Bloomberg reports:
Crude oil may reach a record $130 a barrel this year because pension funds are investing more in commodities, said Pierre Andurand, the chief investment officer of BlueGold Capital Management LLP, a hedge fund ... "Next year, oil may rise even further to $150 a barrel."
Okay, this is a hedge fund guy who is betting the ranch on oil and probably doing his part to drive up prices. But at the end of the day, this is an issue of fundamentals -- supply and demand:
Oil companies such as Exxon Mobil Corp., Royal Dutch Shell Plc and BP Plc are finding it tougher to replace their findings and are drilling for harder-to-reach deposits while energy demand and crude prices surge to records.
Another little-discussed factor in the run-up of oil prices is the run-down of the dollar, and with it, U.S. living standards compared to the rest of the world. Thank you so much, President Bush!
Investors who are flocking to oil may be exacerbating the U.S. dollar's plunge and pushing oil prices to new highs, according to the president of Cambridge Energy Research Associates Inc.
What you have normally is the flight to dollars as a refuge, but today instead there is a flight to oil," Daniel Yergin said in an interview in Washington on March 5. "It reflects not only a weakening of the dollar, but the expectation of further weakening. Oil is a giant hedge against the dollar.
Thanks to the housing crisis, huge trade deficit, and a decelerating economy, we have a plunging dollar. That in turn has "pushed investors to buy oil, which has held its value better than the dollar. The result has been U.S. gasoline consumers being swept up in investors' flight to oil, Yergin said."
If this sounds like one of those vicious cycles in the climate, which threatens to spiral out of control, that's because it probably is.
Top 25 reasons to give a damn about climate change
Oil: enough energy to melt glaciers!
Comments
View as Flat
human power Posted 4:34 pm
09 Mar 2008
So how did the dollar lose its value? Obviously a country cannot give away all of its manufacturing base and go on a consumer spending spree and expect its currency to stand up. I think we can thank the Wal Mart mentality that has taken hold here over the past quarter century for our currency and fuel cost woes.
At least there is a BIG environmental up side here. If gasoline prices continue to climb and can maintain higher than historic levels (at $3.20 we have just reached the inflation-adjusted high of 1980), we might burn a bit less of it. And with the current recession/depression we will certainly purchase less plastic crap from China. All of this will somewhat reduce the American and Chinese carbon footprints. Additionally, Americans may just learn to live happily without the next new toy.
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Delay And Deny Posted 4:55 pm
09 Mar 2008
That was what....a month ago?
And now:
http://www.marketwatch.com/quotes/aapl
The Manhattan Declaration
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Pangolin Posted 6:43 pm
09 Mar 2008
The rest of you all go look at the recent grist thread on bicycling..
If you're a fisherman or trucker diesel prices are going to go nuts. I'm not sure marine diesels can be propane boosted but if they can't you better look to a mast and sails.
Put the Carbon Back
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gmobus Posted 2:02 am
10 Mar 2008
Dollars or any monitized currency are only symbols in a message flow that provides information regarding the uses to which we want to put the energy. Buy the SUV and you are saying put more of our energy into SUV production.
The problem with the economist's propensity to measure everything in dollars is that feedback loops like this get hidden and the 'value' of the dollar gets distorted. Add the banking (lending actually) and derivatives markets to this mix and you completely lose all connection to the reality of energy flow and its availability.
With the advent of peak oil (and other fossil fuels to follow) we see this reality more clearly. The peak of oil production has as much to do with the net part of free energy flow. It takes more energy to get what is consumed, leaving less to be consumed. Given the relationship between economic work, dollars, and energy flow inflation is no mystery. As the net energy declines everything gets more expensive in dollars, including the price of oil. The only thing mysterious about this relationship is most people's inability to see it.
Today we face a humongous debt crisis. Why? We got so used to borrowing against the future prospects of pumping more oil and digging more coal, because up until recently that is exactly what we did. Being the major power with previous good credit because we knew how to turn that energy into play toys that everybody wanted (until the Asians learned that neat trick) we could afford to import as much energy as we wanted. The only hitch was those pesky Arabs that seemed to think they owned the oil.
We have borrowed heavily against a future that will not play out according to plan. We were able to tell ourselves that we had switched, miraculously to a 'service economy', whatever that is. Now we spend energy we never really had, and won't ever get. Again, no mystery that the whole debt house of cards would eventually collapse.
