[Archivist]

Glen, as I mentioned, there are a great many articles that say exactly this. I am not averse to believing that speculation plays a role in high prices, as does other elements like political instability, the exhange rate of the US dollar, etc.

However, these articles say things like, If supply and demand were the only factors, the price of oil would be at least $20 lower (Attributed to a government body). Where is the math for this? It is a fact that since 2005 the amount of oil produced worldwide has flattened. And it is a fact, that since 2005, demand for oil has increased dramatically. Earlier in this post, someone said "If supply and demand were the only driving factors, oil would be $80." - it seems to me that people are pulling numbers from a hat, and frankly politicians are the last lot of people I would turn to if I wanted to understand anything about energy supplies. People who point to speculation have been saying since oil jumped about $50 a barrel that it likely to fall; this has not occurred. You can put your eggs in whatever barrel you want to, but I believe the role of speculation is quite limited.

 

[Glen]

I appreciate what you are saying. Though there are many questions that will remain unanswered, so all of us are really just guessing. Oil production may have peaked in 2005, but were are the constraint(s) voluntary or involuntary? The very nature of OPEC means that the oil market will never be easy to divine accurate supply / demand curves.

That being said, the 2005 figure does not in itself preclude speculation from shaping a large part of today's oil price.

 

[salvius]

^ I'd agree that it's impossible to know just how much of the current oil prices are based on speculation. I don't think it's really all that relevant, however. I doubt we'll be seeing sharp drops in gas prices, and that's OK.

 

[Archivist]

And I agree very much with Glen that OPEC is highly opaque (get it?) and we really don't know what their reserves are. It's entirely possible that they could produce more, but choose not to. On peak oil sites, I find the lengths that people will go to in an attempt to divine the staying power of the Ghawar oil field to be amazing, but in the end, we won't know for sure until we know.

 

[Glen]

Funny enough, the events of the last to days suggest that speculation is more influential.

Reports that inventories increased in the US by 800,000 barrels vs. a projected decline 1.7 million had oil drop by ~2.50 pb. Remarks from an OPEC minister today forecasting $170 pb by Sep had oil increasing ~3.50 pb. Also in the news mix was a report from Master Card showing that Gasoline purchases in the US had declined by 3% in the last week. It all points to speculation being weighted more than reality.

 

[Glen]

So no one is up to the challenge of detailing a response to salvius's inquiry?

I was talking to a collegue of mine this morning who, by the bye, works for a suburban municipality near this great city of ours.

He wanted to know, in your opinions, what exactly is unsustainable about suburbs (those, of course, who think they are)? I'd like to know too.

Is it basically just peak oil, and a belief that there will not be an adequatly affordable alternative to it?

 

[Archivist]

Glen, this a genuine question, not a rhetorical one, because I'm wondering about something. Does it matter to you that speculation seems only to be driving prices up, and not making them erratic. Of course, when oil jumps by $10 a day, it's hard to credit that to supply and demand issues, but that is also true when it drops by the same amount. However, underlying the smallish and temporary jumps up and down is a not-so-gradual and continuing increase in the price of oil. What I wonder is if speculation was the major factor in driving the price, would you not see a more sustainably jerky price. What I notice about oil prices is not

I do note that the changes that people refer to in oil markets occurred in the 1990's, according to the Speigel article you posted. If so, why did the price not jump considerably in the 2000-2002 era, when arguably investors were looking for shelter from tech stocks, when world politics especially in the mideast were if anything worse than now. Crude dropped then, slightly. Why in 2008? What is it about our own era that is causing this?

 

[billy corgan]

I do note that the changes that people refer to in oil markets occurred in the 1990's, according to the Speigel article you posted. If so, why did the price not jump considerably in the 2000-2002 era, when arguably investors were looking for shelter from tech stocks, when world politics especially in the mideast were if anything worse than now. Crude dropped then, slightly. Why in 2008? What is it about our own era that is causing this?

I think the difference between 2000-2002 and 2008 is the value of the American dollar. Every time the dollar drops, more and more investors’ jump into oil. With the American debt growing I don’t see the dollar gaining value any time soon. The only way to turn things around would be to raise interest rates adding further turmoil to the American economy and housing crisis but at least the price of oil would go down (until the next crisis).

 

[Glen]

Glen, this a genuine question, not a rhetorical one, because I'm wondering about something. Does it matter to you that speculation seems only to be driving prices up, and not making them erratic. Of course, when oil jumps by $10 a day, it's hard to credit that to supply and demand issues, but that is also true when it drops by the same amount. However, underlying the smallish and temporary jumps up and down is a not-so-gradual and continuing increase in the price of oil. What I wonder is if speculation was the major factor in driving the price, would you not see a more sustainably jerky price?

There are trends and there are trends within those trends. The daily swings are predominantly speculative. To a lessor extent, so are the larger weekly/monthly/quarterly price changes. Should oil be more expensive than last year? Yup. Should it be twice as high? I say no. There are no current shortages.

IIRC correctly the Der spiegel article rightly shows how massive inflows of capital have historically produced bubbles. The Asian currency collapse, sub prime mortgages, junk bonds, etc. Even Toronto's office market crash in the 80's follows the same principles. During that time banks would offer money to O&Y, Camrost, etc., for less than prime, for projects that were not even 1% pre leased. Some were just back of the napkin proposals. Capital flows suffer from the same herd mentality that we see elsewhere. In the case case of oil, I agree with the direction they are taking, with the the trajectory I do not.

 

[Hipster Duck]

So no one is up to the challenge of detailing a response to salvius's inquiry?

