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Guest Post: Understanding The New Price Of Oil

Tyler Durden's picture


Submitted by ChrisMartenson guest contributor Gregor Macdonald

Understanding The New Price Of Oil

In the Spring of 2011, when Libyan oil production -- over 1 million barrels a day (mpd) -- was suddenly taken offline, the world received its first real-time test of the global pricing system for oil since the crash lows of 2009.

Oil prices, already at the $85 level for WTIC, bolted above $100, and eventually hit a high near $115 over the following two months.

More importantly, however, is that -- save for a brief eight week period in the autumn -- oil prices have stubbornly remained over the $85 pre-Libya level ever since. Even as the debt crisis in Europe has flared.

As usual, the mainstream view on the world’s ability to make up for the loss has been wrong. How could the removal of “only” 1.3% of total global production affect the oil price in any prolonged way?, was the universal view of “experts.”

Answering that question requires that we modernize, effectively, our understanding of how oil's numerous price discovery mechanisms now operate. The past decade has seen a number of enormous shifts, not only in supply and demand, but in market perceptions about spare capacity. All these were very much at play last year.

And, they are at play right now as oil prices rise once again as the global economy tries to strengthen.

The Subordination of Cushing

Through the dominant force of its own demand, the US economy largely controlled the oil price for many decades. For years, it was common practice therefore to gauge world demand through the weekly updates to oil storage at Cushing, Oklahoma as well as total oil storage in the United States. If the US was demanding more oil from the global market, and thus either not adding to oil inventories or drawing them down, then a signal was given, pointing to future oil price strength.

But this dynamic began to break down coming into 2005-2007. That was the period when US oil demand -- because of rising prices -- began its current decline. Now that US oil demand is down over 12% from its mid-decade peak, the fluctuation of oil inventories in the US no longer drive prices.

The chart below shows that US inventories have been on an upward trend since 2005, and are now near decadal highs above 300 million barrels even though oil prices are back above $100:

What we're now seeing is that US inventories and US demand are now subordinate to numerous other factors, ranging from emerging market demand, to market perception of spare capacity.

Lessons of Libya

A useful fact learned during last year's Libyan civil war is that Saudi Arabia does not necessarily posses the 2-3 mbpd of spare capacity which most have assumed for years. Moreover, Saudi Arabia ceded the position of top world oil producer to Russia over 5 years ago in 2006. Indeed, Saudi Arabia made no production response to the loss of Libyan oil last spring. Producing near 9 mbpd, it was only by June that Saudi production was lifted by 600 thousand barrels a day (kbpd). That is a hefty production increase to be sure, but it raised questions as to how quickly spare capacity in the world can be brought online.

By the time Saudi Arabia had lifted production, the OECD countries led by the IEA in Paris had already decided to release oil from official inventories. But this, too, did little to calm oil prices -- and as I pointed out last June, only created further problems. In The Dark Side of the OECD Oil Inventory Release, I explained that, by lowering OECD inventories, the market would correctly deduce that safety buffers had been reduced further. Combined with the Saudi increase in production, this only reduced spare capacity further.

The result was even stronger prices as WTIC ran back to $100 (until all global markets floundered on a flare-up in the EU financial crisis). Indeed, it is no longer US inventories of crude oil but the fluctuations in the emergency cushion of all inventories in the OECD (of which the US is part) that is now the more important factor in oil prices:

The loss of Libyan production caused a dramatic drawdown of OECD total oil stocks, which were already in a downward trend starting the previous summer in 2010. OECD inventories fell on both an absolute basis and on a comparative basis to the trailing 5 Year Average as the above chart shows. Taking these inventories from a high of 2800 mb to 2600 mb only 6 months later, combined with unrest across the entire Middle East, was more than enough support to boost WTIC oil prices from $85 to above $100 last spring. Additionally, as we can see in the chart, the decline in OECD oil inventories was maintained into the end of 2011.

These are important conditions to consider when trying to understand how oil prices now, in early 2012, are once again on the rise. 

The Decline of Spare Production Capacity

The latest global production data shows that Saudi Arabia was producing 9.4 mbpd on average during 2011, an increase of 500 kbpd over 2010. To accomplish this, The Saudis had to increase production from 9 mbpd in 1H 2011 to 9.8 mbpd during 2H of 2011. But paradoxically, this production increase has only made the global oil market even tighter, as spare capacity shrinks further.

Let's recall that nearly 60% of global oil supply comes from outside of OPEC from countries like the US, Canada, Brazil, Mexico, China, Australia, and the big producer---Russia. There is no spare capacity in this non-OPEC grouping and there hasn’t been for years. Sure, there is oil to be developed in non-OPEC countries; but that is not production capacity (meaning it is not supply that can be brought online quickly).

Moreover, Russia, the country that single-handedly saved non-OPEC production from going into steep decline, massively increased its contribution to world supply in 2002. But in the past two years, it has seen its production growth taper off and flatten, to just shy of 10 mbpd.

That leaves the oil market, tasked with the job of pricing, to figure out the ongoing mystery that is the "true" spare production capacity in OPEC. That it took 4-5 months for Saudi Arabia to increase production is a concern. Such delays should seriously give pause to those analysts who’ve regurgitated the belief over years that Saudi has 2-3 mbpd that can be brought on quickly.

Although EIA Washington currently judges OPEC spare capacity to be higher than during the lows of 2003-2008, it's historic figures show that spare capacity has been declining since a 2009 high.

Moreover, the failure of non-OPEC production to increase within last decade counts as a true surprise to the global oil market. The faith in non-OPEC supply over the last decade helped to keep prices subdued, until that faith was shattered by 2007's wild spike.

The problem now is that the oil market has been re-educated. Faith in the non-OPEC countries' ability to increase supply is no more. Meanwhile, the great deceleration in Russian oil supply growth, has spooked the market. Combined, a market with 74 mbpd of production and a theoretical spare capacity of 3 mbpd simply creates too much uncertainty.

And consider this: the amount of total spare capacity is now equal to the 3 mbpd of demand that’s been taken offline in Europe, Japan, and the United States over the past 7 years, as oil prices have risen from $40 to the $100 level. Thus the oil market has quite correctly rationed supply, at higher prices. If prices were to fall to $50 or $60, the world’s lost demand could be rebuilt rather quickly.

Killing discretionary demand is now the proper function of the oil market in an age of flat supply growth.

Quantitative Easing and Granger Causality

We should also remember that the global economy would be mired in a textbook deflationary depression were it not for the continual and gargantuan US$ trillions that have been provided by central banks since 2008.

Early 2009 saw oil prices slip briefly below $40. But, of course, that's the price level appropriate to a world during an industrial crash -- with reduced shipping, halted economies, and dislocated consumer demand. The world can have those prices again, if it chooses. But it must also be willing to accept a global recession to achieve such low oil prices.

Thus, there is a misconception that currency debasement is the main driver of oil prices. However, given the new supply realities, that simply isn't true any longer.

The chart below is helpful in explaining why. There is no question that coming out of 2000, the decline of the US Dollar as expressed by the USD Index was a true component of the rising oil price. During that period, as the USD was falling, global oil supply was still increasing. The descent of the US Dollar was unquestionably part of the repricing process, as the USD Index fell from a high of 120.00 in 2002 to 80.00 in 2005:

But see how the most ferocious part of oil’s price advance started to unfold after 2005, when, as the USD continued falling, the global supply of oil stopped growing.

If we think of this comprehensively, we have to conclude that the debasement of currencies is no longer the primary factor in the price of oil on a valuation basis. Rather, it is that quantitative easing prevents a deflationary industrial collapse, thus keeping the global economy alive and able to consume more energy.

We can therefore say that in our post-credit bubble collapse era, and with global oil supply now flat, that quantitative easing causes higher oil prices (through Granger causality). It keeps economies from collapsing (for now) and thus brings demand up against very tight supply. As we can see from the chart above, the USD Index has for 3 years now been bouncing off the bottom it first reached in 2008. In a way, this is helpful because it brings to light the new dominant factor in global oil prices: supply.

Supply is now Primary

Supply, and the recognition of supply, are now the dominant factor in the oil price. A point so obvious, it hardly seems worth making. However, the developed world is still largely operating on the classical economic view that higher prices will make new oil resources available.

That is true. But, it’s just not true in the way most anticipate.

While higher prices have brought on new supply, these resources have been slow to develop, are more difficult to extract, and generally flow at lower rates of production. As the older oil fields of the world decline, the price of oil must reflect the economics of this new tranche of oil resources. There are no vast, new supplies of oil that will come online in 2013, 2014, and 2015 at the scale to negate existing global declines.

