Cracks Appear in World's Engine

NVDL: Did you know that Saudi Arabia's output is the highest it's been in two years, and even so we're still seeing oil prices go up? The Financial Times reports the following:

Normally it takes a war to lift oil prices $10 a barrel in a week. Not this week.
A market that started on Monday wondering if a fresh record of $125 a barrel was sustainable ended by witnessing spot prices above $135 and, crucially, long-term prices moving as high as $145 a barrel.

... veteran oil traders and analysts still say $150 a barrel is possible as it becomes clear that a supply crunch will hit the market in the next five years if demand growth does not slow.

NVDL: Is demand growth slowing? Did you drive less than usual this weekend? Have China and India said to their 1 billion plus populations, "Sorry guys, guess we're not invited to the party. Let's go back to the farms. Ja, just leave your cars and go back to where you came from. " No, governments and individuals will find any excuse, elect any leader, that allows them to continue consuming as we are now. Even so, it's not going to continue for a lot longer, even if we insist that that's what we want. Demand Destruction is a factor, and we're seeing demand eroding in the collapse of airlines now, but it will take longer to filter through to less vulnerable businesses, but, it will. Recession and the complete collapse of housing/property markets is the long term consequence of these high prices. The markets will choke on them, and globalisation will kick back into reverse.

Kevin Norrish, of Barclays Capital, says: "Strong oil demand, in particular from emerging giants such as India and China, along with disappointing non-Opec supply, continues to underpin oil prices."

Taiwan, Malaysia and Indonesia, [have] started cutting their expensive fuel subsidies, a change that signals that the first cracks in the world's engine of oil consumption are appearing.

Francisco Blanch, head of commodities at Merrill Lynch in London, added: "The oil market is avidly looking for a demand-destruction level." He said that several airlines had started cutting back flights and that high prices were hurting other transportation companies. This week's surge in prices - with spot prices up about 7 per cent and long-term prices up 15 per cent - has triggered concerns that the commodities market has become a bubble, after the booms in dotcom shares and housing.

But Hank Paulson, US Treasury secretary, said high oil prices reflected tight supplies and growing global demand and were not driven by market speculators. "I don't think this is about financial investors," Mr Paulson told CNBC. "This is about long-term supply and demand."

By Javier Blas, more.

Bombing Iran: The Clamor Persists

Hoarding, Shortages and Violent Fools

NVDL: There is something very seriously wrong when prices break records for something like 7 straight days, including overnight gains of $8. While many cried 'false alarm' when prices fell $4 followed the $135 record, within a day they have climbed another $1.90. This is extraordinary; it shows the oil price has got a lot backing it up. It can make large upward jumps off all time records, fall back, then rapidly climbs back to and beyond those record levels. Those who are counting on these 'bubble' theories ought to look at the facts:

Energy Watchdog Warns Of Oil-Production Crunch

The world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand. The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.

NVDL: A lot of people already know this, as we have been measuring depletion everywhere, even in the world's super giant fields like Ghawar.


Yet there has been some fascinating analysis of the current high oil prices, with a vast majority stuck in denial, citing: bubbles, speculators, dollar weakness, even Peak Oil panic. What this response says louder than the words themselves is simply this: people aren't ready to accept reality, people aren't prepared to accept that supply simply can't keep up because that would mean we would have to address demand (something we do each day) and I think everyone is still a long ways off from understanding reality. This is bad news for everyone, because it just postpones the collective wake up. It means, as long as people remain dismissive of high prices as a market fluke, a bubble, something that is someone else's fault, a temporary glitch, for as long as that happens, the house we're in, with all its beds, continues to burn unabated. It just makes the crash more severe when it happens.

Here's a reality check: large companies and countries are now undertaking massive hoarding behaviour. India has started with a SPR, and any other country with spare cash, and a right mind,ought to do the same. What that does, is sets off two responses:

1) increased demands and accelerated price increases
2) shortages

And once the world sees shortages appear in the system, we will see 1) and 2) repeated even more intensely. That's where we are now. Those shortages we've already experienced, are going to start lasting longer, as long as a few days, it will come back on, then we'll have nothing for a week, then worse. It will depend on our government and SASOL (in SA) to attract and pay for fuel when everyone else is also fighting for scraps. We're lucky that we won't be paralysed entirely straight off the bat - SASOL produces about a third of our petrol needs. So the next time you're in traffic, look at the car in front of you, and in the rear view mirror at the car behind. Only one of you can expect to be on the road over the medium term.

