I gotta wonder if the screeching halt of the world's economy isn't Peak Oil

[Bread and Circus]

Yeah, I understand the housing bubble and the credit default swap chicanery as being the tipping points for the banks. However, I just can't wrap my mind around the fact that just because some people in the US couldn't make their house payments that the whole world is coming to a screeching halt.

I don't hear much of this right now but I don't think it's a coincidence that the world's worst economic disaster in decades has come on the heels of several years of severe and significant increase in light sweet crude prices. It goes without saying that oil is the lifeblood and prime mover of all things economic amongst the world powers.

In my mind, I keep trying to wrestle with the fact that something "real" and physical is going on here. The whole world can't be broke just because of paper losses. With paper losses there are always winners and losers. Right now, everyone is losing. To me, that means there's something more than just a banking calamity or crisis of confidence going on here.

So, the only thing I can clumsily grasp onto is that we are seeing the first whispers of Peak Oil theory becoming realized. That 40 years after peak oil discovery we are now experiencing the point where global oil demand is outstripping global oil production with no further elasticity to meet the rising demand. This is the point where push comes to shove. If so, this is an economic meteor the size of Texas hitting the proverbial Yucatan.

I hope I'm wrong. But I think at any rate we are left with two scenarios:

1.) This is a banking calamity and the world of hurt is because of bad paper. This is the good scenario, because we can paper our way out of it one way or another.

2.) This is a true physical economy calamity and no amount of borrowing, spending, or lending will help us escape the fact that the party is over unless we
have a foundational shift in energy efficiency, revolution in transportation, and exponential increase in non-oil energy supply.

I'm just kind of surprised in all the "economy talk" the physical limitations of supporting our wealth with an exponentially growing world population is narry discussed.

Perhaps the oil companies would rather we just blame "the losers who bought a home they couldn't afford" than really understand that we are on the precipice of peak oil, which will change everything.

P.S. I'm not an economist by any means, but things as they are explained in the news just don't add up for me. I just feel there's go to be something "real" and "physical" that is grinding the gears to a halt. I don't think the banking crisis explains all of it. I almost look at the banking crisis as a symptom as much as the cause.

[JVS]

1. No. While peak oil remains likely event (in fact almost certain), what we saw recently was a...

speculation bubble masquerading as peak oil.

[dkf]

4. If the world had continued on as it had been going we would have been at peak oil.

The collapse in the economy is an adjustment that lowered the use of oil, bringing the price down.

We will continue to overshoot on the upside and downside as people panic both ways.

[screembloodymurder]

5. When the rate of growth of oil consumption reaches 7%,

they pull the plug. Take a look at history.

http://www.youtube.com/watch?v=F-QA2rkpBSY

[Bread and Circus]

13. I watched all the clips. That was a great series. If Peak Oil is not now or imminent, it looks..

like it is well within our lifetimes.

According to the video you linked, we are at the initial cusp of it.

[screembloodymurder]

23. Jimmy Carter tried to tell us, but no one wanted to listen.

Is our current economic crisis an accident or just a way to buy some time? Either way, the results the same.

[yourout]

19. Bingo.....the oil price spike was nothing more than manipulation of the market for greed.

Demand my ass.....out and out theft.

[depakid]

25. Actually it did have a major role

The world is cuurently on a plateau of production:



That accounts for the price rises and volatility we saw in 2008.

Speculation due to uncertainties about supply doesn't (and won't) lead to a long-term bias in the price. Oil traders make money just as easily being 'short' oil as they do buying or going 'long'. If some traders have pushed a price irrationally high, others will go 'short' making their profits when the price readjusts. That is the ruthless 'price finding' of the market at work (just as the markets have ruthlessly found the value of Wall St stocks).

Disruptions to oil supply caused price spikes as buyers bid against each other to ensure their supplies for the following month are secure. When the crisis died down, prices fell steeply as buyers found themselves with oil that nobody was particularly desperate for anymore.

Only with hindsight can we see when the market was over or under-priced. Since August 2008, we have clearly broken from the previous trend:



Demand curve moves right as the world economy grows from 2007 to 2008, requiring a much higher price to balance the market.

