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Sean Corrigan's Commodities Corner

Tyler Durden's picture




 

From Sean Corrigan of Diapason Securities

Commodities Corner

Regular readers may be aware that two of the author’s greatest bugbears are Malthusianism and mindlessly mathematical macroeconomics.

The two of these come into no sharper focus than when we turn to the hoary old canard of ‘Peak Oil’, especially when it cites the work of those two past masters of wrongly–applied ratiocination, Hubbert and Hotelling.

The former we have recently dealt with already, so let us say a few words about the latter—a gentlemen who was a statistician, not an economist, in an era when there was still an honourable degree of separation between the two disciplines (ironically, he was also, at one time, Murray Rothbard’s professor at Columbia before the latter had a self?declared ‘epiphany’ regarding the flimsy epistemological grounds upon which much statistics lies and quit the course forthwith).

The better to set the scene, let us first note that those who think of themselves as ‘resource economists’ all seem to think of their subject as if they were describing an Easter egg hunt.

In this, an explicitly determine number of eggs are scattered about over a given territory and the seekers are then sent off to find them. Once found and eaten, they can never be replaced. I’m sorry, boys and girls, but the fun’s over and it’s back to spinach and cauliflower from here on in.

From this gross misrepresentation of what John Bratland has tellingly called the entrepreneurial business of ‘resourcing’, the RE crowd then  concocts a mathematically neat, but practically irrelevant, analysis of which the founding tenet was the so?called ‘Hotelling Rule.’

Pondering the question of how one should price a non?renewable stock of a good, Hotelling arrived at the pseudo?rigorous and partly tautologous conclusion that its price should ascend continuously at the rate of interest (by which he really meant the general rate of profit achievable in all  other fields of endeavour), a result which implied that the NPV of the sale proceeds would not only equal the product of the cash price times the stock, but that—and this both an eco?alarmist’s and an asset?pusher’s dream—that the price would mount exponentially along the way to its final and utter exhaustion.

This, however, begs so many questions it is at risk of being arrested for intellectual vagrancy.

Among the many shortfalls displayed by this essentially static schema, it assumes that:?

  • The stock is fixed, now and for all time
  • The quantity so fixed is known to all those perfect automatons so beloved of modern macro as they uncover and distribute it
  • More broadly, the usual neoclassical sine qua nons—such as perfect competition ? apply
  • The costs of finding and extraction (and milling, refining, fabrication, etc., etc.) never alter
  • The technological milieu never changes, whether in respect of the material’s discovery or its later use
  • The expressed demand for it remains constant and no other good arises to offer the same or better satisfaction to its users
  • The rate of profit (and all that effects this, such as time preference, inflation expectations, taxes, central bank policy) is invariant
  • The resource has no effect upon, nor is affected by, the pricing, use, or profitability of any other goods and resources, be they competing or complementary in their application
  • The resource is someone wanted in and for itself, rather than for the services it provides
  • The spot price which grows in such a mouthwateringly exponential fashion appears from nowhere with no further explanation, leading one to wonder just when the causative finiteness of the resource was first recognised by our population of robotic omniscients.

Assuming the relevant real interest rate is positive, its derived guarantee to be the equal of that offered anywhere else in the world of risk and enterprise dissolves into paradox since it suggests that this fully collateralized treasure should be hoarded and not used – negating both the concept of depletion and the economic usefulness of the material!

In short, Hotelling built his little fictional Legoland according to the prevailing dogma of objectivist, aggregative reism and not with regard to a properly subjectivist, individually?centred functionalism of the kind we Austrians insist informs the real world which we all inhabit.

Far from being a special case, ‘resources’ are just goods and productive inputs and are not, in truth, subject to a different kind of calculus. To the extent that men and women can derive some pleasure, protection, or prevention of discomfort from their employment, they will be willing to swap other goods and services to acquire them.

At the point where some entrepreneur supposes that he himself can earn the means to satisfy his own wants by fulfilling those of his fellows in this regard, he will try to put the resource at their disposal: at the point this becomes infeasible, he will stop.

If a second entrepreneur can bring a better or a cheaper means to bear upon his customers’ desires, he will begin to diminish the market for the first good, for it is the function of the good we require, not the tangibility of buckets of glutinous black ooze, or heavy billets of orangey metal.

The subjective nature of this can be seen in the (contested) etymology of that stock villain, the snake?oil salesman—i.e., the charlatan peddling medicinal goods of dubious efficacy whose descendants find themselves very much at home on Wall St. today.

The popular derivation is that what these hucksters were touting as a miracle cure?all was in fact Seneca oil, named for the Indian tribe on whose lands raw petroleum seeps were common enough to pollute Samuel Kier’s salt wells. Initially dumping this noxious waste in the local stream, Kier serendipitously discovered it was flammable and began a series of amateur chemical experiments which would eventually lead to his distillation of kerosene, and the building of the world’s first refinery, but not before he tried to recoup some of his costs by bottling one by?product to be sold as a patent medicine for 50¢ a go.

The point of this digression—beyond its own entertainment value—is that oil has no value whatsoever, outside of that conferred upon it by the  imagination and dedication of acting men who have found ways to make it meet one of Man’s most enduring needs—for a reliable and easily transported store of energy.

The innovation involved, as well as the business acumen, legal nous, and political savvy, is what creates and spreads the wealth associated with  this chemical combination of hydrogen and carbon atoms: it is neither implicit in the thing itself, nor fore?ordained to remain attached to it. While it may be part of the Green Dominican liturgy to speak mournfully of the appalling stewardship we capitalists exercise over the hermetically?sealed bubble of ‘Spaceship Earth’, the truth is that we live in an open system – both thermodynamically and intellectually.

Indeed, in a Universe overflowing with unimaginable quantities of the stuff, the fulfilment of our energy requirements – and by extension the accomplishment of anything else we care to set our hands to ? only awaits the application of that quantum of human ingenuity and husbanded capital which is commensurate with the expressed urgency of the task. Hence why it is better to speak, with Bratland, of ’resourcing’ as one particular branch of entrepreneurial activity, rather than of the fatuous ’resource economics’ as some priesthood of fashionably millennial pessimism or ’super?cycle’ salesmanship.

As we often remark, this can be summarized as the operation of the process of I³E³S³ ? “Any Insecurity of supply, any Escalation of prices, any  increased Scarcity of a given productive input leads to Innovation, Economisation, and Substitution via a process of Investment, guided by Entrepreneurship and fuelled by Savings ? assuming the market is allowed to function.? This works for tin tacks as much as it does for tin, for nachos as much as for natgas, for knickers as much as for nickel.

Theoretical considerations aside, two brief examples should suffice to give the lie to the Hotelling Rule—showing it to be one which simply doesn’t check out (groan).

Take the case of copper. In 1970, best estimates had it that the global total of exploitable reserves was some 280 Mt, a viable sub?set of a putative planetary resource (loosely, the physically present amount) of some 1.6 Gt.

Move forward 40 years (and through several editions of the ludicrous ‘Limits to Growth’, first penned around that time) and the current  guesstimate is that reserves sum to around 630Mt (125% greater than before) with resources up to more than 3Gt (not including oceanic sources of the metal) and this after we have mined more than 400Mt and used 500Mt (with recycling accounting for the difference) in the interim.

Now consider good ole’ crude oil itself, the main poster child of Gaian exhaustion and imminent civilizatory collapse.

Back in 1970, once more, BP tells us that estimates of world crude oil recoverable reserves (not by any means a comprehensive reckoning of the world’s endowment of hydrocarbons, you will note) amounted to 613 billion barrels—some 36.8 times then?annual use of 45.7 Mbpd. Four decades and 1 trillion burned barrels later, the latest count is of 1,383 bln bbls in conventional reserves, or 43.4 times 2010’s consumption of 87.4 Mbpd. Even if we strip out the somewhat suspicious—but not conclusively invalidated—OPEC upward revisions of the late 1980s, today’s numbers still come to 1,084 in reserves (+77%) and a barely?changed 34 times a near?doubled consumption.

The implication of this is that even if, after all we have argued above, you still suspect that Hotelling’s calculations do somehow hold water, the cold, hard fact is that these two commodities (among many) are anything but a depleting resource, in any case!


 

Another needless reinvention of the wheel—albeit as one with bent spokes and a buckled rim—was the NY Fed researchers’ ‘revelation’ that they couldn’t fit a ‘model’ to forecast the price of commodities and that this somehow meant that their bosses were justified in ignoring their rise in setting monetary policy!

Well, we may have a lower standard of statistical certitude than such eminent doctors of the wizard’s art, but it is pretty obvious that commodity prices broadly follow the ups and downs of world trade and industrial output, albeit with varying degrees of sensitivity—as well as with the occasional over– and undershoot: these, in turn, depend upon the prevailing monetary conditions.

