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Guest Post: Why Oil Prices Are Killing the Economy

Tyler Durden's picture


From contributor Gregor Macdonald

Why Oil Prices Are Killing the Economy

"Oh, that was easy," says Man, and for an encore goes on to prove that black is white and gets himself killed on the next zebra crossing.” ? Douglas Adams, The Hitchhiker's Guide to the Galaxy

Have rising oil prices just put the final coffin nail in the entire 2009-2011 economic recovery?

Given the slowdown in China, the new recession in Europe, and the rocky bottom in the US economy, it certainly seems that way. 

Oil's Relentless March Higher

Oil prices emerged from their spider-hole over two and half years ago. Having fallen from the towering heights of $148 a barrel in the summer of 2008, the early months of 2009 saw a return to prices in the $30’s. Interestingly, during that great oil crash, the price of West Texas Intermediate Crude Oil (WTIC), spent only 20 trading sessions below $40. That is the exact price most analysts, only three years prior, believed oil could never sustain as the world would pump “like crazy” should prices ever reach such “impossibly high levels.”

Given the enormous debt troubles the West is currently facing, and the fact that oil has averaged over $100 during several months this year, it does seem reasonable to suggest that, once again, the economy has been pushed off a ledge by oil. Let’s take a look at oil prices, over the past several years.

Many economists and older energy analysts, although they won’t admit to it, have been simply blown away by the persistence of oil prices: especially in the weak economic environment post the 2008 crisis and financial market crash. How did oil prices manage to recover to $80 (let alone to $40 or $60), and make their way back all the way to $100? (And this is just a chart of WTIC oil. Brent oil has been even stronger the past year). Why, for example, has a 12% reduction in US demand and weak economies elsewhere in the OECD not translated to much cheaper oil prices? Why did oil simply not flatten out in price, post 2008? After all, many claimed oil was nothing but another in a series of 'Made in America' financial bubbles. With “no shortage of global supply” (as many said), and with a market “awash in oil” (as others said), why didn't oil prices simply go to sleep at, say, $50 per barrel?

Do Higher Oil Prices Really Cause Recessions? (Answer: yes)

Before we unpack some of the factors behind oil’s strength, I want to address the subject of oil prices and recessions. I think readers should be aware that some analysts reject any reflexive, easy causality between high oil prices and sharp contractions in the economy. There are a range of views on this topic, from those who embrace the idea of substitution to those who assert oil prices and oil supply rise concurrently with movements in the economy.

Substitutionists tend to also be positive, or constructive, transititonists I might add. Many of these come from technical and engineering backgrounds, and often have very good exposure to economic theory. In their view, higher oil prices drive human innovation and spur entrepreneurs to create new technology. High oil prices for them are actually a positive. Understandably, they also want all subsidies and other externalities, which we pay as a society to the fossil fuel industry, to be phased out. And frankly, I myself sympathize with that view.

Meanwhile, analysts who see the relationship between energy supply and the economy as more equalized, more symbiotic if you will, tend to hold the view that if the economy demands more oil--and is willing to pay the price--then the earth will reliably “give it up” to the resource extractors, over time. You can see this view very much at play currently, in the excitement over natural gas and also oil extracted from shale. Indeed, the learning curve, in which the hydraulic fracturing technique moved from experimentation to perfection, conforms very much to theory.

If one expands on these two schools of thought---human innovation that conquers limitations, and, a symbiotic view of the economy and energy supply---it becomes rather easy to imagine that high oil prices present a real, but, rather small problem for the economy.

Of course, I take a different view.

Writing with my friend and colleague Chris Nelder at the HBR Blog, earlier this Fall, we warned of not one but two risks associated with stubbornly high oil prices. First, we referred generally to the history of oil spikes and recessions, noting that in the post-war US economy, one generally followed another. For an economy that has been geared towards oil for many decades, this should come as no surprise -- especially when energy expenditures rise over certain thresholds, as they did in the 1970’s, and again more recently. But we also warned that an over-confidence had developed over the decades, and especially in America, that any pressure from energy prices was ultimately solvable. And, we encouraged corporate management to be more skeptical of the idea that the global oil and gas industry would be able to continue bringing resources to market, that most could afford.

One of the more thoughtful reactions to our essay came from Michael Levi at the Council on Foreign Relations. Levi called into question that any reliable threshold existed, of energy expenditures to GDP, that would trigger recession once crossed. In a general sense, that strikes me as reasonable. And to clarify, the notion of proving a magical threshold -- say, when energy expenditures to GDP rise above 5% -- was not exactly our central point. Indeed, I would agree with Levi more specifically that the rate of change might be at least as damaging, if not more so, than any threshold. In Does Expensive Oil Inevitably Cause Recession? Levi also makes an additional point worthy of attention:

There is, however, a possible back door explanation for why high petroleum expenditures relative to GDP seem to correlate with recessions even if they don’t do a good job explaining them: it is easier for petroleum expenditures to undergo big changes in short periods of time if they are starting from a high level. If, say, the price of oil rises 50% from a starting point where petroleum expenditures are 2% of GDP, the change in spending is 1% of GDP; in contrast, if the price of oil rises the same 50% from a starting point where petroleum expenditures are 6% of GDP, the change in spending is 3% of GDP. Whatever your transmission mechanism – supply side contraction, demand destruction, shifts in consumer preferences for durable goods – the 3% jump is going to be far more economically damaging than the 1% one. Indeed the years where oil spending was high but recession was absent generally come from a period where prices were fairly stable.

As we look at the historical table from IEA Washington, showing expenditures to GDP from 1949-2010 (opens to PDF), what’s illustrative to Levi’s point are the levels from which we rose, starting in 2004. Because in 2003, the level was already sitting at 6.8%. But in 2005, that rose to 7.3% and then reached the very high level of 9.8% in 2008. Today, I am mainly concerned with the outlook to 2012, given that the global economy was granted only the most brief reprieve from high energy prices in 2009, before resuming in 2010 and this year 2011. To provide the most to up-to-date data, let’s also look at the chart, also from EIA Washington:

Understanding Causality

It is difficult to satisfy a demand for precision, when asserting that high energy prices, or fast rates of change in energy prices, or energy-prices-to-GDP thresholds, have caused a recession. The most significant hurdle lies in the organic complexity of the economy itself. With all its political and cultural variances, and the mercurial nature of social moods and trends, how does one make certain claims about such a large system?

Some have suggested therefore that high or rising oil prices cause changes in GDP--and hence, recession. To try and put this in layman’s terms, Clive Granger attempts to assert causality within a more uncertain matrix: saying, essentially, that certain events follow others reliably---but in a sequence where causality is difficult to quantify. As has been pointed out by some, Granger is unfortunately paired with the word causality, when in fact it is really a test or a method by which to determine predictability. (For some of the best work on energy prices and recessions, and Granger Causality, I point readers to the work of James Hamilton, who also runs the popular macroeconomics blog, Econbrowser.)

A broader discussion of the economic impact of energy prices would also include the problem of energy transition. Or, if you like, the broader subject of adaptation. For example, perhaps oil-induced recessions historically were exacerbated or ultimately made possible by policy mistakes. It once was the habit of central banks to raise interest rates in the face of higher oil prices. But what if the economy had simply been left to handle higher prices on its own? More recently, Ben Bernanke has allowed that the central bank cannot control oil.

“There’s not much the Fed can do about gas prices per se. After all the Fed can’t create more oil. We don’t control emerging markets.” --Ben Bernanke, 2011

This suggests an evolution in thinking over his predecessors. Could the economy adapt better to resource price pressures, if policy mistakes were not a feature of the economy?

I’m not so convinced of that either. After all, the volatility in free markets can have its own deleterious effect on new investment. One of the most vexing features of any reliance on high fossil fuel prices alone, as a trigger for investment in alternative energy, is the volatility of prices. If those with capital are to be encouraged to invest in new energy technologies, many of which capture more diffuse energy -- or which create energy but at a higher cost -- then there must be some confidence that cheap fossil fuels will not re-enter the scene, making new investment uneconomic. Encouragingly, that particular issue now looks more resolved than ever because the price of the master commodity -- oil -- which is still the primary energy source of the world, is now structurally higher and is almost certain to stay that way.

Asking The Right Question

And so, to answer the question, do high energy prices cause recessions, I would say with full respect to uncertainty and causality, yes. Eventually, however, the energy transition away from fossil fuels will gather enough momentum that we will interpret high energy prices differently: we will say they forced (helpfully) a necessary transition. But as we are so early in any global transition to alternatives, it would be better for economists, policy makers, and business to consider the Douglas Adams quote that’s in the header of this essay. Trying to prove that black is white may be a noble effort -- in the fullness of epistemology and causality -- but in the short term it could get you run over in a crosswalk.

We face a more immediate question: is the global economy headed back into recession in 2012? Almost certainly, I think. 