Demand was not 'exceeding' supply. But because both functions are 'steep' or 'inelastic' (not responsive to price), it required dramatic increases in price to find a new equilibrium between the two. This is the fundamental nature of constrained supply and robust demand that drove the oil price boom. It's not hard to see why there were predictions of $200 a barrel, on the assumption that the global economy could keep growing at its breakneck pace.



Demand curve for 2009 moves sharply left as the global economy contracts. It takes a steep drop in price to force enough producers to cut supply to balance the market.

On the way down, the oil companies are their own worst enemies, doomed to repeat the boom-bust cycle that has plagued the industry for decades.



This price bust must eventually be followed by another boom. The impact of low oil prices is for oil companies to cancel their capital expenditure on new developments. The future supply curve is already being shifted to the left - the vertical asymptote on the supply curve will be at a lower production level in 2010 and following years than last year. Once demand recovers (shifts right), or just because supply begins to fall faster than demand, we will see prices rise again.

Much more here: http://anz.theoildrum.com/node/5110#more

[Deja Q]

28. Agreed. Just another game.

[dkf]

2. That started the problem, because it pushed a lot of people over the edge

and they never recovered.

Peak oil scenarios scare the bejeebers out of me. Its the one thing that makes me doubt how good Obama is, because he certainly isn't doing enough to transition our economy if he does believe it.

[zazen]

3. go to energybulletin.net--they index articles and essays on this every day

And I agree with you.

[L0oniX]

6. When gas was over $4 a gallon it was making a huge contribution to financial problems for ...

everyone and certainly played a part in defaults on mortgages.

[Sal Minella]

10. But wasn't the $4 gas less a result of limited supply and more a result of unbridled greed

on the part of Exxon-Mobil et al???

[L0oniX]

11. I had thought it was $4 a gallon because of demand which is way down now.

[Sal Minella]

12. That makes sense. People who don't have jobs to drive to buy less gas.

[BlooInBloo]

7. "I'm not an economist by any means". Yup.

[Bread and Circus]

8. - enlighten me.

[Earth Bound Misfit]

9. ....

:popcorn:

[marksmithfield]

14. Peak oil is unfortunatly

a myth perpetrated by the oil industries to keep prices inflated. We haven't begun to find it all.

[Bread and Circus]

18. That is categorically false and flies in the face of the fact that there is a limited amount of oil

We may not be at peak oil yet, but someday peak oil will inevitably be a reality. The world's population grows by the millions and economic growth is fueled by oil. Simple math will tell you there's a ceiling.

Common sense and simple math will tell you this, you don't need a conspiracy or a myth.

[Deja Q]

29. Even if oil is abiotic - to use more than what can be made...

And alternate energy sources won't hurt anyone's profits.

Especially as the #1 use of oil is transportation. The US needs to fix its car problem. And don't sell hummers and suvs elsewhere. Stupid waste. (People think Americans are selfish yet nobody overseas is minding too much as sales of those abominations keep going up. http://www.huffingtonpost.com/2008/07/28/chinas-suv-sales-rise-43_n_115328.html http://www.scribd.com/doc/6398056/TOP-10-SUVs-IN-INDIA )

[Hannah Bell]

15. "The whole world can't be broke just because of paper losses." How do you explain the 1930s?

Peak coal?

"The whole world" isn't broke. Some folks are doing fine. They'll be buying up the devalued assets for pennies on the dollar.

[Bread and Circus]

17. First, there was a huge economic recovery from the 30's. So if it was

all paper losses back then, it was regained. Outside of that, the depression wasn't all about paper. There were agricultural factors going on then that displaced a lot of people from farms (the US was still fairly agrarian back then).

Second, the Chinese government is buying up devalued oil companies and setting the course for favorable oil contracts going forward. Perhaps that should be telling you something.

