The oil bubble is leaking

Gekkofortune I told you so!  Ah, that’s not very mature.  Yes, but it feels sooo good.

Down how much last week?  What’s that again?  I couldn’t hear you…

It is true that there is a severe supply and demand problem in crude oil supply, but it is a long term problem.  As is often the case, the time-scape of this problem is one of the most important parts of it.  There clearly is not enough oil in the ground for humanity to continue using it in the ways that we have been doing.  Growing demand in newly industrialized places like China and India exacerbates that problem.  The solution to the supply problem in energy lies in new reliance on different ways to produce electricity.  Cheap electricity would enable short distance drivers to use electric cars and could eliminate the absurd reliance on fuel oil to heat buildings in the deep north.  That would produce a very different situation.  Al Gore is calling for windmills, etc., but the real solution (as he says) is nuclear power.  The Greenies will have to "suck it up" and accept the idea.  Hey, the French get most of their electricity from nuclear power.  The Francophobe crowd should take that as a challenge.

The short term problem is not the same.  This is and has been a bubble generated in the ways that have been discussed in previous articles.  Short term investment in the futures and spot markets have driven prices to levels unrelated to present supply and demand.  The markets have recently been a fantasy world without real limits for movement on the up side.

The bells are now tolling for that fantasy.  The smart people who stand to lose from this festival of childish greed have been kicking the psychological props out from under the process of finding bigger and bigger fools.

You don’t think so?  Good.  It will be amusing to see how much money is lost in your disillusionment.

Sometime in the next few months the price per barrel will fall below 100/barrel.  It will be interesting to see how far it falls below that level…  pl

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48 Responses to The oil bubble is leaking

  1. Mad Dogs says:

    Jiminy crickets! Rub it in, why doncha?
    If I had a nickel for every bet I’ve lost…hmmmm…I’d be broke. *g*
    I can’t honestly say that I’m hoping for more bad news (war with Iran, famine, plague, pestilence, Yankees win the World Series, etc.) to increase the odds that my guess of $200 per barrel by the end of the year will come true, but ’cause of gas prices, I could use the money. *g*

  2. Curious says:

    69% of oil import is used for transportation, 1% for electric generation, and 23% industrial
    US electricity main source are pretty much “coal”, gas followed by hydro, then nuclear. (it’s all pretty eisenhower-esque. We are nowhere near green/super advance technology.)
    more detail electricity generation breakdown.
    The main problem with our current electricity generation pattern. It’s using massive coal. Producing gigantic amount of CO2, a greenhouse gas.
    I don’t know what the solution is. (but going nuclear all the way is problematic for sure. I suspect it will be a “mix” solution. No single magic bullet. diversification of source, using technology to replace wasteful appliances, changing house design, city planning, etc)
    anyway in term of oil consumption drive. It’s the suburban commuting in large SUV and the Iraq war (diesel/jet). That’s what I am pointing finger at.
    On top of that China and India. They have money to burn. So I think US rural and fringe city are about to change drastically.

  3. Curious says:

    some of my fav subject when it come to oil use.
    – The japanese is working hard to create next generation car battery. And they are ahead by 3-5 yrs. (about one generation in term of car design)
    Battery technology is boring, hard to do, and not sexy. But like efficient small engine, it will kill the big car companies.
    The japanese are keeping their advance battery manufacturing all in japan. (those disposable rechargeable batteries you buy from walmart? they are made in japan. )
    Nissan Motor Co (7201.T), Matsushita Electric Industrial Co (6752.T) and other Japanese companies will work together to set up common standards for lithium-ion batteries being developed to power next-generation cars, the Nikkei business daily said on Saturday.
    Under the lead of an organization affiliated with the Ministry of Economy, Trade and Industry, nine car and motorcycle makers, six battery makers and utility Tokyo Electric Power Co (9501.T) will come up with a draft of the standards covering testing and charging methods, vehicle safety and other areas

    second. the reason industry pushing nuclear: It’s profitable for utility companies.
    Look around the house. lightbulb, old TV, fridge, aircon, micro leaks, etc. Then look at solar panels tied to grid.
    Most houses can reduce electricity consumption by 10-30% easy, without changing house design and minimal lifestyle change.
    the problem with encouraging such behavior: what happen if giant utility company suddenly lost 10-30% revenue from electricity sale?
    It’ll be pretty stupid for electricity company to push the idea of advance appliances or smarter way to use electricity.

