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An economic boom becomes
impossible unless it has access to CHEAP ENERGY.
Click here to read
Tainter for details about ENERGY and ECONOMIC cycles. |
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The price evolution of Oil cannot
be compared to Dot.com (internet) stocks or to Real the Estate
Bubbles. Oil is a REAL COMMODITY in short supply. 70 % of the US oil
consumption is imported…for the 1st time in history the consumption
curve has penetrated the production curve eating up the inventories.
A critical point has been crossed. Contrary to what a lot of people
think, Global Demand keeps rising by 1% per year and supply is
coming down.
November 2008, the International Energy Agency (IEA)
released its World Energy Outlook report. According to the IEA, our existing oil
fields are depleting by a shocking 6.7% per annum and we would need
to find an additional 60 million barrels per day of new oil supply
in 20 years to meet global demand.
We are reasoning about LIQUID ENERGY. Solar,
Wind and nuclear CANNOT be used for automobiles, trucks, ships, airplanes, motor
bikes and grass mowers |
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Houston we have a problem:
The U.S., with 5% of the world's population, uses 25% of its
global oil supply.
The
typical American, in other words, might be compared to an elephant, while
the average European or Japanese (to say nothing of the average Chinese or
Indian) might be likened to, say, a deer. The elephant needs an
enormous amount of food merely to stay alive; if it is restricted to
the amount consumed by the deer, the elephant will die. |
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Consumption of
Barrels per Capita |
| USA |
25 |
| EU -
Europe |
12 |
| China |
1.85 |
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Updated August
8, 2008 -
Peak Oil and misallocation of funds
We have for the 1st time entered an era
where Demand for oil is larger than Supply. Crude oil prices are in a
secular uptrend as the shortage between supply and demand is compensated by
stocks. But the day is close these stocks will be depleted and demand will have
to give in. The Western world is already burning less liquid energy. The Far
and the Middle-East are over happy to use the balance.
Talking heads still don’t seem to
understand that the Oil prices ain’t rising in a context of falling demand and
rising supply and higher stocks. What we see for Oil is exactly the opposite.
Those waiting for a oil bubble like a credit bubble, a housing bubble and/or a
real estate bubble are going to be deceived.
We have a paradigm shift. The
misallocation of funds that are the result of Fractional Reserve Banking and
creation of money out of thin air are the motor behind the actual and future
shortage of liquid energy. Instead of allocating funds to new exploration,
drilling and the modernization of refineries, the funds were used to fuel the
worldwide Bubbles like those in Real Estate.
As usual, the political rulers have made
it worse than it already was: no licenses were given to built nuclear power
stations (today building a nuclear power station costs € 4.3 billion!) and new oil refineries. They simply refused to accept the basic reality
that one needs to break eggs to make an omelet.
(click on the picture for a slide show on the
Chinese energy situation)
The decrease in consumption by the Western World is burnt
by the Middle and Far East.
(* global demand increase is 1% per year)
"Peak Oil" scares the hell out of me;
there is no Plan B and we have left it too late. The chances of increasing
production are slim at best due to geology, rusty infrastructure, shortage of
equipment and scarcity of skilled workers. In my estimate, global supply of oil
will drop by 7-10 m barrels per day by 2012 and this is after taking into
account new supply over the same period. Not a happy thought and all we can do
now is to load up on commodities, pray and hope for the best. "
Energy is something very important for the
development of an economy and yet, extremely misunderstood. Total energy is the
sum of liquid and other renewable energies (like solar, wind, nuclear,
electricity). Misunderstood is the fact that there is a fundamental difference
between LIQUID ENERGY (oil) that makes engines run and global energy like
Electricity.
The Depression of the 1920's-30's saw the
end of the age of Coal and Steam and the replacement by Oil. What we are
living now, is the end of the Age of Petroleum. It is not 100% clear by what
Oil will be replaced. However, because of their inherent characteristics,
it is just impossible for Solar and Wind Energy to fulfill this
task. My conviction is that in the near future,
Nuclear Fusion and
not
Nuclear Fission will replace Oil and Gas and signal the start of the next
world economic boom. Hydrogen could also replace liquid energy and be used to
run cars, airplanes and vessels.
An increase in price basically happens in a
process to adjust Supply and Demand. Speculation only plays a secondary and
temporary role. There is NO DOUBT that this is peak oil: demand is 87 billion
barrels per day and supply is only 85 billion barrels per day. In other words
there is a shortage of 730 billion of barrels on a yearly basis. To make
things worse the inventory levels are below these of 2007. In other words,
we will only see limited price reaction within the secular bull trend. If there
is no price reaction between today and July, I expect to see $ 150 per barrel by
the end of 2008! In case (hopefully) there is a price reaction, there is NO
doubt we shall see this figure in 2009.
December 2008, the price of
Oil has as a result of deleveraging, the garage sale, deflation propaganda and
manipulation of the PAPER OIL DERIVATIVE MARKET (I hope you don't believe
Governments are the nice Altar boys the pretend to be) fallen back to $ 40
(technically a HUGE support line). Financial analysts who only months ago were
forecasting $ 300 for oil are now talking of $ 30 and less per barrel. Our
opinion is that Crude Oil price will not be able to fall below the $ 40 support
line and that somewhere next year it will take off again once the markets
realize the huge mistake they made.
Click on the chart below to
fly to the Technical Analysis for Crude Oil
B and A
Air Co. , Florida, USA |
