In defense of doom and gloom in an oil-price bet

In defense of doom and gloom in an oil-price bet – In peak-oil debates, Cornucopians cite improving technology that will extract fossil fuels more economically. New deposits will be found; new methods will retrieve more from existing reserves; new ways will emerge to affordably process less-than-sweet crude, such as Canada’s tar sands.  But how far can we take such optimism? We all have faith that technology gets better, based on past experience. But does that belief justify policy decisions that affect lives years and decades from now? If the world today lived as if fossil fuels were abundant and affordable, would we bother conserving energy or investing in solar and other renewable sources? And if we chose the partying route, and our abiding faith in technology turns out to be wrong, what then? Will we have burned through our supplies and painted ourselves into an energy corner? The odds that we have hit peak oil may be low, but the consequences are huge if we don’t pay attention to that risk.
 
Oil Juggernaut Unleashed – The prevalence of crude is undeniable. You might dabble in green-think cultism or you might drive an obnoxious monolith of a Hummer (what I like to call an “overcompensation-mobile”), but neither philosophy of consumption dares to contradict that this world runs on oil. Petroleum is used in the manufacture or shipping of almost every industrial product on the planet, and even many agricultural goods. Therefore, it behooves the public to seriously consider the ramifications of oil price and its underlying effect on the entirety of our economy. Even minor increases holding over an extended period of time cause economic reverberations that can be felt for years afterwards. Financial and social adjustments to commodity inflation can sometimes take decades if the event is historically unprecedented. Petroleum is a foundation ingredient, it is energy itself; the higher its cost, the greater the cost of every other product we use, and the worse off our financial structure is. Period. There is no scenario yet experienced by any nation in which oil inflation actually benefited the masses or the overall economy, even in countries that sell oil! 
 

Floods bring Queensland coal sector to a halt – AUSTRALIA’S $50 billion coal industry may miss large export contracts as a result of flooding in central Queensland. Wesfarmers yesterday added its name to the list of coal producers that have suspended operations as the floods created the worst conditions in 50 years. Wesfarmers said it had been forced to suspend work at its Curragh North mine.’Following heavy rain from the aftermath of Cyclone Tasha, major flooding is occurring in central Queensland,” Wesfarmers told the stock exchange. The company said some access roads to Blackwater had been closed, preventing many employees from returning to work following the Christmas public holidays.

Ken Feinberg Paying Stephen Gillers, NYU Professor, With Money From BP Oil Spill Claims Fund For Legal Ethics Advice  — A law professor being paid $950 an hour with BP’s money has declared that the czar of the $20 billion claims fund for Gulf oil spill victims is independent of the oil giant.  Fund administrator Ken Feinberg said Thursday he has agreed to pay New York University professor Stephen Gillers for his advice. Since being hired, Gillers has written a letter stating that Feinberg is neutral and not subject to BP’s direction or control. Some victims, lawyers and state officials unhappy with the claims process have questioned Feinberg’s independence and suggested he is a pawn in a BP effort to limit its liability.
 
Australia floodwaters cover area bigger than Texas — Military aircraft dropped supplies to towns cut off by floods in northeastern Australia as the prime minister promised new assistance Friday to the 200,000 people affected by waters covering an area larger than France and Germany combined.  Residents were stocking up on food or evacuating their homes as rising rivers inundated or isolated 22 towns in the state of Queensland. Prime Minister Julia Gillard toured an evacuation center in the flood-stricken town of Bundaberg on Friday and announced that families whose homes had been flooded or damaged would be eligible for disaster relief payments of $1,000 per adult and $400 per child.
 
Japan’s Perpetual Motion Debt Machine – Perpetual motion is impossible, but Japan has managed the illusion of perpetual debt for 20 years. Perpetual motion–a machine which produces more than it consumes indefinitely, without any visible energy source–is impossible. So too is an economy which consumes more than it produces and fills the gap with debt. Yet Japan has maintained the illusion of a perpetual motion debt machine for 20 years. Back in 2001 I wrote an article describing Japan’s Runaway Debt Train: 40% of its annual budget was borrowed, and much of its tax revenues were gobbled up by interest payments on its mind-boggling public debt. Nine years later, nothing has changed: welcome to perpetual motion. Japan’s government approved a record 92.4 trillion yen ($1.1 trillion) budget for the 2011 fiscal year, of which 44 trillion is borrowed, 7 trillion is lifted from various trust funds and a mere 41 trillion is tax revenues.
 
NYSE November Margin Debt Rises To Fresh Post-Lehman High – After we recently disclosed that surging NYSE margin debt is the latest indication of record euphoria (which presumably was sufficiently interesting that it made Alan Abelson’s latest column), after it hit a post-Lehman high of $269 billion, we are happy to announce that as we expected, November margin credit grew by another $5 billion to $274 billion, which implies that investors continue to purchase stocks increasingly on margin, i.e., on credit, which is fantastic when stocks levitate, but leads to a circular sell off when sell offs generate collateral calls, forcing more sell offs, etc. And looking at net cash, it was flat M/M at ($34) billion meaning that there was no incremental real cash going into cash accounts, and the entire November outperformance was achieved as net cash remained flat, and every incremental point in gains was financed by net crediting
 
Russia Starts Oil Pipeline to China as Putin Attempts to Diversify Exports – Russia will start its first oil pipeline to China at midnight, increasing crude exports to the world’s largest energy consumer.  OAO Rosneft, Russia’s largest oil producer, and state-run pipeline operator OAO Transneft will sell China 15 million metric tons (110 million barrels) a year for 20 years through the East Siberia Pacific Ocean pipeline, known as ESPO, after China provided the companies $25 billion in oil-backed loans to finance construction and development of deposits.  Russia currently supplies crude to China by rail and shipped 1.06 million tons in November, making it the Asian country’s seventh-largest supplier, according to Chinese customs statistics on Bloomberg.
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