This is all very bad news for peak oil mitigation. Economies will weaken, perhaps go into depression, as credit dries up. As we've discussed here many times, the energy markets (oil and natural gas) are priced at the marginal barrel - todays supply demand situation trumps predictions of future supply/demand imbalances. If there is plenty of oil available for the forseeable future (several months), oil prices drop.
If a credit collapse leads to depression, etc. we could have $40 oil, maybe higher maybe lower, but enough for policymakers, who are just now getting a whiff about oil depletions acrid scent, will ignore the Peak Oil warnings and go back to focusing on economic growth, jobs, etc. New wind, solar and other energy flows that were starting to be competitive at high oil prices, will look far less attractive to entrepreneurs and policy people at $50 oil or at $30 oil. After the stock market crash in 1932, oil went from $1.43 a barrel recent high, to 10 cents a barrel and stayed low for many years.
If demand destruction trumps depletion, what kind of signals will that send??
Then when the economy starts to reload, we are that much further along depletion, and have lost several more years of infrastructure planning and change
Dang, Nate, that would be true if the US was the whole world, but it's not. Instead, the US would just be priced out of the oil market, and "our" oil would just go to the higher bidder overseas. We are probably going to see a Weimar type hyperinflation that leaves just about everything produced overseas priced out of reach.
the credit crunch is not just going to affect the US - globalization/international trade has effectively connected ALL countries at least in the OECD. If we sneeze someone else will get the flu - some countries milder than others. China has built massive infrastructure and production capacity in last 5 years - if US goes into deep recession what do you think happens to China? Everything is linked - thats part of the problem
But China has 10% growth. An economic crisis, for them, means 5% growth or thereabouts. At that range, you still have demand growth for oil and other energy sources. That is likely to be enough to keep the markets tight, given that our own elasticity is not huge.
5% growth for China is not just an economic crisis, but also a political crisis. Those who have looked at China over the past number of years know that the place is a giant mess, physically, socially and economically. Slow down the growth that everybody over there depends on even slightly, and you can have giant riots on your hands in no time. And the Chinese gov't doesn't play games in using force against its own people, especially when they're protesting the gov't (see Tiannamin square).
IF the above scenario happens, and China's growth slows, it is possible that the Chinese economy could collapse, since it was built on the predication of high growth rates-somewhat similar to what we're seeing here in the US credit crisis, but more extreme (with possibly more extreme consequences/results).
Best hopes for a soft, managed landing (sorry Alan)
Franc (penguinzee)
I agree with Nate and Penguinzee on this. China is far from immune to any downturn here. Moreover, the Chinese revolution is only 58 or so years old -- there are many millions who still remember the revolution. The Chinese gov't is a giant labor contractor -- should the demand for goods in the West shrink significantly, they have a tremendous problem on their hands. The situation is quite different from the 30s -- whatever one might think of Stalin, the SU at that time was to a considerable extent immune to the economic disaster in the West -- but not the military consequences of course.
Shaman: CIA Factbook has it at approx 77% of USA (PPP). China is already the largest consumer market in the world for every product except autos. It is the second largest exporter. Does that sound to you like a country 20% the size of the USA? At the current pace, China will be the largest consumer market in the world by 2015 and by far the largest exporter.
Thanks for the source. I wish they had more detail about their methodology on PPP - it would appear that they are valuing the Yuan at four times its official rate. I must say I'm a bit skeptical about that, but that's a gut feeling, not based on inside knowledge.
It's tough to predict China's trajectory - we're in uncharted territory.
Massive importer of food, but strong agrarian base. Low domestic energy production, but very low energy requirement for basic survival. Catastrophic environmental depletion, but lots of resources in the empty quarter to the North. And the biggest standing army in the world.
Chinese coal production is huge (and then there's Daqing)! The biggest increase in global primary energy supply during the last 10 years has very likely come from exploding Chinese coal mining.
Sure, domestic demand is even greater than the domestic supply, but you can say that too about another vast energy producer, the USA.
You call it uncharted territory. The Chinese could simply call it another "five year plan", one which involves a certain staged withdrawal and some "healthy" austerity measures.
The capacity for China to revert back to one bowl of rice per day, two sets of green pajamas and a rusty bicycle is not to be dismissed. I think a lot of people are underestimating the Chinese government's willingness to strike an abrupt 180 degree turn seemingly overnight.
