Peak Oil as a Direct Result of Misallocation of Funds 30 comments
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Unemployment is up, banks are going under, the trade deficit for the US looks nasty, the economy is down, inflation is up, investors are licking their wounds, oil has become so expensive airline companies have to park part of their fleet and let planes fly slower, but talking heads try to get the investor back into the stock markets…and yet, we have only seen the tip of the iceberg of the crisis, the credit crunch and the garage sale.
The risk that inflation may push up interest rates in the US this fall is growing by the day. The ECB already hiked the EU interest rates and has planned more before yearend. Europe doesn’t have the current account deficit the USA has and this offers the luxury to fight inflation.
Oil is easing somewhat, however because of peak oil, we will probably never see back a price level of $ 100 or lower. Even not if the economy falls into a huge depression. In other words, over the last years, the price of energy has increased by a fivefold ($ 20 to $ 100). Slowly but surely, the expensive oil is and will work its way through the system and prices of food and other consumer products will increase even more than they already have.
As people start to bunker oil for the winter, I expect a huge run up of the oil and natural gas prices towards the end of the year. Next we will have to see how cold the coming winter will be…
The American current account deficit of bn $ 700 doesn’t get solved and bringing down the huge amount of oil that is imported will take either a war or another 7 years. What we have here is a deep fundamental problem.
Politicians and bankers would love to inflate another bubble, however there is nothing left to make such a bubble.
We have, for the first 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, prices will edge up again and demand will somehow have to give in. The Western world is already burning less liquid energy. The Far East is over happy to be able to use the difference.
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 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 in real estate. Because of an oversupply, real estate prices are going down…and ironically, because of an undersupply, oil and gas prices are going up.
As usual, the political rulers have made it worse than it already was: no licenses were given to built nuclear power stations and new oil refineries. They simply refused to accept the reality that one needs to break eggs to make an omelet. The harm has been done and it will probably take some years before the problem is solved.
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This article has 30 comments:
> jack
Ironically banks may be a good investment now as they have had their spanking and are not energy dependent. So as of now I would do 70% enegy stocks (oil, gas, coal, alt en), 20% banking and 10% gold + silver. Build that up, sit back and wait for the enevitable.
Oil, gasoline and heating oil are taking a short price "pause" here due to annual seasonal factors, as domestic supplies have temporarily caught up to modestly reduced demand, and NG is following along for the ride.
But don't be fooled! Don't get lulled into somehow believing that oil prices will retreat over time, and there was an "oil bubble." Oil is now a GLOBAL commodity, and its price can only go up as the demand for Black Gold continues to increase throughout the world.
And this NEW demand is permanent. TENS OF MILLIONS of people across the globe are buying cars for the first time. So there's nothing "temporary" about this oil use, it will only INCREASE day by day. (No offense, but we can park ALL our SUV's, and this won't make a whit of difference as time goes on.)
So forecasting this pleasant break from ever higher oil prices was a good call. But you will need to get long again by the time you feel the first chill in the air. Between higher fuel prices and our resulting economic malaise, to do otherwise would be folly!
I believe it is fair to say you and I agree about our nation's (...short term, I hope) economic prospects. But I don't understand your take on bank stocks, then. Other than their current "dead cat bounce," I can't imagine them being a good investment. If people are unemployed, they cannot grow a bank's asset base, much less take out loans for houses, remodeling, boats, R/V's and vacations.
An altogether accurate and prescient post detailing our present economic circumstances. Thank you!
So let me ask you, what if the U.S. defies logic and continues its current embargo of its domestic energy resources? After all, our present political leaders have shown little interest thus far in doing otherwise. And the likely outcome of our coming November elections only promises more of the same.
My own opinion is we risk becoming a second-class economy, much like Europe's. (Of course, even the Europeans have demonstrated better sense than us in developing their energy reserves, which is a sobering thought.) It's funny, but I laughed for years as the Greens did their best to stall Europe's economic growth. I'm not laughing now, however, as they've succeeded in strangling ours.
