Bull Market of the 1920s – Dow Jones Index -


Dow Jones Index - 1920s
http://www.djindexes.com/...

Notice anything?

In the case of the 1920s stock run, the Dow Jones Index doubled between January 1923 and January 1928, then almost doubled again by late 1929.  Also, after stalling in mid 1929, the stock market made a final surge to its peak.  From mid 2003 to early 2007 oil prices doubled from $30 to $60 a barrel, then have more than doubled to $140 in mid 2008.  There was also a dip in early 2007 followed by the current escalation.  

So then, the oil price curve certainly looks like a bubble.
Oil may hit $150.  Then again, it may not.

Second, although the jury may be out on whether oil prices are part of a speculative run-up, the American economy has been held captive to two major speculative bubbles in the past decade - the dot.com boom and the housing mortgage fiasco.

Here is a textbook picture of a speculative peak and collapse – Sun Microsystems.


Sun Microsystems - Stock Price for the Past Ten Years
Source - Scottrade.com

The price of Sun’s stock went from $13 to $260 and back to $13 between early 1997 and early 2003 – a twenty-fold increase and collapse.  Note also, the last-gasp surge to the peak – characteristic of so many speculative patterns.  Most people over thirty will remember the surreal numbers connected with dot.com initial public offerings (IPOs).  Dot.coms like Pets.com lasted less than a year after their IPOs – burning through millions of dollars.  And through it all were refrains that the tech boom was bringing an end to the business cycle.  Right.

Just for fun, let's cut the graph off right at the top.
Just before the dot.com collapse.



Sun Microsystems - Stock Price Increase thru Autumn 2000
Source - Scottrade.com

Hmmmmmmmmmmmmm.

And the Housing Bubble

The dot.com bubble was followed by the housing bubble.  Were they linked?  In important ways – since the Bush administration used absurdly low interest rates to mask the recessionary impact of the dot.com bust.  The housing bubble was two-fold.  As current owners refinanced at lower interest rates, many chose to upgrade their housing which heated up the housing market and escalated housing prices.  Since realtors and the lending industry used monthly payments as the primary measuring tool, buyers found themselves being to buy far more house – at least initially – since prices rose accordingly.  


U.S. Housing Prices - Nominal and Inflation Adjusted
http://mysite.verizon.net/...

But the other side of the coin was that the real estate and lending sectors had to keep bring in new buyers to keep the boom going after traditional buyers had already availed themselves of financial opportunities that low interest rates and refinancing offered.  Thus the move to subprime  and adjustable rate mortages (ARMs) for less qualified buyers.

So then, the oil price run-up has taken place within an overall economy characterized by massive speculation.

And third, rapid rises in energy prices produce a dual response.  First, higher price tend to bring more energy into the market according to classic economic theory.  However, most new energy production is not instantaneous.  A few capped, unprofitable wells may be brought into production quickly, but tertiary recovery and nontraditional sources take a few years to enter the market.  So there is a lag in response time.  

The second response to higher price is reduced usage.  This is twofold.  On the one hand, businesses and individuals can simply drive less and turn the thermostat down.  Such has taken place - with U.S. gasoline consumption dropping at least 3% in the past year.  On the other hand, users can also switch to more energy efficient vehicles, equipment, and appliances.  Again, this takes a number of years.


U.S. Gasoline Demand - 2007 and 2008 Comparison
http://tonto.eia.doe.gov/...

And there's the rub.

Energy demand is relatively inelastic.  A small shortfall can create the very real condition of not having heat for one's house or gas for the car.  But if there is too much, there is, similarly, little market for the excess.  The classic example is the construction of the Columbia Dams in the 1930s and 1940s.  All of a sudden, Bonneville Power had more electricity than it knew what to do with.  Not surprisingly, electric rates were rock-bottom and the aluminum smelting industry (which requires massive energy inputs) located in the Pacific Northwest.


Bonneville Dam on the Columbia River
U.S. Army Corps of Engineers Photo

The problem in the early 1980s was that the energy price run-up promoted increased production while it simultaneously led to reduced consumption.  The two intersected in the early 1980s to produce a long-term collapse in prices.  And while Saudi Arabia may have had the luxury of capping wells, smaller producer nations had become politically and economically reliant upon the higher revenues; thus, OPEC found it impossible to staunch the glut.  

Similarly, the new production modes that had just come on line had massive capital costs to defray - again, creating unsustainable production pressures.  Unfortunately, the 1980s energy collapse took with it most of the early research into solar, wind, and geothermal alternatives.


The 1980s Oil Spike
http://www.marketoracle.co.uk/...

In addition, energy consumers had adopted long-term energy saving responses such as greater insulation of factories and homes, as well as more efficient machinery and appliances.  Thus, energy consumption had been dramatically altered with no possibility of returning to the former consumption pattern.  This took place on top of the overall reduction in economic activity resulted from sky-high energy prices.

<<<>>>

So, is it happening again?

It sure looks likely.  Oil prices are staggering at the $145 level.  There may be one more spurt up to $150, maybe $160.  But the high oil prices have produced a decided inflationary spike that has the potential to turn into a worldwide recession which would dramatically lower oil demand.  Already, energy demand is declining.  

And although conventional oil resources may have passed peak production, nonconventional sources such as the Athabasca Oil Sands are just coming into production. A case in point - production from the Athabasca Oil Sands now exceeds the production from the Cantarell Field, Mexico's largest oil field.  It is indicative of the transformation in oil production that Canada now is in second place behind Saudia Arabia in provable oil reserves.

Although oil production from oil sands has a far great environmatnal and carbon footprint, it is profitable at anything about $40 a barrel.  Is there anyone who would suggest that development of oil sands will not continue given the billions in corporate profits, millions in tax revenues, and thousands of jobs that will accrue?  Not to mention the gasoline for Canadian and American drivers.

Thus, there are many reasons why this boom and bust cycle of oil prices is harmful to any long-term and rational approach to energy policy.  Here are just a few likely results of $80 oil.  First and most importantly, a dramatic decline in the price of oil will call into question most of the policy solutions advocated by those who forecast ever-increasing oil prices.  It will lock in the fossil-fuel powers for the next generation.  Second, in addition to the ideological shift, the drop in oil prices will devastate alternative energy production.  Since all forms of energy production have high front end capital demands, the newer alternatives will be bankrupted and cast aside - much as they were in the early 1980s.  And third, like the proverbial frog in the cooking pot, Americans will be delighted to have $2.85 a gallon gasoline.  Many will quickly forget the fundamental questions of unsustainable energy consumption in the world.

Thus, this diary is far more than a warning about futures and/or options trading in oil.  It is about moving the future of sustainable energy policy away from extreme fluctuations in oil prices - whether they are caused by speculation, structural bottlenecks, or classical economics.  A sane energy policy cannot be based on $200 oil, because if oil fails to reach $200 we will revert to the insanity that has dominated our energy policy for the past half-century.

Originally posted to johnnygunn on Tue Jul 15, 2008 at 10:11 AM PDT.

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Comment Preferences

  •  I hope you're right.... (4+ / 0-)

    I heat my home with oil and dread what will happen to my family this winter.  It's July and I'm still making payments on February's oil delivery.

    Read the Epilogue of Audacity of Hope. The answer is in there.

    by David Kroning on Tue Jul 15, 2008 at 10:15:21 AM PDT

  •  Hope you are right (4+ / 0-)

    and those gaz price goes down..

    Sick and tired of the high prices.

    •  High prices are inconvenient but they're leading (5+ / 0-)

      to a lot of good things...

      -like reduction in suburban sprawl as people try to live closer to work.
      -less driving, and less drivers on the roads, thus less auto accidents and deaths
      -less smog from reduced driving and thus less deaths from smog related illnesses
      -increased interest among the public, and hopefully soon, the gov't, in alternatives.

      I know it's hard to tell that to someone who lives 50 miles from work and doesn't have the option to relocate for whatever reason, but I see the overall shift as helpful, while the individual suffering is very real.

      -9.13, -7.79 When you pray, move your feet. -African Proverb

      by L0kI on Tue Jul 15, 2008 at 10:41:20 AM PDT

      [ Parent ]

    •  Good luck with that nt (1+ / 0-)
      Recommended by:
      hhex65
  •  139 I read earlier today (6+ / 0-)

    hmmmmmm.

    $80/barrel? I'll believe it when I see it.

    Central PA Kossacks holy frak, i got centrist! (-0.12, -3.33)

    by terrypinder on Tue Jul 15, 2008 at 10:17:11 AM PDT

  •  It'll drop to $80 a bbl? (3+ / 0-)

    Ah.  Ya.

    So, who do we have to nuke to drop world consumption by half while at the same time not impacting oil output and shipments by our so-called friends?

    Dana Curtis Kincaid Ad Astra per Aspera! http://www.angrytoyrobot.blogspot.com The enemy is not man, the enemy is stupidity.

    by angrytoyrobot on Tue Jul 15, 2008 at 10:17:54 AM PDT

  •  No it isn't (7+ / 0-)

    "Although oil production from oil sands has a far great environmatnal and carbon footprint, it is profitable at anything about $40 a barrel."

    Where in hell did you come up with that figure?

    Dana Curtis Kincaid Ad Astra per Aspera! http://www.angrytoyrobot.blogspot.com The enemy is not man, the enemy is stupidity.

    by angrytoyrobot on Tue Jul 15, 2008 at 10:19:03 AM PDT

  •  They now know we'll pay $4+ per gallon (9+ / 0-)

    $80 barrels will never show up at the pump, it'll just go into profits.

    Big oil needs a bit of trust busting IMO.

    Love, baby, that's where it's at. --The B52's

    by Mind That on Tue Jul 15, 2008 at 10:19:47 AM PDT

    •  Under another president (1+ / 0-)
      Recommended by:
      Mind That

      there'd be government pressure to lower the price at the pump if oil prices fell. A windfall tax, for example. At least a personal call from the President. But Bush's only comment would be along the lines of "Wow, you guys are making out well this year." Cheney, might say much the same -- but he would remember to also encourage them be sure to "thank" those who made it possible.

      Which is why Cheney will be on the neocon lecture circuit: both the oil companies, & the people they thanked will see the benefit. The Shrub will just sit by the phone, wondering why no one ever calls him.