No assumptions. Just saying that it will take more than a recession to stop demand growth. It would take an outright depression, or some other kind of meltdown.
It's by no means impossible, of course. But oddly enough, in that situation, energy probably won't be the biggest issue of the day.
Thats my point. Energy IS the issue of the day, but its going to be obfuscated by other issues and when the average person next notices it, its teeth will be sharper and bigger.
Jerome- has this/will this credit selloff effect wind project financings?
Project finance is always late compared to other types of financings (lots of inertia, long lead times for the underlying projects, etc...), so we're still in boom mode right now.
And renewable energy is especially booming right now, so no lack of work. In fact, I worry about how insane the end of the year is likely to be for me.
Even if the markets crash, renewable energy, thanks to both favorable regulation (guaranteed tariffs, i.e. no volume and no price risk, are going to be a risk banks love in the context of a market meltdown) and the overall favorable context (global warming, energy independence, etc...) is unlikely to suffer as much as other sectors.
Not the FXI BS, the actual SSE was up thurs, not fri, and again today. It's the only market that bucked on thurs, i do believe. Honestly, China has 1.2 Trillion in USD paper, so they can sterilize any downturn in their economy for awhile. Like some have noted, they are much larger than most people think. We're all stuck with this podunk image of China, but when you do the numbers they are doubling in under seven years. Our image is off each month they add that 1% more.
Revisit history...why did the ROARING twenties happen? We were loaning massive amts to Britian after WWI. The money supply was exploding, then the unthinkable happened. The pound sterling defaulted and the dollar became defacto world reserve currency. What's changed? The US is in debt to the Chinese (& Japan, but lets simplify) and the Yuan will become the new world reserve currency. It's hard for you patriots to accept I know, but it's going to happen and history will once again rhyme.
I've commented on that for the last year and a half, that I believe it will be the yuan and not the euro that will succeed the dollar. Though far from identical, there are some interesting parallels between the historical fall of the pound and the rise of the dollar versus the current fall of the dollar and rise of the yuan.
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett Into the Grey Zone
But isn't that 10% growth fueled by both international sales and increased domestic consumption by a rising middle class? If international sales drop, won't that then impact the middle class and their spending thereby creating a ripple effect and a much larger drop in the economy?
90% foreign sounds very suspect - one usually reads estimates around 60% quoted, and they can only cite "internal figures" meaning they have no source.
Except that the Chinese government is fully prepared to lay waste to twenty years of ventures into capitalistic experiments and plunge their citizenry back into 1949 at the drop of a hat, even if they have to kill off a third of their population in order to make it so.
Please remember that a purge in China is not limited to size, severity or duration, but rather linked to a goal set forth by the old moustaches who own or control the bulk of economic power in the region.
If China sees that it is in its best interests to punish the West or "teach it a lesson" they will do so, even if they must invent a new "Gang of Four" and restart the purges.
China must prevail, or die, and something tells me that we won't be seeing the largest nation on earth dissolve itself just because a few rich capitalists wish it to be so.
That dog might hunt in the rotted corpses of Europe and the North American continent but not in the Asian Empire.
And by this action we WILL see China ultimately prevail and re-emerge as the top superpower in the world.
China plays for the long term win, it only dabbles for the short term glory, and it only gambles what it is willing to lose.
China is and always has been willing to lose a lot in order to make a point.
Spot on, Nate. Peak Oil is a problem that politicos are all too willing to sweep under the rug and a $40 barrel gives them a brand new broom!
Demand destruction is the way this system works. Recession, here we come.
The big question I can't answer is whether China has built up a big enough middle class to absorb a significant amount of the production that now comes to America. I believe that's their main strategy but I doubt they have achieved it yet.
If they can make that crucial transition we'll find out quickly enough because they will be able to weather the recession and keep increasing their oil use even as our use declines. That should provide a floor for the marginal price of oil.
Never say never. I am very bullish on oil but fully expect to see $50 oil in the next few years. I wouldnt make a bet on $40 oil, but I would on $50. (and also $150)
The demand is there world-wide that other nations will pay the equivalent of $70 USD for a barrel of oil. The price will not go down. Someone else will buy it first. Like I said, Desperate Wishfullness. I'll bet you believe CERA and OPEC figures as well. You will see the error sooner than later.
