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Too little oil or too much money?

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  • Too little oil or too much money?

    Who's on first? Are the central banks causing commodities prices to rise or are they simply printing the money they need to print to meet money demand due to tight supply?

  • #2
    I vote for too much money is available to people who desire to use oil.

    Loose Banking standards around the world have created a lot of debt - you need CASH to service that debt. The more cash that is around the bigger risks people take with their cash. to keep pace with inflation and make money. The rising Debt increase the price you can get for your home or a commodity - the availability of Liquidity - drives the value of real assets and services. This creates Economic confidence for the Debtors.
    Debt begets more debt and this drives the need for more CASH.

    Meanwhile commodities, Medical Services, education, local Government services (paid for by property taxes) all increase because there is no low cost alternative supplier and there is cash (credit, cash, HELOCS, Bonds) available to pay for these ever increasing items.
    The Perception of the average Joe and the local Governments is that you can always access more financial capital. Anyone who knows Economic history knows this is a false premise. If we perceived Cash to be hard to find we would hoard the cash (choosing to give up oil to keep more of our cash).


    • #3
      "$10 per barrel in 1999 to over $72 today. Not to put too fine a point on it, that's a 720% increase"

      A correction: that's a 620% increase, though the new price is 720% of the old price. Easy to see when you think of oil at $20, that's a 100% increase, not 200%.


      • #4
        You state erroneously that the laws of thermodynamics are holding us back from more efficient means of transportation. The thermodynamic efficiency of a typical internal combustion engine is 25% to 35%. That is, of the energy chemically stored in the fuel, 25% to 35% is converted into work, the remainder is converted into heat.

        You are right in saying that we can't get more heat from fossil fuels. The generation of heat is always 100% efficient, it's the final form of energy. So you cannot improve the amount of heat in your home without investing in better insulation, without reducing the heat lost up the chimney, etc.

        Engineering a significantly more efficient engine may be nearly impossible, but that is not what you were saying. If I understand your argument, you were saying thermodynamics prevented more efficient transportation. That isn't true.


        • #5
          Are you responding to Part II which will be posted next week?


          • #6
            I think it's this line that motivated me to reply: "Instead, the world will soon be forced back to a time when a lot more work, in a thermodynamic sense, was required to heat homes and fuel transport."


            • #7
              Shale oil, oil sands, pebble stone nuclear reactors, coal, solar, wind and bio are all viable alternatives at current prices. Conservation alone can easily drop another 20% off the USA demand side for oil. We will adapt, just as we did in the 70s when we lowered the demand for fossil fuels through conservation by 20% and oil prices subsequently collapsed. Human beings will adapt. Let the free market decide!


              • #8
                Yup, I agree.

                The only crisis Oil will create is as a trigger into a recession / hard landing for the housing market.

                In many ways, that will lower the demand for oil due to decreased demand in itself. We may find that oil prices then crash.


                • #9
                  In many ways, that will lower the demand for oil due to decreased demand in itself. We may find that oil prices then crash.
                  Except that the point of the article is that the oil price rises are only in small part a result of supply/demand factors and have had much more to do with money supply. If a decline in demand (recessionary) is met with a reflation effort by the Fed (which is what the Fed does after it has caused a recession) that negates the price effect of the demand reduction, how will the oil price crash?


                  • #10
                    Oil prices may be up over 600% in 7 years, but the dollar is down by about 40%. So, in real terms oil prices are still high relative to liquidity. Another way to look at it with respect to liquidity (inflation) is the amount of new drilling activity. If there wasn't any money to be made then this would not be happening.

                    I think there is a lot of speculative money in the futures markets that are holding the prices where they are. It's not all demand driven. If you look at gasoline stockpiles in the USA they are about average or even a little above average for this time of the year. I think prices are vulnerable should the speculators turn their attention away.


                    • #11

                      You have made a bold statement that is absolutely not true. I quote :"oil will eventually be overtaken by less-costly alternatives" can't possibly be true unless the laws of thermodynamics are repealed.””

                      You have arrived at your argument through a modern presumption that has already been shattered. And, even more importantly, the end game for heat as an energy source started way back in the 1960’s. I well remember finding a book by an English professor extolling the amazing virtues of what was then a totally new technology, rare earth magnets. He predicted small electric motors at a time when the only vehicle that had an electric starter motor was a car or lorry, (an automobile or truck to Americans). Have you not noticed the very small starter motors on motorcycles, for example, or the tiny electric motors on your new electric tooth brush? Almost everyone has failed to notice that these new motors were leaping ahead in efficiency. But like any inventor before him, one man had both the vision and the courage to walk ahead of everyone else and try and beat that 100% limit. Remember; never say to an inventor “impossible” as all you will achieve is to spur them on to even higher efforts.