      Geoff

      •  Why do you think (0+ / 0-)

        a windfall tax would do anything but raise pump prices?

        The most dangerous spot in Washington is between Chuck Schumer and a TV camera.

        by jqmilktoast on Tue Jul 15, 2008 at 12:23:48 PM PDT

        [ Parent ]

        •  Already has maybe (0+ / 0-)

          Somewhere here the argument was made that the talk of a windfall tax was pre-empted by market manipulations, driving the price up even higher...any talk of 'windfall' tax would then be spun as raising the price even higher, and would be politically unacceptable. The windfall tax was preemptively sucked up as profit. Probably hard to 'prove', heh.
           I think another way of saying was that a tax was prevented by usurping the tax as speculative profit before gov't could rumble in and tax it. Or, if there was room for a speculative bubble/price hike with a tax, industry sees that as an opportunity to  keep raising the price so as to keep the extra money in the price instead of giving it to the consumers/govt.  (Ah...can't say it right.)
            As to why the price wasn't that high already is another question, I sure couldn't say. Extra work would be needed to propagandize the price increases as inevitable, market forces etc to make the public 'accept' it..That's what those rw think tanks are for, like Newt.
           I suppose the risk for the industry is public investigation and trust and image problems. If we could successfully tag the Reepers as doing this, that would be a good thing, and likely the truth, imo.
          There were examples given where an industry had done that in the past..I wish I'd saved it the previous discussion.

          Obama...Hope McCain...Nope

          by KenBee on Tue Jul 15, 2008 at 01:32:41 PM PDT

          [ Parent ]

        •  Why do you *you* think (0+ / 0-)

          that a windfall would raise pump prices?

          The tax is levied only if pump prices aren't lowered. If the oil company lowers their pump prices in step with crude oil prices, their profits remain the same; if they don't, their profits increase -- but not as much. Sure the oil companies can raise their prices -- but the tax will be on that. They'd be better off just lowering their prices.

          So either the consumer benefits from lowered prices, or the bulk of the difference goes into government coffers & helps to pay off the massive debts that Bush ran up -- & helps all of us.

          Geoff

          •  Oh I don't know (0+ / 0-)

            maybe because that's what happed the last time a windfall profits tax on oil companies was passed? The incentive is not to lower prices, the incentive is to produce less.

            History can be a fantastic teacher, if one is a willing student.

            The most dangerous spot in Washington is between Chuck Schumer and a TV camera.

            by jqmilktoast on Tue Jul 15, 2008 at 06:36:59 PM PDT

            [ Parent ]

  •  A very interesting diary (6+ / 0-)

    and I do think people fail to understand that energy prices are a dynamic process.  

    I year ago I thought for sure the rise in oil was a bubble.  Now I am not so sure.

    •  Tipped and recc'd because I love contrarians (6+ / 0-)

      There is no question that demand destruction is taking place in the US and to some extent in Europe.

      As Asian countries drop their subsidies, we should see demand destruction happening there too.  The 800 pound gorilla is China, and even with their recent relaxation of subsidies, they have the equivalent of $3/gallon gas.  There are some conflicting stories about a dropoff in demand there.

      I suspect we will see a dramatic downdraft in prices, probably very soon.  Of course, by the time it happens, it could be a dramatic decline from $225/barrel to $150/barrel!

      As I've said in a couple of places, where the global economy goes from here will be determined exactly by the intersection of China and oil.

      Cheers.

      "When the going gets tough, the tough get 'too big to fail'."

      by New Deal democrat on Tue Jul 15, 2008 at 10:37:11 AM PDT

      [ Parent ]

    •  I'm pretty sure there is manipulation (0+ / 0-)

      for one thing, Bush and Cheney attacked Iraq, and that has taken quite a bit of oil out of the supply chain.  Can't get much more manipulative than that, can you?

  •  Wrong again... (7+ / 0-)

    "It sure looks likely.  Oil prices are staggering at the $145 level.  There may be one more spurt up to $150, maybe $160.  But the high oil prices have produced a decided inflationary spike that has the potential to turn into a worldwide recession which would dramatically lower oil demand.  Already, energy demand is declining."

    Already, energy demand is declining.  No.  Recreational driving has dropped a little bit, but airlines, trains, ships still have to move.  Plastics are necessary.

    Your decline in usage is a blip.

    Dana Curtis Kincaid Ad Astra per Aspera! http://www.angrytoyrobot.blogspot.com The enemy is not man, the enemy is stupidity.

    by angrytoyrobot on Tue Jul 15, 2008 at 10:20:56 AM PDT

    •  yes, and wordwide demand is not (0+ / 0-)

      declining.  Oil MIGHT go down.  But this evidence is not really convincing me.

      Want a progressive global warming novel, not a right wing rant? Go to www.edwardgtalbot.com for a free audio thriller.

      by eparrot on Tue Jul 15, 2008 at 10:48:14 AM PDT

      [ Parent ]

    •  You Have an Appropriate Handle, Eh? (2+ / 0-)
      Recommended by:
      paul2port, cynndara

      In addition to "recreational driving" - all gasoline use has dropped.  U.S. DOE figures are for ALL use - that includes police cruisers, FedEx vans - etc., etc., etc.

      Then there's jet fuel.  Airlines have cut their routes by 15% to 20% in the past 6 months.  In addition, they have added 10% time to trips because reducing cruising speed reduced jet fuel consumption.  A similar pattern has taken place throughout the world airline industry.  Those reductions are just now impacting.

      And you said something about cutting demand in half.  You need to read about price elasticity - especially in regards to inelastic commodities.  If demand drops 5%, there will be a race towards the bottom.

    •  Four 4X4's (1+ / 0-)
      Recommended by:
      johnnygunn

      for sale on my block alone.  Marked reduction in gashogs on the highway during my work commute; I haven't even SEEN a hummer on the road in the last six months.  Households with a truck or SUV and a car are taking the CAR on the long drives and leaving the SUV in the driveway.  Actually, I've been wondering if this might not be a great time to pick up a deal on a 4X4 for my occasional hauling and deep-snow driving needs.

    •  All it takes is a blip... (1+ / 0-)
      Recommended by:
      johnnygunn

      You might say 2% is nothing, but that is millions of barrels. If output does not adjust some one is storing that oil.  Eventually storage runs out in the supply line. Once that happens the bottom falls out of the price because the over-production has to be sold.

      OPEC can try to keep the price up by reducing production. But, if consumption drops enough below available production eventually it is very likely some one will ignore OPEC targets especially at these prices when they can make a ton of money.  And, even a couple percent drop in the US is unlikely to be absorbed short term by India and China simply because US is still the 600lb gorilla and in order to absorb a couple percent of US consumption China and India have to increase consumption significantly more as a percentage of their current consumption, and that kind of growth in unlikely unless prices drop.

      Some numbers to consider.  With an average fuel economy of 20MPG an increase of the average to 21MPG is about a 5% reduction in consumption of gasoline.   Reduce miles driven by a couple percent on top of that and we may see nearly a 10% reduction in motor fuel consumption in the US over the next year or two.

      The interesting thing is that changing consumption is relatively slow. It may take a couple years for the effects of people switching to more fuel efficient vehicles, moving closer to work,  and getting permission to telecommute more.  But, those sorts of things also tend to revert slow as well. You don't trade in your Prius the second gas prices drop, you don't move further from work because gas prices drop, and you end up liking telecommuting.

      JohnnyGun's timetable may be ambitious, but the longer prices stay at these levels the more people are going to make long term changes to their lives and the more incentives to develop other fuels.  And, these changes will be more entrenched the longer prices stay at these levels.  And, that will cause the price of oil to crash eventually.

    •  World demand continues unabated (0+ / 0-)

      crude production is in decline. Unlike the dot com and housing bubbles.

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Tue Jul 15, 2008 at 03:32:24 PM PDT

      [ Parent ]

  •  Speculating (7+ / 0-)

    on what the speculators might do with oil prices ,
    is not something I care to speculate about .

    "The fussy armchair jackboots"

    by indycam on Tue Jul 15, 2008 at 10:20:58 AM PDT

  •  Granted, I speed read thru your post, (12+ / 0-)

    and I do appreciate the background, but I didn't see the factoring in of increased and sustained demand from two big players: China and India, of course.

    I don't think it's all about us -- oil is a global commodity.

    Here's hopin' though!

    •  I agree w/ you. I was going to say the same (3+ / 0-)
      Recommended by:
      PhillyGal, Mr X, Roger Fox

      things, but you said it first!
      The global energy market is completely different from what it was the 80s. Comparing nifty patterns on graphs and charts is not a very sound way to do any type of prognostication.
      Peace!

      We can't solve problems by using the same kind of thinking we used when we created them. Albert Einstein

      by BigVegan on Tue Jul 15, 2008 at 10:26:06 AM PDT

      [ Parent ]

    •  China is not immune... (6+ / 0-)

      let's say it does go up to $200 a barrel in 3 more months...and stays there for the rest of eternity. Do you believe China and India will continue to subsidize oil at $200 or $300 or $1000 a barrel so that their people can pay 20 cents a gallon at the pump?

      It's not gonna happen. Demand destruction WILL take place everywhere, including China and India--it will force them to cut the subsidies therefore making gasoline too expensive for the average peasant to buy--hence demand will drop. People who believe that it actually makes sense for developing countries to keep paying these ridiculous prices (whether directly by the consumer or indirectly by the government though subsidies) for oil and that they will keep paying for it no matter what without affecting them really don't know what they're talking about.

      Oil demand is very inelastic--but at some point, whether that is $180 or $200 or $350...demand will crack. Everywhere.

      "People place their hand on the Bible and swear to uphold the Constitution. They don't put their hand on the Constitution and swear to uphold the Bible." --J.R.

      by michael1104 on Tue Jul 15, 2008 at 10:33:20 AM PDT

      [ Parent ]

    •  Great comment (1+ / 0-)
      Recommended by:
      PhillyGal

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Tue Jul 15, 2008 at 03:30:27 PM PDT

      [ Parent ]

    •  Me, Too (0+ / 0-)

      I taken Evelyn Sped Wood Redding tree times and my comprension has dubbled.

