Gas Prices, Gas Gouging, Peak Oil, Elasticity, Supply Demand

[FlawdaFootball]

2008 - financial implosion, oil hits $147 a barrel. Then from the later part of 2009 to early 2011, a moderate recover, oil goes back down to $80-something a barrel. Now as I write this in August 2011, the economy seems to be back in free fall. Sounds exactly like this video, which means it is likely that we are near or already passed global peak oil

[Stan1208]

Very true

[obliviontides]

whoa! Thats a freaking simple way of oil demand! Thanks! I need it for my report on oil for science! Thanks bro!

[polyzygote]

we are living in the dark ages. watch the BBC documentary 'a farm for the future' to understand why.

pay particular attention to when they mention crop yields of permaculture farming (hint, they are high, especially when in the light of it's energy input which is close to 0). there is a possible future for humankind but it will require a massive cultural shift. the documentary is on google video in full. good luck

[jamiefxd]

If oil is money, the economy is based on money, so the economy is in fact oil.

So if oil has peaked ( do your homework )

then the economy has also peaked meaning we are now in a downward spiralling economy going down with the rapidly depleting oil reserves . Where to now ? Seems ironic now to point out how ancient people worshipped the sun. Could it be time to look up or is it TOO LATE !!!

[jpcash11]

Amazing. This guy predicted what was going to happen a year before it happened.

[newculture]

Not exactly. I basically knew that it was going to happen, but didn't expect it to happen so soon. I didn't realize the financial system had become so fragile, or that it was that close to collapse.

Additionally, the above presumes that the demand will eventually stabilize and recover, but a total collapse of the global economy would prevent that, and we may already be in a self-reinforcing downward spiral.

Time will tell.

[mikedilger]

Good use of supply and demand curves. The market will always be volatile. Prisoner's dilemma type games make it inevitable that producers will oversupply, crash, then undersupply, and the price will always yo-yo. But the idea expressed in comments that mankind is on a permanent downhill is ludicrous. Many other sources of energy present themselves and have not been exhausted.

[gazzyjeanne]

Nice presentation. There was a link to it in an article posted on "theoildrumm" this week, which you might find informative.

You could have titled your video "Why the depression will never end."

[newculture]

Thanks, I wrote a piece on my LiveJournal a week or so ago which had a very similar title, "Why this recession may never end."

I'll look up the Oil Drum article.

[lorax2013]

Very prescient - I'll bet T. Boone wishes you had been advising him.

[newculture]

Probably not. Just because I understand the supply and demand situation doesn't mean I fully understand the interactions with the economy. I was in basically the same position Pickens was in when the price began to fall.

The amount of supply, and the long term decline of supply, is much easier to predict than when the demand will fall.

It would be worthwhile to make a similar video which illustrated what specifically happened in 2008, including the collapse of the economic system.

[chansherly212]

in the long run... that is in the very long run, maybe about a 100 years or so, we are going to have to find new sources of energy, such a volatile economy is devastating, peak oil is eventual, and the adjustment to renewable source of energy will be painful..

[newculture]

There are no "new sources" of energy. We know all of the sources of energy 1. from the sun, 2. stored fossil energy, and 3. stored heat energy / nuclear

Peak oil is not eventual, peak oil is already here, it is what caused the collapse of an economic system made fragile by very poor understanding of how energy and money relate to one another.

[devine122]

supply and command is pretty easy to understand, you supply the oil, you command the money

[ibphotos]

Here's how to vote for oil independance. Re-fuse to buy a vehicle that uses fossil fuel. This will send the most direct message to the Detroit (and other) auto makers. ONe year of no sales at all will insure that the next year there's efficient electric vehicles on the road. A large pecentage of our oil consumption is in individual vehicles. This is my foremost goal right now. I own a 6cyl 4.3L Van. I need a 6cyl 4.3L Van about 10% of the time. Next major purchase, an electric car.

[newculture]

Of course no buying cars -> no economic system -> no money -> no food. Puzzler, isn't it.

[brighterplanet]

nice video. It does frustrate me to hear politicians rallying behind the opening of our reserves, or allowing offshore drilling when they not once mention conservation!

[newculture]

Radical conservation and curtailment will certainly be necessary if we hope to keep things functioning as we transition to a lower energy future. The book "Plan C" by Pat Murphy goes in depth on a lot of the ways in which to do this.

[fishing1861]

One thing your forgetting though is oil is an inelastic commodity. Unless an alternative energy source is found that can compete with oil it is unlikely for demand to significantly decrease. So in short it is doubtful that prices will fall unless more supply is brought online which is also unlikely. Which is also unlikely. So high prices in my opinion are here to stay.

