Who Moved My Peak Oil?

The buzz about peak oil has peaked, and for a good reason: the peak remains MIA. That doesn’t mean that the global supply of crude oil is a non-issue. Far from it. But for the moment, at least, statistical evidence in favor of arguing that the world’s output of crude has hit a ceiling, or is in imminent danger of doing so, looks thin.


Global production of crude (defined as crude including lease condensate) hit an all-time high this past April: 75.872 million barrels per day, according to data from the U.S. Energy Information Administration. That wasn't supposed to happen, a number of peak-oil theorists warned over the past decade. In 2001, for example, geologist Ken Deffeyes wrote a widely cited book (Hubbert's Peak: The Impending World Oil Shortage) that predicted that “global oil production will probably reach a peak sometime during this decade.” Deffeyes wasn't alone in seeing trouble on the production horizon.

But as the chart below reminds, higher peaks keep coming.


The peak-oil theorists haven't given up. Instead, they keep revising their peak forecasts, pushing the dates for production crests further out in time. Two years ago, for instance, Charles Maxwell—the "dean of oil analysts"—predicted that the peak will come sometime between 2015 and 2020.

Perhaps, but some observers of the oil scene argue that the peak-oil warnings must be labeled flat-out wrong. George Monbiot, a visiting professor of planning at Oxford Brookes University and author of Heat: How to Stop the Planet From Burning, recently wrote: "The facts have changed, now we must change too."

For the past 10 years an unlikely coalition of geologists, oil drillers, bankers, military strategists and environmentalists has been warning that peak oil – the decline of global supplies – is just around the corner. We had some strong reasons for doing so: production had slowed, the price had risen sharply, depletion was widespread and appeared to be escalating. The first of the great resource crunches seemed about to strike….

Some of us made vague predictions, others were more specific. In all cases we were wrong. In 1975 MK Hubbert, a geoscientist working for Shell who had correctly predicted the decline in US oil production, suggested that global supplies could peak in 1995. In 1997 the petroleum geologist Colin Campbell estimated that it would happen before 2010. In 2003 the geophysicist Kenneth Deffeyes said he was "99% confident" that peak oil would occur in 2004. In 2004, the Texas tycoon T Boone Pickens predicted that "never again will we pump more than 82m barrels" per day of liquid fuels. (Average daily supply in May 2012 was 91m.) In 2005 the investment banker Matthew Simmons maintained that "Saudi Arabia … cannot materially grow its oil production". (Since then its output has risen from 9m barrels a day to 10m, and it has another 1.5m in spare capacity.)

Peak oil hasn't happened, and it's unlikely to happen for a very long time.

It certainly hasn't happened over the last decade. As the next chart reminds, production is up in several of the key oil-producing nations, including Saudi Arabia. According to the EIA, Saudi output is higher by nearly one-third over the past 10 years through June 2012.



As always in the oil game, there are key details behind the numbers. Oil, as they say, isn't just another commodity. Geopolitics, in other words, intrudes big time on what otherwise would be a fairly straightforward supply/demand analysis. In the chart above, for instance, Iraq's big gain is less about new discoveries and more about the country's resumption of production after years of war. Meantime, Iran's retreating production reflects the combined burden of international sanctions and domestic difficulties with aging technology.

Despite the various issues, global production managed to increase 12% over that past decade. That doesn't mean that we should expect oil output to effortlessly rise, year after year. The one forecast that some of the peak-oil theorists got right is that finding and producing oil is getting tougher. But technology is improving too, and so far the net result is that the oil industry has been able to squeeze out more supply from what ultimately is a finite resource.

The idea of peak oil isn't dead, not by any means. At some point, production will top out, plateau, and then fall. Exactly when that occurs is wide open for debate. Even what was considered accepted fact—that U.S. production had peaked and was destined to suffer a long, slow decline—no longer looks true. Domestic output is up 6% over the past decade, and most of the gain has come over the last year or so. A few years ago, almost no one expected a revival. Now we're reading reports of U.S. production at 15-year highs.

