Building a world of
resilient communities.



The Peak Oil Crisis: July 2007

While waiting for the formal release of the of National Petroleum Council's report on the prospects for world oil and gas production, it seems like a good time to review the general peak oil situation prior to what many believe may be difficult times later this year.

The underlying fact is that OPEC oil production and indeed total world liquid fuel production currently is about 1.2 million barrels a day lower than in July 2006. Demand from China, India, most oil exporting states, and some developed countries keeps increasing so obviously a lot of poor countries are consuming a lot less oil than they were last year.

Hardly a week goes by now without a new report some underdeveloped country is running short of gasoline, electricity, or both. Factories are being shuttered and tens, or perhaps hundreds, of thousands of workers are being laid off. Realistically, these furloughs are likely to last for a very long time.

Back in America, we are still maintaining the status quo. By outbidding others for gasoline on the world market, we have managed to get well into the summer driving season with only a few local shortages. Maintenance problems and a flooded refinery in the mid-west have pushed gasoline prices in a few states to new highs, but as a nation we have managed to push our gasoline consumption to near or perhaps record highs without any problems -- yet.

Earlier this week, the price of Brent Crude oil, which at least for now seems to be the world standard, got within 25 cents of breaking the all-time record of $78.65 a barrel set last summer when the Middle East appeared to be coming unglued. Brent, of course, is not really the best crude around for making gasoline so many refiners are now paying record-high, over $80 per barrel prices for the really sweet crudes such as those from Nigeria and Louisiana.

To the astonishment of many, so far $80 oil seems to be having minimal impact on the economies of the U.S. and other developed nations. The Dow is flirting with 14,000, corporate profits are projected to grow, and employment is doing well. Despite $3 gasoline and increasing food prices, Wall Street keeps telling us that "core inflation" is acceptable and keeps talking of interest rate cuts. Those who watch the world economy seem to think the average growth rate will be 4.5 percent for the next five years and high flyers such as China will continue to grow at 10 percent.

Wall Street is nearly unanimous in saying high oil and gas prices don't mean what they used to 30 years ago. In recent weeks, I have heard analyst after analyst maintain that the US economy is now so strong that $4, $5, or $6 gasoline will not trigger a recession for the foreseeable future. Europe is getting along with $7 gasoline and so little is being manufactured in the U.S. these days that we are relatively isolated from high energy costs.

So much for optimism! On the other side of the ledger, evidence mounts that the optimism of the financial industry is getting on shakier and shakier ground. The U.S. dollar continues to fall and, with it, the balance of trade deficit continues to grow. Sales of homes and U.S.-built automobiles continue to slip. Eventually this must translate into lost jobs and sagging income.

Many are warning that a major oil price squeeze is coming shortly. Worldwide, oil exports are declining for reasons ranging from simple depletion to insurgencies and mismanagement of investment. OPEC's production is down about a million barrels a day while its leaders proclaim that the markets are "well supplied." Nobody mentions the millions, soon to be billions, sinking into lives of short electricity, short gasoline, and soon, short rations.

The critical juncture is coming in mid-September when OPEC meets to decide on future production levels. Nearly all optimism for the world's immediate future rests on OPEC's restoring the million barrel per day production cut and then pushing on to increase output by another million barrels a day to produce the oil required to support that 4.5 percent growth that the world is confidently expecting in 2008.

There is growing skepticism as whether OPEC has either the capacity or the intention of increasing output much further. We should know the answer to the question of the decade shortly. In the meantime, if only the hurricanes will keep out of the Gulf and Al Qaeda can't get close enough to some critical choke point to blow it up, we, at least in the developed world, should have a pretty good summer.

What do you think? Leave a comment below.

Sign up for regular Resilience bulletins direct to your email.

Take action!  

Make connections via our GROUPS page.
Start your own projects. See our RESOURCES page.
Help build resilience. DONATE NOW.


The Ukraine conflict, peak cheap gas and the MH17 tragedy

The number of countries with fossil fuel conflicts and wars is increasing. …

Peak oil notes - July 31

A mid-week update. Crude prices continued to fall this week as markets …

New Russia Sanctions: Washington, Delusional About US Energy Capacity, Lashes Out

The effect of the sanctions will be to speed the Russian decline, forcing up …

Shales vs. solar: An investment perspective

But perhaps the real proof of a new energy paradigm shift lies in the fact …

Peak Oil Review - July 28

A weekly review including Oil and the Global Economy, The Middle East & …

The Changing Face of World Oil Markets

My conclusion is that hundred-dollar oil is here to stay.

IEA Oil Market Forecast: Optimistic Assumptions And An Economy Unable To Grow Out Of Its Problems

The International Energy Authority does does its best to paint a rosy …