      Yep, I find myself gutting diaries at a glance.
      I confess to quantity reading -
      And, too often, I miss the quality.

  •  Wow, that's terrifying (0+ / 0-)

    A double oil-housing bust oughta finish off the US economy for good . . .

  •  Interesting reasoning by anology (8+ / 0-)

    However, many people think "this time it's different" - and I agree with that view.

    1. US isn't driving the market anymore.
    1. New sources are very limited and expensive.
    1. Global depletion rate of 5%+ per year on current wells. We have to find massive reserves continually just to keep up.

    PS: your point about Oil Sands Vs. Cantarell makes a different point to me than to you: Cantarell is dropping faster than oil sands are rising. In 4-5 years Mexico will likely be a net oil importer. So where is the next oil sands and how many years (or decades) will it take to ramp up?

    I believe the only way oil goes back to $80 is if the whole world starts using a lot less. If that happens then the changes will be permanent regardless of price. IOW, the price will have dropped because the world only "wants" 70 million BPD instead of 84.

    •  Also, Oil Sands needs Nat Gas (1+ / 0-)
      Recommended by:
      NoBigGovernment

      Nat Gas prices are high making the development of the oil sands that much more expensive.

      Plus, converting oil sands into oil takes unprecendented amounts of fresh water, not something that there is plenty of right now.

    •  well the US consumes (2+ / 0-)
      Recommended by:
      paul2port, Ken in MN

      about 25% of all the oil in the world if I'm not mistaken. That is a huge figure still.

      A drop in US demand is quite significant for the global demand side.

      "People place their hand on the Bible and swear to uphold the Constitution. They don't put their hand on the Constitution and swear to uphold the Bible." --J.R.

      by michael1104 on Tue Jul 15, 2008 at 10:38:56 AM PDT

      [ Parent ]

      •  And US demand for goods and services... (2+ / 0-)
        Recommended by:
        paul2port, statistic

        ...imported from China, due to the sinking dollar and less discretionary income caused by higher oil prices will leave China and India with less money and less need for oil.  It's all related.  You can't site China and India demand as if they exist in a vacuum...

        I want my Two Dollars!

        by Ken in MN on Tue Jul 15, 2008 at 10:51:13 AM PDT

        [ Parent ]

    •  Colorado (0+ / 0-)

      years.

      Central PA Kossacks holy frak, i got centrist! (-0.12, -3.33)

      by terrypinder on Tue Jul 15, 2008 at 10:40:24 AM PDT

      [ Parent ]

    •  Supply & demand (0+ / 0-)

      is classic economics.  The world "wanted" as much oil as it's been using and buying up at $60-$80/barrel.  At $150/barrel, the world is going to "want" much less oil, once that price is absorbed into our daily habits.  There are lots of ways that oil use can be cut down and other sources of energy substituted, the main problem being that they do take a little while to kick in (especially when they involve selling a house or finding a new job in the current markets).  For instance, my commute, which cost $30/week in gas last September, now costs $55/week, which is 18% of my take-home pay.  If I had intended for the job to be a long-term proposition, I would be looking to sell my house and move closer to work.  Since the job was only intended to hold me through until I sell the house, I'm still trying to sell the house ... but there's the current market to consider, which is why I got a job.  Still, one assumes that even in a down market, the house will sell within two years, and then my gas consumption will be significantly reduced, because I'm not normally inclined toward 50-minute commutes.

      Similarly, the subdized prices of oil in the developing world have been raised by numerous governments, and all hell has broken loose.  The Chinese may "want" the amount of oil they have been hastening to demand at 20 cents per gallon, but they are not nearly so desirous if it costs them 40 cents.  That's just human nature.  At first, of course, they'll shout and scream that they want what they want and what they want is for the price to go back down, but if the government stays firm at keeping the price higher, they'll discover that they "want" less.  And so it goes.  We all "want" what we can afford, plus ten percent of course.

  •  Please note that the plunge in the price of oil.. (0+ / 0-)

    ...will be accompanied by an increase in the price of gas.  I'm not an economist.  I merely know that come hell or highwater we are going to get screwed.  

    "Catch-22 says they have a right to do anything we can't stop them from doing." -- Joseph Heller

    by Roddy McCorley on Tue Jul 15, 2008 at 10:22:28 AM PDT

  •  Don't tell Jerome a Paris . . . (6+ / 0-)

    To "those in the know" what we're witnessing is all explainable to China, India, and peak oil.

    I don't know how a run-up of this magnitude in oil, coupled with the very same thing in every other commodity [peak "bread" anyone"?], and a seriously challenged stock market with billions running for the exits into inflation-resistant investments don't just reek "speculation," but hey, I'm just a dough head watching from the sidelines.

    •  "Countdown to $100 oil" began 6/20/05 (4+ / 0-)
      Recommended by:
      Phoenix Woman, theran, Mr X, Phil S 33

      If anyone wants to go back to see where Jerome was predicting things were headed. A lot of so-called energy experts scoffed but all the indicators were there.

      http://www.dailykos.com/...

      Here we are now Entertain us I feel stupid and contagious

      by Scarce on Tue Jul 15, 2008 at 10:29:21 AM PDT

      [ Parent ]

      •  Doesn't mean we're not suffering from speculation (3+ / 0-)

        Is demand higher? Have we maxed out oil production? Sure. Does that completely explain prices we've got now?

        Post-Enron, the argument that a rise in prices of any commodity subject to market forces precludes the very possibility of speculation is absurd on its face.

        •  I'm sure there's some speculation (2+ / 0-)
          Recommended by:
          Mr X, esquimaux

          But to attribute it all to that very conveniently lets everything else off the hook.  Just focusing on the US for a moment, and completely ignoring other countries like China and India which of course can't be ignored, when was the last time our government enacted policies that encouraged conservation?  Jimmy Carter's administration, I think.

          •  An argument about forces of speculation isn't (3+ / 0-)
            Recommended by:
            Aunt Martha, cynndara, Roger Fox

            an argument against moving away from petroleum. At least I'm not intending that. I'm trying to make the point that I'm unconvinced we're seeing what we're seeing because of pure market forces of production and consumption. Our global economy is being run by people who are making money off of every-more tangential relationships to real labor and production, and I'm just permanently suspicious of what they try to tell us.

            I'm Enron-ed out. I don't know how anyone who has lived through the corporatocracy of the last couple of decades can choose to ignore that the forces of capital aren't interested in how classic economics is supposed to work. They figure out new ways to game the system every single day. And our lives are intimately and immediately affected by their greed.

        •  There are plenty of references to the Futures (1+ / 0-)
          Recommended by:
          theran

          ..markets in many of the diaries. I just read his diary entry #2 where a prestigious energy board which shall remain nameless was predicting a lowering of world oil prices for 2007-08 to under $40 from the then exorbitant $56/barrel.

          That was, um, off.

          Here we are now Entertain us I feel stupid and contagious

          by Scarce on Tue Jul 15, 2008 at 10:51:46 AM PDT

          [ Parent ]

          •  How many references to "commodity bubble"? (1+ / 0-)
            Recommended by:
            paul2port

            My nit with Jerome is that he looks at the problems of the oil industry as though it is a universe unto itself. There have been massively large influxes of institutional capital into commodities over the past 6-8 months. To what extent are we paying for peak oil vs. capital movement?

            If it's a fairly large premium---and we don't know at this point---the diarist here might actually have an argument. Who knows what price oil really belongs at?

            •  The real price of oil is what people are willing (1+ / 0-)
              Recommended by:
              theran

              ..to pay for it.

              I'm not trying to be facetious either. Here's a GOP genius Steve Forbes on the coming oil bubble. This was written 8/30/05:

              Forbes said the high oil prices currently dampening the US economy, which peaked at more than 70 usd a barrel yesterday as Hurricane Katrina headed for the US Gulf Coast, would fall to 30-35 usd a barrel within a year. 'I'll make a bold prediction... in 12 months, you're going to see oil down to 35-40 usd a barrel,' he said, according to Agence France-Presse. 'It's a huge bubble, I don't know what's going to pop it but eventually it will pop -- you cannot go against supply and demand, you cannot go against the fundamentals forever.'

              Here we are now Entertain us I feel stupid and contagious

              by Scarce on Tue Jul 15, 2008 at 11:19:45 AM PDT

              [ Parent ]

              •  If there is hoarding and manipulation (0+ / 0-)

                then presumably eventually all the unsold stock will hit the market.  Right now, demand doesn't seem to have fallen off so far to create that situation.

                Ortiz/Ramírez '08

                by theran on Tue Jul 15, 2008 at 11:44:10 AM PDT

                [ Parent ]

                •  Right... (1+ / 0-)
                  Recommended by:
                  johnnygunn

                  And, as with Enron speculative manipulation of a commodity really requires a constrained supply and inelastic demand that nearly matches supply.  At that point it only takes a slight alteration of the supply to cause prices to skyrocket.

                  In the case of Enron and California this was driven by the shut down of a San Onofre reactor and another reactor at Diablo Canyon(I think) running at a fraction of capacity.  That was almost 10% of California's baseline being off line which pretty much gobbled up any extra capacity and set the stage for market manipulation to drive up prices.  If you check out the timeline the electricity crisis almost perfectly matches the time between when the reactor at San Onofre went down then came back up.

                  A similar effect is happening with oil it appear to me.  Inelastic demand and supply are closely matched.  It only takes a tiny manipulation of the market to push prices very high.  But, conversely it will not take much of a change in demand for those prices to crash.

                  The one thing to notice is that even with the high prices there is no shortage in the sense of stations not having gas. Which, unless production is dropping in lockstep with the change in consumption, means there is enough oil, and as people adjust their habits could create a significantly faster decrease in consumption than production.  And, since a lot of people are going to get used to living with less gas consumption is unlikely to bounce back quickly as the price drops.

        •  Back when oil was $65-$70 a barrel... (0+ / 0-)

          ...a oil-trading friend of an acquaintance of mine said that $37 of the price of every barrel of oil was the result of the Iraq war.

          So yeah, I suspect that once we pull out of Iraq, oil will drop back from its current price levels for a while -- unless of course Bush invades Iran.

