Sunday, April 19, 2009

Observations

During the four week period ending 5/25/2007 Oil imports into the U.S. peaked at 14,419,000 barrels per day ("bpd").  During the four week period ending  3/27/2009, not quite 2 years later, imports into the U.S. averaged 12,466,000 bpd, roughly 2 MILLION barrels per day less than 2 years ago.

U.S. Oil Imports first exceeded 14,000,000 bpd in August 2005.  They will never exceed 14 Million again in any 4 week period, ever again (and then 13MM, then 12MM, then 11MM, etc...).  

And I am pretty confident it was the egg that came before the chicken here...  That oil supplies sparked the contraction (with the aid of plenty of dry tinder in the form of a Real Estate/Credit bubble) we are experiencing and will continue to experience for years to come.  And it wasn't the price of oil that tipped it over, it was the supply.  The price would not harm the "world" economy - for every importer being injured there was an exporter benefiting.  The Oil market is a zero-sum game.

Think back to August, 2005.  The price of Oil traded between $53 and $67, give or take.  That was during a period of economic expansion.  This month Oil has traded between $50 and $55 - in the midst of the worst economic contraction in the post WWII period.  Something doesn't add up.

The talk around Wall Street is that OPEC has been surprisingly disciplined in sticking to their production cuts.  My comment:  BULL SH*T!!

OPEC is producing as much as they can on a sustainable basis, in my humble opinion.  "Discipline" is being forced on them by powers beyond their control.  THAT is why the price has held above $40 for 95% of the oil traded over the past 7 months (since the world fell apart).  The price is the clue as to whether it is the chicken or the egg.

And don't believe that BULL SH*T about how low oil prices have shut in conventional Oil production.  That might be true for the Tar Sands or deep, hot oil under 6 miles of impacted salt in the Tupi fields, but there isn't a spec of truth in that statement as regards on land production.

I am not a geologist, but the price action and the import data lead me to one inexorable conclusion.

Peak Oil is upon the United States of America.  

Somewhere out there is a very sharp geologist by the name of Jeffrey Brown who should be taking a bow right about now.  Jeff predicted the import contraction facing the U.S. and the rest of the world's oil importers in 2005.  Even gave his model a catchy name:  The Export Land Model.

We are going to hear a great deal from the media, our corporations, and our government about why this isn't so.  You are going to hear that "Demand" peaked.  Or that the recession caused a drop in demand.  Or that the American people have suddenly all become environmentalists.

Whatever.

Let your eyes glazeth over when you hear this mealy mouthed BS.

Peak imports have happened to the U.S. and the other major importing nations.

Stay tuned.  I have much to flesh this out with, but I got to put the kids in the tub and get them to bed.

Yours for a better world,

GTJ

P.S.

The following is from my October 17, 2007 post on what Peak Oil will mean to Americans:


