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broken clockSometimes you just have to stand in awe and wonder before the all-knowing wisdom of The Market. Common sense would say: Hurricane Gustav (even considering the fact that it never achieved its advertised category 4 status before landfall) is likely to result in 40% of US Gulf of Mexico oil production being taken off-line for 30 days, with longer outages for some rigs, terminals, and refineries; therefore, given the fact that fuel supplies in the US are already tight, this is a good time to load up on oil futures.

But Noooooo. That’s not how the market works. Because the expectation of storm damage was higher, Monday’s trading was actually dominated by a sell-off.

This tells us just how important the market and price signals are in helping us prepare for the inevitable decline in world oil production. To wit: not very.

When the oil price was above $140 and commentators were forecasting a continuing spike up past $200, it was easy for Peak Oilers to feel vindicated and to hop on board the giddy Ferris wheel ride. Newspapers, television, NPR—everyone was talking about Peak Oil.

But now as the oil price drifts toward $110 or maybe $100—even though this is still a historically high price range—the excitement is over. Page views on Peak Oil websites have fallen. All that talk of the party being over was just so much scaremongering.

The price of oil is a single number. The media want information that can be summarized in a short phrase. But reality is complicated. World oil supply is only understandable in terms of the production histories of dozens of countries, thousands of oil fields, and decades of trends in discovery and depletion.

Moral of the story: In the task of waking humanity up to the plight of resource depletion, the market is not very helpful, even if it occasionally does give useful warning signs. It’s a bit like the broken clock that tells perfect time twice a day.

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8 comments

Huricane and oil prices

From: whipstock, Sep 7, 2008 04:58 AM

This is from a financial news letter writer named Doug Casey on why anything less than a category 4 does not impress the markets.

http://caseyresearch.com/displayCcs.php?e=true

You may have to go to: Archives then Sept 2 2008.

Cheers,

Jim

Green Urban Perspectives contest

From: Ken Ott, Sep 4, 2008 01:55 AM

Hi Richard,

Nice commentary on our temporarily flat earth.

Shameless plug here- I'm looking for short pieces about living green in one's gray city. I don't like to call it a contest, but published writers will "win" $100, enough for a barrel of heavy sour, or 10 servings of sweet and sour. Runner ups may receive something else.


http://www.sustainlane.com/us-city-ranking/green-urban-life-submissions....

Would be great to hear from you or anyone else peeking into or peering out of the Institute.

All the best,

Ken

Markets

From: Antius, Sep 4, 2008 01:34 AM

Markets tend to respond only to short-term disparities between supply and demand. Now that high oil prices have tipped most of the OECD into recession, demand for oil has fallen slightly and the price has stabilized. This is clearly a temporary phenomena and the persistence of prices $100>/barrel will impede recovery.

As people become desperate, they tend to focus more intensively on the short-term and tend to be more influenced by wishful thinking.

RH's thoughts on Khursaniyah?

From: Harel B, Sep 3, 2008 05:06 PM

What do you make of "Saudi Arabia has started pumping oil from the 500,000 barrels per day Khursaniyah oilfield, a source at state oil firm Saudi Aramco said today"? (http://peakoil.com/article42351.html)

The field is a "500,000 barrels per day field" but they don't say what rate is flowing as of right now, today.

They do say "The oilfield is the largest single increment to global oil production for several years and was initially due to start up in December"

Interesting.

December = after the US election. Now = before.

Is this big enough to make a difference? If you can't reply now, maybe after more information comes out on this and other factors, am curious how big a factor Khursaniyah is on supply (and prices) and any other factors, geolgical, weather, or Bush admin manipulation or other factors, on the supply of and (less important to mother nature but alas, perhaps the top importance in politics and elections) on the price of crude (and gas).

Thanks for any info now or in the future, on these issues.

-HB

http://EconomicDemocracy.org

Oil and goats

From: Yair Wallach, Sep 3, 2008 01:50 PM

This reminds me of a joke.

A Jew comes to the rabbi and says: rabbi, my wife is driving me nuts, the kids don't stop fighting, and my mother in law is living with us, my home feels like a madhouse, I'm going crazy, what shall I do?

The rabbi says: Get a goat, and put it in the living room.

After a week the Jew comes back, saying rabbi, please help me, my situation is terrible, the mother in law, the kids, my wife, and now the goat - it's eating the carpet, we have no space for anything.

