Peak Oil, Peak Nonsense
By Robert Folsom
It's been less than a year since the world was nearly as awash in writings about "peak oil" as it is in crude oil itself. The psychology of the moment was so twisted that, for example, the op-ed page of the New York Times ran a 2,850-word piece titled "The End of Oil" (March 2006). It argued, among other things, that while the world's crude supplies may be more than half gone, not enough was being said about peak oil.
Still, a bogus argument will always seems less so in the ears & eyes of an audience that's predisposed to believe it: oversimplification, misstatement, and ignoring the inconvenient (for starters) create nodding heads instead of furrowed brows.
Thus you can say -- as the NYTs did -- "oil is a finite commodity," which sounds simple enough. So no one thinks too hard about how to define "finite" regarding crude oil. And, they get an implicit definition soon enough anyway: increasingly scarce and expensive, to the point that a drop of "4 percent of normal daily supply" would be enough to send oil prices to "$161 a barrel," meaning that "millions are thrown out of work," and the "quintessentially American lifestyle…suddenly becomes unsustainable."
Again, no one asked how a four percent fall in supply could make prices go up by a 2.5 multiple, but the misstatements only got worse:
"In the past several years, the gap between demand and supply, once considerable, has steadily narrowed, and today is almost in balance. Oil at $60 a barrel oil may be one manifestation."
If bringing demand and supply in balance could explain $60 a barrel oil, then that's the price a barrel would have fetched more than 20 years ago -- because that's how long it has been since world supply was even close to falling short of demand. Easily accessible data from the Energy Information Administration make this clear, including the fact that world supply EXCEEDED demand in 2004-2005, when prices went UP dramatically.
If you haven't had enough yet, there's always ignoring the inconvenient:
"Despite the serious bets being placed on the tar sands, unconventional oil won't be available in large enough quantities to make a real difference until well down the road."
Mind you, that was the only mention of "tar sands" in the entire 2850 word piece. And you have to wonder if that's because any further mention might require acknowledging that 3.5 t-t-trillion barrels of oil are in tar sands of Venezuela and Canada… and that the "real difference" they make "well down the road" may just be about the time the supposed "peak oil" theory comes into play?
Mind you, I'm not for or against anyone's pet political cause, at least on this page -- you can Tax The Rich, Hate SUVs, Stop Global Warming or embrace any other cause that's compatible with the agenda(s) that usually seem to find "peak oil" so intriguing.
What I won't do is take off my thinking cap for anyone, ever. If you say likewise, I suspect you'll find our analysis of the markets to be refreshing indeed -- and more.