1600 Words About The Price Of Oil
July 19th, 2008

In the last two weeks the price of oil has dropped from an intraday high of around $148/barrel to a closing price of $128 on Friday (or 13%). It is impossible to tell if this trend will continue, but some history is in order since it was almost exactly 2 years ago when the last massive price collapse occurred. On July 14th, 2006, oil closed at $77. For the next 3 weeks the price remained at record levels in the mid $70s. Then it began steadily declining until it bottomed out at about $51 in January 2007 (about a 30% drop). A similar drop in the coming months would bring us to $100, or the target that T. Boone Pickens announced this week for sometime in the next two years.

The importance of this history cannot be understated since there are so many similarities between then and today.

Then
In the summer of 2006 the rise, peak, and fall of prices corresponded exactly with the 33-day Second Lebanon War. While events in Israel and Lebanon have very little to do with global oil supply any strife in the Middle-East has classicaly caused jitters in the market. In this case, Hezbollah, involved Iran quite closely in the conflict as its proxy. The same geopolitical fears and tensions surrounding relations between Israel and Iran and Iran’s nuclear program existed then that do today. When the conflict ended it served as the catalyst for prices to fall. July 2006 set a new record in global crude production, though this would not be clear until months later.

As the price fell, OPEC held an emergency meeting in October and initiated the first of two cuts in production totalling 1.7 mbpd. The effect of the announcement of these cuts, although not fully implemented, was to reverse the price movement by January. The price would not reach its previous record of $78 until that summer (one year ago).

Today
There has been no war this summer and it is debatable what impact the tension between Iran, the US, and Israel has had on oil. It is too early to tell, however, the events of the last month, though subtle, may turn out to be important turning points in geo-strategic history.

There was the inflammatory article in the New Yorker by Seymour Hersh, the latest in a years-long series, describing nefarious covert activities by the Bush administration in Iran. These activities had been approved by a feckless Democratic leadership in Congress and would serve as preparations for an Air-raid by either Israel or the United States on alleged nuclear/WMD facilities in Iran. This followed months of low-level rhetorical sniping between Iran and Israel. Some of it from a former high-level Israeli official seemed rather belligerent and pointless and was later claimed to be a fabrication. This followed a large Israeli military training exercise over the Mediterranean involving up to 100 fighter-bomber aircraft and said to be a rehearsel for an Attack on Iran. It was held in conjunction with Greece since they are said to have recently acquired the same Surface-to-Air missile systems from the Russians that the Iranians have.

Following this scary run-up in tension was a period where American military commanders in the Gulf responsible for the security of the Straits of Hormuz made statements to the effect that nothing was going to happen. Then there was Israel’s exchange of Hezbollah prisoners for the return of the two bodies of its serviceman, whose capture had in part staterd the 2006 war. Iran then conducted a test firing of medium range missiles. Strangely, French Intelligence determined that a photo showing three missiles had been doctored to show a fourth before the Iranians released it.

Last Monday The New York Times published an editorial by Barack Obama laying out his plan to withdraw most American troops from Iraq within 16 months of taking office. A lot more can and will be said about this. For now, on the negative side, it has been suggested that this is a flip-flop and doesn’t present anything substantially different than his pro-war Republican opposites have put on the table and that it is merely a promise of “intension” to remove the troops rather than necessarily actually removing them.

Not to be outdone, the Bush administration (and ostensibly representing a possible McCain presidency) responded this week by offering its own vague draw-down plan. But more importantly we have Bush sending special envoy William Burns to Iran for negotiations. Could this be the beginning of peace in the Middle East? I wouldn’t count on it. The recent détente has possibly knocked $20 off the selling price of Iranian crude.

This past year has seen the price double again from $75 to almost $150, there are many factors involved in this move and a raging debate over what role speculation in the futures market has to play, but more significantly and concretely global production has been slighly but steadily rising for at least a year. The move is barely noticeable to the untrained eye, but if the trend continues, production for 2008 will be a full 1 mbpd above 2005, widely touted as the year of peak production by several peak-oil luminaries.

