Peak Oil & The Libyan Oil Minister Shokri Ghanem Comments On Speculation
I have chafed at the notion of peak oil this entire cycle. That doesn't mean I wouldn't have invested in it. As I've said, two of my favorite stocks this cycle were Valero and U.S. Steel. The key word is 'were'. Both posted exponential gains. In investing, you never fight market moving money, the trend or fundamentals. But, this isn't about investing. It's about economics. There are two reasons I discount peak oil. One, we are in a financial bubble and two, it isn't based on good science. In other words, it doesn't hold up to peer review. I could punch holes in almost every argument all day long and I'm not even conversant on the topic. Well, no more conversant than any Wall Street pumper handed a microphone. But, since most people writing about peak oil don't understand science and obviously don't understand the rigorous process of peer review, they can and do say whatever they want. And because they have the microphone it has generally been accepted as truth. Of course, those who do understand the rigorous process required for some scientific validity have been drowned out. One such person is Michael Economides, an oil expert and professor of chemical and biomolecular engineering who has repeatedly said there is plenty of oil. Maybe not readily available at this instant because of decades of underinvestment by oil producing countries but there is plenty of oil. But, we won't waste time talking about dissenting views to those of the herd. I'm not saying the theory of peak oil might not have some validity. But, I seriously doubt that is a theory we will ever need to worry about testing as we move towards a more sustainable economic model. Clarification Update: I finally realized at least one person is misinterpreting this post. Take this paragraph in the context of the opening sentence which defines the context of the paragraph. English 101. I am talking about this cycle. Now. I am talking about the prognosticators who are telling us oil is at $135 because of peak oil. I am talking about the peer review of this actually being the onset of peak oil not holding up when many scientists are telling us there is plenty of oil. Not a peer review of whether peak oil itself is plausible. Now. This cycle. As I clearly state that the concept of peak oil may have validity but there is no reason to believe we are there based on available data.
I would highly encourage you to listen to this interview with the Libyan Oil Minister interview on Bloomberg. He actually states concern for his economy. Why? Because he knows speculators could destroy economic demand for oil - even permanently - and therefore the future economic vitality for his country. Yes, oil prices at this level are not in the long term interests of OPEC. We are most surely in an oil blow off driven by too much money chasing too few assets in the financial markets. Not in the real economy. That isn't inflation. It's speculation. Just like stocks into 1929. The consequence of this speculation is indeed higher prices and economic suffering by billions around the globe. It's very disconcerting to know that unregulated capital is responsible for children without food in their stomach. It's even more disconcerting to know that officials are doing little to stop it.
Don't miss the fact that oil dropped nearly ten points, then rose nearly eight points, then fell nearly eight points and then again rose about fifteen points within the last month or so. That is wild volatility and if you know anything about financial markets, wild volatility often precedes a change in trend. It also supports my post about waining buying pressure in the energy markets while prices pushed higher. Is a change in trend a week from now or a month from now or $50 points from here? Or a year from now? It's when buying exhaustion sets in. When is that? That's a phenomenon without an answer.
Bonds and stocks hold some intrinsic value in the form of dividends or payment streams. That is unless you buy non dividend paying investments trading at valuations of 3-10x what stocks were in 1929 like RIMM, Apple, Baidu and the other ridiculous bubbles pumped by Wall Street clowns. What value does a derivative on energy hold? None. It's gambling. There are trillions of dollars in oil-related financial products held by financial institutions. Ten years ago that was basically zero. Wall Street is plowing into these products so hard that as they exceed their buying limits under U.S. regulation, they then game the system by going overseas and buy more. This entire cycle is riddled with scheme after scheme at our expense.
Commodities are always the latest cycle investments to fall in the economic cycle. Remember, the biggest pumper, Matt Simmons, in the peak oil scheme is a banker. The same clowns that created the housing mess, the private equity mess, contributed to the emerging markets mess, the mortgage mess, the SIV mess, the the the the. Just in the last few days I saw someone with no credentials remark that he started a peak oil blog. It only took only eight years to get everyone onto this scheme. Wall Street could perpetrate it, because without oversight and transparency, most people don't have any idea what they are doing. And, because they have the microphone.
Arguments like oil is hard to find - oil executives have said that for decades including when it was $10. Ain't no reason to look for more oil when it was just $10 a handful of years ago. Boone Pickens just said we are doomed because we import 60% of our oil. Doh! And, we also did so when it was $10. Economic demand is up single digits. Financial demand is up over 1,000%. When was the last time you were rationed gasoline or oil? Where is the lack of supply? Yes, a terrorist attack could disrupt supply and cause an oil crisis. Yes, oil often comes from unstable regions of the world. Yes, yes, yes. And, all of that was true when oil was $10. It is all deception and faulty logic.
