US recession?

[d_rawk]

On a related note with a weak dollar we could see inflationary pressures as a result of higher costs for imported products.

Those inflationary pressures are much of the reason that some of us have been hot on gold, at least for the near term. Interesting action lately, very volatile, and combined with the power shortages in South Africa, this looks like the 'both feet, gung ho!' dip.

The 2nd was Greenspan saying that he felt interest cuts were not the way to deal with this problem

Greenspan, the king of cuts, is trying to save face. Under his watch problems were continually pushed into the future. Here we are, in the future that he built. And now he is saying .. what? Essentially that he would prefer we buy up all the new homes and demolish them to alter the cost-demand relationship. It's nonsense. And Bernanke is just following the Greenspan model. Holy hell. Lower interest rates, which in turn promote a housing bubble, push the consequences off to the next guy. Good work boys. Somebody be a man and just fucking take one for the team. [edit: that was rather chauvinist phrasing. I recognize it and apologize]

The scary thing is that all but the large financials have been insulated from all of these write downs thus far. The big boys have had to deal with it, the mediums and juniors have been deferred. There's simply no way that we don't see a lot more fall out from this on the financials side. How that affects the general US economy, I'm not even going to hazard a guess. But one shoe has dropped and one shoe is being delicately pinched between thumb and fore-finger. It drops, sometime, too. Gravity is gravity.

Edited February 2, 2008 by Guest
Falling into cliche

[Biggest Fan]

What do you mean when you say 'problems were continually pushed into the future'. To be honest I think the housing bubble is not that much different than the internet bubble years back. I'm not going to blame anyone for not knowing what was up around the bend. Please elaborate a little if I'm missing something. If I would get on Greenspan (or anyone else for that matter) it would be the failure to deal with future govt. obligations with respect to welfare/social security. I believe the dollar figure is upwards 10 times are current debt roughly equal to are present GDP. Now that is crazy.

PS I really enjoy reading your comments. If nothing else I am forced to look more deeply into my own views and figure right from wrong.

[Birdy]

i just clued in who django is!

[d_rawk]

PS I really enjoy reading your comments. If nothing else I am forced to look more deeply into my own views and figure right from wrong.

Thanks, that's sweet! However, as aways, I am just blowing smoke.

What do you mean when you say 'problems were continually pushed into the future'

I am increasingly convinced that Fed intervention can accomplish nothing but to push the pain off, and to introduce additional complications. Housing bubble being but one example of those complications. I'm not opposed to intervention in the general sense (economically, socially or politically) where that intervention is well conceived and well executed. (If no-one else does, I still consider myself resident socialist, 'though I have never been opposed to free markets). But the Fed, as far as I can tell, fails on all three counts. The Greenspan model, to me, seems to only exasperate problems by ignoring natural cycles and pushing them off in interest of political expediency. It is power speaking to power. The economy lulls .. why pretend that it should not?

[Biggest Fan]

PS I really enjoy reading your comments. If nothing else I am forced to look more deeply into my own views and figure right from wrong.

Thanks, that's sweet! However, as aways, I am just blowing smoke.

I was just trying to be nice. I'm like a 'hard up dude' looking for any economics action I can get. For such an important subject to many people seem to have the old 'I do not give a flying f@ck' attitude.

As far as action by the FED I agree (somewhat) but for different reasons. At the end of the day when we all are getting near our 'retirements' we better all hope that the powers that are have done what they needed too. Otherwise it really does not matter what the FED (or anybody else) does.

[d_rawk]

I was just trying to be nice. I'm like a 'hard up dude' looking for any economics action I can get.

Haha. That's awesome. Project "Draw d_rawk back into the conversation through flattery" was a success.

So, while I'm here ...

As far as action by the FED I agree (somewhat) but for different reasons

I'm all ears!

we better all hope that the powers that are have done what they needed too. Otherwise it really does not matter what the FED (or anybody else) does.

If not the Fed, which powers are you referring to? I'm guessing the executive branch of the US gov, in which case I'd posit - for the sake of discussion - that in its cowtailing, the Fed acts as but an extension. Or is that misguided or unfair to suggest?