The Coming 2012 Global Recession

In Part II: Why Its Now Easier to Predict The Outcomes of the Coming Recession, I will explain why oil prices currently are so stubbornly high, and I’ll pay particular attention to how tight the oil market has become (again) post the 2008 crisis. So as not to be simplistic, however, I will not reject the fact that debt saturation and crises of confidence will play a role in 2012. Indeed, Granger causality can be employed in both directions, not merely whether energy prices affect GDP, but whether GDP affects oil prices. This is useful because the combination of a very tight oil market, along with Western economies that have reached the terminus of credit-based consumption, makes for a very tricky price landscape in 2012, for oil. This is no doubt why bets on volatility, a very wide band oscillation in oil prices, are popular for next year.

Finally, how much can the global economy adapt, should oil prices reach even higher levels? Can we make the right policy choices should another oil spike unfold? Remember, policy making which is always at best imperfect can be even more dysfunctional in a crisis.

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


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Mon, 12/19/2011 - 23:39 | 1996479 TruthInSunshine
TruthInSunshine's picture

The Bernank logic governs this realm.

Using gasoline/diesel/heating oil as just one example, if The Bernank can get their prices to double over the next 4 years, even while consumption of these products decreases by 15% due to an economy so bad that people are forced to choose between eating and turning the thermostat up past 50 degrees, he is #winning.

You see, The Bernank, if given enough time, can duplicate this effect on just about every consumable item, and even the prices of services if he's allowed to rape and pillage long enough, and he can thereby report that expenditures are growing (even while consumption is falling) during an awful real economic contractionary period, and all will be well as reported in splashy headlines and graphics across the front page of USA Today.

The kicker is that the more that prices rise, the more that real consumption falls, and a self-reinforcing demand destruction loop is then born, in which case The Bernank has to rely more and more on rising prices to deceive as many as he can into thinking the economy is actually growing (or at least not contracting).

Bernankincidal Economics 101.

Mon, 12/19/2011 - 23:41 | 1996491 r00t61
r00t61's picture

Who cares if the supply of oil runs out?

I mean, I've heard many economists say that we can simply print and inflate our way to prosperity, so it must be true.

Mon, 12/19/2011 - 23:50 | 1996502 TruthInSunshine
TruthInSunshine's picture


The Paul Krugman economic revival plan, which would entail a) printing an additional amount of federal reserve notes that now matches the existing U.S. debt, to use to pay off said debt, and b) printing approximately 15 trillion additional federal reserve notes on top of the amount mentioned in order to prepare elaborate defenses for purposes of warding off a hostile invasion of Martians -

- would offset the economic destruction brought about by diminishing oil production.


*If The Bernankio can succeed in getting a standard crap loaf of bread to $6 or $8 in the next couple of years, we're really going to be firing on all cylinders. Bernankincide Economics 101 FTW.

Tue, 12/20/2011 - 00:29 | 1996627 Oh regional Indian
Oh regional Indian's picture

Actually TIS, a centralized transactiion system can keep SNAP cards and food on the tabel for a while yet if needed. In effect, the cost to the government is really zero when they "print". 

The only cost is a political cost, which they seem willing to pay at this point.

When your card says you can get a bread every other's price ceases to matter. All you have to practice is breathing and staying alive, which seems to be the goal for most anyways.



Tue, 12/20/2011 - 00:35 | 1996643 trav7777
trav7777's picture

can't print oil, bitchez....and there are no alternatives to transition to that will be cheaper.  Except unicorn piss

Tue, 12/20/2011 - 08:22 | 1997090 Bicycle Repairman
Bicycle Repairman's picture

In the graph I note that oil prices move in lock step with the stock market.  But of course this is a coincidence and neither "market" is manipulated.  Further any "analysis" that does not account for the USA military's use of oil and for the interference with oil from Iraq, Iran, Libya and who knows where else is woefully incomplete.  Fail.

Tue, 12/20/2011 - 13:09 | 1997900 rwe2late
rwe2late's picture

Bicycle Repairman

Agreed. The global oil cartel or "oily"-gopoly manipulates prices. The global Pentagon/NATO is the world's biggest user and polluter of Petroleum products (as well as chemical, biological, nuclear, etc.).

There is also a potential and literal black swan effect of an even worse BP disaster occuring given the planned and ongoing activities in the North American Arctic, as well as the known environmentally ruinous activities in Africa, Russia, and elsewhere.






Tue, 12/20/2011 - 12:45 | 1997803 Jumbotron
Jumbotron's picture

Yummmm.....Hot Spiced Unicorn Piss Toddies for all...just in time for the holidays !!!

And by the are correct sir !

Tue, 12/20/2011 - 04:26 | 1996938 Sudden Debt
Sudden Debt's picture

Your right!

And why doesn't GM build cars tha run on Plutionium pellets? I bet we'll get better mileage anyway!


Tue, 12/20/2011 - 08:06 | 1997064 zhandax
zhandax's picture

Wrong concept; GM is green now.  Depleted uranium pellets.  Cheap, plentiful, and now that Iraq is 'supposedly' over, in surplus (never mind that dozen or so troops that got shifted to the 'other' border).

Mon, 12/19/2011 - 23:57 | 1996534 Caviar Emptor
Caviar Emptor's picture

@ Truth: I call it Biflation as you know. Thanks for re-enumerating. 

At the root it's all really about Bubble Economics: or What happens when you short-circuit the laws of supply-demand in a supposedly free-market economy? 

This is what happens under the law of unintended consequences: misallocations, price misalignments, inefficiencies and ultimately anti-competitive business models. 

Bernank inherited bubble economics from his predecessors, but he is also one of the high-priests. So in his zeal to reflate the burst bubble of 07-08 (which is also a 30-year bubble) he has created biflation as a side effect. And the global economy is suffering because of it. 

Tue, 12/20/2011 - 00:01 | 1996545 TruthInSunshine
TruthInSunshine's picture


There is absolutely no way price discovery or any proper correlation on the supply/demand curve, etc. can occur in the markets that Ben S. Bernanke completely broke.

Tue, 12/20/2011 - 00:06 | 1996558 Caviar Emptor
Caviar Emptor's picture

Totally agree

Tue, 12/20/2011 - 00:15 | 1996581 CrashisOptimistic
CrashisOptimistic's picture

Economics are trumped and rendered irrelevant by insufficient oil flow.

That's just the way it is and there's nothing anyone can do about it.

Tue, 12/20/2011 - 01:44 | 1996827 Freddie
Freddie's picture

The muslim paying back his patrons is Saudi Arabia.  No exploration.

Tue, 12/20/2011 - 09:36 | 1997215 Flakmeister
Flakmeister's picture

Now you have gone from being hateful to just plain ignorant....

Pray tell, who is not "exploring"?  For full marks, show your work.

Tue, 12/20/2011 - 14:20 | 1998198 Iwanttoknow
Iwanttoknow's picture

Nah,I'm afraid that Freddie's ignorance is congenital.

Tue, 12/20/2011 - 08:34 | 1997100 WhiteNight123129
WhiteNight123129's picture

Agreed, this is how idiots confuse dimentionless demand supply imbalance which is an increase in demand given constant supply, or a decrease in supply assuming constant demand etc... Obviously there is a bit of demand price elasticity, but overall it is becoming less and less elastic, or people will need a donkey for transportation.

Now prices are not dimentionless measure of price increase, price is a ratio. Oil divided by dollar, yens,Gold etc...

So instead of measuring anything going on with supply demand it just measures what is going on with the denominator.

If Silver availability goes down faster than oil, Oil will go down if denominated in Silver. In that case no need to buy Oil,just buy Silver as you will be able to buy more oil with your Silver down the road.

Ah... about supply constraints on the dollar... Raise donkeys they might become a useful commodity!

Mon, 12/19/2011 - 23:39 | 1996484 homersimpson
homersimpson's picture

I guess the algos didn't read this article. Futures on DJI now +50 this late at night.

Mon, 12/19/2011 - 23:48 | 1996506 heremynkitty
heremynkitty's picture

Good, I need another entry point for TZA.  Do I hear +200?

Mon, 12/19/2011 - 23:41 | 1996492 Stuck on Zero
Stuck on Zero's picture

Anyone remeber the panic and confusion when oil went from $2.50 a barrel to $10.00 a barrel in 1973? 

Tue, 12/20/2011 - 00:04 | 1996551 Caviar Emptor
Caviar Emptor's picture

Yup. And oil imports were only 30% of consumption. Now it's doubled

Tue, 12/20/2011 - 07:39 | 1997037 Ghordius
Ghordius's picture

In Europe the highways were closed on Sundays, and the debate raged around what to do with the already high gasoline taxes...

Yup. Those were good times for bicycle sellers.

Mon, 12/19/2011 - 23:43 | 1996493 jonjon831983
jonjon831983's picture

Just wanted to point out something from the past.


When oil hit $110 airline pilots were claiming that airlines, in order to save on costs, were demanding that planes be minimally fueled 

Pilots claim airliners forced to fly with low fuel



High prices will encourage... creative answers.