1. New Orleans will never be rebuilt, nor will any other future major natural disaster of similar scale (are you listening Florida and California?).
2. American children born in 2007 will not need a driver’s license when they are 30.
3. Your 401k will become a 201k, and then a 101k, and then just a k…
4. Social Security and Medicare will fail.
5. America’s farm labor workforce will be 33% of the population by 2030, not the 1.5% of 2007 (Texas A&M might actually be a better bet than Harvard for junior after all).
6. Student loans will be a future credit crisis. (Borrowing $200k for a literature degree will, in retrospect, not appear to be an intelligent investment.)
7. The luxury car you now drive will be a very nice pottery holder in your garden.
8. But, your milk goat is really going to appreciate those fine leather seats, and your chickens will really enjoy perching on the engraved wood steering wheel.
9. You’ll be using dollar bills to light candles on your birthday cake because they are cheaper than matches.
10. Homes will come with only 1 zone heating and AC - your bedroom.
11. You’ll be thin again!
12. Home cooking!
13. Your wife’s depression/personality disorder, junior’s ADHD, and your alcohol problem… cured, with all that fresh air and sunshine instead of driving everywhere.
14. South Florida’s housing crisis will never be resolved.
15. The Southwest water problem will no longer be academic.
16. You won’t feel so rushed anymore. You won’t be spending time going to the gym, filling up the car, commuting…
17. No problem not fulfilling your new year’s fitness resolution as walking and biking will no longer be optional means of transportation.
18. You will care far more about who is Mayor than who is President.
19. You will get to know the neighbors, one way or another.
20. Conspicuous displays of consumption or wealth will not be good for your health.
21. The response time for 911 is going to be a great deal longer than it is now.
22. The end of Feminism, Liberalism, Conservatism, etc… these were luxuries of the cheap fossil fuel era.
23. No more keeping up with the Jones’. Keeping up will be quite enough.
24. Flush it and forget it will be replaced by compost it and fertilize with it.
25. You will never have to mow the lawn again, ‘cause your gonna need that hay.
26. You won’t have any trouble finding a parking space.
27. No more road rage, you will truly appreciate the use a of vehicle.
28. You are going to look fabulous in designer jeans while working in your garden, fixing your bike, etc…
29. Golf courses will become community gardens or farms and that home on the 9th hole will likely become a home in the Spinach field or pumpkin patch... and you will be working on your swing all right – for your hoe, your scythe, your axe…
30. The demand for lawyers, stockbrokers, accountants, insurance agents, realtors, hair -dressers, massage therapists, psychologists, etc… is going to dry up in ways I am not poetic enough to describe (and I own a brokerage firm).

No, this won’t happen overnight, but that is not the point. The point is that it WILL happen. Things will change, and since “for the better” or “for the worse” is an abstract I have no comment on either. Things will change and some people will be the “winners” in the new paradigm, while others will be the “losers” (sorry, more abstractions), and it is up to you to decide where it is you would like to be and what actions you plan to take to execute your plan.

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21 comments:

bureaucrat said...

About time you posted something ... :)

My comments ..

1) There has been little or no drop in oil demand in the U.S. The EIA data shows a miniscule drop (6% or less for a few months). The cars and trucks still roar down the Kennedy Expy every day (how's that for anecdotal?) I would bet global oil demand has dropped by a lot. U.S. demand may have peaked (we use less and less oil for vehicles every year via efficiency), but there is no way in hell only 6 Chinese adults out of 1,000 will be satisfied with their car situation.

2) I'll take at face value what you say about supply destruction only a concern with certain modes of supply (oil sands, etc.) However, one cannot ignore the substantial oversupply today of oil and gasoline -- so much so that tankers are sitting off the coasts until the oil can be sold for more. Demand can exceed supply for awhile -- via oil in storage.

3) We still haven't tallied up all the colossal waste of oil in needless transportation and product creation. Four car trips a day to the corner store? Millions of plastic park benches made? I'll bet we and the world would use half the oil we use now, if we had to.

4) Farming sounds great, until you actually have to do it. :)

Quantum_Flux said...

Everybody thinks there is a peak oil .... anyhow, you should check out the only other "hedge fund operator" on the blogosphere has to say of peak oil.

Anonymous said...

from a comment on the oil drum:

The key has to do with OECD storage levels a lot of that oil does not actually exist a good bit of it is paper barrels. GS and MS don't actually hold the physical barrels they claim.
As long as they can make their deliveries as needed and make money they are ok but last year in my opinion because of BS and Lehman they where forced into a situation where they could not acquire physical oil fast enough to settle physical claims. Underlying this was of course a fast collapse in overall production. Thus we came close to having a cascading failure to deliver hit the oil market.

http://www.theoildrum.com/node/5304/493961

Greg T. Jeffers said...

Bureaucrat:

I linked you the supply data. The numbers are hard, how we interpret them isn't.

Greg T. Jeffers said...

Quantum:

Can you give me a link?

Quantum_Flux said...

Hedge Fund Operator...lol!

Quantum_Flux said...

More specifically, OIM on "Peak Oil"

Anonymous said...

WOW! OIM is a great site.

