The Wall Street Journal also reported on Thursday that the International Energy Agency, based in Paris, was preparing to release a study that significantly reduced its preliminary assessment of the long-term world supply of crude oil.The energy agency has long forecast a slow but steady increase in production that would keep pace with demand. Output was projected to reach 116 million barrels a day in 2030, from 87 million barrels a day now.
But the agency’s chief economist said in an interview that the study’s results were still inconclusive.
“We are going to revise our oil supply prospects,” said Fatih Birol, the economist. “We don’t know the results yet.”
“But there are difficulties in expanding production,” he said, noting that the study, called the World Energy Outlook 2008 and scheduled to be published in November, will take that into account.
Matthew Simmons, the energy economist, tells the NYT that those who say this is only a temporary crisis are in denial: "It's sort of like the people who kept saying in the Thirties who kept saying there won't be war."
American Airlines is going to start charging $15 for the first bag checked on its flights -- more for passengers flying on discount tickets. My family and I are going off on a vacation next month, flying American. Great! This will almost certainly be the last air travel vacation we will ever be able to afford.
Meanwhile, the Senate demagogued yesterday, bashing oil company executives for profit-taking, apparently heedless of the fact that these execs have little or nothing to do with the crisis.
If you haven't yet, now might be a good time to read James Howard Kunstler's "The Long Emergency," which discusses in great detail potential scenarios for a time of permanent oil shortages. I was googling just now to find a link for the book, and came up with this piece Kunstler wrote about it for Rolling Stone. It starts out:
A few weeks ago, the price of oil ratcheted above fifty-five dollars a barrel, which is about twenty dollars a barrel more than a year ago. The next day, the oil story was buried on page six of the New York Times business section. Apparently, the price of oil is not considered significant news, even when it goes up five bucks a barrel in the span of ten days. That same day, the stock market shot up more than a hundred points because, CNN said, government data showed no signs of inflation. Note to clueless nation: Call planet Earth.
This was 2005. The price of oil has more than doubled since then.
I was talking yesterday to a Dallas friend who's a fan of Kunstler's recent post-peak oil novel "World Made By Hand." I was telling her about how sudden it all seems, and how it is starting to seriously affect our daily lives. My friend said, "Every time I start to think, 'Wow, could we really be going toward a 'World Made By Hand,' it seems like I turn on NPR and we really are."
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Franklin: "Isn't "tail wagging the dog" a reasonable description of the build up to the '29 crash?"
It's a reasonable description of EVERY crash!
On oil speculation, some people are talking about reforms such as only allowing those who are able to take physical possession of a commodity to participate in commodities futures markets. I'm not sure what to think. The big players would probably just arrange to have someone else hold the stuff for them. And then someone would offer such services to small-time speculators.
I think this behavior will disappear once the boom cracks up. For example, you don't find too many day traders buying internet stocks these days or flippers buying up houses!
Franklin: "I am non-plussed by a government that has so far failed to act to protect a strategically critical resource."
This ramp up in commodities speculation is an indirect result of recent Fed actions. I can only speculate (har, har), but I believe Bernanke and the other governors are scared witless about a possible collapse of the financial system (with good reason) and are willing to allow this speculation in commodities to run its course (as it will). As for Congress, they're great at closing and boarding up barn doors after the horse has escaped, rendering the barn totally useless. And the Decider-in-Chief, well ...
That's a rather frightening scenario, pyrrho. If you make it "must be a bona fide user of the commodity", as in proof of manufacturing capacity or some such, I'd feel less scared... but only somewhat less.
The way it stands now, speculators have a de facto "right" to make the transactions. I don't see the sanity in relying on their restraint... q.e.d.
The most effective means of ending these serial speculative booms in stocks, real estate and commodities would be to limit the expansion of money supply. A very boring topic for most, but absolutely crucial.
My previous post was in reference to the physical possession scenario. Cross-posting is so much fun... ;-)
My previous career was pension admin and ERISA consulting. I know all about horses and barns, and I have the shoe-shaped scars and burn marks to prove it. :-[
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