[bradm]

we better all hope that the powers that are have done what they needed too. Otherwise it really does not matter what the FED (or anybody else) does.

The main thing that I hope the powers that are do is put measures in place (i.e., more regulatory controls) to make sure the housing bubble-burst doesn't happen again. The bubble wasn't caused just by the US FED, there was a lot of new "engineered economics" going on in the markets, the ultimate true effect of which was pretty much ignored by the guys trading in the markets, because they were making as much money as anyone else from the trades alone (and the whole new "mortgage broker" thing, which is someone who makes money the more mortgages he arranges, because he gets paid per mortgage that he arranges, and who doesn't suffer any penalty for someone defaulting on a mortgage they shouldn't have been in in the first place). Tighter regulatory controls on the mortgage markets (both mortgages to consumers and the secondary mortgage derivates market) would have prevented the bubble regardless of what the FED had done.

Aloha,

Brad

Edited February 17, 2008 by Guest

[Biggest Fan]

bradm Good stuff. Do you think that the govt. really is going to have to do any 'regulating' or do you think that the Banks have learned their lesson. The whole idea of creation of money through debt is pretty amazing. If it were not for all of the regular people having financial problems as a result, it is funny watching the banks getting burned at their own game.

The latest twist I have heard with the present 'cheap money' is that many institutions (financial and otherwise) have not yet written off all their bad debt because it is easy to keep it on the books at this time. When the rates go up we might see a huge jump in business failures because it will be to expensive to keep them afloat. I read this in a comparison of what Japan went through in the 90's. *d jango you said it first with the FED pushing problems into the futures.

Edited February 19, 2008 by Guest

[d_rawk]

Food for thought:

(The relevance of Aug. 17 being that it was the date of the Fed's first cut)

Major Indexes	17-Aug	Today	Change
Dow	13,079.08	12619.27	-4%
Transports	4,767.98	5073.41	6%
Russel 2000	786.03	713.39	-9%
S and P 500	1,445.94	1364.71	-6%
Nasdaq	2,505.03	2350.11	-6%
CAC	5,363.63	4,855.10	-9%
DAX	7,378.29	6,702.84	-9%
FTSE	6,064.20	6,046.20	0%
Shanghai	4,656.57	3,291.56	-29%
Hang Seng	20,387.13	23,878.35	17%
Nikkei	15,273.68	13,146.13	-14%
Commodities and Related Indexes	17-Aug	Today	Change
Gold	666.8	946.5	42%
WTIC	71.82	114.8	60%
Silver	11.8	18.31	55%
Copper	314.75	394.4	25%
CRB	306.15	418.76	37%
Dow Jones Commodity Index	164.21	212.74	30%
HUI Index	306.19	475.16	55%
Platinum	1233.2	1986.4	61%
GS Ag Index	294.88	442.14	50%
DBA	25.42	39.47	55%
Heating Oil*(approximate)	195	325	67%
Unleaded gas*(approximate)	190	290	53%
Nat Gas*(approximate)	5.5	10.44	90%
Propane*(approximate)	115	155	35%
Other Indexes	17-Aug	Today	Change
Consumer staples	26.23	28.11	7%
xlf	32.39	25.46	-21%
nat gas index	482.32	675.07	40%
Currencies	17-Aug	Today	Change
USD	81.4	71.39	-12%
EURO	134.87	159.36	18%
CANADIAN	94.06	99.89	6%
SWISS	82.88	99.99	21%
Aussie	74.49	93.97	26%
Yen	85.86	98.17	14%

[d_rawk]

WSJ: O'Reilly Gets a Lesson in How the Oil Market Works

April 29, 2008, 4:49 pm

‘Middle Digit’: Fox’s O’Reilly Fumes at Big Oil

Posted by Keith Johnson

Solving America’s energy challenges

obviously means overcoming a phalanx of obstacles. But the most

pressing might be the most basic: understanding how energy markets

actually work.

Politicians on the campaign trail clearly, um, struggle with this.

Witness their simultaneous enthusiasm for gasoline-tax holidays and

calls for a tough cap on greenhouse-gas emissions (which would mean

higher energy prices).

O’Reilly: ‘They can charge whatever they want to charge, correct?’