Take from one place and give to another...

Mon, 12/19/2011 - 23:43 | 1996495 I am a Man I am...
I am a Man I am Forty's picture

i'm too stupid to understand the quote at the beginning

Tue, 12/20/2011 - 00:23 | 1996606 Schmuck Raker
Schmuck Raker's picture

It's in British.

Tue, 12/20/2011 - 01:19 | 1996775 prains
prains's picture

It's the orange jump suit,jambs brain signals to the ass

Tue, 12/20/2011 - 00:03 | 1996501 Kitler
Kitler's picture

Persistently high oil prices in the face of collapsing demand?

Perhaps just Bernanke and his boys doing more of Gods work.


Goldman Sachs (GS), Morgan Stanley (MS), BP (BP), Total (TOT), Shell (RDS.A), Deutsche Bank (DB) and Societe Generale (SCGLY.PK) founded the Intercontinental Exchange (ICE) in 2000. ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws. The exchange was set up to facilitate "dark pool" trading in the commodities markets. Billions of dollars are being placed on oil futures contracts at the ICE and the beauty of this scam is that they NEVER take delivery, per se. They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel.


"Traders of the the ICE core membership (GS, MS, BP, DB, RDS.A, GLE & TOT) wouldn’t really have to put much money at risk by their standards in order to move or support the global market price via the BFOE market. Indeed the evolution of the Brent market has been a response to declining production and the fact that traders could not resist manipulating the market by buying up contracts and “squeezing” those who had sold oil they did not have. The fewer cargoes produced, the easier the underlying market is to manipulate." - Chris Cook, Former Director of the International Petroleum Exchange, which was bought by ICE.


Then again what would the former DIRECTOR of the Petroleum Exchange know.

Tue, 12/20/2011 - 00:08 | 1996552 CrashisOptimistic
CrashisOptimistic's picture

Persistently high oil prices in an environment of collapsing demand SAYS WHAT VIA OCCAM'S RAZOR?

It says supply is diminishing.  This is not rocket science.  The flow rate of oil out of the ground (which should NOT be called "production", no one produced anything, it was already there) is NOT SUFFICIENT.

Period.  Full stop.

Oil flow rate out of the ground is NOT SUFFICIENT.  Prices are rising.

When you see insane articles like that in USA Today (today) try VERY HARD to read it carefully. They intersperse crude and petroleum products all over the place and confuse even themselves.

The US imports about 2.5 barrels of oil for each barrel it "produces".  The rest is utter bullshit.

Tue, 12/20/2011 - 00:15 | 1996570 Kitler
Kitler's picture

Tell that to the FORMER DIRECTOR of the exchange.


A Partnership made in Heaven?

There are probably few more influential people than Peter Sutherland. An Irishman with a high level legal and political background, he became a non-executive director of BP as early as 1990, and after a brief but successful period to 1995 as head of the World Trade Organisation he has been on the BP board ever since, from 1997 as chairman. He has also chaired Goldman Sachs International since 1995.

Lord Browne of Madingley was a career BP man who ascended to the top in 1995 and eventually fell from grace in May 2007 shortly before he was due to retire. He was on the Board of Goldman Sachs from May 1999 until May 2007.

BP have always been natural traders. Unlike Exxon, who are vertically integrated and produce & refine oil and distribute products, BP sell the oil they produce on the market, and buy the oil they refine. In the years since 1995, BP has made phenomenal profits by trading oil, and oil derivatives.

So have Goldman Sachs. You don't rise to the top in Goldman Sachs unless you are responsible for making a great deal of money: and their energy trading operations have made immense amounts.

The key player in Goldman Sachs is the current CEO Lloyd Blankfein, who rose to the top through Goldman's commodity trading arm J Aron, and indeed he started his career at J Aron before Goldman Sachs bought J Aron over 25 years ago. With his colleague Gary Cohn, Blankfein oversaw the key energy trading portfolio.

It appears clear that BP and Goldman Sachs have been working collaboratively – at least at a strategic level - for maybe 15 years now. Their trading strategy has evolved over time as the global market has developed and become ever more financialised. Moreover, they have been well placed to steer the development of the key global energy market trading platform, and the legal and regulatory framework within which it operates.

Tue, 12/20/2011 - 00:21 | 1996599 CrashisOptimistic
CrashisOptimistic's picture

None of that has anything to do with geology.  Geology is the dominant force in the matter.  The rest is hand waving.

Tue, 12/20/2011 - 00:26 | 1996619 Kitler
Kitler's picture


Tue, 12/20/2011 - 00:35 | 1996648 dolph9
dolph9's picture

Oil production is, for the most part, flat since 2005.  A brief spurt upwards does not prove a trend.

If anything, oil production is going to start to fall, they'll call it "demand destruction" but in reality the supply is not there, so that demand ultimately won't be, either.

Tue, 12/20/2011 - 01:40 | 1996743 ZerOhead
ZerOhead's picture

90 million barrels per day is more than the estimated 84 million barrels currently being consumed. Looks like a concerte effort to force the price down. I wonder where it's all going?

Global oil supply rose by 0.9 mb/d to 90.0 mb/d in November from October, driven by lower non-OPEC supply outages. A yearly comparison shows similar growth, with OPEC supplies standing well above year-ago levels. Non-OPEC supply growth averages 0.1 mb/d for 2011 but rebounds to 1.0 mb/d in 2012, with strong gains expected from the Americas.

Tue, 12/20/2011 - 00:37 | 1996653 trav7777
trav7777's picture

uh, NO, it isn't.

If there were oil out there in abundance, producers would PRODUCE INTO THE HIGH PRICES.  They would SELL INTO IT.  Do you freaking GET that?

Tue, 12/20/2011 - 00:45 | 1996682 TruthInSunshine
TruthInSunshine's picture

I used to disagree with Trav on the oil issue, we'd get pissy (especially him), but after I took a genuine leap into the oil production issue, I discovered he was right.

We weren't in alignment on the core and important issue, at any rate. He was speaking of oil that was economically feasable to extract/recover, while I was focused on total amount of oil in terms of provable reserves. Further, total global oil production peaked around 1976 and has declined since then, regardless as to consumption patterns.

Aside from the fact that I do believe oil prices are significantly manipulated by games played at terminals and games played by central banksters, and that this typically leads to a significant premium on prices paid for oil IF IT WAS LIKE ANY OTHER RENEWABLE COMMODITY, I'd sure as hell rather keep my oil in the ground and wait rather than take Bernanke or Trichet's toilet paper for it, if given the choice.

Tue, 12/20/2011 - 00:46 | 1996688 DaveyJones
DaveyJones's picture

...then you'd be a terrorist

Tue, 12/20/2011 - 01:31 | 1996732 TruthInSunshine
TruthInSunshine's picture

I know.

They'd probably make me an offer I couldn't refuse.

Tue, 12/20/2011 - 05:21 | 1996973 richard in norway
richard in norway's picture

no good long term financial sence, why sell something today for $100 when tomorrow you can get 200

Tue, 12/20/2011 - 01:01 | 1996730 ZerOhead
ZerOhead's picture

TIS  (Looks like you can't handle the truth! :)

The supply function is being manipulated by OPEC. Do not cofuse yourself with production vs. production capacity.  

Latest production numbers are now at 90MM b/d. Production capacity is 6-7 MM b/d higher.


Global oil supply rose by 0.9 mb/d to 90.0 mb/d in November from October, driven by lower non-OPEC supply outages. A yearly comparison shows similar growth, with OPEC supplies standing well above year-ago levels. Non-OPEC supply growth averages 0.1 mb/d for 2011 but rebounds to 1.0 mb/d in 2012, with strong gains expected from the Americas.


Tue, 12/20/2011 - 01:12 | 1996761 TruthInSunshine
TruthInSunshine's picture

When I went back and forth on that issue (the true rate of production vs reported rate and the reported rate that's possible if everyone was pumping), and went through a ton of sources trying to find credible information, I found sources claiming production and production capacity (current) is underestimated and that it's overestimated.

I'm not a geologist, and I don't have access to what OPEC and non-OPEC oil producing sources know about their fields.

I think what I'm speaking to more than what is the current rate of production, which would allow for the admission that oil may very well be overpriced if it were renewable and/or their were expectations that oil consumption would decline over the long term (rather than increase), is that there's an area that exists between what are proven reserves of oil & reserves of oil that can be efficiently extracted at what could be profitable prices given today's prices.

That area is where the price premium will ultimately really come into play, even if over the intermediate or longer term.

Tue, 12/20/2011 - 01:34 | 1996784 Kitler
Kitler's picture

"Peak oil" is very much dependent on price and time response to that price. And technological advancement.

Therefore peak oil is about as solid a concept as peak wheat or peak corn. You can always extract more if the price is higher but at some point the price creates it's own demand destruction.

If the globe could handle say $200/bbl oil production could be increased to perhaps 150-200MM barrels per day for decades.