During the entire time that global oil supply has been held at a ceiling of 74 mbpd, since 2005, a lot of new production in the Americas and Africa especially has come online. But it has not not enough to increase total world supply. And the price of oil has finally started to price in that new reality.

Here Comes Volatility in Oil Prices

The pricing dynamic discussed above is accentuated by the crisis cycle: the repetitive oscillation between acute and chronic phases of the ongoing debt crisis, mitigated by central bank reflationary policies.

In Part II: Get Ready for Oil Price Volatility to Kill the 'Recovery', we forecast how today's protractly high recent oil prices are already sending a signal that a new hit to global demand is underway.

Generally, it appears that the oil price is making its move too early in the year -- which will likely serve as a sucker punch to the fragile world economy -- thus making spectacularly high prices before year end less likely, and a sharp market correction and return to economic recession more so.

Investors will be wise to take prudent precautions before this nasty wake-up call arrives.

Click here to access Part II of this report (free executive summary; enrollment required for full access).


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Tue, 03/13/2012 - 17:35 | 2251999 Yen Cross
Yen Cross's picture

 Planes with one huge " TURBO FAN" crossing the Pacific.

Tue, 03/13/2012 - 17:39 | 2252007 whatsinaname
whatsinaname's picture

Did not see crude spike to day after the 2:30 JPM announcement while the SP spiked higher.. what was that about ?

Tue, 03/13/2012 - 17:43 | 2252014 Yen Cross
Yen Cross's picture

Crude briefly spiked into the low/mid 107's , before retreating into the high 106's. Shall we discuss the 10$ plus contango in Brent?

  The commodity currencies are apeshit sideways. Lack of demand.

Tue, 03/13/2012 - 18:24 | 2252089 Pinto Currency
Pinto Currency's picture



This article is of some interest however it doesn't deal with the central issue that is monetary base expansion for two decades - not just recent QE.  Crude is over $100 up from $20 during the 1990s because of money printing.  That's it. 


First increasing money ran into stocks, then real estate and derivatives and now commodities.  QE was just a desperate attempt to reinflate the asset bubble, that had already been inflated for decades, with even more more money printiing.  The problem was that this time the money ran into commodities.





Tue, 03/13/2012 - 18:24 | 2252099 Xkwisetly Paneful
Xkwisetly Paneful's picture

Sorry no misconceptions here.

Inflation and all the US has to do is either announce more liberal domestic drilling or a more aggressive stance towards building nukes and the price would freefall.



Tue, 03/13/2012 - 18:37 | 2252124 Pinto Currency
Pinto Currency's picture



Expect panicked attempts to bring down oil or blame it on Iran.


Watch WPRT - Q and WPT - TSX as oil price containment fails.


Nat gas is at diesel equivalent price of $2.00 per gallon and lots more nat gas on the way with frac drilling technology.


Wed, 03/14/2012 - 01:13 | 2253070 AgShaman
AgShaman's picture

Q: Define monetary demand

A: Gold....the new price of oil

Tue, 03/13/2012 - 19:26 | 2252245 Yen Cross
Yen Cross's picture

Are you 13?

Tue, 03/13/2012 - 19:33 | 2252265 Yen Cross
Yen Cross's picture

 Are you smoking " PEYOTE"? I'm talking real time you BUNG HOLE!

Wed, 03/14/2012 - 03:19 | 2253190 GreenPlease
GreenPlease's picture

So reserve estimates for the Marcellus Shale get downgraded by 80% by the USGS and you think there's "lots more nat gas on the way with frac"? You drank the koolaid, didn't you?

Here's how I was able to smell the shale gas scam a mile away:

Shale gas industry to investors: "Horizontal drilling is new! Fracking is new!"

Shale gas industry to environmentalists: "Horizontal drilling is old. Fracking is old."

Checks wikipedia.... both horizontal drilling and fracking is old... so is combining them. 


If you diverted ALL of the current U.S. natural gas supply to transport use you'd just barely replace imports. ALL simply isn't going to happen especially when you consider that the U.S. power industry is going to add 4-5TCF of annual demand between now and 2020. CHK et al just need a couple million vehicles to suck up an extra TCF or so of gas to tighten the market and send prices back to $13+/mcf so the good times can roll (for them).

Wed, 03/14/2012 - 12:10 | 2254360 Pinto Currency
Pinto Currency's picture


The Marcellus Shale formation is one formation in the Eastern US.  Recommend that we don't judge shale gas potential by the exploration geologists at the NYT.


Remember,  with stable currency you only need to affect imported oil demand at the margins to affect the price and the potential is to get away from importing oil from the Middle East.  Now that might not be of interest to the NYT.


With monetary inflation continuing, it is essential to become more energy independent  - and as the energy companies explore, they are going to find more and more of this available gas.  Patience.


Wait until you see what they find in the Caribbean (recognize that is not US territory).

Tue, 03/13/2012 - 19:26 | 2252242 trav7777
trav7777's picture

lol...nuclear will replace oil, which is primarily used for transportation, huh?

Good lord man, just shut the fuck up.

Tue, 03/13/2012 - 19:46 | 2252313 Spastica Rex
Spastica Rex's picture

Yay, Trav. I mean Fuck off, Trav.


Tue, 03/13/2012 - 21:44 | 2252664 tmosley
tmosley's picture

Yo dawg I herd you like conflation, so we pretended that energy and fuel are the same thing, and claimed you can't use hydrocarbons currently used for energy to make fuel when there are other cheaper methods to produce energy.

Tue, 03/13/2012 - 23:24 | 2252930 Eally Ucked
Eally Ucked's picture


Wed, 03/14/2012 - 00:35 | 2253027 Think for yourself
Think for yourself's picture

classic meme which tmosley tried to adapt to this situation... which was much more complex than the usual Yo dawg meme. Here's an example: "Yo dawg we heard you like batman"

Wed, 03/14/2012 - 00:22 | 2253010 hangemhigh
hangemhigh's picture

TO: tmosley '"


"Yo dawg I herd you like conflation, so we pretended that energy and fuel are the same thing, and claimed you can't use hydrocarbons currently used for energy to make fuel when there are other cheaper methods to produce energy."

c'mon, man you making this way too complicated.....all you gotta do is rehypothecate them stinking hydrocarbons and you can use them any way you want to, as many times as you want to and nobody but 'the shadow' will ever know the difference...................

Wed, 03/14/2012 - 08:17 | 2253436 trav7777
trav7777's picture

fuel IS energy you stupid dipshit

I don't even know what you are trying to say with that 2nd half of the sentence, and neither do you.

STFU idiot.

Wed, 03/14/2012 - 01:14 | 2253072 FeralSerf
FeralSerf's picture

Electrically powered locomotives are common in many places.  Trains are a waste of diesel.

Tue, 03/13/2012 - 20:14 | 2252378 Taint Boil
Taint Boil's picture



There is nothing that packs the punch of a gallon of gasoline. Nothing can replace it with the same EROEI. Nuclear plants take what – 10 years LOL better get started. Electric vehicles! ROFL not in this century.


I’m getting to lazy too post evidence and / or the basic laws of physics.


Google these:

Volt is a scam

ERORI ethanol

The Oil Drum

Chris Martenson Crash Course

The Hummer Verses the Hybrid


Tue, 03/13/2012 - 20:52 | 2252489 Pinto Currency
Pinto Currency's picture



On a BTU basis, a gallon of diesel packs more of a punch than a gallon of gasoline.


diesel 129,500 btu per gal

gas 114,000 btu per gal


Factoring in cost, you get 13.5% more energy for 7% higher price per gallon.


Natural gas on the other hand is approximately $2.00 per gallon on a diesel gallon equivalent (equivalent energy per gallon basis (BTU's) to diesel ).


$2.00 vs. $4.12 per diesel gallon - which will the trucking companies choose?


Westport Innovation's technology is going to revolutionize the trucking industry (they also offer the nat gas kits OEM for F-250 and F-350 pickups).

Tue, 03/13/2012 - 21:46 | 2252661 Taint Boil
Taint Boil's picture



I said gasoline but of course I meant oil and all its distillates. I was trying to point out the the EROEI for bio-diesel vs diesel for example. Sorry for the poor job and thanks for correcting.

Is your car on fire? LOL

Tue, 03/13/2012 - 22:45 | 2252843 Pinto Currency
Pinto Currency's picture


I hear you Taint.


The pinto currency is on fire! 


Gold don't burn and Charlie don't surf.

