Peak Oil Bulls Out of Their Elements

Oil and commodities have officially slipped into a bear market. Speculators, hedge funders, pension fund managers, and peak oil/peak commodities bulls bet the bank that this would be the year for peak oil to manifest. This would be their year to strike it rich.

Global supply is now creeping back into surplus.

The Saudis are adding 500,000 bpd. Deepwater projects are coming on stream off the US, Mexico, China, and Africa. The Caspian is cranking up a gear. Non-Opec will add 2.2m bpd over this year and next, says the International Energy Agency.

"Demand destruction" has reached tipping point. Americans drove 3.7pc fewer miles in May, year-on-year. Thirteen hybrid car models went on sale in the US last year, exploiting the new lithium ion battery technology.

China, India, and rising Asia - the chief victims of the oil spike, with energy use per unit of GDP four times Western levels - have begun to cut fuel subsidies. The IEA said this alone would trim demand by 100,000 bpd.

Above all, the economic sick list is lengthening. Japan's industrial output fell 2pc in June; petrol sales slumped 8.9pc. China's purchasing managers' index (CLSA) fell below 50 in July.

If this turns out to be accurate, manufacturing output is now contracting in China. The closure of Beijing's smokestacks before the Olympics may have contributed, but slumping export orders led the slide.

Mingchun Sun, Lehman Bros' China expert, says the country is at risk of a "vicious circle" as crumbling asset prices combine with tight credit, a strong yuan, and the global downturn.

As of May, property prices had fallen by 19pc from their peaks in Guangzhou, 9.5pc in Beijing, and 9.4pc in Shenzen. They are still falling. Indeed, China's house price upset may soon match the Anglo-Saxon, Baltic, and Club Med debacles.

The entire economic system of the North Atlantic is now in or near recession. European Central Bank insiders are saying the eurozone may have contracted in the second quarter. Europe's credit crunch is getting worse, not better. _Source_via_POD

It is one thing to lose all of your own money on a foolish peak oil bet. But to lose the money of pensioners who trusted your fundamental investment soundness, is the mark of an irresponsible neotenate. Remember: all those things you think you know? They just aren't so.