Then again, the business cycles which largely determine the ’real’ side fluctuations in industry and commerce are themselves a monetary phenomenon, meaning that changes in money influence changes in real activity (and, naturally, the prices at which these take place). Feedbacks from these can also affect money creation, in their turn, often in a destabilizing manner.

Commodities are obviously subject to such fluctuations directly and can also feature among the channels through which a swollen supply of money and credit may preferentially flow. Since commodities, too, are part of the matrix of inputs and outputs which constitute ‘real’ activity, they cannot fail to leave their own mark upon a topology within which are laid out the so?called ‘fundamentals’ of supply, demand, and inventory upon which so much attention is focused – quantities which we are therefore never justified in considering as somehow independent of all that goes on around them.

Thus, even when the ebb and flow of commodity prices seem to be at their most closely synchronised with demonstrable variations in ‘real’ output, we must never lose sight of two possibilities: that it is the commodities which may occasionally be the drivers, rather than the driven; and that the real is often no more than a reflection of the sometimes dominant vicissitudes of monetary activity.

The web we weave is a tangled one – we should never practice to deceive ourselves, of all people, that it can ever be otherwise.

Markets, as we started by saying, are trying to rally and are being aided by powerful shift out of fixed?income. We have to respect that, but we are also at a loss to see whither the selfsustaining flow of positively reinterpretable news will emanate in the coming days.

Agriculture has come right down to the old TWI?weighted high we saw as key last week, as the reports turn bullish for crops and bearish for stale longs. We got our projected wheat slump on the H&S violation, too, as an added bonus. Whether that support will give way only time will tell, but if it does… Tim?berrr!

Despite the rally in energy, WTI has still not been able to trace out a pattern which would preclude a continued slide to our old $85 area. Brent is more equivocal, but could just as easily move down from the post?peak high?volume/ POC line it has regained as move decisively above it. It must surely be worth a re?set short with a tight stop while we find out which sentiment prevails.

Copper, likewise has cast off its bearish tint and is probing towards the mean of the winter balance area around $9580 even as the contango, paradoxically increases. We have to be out for now until more clarity can be had.

One commodity we still cannot be sanguine about is silver which should be revelling in the current predominance of the Risk?On herd (UST5yrs up 50 bps in as many days!). Having broken trend, and having failed to stay above it in the retest, May’s $32.31 is still all that stands between us and a possible $26 handle.

A good deal of liquidation has taken place in the last month or two— and the drop in positioning has been magnified by the resulting fall in prices. Even so, this only appears to have taken the market back to the exposures typical of those we saw before QEII began, with no individual commodity actually showing a net short (excepting that perennial Aunt Sally—natgas).

Whether that is a sufficient base upon which to build a lasting rally— absent some Big 4 central bank encouragement—is perhaps not as evident as the permabulls would have us believe.

 

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Sun, 07/03/2011 - 19:21 | 1423208 narapoiddyslexia
narapoiddyslexia's picture

Global oil production has been flat for seven years.

See http://www.theoildrum.com/node/8044

Sun, 07/03/2011 - 19:48 | 1423235 Bicycle Repairman
Bicycle Repairman's picture

"Oildrum" LOL.

Sun, 07/03/2011 - 20:50 | 1423299 narapoiddyslexia
narapoiddyslexia's picture

Global production has been flat for seven years. If you have other data show it. Otherwise go fix a bike.

Mon, 07/04/2011 - 06:38 | 1423763 Bicycle Repairman
Bicycle Repairman's picture

Who supplied the data you are using?  Who funds the data suppliers?  What are the motives of these people?

Wake the fuck up.

Mon, 07/04/2011 - 07:21 | 1423779 -273
-273's picture

My god you cracked it repairman, its a conspiracy! The 89 million barrels of oil we use each day is really being replenished! dam those oil companies and oligarchs! It's great to be awake and know we can keep on growing the world economies exponentially thanks to plentiful cheap oil! To hell with EROEI! Dam their fake depletion rates, stupid England for faking the north sea oil peaking and becoming a net importer and becoming poorer by the day as a result! it's all a conspiracy!

If this is how you think when awake, better off just sleeping through it all man.

Look at the drop in production of the countries in this list, yes it's compiled by BP but most of this is common knowledge in the oil industry. Why would countries wish to become net oil importers? Egypt becoming a net importer this year was partly what led to the riots as the government had no more oil revenue so had to cut subsidies on food and fuel:

http://www.theoildrum.com/node/5576

 

Mon, 07/04/2011 - 08:03 | 1423821 narapoiddyslexia
narapoiddyslexia's picture

Bicycle Repairman is almost certainly a paid troll. Obvious technique. They love this site.

Mon, 07/04/2011 - 08:21 | 1423844 SWRichmond
SWRichmond's picture

Peak Oilers are morons.  Or worse, they are shills for the oil business, paid to preserve the mysterious sanctity of oil, to explain why we should remain willing to invade and kill for it.

Which means that most peak oilers are useful idiots.

Mon, 07/04/2011 - 08:48 | 1423907 Bicycle Repairman
Bicycle Repairman's picture

+1

Mon, 07/04/2011 - 09:09 | 1423950 -273
-273's picture

If you have the ability to understand it (I'm sure you do, it's not that complicated), watch this video and then come back and tell me if you still think the same:

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

Mon, 07/04/2011 - 08:43 | 1423888 Bicycle Repairman
Bicycle Repairman's picture

I'm not a paid troll.  Information is power.  Data on Oil reserves are state secrets.  Money can be made manipulating markets and people.  Do you think the powerful will simply share this information?

Mon, 07/04/2011 - 09:05 | 1423941 -273
-273's picture

Your right man, all these broke net importing oil countries are just keeping all their oil secret for future generations. Maybe the Greek elites should forget that though and just dig deep under their islands and start tapping all that Abiotic oil, money problem solved.

Back to reality and that information is power thing you speak of, only 14 out of 54 oil producing countries and regions in the world continue to increase production, while 30 are definitely past their production peak, and the remaining 10 appear to have flat or declining production [1]. Put another way, peak oil is real in 61% of the oil producing world when weighted by production.

Mon, 07/04/2011 - 09:48 | 1424017 Bicycle Repairman
Bicycle Repairman's picture

"only 14 out of 54 oil producing countries and regions in the world continue to increase production"

Who controls the production?

"while 30 are definitely past their production peak"

Again, who supplied your information?

"and the remaining 10 appear to have flat or declining production"

According to whom?

I know these guys would never lie to you.  Go back to sleep.

Mon, 07/04/2011 - 11:11 | 1424248 -273
-273's picture

Shit you got me man, every country must clearly be lying!! Why didnt I see that before?!! Forget the bicycles, you should become a car mechanic, invest in your long term future.

Mon, 07/04/2011 - 19:05 | 1425261 Bicycle Repairman
Bicycle Repairman's picture

"Shit you got me man"

Exactly.

Tue, 07/05/2011 - 01:59 | 1425890 -273
-273's picture

lol, only person you are fooling is yourself. It's good to be a skeptic, but dont be an idiot, clearly you cant take 89 million barrels of oil a day out of the ground indefinitely now can you ace.

Mon, 07/04/2011 - 08:48 | 1423900 Bicycle Repairman
Bicycle Repairman's picture

"Look at the drop in production of the countries in this list, yes it's compiled by BP but most of this is common knowledge in the oil industry."

Oil industry? You mean the handful of people who run the industry?

"Why would countries wish to become net oil importers?" 

Do third world countries get to have their wishes?  How about first world countries?

Tue, 07/05/2011 - 02:08 | 1425899 -273
-273's picture

Ah, I get it, the third world countries must keep their oil in the ground hidden, same with the 1st world countries right? Your logic is mesmerising. The only way oil companies are keeping their reserves up is by taking over other smaller oil companies, they are not finding any new supergiant fields. Since the mid 1980s, annual production has been greater than annual discoveries. Replace your theories with maths and it should be quite clear where we are heading.

Sun, 07/03/2011 - 22:26 | 1423420 Sparkey
Sparkey's picture

Wonderful writing, beautiful charts, I can only hope his optimism is founded on more than hope and wishful thinking.

Unfortunately I'm afraid this fellow (below) has a chart which perhaps tells a clearer view of our reality.                                                  There are many who seek to treat reality as irrelevant, "It's what you believe that creates reality" they've been taught and  believe this, and implicit in their approach is a confidence that their repertoire of nostrums has, (fueled by their beliefs), unlimited power to ward off unwelcome realities.

I don't think the world works like that, I also think that, probably, there are no modern men, (myself included), who have a clear encompassing view of reality that is not shaded by the relentless programing of all media, like the way the things in our food permeates our physical beings, so are our minds being shaped by the thoughts, and desires being embedded in our core without our conscious knowledge, certainly without our permission. We have imagination to solve the problems reality raises, we cannot conger reality we must react to it!

