In case you haven’t seen the commercials, Daimler A.G. (a.k.a. Chrysler LLC, a.k.a. DaimlerChrysler prior to the Cerberus group purchase last year) has recently launched a promotional campaign in which, in exchange for buying or leasing a new car (see Marc’s earlier post for the environmental cost of doing so), Chrysler promises to pay the difference in price if gas exceeds $2.99 per gallon.
I think it’s fairly obvious why I tie this marketing scheme to the exploitation of ‘peak oil’ fears. Such a promotion treats the peak oil theory as a foregone conclusion, with Chrysler as the consumer’s saviour in a world where oil prices inevitably rise. So what’s the problem here?
See this report from Wednesday on how peak oil fears are driving up the price of long-term oil futures contracts. While there are substantial differences between the oil market and the collapse of the subprime market, a parallel exists: investors are betting on price inflation, long-term in the case of the oil market, as a means of enhancing today’s portfolios. This may be the point of the futures market, but it needs to be highlighted that the benefit of a substantially lower price of oil becomes nil to all but the biggest risk-takers (who are betting against the trend) in such a scenario. The short-term prospects are, of course, pretty much the same. In other words, Chrysler and most investors are banking on the price of oil not dropping below $2.99 a gallon. If the price does fall, those futures contracts become unsound. The price may actually be above or below $140, but $140 is indeed the standard.
The question follows: how is the price of oil kept up? Dave Emory, while not contending the basic peak oil thesis, is pretty obsessed with the idea that peak oil exploitation, like most other economic winds, has ties to the Underground Reich and the Bormann capital network, mainly based on an 1929 agreement between I.G. Farben and Standard Oil in which the rights to a synthetic oil process were divided. This is basically the “They have the solution, but will keep milking the oil cow” argument, but it’s fascinating to see how far back peak oil exploitation goes and how the fears keep getting recycled. A quote from an article from Liberty:
“In 1920, the United States Geological Survey officially estimated that the U.S. had just 6.7 billion barrels of oil left, including undiscovered oil fields. Eighty-two years later, the U.S. had produced 180 billion barrels of oil and still had 22 billion barrels of proven reserves. The USGS’s 1920 estimate was off by a mere 2900%.”
And, of course, there’s always flat-out lying done by ‘independent’ NGOs that are financially backed by the Bush administration to pursue an anti-Chavez agenda.
Mainly, the confusion itself generated by the peak oil theory basically turns it into a self-fulfilling prophecy. Do we have enough? Have we hit it? This is the line of reasoning that Chrysler’s ad campaign buys into, and it benefits no one but the oil industry.
On that note, check out this Dilbert cartoon:
Marc B
Brad L
There are a couple extra issues at play here, one is the regular incentives that all car companies give to buyers. Chrysler would give you the gas deal or low financing. To the company the deals are financially the same. It’s just a different way to present it to the consumer.
Second, the peak oil hypothesis, as presented by the Princeton geologist Hubbard, has significant evidence behind it, and has accurately predicted the peak production of mature oil fields like Texas. The issue is when it is taken too far, and turned into a religion, and blown out of proportion. Also, in predicting that oil prices will remain stable and supplies will increase, the EIA [ http://www.eia.doe.gov/emeu/international/contents.html ] and DOE also often contradict themselves in the reports that they release. Like they will assume that OPEC will continue to pump more oil while also assuming very low price elasticity.
Third, there is ravenous demand from developing economies that, while probably not justification for the current price of oil at about $135, has probably forever pushed oil from a buyers to a sellers market.
And also, while there is evidence that the current price is a bubble, it does not have all the classic signs associated with one, like the 2000 tech stock bubble.
http://www.nytimes.com/2008/05/21/business/21oil.html?em&ex=1211688000&en=91b9b007fb2865ed&ei=5087
There are certainly other issues that raise oil prices besides peak oil fears, but I’d argue that promotions like Chrysler’s (which is definitely more loaded than a simple reduced lease offer) undeniably muddy the waters. Add this to the conflicting reports that you mention above and to the facts that many of Hubbard’s hypotheses have proven unreliable, that Saudi oil production is shrouded in secrecy, that independent watch-dogs like the ones mentioned above are political tools, that fear of a rapid decline in oil production has been continually exploited over the past century, etc. etc., and it seems like no one really has a clue. As such, things rapidly get out of hand, and a window is provided for the oil industry to set the agenda.
Somehow i missed the point. Probably lost in translation
Anyway … nice blog to visit.
cheers, Art