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31 comments on Energy Prices, Inflation and Denial

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WNC Observer on February 3, 2008 - 6:37pm Permalink | Subthread | Comments top

The lack of investment is the real reason why the rosy scenarios of Yergin's CERA et al are not credible. It doesn't matter how much might theoretically be in the ground, if money isn't spent to get it out, it will stay in the ground. Investment is already lagging significantly behind where it needs to be, and this has been in an economy that has not yet really begun to be strangled by high oil prices. Once the economic pain really kicks in, that will be the hardest time to try to come up with the needed investment capital.

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ThatsItImout on February 3, 2008 - 7:09pm Permalink | Subthread | Parent | Comments top

WNC Observer said,

It doesn't matter how much might theoretically be in the ground, if money isn't spent to get it out, it will stay in the ground. Investment is already lagging significantly behind where it needs to be, and this has been in an economy that has not yet really begun to be strangled by high oil prices.

Exactly correct. And this is also the issue in oil, as KSA and the OPEC nations keep stalling, indecisive about whether the demand will be there or not. This creates a situation where crunch time will come, whether the oil is there or not.

The question though is why? It has to be the fear of a 1982 price collapse holding everyone back (?)
One would think that the big financial players, after losing thier shirt in such things as currency speculation, Asian bonds, the dot com crash, the sub prime debt crisis, etc., etc., would finally see bets on a solid asset like oil and gas are worth doing. What I keep asking myself, even when I try to dodge the question, is do they know something that keeps them and the big money they could bring to the game out of the game? Do they see this as a commodities bubble that has ran it's course, with the big money already made? And where are the hedge funds? Do they have a play in oil/gas development?

Despite claims of transparent markets in the West, most of the action still goes on under the table.

RC

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Euan Mearns on February 4, 2008 - 5:46am Permalink | Subthread | Parent | Comments top

What I keep asking myself, even when I try to dodge the question, is do they know something that keeps them and the big money they could bring to the game out of the game? Do they see this as a commodities bubble that has ran it's course, with the big money already made?

Roger this one reason I've been focussing on European and UK gas of late. The global oil market is a huge unwieldy beast to analyse in detail but the UK gas market is not. Here we know a number things with some certainty:

1. Gas production is falling and in this offshore environment will likely continue to fall.
2. Demand is more tricky to forecast - it may rise with expanded power generation or it may contract a little more if high price destroys demand - in the form of pensioners.

But no matter which way you cut the numbers the UK is in the international gas market for around an additional 80 BCM per annum by 2020 - and that is a market that will be increasingly pressured by a large number of countries that are hungry to import gas.

The energy companies are applying the Precautionary Principal to their balance sheets at risk of security of supplies - whilst it is national governments that should be applying the Precautionary Principal to securing future energy supplies.

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SacredCowTipper on February 5, 2008 - 1:18am Permalink | Subthread | Parent | Comments top

If 1/6th to 1/3rd of housing goes empty and we see 20%+ unemployment that'll knock overall consumption right on its behind. Could be the combination of much trouble in other market segments are distracting the finance people and the strategic people are saying "Wait and see"???

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Euan Mearns on February 5, 2008 - 4:11am Permalink | Subthread | Parent | Comments top

SCT - whilst I do expect house prices to fall by 35 to 50% in the UK, I very much doubt many of these will stand empty. A huge segment of the UK population has been excluded from the property market for years - mainly public service workers - and they I imagine will be queueing up to buy once prices fall far enough.

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