Cover to Cover: Drowning in Cheap Oil Forever

drowning-in-oil Here’s a story that I’m obligated to cover: Newsweek Magazine almost 10 years to the week has published a cover story on Oil that echoes the now (in) famous Economist cover, Drowning in Oil. The latter was published on March 4th  1999, and the recent Newsweek story Cheap Oil Forever appears April 20th 2009.

cheap-oil-forever1Americans will not see this week’s Newsweek story, however, because the cover story is printed in the International Edition.  For collectors of newspapers, headlines and other media indicators this fact may prove even more useful, and notable.

More broadly, however, that these two widely publicized images now serve as book-ends to the most recent bull market in oil raises the understandable question: why must we sleepwalk once again, into the next price spike? Sure, I have some respect for the natural Malthusian to Cornucopian lifecycle that we are now tracing out once again. But after turning the page on both of these and actually reading the articles inside, I assure you last week’s Newsweek piece is just as patently absurd as the 1999 piece in the Economist.

Traders and investors might make use here of the timeline, however, that appeared after the 1999 Economist cover. That marked the beginning of a three year period in which one had time to patiently accumulate energy equities and oil before the big move triggered. However, if you have been reading my blog, my newsletter, or coverage of each in the past few weeks, you will know my current timeline for the next spike is shorter. Using the collapse of Mexico’s oil production as my pole star, and with sufficient time for global industrialism to recover, I maintain we will crack 200.00 a barrel sometime in the year leading up to the Presidential election, 2012.

Oh, and in case I was not clear: this week’s Newsweek cover is indeed – absolutely without question – the echo of the 1999 Economist cover, and will achieve even greater infamy by 2012.

-Gregor

Further Reading: ft.com/energysource : Peak Oil vs Newsweek

  • ragnarock

    You don't think that this time around the price of oil is a leading indicator? In any case, that's the way I'm reading it. I don't see how there can be recover anywhere without an increase in demand quickly reflected in a rise in price.

  • ragnarock

    You don't think that this time around the price of oil is a leading indicator? In any case, that's the way I'm reading it. I don't see how there can be recover anywhere without an increase in demand quickly reflected in a rise in price.

  • wolfsl

    Gregor, what is so implausible about Newsweek's (actually MSIM's) argument? We all agree oil supply is declining. But where will the demand for the next price spike come from? The world isn't going to return to a 2006 scenario of strong global growth driven by excess consumption and cheap credit. Not now, not in 5 years time.

    As an aside, despite the cover headline the Newsweek article focuses on other commodities as well as oil. And many of these do indeed have excess capacity.

  • wolfsl

    Gregor, what is so implausible about Newsweek's (actually MSIM's) argument? We all agree oil supply is declining. But where will the demand for the next price spike come from? The world isn't going to return to a 2006 scenario of strong global growth driven by excess consumption and cheap credit. Not now, not in 5 years time.

    As an aside, despite the cover headline the Newsweek article focuses on other commodities as well as oil. And many of these do indeed have excess capacity.

  • gregor.us

    The demand will come from Asia, where the structure of liquid fuel use is very different than in the Western OECD countries. You have to understand you are making, in part, an argument that was already made–and correctly made–this decade: that OECD liquid fuel demand was going nowhere. It's been going nowhere for some time. In the aggregate. I purposely did not get into a point by point rebuttal to the Sharma article. I wil get to that. However, that rebuttal is already taking place elsewhere. But I will mention a factor that Sharma misses: the declines are not restricted to nominal quantity in the world's resources. The declines are also moving quickly on the quality of the world's resources. In real terms, the decline of supply is much steeper. The world isn't going to return to a 2006 scenario of strong global growth driven by excess consumption and cheap credit. 

    As best as I can see the world is in the process of a re-set. The debt is being destroyed and its being replaced with freshly printed paper. However, I do not rely on a consumer credit-driven model to forecast much higher oil prices.

    Question for Sharma: why are oil price not at ten bucks right now?

     

    G

  • gregor.us

    The demand will come from Asia, where the structure of liquid fuel use is very different than in the Western OECD countries. You have to understand you are making, in part, an argument that was already made–and correctly made–this decade: that OECD liquid fuel demand was going nowhere. It's been going nowhere for some time. In the aggregate. I purposely did not get into a point by point rebuttal to the Sharma article. I wil get to that. However, that rebuttal is already taking place elsewhere. But I will mention a factor that Sharma misses: the declines are not restricted to nominal quantity in the world's resources. The declines are also moving quickly on the quality of the world's resources. In real terms, the decline of supply is much steeper.

