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oil addict

“Oil is one of the most important inputs to the economy. If the oil prices go up much higher than what we have been seeing in the markets, this would mean that the budget of the households in terms of more expenditure for traveling or for other energy purposes, this would mean that their income will be less, and there will be a stronger pressure on the inflation numbers.” — Fatih Birol

The IEA is just a mouthpiece for the industrialized, oil-consuming nations of the world. It was established in 1974 as a countervailing force to OPEC. All the usual suspects (US, Canada, UK, France, Germany, Japan, etc.) are members. China, Russia, and India are not, and neither is any OPEC country.

The IEA’s statement seems almost a threat to oil producers. Why is there any need for a “wake-up call” for them? They’ve got the oil and they will have no problem selling it—at any price.

The IEA should issue a wake-up call that reflects the facts. “Oil-consuming nations of the world: Begin lowering your oil consumption and switching to alternative energy sources. The consequence of not doing this will be impoverishment.” End of story.

The way it works is this: When oil hits 100$ just stand back and watch the US and Canada’s economies crash. We hate to say it but the US is in dire shape when it comes to an economy already in bad shape with a dept of $14 trillion (unofficial around 100 trillion)and going to be increasing in the coming weeks. This is why a prolonged recovery isn’t really possible. Inflation yes, recovery no.

These are basic tried and true conservative economics rules. When a recession starts, prices come down because elasticity exists. So from $140 to $60 we went. Supply decreased, so we upped it to $90. At some point the pricing elasticity to decrease prices fails to work and prices go back up. In fact, a recovery would need more oil than is currently being recovered. So recovery means inflation. but the inflation will cap recovery. Governments are trying desperately to create inflation but they are just digging a deeper hole. If GDP goes up say 10%, watch, inflation might be 14% which negates any real value growth.

Oil is the backbone of our civilization. Without oil, the world as we know it will literally collapse. If somehow every oil reserve disappeared one day, we would be plunged into chaos. We use it for just about everything you can think of, whether directly or indirectly. We like to call this era “The Information Age” as a quaint reference to previous periods, like the stone age or the iron age. But if we were to truly carry on that tradition, this would most certainly be the oil age. We rely utterly on it, yet it is a finite resource. How short-sighted are we, as humans, to allow this, our greatest addiction ever, to continue? Coming up with alternatives to oil MUST be our absolute top priority, on a global scale.

“What will we make our tv’s with? Wood? How will we ship goods from China? Solar boats?” These questions, coming as they usually do from cynics who simply see a problem too large to bother solving, are still valid. It doesn’t matter how big the problem is, because the problems we all collectively face when there is none left will be much bigger. Global war will be fought over oil as our supplies run low. “He who controls the spice controls the universe,” wrote Frank Herbert in Dune.

Of course his ‘spice’ was an allegory for oil. Whether we run out in 10 years or in 200, this problem will not go away just because we don’t want to deal with it. It will only get worse. And to rely on some future generation to solve it is simply moronic. We need to really start working on it BEFORE it is too late. So how WILL we make our tvs, package our products, run our ships, power our cities, harvest our crops, bring water to our towns. How will we change our habits? Maintaining the status quo, impossible. The world will change regardless. Lets change it for the better.

Higher oil price could affect recovery, warns IEA

by BBC NEws (1)

In July 2008, the price of oil reached $147 dollars a barrel – its highest dollar value ever.

Barely two months later, the world was engulfed by what many argue was its worst financial crisis since the Wall Street crash and Great Depression.

Now, the price of oil is again climbing steadily upwards, and has reached $95 dollars a barrel.

Fatih Birol, the chief economist of the International Energy Agency, has warned that oil prices are entering a “dangerous zone” for the global economy.

On the BBC’s World Business News, Alex Ritson asked him what he meant:

Fatih Birol: Oil is one of the most important inputs to the economy. If the oil prices go up much higher than what we have been seeing in the markets, this would mean that the budget of the households in terms of more expenditure for traveling or for other energy purposes, this would mean that their income will be less, and there will be a stronger pressure on the inflation numbers.

Alex Ritson: What do you think is pushing the price of oil upwards?

Fatih Birol: I think there are at least two reasons. One of them is that the market players believe that the demand growth will be very strong this year, mainly driven by China and secondly there is a reluctance, many commentators observe, from the producing countries to increase the production, therefore expectation of a tightening in the markets lead to increase in the prices.

Alex Ritson: And yet when normally when prices go high, oil producing countries deliberately switch on the taps, they make as much oil as they can while prices are high. Normally these things are self-correcting, then the price comes down.

Fatih Birol: I hope that we will see a development as you just described, but some of the indications tell us that some oil producing countries may not be as generous as they have been in the past. And if they don’t do so, it may well mean that we will see higher prices which in fact is not a good news definitely for the consuming nations, but I believe it is not a good news for the producing nations at the end of the day, because if the economies of the main clients/consumers are sick, they will also need to slow down the exports to those countries.



This entry was posted on Thursday, January 6th, 2011 at 9:27 pm and is filed under All Posts, Deindustrialization. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1 Comment

  1. January 7, 2011 @ 1:55 pm

    The manipulation of the “futures” is the whole problem. Bullshit and nonsense, breeding greed. It should be illegal to trade anything in a projected “future” amount. The supply (production) hasn’t changed, and the demand (by consumers, not traders) hasn’t changed, the price shouldn’t be changing.

    I agree 100%!!!! Speculation (casino style betting) is causing this pure and simple… and its not the masses of people with few thousand buks in it.. its the few that have hundreds of millions in the bet that are causing it. Speculation has to be curtailed somehow… i’m just not sure what the answer is…. anyone?

    Check out Lindsay Grahams perdictions of oil prices…. they are much higher than 100 buks….

    Posted by Dave

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