Cid: IMHO, the size and strength of China is underestimated greatly by almost all Americans. I think this is caused by the psychological effect of growing up in a country which was the undisputed economic global leader. Current estimates project China's consumer market surpassing the USA by 2015.
Brian: Where does that estimate come from. It strikes me as not credible. In 2006 the US GDP was over 13 trillion dollars, China's about 2.6. For their domestic market to catch ours, they would have to grow 5 fold. I know that GDP doesn't match "domestic consumer market" exactly, so what the measure here?
China's GDP in comparable prices (PPP) is $10.2 trillion for 2006. PPP is the more accurate indicator to use in this case, as most of the US GDP of $13T is spent in services which in China would cost tens of times less.
Sham: CIA Factbook. When someone tells you that China's economy is 1/5 the size of the USA, doesn't it occur to you to question that? How is it that an economy 1/5 the size of the USA manufactures almost every product sold in the USA? The USA taxpayer owes well over a trillion dollars to this tiny country.
Brian, yes, of course I question it, I question IMF stats just as much as I question CIA ones.
All I know for certain is this; I traveled to China, held Yuan in my hand and spent them. This was in 1999, so certainly the situation has changed, but at that time my dollar equivalent in Yuan did not buy as much as my dollar would have back home.
The other aspect of this that has me skeptical is knowledge of how capitalism works. Yes, a substantial amount of manufactured goods are made in China. But in most cases these are subcontractors of American, Japanese and EU companies. We are not looking at a case of Chinese manufacturers directly selling to American retailers (except for some very large retailers like WalMart, who essentially turn them into subcontractors anyway). And knowing how capitalism works, I know these companies are taking their share of profits out of the supply chain.
Shaman: Almost none of the profits is being reinvested in the USA- it is being invested in China. Future wealth flows from current capital investment (that is how capitalism works).
Brian: It matters not where the profit is reinvested from the perspective of capital. National boundaries are of no interest to capital except for the tax burdens. That is why capital has moved manufacture to China and elsewhere. It cares not one wit about the nation or its workers. The ownership class remains pretty much the same(although certainly the expansion of the global economy allows for the expansion of that ownership class to include some Chinese).
That said - do you have anything other than the CIA numbers (not dissing them, just wondering about how you corroborate) that suggests the PPP for China is so great?
I didn't include this before, but the CIA PPP number concerns me in the sense that such a large difference between nominal GDP and PPP would support the assertion that Chinese military expenditures are of concern (note that the Factbook puts US mil expenditures at 4.06% of gdp compared to China's 3.8% of gdp (not ppp).
As far as global capital is concerned, the USA is no longer a "rising star" - China is that now. Nor is the USA any longer even a "cow" to be milked dry -- they've just finished doing that over the past couple of decades or so. Now the USA is quickly becoming a "dog" to be sold out and killed off. Disinvestment in the USA is now the order of the day.
The price will not go down. Someone else will buy it first. Like I said, Desperate Wishfullness.
I am wishing for high oil prices, not low ones, for many reasons - not the least of which it will give people correct signals in changing consumptive patterns.
There is a big piece being overlooked here. The financial markets size DWARFS the energy markets size. Last year one hedge fund, Amaranth, had natural gas positions, on and off balance sheet, that were in excess of the annual consumption of natural gas in the USA - over 20 trillion cubic feet - the unwinding of these positions caused a 'crash' in nat gas prices. Don't believe for a second that this couldnt and won't happen to oil at some point in the future when all hedge funds come to understand peak oil and bid up the price via leverage etc. $50 oil, while fundamentally difficult to imagine, is almost a mathematical certainty, given a long linear time series.
I'll bet you believe CERA and OPEC figures as well. You will see the error sooner than later
This is all very bad news for peak oil mitigation. Economies will weaken, perhaps go into depression, as credit dries up. As we've discussed here many times, the energy markets (oil and natural gas) are priced at the marginal barrel - todays supply demand situation trumps predictions of future supply/demand imbalances. If there is plenty of oil available for the forseeable future (several months), oil prices drop.
If a credit collapse leads to depression, etc. we could have $40 oil, maybe higher maybe lower, but enough for policymakers, who are just now getting a whiff about oil depletions acrid scent, will ignore the Peak Oil warnings and go back to focusing on economic growth, jobs, etc. New wind, solar and other energy flows that were starting to be competitive at high oil prices, will look far less attractive to entrepreneurs and policy people at $50 oil or at $30 oil. After the stock market crash in 1932, oil went from $1.43 a barrel recent high, to 10 cents a barrel and stayed low for many years.