Tue, 03/13/2012 - 23:02 | 2252889 jonjon831983
jonjon831983's picture

I'm a fool and deserve it.  Bought an initial position in WPT today... then Natural Gas Act was rejected... again.

However, I am definitely intrigued by the technology... seems they are finally getting a decent cashflow going...............................



Tue, 03/13/2012 - 23:54 | 2252976 Pinto Currency
Pinto Currency's picture





The market worldwide is going to rule this one no matter what exxon, chevron, shell, bp do to squeeze congressmen. 

Think long-term.  Good luck.



Tue, 03/13/2012 - 21:47 | 2252675 tmosley
tmosley's picture

And why, exactly, do you think that fuel needs to have a positive EROEI?

Fuel's primary utility is in its energy density, not in the fact that we can pump it out of the ground cheaply.

If you had a robust battery, like, say, a metal-air battery, you could charge it for the cost equivilent of a few dozen cents per gallon off of the grid.

But peak oil doomers don't like that, so they pretend it is impossible.

Tue, 03/13/2012 - 22:09 | 2252741 Taint Boil
Taint Boil's picture



And why, exactly, do you think that fuel needs to have a positive EROEI?

riiiiiiiight, so, you would spend 1.1 units of energy to get 1.0 units in return - WOW

Tue, 03/13/2012 - 23:11 | 2252902 Z Beeblebrox
Z Beeblebrox's picture

If that one unit is in a more useful form (more portable/dense/stable/whatever) than the 1.1 units were, it's worth it.

Wed, 03/14/2012 - 01:10 | 2253064 FeralSerf
FeralSerf's picture

Absolutely; I can't understand why that's so difficult to comprehend.  It's the reason people pay more for diesel or jet fuel per BTU than they pay for coal.

Wed, 03/14/2012 - 09:01 | 2253543 Taint Boil
Taint Boil's picture



Arguing on the internet … LOL … even if you win you’re still a retard.


I understand the coal thing – I can’t put coal in my Boeing 747.


When, not now, I have to spend 500 million for my deep water drilling rig to get 500 million in oil then it won’t make sense. Anymore of this nonsense and I am going to release Trav7777 on you guys.

 Never mind I see he is already here - LOL

Wed, 03/14/2012 - 22:14 | 2256551 FeralSerf
FeralSerf's picture

Oil has been too cheap for too long.  It's worth more than it costs right now.  I can still waste it on pleasure drives, for example.

Deep water drilling is getting cheaper in real money (IA$) thanks to technology improvements.

Just wait a bit, then it might cost 250 million inflation adjusted dollars for the drill rig and maybe you'll get more than 500 million IA$ for the oil.  It's happened before.  It's happening now.  It will continue to happen if population of Mother Earth keeps growing and some other better fuel source isn't developed (which is not that certain either).

If I were you, I'd start thinking about trading in that 747 for something a little more fuel efficient.  On the other hand, it may be technically possible to burn coal dust in it.   FAA approval may be difficult.  Coal dust was used as fuel in the first diesel engines if I remember right.

Trav7777 is full of shit and his mother dresses him funny (in my humble opinion).

Wed, 03/14/2012 - 08:24 | 2253458 trav7777
trav7777's picture

NO, it ISN'T.  You CANNOT take a principle that may have limited relevance and EXTRAPOLATE that into a general case.

This is what idiots like mosely-claven do.  If something works in even ONE case, then it simply MUST be relevant as a general premise.  You can run a space program on negative EROI fuel, but you cannot run a large complex society off of same.  There are physical limits in terms of how much energy you use versus how much you have to waste...we call these things thermodynamics laws.

Wed, 03/14/2012 - 04:12 | 2253224 AnAnonymous
AnAnonymous's picture

riiiiiiiight, so, you would spend 1.1 units of energy to get 1.0 units in return - WOW


US citizens? But absolutely.

Of course it underlines even more that US citizens have launched a race to deplete Earth's resources but it is secondary.

This obvious waste is certainly not something that is going to stop US citizens.

Peak oilers who are primarily US citizens are just paying service to the other US citizens by covering their back.

Good cop, bad cop duo work, if you like.

Wed, 03/14/2012 - 08:21 | 2253447 trav7777
trav7777's picture

gee, because positive EROI is the underpinning of life itself, nevermind our entire fucking society?

Negative EROI fuels have never been more than excessively costly special applications, like the space shuttle, or a few years' of a desperate nation.

See that is the problem with idiots like you, you see one special case and can't figure out why it's a SPECIAL case and not generally relevant, and you try to say "SEE IT CANZ BE DONEZ, YOU JUST WORSHIP BALE" and shit like that.  It's because you have an IQ of 61.

You think the massively positive EROI of oil is just...irrelevant?  LOL.  That's the stupidest thing you've ever suggested.  You should figure out how energy density relates to EROI.  Or not.  Just keep throwin softballs.

If you want to replace oil with negative EROI fuels, come up with the 100 quads necessary.  AKA, triple present non-oil production combined.  It's fuckin idiotic to suggest such a thing.  which is why you suggested it.

Wed, 03/14/2012 - 03:08 | 2253185 GreenPlease
GreenPlease's picture

Let me guess.... you do it for the lolz?


How up to speed are you on nuclear technology? How about the regulations surrounding nuclear power? Let's just say that this was your plan:

Use nukes to replace baseload coal

Use coal to replace mid-peak and peak nat gas (good luck on that last one)

Divert nat gas for use in transportation


It's late so I'm just going to roll with back of the envelope numbers here. Let's say that the U.S. draws 1.5TW constant from coal. If we're using PWRs how long will known global uranium supplies last if we replace all of our coal with nukes? I'm going to say ~30 years. That's not very long. To go beyond that you need to either reprocess the fuel or build breeders. Breeder reactors using thorium would work nicely but, sadly, global regulations don't play nice with thorium. Breeders/reprocessing uranium has the unsettling side effect of producing Pu-239 (bomb fuel). I'd say that's okay but, realistically, the public would be way too scared to allow something like that to fly.

"more liberal domestic drilling"

You're aware we already drill the crap out of North America, right? Let me guess, you want to open up ANWR. That's cool. The rosiest estimates for ANWR predict maximum production of 400,000bpd. What's that? More DWGOM drilling. That's cool, but the region is already in decline so I wouldn't bet on any miracles. Also, it's a hostile environment to operate it. Deepwater Horizon Events will happen again, no doubt. Same goes if you open up the Atlantic seaboard but I wouldn't count on any miracles out there. The geological  history of the region doesn't bode well for reserves. Same goes for most of the west coast of the U.S. unless you get up by the PacNW but good luck getting a drilling permit up there... even if you did you're not going to find enough oil to change the game. Perhaps you'd like to try your hand at the Green River Shale? 1 trillion barrels of oil... er... kerogen... you say? Good luck getting it out.

If you really drilled the crap out of EVERYTHING in NA you might raise production by ~1.5mbpd for a little while. That's far from a game changing amount in the scope of the global economy... hell, that's far from a game changer when your country imports ~9mbpd.

Wed, 03/14/2012 - 22:28 | 2256575 FeralSerf
FeralSerf's picture

Maybe if an amount equal to Jamie's and Lloyd's bonuses (I suggest confiscating them for the greater good -- rule of law doesn't mean shit anymore anyway) were spent of trying to fing out if LENR can be made to work, a new source of energy might be found.  It's worth a gamble, I think.

Tue, 03/13/2012 - 18:42 | 2252134 Yen Cross
Yen Cross's picture

Are you a FED robot?   "This article is of some interest however it doesn't deal with the central issue that is monetary base expansion for two decades -"

Tue, 03/13/2012 - 18:44 | 2252143 Yen Cross
Yen Cross's picture

 As if you understand derivitives?(sp/fun) I'll bet you are Icelandic!

Tue, 03/13/2012 - 19:12 | 2252208 ffart
ffart's picture

I think those icelanders understand the game better than we do

Tue, 03/13/2012 - 19:42 | 2252243 Yen Cross
Yen Cross's picture

cad or eur? I'm tired dipshit. Let me know when " you", decide the lessor of 2 evils!

Tue, 03/13/2012 - 23:17 | 2252916 palmereldritch
palmereldritch's picture

Either one plus some jailed and exiled corrupt banksters is better than most sovereign balance sheets.

Tue, 03/13/2012 - 19:15 | 2252212 SheepDog-One
SheepDog-One's picture

Exactly, oil is apeshit and locked over $100 thanks to Bernank.

