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"He owns two hybrid cars. Well, mercy me! A real environmentalist, unlike someone who lives close enough to work and what he needs to live as to not need a car at all."

Granted it would be ideal to live close to work, but that is just not feasible for most people,

Posted by JD | May 21, 2008 1:48 PM

I can see the price of oil leveling off as those other sources come online, but Europe pays around $6 or more for a gallon of gas and their economy hasn't ground to a halt. The higher the price goes, the more the sectors of the economy that profit from oil alternatives will grow. The economy might groan and creak, but it won't grind to a halt because of the price of oil.

If anything, we will finally learn that we never needed oil this badly and were just afraid to try living any other way.

Posted by elenchos | May 21, 2008 1:52 PM

I did not get that he was trying to pump up oil prices. The article states he was seeing the coming "super spike" back at $40 a barrel. I dunno, China and India (soon Brazil) are all needing the stuff and we have yet to truly find massive new reserves. Sounds like demand will outpace what would that do to prices again?

Posted by thetruthhurts | May 21, 2008 1:52 PM

speculators do have an integral purpose though.
and lets not forget that the fed has made money cheap with it's anti recessionary crap cuts. god forbid we have a much needed recession because it'll hurt poor folks in the short run (but help em in the long run)

Posted by Bellevue Ave | May 21, 2008 1:59 PM

Actually based on space-based satellite imaging of the Saudi peninsula I'm going to have to say that, while some of the current price is speculation, and some demand from India and other countries, that he's mostly right in the LONG term.

It will get even higher.

About time we started building high speed rail between cities on the West Coast ...

Posted by Will in Seattle | May 21, 2008 2:00 PM

Man, I could kick myself for not investing in oil (and defense) stocks the second Bush was "elected" in 2000. I joked about doing that at the time, but I could have retired by now had I stopped joking and started trading...

Posted by 20/20 Hindsight | May 21, 2008 2:03 PM

Will, you're wrong. Jonathan, you're right -- there's more oil undiscovered or discovered but unrecoverable with current technology than the known reserves. Saudi Arabia doesn't have anything to do with it.

But the important point is this, as Elenchos was getting at: there are a number of alternative energy ideas that start to become economically feasible when oil hits about $120 a barrel. Algae biodiesel is one of them; switchgrass and wood waste fermentation is another. There are others, including some I don't know about, I'm sure. These things are very sensitive to that price; a dollar below, and no one will bother; a dollar above, and things start to move.

And the best thing that happens when things start to move is the technology gets better. Algae right now is hopeless for large-scale production; at $120 a barrel oil, it's worth learning how to do it better.

The best possible thing that could happen for alternative energy research and development is expensive oil. This is true even though there are some big negatives, too -- expensive oil ALSO makes it more worthwhile to go after those catastrophic oil sands and shales. But the net is extremely good.

If the price drops back down to $70, we're fucked. I'm rooting for a sustained $150, which would actually be close to a historic high in terms of energy cost per household income (we're way below that high now, despite what you hear on the news).

Posted by Fnarf | May 21, 2008 2:20 PM

After reading True Enough I have to wonder what Mr. Murti's motivation really is for doing these types of articles. Sure, he's an analyst, thereby having legitimate cred., but his mentions of hybrid cars lead me to question if he is also doing covert PR for some company.

My reality 2008, I trust no one's message anymore.

Posted by PopTart | May 21, 2008 2:29 PM

Krugman has been asking a while where, if speculation is actually driving up the price of oil, all this hypothetically stockpiled oil has been going. It's not all that compact.

I don't think speculation is a big factor.

Posted by Nat | May 21, 2008 3:03 PM

elenchos @2:

I can see the price of oil leveling off as those other sources come online, but Europe pays around $6 or more for a gallon of gas and their economy hasn't ground to a halt.

That argument falsely conflates the price of oil with the price of gas.  Neither is trivial, but oil is a lot more influential (and globally consistent), and it's oil that we're talking about.

Posted by lostboy | May 21, 2008 3:30 PM

I've mad more money off of oil stocks than you have, Fnarf. You can be right all you want, it won't change it.

Posted by Will in Seattle | May 21, 2008 3:32 PM

made ...

Posted by Will in Seattle | May 21, 2008 3:33 PM
Posted by Bellevue Ave | May 21, 2008 3:37 PM

lost boy is right. the price of gas is related to the price of oil but that isn't the only factor determining gas prices. crack spreads are your friend.

Posted by Bellevue Ave | May 21, 2008 3:39 PM

I have a fun game we can play. When the inevitable oil crash comes, and all the insanely wealthy oil tycoons come to Capitol Hill looking for a handout to help them make payments on their yachts, we give them each instead a bullet in the brain.

Posted by Greg | May 21, 2008 3:45 PM

greg, what if they pay me more to slay the belligerents?

Posted by Bellevue Ave | May 21, 2008 3:48 PM


The alternatives that you mention -- "like oil sands, oil shale, the probable massive arctic oil fields (revealing themselves thanks to the melting ice cap) and liquefied coal" -- cannot meet the gap between expected demand at current economic growth rates and likely supply.

