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Could we reach a point, if we really tried, in which demand for oil (conventional or tar sands oil) outstripped the supply?
Suppose a new religion spread around the world in which the more oil you burned and sacrificed, the greater your reward in heaven. The greater the plumes of black smoke in the air, the more favourably the gods looked upon you.
If all we did (other than eat), was look for oil and sacrifice it, would we reach a peak, or is there too much oil to ever peak - would it be the case that the oil removed from the ground/sea would replenish itself within a man's lifetime?
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Mick Harper
Site Admin
In: London
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| Could we reach a point, if we really tried, in which demand for oil (conventional or tar sands oil) outstripped the supply? |
This is a profound though common misapprehension. Demand can never, as a matter of definition, oustrip supply. The price can go sky-high, 's'all. Or looked at the other way, the demand for oil is infinitely huge if the price is low enough.
| Suppose a new religion spread around the world in which the more oil you burned and sacrificed, the greater your reward in heaven. The greater the plumes of black smoke in the air, the more favourably the gods looked upon you. |
Religions are always profoundly useful inventions so I'll pass over this.
| If all we did (other than eat), was look for oil and sacrifice it, would we reach a peak, or is there too much oil to ever peak |
Again, you misunderstand the nature of economics, not to mention religion. Lots of people have adopted your policy. Take the Pilgrim Fathers. If you'd have asked, they would have said that all they did was to "eat and sacrifice" in other words they regarded their existence as being merely a question of staying alive and worshipping God.
But of course "staying alive" turns out to mean eating extremely well and living in fine houses etc which takes up most of their time and what's left over is devoted to "exploring for and then burning oil" (or exploring for and then burning witches) (or whatever, it doesn't seem to matter as long as your religion guarantees to be open-ended enough to mop up all your free time).
In your example, oil would presumably go up in price so eventually it would be like frankincense -- highly prized and only burnt once a week when everybody is gathered together. But it can never run out since there will always be some oil somewhere in some corner of the earth.
| - would it be the case that the oil removed from the ground/sea would replenish itself within a man's lifetime? |
I don't think even the most gung-ho oilista would argue this. The nearest thing to this assumption (I can't tell whether Komoro is referring to it) is the Swedish bloke's claim that oil is everywhere you just have to drill far enough. The one experiment they tried to test the idea was a failure (but I expect his disciples will say different).
PS Please don't write in pointing out that witches were hanged.
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DPCrisp
In: Bedfordshire
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| This is a profound though common misapprehension. Demand can never, as a matter of definition, outstrip supply. |
Is that a useful definition, though? How are supply and demand different? How does supply ramp up if demand never outstrips it?
Isn't it important that we can imagine circumstances where a commodity can not be obtained -- at least for a while or in a certain place -- no matter what price is offered? Going to the highest bidder or being gazumped and therefore having to change your plans sure feels like having a demand that can not be supplied.
I'm not suggesting going too far the other way and saying demand is always infinite. Companies always want room to grow, but they don't say "gee, I wish I could get a million times more jollop", coz if they were offered it they'd have to say "actually, I don't have the capacity to do anything with it right now".
Isn't demand something like a "practicable expression" of desire?
| But it can never run out since there will always be some oil somewhere in some corner of the earth. |
But that is the question. How d'ya know? We used up all our dodos.
| PS Please don't write in pointing out that witches were hanged. |
OK, but some witches were burned. Many more pharaohs were burned.
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Mick Harper
Site Admin
In: London
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| Is that a useful definition, though? How are supply and demand different? How does supply ramp up if demand never outstrips it? |
The great insight of economics (the one great insight of economics) is to show that the two things are each end of a seesaw. In a sense, demand always outstrips supply because it has to in order to create a price (otherwise we're dealing with a non-economic thing, such as air) .
| Isn't it important that we can imagine circumstances where a commodity can not be obtained -- at least for a while or in a certain place -- no matter what price is offered? |
Again, you're moving into non-economic matters. For instance lifeboats in a sinking ship. It is significant that you yourself have not provided an example. We can imagine it but it prolly doesn't exist.
| Going to the highest bidder or being gazumped and therefore having to change your plans sure feels like having a demand that can not be supplied. |
Preecisely so and it is why economics is so valuable (in this respect) in reminding people that demand can always be satisfied. You just have to pay more. But of course everybody that can't manage to do so goes round muttering angily, "I wish they'd increase the supply of affordable housing." There's always a "they" and for some reason it always requires them giving you money.
The way to really look at the problem and understand it, is to have your wish granted. Since there is practically no limit to demand -- everybody wants to live in a town house in Berkeley Square -- we'll need fifty million townhouses in Berkeley Square. With gardens. Then there'll be no gazzumping. [By the way, gazzumping technically is when a bubble has been created ie prices are rising too fast for a market to exist. It is a sure sign that prices will soon be collapsing. However 'soon' alters each time, so it may not be sensible to wait.]
| Isn't demand something like a "practicable expression" of desire? |
Definitely not. This is the error that constantly fuels left-wing politics. They believe that human beings can be educated into wanting only what's practical. Don't you, Dan? It turns out only left-wing people can be -- it's called "Hair-Shirt Syndrome". Everybody else wants the lot. Oh, before I forget, when the chips are really down, eg getting secondary education for one's children, left-wingers make the odd exception.