And lo and behold, this comes at a time when we will need a lot more energy to do the work of adaptation to climate change. Where will the energy come from to move New York City inland? Solar panels? Wind farms off Cape Cod?
Maybe it is time to wake up and start dealing with the real reality. That means both left and right. Green and black. It is time to ask some very penetrating questions and be ready to find some, probably, inconvenient answers.
George
http://questioneverything.typepad.com/
George Mobus,
Associate Professor, Institute of Technology,
University of Washington Tacoma,
and Professional Student for Life
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Jon Rynn Posted 2:26 am
10 Mar 2008
So if the markets screwed up the oil problem, then maybe there is something fundamentally wrong with markets -- like they can't adequately price a nonrenewable commodity, or at the least the "signals" get lost, which is a pretty big problem. Ditto with the trade deficit -- to admit that the decline of the manufacturing sector would lead to the decline of the economy, and that said decline could happen because of market forces, would be to admit, again that there is something fundamentally wrong with market forces. Which there are -- they obviously can't see long into the future, especially when that understanding the future involves understanding the global system as a whole.
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amazingdrx Posted 3:04 am
10 Mar 2008
What surprises me is that most are taken in by the "free" market propaganda. And want to let them trade carbon to end global climate crisis.
Who believes that oil will suddenly shun it's exponentially rising trend line and rise in a linear fashion now? Reaching only $150 by next year?
The same people who believe ice in glaciers, ice caps, tundra entrapping methane, and seafloor methane hydrate ice will suddenly start melting in a linear trend. After proceeding in an exponential trend for decades.
The mass delusion is truly astounding. I bet this is how the dinosaurs felt before the big volcanic eruption/meteor strike that ended their reign on planet earth. Just guessing. Maybe their math skills were more advanced than ours?
http://amazngdrx.blogharbor.com/blog
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Jon Rynn Posted 4:23 am
10 Mar 2008
Yes, LTCM assumed that markets would eventually always right themselves, except that the Russian ruble did not, went into freefall, and so LTCM collapsed. There's a great book about it that I can't remember right now.
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gmobus Posted 4:29 am
10 Mar 2008
The main principle is that evolution of system dynamics and stable steady-state require an integrated hierarchical control system of which all of the above are components. We, in the US have been part of an evolutionary experiment in moving toward this kind of system but we have a long way to go. Libertarians would have us believe that the ONLY control structure necessary is the market. They are, of course, completely out of touch with nature.
George
George Mobus,
Associate Professor, Institute of Technology,
University of Washington Tacoma,
and Professional Student for Life
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Jason D Scorse Posted 4:48 am
10 Mar 2008
I teach environmental economics and blog at http://www.voicesofreason.info.
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Sean Casten Posted 4:52 am
10 Mar 2008
Consider first LTCM, or for that matter, any entity who claims to deliver above market returns. Note the phrase: above market. If you want market returns, put your money in an indexed mutual fund. If you want better returns though, you need to find a really good investment advisor (and take the chance that they might not be really good). LTCM was working off an options pricing model developed by Black & Scholes (which did win them a Nobel) which was designed to price in the value of future options. In essence, LTCM's hypothesis was that markets - which were not armed with their financial wizardry - were mispricing options, and therefore they could make money out of outsmarting the market. Turns out their economic theory was wrong, and they lost their shirts... but the market kept chugging along.
The behavioral economists note this stuff all the time. (Check out this book for the latest in a long line of them.) If economic theory works, why do people pay more to insure against losses than to bet on comparable gains? Why does increasing the price of wine cause demand to increase? All interesting questions - but again, they result from a cause no different from LTCM's: a specific business trying to beat the market (don't we all?) They may be right or wrong, but the bottom line is that a business that proves that economic theory is flawed can only exist in a competitive market... and so if you don't like economic theory, you shouldn't bash markets. On the other hand, if you like economic theory, then utility rate cases and soviet politburos are our ideal - since they both set price, supply and demand under a model that is entirely theoretical. And it shows what you get when you kick the market out of the public square.
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Jon Rynn Posted 4:52 am
10 Mar 2008
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Colin Wright Posted 4:53 am
10 Mar 2008
Of course, market forces, speculation and the falling dollar all contribute as well. But until we get a clear accounting of existing reserves and an appreciation that peak oil poses a crisis for the world economy we will continue to miss the forest for the trees.