Last Wednesday, Fox News’ “The O’Reilly Factor” set out to determine

why oil and gasoline prices are high (as well as what will happen to

Hannah Montana). The show called John D’Agostino, the youngest vice

president of the New York Mercantile Exchange and an oil-market guru in

his own right. Full disclosure: Fox News, like the Wall Street Journal,

is owned by News Corp.

The video segment is not available on the website. But the

transcript of the interview is an enlightening window into the extent

of populist outrage at Big Oil:

BILL O’REILLY: OK, now look, in my town out on Long

Island, gasoline has gone up 75 cents a gallon in about a month, a

month and a half. Why now? Why this point in time?

JOHN D’AGOSTINO, FORMER VP OF NYMEX: Well, a couple of things. One is crude oil has been high and stayed high.

O’REILLY: Now, who’s driving that? Is that the greedy sheiks and Hugo Chavez?

D’AGOSTINO: No, no, no, I don’t know about that. What we know for a

fact is that we have a weak dollar. We have global demand that’s

staying put, no matter how much the price has gone up.

O’REILLY: We had that last year. The demands have gone up globally

since last — but let’s — wait a minute. Let’s walk through it so

everybody understands what we’re talking about.

OPEC sets the price for a barrel of oil. And they keep raising it and

raising it and raising it. Dick Cheney went over there and tried to

say, “Hey, give us a break.” They gave Cheney the middle digit. All

right? So they can — they can charge whatever they want to charge,

correct?

D’AGOSTINO: Well, OPEC sets the supply for what they can produce. The

price of oil is actually set in exchange at trades in New York and in

London, as well.

O’REILLY: Is there a guy who says $121 a barrel?

D’AGOSTINO: No. There’s a huge market. It’s filled with hedgers. It’s

filled with speculators. It’s filled with moms and dads, average

Americans. It’s a big market that sets this price.

O’REILLY: Somebody has to put the $125 a barrel on the barrel. Who does it?

D’AGOSTINO: They’re taking it from this market. They’re just like…

O’REILLY: Who is “they”?

D’AGOSTINO: The producers. They’re looking at this, just like when you

decide how much a share of IBM is worth. You look at the settlement

price in the New York Stock Exchange.

O’REILLY: The CEO of Shell or the CEO of ExxonMobil say, “We’re going

to pay $125 a barrel.” Is that what they say? I thought it was the

sheiks and Hugo Chavez saying, “We’re going to charge you $125 a

barrel.”

D’AGOSTINO: No. They’re all looking to the exchanges or the free

markets to set that price point. The free markets right now are saying

the price of crude oil is about 120 bucks a barrel. It’s been going up.

It continues to go up.

Energy isn’t like the tech bubble, or a bad stock investment, or

other markets more familiar to the retail investor. There’s an

emotional component that complicates valuation, Mr. D’Agostino says. He

says the energy industry needs to do a better job spelling out the

basics of why the U.S. is where it is.

Of course, that’s the same counterattack Big Oil has been

launching—especially during earnings season—to persuade the public and

politicians it’s not a cabal of profiteers. Refiners, in particular,

are hard-pressed to convince Americans their earnings are squeezed with

gasoline above $3.50 a gallon.

Many congressional Democrats, including Sen. Clinton, are calling

for windfall taxes on the oil industry, moratoriums on market

speculation, and investigations into how the energy markets work. Sen.

McCain’s gas-tax holiday idea contrasts with his half-decade of work

crafting ambitious curbs on U.S. greenhouse-gas emissions.

“There’s a very important and thoughtful debate to be had on energy

policy,” Mr. D’Agostino told us. “But to get there, there’s got to be a

basic level of understanding which just isn’t there yet.” Breaking down

the role of hedge funds, speculators, commodity flights and the role of

the dollar is like teaching calculus, he says. “Let’s get 2 + 2 down

first.”

[Biggest Fan]

In an interview Ron Paul was asked his thoughts on the situation and he stated that the biggest problem was the fact that the dollar was so weak. I have actually have heard that idea before but I forget where it came from. Not only was he getting on the gas prices/interest cuts but he seemed as though he believed it was not in our best interest to bail out the banking system. It seemed like he was supporting the idea of allowing the 'market' to work things out on its own. *I love that man. I could really go on about this 'gas' thing but I will give it a break for now.