Then the rabbi says triumphantly: now get rid of the goat.

And of course the next week the man comes back thanking the rabbi for his kind advice, as now they have much more room at home and enjoy peace and quiet without the goat.

An unfullfilled catastrophy makes even a dire situation looks great.

Its all about the election

From: nika, Sep 3, 2008 07:20 AM

I have learned that when it comes to the current administration, cynicism has no real meaning.

I think one has to admit that the free market isnt and that it is a tool instead.

Right now, as China chugs back to life on overflowing stockpiles from the "quiet time" during the olympics, the spread between supply and demand allows for a little resilience, some space for "good news" oil price wise during the republican convention.

I am sure that they will work hard to keep it on this downtrend or stable (and not upward) in the remaining weeks before the election.

After that election day, "free market forces" may actually pertain.

The chaos that we will see as we slide into election day is particularly unpredictable this year but that is to be expected.

I am wondering what sort of chaos, some new sort of hellish landscape, will emerge should Obama/Biden win.

I am sure there will be hell to pay by the electorate should they win by any margin.

Building resilient communities anyway

From: Randy White, Sep 2, 2008 06:08 PM

Richard,

As a Peak Oiler with expertise myself, I say "Hooray!". We are using the extra time of collective normalcy to build an even more resilient community here in Portland.

Bright Neighbor was initially dreamed up as a "Peak Oil" crash application that communities could deploy out of the box. It comes loaded with ride sharing and resource sharing capabilities, and is focused on the hyper local level (neighbor-to-neighbor).

We are seeing success in bypassing the meme of "Peak Oil" and focusing on strengthening our local economy, food system, communications system, resource sharing system, and community connector.

Granted, people are happily biking right now, but Portland winters are cold and wet. I think friends will be playing a lot more board game nights and playing YouTube Theater. Other than initial setup costs, It's free.

I am just wondering what the powers of the world are going to do about the Iran situation - people have seemed to let it slide.... the question is will military action occur against Iran? That is when the market would completely shit itself.

Shortage on Wall Street

From: Nonzeroone, Sep 2, 2008 04:58 PM

Richard,

Have you ever read Panic on Wall Street, by Robert Sobel? He does a great job of exposing the insanity and il-logic of the market. As a market watcher, I have noticed lately that there DOES seem to be a certain correlation between the type of news/events and the movement of the markets: if the news favors the particular index, stock or commodity, it sells off in the short run then runs up--substantially--shortly thereafter--and vice versa. To me, this is apparently the result of there being no true investors left in the market, only manipulators--who, perhaps, understand, as do you, that we are headed for a contracting world economy, and one needs to make hay while the sun is shining...

The Logic of the il-logic:

It seems there is an implicit--unidirectional--arrangement between the financial "news" shows and the possessors of all the money; that is to say, the talking heads on CNBC are required to explain every move in the market--and thus they attempt to; and the manipulators put prices in motion to lure retail investors (greater fools) in--or scare them out, thus enabling themselves to establish substantial positions; once those positions are established, they overwhelm the market with a burst of buying or selling, thus re-aligning the movement of the stock or commodity in sympathy with the news that should have originally driven it, all the while knowing they can count on CNBC et al to explain why the movement is occurring--an explanation which will reengage the greater fools' interest...and does.

Take oil: it went down because the manipulators have enough money to overwhelm almost any buying frenzy for a short period of time; once they've created the illusion that "all is OK" and oil is not going to go through the roof, they start accumulating positions. Once the positions are accumulated, they then jam the market up with a burst of buying that overwhelms the supply, the mood is thus thrown into uncertainty, the talking heads come on and "explain" how "there was just a delay" in the action that should have occurred, and that "the market always comes around, and that it's time to buy"--or "Drill, drill drill," as one particularly blind bull likes to rant; during the fall of the NASDAQ, it was "buy, buy, buy"--all the way down...

Utter nonsense. Talk about wasted lives...oh to have wasted your life as a CNBC puppet explaining things that have only one real explanation: manipulation.

The talking heads should just begin every sentence with: "We think the manipulators are using the just-released government statistics to create the impression that..."

I would say that oil will probably take another run upward beginning tomorrow...or as soon as the positions have been fully re-established.

However, if you want to make real money on Wall Street, Short the Presumed Integrity (people and system)--talk about a bubble of historic proportion; the whole damn world has bought that lie--to the tune of trillions in worthless paper...