  4. jon says:

    Col. Lang,
    Oil prices have declined because the US and Iran have decided to mute their saber rattling momentarily. The price of oil is related to its value for what it can provide, rather than the costs of extraction and refining. A quadrupling of price in the US ha led to a five percent decline in driving, and a lot of bitching but not much else. We have not yet approached the theoretical ceiling for oil pricing, and I hope we never do.
    When oil drops below $80/bbl I might believe that we’re out of the woods.
    Couldn’t agree more than we need to lessen dependence on oil and other unsustainable fossil fuels, and the need to have diverse energy sources. Nuclear energy falls within the realm of fossil fuels. It is the most expensive way to produce electricity, there would be no private industry if not for enormous government indemnities and subsidies, there is no solution for waste storage, and it doesn’t even wind up a net positive for energy production when all of the inputs have been properly factored.
    Nuclear power as a primary vector for weapons proliferation should be a priority concern for readers of this site. Since 1960, no country has built nuclear weapons without first having a civilian nuclear energy program. As nuclear energy programs have all been derived from weapons work. this should be no surprise. Despite the work of the IAEA, it is a demonstrated fact that determined countries can divert materials to weapons programs, or create weapons programs in the shadow of legitimate activities.
    You might have noticed a number of countries deciding to develop nuclear reactors in the past year. These countries have been observing North Korea in its contrast to Iran and Iraq. They are hedging more than their energy future.
    At best there is a hundred year supply or uranium to be mined. To follow France’s example is to concentrate on the production and reprocessing of Plutonium for use in breeder reactors. There is no better vector for proliferation. This week France has admitted to two leaks from one reactor. And a while back a disgruntled employee decided to retaliate against a manager, by placing some highly radioactive metal under his boss’ car seat.
    If we placed the resources now devoted to nuclear power into a ‘Manhattan Project’ to produce and install renewable energy, we would rapidly reverse our present reliance on the Middle East, and be able to make better, more considered decisions about our foreign policy.

  5. b says:

    I don’t think this is over:
    How much was the high oil price part of Iran’s strategy to bring the U.S. to the table?
    In April/May Iran rented 10 tankers for storage. That took oil and transport capacity off the market.
    July 3 oil hit $145. Then the Hersh piece about clandestine action against Iran came out (clandestine = no open war). Oil dropped $10 to $135. Three days later Iran launches rockets and delivers photoshopped picture (and unmanipulated movie) to better make the news. Oil jumped $10 to $145. Then the U.S. announced to take part in talks, oil dropped to $130.
    The U.S. is over a barrel.
    Iran can manipulate the oil price just by launching a few missiles and the U.S. has to negotiate because between credit crisis and oil shock the economy is really, really endangered.
    Note that Israel also can influence the price by talking about war on Iran.
    This whole game is not over yet. There will be crisis in the negotiations and minor provocations in the Gulf that will lift the price up again.

  6. To live is to have hope! Your dreaming if you think the oil market is somehow the free market. NOCs (National Oil Companies) have been drugged into seeing that no real tailoff in prices from those currently in effect. No longer is oil elastic. Greed is necessity for many petrostates. Lower prices means instability. But good try PL. Hope your right.

  7. FDChief says:

    “Hey, the French get most of their electricity from nuclear power.”
    The French also generate power as a heavily regulated monopoly, and one of the most critical factors is that the French government forced their nuclear industry to standardize their reactors years ago. U.S. reactors have typically been one-off designs, meaning that practically every new plant is a beta-test. When it doesn’t work, as it never did at the Trojan plant in Oregon, it’s a mess.
    I would agree tha nuclear is part of the solution, but probably only one part and that perhaps a relatively minor one.
    One big problem is that our country has never taken energy policy seriousy enough to research the cost/benefit analysis. So none of us really know…

  8. Duncan Kinder says:

    Your argument is interesting, Col., but if I were maliciously intent upon proving you wrong, then I might be blowing up a pipeline in Nigeria about now.

  9. Will says:

    “Al Gore is calling for windmills, etc., but the real solution (as he says) is nuclear power. ”
    I don’t think T. Boone Pickens (close enough to T-Bone isn’t it?) and Al Gore would agree with that. Even though T-Bone bankrolled the swiftboaters, he is now redeeming himself.
    read the tammy haddad interview with T-Bone in the National Journal (Haddad is Arabic for Smith). Just google haddad pickens energy, it”ll come up. He agrees with Gore about windpower & photocells and getting electricity from renewable sources. he even recommend ed Gore for energy czar in an Obama Baby admin.
    The only difference b/n T-Bone and the Gore Man is that Gore Man wants to go directly to the electric car whereas T-Bone wants to transition the cars to natural gas saying the successful battery is still too many years from now.

  10. Jonathan House says:

    Dear Pat,
    It seems to me that your intuition is that the recent decline in the price of crude from about 145 to about 125 suggests something about the questions of “bubble” and/or “speculation” and/or the question of whether, how, and by how much the futures market affects the spot market or vice versa.
    I am not sure what you are saying about any one of these “issues”. So I don’t know how what evidence would count as tending to disconfirm your intuition. For instance, if the spot price spends the next 6 month largely between $110 and $130 would that change your view in any way?