I say this although opinion polls show that 75-80% of Americans now believe it's time for us to utilize ALL our domestic energy resources to revitalize our declining economy. You know, it's one thing to be asleep when the wolf comes to your door. But to invite him in when you hear him howling is something else again entirely.
Oil is on the way down further.
The large recent runup had more to do with shorts getting squeezed (Google Semgroup) than it did with anything relating to fundamentals.
Sure, the US Dollar is not gonna do well over the long term, we have too much debt, but this energy situation is NOT based on fundamentals it is about 60% speculation and 40% US dollar issues.
HK and CHK "investors" are a lot poorer for all the hype.
I don't know, my friend. My energy stocks (Bakkens and new NG related, mostly) are still up about 100% this year, and utilities are about even although the Dow and S&P have suffered 20% declines. I'd say shorting oil is a classic "bear trap" here for the reasons aforementioned. So stay tuned, one of us will likely be right.
Hmm, trade wars. I hadn't thought of that. But it's the next logical step before the REAL WARS. Perhaps, we're beginning to see the signs of this already.
1. We have PEAK OIL...Supply is smaller than Demand (the balance comes out of the stocks). It takes 7 year to bring fresh supply. The East buys whatever amount the West doesn't burn.
2. We had problems (Tainter) moving from Wood to Coal, moving from Coal (steam) to Oil, ...and we shall have problems moving from Oil (explosion engine) to ??? . Each time there was a major War.
3. Rising Energy and Food prices are the canary in the cage for Hyperinflation (Von Mises).
4. Politicians use well managed marketing to get elected. Bet Hillary will run as vice-president with Obama. They answer only to the emotions of the Herd in order to maintain their position. Better read what Thomas Jefferson said about politicians..not nice.
5. The Herd always wakes up when it is too late. Then the politicians are beheaded (Louis XVI and Marie-Antoinette)
6. We have a paradigm shift and few people see it.
7. The present monetary inflation policy can only go on if the politicians and talking heads pretend there is NONE and even that we risk Deflation (Hyperinflation is sociology and psychology)
8. NEVER compare commodities with Stocks, Bonds, currencies, real estate. Be cautious about commodities with falling supply (like Oil).
9. The american leaders only start to understand the problem. The risk to see a depression in the US is larger than to see one in Europe because the savings are negative (still + in Europe) and the Dollar is still a reserve currency. Having said that, if politicians are not making a depression from de recession (they normally do), the USA will come out of the depression faster than Europe.
10. Go to the web site for more...don't hesitate to make remarks and ask questions.
Fireball,
I know you feel better after a rant. I do, too.
Actually, it's Louisiana, next to Texas.
And, NO THANKS. I did my time in Washington, so long ago now it seems like a previous life.
Our best bet is Pickens. He has enough money and brains that they can't bully or cower him. But it can only work if we get behind it!!!
Alternatively, maybe we can get a job putting his wind turbines together.
If you can, you should consider coming this way. Texas is a great place to live and it's booming. It's also in the rapidly dwindling part of the U.S. that can still be called America!
It's not an accident that Pickens lives there, either.
This may sound ridiculous to you, but I see these types of efforts expanding after Obama's elected and the Greens are in full control. All they'd have to do is tell Louisiana and Texas they have to shut down their oil and gas production, or, alternatively, give it to them for free, and we'll opt out in a (pardon the pun) New York minute.
That could get interesting. And we won't have to worry about them sending troops, because the pacifists won't let them send them here or anywhere else, either. Besides, what's left of their military will be busy fighting wars over oil in some foreign country.
One thing I know for sure. It won't be ANYTHING LIKE what happened to the sheep in Europe when the European Union came calling.
So, tell me, buddy, what happened to good ol TN? Last I checked you were electing terrific Senators and were still pretty much a bastion of personal freedom. Has something happened to change that?