Now, if we could we do a similiar set of charts for a basket of other non-renewable commodities, i.e, gold, silver, copper, platinum, tin, etc.

I would imagine the results would come out very similiar, that is, dollar value decline in comparison to value of commodities in general.

Recently TOD US did a survey asking about future prices of oil, and gave as one option something like "it doesn't matter, it's the deflation of the dollar driving the price." or something to that effect.

Much to my surprise, almost no one voted for the "declining dollar" option as a cause of the price increase in oil, while many blamed politics.

In one way, the declining dollar achieves what many in the peak oil aware community desires to see, that is, higher oil and gas prices, thus forcing consideration of alternatives and efficiency/conservation. It is essentially a tax that never had to pass the House or Senate, and that no President had to vote on, thus saving them the politically suicidal step of having to tax fuel in America. The weak dollar drives up prices of imports (petroleum) slows economic growth and thus reduces consumption, all the things a petroleum tax would do. For those who believe that the Powers That Be know all too well about the coming age of peak oil, it could be conjectured that a weak dollar policy is a valuable tool going into an oil short age.

Cynical....nah, not me....:-)
(the risk of course is tha that the value of the dollar could start sneaking back up, and the price of commodities collapse in nominal dollar terms, leaving buyers of commodities and those they represent holding the bag...not likely you say, but stranger things have happened.

RC

A real, if possibly unavoidable problem, exists in this comparison, and that is the role of taxes.

The price of oil went up 3% in Germany on Jan. 1, 2007 when the German Mehrwertsteuer went from 16 to 19 percent - and that price rise had nothing to do with the broader market for oil. However, it did make oil 3% more expensive for most German purchasers (as always, exceptions are written into the tax code). Of course, the price paid for imported oil did not change - but the price for everyone following that importation did.

The difference in the level of oil taxation between Europe and the U.S. is profound, making many comparisons between the two economies difficult in this area.

As a second, not easily quantified, point - I am fairly certain that German contracts with Russian oil and gas suppliers are longer term, and significantly below current prices - much to the unhappiness of the Russians. Who occasionally turn off the spigot in turn. Being able to pay cash and commit over the longer term has allowed various Germany energy companies to buy fuel at a discount rate, when compared to countries like Italy or the UK. Changes in exchange rates are not likely to play a major role in this case, as neither the German companies nor their Russian counterparts were likely thinking of the dollar as being the primary currency of the transaction. However, the whole area seems quite murky, which is not really a surprise - I personally assume that German energy companies consider how they handle their Russian counterparts to be a matter of the highest discretion, in part because it is clearly corrupt, depending on your perspective. Schröder comes to mind, for example.

Looking at the graphs, a few things that occur:

1) There tends to be a maximum rate of sustained rise the market is happy with. You can see it in the shape of the curves. Even if the rise continues for years, there appear to be few sticky shocks that do 50% in 1 day type rises.

2) The dollar seems to decouple from the rest of the world around the 2003 time period. A few years later and M3 is canned and there is an inflection point in the rate of rise. Looks like a planned devaluation.

3) From these figures a cost for a barrel of $140-145 at year end seems indicated. Significant variation would require a change from the status quo in supply or economics.

4) Recessions don't seem to make big differences.

5) Thus far, no matter how high the prices seem, there is no game changing inflection in the way the curves work - such as we might expect to see when people realise the peak is there and we are in a decline world. It doesn't seem to be there in the futures either. The wakeup will be interesting to watch...

Good article... just a little gripe... can't see the pretty pictures from where I'm sitting, because Photobucket is not deemed a useful professional site by my client's proxy server.

Note to technical editors : can you provide guidelines / useable site for uploads for your contributors, to avoid the problem of posting images that a large proportion of readers can't see?

If you set the Euro exchange rate at 1:1 on Jan 1 2001 and give the dollar an inflation rate of 6.6%/annum, then on Jan 1 2008 the exchange rate is 1.56 to 1 with no Euro inflation.

There must be some amount of Euro inflation, so I suspect the real inflation rate of the $ is some where beyond 10% per annum averaged over 7 years. However due to the small amount of exchange rate change in the early years the current inflation of the $ is beyond 15%.

The inflation adjusted WTI on a log scale shows that, despite the feeling that the price of oil has gone ballistic, it actually looks pretty tame for a peaking scenario if you look at it in terms apart from the Fed and the dollar's problems (purple/red line). Incredibly, this chart shows that oil has been and still is trailing inflation for the last 30 years despite peaking production beginning to take hold. This would suggest that, as Simmons says, oil is preposterously cheap.

Interesting topic, nice plots. However, I feel that when you compare historical oil prices (in a way where you want to compare "affordability”), there are two more things that should be considered:

1: GDP growth: The average household income has increased significantly over time (in real terms), so even if the oil price was exactly as high as say during the oil crisis (inflation corrected), today, people would be able to buy many more barrels of oil than they were able a few years/decades ago.

To correct for this, a yearly GDP growth factor should be added just like the inflation number.

2: increase in energy efficiency:

Even if oil would cost exactly the same (inflation corrected), and our income has been made comparable, we would be able to do more with the oil today because energy efficiency has increased over the years (in many areas). Just think of for example improved home insulation, energy efficient light bulbs, more efficient planes, samilar size cars (some), engines, factories, relative reduction in industrial waste etc. We produce a lot more “goods”, for less oil. We can heat our house for longer, drive further (with the same size car), etc. Maybe it is this point, where Europe has performed better than the US, over the last years/decades.

To correct for this, you could calculate the yearly increase in (total GDP/annual oil consumption), and use this number also in the same as inflation.

Once you have factored in these things as well, the plot would show something like “oil expenditure burden” (not sure how to call it), expressed in a price per barrel. I think that the plot will show that oil is still much cheaper than it was in the 70's. Would be interesting to see the plots though!

Hope this is useful!

Oilworker