I Was Wrong About Oil, At Least In Small Part

Never did I expect that the price of oil would increase to $100+/bbl, but here we are right now at $106.40/bbl for April '08 light crude.  However, I was correct in thinking that the world would soldier on despite the oil price.  The U.S. economy is in or near recession not because of the price of oil, but because of the bursting of the housing bubble.  There are no oil shortages.  There is no crisis.  The market is working just fine.  It would be fine at $150/bbl.  It would be fine at $200/bbl.

The price is forcing work on substitutes for oil.  Within a decade, we could end up using electricity for most of our individual transportation needs.  The technology is mature enough to make the switch and it wouldn't inconvenience anybody except in the rare situation.  Maybe the price of oil would need to be higher in order to force the substitution, given that gasoline and diesel are strong products.  Of course, oil is used for very many other things -- its use permeates our economy -- but I am sure that there are substitutes in most of those markets as well.

Comments

[Dominic]

Well, Pappy said around 1980 that oil was "worth a hundred dollars".
How much would that be worth in the depreciating 2008 USD? Almost 300 now, right?

Just like I pointed out thanks to McKillop, price rises in oil (to a certain extent) actually help create economic growth.. Once *supply* problems begin, we will have an enormous problem, Houston. (And it is coming out that Russia has hit the production ceiling - I admit it took a bit longer than I was assuming..-)

Since the world still hasn't fallen off the bumpy peak plateau (except, of course, in terms of return on investment) of supply flows, we still don't know how much it's worth. Finding the ceiling might take 10years or more, til we have to start making it ourselves out of less non-renewable stuff..

So - what were the 3 things I was harping on about 5 years ago? Real estate, oil and the demand stagnation/destruction caused by faul (over-aged) demographics in most of the West, East Block and China. The demographics problem will probably kick in around 2009-2010. "Problems" resulting from Peak Oil (having, btw, nothing to do with price) are already evident in such poor places like Pakistan and half of Africa. When will this reach the US? That will probably take a few years...

By the way, real estate has been depreciating in most parts of Germany since about 1993. Demand remains high in Munich.

BTW, replacing transportation with electric (or whatever other substitutes like ethanol) will place enormous pressure on really *all* resources, especially metals.

The price spiral has begun. Stagnation too.
Stagflation anyone??

All the best throughout the next generation.

[jon]

before replacing diesel in the US, EV first has to show it can deliver the HP. your average 18-wheeler needs a lot of HP to move all that stuff, 300hp only on the very low end, sometimes up to 650-700hp. i haven't seen any feasible results like this (doesn't mean they're not there).

this country survives on the relatively low cost of big-rigging everything, everywhere, every day, on every interstate -- and the strikes have just begun in the past months, with the cost of diesel. it will be a big task to revitalize this industry.

[Dominic]

By the way, reguarding this price spiral, I would agree with the "speculation" argument from Ed Wallace:
http://www.businessweek.com/lifestyle/content/apr2008/bw20080422_520796.htm?chan=rss_topStories_ssi_5
Markets don't make all their moves because of fundamentals...

[Dominic]

@jon
"EV first has to show it can deliver the HP."
The vehicles themselves **as well as the infrastructure** must be redesigned to fit the technology (if it is indeed EV). An electric motor on each wheel, for instance. And who says that a truck has to do 0-50 in 10 seconds? If it takes five minutes to get up to speed, the fresh produce will still get to market on time, even if the fellow motorists are bothered by a (to be newly invented) truck lane..
Cheers, Dom

[Chris Stewart]

Daniel,
I think most people would say you lost the $1000 bet.

You need to give up thinking about oil and just listen to Dominic.

Your and people like you discounting the importance of getting off the oil habit and lack of reality concerning alternative energy sources really does a disservice to this nation.

[Dominic]

Now, Chris,
don't you get "carried away" there now. If we're really counting peak of all liquids for the bet, it might take decades for the statistics to catch up with the reality that prices are (partially) trying to tell us is here. BP'll be squeezing oil out of coal before it really does go "beyond petroleum" in a renewable sort of way. Part of a bet is the technicalities that go along with it too.

It is now becoming obvious to most (even Yergins??) that peak is here to stay. Daniel's point is that the markets will take care of it. The markets sure are punishing the US govt (and the world) for subsidizing ethanol right now. Soon they'll be awarding the companies **and countries** which get to renewables first richly.

And I agree with him - to a degree:-)
It's just, oil shortages (once production *really* begins to fall - which it hasn't yet!!) will have crippling effects on many regions/sectors, which could have been avoided with a bit of planning. LIKE: DoD revamping the entire military away from the use of oil!!

An aside: These price rises have been the best thing that could have happened to the world, i.e. sending a stern warning, before production really drops. Who cares what we all *think* about it. It's our pocketbook that matters..

Cheers, Dom

[Daniel Schmelzer]

@Chris: Red card -- declaring victory before the game has been decided. Even though it's not looking good right now, I still have till 2014.

The other parts of your comment are baffling.

[Laptop Mom]

There is quite a bit of excitement in the mid- section of the country as new oil fields are being brought on-line. There's that enormous field out in North Dakota, part of Wyoming and on into Canada. Lots of production. Pennsylvania has a field to be exploited. In Ohio there are new wells. New drilling techniques are making it possible for these fields to be extracted. Horizontal drilling where they drill down and then make a right angle into the shale. In upper Louisiana there is a field that is becoming promising. And if we could be allowed to, there is the off-shore drilling in the arctic which is pretty deep but a great potential field is there. The Russians are finding it on their side of the divide. Possibilities, possibilities. There's a lot of oil for everyone. And it's not necessarily in the mid-east. Brazil is finding oil off its coasts.

[Cheap Stitched Jerseys]

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[Cheap Steelers jerseys]

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[Manitra]

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