Tue, 03/13/2012 - 19:42 | 2252254 Yen Cross
Yen Cross's picture

 The article ASS FACE was based on the precipice of Inflation! I suggested one/if-not the largest denominator!

 IDIOT 3 year old!( +1 sheep dog!)

Tue, 03/13/2012 - 19:56 | 2252346 easypoints
easypoints's picture

"Crude is over $100 up from $20 during the 1990s because of money printing. That's it"


When it comes to the petrodollar, money printing is a part of the negative feedback loop. You can only print as much money as there is energy to back it up.

Wed, 03/14/2012 - 03:49 | 2253205 Seer
Seer's picture

"it doesn't deal with the central issue that is monetary base expansion for two decades - not just recent QE."

Look around you, none of it seems to be affecting much of anything.  The reason?  Because EVERYONE is doing it.  In effect everything is cancelling everything out.  Meanwhile, aside from all this virtual crap, the real world lingers, and IT doesn't much cater to our silly notions of fabricated growth.

Wed, 03/14/2012 - 05:23 | 2253246 It was not me
It was not me's picture

I read from Armada Markets weekly commentary that one of the best trades currently is to short crude oil futures options and collect the premium. You can also short Japanese yen to make nice profits, or buy EURCHF. These central planners have created an environment where you can find risk-free trades everywhere :)

Wed, 03/14/2012 - 15:15 | 2255382 TheFourthStooge-ing
TheFourthStooge-ing's picture

Just more lame spam from Ingmar.


Tue, 03/13/2012 - 17:53 | 2252037 Silver Bug
Silver Bug's picture

The price of oil and other real assets are unfortunately going to go much much higher.

Wed, 03/14/2012 - 01:20 | 2253079 FeralSerf
FeralSerf's picture

How do you measure "price"? Fiat dollars? They're a (worthless) moving target. Try pricing it in oz. of gold.

Tue, 03/13/2012 - 17:40 | 2252010 A Lunatic
A Lunatic's picture

Prudent mean like getting a shitload (gobs) of gold, guns, grub, and gas masks?

Tue, 03/13/2012 - 17:55 | 2252044 battlestargalactica
battlestargalactica's picture

Roger, that. Acreage with clean water. Alternative power, alternative currencies, alternative music - blasting 'The Clash' seems appropriate.

And horses... Horses seem prudent at this point, as well.

Wed, 03/14/2012 - 06:13 | 2253263 Seer
Seer's picture

"Alternative power," you mean the stuff that relies on rare earth metals?  At the top of my priority list was a house and property facing toward the equator (in a northern latitude)- PASSIVE SOLAR - simple, costs ZERO (no maintenance).

Horses require a LOT of maintenance, which translates into big expenses.  One need only take a look on Craigslist (Farm and Garden) and see how many horses are up for sale these days: at some point we'll have to break down and consume them, but until then, they're of little value: there are better animals for doing work than horses, and they're better keepers.

Wed, 03/14/2012 - 14:14 | 2255148 Taint Boil
Taint Boil's picture



Maybe not for everyone but check out this guy Masanobu Fukuoka he might be right up your alley. I have two of his books, The Natural Way of Farming and The One Straw Revolution, I can pass on (PDF's free) gmail me at my screen name if interested.

Solar house .... naw, just build a thermos bottle (super insulated house [spray foam]) and live in it. The light bulbs heat the house no need for furnace ......


Wed, 03/14/2012 - 01:24 | 2253085 FeralSerf
FeralSerf's picture

I'm not so sure it would be worth it without some grog and girls too.

Tue, 03/13/2012 - 17:44 | 2252016 Rainman
Rainman's picture

Barry double crossed Big O one time too many and they want him to un-ass the White House. How's that for a macro theory ?

Tue, 03/13/2012 - 18:52 | 2252164 Id fight Gandhi
Id fight Gandhi's picture

Mittens will save us! Cuz gas is what $20 a gallon?

Tue, 03/13/2012 - 17:45 | 2252018 Bastiat009
Bastiat009's picture

Oil prices will fall before November. All the markets are manipulated, oil can be brought down in a few days to make Obama look good.

Tue, 03/13/2012 - 17:48 | 2252024 Below Zero
Below Zero's picture

Not if the Koch bros have anything to do with it.

Tue, 03/13/2012 - 18:16 | 2252084 Shizzmoney
Shizzmoney's picture

Right!  I mean if I were the big Oil TPTB, I'd drive this price up as high as I could to make Obama pay for not supporting the Keystone pipeline. 

Then the people, who really don't understand the fact that the President has almost ZERO to do with Oil prices (mostly driven by the Fed's CTRL-P spree, and speculators betting on tensions with Iran), blame him.  They vote for Romney at the polls, you then have your man who approves the keystone XL pipeline.

Some would say, "Well, that wouldn't be good for businesses, and would affect big Oil's bottom line."  Like small businesses and the little people have anythign to do with their profit at this point; especially with all the govt subs these guys get, its 80% guarunteed cash.  All they have to do is name the price.

I mean if I were in the Koch's shoes, I'd try to get this thing to $120 by June.

Just optimal gaming strat.

Tue, 03/13/2012 - 18:27 | 2252105 Xkwisetly Paneful
Xkwisetly Paneful's picture

If the guy came out tomorrow and announced the US would be aggressively ramping up it's domestic drilling the price would cascade lower. Then the people who don't understand their ass from a hole in the wall would see US domestic policy regardingf energy has shitloads to do with the price of oil.

Tue, 03/13/2012 - 19:17 | 2252215 trav7777
trav7777's picture

you are an utter fuckin idiot...there is so much wrong with your ridiculous notion that we can just pump more oil that it's difficult to know where to begin.

Ramp up the drilling, it won't do a fucking bit of good.  We've been poking holes in the US oilfields for over a century, you gd ignoramus.

Tue, 03/13/2012 - 20:36 | 2252481 Osmium
Osmium's picture


You are on fire tonight Trav

Wed, 03/14/2012 - 00:35 | 2253026 Eally Ucked
Eally Ucked's picture

Maybe he meant announcing drilling would drive price down, not the results of it.

Wed, 03/14/2012 - 00:43 | 2253040 LarryDavis
LarryDavis's picture


Wed, 03/14/2012 - 06:19 | 2253266 Seer
Seer's picture

There's a pretty obvious trend going on here, and while event here and there can blip it (up or down), it will be, just like it's been for quite a while now, temporary.

And again I remind people (been saying this for a good decade now), that PRICE isn't really the issue, the issue is AFFORDABILITY. 

Martenson knows this stuff about as well as anyone out there.  I would NOT bet against him.

Wed, 03/14/2012 - 12:41 | 2254694 mkkby
mkkby's picture

It must be true.  The dumb fuk heard it on CNBC.

Tue, 03/13/2012 - 18:56 | 2252171 Monkeyfister
Monkeyfister's picture

One look, and it seems pretty clear that that is a big part of what is happening.

"Nice little economic recovery you got goin' on there, Bub. It'd be a shame if something like... oooooh... gasoline over $4.00 a gallon might come along and threaten it before the Big Elections..."

Those actually looking might concider that some huge and serious extortion. Those in the position to do so might just get motivated to press a RICO charge on the Industry players... if the world still maintained the veneer of sanity and honor.

The XL Pipeline isn't needed. All it does is cut the corners of the existing pipeline to connect a point-A to point-C, cutting out the existing pipeline, and point-B. The only part worth building, is the leg from Cushing, OK, to Houston/Port Arthur... but only if it consolodates most of the existing lines in that corridor.

Map of the proposed and existing pipeline:

The rest of it is pointless, not-needed, overly risky and expensive long-term... But then, long-term is a bad word in CorporationLand these days. "Long-Term" to them is the next Fiscal Quarter. Shame that.




Tue, 03/13/2012 - 18:03 | 2252057 All_Is_Well
All_Is_Well's picture

Yep. Last time the Bernank said high gasoline prices were "temporary" the price of oil tanked shortly thereafter...

Tue, 03/13/2012 - 21:29 | 2252631 UP Forester
UP Forester's picture

Sorta like that "transitory inflation" too, eh?

Tue, 03/13/2012 - 22:19 | 2252769 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

I have been reading in the MSM about how the big boys on Wall Street want to elimnate the O. What are the chances of them bringing every last sucker into the market before crashing them out this summer. Kill two birds with one stone. Fleece the sheep and get rid of Hope and Change.

