Saildog

Rising Oil Price Could Slow or Kill Economic Recovery

I agree on the low hanging fruit theory. But increasing supply from the harder to get fruit is more expensive in both monetary and energy terms.

NG certainly can/will substitute for oil, but is less energy dense, is less transportable, will require a new distribution network and anyway is subject to its own peak. Just ask the UK. In addition it will not substitute well for diesel and jet fuel, and is also required for fertlizer production.

However it is not the physical limitations that worry me. It is the impact of high energy prices in the economy and the consequent problems in the capital markets. I am concerned that our current complex economy is not viable without cheap and growing supplies of energy.

At a macro level if a greater and greater proportion of economic output is devoted to procuring energy, less is available for reinvestment. And this most certainly will stifle growth!

That is unless we get real smart real quickly. But I see no evidence
of that.


On Apr 10 10:55 PM old trader wrote:

> Saildog,
>
> No, I don't think that oil is "just another commodity", and recognise
> that there're many factors that play into its pricing. I am a believer
> in what is currently termed the "Peak cheap oil" theory...i.e., all
> the low hanging fruit has been plucked from the tree, and additional
> supply will cost increasing more.
>
> I also find it a bit puzzling as to why NG for use as transport fuel
> is not visible on the radar scream of oil dependency solutions, since
> its old, proven technology, with definite green benefits, in terms
> of pollution.

Rising Oil Price Could Slow or Kill Economic Recovery

Old trader - it seems your view is that oil is just another commodity that the world holds an infinite supply of. Not so. Oil is all about physical flows and these are impacted not just by geology, but also by economics, politics and several other factors such as an aging workforce and obsolete plant.

Then there is the interaction between what is a vital commodity with a wholly inelastic supply curve (higher prices do NOT equal more supply) and the capital markets. The higher prices last year (along with lax banking regulation) led directly to this recession/depression. It is unlikely production will ever exceed levels achieved since Q4 2004. According to Liebigs law of the minimum oil is now the limiting factor. Our economies will languish in lock-step with oils decline.

That is unless we get real smart real quickly. But I see no evidence of that. And BTW I am no tree-hugger.


On Apr 10 10:08 AM old trader wrote:

> Btw, before I get jumped on by the tree-huggers who believe alternative
> energy is the only answer, please recall that most, if not all, "green"
> alternatives are only economically viable when compared to higher
> oil prices. Do some reading, and it isn't hard to see how many projects
> have been scaled back/put on hold because they're not profitable
> when oil is at $40/bbl. (unless they receive heavy government incentives).

Rising Oil Price Could Slow or Kill Economic Recovery

There is a great deal of assumption in here based on the thinnist of thin evidence.

1. The current rally is a bear suckers rally. A major down-leg is due in the autumn.

2. There is nothing wrong with economic growth per se; however economic growth based on ever increasing resource use (especially oil) is finished.

The world is rapidly moving toward zero or negative population growth, the reduction and rapid elimination of fossil fuel use; and relocalization. We still have some time to mitigate the pain of this transition, but it is rapidly disappearing. The later we leave things the worse the transition will be.

Spending what little time and wealth we have left on propping up the banks, AIG and GM is wasted effort.

Our remaining resources could be used to build a vibrant economy that is based on conservation, renewable energy and rearranging our living arrangements around highly local concepts - walk/ride to work, local food and factories and more close knit communities.