Sunday, June 10, 2007

Some dots that need to be connected to our montage…

• The price of wheat is back to near record highs. After this year's harvest, wheat inventories, as measured in days of supplies, might approach the critical 50 day mark, down from 57 days this year, and over 120 days in 1999. Corn is in a similar position.

• The U.S. Energy Information Administration projects days of supply of OECD commercial oil stocks will retreat to roughly 50 days in December 2007 (down from 53 days currently, and a high of 56 days in June of 2006) for only the 3rd time since the 1970’s oil shocks, and will further decline by December 2008. If you think supplies are “tight” now, you ain’t seen nothing yet.

• Although we have yet to receive the EIA’s data for world oil production for March 2007, we can count. Tanker traffic would indicate no change in the continuing decline of production, Asian customers of Saudi Arabia had been informed of cuts in their shipments (this is the primary area of growth in world oil consumption) and Saudi shipments continue to decline despite production coming from recently developed fields, and it has been reported that production declines continue apace for Mexico’s Cantarell oil field.

• Though gasoline prices have hit a new record at the pump, demand in the U.S. continues to grow.

• Oil exporting nations continue to flex their newfound muscles, with Russia leading by example.

From Bloomberg News, June 10, 2007

“Russian President Vladimir Putin assailed the dominance of the global economy by a small group of developed countries and called on them to recognize a ``new balance of power'' in the world.

``The new architecture of economic relations requires a completely new approach,'' Putin said at the St. Petersburg International Economic Forum today. Russia intends to become an alternative global financial center and to make the ruble a reserve currency for central banks, he said.

Traditional institutions such as the World Trade Organization are ``archaic, undemocratic and inflexible'' Putin said. Russia, the largest economy outside the WTO, has been trying to join the group for more than a decade.” - Bloomberg

“I’d like to repeat that because it sounds vaguely important” - George Carlin

A “new balance of power” in the world, one in which the oil exporting nations (Russia, OPEC) lord it over the importing nations (Europe, The U.S., China, India, and Japan) is in the cards. How the importing nations deal with it – by cooperation and conservation and an orderly transition to an economy less dependent on oil, or by the use of force – is less apparent, but after the U.S. experience in Iraq I am somewhat hopeful.

For the economic transition in the U.S., and the world, I am less hopeful. I believe that that is likely to be rather stark, whether or not it is sudden. Although we cannot determine with any certainty the peak date or the slope of the decline until well after the fact, the data continues to point to a peak nearly 2 years ago, and for any planning to be effective it must be commenced well in advance. Further, peak oil will arrive in the importing nations well in advance of the world production peak, and it is quite possible that we are seeing the early manifestations of that event now, in the form of record U.S. retail gasoline prices.

I continue to believe that we have some wiggle room, as there is substantial waste, or “fat”, that can be cut before we start cutting into the muscle and bone of the world economy, but that the fat will disappear at some point soon.

This is the time to get your act together, or you will be stuck with “woulda, coulda, shoulda” sometime in the near future. So stop digging your hole.

Yours for a better world,

Mentatt (at) yahoo (dot) com

No comments: