I expect it to come roaring back even if recovery never happens (which looks likely to me).

Hope Richardson is going to go into the cabinet and push to throw some serious bucks at constructing a high wattage electric transmission line project here in New Mexico.  We've got solar, wind, and thermal power generating potential that needs a route-to-market.  

No one could have predicted

James Kunstler was puzzled by the gigantic drop in oil prices given the small drop in demand.

The oil scene

     Many were stunned this year to witness the parabolic rise and fall of oil prices up to nearly $150 and then back around $36 by Christmas time. Quite a ride. I said in The Long Emergency that volatility would be the hallmark of post peak oil because it was obvious that advanced economies could not absorb super high prices and would crash in response; that at some point after crashing, these economies would respond to the new lower oil price, resume their cheap oil habits, and build to another price rise. . . and crash again. . . in a declension of ever-lower industrial activity.....      
     Even if these advanced economies -- throw in Japan too -- remain moribund, the price and supply prospects for oil look ominous. My own guess is that the price of oil has overshot on the low end just as it overshot on the high end, and that, when all is said and done, we'll still see an upwardly trending price line over the long haul. The plunge, which began right after the $147 peak in July 2008, was as much the result of banks, hedge funds, and individuals dumping oil investments and positions to raise cash as it was a matter of the markets predicting a sharp fall-off in economic activity (and supposedly oil consumption). The truth is that demand destruction for oil in the USA has been surprising mild compared to the drop in price. Jim Hansen's Master Resource Report says that <b<gasoline consumption dropped from 9.29 million barrels a day in 2007 to 8.99 million barrels a day for 2008.</b> That's not much of a fall-off, especially compared to the price drop.

The answer lies in the relative inelasticity of supply and demand in oil markets.

At 83-84 million barrels daily, we are at the very frontier of production.  You have to go far out to sea, or start manufacturing oil from unconventional sources like sands and super-heavy fields to get more.  And that takes time.  In the short term, no amount of money is going to bring those sources online. There is no excess capacity, and the Saudis are probably lying about what they can pump, so it looks worse if you're an oil trader.

At the same time, demand is inelastic.  In places like the United States, driving is often a necessity, not an option.  If you want to get to work or shopping, it has to be in a car. The very structure of the urban landscape demands it.  So it takes gigantic leaps in price to produce reductions in demand, because there's little slack to be cut in the short term.  Slack comes in thinks like combining trips to the store, or forcing the poor out of their cars onto bikes, public transportation, or their feet in a landscape not designed to accomodate this, or up and moving closer to work and shopping.  But that last one takes time.  Most leases are for a year, and selling a house takes even longer. In the short term, these things aren't going to occur.

So what we get is something like this.

I'm oversimplifying of course, but that's because I don't want to trace out something else than a straight line.

So I think that Kunstler is right about one thing.

We are in for a serious period of energy instability, where every push to economic recovery produces a rise in energy prices that suppresses it.  

So two things have to occur.

1) Steps have to be taken to change the structure if demand to make it more elastic.

and

2) Any stimilus has to be strong enough to break through the countervaling force of energy prices.


And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

It depends on whether a different bet in each version of the diary is allowed ... to quote the full comment including subject heading:

Ooh, ooh, ooh, do I get a Mulligan here?
All that speculation that was really holding the price up gets burned when oil hits $99, and it quickly drops to $68.37

I'm going for both over AND under on the same bet.

If only one bet is allowed between the two fora, then the "over" bet at dKos would be the first bet laid, and as I'm sure it is three figures, it would put me far out of the running.

I definitely was not joking that it could drop ... chaotic prices are to be expected when sliding off the Peak Oil plateau ... but that was not my original bet over at Agent Orange.

Utsukushikereba sore de ii

I was under the impression that it was two seperate bets on the two sites. In which case I had the ET high tail, you had the ET low and the DK high (I have not bothered to register a DK account, not even for grabbign the low tail there). So apart from not reading the rules and placing the bet in the wrong fashion, the only problem was hitting the wrong tail :)

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