Cheers

[d_rawk]

but he seemed as though he believed it was not in our best interest to bail out the banking system. It seemed like he was supporting the idea of allowing the 'market' to work things out on its own.

It's an interesting thing, that. Should taxpayer money - when most of those taxpayers have no direct exposure in the way of investments in the large financials - be used to bail out the smaller number of shareholders of a public company that made very poor decisions? Certainly large stakeholders of Bear Sterns would be inclined to say 'yes', but what of the rest of the population whose money is being used?

Or, if there wasn't intervention in a bailout package, would it cascade to the degree that it would harm those detached parties whose money was spent to prop up a drowning company?

I tend towards thinking that the bailout was a bit excessive. It also makes the conservative operating style of Canadian banks - owing to much tighter regulation, so this is where my opinion diverges from Ron Paul's - appear very attractive in hindsight.

The weak US dollar is definitely a major factor in the current high commodity prices. If/when the dollar recovers (and please, soon .. I earn in US dollars but have to spend in CDN dollars, so the weak US dollar would be killing me if I didn't hedge against it in commodities to compensate and even things out), oil prices will come back down.

I'm curious what is on your mind regarding gas? We are having a big nat. gas revival here in Canada at the moment.

[Biggest Fan]

To be honest my other thoughts on gas are relatively minor as compared to the idea of gas prices being related to the fall in the dollar value. #1 From what I heard the federal gas tax is about 5 cents... That will bring significant relief at the pump??? Besides what is that money used for.. roads and bridges. #2 Drilling. Not that I have any conformation on this but my guess even that would not bring down the prices to any major degree. A lot of the drilling only becomes worth while when the cost of gas is this high in the first place. Much like the 'fields' in Canada becoming all of the sudden 'all the rage'. The whole idea of drilling is like finding a cheaper source of drugs for the drug addict.

[d_rawk]

I agree with you on both accounts. A gas-tax holiday seems very misguided, and as you point out, would provide minimal benefit to the consumer at pump time and infrastructural damage they hadn't anticipated. I think the politicos get all of this, but are just trying to talk the talk without intending to ever walk the walk.

RE: Drilling, it is absolutely true that it is only the high oil and nat. gas prices that make the new production opportunities viable. The oil in the Bakken fields and the shale gas locked up in rock formation has been known about for many years, it has only just become affordable with > $100 barrel oil and natural gas bouncing around between $9 and $11 btu. "A cheaper source of drugs for the drug addict" is a perfect way of characterizing it .. we truly are a world of old energy addicts.

I honestly think that coal is due for an explosion in pricing soon, too. Quite controversially, it seems (I am generally met with looks of disbelief when I mention it) I am all in favour of increased coal burning in NA. In my mind, it goes like this: higher energy costs in NA due to coal reduction -> increased reliance on manufacturing in other parts of the world with cheaper energy costs due to coal burning = greater accumulative global pollution due to freighting (at some estimates 60% greater pollution, with the same net amount of coal consumed) -> higher global pollution and higher concentration of that pollution concentrated in the developing world -> less demand for greener sources of energy in NA as the consequences have been temporarily pushed off -> protracted timespan in which we rely on coal and other dirty energy without demand drivers to bring cleaner sources of energy down to price parity because we don't see it

Let's bring the coal and such home, reap what we sow, and have incentive to move forward quicker without doing all the auxiliary damage in the meantime. If I'm the one burning it, I want to be the one breathing it.

At these prices though, we do have some temporary alternative, which is why Saskatchewan, North Dakota, and the like are going to be rolling in money over the next little while. But like you say, as soon as the increased supply reduces the cost, they become unaffordable all over again and we are back where we started. In the meantime, though, us addicts have gotten our fix.

