Saturday, May 24, 2008

Hoarding, Shortages and Violent Fools

NVDL: There is something very seriously wrong when prices break records for something like 7 straight days, including overnight gains of $8. While many cried 'false alarm' when prices fell $4 followed the $135 record, within a day they have climbed another $1.90. This is extraordinary; it shows the oil price has got a lot backing it up. It can make large upward jumps off all time records, fall back, then rapidly climbs back to and beyond those record levels. Those who are counting on these 'bubble' theories ought to look at the facts:

Energy Watchdog Warns Of Oil-Production Crunch

The world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand. The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.

NVDL: A lot of people already know this, as we have been measuring depletion everywhere, even in the world's super giant fields like Ghawar.

Yet there has been some fascinating analysis of the current high oil prices, with a vast majority stuck in denial, citing: bubbles, speculators, dollar weakness, even Peak Oil panic. What this response says louder than the words themselves is simply this: people aren't ready to accept reality, people aren't prepared to accept that supply simply can't keep up because that would mean we would have to address demand (something we do each day) and I think everyone is still a long ways off from understanding reality. This is bad news for everyone, because it just postpones the collective wake up. It means, as long as people remain dismissive of high prices as a market fluke, a bubble, something that is someone else's fault, a temporary glitch, for as long as that happens, the house we're in, with all its beds, continues to burn unabated. It just makes the crash more severe when it happens.

Here's a reality check: large companies and countries are now undertaking massive hoarding behaviour. India has started with a SPR, and any other country with spare cash, and a right mind,ought to do the same. What that does, is sets off two responses:

1) increased demands and accelerated price increases
2) shortages

And once the world sees shortages appear in the system, we will see 1) and 2) repeated even more intensely. That's where we are now. Those shortages we've already experienced, are going to start lasting longer, as long as a few days, it will come back on, then we'll have nothing for a week, then worse. It will depend on our government and SASOL (in SA) to attract and pay for fuel when everyone else is also fighting for scraps. We're lucky that we won't be paralysed entirely straight off the bat - SASOL produces about a third of our petrol needs. So the next time you're in traffic, look at the car in front of you, and in the rear view mirror at the car behind. Only one of you can expect to be on the road over the medium term.

If you thought the power cuts from Eskom were a temporary blip on the radar, think again. We are now going into winter, and here consumption goes up anyway, even when we're trying to cut down. There was a warning tonight of load shedding, and the mercury won't even approach zero. When it does, and it will, large areas will once again be without power.
Remember also that every time this happens, a number of substations are destroyed in the process, slowly eroding infrastructure. Some of these substations will be rebuilt, most won't. It's the beginning of the degradation of this system, and I don't predict lights at the end of the tunnel.

In South Africa the many crisis that exist will manifest even deeper, in particular:

1) crime
2) mob violence (spreading throughout poor communities)
3) system breakdowns (electricity, water, police and health services)
4) recession and responses to recession - protests, unemployment, civil strife (this time from the middle class)
5) ordinary delivery failures (postal, food etc)

The reasons for all this are also basic; the infestation of high fuel prices into the system, meaning food prices becoming less affordable, mass defaults on loads, mortgages, and the unfolding of recessionary processes associated with stagflation - the nightmare scenario that is actually the world case scenario - high prices associated with unemployment, and lower growth.
The creep of higher prices won't stop, producing more and more economic losers, who become part of an unstable system of unemployed, angry, hungry mobs. This stresses the system even further, leading to the doomsday stuff: widespread disease, widespread conflict, and large scale war.

What can we do in this unfolding situation? Invest in your community, be part of your community. Understand, follow and manage the situation. Stay alert, and stay awake. Start practising now how to eat and live right. Stop wasting time, and sort out all those relationships that need sorting out. We're going to need each other a great deal sooner than we think.

Producers say $200 oil is possible as prices hit record three days running

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