The lesson in all of this? Predicting is still hard—especially about the future, and particularly for relatively long time horizons.

Capital Spectator is a finance/investment/economics blog that's edited, owned and otherwise managed by James Picerno.

Jiro Dreams of Sushi

One could argue that sustained excellence can only come about through a full fledged devotion to one’s craft. If so, Jiro, the star of the documentary Jiro Dreams of Sushi, would be the poster child for persistence. Jiro has been making sushi for over 70 years and is widely acknowledged as the world’s greatest sushi chef.

The movie has been widely praised, receiving a 99% on Rotten Tomatoes. It can been see streaming on Netflix and Amazon Prime. On one level the film is a family story about Jiro and his two sons who are also sushi chefs. On another level it is about the commitment required to become and remain a master at a craft. In this case it just happens to be sushi.

Jiro even in his eighties works every day only closing for national holidays. He notes throughout the film different ways in which he makes sushi differently than others. These innovations occurred over time and through a relentless attention to detail. He says in the film:

I do the same thing over and over, improving bit by bit. There is always a yearning to achieve more. I’ll continue to climb, trying to reach the top, but no one knows where the top is.

The vast majority of people do not have the drive or interest in the effort required to achieve sustained excellence. In that regard sushi making is no different than trading. Unfortunately many enter into trading not for a desire to achieve great things but rather for the perceived rewards. Jiro clearly enjoys the recognition he has achieved but that does not prevent him from going to work every day.

The movie has been described as being about: “discipline, rigor and purity.” Certainly the first two are required for success in trading. Very few of us could be as singly-minded about what we do as Jiro is about sushi. Nor should we be. Very few of us would like to live a life singly focused on career to the detriment of everything else in our lives. However a documentary like Jiro Dreams of Sushi does highlight the level of effort to attain achieve excellence and to push the boundaries of a craft.

Canadian housing heading for 25% crash: Capital Economics

A day after RBC put out a report saying that Toronto’s condo market is not in a bubble, Capital Economics has come out with its own report saying that Canadian housing, including Toronto, is most certainly in a bubble.
David Madani, economist with Capital Economics, said on Wednesday that Canada’s housing market is currently experiencing what appears to be a soft landing, but is, in fact, a bubble in the process of bursting.

“There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price,” he said in a note. “Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing.”

Mr. Madani said that he expects housing prices in Canada to crash 25% over the next couple of years. He originally made that forecast in June of 2011 and reaffirmed it Wednesday. His update follows a report from the Royal Bank of Canada, the country’s largest mortgage lender, that said that Toronto’s red hot real estate market is not a bubble.
In that report, RBC’s senior economist Robert Hogue said that demand in Toronto is in line with supply, dismissing claims that a condo bubble has emerged in the city.

A flurry of speculation has emerged about the fate of Canada’s housing market following changes to mortgage lending rules recently. Last month, Finance Minister Jim Flaherty changed the maximum amortization period for a mortgage from 30 years to 25 years. Those changes, combined with the prospect of looming interest rate hikes from the Bank of Canada, have raised questions over the effects they will have on Canada’s housing market.
Mr. Madani said that the changes will affect first-time home buyers the most, who make up 50% of new home sales and a quarter of resales.

Housing prices typically respond to changes in the market with a lag of five to nine months, according to Mr. Madani. He points out that home sales have already seen material declines, down 4% over the last two months. Vancouver in particular has been hard hit, with sales down 28% year-over-year.

“Overall, the willingness of buyers to pay these historically high house prices now looks to be proving fragile against the increasingly disappointing macroeconomic backdrop,” he said. “The housing bubble in Vancouver already appears to be deflating, with only Toronto defying the inevitable. Accordingly, we expect substantial declines in house prices over the next year or two.” 
www.financialpost.com/2012/07/25