If demand destruction trumps depletion, what kind of signals will that send??
Then when the economy starts to reload, we are that much further along depletion, and have lost several more years of infrastructure planning and change
Dang, Nate, that would be true if the US was the whole world, but it's not. Instead, the US would just be priced out of the oil market, and "our" oil would just go to the higher bidder overseas. We are probably going to see a Weimar type hyperinflation that leaves just about everything produced overseas priced out of reach.
the credit crunch is not just going to affect the US - globalization/international trade has effectively connected ALL countries at least in the OECD. If we sneeze someone else will get the flu - some countries milder than others. China has built massive infrastructure and production capacity in last 5 years - if US goes into deep recession what do you think happens to China? Everything is linked - thats part of the problem
But China has 10% growth. An economic crisis, for them, means 5% growth or thereabouts. At that range, you still have demand growth for oil and other energy sources. That is likely to be enough to keep the markets tight, given that our own elasticity is not huge.
5% growth for China is not just an economic crisis, but also a political crisis. Those who have looked at China over the past number of years know that the place is a giant mess, physically, socially and economically. Slow down the growth that everybody over there depends on even slightly, and you can have giant riots on your hands in no time. And the Chinese gov't doesn't play games in using force against its own people, especially when they're protesting the gov't (see Tiannamin square).
IF the above scenario happens, and China's growth slows, it is possible that the Chinese economy could collapse, since it was built on the predication of high growth rates-somewhat similar to what we're seeing here in the US credit crisis, but more extreme (with possibly more extreme consequences/results).
Best hopes for a soft, managed landing (sorry Alan)
Franc (penguinzee)
I agree with Nate and Penguinzee on this. China is far from immune to any downturn here. Moreover, the Chinese revolution is only 58 or so years old -- there are many millions who still remember the revolution. The Chinese gov't is a giant labor contractor -- should the demand for goods in the West shrink significantly, they have a tremendous problem on their hands. The situation is quite different from the 30s -- whatever one might think of Stalin, the SU at that time was to a considerable extent immune to the economic disaster in the West -- but not the military consequences of course.
"Wars will come and governments will change, but the land and the people will go on." -paraphrased
-from "The Good Earth" by Pearl S. Buck
Dave: Stalin? The Soviet Union in the 30s? Open your eyes-China's economy is already almost as large as the USA. This was done in less than 30 years.
"China's economy is already almost as large as the USA."
Source please? By GDP China's GDP in 2006 was less than 20% of the US, and was still behind Germany and Japan, according to the IMF.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
Shaman: CIA Factbook has it at approx 77% of USA (PPP). China is already the largest consumer market in the world for every product except autos. It is the second largest exporter. Does that sound to you like a country 20% the size of the USA? At the current pace, China will be the largest consumer market in the world by 2015 and by far the largest exporter.
Thanks for the source. I wish they had more detail about their methodology on PPP - it would appear that they are valuing the Yuan at four times its official rate. I must say I'm a bit skeptical about that, but that's a gut feeling, not based on inside knowledge.
It's tough to predict China's trajectory - we're in uncharted territory.
Massive importer of food, but strong agrarian base. Low domestic energy production, but very low energy requirement for basic survival. Catastrophic environmental depletion, but lots of resources in the empty quarter to the North. And the biggest standing army in the world.
Low domestic energy production?!
Chinese coal production is huge (and then there's Daqing)! The biggest increase in global primary energy supply during the last 10 years has very likely come from exploding Chinese coal mining.
Sure, domestic demand is even greater than the domestic supply, but you can say that too about another vast energy producer, the USA.
You call it uncharted territory. The Chinese could simply call it another "five year plan", one which involves a certain staged withdrawal and some "healthy" austerity measures.
The capacity for China to revert back to one bowl of rice per day, two sets of green pajamas and a rusty bicycle is not to be dismissed. I think a lot of people are underestimating the Chinese government's willingness to strike an abrupt 180 degree turn seemingly overnight.
Why do you assume collapse is linear?
I highly doubt that international markets will fare well during a US recession or depression.
During the market rout this last week did any exchanges in any other nations avoid tumbling?
It is a global market now, not national.