[Biggest Fan]

Two other the ideas about oil not worth mentioning... #1 Much like nuclear power plants in the USA there is not enough support to build oil refineries. From what I have heard you cannot blame this one on the oil companies. To much public support against it to happen. #2 I read this one in Newsweek () one of the biggest problems with the oil supply results from inefficient state run companies that control it. To a high degree the oil production is located in countries who use the profits from the oil as sources of revenue for 'what have you'. Thus not enough money is reinvested back into the 'means of production'. In doing so these 'sytems' are not running as well as they could (avoidable shortages). *Not sure how true it is but makes for one heck of a story.

[Biggest Fan]

Could you please elaborate... "I tend towards thinking that the bailout was a bit excessive. It also makes the conservative operating style of Canadian banks - owing to much tighter regulation, so this is where my opinion diverges from Ron Paul's - appear very attractive in hindsight."

Edited May 3, 2008 by Guest

[d_rawk]

Could you please elaborate... "I tend towards thinking that the bailout was a bit excessive. It also makes the conservative operating style of Canadian banks - owing to much tighter regulation, so this is where my opinion diverges from Ron Paul's - appear very attractive in hindsight."

I meant conservative in the fiduciary rather than the political sense. It may be a bit myopic of me to suggest that this is actually the result of (small 'l') liberal regulatory policy, rather than just a cultural difference.

Of the big five, only TD came out of the ABCP episode unscathed, but only CIBC - always the risk taker, and often finding itself in trouble - was really mired (by our standards - nothing even remotely comparable to what happened to many US financials)

One of the frequent complaints levied against Canadian banks is that they are over-scrutinized and over-regulated (particularly in that merger attempts are continually rebuffed), but one of the characteristics of Canadian banks seems to be their risk aversion. In my mind, these two qualities are conflated, but that may just be a quirk of mine and I am hard pressed to demonstrate it with concrete examples. Certainly there are many calls for even tighter regulation now, given the 'credit crisis', despite the Canadian exposure being relatively shallow.

[d_rawk]

From beearly.com (pdf here)

Eric Sprott weighs back in on oil and peak oil

Although it’s been a year and half since we’ve written an article devoted to the Peak

Oil/Hubbert’s Peak theory, rest assured we haven’t forgotten about the subject. Quite the

contrary, the topic is alive and well and currently playing at a theatre near you. When we

first wrote about Peak Oil exactly four years ago (“Slipping and Sliding Down Hubbert’s

Peakâ€, April 2004), there were those who thought we were off our rocker. After all, the

price of oil back then was $35 per barrel and, save for a handful of visionaries, the problem

of imminently peaking global oil supply was on nobody’s radar screen. How things have

changed since then! We believe there is no more compelling vindication of the Peak Oil

theory than the situation the world finds itself in currently. Namely, in the midst of a global

financial meltdown resulting from the popping of the credit bubble, a recession in the

world’s most oil-intensive economy, and housing prices that are falling throughout the

world, here we are with oil prices hitting record highs topping $115 per barrel, up $30 in the

past three months and almost doubling over the past year. Who would have thunk it? The

tie between economic cyclicality and the price of oil seems to have been thrown to the

wind.

We believe only Peak Oil can explain this phenomenon, and as such are writing this article

as an update to what we’ve already written about in the past, taking into account recent

developments. Although there are those who blame high oil prices on a combination of US

dollar weakness, geopolitical risk, and speculation, we believe the real problem is one of

peaking oil supply. Our main argument, and the argument of those who are expert on the

subject, has always been that, at its core, Peak Oil is all about the decline rate of producing

conventional oilfields. The reality of decline rates, which we estimate average somewhere

around 8% per year for conventional production, impose a mathematically insurmountable

hurdle to the prospects for continually rising oil supply. It’s just not in the cards to overcome

the loss of 6 million barrels per day of production each and every year when significant

discoveries just aren’t there to make up for the shortfall, let alone contribute to rising global

production. Peak Oil is set in stone – the question is not if, but when.

We believe, and recent data continues to suggest, that Peak Oil is here and now. For this

reason, it comes as no surprise to us that optimistic projections made a few years ago on

the future production of key players in the oil market have been way off the mark. Let’s

take Russia as the first case in point.