Once we accept the nature of the crisis, then we can start working on solutions at all scales. As Jon and others have been arguing we need to rethink neoliberalism in favor of Keynesian economics which combine markets with direct government intervention and planning. Hopefully before we find ourselves on the downside of peak oil.
Where do we get the money? Well we can start by ending the Iraq War, which would bring in $12 billion a month.
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amazingdrx Posted 5:12 am
10 Mar 2008
Unregulated, insider manipulated, "free" markets bad.
Regulated, competitive, fair trading, really free markets good.
Simple enough. Now let's move on to math... never mind. Hehehey.
http://amazngdrx.blogharbor.com/blog
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naturescene Posted 5:49 am
10 Mar 2008
We have a plunging dollar thanks to the Fed's policy of lowering interest rates every other week... not because of the spectre "housing crisis" and "decelerating economy." And for those of you who don't know... lowering interest rates is Fed speak for printing more money. Aha! Inflation: the more money there is in circulation the less valuable each dollar is. (Interestingly enough, after the 3rd or 4th rate lowering, the headline on CNN was Bernake: Now worried about Inflation. That's our Fed chairman: captain obvious).
Couple domestic inflation to a global monetary system where many international currencies have been more or less tied to the dollar since the early 70s, and it's no wonder that investors are moving their wealth to the Euro, and things like oil and gold. But do rising oil prices cause devaluation of the dollar? No. The rising prices are a reflection of the weaker dollar in a market with high demand.
Another note: The U.S. still has the highest standards of living in the world. The real prices of luxury items continue to fall, so more people are able to afford them than any other time in history. The "war on the middle class" isn't a product of economic discrimination but rather that members of the so-called middle class have increased their standards for living. Today, being middle class means you have a 2 story house, a big screen TV with cable & Tevo, a car, high-speed internet, it goes on...
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Jason D Scorse Posted 5:51 am
10 Mar 2008
As to irrationality and markets....
First off, it is classical economists who are making most of these discoveries so to use them as proof that classical economics is wrong is odd. Second, 9 out 10 policy solutions involve economic reasoning since incentives matter- to say that because there are economic anomalies economic rationality doesn't matter is pure foolishness. All the behavioral economists make a point of saying that most of the time rationality makes the right predictions.
J.S.
I teach environmental economics and blog at http://www.voicesofreason.info.
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Jon Rynn Posted 5:58 am
10 Mar 2008
There is a continued litany of excuses as to why oil prices keep going up, up , up, and there are always small oil discoveries going on, such as brazil, but the trends don't look good. Prudence would dictate that we at least have a general public discussion about what to do in a world without oil. No?
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Jason D Scorse Posted 6:16 am
10 Mar 2008
As to a world without oil, absolutely we should be thinking of that. But I think you mean a non-fossil fuel based economy because there is plenty of coal to last for centuries.
As to how to best make this transition, there are dozens of good ideas many of which are discussed on Grist. Many of them have a strong economic component, whether they be Pigouvian taxes or cap and trade systems.
I support all of those as well as renewable portfolio standards, massive R&D for alternative energy and efficiency, as well as potential geoengineering solutions.
I think we're on the same page except for perhaps our understanding of how dire is the current situation. High oil prices are bad- especially when the money is going to terrorists- but it's not doomsday.
In fact, the world economy is much less dependent on oil for GDP growth- so far we have record prices and world growth is chugging along. The mortgage and financial crises are MUCH GREATER problems than the price of oil if we're talking economic growth. In fact, if we hadn't had a housing bubble we could probably shrug off the high oil prices, and the dollar wouldn't have fallen so much- further compounding the problem.
I teach environmental economics and blog at http://www.voicesofreason.info.
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Jon Rynn Posted 7:13 am
10 Mar 2008
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Jason D Scorse Posted 7:19 am
10 Mar 2008
I teach environmental economics and blog at http://www.voicesofreason.info.
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trock Posted 7:40 am
10 Mar 2008
If we take the predictions of some that we have 250 years of coal, if we increase the use of coal 2 percent a year, that turns into 75 years or less for coal because of compounding.
