Q. "Why would it be different this time?"

A. Uh, ever heard of peak oil?

Are you investing in airlines? Good luck with that one :D

How the other side thinks

Andrius Spokas,

thanks for posting. It's not always easy being a lone dissident voice in a group which stands against your opinion. I'll give you credit for that (and a vote up).

However, that doesn't still make your opinions right. You need to back up opinions with data, to build a real argument.

Because I like to play thought games and I can fully admit to not knowing with anywhere near 100% certainty, I will play along.

I'm going to generalize here, and go beyond your argument, but hopefully staying within the boundaries of honest argumentation and not building a straw-man.

Goldman seem to think we're now almost through oil investment phase and will start going to the exploitation phase soon, likely causing a significant and long lasting drop in prices:

_{Source: Goldman/Pernwell, 3/2008}

IF this is true, then the index fund positions on oil futures are likely to take a big hit AND futures price will go into contango (that means, prices of futures contracts will start to drop as their maturity shortens, as the spot price is going lower).

_{Source: Homeland Security Committee hearing on Commodity Markets speculation, 5/2008}

_{Source: AMP Capital, 5/2008}

The same people also believe we are not 'running out of oil' (sic), meaning we are not near production peak yet - something which they are at least acknowledging now as a possibility

_{Source: Deutsche Bank, 5/2008}

Further, even the FED thinks oil is not really that expensive in real terms

_{Source: Dallas FED, 2008}

Lehman seems to somewhat agree:

_{Source: Lehman brothers, 6/2008}

Now, please accept that in order to go simulate this thinking, I have to disregard a lot of data on production, spare capacity, refinery situation, inventory levels and export trends and estimates about upstream projects coming on-line.

However, what seems certain, that the thinking I've outlined above is not something only a few people believe in. It seems - at least on the surface - to be quite prevalent in the big banking industry and amongst politicians.

NB! I do NOT personally believe in the above hypothesis. Further I don't think the fact that they are in powerful position, automatically makes their deductions correct, which unfortunately many people automatically assume.

What the above hypothesis does, is to create confusion and a lot of cognitive dissonance in people. Esp. those who know the production fundamentals or people who try to follow experts of differing opinions.

Taking into account the data disregarded above, I think the above speculation/lots-of-oil-left argument is a very likely a seriously misguided hypothesis.

Now, this doesn't mean that the price of oil cannot fall to, say $100 for a while. Even many peak oil analysts believe this. A big recession world wide could bring down the price. But when will it happen, what will it result in and how long will that price level last - that's where opinions start to differ widely.

And even the people who should know seem to be very inaccurate in regards to predicting the oil prices historically:

_{Source: PRX Capital}

But then again, I can't be sure I'm right, but at least I acknowledge that, unlike many of the bankers/politicians :)

PS I voted for the highest price on crude, just because of this:

Authors@Google: Philip Tetlock

Capsule summary: How do the best 'experts' fare on the aggregate in their predictions? Not any better than simple extrapolation models (+ lots of more stuff in the video, like the hedgehog-fox metaphor @ c. 26:30, that I recommend to everybody)

Oil prices have been cyclical for years. [...] it is only the matter of time before they are falling back down to $100.

A "cycle" implies that at some point we return to the beginning.

In 1998 crude was $10 a barrel. So your optimistic "fall" is to ten times that price.

Some "cycle".

Perhaps the real "cycle" is a return to not using any oil?

Given the nature of the futures market and the fact that the bulk of the worlds REAL oil is sold at a discount or premium to the spot price knowing people like you exist warms my heart. It lets me know we have yet another candidate loser for a futures trade. Without people like you willing to lose billions liquidity would dry up.

This reminds me of the knife catchers buying houses on the way down for stupid reasons they set a ever lower market price for homes forcing the market to mark homes to market. A frozen market can stay priced at fantasy for a long time. These buyers will of course be the foreclosure victims of a few years hence but without them you can't get a market to drop.

I often get worried we may be running out of suckers but it seems one is born every minute.

You must be new here!
Or you wouldn't be making that statement!

It takes 3-5 years to become a competent gardener. Hope we have enough time.

For tomatoes, buy vines marked "indeterminate" and they won't all ripen at once. Bush tomatoes are usually determinate so they do all ripen at once. If you get 100 tomatoes then can or freeze them.

For potatoes (also carrots), leave them in the ground if you can. If not, don't clean them when you dig them up and keep them cool, they'll last longer.

--
JimFive

Tip, try staggering your planting if conditions allow.

Giddaye Aniya,

Everytime I see/hear/read the reasons "why" from from various sources outside TOD, rarely (extremely rare in fact) is mention made of PO - that the world is running out of affordable oil. Sure, there's plenty of talk "around" it, such as alternatives, but these are mainly CC-related. And for most of we Joes and Janes, myself included, while costs continue to escalate, CC is barely a consideration.

So the foot that's in your boat, on occasion I lift a little, then back again, then up... In the back of my mind, beyond the sprockets and widgets, is a sense that all of these people that put their names to articles can't all be "hiding something" (or ignorant, or blinkered or whatever).

Oh, and I mean't see/hear/read in "MS".

Regards, Matt B
In support of this thing-that-nags, I fumbled my way through The Australian Financial Review (another first!) after dinner. Though there were several articles about oil/petrol/food prices, I failed to locate the words, "Peak Oil". So up comes the foot, hovering again...

The worse thing is, I'm not sure whether to build and tend to a vegie patch, or borrow a bit more money to expand the business a little further. "Do both", you'll probably say!

Yeah, they did blow it. And here's how we know. Their other scenarios that went on to "no adoption" or the BAU approach had the cost of gasoline nearly "flat-lined." everything in between cost less than the "maximum" scenario but more than the BAU approach.

While the logic you put forward makes sense to those of us who might think in like-minded, supply limited views, to have gotten it "right" the EIA BAU cost inflation would have need to be inverted from the document that actually presented. It isn't.