'A Milestone in the Dust
http://thearchdruidreport.blogspot.com/2008/03/milestone-in-dust.html
by John Michael Greer
The Archdruid Report
Druid perspectives on nature, culture, and the future of industrial society
Earlier this month, according to several peak oil bloggers, the world passed
a milestone worth noting: the point at which oil, in constant dollars,
became more expensive than ever before in history. Plenty of us in the peak
oil community have been expecting that milestone any time now, and the surge
that pushed one widely watched price marker past $112 a barrel last week
turned the expectation into reality.
Profit-taking and a flurry of margin calls driven by the wider economic
crisis brought oil prices back down at the beginning of this week, at least
for the moment. Meanwhile, though, the higher cost of oil is already
starting to trickle down to the consumer level. Diesel fuel is up over $4 a
gallon in many US markets, while gasoline, heating oil, and other petroleum
products are following the same curve. Speculation, in several senses of the
word, has begun to focus on the upcoming summer driving season and the
likelihood of soaring prices at the pump.
Just now, however, it may be worth taking the long view. When Goldman Sachs
suggested, not so long ago, that oil prices might rise above $110 a barrel,
their analysts thought that it would take a crisis threatening some
significant fraction of world oil production to drive such a "superspike".
(That warning was widely and, I think, correctly interpreted as an attempt
by New York financial interests to talk the cowboys in Washington DC out of
launching a war with Iran.) The crisis has so far failed to materialize, but
the superspike showed up anyway.
Like any other economic phenomenon in the real world, that unexpected event
had numerous causes. One factor not often given sufficient weight, at least
in the peak oil community, is the role of speculation. The global economy
these days is dominated by flows of speculative money that pour into any
investment promising an above average rate of return. Just now,
commodities - fossil fuels, grains, metals, and the like - yield better
returns than most other investments, and so that's where the money goes.
Monday's events demonstrated that. The drastic declines in most stock
markets that day resulted in a bumper crop of margin calls. For those of my
readers who don't follow the markets, a margin call is what happens when
investments bought with borrowed money lose enough value that the lender
demands more collateral for the loan. Since few speculators keep large
amounts of ready cash on hand, that usually means that other investments
have to be turned into cash in a hurry; this is one of the ways financial
panics spread from market to market.'
by John Michael Greer
The Archdruid Report
Druid perspectives on nature, culture, and the future of industrial society
Earlier this month, according to several peak oil bloggers, the world passed
a milestone worth noting: the point at which oil, in constant dollars,
became more expensive than ever before in history. Plenty of us in the peak
oil community have been expecting that milestone any time now, and the surge
that pushed one widely watched price marker past $112 a barrel last week
turned the expectation into reality.
Profit-taking and a flurry of margin calls driven by the wider economic
crisis brought oil prices back down at the beginning of this week, at least
for the moment. Meanwhile, though, the higher cost of oil is already
starting to trickle down to the consumer level. Diesel fuel is up over $4 a
gallon in many US markets, while gasoline, heating oil, and other petroleum
products are following the same curve. Speculation, in several senses of the
word, has begun to focus on the upcoming summer driving season and the
likelihood of soaring prices at the pump.
Just now, however, it may be worth taking the long view. When Goldman Sachs
suggested, not so long ago, that oil prices might rise above $110 a barrel,
their analysts thought that it would take a crisis threatening some
significant fraction of world oil production to drive such a "superspike".
(That warning was widely and, I think, correctly interpreted as an attempt
by New York financial interests to talk the cowboys in Washington DC out of
launching a war with Iran.) The crisis has so far failed to materialize, but
the superspike showed up anyway.
Like any other economic phenomenon in the real world, that unexpected event
had numerous causes. One factor not often given sufficient weight, at least
in the peak oil community, is the role of speculation. The global economy
these days is dominated by flows of speculative money that pour into any
investment promising an above average rate of return. Just now,
commodities - fossil fuels, grains, metals, and the like - yield better
returns than most other investments, and so that's where the money goes.
Monday's events demonstrated that. The drastic declines in most stock
markets that day resulted in a bumper crop of margin calls. For those of my
readers who don't follow the markets, a margin call is what happens when
investments bought with borrowed money lose enough value that the lender
demands more collateral for the loan. Since few speculators keep large
amounts of ready cash on hand, that usually means that other investments
have to be turned into cash in a hurry; this is one of the ways financial
panics spread from market to market.'
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