The Next Bubble

[WestSideBilly]

Oil sands and Coal2Oil are not profitable at $40/bbl, at least not a year ago when I was reading a lot more about oil.

A big part of the current oil price is the fall of the dollar. As long as our dollar keeps falling, the price of oil will keep going up as a hedge against inflation, along with other commodities (see: Gold, silver, corn, etc).

I think your contention of cheap and plentiful oil is reasonable, but it really depends on what you consider cheap and plentiful. $20/bbl is cheap. $40 is probably a decent midrange price. Don't forget that OPEC used their cartel to hold oil prices in the $25-30/bbl range for a long time. Even factoring in the fall of the dollar we're well above that. As for plentiful, the world is capable of pumping 75 million bbl/day still. If your prediction of a long global slow down comes true, that will suffice for some time. If China and India can keep their growth going (I don't see how, but it's possible) 75 million will not be enough to satisfy demand at the current price point.

Peak oil is fascinating but it's even harder to follow because there are so many forces at play, and so many opinions (wild guesses in many cases). Peak Oilers also tend to make bubbleheads look pretty benign.

[sniglet]

[rose-colored-coolaid]

I'm going to chime in with WestSideBilly, that the last I saw it cost closer to $60-$70 for coal-to-oil or tar-shale to oil. If those numbers have changed, that's a win.

What you can't fix, is the energy cost associated with these processes. Oil is easy to refine, but it takes a lot more energy to do these conversions. I don't recall the exact numbers, but pumping/refining light crude oil might take 1 joule to extract 100 joules of energy. Middle East oil (high sulfur) might take 1.5 joules for the same 100 joules returned.

A lot of these processes to convert to oil are an order of magnitude worse in return. Like maybe it takes 10 joules invested for a 100 joules returned. This is still an order of magnitude better than ethanol, which yields somewhere between a 10% total return to a negative return with current technology.

IMHO, ethanol is the real loser technology, as it only benefits the corn industry.

[TJ_98370]

[TJ_98370]

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Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans.
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But a few big private investors are starting to make bolder and longer-term bets that the world's need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.....
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.....And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.
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"It's going on big time," said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. "There is considerable interest in what we call 'owning structure' — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving."
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These new bets by big investors could bolster food production at a time when the world needs more of it.
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The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.
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But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry's commitment to farming through good times and bad.
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"Farmland can be a bubble just like Florida real estate," said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. "The cycle of getting in and out would be very volatile and disruptive.".....
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[WestSideBilly]

Le sigh.

Capitalists investing in farms scares me. If wheat, soybeans, corn, and other staples ever get low like they were some years back, and investors start dumping the land... bye bye food supply!

[TJ_98370]

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WestSideBilly -

Normal operations could certainly be disrupted if investors started dumping farmland during a downtrend. I also have the vision of speculators manipulating domestic food supply for profit. However, I think that would be a step too far. There would be a major reaction from the public and government should that type of activity ever be exposed.

[explorer]

[TJ_98370]

explorer -

Do food distributors ever withold product to increase demand / price?

[explorer]

[WestSideBilly]

[WestSideBilly]

[johnsgonefishin]

The next bubble is going to be........... beans and lentils!!
Seriosly after everyones out of rice from the asian hoarding and its gone from shelves people will start stocking beans and lentils, they have similar shelf life, nutriotional value, and are poised to move.
With the coming food shortages lentils and beans are a solid buy right now.

[Matthew]

The next bubble is already here, its in commodities. While I agree that peak oil will eventually become a reality, demand has not risen enough to justify current oil prices.

The demand for oil has increased, but has it increased 120+% in a year? Obviously speculation is playing a role in oil's current rise. China and India also provide massive government gasoline subsidies.

The Fed has created a tremendous amount of slosh pouring into our financial markets, and it has to go somewhere. With T-bills contaminated and the stock market crumbling, the money is flowing into commodities.

Yes eventually demand will exceed supply and the price of oil will skyrocket, but we have not reached that point yet. We have tapped all the large oil fields that supply us with oil that is easily obtained. Oil exploration from here on out is not going to yield oil that is cheap and easy. Prices are bound to rise in the long term, but currently prices are high because of another Fed created bubble.

[rose-colored-coolaid]