Friday, February 6, 2009

When Will The Gasoline Panic Return?

Here's a 'tog I snapped in Pacific Palisades last year, when the phrase "Peak Oil" was just beginning to break into the consciousness of Joe Sixpack and his sister Tammy Sixpack (from the Hittite, Zhichspoq, meaning "dumb-ass").

Then came demand destruction, a crucial phrase which refers to the drop in the number of available paying customers for a given commodity, brought about by the lag time between the sharp price increase for that commodity, and the ability of would-be customers to get enough money to pay the higher price. Without dollars to spend, people who need goods are merely the needy, not customers; their presence in the market is either an invisible specter, or a riot -- but not "demand." When gas costs $4.83, less of it sells and there is less money to be made selling it. The trick for the petroleum business is to manage the price within the constraints of (1) real demand, (2) geopolitics, and (3) geology. That last one trumps the other two, and the most striking thing about the current moment is that oil scarcity seems to be a non-issue for the moment. Haven't heard a thing about it in a dog's age.

As my dear friend Mike Ruppert says (and he attributes the remark to someone else, and so on -- it's like saying, "My Uncle Budy [rhymes with "goody"] says do unto others as you would have them do unto you." Everyone says that unto everyone's nephew):
"Until you change
the way money works,
you change nothing

So... here we are, in a fragmenting civilization which obliges each of us to live his or her life along multiple parallel tracks: on one track is the old self, with its dreams of artistic achievement, fantasies of financial liberation, civic pride, all manner of cultural ambitions and so on; in short, the radiant embodiment of all the grown-up gendered images of solid selfhood ever tendered unto little Person McPerson. On the other track, there's your inner adult, nursing a growing awareness that none of those dreams is really possible anymore, because the collapse will make them utterly irrelevant to your shrinking circle of urgent concerns. You don't have to read the great Joseph Tainter (the very good Jared Diamond will do fine) to know that a civilization descends into a Dark Age when the diminishing returns of social complexity come up against the failure of natural systems. As scarcity of "resources" becomes excruciating, the division of labor begins to break down until nobody is left doing a specialized niche job like goldsmith or violist, lighting designer or chandelier cleaner. Everyone is just another sod-busting humpbacked dirt-farmer, trying to eke out subsistence from nature on the mung-bean farm without getting cholera and farting one's spleen straight into the compost heap. Perhaps that was a bit vivid.

Since the economy is now contracting, fuel is cheap. The same contraction means nobody can afford it. At some point, however, demand destruction will no longer be enough to depress the gas price; the supply will keep shrinking, exceeding the ability of each successive demand group to meet the new price. It seems to me, we will probably return to $4/gallon long before any commercial recovery puts that kind of money in the pockets of Us the People. Whatever happens with the horserace among financial collapse, climate change, and Peak Oil, the result will be a de-monetized real economy of local food, community gardening, handicrafts, barter, a-smokin' an' a-drinkin', street theater, bad dentistry, looting, riot control, semi-futile rebellion against The (F.E.M.A.) Man, and reading Whitman by the side of the lake while Ma and Pa Zhichspoq sip a jug of ripple by Old Man Keester's frog pond in the June dawn breeze.

Any questions?


  1. i dont think the wild price swings in oil were terribly related to real life (ie physical) supply and demand. i should try to remind myself of the details of what happened, but in the early part of 08, there was a big speculative blowoff (ie bubble) in the prices of oil and other commodities. this $150/barrel price was due more to massive hedge fund speculation (remember? back then when hedge funds actually had money?) than actual supply/demand issues. remember, the same craziness in prices was causing rice shortages worldwide, including costcos in america. that didnt come to an end because people couldnt afford the rice any more. next came a massive financial collapse that forced speculators to deleverage in order to cover their redemptions and margin calls.

    $150/barrel oil will come back, but when it does, it will be due to a real (ie physical) supply/demand issue, not due to hyperactive speculation in futures markets. those players (hedge funds and other wall street berserkers) have largely been expunged from the game at this point.

    russ winter was documenting this very well in real time in the first half of '08 at he has since gone "pay-per-view", and probably lost a lot of readers in the process. but you should be still be able to read the posts from back then for free..

  2. "deleverage in order to cover their redemptions and margin calls"

    that sounds stupid. what i meant was sell in order to cover redemptions and margin calls.

    and why is my browser telling me i am misspelling "redemptions"? i must be double stupid tonite

  3. I guess the spellchecker only expects one redemption. Anyway I agree with everything you said. I hope you laughed at the part about the mung beans.

  4. I'm undecided about exactly when oil supply will peak. I can see both sides of the argument but I think it's very hard to call when so many variables are at play. One thing to bear in mind is that the infrastructure investment was very low for two decades due to low prices and this could well account (at least in part) for some of the arguments used by peak oilers.

    One question I ask myself is this - if I were TPTB, how soon before peak would I leave it before trying to respond militarily? When would I start planning for 9/11, planning to invade Iraq etc? If you leave it too late then you won't have room to accomodate any misjudgements or miscalculations and this could prove disasterous (they might not be as good at estimating the peak any more than anyone else, even with insider knowledge). Mike Ruppert says that TPTB knew about PO in the mid 70's, but he believes that the actual execution of 9/11 was a tad sloppy because it was rushed. I think it might be the case that rather than unexpectedly negative supply estimates leading to sloppiness, the sloppiness could be more due to the compartmentalisation and secrecy that was required. I have a feeling that they'd have these kinds of eventualities planned for well in advance rather than being caught off guard.

    Also, I can't help but think that a fair bit of bait and disinformation would get put out early on in a deliberate effort to throw off and discredit - I can see the advantages of getting people to cry wolf in a noticable way at least once before the real decline starts. I wouldn't rule out the possibility that the US National Energy Policy Development Group report may have been deliberately classified in a broadly analagous manner to the way that the Pentagon CCTV footage was kept secret.

    I'm open to the idea that we're peaking now, but I can see how it's possible that we're not quite at the end. There might well be another wave of supply with 10, 20 or more years left. Although not a perfect comparison with PO, remember that after the '87 stockmarket crash some people were predicting an economic depression like the 30's, yet things stretched out another 20 years (with another collapse in 1997/98 in between). Their reasoning was sound, employing arguments almost identical to those heard today, but they called the top far too early.

    I'm not absolutely definite on all of the above, but I'm alert to the possibilty that calling the top too early could prove as damaging as calling it too late. It's too easy to become married to a position even though you're right in the end. Time will tell, but economic collapse is definitly happening right now.


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