If you thought the power cuts from Eskom were a temporary blip on the radar, think again. We are now going into winter, and here consumption goes up anyway, even when we're trying to cut down. There was a warning tonight of load shedding, and the mercury won't even approach zero. When it does, and it will, large areas will once again be without power.
Remember also that every time this happens, a number of substations are destroyed in the process, slowly eroding infrastructure. Some of these substations will be rebuilt, most won't. It's the beginning of the degradation of this system, and I don't predict lights at the end of the tunnel.

In South Africa the many crisis that exist will manifest even deeper, in particular:

1) crime
2) mob violence (spreading throughout poor communities)
3) system breakdowns (electricity, water, police and health services)
4) recession and responses to recession - protests, unemployment, civil strife (this time from the middle class)
5) ordinary delivery failures (postal, food etc)

The reasons for all this are also basic; the infestation of high fuel prices into the system, meaning food prices becoming less affordable, mass defaults on loads, mortgages, and the unfolding of recessionary processes associated with stagflation - the nightmare scenario that is actually the world case scenario - high prices associated with unemployment, and lower growth.
The creep of higher prices won't stop, producing more and more economic losers, who become part of an unstable system of unemployed, angry, hungry mobs. This stresses the system even further, leading to the doomsday stuff: widespread disease, widespread conflict, and large scale war.

What can we do in this unfolding situation? Invest in your community, be part of your community. Understand, follow and manage the situation. Stay alert, and stay awake. Start practising now how to eat and live right. Stop wasting time, and sort out all those relationships that need sorting out. We're going to need each other a great deal sooner than we think.

Producers say $200 oil is possible as prices hit record three days running

Bubble or Bumbling: Send in the idots to brilliantly pontificate about oil (they're pretty crazy, so far, but get the right answer here)

"The future is here, it's just not well-distributed yet"- William Gibson

There are plenty of explanations for what's happening in the global oil markets. It's caused by the economic boom in the world's largest developing countries, particularly China and India. It's caused by the unwillingness of the oil cartel Opec to pump more crude. It's caused by the fact that the world has reached peak oil - the moment in our history where supplies of the black stuff start to dwindle.

All of these factors may have contributed to the upward trend in the oil price over the past six years, which has seen the cost of a barrel of crude rise from around $20 a barrel to $135 a barrel today. None of them really explain, however, why the price should have gone up by more than $5 in the past 24 hours and by a third in little more than a month. That sort of price action is the result of a speculative frenzy of the sort that was witnessed in the dotcom mania of the late 1990s. The oil market, to put it simply, is a massive bubble waiting to be popped.

[And] in the oil market, the fundamentals no longer matter.- Larry Elliott

NVDL: Really? Is that Elliot or Idiot? Actually the bubble that needs to be popped is the thought bubble of lunacy that envelops your brain, and since you're writing and communicating this garbage, you're also infecting the human intellectual stream with this nonsense. Here's the correct assessment of these high prices:

Oil's No Bubble
Lionel Laurent and Carl Gutierrez, 05.21.08, 4:00 PM ET

Oil's astonishing rise is becoming a cliché on Wall Street, but the rise is real and will keep going until supply catches up with demand. "The story of the past month has been the sudden surge demand in China for diesel fuel," said Jeff Rubin, Chief Economist and Chief Strategist at CIBC World Markets. Power plants in some areas in China are running desperately short of coal and certain earthquake-hit regions are relying on diesel generators for power.

Rubin stressed, though, that the spike in demand over the past month is only a footnote to the bigger story: "Even at $133, demand hasn't been reined in, and without a real raise in supply we think it's ultimately going to go over $200 a barrel."

NVDL: To summarise, fundamental factors, the simplest possible explanation, are why oil is going up. Again (repeat after me if it'll help you remember): Supply is not able to meet demand. It's Economics 101, and yes, it really is that simple. And some of the most brilliant and esteemed economics writers, and 'experts' are still arguing that it's not even happening. Reality is going to hit these denialists very very hard. It's going to hurt. Because now stubbornly and stupidly reasoning against reason is really going to cost us, and we can't afford to continue being the dimwitted species that fucked up the planet.

An interesting additional point: the reason why oil companies haven't built additional refineries since the mid 70's is they know there is no reason to - because we haven't found the means to produce more than we are producing now, and haven't for some time. There have been no major new oil field discoveries since the early 80's, when all we found was the North Sea, Prudhoe Bay and some Russian oil. Now it's 20 years later exept we found all the big stuff (that wasn't so big after all) there was to find. So that in itself says a lot. Actions - of the oil companies - speak louder than statements from OPEC or anyone else.

Another question: for those informed few of us, what do we do? Do we wait until the world catches on? Do we also operate as per normal, or do we begin to proactively make the sort of changes that we can only guess, and estimate and imagine are the most practical, reasonable and rational. My guess is we start fending (and thinking) for ourselves NOW.