[talk more about production here, throw in chart]

I still need to tweak the chart above with some labels and production for the last 3 months, which has risen. The record production I mentioned in July 2006 is not clear here because this is a "crude and condensate" only chart. The record was in something called all liquids.

Speculation – the prediction kind. Murti, Simmons, etc., Russian Exec[find]

Starting earlier this spring with Pickens’ statements that his BP Capital Hedge Fund had made a mistake and was reversing its short positions on oil and gas, an almost hysterical wave of short- and medium-term predictions began to gain momentum. The analyst who garners the most attention, Arun Murti of Goldman Sachs, forecast in aerly March that oil would move between $150 and $200 in the next 6 to 24 months. Matthew Simmons who is famous for betting that oil would average $200 in 2010 upped this target to “$200-$400 in the next 6 months to 4 years.” Around Memorial Day one analyst cried $150 by July 4th. Ironically, Murti, who has been credited with being the most accurate the last 3 years, was horrifically wrong. His last forecast stated that oil would range from about $70 to $105 between 2006 and 2009. Well before that time-frame has elapsed it has already hit $148. (If you want to ignore the upper bound, then why put it there in the first place?)

It seemed that every other news story was about the rising cost of gasoline and pundits who normally don’t go near energy or economic stories were talking about oil. It is a common maxim in the securities markets that when even taxi-drivers and cashiers start talking about stocks, you are at the top and it is time to get out. It wasn’t the actual predictions that were the issue. Most of them are quite believable and will likely prove at least somewhat accurate. It was the frenzied haste in which they were made, just as the price was moving quite quickly through $120, $130, $140, that was almost comical. The instances I’ve listed here are for the most part by people that have a history being bullish on the price, but in the vast majority of cases it was brokerages and analysts who were reversing course and “revising” their forecasts. Undoubtedly, next week many of them will be re-revising their forecasts. Organizations like the EIA and IEA can also be thrown in with this bunch. They just constantly predict and repredict that everything will continue to move the way it is moving now, err…now.

I had recently taken a very close look at the price movements since around 2002 and 2003 when this latest surge began. What I found was that the price of oil was increasing in the long run by an average of about 70 cents per week. Looked at slightly differently it worked out to about 1.25% per week. Yet in the last year for whatever reason and as any graph will show this rate almost doubled and shot straight up. Some took this as a sign of the apocalypse. I thought it might suggest that a pullback was due. Only time will tell.

[added - thanks UR, good call]

The chart above from Net Oil Exports shows two years worth of changes.
An additional 3% change this year in the US would extend that bar by 615,000 bpd.

Demand
Against this backdrop of slightly higher production and weakening geopolitical tension is markedly lower demand in the United States. While not enough to offset potential growing demand in China, India, and some oil-exporting nations in the medium- or long-term. In the short-term it is certainly significant. Gasoline consumption has dropped as much as 1.5% since the beginning of 2008, and total petroleum product consumption has reportedly dropped 3%. It is important to note that the United States accounts for 20% of petroleum demand, so these numbers on a global scale are much more significant than they appear. Whether this decrease in demand is due to the high price or a weak economy is irrelevant. In the next 6 months it will have an effect on price. It may act to lower the price, it may keep the price the same, or keep it from moving higher than it would otherwise, in other words, you might not see it at all – but it will be there. The US uses 5 times as much oil as China. So a 3% drop would have to be met by an increase of 15% in China. That would mean they would need 15% more cars, roads, people, or malls to drive to overnight to accomplish this.

Conclusion
The point of this analysis is not to predict a rapid collapse of the price of oil in the near term. It is simply an effort to lay out known knowns, unknown unknowns, etc. and to lay out an accurate assessment of the fundamentals. It is the possibility of this outcome that is important. It shouldn’t come as a surprise if it happens.

More to come ...

Here's a neat video I just found on PeakOilDebunked:

So when an Oil Man says, offshore drilling & ANWR are not the answers to the oil problem and Peak Oil exists, you are smarter than him and know more about the Energy Crisis we are in now how exactly? That's right this multi-million/billionaire doesn't know as much as you do about economics and is a Socialist trying to destroy Capitalism.

What a waste of 20 years fighting the inevitable reality!

Global oil supplies will grow more slowly than expected over the next five years, the International Energy Agency (IEA) has predicted.

Spare capacity in the world system would fall to "minimal levels" in 2013 amid rising demand from developing countries and supply problems, it said.

As a result the IEA cut its supply forecast by 2.7 million barrels per day (bpd) to 95.33 million bpd.

Oil prices rose to $142 a barrel after the report and amid market concerns.

In recent days, crude oil prices have pushed to record levels near $144, driven by supply concerns and strong demand in the Middle East and Asia.

Market constraints

Rising demand from developing countries and ongoing supply problems would be the main factors limiting capacity, the energy adviser said in its Medium Term Oil Market Report.

"Structural demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture over the medium term," the IEA report said.

The Paris-based group warned that declining output at maturing oilfields, as well as delays and cost overruns at new sites would lead to lower-than-expected growth in supplies.

Waning reserves among the members of oil production cartel Opec likely to add to the problems, the energy watchdog said.

While consumption would rise by an average of 1.6% a year - or 1.5 million bpd on average - until 2013, supply growth would drop to 1 million bpd from 2010.

In the wake of the report, US light sweet crude rose $2.06 to $142.06, while in London, benchmark Brent crude rose $2.41 to $142.24.

Source: http://news.bbc.co.uk/2/hi/business/7483312.stm

... "Growing competition for oil may escalate to something as hot and dangerous as nuclear proliferation"

Writing in response:

NOTHING seems to be pleasing the oil traders. Gordon Brown arguing a case, recently, in front of OPEC countries led to King Abdullah of Saudi Arabia in pumping more oil but, shortly after the price stated rising. On June 24^th. the price of a barrel approached $138. Gordon Brown thinks that pumping more oil will lower the price but, as lectured by George Monbiot in the last few days on Cif, this might not necessarily hold true. The reasons are worth looking at.

Saudi Arabia only offered to boost its production output by 200,000 barrels a day, around 0.2% of the world's current consumption. Worse still, the country's leaders had already told various foreign grandees concerning their plans in the preceding weeks before Brown's visit, so oil traders were instantly looking for more.

The world economic picture for oil is important in the context of this discussion. Although Saudi Arabia's output has risen, it is also known that Nigeria's has fallen. Insurgents, for example, in the country's oil-rich delta region attacked an oil pipeline belonging to Chevron and one belonging to Royal Dutch Shell. Both firms have been forced to cut production. It is believed some 300,000 barrels per day has been lost, totally outweighing Saudi Arabia's gesture.

These types of incidents are placing added pressure on already nervous traders. As we frequently come to hear, the world's demand for oil has been growing much faster than supply in recent years, leaving minimal spare capacity. A small loss of output can lead to a more than exponential increase in price. Oil markets are sensitive: it calculates potential disruptions at every corner - political tensions over Iran, or the impending hurricane season in the Gulf of Mexico. If King Abdullah really wants to deflate the oil markets by helping the world, he could try announcing an increase in output of a few million barrels a day. That would surely have some impact.

SOMETIMES, politicians deserve sympathy. Gordon Brown, for instance, feels a responsibility in doing something about the price of oil, so they cook up all kinds of schemes in demonstrating an eagerness to take action.

However, economically, the sad fact is that oil is one of those world commodities that is inelastic. In a sense, much of what Brown says and attempts to do becomes futile. He cannot fight the market in its purest form. Our dependence on oil is leading most of the west to a situation where virtually nothing but a reduction in demand will affect the price.