[milofonbil]

After peak oil, the supply curve must change so that it is steep (ineleastic) no matter what the price level since there is not anything that can be done to meet the demand. Production continues to decline although it's at maximum.

[lakesideguy2009]

can one of you einsteins out there please explain why bush has not released some of the strategic oil reserves?

[newculture]

Why would he?

We want the the Strategic Oil Reserves in the event that people are freezing to death due to lack of heat, or are starving to death, due to the tractors being idle.

Or, we want that so that we can have it for the military.

Either way, there is absolutely no reason to use it now. That oil will not slow down the rate that oil is going up, or that gas is going up, other then for a few months at most.

Peak oil is simple: increasing demand + fixed supply = price goes up.

[milofonbil]

The strategic oil reserve is 570 million barrels. The us uses 21 million barrels a day. There is not even three weeks worth of reserve. Let's not tap into it unless there is an embargo or something. Bush has not told you to cut back on your driving either. Wonder why?

[zappos49]

Oil is expensive also because our dollar is falling in value so we have to pay more for a barrel of oil.

VOTE RON PAUL

[newculture]

Or perhaps the dollar is falling in value because the oil is less available.

Peak oil will not change based on who is in office.

Mr. Paul certainly does have some interesting thoughts on tax and monetary policy, but won't necessarily make him effective in dealing with the consequences of peak oil.

[zappos49]

Yes, this problem is two fold. One is simple supply and demand, but also the US dollar is less valuable compared to other currencies buying power and buying commodities like oil. Prices of oil have not gone up so much compared to other currencies.

[PahaLukki]

I for one think that with oil we will see a commodity that has infinite demand. It is the king of commodities after all, and our very infrastructure and overblown lifestyles depend on it. But sure, the price could go in waves like that, also.

[crazycoyle96]

excellent. short and to the point. lets hope that the invisible hand of the market leads us into a better more efficient future.

[newculture]

Thanks, I haven't seen anything like this before, so I think its a useful tool.

[rlapham]

That explains Supply and demand, it does not explain our present gas price situation. You are talking apples and oranges. What is happening with current prices has NOTHING to do with Supply and Demand... all monies went straight to profit or assets. Any first year high schooler knows supply and demand stabilizes PROFITS. It does not shoot profits through the roof..... SUPPLY AND DEMAND HAS NOTHING TO DO WITH THIS PRICE INCREASE. PROFITS ARE THE WITNESS.

[newculture]

Global oil production has not increased significantly in 3 years. During this same time, average gas prices have doubled. Summer gas prices vary more from winter prices than previous years.

The fallacy of H.S. Econ is that if demand increases, that supply will increase, and price will remain stable. Oil, however, is finite and non-renewable. Oil has no quick substitutes.

Profits show that supply is limited but demand is increasing. If prices didn't increase, there would be shortages.

[sunstorm007]

One of the things I see happening is that the the demand curve might be really steep. That's is why there has not been any signifigant decline in demand evan after seemingly dramatic increase in price. Also you have the cartel OPEC who artificially keeps the prices high despite there being what I think of as being an abundant supply still.

[sunstorm007]

Actually supply and demand does just that, set prices. There is an equilirium price at which a comodity will be supplied and a price at which it will be bought. Firms cannot stray too far off the mark of the equilibrium, or they simply will not sell anything, as long as there are alternative suppliers (competition that is). Profit Maximization dictates that firms do not artificially jack up prices, if they do they will lose revenue.

[genxr65]

The thing is, there isn't any competition for oil. The demand will be there (and increase) as long as we do not develop alternative sources of energy that can replace it. We are no doubt in a monopolized market and that is one reason priced go unbridled. Even if technologies are developed it won't happen overnight because of the major expense and logistics of creating an entirely new infrastructure for a different fuel supply. In short, we are screwed until we embrace hydrogen, electric, etc.

[UnderseaCaveman]

And of course you can accelerate the Price Volatility by introducing Fractional Reserve Banking to ensure "excess monetary liquidity against the finite energy substrate".

freaking marvelous recipe for disaster, and the "blaming finger" will point everywhere else!

[newculture]

The U.S. financial system certainly is a concern to me as well.

I would add that the blaming finger is already pointing everywhere else.

[UnderseaCaveman]

copy!

Great presentation!

[sunstorm007]

Spoken like a true Austrian. I'm more in the Chicago camp myself. I am interested in understanding how gold standard banking works and how you get rid of the Adverse Selection and moral hazzard problems with no regulator or centralization.

[steadydecline]

Thanks for that post. Short but informative.

[newculture]

My pleasure. I've made a 10 minute one that goes into the basics a bit more, but I've been told it is too dry for prime time. :-)