You know you live in a decadent country when basic facts of life are greeted with jeers and calls for excommunication from the realm like Paul Krugman is getting pilloried for his recent NYT piece on oil price inflation. Here's the deal folks, oil is priced in dollars and to bail out the U.S. banking system America's central bank is flooding the market with record amounts of dollars. What happens when too many dollars chase too few barrels of oil? Well, believe it or not, the price of oil goes up. Now this is not a political statement. This is a statement of fact. Speculators in the oil market (and the agriculture market) are a mere subset of the irresponsible credit expansion crazy people who run the Fed. And yes, the world has hit 'peak oil.' All three of the biggest oil fields in the world are now in decline. Demand for oil is rising toward 100mn. barrels a day, while production has peaked at around 86 mn. barrels a day. Too much money chasing too few barrels means the price goes up. And the Chinese are happy to pay. Seems simple enough...
But does this stop America's pundits from trying to avoid this economic reality, that oil is probably going to $160 in the near term and $200 in the medium term? No, they love to pretend that economics has nothing to do with the price of oil going up and that it's the fault of speculators and OPEC. You see the same myopic, "What me, worry?" Alfred E. Newman thinking on display in almost every facet of American political and economic life.
For example, did you know that soldiers in Iraq are not as bad off as we thought. There's not that much Post Traumatic Stress Disorder because it's politically inconvenient and much cheaper for the Private Equity run White House if it goes away.
From the Washington Post:
A psychologist who helps lead the post-traumatic stress disorder program at a medical facility for veterans in Texas told staff members to refrain from diagnosing PTSD because so many veterans were seeking government disability payments for the condition. "Given that we are having more and more compensation seeking veterans, I'd like to suggest that you refrain from giving a diagnosis of PTSD straight out," Norma Perez wrote in a March 20 e-mail to mental-health specialists and social workers at the Department of Veterans Affairs' Olin E. Teague Veterans' Center in Temple, Tex. Instead, she recommended that they "consider a diagnosis of Adjustment Disorder.
See, the economic and societal problems go away if you just put your head in a bag labeled CBS, NBC, ABC, CNN, Fox and stomp your feet and cry "Mommy, mommy, make the bad people go away." Yes, it must be Osama's fault, Iran, Paul Krugman , the speculators, anybody and everybody but the real culprit; incompetent, decadent, dangerously out of touch crony capitalists undermining the system with trillions of worthless I.O.U.'s they choose to call, 'money.' It was great while all that fiat currency ersatz whip cream was boosting the 'value' of your house, until it's not, and now you're 'upside down' now that 'rat' of credit is appearing in the 'snake' of global finance in the form of runaway commodity price inflation. If you didn't sell your house at the top, like the guys at Toll Brothers housing who sold out of their stock at the top? Well, your continued participation is heroic and please accept this Purple Heart for suffering such equity loss.
Stressed? Eating too much? Please don't. Obese people are contributing to the global food crisis and climate change;
from the BBC:
Obese people are contributing to the world food crisis and climate change, experts say. The London School of Hygiene and Tropical Medicine calculated the obese consume 18% more calories than average. They are also responsible for using more fuel, which has an environmental impact and drives up food prices as transport and agriculture both use oil. The result is that the poor struggle to afford food and greenhouse gas emissions rise, the Lancet reported.
Since America's economy is over 70% consumption you don't hear this report mentioned much in the corporate controlled media outlets who are owned, or cross-owned, or influenced by the companies who treat Americans like ducks on afoie gras farm by stuffing them to death with worthless processed food and deadly mortgages.
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I think that oil prices of $18 to $26 a gallon are entirely possible by the end of this year ... and of course, at anything even approaching those prices the capacity of the United States to function, let alone to wage war, would grind to a complete and ruinous stop. Elimination of the Dollar's status as a world reserve currency for oil transactions would become a practical necessity, and when this happens, the US's ability to print money endlessly would come to a screeching halt.
Ironically, if this stops World War Episode III in its tracks, that would not be a bad thing.
But, if you look at Bloomberg today:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aB50jeKPl7gE
"Oil Producers Mask Decade's Worst S&P 500 Profit Drop"
"The industry is getting less profit from a barrel of oil than at any time since 2005, just as the rest of the U.S. economy is sputtering. "
So while profits are high in dollar amounts, this is only because oil prices are at all time high. Their per barrel profits are not rising on a percentage basis because their costs are going up as this other Bloomberg story, "Not Enough Oil Is Lament of BP, Exxon on Spending," points out:
http://www.bloomberg.com/apps/news?pid=20601087&sid=axUZLDnNnHgM
That's the challenge facing Exxon Mobil Corp., Royal Dutch Shell Plc, BP Plc, Chevron Corp., Total SA and ConocoPhillips, which will spend a record $98.7 billion this year on exploration and production, Lehman Brothers Holdings Inc. estimates. Costs more than quadrupled since 2000 as explorers targeted more challenging reservoirs and demand rose for labor and material.
http://tinyurl.com/4u2tof
You have ADDED INSULT TO INJURY BY COMPARING PTSD TO STICKER SHOCK!!!!!!!