  11. JohnH says:

    I agree with earlier comments that relate the oil price drop to a reduction of tensions with Iran.
    But what’s interesting also is that the corporate media does not assign this as a reason for the drop. In fact, many articles don’t assign any reason at all.
    This is curious because financial editors compulsively assign reasons for any market movement, even if the reasons are nonsense – “the market was down because of profit-taking.”
    Once again we’re seeing the corporate media taking its familiar role as an embedded arm of the US government. Obviously they don’t want people making the link between bellicosity and pain at the pump. Wars and warmongering are supposed to be cost free. And oil prices are supposed to have a life of their own, independent of threats against oil suppliers.

  12. Nevadan says:

    Has anyone else considered the timing? The domestic drilling order is signed by Bush and prices start dropping? While not the only reason, I wonder if we’ve had that particular gun to our head until oil companies could pressure legislation better accepted by the public.

  13. Farmer Don says:

    Col. Lang,
    A month or so, you were complaining about how much work it took to run your blogg.
    Now doesn’t getting to write the above article make it a little more fun?
    Your faithful reader
    Farmer Don.

  14. Patrick Lang says:

    OK. On va voir. pl

  15. whynot says:

    Oil went from $20 to $45, but the fell back to $35. And all the oil bears crowed, “told you so”. The soared all the way to $75. But then oil fell from $75 to $50. And oil the bears crowed, “told you so”. Then, it went back to $75 and up to $100. But then, it fell back to $80, and all the oil bears crowed, “I told you so”. And then it went back through $100 and all the to way $145. But fell back $125. And all the oil bears crowed, “I told you so”. And the cycle continues unabated.
    No markets go up or down in a straight line. They move up, and back and fill, and then slide forward and then back and fill. It’s a process, and nothing has changed with oil. There is not enough supply to meet demand. Period, end of story. It is not the speculators, and anybody who thinks it is should try doing some research on the dynamics of commodities markets.
    I’ve set it before, and I will repeat it over and over gain. If you want cheap oil, what you need is a global depression. Otherwise if you’d like the economy to display a sense of normalcy oil will continue to be ‘expensive’ When you turn a currency into trash, inflation is inevitable. The dollar will continue to fall long term, and the price of everything you need will continue to rise. Welcome to the world that Greenspan built.

  16. Cieran says:

    I agree that part of the price of oil in world markets is due to a commodity bubble. But this is a different issue:
    Cheap electricity would enable short distance drivers to use electric cars and could eliminate the absurd reliance on fuel oil to heat buildings in the deep north. That would produce a very different situation. Al Gore is calling for windmills, etc., but the real solution (as he says) is nuclear power.
    As others have pointed out here, without better battery technology (which has turned out to be a much more difficult technological problem than expected), electric cars cannot yet be deployed widely enough to replace much of our over-reliance on oil. And while cheap electricity has been promised many times (e.g., the AEC used to suggest we’d get rid of our electric meters because nuclear electricity would be essentially free), we haven’t seen much yet in the way of realizing said promises.
    Using electrical resistance heating to replace fuel oil for heating homes is tantamount to a crime against thermodynamics. All turbine-based electrical generation methods (e.g., coal, gas, nuclear) lose around 2/3 of their energy production to entropy in the process of making steam, so end-use efficiencies of electric home heat cannot generally exceed about 30% unless there is plenty of available hydroelectric capacity (and most good hydro sites have already been developed).
    Natural gas is a better (i.e., safer, more efficient) replacement for fuel-oil heating, and especially with recent large-scale natural gas discoveries in the near northeastern region.
    Current nuclear power plants provide only baseload electrical generating capacity, which is a very important part of the generation mix, but still only a part. We need peaking capacity provided by sources such as hydro or gas-fired plants to make the grid work, so as always, a mix of technologies is the best path.
    Nuclear may prove to be an important part of that mix (it has some wonderful features, and some terrible flaws, and this country needs to pay a lot better attention to both), but that’s not yet a given. For but one example, we need an informed open discussion about the Price-Anderson Act, because without it, there likely would be no nuclear power industry in the U.S.
    Thus nuclear power currently requires large doses of big-government support to compete in the energy marketplace… so those who support a more constrained role for the federal government ought to have some serious second-thoughts about civilian nuclear power technologies.

  17. Will says:

    how much can you change a culture?
    Japanese are the most insular, homogenous population, in the world (but curious, malleable, and willing to learn), yet a brazilian born Lebanese has been compared to MacArthur on his impact on Japanese culture in turning Nissan around. There’s a pdf paper on the wiki biography comparing the two.
    He has bet the farm on the electric battery (litium ion technology). Deciding to skip the hybrids altogether.
    In Israel, Nissan has a joint project with an American Israeli company for electric cars modeled on the cell phone business plan.
    subsidize the car, sell the minutes, er.. the miles.
    Carlos Ghosan- CEO of Nissan and Renault.
    It was delicious reading the comments section of the Israeli papers regarding the electric car disparaging dumb Ayrabs never having the initiative to undertake such a project. The ignoramouses never having a clue as to to Carlos’ identity.