    The world isn't going to return to a 2006 scenario of strong global growth driven by excess consumption and cheap credit. 

    As best as I can see the world is in the process of a re-set. The debt is being destroyed and its being replaced with freshly printed paper. However, I do not rely on a consumer credit-driven model to forecast much higher oil prices.

    Question for Sharma: why are oil price not at ten bucks right now?

    G

  • gregor.us

    The first development will be the cessation of the demand-decline for oil. That's underway–globally. An actual rise in demand will come first from Asia. It will be discretionary, and will be part of the upgrade in domestic Asian wealth which frankly has not really changed much.

    G

  • gregor.us

    The first development will be the cessation of the demand-decline for oil. That's underway–globally. An actual rise in demand will come first from Asia. It will be discretionary, and will be part of the upgrade in domestic Asian wealth which frankly has not really changed much.

    G

  • http://www.thorntonwealth.com rthornton

    Interesting post.

    Reminds me of the ongoing “Cover to Cover” series of posts from Carl at BehaviorGap.com

    You might want to check these out: http://www.behaviorgap.com/category/cover-to-co

    Carl has done 20 of these Cover to Cover posts starting with this one in Sept. 2008:
    http://www.behaviorgap.com/category/cover-to-co

    And his most recent:
    http://www.behaviorgap.com/cover-to-cover-on-yo

    Have a nice weekend, Gregor.

  • http://www.thorntonwealth.com rthornton

    Interesting post.

    Reminds me of the ongoing “Cover to Cover” series of posts from Carl at BehaviorGap.com

    You might want to check these out: http://www.behaviorgap.com/category/cover-to-co

    Carl has done 20 of these Cover to Cover posts starting with this one in Sept. 2008:
    http://www.behaviorgap.com/category/cover-to-co

    And his most recent:
    http://www.behaviorgap.com/cover-to-cover-on-yo

    Have a nice weekend, Gregor.

  • http://www.behaviorgap.com Carl

    Gregor-

    Carl from behaviorgap here.

    I sent you an email and never heard back. Did you get it? A number of people have mentioned this “cover to cover” post to me and asked the same question rthorton does, and the same thing I emailed you about.

    Just curious.

    Keep up the great work!

  • http://www.behaviorgap.com Carl

    Gregor-

    Carl from behaviorgap here.

    I sent you an email and never heard back. Did you get it? A number of people have mentioned this “cover to cover” post to me and asked the same question rthorton does, and the same thing I emailed you about.

    Just curious.

    Keep up the great work!

  • gregor.us

    Thanks for that. I just got over there today to see. I guess as someone who has been watching this markets now for some time, it's a great idea to link current stories with the “old” stories. The old stories are not new.

    The Economist cover in Oil in 1999 remains one of the most important images in most areas of the oil business and especially among the oil depletion community. I've seen it projected for years on a big screen.

    What's interesting is that I had read the article in last month's newsweek issue before I actually saw the cover. It was only from a report from ASPO Europe that tipped me off to the cover (which was hard to find).

    Everyone should read the article, though. That's what really matters. It's truly amazing to compare the texts of each article with each other.

    G

  • gregor.us

    Hi,

    I just did some spelunking through my email and found your original email.

    Best,

    G

  • gregor.us

    Thanks for that. I just got over there today to see. I guess as someone who has been watching this markets now for some time, it's a great idea to link current stories with the “old” stories. The old stories are not new.

    The Economist cover in Oil in 1999 remains one of the most important images in most areas of the oil business and especially among the oil depletion community. I've seen it projected for years on a big screen.

    What's interesting is that I had read the article in last month's newsweek issue before I actually saw the cover. It was only from a report from ASPO Europe that tipped me off to the cover (which was hard to find).

    Everyone should read the article, though. That's what really matters. It's truly amazing to compare the texts of each article with each other.

    G

  • gregor.us

    Hi,

    I just did some spelunking through my email and found your original email.

    Best,

    G

  • gregor.us

    Thanks for that. I just got over there today to see. I guess as someone who has been watching this markets now for some time, it's a great idea to link current stories with the “old” stories. The old stories are not new.

    The Economist cover in Oil in 1999 remains one of the most important images in most areas of the oil business and especially among the oil depletion community. I've seen it projected for years on a big screen.

    What's interesting is that I had read the article in last month's newsweek issue before I actually saw the cover. It was only from a report from ASPO Europe that tipped me off to the cover (which was hard to find).

    Everyone should read the article, though. That's what really matters. It's truly amazing to compare the texts of each article with each other.

    G

  • gregor.us

    Hi,

    I just did some spelunking through my email and found your original email.

    Best,

    G