Having recently overtaken Saudi Arabia as the

world’s largest oil producer, many forecasters have heralded Russia as the non-OPEC

saviour of the oil market, with production expected to grow about 3% per year for the next

several years. Last week, the International Energy Agency (IEA) reported that Russian oil

production in the first quarter of the year fell 1% compared to the first quarter of last year –

the first reported decline in 10 years. This represents a 400,000 barrel per day swing from

what has been expected which, needless to say, is quite shocking for the oil market. As it

turns out, even Russia isn’t immune to the impact of decline rates.

The decline in Russian

production is largely being attributed to aging Western Siberian oilfields, which are likely to

experience (if they aren’t already doing so) the same type of depletion as has already been

seen in Prudhoe Bay, the Gulf of Mexico, and the North Sea. According to a Lukoil

executive, the Russian oil industry will need $1 trillion of investment over the next 20 years

just to maintain current production of 10 million barrels per day. Conclusion: Those who

are expecting Russia to save the world from Peak Oil are likely to be greatly disappointed.

From the OPEC side of the equation, it is Saudi Arabia that is supposed to be the saviour

but we believe, on this front, there is also likely to be disappointment. According to the IEA,

Saudi Arabian crude oil production was 8.5 million barrels per day last year, expected to

increase to almost 15 million barrels per day over the next 20 years. Much hope is being

placed on the start up of the Khurais project next year, which promises to have a

production capacity of 1.2 million barrels per day. But due to the complexity of this project,

which will involve massive water injection due to low reservoir pressure, much uncertainty

still remains. It cost $15 billion to develop this field, 2.5 times more than initial estimates of

$6 billion in 2005. Such seems to be the case with all new projects, such as Sakhalin in

Eastern Russia and Kashagan in Kazakhstan, with costs soaring through the roof, often

multiples of initial projections. But regardless of whether Khurais lives up to its billing,

recent pronouncements by Ali Naimi, the Saudi oil minister, insinuate that there are no

plans to increase oil production capacity beyond next year.

In a similar vein, Saudi

Arabia’s King Abdullah, in a recent speech, suggested that he wants to preserve the

nation’s oil wealth for future generations, saying “Let them [oil reserves] remain in the

ground for our children and grandchildren who need them.†This, by our thinking, would be

a smart move. After all, under a Peak Oil scenario, oil will be a much more valuable

commodity in the future than it is now even at today’s record prices. Furthermore, it should

go without saying that if both Saudi Arabia and Russia (or even one for that matter) should

disappoint the oil markets, then Peak Oil will happen much sooner than anyone expects,

and the expectation of 100 million barrels per day of global production by 2015 will prove to

be yet another overly optimistic projection.

In fact, if Peak Oil proves to be true, global oil production by then could be much less than it

is today. If the US experience is any indication, after production in the lower-48 states

peaked in 1970, within 20 years US production had fallen by over 40%. Rather than the

100 million barrels per day the world expects by 2015, we may only have 70 million barrels

per day. Such a scenario is not what the markets currently expect, even at today’s prices.

Nobody is going there. It would be disastrous. But the example of Cantarell shows how

precipitously production at aging oilfields can decline. Once the second largest oilfield in

the world, producing 2.2 million barrels per day in 2004, Cantarell is now a shadow of its

former self with the latest data showing that production has plummeted to 1.2 million

barrels per day.

Last year alone Cantarell production fell 18%. In the first quarter, Mexico

as a whole reported a fall in production of 7.8% over the first quarter of last year and, more

importantly, a fall in exports of 12.5%. Which shows another phenomenon that is

detrimental to global oil supplies. Thanks to rising oil prices, the wealth effect on oil

exporting countries, such as Russia and Saudi Arabia, is causing their own internal

consumption of oil to increase, resulting in even less oil available for export to the oildependent

developed world.

It’s worth noting that 80% of the world’s oil production comes from fields that were

discovered before 1970, the vast majority of which are aging giants in decline. New

discoveries, as promising as they may be, can hardly put a dent in this. Much ado has

been made over the recent announcement of the Sugar Loaf discovery in Brazil. On claims

by the Brazilian government of 30 billion barrels in place, it is being heralded as the largest

discovery in 40 years. Analysts have since opined that the Brazilian government’s claims

are likely exaggerated. Furthermore, like all new production these days, this oil will be

expensive to extract and will doubtless be subjected to delays and bottlenecks just like

everything else. But even if there are 30 billion barrels here, it would equate to less than

one year of world oil demand. It won’t change the peak one iota. New discoveries and

projects are well and good, but it’s the state of the world’s aging oilfields that will ultimately

prove to be the harbinger of Peak Oil.

