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warrior bodhisattva
Super Moderator
Location: East-central Canada
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Not so fast:
Quote:
Only A Recession Stands in the Way of $200 Oil
Posted by Jeff Rubin on March 2nd, 2011
With very limited excess capacity in Saudi Arabia and the rest of OPEC, further production shutdowns in the convulsing Middle East will soon push oil prices to new record highs. The Brent futures contract, the world’s benchmark price, almost reached $120 per barrel in London last week. With gasoline soon to cost six pounds a gallon (£1.32 pounds/liter), the British government is already considering alternative rationing systems to the brute price mechanism at the pumps.
Amid the chaos sweeping through the Middle East, it is easy to lose sight of where oil prices were trading before the political protests began. Brent was north of $100 per barrel before protestors started sweeping into Cairo’s Tahrir Square. The triple digit price for oil was due to runaway global demand, which by the end of last year had soared to more than a record 87 million barrels per day. It was yet not about potential supply shocks from Libya or anywhere else in the Middle East.
Now throw in supply disruptions from the world’s largest oil producing region, and it isn’t hard to find a path to $200 per barrel oil.
When I first predicted $200 per barrel oil prices in 2008 as the chief economist of CIBC World Markets, it was in the context of expecting another four years of global economic growth. Of course, that didn’t take into account the impact of triple digit prices on fuel-dependent GDP growth. Even $147 per barrel prices brought global economic growth to a screeching halt.
It is all the more remarkable that despite triggering the world’s deepest post-war recession and a rare, albeit temporary decline in global oil consumption, oil prices had already soared back to triple digit levels even before the Arab revolt.
And it will be difficult to keep prices from moving even higher as investors start piling on the oil bandwagon, particularly when they see most of Saudi Arabia’s much touted four million a barrel a day excess capacity is largely of the fictional variety while, at the same time, noticing how little effect monetary tightening is having on restraining China’s exploding fuel demand.
What speculators will have to worry about is where things are going. If we learned anything from the last recession, it was our oil dependent, transport heavy, global economy doesn’t run very well on $147 per barrel crude.
And other than bailing out bankrupt investment banks and automobile companies at the cost of record public-sector deficits, not much has changed in our economies over the past three years to suggest our next encounter with that these kinds of prices will lead to a different result.
We are moving inexorably closer to another oil price induced recession. And when we get there, oil demand and oil prices will once again collapse.
The only question is will we see $200 per barrel oil first?
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Only A Recession Stands in the Way of $200 Oil | Jeff Rubin
And a more recent blog entry:
Quote:
Is Peak Coal Coming?
Posted by Jeff Rubin on April 27th, 2011
The price of oil isn’t the only hydrocarbon going through the roof. Check out thermal coal prices to see how dependent economic growth has become on burning increasingly amounts of fossil fuels. Prices of Newcastle coal, the Asian coal price benchmark, are poised by rise by as much as 30% this year, approaching the peak levels seen in 2008.
It is no surprise the countries driving global coal demand through the roof are the same countries pushing global crude demand. Find the fastest growing economies, and you will find where demand for oil and coal are the strongest.
China’s coal consumption is expected to rise by another 10% this year, propelled by strong economic growth, the soaring prices of diesel fuel and the fact water levels at most of the country’s hydroelectric sites are well below normal due to the severe drought this winter.
Demand in India, where power blackouts are still the norm and where 40% of the country’s 1.2 billion people still haven’t been hooked up to a grid, is expected to grow by more than 20% this year.
It is good news for coal prices but the only problem is whether production can keep pace. Sound familiar?
China’s coal industry already accounts for more than 40% of world production with less than 15% of the planet’s coal reserves. This is a rate of resource extraction that U.S. coal companies can only dream about.
Even so, domestic mine production in China lags runaway demand growth, forcing the world’s largest coal burner to turn to more foreign suppliers such as Australia. Last year, the Chinese economy burnt a staggering 3.2 billion metric tonnes of the stuff.
This is already a huge challenge to China’s railway system that is clogged with hauling billions of tonnes of coal from increasingly distant mines in the remote western regions of the country to the industrial heartland in the east.
But the Chinese economy faces an even more daunting challenge to its coal consumption than transportation logistics. Domestic coal production is rapidly approaching what even the Chinese government acknowledges to be a national production peak.
At the current extraction rate, China could hit that production peak as early as 2015. Once there, most estimates show a sharp drop off in the country’s coal production beginning around 2020. This is why Beijing is considering capping domestic coal production, fearing the country is depleting its remaining coal reserves far too quickly to sustain future economic growth.
This policy shift has sent Chinese coal companies scouring the world looking for new coal reserves. They have already spent $21 billion on overseas coal acquisitions.
As the largest coal producing country starts thinking about conserving its remaining coal reserves, you wonder just how far off we are from a world of peak coal?
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Is Peak Coal Coming? | Jeff Rubin
If this guy is to be believed (he's made some astounding calls in the past), then once demand for oil returns to previous levels, we're going to see prices go back up and fast. However, it can only go up so high before something breaks. Right? And this thing about coal.... should we be talking about "peak energy"?
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Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön
Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot
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