Take a look at this, it really seems it could well be the end result of the trends I've noticed over the last sixty years!

http://jayhanson.us/page125.htm

Sun, 07/03/2011 - 22:42 | 1423451 Orly
Orly's picture

That's just silly.  The idea assumes that what we know is a permanent reality and that nothing we can not possibly imagine could ever happen to the energy availibility, space and time travel and on and on.

When it comes time, take stock in the Mr. Fusion company.  You won't regret it!

Sun, 07/03/2011 - 23:20 | 1423496 el Gallinazo
el Gallinazo's picture

If you can't dazzle them with your dance steps, then baffle them with your bullshit. Corrigan must write this drivel for the NY Times Pulitzer Prize winning economic journalists who will appreciate his refined literary style.

Mon, 07/04/2011 - 02:16 | 1423642 malek
malek's picture

He has put all his arguments in the essay, you should read it once more.

For completeness please also give us your opinion on the continued falsehood of doomer predictions, for example The Club of Rome since the early 70's.

Mon, 07/04/2011 - 03:59 | 1423708 Chappaquiddick
Chappaquiddick's picture

NIF - go check it out

 

https://lasers.llnl.gov/newsroom/

Mon, 07/04/2011 - 13:59 | 1424724 Crawdaddy
Crawdaddy's picture

I agree it is great writing and I dig the direction his argument travels. A similar argument here:

http://www.polyconomics.com/ssu/ssu-041030.htm

By Jude Wanniski

Before the US abandoned the gold standard on 15 August 1971, there had been a traditional relationship between gold and oil: One ounce could be exchanged for 15 barrels.

The relationship had held steady for decades as the US fixed the dollar price of gold at $35 and the world oil price fluctuated narrowly around the $2.50 a barrel mark.

Since 1971, the gold/oil relationship began to vary as the US dollar "floated" on international currency exchanges, but until recently it still moved around that 1-to-15 ratio.

Now, an ounce of gold at $420 (when this essay was written) buys only eight barrels of oil at $52 a barrel (bbl). Around the world, industrial and financial analysts are puzzling over why this has happened.

Does it mean a new, permanent shift in the traditional relationship? Is it the result of a coincidental series of supply interruptions due to hurricanes in the Gulf of Mexico and strikes in Nigeria, compounded by the geopolitical threats in the Middle East?

Is it the sudden demand for energy in the rapidly growing economies of China and India, where two billion people have developed a great thirst for energy? Is the world running out of easy-to-get, cheap oil?

None of these questions lead to satisfactory answers.

...follow the link the see the rest

 

 

 

 

 

Sun, 07/03/2011 - 19:26 | 1423211 long-shorty
long-shorty's picture

Don't worry. The more we consume, the more reserves will increase. For ever and ever. Amen.

Sun, 07/03/2011 - 19:48 | 1423237 Bicycle Repairman
Bicycle Repairman's picture

That's right.  Have you figured out why?

Sun, 07/03/2011 - 20:24 | 1423269 Orly
Orly's picture

Because crude oil is not derived from dead dinosaurs but instead bubbles up from the center of the Earth?

Sun, 07/03/2011 - 20:48 | 1423296 Bicycle Repairman
Bicycle Repairman's picture

Beause the people who know the truth feed misinformation to "nosy" people to keep the "nosy" people chasing their tails.

Sun, 07/03/2011 - 20:53 | 1423304 Orly
Orly's picture

Kinda like lumping "Warmers," "Truthers," "Birthers" and "Peakers" into the same category so that the CIA and DHS trolls don't have to work so hard?

Wow. What a revelation!  You mean to say that those people are lazy?

Misinformation.  Whoda thunk?

Sun, 07/03/2011 - 23:36 | 1423511 el Gallinazo
el Gallinazo's picture

Orly, I have been following your comments and you are a very bright woman. There is a physicist by the name of Brooks Agnew ( Ph. D. from BYU) who stipulates that the earth is, in fact, hollow, and there are 208 races of sentient beings that live on the inner face of the crust. Among them are the lost tribes of Israel. This can be found by looking his name up in the Italian Wikipedia and then asking them to translate it into English. So assuming that Dr. Agnew has this correct, my theory is that these sentient beings have manual fluid pumps and are trying to pump more crude oil back into our depleted reserves as fast a they can. Otherwise, the oil we have already extracted will induce a low pressure area in the mantle and create a devastating climate change for them on the inner face of the earth's crust. I am rather surprised that Mr. Corrigan didn't refer to these near indisputable theories to back up his arguments.

Mon, 07/04/2011 - 01:48 | 1423620 Orly
Orly's picture

Shows you what you know, which is apparently not a whole lot.

What we call crude oil is the by-product of a pressure differential between the surface tension of our planet and the intense heat at the core.  It bubbles up because it is relatively light and rock near the surface is relatively porous.

I suppose that you would rather believe that there are 208 missing species of humans beneath the surface.  It is possible.  Maybe their mode of transport is to ride around on the 1.88 billion T. Rexs that are down there- or maybe they can be like Fred Flinststone and simply use the 18.47 billion Allosauri as bridges and slide down their necks to get from place to place.

At the rate of global oil-reserve discovery, it should be apparent that there must have been a massive overpopulation in dinosaurs on (or in...) our planet.  With such an obvious warning to modern man, I am very surprised that some good-intentioned leftist hasn't picked up on that yet.

Someone get Al Gore on the phone.  Tell him I have his next boondoggle...erm...documentary right here in my head!  Alert him that the lost tribes of Israel must be drowning in dinosaur shit.

Mon, 07/04/2011 - 18:17 | 1425196 el Gallinazo
el Gallinazo's picture

Orly, this was suppose to be humor. Guess it didn't work :-( Of course it is totally ridiculous, but the article Tyler chose to post was ridiculous, so it was appropriate. However the part about Brooks Agnew is real and his exploits make amusing reading.

Mon, 07/04/2011 - 21:29 | 1425450 Orly
Orly's picture

I understand and I thank you very kindly for helping me make my points very clear, Gallinazo.

I hope I wasn't mean but I wasn't speaking to you directly, really.  I was speaking to all the people who don't understand that the Earth is a living being beyond the comprehension of modern man and to believe that we understand her, in our limited and basic capacity, is absurd.

I thank you for throwing the absurdity into the mix.

Please have a wonderful week!

:D

Mon, 07/04/2011 - 11:04 | 1424231 Bicycle Repairman
Bicycle Repairman's picture

The deep water Horizon rig was drilling below 10,000 feet.  BP stuck quite a bit of highly pressurized oil.  No dinosaurs or plant matter have ever lived below 10,000.

Nor have any races of humans, I might add.

Mon, 07/04/2011 - 13:19 | 1424592 Orly
Orly's picture

"...quite a bit of highly pressurized oil."

The lost tribes have a hella manual pump action working, I guess.  But even if they're below 10,000 feet, how can they breathe?

All kidding aside, it seems sort of sad that very, very bright people- petrochemical engineers- hold to the tenets of what they had been taught to believe.  There are petrochemical engineers in my family, so I can attest to their ability to reason but, in this instance, they are allowing what amounts to a religious fervor to cloud their ideas when the mathematics (of all things...) clearly shows that the idea of "fossil fuels" is totally bogus.

Just read some of the posts in this thread and it is plain to see that many of us have some emotional interest invested in this belief.

Has anyone done the calculations of how much algae, how many dinosuars and how many pine trees would be necessary to deposit so much fossil fuel?  An earnest algebraic formula would clearly demonstrate that it would take multiple billions of years to deposit that amount of fuel below the surface of the Earth.  The closest calculation I can find is that the Earth became a living being only about three billion years ago- not 37 billion years ago, as would be necessary to create these deposits.

What tipped me off into thinking about it was the exact same fervor I experience back in '02, when I started to question the validity of the government's assessment of 911.  Firefighters, teachers, people from all walks of life simply refused to believe that their government would lie to them in such an unholy way.  Now, it seems quite obvious to anyone who seriously thinks about it that the US government not only lied about it, they had a direct hand in making it happen.

Same thing here; very smart and honest people simply refuse to believe anything other than what they have been told.  In ten years, maybe it will become obvious to everyone as well that there is no "Peak Oil," that the Earth replenishes its own supply of what humans call "fuels" and that the idea that dead dinosuars make oil is embarrassingly silly.

"No dinosaurs or plant matter have ever lived below 10,000."

As my father used to say, "I rest my case."

Sat, 07/09/2011 - 15:26 | 1440040 BigJim
BigJim's picture

No dinosaurs or plant matter have ever lived below 10,000.

Please tell me you're kidding me.

http://www.ucmp.berkeley.edu/geology/anim1.html

Sun, 07/03/2011 - 19:27 | 1423212 francis_sawyer
francis_sawyer's picture

What a fucking load of horseshit...