According to IEA data, conventional oil production has declined since 2005, which

postmortem may show to be the start of the peak for conventional oil. Many believe that

unconventional production will step in to not only make up the difference, but increase

global production. However, as the Canadian oilsands experience shows, unconventional

production opens up its own can of worms. The costs of oilsands projects are

hyperinflating with each passing year, continually driving up the cost per barrel. As has

already been documented, there are serious environmental concerns. Furthermore,

oilsands use an enormous amount of energy in the form of natural gas, which may

eventually be in shortage. Significant quantities of greenhouse-causing methane are being

released into the regional environment and the atmosphere as a result of the process.

There are concerns of excessive water use. Unconventional production, though necessary,

just isn’t as quick and easy as conventional production. There is a big difference between

an unconventional barrel and a free-flowing/low-cost conventional barrel – a difference that

often is not fully appreciated by those who believe that unconventional will save the day.

Although Peak Oil is a story of supply, the demand fundamentals of oil will only amplify the

pending shortage. For the first time, crude oil consumption in the emerging markets of

China, India, Russia and the Middle East will exceed consumption by the US this year.

Economic growth and skyrocketing car ownership in these regions, which have a

population eight times greater than that of the US, are accelerating global demand for oil.

In China alone, automobile demand grew by 20% in the first quarter. The Chinese are not

only buying more cars, they are buying bigger cars. Woe to a peaking oil market if the

developing world should come anywhere near to approaching the oil-intensity of the

developed world. Even without Peak Oil, oil shortages are already in the making.

In the interim the stock markets may continue to merrily rise, oblivious to the economic

dislocation that an oil shortage will inflict, particularly in the US. For reasons we've written

about many times in the past on the current financial meltdown, we believe the US is

already effectively bankrupt, and would only be more so in a Peak Oil world. In our opinion,

it’s only a matter of time before the US stock markets are overcome by the reality that is

Peak Oil.

Nothing about new extraction technologies, though, which - if they live up to their promises - could double recovery rates from 10% to 20%. Sprott owns some Petrobank in his small cap equity fund, but no mention of THAI technology here.

[d_rawk]

#1 Much like nuclear power plants in the USA there is not enough support to build oil refineries. From what I have heard you cannot blame this one on the oil companies. To much public support against it to happen

True that. There is very little incentive for new refineries to come online, the financial incentives just aren't there. High crude oil prices, being an input cost, hurt the refineries severely. I'm not sure how much it has to do with 'public support' as it isn't a state run industry .. oil costs are high, gasoline prices are high but not high enough yet to compensate. Who wants to be a refiner these days?

Unless you mean the public's unwillingness to pay more at the pump, in which case, yeah, I think that does have something to do with it.

#2 I read this one in Newsweek () one of the biggest problems with the oil supply results from inefficient state run companies that control it. To a high degree the oil production is located in countries who use the profits from the oil as sources of revenue for 'what have you'. Thus not enough money is reinvested back into the 'means of production'. In doing so these 'sytems' are not running as well as they could (avoidable shortages)

Probably true, but debatable. Obviously oil extraction has been nationalized to various degrees in various contries .. Venezuela, for example. I am not at all a Chavez fan, but inefficiency can be hard to gauge in this regard where proceeds from state run industries are re-invested back into a public infrastructure. What looks inefficient to the North American looking at a rising cost per barrel may actually be enormously efficient for someone reaping the benefits in health care or infrastructural investment. And Venezuelans only pay 0.12 - 0.14 a gallon.

Unless the US decides that it wants to start drilling in Alaska, it is simply going to have to come to terms with the fact that it isn't the only player in the game and that some places have divergent priorities.