[Hannah Bell]

20. yes, the depression was mostly about paper. the "agricultural factors" you mention

were also about paper (debt) & commodity price deflation, which is why the people got displaced, same as they get displaced now from their homes when the market price deflates.

yes, sure, eventually there was a "recovery". germany was one of the earliest countries to "recover" - it took theft, slave labor, debt renunciation, banking nationalization, war economy, conquest. it took war for the rest of the world too, & debt levels still unbelievable today.

it took the war to recover income levels for the us masses, stock prices didn't recover pre-crash levels until the 50s, it took to the 50s-60s for germany, italy, japan, uk to recover pre-crash living standards for the masses.

it wasn't about absolute levels of resources, it was about geo-political control over resources - same as today.

[Bread and Circus]

24. I agree w/ much of what you say, but I think you are leaving out a lot

and perhaps that's convenient to the point you are making.

Although I don't quite buy it, I hope you are right and this crisis is all paper and manipulation. We can paper our way back out of it. However, if we are at the edge of the true limits of our physical economy no amount of re-positioning debt will fix things.

There's a link to a really good lecture several posts above yours, you might want to watch that. Peak oil is going to hit without a lot of warning.

[Hannah Bell]

32. of course i'm "leaving out a lot," since i wrote 1 paragraph. nevertheless,

recessions/depressions are, historically, about who's got control of money (& thus resources), & not typically about scarcity of resources per se (though scarcity is often used as a cover story to hide the role of concentrated wealth).

you may be right that this is the exception: i personally doubt it.

[Bread and Circus]

31. Curiously, coal did peak in the UK in the 30's. I'm not sure it's relevant...

but there it is:



http://images.google.com/imgres?imgurl=&imgrefurl=http://greenfuture.blogspot.com/2004/07/peak-coal-debate-over-peak-oil.html&usg=__9bK3e9kI6SmX7DipmcxTuR4GMus=&h=378&w=558&sz=26&hl=en&start=7&um=1&tbnid=aQ3_3V6azOgFoM:&tbnh=90&tbnw=133&prev=/images%3Fq%3Dhistory%2Bof%2Bcoal%2Bproduction%26um%3D1%26hl%3Den%26client%3Dfirefox-a%26rls%3Dorg.mozilla:en-US:official%26hs%3D1vS%26sa%3DN

[Hannah Bell]

33. the graph is coal *production* in the uk. says nothing of the availability of the resource.

production would decline, e.g., if oil or imported coal were cheaper.

[hunter]

16. I say yes.

The most worrisome economic phenomena is that our ability to extract the more difficult oils slowly rots away while oil prices remain low. In the long run that's probably good for the earth's environment, and even good for humanity in general, but not good for people who are losing their jobs today.

We've gone over the hump of oil extraction and are now well into the realm of demand destruction. From here we ride the curve down, while the price of oil becomes decoupled from its only utility as a signal to the marketplace.

High oil prices or low oil prices, the only certainty is declining extraction rates. No amount of expensive arctic drilling, ultradeep marine drilling, or "unconventional" oil such as tar sands can push the curve back up because too much of our economy depends upon the easier to extract oils, including the economic wherewithal to extract difficult oils.

[ThomWV]

21. What you are seeing right now is exactly why the Peak Oil argument never held water

There will never be a 'Peak Oil" moment for exactly the reasons you were constantly told since the moment this notion ever occurred to anyone.

The assumption of Peak Oil rested on the notion that oil would have to become scarce before we would move to alternative fuels. However a speculative bubble moved us to abandon oil sooner than it ran out. So as it works out as new oil deposits are continuously being found (known reserves increase) as demand is concurrently decreasing. And as we rapidly move to alternative fuels the pace at which demand decreases will increase. Poof - peak oil dies in its tracks.

[taterguy]

22. We've abandoned oil?

How did you get to work today?

[Bread and Circus]

26. I was thinking the same exact thing.

[depakid]

27. Sorry- its a geophysical reality and you will deal with it whether you like it or not

once the world economy begins to recover- and demand increases to 2008 levels and higher.

[Political Heretic]

30. Um... I wish I lived in your dream world.

No one has come anywhere remotely close to even the distant vicinity....of the outskirts....of a place where we've abandoned oil.