  18. Glen says:

    The “Greed is Good” mantra pushed by Wall St and others has negatively impacted more than just the price of oil. It has been a large factor in the de-industrialization of America. Much of the industrial base investment/return cycles do not coincide with the quarterly earnings statements, but CEOs now manage their companies as if gains must be made at every quarter. Business, as a result, have all but given up on basic research and investment in people and equipment, and have slid down the slippery slope of the “quick and easy” money. America will become the country which cannot make anything of consequence within your and my life time while Wall St lauds it’s ability to make money from thin air. We have heard various excuses about how we will become a service industry country or a country which sells it’s information expertise, but this is really all so much fluff. What we will become is a second rate nation unable to effectively compete in the world market, and that is when life will get interesting as in that old Chinese curse, “May you live in interesting times”.

  19. David W. says:

    It is good news that the bubble is deflating, but I don’t see it as vindication of the markets (I’ll admit that i’m a bit confused about what your thesis is, PL). Wall Street has got what it wanted, floating in free cash, it can play its games, which appear to be more firmly rigged in the noveau business mantra of ‘privatizing gains and socializing losses.’
    The canard of invading Iraq for oil is that it was done for ‘US’–ordinary American citizens might take that to mean We The People, but to the kleptocracy, ‘us’ means the Cheney secret energy task force. Look at the recent no-bid oil contracts handed out in Iraq to Shell, BP, Chevron, Total, ExxonMobil in very murky fashion–coincidence?
    Again, we apparently see ‘privatizing profits / socializing losses’ in action, because, despite Wolfowitz’s mendacious promise that Iraqi oil would help pay down the US bill for the war, that propaganda was promptly buried once the green light to invade was given.
    Let us also acknowledge that the average price of gas in the US was $1.44/gallon on the day Bush Jr. took office.
    Meanwhile, as Nevadan noted above, Big Oil is not content to simply rake it in, and is taking advantage of the political/economic situation by lobbying publicly to drill in ANWAR, and offshore in the Gulf of Mexico even though this will have no impact in the short-term, and limited impact on the future. (Again, don’t forget that when they say ‘our’ oil, they aren’t talking about you and me–we will pay the same at the pump whether it’s ‘our’ oil, or Saudi Arabia’s.)
    In this light, it is almost touching how the ‘little people’ so earnestly talk about energy independence, when, in fact, it is against the short-term interests of Big Oil, Detroit, and all the other players who flood Washington with money. Obviously, this is money well spent for them, because it brings back large returns, such as the head of the EPA acting against his own (career) staff’s recommendations and denying California’s attempt to enforce stricter greeenhouse gas emissions.
    In short, the current system is set up for profit, and is being protected by those who profit from it, and these are the forces that will oppose, co-opt or attempt to bury any alternative energy solutions, while pushing their own solutions, which are exemplified by the Orwellian ‘clean coal’ and oil sands. Any alternative energy solutions will come in spite of the best efforts of our goverment and their private paymasters’ fervent opposition. As always, ‘cui bono?’ applies…

  20. Patrick Lang says:

    I would have thought my “thesis” was rather clear. A market like this is entirely the result of interaction among market makers in a kind of global craps game. In other words this market is no more real in its fundamentals than the Iraq information operation was. pl

  21. LJ says:

    By my thinking, oil will only get under $100 will be because there is a worldwide recession, which of course is entirely possible. As we approach peak oil, which in fact is a near-term event, oil will find its floor and start climb dramatically. My sources are over at The Oil Drum.

  22. searp says:

    Over the last 3 years my modest investments in “energy”, essentially oil, have done handsomely.
    I am willing to take a temporary haircut for the reasons cited by LJ. This is not a bubble in the same way housing and the Internet were bubbles. Oil is an increasingly scarce commodity.
    I disagree with COL Lang’s assessment.

  23. endgameAK says:

