Peak Oil - Why Time is Now Short
ChrisMartenson.com
The Next Oil Shock
The only thing that could prevent another oil shock from happening before the end of 2012 would be another major economic contraction. The emerging oil data continues to tell a tale of ever-tightening supplies that will soon be exceeded by rising global demand. This time, we will not be able to blame speculators for the steep prices we experience; instead, we will have nothing to blame but geology.
Back in 2009, I wrote a pair of reports in which I calculated that we’d see another price spike in oil by 2010 or 2011, based on some assumptions about global GDP growth rates, rates of decline in existing oil fields, and new projects set to come online. Given the recent price spike in oil (Brent crude over $126, now at $115) and recent oil supply data, those predictions turned out to be quite solid (for reference, oil was trading in the low $60s at the time).
One part I whiffed on was in my prediction that the world community would have embraced the idea of Peak Oil by now and begun adjusting accordingly, but that’s not really true except in a few cases (e.g. Sweden). Perhaps things are being differently and more seriously considered behind closed doors, but out in public the dominant story line concerns reinvigorating consumer demand, not a looming liquid fuel crisis.
At any rate, with Brent crude oil having lofted over $100/bbl at the beginning of February 2011 and remained above that for four months now, we are already in the middle of a price shock.
Looking at the new data I am now ready to move my ‘Peak Oil is a statistically unavoidable fact’ event to sometime in 2012, which tightens my prediction from the prior range of 2012-2013.
The next shock will drive oil to new heights that are currently unimaginable for most. First, $200/bbl will be breached, then $300, and then more. And these are in current dollar terms; any additional dollar weakness will simply be additive to the actual quoted price. By this I mean that if oil were to trade at $200 but the dollar lost one half of its value along the way, then oil would be priced at $400.
In 2009, I wrote a special report on oil that explored the interplay between energy and the economy. At that time, the stock market was in the tank, global growth was in a freefall, and things looked gloomy. (And in regards to the masive Federal Stimulus)....these trillions and trillions of dollars, which, along with (borrowed) foreign equivalents (money), are being applied to “ease the credit crunch,” will eventually find their mark and deliver what feels like a legitimate rebound in activity. (Don't be fooled into complacency with mediocre short term stats that indicate a economic recovery).
For now, debts are defaulting faster than the various central banks and governments can inject new money and borrowing activity into the system. Banks aren’t lending because there are very few compelling loans to make, especially if future losses have to actually be carried by the bank making the loan.
But this won’t be true forever. Sooner or later, all the trillions of new dollars will trot out of the barn, begin to gallop, and then thunder off, creating the appearance of a healthy economy. (But) it will be a cruel illusion. Money is only one component of growth. As we’ve strenuously proposed, energy is a necessary prerequisite for growth.
Housing remains in a serious slump, wage-based income growth is poor, Europe remains mired in a serious debt crisis, Japan has slumped back into recession, and the US fiscal deficit is a structural nightmare. Worse, GDP growth is relatively tepid and would be negative, deeply negative, without all the deficit spending and liquidity measures.
We are driving at a high rate of speed into a box canyon,.....Peak Oil is only one of many factors.
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