8-9 TRILLION barrels of non-conventional crude exist in the world. 1.6T are in the Canadian oilsands alone.


1,600,000,000,000 divided by 100MM barrels per day (assuming you had enough water etc.) would get you 42 years of 100MM barrel/day supply.

Technically impossible right now but give it time and higher prices and anything is possible but it's not going to happen overnight to be sure.

Tue, 12/20/2011 - 01:38 | 1996814 DaveyJones
DaveyJones's picture

Coping, planning and adapting to peak oil is subject to peak understanding 

Tue, 12/20/2011 - 01:42 | 1996822 ZerOhead
ZerOhead's picture

Right now it looks more like peak gouging if you ask me.

Tue, 12/20/2011 - 13:18 | 1997926 TruthInSunshine
TruthInSunshine's picture

I really should have qualified my statement above to say "I think Trav is right," rather than "Trav is right."

Honestly, does anyone really know how to balance what any rational and observant person can agree is manipulation of the exchanges and inventories against the actual, hard, irrefutable fact of how much oil that can be extracted at economically feasible levels remains (given the technologies of any time period)?

IBM's Watson just made its 5 Big Predictions for the next 5 years, and one of them wsa that energy will become free as humans learn how to coordinate, pool and store their own kinetic movement (or something to that effect - and no, I am not putting much weight into this, but I'm no physicist, either).

Tue, 12/20/2011 - 13:11 | 1997913 ian807
ian807's picture

The flaw in your argument is "anything is possible." That's not true. For some things there are no solutions that are easy enough and inexpensive enough to matter. The trillions of barrels under the earth's surface are there, but will do us no more good than the hydrocarbons on the moons of Jupiter. It's neither energetically nor economically profitable to try and use them. There's also no way a teacup of oil in a 10 cubic yards of rock at 50 thousand feet will ever be worth getting compared to other solutions. Not now. Not ever in our lifetime.

Restricting your view to proven reserves (1.4 trillion barrels or thereabouts), real extraction rates (45% is pretty average) and a little extra thrown in for unconventional really doesn't take us far past the next 30 years.

So quantity of affordable oil is one problem. The other two are:

1) A near total dependence of the transportation sector on cheap oil

2) At some point, supply chains (including those that supply the oil and coal sectors themselves) start to break down.

That's our achilles heel as an economy, and a civilization. A more diverse transportation technology based on multiple fuels like electricity for trains and natural gas and biodiesel for automobiles would let us transition gracefully. Given the current slavish devotion to letting the markets handle it, I doubt this will happen. Markets don't think ahead very well. You need governments for that. Currently our own is too involved in partisan politics to bother with practical future problems. Europe is little better. China could manage it, but it's own economic downturn will probably cause the government there to lose focus.

Interesting times.

Tue, 12/20/2011 - 00:45 | 1996673 DaveyJones
DaveyJones's picture

even assuming you are right, how"s the eroei on that? under 10 barrels. And what was it when the whole game started?  

Tue, 12/20/2011 - 09:41 | 1997232 Flakmeister
Flakmeister's picture

Kitler... you are another person fooled by "All Liquids"... The net energy content of what is called oil is at best flat and the world net exports are down ~10% since 2005 (i.e. exporters are consuming more of their production domesitically)....

You understand the difference between NGL, refinery gains and bio-fuels? Do you?

Go back and hit the hopium pipe again... 

Tue, 12/20/2011 - 13:02 | 1997831 Jumbotron
Jumbotron's picture




Tar sands = Very labor intensive to dig out of the ground and more costly to refine.

Shale = Very labor intensive to frak with all that extra water needed to be drilled for as well not to mention disposed of ....oh yeah.....more expensive to refine than its light sweet crude cousin.

Deep Water in Gulf of Meixco....BP....nuff sed

Deep Water in Artic.....BP again, eventually....but colder.   Oh yeah....once again more expensive to refine since this oil is cooked due to it being closer to the mantle and/or compressed more and heated from friction alone.

The very fact alone that we are inventing new technologies to scrape the sides of the toilet bowl much less drill down to the bottom of the septic system is all the proof anyone needs that Peak (CHEAP) Oil is real and here to stay in order to fuck up infinite growth.....well....for infinity.

Add higher input costs of energy into the entire manufacturing chain from acquisition, to production to distribution to the consumer driving their fat ass to Wal Mart and Safeway....add that to a self destructing world debt ponzi scheme.....well......I think you can guess the rest.

Tue, 12/20/2011 - 01:54 | 1996842 Freddie
Freddie's picture

Lord "Browne" is a member of the tribe like Blankfien.  The Roth lackeys.

Tue, 12/20/2011 - 00:12 | 1996574 roccman
roccman's picture

you get the blue ribbon

Tue, 12/20/2011 - 00:21 | 1996593 Kitler
Kitler's picture

Check the ANNUAL GLOBAL OIL PRODUCTION GRAPH before you start handing out awards.


Just in case you can't read there's also a graph.

Tue, 12/20/2011 - 00:27 | 1996620 CrashisOptimistic
CrashisOptimistic's picture

No, it's not.

That's all liquids.  Not crude.  

All liquids can't push a truck around.  Only crude does that.

All liquids includes butane, propane, ethane . . . they have about 1/2 the energy density of crude.  They don't make diesel.


Tue, 12/20/2011 - 00:28 | 1996625 Kitler
Tue, 12/20/2011 - 00:34 | 1996640 CrashisOptimistic
CrashisOptimistic's picture

I guess that's a different link.  It brought up Rembrandt's article from TOD Europe vs Stuart's the previous click.

Rembrandt shows a number below 2006, btw.

If you're interested in this stuff, you may want to have a look at the divergence of reported numbers from JODI, IEA, EIA and BP.  EIA is not the final arbiter.  Probably no one is.  Regardless, you'll find JODI has much lower numbers across the board.

Tue, 12/20/2011 - 00:45 | 1996672 ZerOhead
ZerOhead's picture

Don't forget that PEAK OIL can always be delayed by increasing production of existing reserves through things like seawater injection (Saudi Ghawar) or simply drilling more wells in existing fields. You pay a price in recovery rates to be sure but as prices rise MORE supply will come into the market. As prices rise more and more supply will come from unconventional sources such as the Canadian and Venezuelan oilsands and old oilfields brought back into production with more expensive enhanced recovery techiques.

The GAME in oil IS rigged. To what extent is the only uncertainty.

Tue, 12/20/2011 - 01:04 | 1996746 AustriAnnie
AustriAnnie's picture

Do you mean that facing the consequences of peak oil is delayed by increasing production?

Because Peak Oil, seems to me, would not be delayed by speeding up production, but would actually be hastened by more rapid extraction of limited resources.

Tue, 12/20/2011 - 01:20 | 1996778 DaveyJones
DaveyJones's picture

exactly...and that's exactly what we're doing

Tue, 12/20/2011 - 01:57 | 1996844 Kitler
Kitler's picture

Yes you can delay peak production by increasing production. That is easy enough to do.

However you just bring on a much steeper production crash once the easy stuff is pumped and gone unless you have the unconventional sources up and running by that time. Bad news is that it takes a lot of time and money to get unconventional source online.

Tue, 12/20/2011 - 01:27 | 1996792 GMadScientist
GMadScientist's picture

Expensive schemes don't change the content of the well.

Tue, 12/20/2011 - 00:38 | 1996661 trav7777
trav7777's picture

C&C peaked in 2005; that is all that matters.  Don't look at all liquids; that's bullshit.

Tue, 12/20/2011 - 01:15 | 1996749 ZerOhead
ZerOhead's picture

I don't know Trav if the peak was 2005 how could oil production have increased to 90 million barrels per day in November 2011 then?

Perhaps you are thinking about Saudi production?


Block all results

19 May 2009 – Saudi Arabia's crude oil production peaked in 2005. .....


Just asking.


Tue, 12/20/2011 - 03:20 | 1996909 CrashisOptimistic
CrashisOptimistic's picture

It didn't.

A number of the organizations have lumped NGLs in with crude oil.  NGLs have 50% of the BTUs that the same volume of crude oil has.  You can't get the same ooomph from it barrel for barrel.

But it does have a market.  It, NGLs, are largely used to make plastic.  That's fine and dandy, and even meaningful, but the world's populace can be fed without plastic.  It can't be fed without crude pushing tractors and trucks around.

To their credit, EIA *does* explain this on their websites.  If you look at all projections of new production gains, it's not C&C (Crude & Condensate).  It's All Liquids . . . NGLs.  If you find the charts that talk just about crude, that is flat to descending since 2005.

It's very hard to get thru the obfuscation, but if you spend time really digging in it will become clear to you how the industry is, in fact, obscuring.  

They somewhat have to.  The industry survives getting paid to drill.  If their funding sources became persuaded that odds of successful well drilling was going to inevitably decline, they would invest less and less.



Tue, 12/20/2011 - 02:11 | 1996856 Teamtc321
Teamtc321's picture

"All liquids can't push a truck around.  Only crude does that."