    A three day decline in the oil futures market does not make a trend … until it is sustained, it is a fluctuation.
    I’m convinced that SOS Rice was able to prevail over the Neo-Cons and convince Little W to take tentative steps towards negotiating with Iran because of the near apocalyptic effects that the tensions were causing with the ever increasing fuel prices on the economy and any hopes Republicans may still cling to for this election cycle, particularly for retaining the White House.
    Our national and economic security are at risk as long as Americans continue to empower and enrich oil producing states that wish us ill by relying on gasoline Petroleum should be replaced by other more benign energy sources for transportation. Oil should be produced for the myriad other products we depend on for modern life – plastics, fertilizers, medicines, etc. We can obtain all the oil we require for non-transport uses from North America, if we can change our habits and mindset.
    I was born into a Can-Do America in 1943, with limitless possibilities, but then America became stogy … with the election of Richard Nixon and the rise of modern Republicanism … a Can’t Do nation. The country became in thrall to a merger of government and corporations. We can’t have modern, universal healthcare because of the opposition of Big Insurance. We can’t have reasonably priced medicines because of Big Pharma. The Fourth Amendment to our Constitution is rescinded, surpassed by the needs of the Big Telecoms. A seismic shift away from oil to power transportation can’t happen because Big Oil insists the only solution is more oil. The entire Federal government is complicit. And now, faced with near term catastrophe, the public’s focus may be amenable to other Can-Do answers to the questions long ignored. The failure and discrediting of Republicanism offers hope that the future of America can be salvaged.
    For the last three decades, the Free Market has been the Godhead in America. Of course, free market capitalism has a long history of excess and failure in American history. Cyclical depressions in the 19th Century, countered by the Progressive Era at the turn of the 20th century. (and no matter what McCain or David Brooks claim, T. R., was a Progressive, not a conservative.) The disaster of unfettered Capitalism of the 1920’s gave us the ultimate bubble and a Great Depression. F.D.R. and the New Deal saved America, and Capitalism. And the Republicans have hated the regulation and institutions enacted by the New Deal ever since, working to discredit and dismantle the social contract with all Americans that the New Deal enshrined and Republicanism has successfully shredded. Unfettered Capitalism is a darwinian recipe for national decline. The last three decades of Republican ascendency have brought America low and headed lower …. unless this crisis/opportunity is seized Progressively, along with the Can-Do ideal and energy that has seen us through the worst of times past.
    Al Gore is right. Hell, T. Boone Pickens is right (And I never thought to be able to think or say that.). Time for an epochal change in America. Time to eliminate the necessity of imported oil, the burning of oil and the exporting of Alaskan oil to the Far East. Their are vast sources of benign energy available to us And a Can-Do America can lead the way forward with new technologies and methods, or we can listen to the same self-serving naysayers that are heavily invested in preventing actual solutions, (unless they own those solutions.).
    Free Market Capitalism is an American myth. The truth is clear. Capitalism is only for the masses, socialism is the rule for the elite and well fixed. Too Big To Fail; if there are profits, they are private and unregulated, but if there are losses due to reckless behavior, illegality or unadulterated greed, why, the crisis requires the American taxpayer to bail out the rich. That is a corporate kleptocracy and the way America is ruled, today. Prudent regulation of American capitalism may again save us and allow us to move forward. But the sad possibility remains that America may join the Soviet Union in “the dustbin of history,” without substantial change to the status quo.
    I fear that it may take another Depression to make possible the rejuvenation America needs …. A ReNew Deal and Can-Do Americanism. We may be at that event horizon now.
    p.s….I sure do enjoy your blog, Col. Lang. Thanks.

  24. Mark Logan says:

    Careful Searp, I do not
    think the Col. is just whistling Dixie here.
    Are you aware that Congress
    this week will almost certainly gut the
    Commodity Futures Modernization Act of 2000?
    AKA: “The Enron Loophole”
    This act changed the rules
    and is allowing the type of speculation that has profited you so handsomely.
    It will shortly be gone.
    Both parties are in complete agreement on this issue. The Republicans may be delaying the process a bit by attempting to tack offshore drilling on to the bill, but it’s fate is all but assured.
    Short term, it might be wise to avoid this market until this settles out.
    Remember the gamblers maxim!

  25. LJ says:

    To follow up on my dissenting post above, I refer you to the Peak Oil Report from Peak Oil Associates. Take your pick of either the MS Word format or as a PDF.
    In my view, it will take a severe recession to get the price of oil well under $100 for an extended period of time. What is going on the oil world is far bigger than speculation.

  26. taters says:

    Thanks you for an interesting read, Col. Lang.
    Please pardon me for straying somewhat off topic. I wonder how Basil Zaharoff would fare in today’s world? No doubt he was an arms dealer and is credited with the success of Maxim, Vickers, Krupp and others but he also participated in other activities and I would say he was a speculator – among many things.
    from wiki
    Zaharoff was also involved in two more significant financial ventures in October 1920, he became involved in the incorporation of a company that was a predecessor to oil giant, British Petroleum. He saw that there was a great future in the oil business.
    His association with Louis II of Monaco led to his purchase of the debt-ridden Société des Bains de Mer which ran Monte Carlo’s famed casino, and the principal source of revenue for the country. He succeeded in making the casino profitable again. At the same time, Zaharoff had prevailed upon Clemenceau to ensure that the Treaty of Versailles included protection of Monaco’s rights as established in 1641. Louis had noted their gradual erosion in the nearly three centuries since.
    An unflattering account
    From July 1914
    excerpted from Eyewitness To Hitory, edited by John Carey, Avon Books 1997, pgs 444 – 445 Harvard Press
    From The Vulture (an account of armaments dealer, Sir Basil Zaharoff by Osbert Sitwell)
    […] This armament monger exactly resembled a vulture, and it is no good pretending, in order to avoid the obvious parallel,that he did not. To some it may cause surprise that a man who traded on weapons of death and the propects of war,and grew fat bodied on the result of them, should have resembled the scaly-necked bird; but whether or or no it seem strange, depends on one’s view of the world, and of the immense and startling range of analogy, simile and and image than it offers. There in any case, the likeness was, for all to behold: the beaky face, the hooded eye, the wrinkled neck, the full body, the impression of physical power and of the capacity to wait, the somber alertness[…]
    Here’s something else on the “mystery man of Europe”
    […] But Zaharoff played a leading, if not the leading, role in that strange world comedy of the arms makers leading the double life of chauvinists and internationalists. They gave us the spectacle of Boers mowing down English regiments with Vickers’ pom-poms, Prussian surgeons picking out of Prussian wounded Austrian shrapnel fired by Krupp’s cannon, French poilus massacred by shot poured out of guns made in Le Creusot, English Tommies killed by weapons produced by Armstrong and Vickers, and American ships sent to the bottom by U-boats built on models supplied by American submarine builders. Zaharoff was the master of what one biographer has called the “principle of incitement,”under which war scares were managed, enemies created for nations,airplanes sold to one nation and antiaircraft guns to her neighbors, submarines to one and destroyers to another. He did what the cigarette people did, what the liquor industry, the beauty industry did — created a demand for his merchandise. The armament industry became a game of international politics, the arms salesman a diplomatic provocateur, the munitions magnates of all nations partners in cartels, combines, consolidations; exchanging plans, secrets, patents. He was the greatest of all the salesmen of death, and, as one commentator has observed, if you would see his monument, look about you at the military graveyards of Europe. […]
    From The Merchant of Death: Basil Zaharoff
    By John T. Flynn
    [From Men of Wealth, pages 337–372.]

