Is It Peak Oil?

[Finster]

In the wake of surging oil prices over the past couple of years, there has been great renaissance in discussion about Peak Oil. Such discussions may have great long term relevance, but to the extent they arise in the context of these recently surging oil prices, they miss the point. Let’s take a look and see if we can determine to what extent these surging oil prices have to do with peak oil and to what extent they may be due to other factors. We will see that only a small fraction of the price increase has to do with oil per se becoming more precious.

First, let's look at the oil prices we all see and hear every day. Over the past five years, oil seems to have risen over three and a half times in price.



Next, however, we will look at oil prices in ounces of gold. Real money. This gets the dollar and other paper currencies out of the equation completely, so we can see what has really happened to the price of oil. The picture is dramatically different. In fact, when you measure it in real money, the price of oil has gone nowhere in the past five years.



For a longer term perspective, we next look at the price of oil in ounces of gold since 1970. Over 36 years, in dollars, the price of oil has gone from about $3.35 to $75 - up about 20 times or 1900%. In gold, the price has gone from 0.10 ounces to about 0.11 ounces, or about 10%.



Folks, peak oil is real, but it's a long term issue, and is responsible for little of the current run up in prices. Getting obsessed with energy supply just leads you to miss the Big Story here - destruction of the currency.

Is it peak oil?

No.

Is it inflation?

Yes.

[blazespinnaker]

Re: Is It Peak Oil?

Well done.

[jk]

Re: Is It Peak Oil?

thanks. i was talking about long term oil/gold with someone the other day, but couldn't lay my hands on a chart. terrrific.

[blazespinnaker]

Re: Is It Peak Oil?

You should add a housing chart to that and it'd be complete.

[Finster]

Re: Is It Peak Oil?

You should add a housing chart to that and it'd be complete.

Calling Bart!!!

[bart]

Re: Is It Peak Oil?

Calling Bart!!!

You rang? ;)


(the burgundy line)

[Finster]

Re: Is It Peak Oil?

You rang? ;)


(the burgundy line)

Most excellent, Sir!

Just one nit to pick. It looks like either the legend or the graph for the house/gold line is inverted. There is a sharp peak in 1980, which would be consistent with a high gold price compared to houses, but it implies a high house price compared to gold. Then in the late 1990s, when gold prices were much weaker than house prices, there should be a peak rather than a trough.

So either you mean to chart the price of gold in terms of houses or the line should be upside down ...

[bart]

Re: Is It Peak Oil?

Most excellent, Sir!

Just one nit to pick. It looks like either the legend or the graph for the house/gold line is inverted. There is a sharp peak in 1980, which would be consistent with a high gold price compared to houses, but it implies a high house price compared to gold. Then in the late 1990s, when gold prices were much weaker than house prices, there should be a peak rather than a trough.

So either you mean to chart the price of gold in terms of houses or the line should be upside down ...

That chart has been a real challenge - just last week there was a lot of interpretation confusion on it on two other boards, so I reversed the left scale. The top is 1 and the bottom is 100 now, and it looks like it bit me again.

The gold top in 1980 meant that approx 90 oz. would buy a house, and the bottom around 2000 would mean the median house would cost about 800 oz. of gold... so I think its right.

If you or anyone else has an idea on how to make it clearer, I sure am listening. Perhaps a note at the bottom noting that the left scale is reversed?

Here's an earlier version of the chart from before I reversed the left hand scale - for comparison:

[Finster]

Re: Is It Peak Oil?

That chart has been a real challenge - just last week there was a lot of interpretation confusion on it on two other boards, so I reversed the left scale. The top is 1 and the bottom is 100 now, and it looks like it bit me again.

The gold top in 1980 meant that approx 90 oz. would buy a house, and the bottom around 2000 would mean the median house would cost about 800 oz. of gold... so I think its right.

If you or anyone else has an idea on how to make it clearer, I sure am listening. Perhaps a note at the bottom noting that the left scale is reversed?

Here's an earlier version of the chart from before I reversed the left hand scale - for comparison:

...

Mea culpa! I hadn't noticed the inverted left hand scale. My nit is hereby unpicked.

No need to add a note though ... normal people probably would pick it up anyway and yours truly miss it anway ...:confused:

[bart]

Re: Is It Peak Oil?

Mea culpa! I hadn't noticed the inverted left hand scale. My nit is hereby unpicked.