Wrong, nat gas will push a truck around. 

Tue, 12/20/2011 - 03:13 | 1996903 CrashisOptimistic
CrashisOptimistic's picture

 Well, yes.  Steam can push a truck around, too.

But if anyone really cares about this stuff . . . sufficiently to get educated . . . you have to start with physics, then move to geology and at that point you won't bother with anything else because you'll understand that it's all hand waving.

Natural gas at room temperature and 1 Atmosphere of pressure contains 1/1000th of the energy of crude oil.  Yes, you can push a truck around with that amount of energy, but you'll be out of fuel in a few tens of miles, and you won't be carrying 18 wheeler level loads.

The natgas pushing trucks thing simply fails Physics.  You can flow that fuel to the engine 1000 times faster than oil and push the truck, but you'll be out of fuel in rather less than the 500 miles you can get from a proper 18 wheeler, to say nothing of a proper 450 horsepower John Deere tractor.

The stuff you hear about trucks carrying garbage around cities is hype.  They can't pull anywhere near the weight of a truck running on diesel and they can't even do that lesser weight appreciable distance.

Have a look at the nat gas Honda Civic and really dig into its numbers.  It has no trunk.  Honda needed that trunk volume for a bigger nat gas tank (pressurized, btw) and even doing that . . . even with a bigger tank and pressurized . . . it still has only a fraction of the range of a gasoline powered Civic.

It's about physics first and geology close behind.  It doesn't matter what that Civic costs.  No matter what it costs, Methane (nat gas) has 1/1000th the BTUs of the same volume of oil.

Tue, 12/20/2011 - 13:12 | 1997914 DaveyJones
DaveyJones's picture

good post. One of the most looked over issues in peak & "alternatives" is the energy density. It's why we kill for it. 

Tue, 12/20/2011 - 14:36 | 1998280 Fedaykinx
Fedaykinx's picture

CNG fueled engines can easily have similar torque and horsepower when compared to diesel, and works well for fleet vehicles that run routes and can be fueled from a central location.  For long-haul applications, LNG is better if slightly more problematic, but has an energy density of about 2/3 when compared to gasoline or diesel.  This is why proponents want LNG refueling installations along interstate trucking corridors.

Tue, 12/20/2011 - 08:32 | 1997101 Bicycle Repairman
Bicycle Repairman's picture

N'ICE' scam and I'll bet a small sliver of their profits goes to college professors and chat board twits to promote the 'peak oil' myth.

Mon, 12/19/2011 - 23:47 | 1996505 Seasmoke
Seasmoke's picture

boy i sure do miss paying $1 a gallon ........filled for $20 and paid cash every it driving 1/3 the amount and its on credit every time

Mon, 12/19/2011 - 23:50 | 1996518 heremynkitty
heremynkitty's picture

Heck, I miss 35 cents/gal for super leaded.

Mon, 12/19/2011 - 23:50 | 1996509 RobotTrader
RobotTrader's picture

Los Angeles gasoline prices are in the midst of one of the biggest crashes since 2008:$/G

Even Peak Oil Pushers like Jim Puplava are luxuriating in the cheapest gas we've had in months.

Time to fill up the tank in that sailboat of his.

My prediction is that many energy-focused hedge funds will be getting Amaranthed soon.

Mon, 12/19/2011 - 23:52 | 1996525 heremynkitty
heremynkitty's picture

Never heard of a sailboat with gas tanks.  Try diesel, fool.

Mon, 12/19/2011 - 23:54 | 1996532 RobotTrader
RobotTrader's picture

Diesel prices are falling even faster.


Most of my buddies that drive F-350 diesel trucks are celebrating right now.

Mon, 12/19/2011 - 23:58 | 1996540 jomama
jomama's picture

gotta love socal.  more lifted trucks without a speck of dirt on them than considered humanly possible.

Tue, 12/20/2011 - 00:22 | 1996563 Caviar Emptor
Caviar Emptor's picture

Celebrations might be short-lived: falling gasoline prices are following falling consumption NOT increased production.

And this signals the start of the next economic contraction wave: demand-destruction is already happening but supplies are stagnating which also has created a headwind for the post-contraction recovery. Imagine how fast prices will rise when things improve a bit

Tue, 12/20/2011 - 00:39 | 1996663 trav7777
trav7777's picture

still what, 3 fucking 50?  And you are CROWING?


Tue, 12/20/2011 - 01:28 | 1996794 GMadScientist
GMadScientist's picture

Compared to the people who buy it in liters, it's a damn steal.

Mon, 12/19/2011 - 23:51 | 1996519 Schmuck Raker
Schmuck Raker's picture

OT FYI: Capital Context - Intraday Models back up.


Mon, 12/19/2011 - 23:51 | 1996521 samsara
samsara's picture

Peak Oil Kids.

And to quote Carl from Caddy Shack,  "And that's all she wrote"

Debt will put our economy on the floor, and Peak Oil will keep it there.

Tue, 12/20/2011 - 01:28 | 1996793 DaveyJones
DaveyJones's picture

So true. a debt based economy has implicit immortal resources with energy at the top of the list

Tue, 12/20/2011 - 08:38 | 1997108 Bicycle Repairman
Bicycle Repairman's picture

Incompetence will put our economy on the floor, and Incompetence will keep it there.

Fixed it for you.

Tue, 12/20/2011 - 13:14 | 1997920 ian807
ian807's picture

That's probably the most succinct, accurate summation I've seen to date. Impressive.

Mon, 12/19/2011 - 23:56 | 1996536 A Lunatic
A Lunatic's picture

Peak excuses.

Tue, 12/20/2011 - 00:11 | 1996569 youLilQuantFuker
youLilQuantFuker's picture

Peak zionists already, please!

Mon, 12/19/2011 - 23:57 | 1996538 TruthInSunshine
TruthInSunshine's picture

From Libertas (I won't add anything, because it's perfect as is):




Next he gives a short history of the Federal Reserve System, beginning with its creation in 1913 and its manipulation of the money supply to protect Great Britain. The FED stopped Britain’s loss of her gold reserves, saving her from the embarrassment of having to raise interests rates, but:

“it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed.”


Statists, he argues, blame gold for the Great Depression, but the real reason they hate gold is that the welfare state is impossible with a gold standard. Taxation cannot support it, therefore, government must resort to borrowing, but gold hampers government deficit spending. By increasing the money supply, the value of the currency falls.

“Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, therefore, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all their bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This a wonderful essay, but what happened to the man who wrote it? Why did he do the very things he warned against? How could Alan Greenspan, the same man who wrote “Gold and Economic Freedom,” do the things he did as the Federal Reserve Chairman?

Gold and economic freedom are inseparable.” “

Deficit spending is simply a scheme for the confiscation of wealth.”

Despite all the damage he did as the Federal Reserve Chairman, his essay “Gold and Economic Freedom” should not be condemned. He may have praised laissez-faire capitalism or the free market early on, but he did not practice it as the FED chairman. He did the very things he warned about in his essay.

Tue, 12/20/2011 - 00:11 | 1996567 CrashisOptimistic
CrashisOptimistic's picture

I looked pretty hard and didn't see the word oil in any of that.

Actually I didn't look hard.  I suspected and automated.  No occurrence of the word oil or the word geology.  Why did you post that here?

Tue, 12/20/2011 - 00:17 | 1996585 TruthInSunshine
TruthInSunshine's picture

It's relevant on about a hundred levels, but to cite just one, maybe because the relationship between the price/cost of oil is similar to that of gold during periods of rampant currency debasement, with the corresponding drop in living standards that follow overlapping on the charts nicely as well.

Tue, 12/20/2011 - 00:18 | 1996587 Caviar Emptor
Caviar Emptor's picture

@Truth: great post. 

I would advance that there's another reason statists hate gold : because of the inevitability of over-concentration of capital in laissez-fair markets. During the gilded age guys like Morgan could in essence act as their own Fed (!) as they did during the crash of 1907, becoming lender of last resort, and guarantor of clearing transactions. They also moved gold from one country to another because their reach is supra-national, affecting trade balances and interest rates. With a limited gold supply they can corner markets and run their own central banks on their own terms. 

Tue, 12/20/2011 - 00:54 | 1996717 chinaguy
chinaguy's picture

Nice to see the grownups talking for a change.........

Tue, 12/20/2011 - 02:26 | 1996869 Bringin It
Bringin It's picture

Re. They also moved gold from one country to another because their reach is supra-national, affecting trade balances and interest rates. With a limited gold supply they can corner markets and run their own central banks on their own terms.

With the Fed's current money monopoly, you could change a few words here and be talking about today's banking mob.

They also moved gold /digital FRNs from one country to another because their reach is supra-national, affecting trade balances and interest rates. With a limited gold /control of the money supply they can corner markets and run their own central banks on their own terms.

So what's your point?

And the shadow banking system that we have today, full of trillions of unregulated capital, isn't that the poster child for over-concentration of capital in laissez-fair markets?