  27. otiwa ogede says:

    well, you must be absolutely sure that there will be no kinetic action against Iran’s infrastructure in the next few months.

  28. JohnH says:

    Since Iran did not give Solana an answer, the risk of war has increased. So…Monday morning we will have another opportunity to see the “Iran war risk premium” at work in the oil markets.
    It will be fascinating if the risk premium does not materialize, because it will support the Colonel’s hypothesis. However, if prices rise, that does not necessarily disprove the hypothesis.

  29. Sidney O. Smith III says:

    I noticed your cited a source from Mises org. Do you check out that crowd frequently? Ludwig Von Mises’ work Human Action is a great read. Rothbard is too much of a Marxist for me but absolutely brilliant and his works are worthy of the highest respect. Much of their work, at this time in history, is serving as an antidote to the imperialistic designs of the neoconservatives (and maybe a few Woodstock fascists — e.g. Ledeen — as well)
    My loyalty is to the federal judiciary, and many of the Mises crowd have nothing but contempt for the judiciary, but their work is top notch. And when it comes to the idea that the founding fathers incorporated secession as a check on fascism and imperialism, increasingly the evidence suggests they are right. So credit where credit is due and, in many ways, they deserve a tip of the hat. You read DiLorenzo’s book on Lincoln? Is he right? Wrong?

  30. Dana Jones says:

    Just to say that that was one of the best posts I have read in a long time. Thanks. Just to clarify, the marriage of government and corporation that has taken place over the past few decades is usually defined as Fascism.
    I just hope that you are right, that the Repubs have indeed totally discredited themselves and that we can make a change for the better. Now if Obama makes a difference or not I will wait & see, but something has just got to change, or America is history, we will be regulated to the trash heap of failed experiments in government, and democracy will be deemed to have been a failure.

  31. J says:

    living in the middle of oil patch, i see no ‘logical’ reason why oil should be more that $50 ‘tops’. realistic speaking IMO it should $35 a barrel and no higher. the international community really needs to take three steps back and see just how much they are being ripped off by the london based international petrol exchange that is speculating oil through the roof and ripping off both consumers and producers in the process. ‘we’ spelled u.s. are so awash in oil and gas that it makes your eyes water. based on our nation’s oil and gas holdings, there is no reason to import one drop of foreign oil, leave the foreign oil for those countries exporting it to reroute it towards their own citizens uses. here in the u.s. were talking about alaska crude that currently drilled can feed u.s. alone all by itself for several hundred years, before getting into the north slope portion. and that is not taking into account all the oil wells sitting on top of rivers and rivers of oil underground, wells that were capped when their natural pressure rand out, wells that are just sitting and waiting for injection. i haven’t even approached the subject of the oil and gas that are sitting in shale, those shale resources make your eyes water at all the oil and gas that shale alone holds. jimminie crickets. there are soooo many wells that were plugged with big telephone polls wrapped in burlap, that are all over the place that have never been concrete capped, just waiting for them to be unpluged and pumped, rivers and rivers of oil.
    the only thing that one might want consider pumping to the surface from the oceans, are the large reservoirs of methane just waiting for the pickings.