"The point of this digression—beyond its own entertainment value—is that oil has no value whatsoever, outside of that conferred upon it by the  imagination and dedication of acting men who have found ways to make it meet one of Man’s most enduring needs—for a reliable and easily transported store of energy."

---

Yeah, my fucking penis has no value either (outside of...)

 

 

 

Sun, 07/03/2011 - 20:36 | 1423282 W T Effington
W T Effington's picture

If you or no one else has any use for your penis then it has no value economically. You shouldn't talk about your penis like that. I am sure its not that bad.

Sun, 07/03/2011 - 20:55 | 1423306 francis_sawyer
francis_sawyer's picture

OK then it oes have value...

I'll use the "authors" words & place its value as "that conferred upon it by the imagination and dedication of acting men who have found ways to make it meet one of Man’s most enduring needs"...

---

But the dude wasn't talking about the fallacy of PEAK PENIS theory... Instead - he just seems to want a Pulitzer for writing, essentially, about his technical analysis of candlestick charts...

 

 

Sun, 07/03/2011 - 21:07 | 1423327 W T Effington
W T Effington's picture

Peak Penis Theory would be an interesting topic, in a totally not gay way. I wonder if all the charts would look like a steep bell curve.

Sun, 07/03/2011 - 21:20 | 1423343 francis_sawyer
francis_sawyer's picture

Well anyway... I don't want to harsh out on the guy... But Jesus Tapdancing Christ... If your charts tell you that silver is going to $26 then just SAY IT (& spare us all the crap)...

Sun, 07/03/2011 - 19:30 | 1423215 astrofibo
Sun, 07/03/2011 - 20:25 | 1423271 Orly
Orly's picture

Link don't work, yo.

Sun, 07/03/2011 - 19:32 | 1423218 Hohum
Hohum's picture

And, of course, the cost of all extracted oil is the same.

Sun, 07/03/2011 - 19:38 | 1423222 chistletoe
chistletoe's picture

This is canard no #1 whenever anyone -- anyone -- tries to refute "peak oil"

(which is no longer a theory, but simple fact)..

Always, they start by discussing the known quantity of recoverable reserves.

 

Neither Hubbert nor Matt Simmons nor any of the other myriad illuminati

who have discussed peak oil

 

ever, ever, ever said anything about known reserves.

"Peak oil" refers to the quantity over time of the commodity which can be produced.

It refers to "maximum flow".

The case is now open and shut.  The peak in the continental US took place, just as predicted, in 1973.  And the world peak took place, just as predicted, in the middle of the first decade of the 21st century.

Anyone, absolutely anyone,  who wants to argue differently has a hidden agenda up his sleeve,

in the great tradition of patent medicines, perpetual motion machines,

recharging your lightning rods, or selling you a bridge ....

Sun, 07/03/2011 - 19:51 | 1423239 Bicycle Repairman
Bicycle Repairman's picture

LOL.  I'm not buying a Prius and you can't make me.

Sun, 07/03/2011 - 20:15 | 1423264 HungrySeagull
HungrySeagull's picture

I ain't buying a car that fits in the short bed pickup truck either

Sun, 07/03/2011 - 20:35 | 1423278 Event Horizon
Event Horizon's picture

The State will buy you a Volt with your own money ,, err debt

Mon, 07/04/2011 - 06:34 | 1423756 Bicycle Repairman
Bicycle Repairman's picture

Volt?  LOL.

Sun, 07/03/2011 - 20:03 | 1423255 css1971
css1971's picture

I think his point is that when oil becomes too expensive. We'll replace it with something else; natural gas, electric power etc.

Sun, 07/03/2011 - 22:31 | 1423427 AGuy
AGuy's picture

It already is expense, and has been since 2005!

It took 140 years to build the infrastructure around oil. Its going to take decades to transform it to use something else. Unfortunately we don't have decades to make the transistion. Not only are we dealing with a oil shortage we have a financial crisis and global population in overshoot.

Better have a backup plan than hoping a solution will happen just in time.

 

 

Mon, 07/04/2011 - 08:36 | 1423877 SWRichmond
SWRichmond's picture

Silver dime is worth $2.44: http://www.coinflation.com/

Gasoline was $0.23 a gallon in 1920's: http://www.inflationdata.com/inflation/images/charts/Oil/Gasoline_inflat...

Simple arithmetic tells you that two silver dimes now buys $5.60 worth of gasoline = 1.5 Gallons.

Measured in real resources, gasoline is cheap.  Measured against unsustainably geometrically-growing non-backed funny money, leveraged in an even phonier fractional-reserve system, gasoline is expensive.

Mon, 07/04/2011 - 05:47 | 1423744 -273
-273's picture
if high cost oil is what sinks the economy, high cost green energy is of very little help.
Sun, 07/03/2011 - 20:44 | 1423289 W T Effington
W T Effington's picture

"Maximum flow" is based upon variables that are ever changing. Specifically technology. Therefore, it would be wise to not use absolute terms such as Peak.

Sun, 07/03/2011 - 21:48 | 1423372 CrashisOptimistic
CrashisOptimistic's picture

On the other hand, it's also based on a variable that is the dominant variable and it is not changing.

Geology.  The second most dominant variable is also not not changing.  It is physics. Technology runs a distant sixth or so.

I am gonna have to wonder if guys pay Tyler to get posted, because articles like this demonstrating an absence of understanding of the terms is a waste of time.  Hit counts need to be inversely adjusted to the content quality.

Sun, 07/03/2011 - 21:30 | 1423352 bigdawg
bigdawg's picture

You sound like Al Gore when he says that Global Warming isn't something that should be debated anymore...it's just a simple fact.

Mon, 07/04/2011 - 08:01 | 1423817 Urban Redneck
Urban Redneck's picture

     "The case is now open and shut... Anyone, absolutely anyone,  who wants to argue differently has a hidden agenda up his sleeve" - said the snake oil salesman.

     The CASE IS NOT OPEN AND SHUT, EXCEPT WITHIN THE CONFINES OF THE MINDS WHICH HAVE A BIASED OR LIMITED PERESPECTIVE.

     Production/flow rate to market is a function of available supply, demand, and price.

     Peak US domestic production in 1973 is a notion dependent on the arguably artificial and certainly geologically irrelevant boundaries represented by US borders.  For all practical purposes US oil production has probably peaked- but to argue that the peak (especially on a global level is the result of some geologically imposed maximum flow rate is an illogical fantasy. 

SUPPLY

     Ignoring oil price and demand entirely- the maximum available flow rate is a function of the maximum available supply.  The difference between the maximum available supply and the actual available supply is not precisely known.  The difference would include areas of Alaska currently off limits to exploration and production, the US continental shelf (again off limits), existing wells which were depleted in the past using the best available technology at that time (also the recently capped Macondo well), and the vast disputed territory of the United States (the dispute between the US, Russia, Norway, and Denmark - since Russia is repositioning two brigades to defend its claim, while the US isn't even issuing permits, odds for new production volumes accreting to domestic as opposed to global production are not promising).

     Peak global production is at least consistent with geology, at least until they find oil on Uranus.  However, there is still a significant difference between maximum available supply and actual available supply.  The same issues come into play when examining oil supply on a global scale – There are existing wells which were depleted in the past using the best available technology at that time.  The quad partite debate over resource ownership and access in the arctic is an example of a larger phenomena-  that 75% of the worlds maritime boundaries are not fully delineated are many of those are the subject of current disputes which prevent exploration and extraction of oil.  The Spratly Island pissing match has more participants than the North Pole version.  It is but one of China’s many maritime boundary disputes.  If successful in its quest to expand its territorial waters, then there is little chance that they would follow the US down the road of regulatory restriction on resource extraction.  The big question about the South China Sea results from the fact that the Pertomina has historically had the best access, but since nationalization they can’t find oil without a foreigner holding their hands, paying their bribes, and showing them where to look, the it is somewhat of an unknown.  The maritime boundary disputes in the Gulf of Guinea involve known current producers- among the half dozen or so disputed claims for example, what are the chances of finding oil in between the currently producing territorial waters of Nigeria and the currently producing territorial waters of Nigeria?  Better than even, and better than even that it will more closely resemble bonny light than Orinoco sludge.  There is also the freakish hybrid situation that occurs when an oil company starts drilling, or even worse slant drilling, too close to a boundary or disputed zone- and then they discover oil, and then the CEO, project manager, the lawyers, and the geologists have a little talk, which results in the well being quietly capped.  There is also at least one place in the world where oil slicks still rise to the surface of the ocean occasionally (and not because there are any oil wells in the area).  Just this week Thaksin’s sister’s party won the election in Thailand, which puts the crooked Thaksin-Hun Sen resolution of their offshore boundary right back on the table, which will hopefully resolve false flag being flown over Preah Vihear that resulted from the Toyota Taliban Monkeys at UNESCO getting involved in something that went way over their heads.    