People do not kill themsleves over high prices!!!!!!
one from Europe, those get 45 mpgs.
You would not want to drive a non-hybrid European car with 45mpg or above. It has very unfavorable driving characteristics and offers little storage when compared to an average US car. The Prius and Civic hybrids on the other hand drive like a charm and offer plenty of room.
They have no reason to want low prices.
Max has his theory and I have mine. There is some truth to his position - so I am not picking on him, but he is probably not as free to be blunt as I am.
There is NO real market driven reason that justifies the current price of oil or the pace of the recent and dramatic increases. The cost of production has not changed. The demand has changed, but in comparison to total capacity, it is inconsequential.
Max quotes peek oil theory but even that does not account for the radical increase in such a short period of time.
The oil companies are price gouging and price fixing and that is it. But that would be a boring article that would piss off a lot of people.
As an example, deep sea drilling rigs cost $600,000 dollars per day to lease.
Or look at the labor shortage, water shortage, energy shortage plaguing the Alberta tar sands in Canada.
EROEI is a key driver of whether or not more oil is really more oil. Just because they say the find a few billion barrels under the water doesn't mean it comes up for free.
Mike
Peak oil is only one of the factors involved in the rising price of oil.
But if you look at a chart of output of those fields that HAVE hit peak oil . . . like British North Sea, Mexico's Cantarell and Burgan in Kuwait. You will see that the drop in output is radical, to use your description of price increase.
Now, the real problem is Ghawar, the biggest of giant oil fields in all the world. Something like 5% of all global production of oil comes from this one field. It has been pumping for 50 years now and many suspect that it has also hit peak oil and is declining at the same double digit rates of Cantarell and Burgan (both declining by over 14% per year).
Has Saudi King Abdullah refused to increase output because he is a greedy monopolist? OR is the Kingdom UNABLE to increase output?
Actually, if you watch Max's film about Peak Oil, you will see in the interview with Dr. Robert Hirsch. He says that the price of oil WOULD suddenly spike when it happens. There would be no gradual price increase through which we would slowly adapt.
The peak oil film. Look for Robert Hirsch:
http://www.youtube.com/watch?v=KrjX4Nf_wGM
http://www.youtube.com/watch?v=-sYLFqg2e3I
Suppose you sell apples for 10 cents and somebody tells you an army of 3 billion men from India and China are marching in your direction looking for food. Your customers suddenly show up and demand that you sell all your apples for 10 cents. You say no thanks, you'd rather wait and see what the army wants to pay for them. Eventually you figure out that you should sell some today for $100 each if somebody wants to pay that amount. Otherwise you'll just wait.
"Equilibrium" price refers to a specific point in time on a graph whereas in the real world the law of supply and demand operates on a third continuum which is "time".
In short, an equilibrium price is always "history".
There are some additional points to consider. The first is that Max's theory is based on dollars. It used to be that most all petroleum was purchased with dollars. Now a significant amount is purchased with Euros and other currencies.
Second. The Indian and Chinese markets provide so much volume that the price may be $120.00+ a barrel to us because we are inconvenient to sell to, not because India and China are willing to paying more per barrel. Cost benefit analysis. China and India are a hell of a lot closer than we are. Transportation costs.
Based on a large volume and reduced transportation costs, they could actually sell to the Indian and Chinese for less per barrel and make a higher profit. The Wal-Mart model.
Third. I also recall hearing that the Bush Admin brokered a deal with North Korea to trade oil in exchange for their agreement to stop pursuing nuclear tech/ development. I wonder what the price per barrel was established for that trade? Maybe the taxpayer/consumer is paying for all or part of that deal on a per gallon basis without knowing.
What is that replacement cost?
When do you realize a profit from the Soldiers hard work?
Sould you expect to profit from a Soldiers work? NO!!!!!!!!
That's about par for the course. The government's aim is always to downplay the devastating effect war has on the mind of soldiers. In the first World War, PTSD was referred to by its original name...shell shock. Then it became battle fatigue, then a few slight variations in Korea and Vietnam. The name Post Traumatic Stress Disorder evolved because it sounds less distressing than Shell Shock..almost makes it seem like war isn't even a prerequisite. Adjustment disorder is just another step...THAT sounds like something a kid would suffer after changing schools. Give it a decade and PTSD will be an archaic way of saying "adjustment disorder", much like shell shock seems archaic now.