Oil might be controversial from a number of different perspectives and, yet, we have to understand that the earth is not limitless. Essentially, there are finite amounts of fossil fuels to which the world has poked the ground with such vigour, and with many straws. The inevitability is that, one day, the earth will be sucked-dry. We hear regularly now of how oil will peak in the near future.

No amount of subsidy, regulation or coddling up to self-serving autocratic regimes will counter the scarcity argument. It's our dependence that needs to change. Current political debates and how they are presented, particularly the fixation on price, I believe is very much misguided and unproductive. Intellectual resources should be steered towards a more sensible and pragmatic debate on how our demand for oil can, and should be reduced.

When Brown purports that North Sea oil is the solution to a difficult problem, his rational is so far off the mark, it's almost laughable with contempt. Government arguments currently being presented are, at best, incomplete. There is the problem, ignored by Government during their protracted screed over oil, which the oil majors themselves are saying poses a serious constraint: there are not enough oil rigs to go around, and it takes a long time for those expensive oil rigs to be built, assuming, that is, that the money is there.

Economic theory suggests, too, that supply and demand has to 'adjust'. However, that doesn't imply that we will necessarily witness a steady decrease in price. It could mean that the Laffer curve has shifted and it is now more profitable in leaving a large number of people behind because, arguably, there are more and better profits to be had from fewer people paying more. Oil is collateral profit, even more so as the oil producers seek to maximise from the remaining supplies. Essentially, this is how an efficient capitalist system works.

Gordon Brown's preponderance over oil merely gives the appearance of action. Offshore drilling, landing a windfall tax on the oil companies or the gas tax holiday, spoken of in certain parts of the world, is all basically the same thing. It doesn't change the amount of supply available, merely adds convoluted argument to a difficult topic of how does the world find a solution to the high energy prices? Greater efficiency and conservation and how our dependence on oil is reduced will, saliently, be important factors in the future.

On price, though, in Britain, meantime, there is much that the British Government could do given the colossal amount of taxes that are paid to the Treasury. These taxes are numerous and wide ranging, on petroleum companies, as well as what we pay at the pumps. An analysis of fuel taxes clearly shows, in some instances, that double-taxes are being applied when, for instance, taxation is being applied firstly on the levels of oil being produced and then again at the pumps for individual consumers. Surely, given the political sensitivities on prices generally, the government would be willing in allowing an element of fiscal freedom for purposes other than political gain from the electorate on fuel tax.

© Mark Dowe 2008: all rights protected

Reference:

"The era of oil wars", by Michael Meacher MP

In Jacksonsville, Florida, Obama criticizes McCain for flip-flopping on lifting offshore drilling restrictions.  McCain joined with George Bush late last week to ask Congress to lift federal restrictions on drilling off the coasts of Florida, California and elsewhere.  Obama notes that it's a gimmick by Bush and McCain's own admission:  it would not lead to any new oil production until 2030.  In addition, the sudden need is questionable when the oil industry has failed to begin exploiting many leased offshore oil reserves that they currently have.  If this were a viable solution, why hasn't the oil industry commercially exploiting every leased offshore reserve it currently has?

Perhaps it's because because the oil industry has no financial incentive to increase supply when the price increases are giving them record profits.  In any event, domestic demand for oil is not the primary cause of the recent spike in oil prices, but rather a combination in increased unregulated speculation via the "Enron exception" is (thanks to the help of UBS lobbyist and McCain adviser, Phil Gramm), the destablizing effect on oil prices caused by Bush's foreign policy adventures in Iraq and current saber rattling about Iran, the reluctance of OPEC to act against its own economic interest by increasing supply, the enormous spike in demand from China, and the Bush Administration's deliberate strategy from the beginning of its first term to rely on oil imports rather than seriously pursue alternative energy sources and policies.