          John McCain will end Roe v. Wade if he's president.

          by Phoenix Woman on Tue Jul 15, 2008 at 10:55:38 AM PDT

          [ Parent ]

    •  Price is a signal that should trigger (2+ / 0-)
      Recommended by:
      johnnygunn, cynndara

      a response.

      Prices are set at the margin. It isn't the underlying everyday demand that makes the market price change but what's happening at the edge. The slight increase or decrease in supply or demand determines the change in price.

      Energy consumption in India and China is, and will be influenced by the price change too. They have every bit as much motivation to moderate their demand when the price rises. They have as much or more motivation to move to a more sustainable, secure alternative energy system. What makes you think India isn't anxious to move to solar?

      What about the horrible air pollution in China? There's plenty of reason to move to renewable, ecologically sustainable energy systems. And they have the capacity to build the new economy too.

      I think JohnnyGunn has made a reasonable case for a correction to the price of oil.

      We'll see.

      Regarding bread and other commodities. You've made an interesting point. This energy market, the cost of the Iraq war, and other geo-political conflict have caused a serious round of inflation.

      In the short term, the world we live in, there can be a "peak" to commodities other than oil. We hit the production or exploration wall. In the case of food people can starve in the short term, a single growing season, a tough winter. In the long term more food can be produced and distributed but as John Maynard Keynes said "in the long run we're all dead".

      •  I think you misread my post--I think we're seeing (1+ / 0-)
        Recommended by:
        paul2port

        more speculation than reaction to market forces in all commodities right now. I would fully agree that there will me significant changes in all economies tied to petroleum, and I completely believe that some [Africa?] may leap right over a petroleum-based economy.

    •  Not to Mention - (0+ / 0-)

      That the language is sooooooo very like the language of previous speculations.

      Remember, during the dot.com boom that people were talking about the "end of the business cycle"?

      During a spike, with each peak speculators talk about the next.  Obviously, the bubble eventually bursts.  Given the devalued dollar and the overall speculative nature of the current economy - it may go on a little longer - but that just means the bust will be bigger.

  •  Energy demand is declining? According to who? (1+ / 0-)
    Recommended by:
    theran
    •  Why Do I have to Repeat? (1+ / 0-)
      Recommended by:
      punkdavid

      What is in the main body with references??

      http://tonto.eia.doe.gov/...

      Even Jerome showed a downtick in U.S. demand in his recent diary - and the graph ended in April.  Since then it has been more pronounced.

      And remember - it doesn't take a reduction in demand by 50% to effect a reduction in price by 50%.  Once a small excess becomes perceived in the market, there will be huge downward pressures.

      •  Um, are you stupid? There are other countries in (7+ / 0-)

        the world.

      •  An explanatory table (2+ / 0-)
        Recommended by:
        Roger Fox, el bandito

        Short Term Energy Outlook

        Some relevant numbers:
        Chinese oil consumption:

        2007 7.58mbd,
        2008 (proj.) 8.02mbd,
        2009 (proj.) 8.42mbd.
        That's a year over year increase of about 5%.

        Likewise, global consumption is still projected to increase 1-2%, in spite of US and EU declines in demand. Actually if you look closely at the EIA chart you will see 2009 projections of 87.72mbd of supply, and 87.76mbd of demand. That seems to imply a shortfall of 40,000 barrels per day.

        Two percent growth may not sound like a lot, but considering that global oil production is barely keeping pace with demand, it is. Currently, even though prices are high, you can still buy as much oil as you need so long as you're willing to pay $135/barrel for it. We haven't faced any actual shortages.

        The problem is that the there is no swing producer anymore. No one seems to have the ability to 'open the spogots' in order to smooth out the global oil market.

        Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. - Groucho Marx

        by Joe Bob on Tue Jul 15, 2008 at 10:59:56 AM PDT

        [ Parent ]

        •  Ummmm - (0+ / 0-)

          And Iraq production is likely to return to pre-1990 levels.

          Which were 3.5 million barrels per day.
          Right now Iraqi production is about 2M.
          So that's 1.5M more - three times the increased Chinese demand.

          Why were there no-bid contracts?
          One reason may be that the big boys will be more prudent in adding this new source stream into the world supply.  A desperate Iraq acting on its own may have dumped too much oil too quickly.

          •  ROTFLMAO (1+ / 0-)
            Recommended by:
            Roger Fox

            Yeah right, Iraqi oil production is right around the corner

            "A clown is like aspirin, only he works twice as fast" - Groucho Marx

            by Morpheus on Tue Jul 15, 2008 at 12:40:12 PM PDT

            [ Parent ]

            •  So Then - (0+ / 0-)

              How, exactly, do they manage CURRENTLY to pump 2M barrels per day?
              That's more than a thimble full.


              http://www.wtrg.com/...

              I know, it hurts to have one's assumptions blown.

              Also -
              http://www.infoplease.com/...

              •  Basra's Tanker loading is a limiting factor (0+ / 0-)

                probably about 2.7 mbpd. Unitil the pipeline thru Ceyhan Turkey is reliable again, Iraq doesnt go over 2.5mbpd or so. IMHO.

                Iraq could be a top producer in 10 yrs, certainly the oil is there... just not the infrastructure.

                FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

                by Roger Fox on Tue Jul 15, 2008 at 01:25:42 PM PDT

                [ Parent ]

            •  Serious non understanding of problems in Iraqs (0+ / 0-)

              oil infrastructure.

              Maybe in 10 -12 yrs. Iraq could be a 4+mbpd producer, as least thats what Cheney thinks.....

              FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

              by Roger Fox on Tue Jul 15, 2008 at 01:16:33 PM PDT

              [ Parent ]

              •  Modernization - (0+ / 0-)

                (Modernisation if you are British)
                Could add 10% to 20% at Basra - without expansion.

                Given the cash reserves of the Big Four -
                Such could easily be accomplished in a year or two.

                PROVIDED that increased production was their goal.
                Also, with the caveat of no hot war with Iran.

                PS - Never said 4+.  Said 3.5 tops.  
                That's an overstatement of 14%.

                •  I said Cheney said 4+mbpd, was that not clear ? (0+ / 0-)

                  as least thats what Cheney thinks.....

                  Was that not clear, did I use overly vague and foggy wording in such a way as to hide the fact I was citing Cheney ?

                  How can you see that as anything else ?

                  ------------------------------------------

                  In fact when looking at just the known fields Iraq should be able to break 5mbpd.

                  Even if peace broke out today in Iraq, Gas Oil separators take yrs to build, Iraq has used water injection for yrs, that water needs to be separated from the crude.

                  Russia's Sakhalin Nat Gas liquefaction project, started in 2005, has yet to come online.

                  Hydrogen sulfide gas is a problem, and facilities have to be built before crude production can be ramped.

                  Given the cash reserves of the Big Four -
                  Such could easily be accomplished in a year or two.

                  This sort of construction take far longer than you seem to think, Iraq has maybe 2000 wells, Texas has 1 million. Drilling rigs are slated to be in shortage thru the next 2 yrs, most production going to offshore rigs.

                  http://www.lrb.co.uk/...
                  http://www.saudiaramcoworld.com/...
                  http://query.nytimes.com/...

                  FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

                  by Roger Fox on Tue Jul 15, 2008 at 02:36:54 PM PDT

                  [ Parent ]

          •  Problems in Iraqi oil (0+ / 0-)

             title=

            Their water injection program may have dumped waste into wells. I dont see the infrastructure being built to support anything over the current 2-2.5 mbpd. In 10-12 yrs, yeah sure. After the Pipeline thru Turkey to  Ceyhan is fixed and in good operating order. Loading tankers at Basra is a limiting factor until then.

            And unanswered questions, what happened to Basra light sweet crude, it used to be API 37+ under 2% sulfur, on par with Arabian light. Now
            Basra pumps medium crude API 33, 2.2% sulfur. .

            Light sweet crude is at a premium now, why hold back?

            Or is the Iraq Saudi pipeline being used to move Basra light to the KSA ?

            Since no one seems to be metering tanker loading at Basra there really is no way to accurately say what Iraqi production is. At least within 1mbpd.

            FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

            by Roger Fox on Tue Jul 15, 2008 at 01:13:27 PM PDT

            [ Parent ]

      •  Sell Me Calls On $80 Oil (1+ / 0-)
        Recommended by:
        theran

        You can have any expiration date you want in the next two years.

        You are lost in an oblivion of technical analysis and selective data.

        This is CLASS WAR, and the other side is winning.

        by Mr X on Tue Jul 15, 2008 at 11:14:17 AM PDT

        [ Parent ]

    •  You mean, "according to whom" (1+ / 0-)
      Recommended by:
      johnnygunn

      Yes, I'm the self-appointed grammar police.

  •  Jerome's $200 or your $80? (5+ / 0-)
    Recommended by:
    kd texan, Phil S 33, esquimaux, Grass, BigVegan

    I'm thinkin' Jerome's $200 looks more plausible.

    Here we are now Entertain us I feel stupid and contagious

    by Scarce on Tue Jul 15, 2008 at 10:23:56 AM PDT

  •  Since Oil Hit $20 People Have Predicted Collapse (5+ / 0-)

    in prices.

    This time for sure!

  •  HAHAHAHA (8+ / 0-)

    You're nuts.

    1. The dollar is falling, which accounts for a lot of the run up in oil prices.
    1. The oil majors have been trying to increase production, and they got nothin', because oil has peaked.
    1. China continues to grow very fast (India too).

    So if you think we're going to see $80 oil again, You. Are. Nuts.

    "we must make the rescue of the environment the central organizing principle for civilization" - Al Gore

    by racerx on Tue Jul 15, 2008 at 10:27:10 AM PDT

  •  Regardless... (2+ / 0-)
    Recommended by:
    johnnygunn, paul2port

    We're learning the basics of solar to H to electric to H20.

    My wife and I plan to live without wires running to our house.

    Good diary!

    :::::

    •  Thank You - (6+ / 0-)

      I appreciate your interest and your willingness to entertain an alternative view.  Unfortunately, there are already many here who have responded with rotten fruit and vegetables to a diary which I have spend weeks developing.  Such is the nature of blogging.

      Of course the fact that I am a historian of energy communities and that I have spent considerable time working with people in the energy field is of little import.  

