There is one caveat to the statistics which is that no one really knows the exact production and decline rates of “all” the world’s wells due to the fact these countries won’t allow independent audit and logging to occur.

I bet you anything that sovreign countries are hoarding oil in their strategic petrol reserves – example United States. It is hard to drive a tank with no gas. The US Congress is full of detached morons if they want to cease filling the SPR or cut fuel taxes just to lower the cost of gas – WTF!

Agree there is probably no alternative to oil and gas but the masses can all drive much smaller, lighter electric vehicles as an alternative. So what if we have to build one or two nuclear reactors in every city – still better than the alternative.

“If the demand was so high, why is there a global crude glut?”

Where do you see a global crude glut? Demand for Oil is well above production. Right now, all of the major oil companies are searching in the Artic for the last untapped fields. If there was an oil glut than there would be no need to go searching for Oil in inhospital places.

Justenuf2bdangerous wrote:
“I am concerned there may not be enough time to develop and implement viable energy substitutes”

There aren’t any real alternatives to oil and gas. Oil and Gas are dirt cheap to produce and liquid fuels are really the only option for most transportation fuels. Besides provideing fuel, Oil and gas are chemical feedstocks from everything you touch today. Even the food that you eat uses natural gas to produce pesticides and fertilizers, dry grain, and oil is used to harvest and ship food from the farms to your supermarket.

Justenuf2bdangerous wrote:
“I believe the present run out rates for existing oil production is between 40 or 50 years”

That estimate does not tell the whole story. Oil will likely be extracted from the ground for thousands of years. The important issue, is how much will be extracted per day. Currently all Oil companies are using water injection to maintain high extraction rates. Over time, the fields become “watered out”, as the majority of liquid is extracted isn’t oil, but water. When a field oil column disappears, production drops like a rock. Had it not been for massive use of water injection, oil production would have peaked about 2 decades ago. That would have been far better, because we are rapidity burning through the remaining oil at our futures expense. This will almost certainly result in a sharp downward slope rather than a nice shallow downward slope.

Consider for instance a bottle of water with a small hole. When the bottle is full, the water comes out like a stream. Over time as the water is drained the pressure drops causing the flow rate to decline. To adjust the flow rate you can make the hole bigger, but the bigger the hole the faster the bottle will run out. Thats what is happening now. The amount of oil that can be extracted from the oil field is fixed, we can only control the extraction rate, but the faster we drain the fields, the less time we have left.

I think we are about to come off the production plateau soon (probably with in about 9 months). With in the next two or three years we probably see some very serious oil production problems. This will cause the price of oil to continue to rise even in the face of demand destruction. Another important factor is that most OPEC nations have rising teenage populations that are now reaching driving age. Fuel consumption in these nations is fueled by soaring number of people buying cars and cheap subsidized gas (25 cent to 75 cents in most OPEC nations). All that consumption means less oil exported to the West and Asia.

Links of Interest:
Russian Oil Output May Fall for First Time in Decade in 2008
ww.bloomberg.com/apps/news?pid=20601072&sid=arXTpOY4omL4&refer=energy

Saudi King Abdullah Drops Quiet Bombshell
http://www.rightsideadvisors.com/public/commentary.go/rsa/commentary/comm-energy/20080422_024110_msg.html/Saudi-King-Abdullah-Drops-Quiet-Bombshell-.html

Lukoil Exec says Russian Production has peaked
blogs.wsj.com/environmentalcapital/2008/04/15/peak-oil-da-say-russian-oil-execs/

Darth Toll – this is very interesting. Looks like the big guys want the total control on both food and oil prices and hence the powerful tool to control the world. The prices can’t be too low, can’t be too high, or sometimes they can be too high when needed.

The dependency between oil and treasuries has to be investigated. Will do.

Econobrowser addresses this topic very well.
http://www.econbrowser.com/archives/2008/04/commodities_and.html

Fear is much stronger than greed and human nature will only compound the problem through hoarding. While I believe in the near-term the food issue is solvable I am less confident in the outlook for oil which will eventually recycle back into food. Listening recently to an energy analyst from Merril on Bloomberg I was amazed by a statistic quoted. According to the analyst, oil production during the rebuilding of post-war Europe of the 1950’s and 1960’s increased 6% YoY, today we are lucky to increase production rates (new oil) by 1%.

Additional fundamental oil supply issues:
1. Existing oil production decline rates are rising and currently fall somewhere between 5-8% annually (conservative average) and could decline faster as demand and technology drives methods for greater extraction rates
2. Aging Infrastructure (I believe this issue may be attributable to Russia’s suprising 1% YoY decline rate published by WSJ
3. Aging Workforce
4. No significant discoveries in the last 10-20 years
5. Per EIA data, present (Dec 2007) World Oil production is 85.8 mm bbl/day and consumption is 86.2 mm bbl/day – also, until Dec. 2007 the world has failed to increase its production of oil since May, 2005 (scary!)

From the current world statistics from BP, I believe the present run out rates for existing oil production is between 40 or 50 years. However, no one waits for the end and demand, technology and mother nature will attempt to cut that time in half – in my opinion.

I am concerned there may not be enough time to develop and implement viable energy substitutes – time will tell.

Great blog Roxy!

The last person I’d see for any advice is that snake oil dealer Al Gore.

~Sisyphus, http://www.tsfiles.wordpress.com

There is always a fundamental story that bulls can point to but this is not about fundamentals, its about currency and interest rate manipulation – specifically Asian and petro-recycling regimes and the slowing US economy.

