AvlGuy

Oil Is Up Due to Fundamentals, Not Speculation

BrucePile and his reference of Deffeyes' comment are a good enhancement to Hamilton's blog post. Deffeyes adds that oft-overlooked wildcard of human psychology that periodically/sporadica... defies all treasured 'supply-demand' notions of economics. Add to that the very real missing transparency on OPEC & other supply sources, plus dubious consumption data from some nations, plus a lack of transparency on actual oil storage...and you have the pricing conundrum of 07, 08 & beyond. The varying degrees of opacity & transparency gives free rein to theories & beliefs that allow for lots of venting & online posturing as witnessed by about a half of the comments here.

As much as people love to cite their history, past consumption models matter less because of the wildcard presented by China & India, whose growing demand will not be linearly immune to pricing, but will not so easily abate either.

My bet is that prices will stay high and will only be significantly dented if a deep & cascading recession circles the globe’s major economies. And that will only delay the inevitable re-rising of prices. Only an enduring “L”-shaped recession of close to 10 years will materially change our long-term circumstances, because we need ten years for the solutions re-stated below to kick in.

As alluring as the green-fantasy is of people returning to walking/bicycling in 2008, it is not just years away due to the inertia of human psychology; it is perhaps decades away due to the reality that access to medical services, high-wage service jobs, retail, and preferred entertainment, is beyond reasonable walking & biking distances thanks to the auto-oriented pattern of development in the US, the level of health of the American workforce, and the declining health of the aging boomers and also aging Generation Xers now entering their 40s and late 30s, an age when bad knees, bad feet, etc, really make their presence felt. These folks aint gonna be biking 5 miles or walking 2 miles for a very long time.

The current credit crunch and deleveraging will keep the brakes on any significant mass relocation of retail, jobs, medical centers, etc, off of interstate interchanges (as only one example) and back to within walking/biking distances of suburban cul-de-sacs and the residential neighborhoods of most mid-size cities. The infrastructure cost of implementing any decent scale of mass transit rail & light rail remains politically unpalatable, and the timelines involved are counted in decades, not years (see LA, Portland, Charlotte, much-delayed efforts).
And the current housing crisis prevents 10s of millions from selling their ‘isolated’ homes and buying closer to existing mass transit or closer to their jobs. More energy efficient bus fleets and autos are still aways off, at least 5-7 years.

Our generation will be stuck with prohibitively-high energy & transportation costs; the next generation, at best, will be in a position to use new smarter transit systems, wiser energy sources, and wiser and greener urban development patterns...circa 2018 and beyond.