No assumptions. Just saying that it will take more than a recession to stop demand growth. It would take an outright depression, or some other kind of meltdown.
It's by no means impossible, of course. But oddly enough, in that situation, energy probably won't be the biggest issue of the day.
Thats my point. Energy IS the issue of the day, but its going to be obfuscated by other issues and when the average person next notices it, its teeth will be sharper and bigger.
Jerome- has this/will this credit selloff effect wind project financings?
Project finance is always late compared to other types of financings (lots of inertia, long lead times for the underlying projects, etc...), so we're still in boom mode right now.
And renewable energy is especially booming right now, so no lack of work. In fact, I worry about how insane the end of the year is likely to be for me.
Even if the markets crash, renewable energy, thanks to both favorable regulation (guaranteed tariffs, i.e. no volume and no price risk, are going to be a risk banks love in the context of a market meltdown) and the overall favorable context (global warming, energy independence, etc...) is unlikely to suffer as much as other sectors.
Shanghai wasn't correlating....
Not the FXI BS, the actual SSE was up thurs, not fri, and again today. It's the only market that bucked on thurs, i do believe. Honestly, China has 1.2 Trillion in USD paper, so they can sterilize any downturn in their economy for awhile. Like some have noted, they are much larger than most people think. We're all stuck with this podunk image of China, but when you do the numbers they are doubling in under seven years. Our image is off each month they add that 1% more.
Revisit history...why did the ROARING twenties happen? We were loaning massive amts to Britian after WWI. The money supply was exploding, then the unthinkable happened. The pound sterling defaulted and the dollar became defacto world reserve currency. What's changed? The US is in debt to the Chinese (& Japan, but lets simplify) and the Yuan will become the new world reserve currency. It's hard for you patriots to accept I know, but it's going to happen and history will once again rhyme.
http://thefinancedude.blogspot.com
I've commented on that for the last year and a half, that I believe it will be the yuan and not the euro that will succeed the dollar. Though far from identical, there are some interesting parallels between the historical fall of the pound and the rise of the dollar versus the current fall of the dollar and rise of the yuan.
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone
But isn't that 10% growth fueled by both international sales and increased domestic consumption by a rising middle class? If international sales drop, won't that then impact the middle class and their spending thereby creating a ripple effect and a much larger drop in the economy?
Jerome,
Last few years have given China high growth in GDP (9.5%, non agricultural), but surprisingly low growth in employment (3%).
The explanation could be that capital was too cheap for labor.
Another interesting tidbit:
Via the Big Picture
90% foreign sounds very suspect - one usually reads estimates around 60% quoted, and they can only cite "internal figures" meaning they have no source.
Except that the Chinese government is fully prepared to lay waste to twenty years of ventures into capitalistic experiments and plunge their citizenry back into 1949 at the drop of a hat, even if they have to kill off a third of their population in order to make it so.
Please remember that a purge in China is not limited to size, severity or duration, but rather linked to a goal set forth by the old moustaches who own or control the bulk of economic power in the region.
If China sees that it is in its best interests to punish the West or "teach it a lesson" they will do so, even if they must invent a new "Gang of Four" and restart the purges.
China must prevail, or die, and something tells me that we won't be seeing the largest nation on earth dissolve itself just because a few rich capitalists wish it to be so.
That dog might hunt in the rotted corpses of Europe and the North American continent but not in the Asian Empire.
And by this action we WILL see China ultimately prevail and re-emerge as the top superpower in the world.
China plays for the long term win, it only dabbles for the short term glory, and it only gambles what it is willing to lose.
China is and always has been willing to lose a lot in order to make a point.
Spot on, Nate. Peak Oil is a problem that politicos are all too willing to sweep under the rug and a $40 barrel gives them a brand new broom!
Demand destruction is the way this system works. Recession, here we come.
The big question I can't answer is whether China has built up a big enough middle class to absorb a significant amount of the production that now comes to America. I believe that's their main strategy but I doubt they have achieved it yet.
If they can make that crucial transition we'll find out quickly enough because they will be able to weather the recession and keep increasing their oil use even as our use declines. That should provide a floor for the marginal price of oil.
$40 oil falls under the catagory of Desperate Wishfulness. You will never, ever see oil priced that low again.
