2005 August 12 Friday
Oil Headed To $70 Per Barrel?

$66.40 and climbing.

With bullish sentiment unabated and crude prices hitting consecutive highs this week, analysts expect front-month crude contracts to test the $70 a barrel threshold.

Light sweet crude for September delivery gained 60 cents to $66.40 in morning trade on the New York Mercantile Exchange. On Thursday, oil prices settled at $65.80 a barrel, the highest close since Nymex trading began in 1983.

The amazing thing about this is that so far the US economy and world economy have not slipped into a recession.

In inflation-adjusted terms oil prices still fall well short of the 1980 price peak.

Oil prices are 46 percent higher than a year ago, but they would need to surpass $90 a barrel to exceed the inflation-adjusted peak set in 1980.

But oil probably doesn't need to hit $90 per barrel to cause a global recession.

Oil investment banker Matthew Simmons argues that the Saudis have exaggerated the size of their oil reserves and can not increase production. He's fleshed this argument out into a book: Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Simmons says officially published reserves numbers for the Middle Eastern countries are obviously bogus.

"The proven reserves, which used to be reported on a detailed, field-by-field basis disappeared, rolled up into just country-by-country. Over the period of the first eight years of the 1980s, all of the Middle East oil producers tripled the amount of proven reserves they said they had. And then, effectively, country-by-country, the [proven reserves] number stayed still. It never changed from 1987-88 to 2005; and nobody ever said, What's going on? How do you basically keep producing 15-20 million barrels a day out of the Middle East and the proven reserves never change?"

Simmons doesn't see how oil production can grow from perhaps 86 to 88 million barrels per day in 2005 to 119 million barrels per day projected for 2025 by the US Energy Information Agency.

"The only way we could ever, ever [produce] 119 million barrels a day is if Saudi Arabia is producing somewhere between 20 and 30 million barrels a day, and my worry is that since Saudi Arabia gets 90 percent of its production from five fields that are very old, each of those five fields could easily, in the next 3 to 5 years, go into a significant production collapse.

Instead of nearly 120 million barrels of oil being consumed daily by 2025, Simmons thinks it's more likely the world will have to make due with half that much, just 60 million barrels a day.

Aside: If Simmons is right then the CO2 emissions increases projected for the 21st century are unrealistic and therefore the assumptions underlying the global warming debate are completely unrealistic.

What matters most about Simmons' argument are the short to medium term economic impacts. If he is right then economic growth will slow until new energy technologies are developed. That slower economic growth translates into less money to fund the retirement of baby boomers. That means (among other things) higher taxes for workers which, in turn, discourages work and causes further economic slowing.

America already faces two very big and growing economic problems. One is the aging of the population and the rise of the ratio of aged non-workers to workers. The aged non-workers get taxpayer subidies for medical care, living expenses, and nursing care. The other big demographic problem comes from the continued huge influx of low skilled immigrant groups whose descendants continue their pattern of poor school performance, low incomes, and higher crime rates. Our worthless elites in Washington DC continue to make these problems worse through the decisions they make. On top of these problems we may also be facing a long period of rising energy prices.

For a small fraction of the cost of the Iraq war debacle we could deport all the illegal aliens and put tough requirements on legal immigrants to ensure that all immigrants are a large net economic benefit to the citizens of the United States. But our corrupt elites oppose policies that are in the best interest of the nation as a whole. Also, for a small fraction of the cost of the Iraqi Debacle we could fund huge amounts of energy research. But again the lousy leaders of America will have none of that. And yet again for a small fraction of the cost of the iraq mess we could make a major effort toward rejuvenation therapies that would extend the working lives (and total lives) of our aging population and greatly improve the national financial balance sheet. But again, the morally and intellectually deficient fools in Washington DC have other wrong priorities.

The United States has real and big problems which have obvious solutions which attract little attention in the national media. Most of the blogosphere is no better. The taboos of the politically correct keep most silent about the massive immigration of low IQ ethnic groups. We can not afford the costs that these taboos are incurring. The demographic changes have gotten too large in scale. The lie that racial differences in cognitive differences are small supports the continuation of extremely harmful national policies. The enforces of this irrational secular faith are enemies of America, not its protectors.

