OIl's Not Well...

I wrote a post not all that long ago about peak oil and the coming collapse of our civilization.

Time to write another.

The Canadian dollar is rapidly approaching its all-time high of $1.0619 against the U.S. dollar. It's entirely possible it will surpass that level as early as Wednesday. Our Finance Minister, Jim Flaherty, made some half-hearted comments last week to the effect that the dollar's rapid rise is "not supported by fundamentals". That comment depressed our loonie for all of a day.

What's happening here?

First clue: the tanking U.S. dollar. If I lived in the United States right now, I'd be very, very concerned. The bottom is falling right out of their currency, thanks in no small part to the festering subprime mess.

(Incidentally, great effort is being exerted towards convincing Americans all is well and all manner of things are well. Bernanke has responded to the issue by...hello?...lowering interest rates. Hey, all you people hooked on cheap money! Here's...more cheap money!)



This is just one example of why our species is collectively insane. Whenever we're confronted with a problem, the automatic knee-jerk solution is to do exactly what got us into the problem in the first place, only more of it. This asinine behaviour has been with us for a very long time. Easter Island's very biggest stone heads were built with the last of that civilization's resources. The Roman Empire operated as a Raubwirtschaft, a "plunder economy": that is, they were entirely dependent on looting newly conquered territories for their revenues. When Roman territorial expansion stopped, all they could think of to do was to raise taxes...and raise them...and raise them again. Other examples abound: many, if not most, abandoned cities are victims of their own success. Often they rape the surrounding environment until there's nothing left to rape.



Now look at what we're doing with oil. The price of oil is shooting up about as fast as the U.S. dollar is falling. Today it closed at US$93.53 a barrel. That's almost US$23.00 a barrel higher than it was post-Katrina. You have to do some fairly deep digging to discover the reason for this. Oh, the reasons gush out as they always have: geopolitical instablity, an approaching storm in Mexico, a bunch of speculators are busy making themselves richer...the usual. What isn't being reported, at least not very widely, is the alarming drop in world supply. Just about everywhere you look, in every oilfield, yields are declining. The North Sea peaked in 1999 and is projected to be down to one-third of peak by 2020. Most of Mexico's oilfields are in sharp decline. Last year, the Mexicans discovered a new reserve that may contain up to 10 billion barrels. That sounds like a lot, doesn't it? It's about three months' worth, globally speaking. Even Saudi Arabia's output is faltering. And, of course, world oil consumption grows every day.

You have to go to places like The Oil Drum to get a comprehensive picture. The newspapers hardly ever mention it, at least in my experience. While I suppose I can understand that nobody wants to set off a panic, I can't help but wonder how long "they" think they can keep this quiet. One morning, and not all that long from now, we're all going to wake up to a hell of a surprise.

But in the meantime, the oil stocks are just ho-humming right along, dragging up the Canadian dollar and our entire stock market with them. This puts me in mind of that Cliff Hanger game on The Price Is Right. Yodel-lay-he-ho-de-lay indeed. How high can it all go? Nobody knows...but incredibly, it seems few people are willing to even imagine what might lay beyond the top of that cliff.

Sooner or later, I predict that nations who have oil will start to hoard it in one way or another. The price of a barrel of crude will dipsy-doodle around, possibly falling every now and again, but the general trend is up, up, up. A certain kind of person will look at that forecast and see nothing but dollar signs. I see signs of an entire different nature...