I would bet my life that the world demand for oil and other carbon-based energy wains drastically well before we run out. Well, I'm not a gambler so maybe I wouldn't bet. The stone age didn't end because we ran out of stones. Remember that. A Saudi oil sheik said it. He sees the writing on the wall. He is concerned about the great technology engines of the U.S., Europe and Japan defeating demand for oil. Oil prices fell after the 1970s because of demand destruction, economic substitution and efficiency. Technology today has the ability to change the world far more drastically than the 1970s. If the U.S. had planned accordingly, our consumption of oil could easily have been 50% less than it is today. Right now. Not in fifty years. But, society is not going to agree to radical economic change when oil was $10-25 for decades. But now there are other drivers - ecological sustainability and economic independence. Cheap oil doesn't solve these problems. Technology does.
I have an amazingly interesting post on this topic that I'll get up within the next month.
I would highly encourage you to listen to this interview with the Libyan Oil Minister interview on Bloomberg. He actually states concern for his economy. Why? Because he knows speculators could destroy economic demand for oil - even permanently - and therefore the future economic vitality for his country. Yes, oil prices at this level are not in the long term interests of OPEC. We are most surely in an oil blow off driven by too much money chasing too few assets in the financial markets. Not in the real economy. That isn't inflation. It's speculation. Just like stocks into 1929. The consequence of this speculation is indeed higher prices and economic suffering by billions around the globe. It's very disconcerting to know that unregulated capital is responsible for children without food in their stomach. It's even more disconcerting to know that officials are doing little to stop it.
Don't miss the fact that oil dropped nearly ten points, then rose nearly eight points, then fell nearly eight points and then again rose about fifteen points within the last month or so. That is wild volatility and if you know anything about financial markets, wild volatility often precedes a change in trend. It also supports my post about waining buying pressure in the energy markets while prices pushed higher. Is a change in trend a week from now or a month from now or $50 points from here? Or a year from now? It's when buying exhaustion sets in. When is that? That's a phenomenon without an answer.
Bonds and stocks hold some intrinsic value in the form of dividends or payment streams. That is unless you buy non dividend paying investments trading at valuations of 3-10x what stocks were in 1929 like RIMM, Apple, Baidu and the other ridiculous bubbles pumped by Wall Street clowns. What value does a derivative on energy hold? None. It's gambling. There are trillions of dollars in oil-related financial products held by financial institutions. Ten years ago that was basically zero. Wall Street is plowing into these products so hard that as they exceed their buying limits under U.S. regulation, they then game the system by going overseas and buy more. This entire cycle is riddled with scheme after scheme at our expense.
Commodities are always the latest cycle investments to fall in the economic cycle. Remember, the biggest pumper, Matt Simmons, in the peak oil scheme is a banker. The same clowns that created the housing mess, the private equity mess, contributed to the emerging markets mess, the mortgage mess, the SIV mess, the the the the. Just in the last few days I saw someone with no credentials remark that he started a peak oil blog. It only took only eight years to get everyone onto this scheme. Wall Street could perpetrate it, because without oversight and transparency, most people don't have any idea what they are doing. And, because they have the microphone.
Arguments like oil is hard to find - oil executives have said that for decades including when it was $10. Ain't no reason to look for more oil when it was just $10 a handful of years ago. Boone Pickens just said we are doomed because we import 60% of our oil. Doh! And, we also did so when it was $10. Economic demand is up single digits. Financial demand is up over 1,000%. When was the last time you were rationed gasoline or oil? Where is the lack of supply? Yes, a terrorist attack could disrupt supply and cause an oil crisis. Yes, oil often comes from unstable regions of the world. Yes, yes, yes. And, all of that was true when oil was $10. It is all deception and faulty logic.
I would bet my life that the world demand for oil and other carbon-based energy wains drastically well before we run out. Well, I'm not a gambler so maybe I wouldn't bet. The stone age didn't end because we ran out of stones. Remember that. A Saudi oil sheik said it. He sees the writing on the wall. He is concerned about the great technology engines of the U.S., Europe and Japan defeating demand for oil. Oil prices fell after the 1970s because of demand destruction, economic substitution and efficiency. Technology today has the ability to change the world far more drastically than the 1970s. If the U.S. had planned accordingly, our consumption of oil could easily have been 50% less than it is today. Right now. Not in fifty years. But, society is not going to agree to radical economic change when oil was $10-25 for decades. But now there are other drivers - ecological sustainability and economic independence. Cheap oil doesn't solve these problems. Technology does.
I have an amazingly interesting post on this topic that I'll get up within the next month.
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