Friday, November 24, 2006

Oil, Food, the U.S. Dollar, and the “Global” Drought

Thomas Jeffers & Company

On November 7th, 2006, the International Energy Agency (IEA) released its World Energy Outlook 2006. At a press conference announcing the new report, the agency's Executive Director was quoted as follows:

"The key word is urgency," IEA director Claude Mandil told a press conference in London following release of the study. "Urgency for immediate policies and measures to promote energy efficiency and facilitate technology development...

"On current trends, we are on course for an expensive and dirty energy system that will go from crisis to crisis. It can mean more supply disruptions, meteorological disasters or both. This energy future is not only unsustainable, but it is doomed to failure.

"Governments can either accept such a future, or they can decide to come together to change course." - The Oil Drum, November 24, 2006

Now read that again. The IEA, a government agency, and by extension, a political organization that normally would temper its commentary resulting in mealy mouthed, useless BS, is resorting to words such as “crisis”, “doomed”, “failure” and “unsustainable” to describe the world’s energy delivery system. The IEA, along with the U.S. EIA, are the 2 government-sponsored repositories of reserve, production, and distribution data for world energy supply and demand.

Venezuela and Bolivia are nationalizing their oil fields. Russia is “renegotiating” their oil contracts with the International Oil Companies (“IOC”). Iraq has disintegrated into civil war. Iran continues to jerk the world’s chain. The U.K. has passed from Oil exporter to Oil importer. Mexico’s production is declining. Nigeria has no ability to nationalize its fields, instead it resorts to kidnapping and blackmail – but isn’t that the same thing, really? The federal government and the financial media would have you believe that this is all a coincidence? Would anyone really care about the above countries if the Canadian Tar Sands and the U.S. Shale deposits really held a “trillion” barrels of Oil?

And the hits keep coming…

“The dollar fell to its lowest level in 19 months against the euro on speculation the Federal Reserve will lower interest rates early next year as central banks in Europe increase them.” Bloomberg News, November 24, 2006

The Dollar’s value versus the Euro in the above statement is certainly true; the part about why? Don’t you believe it. The media, in their never-ending inability to engage in abstract thought will report an indisputable fact – and then posture a completely plausible, but for the most part specious conclusion, yet simple enough for the average American college graduate’s 8th grade level of science and math skills to comprehend.

Here is my thought on the subject: The Dollar is going to keep falling, irrespective of what the U.S. and their trading partners do with interest rates, until the U.S. budget and trade deficits are brought under control. Since that is not going to happen in the absence of a crisis…

And coming…

Notice how I did not mention Saudi Arabia in my blow-by-blow country description? I am no diplomat; I have never worked in any foreign policy capacity. But, I will make a bet with you: Flip a coin as to what comes first – the peak in world Oil production or the collapse of the House of Saud. These 2 events are inevitable, and each event by itself will have a similar effect. Together, the compounded effect would be… well, disconcerting.

And coming

“Wheat prices rose to a four-week high in Chicago on speculation demand for U.S. grain is increasing while global inventories decline. U.S. exporters sold 361,400 metric tons of wheat in the week ended Nov. 16, up 12 percent from a week earlier, the U.S. Department of Agriculture said today in a report. Global inventories on May 31 will fall to 118.8 million tons, the lowest since 1982, after drought hurt crops in Australia, the U.S. and Ukraine. Prices are up 73 percent in the past year.
Australia will produce 10.5 million tons, 57 percent than last year, because of a 10-month drought. The U.S. will produce 14 percent less than last year and Ukraine's grain exports were down 10 percent this year because of drought.
Global production is expected to be 586.8 million tons in the crop season that started June 1, down from 618.9 million the previous season, and the world will use 615.1 million tons this year, the USDA said in a Nov. 9 report.” Bloomberg News November 24, 2006


Wheat prices are up 73% in the past year, the top 3 producers are all experiencing drought (coincidence or climate change? I have no idea but food is so important, it is worth considering) and the world consumed 615.1 million tons while producing only 586.8 million tons, a nearly 30 billion ton deficit. World population continues to grow (presumably the new arrivals will want to eat), and the automobile industry wants to pave over more farmland for roads, parking lots, and shopping centers the world over. Meanwhile, the oil industry has not been able to increase world oil production for over 20 months, and the U.S. Dollar is in a clear decline trend.

There are no coincidences in all of this. These systems are not independent of one another. Keeping your eye on the ball is really going to pay off.



Greg Jeffers

Mentatt (at) yahoo (dot) com

6 comments:

adam f said...

Hi Greg, good article. I think Canadian Tar Sands and the U.S. Shale deposits actually do hold the equivalent of “trillion” barrels of oil -- gross anyway. The problems with them are production bottlenecks (relating in part to access to limited fresh water and natural gas in the case of tar sands), low energy return on energy investment ratios, and devastating climate consequences.
Adam

Timothy Dicks said...

Very good, down to earth expose. Thanks!

Gregory T. Jeffers said...

The resource may, in fact, hold 1 trillion barrels, the reserve certainly does not, but you get the idea.

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