But it can never run out since there will always be some oil somewhere in some corner of the earth.
But that is the question. How d'ya know? We used up all our dodos |
Another cherished myth. Bertrand Russel won a Nobel Prize for Literature (for Godsake!) with a book requiring the same assumption. Look (everybody), when it comes to geology, you can't actually run out of anything. Just evaporating sea-water will provide you with some amount of what you want. It's always just a matter of whether you can afford to do it.
| OK, but some witches were burned |
Not by the Pilgrim Fathers I meant. And not in any English (or Scottish?) court either. The English were always quite clear that witches were crims not heretics. It's an important distinction (somewhere along the line).
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DPCrisp
In: Bedfordshire
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| Again, you're moving into non-economic matters. For instance lifeboats in a sinking ship. It is significant that you yourself have not provided an example. We can imagine it but it prolly doesn't exist. |
As one never educated in economics, it seems to me important to know when we've moved into non-economic matters and why... so what happens when there are no Van Goghs on the market, no matter how much I'd like one? When the factory that makes resin for microchips goes up in flames (as one did a few years ago), there is at least a hiatus when someone can't make chips (or not as many chips). No more alum from Italy for political reasons... If any specialist is put out of business for a while or for good...
On Long Way Down, the Americans on the team couldn't get visas to enter whichever African country. If they could have been bribed, I expect they'd have said so. What's the difference between "you can have one for a billion pounds" and "no"?
Don't I what, believe that human beings can be educated into wanting only what's practical? No way.
I was just thinking of what you say you demand vs. what you really demand as being like the difference between what you say and what you mean; the difference between doubts you express and doubts you have grounds for; the difference between the automatic gainsaying of everything the other person says and an argument.
I can buy myself saffron caviar truffle sandwiches... every day, if I can afford it... and I can go on buying more and more... and give them away... or let them go to waste... but this means finding something new to do with them, changing the economic system. (Cf. brewing waste being marketed as Marmite or a dairy selling cream products because it has such an excess from its milk skimming, for real examples.) But what about having to change the system when we're coming up against the limits of supply?
| Another cherished myth... It's always just a matter of whether you can afford to do it. |
I'm not cherishing the myth: I'm asking how you know for sure that the supply of, in this case, oil really is unlimited?
Saying we can generate petro-equivalent or nature-identical chemicals is just moving the goal posts. That's what the uh-oh-oil's-running-out fraternity is urging for, on the basis that oil is running out!
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Ishmael
In: Toronto
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| DPCrisp wrote: | | ...so what happens when there are no Van Goghs on the market, no matter how much I'd like one? |
Don't you see Dan. Whether or not there are any Van Goghs on the market depends on how much you'd like one.
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Ishmael
In: Toronto
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| DPCrisp wrote: | | What's the difference between "you can have one for a billion pounds" and "no"? |
A billion pounds.
See above.
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Ishmael
In: Toronto
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| DPCrisp wrote: | | Saying we can generate petro-equivalent or nature-identical chemicals is just moving the goal posts. That's what the uh-oh-oil's-running-out fraternity is urging for, on the basis that oil is running out! |
Which only proves it isn't.
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Komorikid
In: Gold Coast, Australia
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Mick is right when he says there will always be enough supply for the demand. A quarter of a century ago it was confidently predicted that oil was running out and it hasn't. The doomsayers were wrong. Ten years ago China and India were barely on the bottom rung of the oil user's ladder. Today they're in the top ten and their addition to demand still hasn't seen oil run out.
Commodity prices always increase with demand. Under normal conditions (90% of the time) this is a steady parallel curve upwards. The current situation is not normal. The current spike in costs is not a result of normal cost/demand curve. Current demand hasn't spiked. It is still following the steady upward curve it always has. Only the cost has spiked. Production hasn't fallen behind either, there is still enough being supplied to meet normal demand.
The current price spike is driven by the Doomsayers and the fear generated by them just as it was during the '70's 'Oil Crisis'. The fear factor forces panic buying and speculators do what they always do -- jump in for a quick buck.
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Mick Harper
Site Admin
In: London
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| As one never educated in economics, it seems to me important to know when we've moved into non-economic matters and why... so what happens when there are no Van Goghs on the market, no matter how much I'd like one? |
I notice you still cannot come up with a non-economic example (lifeboat places on the Titanic situations are truly rare) and the Van Goghs are a perfect illustration of why. At present there are (alleged to be) 175 genuine Van Goghs in the world (I've made up the number, and whether they truly are genuine is not important). In other words, and pace Ishmael, the supply is limited. So it is true that, no matter how rich you are, you cannot be supplied with 176 'genuine' Van Goghs. But you can any number up to that figure.