No need to add a note though ... normal people probably would pick it up anyway and yours truly miss it anway ...:confused:

I hope that I get credit for my next "senior moment"? ;)

To be truthful, I just had one this morning - the link to my dollar/deficit article was broken. :eek: :rolleyes:

[Finster]

Re: Is It Peak Oil?

I hope that I get credit for my next "senior moment"? ;)

You are hereby allotted one get-out-of-finned-free card.

... or roll the dice three times and see what happens ...

[bart]

Re: Is It Peak Oil?

You are hereby allotted one get-out-of-finned-free card.

... or roll the dice three times and see what happens ...

rimshot...


I'll treasure it always... and *hugs* too. ;)

[metalman]

Re: Is It Peak Oil?

In the wake of surging oil prices over the past couple of years, there has been great renaissance in discussion about Peak Oil. Such discussions may have great long term relevance, but to the extent they arise in the context of these recently surging oil prices, they miss the point. Let’s take a look and see if we can determine to what extent these surging oil prices have to do with peak oil and to what extent they may be due to other factors. We will see that only a small fraction of the price increase has to do with oil per se becoming more precious.

First, let's look at the oil prices we all see and hear every day. Over the past five years, oil seems to have risen over three and a half times in price.



Next, however, we will look at oil prices in ounces of gold. Real money. This gets the dollar and other paper currencies out of the equation completely, so we can see what has really happened to the price of oil. The picture is dramatically different. In fact, when you measure it in real money, the price of oil has gone nowhere in the past five years.



For a longer term perspective, we next look at the price of oil in ounces of gold since 1970. Over 36 years, in dollars, the price of oil has gone from about $3.35 to $75 - up about 20 times or 1900%. In gold, the price has gone from 0.10 ounces to about 0.11 ounces, or about 10%.



Folks, peak oil is real, but it's a long term issue, and is responsible for little of the current run up in prices. Getting obsessed with energy supply just leads you to miss the Big Story here - destruction of the currency.

Is it peak oil?

No.

Is it inflation?

Yes.

The Contrarian Case for $50 Oil
Despite all the bad news, oil never hit $80, and demand in the energy-hogging U.S. is likely to slow

http://www.businessweek.com/investor...pStories_ssi_5

or

Energy and Money Part I: Too Little Oil or Too Much Money?

Inflation is not only determined by the supply of goods available relative to the supply of money to buy them, but also the demand for the currency in which goods are priced relative to the supply of that currency. It can be hard to tell which factor is primarily driving prices.

http://www.itulip.com/energyandmoney.htm

[Finster]

Re: Is It Peak Oil?

The Contrarian Case for $50 Oil
Despite all the bad news, oil never hit $80, and demand in the energy-hogging U.S. is likely to slow

http://www.businessweek.com/investor...pStories_ssi_5

or

Energy and Money Part I: Too Little Oil or Too Much Money?

Inflation is not only determined by the supply of goods available relative to the supply of money to buy them, but also the demand for the currency in which goods are priced relative to the supply of that currency. It can be hard to tell which factor is primarily driving prices.

http://www.itulip.com/energyandmoney.htm

The answer is ... B!

The reasoning of Business Week turns on the amorphous concept of oil "demand". Oh, its real all right, but how do you measures it? Is "demand" how many people are stomping their feet, holding their breath and turning blue until somebody gives them oil?

No! At least when it comes to the price of oil as denominated in some currency, the only "demand" that matters is how much of that currency is being used to "demand" oil. In a nutshell, "demand" for oil equates to "supply" of dollars.

It doesn't matter how bad people want oil - only to the extent they have dollars to express that demand can there be any impact on the price of oil in dollars.

[jk]

Re: Is It Peak Oil?

The answer is ... B!

The reasoning of Business Week turns on the amorphous concept of oil "demand". Oh, its real all right, but how do you measures it? Is "demand" how many people are stomping their feet, holding their breath and turning blue until somebody gives them oil?

No! At least when it comes to the price of oil as denominated in some currency, the only "demand" that matters is how much of that currency is being used to "demand" oil. In a nutshell, "demand" for oil equates to "supply" of dollars.

It doesn't matter how bad people want oil - only to the extent they have dollars to express that demand can there be any impact on the price of oil in dollars.

finster, this reasoning is too narrow. what matters is relative demand. surely there are alternative uses for dollars, including holding it as cash. given the money supply, you'd need to know the demand for cash as well as alternative products. the demand for cash also relates to velocity, a factor which you have omitted from prior discussions iirc. have you addressed the issue of velocity?