      I believe the rapid turn-around on nuclear shows that American energy consumers are interested in their continued access to energy - damn  the consequences.  If such is the case, then there is ample energy - albeit in nontraditional and environmentally dangerous forms to preclude any crisis - at least in the short term (25 years).

      •  China and India are the wild cards (2+ / 0-)
        Recommended by:
        theran, johnnygunn

        On the one hand, China's been trying to get off of coal and onto oil for decades.  That boosts oil demand.

        A lot depends on how fast they can get onto wind power.

        On the other hand, China is acknowledging Peak Oil by seriously ramping up their wind power investments.  That, I'm guessing, will start to act as a brake on rising oil demand in about three to five years, and eventually start to lower oil demand in about a decade.

        India is in a similar situation, and is nearly neck-and-neck with China in getting onto wind power.

        (By the way, here's a site in which it's stated that tar sands are profitable at any price over $25 a barrel.  So your $40 a barrel is if anything a mite high instead of the low-ball figure some think it is.)

        There's also the use of oil in things like fertilizers, medicines and of course plastics.  Cost-effective substitutes for oil in these items need to be found.

        John McCain will end Roe v. Wade if he's president.

        by Phoenix Woman on Tue Jul 15, 2008 at 11:08:08 AM PDT

        [ Parent ]

      •  Thank you for this diary (1+ / 0-)
        Recommended by:
        johnnygunn

        The best diaries usually do not make the rec list.  

      •  You Think Very Highly of Yourself (1+ / 0-)
        Recommended by:
        Roger Fox

        If you want others to agree, you need to present a case with far more integrity.

        Your lack of analysis with regard to the cost of extraction is glaring. Suggesting that a "turn-around" on nuclear energy will somehow keep the price of oil low is also not very indicative of rigorous analysis. Even if, and that's a very big if, the cost of nuclear energy is relatively low, it will not reduce the costs associated with extracting the dwindling supply of oil.

        Your dismissal of energy consumption trends in countries like China and India does nothing to bolster confidence in your conclusions.

        Stating that responses such as this are "rotten fruit and vegetables" further degrades any claim to a professional presentation.

        This is CLASS WAR, and the other side is winning.

        by Mr X on Tue Jul 15, 2008 at 11:31:17 AM PDT

        [ Parent ]

        •  What A Nasty Response - (0+ / 0-)

          Rough day, eh?

        •  PS - (0+ / 0-)

          Last time I looked at the FAQ, you are not required to write a dissertation to post diaries.  This diary presents an argument and has considerable reference points.  It is, to be sure, the tactic of malicious debunkers to  always find the point not raised.

          My argument remains -

          1. The current spike in oil prices looks like a bubble.
          1. We are paying for the collapse of other recent bubbles.
          1. The nature of the oil business is fraught with bubbles.

          Please feel free to argue against the points which I made.

        •  Looks like some fruit went both ways (1+ / 0-)
          Recommended by:
          Mr X

          FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

          by Roger Fox on Tue Jul 15, 2008 at 02:00:44 PM PDT

          [ Parent ]

        •  Dont bubbles go with increased supply (0+ / 0-)

          we have a finite oil supply, declining even, how does the diary pass these issues over, or does it ?

          FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

          by Roger Fox on Tue Jul 15, 2008 at 02:49:29 PM PDT

          [ Parent ]

      •  Yeah, the flip-flop isn't just from politicians (0+ / 0-)

        I believe the rapid turn-around on nuclear shows that American energy consumers are interested in their continued access to energy - damn  the consequences.  If such is the case, then there is ample energy - albeit in nontraditional and environmentally dangerous forms to preclude any crisis - at least in the short term (25 years).

        Sad, but true, for all addicted to the material comforts our current habits have gained us. Complacency and denial remain every addict's undoing.

        Nukes without waste disposal, 'clean' coal technology,   drilled wilderness and coastlines. Tis far easier to become a hypocrite and advocate for environmental suicide while our cheap-oil transportation infrastructure crumbles than to take the 'loser' way of riding a bus, building better mass transit alternatives or turning the lights out in the next room.

        One thing that's completely amazed me in this Energy Concern cycle is that this time, virtually no-one has even mentioned how much can be gained via a renewed and expanded commitment to energy conservation. That, at least, buys some time to build the next gen energy alternatives.

        "Drill it and spill it" has become the new mantra of the nation's largest group of addicts. And the only infrastructure that hasn't crumbled yet is the thick roadbed of multiple layers of denial.

        Cowboy Kahlil
        Lt Columbo: "When did you first notice your national security, wallet, rights and the nation's dignity had been stolen, ma'am?"

        by Cowboy Kahlil on Tue Jul 15, 2008 at 12:46:21 PM PDT

        [ Parent ]

  •  just because two graphs have a similar shape (10+ / 0-)

    doesn't mean that they will follow the same pattern. I agree there will likely be a correction, but not a collapse - we aren't going to see $30 oil ever again, not unless it becomes an obsolete energy source. The fundamentals are driving the price, not the speculators - they're just profiting and perhaps inflating it slightly.

    Maybe it will fall back to 120, maybe even 100, but over the next 5 or 10 years it's gonna keep going up, up until there is enough demand destruction in Africa and the poorer classes in Europe and America, so China and India can continue to supply their economies with subsidised fuel.

  •  Only one problem.,, (0+ / 0-)

    oil is a product that is used, the demand is world-wide and growing. I hope that you are right but I'm not counting on it.Even if the price drops to $80, just roughly a 50% decrease, I'd be willing to bet that the price of gasoline doesn't drop by 50%.

    CHRISTIAN, n. One who believes that the New Testament is a divinely inspired book admirably suited to the spiritual needs of his neighbor. A. Bierce

    by irate on Tue Jul 15, 2008 at 10:31:22 AM PDT

  •  The declining demand for oil (3+ / 0-)

    You are correct in pointing out speculators have a lot to do with the price increase but you have not stated a clear case for the timing of the bubbles burst.

    A declining demand for US gas might well trigger a reduction in speculative fever for oil barrels.  But US gasoline is only one aspect of worldwide demand.  Other parts of the world and other uses for oil complicate the picture - oil demand is not necessarily a linear function of US gasoline demand.  suppose the Chinese reduce the food consumed by their populace and spend the 'savings' on oil (Brutal regimes have such options). Suppose the really high gas tax states of Europe reduce their consumption tax so their people have a steadier demand for gas.  Worldwide demand could rise even as US gasoline consumption falls.
    At some point worldwide demand falls but most the world has methods or safeguards in place we just don't have to make the demand for oil less elastic.  

    Have you thought about what the declining price of gasoline means here.  Tent cities.  When enough people live as paupers the price of everything will decline.  We will likely remark less about the lower price of gasoline than our emerging squatter districts if gas demand here is alone sufficient to drive down the world demand for oil.  

       

    "Obama. He's redefining what a politician is... take the best from the past, leave the worst back there and go forward into the future " Bob Dylan

    by SmithsLastWord on Tue Jul 15, 2008 at 10:31:35 AM PDT

    •  Yes - (2+ / 0-)
      Recommended by:
      KenBee, Same As It Ever Was

      The yo-yo pricing of oil and other energy sources has many profoundly negatively effects.  I mentioned a few in the diary.  The worst - as energy policy goes - is that a major drop in prices will produce a return to complacency.

      •  This is one of very few times (1+ / 0-)
        Recommended by:
        KenBee

        Gasoline demand declines in the US.  I won't forget this.  How could we?  On top of the bank failures coming, the foreclosures and the job losses we are looking at possibly the most wrenching economic times we might have to endure.  This is one of a kind territory.  This is the unforgetable summer we will just wish we could forget.  

        "Obama. He's redefining what a politician is... take the best from the past, leave the worst back there and go forward into the future " Bob Dylan

        by SmithsLastWord on Tue Jul 15, 2008 at 10:43:37 AM PDT

        [ Parent ]

        •  This is not all that wrenching, for most of us (1+ / 0-)
          Recommended by:
          KenBee

          Go back to 1979-1980 for some real economic spin.

          Here we are now Entertain us I feel stupid and contagious

          by Scarce on Tue Jul 15, 2008 at 10:55:36 AM PDT

          [ Parent ]

          •  Strange, I was working and going to college (0+ / 0-)

            around that time and I don't remember it as that bad. Aside from the development of the screwed-up 'common wisdom' that because of inflation you'd best buy it now, because it'll be more expensive later. That idea certainly increased our addiction to credit.

            John McCain--not so much old as obsolete.

            by ohiolibrarian on Tue Jul 15, 2008 at 02:06:44 PM PDT

            [ Parent ]

      •  Why ? Make the case... (0+ / 0-)

        The worst - as energy policy goes - is that a major drop in prices will produce a return to complacency.

        IMHO it is far more likly a drop in prices will be because of a economic downturn, if so, there will be no complacency, riots & armed insurrection, sure.

        To make the case for complacency- IMHO, one needs to lay out parallels. You do some of this, not enough though, from my viewpoint.

        A continuation of complacency requires decreased political involvment, while it is increasing.

        Are you making the case that complacency will return, based on past behavior ? Never before has so much been so wrong, not since 1932 has so much been broken.

        Crisis means no complacency, we saw that during the First Great Republican Depression. If 2008 is alike to 1932, your complacency idea breaks down at that point.

        FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

        by Roger Fox on Tue Jul 15, 2008 at 03:29:13 PM PDT

        [ Parent ]

        •  Many of My College Students - (0+ / 0-)

          Could tell you every detail about the lives of the Idol contestants, but they could not name a single Supreme Court justice or name their senators.

          Yes, there is more interest in this election cycle - but complacency is DEEPLY embedded in American culture.

  •  Your graphs are pretty, but (1+ / 0-)
    Recommended by:
    Mr X

    I noticed that you compared the oil price graph to everything but another oil bubble. I think you're making too much stew from too little oyster. Back it up with some worldwide production and consumption projections if you wish to convince.

    In 2000, a criminal became President. In 2004, we failed to remove him.
    American Democracy, 1787-2004, RIP

    by davewill on Tue Jul 15, 2008 at 10:32:01 AM PDT

    •  Actually - (2+ / 0-)
      Recommended by:
      HiBob, davewill

      I had a graph of the two spikes which I have now added.
      Should have had it in there.
      Thank you.

