Oil Market Dysfunction (Peak Oil)

The recent unprecedented dysfunction in the oil market, has become an opportunity to remark at how wrong the concept of “Peak Oil” was. Unfortunately, the analysis of the underlying oil production dynamics are still correct. Primarily of interest is the dynamic between geology and the extraction technologies utilized. What was humorously wrong was the dominant theory of what the resulting crisis would be like. When oil rose to $140 a barrel, what did not happen was ever increasing prices until we ended up in some right-libertarian survivalist fantasy. What did happen was there was an economic recession.

The 2008 “financial” crisis justifiably brought major attention to the criminality in the global financial and real estate sectors. This criminality made the economic and social impact worse, but a false narrative that this criminality caused the crisis became accepted knowledge. The economic crisis started as a mortgage default crisis because this was simply the weakest link. With the high oil price came higher cost of transportation for people to get to work, higher prices for food and other staple products. At the end of the month when the US working poor could not pay all their bills, many chose not to pay their mortgage.

The lingering economic dysfunction since 2008, is in part a result of the failure of market dynamics to find a price that can produce enough oil and not stifle economic growth. This failure has resulted in a cycle of deflationary crises, now made worse by the dramatic drop in demand caused by the COVID-19 response. The dynamics have resulted in an observable production plateau of conventional crude oil. This not serving as a useful talking point for right-wing ideologues, spreading fear of inflation to promote austerity, does not change the geological and technological reality.

Climate Change Market Solutions Trap

The embrace of market driven 'solutions' to climate change is both bad policy and bad politics. Major liberal and social democratic political parties have accepted the right-wing framing on the need for market driven policies on all issues and have fallen into a political trap.

It is clear that any cost of doing business is passed onto the consumer. For this reason, carbon pricing policies to impose an economic disincentive on the use of fossil fuels are effectively regressive policies. The adoption of these policies by liberals and social democrats allows the political right to hammer them with this line of attack with seeming credibility. The political right are perceived to be outflanking from the left by proposing no action on climate change.

The market driven policy direction exposes the real contradiction, constrained within capitalism, between the economic wellbeing of the masses and climate action pursuant to climate science. Liberals and social democrats continue to pretend this contradiction does not exist.

I have no specific policy proposals to offer within the scope of this post only the general call for libertarian communism. On a side note, the aforementioned political label is great because it annoys both market fundamentalists and Stalinists.

Fake News Smoke Screen

I have chosen for my first post on this platform the topic of so called “Fake News” for a reason.  My aspiration is that with quality informative pieces, in time I will become a trusted source of information.  For this pursuit, it is in my interest, to call attention to the real objectives behind the supposed response to fake news.  The real objective is to combat what is at the heart of my endeavour that I commence with you here - paradigm altering thought.

It is my critique of many media outlets that their alleged efforts to fact check is not driven by presenting verifiable facts.  Instead, the media will attack views that contradict the dominant social paradigm regardless of verifiable evidence one way or the other.  The main distinction can be drawn between those things that are measurable in some way and can be truly fact checked, and those that cannot and are opinion, speculation or rely on logical reasoning alone.

One of the responses to so called fake news adopted by some online platforms like Facebook is using allegedly trusted news outlets for third party vetting.  I do not see how this could result in anything other than an open door to censorship.  Many news sources that will be accepted as reputable third parties - New York Times, BBC etc. - are frequently, blatantly propagandist and will sometimes outright deny facts verifiable by data.

One of my pet issues of concern “peak oil” - and energy issues more generally - is the subject of dozens of stories, by allegedly credible organisations, designed to discredit the concept.  You can look it up.  Conventional crude oil, in fact, reached a production plateau in 2006.  The relevant issue is somewhat confused by competing definitions of conventional crude oil, and the “peak oil” moniker has become problematic.  These problems should never the less not be an impediment to good faith reporting by serious journalists.

The 2006 conventional crude oil production plateau date is based on what I view as the best of three widely used definitions of conventional crude.  My choice attempts to use the definition that is most useful to understanding the relevant issue and greatest significance of the “peak oil” theory.

The peak aspect of the moniker confuses the significance which is reaching the bumpy plateau. The theory is derived from the ability to model the peak and decline in production of an oil field, oil region, or oil producing country roughly fitting a normal distribution or bell curve.  The best researchers expected the world production to follow the bell curve on the way up but predicted it would instead become a bumpy plateau and eventually reach a final steep decline.  Unfortunately, the best researchers that made accurate predictions formed a minority opinion within the peak oil community prior to the production plateau in 2006.

The majority in the peak oil community made embarrassingly linear predictions.  They predicted ever increasing oil prices because of a supply shortage following the peak and subsequent decline in production. Apparently, majority opinion did not think that people and businesses being priced out of the market for oil, as ever diminishing supply became ever more expensive, would disrupt our consumer based and automobile dependent economy.    

John Michael Greer formerly of The Archdruid Report wrote an excellent article that is a must read to understand the phenomenon that did unfold following the production plateau¹. - link - To summarize this article, the increasing price of conventional crude, as a result of  the growth in production not keeping pace with the growth of the economy, encouraged the development of higher cost non-conventional oil.  The lag time from the start of an oil development and bringing supply to market coincided with the lag time of people changing their behaviour in response to higher prices as they felt the economic pinch. Consumers were buying less oil, known as demand destruction, at around the same time a large volume of supply of non-conventional oil became available to the market.  The result was a crash in the price of oil.  This phenomenon has repeated a second time and is likely to continue repeating until the collective consciousness confronts this reality, or the resultant damage to the economy becomes catastrophic.

We will now return to my accusation that the reporting regarding this phenomenon is not done in good faith.  Not understanding the nuance of the true significance of the peak oil theory is the only plausible alternative explanation.  The significance is we have reached the production plateau.  The significance is not the bump along the plateau that is ultimately the absolute production peak.  It is my belief that this nuance is not too complicated for the good people at the NYT and other allegedly reputable organisations to comprehend.

The effort by online platforms to combat fake news by relying on third parties will almost certainly result in censorship of unpopular, though factually verifiable, views from the outset.  The necessary solution is that people must grow up and verify information for themselves if they do not like the results of their failure to do so. The reality of peak (or should I say bumpy plateau) oil will eventually catch up to us just as the reality of President Donald Trump did.  Looking to an authority to determine what information you are exposed to can only end badly.

1 Edited June 28, 2017