On energy policy debate is wasted on distractions such as the supposed evils of SUVs or the supposed evils of the oil industry. Moral posturing and identification with in-groups just wastes time. We need a more rapid rate of technological advances and useful solutions, not preaching. Measures to raise energy efficiency are great but can only solve a small portion of the total problem. We need technology and lots of it. We need advances in photovoltaics, nuclear power, batteries, and perhaps hydrogen as well.

Then there is the aging population problem. We need a big shift in thinking away from arguing whether more taxes or more market forces with private accounts are the solution to the financial problem. Time to think out of box. The way to solve the problem of old people who are net burdens is to turn them young again so they can work and pay taxes rather than collect benefits. We need huge pushes in stem cell research, gene therapy research, and along other avenues to bring about full rejuvenation and a more youthful and productive workforce.

If you are a blogger reading this I appeal to you: Write about what is important. Write about the real big problems and write about the problems honestly without fear of what the moral police have decided we are allowed to say or think. Our problems have grown too large to afford the irrelevancies, the dishonesty, and the suppression of important truths that characterize the national American political debate.

Update: Greg Cochran has coined a slogan to describe US Middle Eastern policy: " Blood for No Oil !" and he gets it exactly right. The US invasion effectively has done nothing to increase Iraqi oil production. I was watching some think tank presentation on C-SPAN a couple of nights ago about Iraqi oil and one guy was talking about declining oil production in the Kurdish region of Iraq due to the age of the oil fields. He was explaining how many billions of dollars of equipment and work it would take to temporarily turn around the production decline. Apparently a number of Iraqi oil fields are old and production is declining due to gradual depletion. Enhanced recovery techniques can extend the production life some but not alter the fact that these fields are well past their productive peaks.

The guy on C-SPAN also had Iraqi oil reserves split out into categories of control by regional power brokers. His chart showed Ahmad Chalabi (who is now acting oil minister for Iraqi) as controller of the biggest chunk of reserves. But curiously the chart had other smaller chunks (e.g. some Kurdish and Sunni Triangle fields) listed under other controlling influences.

Share |      By Randall Parker at 2005 August 12 12:51 PM  Economics Energy


Comments
john d. said at August 12, 2005 3:10 PM:

what's the acronym for the US strategic petroleum reserve?

I.R.A.Q.

Invisible Scientist said at August 12, 2005 4:23 PM:

In order to develop the new alternative technologies, we need to spend at least $100 billion per year for research and development, but the US government must subsidize this work, because it will be too late otherwise. Clearly the current government is doing FAR less than this minimum requirement. It is quite likely that ultimately the price of oil will ultimately climb well over $100 per barrel.

John S Bolton said at August 12, 2005 6:12 PM:

Speech taboos are a definite problem, in that problems get hidden in plain sight. The left originates essentially all of these, then uses their dominance of the government schools to cash in on the silence, the omerta that develops around any issue of importance. The internet gets around this,and could do so much more. The markets are honestly reacting to the increasing likelihood of war with Iran. They do not trust the administration to act in our interest, but to snatch defeat from complete victory even. These leaders are professional sacrificers; having nothing of their own, they will prosper by sacrificing others. We should be arraying forces to take the offshore and uninhabited fields near the coasts of the Persian gulf, and leave the moslems to fight it out amongst themselves. Iran gets bombed and its nuclear facilities destroyed; but we do not occupy any areas with population; that is beyond our interest: to get more freedom for more civil war and aggression in such countries. Antimerit immigrants should be screened out, and the illegals removed in a stately manner, over several years. Older people can be given instant therapy allowing them to work longer by changing the incentives in the tax and subsidy statutes.

John S Bolton said at August 12, 2005 6:21 PM:

Bush wants Gulf W2 to be utterly against our interests, a sacrificial disaster for America. He puts the name of his family first, and wants them to be known for terror and sacrifice. His father's GWI was considered good for us; few casualties, and collapsing oil prices attended it. Historians could say that the Bushes are selfish, and do not want to inflict maximum damage on the country, because of the first war, so Bush tries to undo that image, with blood failure and economic ruination. He wants his family name to mean mass sacrifice, mass killing and failure for all time.

toRag said at August 13, 2005 3:33 AM:

The fear the pundit has over the massive immigration of low IQ groups is likely to get worse.

