>Musings On $100/Barrel

>Those futures traders are so cute! It’s just like playing Monopoly:

Crude oil futures for February delivery hit $100 on the New York Mercantile Exchange shortly after noon when a single trader bid up the price by buying a modest lot and then sold it immediately at a small loss. Prices eased somewhat in later trading, settling at $99.62.

But while the trader was apparently looking for vanity bragging rights, the spike in crude prices of $3.64 for the day reflected deeper worldwide trends, including the surge in energy demand from China, India and the oil-producing countries themselves.

Aww. Bless his/her heart! I tell ya, that’s one for the grandkids, alright! Or maybe, one for eBay:

Of the trader who sent oil to $100 in New York on Wednesday, Mr. Gheit added, “He’s probably going to frame the ticket and sell it on eBay for $100,000.”

Sure, why not? It’s not like this stuff matters, or anything. It’s not like what happens on the New York Mercantile Exchange has any effect on real people. It’s all fake, right? Free hand of the market, wheee!

Am I the only one thinking these Wall Street folks are as out of touch as the Washington press corps?

Anyway, those annoying Henny Pennies over at Peak Oil have been sending me dire “How to survive $100/Barrel” screeds for months. Now that it’s actually here, I thought I’d see what they have to say:

$100 oil in itself is no big deal – its 1% higher than $99 oil. But it serves as a milestone reminder that the future is likely to be less ‘easy’, and perhaps dictated by new rules. Questions abound: will high prices bring about more production? Will high prices begin a “hoarding” phenomenon among exporters and producers? Will $100+ oil spur energy alternatives with the scale and quality of energy dense crude oil? Is this even possible? Will society start to realize the dichotomy between natural capital and financial capital? Will $100 oil reduce demand in developing countries? Will OECD oil-importing countries (like the US) take the lead on changing the cultural carrot of consumption that drives energy use?

That last question is the biggie. That “cultural carrot of consumption” keeps our economy afloat. Everything is predicated on getting people to buy an increasing amount of stuff, and the juice driving this engine is oil. As people pay more for oil, they’ll buy less stuff.

If we had half a brain we’d be preparing for this bumpy road, maybe figuring out how to use less oil and investing some serious time and money into non-carbon fuels, the ballyhooed “Apollo project for energy.” That would be nice but it won’t happen. Because our government is run by the oil companies, and they have no interest in transitioning the economy away from a centralized resource they control from oil field to gas pump to an energy source that everyone has access to, like wind, solar or even biofuels.

Because we’re about to get our asses kicked in a hellacious recession, which means oil prices will stabilize, temporarily, as we go into panic mode. By then we’ll be thinking $80/barrel is a steal, in the same way that I filled up on $2.86/gallon this morning and fleetingly thought it was a bargain.

And then things get worse:

There is absolutely no reason why oil will stay at $100 a barrel or anything close.

To emphasize how well the world’s economy is doing at the minute, the Journal points out that the IEA in Paris sees world oil demand in the fourth quarter rising by 2.3 million b/d over last year to nearly 88 million b/d.

What they don’t tell you, however, is that in August 2007 world production (all liquids) was estimated by the IEA to be 84.6 million b/d down by 854,000 b/d from August 2006. In 2006, and so far in 2007, world production has been just about 85 million b/d, some 3 million b/d less than we are forecast to consume in the current quarter.

We could of course take the extra 3 million b/d out of the world’s stockpiles, which would then be dropping by 90 million barrels a month — not really a long-term solution. Will OPEC bail us out with a 500,000 b/d increase in production? Could be, but considering that 140,000 b/d of that increase is supposed to come from Venezuela, where production has been stagnant for years, I wouldn’t count on it.

So there you have it. From the perspective of imminent peak oil, $100 oil is not something to weather for a while. It is merely a milestone on the way to still higher prices. The Journal’s bold conclusion that we can handle $100 “quite well” may be perfectly true, until you ask “then what?” and the only possible answer is higher and higher prices.

Somewhere the bubble will burst, for at the close of every day, the world’s oil reserves are 85 million barrels smaller and smaller and smaller ….

And somewhere a NYMEX trader has a souvenir of the day the big unraveling began.

Comments Off on >Musings On $100/Barrel

Filed under end of the world, peak oil

Comments are closed.