Tue, 03/13/2012 - 19:22 | 2252232 SheepDog-One
SheepDog-One's picture

You think a few days with gas down from $5 will make ObaMao 'look good'? LOL, never even make it thru a summer with $5 gas in the first place, and Im real fed up with this bullshit that all is to make this idiot ObaMao 'look good'...bunch of garbage.

Tue, 03/13/2012 - 19:57 | 2252350 espirit
espirit's picture

Heh, heh.  At $5 or so a gallon, gas will be put to better use as a cocktail. 

Tue, 03/13/2012 - 21:30 | 2252633 UP Forester
UP Forester's picture

Don't forget the powdered detergent.

Quicker than waiting for styrofoam to melt....

Tue, 03/13/2012 - 17:50 | 2252027 steve from virginia
steve from virginia's picture

I like it! The central bank isn't holding up fuel prices with the left hand, it is holding up fuel prices with the right hand!

"Hands, don't fail me now!"

Tue, 03/13/2012 - 17:52 | 2252032 lizzy36
lizzy36's picture

I think the one thing this post fails to mention is that the EU banks are the primary lender to the EM`s.

Since is has become obvious that for now the whole EU banking system has been deemed TBTF, the EM`s have acted much better and are pricing in some signficant growth which requires oil. 

Tue, 03/13/2012 - 19:40 | 2252286 CrashisOptimistic
CrashisOptimistic's picture

An inside baseball tidbit you need to be aware of.

The IEA and EIA publish two different results that they call the same thing.

IEA is "all liquids".  EIA is crude&condensate -- the stuff that hauls food to your shelves.

Nothing wrong with your chart.  Just heads up on the difference because it is often critical.

China bought over 14 million cars last year and it will be more this year.  Every one of them burns oil that wasn't burned last year.  This defines half the problem  

The problem is oil is not coming out of the ground fast enough.  The other half of the definition is that it can't.


Wed, 03/14/2012 - 01:04 | 2253057 FeralSerf
FeralSerf's picture

The Chinese will have the same problem that everyone else has. They won't be able to pay the power elites what they demand for the fuel just like the rest of us. This is what's so fun about (virtual) monopolies.

Oil is the way we're kept under control.

Wed, 03/14/2012 - 06:27 | 2253269 Seer
Seer's picture

"the EM`s have acted much better and are pricing in some significant growth which requires oil. "

And "growth" means what, exactly?

Where do EM's get their revenues?

Sorry, but most of the "growth" will be, as it's been for China, about internal consumption.  And, just as with China, any surplus $$s will last exactly, three, two, one...

Blip up, then down, down, down...

Consider that trade wars will heat up.  Those with PHYSICAL resources are going to restrict exports of their physical resources.

Growth is dead.

Tue, 03/13/2012 - 17:54 | 2252036 Silver Bug
Silver Bug's picture

Get ready for higher prices!

Tue, 03/13/2012 - 19:23 | 2252235 SheepDog-One
SheepDog-One's picture

Looks like .10cents a gallon up on each delivery minimum, thats what Im seeing anyway.

Tue, 03/13/2012 - 21:33 | 2252641 UP Forester
UP Forester's picture

On the big jump 2 weeks ago, gas here went from $3.399 to $3.599, then to $3.699 the next day.

At least it's still under four bucks:  $3.999.

Tue, 03/13/2012 - 17:53 | 2252038 Greyzone
Greyzone's picture

Commodity prices are always determined at the margins. The most expensive bushel of wheat demanded will determine the price for all other wheat. Likewise with iron, gold, or even oil.

As the world transitions from the "easy" oil of the last 150 years to the oil that is way harder to get technologically (and thus more expensive), oil prices can only go one direction over the long term unless oil is replaced within the global economy. In the shorter term as oil prices rise, it will squash any "recovery" that central banks try to engineer, at which point prices crash, making business opportunities again for a brief window until the next surge/crash cycle.

The only long term way out of this is to replace geologic oil as the underpinning of our transportation system. There are lots of options out there, but we seem to have our noses up the asses of middle eastern sheiks rather than pursuing alternatives (such as thorium reactors producing artificial oil via fischer-tropsch processes).

Tue, 03/13/2012 - 18:08 | 2252070 lizzy36
lizzy36's picture

Today it was the Koch brothers and their super pac which is funding GOP races (not just at the presidential level) versus Boone Pickens, in a Senate vote over a bipartisan proposal to provide tax incentives for natural gas vehicles:

A five-year plan would spur purchases of long-haul trucks and commercial vehicles that can run on cheap and abundant U.S. natural gas. The subsidies would be paid for from fees charged to users of the fuel.

The bill would also have provided tax credits for building pumps and other infrastructure needed for filling more vehicles with the fuel.

Conservative groups including the Heritage Foundation, Club for Growth, and the Koch-funded Americans for Prosperity had put senators on notice that they would be tracking who voted for the bill.

As you can imagine the proposal was defeated along party lines. As it turns out GOP senators are not that interested in energy independence OR lower energy prices. They are interested in the quid pro quo that sees their re-election campaigns financed with super pac money. The best democracy billionaires can buy.

Tue, 03/13/2012 - 18:30 | 2252111 Xkwisetly Paneful
Xkwisetly Paneful's picture

Excellent information!

Goes hand in hand with our energy secretary openly wishing for and then applauding crippling gas prices. But watch out for them evil Koch brothers.

Tue, 03/13/2012 - 19:08 | 2252199 lizzy36
lizzy36's picture

FYI, my comment was limited to a specfic piece of proposed legislation which got defeated today due to the undue influence of Super Pac money IN THIS INSTANCE said money came from the koch brothers.

I am not commenting on the equally corrupt democratic party. See my very negative comments on Obama and the quid pro quo he got for stalling the the Keystone Xl pipeline.

This is NOT about one party being worse than the other.

It is about both parties being completely corrupt and Super Pac money magnifying that corruption. 

Imagine for one moment it is not about one side or the other winning but about the citizens of a country losing. Can you do that.

Tue, 03/13/2012 - 19:17 | 2252216 ffart
ffart's picture

Great comment, but I think it will fall on deaf ears in this case. A lot of people view the corruption as some kind of football game where the goal of statesmanship is to make the other side lose and be on the "winning team". I guess our overlords keep the herd obediant and compliant.

Tue, 03/13/2012 - 19:30 | 2252258 lizzy36
lizzy36's picture

Part of elites keeping a population compliant is splitting them into sides. Two usually works best. That way one can always scapegoat the other side.

In the old days that was done through religion. Now it is done through affliation with a political team.

Tue, 03/13/2012 - 21:15 | 2252582 Pinto Currency
Pinto Currency's picture



Lizzy36 - not sure why tax incentives are needed.  Using a Cummins Westport nat gas engine would save FedEx $50,000 per year vs. diesel given the current diesel / nat gas price spread (on a diesel equivalent basis).  Basically, the rig is free.




I think the market will solve this problem an not another government program.


That of course will bring up the question of why we need to fight in the middle east if we can run our vehicles on nat gas technology for a fraction of the price.

Tue, 03/13/2012 - 21:35 | 2252643 UP Forester
UP Forester's picture

Wood gas is cheaper yet....

Wed, 03/14/2012 - 06:44 | 2253280 Seer
Seer's picture

I'd think that they'd factor in lost cargo space, space that would be required for the larger NG tanks.

Now then, when fuel affordability becomes too high for all the unemployed it's a good bet that They won't be having the FedEx trucks pulling up at their doorsteps.  Translation: FedEx (and others) would be spending a LOT of money converting their fleet while their business volumes declined.

Tue, 03/13/2012 - 19:19 | 2252219 trav7777
trav7777's picture

asinine...if we start trying to fucking run everything on NG, it will no longer be CHEAP or ABUNDANT.

We will deplete it incredibly rapidly.

Energy independence is a JOKE.

Tue, 03/13/2012 - 19:28 | 2252249 lizzy36
lizzy36's picture

It is not about running everything on NG. It is about utilizing it in the mix of fossil fuels we currently use in transportation.

It is about forward thinking.

It is NOT an all or none proposition.

Tue, 03/13/2012 - 19:47 | 2252317 CrashisOptimistic
CrashisOptimistic's picture

There are synergies and mutual exclusivity.

Methane has 1/1000th the energy per unit volume at STP as that volume of oil.  1/1000th.  Have a look at the Honda Civic website and look real careful at the natgas version.   Specifically, look at two things:

The range of the vehicle for 1 "tank".  And the trunk.  There is none.  They had to lose the trunk to make room for the fuel tank and after they did that AND pressurized the gas, they still come up with only a fraction of the range of a conventional Civic (that costs much less).

Physics says no.

Tue, 03/13/2012 - 21:41 | 2252658 Escrava Isaura
Escrava Isaura's picture

Normal 0 false false false EN-US ZH-CN X-NONE MicrosoftInternetExplorer4 Normal 0 false false false EN-US ZH-CN X-NONE MicrosoftInternetExplorer4

CrashisOptimistic, distance, that is not my experience in Brazil.  

Power is definitely an issue; especially going up hills and heavy wind.

Check this link. You'll appreciate. 

Wed, 03/14/2012 - 01:33 | 2253106 Pinto Currency
Pinto Currency's picture




See these shale gas plays more or less untapped with frac technology.


There are centuries of gas now recoverable.

Wed, 03/14/2012 - 06:48 | 2253282 Seer
Seer's picture

"There are centuries of gas now recoverable."


If you do not factor in consumption rates then ANY claim is meaningless.

Wed, 03/14/2012 - 15:23 | 2255410 Taint Boil
Taint Boil's picture



Bakken Oil Field Myths:
Link 1
Link 2
Link 3
Link 4
Link 5 Wikipedia

Shale Gas Myths:
Link 1
Link 2
Link 3 [bad link]
Link 4

Tue, 03/13/2012 - 23:36 | 2252933 palmereldritch
palmereldritch's picture

Where does the word 'fossil' come in?  Is it some bizarre fetish akin to 'scientific Creationism' ? Knee-jerk slavish zombie adherence to Peak Oil dogma?

Just call it petroleum for Chrissakes because regardless of biotic or abiotic origin it is beyond the scope and transparency of the retail intel market to accurately opine on true reserves and potential deliveries.  Seriously.

Wed, 03/14/2012 - 06:35 | 2253275 Seer
Seer's picture

"Club for Growth"

Should read: "Club for Bankers," as "growth" really only means "interest," interest that does NOT exist anywhere- it steals from the future until there's no more "future."

If all other resource shortages weren't looming I'd say that Pickens would be spot-on.  The other clowns?  Well, they're fucking clowns...

Tue, 03/13/2012 - 19:06 | 2252193 theprofromdover
theprofromdover's picture

The oil spot price is just like the stock market, absolutely no correlation between the cost of extraction, storage, delivery or total supply, and the spot price; in the same way that the share price of any stock has very little to do with the quality of the product, the potential of the company, the quality of management, or its profit outlook.

It is all just a parlour game to find the sucker and steal his money.

Until the oil price stops relating to gold, which it has basically kept in lock-step (ie no change in the true cost in decades), then forget 'peak-oil fears', and forget the dollar price. It is no better than the Zimbabwe note as a benchmark.

Tue, 03/13/2012 - 22:49 | 2252854 Pinto Currency
Pinto Currency's picture

Dover Pro,

Cost of printing digital money is zero. 

Imagine how high the price of oil can go.

Wed, 03/14/2012 - 07:57 | 2253377 Zero Debt
Zero Debt's picture

Better measure a more physical ratio such as the median number of working hours to drive 1 mile.

Tue, 03/13/2012 - 17:57 | 2252048 Vlad Tepid
Vlad Tepid's picture

Thank goodness we have the US National Congressional Reserve, which should provide us with hundreds of years worth of hot gas in a single session.

Tue, 03/13/2012 - 18:02 | 2252055 Yen Cross
Yen Cross's picture

 Let's discuss the " Middle American" needs. Consumer cyclicals. Any Takers? 

   I'm looking for a pivot here folks.  DOW 13K?   Ass wipes get expensive!

Tue, 03/13/2012 - 18:03 | 2252056 mark mchugh
mark mchugh's picture

Wierd how you don't see the same price dislocations in the gold-oil ratio, huh?

The rise in oil IS the direct result of currency debasement and criminally head-up-your-ass energy policy.  Pointing to the dollar index is meaningless.  It's a basket of fiat currencies; all drifting lower like men with parachutes.  Any perceived "strength" is an illusion.

The author also fails to properly identify prices actually paid for imported oil.  The NYMEX doesn't set the price of Saudi oil. 

The Argus Crude service is the only way to access the exclusive Argus Sour Crude IndexTM (ASCITM) price, which is used by Saudi Arabia, Iraq and Kuwait and their US customers.

A better story to tell is that the confetti flingers are increasingly losing the ability to dictate prices.  China won't let them determine rare earth prices, Saudi Arabia won't let them dictate oil prices.  See the pattern?

Tue, 03/13/2012 - 18:08 | 2252069 Yen Cross
Yen Cross's picture

XAU is a deflator, until it is a reflator! If you are stupid enough to buy Gold on paper you deserve every thing you get.

  Own Physical, and buy the dips!

Tue, 03/13/2012 - 18:03 | 2252058 polak potrafi
polak potrafi's picture

napisac wierszyk...



mi sie pory paly

i moj maly


swedzi caly

jak poparzony

przez ukwialy


a mawialy

"nie zdradzaj zony

i badz staly"


ps. no clue about oil

no clue why gas is priced by oil

... BRENT oil!!!

Tue, 03/13/2012 - 18:16 | 2252085 Yen Cross
Yen Cross's picture

Nas Polski das.

Tue, 03/13/2012 - 19:21 | 2252225 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

"Polska jest najlepsza!"

Tue, 03/13/2012 - 19:36 | 2252278 Yen Cross
Yen Cross's picture

It only took ya 2 hours ya dip shit! Don Ya Hop Singh!

Tue, 03/13/2012 - 18:22 | 2252094 samsara
samsara's picture

All you need to know about the oil subject is in this one chart.

Soak it up and look at the two different trends.  Extend them.

You you don't understand this one,  You write Political ads for Newt.

Peak Oil kids.

Tue, 03/13/2012 - 18:31 | 2252112 tmosley
tmosley's picture

Every day is peak oil day!

Oil is still cheap in gold.  I will beleive that oil is driving this crisis rather than a bystander when it breaks to new highs in terms of gold, and not a second before.

A hint, oil will have to more than DOUBLE while gold remains stationary (or gold will have to crash to less than half its current dollar value while oil remains at current price levels) for that to happen.  And I don't want to see it caused by artificial intervention in the markets either.  I want to see it cause by the simple inability to find new sources of oil that are worth developing.

Tue, 03/13/2012 - 18:37 | 2252123 Xkwisetly Paneful
Xkwisetly Paneful's picture

Peak oil theory has only been wrong 30times in the last 100yrs.

Current reserves are three times what they were in 1976 including depletion when oil was supposed to run out in 1995 which is 15 years after food was supposed to run out.

But don't let that stop anything afterall have to be right eventually or do you?

Tue, 03/13/2012 - 19:20 | 2252224 trav7777
trav7777's picture

good fucking LORD you are stupid.

Peak Oil theory, THE ORIGINAL peak oil theory was that the US would achieve production peak in the early 1970s, EXACTLY WHEN IT HAPPENED.

Just shut the fuck up already.

Tue, 03/13/2012 - 19:24 | 2252238 trav7777
trav7777's picture

it doesn't matter what you believe, you goddamned idiot.

Finding new sources is a binary test.  Demand growth outstripped supply growth by 8:1 before C&C peak in 2005.

JFC, just shut the fuck up are a moron leading the morons.

Tue, 03/13/2012 - 21:51 | 2252689 tmosley
tmosley's picture

What, so you are saying that oil ISN'T cheap in gold?  It's just an unfounded "belief"?


People stop looking if the real price isn't high enough.  Even a child can see that.  But a thug like you twists reality to its utmost in a vain attempt to make your fleeting thoughts become the truth.

Wed, 03/14/2012 - 07:11 | 2253302 Seer
Seer's picture

"What, so you are saying that oil ISN'T cheap in gold?"

When the overwhelming majority of people do NOT have/possess gold, then what difference does it matter?  Again, it has to do with AFFORDABILITY, affordability to the "average" person.  And when the "average" person is unable to AFFORD oil, then that's when you can BET that Peak Oil WILL occur: economies of scale will revert.

For those who are confused about what the term "Peak Oil" means, Peak Oil means PEAK PRODUCTION.  Individual oil wells peak in output/production.  Countries peak in oil output/production: US did back in 1971; Mexico did a couple of years ago; and so forth and so on...

Wed, 03/14/2012 - 08:05 | 2253409 Zero Debt
Zero Debt's picture

One can construct any ratio but the affordability is still the key. Also bear in mind how unequal income has been distributed recently in the US (if that's your focus of discussion), remove the top 1% or top 5% and most people would say that gold is getting more expensive, hence, pricing items in gold may make oil look constant, but real wages would actually be falling, which does not make oil more affordable.