      •  Well, I can see why you left it out. (1+ / 0-)
        Recommended by:
        Phoenix Woman

        It doesn't do much to bolster your argument. Nothing about the current run up seems to resemble the '80s bubble except for the fact that prices have been rising.

        In the end, this entire thing revolves around whether you believe demand is going to continue to outstrip production or not. If it doesn't, then the market should respond as you say. If it DOES, then I would expect continuing and unrelenting upward pressure with only short term dips.

        So, Oil Sands will take up the slack? I think it would take a lot more than that.

        In 2000, a criminal became President. In 2004, we failed to remove him.
        American Democracy, 1787-2004, RIP

        by davewill on Tue Jul 15, 2008 at 10:55:36 AM PDT

        [ Parent ]

      •  And include the effect of recessions and (1+ / 0-)
        Recommended by:
        johnnygunn

        depressions on world production numbers.

        The diary is really well done, but you failed to include a number of variables, which would make this an even better diary.

        FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

        by Roger Fox on Tue Jul 15, 2008 at 01:27:45 PM PDT

        [ Parent ]

  •  I don't think we'll see $100 a barrell oil ever (1+ / 0-)
    Recommended by:
    Roger Fox

    again.

    I hope I'm wrong, but I don't think so.

    So then, the oil price run-up has taken place within an overall economy characterized by massive speculation.

    Yes, speculation that we've passed peak oil and demand continues to increase. A drop in the miles US citizens drive is a drop in the proverbial bucket. Decreasing supply and increasing demand.

    And you can't really compare oil to the dot.com and housing bubble. Those are American bubbles. This is a global commodity. There was an infinite supply of dot.com companies. There is not an infinite supply of oil. We can control how many houses are built. We cannot control how much oil is produced. Heck, we can't even control how much oil we consume in this country.

    We'll see $200 a barrell oil before we see $100 a barrell oil. And it will never hit $80. That's a pipe dream.

    •  we might if the dollar recovers (1+ / 0-)
      Recommended by:
      Roger Fox

      But I agree with the basic idea - I don't see us getting below $100.  Unless somehow the situation in Iran and Iraq and Israel all clear themselves up - then we might.

      Want a progressive global warming novel, not a right wing rant? Go to www.edwardgtalbot.com for a free audio thriller.

      by eparrot on Tue Jul 15, 2008 at 10:51:29 AM PDT

      [ Parent ]

    •  Iraq pullout will probably cut $20 a barrel (1+ / 0-)
      Recommended by:
      Roger Fox

      But yeah, I can't see it getting below $100 ever again.  There are too many things for which oil is one of the key ingredients.  Plastics and fertilizers come to mind.

      John McCain will end Roe v. Wade if he's president.

      by Phoenix Woman on Tue Jul 15, 2008 at 11:10:24 AM PDT

      [ Parent ]

  •  These are exactly (3+ / 1-)
    Recommended by:
    GW Chimpzilla, johnnygunn, Roger Fox
    Hidden by:
    RunawayRose

    some of the reasons American oil must be nationalized. So that a few rich elite oil barons can't hold America and Americans hostage with a commodity that is for now essential for society to exist.

    •  Maybe (2+ / 0-)
      Recommended by:
      theran, punkdavid

      But it's important to sell oil at its market price - many producing countries sell extremely subsidised oil, allowing their economies to expand rapidly (like Saudi Arabia and Venezuela). When they exceed their production capacity, either due to falling production or rapid increase in consumption, their economies have to go from using 10 cents per gallon gas to increasing amounts of $5 a gallon gas - a huge shock which the government either absorbs with its own coffers or lets the people struggle with.

      Living beyond your means is an easy way to satisfy the people and to screw up your country.

      •  It's like selling (0+ / 0-)

        diamonds. DeBeers purposely keeps diamonds off the market to keep prices on them as high as they can get away with and still sell them. Diamonds wouldn't be worth much if they flooded the market with them. Why do you think they really went after Saddam and Iraq's oil? Iraq's oil would have helped drive down oil prices which would have been good for consumers in all countries.

        •  And - (0+ / 0-)

          Iraq's oil is likely to come back on line in the next year.
          Otherwise, the oil cartels wouldn't have been so keen on the no-bid deals with Iraq.

          •  Oh (0+ / 1-)
            Recommended by:
            Hidden by:
            RunawayRose

            so it was ok to kill thousands of Iraqi citizens for their oil. Do you really believe Iraqi oil is going to change anything now that we, the Saudi's, Israeli's and England own what is rightly the Iraqi peoples, their oil. It's should be theirs and nobody elses!!

            •  Did I ????? (1+ / 0-)
              Recommended by:
              Roger Fox

              EVER, EVER, EVER !!!!!!

              Even suggest that the war was right?
              How dare you put such words in my mouth.

              The war was a violation of every international law.
              W and his cronies should be tried, convicted,and imprisoned.

              But that does not alter the present reality -
              That Big Oil is rushing in to grab the cookies.
              Which is also wrong.

              One can acknowledge the current situation -
              Without approving of it.  In fact, I would argue,
              A dispassionate acceptance of actual conditions
              is essential before any response can be successful.

          •  10 yrs to build new pumps, Gas Oil separators (1+ / 0-)
            Recommended by:
            johnnygunn

            Pipelines. Etc.

            Water Gas Oil separator construction held up KSA oil production for well over 6 yrs, until those projects were finished. Then they could move nat gas to Yandu, a major industrial city utilizing NG for energy.

            Once these new projects came on line KSA, crude production from HaradhIII could be processed.

            FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

            by Roger Fox on Tue Jul 15, 2008 at 01:39:20 PM PDT

            [ Parent ]

    •  This user (1+ / 0-)
      Recommended by:
      Ahianne

      is a troll and should only be fed donuts.

      Sig: A rose by any other name would probably be deadly thorn-bearing attack vegetation. I am STILL an Edwards Democrat!

      by RunawayRose on Wed Jul 16, 2008 at 09:27:55 AM PDT

      [ Parent ]

  •  In your dreams, Johnny, in your dreams! (2+ / 0-)
    Recommended by:
    HiBob, Roger Fox

    Ain't gonna happen.  And if it does; it'll be proceeded by a huge depression---world-wide.

  •  The analogies don't quite hold (1+ / 0-)
    Recommended by:
    Roger Fox

    The problem with $140/bbl oil is that, maybe, that's truly the fair price.  If you didn't have a car and if you wanted to travel 20 miles, how much would you pay?
    Another problem is that the supply of oil can be reduced to compensate for lower demand... I doubt we'll see a bunch of Texas gushers to significantly increase supply.
    So, we have a cartel of suppliers who now realize that $140/bbl is a reasonable price, and we have a worldwide market that will consume all the available supply.  Marginal decreases in demand (from one part of the market) can be matched by increases in demand elsewhere or by decreases in supply. (Why would the Saudis sell us oil at $100/bbl when they can leave it in the ground and get $140/bbl later?)
    I heat my home with oil (not by choice) and I'd love to see prices drop, but I'm not planning on it.

    Don't be a DON'T-DO... Be a DO-DO!

    by godwhataklutz on Tue Jul 15, 2008 at 10:38:04 AM PDT

  •  I hope you're wrong... (0+ / 0-)

    The hardship brought on by higher gas prices now is trivial compared to the suffering that climate change is likely to inflict.  

    Emerging markets will drive the continued increase in demand for oil.  Only carbon taxes are likely to put a serious dent in demand.  Overall, I'm glad to say I don't think oil will have a sustained price drop any time soon.

    "Patriotism is supporting your country all the time, and your government when it deserves it." Mark Twain, as quoted by Barack Obama 6/30/08 Independence, MO.

    by SunWolf78 on Tue Jul 15, 2008 at 10:38:23 AM PDT

  •  Commodities market (3+ / 0-)
    Recommended by:
    Phoenix Woman, theran, el bandito

    It does not automatically follow that a buble on the commodities market will work the same as a bubble in the stock market or housing.  Commodities bought under the idea that they will eventually be consumed and dissapear.  Stocks and houses are bought with the idea that they will eventually be sold, and that they will be worth more later than today.

    That is not to say you were wrong, merely that you didn't prove it to me.  You have to show that that the commodities market behaves according to the same rules.  The behavior of past bubbles in steel, coal, corn, or oranges would have been more appropriate.

    For the first time I have someone to vote for instead of vote against for President; although I still have that, too.

    by math monkey on Tue Jul 15, 2008 at 10:39:45 AM PDT

    •  If It Talks Like a Duck - (1+ / 0-)
      Recommended by:
      penguinsong

      And walks like a duck,
      And quacks like a duck????

      Shouldn't proof be incumbent upon those who are arguing that it will rise to the stratosphere rather than those saying that it looks like a zillion other bubbles in the past?

      What I have argued is that the oil spike looks like many other speculative cycles.  In addition, our economy appears to be grounded in speculation.  Finally, the oil industry, more than almost any other, has been characterized by booms and busts - with a built-in feature that encourages such.

      •  look at a chart of IBM from 1978-1984 (3+ / 0-)
        Recommended by:
        Phoenix Woman, theran, el bandito

        It looks a lot like the lead-up to the dot com collapse and the SUNW collapse.  There are plenty of other charts that look something like this that weren't followed by collapse.

        It is impossible to "prove" either than the bump is caused by speculation or that it isn't.  I don't find these charts compelling, but that doesn't mean you're wrong.  To me, the plateauing of Saudi oil output while they keep claiming to be increasing it is the biggest sign that we have a legitimate supply issue.

        I'll throw one other thing out there - compare the dollar chart for oil's run up with that of the other bubbles, and you'll find that the dollar has decreased at a much faster rate than almost any time in the past.  That is also a part of the reason for the runup, so unless the dollar recovers by next year, there is no way we'll see $80 oil.

        Want a progressive global warming novel, not a right wing rant? Go to www.edwardgtalbot.com for a free audio thriller.

        by eparrot on Tue Jul 15, 2008 at 11:03:55 AM PDT

        [ Parent ]

      •  I believe it goes like this (0+ / 0-)

        Increased housing supply and a housing bubble.
        Increased dot com supply and a dot com bubble.
        Increasing demand/Decreasing crude production and a bubble.

