As the global economy tumbles the price of oil has plunged down to about US$67 a barrel. As I’ve noted previously the dramatic falls and rises in price are indication that we are hitting peak oil. But, as importantly, peak oil is also playing its part in causing the crisis, as Energy Bulletin notes:
The US balance of payments deficit has grown rapidly during this decade, and one of the big drivers of that has been the rising cost of imported oil and other petroleum products. In 2002 we spent $102 billion importing oil, but that figure rose to $300 billion in 2006, and to $328 billion last year. Those imports (along with Jim Kunstler’s salad shooters and all the other things we buy) had to be financed, to the tune of $2 billion a day by last year. We convinced the Chinese, Japanese, and many others that our MBS were safe because they were sorta guaranteed (wink, wink) by Freddie Mac and Fannie Mae. We needed the oil, so we needed product to sell to finance our “addiction.” Our suppliers wanted bonds, the government deficit wasn’t large enough, so we created an endless supply of MBS to sell. Nobody – the government, the American people, the Wall Street crowd, mortgage brokers, home builders – wanted to take away the punch bowl, or look too closely at what was being produced. Rising oil import volumes multiplied by rising prices contributed to the crisis we are now experiencing.
This leaves oil producers in a quandary. They can’t afford to have the price fluctuating (Especially not downwards) at just the same time as cost of extraction is rising. Interestingly the Organization of Petroleum Exporting Countries, OPEC, announced two weeks ago:
Amid growing unease over this situation, the Organization of Petroleum Exporting Countries has decided to hold an Extraordinary Meeting of the Conference on Tuesday, 18 November 2008, in Vienna to discuss the global financial crisis, the world economic situation and the impacts on the oil market.
The Organization reiterates its determination to ensure that oil market fundamentals are kept in balance and market stability is maintained.
Then one week ago:
It has been decided to re-schedule the Extraordinary Meeting of the OPEC Conference. This will now take place at OPEC Headquarters, Vienna, on Friday 24th October 2008, rather than on 18th November 2008, as previously announced.
OPEC seems determined to take back control. The crash back to $70 reduced cash flow so severely that everyone is now paying rapt attention and if you can believe the news reports they are ready to take quick and decisive action once again. The fear prompting their call to action this time is the rapidly accelerating global recession prompted by the financial crisis. Demand has been falling sharply over the last eight weeks and some believe 2009 could be the first decline in demand on a global basis since 1983.
All of these moves are symptoms of peak oil although most would not believe a temporary excess in production is peak oil problem. Most peak oil theorists believe in an extended plateau where production and demand are nearly equal. As demand briefly exceeds production prices rise sharply. As prices rise demand declines sharply as we have seen over the last few months. Production suddenly exceeds supply again and prices drop sharply in response… The pattern then repeats over and over with overall demand eventually exceeding production on a permanent basis. This could take numerous cycles before the eventual permanent decline.