ozzy43

Confirmatory Bias and Oil Investing

There are a number of problems with this article. Primarily, it seems to be making a sort of 'collectivist straw man' argument - i.e. painting all oil bulls as having the same series of rationales, and then attacking the collective 'them' simplistically. Real life is far more complicated than this analysis would seem to indicate. Like any other bulls, oil bulls are bullish for different reasons.

The article author's bias becomes apparent with this statement:

"Investors ...ignore a permanent increase."

A "permanent" increase? That would seem to be an admission of belief in the abiotic origin of oil; i.e. the notion that oil is not a finite, non-renewable resource but is in fact infinite. This is even more of a fringe belief - by far - then peak oil!

The essay appears to be a work in over-generalization. This is just as fallacious a logical approach as confirmation bias, of course. Rather ironic.

A final comment: this statement: "Every other week there is news about some labor strife in Nigeria" certainly appears to qualify as confirmation bias in its own right under one of the definitions the author himself provides: "...the tendency to give greater weight to information that is supportive of existing beliefs or opinions than to information that runs counter to them. This does not necessarily mean completely ignoring the counter indicative information but means being less receptive to it..."

Bombs blowing up oil pipelines = labor strife?

Doubly ironic.

17-Year-High Cost-of-Living Surge Worries Bernanke, Too

Well of course - how could it be otherwise? In order to fulfill the financial promises the politicians have made to the retiring boomers, government has only one choice: inflate the supply of dollars so they can pay up, and we're seeing this occur before our eyes. Thus, the *letter* of those promises will be kept - if not the spirit, as the money will not buy the amounts of goods and services those retiring boomers thought it would. Get used to seeing the faces of seniors when you eat at McDonalds or order a pizza. They're gonna need to make ends meet. And it's always easy to find scapegoats to blame for the government's mess. Perhaps those evil speculators (who don't seem to have much lobbying clout in DC)...

Is Gold an Effective Hedge Against the Dollar?

This analysis seems to support the notion that, as the monetary system - make that 'manipulatory scheme' - engineered by the feds and the Fed becomes ever more unworkable, requiring ever more desperate and dangerous moves (e.g. opening discount window to all comers, raging inflation in nations with dollar peg, questions about petrodollars and dollar-as-reserve-curr... etc), gold continues to offer its traditional promise of succor to those fleeing the environment that has resulted from this scheme. Hard to see how that ends well for the dollar, or how this trend of the flight to gold could be reversed in the near to mid-term. Does a new global monetary arrangement - a new Bretton Woods - loom on the horizon?

Yes, U.S. Gas Use Dropped; But So Did Production

Regarding the author's presumption: "domestic oil production will begin to move higher over the next few years due to all the exploration and development being done"

Are there publicly available articles or studies which present evidence for this view? Most of the analysis of this question I have seen indicates that all of this exploration and development will, at best, only partially offset the *decline* (e.g. www.theoildrum.com/nod...), and I have not seen any logic and fact based articles which make the case that an actual net *increase* in domestic production can ever be expected again. Would be interesting in examining any such.

Also, it seems evident that even if an increase could be achieved via new fields, this could only happen many years from now since it takes a decade or more to bring enough wells online to reach high levels of production. Does this author contend that oil prices will fall sooner than that, or is his timeline for falling oil prices several years out, as would seem supportable IF such an increase could be achieved?

Or is the assertion here that we'll be able to reverse the decline in existing fields? And if that's it, are there articles or studies which are based on evidence of this?

Why $140/Barrel Crude is Unsustainable

A comment about this statement:

"The basic economic principle, which has stood the test of time and applies to this day, is that supply rises in response to prices..."

I think this ignores the fundamental fact that oil is non-renewable and finite, unlike most other products. If the supply of pencils runs low relative to demand, prices rise, and more pencils will no doubt be manufactured to meet the demand and to reduce prices over time. But oil cannot be manufactured like pencils. And most of the credible petrol geologists (which excludes the Russian 'abiotic oil' camp) are telling us that further exploration and drilling cannot even offset the depletion of existing wells, let alone add to top line supply numbers.

So the only way that this article and its author can be right, long term, is if the peak oil geologists are wrong. Hauling out an overly simplistic economics adage is not compelling. Solid evidence that the peak oil engineers and geologists are wrong would be - yet despite an intensive search for such, I have been unable to find such evidence.

Remember that an heretofore truthful adage like the one which undergirds this article's argument is obviated and becomes false when a fundamentally new paradigm replaces the old. If the peakers are right and we are at, near, or even past peak oil, then a new paradigm is upon us. And if that's the case, then I suspect that at some point, what happens to one's position in oil (or any other virtual, non-physical investment for that matter) will be the least of one's worries.

Renewable Energy: The Next Economic Boom

This snippet is misleading due to the implicit assumption it makes:

"...by 2050, power consumption is likely to have risen to 30 terawatts."

