[Pops]

‘Peak Demand,’ Yes, But Not the Nice Kind
By Chris Nelder
Friday, March 5th, 2010

The true import of peak oil, therefore, may not be sustained high prices, but economic shrinkage.

Ah Ha! finally a post on the original topic, thanks Brat.

[thuja]

Yes I do think that economic shrinkage creates a "price ceiling" and that when the price goes that high...we see a return to a recessionary environment.

Ultimately however, I don't think a steady decline in global oil production can be divorced from price hikes. Even in an extremely recessionary environment, oil will become the most precious commodity and scarcity will continue to create greater upward price pressure. We are seeing that today.

Who woulda thunk that oil could be over 100 a barrel, gas at 4 a gallon, in the midst of 9 % unemployment and deeply problematic economic indicators.

My guess is that when oil starts really depleting rich people will bid against each other for 1000$/barrel oil while the poor and middle class will have been squeezed out.

[Pops]

Who woulda thunk that oil could be over 100 a barrel, gas at 4 a gallon, in the midst of 9 % unemployment and deeply problematic economic indicators.

I know!

I'd like to think oil can continue rising and we'll get used to it and just keep on truckin'. People will just spend less, ever-more wealth will trickle up but J6p will continue along the upgrade path to an iPhone 6-7-8 and not even notice.

I guess by this time next year we'll have an idea.

[Outcast_Searcher]

Who woulda thunk that oil could be over 100 a barrel, gas at 4 a gallon, in the midst of 9 % unemployment and deeply problematic economic indicators.

My guess is that when oil starts really depleting rich people will bid against each other for 1000$/barrel oil while the poor and middle class will have been squeezed out.

Why would really rich people do that, unless they REALLY REALLY want to travel a lot? (Remember, most rich people actually earned most of their money, as much as the left hates to admit that. That means they care about money, generally).

1). Even a middle class guy like me who wants to show the middle east his middle finger (but wants to be able to have the safety and convenience of a real car) is hoping that the Plug-in Prius finds a reasonably affordable way to be able to drive a car around the city about 80% of his usual modest mileage requirements, while burning ZERO OIL.

2). As solar continues to improve, this middle class guy even has the gall to hope that solar panels might provide most or all of the power required to tool around town before 2020, so his car uses zero fossil fuels for all his battery powered driving.

If the PHEV Prius gets 50 mpg in the city where I do the VAST majority of my driving, and I need to drive an average of 50 gas powered miles a week in the city at MOST (which should be easy with some planning), I can afford some SERIOUSLY expensive gasoline, and I'm only middle class.

I'm not saying we get there soon, but short of Iran nuking the Saudi Oil fields to ashes/glass -- we can sure as hell head that direcition before oil gets anywhere near an average SUSTAINED price of thousands of dollars a barrel.

Now, hundreds of dollars a barrel sustained average price -- I think we could easily see that within the next 10-15 years. Hard on the poor -- yes. Hard on the travel industry? Certainly. Requiring adjustments in living habits? Hell yes. End of the world? Not even close.

[Lore]

Certainly not the end of the world, but a pretty good path to the end of our way of life as we now know it. And for some in less fortunate conditions and poorer countries, it may just be the end of their personal lives and world.

[kublikhan]

Ultimately however, I don't think a steady decline in global oil production can be divorced from price hikes. Even in an extremely recessionary environment, oil will become the most precious commodity and scarcity will continue to create greater upward price pressure. We are seeing that today

Yeah I think so too. We may see the price seesaw up and down but I think the lows will become higher and the highs higher. Ultimately oil's economic value is far higher than $100 a barrel. More and more inefficient oil uses will falter as oil gets more expensive but for many uses oil would still be in high demand even with much higher prices.

[SpockLives]

Who woulda thunk that oil could be over 100 a barrel, gas at 4 a gallon, in the midst of 9 % unemployment and deeply problematic economic indicators.

My guess is that when oil starts really depleting rich people will bid against each other for 1000$/barrel oil while the poor and middle class will have been squeezed out.

It would seem to me that oil IS really depleting right about now. The price just doesn't reflect it yet because demand destruction tends to drop what is required by that socio-economic class. Certainly it is in their best interest, first, to change their lifestyles in response to a fuel price they can no longer pay?

[Pops]

But it's not rich people bidding up the price of oil, it is the opposite: the poorer countries are increasing their demand while the rich countries demand is going down.

That could be the Wiley Coyote effect, i.e., the BRICs now manufacture our stuff and declining demand simply hasn't made it up the supply chain yet and so the sweatshops and standard of living there are still growing.

Or maybe we've off-shored enough of that oil-intensive manufacturing that we are more elastic overall, Brat linked to a source showing that in the US, industry is slowing in response to oil prices and that is where demand is being hit, not retail fuel consumers. I guess that's Wiley running off the cliff too but in either case the economy is going to shrink.

Additionally, poor people simply get a bigger bang for the oil buck. If I could only afford 100 gals oil equivalent per year, each gallon would be very important to me, much more so - by far - than each gallon is to someone accustomed to 1,000 gallons oil equivalent per year.