DEMAND

     There is a direct correlation between energy demand and GDP.  The US is the largest single component of global oil demand currently, and the US government is hell-bent on a policy of demand destruction- whether through impoverishing the nation through inflation, exporting industry overseas, creating a thousands of green jobs overseas, or the odd token domestic regulation aimed at increasing domestic efficiency.  Developing nations which produce oil are exporting a smaller percentage of their production as their domestic economies develop, the oil is used not just to fuel automobiles but to produce potable water, domestic agriculture, import the very energy intensive industries and jobs that the US wants to export.  In the Middle East, Iran is the big question mark around the domestic demand component- if they develop a nuclear bomb, then the veil of non-nuclear power preference will be shed overnight and another round of green jobs will be created overseas for foreigners using US petro dollars (they necessarily have to be new [safer & environmentally friendly] plants since the first rule the OPEC fight club is actually “don’t harm the precious.”  Comparatively, European demand is relatively static, unless the ECB, IMF, and FED completely implode the economy, although European authorities do have more room to manipulate demand through reduction of the higher average taxes currently imposed on oil imports than the their US counterparts.  However, if the migration in Europe away from nuclear power technology continues, without a scalable, economically viable, non-petroleum based alternative, then demand will increase regardless.  Brazil is a marginal importer that is determined to become at least neutral if not a marginal exporter, since they desire to achieve this while growing the economy there should be at least a marginal increase in domestic demand.  Japan is mess, but the situation boils down to exports require energy to produce NOW, the energy can come from nuclear or petroleum NOW, to the extent that supply of nuclear is reduced, then demand for petroleum will increase if Japan even approaches to pre-Fukushima production levels.  Then there is India and China, both nations with growing economies and significant aggregate demand but relatively low per capita demand.  As their economies grow the conflict between the current exchange rate peg to depreciating G7 currencies and commodity prices rising nominally relative to those currencies will incent those governments to alter the existing exchange mechanism, the effects and result aren’t entirely predictable at this point, but since there is a direct correlation between energy demand and GDP, their energy demand can be expected to increase barring an loss of ability to grow their domestic economies.     

PRICE

     Right now oil is largely priced in US dollars.  This benefits the current largest consumer- the US.  Since the FED began ZIRP in earnest in 2001 and doubled down during the current financial crisis the oil price has been significantly rising in nominal terms.  Priced against commodity indexes- oil has increased marginally more than most food commodities, less than precious metals, and inconsistently against industrial commodities (e.g. oil has fallen marginally against copper and risen marginally against aluminum).  Ceteris paribus, if the central banks continue to debase their currencies then the nominal price of oil will rise in those currencies.  Sustained higher real prices will enable more supply (and supply of alternatives) to be brought to market whether as the result of technologies (e.g. tar sands) and sources (e.g. deep water or reclaimed wells) that are not profitable at lower prices.  Additionally, it incents governments to settle resource ownership disputes (either amicably or violently) in order to profit from resource extraction.  The fundamental question is whether sustained higher real prices can be maintained.  Global production of oil (and oil-like equivalents/alternatives) has remained relatively flat since the peak of the US housing/debt/ponzi market in the middle of the last decade.  Equilibrium demand has remained relatively static and a balance of increasing developing economy demand offset against decreasing purchasing power through inflation, and demand destruction in developed economies.   

     Whether or global oil production has peaked is a function of whether or not global economic (non-fiat) production has peaked, absent a great leap forward in energy alternatives.  The maximum oil flow into the global marketplace is not an immutable reality of declining volume as a direct consequence of finite supply.   

 

 

Sun, 07/03/2011 - 19:41 | 1423225 malikai
malikai's picture

Did you use all those colourful words to make us realize how intelligent and thought-through this article is? I'm just wondering, you know, because us illiterates over here thought to ourselves 'tl;dr'.

It is a shame too, since many of us would like to hear an objective view outside of our own. Unfortunately, what I read was: Oil and silver are effectively inexhaustable, case closed.

Sun, 07/03/2011 - 20:46 | 1423292 francis_sawyer
francis_sawyer's picture

No... It's even WORSE...

I guarantee you... This jerk likes to sit there in a dimly lit room sipping cognac... savoring the genius of his prose...

He reminds me of that @sshole in the bar scene in "GOOd WILL HUNTING"...

---

I'll play "Will Hunting" here & synthesize...

- His chart reading tells him that crude might break to see $85 & silver may break to see $26 (he "may" be right on those calls in the end)

- The rest is just psychobabble to make him sound more intellectual (than using candlesticks or elliott waves)...

Here... Here's the same MF in 2006...

http://www.lewrockwell.com/corrigan/corrigan84.html

(rolls eyes)

 

 

 

 

 

Sun, 07/03/2011 - 21:38 | 1423362 Vlad Tepid
Vlad Tepid's picture

+1

Sun, 07/03/2011 - 20:03 | 1423242 Event Horizon
Event Horizon's picture

Peak Gold Bitchez (for real)

http://www.benthamscience.com/open/togeoj/articles/V004/29TOGEOJ.pdf

new mine production peaked in 2000 and new production will fall below long term trend line in 2026 (earlier if the price rises), that is only 15 years away

When peak debt meets peak gold,,  A love story..

Sun, 07/03/2011 - 19:52 | 1423243 Bicycle Repairman
Bicycle Repairman's picture

Sorry you "ecos" bet on green energy and lost your money.  Face it.  You got scammed and you lost.  Live with it.  I'm not really sorry, BTW.

Sun, 07/03/2011 - 19:57 | 1423248 hayesy316
hayesy316's picture

There's no point arguing with Peakers, any more than there's any point arguing with Truthers or Warmers. You can't defeat that degree of religious eschatology with reason.

Sun, 07/03/2011 - 20:03 | 1423254 Hohum
Hohum's picture

And what reason is that?  (Although my personal view is that GROSS world oil production may edge still higher).

Sun, 07/03/2011 - 20:09 | 1423261 css1971
css1971's picture

Peak oil is pretty much fact.

 

The terminology you need to become familiar with is:

Doomer: Billions are going to die.

Moderate: The shit is going to hit the fan but we can prevail.

Cornucopian: Everything is going to be just peachy.

BAU: Business As Usual

 

I would count myself as a moderate.

Sun, 07/03/2011 - 20:46 | 1423291 W T Effington
W T Effington's picture

How can something be "pretty much" fact. Either it is, or it is not.

Sun, 07/03/2011 - 20:27 | 1423274 Orly
Orly's picture

DoHS pays you well, I do hope.

:D

Sun, 07/03/2011 - 19:58 | 1423249 alexdg
alexdg's picture

I guess off-shore crude reserves will last forever and they can be dirt cheap, if it weren't for those evil speculators.

There is plenty of silver all around and it only costs 5$ to dig up from the ground... Mining is for wimps.

Sun, 07/03/2011 - 19:58 | 1423250 bob_dabolina
bob_dabolina's picture

How bout this as a commidities corner? 

Silver busted.

http://missivesinstitute.blogspot.com/2011/07/silver.html

Sun, 07/03/2011 - 20:39 | 1423281 Thorny Xi
Thorny Xi's picture

It's an exponentially growing planet; all resource reserves increase as the planet expands. 

We don't notice this expansion, since we're all really 100 feet tall now but nobody's changed the rulers.  The universe itself is expanding, just buy another GMC 3500 pickup and load it with iPod things. Even the short bus this article's author rode to special economist school was expanding.

Be sure to ignore the decades of production data.  Since the data doesn't support the expanding everything idea.

 

Sun, 07/03/2011 - 20:37 | 1423284 duncecap rack
duncecap rack's picture

I think oil is harder to substitute for than the author acknowleges.

Sun, 07/03/2011 - 20:46 | 1423290 crimius
crimius's picture

There are big problems with this analysis of the Peak Oil hypothesis. Peak Oil refers to global production and has nothing to do with reserves. Price is determined by the intersection of supply (production) and demand (use). 

Even if you have adequate 'proven' reserves, it means nothing unless you can actually 'produce' the oil and get it out of the ground and into the market as part of the 'supply' curve.

Additionally, this analysis doesn't take into account current reservoir depletion curves. Any new production of an oil field that wants to add to the total global production must FIRST take up the slack for existing oil field depletion curves (which these days can be very steep). So there is a lot of current production that is declining and must first be made up by new production before you can actually increase the total global output.

Furrthermore, account must be taken for the difference between a country's total oil production versus how much they actually export and thus makes it onto the global market as 'supply'. For example, Russia produces more oil than Saudi Aramco but Saudi Aramco actually exports more oil than Russia. See the difference?

So any oil exporting country that grows economically and thus consumes more of their oil production than in previous years, will actually decline in how much they export and thus ultimately takes away from global supply. This happened to the United States. We used to supply oil to the world but are now importing 2/3rds of what we consume.

