Black Swans, White Knuckles

… In the deeper background of all this is the all-important oil story that nobody in politics or the media wants to pay attention to. Notice that in the fervid unloading of assets this past week, as investors dumped their positions in the commodities markets, the price of oil remained stubbornly above $100-a-barrel.

Peak oil is for real. The supply can’t keep up with global demand, even if the U.S. portion of global demand dips a bit. And more portentous sub-plots develop in the story every month. Export rates are falling at a steeper rate than depletion rates. In other words, the countries with all the oil aren’t exporting as much of it. The exporting nations are not only buying more cars and running more air-conditioners, they also need to use more energy to lift the oil they’ve got out of the ground.


Another sub-plot is the fact that the equipment used world-wide to drill for oil and recover oil and move oil around the planet — all that equipment is now so old and rusty that it can barely do the job, and it is going to start failing altogether unless investments are made to replace it, which nobody is making.

By the way, Americans blame the familiar private oil companies for all the trouble with oil in their lives — Exxon-Mobil, Shell, et al — but they don’t seem to know that oil nationalism is in the driver’s seat now. The old private “majors” are only producing five percent of the world’s oil. The rest is coming from the national companies — Aramco, Petrobras, Pemex, et blah blah — and the very operations of the oil markets are entering a phase of radical instability as they move away from auctioning their stuff on the futures markets and start making long-term favored customer contracts instead.

The bottom line is that high prices for oil is hardly the only thing America has to worry about. Pretty soon the US will have to worry about getting the oil at any price — meaning, we’re in for shortages and supply disruptions sooner rather than later.

HoweStreet.com