From elliottwave.com, with my comments in bold
I’ve tried several times to understand the principle behind Elliott Wave theory – the idea that you can predict the future – especially stock performance – simply by analyzing and extrapolating the past. It seems to me that there are far too many variables (for example new technology developments) that exist today that didn’t yesterday. They might convince me that the psychology of the markets goes through waves, but a finite resource like oil?
Peak Oil, Peak Nonsense
1/26/2007 5:05:14 PM
The major stock indexes closed mixed on Friday (Jan. 26), and were lower on the week overall.
It’s been less than a year since the world was nearly as awash in writings about “peak oil” as it is in crude oil itself. The psychology of the moment was so twisted that, for example, the op-ed page of the New York Times ran a 2,850-word piece titled “The End of Oil” (March 2006). It argued, among other things, that while the world’s crude supplies may be more than half gone, not enough was being said about peak oil.
Still, a bogus argument will always seems less so in the ears & eyes of an audience that’s predisposed to believe it: oversimplification, misstatement, and ignoring the inconvenient (for starters) create nodding heads instead of furrowed brows. I can’t resist – this sounds like Elliott Wave Theory to me…
Thus you can say — as the NYTs did — “oil is a finite commodity,” which sounds simple enough. So no one thinks too hard about how to define “finite” regarding crude oil. And, they get an implicit definition soon enough anyway: increasingly scarce and expensive, to the point that a drop of “4 percent of normal daily supply” would be enough to send oil prices to “$161 a barrel,” meaning that “millions are thrown out of work,” and the “quintessentially American lifestyle…suddenly becomes unsustainable.”
Okay, then, how do you define “finite” regarding crude oil? Or do you believe it is infinite?
Again, no one asked how a four percent fall in supply could make prices go up by a 2.5 multiple…
while I’m not sure how the NYT got the numbers, the principle is a simply case of price inelasticity. There is no convenient substitute for oil, so people are willing to pay much higher than current prices to get it. (See the Gas Price Calculator at EnergyPredicament.com and try it yourself.) You know, the old supply and demand argument.
…but the misstatements only got worse:
“In the past several years, the gap between demand and supply, once considerable, has steadily narrowed, and today is almost in balance. Oil at $60 a barrel oil may be one manifestation.”
If bringing demand and supply in balance could explain $60 a barrel oil, then that’s the price a barrel would have fetched more than 20 years ago — because that’s how long it has been since world supply was even close to falling short of demand. Easily accessible data from the Energy Information Administration make this clear, including the fact that world supply EXCEEDED demand in 2004-2005, when prices went UP dramatically.
I’m honestly not clear what he is saying – is it that 20 years ago, the oil shortage produced price spikes? That’s exactly the point. Regarding supply and demand, it is impossible on anything other than an extremely short term basis (because of storage) for demand to exceed supply. What simply happened in 2004 – 2005 was that world events (Katrina, Nigeria) caused people and companies (for example airlines) to wonder about longer term supply. Thus they bought contracts into the future, sending up prices. Once again, the market at work.
If you haven’t had enough yet, there’s always ignoring the inconvenient:
“Despite the serious bets being placed on the tar sands, unconventional oil won’t be available in large enough quantities to make a real difference until well down the road.”
Mind you, that was the only mention of “tar sands” in the entire 2850 word piece. And you have to wonder if that’s because any further mention might require acknowledging that 3.5 t-t-trillion barrels of oil are in tar sands of Venezuela and Canada… and that the “real difference” they make “well down the road” may just be about the time the supposed “peak oil” theory comes into play?
Okay, this is REALLY “ignoring the inconvenient.” Peak production has already occurred in 33 major oil producing countries around the world including the U.S. (1970), Kuwait, Canada’s conventional oil (1973), the North Sea (2000), and others. So worldwide production is in decline almost everywhere.
So what about the tar sands? The MOST optimisic projections suggest 3.5 million barrels of oil per day produced in 2017, out of current demand of about 85 million barrels per day. To do this would require massive amounts of natural gas, already in decline. For the umpteenth time, Peak Oil is not about how much is left in the ground, it is about how much can be extracted on a daily basis.
Mind you, I’m not for or against anyone’s pet political cause, at least on this page — you can Tax The Rich, Hate SUVs, Stop Global Warming or embrace any other cause that’s compatible with the agenda(s) that usually seem to find “peak oil” so intriguing.
What I won’t do is take off my thinking cap for anyone, ever. If you say likewise, I suspect you’ll find our analysis of the markets to be refreshing indeed — and more.
Refreshing? I would call it naive.