  32. TomB says:

    Dana Jones wrote:
    “Just to clarify, the marriage of government and corporation that has taken place over the past few decades is usually defined as Fascism.”
    Dana, could you cite a source for this definition? I would have thought that an “absolute” marriage of this sort would far better meet the definition of “socialism” instead. (I.e., the state owning/controlling the means of production.)
    And as to perhaps somewhat less pure marriages of the sort you note, I would have thought that “statism” or “corporatism” would be the more typically used description. But “fascism”?
    I always kind of associated “fascism”—in the rare instances when it isn’t just used as an all purpose epithet today—with nationalism above all. Thus even with the Nazi’s, for instance, while openly proclaiming themselves “socialists,” didn’t they clearly put far far more emphasis on their nationalism, and then leave most private business alone too so long as they made their tanks and bombs for them? I don’t know, for instance, that Krupps was ever even formally nationalized by them, was it?
    Just trying to get a handle on what “ism” you’re seeing/foreseeing….

  33. searp says:

    Holding a mutual fund for 3 years is an investment, not speculation. I plan on holding for more; it is a core investment for me.
    That is the beauty of the thing – in starkest contrast to the Internet and housing, I can actually understand why prices are going up. In my opinion it is a demand-driven price increase with some level of speculative froth. Since I am a long term holder, I don’t care about the speculative froth.

  34. Cold War Zoomie says:

    I told you so!
    Murphy (of the “law”) absolutely loves it when people say that.
    Don’t be surprised if he jumps out of the bushes and makes you eat those words!
    It took a lot of miles to work off all the weight I’ve gained over the years saying such things.

  35. Cieran says:

    ‘we’ spelled u.s. are so awash in oil and gas that it makes your eyes water. based on our nation’s oil and gas holdings, there is no reason to import one drop of foreign oil,
    Pray tell, J, exactly where are these huge onshore reserves of available crude? Could you give us a legitimate reference (e.g., a URL from the Energy Information Administration of DOE) to back up your claims? My engineer’s sense of epistemology requires something more than “proof by mere assertion”, so how about providing some supporting details from a real-world trustworthy source such as EIA?
    As someone who has enjoyed doing some fascinating and difficult oil and gas exploration and production work for such firms as Exxon, BP, and Conoco, I’d love to learn more about why my industry colleagues are so happy to employ folks like me to help them recover U.S. oil and gas resources when you believe we’re already swimming in them.
    What do you know that those majors don’t, anyway?

  36. b says:

    Oil rises over $1 on Iran talks

    PERTH (Reuters) – Oil rose over $1 to top $130 a barrel on Monday after inconclusive talks between Iran and world powers over the weekend over Tehran’s disputed nuclear programme.

  37. J says:

    here’s some regarding alaska crude:
    Lindsey Williams talks about his first hand knowledge of Alaskan oil reserves larger than any on earth. And he talks about how the oil companies and U.S. government won’t send it through the pipeline for U.S. citizens to use.
    i’ll dig for more info regarding the oil/gas in shale in our lower 48, plus all the capped wells just waiting for injection.

  38. Dana Jones says:

    “Just trying to get a handle on what “ism” you’re seeing/foreseeing….” TomB
    It was from my old college American Heritage Dictionary. But in checking the current on-line daffynition, behold, it has changed and no longer mentions a “marriage of Government & Corporatons”.
    Too bad, as I think the old definition was truer.
    Cheers to you too.
    Dana J

  39. PL! Just read an article in Business Week where the energy guru at Lehman Bros. predicts energy price downturn over next 6-12 months. So you have company.
    Also note that LB posted a $2.9B loss last quarter. Wonder how much was energy related following this guy’s advice.

  40. TomB says:

    Dana Jones wrote:
    “It was from my old college American Heritage Dictionary. But in checking the current on-line daffynition, behold, it has changed…”
    One more thing down the old memory hole I guess.
    Thanks and cheers again,

  41. Cieran says:

    Lindsey Williams talks about his first hand knowledge of Alaskan oil reserves larger than any on earth.
    Lindsey Williams? That’s your idea of a credible source on oil reserves?
    I would hope for something a tad more verifiable than the bald assertions of a charlatan preacher who makes his living as a professional huckster (i.e., he claims that while serving as a chaplain on the Alaska oil pipeline project, he was privy to secret estimates of proven reserves that are now suppressed by a nefarious government plot).
    If you’d like to buy a bridge, I’ve got a couple nice ones in NYC to sell you.
    i’ll dig for more info regarding the oil/gas in shale in our lower 48, plus all the capped wells just waiting for injection.
    Don’t bother digging for my sake. As an energy professional, I’ve heard quite enough to be able to gauge the likely veracity of your unsubstantiated opinions.

  42. J says:

    i am not an energy professional, nor have i ever claimed to be, i listen to others (oil/gas professionals inside the oil industry who talk, but who do not want their names put to print). i merely was showing you one example of the information that is available. if you don’t want me to ‘dig’, then it’s your loss not mine. if you don’t like the veracity of the info, that again is your choice.
    oil/gas ‘professionals’ are talking behind the scenes, and what they are saying to me is that we are getting ripped off big time, that the reserves ‘are’ there. and you can believe that one or not, again that is your choice.
    have a pleasant evening.

