The Industrial Bubble
We here at The Marble saw this coming:From Reuters:
Oil prices surged to a record near $58 a barrel on Friday, powered by a forecast the market could spike above $100 due to robust global demand and tight spare capacity.
From the L.A. Times:
Oil Surges After "Spike" Prediction: A Goldman analyst says crude could reach $105 a barrel in 2007. Other experts are skepitcal
While $100 a barrel may seem shocking, as global demand for oil outstreaches supply in the next couple of years, we may look back with some fondness at prices of $50 a barrel. Demand increases are mostly due to China's rapidly expanding economy, and while OPEC says it will increase production to keep pace with demand, there are reports out that state that they are at maximum capacity right now. In addition, Saudi Arabia, the kingdom that sits upon the largest reserves in the world, may have used some debilitating practices on their fields such that the largest ones may now be in decline.
Let's get a little background on all this. Let's say you discover an oil well in your back yard. You say, "Eureeka!", haul in drills and pumping infrastructure, and begin selling your oil at quite a tidy profit. At first it's smooth sailing because the oil is so easy to get out of the ground. Maybe you weren't aware of it, but trouble lies ahead. Just after you've pumped about half of the total amount of oil in your well, it becomes much more difficult and costly to get the rest of it out of the ground. So, you hire an expert or two, and they tell you that you're going to have to start pumping water into the well to get at the good stuff. Finally, before your little cash cow is fully drained, it's costing you far more getting the remaining oil out of the ground than you're making by selling it. So, you're completely upside down on your cost/profit ratio, and it obviously makes no sense to continue with your little endevour. Again, this is before your well has even run dry. Now, picture the same scenario except on a global scale. That is exactly what's happening today.
Discoveries of the largest oil fields on the planet peaked right around 1966. Oil production in the United States peaked in 1972, and that's why we import so much of it. Global oil production has either already peaked or will in the next couple of years. Are the headlines above making a little more sense now?
For some more background, and more information on the late, great Dr. King Hubbert (no, we're not making that name up), check out this article: The Background Is Oil
Here are some other resources as well:
Twilight In The Desert: The Coming Saudi Oil Shock and the World Economy
By Matthew R. Simmons
The Party's Over: Oil, War and the Fate of Industrial Societies
by Richard Heinberg
Out of Gas: The End of the Age of Oil
by David Goodstein
Association for the Study of Peak Oil and Gas
These events portend trying and difficult times for all of us on this planet, and we better get our elected leaders to start proposing some solutions, or the transition from carbon based energy to clean, reusable forms will be much more painful than they need to be.
3.5.2005 Update: From Reuters:
Federal Reserve Chairman Alan Greenspan said on Tuesday market forces could lead to a big enough increase in crude oil inventories to cool the recent "frenzy" that has sent prices to record highs.This is patently ridiculous. There are no "market forces", or "market technicals" that can increase crude inventories. Discovering vast new reserve fields would accomplish that, but as we asserted above, the discovery of those peaked in the mid 1960's. Oil is a finite resource, and there is no way the markets can change that.
Greenspan said the high oil prices of recent months had slowed oil demand growth, although "only modestly," contributing to a faster pace of oil inventory building.
He added that stockpiling could pick up further as producers seek to cash in on the higher prices future oil deliveries command.
"If sustained, these market technicals could encourage enough of an inventory buffer to damp the current price frenzy," Greenspan told an oil refiners' conference in San Antonio via satellite.
posted by FuzzFinger @ 4/02/2005 12:21:00 AM
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