Glad to know that the peak oil thing is just a scam. Now we can go back to business as usual.

Whew!

Quantum_Flux said...

Aside from the production of short chain hydrocarbons up to octane from biodiesel production methods, this analysis from JF Kenney demonstrates that there should be aboundant abiotic hydrocarbons generated in the Mantle of the Earth that are not dependent on the process of sedimentary fossilization.

Andrew said...

You can talk up abiotic oil all you like, but until it shows up in an observable measurable way I personally will continue to regard it as a load of bunkum.

By observable & measurable I mean something on the scale of the post-peak North Sea or Cantarell fields reverse their inexorable decline.

Quantum_Flux said...

It might take a little "peak oil scare" but it will be inevitably have to be tapped before America goes triple-bankrupt.

Anonymous said...

There is no abiotic oil production in the world.

And no case of a depleted oil field refilling with abiotic oil from far below.

It is all somebody's theory. Just like the theories of Bernanke and Geithner.

Oh, what if, what if....

Quantum_Flux said...

Yep, it is all theory, but it is a more reliable theory than Peak Oil simply because it isn't a hoax.

Donal Lang said...

Hi Greg,
This is one thing we disagree about; I think oil is so demand-inelastic that the high price last year created the demand destruction in the US.

In Europe, where the price of petrol and diesel at the pumps is mostly taxes, we've seen much less impact from high oil prices because the relative increase in pump prices is less; typically from £4 a gallon to around £5 a gallon.

I also think that there is an 18 month delay between a high oil price and the subsequent recession - that's certainly been the way in the UK.

I would read it that the high oil price caused a fast collapse in demand in the US and, to a lesser extent, Europe. Then the recession caused a reduction in transport/shipping demand worldwide. The slowly increasing price of oil now is because the developing nations are still growing, and especially China is still increasing its imports for infrastructure works. I think we'll see a slow but inexorable climb in underlying oil prices for the next couple of years.

Re: Quantum Leap - I presume from your chosen name you're a fan of science fiction?

Greg T. Jeffers said...

Hi Donal:

I will flesh this out over the next month or so... I think that peak oil has arrived in the U.S. and given that the U.S. is 26% of world GWP... well, we can discuss the extent and the timing of the impacts.

I think the next decaded will be an interesting one in which to be alive - invigorating, challanging, stimulating, corrective... perfect for the philospher wannbe!

Andrew said...

Quantum - I guess the Easter Islanders thought "Peak Trees" was a hoax too. After all, trees are a renewable energy source right?

Donal Lang said...

Hi Greg,
yes, I agree that Peak Oil is here, and not just for the U.S. last year I said the first impacts would be Japan and Germany because they were exporters of high value goods and importers of all their oil, and that has been the case (although the short-term effects in Germany have been hidden by being part of the Euro).

At the moment in both the USA and UK, the bubble in banking and housing is being followed by a bubble in newly printed money. Like all bubbles it'll delay the inevitable crash (maybe) but ultimately reality will happen.

With Peak Oil about last year or now, reality could even be put off for a year or two. In that case, I'd guess reality will take the form of a collapse of the dollar.

I wonder if Canada and Mexico will become less-willing partners in NAFTA as the U.S. problems increase? They need their oil and gas too.

Donal Lang said...

By the way, is that right that if California cedes from the Union, they take with it about 30% of U.S. GDP? Hmmmm......

bureaucrat said...

Nobody is seceding from nowhere ... do you know how much paperwork it would take to fire me? :) Can you imagine the paperwork it would take to remove California or any state from the U.S. zip code register alone?!?! Ain't going to happen. People naturally are lazy, greedy and power-hungry. They aren't going to do anything that doesn't provide an immediate benefit. And they aren't going to do the paperwork.

Greg T. Jeffers said...

Bureaucrat:

Well, that is the majority position.

Nothing lasts forever... certainly not political unions. I will stick with my bet, though I won't live long enough to see it:

California secedes from the U.S. before then end of the 21st century.

sharon said...

thanks for sharing.......

___________________
Sharon
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