  43. Curious says:

    stories about people installing solar panel,2845,2308684,00.asp
    The third bid turned out to be an iterative process, based on extensive discussions with the sales guy, Mike Sanjurjo, who proved very willing to entertain a variety of options. In the end, he suggested an even leaner installation, which should still cover 75% of our overall electrical expenses, but provide the best efficiency. That bid consisted of 27 Sunpower panels, each rated at 225W, for a total 6.1KW system. After seeing the roof layout, it became clear that we could install more than 27 panels—but that it would get pretty crowded up there. Our roof has the usual array of exhaust pipes, chimney, satellite dishes, and a skylight.
    The Sunpower panels were appealing, partly because they’re over 18% efficient, and partly for another reason: My wife’s company, though an arrangement with Sunpower, offered an additional rebate. These particular panels were guaranteed to deliver 90% of their rated peak capacity for at the twelve year mark, and 80% at the 25 year mark. The overall installation would be simpler, too, requiring a single, 7KW inverter; both of the other bids would have required two inverters.
    The net cost after the California rebate, Federal tax credit, and the Sunpower rebate came in at around $36K (not counting permit fees.) We ended up picking this one—not just because it was the low bid, but because it was the most thorough.

  44. Curious says:

    Watch this. The japanese start selling consumer electric car 1 yr ahead of schedule. Before we know it, they are already in third generation model and take over global car market while we busy thinking how many more bombs to drop on Iraq and Iran.
    Mitsubishi’s i MiEV Electric Car is Ahead of Schedule
    A couple months ago, we got our hands on Mitsubishi’s roadmap for its i MiEV electric car. The plan was to lease a few units to fleet customers first in 2009 and then launch it in 2010 (with a focus on Japan, but also in North-America and Europe), but reality is turning out better than even the optimists thought.
    Japanese Launch: Summer 2009
    The new plan is to launch the retail version of the i MiEV electric car in Japan in the summer of 2009. The reasons are “smoother-than-expected” preparations for mass-production and, as we can imagine, the increased demand generated by skyrocketing oil prices. There’s really nothing like an economic incentive to focus the mind.

  45. J says:

    if one depends on solar power/panels for their electric needs they’ll freeze to death in the winter. solar panels/solar energy only goes so far depending on your geographical location on the earth in relation to the sun, problem with using solar power as a source of electrical power is the low density of energy flux from the sun. watts received per square meter of land area at the earth’s surface, the yearly averaged solar flux varies across the u.s. from about 160 in new england to 240 in new mexico, for a nationwide average of 200 watts per square meter. all that solar energy amounts to converted electricity, you could light two 100-watt bulbs for every square meter (about 11 sq. feet) of land area–during the day primarily. the sun’s heat cannot be converted into electricity.
    nevada solar one, a solar concentrator plant near boulder city, nevada which incorporates the latest state of the art parabolic mirrors to focus the sun’s heat on specially designed vacuum-insulated steel and glass receivers is rated at 64 megawatts peak generating capacity (that is at full sun), its actual averaged generating capacity of the plant over the 24-hour day is under 15 megawatts. and it is produced on a land surface area of 1.3 million square meters (321 acres) , bringing the actual electrical generating capacity of the plant to 11.4 watts per square meter. in other words it takes about 96 square feet of plant area to generate enough electricity to light one 100-watt bulb–during the daytime, repeat ‘one’ 100-watt bulb.

  46. Cieran says:

    in other words it takes about 96 square feet of plant area to generate enough electricity to light one 100-watt bulb–during the daytime, repeat ‘one’ 100-watt bulb
    Funny you would use an incandescent lamp as a measure of electrical utility. Such ancient-technology lighting sources have lighting efficiencies of less than 5%, and given the 60-70% losses in generation, often have end-use efficiencies of around one percent.
    Which implies that your chosen measure of solar utility can readily be considered to be off the mark by around two orders of magnitude.
    Not to mention that in many settings (e.g., residential homes) one doesn’t need solar energy to make electricity to create wastefully-inefficient lighting in the daytime. Windows do a pretty decent job of that already, don’t they?
    So given that your calculations refer to an end-use for solar electricity that’s thermodynamically silly, what exactly was your point?

  47. Cieran says:

    I thought that your assertions about solar energy sounded a bit familiar.
    Turns out that your recent response to Curious was lifted almost verbatim from Lyndon Larouche’s PAC website, from the article titled “Gore’s Solar Proposal Kills”.
    Said article is still thermodynamically moronic, but just because Larouche’s website is wrong doesn’t mean you get to quote it verbatim without listing a proper reference. .
    In my book, that’s called “plagiarism”, and it’s considered very poor form.
    Finally, there’s plenty to criticize in Gore’s energy plan, but since it is an energy plan, critiques of it should be firmly based in those branches of applied mechanics where energy principles reside, including the venues that we refer to as thermodynamics.

  48. Web says:

    I read this post when it was made and made a note to myself to come back in 4 months and see if your prediction that oil would be under $100 in a few months was right.
    It was right — currently at $54. The price came back under $100 in mid-October.

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