But if you are the top 1%...congratulations...

Tue, 03/13/2012 - 18:24 | 2252098 expres12
expres12's picture

His comment about QE's not being the reason for the high prices might hold water if all commodities didn't see dramatic price increases at the hands of global QE's.  Also, when most major currencies have been degraded by some form or another of QE, then fx measurements cannot be relied upon as a measure for determining if QE's are responsible for price increases.  In other words how does one measure currency degradation if the measure is against other currencies that have also been degraded. 

Tue, 03/13/2012 - 18:33 | 2252116 lizzy36
lizzy36's picture

I think his comment was they QE and currency devalution is NOT the sole reason.

There is a supply and demand issue present. Particularily demand coming from non OECD countries and supply not being made up in non opec producing countries.


Tue, 03/13/2012 - 18:38 | 2252128 expres12
expres12's picture

Of course QE is not the sole reason but in my view, it is the primary reason.

Wed, 03/14/2012 - 07:22 | 2253317 Seer
Seer's picture

Everyone is jacking up virtual $$s.

Oil is one of the global economy's most important commodities.  It is in decline. The decline is being offset by a decline in global growth.

Reductions in any volume, for just about anything, means that production costs increase: you can trim the workforce, which is what has been taking place all over the globe (on balance), but plants and equipment can be pared back only so much.

Economies of scale in reverse will cause lots of thrashing.

Tue, 03/13/2012 - 19:54 | 2252338 CrashisOptimistic
CrashisOptimistic's picture

There is not enough coming out of the ground.  Period.

Rather than lump countries together, simplify.

The per capita oil use of a Chinese citizen is 10% that of an American.  Oil use is lifestyle.  Oil use is nice cars, long distance vacations (car or plane), extra cars for the wife and teenage kids,   They are ENTITLED to parity.  They will seek parity.  They will demand parity.

Chinese consumption has a LONG way to increase just to equal American numbers, and . . . they'll get there.  There isn't enough coming out of the ground.  They will increase their use and American lifestyles will be smashed as we decrease our use.  That's how they will get there.

Then killing begins.

Tue, 03/13/2012 - 21:53 | 2252691 tmosley
tmosley's picture

Sure, and there aren't enough crops coming out of the ground either.  PEAK SUNLIGHT!  

Wed, 03/14/2012 - 08:33 | 2253479 trav7777
trav7777's picture

jesus fuckin christ you are a retard

Wed, 03/14/2012 - 07:35 | 2253335 Seer
Seer's picture

I'm thinking that US per capita consumption would have to really crash through the floor before there would be parity.  The US has lots of oil*, whereas China does not.

* But not enough to sustain high levels of consumption for very long.

China's trade balance is already starting to reverse, in which case their ability to increase energy imports is going to be really tough: the world cannot absorb China's required growth in exports.  Well, yeah, given a short time interval they can do it, but not for long: their current growth estimate for 2012 is 7.5%, a rate that would result in a doubling of their economy in less than 10 years (figure a near doubling in energy consumption as well).

Wed, 03/14/2012 - 08:11 | 2253427 Zero Debt
Zero Debt's picture

In a free market you are entitled to post bid and ask prices and transact. There is no entitlement to specific outcomes in a market. Specifically, the Chinese can bid for oil as long as there is an ask for their Yuan, Dollars, Gold, or whatever but there is no entitlement to fixed quantities.

Wed, 03/14/2012 - 13:20 | 2254930 mkkby
mkkby's picture

If peak oil is true, and I believe it is -- China will never be able to consume like the US.  They will be stuck pretty much where they are, or a llittle higher up the totem pole.  As the supply constricts and the price ramps up, they'll hit the wall.

The richest Chinese will get oil at the expense of the poorest westerners, but that's about it.

Tue, 03/13/2012 - 18:33 | 2252110 Monkeyfister
Monkeyfister's picture

I am so old, I remember when we were told to "Drill, Baby, Drill," and we'll achieve "Energy Independence," and low, low domestic oil and gasoline prices. Seems like only yesterday:

Since 2008, we certainly HAVE been drilling. We've fracked up every place we can sink a drill into-- onshore, and offshore, and by-gum-- It's WORKED!

We're producing TONS of oil, again. We're producing more Domestic Oil than we have in decades. WOOT! Let the good times ROLL! Happy days are here, again! $1.00 Gas is on the way! Hurray!!! Hurray!!


Waitaminit, here. Something is horribly wrong with this picture. It doesn't add up to what we were told only four years ago.

Today, WTI is at $107.12 per barrel as I type, and Brent is at $123.80. I am still paying over $3.60 per gallon of gasoline.

US Demand remains at its lowest in decades.

We all know the concept of Supply and Demand: When Supply is High and demand low, prices drop, and vice-verse. But, this concept is now turned on its head, and inside-out.

As it stands, oddly enough, our beloved Oil Corporations are EXPORTING our Domestic Surplus, while CONTINUING to IMPORT Foreign Oil. The US is now a NET EXPORTER of oil for the first time since 1949.

Wall Street Journal:

Quote:U.S. exports of gasoline, diesel and other oil-based fuels are soaring, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years.

A combination of booming demand from emerging markets and faltering domestic activity means the U.S. is exporting more fuel than it imports, upending the historical norm.

According to data released by the U.S. Energy Information Administration on Tuesday, the U.S. sent abroad 753.4 million barrels of everything from gasoline to jet fuel in the first nine months of this year, while it imported 689.4 million barrels.

That the U.S. is shipping out more fuel than it brings in is significant because the nation has for decades been a voracious energy consumer. It took in huge quantities of not only crude oil from the Middle East but also refined fuels from Europe, Latin America and elsewhere to help run its factories and cars.

As recently as 2005, the U.S. imported nearly 900 million barrels more of petroleum products than it exported. Since then the deficit has been steadily shrinking until finally disappearing last fall, and analysts say the country will not lose its "net exporter" tag anytime soon.

"It looks like a trend that could stay in place for the rest of the decade," said Dave Ernsberger, global director of oil at Platts, which tracks energy markets. "The conventional wisdom is that U.S. is this giant black hole sucking in energy from around the world. This changes that dynamic."


>>>the U.S. sent abroad 753.4 million barrels of everything from gasoline to jet fuel in the first nine months of this year, while it imported 689.4 million barrels.<<<

Yeah. "Drill, Baby, Drill," "Domestic Energy Independence, Self-Reliance and Self-Sufficiency," "Lower Gas Prices." So many people fell for that bullshit.

And here we are.

So. We're EXPORTING our dwindling, hard-earned, difficult and expensive to extract Domestic Oil Supplies to countries like China, and other places not overly-friendly to the U.S., and all the while, we are CONTINUING to IMPORT oil from places definitely not friendly to our better interests, and all the while we're paying PREMIUM PRICE for oil, and oil products.

Call me nutty, but this just simply does not seem like a sound long-term strategy for our Energy Future. Seems to me that such costly, and destructive Oil Production should AT THE LEAST provide for some price reduction, and a very needed break to those who can really boost the REAL ECONOMY. Lower fuel prices would allow for cheaper domestic transportation costs to Small Businesses, allowing them to expand, and hire more employees, and on, and on. Capping those new discoveries of known reserves would make for real long-term Domestic Energy Self-Sufficiency Policy.

But Wall Street, and our Oil Corporations don't seem to give a rat's ass about long-term policy or planning, or the Good of the Country any more-- it's all short-term, short-sighted gains. Gimme mine, screw the future, screw everyone else.

And the "Drill, Baby, Drill" crowd bought it all-- hook, line, and sinker... and they're calling for more, while BigOil obliterates any sort of Long-Term Energy Policies this Nation might have, selling Domestic Surplus, while keeping Domestic prices jacked-up to outlandishly high rates.

I'll take the slings and arrows from those supporters of Sarah Palin's legs, right now.

But ten years from now, when those fracked shale oil wells are all played out, and sold off to Foreign Countries; and the Ground Water and Fresh Water Aquifers are all polluted from the fracking process; and we all need to drink Corporation-produced bottled water, and shower with tanked-in Corporation-Produced fresh water; and the crops are dying because we're irrigating with corrupted water; and the LLC corporations who polluted those fresh water supplies are bankrupt; and the Conglomerate Corporations that set up those front companies wipe their hands of the problem in our Courts of Law, I hope you'll remember this post, and realize how badly you were duped.