        I think the better analogy requires a commodity undergoing an increase in supply.....

        FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

        by Roger Fox on Tue Jul 15, 2008 at 03:15:51 PM PDT

        [ Parent ]

  •  It will fall - currently, it's a runaway train (0+ / 0-)

    and that has oil producing nations and oil companies scared.

    The way the oil industry thinks is they need to keep the price just at the level that alternatives are not competitive.  

    While they are enjoying some short term gains, it has created an enviroment that make development of and alternative energy sources players.

    What their ultimate fear is once the alternatives kick in - will Governments impose taxes to keep alternative competitive considering demand for oil will be reduced and prices will drop.

  •  Diaries like this are why I'm here... (3+ / 0-)

    you may be Nostradamus, you may be wearing a tin-foil hat.  Either way, I love graphs and pics and an argument that is well laid out.  I tend to think you're wearing a hat, but thanks for putting this out there.

    tipped/recc'd

    "What is being noticed is only an indication of what is being done." Albert Einstein 1954

    by tundraman on Tue Jul 15, 2008 at 10:45:42 AM PDT

  •  Everyone is missing the diarist's main point (2+ / 0-)
    Recommended by:
    Phoenix Woman, johnnygunn

    We need a very heavy carbon tax.  Our energy policy is based on the market which is basically insane policy.

    •  Thank You - (2+ / 0-)
      Recommended by:
      MA Liberal, llywrch

      Yes, if oil drops below $100 - which I believe that it will - then all the corporate interests and politicians will say, "See, there's no need to worry about energy use."  And many Americans will salivate at $2.95 gas.

      What's more, a huge drop in oil prices will devastate alternatives both politically and economically.

      •  I agree. but... (1+ / 0-)
        Recommended by:
        johnnygunn

        I agree that the popular will to get serious with alternatives will wane, just as it did in the latter half of the 1980s under the Reaganopoly.

        It's also true that political visionaries rarely reach the Oval Office. Guys who can sustain far-seeing transformative policies despite the popular mood only come along about once per half century.

        The early signs don't provide much reassurance that Obama's that guy. So far, his major transformative is in how to campaign more effectively, though his ground organization model is built directly from the models established in the Sixties.

        But his votes on energy legislation to date are not reassuring at all.

        More likely, the needed changes will be incremental and devastatingly slow. The human carnage necessary to sustain our addiction will continue. I just hope those that can see won;t lose the fine hone over the outrage we feel at the stupidity and destruction.

        WE must do as you've done, committing ourselves to alternatives like bicycles, solar water heaters and the like. What can't be changed quickly nationally can be changed individually, till the tipping point in national awareness comes.

        Or till the decline of just another great empire in the history books is - sadly - complete.

        Cowboy Kahlil
        Lt Columbo: "When did you first notice your national security, wallet, rights and the nation's dignity had been stolen, ma'am?"

        by Cowboy Kahlil on Tue Jul 15, 2008 at 11:57:01 AM PDT

        [ Parent ]

  •  Gravity dictates (1+ / 0-)
    Recommended by:
    GW Chimpzilla

    that what goes up must come down. And down the price of oil will come eventually. But when that eventually is, is the question.

    People used to use whale blubber as an energy source. Don't see much of that happening these days. It became too expensive and people moved on to other forms of energy. Likely that will happen with oil too, and eventually the price will come down - or it will be so scarce the price will be prohibitively high.

  •  Me too (1+ / 0-)
    Recommended by:
    Roger Fox

    love graphs. But as a businessman I find those in the "market" that use such methods are probably the worst people on this planet to predict anything other than their next bowel movement.

    Its common sense to understand that speculation is a factor on prices, and historically  any long term recession in the US will have a ripple effect on demand. But the US is no longer the monolith and even a slowing China is still going to expand. North sea crude has been slowing for example.

    But to say oil will shoot up or down dramatically is   more speculative than a G. Bush economic plan. If I had a gun to my head and my life depended on me being right, I would say oil will drop for a few months then will shoot back up when the dollar collapses after we realize how deep a hole the banking industry is in.

    I don't want a bigger government, I want an effective government!

    by KingGeorgetheTurd on Tue Jul 15, 2008 at 10:59:41 AM PDT

    •  You Are Disgusting - (0+ / 0-)

      I find those in the "market" that use such methods are probably the worst people on this planet to predict anything other than their next bowel movement.

      And small minded.

      Why bother to have any discussion when you already know everything?

      •  why, because (0+ / 0-)

        those who call themselves investors and businessmen are those who sit back looking at graphs & numbers to play a game, while people like myself are out in the real world creating jobs and not paper wealth.

        I don't want a bigger government, I want an effective government!

        by KingGeorgetheTurd on Tue Jul 15, 2008 at 11:33:02 AM PDT

        [ Parent ]

        •  Sure, there's always job growth (0+ / 0-)

          So long as hard working folks rely on ideologically 'pure' approaches like freemarketeerism, there will be job growth of amazing proportions.

          Most of those jobs will ultimately be custodial and remedial for the messes that result at less than a living wage, but hey, the job creating innovator will never need a handout and will point with pride to himself as the perfect example of industriousness that others should emulate.

          Human nature, esp self-righteousness, is quite predictable, boring and offers nothing profound, progressive nor of use to the public commons.

          Let them eat yellowcake!.

          Cowboy Kahlil
          Lt Columbo: "When did you first notice your national security, wallet, rights and the nation's dignity had been stolen, ma'am?"

          by Cowboy Kahlil on Tue Jul 15, 2008 at 01:02:49 PM PDT

          [ Parent ]

          •  Let me get this straight (0+ / 0-)

            So what you are saying is that asset creation such as land (which is why its called "real estate"), a small amount of precious metals (btw, compared to them the DOW has lost not the public concept of 21% of its value but 70% when compared to metals and not currency), and unleveraged manufacturing assets, are worthless in the face of market speculation.

            For example, my group, on my input, decided to invest in an export business. Not a bad idea considering if my theory on a falling dollar and inflation are accurate. So this company needed capital to expand its operations. However, rather than just by stock of this company and share in the risk, after all if I am wrong then we have nothing when it fails, my suggestion was to try something different after conducting due diligence.

            Here was what we did instead. We didn't buy company shares with our cash, we bought the leased machinery that produces the products they sell. Huh? why? oh, yeah crazy I know. But what we did was allow the company to waive payments for the leased machinery (which we now hold the notes to) for 12 months. They now have more capital to expand operations, we instead of receiving interest on the notes for a year, get shares of a growing company. Then after one year, we receive payments like any other loan. If they fail, we own the assets to this company and not the shell formed around it. If they succeed, we have a guaranteed return on a long term loan, and stocks that continue to increase in value.

            So because I didn't take the easy route of a typical "market" investor by looking at a few graphs and numbers, but instead took the hard road on looking at securing job creation and tangible assets, my style of wealth making is a lesser form of class warfare.

            I rely on the old fashioned values of work, jobs, and smart planning to secure a prosperous economy for all. Not the usual Mcdonalds approach to making money by speculation and share driven profits for only one group.

            If that's your version of progressive ideals,
            I want nothing to do with it and maybe you need to look at Mccain as your saviour.

            I don't want a bigger government, I want an effective government!

            by KingGeorgetheTurd on Tue Jul 15, 2008 at 04:42:17 PM PDT

            [ Parent ]

      •  A well considered comment, like your diary (2+ / 0-)
        Recommended by:
        johnnygunn, KingGeorgetheTurd

        just happens to disagree with your diary's premise.

        Come on John, you got called stupid before and you bitched, now you are calling someone else disgusting.

        Lighten up pal.

        FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

        by Roger Fox on Tue Jul 15, 2008 at 01:44:41 PM PDT

        [ Parent ]

        •  No - (0+ / 0-)

          Being compared to a bowel movement is pretty disgusting.
          Do you think it appropriate to compare someone's reasoning to a bowel movement?
          Because he is comparing my thinking to shit.

          (Given his username, he appears to have a scatalogical streak.)

          •  take the high road or travel the road others do (0+ / 0-)

            you can set the example, or not.

            Ya got a good diary here, dont denigrate it with this behavior.

            FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

            by Roger Fox on Tue Jul 15, 2008 at 02:39:33 PM PDT

            [ Parent ]

  •  Here's my two pennies (1+ / 0-)
    Recommended by:
    paul2port

    Right now, the US financial system is in serious crisis.  No sector of the American economy is in worse shape right now than the large and medium-sized banks.

    Most of these banks are either insolvent (IndyMac), almost insolvent (Lehman, WaMu, First National, Zions), or steeped in debt without being called out on it and rated as a junk investment (almost all the other banks in the country).  Banks own a crapload of stock.  They've got to raise a certain amount of liquidity (cash) to remain solvent, otherwise the government takes them into receivership and the FDIC pays off all the people with accounts in those banks.

    What do banks own? A lot of stock.  Banks are going to sell off whatever investments they feel are overvalued to severely overvalued to raise the cash they need to either balance their books (very few banks will actually be able to accomplish this, even in a drastic selloff) or convince the Fed "hey, we're not insolvent."

    The most overvalued stocks in the market currently are the oil and energy stocks, so the natural resources sectors are taking a huge hit because the banks are desperately trying to raise enough cash to stay alive.

    It'll work in the short-term, but the overarching problem is that Fannie and Freddie are already insolvent (5 TRILLION in debt), and there's no real way to save them.  The actions being taken right now are just an effort to stem the amount of debt the government will have to take on when Fannie and Freddie go under.

  •  I'd like to see an oil import fee imposed (2+ / 0-)
    Recommended by:
    GW Chimpzilla, johnnygunn

    Create a flexible tariff on oil so that the price of a barrel of imported oil is set at 150 dollars a barrel. This wouldn't fuck us much more than we're fucked already with oil in the $140s, and I'd rather see the money go to Washington, D.C. (perhaps to balance the budget, which would strengthen the dollar which would then drive down the price of oil further) than to Riyadh, Moscow, Tehran or Caracas. If oil prices do collapse this would also prevent a repeat of the '80s where energy prices collapsed, compromising development of new sources of energy and conservation measures.