UPDATE:  Obama announces plan to close "Enron Loophole" to reduce oil trade speculation that considered responsible for most of the recent price increase.

UPDATE:  OPEC confirms previously leaked decision to modestly increase production by 200K barrels a day.  Because it was leaked earlier in the week, it had already been factored into the record price per barrel of $140.  In other words, it's a meaningless gesture.

"Can you believe my voters actually believe our crap? Woot!"

• Saudi actions to stabilize prices and production
• A look at a number of factors influencing current prices

Mr. T. Boone Pickens is the multi-billionaire founder of BP Capital, who is principally responsible for the formulation of the energy futures investment strategy of the Energy Fund and the Equity Fund. Mr. Pickens frequently utilizes his wealth of experience in the oil and gas industry in the evaluation of potential equity investments and energy sector themes.    

In discussing oil reserves in multiple interviews for television and print media, Pickens opines, “I do believe you have peaked out at 85 million barrels a day globally" even as demand keeps climbing, helping to drive a stunning surge in prices.  Pickens is one of several Texans who are pushing the Peak Oil theory of oil scarcity into the mainstream. Pickens believes humans will soon use up half the oil they can extract, and oil production rates will drop, never to recover. The controversial theory gives oil investors reason to bid prices to record levels and has prompted some local officials to create contingency plans.

Pickens explained that the United States alone has been using "21 million barrels of the 85 million and producing about 7 of the 21, so if I could take just a minute on this point, the demand is about 86.4 million barrels a day, and when the demand is greater than the supply, the price has to go up until it kills demand." U.S. crude futures have risen by a third since the start of the year and more than six-fold since 2002 as surging demand from China and other developing nations outpaces new production.

At the same time, oil company executives try to assure investors and consumers that there will be plenty of oil for many decades to come, so there's no reason for oil prices to have doubled during the last year. Judging from current prices at the pump, oil traders don't seem to be listening.

Ready to put his money where his mouth is, Pickens made a $2 billion investment in wind energy earlier this year.  Pickens warned that his investment in alternative energy is more than financial in nature.  Pickens warns, “Without alternatives, the cost of foreign oil will drain the United States of more resources.” "In 10 years, we will have exported close to US$10 trillion out of the country if we continue on the same basis we're going now. It is the greatest transfer of wealth in the history of mankind," Pickens warned.   

When one of Texas’s richest oil men bets big on wind energy, it gets everyone’s attention.  In an interview of NPR’s Living on Earth, Mr. Pickens shared some facts about his planned wind project:

• It will be the largest in the world, he reckons, at 4,000 megawatts
• It will provide enough power for 1,300,000 homes
• It’s a $10 billion dollar project from which he plans a 15%-25% profit

When asked why he is investing in wind, Pickens replied:

“For a number of years I’ve watched the wind turbines develop — and I feel like it’s time for it. I think that oil has peaked at 85 million barrels in the world. We’ve got to develop other forms of energy — wind, I think solar will be next, and I hope I’m still around to be in the solar deal.”

When asked what he will do if Congress doesn’t vote to extend the wind Production Tax Credit, Pickens replied, “Well, I think they’ll vote on it. They’ll either do that or they’ll give some kind of carbon credit because, the wind has to be developed in the United States. We’re now importing 72 percent of the oil we use every day. I think everybody can see that we’re gonna break the country if we pay 700 billion dollars a year for, uh, imported oil……I’ve got a good team of people that are knowledgeable in wind energy, and I don’t worry about it. I think it’s a good project, and it’ll do well and we’ll make money. And it’ll help the country.”

Pickens said solar power technology is "almost there," and there could be "corridors" of wind power developed from Texas through the Great Plains and west to California.  I don't know about you, but when this Texas oil man jumps on the alternative energy bandwagon, it means that the end of easily accessible oil reserves is nearing the end in the not too distant future. 