Most of the growing population areas in the world, the areas that are exploding, marry into thier own 1st line blood relations as a matter of preference.
Cousin to cousin relations are illegal in the west, but when it does occur we know that there is a 6% chance that the child will have a seroius genetic disorder. This is set against a less than 1% chance for a normal baby. (And most of this 1% in the normal population due to alcohol damage during preganacy.)

Until recently its is the lack of medical facilities which has has kept the fitness level of such populations which repeatedly use such practices from becoming totally rife with bad genes.

The population of the middle east is exploding. Even in saudi arabia every woman has 6 children on average. Per capita income has dropped from $20,000 the 1970s to just $6000 today. While the population of Europe, America, and Russia declines and ages, the population of these parts of the world is set to form much of the 8 billion population projected by UN forecasts by 2025, during which time the west will be on the way to shrinking to just a 1/10th of humanity. These destitute populations will be like food for radical islam, and poltical fools who push and foster mass immigration for economic growth.

Mass immigration raises the amount of labour in an economy to the existing capital structure, lowering real wages for labour to the benifit of raised capital values and the owners of capital and land, and depressing the native birth rate further. Such growth is of no real benifit to much of the population in per capita terms.

Kenelm Digby said at August 13, 2005 3:58 AM:

The elites in Washington DC are not just "worthless" Randall, I would go as far as to say that they are actually evil

Rick Darby said at August 13, 2005 5:32 AM:

Too right, Randall.

I'd like to believe that, even as scary as the situation is, the ingenuity often displayed by the human race and Americans in particular will respond in creative ways such as you suggest.

What's stopping us? Primarily, it appears, the mass media that -- blogdom or no -- still frame the issues for most people. And how mentally impoverished they are. At the supposedly intellectual, deep-thinking level of the faux-"quality" media (NY Times, Washington Post, PBS, and the rest of the cognitive Mafia) the big stories are the endless and fruitless debate about the chimera of global warming; what a Supreme Court nominee did or didn't say decades ago; whether ridiculous public relations stunts like searches of bags carried by passengers on New York subways should be random or based on profiling.

The lowbrow media are wonderfully concentrated on sports figures taking steroids, heartwarming stories of trimph over disability, and the all-purpose bread-and-circus package, the space shuttle.

Meanwhile they can't even take notice of the Latin American Invasion (except occasionally to report on Generalissimo Bush-Gonzales's guest worker program), the average-IQ decline of which they are both cause and symptom, and the Islamic population bomb.

The only benignly destabilizing force is bloggers who don't have to follow the party line of their employers or sociological peer groups. Old-time lefties like I.F. Stone were fond of quoting the saying, "The only free press belongs to those who own one." Well, now we who venture into the new world of blogging do own one. All of us. We can use it to say what can't be said in the mainstream media, and we must. If this be treason, make the most of it.

Randall Parker said at August 13, 2005 9:55 AM:

Kenelm Digby,

I stand corrected. Yes, our leaders are worse than worthless.

Rick Darby,

Some groups of blogs amount to not much more than echo chambers for enforcing group solidarity against empirical evidence that undermines their world views. You can find blogs that do posts on "good news" coming from Iraq. If their good news was right you might expect, say, a decline in US casualty rates - especially since the Iraqis are supposedly taking over more of the fighting. But the propaganda about the Iraqi government forces is a series of bright shining lies (really, go read that link and be amazed at the brazenness of the lying of the SOBs in DC).

On the denial of IQ differences I place my biggest hope in the continued rapid decline in DNA sequencing costs. Be sure to read my recent FP post Harvard Group Lowers DNA Sequencing Cost Order Of Magnitude. Once the obvious truth has been traced down to specific sequence variations even the mainstream media is going to have to admit to the elephant in the room and the king who has no clothes. I figure the brightest shining lie of our era has another 5 to 10 years to run. But so much damage will be done to the demographics of America in that time.

