Thursday, April 15, 2010

U.S. Military warns on Oil

Posting has been a bit light as it is spring time, and there is simply soooooo much to do on a family farm where the primary labor input is yours truly. I bought the place 4 years ago next week, ergo this is my 5th spring on the farm. I cannot begin to express just how much I have learned, and how much there is to know, in doing this. When I got here, I didn't know a horse shoe from a hammer. Not that I am ready to write books and teach courses, but I feel I actually know how to do this now. I say this only to point out how long it takes to provision and figure out the permaculture family farm - and tell you that you really, really, really need to be in good shape to do this (especially if you are of a "certain age").

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The U.S. military is out in force warning of immanent Oil shortages - particularly for the U.S., China, and India.

We can argue about the time frame, and we can argue about the ultimate price. Being off by a year or two (or 3. Most of the well informed prognosticators used 2010 +or- 3 years... now the U.S. military, a no B.S. organization if ever there was one, is joining the fray with a time frame not that far off from the others) just does not make a bit of difference to John Q. Public, as John Q. is hardly buying futures contracts... just retail gasoline, as well as the imbedded costs of energy.

What comes to mind to me is what happens to the life savings and portfolios of folks that spent a lifetime accumulating these "assets". Markets are "discounting mechanisms", that is, they predict the future. What happens in the various market places over the next couple of years as the Oil Boa Constrictor tightens down? The equity, bond, and commodity markets predict the future... when do the markets begin to predict this? Are some of the commodities already doing so?

This is going to prove to be a very interesting time to be alive.

10 comments:

Anonymous said...

It doesn't seem that commodities other than fuels will do too well.

Regards,

Coal Guy

bureaucrat said...

One minute you are beating yourself up for not seeing a "quirk gain" in the stock market and now you're saying any and all traditional investments are at serious risk because the Army says that peak oil is upon us.

I work with the Army and they do somethings good and somethings bad. Overwhelming force they are supposed to be good at. Strategy and tactics ... a la Iraq and Afghanistan ... not so good. They are just as clueless about peak oil as everyone else.

Anonymous said...

Bur,

I doubt that the Army is clueless about peak oil, or the CIA or NSA or EIA, or the committees in Congress that are involved in energy related issues. They are not that dumb. I just don't buy it.

It is just not politically expedient right now to discuss it. So,instead they whine about green this and green that and windmills and global warming. Of course, by basing the discussion on false premises, the REAL problems are never properly addressed.

Regards,

Coal Guy

Greg T. Jeffers said...

Bur:

Markets move in waves, not straight in any one direction (for long). The fact that I missed this wave does NOT mean that I do not believe there will not be another wave...

And I was not beating myself up... I was doing you and my other readers a favor (many of whom miss most moves in markets): you have to be able to forgive yourself, and look for the next big thing.

There is no time clock for the market game. The game NEVER ends.

bureaucrat said...

Well, if they are looking at the same graphs I am, they will see we are over the 5-year "in storage" band in the U.S. for oil, gasoline, diesel, heating oil and jet fuel. They would know instinctively that the Canadian oil sands and Venezuelan tar sands are briming with oil, and they are so close to us. They would know that Mexico has no outside experts running their operation, and likely could produce more oil if they had such experts. They would know that you can make oil from coal, which we supposedly have lots of. They would know that you can make oil from natural gas, which this country is overflowing in (price barely holding the $4 mark).

They would know that they are the best military in the world presently, and could easily defeat China and any other competitor in any of the places China now calls home for buying oil (Sudan, Angola, Iran, Saudi Arabia, Oman, Kuwait, Kazahkstan).

So why exactly would the American military give a hang about peak oil? There's lots of oil. All you need is the bigger gun. :)

bureaucrat said...

Jeffers: I'm sure markets don't move only in one direction .. up .. except this time of course. It has moved up for the last 13 months and will continue to move up probably forever ... or so the optimists think. They thought that way in the summer of 1929 as well. Enthusiam is a dangerous thing. :)

Anonymous said...

Bur-

I guess you have never personally seen the difference between light sweet crude and the stuff that comes from heavy oil deposits like the Orinoco Belt in Venezuela. Or the thick bitumen of the Canadian tar sands.

Light sweet crude is beautiful to behold. It smells good and flows beautifully. Clean and needs minimum refining.

The heavy oils are like the gunk you find when you dip a shovel into the bottom of a swamp. It's smelly, ugly, and does not flow well if at all. No comparison to light sweet crude(the stuff that is running out doh). Lots of processing expenses here.

And don't even get me started on the gunky solid bitumen of the Canadian tar sands. It's a mess. And has only a net energy return of about 2/1.

And oil from coal? You have to be kidding! Nazi Germany did this in WW2 as a last desperate measure to staunch the avalanche of Russky tanks and Allied bombers. And it was so ineffective that Germany did not have enough resulting useable fuel to even train new pilots- much less be able to fuel fighters to stop the nightly bomber incinerations of German cities. Anybody who thinks the US can fuel 250,000,000 cars with coal to liquids fuel is living on another planet.

Big differences.

Regards, Marshall

bureaucrat said...

I never promised you a rose garden. :) And yes, I know light sweet vs. sour heavy is akin to a Rolls Royce vs. a 1974 Plymouth. But, on a good day, the Plymouth does run. :)

Donal Lang said...

I see the shortage coming, but I don't see how a 10 mbpd shortfall results in just a $100 a barrel price tag. With the US, Chinese, European and Indian military (as well as all of us) bidding, seems to me $300 a barrel is more likely.

bureaucrat said...

Donal, you're making the same oversight many "peak oil self-taught experts" (like myself ;)) are making. You are looking at supply but not demand. If any commodity is priced too high for the average person to afford in the long run, that commodity will not be purchased. They just aren't affordable to the millions. China and India may indeed be rolling in U.S. dollars, and some of those people may be able to afford $300/barrel oil, but if 98% of the slobs in the street can't afford it, oil doesn't get bought, pure and simple. Oil companies and oil product distributors (gas stations) have fixed costs (minimal staff, rent, utilities, insurance) that must be paid each month to stay in business, and they will bring their prices down as much as possible to stay in business.

Oil is a self-price-limiting product. If high prices kills demand, prices will come down. The answer to high prices is high prices. :) The Saudis are in the media all the time saying they don't want to have the price per barrel jump so high that it pours cold water on the world economies.

Colin Campbell realizes this, I bet westexas is starting to realize this. :) Even Jeffers may realize this. There is no chance for $300/barrel for any length of time (several months) for several years, allowing the currency inflation to catch up. Ain't gonna happen, unless we are down to our last barrel and the 100 richest people in the world are bidding for it.