There really are no energy sources that are anywhere near the energy density or practically transportable as petroleum. Even natural gas is not that practical for transport across oceans as petroleum.

More evidence of a peak in global petroleum production is the fact that we are trying to produce oil from tar sands and deep water. Why would we look there unless all the easy-to-get-at-stuff is already gone? Unless you want to argue that petroleum isn't a fossil fuel then there really isn't a leg to stand on against the peak oil hypothesis.

 

Sun, 07/03/2011 - 20:56 | 1423309 narapoiddyslexia
narapoiddyslexia's picture

Bingo. Gotta' love those tar sands. . . And drilling in 12,000 feet of water. Piece 'o cake.

Sun, 07/03/2011 - 21:00 | 1423316 malikai
malikai's picture

Yes, but, he used more colourful words than you did. So he did not have to address any of the real arguments relevant to the PO issue.

Mon, 07/04/2011 - 01:11 | 1423598 alexdg
alexdg's picture

Why would you use fundamentals to argue with a guy that uses adjectives? It's like fighting fiction by using logic! You should have used the "there are unknown deep water sea gremlins that eat and feed on such vasts amounts of oil that will punish us if we dare to tap into their reserves" argument.

Mon, 07/04/2011 - 07:06 | 1423773 Tenma13
Tenma13's picture

Well said! 

Sun, 07/03/2011 - 20:54 | 1423303 DavidPierre
DavidPierre's picture

Frightening COMEX Silver Volume In May Massively Distorts Silver Price

By Bix Weir

By all accounts the price volatility in silver for the month of May 2011 was shocking. Silver went into a FREE FALL from near $50/oz to $35/oz in a matter of days. Clearly this is a market that is massively dysfunctional and an immediate remedy is needed if the regulators want to preserve what is left of the people's faith in free markets.

The CME recently published their Monthly Metals Update for May in which they disclose the total volumes of futures and options traded for the month. That report can be found here:

http://www.cmegroup.com/trading/metals/files/MoMU.pdf

According to the CME the average daily volume of Silver futures and options in the month of May was 117,196 contracts and 13,786 contracts respectively or 655M ounces of paper silver traded per day. There were 22 trading days in the month which puts the total amount of paper silver traded on the COMEX in May at 14.4 BILLION ounces (14,408,020,000 to be exact).

Wait just a minute! These are NOT legitimate trades in silver but rather SILVER DERIVATIVES that have lost all touch with their underlying physical asset. The market for silver futures and options is supposed to exist to help the silver market function smoothly for price discovery as well as to help participants manage risk. It is not designed to set the price of the underlying commodity which should solely be determined by specific supply and demand characteristics according to commodity law. The Silver Institute estimates the total physical demand in 2010 was 1,056.8M ounces. On a monthly basis that would translate into 88M ounces per month.

Could this be true? Let's look at the supply side which is much more easily verifiable. Actually, the official physical supply numbers for silver over the last 10 years are relatively stable. Here's the estimates on physical silver supply from the World Silver Survey 2011 (net of implied disinvestment and paper silver hedging) .

As you can see the annual supply of physical silver is VERY stable and growing at an average rate of 1.6% which is in line with global population growth. In 2010 there was a decent 7.4% growth in physical supply which should be expected with a rising price but that still only put total physical supply in 2010 at 995.7M ounces or 83M ounces per month.

So here we have the global physical market for silver trading in the 80M-90M ounces per month range and yet the COMEX paper silver market in the month of May traded 14.4 BILLION ounces of paper silver.

That is a ratio of 160-1 paper vs physical ounces of silver trading!

But that outrageous ratio does not reflect the true picture as the COMEX is just one of many paper derivative silver markets which include the LME, the Silver ETF's, silver pooled certificate programs, silver swaps and all other paper silver exchanges and OTC markets. All of these paper derivatives should be measured against the monthly physical supply for silver of 83M oz/mo. Given all these other forms of paper silver derivatives I would estimate that the COMEX only represents one third of the total paper silver transactions.

That is a ratio of 500-1 paper vs physical ounces of silver trading!

No wonder the price of silver fell so dramatically! The PRICE of silver has absolutely NOTHING to do with the underlying physical silver market. The price of silver is massively distorted by computer trading programs trading millions of ounces of paper silver back and forth to each other to STEER the price not discover the price. There is no "free market" for silver anymore.

THE PHYSICAL SILVER MARKET HAS BEEN 100% DESTROYED BY SILVER DERIVATIVES!

We are at a very dangerous point in the silver market as 500-1 leverage doesn't NOT unwind in an orderly fashion.

Buy as much of the REAL PHYSICAL SILVER as you can get your hands on.

The "Day of Reckoning" is close at hand!

 

Sun, 07/03/2011 - 21:01 | 1423319 francis_sawyer
francis_sawyer's picture

"There is no "free market" for silver anymore"...

Bullshit... I go into a coin shop tomorrow or the day after & negotiate a price to buy or sell...

PERIOd

---

Sun, 07/03/2011 - 20:55 | 1423307 r101958
r101958's picture

Actually, in Twilight in the Desert, Matt Simmons does address the ME's exaggerated reserves. The reserves touted now by the ME are more an exercise in OPEC political power plays than they are in any sort of reality. However, it is correct that peak oil addresses the maximum daily world production more than 'known' reserves. Take a look at the IEA chart that shows the sources of the projected world production in the years to come. Of particular note is the ever larger wedge attributed to 'oil fields yet to be found'.

Mon, 07/04/2011 - 05:54 | 1423746 -273
-273's picture

Took the words out of my mouth.

Sun, 07/03/2011 - 21:16 | 1423338 apberusdisvet
apberusdisvet's picture

Total estimated mineable silver reserves worldwide:  500,000 Mt

Current annual demand levels, industrial plus investment:  25,000 Mt.

Unless an alchemist miraculously appears, or the oceans can be mined profitably, we are going to have no more silver on the planet within most of our lifetimes.  When this becomes more widely know, what will the silver price be in 10 years, 15 years in anticipation of a strategic resource extinction?

Yes, I know that innovative minds will find substitutions but are unlikely to totally find a substitute for many of silver's unique properties.  And then there is war which will use up tons of silver just in missiles alone.  Wanna bet that everyone will be peace loving in the next 20 years?

Sun, 07/03/2011 - 21:24 | 1423345 francis_sawyer
francis_sawyer's picture

Oh you never know...

They may just open the vaults of some ancient Indian Temples... (never know what you might find)...

http://www.reuters.com/article/2011/07/03/us-india-temple-treasure-idUSTRE7620VJ20110703?feedType=RSS

---

ORI- was this your personal stash?

 

Sun, 07/03/2011 - 21:31 | 1423353 Orly
Orly's picture

Not only that but they have one more vault to open yet...

Sun, 07/03/2011 - 21:52 | 1423375 francis_sawyer
francis_sawyer's picture

& how many more "unopened" vaults, of how many more yet uniscovered temples in MesoAmerica (or wherever)?...

Who the hell knows? For all we know, perhaps the moon is really made out of cheese afterall!... (Which is a premise, that I'm sure Sean Corrigan [the Stephen Crane of chart reading], is working on a future Pulitzer Prize piece hopeful as to why to short Velveeta futures...

 

Sun, 07/03/2011 - 21:58 | 1423386 francis_sawyer
francis_sawyer's picture

Oh... & perfect timing (right on cue)...

http://www.zerohedge.com/article/goodbye-rare-earth-minerals-hello-not-so-rare-underwater-minerals-vast-oxide-deposit-discove

---

Here... Let's make it all simple...

If Jamie & Lloyd are 'short' something, then it's ubiquitous... If they're LONG, then the universe will run out of it tomorrow...

 

 

Sun, 07/03/2011 - 21:41 | 1423364 Gordon Freeman
Gordon Freeman's picture

Right.  Silver has been just about ready to make everyone fabulously wealthy for the past couple of decades, now.  It's going to "decouple!", it's "going to the moon!"...

Get real--the silver price is controlled absolutely by people who wouldn't even notice the bump, if they ran you down on Park Avenue...

Mon, 07/04/2011 - 01:18 | 1423604 MrPalladium
MrPalladium's picture

+100 - So true!!

Sun, 07/03/2011 - 21:36 | 1423357 Gordon Freeman
Gordon Freeman's picture

Sean Corrigan needs to learn how to write!  He sounds like a self-important high school sophomore who somehow was elevated to Yearbook Editor because no one else would take the gig.

Sean--baby--you are pissing in the wind, until you come down off your perch, and figure out how to reach the hoi polloi...

Sun, 07/03/2011 - 21:43 | 1423358 Vlad Tepid
Vlad Tepid's picture

I think I read this same line from about 150 yrs ago regarding bison and whales.  Exponential explotation = exponential availability.  Can we let this guy go mine an asteroid so he'll stop tormenting us?  Oh, yeah.  That's impossible to do thus far in human history.