Invisible Scientist said at August 13, 2005 3:52 PM:

By the time the new science of modern Eugenics becomes a fully established department in every major American university in 15 years, the new government will also become a fascist entity, similar to the one in the movie "Gattaca." Personal freedom and individual rights will be regulated by one's genetic record.

Basically the current evil elite of oil industry minions, who are intentionally slowing down the research on the Fast Integral Reactor (they cut the funding as soon as the feasibility was demonstrated by Argonne Laboratories and the University of California), will be replaced by a more sophisticated Eugenics elite who will be also evil, but because the future elite will bring more prosperity to the country, there will be no complaints.

FriendlyFire said at August 13, 2005 9:48 PM:

a series of bright shining lies

That was an excellent read. Although the Fag jokes were overused a bit to much

Wes said at August 14, 2005 12:59 AM:

Right on the money on every point, Randall. The US and Britain will probably spend over $1.2 trillion on this Iraq debacle before exiting that country in a humiliating defeat, helicopters-from-Saigon style, with little to show for our blood sacrifice. It's what Michael Klare, Andrew Bacevich, and the other clever observers at antiwar.com have been warning about-- we're pouring our precious blood and treasure into resource wars in the Middle East, when we could be spending a relative pittance on making ourselves independent via renewable energy resources.

Countries like Europe (especially Germany, Denmark and Austria), Japan, and increasingly China as well, have been investing heavily in wind and solar for strategic as much as environmental purposes, and they've managed to make these technologies economically viable. They will surpass the USA economically within a couple decades if we don't wise up ourselves-- there is no way, NO WAY that we can support a population of 300 million people with our current misguided energy policy.

And I also agree on the point of investing in health technologies to make elderly Americans healthier and more productive. It is utterly unsustainable to keep adhering to the antiquated notion of senior citizens that we currently do, with the picture of old fogies, unable to work, sitting around discussing minutiae while tossing horseshoes, complaining about their bowels and wrinkles. The US stupidly regards it as "unavoidable" that people grow progressively old, unhealthy and unproductive-- somehow this is seen as quaintly warm, charming, the deceptive "Golden Years" fantasy that ignores how costly and damaging it is for people's health to deteriorate the way it currently does around age 40. We invest so much in the education of people these days that we can't afford for them to start losing their productive capacity only a decade or so after they've been fully trained. We don't live the way we do 100 years ago-- antibiotics and modern sanitation have radically changed the public health picture-- so we should stop pretending that the 40-and-older contingent is still stuck in the same outmoded framework.

All this takes is a scintilla of creative thinking and wise investment that is fully within the boundaries of our current research and health care system. But the idiots in charge-- and I include both the Bushes and the Clintons in this description-- still seem stuck on old-fashioned notions of economic value and fossil fuel dependence. Much better that our leaders get their ideas from magazines like Wired rather than The Economist or Time-- we need folks who can question these damaging assumptions that are going to ruin our economy by the year 2020, if not earlier.

Peter Davies said at August 14, 2005 6:03 AM:

The "elixir of eternal youth" the ultimate prize and lodesstone for alchemists through countless centuries.
Will modern technology actually crack this one of nature's most closely guarded secrets.
Well the scientists have succeeded in the "transmutation of elements" (albeit after a fashion, by nuclear bombardment), but somehow I think cracking this immortal quest of mankind will be very, very difficult.

Sal said at August 14, 2005 11:27 AM:

Social security payments should be decided not just on earnings and years worked. The number of children raised by the recipient should be used in calculating the amount of payment. But no politician has the courage to come out in support of such a proposal.

Engineer-Poet said at August 14, 2005 1:25 PM:

Not the number of children raised.  The number of children graduated from high school without criminal records.  No credit for crooks or dropouts.

Stephen said at August 14, 2005 4:53 PM:

Peter, I watched an interview of a respectable geneticist (by 'respectable' I merely mean that he didn't have a book to push, nor a company to promote). He said that in his bolder moments he speculates that those being born today will be the last generation that will have to die. He said that the next generation will be able to lock their physical age to whatever number they choose.


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