The Oil Drum

Now you know why the UK didn't join the Euro.

Just like in the USA, the exchange rate is good for some states and very bad for others - expect the Euro to disintegrate if this carries on for very long.

Roger has been singing this song for at least three years now. He used to predict Saudi Arabia would "open the floodgates" "real soon now" and flood the world with cheap oil again but he's quietly been backing away from that absurd prediction for the last 18 months or so. KSA may not have yet collapsed as some here expected but it sure as hell isn't flooding the world with cheap oil. And under the circumstances I am not sure why KSA would even do such a silly thing. Most of KSA's oil can be produced very cheaply so at $112 per barrel, KSA appears to be profiting $100-$105 per barrel. KSA loves it when demand shoves prices higher and brings marginal producers onstream. KSA can make tons more money selling 8.7 mbpd at $112 per barrel than they can selling 12 mbpd or even 15 mbpd at $38 per barrel (or whatever other "cheap" figure Roger might throw out there).

Brian,

The difference I see in your view and my view is that you seem to think that when I say commodities prices could collapse and at least for some time we may well end up with a glut of oil brought on by a hard recession as me predicting good times.

My view is a bit different. I see a decline in oil prices and oversupply of oil as a bad thing, and if it is large enough in magnitude and occurs in too short a time, a very bad thing.

We know what happens in periods of that type. Again, look at the 1980's. The U.S. had less than one trillion dollars in debt when Ronald Reagan took office. Over 200 years, less than a trillion dollars debt. Following 8 years, about 4 trillion. Could we survive economically if a rise in national debt were to occur of that magnitude from the current high levels we already carry? What do you think, BrianT?

If oil prices fall dramatically, do you think ANY of us can resist that nice RV or that great sexy high speed cabin cruiser yacht with the twin turbocharged engines...or at least a 12 cylinder car, 'ell, you only live once! $38 per barrel oil, hell, I admit it, I would go shopping for one last gasp of the great internal combustion romance! If the last of the cheap fossil fuel era lasted only another decade, that would be longer than most of the gas engined powered junk lasts nowadays anyway! Put it on my tab, I'm an old man anyway, what do I care about debt?

If one believes that carbon release is a problem, how in the world can one hope for cheap oil? $38 per barrel oil would set off the great final "carbon luxury bath" that would make the 1980's and 90's look like the "green" era, and this time it would be worldwide, with China and India trying to look like 1980's New York or So Cal in the "glory days" of turn of the century America.

We have not even discussed the investment community, who now finding out that the safest investment in the world, that being real estate, which WOULD NEVER DECLINE IN PRICE, did in fact decline in price, has now ran like cowards to the NEW safest investment in the world, WHICH WILL NEVER DECLINE IN PRICE, that being raw materials, commodities, and best of all oil and gas. Hey, how can you lose on oil and gas, God ain't making any more of it! Sound familiar?

Of course, the problem is, they are not putting their own money into this new SAFE investment. By conduit of the hedge funds and the buyout LLP kings and the mutual fund genuises, the banks and brokers and "advisors" have the endowments of Universities poured in, the retirement funds of city workers, the funds of charitable foundations, and the average schmuck who has never bought an oil future in his life and the office girl who says to her broker, "here, you invest it, I know you know what your doing." All pouring billions into the wacky world of oil futures. Does any of this sound familiar? (sigh)

What is needed is some sanity. Some stability. When oil was around $85 or $95 dollars per barrel, I said then what I will say now. I would be perfectly content if it stayed within a couple of bucks of that range, inflation adjusted, for the rest of my natural life. What IDIOT wants oil back at $38 bucks a barrel, killing the possibility of alternatives, killing the incentive to at least be sensible, killing the return on investment for E&P in the energy industy?

No BrianT, when I describe the possibility of a commodities price collapse and a possible glut (albeit temporary)of oil, I am NOT describing everything "A-OK" as you so flippantly say. Just the opposite. The least of our problems will not be China or India or the Yuan. China and India with two billion plus mouths to feed, all hungering for USA 1990 will be THIER problem, and the worlds.

Our problem will be an economic wipeout that will make this whipped up "sub-prime" hysteria look like the dog and pony show that it is when we see trillions of dollars of "commodity" investment disappear overnight and oil consumption shoot through the roof as the alternative renewable energy programs, our only avenues into the future collapse into bankruptcy.

There are events that can occur in the world that are EVERY BIT AS DANGEROUS AS PEAK OIL.

It may not seem like it now, but the day may come when we pray for oil at $100 per barrel. All I ask is for folks to realize that we may be praying because oil is so much higher than $100. Or because it is so much cheaper. One is as dangerous as the other if it happens too fast. The difference is this: The hapless public is at least made aware of possible danger by expensive oil. Cheap oil is like an anesthetic that knocks us out so that our throats can be slit in our sleep. In which case do you think we at least have a fighting chance?

RC