Gas prices dropping makes a lot of people think, phew, the crisis is over. Now things will go back to normal.
There are two issues here. As I mentioned before, we are not running out of oil. But what is happening, is that as more and more countries are competing for this resource, and as it becomes increasingly hard to make more of it, the perceived value of oil goes up.
Take this example. Let’s say I have a commodity like dried corn, stored in some silos in my backyard. Let’s say I have a lot of silos (and hence a lot of corn). It seems like I will never run out. I sell it to my neighbors for cheap, because it is easy to extract from the silos, and I don’t think I’ll run out anytime soon.
But then one day, I check on the corn, and realize it is half gone. This induces a sudden mental shift. Now I am moving from a mode of thinking abundance, to one of thinking scarcity. I need to make sure to ration the corn so I don’t run out too soon. Plus more and more neighbors are knocking on my door looking for corn. What is my response, to sell as much and as cheaply as I can, only to run out soon? Of course not. The rational response is to start raising prices and rationing how much I sell, to maximize both the profit and the length of time I still have corn available to sell.
This analogy applies to oil. Half of the world’s oil is still left (if not a bit more). But suddenly, it is not so easy to just turn the taps to make ever more of it. Producers are realizing that they will run out, someday. And there are ever more countries knocking at the door for that oil. The rational response to this from the producers’ perspective is to raise prices and ration the oil. And so they are. Blaming oil prices on “speculators” just ignores this basic fact of human nature. If there is perceived scarcity of a desirable resource, people will pay more for it, and its producers can ask more for it.
Now, for the folks in the USA, this is a double whammy. That’s because of what we offer in trade for that oil. We offer debt. To the tune of 800 billion USD per year. And we offer printed money. Money that can now be created out of thin air.
What is that competing with? Well, the Chinese offer goods, like computers, bikes, and all sorts of stuff, in trade for the oil they get.
The end result is this puts further downward pressure on the dollar, making oil go up in price relative to the dollar.
Now, we’ve had a brief respite in oil prices. Looking at the numbers, it appears that we’ve had a slight strengthening of dollar value. A source of mine in China hinted that this is due to the Chinese stabilizing the dollar value for the Olympics (by buying dollars). Perhaps.
In any case, it would be foolish to expect it to last, and think things will “just get back to normal” soon.
One more point about this. The concept that oil and energy will get more and more expensive has many scary ramifications. But it also has some positive ones. Here are two examples. The first is a little article in Newsweek about a mom who was recently
The second note about this is from an intriguing blog post by Todd from
We parked our bikes at the door of our cabin, which led to quite a lot of curious loitering by other visitors to the springs. But we learned quickly to stop telling people that we had biked there with child from Portland because it stopped conversations cold, as either a greener-than-thou affront or just too freaky. “Who drove the support vehicle?” A Dutch family we met there on the last day found out as we were leaving. They were incredulous. I admit that made me proud: Dutch people think we’re hardcore. At the same time, I wish more people understood that biking needn’t be some kind of enviro-martyr stunt, sport, fundraising strategy either personal or institutional, etc.
The second quote from his blog is more sobering:
Our mood took a big hit at Austin Hot Springs, which is right alongside the road. We thought we’d lunch there and maybe take a dip where the hot vents mingle with the cold river water. We rolled up to the river’s edge, between trucks, and beheld a sickening spectacle: trash, trash everywhere. Brawndo cans and Doritos bags, used tampons and condoms, excrement-smeared toilet paper, giant bean cans, inflatable water toys, cassette tape fluttering, cigarette butts and beer bottles, some broken. Green trees sawed down and dragged halfway into fire rings. And there in the clear water, some yahoos had submerged a large roll of carpet and weighted it down with rocks so bathers could avoid coming in contact with the riverbed. It was a crying Indian moment. Anger and shame drove us back to the road.
Now, in part I I promised to mention how Peak Oil led to a bike shop. That is coming, soon in Part III.