Have We Peaked Already?

by Rob Kirby, Kirby Analytics. December 15, 2008

Last Friday, Dec. 12, 2008, CNNMoney.com published an article chronicling the dismal state of the U.S. employment picture, highlighting December's job cut total – which already stands at 115,416.

The article went on to explain that December job losses could be even worse than November, when the Bureau of Labor Statistics [BLS] reported that 533,000 jobs were lost [most since 1974] – since, according to David Wyss, chief economist at Standard & Poor's;

"Generally companies like to make their cuts by the end of the year."

If we can dismiss the human suffering associated with job losses for a moment and instead view “employment” as an “energy consuming activity” – it might help one begin to grasp the true nature of exactly what’s confronting the industrializing and industrialized world.

Could it be that job reductions and the associated recession we are now experiencing are necessary and it has all been purposely ENGINEERED?

Who’s Cooking The Numbers?

If we look at the EIA’s global crude oil supply / demand data – as of Dec. 10, 2008, we see total world supply at 85.64 million barrels per day versus demand of 85.27 million barrels per day – a delicate balance, no?

But if we take a peek at British Petroleum’s [BP] data re: global oil production versus global oil consumption [2007], a very disturbing fact is readily apparent: Someone isn’t telling the truth.

Global oil production fell by 126 kb/d or 0.2% to 81.5 mb/d in 2007

The share of global supply from the Africa, Asia and the FSU grew in 2007, meanwhile, Middle East, North America, Latin America and Europe lost share. This is consistent with long term trends.

Methodology

Crude oil production data includes crude oil, shale oil, oil sands and NGLs (natural gas liquids – the liquid content of natural gas where this is recovered separately). It excludes liquid fuels from other sources such as biomass and coal derivatives.

Reserves-to-production (R/P) ratios are available for the world and by region and feature in the Energy charting tool. R/P ratios represent the length of time that those remaining reserves would last if production were to continue at the previous year's rate. It is calculated by dividing remaining reserves at the end of the year by the production in that year.

World oil production tables are in both thousand barrels daily and million tonnes.

Now, let’s take a look at how many barrels per day were consumed globally in 2007:

The notion that we may have already achieved and gone beyond “peak oil” should not surprise anyone. Furthermore, the notion that this might have occurred without the “bean-counters” at the EIA acknowledging it shouldn’t surprise anyone either.

We all know that bean-counting on the part of U.S. financial elites has risen to a disturbingly maligned Picasso-esque genre of financial fiction that overtly lies about inflation, employment and deficits.

So why would anyone suppose we’re getting the straight goods on oil?

Hubbert's Peak
"Hubbert's peak" can refer to the peaking of production of a particular area, which has now been observed for many fields and regions.

Hubbert's Peak was achieved in the continental US in the early 1970s. Oil production peaked at 10.2 million barrels a day. Since then, it has been in a gradual decline.

Peak oil as a proper noun, or "Hubbert's peak" applied more generally, refers to a singular event in history: the peak of the entire planet's oil production. After Peak Oil, according to the Hubbert Peak Theory, the rate of oil production on Earth would enter a terminal decline. Based on his theory, in a paper[3] he presented to the American Petroleum Institute in 1956, Hubbert correctly predicted that production of oil from conventional sources would peak in the continental United States around 1965-1970. Hubbert further predicted a worldwide peak at "about half a century" from publication and approximately 12 gigabarrels (GB) a year in magnitude. In a 1976 TV interview[4] Hubbert added that the actions of OPEC might flatten the global production curve but this would only delay the peak for perhaps 10 years…

Also worthy of note, when Hubbert wrote his thesis on Peak Oil the world was still on a gold standard. From this, we might surmise that Hubbert’s consumption modeling would have assumed the inherent discipline – growth limiting - that is embodied in a gold standard. The global shift to un-backed, irredeemable fiat currencies – since the abrogation to the Bretton Woods Agreement by President Nixon in 1971 – suggests that ‘baseline’ consumption data may well have significantly exceeded that which Hubbert modeled for.

If we truly have achieved peak oil, current policies being pursued by governments – those of stimulating aggregate demand – ensure acute future shortages and only hasten our economic decline going forward.

Today’s Market

Overseas equity markets began the week on a positive note with Japan’s Nikkei Index gaining 428 points to 8,664. North American markets didn’t fare as well with the DOW losing 65.20 to 8,564.50, the NASDAQ falling 32.38 to 1,508.34 and the S & P giving up 11.20 to end the day at 868.55. NYMEX crude oil futures fell 1.42 to finish the day at 44.86 per barrel.

On foreign exchange markets the U.S. Dollar Index fell 1.09 to end the day at 82.18.

Interest Rates: The benchmark 5 yr. government bond finished the day at 1.49% while the 10 yr. bond was last at 2.52%.

The precious metals complex was higher across the board with COMEX gold futures adding 17.80 to 840.60 per ounce while COMEX silver futures added .38 to 10.65 per ounce. The XAU Index added 3.54 to 111.78 while the HUI gained 12.65 to 273.95.

On tap for tomorrow, at 8:30 a.m. Nov. CPI data is due, Headline number expected -1.5% vs. prior -1.0%. Core expected 0.0% vs. prior -.1%. Also at 8:30 a.m. Nov. Housing Starts – expected 725K vs. prior 791K and Nov. Building Permits – expected 700K vs. prior 708K. Then at 2:15 p.m. the FOMC is due to announce their decision on the fed funds target rate [currently 1.00%] and their accompanying policy statement. Most market watchers are anticipating a 50 basis point reduction in the fed funds target rate.

Happy Holidays, and most of all – successful investing to all!

Rob Kirby

Contact Information

Rob Kirby | Proprietor, Kirby Analytics Newsletter - Proprietary Macroeconomic Research
Toronto, Ontario, Canada | Observations | FSU Editorials | E-mail