The world currently consumes just over 85 million barrels of oil per day (mbpd). A mature and declining oilfield will typically see production declines between 3% and 10% per year, depending upon the recovery technology applied and geology of the field: East Texas fields show decline rates around 3%, while Mexico's Cantarell super-giant field has declined in excess of 10% per year. Of the largest five oilfields in the world, only Ghawar in Saudi Arabia has not passed its peak production. In order to replace the loss of production due to aging fields we need to bring 3-5 mbpd of new production online each year just to stand still.

Currently the oil sands in Canada produce just under 1 mbpd; by 2015 they are expected to produce 3 mbpd. In seven years, Canada's increased production will have offset the next six months of decline in conventional oilfields.

Oil shale may be a vast resource in theory, but since we do not yet have a functioning technology to extract its energy profitably, we cannot depend on it in the planning of our future energy supplies. In the oil industry, oil shale is known as the "energy of the future, and it always will be."

Coal to liquids (CTL) is an old idea, but very little is currently produced -- less than 1 mbpd -- that mostly in South Africa. We simply do not presently have the capacity to use CTL to offset much of the decline in existing fields. Even if we had such an industry, the price of coal has climbed just as the price of oil has, and we would not see any relief in oil prices.

The putatively "probable" Arctic oil fields are as yet undiscovered. While we may yet find oil there, the conditions for its extraction will be some of the most severe we've faced, and its entrance to the market is at least five years from the point of discovery, given the difficulty and complexity of deep-water polar drilling.

You are correct in that we will use every technology that we have available to maintain our energy supplies. But that in and of itself does not guarantee the outcome you expect. Simply having a list of alternative supplies is not sufficient to conclude that they will be able to produce adequate volumes both to maintain low oil prices and our high standard of living.



Posted by Pat | May 21, 2008 3:51 PM

@14 - other factors in gas prices are:

a. more diesel production for China is causing shift in refineries - as diesel has a higher profit factor

b. pre-purchase of diesel and oil futures by China in preparation for the Olympic Games (no, not a joke)

c. dollar valuation compared to asset valuation - USD valuation is down compared to EU and most OPEC holdings

d. intentional speculation by oil firms in taking refineries offline for maintenance during peak demand times for gasoline - timing of these is suspect, as it allows cartels and oil firms to pump up prices and then let them stay at or near peak prices due to artificial increased demand.

Among other things.

Like the Saudi main oil fields being proven to be running out and the likelihood that a Dem president will mean no drilling in offshore and ANWR oilfields, as well as increased pollution and industry regulation.

Posted by Will in Seattle | May 21, 2008 4:19 PM

I'd probably better pick up a barrel or two.

Just in case.

Posted by NapoleonXIV | May 21, 2008 4:28 PM

No more oil being pumped. But plenty more dollars being printed. Every day, George goes to the printing press, gets a handful of money, and throws it at military contractors.

And the Chinese are sitting on plenty of dollar reserves they can dump to buy oil as the price rises.

So yes, oil will certainly hit $200/barrel. In part because the group of people wanting to buy oil keeps growing faster than the pool of oil to sell. And in part because the pool of dollars out there keeps growing faster than the pool of oil to sell.

Posted by eclexia | May 21, 2008 4:38 PM

Too bad we didn't build the monorail.

Posted by crazycatguy | May 21, 2008 5:04 PM

@11, 12: are you bragging, Will? About your STOCK SAVVY? That's...just pathetic.

Next you're going to tell me you can kick my ass at golf, too.

Posted by Fnarf | May 21, 2008 5:13 PM

@21 - you got that right.

I don't play golf, franF. But I've been investing for a long time, and even bought and sold options and various other securities. Golf bores me.

Posted by Will in Seattle | May 21, 2008 5:44 PM

Fascinating. Next you'll be telling me that you can drive a car and use an ATM.

Posted by Fnarf | May 21, 2008 6:52 PM

My cat's breath smells like cat food.

Posted by laterite | May 21, 2008 7:26 PM

To the drivers of the world:
RE: high fuel prices

Good! Quit your bitchin' and walk or bike, you lazy asses! You fill the air we breathe with carcinogenic chemicals every time you fire up your filthy automobile. All for your fucking convenience. Selfish pricks!

Posted by Shoe Leather Xpress | May 21, 2008 10:43 PM


It's easy to say "Start walking and biking!", but the rest of the US does not live in urban areas, unfortunately, and as sure as Seattle didn't build the monorail, no one else has bothered to do much.

For instance, I have to drive 30 minutes to take the Baltimore subway, and they're not going to extend it, either. Not very environmental, and you can say I could move into the city (of course, Baltimore is a... little different from Seattle), but the facts for me are probably the same as for everyone else: whether by choice or birth, I have too much invested in the status quo to easily break away.

Sadly, truly reducing dependence on earth killing oil is only going to come when politicians and oil companies gain hindsight (saying "invest in alternate energy" is hardly looking to the future now), or when your average joe is slammed against the wall and hurt to the point where it makes an effect on votes.

Posted by Me | May 21, 2008 11:45 PM

fnarf, I'm going to shoot a 72 this weekend.

Posted by Bellevue Ave | May 22, 2008 8:51 AM

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