Never say never. I am very bullish on oil but fully expect to see $50 oil in the next few years. I wouldnt make a bet on $40 oil, but I would on $50. (and also $150)
The demand is there world-wide that other nations will pay the equivalent of $70 USD for a barrel of oil. The price will not go down. Someone else will buy it first. Like I said, Desperate Wishfullness. I'll bet you believe CERA and OPEC figures as well. You will see the error sooner than later.
Cid: IMHO, the size and strength of China is underestimated greatly by almost all Americans. I think this is caused by the psychological effect of growing up in a country which was the undisputed economic global leader. Current estimates project China's consumer market surpassing the USA by 2015.
Brian: Where does that estimate come from. It strikes me as not credible. In 2006 the US GDP was over 13 trillion dollars, China's about 2.6. For their domestic market to catch ours, they would have to grow 5 fold. I know that GDP doesn't match "domestic consumer market" exactly, so what the measure here?
China's GDP in comparable prices (PPP) is $10.2 trillion for 2006. PPP is the more accurate indicator to use in this case, as most of the US GDP of $13T is spent in services which in China would cost tens of times less.
source please?
https://www.cia.gov/library/publications/the-world-factbook/print/ch.htm...
Thanks Levin - Brian also gave me that source up above. Must say that I'm skeptical, but that's a different issue.
Sham: CIA Factbook. When someone tells you that China's economy is 1/5 the size of the USA, doesn't it occur to you to question that? How is it that an economy 1/5 the size of the USA manufactures almost every product sold in the USA? The USA taxpayer owes well over a trillion dollars to this tiny country.
Brian, yes, of course I question it, I question IMF stats just as much as I question CIA ones.
All I know for certain is this; I traveled to China, held Yuan in my hand and spent them. This was in 1999, so certainly the situation has changed, but at that time my dollar equivalent in Yuan did not buy as much as my dollar would have back home.
The other aspect of this that has me skeptical is knowledge of how capitalism works. Yes, a substantial amount of manufactured goods are made in China. But in most cases these are subcontractors of American, Japanese and EU companies. We are not looking at a case of Chinese manufacturers directly selling to American retailers (except for some very large retailers like WalMart, who essentially turn them into subcontractors anyway). And knowing how capitalism works, I know these companies are taking their share of profits out of the supply chain.
Shaman: Almost none of the profits is being reinvested in the USA- it is being invested in China. Future wealth flows from current capital investment (that is how capitalism works).
Brian: It matters not where the profit is reinvested from the perspective of capital. National boundaries are of no interest to capital except for the tax burdens. That is why capital has moved manufacture to China and elsewhere. It cares not one wit about the nation or its workers. The ownership class remains pretty much the same(although certainly the expansion of the global economy allows for the expansion of that ownership class to include some Chinese).
That said - do you have anything other than the CIA numbers (not dissing them, just wondering about how you corroborate) that suggests the PPP for China is so great?
I didn't include this before, but the CIA PPP number concerns me in the sense that such a large difference between nominal GDP and PPP would support the assertion that Chinese military expenditures are of concern (note that the Factbook puts US mil expenditures at 4.06% of gdp compared to China's 3.8% of gdp (not ppp).
Already in 2008, probably, China will become the world's largest producer of motor vehicles.
Source? And how much of the production chain is is owned by the Chinese? Doing the work is not the same as owning the work.
As far as global capital is concerned, the USA is no longer a "rising star" - China is that now. Nor is the USA any longer even a "cow" to be milked dry -- they've just finished doing that over the past couple of decades or so. Now the USA is quickly becoming a "dog" to be sold out and killed off. Disinvestment in the USA is now the order of the day.
Cid,
I am wishing for high oil prices, not low ones, for many reasons - not the least of which it will give people correct signals in changing consumptive patterns.
There is a big piece being overlooked here. The financial markets size DWARFS the energy markets size. Last year one hedge fund, Amaranth, had natural gas positions, on and off balance sheet, that were in excess of the annual consumption of natural gas in the USA - over 20 trillion cubic feet - the unwinding of these positions caused a 'crash' in nat gas prices. Don't believe for a second that this couldnt and won't happen to oil at some point in the future when all hedge funds come to understand peak oil and bid up the price via leverage etc. $50 oil, while fundamentally difficult to imagine, is almost a mathematical certainty, given a long linear time series.
Perhaps you were on vacation when my "Peak Oil - Whom to Believe? CERAiously" and the subsequent Parts II and III, were posted.