I agree that we are financially and morally bankrupting our country by depending on foreign oil.  Domestic supplies of oil and gas are unlikely to meet our demand without a huge boost from alternative fuels and alternative energy technology.  So, I am jumping on the bandwagon of alternative energy stocks with T-Boone Pickens before it leaves us in the dust and rolling in debt.  

Now, about Pickens buying up those water rights in Texas . . .

This is not rocket science, folks. How the laws of supply and demand affect price has been known for thousands of years, and has not, indeed, cannot change because it IS a law. If you could change it, it wouldn’t be a law.

The current prevailing erroneous theory going around is that high price will cause demand destruction that will, in turn, lower the price. That would be true IF there were a limitless supply of oil, but since there isn’t, it is not true. The truth is that demand destruction will bring supply and demand into balance. That, too, is a law of nature because one cannot sell more than exists (fools being excluded). Demand destruction only destroys the ability to pay, not the desire to possess. Therefore, as long as supply is limited and the ability of people to pay, the price will rise proportionate to supply contraction or demand increase.

Demand Destruction Won't Save Us

It is certainly true that a very sudden demand destruction for fuels may occur due to inability of large numbers to pay. The price would then fall, but when the price falls, the ability to pay again increases thereby driving the price back up again. This is where those who look to demand destruction to bring the price down go wrong. Yes, the price drop will occur, but it will be very temporary.

Since 2005, 85 million barrels per day of oil have been produced but demand has risen to 87 million. Since one can’t sell more than exists, 2 million bpd of demand destruction have already occurred, yet the price keeps going up. Why? Because the ability to pay hasn’t yet been extinguished. Therefore, the price will keep on going up and the predictions of $200 oil won’t be far wrong. Actually, demand destruction doesn’t really occur until use drops below supply. It is very unlikely we’ll see that anytime soon. Eight dollar gasoline is definitely in our near future. THEN we’ll see some serious demand destruction. Then all the SUVs will miraculously disappear. Unfortunately, so will a lot of other economic activity.

As the age of the auto rather quickly dies out, don’t expect to see fuel prices come down. As the US love affair with the personal auto ends, around the world it will continue to grow. While we will drive much less, the rest of the world will drive more until it reaches the point where no one can afford to drive much at all. By that time we’ll either be riding horses and bicycles or golf carts to and from the bus and train stations. Who knows which?

We’ve tried to ignore the laws of nature for too long. Now they’re going to bite us in the ass. Hard.

The investment bank’s oil expert said this week that the oil boom is due to bust. Economic growth across the globe will slow just as new refineries kick in, raising supply.

Recession or not, a U.S. slowdown will slacken demand sharply, right as new oil hits the market. "Supply is outpacing demand growth,” said Michael Waldron, Lehman’s oil strategist.

"Inventories have been building since the beginning of the year. We have pretty significant projects starting soon in Saudi Arabia, and large off-shore fields in Nigeria,” he said.

http://moneynews.newsmax.com/money/archives/st/2008/4/25/175710.cfm?s=al&promo_code=6231-1

Lehman is now predicting prices at $83 a barrel in 2009 and as low as $70 in 2010.

Although some years off, Brazil too has found as much as 8 billion barrels of light oil and gas offshore. The South American giant’s president says his country might well join OPEC when the Tupi field begins to pump, in 2011.

In addition, Middle Eastern sovereign wealth funds have pushed up the oil price by investing billions of their oil gains, ironically, in commodities index funds.

Now they could be looking to get out, warns Waldron. He figures the money effect has driven anywhere from $20 to $30 into the barrel price.

In addition, a weak dollar is holding oil prices high, according to a series of statements from OPEC leaders over the past week.

If you buy the views of OPEC’s various leaders, that’s at least another $20 of oil price that is not supported by the actual supply and demand situation.

In addition, Europe’s central bank seems bent on containing inflation there. A rate increase in Europe is sure to contain the euro’s rise against the dollar — if serious steps are taken soon.

