Letter Re: Rethinking Global Oil Reserves

Michael Z. Williamson is correct that folk don’t think about all the uses of oil in the products we buy. The sustainability of our growing population is dependent upon massive amounts of oil used in pesticides and fertilizers in order to obtain spectacularly large crop yields per acre, not to mention the harvesting, transportation, and transportation of food. Shortages of oil could have a severe impact on food production, and last year even the “moderately high” price of fuel caused a few farmers to not be able to harvest their crops.
One problem with the oil picture is that not all sources disclose or accurately portray their reserves. The Saudis have said for a while that they will increase production but in fact their recent production has decreased as they pulverize their fields with water injection. Their new ratios of heavy crude to light crude are also not encouraging. Commodity prices, particularly steel, are rising enough (partially due to Asian demand) that constructing new rigs /platforms and refineries is prohibitively expensive. The Saudis recently contracted for three oil rigs to be transferred from our gulf to their area. The internationally tight supply of drilling equipment plus unpredictable hurricanes and now recent quake activity in our gulf will likely be negative factors
The statistics of where the oil is derived from are not by themselves terribly relevant to proving why we went to war. For the explanation of why we went to war I find Mike Ruppert’s Crossing the Rubicon illuminating. The critical factor for us is that very small shortages are sufficient to cause economic upheaval in a culture that depends on Just in Time (JIT) service delivery and has most of it’s citizens profoundly dependent upon their vocational specialization. To create a crisis, oil supplies don’t need to have leveled out or decrease as in Peak oil theory, but rather if increases in demand eclipse the supply available (which may or not be increasing) that will do the trick. Demand is soaring in some parts of the world. Some of the more difficult to reach oil fields are reported to be viable when prices are high enough, but realistic production responses(drilling new fields) to shortages can be years away. Pricing dynamics are irrelevant if the BTUs required to extract the oil meet or exceed that drilled from the ground, which is an issue for some fields. Pricing does however play a role in conservation via demand destruction, which describes how higher oil prices reduce demand. Demand destruction also cools off the economy as folk spend less, which further reduces demand for oil. We may be seeing some of that now. The other factor to keep in mind is that most oil sources are politically unstable, and many don’t especially respect the U.S. Best to keep a flexible mindset, enjoy the golden age of oil while you can, and be prepared for the unexpected. – B.F.