Remember "supply=demand" is really "supply=(desire x ability to pay)". So if it costs $100gal to keep my insulin cold for a month, you can bet I have a big "desire" even though my ability to pay is small, and that gallon will come at the expense of just about everything else - while even the average "rich" person would likely think about conserving a little at that price. That's an extreme example but makes the point and don't forget, "rich" people are dependent on a healthy economy like all the rest of us, maybe more so.

The question is, how can the economy remain large enough to support an ever higher oil price when ever higher prices reduce the size of the economy?

I guess this will hereafter be the Peak Economy thread.

[SpockLives]

The question is, how can the economy remain large enough to support an ever higher oil price when ever higher prices reduce the size of the economy?

High oil prices during the 70's came hand in hand with the same sort of stuff we had in 2008, recession, irritated consumers, higher unemployment.

Is it not just as likely that the same sort of efficiencies which that crisis jumpstarted won't, or should I say, aren't already, doing the same sort of thing now?

[Pops]

The question is, how can the economy remain large enough to support an ever higher oil price when ever higher prices reduce the size of the economy?

High oil prices during the 70's came hand in hand with the same sort of stuff we had in 2008, recession, irritated consumers, higher unemployment.

Is it not just as likely that the same sort of efficiencies which that crisis jumpstarted won't, or should I say, aren't already, doing the same sort of thing now?

I assume you mean conservation measures like putting insulation in houses. You gotta remember that prior to the 60s & 70s primary energy was cheap, really cheap. For a short while I rented a late 50's "modern prairie" style house with no insulation, no attic and oriented to the west with 14' single pane glass wall on that face, I also lived in a concrete block house with 3" of glass wool insulation in the attic... People simply didn't pay much attention because energy was so cheap, so there were large gains to be made.

Vehicles were exactly the same, no one thought to ask what the mileage was in 1965, you'd have probably received a strange look for asking. So obviously there were easy gains to make. Industry, commerce, agriculture, really everything had large, easy efficiencies to be gained.

Over the last 40 years much of that housing has been updated or replaced, vehicles better but not by much and commercial/industrial of course are motivated by profit so are probably pretty efficient.

So, can efficiencies be gained? I'm sure they can but I'm likewise sure they won't be as large and as easy as before simply because we are starting from a different place. Houses are already built to a much higher performance standard, vehicles already are several times more efficient than a 1972 Caddie 500ci, businesses already see efficiency as a profit center or at least a way to competitive advantage.

The only option to investing in efficiency is going backwards: less driving, closing off rooms, more persons/household, carpooling, walking, eating "lower on the hog". Becoming more efficient takes investment: new built environment/infrastructure, new residential windows/mechanicals/insulation, new cars/trucks, new plant/equipment, etc.


Of course that is the on-topic part: In a shrinking economy, where do we find the money for that investment?

.

[bratticus]

Peak Economy?



Well maybe not everything.

http://peakmoment.tv/

http://www.theeconomicsofhappiness.org/

[thuja]

I agree that in this time period we are likely to experience boom busts based on a price ceiling that would induce a recession. What is that ceiling? I think somewhere around 150 and gas near 5.

But eventually we wil shove off the oil production plateau and start a steady decline in production. I'm guessing at that point that the price would have to rise dramatically higher to literally cut off whole segments of poor and third world populations.

My bet is that once oil really depletes...we will see crazy high prices (and masive crashes as well of course.)

[Pops]

Wouldn't it be a kick in the pants if everyone were wrong and the world economy pooped out at $125/bbl? ...
And wouldn't it be even crazier if instead of the oil price stair-stepping up with each cycle, the economy just kept getting less resilient...

OPEC Basket (showing the recent fall)

[Daniel_Plainview]

Wouldn't it be a kick in the pants if everyone were wrong and the world economy pooped out at $125/bbl? ...
And wouldn't it be even crazier if instead of the oil price stair-stepping up with each cycle, the economy just kept getting less resilient...

OPEC Basket (showing the recent fall)

Have we had 2 or 3 cycles so far?

Assuming we've had 2 cycles so far:

--The 1st cycle peaked at $147/bbl, leading to price plunge

--The 2d cycle peaked at $121/bbl, leading to price drop

-- The 3d cycle will likely peak at around $100-$105/bbl, leading to price drop

With each subsequent cycle, the economy becomes increasingly fragile and unable to withstand higher prices.

[Subjectivist]

Wouldn't it be a kick in the pants if everyone were wrong and the world economy pooped out at $125/bbl? ...
And wouldn't it be even crazier if instead of the oil price stair-stepping up with each cycle, the economy just kept getting less resilient...

OPEC Basket (showing the recent fall)

Have we had 2 or 3 cycles so far?

Assuming we've had 2 cycles so far:

--The 1st cycle peaked at $147/bbl, leading to price plunge

--The 2d cycle peaked at $121/bbl, leading to price drop

-- The 3d cycle will likely peak at around $100-$105/bbl, leading to price drop

With each subsequent cycle, the economy becomes increasingly fragile and unable to withstand higher prices.

Where did we peak out this last price cycle? Things have been so low for the last year I can't recall.

[dolanbaker]

That post is four years old!
It looks like he called it right.