Another crazy dis-info post from Caviar?

Tue, 12/20/2011 - 05:25 | 1996975 goldsansstandard
goldsansstandard's picture

Why did he do it?


How else was he going to get that nice blond Shiksa looking pussy??

Tue, 12/20/2011 - 05:27 | 1996977 goldsansstandard
goldsansstandard's picture

Why did he do it?


How else was he going to get that nice blond Shiksa looking pussy??

Tue, 12/20/2011 - 00:02 | 1996547 q99x2
q99x2's picture

Two cents worth = a little more than nonsense.

1. Monopolies have the ability to rape and pillage before a collapse.

They reasonably squeeze any remaining life blood out of a doomed economy and into their .01%'ers hands each time it becomes apparent a collapse is near.

They will be able to live in their tunnels longer.

2. The ChairSatan has created inflation proportionate to the rise in oil prices.

The ChairSatan and his master, the big yellowheaded hermaphrodite that runs back in forth while dragging his tail in the tunnels that connect Brown Brothers - Harriman, the NY Fed and Wells Fargo, have plans to move operations from oil to control of the water that supplies the tunnelers - the .01%'ers.

Tue, 12/20/2011 - 01:35 | 1996807 GMadScientist
GMadScientist's picture

love the imagery...


Tue, 12/20/2011 - 00:03 | 1996550 High Plains Drifter
High Plains Drifter's picture


huge oil formations discovered around where i live...........


oh no...............

Tue, 12/20/2011 - 00:36 | 1996650 DeadFred
DeadFred's picture

Energy supplies abound. They are costly. Oil below $70-90 will bankrupt the new-source suppliers. Do you trust that the Saudis won't be able to knock prices that low long enough to kill the competition? The environment impact from some of the sources is substantial. But if we want to pay the costs the energy is there to be had. I don't trust that politicians firmly in the pockets of big oil will allow enough new sources to be developed until it's too late to avoid the crunch. But I'm jaded.

Tue, 12/20/2011 - 06:50 | 1997019 falak pema
falak pema's picture

also think EROI. If you put in more BTU/KW to bring out BTU/KW, you spend more for less. Its diminishing returns with huge incidental ecological costs, some known, some unknown in the scope of their collateral devastation. 

Sex is good, safe sex is better. When there is fatality lurking in the air. Same is true for global ecological impact of energy conundrum. The day we invent a true cure for STD and the day we make economically renewable energy with high EROI based on sun/wind, w/o ecological destruction, we will have crossed two watersheds. THere are two unsolved keys in renewables : 1° eroi/cost, 2° storage. The second is a tough one if we go electrical route via renewables. The thermal route of solar is marginal.

Tue, 12/20/2011 - 00:41 | 1996668 trav7777
trav7777's picture call THOSE piece of shit little wells HUGE?

WTF are you smoking; I want some.  That shit is TINY.  Call me when you get a field producing even 1mpbd.

Tue, 12/20/2011 - 00:53 | 1996710 High Plains Drifter
High Plains Drifter's picture

ok, how about this one...


and for your information i smoke only the finest , 3000 /pound california prime bud............

Tue, 12/20/2011 - 00:55 | 1996720 High Plains Drifter
High Plains Drifter's picture


we have fucking oil all over the place..............yawn.............

Tue, 12/20/2011 - 01:15 | 1996767 High Plains Drifter
High Plains Drifter's picture


2oo years oil supply north slope....







Tue, 12/20/2011 - 01:18 | 1996773 High Plains Drifter
High Plains Drifter's picture

more oil in gulf of mexico than all of saudi arabia............




Tue, 12/20/2011 - 08:49 | 1997127 Bicycle Repairman
Bicycle Repairman's picture

Any time renewable energy gets competitive with petroleum, some miracle will occur to lower the price of petroleum.  Anything that threatens the dependency of the American people (especially as individuals) on petroleum will be fought one way or another.  Electric cars existed over a century ago.  Natural gas cars are a reality now and are cheaper to fill than gasoline versions. 

Did you know that windmills kill the occasional bird?  LOL.

Did you know that hydroelectric dams interfere with salmon fishing by native Americans?  LOL.

The horror.

Tue, 12/20/2011 - 18:44 | 1999189 falak pema
falak pema's picture

Are you paid to do backward math and regressive logic? Its an uncertain and empirical world; only bigots or shills are full of certitudes; you would have made a great preacher or teacher in petroleum insititute that abiotic is god's gift to the illogical oil dogmatists. I once knew a VP of IBM in the late 70s who said, the private computer was a joke, and if IBM could make the biggest computers it could also think small and make the PC when it would get lucrative as segment. We know how that ended...certitudes, a fool's paradise!

Wed, 12/21/2011 - 23:15 | 2003307 Bicycle Repairman
Bicycle Repairman's picture

English obviously isn't your first language.

Wed, 12/21/2011 - 23:29 | 2003340 Flakmeister
Flakmeister's picture

And rationality is clearly not your strong suit...

Thu, 12/29/2011 - 23:40 | 2020961 Bicycle Repairman
Bicycle Repairman's picture

Flakmeister, just plain GFY.

Sat, 12/31/2011 - 01:02 | 2023243 Cadavre
Cadavre's picture

Are Falka  and Flak related? An all too common troll trick to use similar sounding names so they can remember their avatar collective. Knew a cat once that had 6 of `em going at once - all of them had and "A" - "D" name combo.

Look Flaka or Fatema or whatever - your commenting skills may work at Haaretz - but name calling other posters here will rouse the "litte man" in the weak - should we accept Aesop, then we must accept that only a racist would be tempted to call  another "racist" (the fox be the finder the stink lay behind her) - and to you Flak - you might still be able to sell your 120 March Carbon deliveries at only a 20% loss - it takes a big man to admit a tiny mistake - but calling names is not the way dudette - may you be compensated for an extremely (and most obvious) short margin call. Remember this in times of duress: Click heels together 3 times while repeating. "its not the size, its the way you use it".

El Beasto put a kitty in his package!

Sat, 12/31/2011 - 01:08 | 2023248 Cadavre
Cadavre's picture

Guess you forgot to keep your Highlight / Weekly Reader subscription up - but the Chinese now have top honors in the Super Computer category. IBM don't build nothing - IBM gets US and Indian govt/tax subsidies to sell project services out of boiler rooms in New Delhi.

Keep current - think or drown - a good class clown is an informed class clown.

Tue, 12/20/2011 - 01:57 | 1996843 natty light
natty light's picture

Lindsey Williams.....yawn.

Tue, 12/20/2011 - 13:18 | 1997934 ian807
ian807's picture

If you pump it out slow enough.

Tue, 12/20/2011 - 08:38 | 1997107 SelfGov
SelfGov's picture

So 4.5 billion barrels of oil could possibly come out of that formation?

Even if that weren't a bullshit number, it would take care of the world's addiction (85 million barrels per day) for about, oh, 60 days tops.


Tue, 12/20/2011 - 08:58 | 1997147 mjk0259
mjk0259's picture

At best 50% is recoverable at today's prices and it will cost quite a bit to get that out.  ND producing half million bpd now after quite a considerable effort of many years which maxed out the housing, etc.

Tue, 12/20/2011 - 00:47 | 1996691 GMadScientist
GMadScientist's picture

never know who's drinkin' yer milkshake with those crazy horizontal wells.


Tue, 12/20/2011 - 00:12 | 1996575 seek
seek's picture

On the bright side, pardon the pun, the deflationary aspect of this crash has hit solar panel prices hard.

You can get panels in bulk at $1.60 per watt now. I did an analysis in my area and break-even is about 6-7 years,12 worst case assuming zero inflation in energy prices (e.g. there's upside to a shorter payback.) This is without any subsidization.

A better investment than BofA stock (or, ironically, chinese solars!)

Tue, 12/20/2011 - 00:20 | 1996598 Caviar Emptor
Caviar Emptor's picture

Sounds great. Unless we have a nuclear winter

Tue, 12/20/2011 - 08:54 | 1997139 Bicycle Repairman
Bicycle Repairman's picture

In nuclear winter whoever is left will switch to wood, smart guy.

Tue, 12/20/2011 - 06:37 | 1997015 falak pema
falak pema's picture

I wouldn't count out solar, its the S curve, as in any techology. Once you go up the tail, technological innovation, economies of scale change the picture radically. Its still early days, but the fossil fuel energy crunch; I do subscribe to it; will make alternative energies dominant in the next ...twenty years...? Time of evolution is not clear. But just look at silicon chips and semiconductors; it is a good analogy. EROI footprint of energy source is going to be a good yard stick as will be global temperatue rise, to get out of depleting or polluting fossil fuels. But that is a very hotly contested debate, so I am just expressing faith not reason, about this last affirmation.

Tue, 12/20/2011 - 09:09 | 1997162 Bicycle Repairman
Bicycle Repairman's picture

You are completely lost.