Sun, 07/03/2011 - 22:06 | 1423399 francis_sawyer
francis_sawyer's picture

I'm sure he' be happy to go mine the asteroid (which will be swarming with herds of bison & whales as the case may be) as soon as he finishes with his "Project Destiny" entanglement at the Earth's Core...

http://www.youtube.com/watch?v=foAyvN6mVwQ

First things first...

 

 

Sun, 07/03/2011 - 21:54 | 1423380 kito
kito's picture

these peak oilers are sooo crude....

Mon, 07/04/2011 - 07:14 | 1423776 richard in norway
richard in norway's picture

smile

Sun, 07/03/2011 - 22:11 | 1423408 TrustWho
TrustWho's picture

The other consideration is energy input to energy output. The easy oil was 1 barrel of energy produced 175 barrels of energy for end user. Corn ethanol is somewhere between 0.95 - 1.1 energy input to 1.0 energy output. Most ZHers know corn ethanol is STUPID!

Now, energy consumption is correlated almost 1.0 with human quality of life. The first human to capture fire and use the fire to cook food started this quality of life improvement (i.e. human calorie consumption rose). Unless humans find an energy substitute that has a lower input to output ratio (actually 1 to 175 would be good), human quality of life will fall...economics be darned!  

Mon, 07/04/2011 - 00:16 | 1423550 aminorex
aminorex's picture

Anything in excess of 1:1 will allow the improvement of QoL, if scaled sufficiently: It is the amount of energy consumed which effects QoL, not the efficiency with which it is produced.

Sun, 07/03/2011 - 23:06 | 1423480 Glasgow Gary
Glasgow Gary's picture

There is no such think as peak oilers. Placing focus on the people is just a tactic for those who can't deal with the data, or the charactertistics of oilfield geology.

There is one, and only one, definition of peak oil. There are no other definitions. So trying to obfuscate with other definitions, or writing articles about some idiot who also "believes" in peak oil does zero to change the facts.

I will remind the thread that Corrigan has already lost credibility for touting abiotic oil as a theory that rebuts the decline of oilfield reservoirs. Really, one need not read him past that point.

Data. Hard data. And the history of oilfield production, and decline, is all that matters. And it's pretty damn clear that global production of oil stopped responding to price starting 7 years ago.

The religious, non-scientific, anti-empiracle case is not made by those who are justifiably concerned with global oil depletion. No, it's Corrigan and those like him who are appealing to God.

 

Mon, 07/04/2011 - 00:28 | 1423562 CrashisOptimistic
CrashisOptimistic's picture

There is an absolutely astonishing amount of politics and ideology that is . . . if not injected, then presumed to be injected  . . . into what is, in effect, a discussion of nothing other than geology.  Who would have thought that geology could be political.

Point 1: There is a presumption in the overall political assessment that folks who see the oil production problem are left wing.  It's not so.  There is a left wing majority, but it's only about 60/40.  Personally, I absolutely do not recommend that people conserve.  They, if they are Americans, should go out and buy whatever car they want and drive it as much as they want.  It's not going to matter.  There is no reason whatsoever for an American to inconvenience him or herself so that a Chinese person can have a car.

Point 2: It's not a discussion of economics.  There is a hope that it IS a discussion of economics, because those folks believe in miracles.  They want to be in their comfort zone, and Geology is not their comfort zone, so somehow they choose to talk about the subject without ever talking about the subject, which is Geology.

Point 3: It's also about physics.  Oil has 5.8 million BTUs per barrel of volume (42 gallons).  Natural gas has about 5.8 thousand BTUs per barrel of volume.  1/1000th of the energy storage.  That natural gas Honda Civic that they sell, have a look at it closely.  It has no trunk, so the fuel tank can be enlarged, and even after they enlarge it, it doesn't have the range of the conventional Civic.  This is Physics.  This is not engineering.  There is no undoing physics.

Mon, 07/04/2011 - 08:26 | 1423850 malikai
malikai's picture

Point 4: It is also about internal politics. States that were very large exporters are now increasingly seeing growing domestic demand (Saudi, Russia, to name a couple notables) due to both their own economic growth and the effects of heavy subsidization. Further, as more and more countries peak, and other countries realize the long term advantage of 'measured production' (Venezuela and others, thanks to the Cantarell peak and decline post EOR), they will tend to reduce production enhancement techniques in order to have a longer production curve. I see this last point as vitally important. The lesson learned here by the politicos in exporting countries is that there is little long term benefit to pumping as hard and fast as possible. Mexico, for example is facing budget shortfalls as a result of Cantarell's stunning decline.

Mon, 07/04/2011 - 04:41 | 1423728 bakken
bakken's picture

TY TY TY.  All thumbs up.  Why does Tyler post this idiot's trash?

Sun, 07/03/2011 - 23:23 | 1423501 Mactheknife
Mactheknife's picture

The world will NEVER run out of oil.  However, it has already run out of $50/bl oil. There might be some $80 oil left. Pretty soon it will be out of $100 oil. Eventually, it will be out of oil that you can afford to burn up in your car or burn up to ship cheap crap around the world.

Mon, 07/04/2011 - 04:36 | 1423723 bakken
bakken's picture

Easy Saudi production is ending soon also.  They will need to steam extract the heavy crude left in their fields, which is low in aromatics(gasoline presursors) and is sulfur sour.  The petulant author needs to do better research, which means evaluating information which doesn't necessarily meet his pre-ordained conclusions.  Better yet, he could just stop writing crap!

Mon, 07/04/2011 - 13:15 | 1424584 malek
malek's picture

Correct. And with that opinion you are in total agreement with Sean Corrigan. He then adds a few more follow-up points.

Sun, 07/03/2011 - 23:52 | 1423507 ebworthen
ebworthen's picture

 

In short, QE3 being prepped for the burners.

Give it a month or maybe two to crush the savers, investors, pensions, retirees forced out of bonds and into equities.

Then, reflation of equities after the next crash, with more FED shadow stimulus to paint the red balance sheets of the banks and government green and extend and pretend - as assets are bled out of the responsible middle class on healthcare, taxes, and getting by.

A redoubt of 2008, on a bigger scale.

Hangings, we need hangings.

 

Mon, 07/04/2011 - 04:23 | 1423716 jeff montanye
jeff montanye's picture

spotty and symbolic law enforcement on the scale of the savings and loan debacle of '90 would be a traumatic cultural shift.  "primitive and lawless afghanistan" does a better job: http://www.salon.com/news/opinion/glenn_greenwald/2011/06/30/bankers/ind...

Mon, 07/04/2011 - 00:09 | 1423542 Elmer Fudd
Elmer Fudd's picture

I heard John Deere is coming out with a tractor that's going to run on natural gas, then after they make a fortune selling those they will bring out the one the just runs on cow patties.  I'd load up on Nat Gas etf's, and maybe the  etf MOO as well. 

Disclosure: I dont own sh_t

 

Mon, 07/04/2011 - 01:06 | 1423589 whiskeyjim
whiskeyjim's picture

Despite the obscure article and negative comments, there must remain the very real possibility that oil is anything but a 'fossil' fuel, and that its production is ongoing. Even 100 years of carbon based fuel is now an eternity, given technology's half life.

Mon, 07/04/2011 - 01:51 | 1423622 SystemsGuy
SystemsGuy's picture

Let's say, just for point of discussion, that abiotic creation of fuel by methanogens did in fact occur within the Earth's crust. There is still a little matter of refresh rate - the time that it would take for such a process to restore oil repositories.

Now, to my knowledge there has been very few instances where oil wells that ceased production later showed increases in the amount of extractable oil. Technological improvements may in fact be able to retrieve what remains in those oil wells better - in effect creating a better straw - but even given that the refresh rate is sufficiently small that there's been no detectable rates of new oil.

What that means in practice is that the refresh rate is likely well below 0.01%. This means that if we wait for 100 years, we might see roughly a 0.1% increase in the amount of global available oil. If we're depleting at anything above this, then this 0.1% becomes a statistical accident at best.

The upshot here is simple - even if abiotic oil does exist, it will be useful perhaps forty generations down the road; we'd be able to sustain an oil culture again at a considerably lower level perhaps in the year 2930 or so. This is not exactly encouragin.

Mon, 07/04/2011 - 01:56 | 1423626 Orly
Orly's picture

"There is still a little matter of refresh rate..."

Why does everyone assume that a.) everything to be known is already known and b.) that the Earth is not a living thing?

To paraphrase the nineties: get over yourselves.

Mon, 07/04/2011 - 14:36 | 1424809 whiskeyjim
whiskeyjim's picture

Exactly Orly. Systems guy, I am not making the argument that oil may provide us with never-ending supply.

