peaknix

Whenever I get weighed down by a deadline (or two) it is hard to break through the writing resistance. Since I am back in the blogging saddle these past couple of days, I have made a couple of posts in my other blogs but have yet to do so here.

On our own food security:

• A Snippet of my Edible Summer
• A Fall Fowl Phalanx

On the global food security tragedy of Melamine:

• Melamine, oh thy name is legion

There is also the whole massive ball of uncertainty that clouds the current economic environment along with the dangerous volatility in oil and gas prices.

I personally dislike the mental mania that leads to the massive lows we had the last couple of weeks and the high we got yesterday close to 900 up on the DOW. I guess I just do not have enough testosterone to enjoy such silly swings, my estrogen and progesterone say – shoot for steady state homeostasis that doesn’t lead to hyperbolic crashes every day. Is this too much to ask? Yes, indeed, I think it is.

The sludgy miasma of conflicting indicators that surrounds us makes peak oil aware people even more edgy because the cognitive dissonance between the slump in crude prices, the drop in gas prices, and our empty bank accounts and bleeding treasuries seem to tell us that these indicators either are irrelevant or confounded in painfully complicated ways.

I think that the psychology and dynamics of oil price, use, demand, supply and futures are profoundly non-intuitive to begin with and then it’s been toxified by the inrush of derivative loving speculators who are trying to catch an up or downdraft to re-coup losses elsewhere.

Thing is, we seem to have been on a steady downturn in crude prices that has a downward price support for a few weeks. It means I can drive to work on less expensive gas but it has a very huge negative impact on peak oil.

The demand destruction that followed our price shock this summer lead to real changes in American gas usage, this WILL reverse as the price goes down.

With this fall in prices and the collapse of credit markets, exploration of new resources is truly dying on the vine (they were rather feeble in some ways to begin with).

On top of this, current reserves are starting to prove out to be less than promised.

Carola Hoyos and Javier Blas in The Financial Times (London, October 28 2008), in an article called “World Will Struggle To Meet Oil Demand” report that the International Energy Agency’s annual report, the World Energy Outlook

Output from the world’s oilfields is declining faster than previously thought
…
“The future rate of decline in output from producing oilfields as they mature is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand,” the IEA says.

The watchdog warned that the world needed to make a “significant increase in future investments just to maintain the current level of production”.

Oil Price Shock 2.0

There are some, even in the face of the current downward trend in crude prices, that are suggesting that the rebound, when the price support for bottom is felt, will be severe.

Guy Chazan writing for the Wall Street Journal in an article called “Oil-Price Rebound Could Be Severe” published today (Oct 29, 2008), suggests:

The slump in oil prices has spread relief among consumers and fuel-reliant industries, but also is squeezing the companies who could invest in new sources of oil — spurring concerns that prices will prompt them to shelve investments.

and

“Low oil prices are very dangerous for the world economy,” said Mohamed Bin Dhaen Al Hamli, the United Arab Emirates’ energy minister, speaking Tuesday at an oil-industry conference in London. “We need an adequate and reasonable oil price that will continue to stimulate investment.” With prices now languishing, he said, “a lot of projects that are in the pipeline are going to be reassessed.”

Rationale is:

Nobuo Tanaka, head of the International Energy Agency, the Paris-based watchdog, was one of several experts at the annual Oil and Money conference here predicting that the industry could be setting the stage for yet another supply-and-demand whiplash down the road. “We’re concerned that supply won’t catch up with demand after this crisis,” Mr. Tanaka said. “The supply crunch may come again, but in a more acute way.”

Big Sighs

Yeah, its all non-intuitive, not even counter-intuitive. Demand destruction is a complex phenomenon and hard to predict in terms of when it might ease and then signal the upward spike that the oil producers will ensure as soon as the supply – demand spread narrows. They are dropping their output now and will certainly not be in the mood to throttle back up next time we consumer nations bleat about unfair pricing.

Each price shock conditions the entire market. Each player learns a certain lesson. I think it would take a team of neuroscientists, psychologists, sociologists, economists, psychics, and informatics statisticians to be able to model the various scenarios as we proceed through the descending collapse levels.

Tags: collapse, crude, dynamics, oil, price shock

This entry was posted on Wednesday, October 29th, 2008 at 6:01 pm and is filed under blog, news. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.