Couple that with a lower-than-expected rate cut in the U.S. next week, or perhaps no cut, and the oil price drops as the dollar gains ground.

All this is having little immediate impact now, of course. U.S. gas prices at the pump hit $3.58 a gallon just as the summer driving season kicks off.

If nothing changes, analysts now expect gas to rise to as high as $4 a gallon in as little as a month.

Texas Gov. Rick Perry (R) also asked for a 50 percent waiver of the RFS.

But will relaxing or freezing the RFS reduce food prices and quickly make more grain available? Will it make more fuel available? Unlikely.

New York Times blogger Mike Nizza gives a run down of the many factors behind the current rise in prices for grains. He includes the usual suspects -- energy prices, droughts and increased demand from growing economies in Asia -- and notes some longer term factors such as trade barriers. Nizza notes that the International Food Policy Research Institute attributes 25 to 30 percent of the global rise in grain prices to biofuels, and the UN Food and Agriculture Organization attributes 10 to 15 percent of the current rise in food prices to biofuels.

Allison Kilkenny of the Huffington Post puts the blame for rising food prices squarely on the rising price of oil:

There are food shortages because oil is nearing $120 a barrel. The necessary evil, oil, is the fuel behind all the food production in the world, so when the price soared over $100 a barrel, the poorest people took the brunt of the shock. In short, they ran out of food.
“Rather than branding biofuels the villain of the food crisis, the blame should be aimed at the persons pricing the oil.”

I’ve noted before that OPEC has not increased production to meet rising demand. It’s also true that oil companies have not expanded refinery capacity to meet demand. According to the Energy Information Administration, in 2006 oil companies planned to expand refinery capacity by 1.5 million barrels per day by 2012; but in 2007 oil companies cut expansion plans to 1 million barrels per day by 2012.

With high oil prices, reserves continue to decline. Economic consulting firm KPMG International polled financial executives from oil and gas companies back in April 2007, indicating then that oil reserves and prices were a problem. 34 percent of those polled said that declining reserves were a “major concern” for the industry, and 60 percent predicted that oil reserves would continue to decline, due to rising demand from emerging markets.

A big question out there is whether OPEC can open the spigots and bring energy supplies in line with demand. Even if they are able to do so, eventually, there remains a question about the ability of U.S. refiners to meet demand.

The need for alternative energy remains. And a few environmentalists still believe the RFS is the right policy for reducing greenhouse gases. See for example Nathanael Greene of the Natural Resources Defense Council: “The RFS just adopted is not perfect, but it is the first biofuels policy to mandate a shift in our production practices in a way that will address these challenges.”

Beyond this, the RFS was also intended to provide new incentives for increased agricultural production. Gordon Quaiattini of the Canadian Renewable Fuels Association points out:

Because of this new market and 21st-century agriculture practices — less fertilizer, less water, drought-resistant grains and increased yields on existing agriculture land — more crops are being planted and harvested, increasing supply at a time when, in the United States at least, a legislative cap actually restricts the amount of corn that can be directed toward ethanol production.”

And Colin A. Carter of the University of California at Davis and Henry I. Miller at Stanford University’s Hoover Institution argue that increased adoption of biotech agriculture can help break the competition between food and fuel.

A medium- and long-term benefit of high commodity prices may be that the governments in poor countries will be able to justify the testing and commercialization of critical gene-spliced food crops such as rice and wheat. Countries like China have this new technology ready to go, and the licensing of gene-spliced rice and wheat will quickly boost yields, and because of better insect, disease and weed control, reduce the costs of production.”

I can go on, citing growing violence in Nigeria, record unanticipated petroleum stock depletion in the US, unexpectedly high oil demand in China – but WWO players already get the point. It's like the World Without Oil scenario is coming true, but slowly, slowly, so as not to wake the frog dozing uneasily in its overwarm bath.