I am saying in general millionaire futurists, Nobel prize winning economists, statisticians and stock pickers can not even tell the future 10 years out.

And there is a real probability we don't know jack about oil; its origin or the likely future path of its recovery.

Of course the Malthusian arguments for Peak Oil and global warming appeal to a number of deep psychological needs, not all of them neurotic. But hey, you keep going man.  There is a reason the Chicken Little story is such a famous fairy tale. In this the author of the post is correct; Hoteling is totall off the mark for very logical reasons.

But at least consider that by far the most restrictive variable on current oil production is government fiat, which is anything but natural, and it begins right here in USA. Also consider that the next logical step in energy density is nuclear, 4/5ths of the cost being safety measures and again, government aversion. If Progressives spent half the government's money helping knowledge actually progress rather than regress, we'd all be better off. Wind power? You gotta be kidding me.

Mon, 07/04/2011 - 01:25 | 1423608 Elmer Fudd
Elmer Fudd's picture

Dont know what makes the stuff, but the straws are now 3-5 miles long, you know, EIEO and all that hooey, we go through it faster than we can get it, and dont start talking about di-lithiumn crystals or I'ma gonna hafta slap you. 

Mon, 07/04/2011 - 04:29 | 1423720 bakken
bakken's picture

The Saudis can punch shallow holes to get oil,  but in ND , most wells are usually about 10,000 ft depth and the fracked laterals about 2,000+feet long.  The USA has seen Peak Oil,  what is it with chowderheads????  Arithmetic is beyond their grasp???  

In 10 years the Saudis will have to steam heavy oil out of their formations instead of pumping sweet crude!  What is this jerk's problem? Maybe he can run his car on pure bullsh*t but for the rest of us it will be increasingly expensive gasoline.

Mon, 07/04/2011 - 01:43 | 1423617 Quinvarius
Quinvarius's picture

This guy has obviously overstepped his area of expertise.

Mon, 07/04/2011 - 02:18 | 1423643 malek
malek's picture

Excellent essay, thanks Sean!

Mon, 07/04/2011 - 04:21 | 1423715 bakken
bakken's picture

Amazing article.  Don't let production numbers hold you back!  Heck, we should see $20 oil soon!  Wow.  I'll wait until then and see if gas goes back to 23 cents per gallon! GOOOOLLLLLEEEEE, Sgt. Carter, I never knew a stock tout could be a Master of the Universe!  Gee, he must have an awfully strong neck to support that 70lb head!

Mon, 07/04/2011 - 09:27 | 1423973 The Count
The Count's picture

This article is a big honkin piece of mental masturbation. The author is clearly in love with his own 'brilliant' observations and conclusions.

 

Mon, 07/04/2011 - 12:37 | 1424480 ian807
ian807's picture

Mr. Corrigan,

While it's clear you like to talk, it's also clear that you dislike addition and subtraction.

A numerate analysis of the oil depletion problem, and the quantities of substitutes necessary to address that depletion, can be found in the book referenced here: http://en.wikipedia.org/wiki/Cubic_mile_of_oil. The bottom line here is that when oil is expensive enough, and its energy return low enough, we're done with it as a major energy player. There will still be trillions of barrels of liquid hydrocarbons in the ground, and on the moons of Jupiter for that matter, and it won't be of any use to us at all.

Of course, a mere quantitative analysis doesn't account for diminishing returns on drilling technology, resource nationalism, the use of oil as a geopolitical weapon, or the economic effects of oil price feedback when oil's price becomes very inelastic.

Food for thought. Take a good long chew.

 

Mon, 07/04/2011 - 14:06 | 1424745 d_senti
d_senti's picture

The mind-boggling levels of stupid that come out of BR's and other's mouths is just infuriating. I'm beginning to see why so many veterans either don't bother with the comments anymore or don't comment, and why Trav was always so pissed off. It seems to me that some people are just prone to falling in-step with someone or some belief system that fits what they want. They don't realize that they're acting just as ridiculous as the MSM-following folks who still think in terms of D and R.

The only arguments I have ever seen, here or elsewhere, against peak oil break down into a few irrational camps:

1. Technophiles/Pollyannas (MSM)

2. Abiotic Oil

3. Corporate Conspiracy

4. Economics as a total worldview

The "technology will save us" camp are stupid, I think we can all agree. Abiotic oil... there's nothing to back it up. Nada. Some crazy Russian dudes and that's it. Honestly, if it were true, why doesn't someone exploit it? They'd be a billionaire. Instead, what do we see? The facts on the ground are in perfect compliance with the Peak Oil Scenario, not the Abiotic Oil Scenario.

As for Corporate Conspiracy? Look, corporations can be (and largely are today) viciously evil entities, as it is their definitive nature to be totally self-serving. But the kind of conspiracy these people believe in is so total, so all-encompassing, that all scientists, all oil professionals, all energy analysts...everyone everywhere is in on it. BR et al say that you can't trust the data because of the evil corporations. If that's true, they have no more legitimate grounds for claiming peak oil isn't true, because the data is false either way. It's an irrational belief.

The last camp is the guy who wrote the article. They analyze something in economic terms and, for some unfathomable reason, don't get that economics and reality are not equivalent terms. You cannot analyze a finite resource (even of an unknown quantity) in purely economic terms, because then you end up with the absurdities above. Oil has no inherent value according to this guy, and will magically appear via man's genius, regardless of the fact that it is among the most energy-dense resources ever found, not easily replaceable, and finite in supply. The ability to do work does have an inherent value.

There are quite a few more things I could go on about, but I doubt many people want to hear me rant. My point is that the irrational perspectives on this issue are on the side of the deniers. It is most certainly true that some pro-peak believers are just Doomers, or just followers like those in the above categories, but it is also the rational conclusion, and the only way around it is to take one of the above routes, all of which assume something stupid to get where they want to go.

Just follow the logic, people, and then start preparing. No one else is going to take care of it for you.

Mon, 07/04/2011 - 14:45 | 1424835 whiskeyjim
whiskeyjim's picture

This post is a beautiful example of the appeal to intellectualism by providing a straw man which makes objection seem silly and red-necked.

No rational objection to Peak Oil needs to fit into your straw man categories. It is you sir, and journalists like you, who pretend to use logic and intelligence to make the Malthusian argument. It fails.

I encourage you to reconsider. The simple fact is that you can not know the future, upon which your argument lies. And the only way you can know the future, is if a suitably empowered bureaucracy enforces it. And that, I contend, is what none of us should want.

Mon, 07/04/2011 - 16:12 | 1425006 d_senti
d_senti's picture

I don't claim to know the future in my post. Rather, I'm presenting the flawed rationale behind the peak oil deniers. It is simple geology and mathematics that demonstrates peak oil; it says that "given what we currently know and how things are presently operating, we will have a decline in oil production that will be disruptive to society." That isn't a stretch. That's a basic extrapolation.

Is it possible that, by some unforeseen means, something will happen to change the equation? Of course it is. But that's not what the argument is, and assuming that something will come along to save us is pollyannaism/technophilia.

Your argument is ridiculous. You're saying that, because it is impossible to know exactly what the future will be, it is futile and fruitless to ever plan for anything ever. That's stupid. We have good reason to believe that, in a set of possible future outcomes, a peak oil scenario that will be disruptive to society is by far the most likely. Unless you've got cold fusion hidden in your pocket or the ability to replace 200 years of infrastructure overnight, then you haven't thought this through. You have made no real argument.

Mon, 07/04/2011 - 19:37 | 1425302 malek
malek's picture

You presented absolutely nothing of substance. At the same time you have completely ignored the very valid points of general uncertainty which Sean listed.

The ‘Hotelling Rule’ assumes that:

  • The stock is fixed, now and for all time
  • The quantity so fixed is known to all those perfect automatons so beloved of modern macro as they uncover and distribute it
  • More broadly, the usual neoclassical sine qua nons—such as perfect competition ? apply
  • The costs of finding and extraction (and milling, refining, fabrication, etc., etc.) never alter
  • The technological milieu never changes, whether in respect of the material’s discovery or its later use
  • The expressed demand for it remains constant and no other good arises to offer the same or better satisfaction to its users
  • The rate of profit (and all that effects this, such as time preference, inflation expectations, taxes, central bank policy) is invariant
  • The resource has no effect upon, nor is affected by, the pricing, use, or profitability of any other goods and resources, be they competing or complementary in their application
  • The resource is someone wanted in and for itself, rather than for the services it provides
  • The spot price which grows in such a mouthwateringly exponential fashion appears from nowhere with no further explanation, leading one to wonder just when the causative finiteness of the resource was first recognised by our population of robotic omniscients.

Take all this together and you have at least 99% uncertainty if Peak Oil will ever arrive and have a massive or even devastating effect and cannot be handled at the time it becomes noticeable.

Now refute for us the above listed points, which as you may notice do not include spontaneous invention of cold fusion.

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