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The global oil disaster scenario

Michael Rowan, The Daily Journal (Venezuela)
Last week, CNN aired a one-hour documentary on oil presenting a scenario of global disaster that could happen soon. It goes like this: Al-Quida terrorists, known for their proclivity for asymmetric timing, destroy much of Saudi Arabian oil production during a vicious hurricane that strikes Texas oil refineries. In days, a large piece of global oil production and refining is crippled for an indefinite period, tripling the global oil price and causing a crash in all world markets.

…In the panic for oil, a dozen smoldering conflicts break into warfare among competing producing and consuming oil states.

A massive global depression begins, with no end in sight, as “just in time” logistical supply lines collapse everywhere. No one has a solution to the hoarding and panic-buying that exacerbates shortages of everything everywhere.

This is no nightmare doom scenario dreamed up by sensationalist TV producers. It is a reasonable conclusion based upon evidentiary political facts that have been apparent for decades. The global economy is held together by a delicate web of inter-dependent variables.

The key variable is oil that fuels the global machine, which is already sputtering insecurely.

…The U.S. military, hard-pressed to deal with its current assignments already, may find itself facing a dozen hot spots impossible to address simultaneously, with the Strategic Petroleum Reserve quickly depleting, and Venezuela and Iran enjoying $150 per barrel prices. Oil producing states might respond to the crisis by nationalizing foreign oil and gas company assets for national security purposes, further depleting the U.S. energy supply.
(24 March 2006)
Rowan is a columnist for the Daily Journal. Its website says: “The 60 year old Daily Journal aims to be the main source of news for the English-reading public about Latin America.”

Global Public Media: Savinar, Maori Party, Bartlett, Cooke, Wright, more

Global Public Media
Daniel Bednarz on “The Party’s Over”
Richard Register & Kristin Miller on “The Party’s Over”
Matt Savinar on KHTK-AM’s Talkin’ Money
New Zealand’s Maori Party on Peak Oil
Peak Oil & Roscoe Bartlett on CNN
Peak Oil on Radio New Zealand’s “Insight”
Author Ronald Wright on Radio New Zealand’s “Nine To Noon”
Ron Cooke: Alternative Energy- It’s Time To Evaluate Our Options
Trathen Heckman of Daily-Acts.Org
(26 March 2006)
Global Public Media has updated its site with several new videos, interviews and transcripts. Go to the original for links.

When Will Peak Oil Tip? (from Backwardation to Contango)

Jeff Vail, A Theory Of Power
No, I didn’t just make up those words. As you probably know (but I just recently learned), Backwardation and Contango are two terms used to describe trends in the prices of a futures contract over time. Contango is the norm, and it is where the price of a commodity farther in the future is higher than the price of that commodity nearer in the future. Backwardation is the reverse, where the cost of a commodity in the more distant future is less than it is in the near future. Backwardation is not normal, and is suggestive of supply insufficiency. Funny, for quite some time now crude oil has been in backwardation…

When we factor in the phenomenon of Peak Oil into this equation, it becomes clear that backwardation and contango are largely based on psychology and the standard free-market assumption that higher prices will increase supply. It is my theory that backwardation and contango are THE CRITICAL INDICATORS to determine when the phenomenon of Peak Oil has “tipped” (in the Malcolm Gladwell sense) in the perception of the market. Backwardation–accepted wisdom tells us–is indicative of current supply shortages, but ALSO of the ASSUMPTION that these shortages are only a short term market inefficiency and will eventually be corrected. However, should the crude oil market switch from backwardation to contago without a significant decline in current prices (suggesting that current supply problems have not been solved), that will suggest that the “market” has accepted the Peak Oil hypothesis that oil supplies will increasingly decline in the future, and hence that the commodity will get increasingly expensive. For this reason, I believe that the switch from backwardation to contango will be the market indicator that the peak in crude oil production is not only here, but perhaps more importantly that it is accepted by the broader financial community.
(22 March 2006)