But I have read that the supply of coal has been overestimated. The quality of coal goes down as more is dug out of the ground. The first easiest coal to get to had some dirt in the coal, the last stuff will have some coal in dirt. Coal will continually be harder to dig out and be of less quality.
It's hard to get good numbers on this because 1) most people who study it have an agenda because they either want a lot of coal or they don't want a lot of coal 2) it can be hard to estimate how much is there until it's actually dug.
Which would be another reason we should try to use energy sources that we do know the supply of.
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Colin Wright Posted 7:51 am
10 Mar 2008
Oil discoveries peaked in the 60's (see Fig 1 here) and have been declining ever since. If you don't belive me, here is Jean Laherrere on the 10 year anniversary of his "famous" Scientific American peak oil article:The thing that we did not anticipate is the position of some IOCs (e.g., ExxonMobil) and outer oil outfits (CERA) to deny the peak of oil production before 2030, while acknowledging that the peak of oil discovery is recognized by everyone to have occurred during the 1960s.
Jean H. Laherrere, working for Total, participated in discovery of two supergiant oil fields in the Sahara: Hassi Messaoud and Hassi R'Mel. He went to explore Central, Southern and Western Australia plus parts of Canada. Later he went to TOTAL headquarters in Paris where he was in charge successively of new ventures negotiation, technical services and research, basin exploration departments and finally deputy exploration manager. After 37 years of worldwide exploration with TOTAL, he retired in 1991. He now participates with ASPO-France, writes articles and gives lectures.:
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Jason D Scorse Posted 10:10 am
10 Mar 2008
I teach environmental economics and blog at http://www.voicesofreason.info.
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Colin Wright Posted 11:49 am
10 Mar 2008
Of course, if we get a world-wide recession you could be right! But I tend to think insatiable demand growth from China and India will keep the oil price high. Keep in mind, though, that ASPO is still holding to 2011 as their estimate of the peak, and 2008-9 could be "the last good years".
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LPS Posted 12:48 pm
10 Mar 2008
Trock forwards an valid argument, which has long been the message of Prof. Albert Bartlett. And the work of Laherrere, Rutledge, and the Energy Watch Group recently have tended to support the notion that coal reserves are overestimated. Part of the problem lies with the distinction between reserves and resources, but also with what is believed to be "economically" recoverable. More compelling are Rutledge's trend lines, which are astounding in their relentless linearity. Peak Coal? 2025-2030.
Rynn and Wright hit the nail on the head. You can go to school on these guys.
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Jason D Scorse Posted 1:45 pm
10 Mar 2008
http://futures.tradingcharts.com/marketquotes/index.php3? ...
I teach environmental economics and blog at http://www.voicesofreason.info.
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Barbara P Posted 3:00 pm
11 Mar 2008
So if the dollar falls in value compared to the euro oil is becoming cheaper (or at least not so expensive) for European countries countries. And that is exactly what is happening there giving European companies an advantage over the American situation as the energy costs and oil as raw material costs are lower for the European market is lower.
Also, as oil is not getting more expensive for non-dollar-currency countries (because of the cheap dollar) oil demand will not decline!
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amazingdrx Posted 5:02 pm
11 Mar 2008
Inflation is being fed by the fed's continual lowering, weakening our currency. And because of this oil cost increase in terms of dollars, it negates the normal effect of a weakening dollar.
Normally, this weakness in our currency would make our goods lower in price in foreign markets, helping us compete for market share and boosting our economy. But our energy costs rise as our competitor's energy costs fall.
So inflation here gives our competitors an advantage over us with cheaper oil. Our weakening currency feeds further oil price increases, which in turn feeds inflation in every other sector of our economy. Another vicious cycle that increases exponentially.
Just like GHG effects and their huge costs, from ever more severe weather extremes. And GHG release and further solar absorption from ice melt, also exponential.
Meanwhile soaring fossil fuel prices are following exponential increase too. As supply and demand and oil wars drive the price skyward.
Only one way out, renewables and conservation must be subsidized as soon as possible. With subsidies diverted from fossil energy industries.
Stop this disaster in its tracks. Or else... we go the way of roman and british empire. A brief blink of the eye of human history, a short experiment with freedom that ended badly.
To be replaced by the malevolent, kleptocratic chinese and russian empires?
http://amazngdrx.blogharbor.com/blog
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