[Biggest Fan]

Some numbers on gasoline I thought I would share... .02c the amount gas stations make per gal. .05c the amount oil companies make per gal. .18c the fed tax per gal. .40c the avg state tax per gal. Over 50% of the upward move of the cost of gas tied to the drop in the value of the dollar. 370 million of cars in China v. 240 million in the USA, with China adding 100,000 new cars every day. The increase of oil consumption up over 100% in China (4% in India) v. the USA. I guess we neeed to get use to higher gas prices. P.S. General increase in usage of mass transportation. Higher gas prices not 'all' that bad I guess. I would love to hear the impact of higher gas prices on food prices.

CHEERS

Have a Great Weekend

Edited May 30, 2008 by Guest

[d_rawk]

Hey BF, glad to see you back around. Thanks for the numbers.

Fuel costs are certainly having an impact on food prices and account for some of the sharp rises above and beyond the dollar decline and/or inflation, as far as I can tell (we are seeing them here in Canada, too, despite a different economic climate, and seeing them worldwide), but don't have any useful figures handy. Wish I did, I'd also love to know the extent of impact, broken down in a useful way. Please share if you come across anything.

Loving the increase in mass transport. I'm hoping that once the US comes out of its period of electioneering, there will be some real public conversation about conservation, which right now it seems even the dems aren't willing to talk about. (Instead preferring, it seems, to condemn 'speculators' was 'profiteering oil companies' was 'declining dollar' was 'OPEC manipulation' was 'the terror premium' ... the excuses are running out as each is proven false. 87 million barrels a day demand, 85 million barrels a day supply. It's really that simple, but no-one dares utter the 'C' word)

[d_rawk]

Kanada Kev has put oil back on my mind (geez, thanks Kev!). Since BF and I pretty much usurped this thread as the 'energy cost' thread, figured I may as well put this here.

China to raise gasoline, diesel prices 18 percent: sources

Thursday June 19, 10:50 am ET

BEIJING (Reuters) - China will announce a surprise increase of about 18 percent increase in retail gasoline and diesel prices effective from Friday, the first increase in eight months, two industry sources told Reuters.

"Yes it's real. They are going to raise the prices. We were told to wait in the office to receive the official notice," said a fuel sales official with top refiner Sinopec Corp (HKSE:0386.HK - News).

The sources said gasoline and diesel prices will rise by 1,000 yuan ($145.5) per metric ton.

China last raised pump fuel prices in November.

The move in November took many market watchers by surprise as Beijing has repeatedly vowed to rule out "near-term" price increases to fight decade-high inflation.

Oil prices fell $3 a barrel on Thursday on the news because demand from China has been one of the main factors driving oil prices to a record near $140.

The talking heads on CNBC et al. are working overtime to make the case that this means declining oil/gas prices. I think that they are out to lunch. Has no-one heard the protest from Chinese citizens about needing to visit 6-7 gas stations in order to fill their tanks because of the rationing necessary to make the subsisdies workable? This will increase demand by increasing availability as the reigns get loosened, IMO, not decrease it. Many Chinese have said that they would gladly pay more if they could just get what they need to get through the day.

1000 new cars hitting China's roads every day. This will not stem that.

This will hurt Walmart. And your local dollar store may go the way of the old 5 and dimes. Those who depend on cheap manufacturing and labour costs in China are going to hurt.

But the price of oil? No, sir. No.

[d_rawk]

I honestly think that coal is due for an explosion in pricing soon, too. Quite controversially, it seems (I am generally met with looks of disbelief when I mention it) I am all in favour of increased coal burning in NA.

Slight bit of bravado here (sorry!) but I can't help but point out that since I posted that last month, coal prices have tripled, and Canadian coal stocks, at least, have jumped a minimum of 50% and all the way up to 150% - 200%.

Coal baby. Like it or not.

[Biggest Fan]

d jango I would love to read about the gas rationing in China. I knew that China subsidized gasoline but had never heard that end of it. Some very good 'old school' free market stuff going on over there. * As far as taking over the thread... at this time beyond 'housing' it seems that the price of 'energy' is the only other aspect having a major impact on the economy.

[Schwa.]

Cocoa is where its at, just broke 3100 this week. Futures were looking pretty good too....like +60 each quarter. GO SHORT!!