I am SURE that in just a few weeks, Congress will haul the BigOil CEOs to DC for a hearing on prices, and the Execs will look utterly abashed, and SWEAR-- SWEAR!!! that there is no mischief going on... and that will settle that.

And the GOP candidates are all screaming that we need MORE Domestic Drilling, as if we can't see what's going on. Screw them.









Tue, 03/13/2012 - 18:59 | 2252154 deflator
deflator's picture

 We are still importing much more oil than we produce and we are importing it with fiat, refining it into petroleum products such as gasoline and diesel fuel and exporting those products. Alot of the oil produced from the fracking isn't even legal to refine in the U.S. and is in the $65 per barrel range because nobody wants it. China will refine it but from an environmemental standpoint, what difference does it make if it is refined in China or the U.S.? Hell, Saudi still has alot of spare capacity of high sulpher mega polluting to refine oil, why not use that, it's a hell of alot cheaper to produce than this high tech fracking oil? Besides, there isn't nearly as much gasoline and diesel fuel in the fracked oil as there is in the light sweet stuff.  Sweet deal eh? Create dollars out of thin air and buy light sweet crude oil with those freshly created dollars then turn around and sell the refined products with the essentially "free" crude oil?

Tue, 03/13/2012 - 19:00 | 2252182 Monkeyfister
Monkeyfister's picture

Can't argue with any of that! Plus, they get to gouge the Consumers of the Host Country. What's not to love? What could possibly go wrong?




Tue, 03/13/2012 - 19:22 | 2252222 deflator
deflator's picture

 What can possibly go wrong is where the, "real" economics lesson comes in, not phoney economics that seems to be so prevalent. Fracking has always been about the NG and not oil. The Oil plays were about hype from the beginning.

 Is gold more likely to be bought with fiat or shorted with fiat?

Tue, 03/13/2012 - 18:50 | 2252157 Xkwisetly Paneful
Xkwisetly Paneful's picture

I still remember the posts about 3mile island and I am still waiting for my water to glow.

Fracking caused the earthquake last year according to some moonbats.

This administration is anti domestic drilling and the idea of capping the reserves resulting in lower prices is fucking hysterical beyond all comprehension.


Tue, 03/13/2012 - 19:02 | 2252186 BurningFuld
BurningFuld's picture

Oil is going up in price because people (them damn foreigners)  have less and less faith in the USD.

Nothing more nothing less.   And with a mere trillion dollar deficit again this year I'm sure things will only get better......kinda reminds me of a song.

Tue, 03/13/2012 - 19:27 | 2252247 SheepDog-One
SheepDog-One's picture

An increase in the money supply = inflation.

A decrease in confidence in the currency = deflation.

Tue, 03/13/2012 - 23:19 | 2252924 deflator
deflator's picture

 A decrease in confidence in the currency generally results in inflation particularly when that and all other currencies are fiat.

 A decrease in money supply = deflation and if that "money" is fiat(and really debt instead of money) you get rapid deflation. That is why you will never get a lasting deflation with fiat currency systems. Lasting deflation would cause a lack of confidence in the fiat currency and since confidence is the only thing that makes fiat currencies money, they collapse quickly absent confidence.

 The idea that energy is infinite is primarily promoted by those that can create fiat money out of thin air. Your labor is energy by the way, how does it feel to have your labor to be marginalized to almost meaninglessness by those that can create (seemingly) infinite wealth with a few clicks on a keyboard?

Tue, 03/13/2012 - 18:56 | 2252176 lizzy36
lizzy36's picture

Oil is a fungible. The US is a capitalistic economy (well crony capitalist). What you are suggesting is some sort of nationalization of the US energy supply. You do realize that is impossible.

A long term energy plan in the era of Super Pacs and elections that are less about democracy and more about auctions, is not probable.

If the price of oil stays where it is or continues on it upward trajectory U.S. growth will cease in H2 2012. If we get an oil price shock, then a collapse is likely. Only in collapse will some sort of long term plan finally be forged.

It is horrible and horrific, to imagine that only in pure economic collapse caused by a massive oil shock, will a long term energy plan finally be forged. Unfortunately in the current corrupt political enviroment i don`t see any other way.

Tue, 03/13/2012 - 20:18 | 2252423 LawsofPhysics
LawsofPhysics's picture

The finite nature of oil and energy density of different sources aside, what many fail to realize is that both America and the dollar are becoming less relevant every single day.  The rate at which both are becoming irrelevant to the rest of the world is increasing exponentially.  Now if only folks understood exponential equations.  The "solution" that comes out of collapse in America will look no different than the solutions that have been coming out of Russia since it's collapse.

Tue, 03/13/2012 - 22:40 | 2252830 GoingLoonie
GoingLoonie's picture

Hey Lizzie,  I love the way you hold that football, but---The oil is ours, that of the US citizens.  Leases are granted sometimes for only $1.00 for acres and / or Millions of gallons (or cubic feet for Nat gas)  are pulled out.  Now that is real smart, and part of the problem-that is the point.  Everywhere else in the world a per gallon (or cubic foot tax for natural gas) is instituted that goes to the citizens.  We are not talking about a product these people build, but a natural resource of limited supply that their buddies in big Government are giving to them for little or nothing.  

First they stole the gold, silver and cash.  Now they are taking the other resources before they abandon us completely.

Wed, 03/14/2012 - 07:56 | 2253381 Seer
Seer's picture

"First they stole the gold, silver and cash.  Now they are taking the other resources before they abandon us completely."

How does it feel to feel like one of the billions who have been raped by the same System that has placed most of us here ABOVE the 4 billion or so (who live on the equivalent of $3/day or less)?

As to their "abandoning us completely," I say "GREAT!"  "They" are, after all, The System, and The System is highly flawed (based on perpetual growth on a finite planet).

Learn to appreciate the word "subsistence."  If you are over or under this then you are unsustainable; and, "unsustainable" means just what it means- can't be sustained; not exactly something that I'd think that anyone should strive for.

Tue, 03/13/2012 - 19:23 | 2252234 trav7777
trav7777's picture

the US is not a net exporter, you fucking idiot.

Anyone with an OUNCE of knowledge about this subject knows your claim to be FALSE.  Not just sorta false, but belly laughing, motherfucking FALSE in all caps.

ALL OF YOU, shut the FUCK UP.

Who the fuck ever convinced you idiots you were intelligent enough to have an OPINION on this shit?

Wed, 03/14/2012 - 07:48 | 2253370 Seer
Seer's picture

Two things...

1) It's REFINED product that's being exported.

2) It's a GLOBAL market, the oil etc goes to those who can AFFORD it.  When folks in the US were able to afford shit I don't recall you (well, were you even born then?) or anyone else saying "gee, I think that we shouldn't get stuff from other countries because the people there should have it."

Regarding Point #2, I'm not qualifying this.  It is what it is...  The sure-to-arrive trade wars (brought on by global economic contraction) will whip this all over the place.

The GOP candidates are just verbalizing what the Dems are trying to do behind the scenes (only in some other equally meaningless mode).  EVERYONE is still trying to push on the Growth String...

Tue, 03/13/2012 - 18:32 | 2252115 zero110
zero110's picture


Goes hand in hand with our energy secretary openly wishing for and then applauding crippling gas prices. But watch out for them evil Koch brothers.


nike free run sale

Tue, 03/13/2012 - 18:40 | 2252131 jomama
jomama's picture

diacf spammer troll

Tue, 03/13/2012 - 19:15 | 2252207 slewie the pi-rat
slewie the pi-rat's picture


didn't jump the string, tho, & junked yer ass, too!  L0L


Tue, 03/13/2012 - 19:29 | 2252255 SheepDog-One
SheepDog-One's picture

What are we surprised about with oil up> ObaMao said that was one of his top priorities, and said gas would be at $7.

And people are now surprised? Trying to find the world macroeconomic reason for it?


Tue, 03/13/2012 - 20:13 | 2252405 espirit
espirit's picture

Got to make Govt Motors Volt profitable somehow.

Tue, 03/13/2012 - 22:57 | 2252873 UP Forester
UP Forester's picture

Gotta get 'em before they're gone in a flash!  And a puff!

Tue, 03/13/2012 - 18:42 | 2252137 Atomizer
Atomizer's picture

Automotive channel stuffing incentive program's too roll out in 3,2,1.

TV commercial campaign:You'll need to take advantage of our latest clown car offers. Beat the transitory FOMC warnings, and higher fuel cost. If you work 10 hours a week, you're auto loan is approved in thirty minutes or you get your vehicle for free. Don't miss out, this special offer ends at the end of this week.

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