This should have said, 'based on current trends, demand for power is projected to rise to 30 TW'. The fact is, as any petroleum geologist will tell you (except for a few crazies in the Soviet Union who maintain oil is abiotic in its origins - and if you believe them I have some oceanfront property here in Phoenix I'll sell you), oil is a finite and non-renewable resource, and as many of these self-same geologists are now saying, we're past, at, or very near, the peak for oil. Which does not mean that oil is going away, but that cheap, easy to get to oil is going away. Current plans call for the Saudis to double or triple their output by dozens of millions of barrels per day to meet future demands - but they can barely seem to squeeze half a million extra out these days.

The point is this: all of the renewables depend on fossil fuels - whether for the mining or farming or extraction or manufacturing operations, as well as transport. Try generating hydrogen, mining - and then extracting oil from - tar sands, or manufacturing a solar cell array or a wind turbine (and then transporting any of it) - without cheap fossil fuels. There is no renewable form of energy (or energy storage) that can be swapped in for fossil fuels in the short term span of time geologists say we have - it would take decades and we don't have decades to replace this fundamental - foundational - piece of infrastructure, upon which everything else runs and depends.

It is a statement of fact to assert that power consumption cannot grow beyond power supply. Therefore whatever the power consumption will be in 2050 will most assuredly depend utterly on the supplies and types of energy which are available to be harnessed. Oxen and horses for much of the world, most probably. I doubt it will amount to 30 terawatts.

But if it helps you sleep at night, by all means feel free to believe that oil is an infinitely renewable resource. And get back to me about that property in Phoenix while you're at it...

Dow-Gold Ratio: Very Different 'Bull' Markets

Lotsa reasons why, ModDon - here's a simple one: the US government has made promises to the baby boomers which it cannot possibly keep, financially, UNLESS - it inflates the currency massively (recall: inflation = increase in money supply). That way, retirees get what they were promised - sort of. Of course, they won't be able to afford the goods and services they imagined that money would buy due to the inflation, but that will be their problem, not the government's, which can claim to have kept its promises.

So you can choose your startpoints and endpoints to make any argument you like concerning past and present values, but massive inflation = increase in gold's dollar value.

Not all Metals are Created Equal (Part I)

This analysis seems to rely on the fundamental assumption that peak oil is a non-event. That is, it relies upon the presumption that we're not entering a completely new paradigm as regards global energy supplies. Perhaps this is accurate. But if the peakers are right - and I think an analysis which draws this conclusion is at the least plausible - then all of this analysis rests on flawed assumptions about the future state of the markets, and indeed the world.

An Energy Policy That Makes Sense, Revisited

A note on the "theory" of abiotic petroleum origin from Wikipedia:

The most important counter arguments to the abiotic theory involve various biomarkers which have been found in all samples of all the oil and gas accumulations found to date. The prevailing view among geologists and petroleum engineers is that this evidence "provides irrefutable proof that 99.99999% of all the oil and gas accumulations found up to now in the planet earth have a biologic origin." In this process, oil is generated from kerogen by pyrolysis. While, Thomas Gold hypothesized that bacteria exist deep within the Earth's crust, and are the source of the biomarkers, these bacteria have not been found, the natural abiogenic formation of high-carbon hydrocarbons has not been demonstrated, and evidence for the biotic origin of petroleum is abundant.

This can only loosely be classified as a theory (speculation would be a better term, or untested hypothesis), and it is one without any evidence whatsoever, whereas the standard view of petroleum biogenesis - which the vast majority of geologists hold - offers innumerable proofs. To hold the two up as peers is disingenuous to put it politely. It is yet another exercise in fantasy, intended to allow the holder of such a view avoid dealing with the unpleasant reality of peak oil.

An Energy Policy That Makes Sense, Revisited

While your diagnosis is relatively accurate, the course of treatment you prescribe is an exercise in fantasy, relying as it does on government to 'do the right thing'. In doing so, you mistake the nature of the beast. It has been government which - by offloading such externalities as air pollution from businesses onto taxpayers, and by implementing legislative, regulatory and judicial and even military protections (you didn't really think we were in Iraq to promote democracy did you???) in favor of the oil companies - is largely responsible for the current sorry state of affairs.

Government is NOT an agent of the people - it is NOT "an institution of social service" or even "an amiable, though often inefficient, organization for achieving social ends" (Rothbard) - it is, by and large, as Albert Jay Nock put it, "a distributor of economic advantage, an arbiter of exploitation", or even more damning, in Rothbard's view "it is the systematization of the predatory process over a given territory. ...The State provides a legal, orderly, systematic channel for the predation of private property; it renders certain, secure, and relatively 'peaceful' the lifeline of the parasitic caste in society."

This is the entity to which you wish to turn for solutions? It will never be what you think it is, and therefore will never behave as you wish and hope for it to behave. Because this would be precisely contrary to its very raison d'etre. You are assuming a grizzly bear is a cute stuffed teddy bear. That's a lethal mistake.

Therefore, your proposal is at its core, fatally flawed.