                      One of the fascinating aspects of walking down a technological road is watching how fast innovation can work once unleashed and moving forward. You are actually watching the end game for heat energy. Heat as a source of power will disappear very soon now and a man called Minato will soon become as well known as any in history.


                      Read on, and remember, this is just the start. The end game will realise the wildest dreams of the most futuristic science fiction writers.

                      Chris Coles.


                      • #12
                        And this came in fresh immediately after I posted, another example of how magnetism is way ahead of heat engines.

                        | Electric Car Faster Than A Ferrari or Porsche |
                        | from the quite-a-cart dept. |
                        | posted by Zonk on Friday May 05, @11:50 (Businesses) |
                        | |

                        jumpeel writes "CNN's Business 2.0 has photos and video of a Silicon Valley-made electric car with a 0-60 acceleration rate that's [0]faster than a Ferrari Spider and a Porsche Carrera. From the article: 'In fact, it's second only to the French-made Bugatti Veyron, a 1,000-horsepower, 16-cylinder beast that hits 60 mph half a second faster and goes for $1.25 million.' The X1 is built by Ian Wright whose valley startup WrightSpeed intends to make a 'a small-production roadster that car fanatics and weekend warriors will happily take home for about $100,000 --a quarter ton of batteries included. The X1 crushed the Ferrari in an eighth-mile sprint and then in the quarter-mile, winning by two car lengths.'"

                        Discuss this story at:



                        • #13
                          Apologizes for the confusion. I refute Greenspan's assertion in the second part and only raise the question at the end of Part I to let readers know what Part II is about. You'll hear my full argument next week and I look forward to a lively debate afterward.

                          In brief, I will focus on fuel for transport because that's where we're really going to run into trouble if the transition from cheap to expensive fuels happens quickly, say, over a decade versus several.

                          What most do not appreciate is the amazing power density of gasoline, BTUs by volume, and how so many aspecets of our economy, from the structure of our transportation system (especially in the US) to the way we socialize depends on a cheap, high BTUs-per-gallon fluid that we can burn in internal combustion engines.

                          Oil is simply incredible stuff! You can pump it out of the ground, refine it, transport and store it at all naturally occurring temperatures on earth, pour it into two 84-gallon tanks that take up a mere 23 cubic feet of space under the rear of the cab of an 18-wheeler, and it takes that fully loaded tuck over 1000 miles. Amazing! Nature's battery made for us millions of years ago.

                          Every single other source of fluid transport energy has to be in one way or another manufactured by humans at considerable cost. Biodiesel requires agriculture that use scarce resources, including ariable land, water and petrochemicals for fertilizer. Hydrogen must be manufactured via the energy intensive process of hydrolosis, and is very expensove to transport and store as zero degrees Kelvin. All other substitutes for nature's batter, oil, are really batteries must be charged before we can use them... you can't just dig them out of the ground. This is where the net thermodynamic and thus economic cost of alternatives vs oil comes into play.

                          Pure electric cars charged via electricity from pebble bed nukes (I'm a big fan of that technology), are prectical in any climate where you do not need to either heat or air condition the vehicle, that is, just about nowhere. If you use batteries to heat and air condition a vehicle, their range drops to impractically short distances between charges. You can use hydrogen as fuel but as I mentioned it costs more than the equivalent of $200 per barrel of oil to manufacture, distribute and store. Then there's the problem of power density: for our 18-wheeler; you'll need two 1,100-gallon liquid hydrogen tanks that take up 316 cubic feet of space in the trailer to get the same 1,000 mile range, plus space for fuel cells that are needed to convert the hydrogen into usable energy.

                          All in all, there's no way around it. In the age of expensive oil, we'll have alternatives, but economics and thermodynamics means that we'll do a lot less travelling and moving things around the way we do it today ecause it will become very expensive to do: fewer private cars for long distance travel and more use of public transport is one obvious result, less commuting to work and more working from home is another. Energy economics will favor cities over suburbs. Think real estate is expensive in cities today? You ain't seen nothing yet. Details next week.


                          • #14
                            You missed the point about Minato, there is no battery. He instead uses the immense power in the permanent magnet to drive his new motors. No oil. No Battery. No heat.


                            • #15

                              I think Eric was trying to drive home that heat generation is still required for heat generation.
                              So, often people forget how deeply Petro has built our civilization because of the ability to heat. Look at the population density you have in colder climates - it wouldn't be possible without easy/cheap heat generation.
                              I moved from a Boston area to Philadelphia area. I had never thought about how much climate affected the economics of an geography prior to Air Conditioning and cheap heating.

                              This magnet electric motor might be useful for Air Conditioning in the future, but you'll still need heat generation in the northern areas (where the bulk of the US Population lives). We'll have to drastically increase our Non-petro electicity sources and build out more electric grid infrastructure - all this requires Oil.

                              I see sleep caps coming back into style in the future.