Casualties of Peak Oil

Just a few months ago, we were told the world was running out of oil.

We had to change our lifestyle and get rid if our gas-guzzling SUV’s now. Anyone not doing so was evil. Smart Cars for all.

Now it seems there’s too much oil, and our good friends at OPEC are scrambling to cut production for the first time in years.

The market has greeted the news of this reduced oil supply by pushing prices down further. Crude has fallen to almost $60.

Now we learn the truth behind “peak oil”.

It wasn’t that the peak oil story wasn’t true. It was the moon shot to $147 that took on a life of its own.

The environmental groups and media told us (with a straight face) that the doubling in oil prices from 2007 to 2008 was a result of our demand - and the shortage of oil - not market speculators.

We’ve been told that Saudi Arabia, the world’s largest producer, is at peak sustainable volume. And they will run out of oil in the not so distant future. ACT NOW!

It’s now safe to say that oil has peaked and the bubble has burst.

With oil prices are falling despite OPEC’s production cuts suggests that demand is falling even faster than OPEC can reduce the supply.

I filled up my SUV yesterday and it cost only $65 at the new inflated gas price (we should only be paying around 75 cents/litre, not 99 cents - saving me another $20).

Now the causality is domestic automobile manufacturers…

The Big Three auto manufacturers are faced with a certain death caused by the run-up in the price of oil and having their products deemed evil. They could have reacted long ago by building cars that matched the market - and they should have stopped building the vehicles no one wants. But that would have meant massive layoffs.

They now need billions just to fill their cash burn needs - combined it is around $15 billion each month.

Throwing money at them won’t solve their problems - they have become socialized institutions.

The only way to fix their problem is to let them go - or have all three merge into one. We don’t need three companies all building crap on our dime. One would do just fine.

It would force them adjust to the market realities, and make the painful transition now so they compete with the rest of the industry.

It may even force to make a product almost as good as Hyundai.

Bailing them out now just means we are extending the inevitable, and making their collapse even larger than it is now.

photo credit: Here in Van Nuys