10 June 2008

High Oil Prices Lubricating Global Fault Lines

High oil and fuel prices continue to drive news headlines. Saudi Arabian oil ministers are feeling particularly uncomfortable in the midst of windfall profits, and have called an international meeting to discuss the "unjustifiable rise" in fuel prices. Why would Saudi Arabian ministers call rises in fuel prices unjustifiable?

Why do you think oil prices are high? Here is my list:
1. Low value of US dollar
2. High demand from emerging economies and oil-producing economies themselves
3. National oil companies (mostly developing world) slow to improve production and maintenance technologies
4. US Congressional foot-dragging on domestic fuels and energy production
5. Recurrent inflation and popping of oil price bubbles over the decades discourages long term investment in alternatives and infrastructure
6. Discovery of oil price bubble by pension and hedge fund managers and resultant "gold rush" to profit from it
7. Bad government policies, bloated bureaucracies, obstacles to new business generally
8. Political mischief by Iran, Pakistan, Syria, and Venezuela
9. Failure worldwide to use the latest technologies to search for and develop new petroleum resources, particularly by national oil comanies as in #3, but also more developed nations as in #4

More factors are involved, including "luddite" opposition to nuclear energy and coal to liquids etc., and when taken as a whole present a troublesome Gordian knot of causation. Certainly it is problematic that intense research and development into alternative fuels did not truly begin until the price of oil became an acutely painful economic stimulus.

How much influence does the low value of the US dollar have on current oil prices and consequent global inflation?

How will higher interest rates in Europe affect the global economic picture?

What effect do "long-only" futures contracts have on present and future oil prices? How much "blow-back" pressure does this investment bubble gambling on ever-rising oil costs put on the real oil market?

"Peak Oil" is an ambiguous euphemism which means many things to different people, similar to "Global Warming." But when you break down the meanings involved in such euphemisms, you often discover that "there is no there, there". People who are falling into the "prices can only increase" trap are repeating the classic bubble chasing mob behaviours of millions of losers before them. Too bad so many pension fund managers are finding themselves among the surging mob.

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Blogger CarlBrannen said...

Hey, if you ever imagined that elementary particle physicists are a lot smarter than you are, you might entertain yourself with this blog post:

The author is an academic with a PhD in physics.

Tuesday, 10 June, 2008  
Blogger Barba Rija said...

Al Fin, it's very simple. If the price is not right, and is completely over the top, then econ 101 would tell us that we should have billions of barrels on stock. Where are they? The truth is, from 2006 to 2007, less one million barrels per day of oil were exported worldwide. That means less oil for the importers. That's the reason why oil is at 140$. There's no other reason.

You talk big about ANWR and "evil congress", but you fail to understand that ANWR would give you a peak year of production of one million barrels per day, exactly the same amount that was lost this year on exports. So you would have bought yourself a year, congratulations. Is that your solution? Get yourself a clue.

Peak Oil an ambiguous euphemism? That means many things? LOL. It only means one thing. Peak production of Oil. Ergo, Peak Oil. It has a lot of different and complex consequences. Like Peak Oil Lite, Export Land Model, etc. These were rude models that had simple ideas that were the consequences of peak oil in our growing economy. And they are truly happening.

How much does the low value of US dollar... are you blind? A calculator is not that far off in the OS. In Euros, oil is climbing like hell too, and europeans are having a tough time in our transportation sectors.

Talk a lot of Gordian Knots at your peril. Your blinding yourself from reason, but that seems to be quite common in you. Too bad.

I only agree with you in one thing. Oil is a big bubble.

But it won't pop in the next ten years. That's how big it is.

Tuesday, 10 June, 2008  
Blogger al fin said...

Thanks for the link, Carl. Very interesting reading, including the comments.

I share your opinion of academics, by the way.

Tuesday, 10 June, 2008  

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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