Tue, 12/20/2011 - 18:35 | 1999165 falak pema
falak pema's picture

lost and found, round and about, its the path of sherpa, the road of trail blazer, those who look for the new energy frontier. Success rates are low but thats the way to go. Don't live in past certitudes. 

Wed, 12/21/2011 - 23:18 | 2003312 Bicycle Repairman
Bicycle Repairman's picture

Go get another drink.

Tue, 12/20/2011 - 00:13 | 1996578 RobotTrader
RobotTrader's picture

I remember when that guy Kunstler was crowing about the demise of "suburbia"


Instead, suburban sprawl is accelerating, as the homebuilders are now starting new housing tracts again.

And all the 2008 Peak Oil stories have been long forgotten.

Any time the NYMEX prices get out of hand, the paper pushers over there will simply print more "short CL at market" order tickets.

Which can be printed in infinite quantities.

Tue, 12/20/2011 - 00:21 | 1996600 Caviar Emptor
Caviar Emptor's picture

You are truly living in your own dream world circa 1965

Tue, 12/20/2011 - 00:30 | 1996631 heremynkitty
heremynkitty's picture

I prefer 'short RUT' tickets.

Tue, 12/20/2011 - 01:18 | 1996644 TruthInSunshine
TruthInSunshine's picture

Robotard, I remember when the Dow was last at 11,7xx and the spooz was around where it is now, too -- back in 1998.

And that's nominal, bitch. Priced for inflation, and NOT counting the massive losses investors suffered due to survivorship bias (essentially stocks that go bye-bye get tossed out the window and the manipulators rejigger the indexes as if they never existed as grandma gets a 100% loss on her GM or Enron stock that never gets counted by the charlatans of Wall Street and those in academia who front propaganda for them - Jeremy Siegel *cough*).

No wonder your mom hates you.

How's that Bank of America teller job these days (I actually am really curious about that one)?

*I tease because I like you, and you amuse me, being the sell-side bot that you are. Now dance and sing for my entertainment.

Tue, 12/20/2011 - 00:42 | 1996670 trav7777
trav7777's picture

uh, no they aren' home construction is at world record lows.

Tue, 12/20/2011 - 01:59 | 1996845 natty light
natty light's picture

Have you checked housing starts numbers lately??

Tue, 12/20/2011 - 02:27 | 1996873 Teamtc321
Teamtc321's picture

"Instead, suburban sprawl is accelerating, as the homebuilders are now starting new housing tracts again."

Robo, CNBC was blowing hopium on that new's today. The builder big's are bloated with ponzi cash balance sheet's and RESTARTING some existing development's. 

Tue, 12/20/2011 - 04:30 | 1996942 Sunshine n Lollipops
Sunshine n Lollipops's picture

Fer god fucking sakes, do you have no understanding how fucking apostrophes work??

Tue, 12/20/2011 - 16:37 | 1998770 Cadavre
Cadavre's picture

Meaning the SBA is (again) flooding the market with freshly minted USD's, thus, providing another opportunity to bleed the Kup to bail, yet again, the mortgage ponzi rackets.

Disposable income is the mark of a terrorist.

Tue, 12/20/2011 - 09:11 | 1997166 Bicycle Repairman
Bicycle Repairman's picture

"Instead, suburban sprawl is accelerating, as the homebuilders are now starting new housing tracts again."

Really?  Where, exactly?

Tue, 12/20/2011 - 00:30 | 1996632 AC_Doctor
AC_Doctor's picture

We need a website that can keep track of names and addresses of all crooks (banksters, lawyers, mortagage brokers, govt. employees, local and national politicians, educators & lobbyists) who have perpetuated this massive financial fraud, so they can answer to the people for their crimes against humanity be tried and sentenced by a new unperverted court that follows the US Constitution, when the great reset ensues in the near future.

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights,[74] that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security"  US Constitution July 4, 1776

Tue, 12/20/2011 - 09:22 | 1997189 DOT
DOT's picture

Right date wrong Document.

Tue, 12/20/2011 - 00:38 | 1996658 ISEEIT
ISEEIT's picture

I'm sick and tired of this 'peak oil' bullshit. It is really about energy supply. We have an arguably excessive domestic energy supply. Politics are killing our economy. Fucking looters are killing our economy, and with our economy they are soon to be killing us. Fucking looter politician pieces of shit have managed to destroy all human progress. Thanks to their corrupt pimp/addict bullshit mafia techniques, we are all getting f'ed once again.

It's not like I enjoy being angry. I don't like not 'getting along' either. But I am sick and tired, pissed and discusted by the bullcrap statist manipulation, authoritarian, totalitarian, FARCIST shit that they are dealing.

We have the available energy supplies. We also have an elite bunch of screwball dimwits who rather than act in the best interest of this nation, attempt to politisize literally EVERYTHING.

Goddamn Ill dong died yesterday, but his spirit lives on. Ill dong was a visionary. Ill dong is government in technocolor. Ill dong is /was government distilled (once again) for all to see.

Ill fucking Dong was a zoo keeper. But just A zookeeper.

YOU are a zoo animal.

And you live in the zoo.

Tue, 12/20/2011 - 01:37 | 1996811 Cadavre
Cadavre's picture

Peak oil is a scam - there's a thousand years of it (at least) in Siberia (and it's fairly sweet - not tar sand or shale), Peak oil is a WMH (Weapon of Mass Hypnosis).

The most expensive assets on the north slope are 50 million dollar turbines that are tasked to pump high pressure "artesian" crude back in the ground and keep it there.

7 or 8 container ships traversing the Pacific and Atlantic emit 15 times more VOC (it's called "bunker fuel") than all the cars trucks and buses and trains in the US emit in same period.

In 1977, this guy, during the course of trying to solve a pre ignition problem so that high compression engines could burn the low octane blends borne of the WMH embargo scam, invented a gasoline fuel system tested on an Oldsmobile V8, that produced virtually no VOCs, and a fuel efficiency rating field tested at 100 MPG! His patent application was going fine until his partner died as the result of a freak floor jack accident. A few days later, he, according to the coroner, died of an overdose of alcohol and Darvon's (at least he didn't die from an overdose of "Tea Berry" gum enriched through an overnight freezing a stick inside a banana peeling!).

Overdosed on Darvon(?) - GMAFB

During the depression, Germans mounted pressure cookers under the hood to heat wood and plumbed the resulting vapors into the carburetors of their gasoline engines.

I ain't saying, but, it may be a "best" practice to reserve any conclusions based on information sold by the lame stream.

Tue, 12/20/2011 - 09:46 | 1997248 Flakmeister
Flakmeister's picture

Denial is no longer just a river in Egypt I see....

Tue, 12/20/2011 - 16:27 | 1998611 Cadavre
Cadavre's picture

Ahhh .. great - juz what da moment need .. another CMT "classic" vid afficionado .. Barbecue - foot ball - and warm cheap sour Pearl Beer .. that's an old dry video county boy .. don't be pricng futures based on notions you heard on a dime a throw Denny's Juke Box menu .. you got an internet connection - check for thyself! Learn the difference between proven reserves and potential reserves.

Oil wars are not about secring oil reserves - they are about restricting supply - devaluing the dollar and raising commodity prices. And dat be all dey about.

Diamonds would sell for less than a nickle a karat without industry supply restrictions.

BTW: Most "crystal balls" have a "futures may appear larger than their actual potential" disclaimer printed on it. Or, perhaps you still be lugging that wrinkly old garbage bag of 120$ March deliveries in the back of jo' mama's oldsmofuckbuick?

LNG is taking a big dump - where you be thinking all that LNG be coming from .. ain't no such thing as isolated LNG wells. It be sitting on top of great big fat wads of black gold - texas tea - and them futures ain't no ticket to ride for a Bervely Hill Billy's wet dream - you should know that ...

Your eyelids are feeling heavy. The only sound you hear is my keyboard clicking these instructions into the the browser edit object .. you are getting sleepy . sleepy - on the count of three you will call your Goldman commodities broker and buy another "contractor's trash bag" full of 200$/barrel contracts - 1 ... 2 ...

BTW, Country boy, the US is a NET EXPORTER OF CRUDE OIL

Think about that while you be considering what Juke Box Song you be throwing a dime at for another line dance chance to romance the fat lady at the end of the bar.

Wed, 12/21/2011 - 10:27 | 2000755 Flakmeister
Flakmeister's picture

From your link... you have a serious reading comprehension problem.... the US is still the worlds largest net importer of crude oil, it is now a modest net exporter of gasoline....

From an earlier post of mine:

 Just came across this from a independent geologist in Texas (Westexas), thought it fit in:

Front page WSJ story yesterday: “U.S. Nears Milestone: Net Fuel Exporter”


For 2011, it appears that the US is on track to be net exporter of refined petroleum products, on the order of about 0.2 mbpd. Although the WSJ reporters did note, several paragraphs into the story, that the US remains the world’s largest net oil importer, in both terms of crude oil and total petroleum liquids, I suspect that many casual readers will conclude that the US is now a net oil exporter.