To respond to Salvius,

We have to understand that the context of this original article/conversation is about the viability of American suburbs and, for starters, you cannot draw easy comparisons between the 905 and American suburbs.

American suburban municipalities are much smaller entities that are less flexible to the whims of demographic change and the provision of services are much more dependent on property taxes collected at the municipal level. School boards, for example, are almost wholly funded by property taxes; if the suburban municipality or county loses even a relatively minor proportion of its key property tax generators, educational quality in the area will suffer and set off a chain reaction, further driving more "respectable" residents out. The election of political administrators right down to the library janitor will also mean that, in times of desperation, American suburbanites will elect the most radical yahoo populist who will sink their municipality into further ignominy and obscurity.

There is something to be said for size, and the tiny populations of many suburban municipalities in the US will certainly impact the extent of their devastation. Even at their worst, American inner cities were sizable enough to put the screws to state budgets. Detroit could have easily looked to Lansing to periodically bail them out, but the same could not be said for, say, Romulus MI. Some of the poorest parts of American are already in the suburbs - and with their house of cards taxation system and local politicians who are completely beyond accoutability - they are going from bad to worse. Suburban Harvey, IL (where they filmed the mall scene of the Blues Brothers) had 12 murders for a population of 30,000 and a per capita income of just $12,000. It is happening all across the United States and I don't think it's a stretch to assume that this sort of suburban decay will paralyze large parts of what are considered to be desirable suburbs today in the future.

Going back to Canada, a suburban municipality like Mississauga is an enormous entity that encompasses a wide range of social demographics whose shifts will largely balance each other out. It still attracts investment and development, and has charted out a relatively healthy blueprint for how it intends to grow. Despite this, the average Mississaugan is paying nearly 16% more in property taxes than he did at the beginning of 2006. If this is happening in a large, diverse municipality in a country (Canada) where people are less fanatical about how taxes curb into personal wealth and liberties, imagine what sort of scenario will play out in an American suburb in the near future. It won't be pretty and I haven't even begun to mention the effect of peak oil.

 

[Archivist]

Glen and Billy, fair enough and I'm sure the gyrations are due to multiple reasons. You don't seem to completely discount scarcity.

Given that many countries (the UK, Norway, Mexico, Indonesia) have all clearly peaked since 2000, and given that demand in other places like Saudi Arabia and the UAE is increasing hugely due to economic development and subsidized oil, given than Saudi Arabia's many repeated promised to increase production have never come to fruition, I personally don't believe we will ever see a substantial, sustained decrease in the price of oil.

But I'm also willing (perhaps even hoping on some level) that I could be wrong about that.

 

[W. K. Lis]

Driven to the Brink

From the CEOs for Cities web site, check the video on the link:

A new analysis shows that high gas prices are not only implicated in the bursting of the housing bubble, but that the higher cost of commuting has already re-shaped the landscape of real estate value between cities and suburbs. Housing values are falling fastest in distant suburban and exurban neighborhoods where affordability depended directly on cheap gas.

 

[Dichotomy]

Oh, it's not all doom and gloom.

1) Autos are never going to to away. People with money do not want to rub shoulders with the unwashed masses. Never have, never will. Ever since the horse was tamed, we've been looking for ways NOT to mingle with the neighbors on our way to Church.
2) Real estate prices in this country (other than perhaps Vancouver) are totally artificial. 34 million people and 10 million sq miles. Give me a break.
3) Autos are Big Business in this city and all others. Tax them, fine them, ticket them. Toronto would collapse without the $$$ they generate.
4) 'Greenhouse gases' are just the Cause of the Month. In my day it was the population bomb and littering. Some climatologists think we could be entering another Little Ice Age. Burn, baby, burn!
5) The oil bubble is just that - a bubble. Brazil and Canada have more oil than Saudi Arabia. Who knows what is still sitting in the Gulf of Mexico. We've been hearing about the 'end of oil' for 50 years. It's getting tired already. Once the speculators cash in on their paper, prices will drop back to $100 a barrel or so.
6) Electric cars sound great on paper. Personally, I am all for it. One thing that could make electric cars (like the Volt) more attractive is that with the use of 'smart metering' and plugging them in over night it would make greater use of nuclear power. France is really having a problem with finding ways to offload their nuclear power at night time.
7) Who would be stupid enough to let people buy a home with ZERO down? Good grief! Why aren't those brain dead morons in jail?
8) Las Vegas is tacky, but fun. Adults deserve fun, too. Or have you never been to Disneywordl? Now, that's tacky.

Isn't social engineering fun? The ugly truth is, the so-called experts don't have a clue what they are talking about and most of them have an agenda anyway. Anybody remember when all homes were built with electric heaters because hydro was cheap? Then we were told natural gas was the way to go. Yep, keep on trusting those experts.

 

[urbandreamer]

^You know, I secretly agree with what you're saying. (Although your freeways for everyone cause turns me off.)

Electric cars will not save the earth; they'll just put more people out of work. Even mighty Toyota loses money on every Prius they sell.

 

[Dichotomy]

^You know, I secretly agree with what you're saying. (Although your freeways for everyone cause turns me off.)

Electric cars will not save the earth; they'll just put more people out of work. Even mighty Toyota loses money on every Prius they sell.

I'm not advocating freeways for everyone, just that we be realistic with what we have. Why would we throw up 10,000 homes at the foot of the Don River (ain't that scenic?) and then tear down their access to the rest of the world? Or do we expect them only to want to bicycle as far as Bay St.?