There are only "seven in private hands" and that might be said to be the limit of Van Goghs that are 'on the market' but, for instance, the forty-three in the Rijksmuseum can be bought, it's just you might have to shoulder a proportion of the Dutch National Debt to get them.
| When the factory that makes resin for microchips goes up in flames (as one did a few years ago), there is at least a hiatus when someone can't make chips (or not as many chips). |
True, but a hiatus in supply simply means a rise in price because (now) the second hand market will overtake the list price. This curious situation occurs whenever something like a new Ferrari comes out and the super-rich want to avoid the waiting-list of the merely-rich.
| No more alum from Italy for political reasons |
Aside from the fact that this simply means the price goes up as now bribes have to paid to get Italian alum, there is the law of unintended consequences that is one of the more marvellous things about the Law of Demand and Supply (and the fact that human beings don't always recognise its existence). You will remember what actually happened when the Eyeties banned it....the English alum industry was founded, followed by the English Industrial Revolution and the permanent eclipse of Italy as a source of mercantile power.
| Saying we can generate petro-equivalent or nature-identical chemicals is just moving the goal posts. That's what the uh-oh-oil's-running-out fraternity is urging for, on the basis that oil is running out! |
No, no, I'm saying that actual oil itself can never run out. Do you honestly think the Forties Field can possibly give up all its oil? Don't you think, if the price goes high enough, we can always send the Time Team down there with a bucket-and-spade to get some? Nothing can physically run out, it can only reach the stage when human beings no longer want to dig it out.
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Mick Harper
Site Admin
In: London
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| The fear factor forces panic buying and speculators do what they always do -- jump in for a quick buck. |
This is completely wrong and is the widest misconception of all. Speculators smooth the price. Markets can often be spooked by fear which results in panic buying but without speculators this would mean that for all practical purposes the price would become infinitely high (or infinitely low, ie zero when the market is spooked the other way). This has nothing to do with speculators, it's just the human condition to panic occasionally. The point about panic is that for a brief moment everybody is moving in the same direction ie there is no market.
But speculators are speculators because they know about markets, and they know that eventually the market will settle down. So they are buyers. Indeed they are the only buyers -- that's what we mean by 'everybody moving one way'. This is also why we can never track down these mysterious speculators that caused all the trouble, they don't exist! They are simply market professionals who on this occasion managed not to be spooked. Or who came out of the spooked condition first. Or whatever.
And, Komoro (and everybody else) they do not come out with a quick buck. They are taking a position. They are assuming something about the future which might or might not happen. And they are putting their money on their assumption. Sometimes they win, sometimes they lose. I wish youse guys would realise that we're here to question these universal orthodoxies not parrot them.
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Ishmael
In: Toronto
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| Mick Harper wrote: | | I wish youse guys would realise that we're here to question these universal orthodoxies not parrot them. |
Finally he feels my frustration!
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DPCrisp
In: Bedfordshire
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| Don't you see Dan. Whether or not there are any Van Goghs on the market depends on how much you'd like one. |
But what if the owner, like me, would rather have the painting than any amount of money...?
In general terms, of course I see what you mean, but we were probing the limits of economy.
| True, but a hiatus in supply simply means a rise in price because (now) the second hand market will overtake the list price. |
Yes, but that assumes there is a second hand market.
| You will remember what actually happened when the Eyeties banned it....the English alum industry was founded |
Yes, but "we will always find something else to do" hardly answers the question of exhaustability of oil supplies.
| Nothing can physically run out, it can only reach the stage when human beings no longer want to dig it out. |
But you're using that as a premise, not a conclusion.
If the oil industry collapses while there is still a little left, then in what sense have we not run out?
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Why are the Americans not drilling the Alaska oil reserves? Some possible reasons are:
1) It would wreck the Alaskan environment. I think this is the reason most people believe.
2) They are saving it for a rainy day, in case they ever get oil embargoed by the rest of the world.
3) There's enough oil in Texas.
4) The ethanol corn lobby has become very powerful.
5) There's not much oil there.
6) The world is more stable if other countries are dependent on the income they get from exporting oil to the US.
7) other
- I don't think it's 1) because no one cares about the environment unless it's their own backyard. And, even then, you have to have clout to stop development in your backyard, and I don't think Alaska has that much clout.
- I don't think it's 2) either because I don't think it would take that much of an effort on the part of the Americans to make Alberta an American state. And the tar sands are apparently abundant and inexhaustible.
- If it's 3) then why wouldn't George Bush et alia just tell Americans that there is a lot of oil and to stop worrying about gas prices?
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Ishmael
In: Toronto
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I don't know the right answer but I like number two. It parallels a theory I developed regarding taboo animals. I suspect culinary taboos are all about ensuring a ready supply of emergency food. It's just an idea.
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