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02/27/2012

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Wanooski

Excellent post, Dave, top notch analysis.

Timetraveler_2047

See Jeffrey Brown's Export Land Model (ELM) and "available net exports" or ANE:

http://en.wikipedia.org/wiki/Export_Land_Model

http://www.aspousa.org/index.php/2010/10/peak-oil-versus-peak-exports/

Note that China's total crude oil consumption is rapidly converging on the amount of US crude oil imports. At the trend rates of oil consumption and imports, by no later than the early 2020's, China's crude oil imports and consumption will reach par with that of the US, resulting in the US and China consuming more than half of total global crude oil production (38% today), leaving the rest of the world with 20-25% less crude oil to consume than today.

Should the trend rates of growth of oil consumption and imports continue, the US and China will consume 80% of world oil production by 2030 and 100% by no later than mid-century. Obviously, were this to happen, no growth would be possible in the rest of the world, and the price of oil will be so high that growth will have long before ceased in the US and China.

However, a crisis in global crude oil supply constraints will occur long before the 2020's-30's. At the total ANE today (and falling), of which the US consumes ~28%, China will consume the current US share of ANE by late decade, ensuring that growth in the rest of the world is over and contraction is the "new normal".

At persistently above $80/bbl, real growth of GDP per capita in the US, EU, and Japan (two-thirds of world GDP) contracts. But $80+ oil is required for crude substitutes to be profitable to extract (although not in environmental terms). We cannot have our expensive crude substitutes AND grow the economy.

The irony of the Anglo-American imperial trade regime is that US supranational firms' more than $1.7 trillion of foreign direct investment (FDI) since the 1980's in China and SE Asia is now driving Asian demand for oil and other resources to the extent that the marginal costs are prohibiting real GDP growth in the US, EU, and Japan, whereas China and India are growing too fast and about to crash into the thermodynamic limit bound of Peak Oil.

Dave Cohen

@Timetravler

Did you happen to see--perhaps it escaped your notice--that the title reads

Understanding The Current Oil Market

But thanks for that very fine lecture. I especially appreciated the reference to the Jeffrey Brown, whose religious beliefs about the oil markets have always been an inspiration to me ;-)

-- Dave

sharonsj

I've read that the Baltic Dry Index of world-wide shipping is now negative. So if shipping is so terrible, a huge chunk of the world is in recession/depression, and U.S. drivers are cutting way back on driving, can China be the sole blame for rising prices?

I think not. I bet the speculators and the dropping dollar (thanks to the Fed) are the main drivers. We already know that the oil buyers aren't interested in taking physical possession of the oil but are only interested in a quick buck.

John D

I found it interesting to look at an article about the rising cost of gas in the NYT's, along with hundreds of comments by readers. Basically, the typical NYT's reader does not have a clue. And these are supposedly above average intelligence people? The level of denial and sense of entitlement for cheap oil is simply breathtaking. And of course, its all either the evil democrats' or the evil republicans' fault. I think at this point it doesn't matter what the MSM tells the public. People have their own preconceived notions, and they are not about to let facts get in the way. Critical thinking is dead.

Timetraveler_2047

Dave, I sense a miscommunication here, no doubt on my part. Is there something incongruous about Peak Oil, Brown's ANE, China's demand for oil, the Anglo-American imperial trade regime, and the current price of oil and its effect on global macroeconomic conditions and geopolitics?

Note that US total petroleum supply/consumption is lower than during the recessions of '08-'09, the early '00's, and the early '90's, and all the way back to the period of the mid'70's. Deindustrialization ("financialization") is reported by most economists as "efficiencies" and lower energy use per capita of GDP. LOL!!! Yet, capitalism from a a net energy per capita basis is OBSCENELY inefficient. That's like saying you are losing weight from reducing your food consumption per capita as a result of starving yourself because you have reduced your capital consumption to a level that you cannot produce what you need to eat to survive.

Of course, after a time, you don't have to worry about your capital and net energy per capita deficit to subsist because you will be dead.

Shalom.

Timetraveler_2047

Yes, sharonsj, about 55-60% of oil futures activity comes from leverage financial speculators gaming producers and intermediaries' attempts to lock in futures prices without providing any value-added to price discovery or supply clearing at market prices at given demand.

Like so much of the economy, commodities have become a "financial" asset instead of a resource to which capital and labor are added to achieve a market-determined value-added input to business to produce goods and services at an affordable price required by the society.

John Theodorou

Whatever the reason for them, high oil prices will blow another hole through the side of the debt-induced *economic recovery*.

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