As the US economy slows, our demand for oil (and also crappy Asian goods) is also slowing. The refiners have often talked about a very real liquid oil glut. This flies in the face of ever-rising demand theories. If the demand was so high, why is there a global crude glut? The prices NEED to be ever-higher so that the Arabs can recycle this money back into treasuries and agencies as part of the Godfather Protection Racket. Our debt-based currency is in free-fall and is being artificially supported by recycling operations and this keeps interest rates artificially low as well. Now these higher oil prices aren’t quite enough to support the massive inflows of FCB capital into treasuries and agencies so these countries print in their OWN currencies to make up the difference. This causes massive crack-up-boom inflation in their own countries.

Oil may need to be $150 or even $200/bl to offset some of these CUB printing effects and so it will march ever higher until the infamous bond bubble finally pops. The problem with CUB economics is that eventually it causes REAL shortages of things. Take refiners and the crack spread for example. If the refiners can’t pass along enough of the higher crude costs, eventually they will have to cut production. We saw this same effect with the airlines recently – how much money can they stand to lose without cutting production? And once they do, REAL shortages develop. It could be argued that the whole ethanol boondoggle is really no different than Bush’s decision to double the strategic oil reserve. We NEED high oil prices so the petro-recycling can continue into treasuries and an oil glut makes it hard to drive oil prices higher. Remember, there needs to be a good fundamental STORY about why oil should be so high even though the real demand isn’t there. The PTB know very well that it takes more oil to make ethanol than it displaces in the fuel supply.

Remember a couple of years back when oil briefly dipped below $60/bl? The Arabs promptly dumped boatload of treasuries on the market and the 10-year spiked hard. I remember this very well. The next day, the energy secretary announced that there would be a doubling of the strategic reserve and oil prices started their ascent. Yields quietly moved back down a couple of days later and the petro-recycling crises was delayed. But the problem never went away, it still lurks in the background ready to destroy the bond market and the economy.

Really, you guys need to be a lot more cynical. Why do we fight expensive wars? To secure natural resources? No. There is a GLOBAL elite oligarchy that is in control of all central banks and world resources. We fight wars to create debt which pays the Federal Reserve (and other pigmen bankers) interest. This is similar to 1984 where Oceania, Eurasia, and Eastasia were constantly at war for no real reason other than to control the masses and destroy expensive machinery (to presumably create more debt in the analogy.)

Long term, TechGuy is right about much of what he says but I don’t think that’s what’s causing this massive crack-up-boom in commodities and food. There is something far more sinister and immediate in the works. Winter has talked about an imminent waterfall bond collapse of 30-40% coming in the next several weeks and he may be 100% right about this. If this happens, look for a break in the CUB and the vicious petro-recycling that is driving the CUB.

Then you will get to see how real the commodities and food inflation is (or isn’t.) We’ll also get to see how real this interest rates are.

You say falling dollar is not to blame for rising food prices. Then how come this year’s acceleration in dollar decline coincides perfectly with jumping food prices?
You say food prices are rising uniformly around the globe… that’s impossible; food prices in Euros has gone up less than in dollars.

I do not believe that it is an accident that dollar-pegging countries (China, Egypt, for ex.) have the worst food inflation.

China and India have also been experience growing water shortages for irrigation. China also had a very severe winter this year that has impacted winter wheat yields. China has also started filling up the Three gorges damn which is destroying hundreds of thousands of fertial acres. A significant amount of India’s irrigation is dependant on ground water and the demand for ground water is far exceeding its replacement. Every year the wells have to be dug deeper and deeper to reach the falling water table. Some farmers are unable to afford the expensive deep well pumps now required to pump ground water.

Fertilizer shortages are another significant factor, as fertilizer production plants close in regions that lack abundant Natural gas supplies because of the high cost. The cost of phosphates are also on the rise as the easy phosphate sources (coral islands) are being depleted. The costs for Fertilizer has soared by 10 times the price just a few years ago.

There is suburban development that is consuming some of the worlds best farming land to make way for residential homes and strip malls. Farming is being pushed into regions where the land is acceptionally cheap, which is usually of less quality soil and more dependant on irrigation. For instance in the US urban development on on the East and west costs is pushing out farming into the mid-west regions which has less rainfall, and the soil isn’t as fertial. This is happening in the developing world such as China and India.

Finally, there is an aging farmer workforce. I believe the median age for farmers is near 60 in the US. Younger people aren’t interested in farming as they choose to move to urban regions instead of taking over the family farm. In the not too distant future, there will be a storage of US farm labor (unless perhaps we import foriegn farmers) as farmers retire or are simple unable to farm because of failing health.

Jason Wrote”
“For the short term, it is also the fear of shortages, so the middle class and rich in many places are stocking up, buying much more than normal, and causing shortages.”

The grain surplus has been falling for over a decade. You’ll have to go back to 1997 to see an increase supply of grain. Its unlikely that prices will fall and supply will increase significantly until the drought subsides.

Shankar Khadye wrote:
“Malthus also made the same argument (# 2) and was proven wrong.”

Malthus was wrong on the date, but in the long run, his theory is correct. We live on a finite planet with finite resources. For the past 200 years, we have tapped a stored energy source that taken hundreds of millions of years to accumluate. Every day the human population consumes the equivalent of 400 years of stored sunshine from fossil fuels. Sooner or later these resources will be depleted and the planet will not be able to support the 6.5+ Billion human population.

A dacha settlement will have many small plots of about 20 x 30 m, and they frequently become summer cottages for city families that now own them. These small garden plots now produce 70 % of the food comsumed by the people of Russia.

There are simple solutions that are sitting right in front of us. Technology sucks when it comes to food production.

The rising wealth is, by far the main reason that food prices are going up (As you said). For the short term, it is also the fear of shortages, so the middle class and rich in many places are stocking up, buying much more than normal, and causing shortages. This can’t happen forever and prices will settle down.

Jason Dragon
http://blog.capitalactive.com/