We have of course seen increasing US oil (and gas) production. If we look at the pre-hurricane production data in 2004, versus 2010, US total petroleum liquids production rose from 7.2 mbpd in 2004 to 7.5 mbpd in 2010, an increase of 0.3 mbpd (BP). Note that BP does not count biofuels and refinery gains in the production numbers.


Over the same time frame, 2004 to 2010, US consumption fell from 20.7 mbpd to 19.1 mbpd, a decline of 1.6 mbpd. Based on the BP data, US net oil imports fell from 13.5 mbpd in 2004 to 11.6 mbpd in 2010, a decline of 1.9 mbpd. Declining consumption resulted in 84% of the 2004 to 2010 decline in US net oil imports.


Therefore, the primary contributor to the US becoming a net exporter of refined products and the primary contributor to the decline in US net oil imports is declining consumption in the US, as the US and many other developed countries have been forced, post-2005, to take a declining share of a falling volume of Global Net Exports (GNE), which are calculated in terms of Total Petroleum Liquids.


So, the WSJ reporters are taking a symptom of Peak Exports, i.e., declining US oil consumption, and presenting it as a positive story.


There are apparently 196 countries in the world. If we assume about a half dozen inconsequential net oil exporters, in addition to the top 33 net oil exporters that we studied, that leaves about 157 net oil importing countries. So, if we extrapolate current trends, just two of these net oil importers, China & India, would consume 100% of the global supply of (net) exported oil in only 19 years, leaving nothing for the other 155 current net oil importing countries.


I continue to be mystified that this factual statement is not the #1 story in the world.

Wed, 12/21/2011 - 23:31 | 2003342 Cadavre
Cadavre's picture

Thank you for the correction - the article does reference fuel exports - most of which are going to the 2.5 Billion USD /week Afghanistan deliveries to marines.

Peak Oil is a reference to production capacity - not available oil. The moratorium on gulf drilling - the wars - are about and only about artificially inflating the market price for oil.

First we need to remember that there are not "many" oil companies - there is one oil provider - Big Oil. The gasoline you buy at an EXXON station is not EXXON gasoline. EXXON is a trading house - a bank - and is not considered an oil producer - which explains why EXXON goes to the repo window to get the cash to pay dividends. The reason EXXON is not drilling in the gulf is that that don't have the capital to insure the risk.

Some big oil producers use a cost per barrel as low as 35 USD.

The BP blowout was one of the first "straws" to tap into a magnificent bubble of oil referred to as "Elephants". It is huge - it is broad - it is deep.

It helps to understand the exponential function - depending on the "peak" oil warnings, that began as early as 1920, we've gone through more oil than the statisticians predicted we had.

Tarpley calls Peak oil a fraud and explains why it is here here (YouTube).

Lindsey Williams on the Non Energy Crisis (Enough Oil on North Slope to supply US for 200 years) is here (You Tube). BTW: A close friend of mine works on the north slope confirmed the installation of replacement turbines to prevent the oil from forming lakes. LNG / Methane is the vapor that sits on top of underground oil. If you keep up with the news - we are in a LNG glut - ask yourself why? You have to draw that stuff off before the oil is tapped, otherwise, you'll have a blowout.

Some history on the various Peak Oil scams is here (YouTube)

If you hold futures - providing their not to far out of wack with the extortionists running the hedge funds - you might get luck - break even - or even make a few pennies - but as far as available oil - (Montana just found a billion barrel bubble of crude - North Dakota is sitting a n newly found load) - we're no where near the peak.

Again - thanks for correcting me - the WJS has been correct about every thing - like the end of the recession - housing starts - etc - (giggle) - but they are lame stream and their job is to get us to make long bets - and that's their only job - reality - oth - is quite another matter.

You might want to read a little more about Ogle's technology if you're really concerned about an energy crisis (that idea, crisis or not, is a real money maker).

Thu, 12/22/2011 - 09:52 | 2003814 Flakmeister
Flakmeister's picture

You really should post at Yahoo! if you are going to post dribble like the above....

What fraction of world reserves do private oil companies control?

Did you get your petroleum engineering degree from the Easter Bunny?

Any conspiracy theory has to make sense, yours doesn't.... Producers would be selling any secret supply of oil into price strength...

If you believe any of the crap you wrote, you are an utter moron....


Thu, 12/22/2011 - 14:20 | 2004563 Cadavre
Cadavre's picture

Thank you for that suggestion - and - I love your classic implementation of the well worn, but somewhat less than clever "dribble" cliche. I am betting you make liberal use of such flowery adjecto-adverbiums like "moron" and "cockroach" when you're really on a roll. Blog girls get juicy hot when they read that stuff - you won't be lonely for long that be for sure country boy.

I did not know oil companies "control" oil reserves, I thought, but be sure to correct should I stray, that geophysics, not geophysicists, mind you, controls oil reserves.

Do not have a degree in petro engineering, and son't work for an oil producer - but I do own API certified copyrights, as well as EPA certified copyrights for production and process control applications being used in the the oil patch.

Any conspiracy theory has to make sense, yours doesn't.... Producers would be selling any secret supply of oil into price strength 

My dear country boy, up your iodine intake: A good extortion is a sustainable extortion.

The weakness of this particular position of yours, country boy, is the assertion that man controls geophysics. The only thing men control are the illusions that gave cause to that bag of 120 March deliveries you got stashed in in `jo mama's oldsmo-up-chuck-mobile you seem so desperate to story up for a conversion,

If you believe any of the crap you wrote, you are an utter moron.... 

You did use the word "moron" - you're so sensitive country boy. Allow the suggestion that a quick cheap fix for an obvious "small man" conundrum would be to put a sock or two in the crotch of your long johns for you head to the cracker barrel juke joint for a dose of sour Pearl beer and them not to fat and not to pimply girls picking their noses at the end of the bar.

"Utter" did you really say that on your own or did you have to dig through a thesaurus - it's - it's perfect - and you are - indeed by cracky - a Country Boy in the purest sense.

We who are conscious salute you!



Tue, 12/20/2011 - 00:47 | 1996676 shutdown
shutdown's picture

Why are oil prices remaining high in the face of a barnburner of an economic downturn?  Simple.

Four bbls burned for every bbl discovered, that's why. I mean, why do you think we're drilling under a mile of ocean, burning half our corn crop and tilling Canadian forests for tar sand oil? It's because the good stuff, the cheap oil is all gone. Forever!

The worlds one-time endowment of oil is half burned ... and the second half will be burned far quicker. It took tens of millions of years to produce and we've ignited it in many, many fantastic, ingenious ways over the past hundred years, or so.

How future historians view this? They won't. There will be no human history when it's all (mostly) gone.  

Tue, 12/20/2011 - 00:50 | 1996701 Caviar Emptor
Caviar Emptor's picture

The irony: shale and deep sea oil is only profitable north of $80-85. Preferably higher. That puts a floor under prices as new supply will stop comoing on line with any price dip. 

Tue, 12/20/2011 - 00:56 | 1996718 TruthInSunshine
TruthInSunshine's picture

I don't know whether the expert was speaking truthfully or not (though he sounded convincing), but BBC/PRI ran a story on Brazil's newly discovered offshore oil deposits, which are literally down below 7-8 miles (the oil, and not the well points, necessarily) of water, sand, bedrock and God only knows what else, and he was saying that the economists and geologists working in Brazil's government, at Petrobras, and outside experts retained are having extreme difficulty determining how to set the price for determining when it's reasonable to tap these reserves, because of the massive expense (they'd be at record or near record depths in many locations) involved in doing so.

Tue, 12/20/2011 - 01:07 | 1996750 Caviar Emptor
Caviar Emptor's picture

True. There are a number of issues, but as a base case it's been said that even Saudi oil's profit point is above $70-75. And that's what's left of "low-hanging fruit". Only it's not anymore since even they now have higher production costs than before: they're fraking, drilling horizontally and also going after the dense grades that are hard to extract. 

As for anything deep water (and another rig capsized just this week off Russia), tar sands or shale/fraking, the costs are way higher than traditional drilling. Bottom line: it costs more energy to produce another unit of energy. And the product extracted may be more sour, dense, and less liquid. 

Tue, 12/20/2011 - 02:20 | 1996866 Freddie
Freddie's picture

No. Shale is cheaper than that. Suncor in Canada has the cost down to about $35 a barrell and possibly $30.

Tue, 12/20/2011 - 08:48 | 1997126 SelfGov
SelfGov's picture

Oh you're one of then THAI guys :) Good luck with that.

Tue, 12/20/2011 - 00:52 | 1996708 bill1102inf
bill1102inf's picture

Only the bankster written textbooks will tell the lie that high energy prices in oil caused us to switch to something else, right now, REGARDLESS of energy costs researchers are working overtime to find an energy solution knowing damn well that when energy is available for next to nothing, the people will be much better off, as well as the enviroment.

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