    This might also eliminate a lot of the market uncertainty that comes with not being able to make plans because of uncertainty over future oil prices.

  •  Check out what Matthew Simmons says (2+ / 0-)
    Recommended by:
    Phoenix Woman, theran

    He's even going so far as to predict an actual oil shortage, let alone increasing prices.

  •  What caused the crude's plunge today? (1+ / 0-)
    Recommended by:
    theran

    Did Chinese/Indian economy slump overnight? Or someone magically find a new source of supply?

    Rabindranath Tagore-"Bigotry tries to keep truth safe in its hand with a grip that kills it."

    by joy sinha on Tue Jul 15, 2008 at 11:11:29 AM PDT

  •  Renewable energy (1+ / 0-)
    Recommended by:
    Losty

    They'll do for Iraq, but they won't do it for us. If Bush and Cheney need alternative energy to run their war, they'll get some. If power goes out in America, they'll just leave us without any. Fuel to the highest bidder, if you can't efford it, tough.

    In the Iraqi war zone, US Army calls for 'green' power

    Iraq's electricity- starved capital goes solar

  •  It hurts but I am all for high (2+ / 0-)
    Recommended by:
    llywrch, KingGeorgetheTurd

    gas prices. What else will actually motivate Americans (and Chinese) to make sane energy policies? If gas drops back down to being cheap we will see a dramatic drop in the push for efficiency, SUVs will make a come back and no one will have learned a damned thing. Look at the late 70s for your case study. We should have embarked on a prolonged wind and solar program at that time, but no, we continued as if and didn't learn from it.

    Now heating oil is another thing, IMO this should be somewhat subsidized (especially in the colder climates) with a phase out put in place that would allow for people who use heating oil to apply part of their cost towards replacing their furnace with an alternative.

    I am from MN and if you think our caucuses are undemocratic I have a lake to introduce you to.

    by edgeways on Tue Jul 15, 2008 at 11:22:20 AM PDT

    •  Well (0+ / 0-)

      You're talking long-term gain (and only a hope of that) for extreme short-term pain.

      I've got a 10-year-old minivan I can't afford to replace, work and school, and I make 16K a year. These gas prices are killing me.

      Remember: if it's close, they'll steal it.

      by ChurchofBruce on Tue Jul 15, 2008 at 11:40:30 AM PDT

      [ Parent ]

      •  I think it is more than a hope. (0+ / 0-)

        People are going to adapt and change, they always have and always will. It takes some amount of pain or other incentive to get to that point however.

        the reason it is such a extreme short-term pain is that we have done jack all to transition and get ready for the high gas prices despite real warnings it was going to come. We have selected for bigger cheaper vehicles in the past and it is biting us in the ass now.

        I understand what you are saying about your situation, and have empathy for it, but in a real way it is a problem of privilege (from a global perspective). I doubt it is really killing you, but your life is going to have to change in ways you don't want it to. And it sucks, the worst part is the alternative is no better, and without the pain we (Americans) simply will not make those choice. We will not stop going to the big box stores at the edge of town, or avoiding public transit, or avoiding investing in public transit, or buying smaller vehicles, or creating such segregated living/working/shopping spaces. We have been spoiled and wasteful. Now we have been smacked in the head. If gas plunges back to 80 bucks a barrel we will go back to being spoiled and wasteful until at some point we end up in a worse situation we are in now.

        cheap gas is like heroin, getting off of it is what is best for you but no one likes doing it.

        I am from MN and if you think our caucuses are undemocratic I have a lake to introduce you to.

        by edgeways on Tue Jul 15, 2008 at 11:57:54 AM PDT

        [ Parent ]

        •  The way my life changes (1+ / 0-)
          Recommended by:
          johnnygunn

          right now, is I quit school.

          I'm 43 years old. This is my last shot to get my degree and stop making 16K a year.

          There is no public transport to get me from home to either school or work; that's the downside to having everything in the suburbs. I have no choice. I either pay the gas prices, or I cut out school or work. And I can't cut out work.

          Remember: if it's close, they'll steal it.

          by ChurchofBruce on Tue Jul 15, 2008 at 03:41:41 PM PDT

          [ Parent ]

  •  Tipped for effort (1+ / 0-)
    Recommended by:
    Roger Fox

    But I think you missed a point in your conclusion.

    Speculative Bubble ... eh, no. Why?

    In order to have a bubble you have to have an increasing supply. There is only increasing demand. Nope, this one is not a bubble.

    We don't neeed, no mor troubles - Bob Marley

    by joeshwingding on Tue Jul 15, 2008 at 11:25:07 AM PDT

  •  Very well done. (2+ / 0-)
    Recommended by:
    johnnygunn, SciVo

    Johnnygunn, you've outdone yourself with this exceptionally tight description of the boom/bust cycle and I consider it likely that - again - the published economists of the corporate media will be proven wrong.

    Since the Carter era (being an old fart myself), I've maintained the necessity of breaking the oil addiction if we wanted to avoid an increasing number of Middle East wars. A cost that should always be factored in when discussing the true price of every gallon of gasoline.

    Nobody's willing to make such drastic changes, however, so long as the nation's memory is short and there's a ready supply of fresh, young cannon fodder long on pride, zeal and arrogance sans wisdom.

    I recall, too, how oil spiked with the onset of the first Gulf War. Gas broke $2/gallon and all predicted we'd never see $1.50/gal again. We saw it dip below $1.

    This spike can also be charted in the OIX charts and $OSX charts at bigcharts.com for further support of what you've laid out here. One can see the standard incline change upward in 1996, which likely reflects the rising use of oil in China and India. But one can see a more drastic spike begin exactly as the Iraq War launched in March 2003.

    So where will this spike's peak be? Typically, speculators look for condition changes 6 to 9 months early. Thus, when they recognize that (a) Obama will be elected and (b) the withdrawal from the Iraq War is going to happen, the betting will reverse and the plunge will come.

    I thought that could happen as early as last February or as late as this coming December. In other words, we're very close.

    And the residual impact will be felt across the greater stock market. While some will say lower oil prices will spur our economy, in fact, it's likely to make matters worse as happens when too many market investors lose their shirts and a period of risk-averseness occurs.

    The oil price collapse so soon after the housing collapse means Obama will not easily be able to resolve the national economic woes. He could easily spend his first 2 to 3 years in relative stasis before a sustainable, healthy economic recovery is established (which, btw, does not bode well for the 2010 Congressional elections).

    Whatever the peak price of oil is this time, I'd look for a 60% drop from there over about a 2.5 to 3 yr period. So $65/bbl is more likely to occur before $200/bbl happens.

    Sure, $200/bbl will come, but not for a couple of decades. Brokers, however, make their profits from convincing people to err and correct, at least doubling the transactions that occur.

    So thank you for such a lucid, well laid out and thorough explanation of the coming plunge. You are one sharp observer and great teacher. It's a shame the corporate media has no interest in employing folks who get it right.

    Blog on, my good man; more windmills await that need to be tilted at despite human nature. You've gained at least one great fan for your effort here.

    Cowboy Kahlil
    Lt Columbo: "When did you first notice your national security, wallet, rights and the nation's dignity had been stolen, ma'am?"

    by Cowboy Kahlil on Tue Jul 15, 2008 at 11:37:04 AM PDT

    •  Thanks, But - (0+ / 0-)

      Given the number of tomatoes I have dodged,
      I fear that you are in the minority.

      •  Which leaves one recourse (1+ / 0-)
        Recommended by:
        johnnygunn

        Harvest them for the next feast, where you'll be dining on pasta and they'll be stuck eating crow.

        Being correct never begins as a majority position.

        In the meantime, be reassured that as they heave those fruits your way that their aim is likely to be just as bad as their aim at reality.

        And... Bon appetit!

        Cowboy Kahlil
        Lt Columbo: "When did you first notice your national security, wallet, rights and the nation's dignity had been stolen, ma'am?"

        by Cowboy Kahlil on Tue Jul 15, 2008 at 12:03:33 PM PDT

        [ Parent ]

  •  Bubbles versus trampolines (2+ / 0-)
    Recommended by:
    johnnygunn, Roger Fox

    Most of the commentators I take seriously see the price of oil oscillating in 2008 between $80 and $160-a-barrel.

    That quote is from James Kunstler's forecast for 2008.

    Note the word 'oscillating'. The idea is that although demand destruction--and, yes, popping of speculative bubbles--may temporarily drop prices, the combination of a global economy based on oil and a steadily dwindling supply of easily accessible oil will push prices back up again.

    Oh, and an interesting coincidence: those graphs in the diary about price increases and collapses? They look an awful lot like the graphs of populations that outrun their resource base (like this one).

  •  Demand lowers in a depresssion or recession (2+ / 0-)
    Recommended by:
    johnnygunn, New Deal democrat

    Oil production:
    The  first Great Republican Depression, & the late 1970's recession.

    I'm not sure how this fits in with the diary, but I felt that issue got the short end of the stick in your diary Johnnny.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Tue Jul 15, 2008 at 12:43:03 PM PDT

    •  My Focus - (2+ / 0-)
      Recommended by:
      New Deal democrat, penguinsong

      Was on the boom and bust nature of the oil industry,
      As well as the possible speculative nature of the current spike -
      Which goes hand-in-hand with boom and bust.

      I make passing reference to the likelihood of decreasing demand in a world recession, but my argument is historical more than economic.

      Of course, were there to be a world recession, oil demand would definitely drop.  I would certainly welcome someone writing on the impact of a world recession on oil demand.

  •  Peak X increases price volatility of X. (3+ / 0-)

    From queueing theory. When commodity X becomes supply-constrained, the overall long-term trend of X prices will be up, but the main thing to notice in the short-term is much spikier prices. Same as how having too few checkout lines doesn't necessarily mean that they'll always have long lines; just means that they can quickly spike up to long lines from nothing, then gradually work their way back down, then quickly spike up more, etc. So, you're probably right.

    I also believe we must impeach Antonin Scalia for protection from his inhumanity.

    by SciVo on Tue Jul 15, 2008 at 01:13:20 PM PDT

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